Contract of Sale
A contract of sale is a legal vehicle that binds a Seller and a Buyer in international trade. It is an important document as without it, it is difficult to make an agreement of sale, binding and therefore enforceable. A sales contract clearly defines the roles and responsibilities of a Seller and a Buyer in international trade, as below:
- It ensures that the goods conform to the specifications as required by the Buyer(s).
- It sets rules for the price basis (e.g. whether the price includes transportation and insurance costs).
- It indicates how and when payment is to be made by the Buyer (e.g. documentary credit).
- It indicates the place of delivery (whether at the doorstep or without clearing customs, among others).
- It indicates when the risk of damage/loss during transport transfers from the Seller to the Buyer.
Therefore a sales contract is required for the following reasons:
- It resolves problems related to transportation.
- It indicates the date for the delivery of goods.
- It sets rules for price and payment.
- It states the payment method.
- It sets out the place and the principles of delivery (goods are to conform to specifications and must not be damaged).
- It indicates who arranges the insurance.
The Buyer and Seller of the goods are the main players in a sales contract. However to complete the sales contract, goods have to be delivered to the final destination in good condition. Towards this end a Seller and/or a Buyer make agreements with a charterer, a carrier, an insurer and a freight forwarder for the delivery and transport of the goods.
The services of a carrier are required to transport goods to their final destination. The contract of engaging a carrier to transport goods by a Seller and/or a Buyer in international trade is called a charter party (contract to employ a vessel to transport goods). The market where this contract is negotiated is the freight market (or where a Seller buys space to transport goods).