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.

Preparing the contract:

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.
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.

CH 2
DOCUMENTARY CREDIT

1( Application of UCP
The 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.

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.

Confirmation means a definite undertaking of the

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

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 PAYING
BANK
DRAWEE

THE
BUYER OR
IMPORTER

G
C

THE
OPENING
BANK
ISSUING

(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 banks
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 determined 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.