A sale of goods contract sets out the
terms and conditions of a transaction between the buyer and seller for the
products, services, or works; the contract should clearly define the following:
- The buyer.
- The seller.
- A description of the products, services, or works.
- Any terms specific to the contract.
- Payment terms.
- Delivery of the products, services, or works.
- Guarantees and warranties.
A valid sales contract has many aspects
and considerations, including two parties agreeing to terms and conditions and
signing the contract. It has constituent parts, which, if any are missing, may
render the contract invalid and incapable of enforcement.
A contract is an exchange of a promise
or an act between two or more parties that involves one or a group of parties
offering a consideration of value to another party or group of parties as
payment for products, services or works. An example may be a Property Lease
that forms a contract between a landlord and a tenant, in which the tenant pays
the landlord rent in exchange for the use of the property.
For a contract to be valid, it must
include the elements of Offer and Acceptance. An offer occurs when one party
presents a consideration of value they wish to exchange for products, services,
or works that also have value.
Acceptance within a contract is an
essential element that ensures contracts are only formed by being acknowledged,
agreed upon, and accepted. However, acceptance does not need to be said or
written to be conveyed, as it can be determined through conduct.
For example, an offer to cut someone’s
grass for £25.00 that is cut without a verbal acceptance of the agreement means
that the action has signified acceptance of the agreement, making the charge of
£25.00 payable upon the completion of the grass cutting.
The consideration within a contract is
essentially the benefit or value that both parties receive in performing the
agreement, which is often a financial value in exchange for the products,
services, or works.
Consideration can be money, but a
service, an object, or anything of value, such as a right, interest, or
benefit. Past consideration or value is typically invalid when two parties form
a contract.
During the formation of a contract,
there must at some point be mutuality or the intention to form a contract,
which means the parties involved must intend to create a valid, enforceable
contract. Within business transactions, it is often understood that the
relevant parties expect to be bound to the contract, giving rise to the
paradigm known as the “battle of the forms”.
A battle of the forms occurs when two
parties negotiate the terms of a contract. Each party wants the contract to be
formed based on their terms and conditions, taking precedence.
For example, when the buyer offers to
buy goods from the seller on the buyer’s standard contract terms, and the
seller purports to accept the offer based on the seller’s standard terms.
Within this situation, the battle of the
forms is often won by the party whose terms and conditions were accepted, the
last party to put forward terms and conditions that the other party did not
explicitly reject.
By putting their contract in writing,
the parties intending to enter into a binding contract can avoid uncertainty
surrounding the intention to form a valid contract; in the above example, the
buyer could have created a written contract of sale with the seller, which
would have demonstrated the buyer’s intention regarding the contract.
Not all parties are eligible to form a
contract, as there must be capacity to create one. This means that the parties
must have the legal ability to sign the contract. The capacity may involve a
party's mental capacity, indicating the ability to understand the contents of
the contract.
This precludes individuals with
cognitive impairments or who are incapacitated through other means from being
able to agree to a contract. Capacity can also refer to someone’s ineligibility
through age, bankruptcy, or past or current criminal activities.
International sales contracts are the
riskiest contracts, as little is often known about the buyer. Currency, tariff,
insurance, and title risks must be considered, especially concerning bills of
lading, upon which monies are usually borrowed. The buyer invariably requires
possession to release the goods from the port.
Globalising the world’s economy has made
it easier for domestic and international organisations to trade products and
services across the globe. With the advent of worldwide logistics, e-commerce,
and more accessible language translation, global marketplaces have been opened
to businesses of all sizes. The disadvantages and commercial risks of
conducting trade on a worldwide basis are:
- Shipping, Customs, and Duties.
- Exchange Rates.
- Language Barriers.
- Cultural Differences.
- Servicing Customers.
- Returning Products.
- Intellectual Property Theft.
Exchange rate risks affect an
organisation’s profitability as their volatility can reduce profitability.
Exposure can occur in three ways:
- Transactional: time-related in terms of exchange
rate volatility between ordering and payment for goods and services.
- Translational: in terms of financial resources
held in foreign subsidiaries.
- Economic or Operating: in terms of future exchange rates
affecting the valuation of cash flows and capital.
The fundamental types of exchange rate
policy are:
- Fixed: Exchange rates are fixed or
allowed to fluctuate within narrow margins against a nation’s currency
value, either in terms of gold, another currency, or a basket of
currencies.
- Freely Floating: A freely floating exchange rate
is freely determined by market forces without intervention.
- Pegged: Exchange rates are “pegged”
against a nation’s currency value, either in terms of gold, another
currency, or a basket of currencies.
- Managed Float: The nation’s fiscal policy
influences the exchange rate, which is loosely controlled by the nation’s
central bank intervention.
Governments have three primary means to
restrict trade:
- Quota: A system imposing restrictions on
the specific number of goods imported into a country allows governments to
control the number of imports to help protect domestic industries.
- Tariffs: These increase the price that
consumers pay for imported goods and services in line with the fees
charged by domestic producers.
- Subsidies: These are given to assist
domestic industries in competing with foreign markets to increase their
competitiveness by influencing the pricing of domestic markets.
The danger of supporting domestic
industries through tariffs and subsidies is that prices can increase, market
choices are reduced, environmental issues are not considered, and the
production of products and services is vested in the least efficient organisations.
Governments must ensure their country’s
wealth by promoting the use of local resources, in which they can be the most
competitive. They must also use training, local market development, and
research to increase the financial stability of the trading environment, negate
any harmful effects caused to the environment through global warming, and
decrease their carbon footprint. Free Trade Agreements must be encouraged
to harmonise the legal standards of international trade to minimise its
inherent risks and harm to the environment.
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