Features of the conclusion of a foreign trade contract

When concluding a foreign trade agreement, the following features should be taken into account: 

A foreign trade contract must be concluded in a simple written form. The civil code of the Russian Federation in Art. 161 obliges to sign the contract in simple written form if the contract is concluded between legal entities. 

The contract must be signed by authorized persons who are entitled to enter into the contract on behalf and at the expense of the legal entity. The contract is certified by the seal of the legal entity. In order to avoid possible disagreements, each page of the agreement should be initialed from the text of the agreement. 

Terms of foreign trade agreement 

According to Art. 432, the contract is concluded if an agreement was reached between the parties on all the essential terms of the contract. The legislation under the essential conditions provides for the terms and conditions of the subject of the contract, the conditions that are named in the law or other legal acts as essential or necessary for contracts of this type, as well as all those conditions on which an agreement must be reached at the request of one of the parties.

In the foreign trade contract of sale, the parties may determine the following essential conditions: 

- the subject of the contract
- delivery term
- payment term
- quality of goods 
- packaging and marking of goods 
- acceptance of goods 
- examination of goods
- transfer of ownership of the goods 
- warranty period for the goods 
- applicable law and dispute resolution, etc. 

We will touch upon each of the conditions of the foreign trade agreement:

Subject of contract

This condition contains the name or description of the transferred goods. The condition may also refer to an Annex or specification that specifies the goods to be transferred to the buyer in the case where it would not be reasonable to list them in the contract itself. 

Delivery term 

Terms of delivery are generally determined in accordance with international rules for the interpretation of trade terms INCOTERMS 2010. These rules help the parties to the contract to avoid disagreements related to the terms of delivery of the goods, as they regulate all the necessary stages of the transfer of goods, such as the conclusion of the contract of carriage and insurance, delivery of the goods, the transfer of risks, notification of delivery, distribution of costs, inspection of packaging, etc.

Payment terms and price of goods 

Parties can choose any form of payment for the goods, such as partial or full prepayment. Payment terms are usually based on the length of the relationship between the partners. The parties wish to insure against possible violations of the timely payment of the contract. It may also provide for payment of goods on the basis of a letter of credit or collection. This method, however, increases the cost of delivery, as the Bank charges a fee for opening a letter of credit. The price of the goods can be specified directly in the contract or in the specification/Annex. 

Quality of goods 

The quality of the goods must comply with the norms of the buyer's country. Usually, the seller gives the buyer quality certificates for the goods, which confirm the conformity of the goods to the norms of the buyer's country. The obligation to certify the goods usually lies with the seller, but the contract should specify the party responsible for certification. 

Packaging and labeling 

The seller is obliged to deliver the goods properly Packed and marked. There are packaging and labeling requirements for certain types of goods or products that the seller must comply with. The seller is responsible for the improper quality of the packaging of the goods, in case of damage. 

Acceptance of goods 

The buyer must accept the goods and notify the seller of the acceptance of the goods, and in the case of improper quality or quantity of the goods immediately notify the seller. The legislation does not establish a specific period for notification of defects in the goods, so we recommend to determine such a period directly in the contract.

Examination of goods

This condition is related to the condition of goods acceptance. The parties shall determine an independent expert in case of disputes over the defects of the goods. This may be experts of the chamber of Commerce or other independent organization. 

Transfer of ownership of the goods

The parties to the contract can determine the time of transfer of ownership of the goods, for example, from the moment of payment for the goods. According to Art. 223 of the civil code of the Russian Federation, the right of ownership of the thing arises from the moment of its transfer, unless otherwise provided by the contract. If the contract provides otherwise, the buyer shall not be entitled to dispose of the goods until the contract provides for the transfer of ownership. 

Warranty period

The seller or manufacturer of the goods sets a warranty period for the goods, during which the buyer of the goods has the right to contact him in case of damage to the goods due to its improper quality. 

Applicable law and dispute resolution

This condition is important in the foreign trade contract, since the parties to the contract are in different States and due to the specifics of national law and trade customs, can interpret the terms of the contract differently. In order to avoid possible misunderstandings, we recommend to establish the law of which country will be applied to the contract. This may be the law of the country of the seller or the buyer, as well as of a third country. 

In addition, the contract must determine the judicial authority that has the right to resolve possible disputes under the contract, as well as the place of court. The parties have the right to choose, in addition to state courts (arbitration), an arbitration court in a different state than the state of the parties to the contract.

It should be noted that Russia does not have an agreement with all States on the mutual recognition of court decisions, therefore, if the decision is made in a country with which Russia does not have an agreement, the dispute can be considered by the court on the merits.

ESC Consulting LLC, 2019