INTERNATIONAL SALES CONTRACT

LEARNING OBJECTIVES:

• To define and explain the scope and need of Sales Contract in international trade.
• To explain the implication of each clause of the contract in export import operations.
• To explain the risks and responsibilities associated with each clause and their meaning.
• To understand the difference between international and country specific contract laws
LEARNING MATERIAL:
INTRODUCTION:
Trade whether national or international is fraught with risks. Risks may arise due to default either by
the exporter or importer. In international trade, there are primarily two contracts. the first contract is the
Sales contract based on which contract of carriage with the carrier is formulated.
These risks may be associated with default of payment, default of performance of the goods or delivery
defaults. Contracts may have a number of clauses indicating the responsibilities of the seller and the
buyer. Sales contract in our context are mainly international sales contract. It is executed between the
exporter and importer and has a number of conditions as decided mutually. These conditions are said
to be the rights of the parties in the instance of failure of performance at any end and also the obligations
of the contract. Sales contract assist in quick and efficient settlement of disputes between the two parties.
A contract is formed when an offer is given. The offer may be accepted, rejected or a counter offer may
be provided for seeking modifications. An offer once accepted has to become a contract.

LEGALITY OF THE CONTRACT:

An international sales contract can take various forms like proforma invoice, purchase order, letter of
credit or a simple exchange of details. Contracts may be verbal, written or construed. Every country has
its own contract act and sale of goods act which in combination assist in risk free dispute free trade. At
the international level, there is a law given by UN called as Convention for International Sale of Goods
which has been ratified by over 85 countries. This act is a combination of uniform law on international
formation of contracts and uniform law on international sale of goods. This is also commonly referred
to as Vienna Convention which came into force in 1988.

DISPUTE SETTLEMENT:

There can be a number of disputes that arise when the exporter and importer interact with each other.
The main reason for disputes is generally the quality of goods. In international trade, the exporter
receives payment before the importer gets time for inspecting the goods. The importer can check the
quality of goods only after the documents are retired. Other reasons for disputes are delay in shipment
or non-shipment of goods due to changes in regulations or conditions of the market. There are two ways
of settling disputes involved in international trade. Arbitration and Litigation are the most commonly
methods used for reaching specific decisions.

The main limitations involved in the Litigation process are:

i. The process of settling disputes through courts is slow

ii. There is a requirement of evidence for reaching conclusions in International Trade.

iii. Court Cases cause inconvenience to the parties due to lag in date of hearings and timings of court.

iv. Litigation ay lead to deterioration of public image

v. It hampers further trade relationships between the parties

vi. The involvement of a number of trade laws leads to a complex situation

On the other hand, there are a number of advantages for arbitration as compared to litigation. These are:

i. Arbitration is quicker than litigation. It is completed in small intervals of time.

 ii. It is comparatively cheaper than Litigation. The fees for arbitration is around 2 percent of the claim
value or even less than that.

iii. It also promotes goodwill of the parties involved.

iv.The privacy of the parties involved in the process is maintain and hence the image is not tarnished.

CONTENTS OF THE CONTRACT:

Main issues that a contract addresses is the risk of loss of goods in transit or damage of goods, bearing
of cost involved in movement of goods and the place as well as mode of settlement of disputes. The
contract has to be designed giving immense importance to each and every clause of it.
In order to enter into a sales contract the following points need to be covered in the contract:

i. Name and address of the Exporter

ii. Name and address of the Importer
iii. Description of Goods
iv. Quality
v. Price of the goods
vi. Total value of the consignment
vii. Currency of invoice
viii. Taxes and Charges
ix. Packing Details
x. Marking and labelling
xi. Mode of transport
xii. Place and schedule of delivery
xiii. Insurance
xiv. Inspection
xv. Mode of Payment
xvi. Documents required
xvii. Passing of risk and property
xviii. Liquidated Damage Clauses
xix. Export-Import License if required
xx. Force Majeure i.e. act of war or God which are out of the control of the exporter and importer
xxi. Dispute Settlement procedure
xxii. Jurisdiction

Summary

A Sales Contract is the most important document as it is the basis for the processing of other documents
involved. This contract is the result of various negotiations and contains a number of terms and
conditions related to payment, incoterms, price, value, transfer of risk, port of discharge and
destinations, involvement of banks. Inspection and certification, labelling and marking, mode of
transportation etc. The clauses in an export order are subject to legal provisions and any default or
breach of these clauses leads to disputes which can be settled either through arbitration or litigation.
The place of jurisdiction of the contract should also be preferably decided.
Suggested Reading:
 International Trade Operations by Dr. Ram Singh; Excel Books; New Delhi 2009
 Export Management; P.K. Khurana; Galgotia Publications
Learning Outcomes: Application of Knowledge

Case-Let 1: Ms. Namita is an exporter of brassware from Moradabad, UP offers to her buyer is located
in London, United Kingdom to supply 10,000 pieces of a specific brass item. The buyer accepts the
offer but later refuses to enter into a contract. Explain the dispute settlement decision.

Case- Let 2: A public-sector enterprise in India exports iron ore to Malaysia. Enumerate the terms of
the contract which can be negotiated between the two parties.

Case Let- 3:
Mr. Camlin imports machinery from China and presented a counter offer to the sellers with respect to
dispute to be settled in China. The seller was not willing to make changes. Explain the next steps before
entering into a contract ensuring risk coverage for both the parties.
Review of Learning Outcomes:
1. The reader is able to understand the various clauses of the contract used in export import operations.

2. The reader is able to interpret which type of damage clauses should be adopted.

3. The reader is able to choose which dispute settlement mechanism may be adopted.