Overview
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Learning Points
- What is a Sales Contract?
- Types of Contracts
- Key Clauses
- Key Considerations
- Vienna Sales Convention
What is a Sales Contract?
A Sales Contract is a written agreement between a seller and a buyer that outlines the terms and conditions of a sale.
In international trade, issues can easily arise due to variations in laws between countries and differences in business practices. That’s why a written sales contract documenting the agreed-upon terms by both parties is crucial.
Types of Sales Contracts
Here are the three primary forms of sales contracts.
- Sales Contract
- Master Agreement + Individual Sales Contracts
- Using Purchase Orders or Order Forms as a Sales Contract
(1) Sales Contract
The most basic form is entering into a Sales Contract solely.
For example, if a Japanese company has contracted for a new high-speed rail project overseas. Such projects will typically take a minimum of five to six years.
Not only goods but also engineers are dispatched, and there are various concerns such as:
- How to handle disputes or accidents if they occur
- Who will be responsible for force majeure events?
- What is the maximum compensation limit in the event of damages?
All these considerations are covered in the sales contract. Sales contracts are prepared for the smooth progress of a transaction.
(2) Master Agreement + Individual Sales Contracts
This is the way primary trading conditions are agreed (Master Agreement) in advance, and a separate contract is made for each transaction or project. (Individual Sales Contract).
・Master Agreement: Establishes general terms and conditions
・Individual Sales Contract: Customizes agreement for specific transactions based on the Master Agreement
(3) Using a P/O or O/N as Sales Contracts
In general, a formal sales contract is prepared in sales transactions. However, preparing contracts often takes time.
That’s why purchase orders or order notes are frequently utilized as sales contracts, particularly in trade transactions. This is employed under the following conditions:
- For small, one-time transactions
- Situations where little concern is given to damages
- Urgent shipping
This type of contract serves the following roles upon the signatures of both the seller and buyer:
- Notifying the specifics of the order
- Serving as a general contract necessary for typical transactions
Features
In the following chapter, let’s check what content is typically included in purchase orders and order notes type contracts.
Front Side Clauses
The front side serves as a purchase order, detailing transaction specifics such as:
- Specific order details
- Incoterms
- Payment terms
- Shipment deadlines and delivery schedules
- Details of the trading partner and agreed-upon signatures
Reverse-Side Clauses
The back side includes general clauses applicable to all transactions, covering details such as:
- Dealing with Increased Costs
- Payment Terms (What to Do if the Importer Doesn’t Pay)
- Strict Adherence to Shipping Dates and Dealing with Delays
- Insurance Amounts and PL Insurance
- Ensuring Exporter’s Responsibility and Importer’s Rights
- Handling Claims (Disclaimer)
- Patents, Trademarks, etc.
- Force Majeure
- Countermeasures for Contract Non-Performance
- Rights in the Contract, such as Non-Assignment
- Arbitration in Case of Disputes
- Applicable Law (Governing Law)
・The front side specifies transaction details
・The back side states general trade clauses applied to all transactions
Notes
In the reverse-side clauses, terms tend to be advantageous to the preparing company. People may sometimes overlook important details, particularly if they have had a history of successful transactions.
Key Considerations
1) Dealing with Increased Costs
In trade, importers’ burden may be increased due to the following reasons:
- Increased shipping costs
- Exchange rate fluctuations
- Price increases due to the change in social conditions
However, the general clause may say, “the exporter does not bear any additional costs in the transaction.”
Consider the potential types of additional costs, and negotiate with the exporter before signing the contract.
2) Deadline for Submitting Claims (Complaints)
A deadline for accepting claims is specified in the sales contract.
Likely, the claim will not be accepted once the stated deadline has passed. Check the limit and ensure your cargo is in good condition until then.
3) Force Majeure Clauses
Natural disasters, wars, or events might be beyond the contractor’s control.
The contract usually contains a provision that stipulates, “If the contract becomes impossible to fulfill, both parties will be released from their obligations.”
“Force Majeure” is a vague term, but in principle, the contractor is not responsible for a Force Majeure Event, and the resulting damage is considered an exemption.
4) Governing Law
In the applicable law section, the following is indicated:
- Under which law this contract is made
- Under which law judiciary proceedings will be conducted
An overseas trial could put the foreign company at a disadvantage, so it’s important to review those clauses carefully.
Vienna Sales Convention
If you’re involved in trade, you should remember this treaty.
In international trade transactions, especially in cases where the contract terms are not explicitly specified, the Vienna Sales Convention, signed by over 90 countries, is applicable.
The convention automatically applies if both parties are signatories to the Vienna Convention.
If you want to avoid the application of this treaty, it is necessary to state within the sales contract explicitly:
“Certain provisions or the entire Vienna Convention can be excluded, reduced, modified, or not applied.”
Summary
Today, we covered various types and contents of a sales contract. Contracts are prepared to avoid disputes.
Even when dealing with companies you’ve worked with before, always review the terms carefully whenever you enter into a new contract.
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