A contract is a legal document which forms the basis of a transaction between the Buyer and the Seller, specifies the rights and obligations of the parties and guarantees that these obligations will be fulfilled. By law contracts are made in writing.
TYPES OF BUSINESS CONTRACTS
1. Contracts for the supply of goods:
a) sale of goods;
b) exchange and barter;
c) work and materials;
d) supply of goods on credit.
2. Contracts for financial services:
a) banking contracts;
b) insurance contracts.
3. Employment contracts.
4. Contracts of agency.
5. Hire contracts.
1. The most common form of transaction in the business world is a contract for the sale of goods, which is defined as "a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price."
Another way in which you can acquire goods is in consequence of a contract which main purpose is the provision of services. If you take your car to be serviced by a garage, the main substance of the contract is the skill and labour of the mechanic in checking the car.
2. Banks provide a wide range of financial services to the commercial customers from current accounts, loan and overdraft facilities, and to specialist services for those involved in foreign trade. The relationship between a bank and its customers are contractual.
A prudent businessman will always assess the risks that might befall his business: he may fall ill; his premises may be destroyed by fire or his stock stolen. These risks may be minimized by insurance. A contract of insurance is an agreement whereby an insurance company undertakes to compensate a person, called the insured, if the risk insured against does in fact occur.
3. There are two ways in which a person's services may be acquired. He may be engaged either as an employee under a contract of service or as an independent contractor under a contract for services. An employee provides his labour for his employer in return for wages. The employer exercises control over the way in which an employee carries out his work.A self-employed person is engaged under a contract for services. He is an independent contractor, agreeing to do work or provide services as and when he wishes.
4. An agent is someone who is employed by a principal to make contracts on his behalf with third parties. An employee who makes contracts on behalf of his employer is acting as an agent. A shop assistant, for example, is in this category. Alternatively, an agent may be an independent contractor who is engaged for his specialist skills and knowledge. A person who wishes to sell shares will usually employ the services of a stockbroker to arrange the sale for him. Agents are given a number of names: the most common being "broker» or «representative".
5. Under a hire agreement, the owner of goods allows someone else (the hirer) to make use of them in return for regular rental payment. The hirer obtains possession of the goods but ownership never passes to him and at the end of the agreement the goods must be returned to the owner. Businessmen also take advantage of hire as a method of obtaining the use of equipment which they require. Hire in this context is usually referred to as "leasing" and often includes an undertaking by the lessor to service the equipment regularly and effect repairs when necessary.
General clauses of contracts.
Commercial contracts usually have the following general clauses arranged in a logical order:
1) definitions of the parties;
2) subject of contract;
3) price and total value of the contract;
4) delivery dates and terms;
6) packing and marking:
12) other conditions.
13) legal addresses of the parties
If the subject of contract is machines or equipment then contracts can include other topics such as Guarantee, Inspection and Test, Technical Specifications and Supplementary Documentation. They are usually given in supplements which are an integral part of contracts.
1. Definition of the parties. The text of contract begins with a preamble in which juridical names of the parties making a contract are given, e.g.
Contract ¹ 68 14 October, 1996
Tobacco Corporation, USA, hereinafter referred to as "Sellers", on the one side, and V/O "Rossimport", Moscow, hereinafter referred to as "Buyers", on the other side, have concluded the present Contract as follows:
2. Subject of the Contract
In this part, the type of bargain is defined. In practice, quality and quantity of goods and basic terms are included in this part or in the supplement to which there's a reference, e.g. The Sellers have sold and the Buyers have bought cigarettes as per Supplement ¹1 attached to the contract. The goods are to be delivered by the Sellers to Moscow, Final Consignee Warehouse. The quality of cigarettes to be delivered should correspond to that of the samples approved and confirmed by both parties. The quality of cigarettes must be confirmed by a Quality Certificate issued by the Seller or the factory manufacturer.
3. Price and Total Value of the Contract
The price of goods is an amount of money in a definite currency that the buyer pays the seller for goods. In accordance with the contract, prices are fixed in the currency of one of the counteragent countries or in the currency of a third country.
e.g. The price as it is indicated in Supplement ¹1 is fixed in US dollars and includes export packing for shipment and delivery, marking, loading, transportation to Moscow, Final Consignee Warehouse. The total amount of the present Contract is US $ 964,900.
Time of delivery -periods or dates during which goods are to be delivered by Sellers into countries or geographic areas agreed upon in the contract.
e.g. The delivery of cigarettes under the present Contract shall be effected for the dates stipulated by Supplement ¹1 to the present Contract. The date of arrival of the truck (II) to Final Consignee Warehouse will be considered as the date of delivery.
Terms of Delivery
e.g. The delivery of the goods is to be effected on CIF terms to the address stipulated in Supplement ¹1 to the present Contract for V/O "Rossimport".
Within 24 hours, excluding weekends and holidays after the shipment of the cigarettes, the Sellers will inform the Buyers by cable of the following:
1) contract ¹;
2) truck number;
3) voyage date;
4) truck way Bill ¹;
5) cigarette brand;
7) gross weight of the goods;
8) value of the goods.
This clause of commercial contracts of sale contains terms of payment agreed upon by the parties. Payment can be done in several ways, but usually it is either bank transfers or Letters of Credit (L/C).
e.g. Payment for the goods to be delivered under the present Contract is to be effected in US dollars in accordance with the Trade Agreement between the Government of Russia and the USA dated 28.03.1991 by an irrevocable confirmed Letter of Credit (L/C) to be opened by the Buyers with the Bank for Foreign Trade of Russia, Moscow, in favour of the Seller within 10 days upon receipt of the Sellers' notification of the readiness of the goods for shipment. The L/C is to be valid for 60 days.
The payment of the Credit is to be made against the following documents:
1) Invoice in triplicate;
2) Bill of Lading;
3) Insurance Policy.
All expenses connected with the opening of the Letter of Credit are to be borne by the Buyers.
Packing and Marking
The general rule in all packing is to make goods secure for the kind of journey they have to make, but also to keep package as small and light as possible.
e.g. Packing in which the cigarettes are shipped must secure full safety of the goods and protect them from damage during transportation by all means of transport and transshipment en route as well as to protect the goods from atmospheric effects. The face side of each carton box shall be marked with indelible paint, as follows:
Sellers1 and Buyers' names;
brand and quality of cigarettes;
gross and net weight.
The boxes, individual packing of goods as well as articles must bear no marks or symbols which have no relation to the object of the present Contract.
e.g. In case of shortage while packing or in case of nonconformity of the quality of the goods to the samples, the Buyers have the right to claim on the Sellers within 180 days on the arrival of the goods to Russia. The Parties agreed that the Inspection Report drawn up by the Chamber of Commerce and Industry, Russia, Moscow, will prove the claim.
The Sellers are to examine the claim within 15 days. Should the Sellers fail to send a reply on expiration of the said period, the claim will be considered as admitted by the Sellers and its sum deducted from the 3 % sum.
While claiming for an inferior quality of the goods the Buyers return the faulty goods to the Sellers with deduction of 10 % penalty of the returned goods.
The cost of the defective goods or shortage while packing, being intact, penalty and also transport charges are deducted by the Buyer from the 3% sum. In case the sum of 3% proves to be insufficient to cover the claim and penalty, the Sellers are to remit the balance due to the Buyers within 15 days from the date of receipt of the claim.
All transport and other charges connected with delivery and return of defective goods are to be paid by the Sellers.
e.g. In case of a non-delivery of the goods in respect of firm of delivery fixed in the Contract, the Sellers must pay to the Buyers a fine of 0.1% of the value of the goods in delay per day of delay. If the delay exceeds 30 days, the charging of the fine is stopped and additionally to the sum of the fine the Sellers must pay the Buyers a penalty of 2% of the value of the goods in delay.
The payment of the fine does not release the Sellers from the obligation to deliver the goods in delay. If the delay in shipment is caused because of delays in the vessel's arrival dates then there will be no sanctions against the Sellers. In the case of delivering of defective goods, the Sellers pay the Buyers an additional 2% fine of the value of the goods admitted defective to the payment of the claim value. Besides, the Buyers shall have the right to return the defective goods on the Sellers' account.
The Sellers shall pay the Buyers a fine of 1 % of the value of the goods in respect to which there were Infringements:
a) the goods have been shipped In packing and/or with marking not meeting the Contract terms or conditions;
b) the assortment of goods is incorrect.
The payment of the fine does not release the Sellers from Compensating the Buyers for the losses the latter has sustained due-to the Sellers' non-observance of the above mentioned Terms and Conditions of the Contract.
All sensible businessmen now insure goods for the full value in order to obtain indemnity in case of damage or loss. Insurance is against such risk as fire, damage by water or breakage.
e.g. Insurance should be done with a first class insurance company by the Sellers and for their own account upon such terms that the Buyers should be entitled to claim directly from the insurance company and provide the Buyers with an Insurance Policy or other evidence of insurance covering door-to-door terms against usual risks including damages caused by breakage, theft of whole package or parts, and non-delivery of whole packages in the cases mentioned above irrespective of the percentage of damage. Insurance should be done on the total amount of the goods plus 10%.
Every contract contains a Force-Majeure clause. Force-majeure is a force against which you cannot act or fight: natural disasters such as an earthquake, flood and fire; war, embargo and other sanctions.
e.g. The Parties are released from their responsibility for partial or complete non-execution of their obligations should they be caused by the force-majeure circumstances including, but not limited to: fire, flood, earthquake, and if these circumstances have had a direct damaging effect on the execution of the present Contract. The Party which is unable to fulfill its obligations is to inform the other Party within 10 days from the beginning of force-majeure circumstances.
e.g. The Seller and the Buyer will take all possible measures to settle amicably any disputes or differences which may arise out of the present Contract or in connection with it. If the Parties do not come to an agreement, all the disputes are to be submitted for Arbitration in Stockholm, Sweden, in accordance with the rules and regulations of the Chamber of Commerce.
e.g. Any changes or supplements to the terms and conditions of this Contract shall be valid only in a written document duly signed by authorized representatives of both Parties.
The Contract becomes effective and comes into full force from the date of signing.