7 basic terms in the order contract that you must know about

By justchinait
December 7, 2020

An international sales contract for goods is an agreement between parties in different countries to buy and sell certain products. It is the basis for the parties to perform their agreed obligations; it is also the basis for remedy and dispute settlement in the event of a breach of contract. For this reason, a valid international goods sales contract must have the necessary content. Otherwise, it will cause difficulties for the parties to perform their obligations, remedy breaches of the agreement, or deal with disputes. Generally speaking, an international sales contract for goods should include the following seven essential contents:

Ⅰ. Quality clause

Quality Clause

The quality of goods (Quality of Goods) refers to integrating the intrinsic quality and appearance of the products. The former includes the physical properties, mechanical properties, chemical composition, and biological characteristics of the products; the latter consists of the appearance, color, style, or transparency of the products.

The essential content of the quality clause is the name, grade, standard, specification, trademark, or brand of the traded commodity.

1. Express the quality in kind: Including the actual quality and samples of the traded goods.

(1). Look at spot transactions.

When the buyer and seller use the spot transaction, the buyer or his agent usually inspects the goods when the seller stores the goods. Once the deal is reached, the seller shall deliver the goods according to the other side’s inspection. As long as the seller delivers the goods that have been inspected, the buyer shall not object to the quality. This practice is mostly used in consignment, auction, and exhibition business.

(2). Deal with samples

A sample usually refers to a small number of physical objects drawn from a batch of commodities or designed and processed by the production and user departments, reflecting and representing the quality of the entire quantity of products.

In international trade, according to different sample providers, it can be divided into the following types:

a. Seller’s Sample

b. Buyer’s Sample

c. Counter Sample, also known as “confirmation sample”.

2. Demonstrate quality with instructions

The so-called indication of quality refers to the use of words, charts, photos, etc. to explain the quality of the goods. In this type of quality representation method, it can be subdivided into the following models:

(1). Sale by Specification

(2). Sale by Grade

(3). Sale by Standard

(4). Sale by Descriptions and Illustrations

(5). Trade with Trade Mark or Brand Mark

(6). Trading with the name of origin (Name of Origin).

Quality Latitude refers to the agreement between the parties to the transaction that allows the seller to deliver a quality slightly different from the quality required by the contract. As long as it does not exceed the range of flexibility, the buyer has no right to reject it.

Quality tolerance (Quality Tolerance) refers to the error of product quality stipulated by international business organizations or recognized by the same industry in various countries.

The price increase or decrease clause for quality depends on the quality clause. It is the provision for the seller to adjust the price of the goods when the quality of the goods delivered by the seller differs from the requirements of the quality clause in the contract.

Ⅱ. Quantity clause

Quantity Clause

The essential content of the quantity clause is to specify the quantity to be delivered and the unit of measurement used. If the goods are calculated by weight, calculating the load must be defined, such as gross weight, net weight, total weight, metric weight, etc.

Units and methods of measurement of the number of goods

1. Determine the unit of measurement according to the variety

Different commodities in international trade require different measurement units. The following are commonly used:

(1) By weight: grams, kilograms, metric tons, long tons, short tons, pounds, carats

(2) According to the number: pieces, doubles, sets, hits, rolls, orders, rolls

(3) According to a length: meters, feet, yards

(4) By area: square meters, square feet, square yards

(5) By volume: cubic meters, cubic feet, cubic yards

(6) By size: liters, gallons, quarters

2. Differences in measurement units due to different measurement systems in various countries

Due to the different weights and measures systems of different countries in the world, the quantity expressed by the same unit of measurement is different. In international trade, the metric system (The Metric System), the British system (The Britain System), the American system (The U.S. System) and the International System of Units (The International of Unit) promulgated by the International Organization for Standards and Metrology based on the metric system are usually adopted. According to the “Measurement Law of the People’s Republic of China,” “The country adopts the International System of Units. The International System of Units of measurement and other measurement units selected by the country is the national legal measurement units.” At present, it is generally not allowed to reuse it except in some specialized fields Non-statutory unit of measurement. In addition to the metric, imperial or U.S. system of measurement agreed upon in consideration of the other country’s trade customs, my country’s customary measurement units shall be used for my country’s export commodities. The machinery, equipment, and instruments imported from my country should use legal measurement units upon request. Otherwise, imports are generally not allowed. If there are special needs, they must also be approved by the relevant standard measurement management department.

The above-mentioned different measurement systems lead to differences in the quantities expressed by the same unit of measurement. For example, in terms of tons of weight, countries that implement the metric system generally use metric tons, and each metric ton is 1,000 kg; countries that implement the imperial system use long tons, and each long ton is I016 kg; countries that implement the U.S. system use short tons, each The short ton is 907 kg. Besides, some states also stipulate their customary or legal measurement units for certain commodities.

Method of calculating weight:

In international trade, there are many commodities measured by weight. According to general business practices, there are usually the following methods to calculate weight:

1.Gross Weight

Gross weight refers to the importance of the product itself plus the weight of the packaging. This weighing method is generally applicable to low-value commodities.

2. Net Weight

Net weight refers to the importance of the product itself, that is, the actual weight after removing the packaging. Net weight is the most common method of weighing in international trade. However, some low-value agricultural products or other commodities are sometimes considered by the “Gross for Net” method.

When using the net weight to calculate the weight, there are the following international practices on how to calculate the package weight:

(1) Calculate according to actual tare weight (Actual Tare or Real Tare);

(2) Calculated according to the average tare weight (Average Tare);

(3) Calculate according to Customary Tare;

(4) Calculated according to the Computed Weight.

3.Conditioned Weight

Some commodities, such as cotton, wool, raw silk, etc, are relatively hygroscopic. The moisture contained in them is greatly affected by the external environment, and their weight is also volatile. To accurately calculate the importance of such commodities, it is usually calculated by metric in the world. The calculation method is based on the clean weight of the merchandise (that is, the pressure after the moisture of the commodity is dried) plus the product of the internationally agreed condensation regain and the clean weight. The weight is the metric.

4. Theoretical Weight

For some commodities produced and traded according to fixed specifications, as long as their weights are the same, or the importance of each piece is roughly the same, the total amount can generally be calculated from the number of pieces.

5. Legal Weight and Net Weight

According to some countries’ customs laws, when specific taxes are imposed, the weight of commodities is calculated based on the legal burden. The so-called legal weight is the importance of the product plus the packaging materials that directly contact the product, such as sales packaging. The weight of the pure product, excluding this part of the weight, is called the net physical weight.

The relevant provisions of the number clause

To facilitate the contract’s performance and avoid disputes, the quantity clauses in the import and export contracts should be clear and specific. Generally, it is not suitable to use flexible words such as “about,” “approximate,” “around” (About, Circa, Approximate).

More or Less, Clause (More or Less Clause) means that the contract’s quantity clause stipulates that the delivery quantity can be increased or decreased, but the increase or decrease shall not exceed the prescribed percentage.

Ⅲ. Packing Clause

Commodity packaging is the continuation of commodity production. Only through packaging can the production process be completed for commodities that need to be packaged, and the products can enter the circulation and consumption fields and realize the use-value and value of the commodities. This is because the packaging is an important measure to protect the sound quality and the complete quantity of products in the circulation process. Some commodities cannot even be separated from packaging at all. It becomes an inseparable unity with packaging.

Properly packaged commodities are convenient for transportation, loading, unloading, handling, storage, custody, inventory, display, and carrying, but also not easy to be lost or stolen, which provides convenience for all aspects.

In the current situation of fierce competition in the international market, many countries regard improving packaging as one of the essential means to strengthen foreign competition. Because good packaging can not only protect the goods but also promote and beautify the products, increase the value of the goods, attract customers, expand the sales channels, increase the price, and to a certain extent, show the technological, cultural, and artistic level of the exporting country.

According to the different functions of packaging in the circulation process, it can be divided into two types: transportation packaging (ie, outer packaging) and sales packaging (ie, inner packaging). The primary function of the former is to protect goods and prevent damage to goods. The latter not only protects the goods but also has the purpose of promotion.

Neutral Packing refers to packaging that neither indicates the country of production, place name, and manufacturer’s name, nor does it indicate a trademark or brand, that is to say, there is no mark of origin and exporter on the inside and outside of the packaging of exported goods. . Neutral packaging includes unlicensed neutral packaging and custom-branded neutral packaging. The former means that the packaging has neither the country of production, the manufacturer’s name, nor the trademark or brand; the latter means that the buyer Trademark or brand only specifies the packaging but without the country of production and the name of the manufacturer.

The use of neutral packaging breaks the tariff and non-tariff barriers of certain importing countries and regions and meets the unique needs of transactions (such as re-export sales, etc.). It is a means for manufacturers in exporting countries to strengthen external competition and expand exports.

O.E.M. refers to the seller marking the buyer’s designated trademark or brand on the goods or packaging required by the buyer. This practice is called O.E.M. production.

At present, supermarkets, major department stores and specialty stores in many countries in the world must mark the products or packages with the trademark or brand used by the store on the products they sell to expand the visibility of the store and display the products. Worth. Exporters in many countries are also willing to accept custom-brand production to use the buyer’s business ability, commercial reputation, and brand reputation to increase the price of goods and expand sales.

Packing Clause (Packing Clause) mainly includes the way of packaging goods, materials, packaging costs, and transportation signs.

The signs on the transport package can be divided into three types according to their purpose:

1. Transport sign. The transport sign is also called the mark. It is usually composed of a simple geometric figure and some letters, numbers, and simple text. Its function is to make the goods easily recognized by the relevant personnel during the process of loading, unloading, transportation, and storage—error-proof delivery and shipment.

The main contents include-(1) the code of the consignee; (2) the code of the shipper; (3) the name of the destination port (place); (4) the number and batch number. In addition, some transportation marks also include the origin, contract number, permit number, volume, and weight, etc. The content of the transportation mark is complicated and simple, and the buyer and the seller shall agree on the characteristics and specific requirements of the goods.

2. Indicative signs remind people of matters that need to be paid attention to in loading, unloading, transportation, and storage. They are generally marked on the packaging with eye-catching and straightforward graphics and words, so some people call them attention signs.

3. Warning signs are also called dangerous goods packaging signs. All hazardous goods such as explosives, flammable, toxic substances, corrosives, oxidizers, and radioactive materials must be marked on the transport package to show warnings and facilitate loading and unloading. Transport and storage personnel take corresponding protective measures according to the characteristics of the goods to protect the safety of materials and persons.

Ⅳ. Price Clause

The price clause is composed of unit price (Unit Price) and total value (Amount). The unit price includes four items: measurement unit, unit price amount, pricing currency, and price terms.

Example: US$100 per metric ton C.I.F. New York

The price term is a specialized term for price conditions, that is, a short English word or abbreviated English letter is used to indicate the price composition of the commodity, the procedures that the buyer and the seller should go through, the costs and risks that they bear, and the boundaries of the transfer of ownership of the goods.

We only introduce the two most commonly used price terms here.

(1) F.O.B. (Free On Board… named port of shipment)

Delivery on board at the port of shipment means that the seller loads the goods on the vessel designated by the buyer at the designated port of shipment within the time limit specified in the contract, and bears all costs and risks before the goods are loaded onto the ship and cross the ship’s rail.

Seller’s liability under F.O.B.

(a) Within the date or time limit stipulated in the contract, deliver the goods to the vessel designated by the buyer at the designated port of shipment in the customary manner of the port, and give the buyer sufficient notice that the goods have been shipped.

(b) To bear all costs and all risks of loss or damage to the cargo until the cargo passes the ship’s rail when it is loaded at the designated port of shipment.

(c) At your own risk and expense, obtain an export license or other official approval documents, and go through all customs procedures necessary for the export of goods.

(d) Provide relevant shipping documents or equivalent electronic data.

Buyer responsibility under F.O.B.

(a) Charter a ship, book a space, pay the freight, and give the seller sufficient notice of the ship’s name, place of loading and required delivery time.

(b) To bear all costs and risks of loss or damage to the cargo when the cargo has crossed the ship’s rail at the shipment’s designated port.

(c) Apply for insurance and pay insurance premiums.

(d) At your own risk and expense, obtain import licenses or other official approval documents, and go through all customs procedures necessary to import goods and transit through another country.

(2) C.I.F. (Cost.Insurance and Freight… named port of destination)

Cost, insurance, and freight.

The destination’s designated port means that the seller is responsible for chartering the ship and booking space, transporting the goods from the agreed port of shipment to the port of destination according to the contract, and going through the insurance procedures and paying the insurance premium and freight. The seller bears all costs and risks until the goods are loaded on the ship over the ship’s rail.

Seller’s liability under C.I.F.

(a) Responsible for chartering and booking space, chartering, and booking space at the port of shipment stipulated in the contract and within the specified time limit, transacting the arrangement of transportation to load the goods on board and pay the freight to the destination port. Notify the buyer after shipment.

(b) To bear all costs and risks before the goods are loaded on the ship.

(c) Apply for insurance and pay insurance premiums.

(d) Responsible for handling export procedures and providing certificates issued by the government or relevant parties of the exporting country.

(e) Provide relevant shipping documents.

Buyer responsibility under C.I.F.

(a) Bear all costs and risks after the goods are loaded on the ship.

(b) Accept the consistent freight and insurance documents provided by the seller, and pay the goods according to the contract.

(c) Handle the receipt and import procedures at the port of destination.

Ⅴ. Payment terms

Payment terms under the remittance method

When using the remittance method, the time of payment, the specific purpose of remittance, and the amount of consignment should be specified in the contract.

Payment terms under the collection method

When using the collection method, the terms, and purposes of the presentation, the buyer’s payment or acceptance responsibilities, and the payment period should be clearly specified in the sales contract.

Payment terms under the letter of credit

When using the letter of credit, the beneficiary, the issuing bank, the time of issuance, the type, amount, validity period, and expiration place of the letter of credit should be specified in the contract.

Ⅵ. breach of contract

Objection and claim clause

The main content of this clause is that one party breaches the contract, and the other party has the right to file a claim. This is the basic premise of the request. Also, it includes the basis for the application and the time limit for the claim. The claimed basis mainly stipulates the necessary evidence and the issuing agency for the request. If the evidence provided is insufficient, incomplete, or unclear, or the issuing agency does not consent to the other party, the other party may refuse to pay compensation.

Penalty clause

This clause mainly stipulates that when one party breaches the contract, a certain amount of agreed fines shall be paid to the other party to make up for the other party’s losses. The penalty is liquidated damages by its nature.

Ⅶ. Force Majeure Clause

This clause is an exemption clause. Force majeure means that after the contract is signed, it is not due to the negligence or negligence of the parties, but due to the occurrence of accidents that the parties cannot foresee, unavoidable and unpreventable so that the contract cannot be performed or cannot be performed as scheduled, and the contract has suffered accidents. One party can be exempted from the obligation to perform the contract or postpone the contract’s performance, and the other party has no right to claim damages.

The following conditions must be met to constitute force majeure:

1. It happens after the contract is concluded and before the contract is fulfilled, and it cannot be foreseen by the parties when the contract is concluded.

2. It is not caused by the negligence or negligence of any party; that is, it is not caused by the party’s subjective reasons.

3. It is beyond the control of both parties; that is, this kind of event is unforeseen, unavoidable, and unpreventable.

Therefore, everything that people can foresee but not foresee, and can prevent or control through hard work, is not a force majeure event.

The contents of the force majeure clause include:

1. Scope of force majeure accidents: usually can be divided into two categories. One is caused by natural forces, such as earthquakes, tsunamis, typhoons, blizzards, fires, droughts, floods, etc.; the other is caused by social forces, such as wars, strikes, and government bans.

2. The legal consequences of force majeure are mainly manifested in the following aspects: termination of the contract, exemption of part of the responsibility, and delay in the performance of the contract.

3. The obligations of a party who is unable to perform the contract due to force majeure events include the requirement of timely notification and the responsibility to provide proof.

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