A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law. It is where an unqualified offer meets a qualified acceptance and the parties reach Consensus ad Idem. The parties must have the necessary capacity to contract and the contract must not be either trifling, indeterminate, impossible or illegal.
     Contract law is based on the principle expressed in the Latin phrase pacta sunt servanda (pacts must be kept). Breach of contract is recognised by the law and remedies can be provided. Sometimes written contracts are required, such as when buying a house. However, most contracts can be and are made orally, such as purchasing a book or a sandwich. Contract law can be classified, as is habitual in civil law systems, as part of a general law of obligations (along with tort, unjust enrichment or restitution).
    According to legal scholar Sir John William Salmond, a contract is an agreement creating and defining the obligations between two or more parties.
In common law systems, the five key requirements for the creation of a contract are:
1. offer and acceptance (agreement)
2. consideration
3. an intention to create legal relations
4. legal capacity
5. formalities

In civil law systems, the concept of consideration is not central. In addition, for some contracts formalities must be complied with under what is sometimes called a statute of frauds.
Traders generally use a short form contract identifying key parameters when agreeing a sale and then incorporate standard terms and conditions by reference. At least 70% of those contracts for the international sale of grain and feedstuffs will incorporate Gafta standard forms of contract. This paper will deal only with trades incorporating Gafta contracts and will distinguish between СIF (cost insurance and freight) and FOB (free on board contracts).
The choice of whether to contract on an FOB or СIF basis depends on a number of factors not least of which is whether the trader in question has the capacity or inclination to get involved in organizing their own freight. I will deal later with the basic differences between GIF and FOB contracts but will turn now to look at the short form contracts, which generally traders will enter into. The following are the basic items which are generally identified in the short form contract.
1.    Sellers
2.    Buyers
3.    Quantity
4.    Description of goods.
5.    Quality of goods
6.    Packing
7.    Shipment date
8.    Price
9.    Payment
10.    Other conditions.

1 and 2. Sellers and Buyers
This is usually one of the easiest items to identify however even then in identifying the parties, care must be taken to consider any agency relationships. Is the seller acting on behalf of an undisclosed principle or acting for their own account? It would also be helpful to ensure that the buyers and sellers addresses and contact numbers are properly identified - very useful for communications at a later stage. Their registered office of a party may of course not be their usual place of business.

3.    Quantity
Section 30 of the English Sale of Goods Act provides that where a seller delivers to the buyer a quantity either less than or more than that which he had contracted to sell, then the buyer may reject all the goods. This provision has however been recently altered by Section 4 (2) of the Supply and Sale of Goods Act 1994 which amends Section 30. The wording used is if the shortfall or excess is "so slight that it would be unreasonable" to reject, then the "innocent" party would only be entitled to claim damages (if any) and would lose the right to reject.

4.    Margins
Frequently contracts will set out a contractual quantity plus or minus a certain percentage in sellers or buyers option. Care should be taken to ensure that the party who does not have the option to determine the exact quantity, can cope with the exercise by his counterparty of his right in this regard. For example if the contract requires a quantity of 10,000 mt wheat plus or minus 10% at sellers option, then the buyer must be prepared to accept 11,000 tonnes maximum or 9,000 tonnes minimum.

5.    Description of Goods
This is an area surprisingly fraught with difficulties. Most international sales will be sales by description. In other words it is not a sale for specific ascertained goods i.e. goods that already exist and can be inspected at a particular location but will be a sale of generic goods identifiable by their description. Section 13 of the Sale of Goods Act 1979 provides "where there is a contract for the sale of goods by description there is an implied condition that the goods will correspond with the description". This is a concept which applies to virtually all international sales and is at the very heart of the contract. Although the Act refers to it as an implied term given its fundamental nature it is more in the nature of an express term. Although most traders will describe the product being sold with a certain amount of precision, traders are often unaware of the consequences if they breach that obligation. It should be borne in mind if a buyer wants a very particular type of product then he should ensure that this is spelled out under the contract.
As a general proposition, the description of the goods will be interpreted strictly with a result that even slight discrepancies may be treated as making the goods "not what was stipulated for". When this arises the buyer can reject. The test depends on one of identification. Are the goods in question identifiable as the described contract goods?
Any allowance or margin regarding description should be specifically spelled out and inserted into the contract. Proof of trade custom and normal commercial understanding can be admitted to explain or qualify the meaning of the description. For example what exactly does "bread making wheat" or "best palm oil" mean? However in order to avoid costly litigation, it would be better to spell out in the contract exactly what the parties are agreeing. The parties to a contract are basically given absolute power to contract on whatever terms they wish. Clearly their respective bargaining positions will effect whether they can achieve what they want but nonetheless generally there will be no reason why the governing principle of freedom of contract cannot be applied. Care should therefore always be taken when describing the goods to be as accurate as possible bearing in mind that slight discrepancies may make the goods not what was bargained for and give the buyer the right to reject their tender.

6.    Quality
Section 14 of the Sale of Goods Act provides "Where the seller sells goods in the course of his business, there is an implied condition that the goods supplied under the contract are of merchantable quality. Where the seller sells goods in the course of a business and the buyer expressly or by implication makes known to the seller... any particular purpose for which the goods are being bought, there is an implied condition that the goods supplied under the contract are reasonably fit for that purpose." The Supply and Sale of Goods Act 1994 has however changed the law in this respect. This Act came into force on the 3rd January 1995. Section 1 of the new Act amends Section 14 (2) of the Sale of Goods Act by replacing concepts of merchantable quality (which was considered too vague) with the concept of "satisfactory quality". Goods will be deemed to be of a satisfactory quality if they meet the standard that a reasonable person would regard as satisfactory, taking into account any description of the goods, the price if relevant and all other relevant circumstances. I will be dealing later on with the problems that can arise under a contract and will deal at some length with problems relating to quality and fitness for purpose. Again however I should stress here that the need for goods to comply with their contractual quality provisions is highly important because contractual compliance is generally considered a condition of the contract. Any breach of the quality provisions would give the innocent party the right to reject the goods. Having said that, sometimes the contract itself will vary the ability of a party to reject the goods on the basis of non-conforming quality requirements. It is very common to see reciprocal allowances or non-reciprocal allowances in a contract of sale setting out various monetary price adjustments that will apply should the product not meet its basic quality specifications.

7.    Packaging
This may be in bulk, bags, containers or drums. The packaging may also form part of the description of the goods and therefore care should be taken ensuring compliance with the contract packaging requirements. Most GAFTA contracts will involve "in bulk" sales.

8.    Shipment Dates

Shipment or delivery dates are also highly relevant and along with price and type of product it is probably one of the most important factors which a trader will be bearing in mind when negotiating any deal. A trader will need to know where he stands either on having to deliver the goods or in being in a position to receive the goods. In the sale of goods which is a mercantile contract, any stipulation as to time for performance is generally deemed to be of the "essence" or at the heart of the contract. The breach of an obligation regarding shipment dates or delivery dates will therefore mean there has been a breach of a condition of the contract which could give the innocent party the right to reject.

9.    Price
Price will usually be expressed per metric tonne in a Gafta contract and the contract basis will be identified under the price clause. For example a product may be identified as (so many) US Dollars per metric tonne GIF at the named discharge port, or range or so many US Dollars per metric tonne FOB at the named load port. Clearly a CIF price will be greater than an FOB price of the same product as the GIF price contains in addition to the unit product cost - cargo insurance and the cost of freight (that is the shipping costs in getting goods from A to B).

10.    Payment
This clause normally sets out the way in which the price will be paid and when the price is payable. Generally speaking it will depend upon the relationship between the buyers as to whether any credit terms have been given but generally speaking an unpaid seller should take whatever steps are necessary to ensure that the price will be paid on a certain date. He may wish to secure payment of the goods by means of a letter of credit from a bank or he may only agree to part with the documents which represent the goods against receiving his price in full. The payment clause will generally set out the documents which will be required from the seller in order to trigger the payment obligations under the contract by the buyer. I will set out later in my synopsis of a GIF and an FOB contract the sort of documents which are generally identified as being required.

11.    Other Conditions

This will almost invariably incorporate one of the standard Gafta forms which will always include the Gafta Arbitration Rules. However, it is also usual to see a specific reference in the short form contract to Gafta arbitration itself or Gafta 125 (the Arbitration Rules). Arbitration as a separate topic will be dealt with later but it should be borne in mind that in certain countries, a specific reference to arbitration itself is often preferred as it indicates that the parties were addressing their mind to the way in which any dispute would be resolved.
All other terms and conditions will also generally deal with things like the time the parties have to either load or discharge the carrying vessel. In other words who will be responsible for demurrage incurred should the parties be late or delayed in executing their obligations. Other specific terms which have concerned the parties can also be inserted here such as buyers having exclusivity for that particular product on the performing vessel or that the vessel would be suitable for grab discharge.
I would also suggest that any responsibility for the obtaining of export or import licences should be spelled out and the time in which such licences are to be obtained identified perhaps as a condition precedent to any further performance.
Clarity and careful thought when entering into a contract can often avoid costly and lengthy bitter disputes later. I know of numerous situations that have arisen where had one or both of the parties considered more carefully what they were agreeing prior to finalising the contract, much would have been saved in lost profits and legal fees, e.g.
"Basis loading Houston"... "Cargo to be carried on a good grain carrying vessel"

FOB Contracts.
The central idea is that the seller is bound at his expense to place the goods "free on board" a ship which will in due course deliver the goods to the buyer. The expression "free on board" does not merely affect the question of price but also identifies certain obligations of one of the parties additional to the bare agreement for sale and purchase. For example an FOB seller is not bound to find shipping space or freight for the goods or to insure them. Under an FOB sale the cost of carriage and insurance is generally for the buyers account. There can be many variations to the basic FOB contract. The relevant duties will depend very much upon the terms of each individual deal and the categories of contract are infinitely variable. In a classic FOB contract however the seller at his own expense puts the goods on board a ship which has been nominated by the buyer. In many respects this is far more straight forward than the obligations of a seller under a GIF contract. The FOB seller may have the bill of lading made out in his own name or may name the buyer. In both cases however the seller will generally not release the bill of lading to the buyer until he has satisfied himself that he has been paid or he will be paid for the goods in question. The FOB seller will frequently be chartering the vessel as well and therefore delivery of the goods to the vessel can be deemed to be a delivery to the buyer.
Risk of any loss or damage to the goods certainly passes on shipment i.e. as soon as the goods pass the ship's rail at the loadport, then the risk of damage to the goods passes from the FOB seller to the FOB buyer.

CIF Contracts
The essential distinction under a CIF as apposed to an FOB contract is that it provides further additional duties under which the seller is bound to make arrangement for the carriage of goods and to insure them. The type of contract is important in determining not only the method to calculate the price, but the passing of property and risk and the method by which the parties perform their obligation under the contract. Under an FOB contract unless the intention of the parties is otherwise made clear, property will generally pass on shipment itself. This is the point in time when the goods become identifiable as having been appropriated to the contract itself. The seller may however reserve a right of disposal even after shipment if for example he does not get paid and therefore property may not pass "on shipment". Risk of course as a concept is something separate from the passing of property. Under both CIF and FOB contracts risk generally passes on or as from shipment. This is of course important in determining what point in time the goods ought to be insured by the party who carries the risk of loss or damage.

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