The closeness of a foreign sales contract in Binh Minh Household Joint Stock Company

ACKNOWLEDGEMENT To some extent, I can say for sure that this thesis is the end of my long journey to obtain my degree in the National Economics University. In this journey, I did not travel alone, but my advisor, teachers, colleagues, parents and friends have been always by my side to give me lots of precious support. In other words, this report would not have been possible without ongoing guidance and support provided by them during the last time. From the bottom of my heart, I would like to thank my advisor Pham Phuong Lan who has been directly responsible for guiding my performance devotedly. Special thanks are for teachers of the faculty who have been willing to contribute their time and efforts to this report by providing necessary information and advice for my preparation. In addition, I would like to give my sincere obligation to my temporary colleagues in Binh Minh Household Joint Stock Company for their dedication and enthusiasm to help me with data collection and professional skill. They somewhat gave me numerous opportunities to be exposed to real practice. My appreciations are also extended to Dr. Nguyen Hong Hai - Deputy Head of International Payment Subject, and M.A Tran Nguyen Hop Chau – Lecturer of Finance Faculty, Banking Academy of Vietnam, for their devotion to me during the short-term course related to import-export operation. By the way, I also wish to express my obligation to Mrs. Vu Thanh Van for the time when I worked as a collaborator for VinatranzPro translation office. She gave me various chances of sharpening my knowledge of sale contract that somehow made me come to a decision to challenge myself in such field.

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sale services (warranty) to customers. It can be seen that the Company has shown a great self-control in its business, especially in such a market-oriented economy at present. Again, it creates a lot of precious opportunities for the Company, but poses numerous challenges at the same time. For this reason, the Company should bear in mind researching market, especially niche market, and improving management instruments and organization apparatus in conformity with its scale, functions and obligations for the best performance. 1.3 Organization Structure 1.3.1. Organization structure The Company’s management structure is subject to a direct mechanism, it means that there is only one chief officer, and other staffs will pertain to different functional divisions. Diagram 1: - Organization structure of Binh Minh Household Joint Stock Company DIRECTORS BOARD Chairman of Management Board cum Director Deputy Director Chief Accountant DEPARTMENTS Accounting & Finance Department Sales Department Import-Export Department 1.3.2. Functions and obligations of department, divisions * Directors Board: - Chairman of Management Board cum Director is the top leader who is responsible for managing all operations of the Company. - Deputy Director is in charge of assisting and controlling tasks entrusted by General Director, and acting in the capacity of a Director whenever authorized. - Chief Accountant cum Head of Accounting Department takes over accounting and statistic operations, and consult Director financial operations of the Company. * Departments: Accounting & Finance Department: takes responsibility for directly recording accounting manuals, dealing with figures in relation to imported and exported goods and inventory in conformity with the regulations, supporting Director to manage activities relating finance and monetary. Sales Department: directly makes schedules for different orders, and sign contract with both domestic and foreign counterparts, conduct promotion programs, work out sales plans, and carry out market research. Import-Export Department: Based on orders delivered by Sales Department, it makes orders to the suppliers, and engages in signing foreign contracts, works with customs agencies, appoints people to conduct the import and enters transactions with foreign counterparts. 1.4 Company’s counterparts 1.4.1 Suppliers * ZHEJIANG TIANXI INDUSTRY GROUP CO.,LTD  No.7 Baoan Road, Huzhen Town, Jinyun County, Zhejiang, China  Tel: +86578-3559996    Fax: +86578-3156000 Zhejiang Tianxi Industry Group co., Ltd. is a key enterprise specialized in production of pressure-lid type explosion-proof pressure cookers, non-stick cookware pots and aluminum wares of complete series. It boasts production bases of aluminum ware and materials and advanced equipment. Based on its powerful economic and technical strength, and scientific and perfect management system, the company was appointed in 1999 one of the five large enterprises  responsible for drafting out the"2000 national standard of pressure coolers" and passed the authentications of CE and GS safe quality and ISO9001 quality system, Seizing the opportunity of the reform, it has established stable business relationship with over 20 regions and countries such as Europe ,South America, Middle East ,Japan etc, with numerous trading partners and market channels. Its products are gaining popularity for its elaborate workmanship. * MIDEA CONSUMER & INDUSTRIAL GROUP Beijiao Town,Shunde District, Foshan City Guangdong Province, China Tel: +86-757-26605280 Fax: +86-757-26339469 Midea Group is a comprehensive and modern business conglomeration that engages mainly in the industry of household appliances, as well as the domains of real estate and logistics. The group is also one of the largest manufacturing and exportation bases of electric appliances in China. Major products by Midea Group include household and commercial air-conditioners, large central air-conditioners, electric fans, electric cookers, refrigerators, microwave ovens, water dispensers, washing machines, electric heaters, dishwashers, induction cookers, water heaters, cooking stoves, sterilizers, electric chafing pots, electric ovens, vacuum cleaners, and small electric appliances, as well as related products such as compressors, motors, magnetrons, transformers, and enameled wires. 1.4.2 Existing customers In order to obtain optimal revenue, the Company has adopted both methods of retailing and wholesaling nationwide. Consequently, its products have been distributed various supermarket systems and agents mentioned hereunder: Fivimart supermarket system Marko supermarket system Intimex supermarket system Big C supermarket system Metro supermarket system Hapro Mart supermarket system …. Agents in Provinces such as: Hanoi, Nam Dinh, Thanh Hoa, Ninh Binh, Hai Phong, Thai Nguyen, Hung Yen, Bac Ninh, etc. 1.5 Features of Company’s revenue It can be clearly seen that Company’s revenue comes from different sources, including revenue from sales of goods, revenue from financial operation, and other incomes. Of which, revenue from financial operation mainly stems from: deductions for advance payments, commercial discounts, etc. Therefore, revenue from financial operation is much smaller than gross profit from sales of goods. Deductible items of the Company are comprised of: sale returns, sale discounts offered to the customers. At present, the Company’s Charter Capital is: VND 1.6 Mode of transactions with Suppliers and potential risks As mentioned above, the two main Suppliers of the Company come from China. Accordingly, its transactions with Suppliers are characterized by foreign sales contracts in writing by fax, email, or skype. So far, the Company has entered various contracts with counterparts and it is deemed as a manner in which the Company can make orders to manufacturers effectively and lawfully. To some extent, most contracts are based on the reliability amongst parties involved that somehow helps avoid several trivial procedures. Nevertheless, such conduct also reveals highly potential risks for both parties in case of any disputes arising along. As such, the Company in general and the Import-Export Department which is directly in charge of import operations in particular should pay due attention to the work of drafting contracts. In other words, it is necessary to terms and conditions included in such agreements to ensure successful transactions for mutual benefits. CHAPTER 2: LITERATURE REVIEW 2.1 Basic knowledge of foreign sales contract 2.1.1 Definition of foreign sales contract A foreign sales contract is a legal contract an exchange of goods, services or property to be exchanged from seller (or vendor) to buyer (or purchaser) for an agreed upon value in money (or money equivalent) paid or the promise to pay same. It involves at least two countries which represent separate Parties entering the contract. 2.1.2. Characteristics & role of foreign sales contract Role of foreign sales contract Business contracts are legally binding written agreements between two or more parties. They are an important part of business and such agreements need to be created and/or reviewed carefully. While smaller companies often conduct business based on informal handshake agreements or unspoken understandings, the more that is at stake, the more essential it is to have a signed contract. A contract serves as a guide and a memorial of the agreement that must be followed by both parties. Characteristics of foreign sales contract Basically, a foreign sales contract shares much common with a domestic one. However, there are also some points by which we can be aware of differences between them. Amongst the others, we hereby intend to refer three distinguished characteristics as follows: Objects of the contract: include Seller and Buyer from at least two different countries. Nevertheless, it is noted that the factor of nationality shall not make non-sense in case the Buyer and Seller have different nationalities but their trading is conducted in only one territory or country. Type of currency: can be a foreign currency to one or both Parties. Goods – under the contract: shall be delivered from the Seller’s country to the Buyer’s country or somewhere else required by the Buyer. 2.1.3. Contract Content In reality, a contract is a rather self-determined business document. In other words, the parties can make contract with provisions in their sole discretion; Of course, such provisions must be agreed by both Parties to become the binding ones. Despite this fact, it is possible to divide them into three separate categories as mentioned hereunder: Key provisions: These provisions are deemed to form integral parts of a contract. They are constituted of six provisions as follows: - Commodity - Quantity - Quality and specifications - Term of price - Term of delivery - Term of payment Common provisions: In addition to the aforementioned provisions, depending on real situations and requirements of both Seller and Buyer, a contract may cover some other terms such as: - Packing and Marking - Warranty - Inspection and Claim - Penalty - Force Majeure - Arbitration Free provisions: These provisions, to some extent, are not compulsory ones. However, they can contribute to increase the closeness of the contract. To put in another way, such terms together with those aforesaid ones help minimize any dispute arising between the Buyer and Seller during their transactions. They may be provisions in relation to amendment, notice, contract termination, etc. Generally, owing to freedom of sales contracts, based on the real context and mutual agreement, involved Parties can draft provisions in the support themselves. By carefully drafting “reasonable” terms, Parties shall be relieved from potential risks and disputes that can act as a basis for a long-term business relationship. 2.2. How to draft precise contract provisions It can be said that you will not able to cover every gap and fill all loopholes in your contract provisions. Also, you can not make a perfect contract. However, it is reasonable to draft it as clearly as you possibly can. The illustrative clauses hereby are intended to give you some practice in finding ambiguities and tightening up phrases. 2.2.1 Effective date: The contract or agreement should have a date stated as the contract date or effective date. This date is not necessarily the date when the contract was signed but rather the date from which all the contractual rights and obligations begin and from which point any term of time, usually commences. To determine a sound effective date, it is strongly advised to consider when goods should be delivered and what warranty or maintenance period should apply to work or goods Poor provision: “This contract becomes binding on both parties when it is signed” It can be seen that this provision is aimed to provide a designated time and means of contract formation. In other words, it intends to stipulate when the contract will come into effect. However, in the event, the contract is somehow signed by only one party, does it become binding on both, or must both parties sign to determine a common effective date? If the parties sign on different dates, which shall be effective one? If the last party to sign the contract is deemed to change a provision in it before signing, has a contract formed? These hereby can lead to any potential dispute during contract performance. Better provision: “This contract will be binding on both parties as of the date on which it is signed by the Seller/Buyer, provided that the Seller/Buyer does not alter, delete, or add to the terms of the contract.” 2.2.2 Effective date: Poor provision: “This contract will become binding on the parties at the time the Seller accepts the order that is detailed in the attached specification.” This clause fails to define a particular date of acceptance – it is entirely opened-ended. To some extent, it can cause discrepancies in parties’ interpretation of this clause that may lead to the situation that the Buyer may make another same order with other supplier, whereas the Seller continues to fulfill order without notification/acceptance. Consequenly, both parties get no benefits only because of no contact, no information. The general rule is that acceptance must be within a “reasonable time” to ensure a smooth transaction. Better provision: “This contract will become binding on the parties as of the date the Seller signs it, provided that the Seller does not alter, delete, or add to the terms of the contract and provided that the Seller signs the contract by [date], transmit a copy of the signed contract by facsimile to the buyer by [date], and sends the original signed contract by post.” 2.2.3 Insurance Poor provision: “The [Seller/Buyer] must insure the goods while in transit for [currency and amount]. A copy of the policy or other statement provided by the insurer must be provided to the [Seller/Buyer] before the goods are shipped. Failure to insure the goods is grounds for contract termination. Each party is responsible for obtaining on its own account any other insurance coverage for the goods that it may desire.” This clause may be reasonable in a domestic transaction where parties are familiar with available insurance policies, but it is too strict and necessary for an international transaction. Unless parties are assured that the coverage is available in the amount designated, the failure of a party to obtain insurance coverage should not be grounds for termination of the contract. Better provision: “The [Seller/Buyer] shall responsible for obtaining and maintaining insurance on the goods while in transit. The insurance coverage must be for the invoiced value of the goods, and the [Seller/Buyer] must be named as a loss payee. A copy of the policy or other statement provided by the insurer must be provided to the [Seller/Buyer] before the goods are shipped. If the [Seller/Buyer] fails to obtain such insurance, the [Seller/Buyer] has rights to purchase insurance coverage and to charge the cost of premiums to the [Seller/Buyer]. Each party shall responsible for obtaining on its own account any other insurance coverage for the goods that it may desire.” 2.2.4. Transfer of title time In every complete sales transaction, there is a certain moment of time wherein the ownership of the goods by the seller ceases and passes to the others and that of the buyer begins; that is called the transfer of title. In a certain aspect, it is synonymous with transfer of risk to goods during goods delivery. It therefore draws most attention of both the seller and the buyer during their transaction from the place of the Seller to the place of the Buyer. Poor provision: “Title to goods will pass to the Buyer when the Goods are shipped.” When title passes, it also means that the Buyer somwhat faces the risk of loss. Therefore, this critical provision should be clear and definite. However, the term “shipped” is deemed to carry various meanings. It could simply mean that the goods have left the seller’s warehouse but not the seller’s possession. Another alternative is that the seller has transferred the goods to a land carrier, such as railway or trucking company. Or it could imply that the goods are shipped when placed on board a vessel, even if first carted over land by another carrier designated by the Buyer or the Seller. Better provision: “Title to goods will pass to the Buyer at the time the Seller delivers the goods to the Buyer. The goods will be deemed delivered at the time they are stowed on board the vessel.” 2.2.5. Inspection rights If you have agreed to take the goods without warranties, you should insist on adequate inspection rights, meaning you have the time, labor, and facilities available to conduct a meaningful inspection. Even if warranties are provided, inspection rights are important. Exercising a warranty is likely less convenient than simply returning goods that are not in satisfactory conditions on arrival. Therefore, it is strongly advised to pay due attention to terms of inspection rights. Poor provision: “Before accepting the goods, the Buyer has right to inspect them at the time and place where they are delivered.” In the event the designated time and place are convenient to the Buyer, this clause may be deemed appropriate. However, the buyer’s inspection rights will make non-sense if the buyer is unable to carry out such inspection. Thus, in case the delivery is made Ex Works - Incoterms (meaning at the seller’s warehouse), a foreign buyer is unlikely to be able to inspect the goods before having to accept them. At a minimum, inspection rights should be granted to the buyer or an authorized representative and the buyer should have a reasonable time within which to complete the inspection and make any claim against the Seller in case of any discrepancies. Better provision: “Before accepting the goods, the Buyer has right to inspect them after they reach the Buyer’s [designated time and place]. Acceptance or rejection must be made within [a certain number] of working days from the date the goods reach that destination. The Buyer’s failure to inspect the goods will be deemed a waiver of the right of inspection.” CHAPTER 3: ANALYSIS & FINDINGS In the principle, Binh Minh’s sales contract somewhat meets requirements of a cross-border contract with rather sound provisions compared to those defined in the theory mentioned hereinbefore. Nevertheless, to avoid potential disputes arising out of parties’ expectation, it should be modify to tighten up the closeness at a minimum. For this paper, such findings just drew from personal viewpoints therefore they are intended for the Company’s consideration. 3.1. Unclear unit price In delivery term, the Company has failed to clearly define applicable price. In fact, it merely defined “CIF Hai Phong” (See Appendix for reference) that does not feature any Incoterms. Such vagueness may result in inconsistent price term between the Buyer and Seller, and a dispute then is inevitable. This becomes so problematic if the Company enters transaction with its counterparts who tend to conduct their unique business practices that are not in line with INCOTERMS. In this case, the Company will certainly become the lossing party if the event is brought to the court for arbitration. For instance, as for FOB shipment term, the US counterparts are entitled to adopt one out of two separate conditions, namely INCOTERMS (in accordance with ICC) and FOB-US – a local business custom. Despite of arbitrariness of INCOTERMS, in international transactions, any contract should be subject to a certain INCOTERMS to equate discrepancies, misinterpretation in cost calculation amongst parties. 3.2. Unsupported shipment term In fact, Binh Minh determines to adopt CIF shipment term (See Appendix for reference) (relatively same as CFR shipment term) that allows concession of rights of charter-party to the Seller. Such concession of rights shall be problematic in case of unqualified Seller. It is possible that the Seller at his own discretion can charter a ship with poor shipping conditions or ambiguous origin at a rather low cost and cause loss of damage to the Company when the goods is arrived. Especially when the Company allows transshipment condition, the risk is likely much more potential. It is widely admitted that almost all of Vietnamese import-export enterprises are interested to CIF shipment term despite their awareness of potential risks. For instance, in the late 2006, an enterprise in Hanoi imported a cargo worth more than USD 1 billion from Singapore in accordance with CFR-Incoterms 2000 Hai Phong/Ho Chi Minh City Port. The Seller chartered PLJ ship – a low conditional vessel from Hong Kong BJS Shipping Agency, and quickly presented all relevant documents to collect payment from the authorized bank. Unfortunately, later, the Buyer noticed that this vessel was captured by Malaysian police because it was defined to be involved in a piracy. The Buyer then made a claim against the Seller but he refused to bear such obligation that was not stipulated in the signed contract. The event was brought to the Insurer; However, they claimed that they were spare from insurance obligation in this case under ICC 1982 (Institute Cargo Clauses 1982, Item 6.2, Exclusion). Worse still, the involved shipping agency was relieved from any indemnity due to ship capture in line with Maritime Code of Vietnam and Hague-Visby Rules. Consequently, all costs arising were for the Buyer’s account. As such, it can be clearly seen that various Vietnamese enterprises had to pay a heavy price for their undue attention to vessel’s legal status in particular, practice of CIF shipment term in general. By the way, with regard to Binh Minh sales contract, its requirements for documents presentation remains inappropriate. In fact, such required documents are not enough to reveal almost all aspect of goods delivery, especially goods insurance. Normally, it is advised to include insurance certificate/policy that can act as clear evidence the Seller’s performance of insurance obligation and the Buyer’s entitlement to such insurance under CIF shipment term as well. 3.3. Lack of “bulletproof” terms It is widely admitted that sales contract is an effective tools for both domestic and international transactions. Nevertheless, it also potentiates unforeseeable risks beyond the control of involved parties. Therefore, it is strongly advised to include additional terms and conditions besides mainly required ones to cover anticipated risks arising during the contract. To be frank, except for some key provisions like payment, delivery, inspection, arbitration terms, Binh Minh’s sales contract has failed to include such terms to minimize lootholes that may be exposed during transaction. To some extent, this inconsideration is more likely to lead to potential disputes hindering contract performance and causing adverse effects to the parties involved. In general, such shortcomings so far have caused no adverse effects to normal operation of the Company because of the fact that up to now its contract-based transactions have mainly relied on long-term relationship and trust. Yet, it is unreasonble to ignore the closeness of any contracts. Indeed, currently the Company can run its business inspite of various lootholes in contracts, but there is nothing to make sure that the Company will continue to smoothly go into partnership with different counterparts while inappropriate contract provisions. CHAPTER 4: RECOMMENDATIONS 4.1. To the Company In order to best make use of international contract’s effectiveness, it is advisable that before deciding on contractual terms, the Company take into account all factors involved during transaction mentioned hereunder and which can provide more security and benefits. 4.1.1. Improving closeness of some existing provisions in Binh Minh’s Contract 4.1.1. 1. Delivery term: The delivery term should be clearly defined unit price. It means that it should not only include mode of shipment (CIF Hai Phong) but also define which kind of Incoterms it is deemed to subject to. In detail, as far as I know, the Company is mostly interested in application of Incoterms 2000, therefore, their contract is recommended to include brief statement “CIF Hai Phong, Incoterms 2000” or detailed statement “These prices are understood CIF Hai Phong as per Incoterms 2000” to avoid discrepancies in contract interpretation in case of any disputes arising. In short, abbreviated delivery terms, including the Incoterms shown here, should never be used alone unless the parties are willing to accept implied terms from their course of dealing or the practice of the industry. The abbreviated terms fail to define all requirements for shipping and delivery. Moreover, the meaning of such terms often varies from a country to the next, creating a potential for ambiguity in your contract. It is wise to add a few brief but explicit details to your delivery and shipping term to cover your precise circumstances Documentation required To some extent, sets of documentation can act as written evidence that indicate details of transaction ranging from shipment, insurance to payment, etc. In some cases, irreducibility of required documentation facilitates transaction between the seller and the buyer. However, it can not assure avoidance of unexpected disputes, especially, parties do not well know each other. The Company should pay due attention to require full set of documentation instead of several existing required documents, namely Clean on Board, Bill of Lading, Invoice, Packing List, and Certificate of Origin (See Appendix for reference). Especially, because the fact that the Company tends to adopt CIF Incoterms 2000, amongst the others, it should request presentation of Insurance Policy/Certificate for 110% consignment value covering clause “All Risks”. In addition, such attention should be also paid to other documents like Certificate of Quality and Quantity issued by Manufacturer. Term of payment. Normally, unlike domestic transaction, almost cross-border ones are often characterized by payments via one or more intermediates – banks. Both parties are exposed to banking services for their transaction, especially stage of payment. For this reason, it is reasonable to include banking charges in payment term. Naturally, it is stipulated that: “All banking charges outside Vietnam are for the Seller’s account; and all banking charges inside Vietnam are for the Buyer’s account; Furthermore, amendment charge (if any) will be borne by faulty party” Another point to consider, presentation of documentation by the Seller is require, however, it is wise of the Buyer to clearly define presentation date or certain period instead of a general stipulation like “After shipment finishes”. For example, the Company, in the capacity of a Buyer, can fix the time for presentation of documentation based on a definite date like B/L date/shipment date as mentioned hereunder: “The Seller must fax full set of documents (invoice, packing list, certificate of origin, B/L) to the Buyer within 5 days after the B/L date. Additionally, all relevant documents shall be presented within 14 days after the B/L date” for example. 4.1.2. Increasing contract’s closeness with additional provisions It can be said that including certain terms in contract can help mitigate risks to your Company from lawsuits and misinterpretation and provide legal rights that your Company might not otherwise have. With reference to Binh Minh’s sales contract, it has so far lacked presence of such “bullet-proof” provisions in general. These provisions listed hereunder can be deemed as additional terms to the Company’s contract to further improve its closeness. Governing Law: “This agreement shall be governed by and construed in accordance with the laws of XXX, without reference to any conflicts of law provisions” It is obvious that the parties to an international contract are from different countries; their intentions can not be so easily implied each of them is subject to a common legal system that results in inconsistent business practices. For this reason, it is essential for your international contract to put forward definite terms in relation to the rights and obligations of each party. To be legally effective, the law the Company designates must have some relationship to the parties to the contract or a relationship to the agreement to easily reach mutual agreement on practices. In fact, most companies designate the country where their home office is located. This designation generally benefits the company because it is operating under these laws already, is familiar with them, and has attorneys who are familiar with them. Generally, if possible, it is wise to adopt the internal law as governing law to the contract. On the other hand, the parties can agree to adopt a certain world law regarding international trade that can listed here as CISG (Convention on Contracts for the International Sale of Goods). It is possible that such application can be limited at some provisions to facilitate transactions provided that they concurrently satisfy both parties. Cumulative rights “Any specific right or remedy provided in this contract will not be exclusive but will be cumulative of all other rights and remedies.” The Company should include such term in the sales contract to clearly define rights and remedies to each party. Conspicuously, without this provision, the contract could be interpreted to mean that the exercise of one remedy in a contract prevents the exercise of other remedies. For example, a court might find that contract termination prevents the Company from suing to recover past due payments. Insurance “Each party agrees to maintain insurance in commercially reasonable amounts calculated to protect itself and the other party to this agreement from any and all claims of any kind or nature for damage to property or personal injury, including death, made by anyone, that may arise from activities performed or facilitated by this contract, whether these activities are performed by that company, its employees, agents, or anyone directly or indirectly engaged or employed by that party or its agents.” Such term together with implied phrase “CIF Hai Phong Incoterms 2000” demonstrates that the Company is totally entitled to insurance to any damage claims. Whether or not the Seller obtains an insurance policy, the Company – a Buyer under CIF Incoterms 2000 will be protected from loss of damage at any cost. Successors and Assigns “Neither party shall have the right to assign or subcontract any of its obligations or duties under this agreement without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed.” A party’s authority to the contract only makes sense if you need to enforce the contract or if you want to dispute the contract. If a party has no authority to contract but does so anyway, the contract may be fully performed, all parties may be satisfied and authority to contract never constitute a problem of contract breach. That is an ideal world, however, and therefore, it is wise of you to obtain written evidence of the other party’s authority to contract. Such written evidence means that your contract should include a clause that covers authority to contract. In other words, without such provision, a contract may fail to imply whether the participation of any representatives or heirs is legal or not. Even, it might not be binding on the new owners or successors that possibly results in transactional disputes. Termination “If either party breaches any provision of this agreement and if such breach is not cured within [number] days after receiving written notice from the other party specifying such breach in reasonable detail, the non-breaching party shall have the right to terminate this agreement by giving written notice thereof to the party in breach, which termination shall go into effect immediately on receipt.” Generally, contract cancellation is not an expected outcome for parties to a transaction. Nevertheless, under some certain circumstances, termination may be deemed as an effective measure for both parties to the contract to avoid any loss arising from breach caused by the other party. In fact, Binh Minh’s sales contract merely mentions termination covenant in the event of delayed shipment that can not cover some other risks caused by the Seller’s breach at their own discretion. This provision therefore not only spares a certain period in which the fault party can repair his/her breach, but also makes the Company entitled to contract termination in case this party fails to cure its material breach. Waiver “Failure of either party to insist on strict compliance with any of the terms, covenants, and conditions of this agreement shall not be deemed a waiver of such terms, covenants, and conditions, or of any similar right or power hereunder at any subsequent time.” This provision retains the rights of the Company to ignore or forgive on contract breach caused by its counterpart and still enforce a breach of the same term at a later time. Without this provision, the Company may run risks of having a court find that waiving a term in the contract results in that contract term being unenforceable during the term if the agreement. For instance, the Company’s payment to the Seller is entitled an extension of 15 days, it might be found to have waived any obligation to enforce a contract provision requiring payment on a certain date or within a certain period innitially stipulated. It is rather exclusion than a contract breach. Warranty “Warranty shall be covered by the Seller at his cost.” Such provision is so brief, but in fact, it helps clarify warranty obligation between the involved parties. It can be seen as an obvious offer of the Seller to the Company in case of any goods damage arising out of the Company’s obligations such as damage during shipment, damage prior to inspection, etc. It is unreasonable to equate warranty term with insurance term especially in the event insurance purchase is not the Seller’s obligation under the contract. Written amendment “This agreement may be amended or modified only by a writing executed by both parties.” The aforementioned provision means that only written signed agreement by both parties will be enforceable to amend or modify the contract. It can reduce risks in case of a court that merely bases on non-verbal transaction. For example, in the event, the Company wants to change quantity of a certain kind of ordered goods, in stead of a written amendment, the Company only verbally notify the Seller, and the Seller at his own discretion maintains the initially ordered quantity of goods. Then, the event is brought to the court for final arbitration; the Company must be subject to a contract breach under any circumstances. Therefore, to run a smooth transaction, a written amendment or modification if any is necessary for both parties involved. Indemnity “Each party shall indemnify, defend, and hold the other party harmless from and against any and all claims, actions, suits, demands, assessments, or judgments asserted, and any and all losses, liabilities, damages, costs, and expenses (including, without limitation, attorneys fees, accounting fees, and investigation costs to the extent permitted by law) alleged or incurred arising out of or relating to any operations, acts, or omissions of the indemnifying party or any of its employees, agents, and invitees in the exercise of the indemnifying party’s rights or the performance or observance of the indemnifying party’s obligations under this agreement. Prompt notice must be given of any claim, and the party who is providing the indemnification will have control of any defense or settlement.” This means that one party (the indemnifying party) shall be subject to cover the damages, claims, expenses and other types of payments listed in this provision if the other party (the indemnified party) as well as those related to the indemnified party listed in the provision, incurs damages as a result of something the indemnifying party does related to the agreement. The things the indemnifying party could do that would result in liability to the indemnified party are listed at the end of the provision (essentially acts or omissions under the agreement). This provision requires that the indemnified party shall promptly give notice of a claim to the indemnifying party and allow that party to suggest the defense or settlement of the claim at his own discretion on the basis of mutual agreement. Indeed, without such provision, in case of a lawsuit, the Company may become a loss party under the court’s judgment for all damages, costs arising. These aforementioned provisionnhưng, however, are not all. The Company is advised to make reference to them while continuing to make any addition to form more proper contracts based on particular transactions. 4.2. To competent agencies An axiom in international trade states that “you should buy FOB and sell CIF”. Paradoxically, most of Vietnamese enterprises are interested in selling FOB, whereas buying CIF despite the fact that all parties to an international contract strive to mitigate some risk factors which may badly affect their financial or legal status. Such conduct may be attributed to both internal and external conditions. Therefore, it is recommended that import-export enterprises closely coordinate with domestic shipping agencies to ensure shipment work. This cooperation is likely to not only yield more profits for shippers but also create reliable sources for import-export enterprises. In deed, when enterprises are fearless of following FOB buying, and CIF selling, by nominating the ship, and presumably by contracting with the carrier, they could get a better deal that can deduct a certain sum paid to an intermediate (included in CIF contract). Furthermore, owing to better knowing the domestic market of insurance, the Buyer is more likely to be offered better policies to cover the risks for the cargo. For this purpose, it is strongly advised that competent agencies work out various incentive policies to create more and more favorable conditions for domestic enterprises to adopt FOB buying and CIF selling. Additionally, they are advised to offer more investment to develop infrastructure for shipping industry so that this sector can better meet demand of domestic activities of import – export. If so, it also helps raise Vietnamese shipping’s market share both domestically and internationally. CONCLUSION It is obvious that transactions take place in a very dynamic and against the background of a market in which business situations and counterparts are rather multiform. Even, some of elements like political, cultural, legal environment also non-stop leave their influences on the nature of a sales contract, especially cross-border one. These factors somewhat determine a contract’s appropriateness or inappropriateness. So, it can be said that due attention paid to proper contract drafting plays a crucial role in optimizing benefits, and concurrently mitigating risks or losses arising for parties involved. Nothing is perfect, but making something more proper is a question. Binh Minh Household Joint Stock Company has so far run its business rather smoothly based on existing contracts. However, in the future, together with the purpose of business expansion in which the Company will transact with various counterparts all over the world, it should take pains to form sound sales foreign contracts as much as possible to meet requirements of the reality. APPENDIX SALE CONTRACT No.: 04/2009/TXBM Date: December 30, 2009 PARTY A: ZHEJIANG TIANXI INDUSTRY GROUP CO., LTD Address: NO 7BaoanRoad, HuzhenTown, JinyunCounty, Zhejiang, China A/C No: 330140524052400229700053 Telephone: 86578-3559996 Swift Bic: PCBCCNBJ Bank name: CHINA CONSTRUCTION BANK H.0 Represented by: LU TIANXI PARTY B: BINH MINH HOUSEHLD JOINT STOCK COMPANY Address: No. 5 Lane 75 Hong Ha Road, Ba Dinh Dist, Hanoi, Vietnam Telephone: +844.3932.8848    Fax: +844.3932.8884 Swift Bic: PCBCCNBJ Bank name: TechcomBank – Hanoi branch Represented by: Mrs. Nguyen Thi Giang It is mutually agreed between both parties to sign this contract with terms and conditions mentioned hereunder. ARTICLLE1: COMMODITY- UNIT PRICE- QUANTITY- AMOUNT No. Description Model Unit Quantity Price (USD) Amount (USD) 1 Tianxi Aluminum Pressure Cooker TCO – 18 TCO – 20 TCO – 22 TCO - 24 PCS PCS PCS PCS 200 360 360 200 5.80 6.30 7.70 8.60 1.160.00 2.268.00 2.772.00 1.720.00 2 3 4 5 Tianxi Aluminum set pot TOT0903D TOT0903A TOT0903B SET SET SET 900 300 96 5.20 7.10 8.10 4.680.00 2.130.00 777.60 6 7 8 Tianxi Aluminum Non-stick fry Pan TJA-20 TJA-22 TJA-24 TJA-26 TJA-28 PCS PCS PCS PCS PCS 540 540 540 540 540 1.40 1.50 1.80 2.00 2.30 756.00 810.00 972.00 1.080.00 1.242.00 9 10 11 12 Total 20.367,60 TOTAL IN WORD: US DOLIARS TWENTY THOUSAND THREE HUNDRED AND SIXTY SEVEN AND 60/100 ONLY ARTICLE 2: ORIGIN – QUALITY- PACKING Origin: China Quality: 100% bran new, as manufacture’s standard Packing: An export standard packing ARTICLE3: SHIPMENT DELIVERY 1. Time of Shipment: within 30 days after receipt of original L/C, transshipments and partial shipments are forbidden 2. Port of departure: China 3. Destination port: HaiPhong – VietNam 4. Partial shipment: Allowed 5. Trans shipment: Allowed After shipment finishes, the Seller has to fax a set of shipping documents to the buyer including: Clean on board ocean Bill of Lading, Invoice, Packing List, and Certificate of Origin ARTICLE 4: TERM OF PAYMENT By irrevocable Letter of Credit payable at sight for 100% of total invoice value in US Dollar in favor of the Seller thorough the following bank: Bank: CHINA CONSTRUCTION BANK H.0 ADD: NO 7BaoanRoad, HuzhenTown, JinyunCounty, Zhejiang, China A/C No: 330140524052400229700053 Telex: 86578-3559996 Swift Bic: PCBCCNBJ ARTICLE 5: INSPECTION- CLAIM - The buyer, at their cost, shall have the goods be inspected by an authorized organization at the destination port; the inspection result of the organization at destination port is final for both - In case of claim on quality or quantity discrepancy against the seller, the buyer shall officially notify the seller and dispatch the inspection certificate within 30 days from date of receipt of this inspection certificate ARTICLE 6: FORCE MAJEURE -Neither party shall be held responsible for delay or failure of performance of obligation lowing to generally recognized force majeure causes such as: Strikes, fires, flood, acts of goods, earthquakes or only low, rule or regulations of any Governmental authority or other’ conditions beyond its control with can not be for cart or provided against - In such case, the seller shall immediately fax to the buyer advising of the force of majeure case and send a certificate of the accident issued by the competent government Authority/Chamber of Commerce to the buyer within 05 days after the accident. If Force Majeure last over 60 day, the seller and the buyer have the right to cancel this contract ARTICLE 7: PENALTY In case shipment can not be effected 7 (seven) days from the latest the as read Article 3, the buyer shall have option to cancel the contract and the seller has to pay non shipment penalty of 5% contract value the buyer’s account within 15 days after of the buyer’s advice ARTICLE 8: ARBITRATION During the performance of the contract, if any dispute arises, the parties shall discuss to find solution in an amicable way. If the parties fail to read an agreement in such way, the dispute shall be brought to the Central of the International Arbitration under Chamber of Commerce and industry of Vietnam whose award shall be final and binding on both parties. Arbitration fees shall be born by the loss party ARTICLE 9: GENERAL CONDITIONS -The Buyer has no responsibility in receiving goods are not mentioned in this contract (in Article1).in this case, all charges and risk (if any) are for the seller’s account -during the course of this transaction any problem arising will be discussed by both parties and confirmed by annex of fax Any signature to this contract transmitted by fax shall be deemed as original This contract is made into 4 English originals having the same value and effected from the signing date Each party keeps 02 originals with equal legal value. THE BUYER THE SELLER COMMERCIAL INVOICE No. 301209 Date: 30.12.2009 Contract No.: 04/2009/TXBM Date: 30.12.2009 To: Binh Minh Household Joint Stock Company Address: No.5 Lane 75 Hong Ha street, Ba Dinh District Hanoi - Viet Nam Tel: +844.3932.8848    Fax: +844.3932.8884 From: China to Hai Phong Port, Vietnam No. Description Model Unit Quantity Price (USD) Amount (USD) 1 Tianxi Aluminum Pressure Cooker TCO – 18 TCO – 20 TCO – 22 TCO - 24 PCS PCS PCS PCS 200 360 360 200 5.80 6.30 7.70 8.60 1.160.00 2.268.00 2.772.00 1.720.00 2 3 4 5 Tianxi Aluminum set pot TOT0903D TOT0903A TOT0903B SET SET SET 900 300 96 5.20 7.10 8.10 4.680.00 2.130.00 777.60 6 7 8 Tianxi Aluminum Non-stick fry Pan TJA-20 TJA-22 TJA-24 TJA-26 TJA-28 PCS PCS PCS PCS PCS 540 540 540 540 540 1.40 1.50 1.80 2.00 2.30 756.00 810.00 972.00 1.080.00 1.242.00 9 10 11 12 Total 20.367,60 Total in word: US dollar twenty thousand three hundred and sixty seven and sixty cents only. ZHEJIANG TIANXI INDUSTRY GROUP CO.,LTD  PACKING LIST Invoice No. 301209 Date: 30.12.2009 Contract No.: 04/2009/TXBM Date: 30.12.2009 To: Binh Minh Household Joint Stock Company Address: No.5 Lane 75 Hong Ha street, Ba Dinh District Hanoi - Viet Nam Tel: +844.3932.8848    Fax: +844.3932.8884 From: China to Hai Phong Port, Vietnam No. Description Model Unit Quantity PCS/ CARTON TOTAL (Cartons) 1 Tianxi Aluminum Pressure Cooker TCO – 18 TCO – 20 TCO – 22 TCO - 24 PCS PCS PCS PCS 200 360 360 200 4 4 4 4 50 90 90 50 2 3 4 5 Tianxi Aluminum set pot TOT0903D TOT0903A TOT0903B SET SET SET 900 300 96 4 2 2 225 150 48 6 7 8 Tianxi Aluminum Non-stick fry Pan TJA-20 TJA-22 TJA-24 TJA-26 TJA-28 PCS PCS PCS PCS PCS 540 540 540 540 540 12 12 12 12 12 45 45 45 45 45 9 10 11 12 Total 928 Total: 928 Cartons (Ninety hundred and twenty eight cartons). ZHEJIANG TIANXI INDUSTRY GROUP CO.,LTD  The sale contract, packing list and commercial invoice above which were provided by the Company on the basis of a real transaction are deemed as addendum to this paper to form its integral parts. To be exact, with reference to such “proof”, the illustration of the paper seems clearer and reasonable. GLOSSARY ICC: The recognized abbreviation for the International Chamber of Commerce. The International Chamber of Commerce (ICC) is the largest, most representative business organization in the world. Its hundreds of thousands of member companies in over 130 countries have interests spanning every sector of private enterprise. INCOTERMS (international commercial term) specifies: Transfer of risks, the sharing of the expenses, the seller’s documentary obligations FOB: (Free On Board) An International Term of Sale that means the seller fulfills his or her obligation to deliver when the goods have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks to loss of or damage to the goods from that point. The FOB term requires the seller to clear the goods for export. FOB-US: Shipped under a rate that includes costs of delivery to and the loading onto a carrier at a specific point. CIF (Cost Insurance and Freight) A Term of Sale where the seller has to procure marine insurance against the buyer’s risk of loss or damage to the goods during the carriage. The seller contracts for insurance and pays the insurance premium. The CIF term requires the seller to clear the goods for export. B/L: (Bill of Lading) - A document that establishes the terms of a contract between a shipper and a transportation company. It serves as a document of title, a contract of carriage and a receipt for goods. CHARTER-PARTY: A written contract between the owner of a vessel and the person desiring to employ the vessel; sets forth the terms of the arrangement, such as duration of agreement, freight rate and ports involved in the trip. REFERENCES Vietnamese Đố Đăng Khoa (2008), Kỹ năng soạn thảo hợp đồng thương mại, Tạp chí Luật học – Đại học Luật Hà Nội, 70-76. Phạm Mạnh Hiền (2004), Nghiệp vụ giao nhận vận tải quốc tế, NXB Thống kê. PGS.TS Nguyễn Văn Luyện - TS. Lê thị Bích Thọ - TS. Dương Anh Sơn, Luật hợp đồng thương mại quốc tế, Đại học Quốc gia Tp.Hồ Chí Minh. PGS.TS Nguyễn Văn Tiến (2008), Cẩm nang thanh toán quốc tế bằng L/C, NXB Thống kê . PGS.TS Võ Thanh Thu, TS. Đoàn Thị Hồng Vân (2000), Incoterms 2000 và Hỏi đáp về Incoterms, NXB Thống kê. PGS. Vũ Hữu Tửu (2002), Kỹ thuật nghiệp vụ ngoại thương, NXB Giáo dục. Phan Thị Thanh Hồng (2002), Một số vấn đề cần lưu ý nhằm đảm bảo hiệu lực pháp lý của hợp đồng mua bán hàng hóa quốc tế - Trường Đại học Đà Nẵng. ThS. Bùi Thị Khuyên (2004), Hợp đồng kinh tế trong kinh doanh, NXB Lao động-Xã hội. English Albert H. Kritzer, Sieg Eiselen, Jarno J. Vanto, Jessica Vanto (2008), International Contract Manual, Sweet & Maxwell Ltd, UK. Janet E.L Bercovitz (2000), An analysis of the contract provisions in business – format franchise agreements – The Fuqua School of Business – Duke University. Karla C.Shippey, JD, (1998). International contracts – Drafting International Sales Contract, World Trade Press. Laura Plimpton (2007), Business Contract, Entrepreneur Press. Schuster, Camille (2005), How to manage a contract in China, Business Credit, 69. UNIDROIT (1994), Principles of International Commercial Contracts. US. Department of Transportation, Maritime Administration (2008), Glossary of Shipping Terms, 1200 New Jersey Avenue, SE Washington.

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