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 agreement 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 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. The offer is set out in the contract terms, which another party must accept for the contract to become valid or enforceable after an offer is presented. It can be accepted or declined. Acceptance means that the proposed offer was accepted.
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 may also be 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 are forming 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 form a contract, meaning that the parties 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 form of contract, 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 or flexible 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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