CH1

INTERNATIONAL TRADE CONTRACTS

Definition the contract : International trade contract is a legal agreement between two or more

parties with the intention of creating a legal relationship.

This legal agreement creates legally binding obligations between or among

the parties.

The contract must fulfill the following requirements.

An offer

An acceptance

The contractual capacity of the parties

A consideration on something of value

A legally binding relationship.

Definition the contract :

An offer is a promise by one party (the Offeror)

to do something if the other party (the Offeree)

either performs an act or promises to do or not

to do something.

Acceptance takes place when the offeree agrees

to do what was requested in the offer.

The parties should have the legal and mental

ability to enter into binding contracts.

As a general rule the contract must be in writing.

This provides the best document that proves the obligations and rights of both parties.

The contract also exactly determines:-The specs of goods imported or exported, -The terms of payments and delivery, -The other details of the transaction.

Preparing the contract:

Once you defined the included or excluded items of the transaction, you can begin to draft the various items of the contract.

Preparing the contract:

Due to different legal systems all over the world, the parties should define the Applicable law and the place of disputes settlement.

The most popular clauses in Trade contracts: Buyers and seller details. Product description and specifications Quantity Country of Origin Price & Delivery terms (FOB, CFR,...etc) Insurance coverage Payment terms and relevant documents Shipment time Packing Inspection Penalty & premium clause if any Special Conditions Force Majuro Arbitration and governing law. Termination Clause Transfer of title of the goods

Contract templates

1) International Commercial Sale of Goods

This Model Contract contains the rules for an international sales contract, i.e.: 1)The main rights and obligations of the Parties,

2)The remedies for breach of contract by the Buyer;

3)the remedies for breach of contract by the Seller;

4)The general rules that apply equally to both parties.

5)The clauses broadly accepted in international commercial contracts.

Contract templates

The Model Contract can be divided into 4 parts: 

1) Rules on the Goods: Delivery, price, payment conditions and documents to be provided.  

2) The remedies of the Seller in case of nonpayment at the agreed time; the remedies of the Buyer in case of non-delivery of goods at the agreed time, lack of conformity of goods, transfer of property and legal defects. 

3) Rules on avoidance of contract and damages− grounds for avoidance of contract, avoidance procedure, effects of avoidance in general, as well as rules on restitution, damages and mitigation of harm.  

4) Standard provisions.

DOCUMENTARY CREDIT

CH 2

1( Application of UCPThe Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600.(“UCP”) are rules that apply to any documentary credit

2) Definitions Credit means any arrangement, however

named or described, that is irrevocable and constitutes a definite undertaking of the issuing bank to honor a complying presentation.

Advising bank means the bank that advises the credit at the request of the issuing bank.

Applicant means the party on whose request the credit is issued.

Beneficiary means the party in whose favor the credit is issued.

Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honors or negotiate a complying presentation.

 Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice.

Honour means:

a. to pay at sight if the credit is available by sight payment.

b. to incur a deferred payment undertaking and pay at maturity.

c. to accept a bill of exchange (“draft”) drawn by the beneficiary and pay at maturity .

Issuing bank means the bank that issues a credit at the request of an applicant or on its own behalf.

Nominated bank means the bank with which the credit is available or any bank in the case of a credit available with any bank.

 Presentation means either the act of delivering

documents under a credit to the issuing bank or nominated bank or the documents so delivered.

PRIME PARTIES TO (LC):•The Buyer (Importer) who opens the LC

•The opening bank (issuing), The bank who issues the LC at the buyers request and according to his instructions.

•The paying bank (the drawee) It is the bank on which the drafts or the bills of exchange are to be drown under the credit.

•The paying bank might act as the advising, Negotiating, confirming banks. This is depending on its responsibilities.

•The seller (exporter), The seller is the party to whom the credit is issued.

THE SELLER OR EXPORTER

THE OPENING

BANKISSUING

H BFE

G

C

ATHE

BUYER OR IMPORTER

THE PAYING BANK

DRAWEE

(2) CONFIRMED VS. ADVISED

A crucial aspect of the letter of credit is either confirmed or advised by a second bank, which in either case is usually a bank in the country of the seller.

Confirmation means that the confirming bank adds his guarantee to the letter of credit.

If the letter of credit is advised, the advising bank clearly states that it is acting as an advising bank.

The advising bank will review the documents and verify that they are in order, but this bank’s future role depends on its relationship with the issuing bank and other elements of the credit.

So, the advising bank will not pay until funds are transferred from the foreign bank.

(3) TRANSFERABLE LETTER OF CREDIT

The right to transfer a letter of credit to a second beneficiary can be very useful. It permits to transfer the proceeds of the letter of credit in total or in part to any other party, who may be the supplier to the exporter.

STUDENTS should notice that the transferable letter of credit can be transferred only on the terms and condition specified in the original credit, with the exception of the amount of the credit and the period of validity.

TYPES OF CREDITS

(1) SIGHT VS. ACCEPTANCE •All Credits must clearly indicate whether they are available by sight payment, by deferred payment, by acceptance or by negotiation.

•At sight, meaning that the exporter is paid as soon as the paying bank has deter mined that all documents are in order according to the letter of credit and funds are available or transmitted.

•If the buyer has asked for extended terms, the letter of credit will, be an acceptance credit. The acceptance time is usually in 30 days increments up to 180 days.