The Importance of Sales Contracts

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.

There are many aspects and considerations within a valid sales contract other than two parties agreeing to a set of terms and conditions and signing the contract. A valid sales contract has constituent parts, which, if any are missing, may constitute the contract invalid and not capable 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 property use.
 
For a contract to be classified as valid, there must be 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, and an 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, an 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. It should be remembered that 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 in the contract 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, where 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.
 
The parties intending to enter into a binding contract can avoid uncertainty surrounding the intention to form a valid contract by putting their contract in writing; 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 the capacity to form a contract, meaning that the parties have the legal ability to sign the contract. The capacity may involve the mental capacity of a party, 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. The 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 imposes restrictions on the specific number of goods imported into a country, allowing governments to control the number of imports to help protect domestic industries.

• Tariffs: That increase the price that consumers pay for imported goods and services in line with the fees charged by domestic producers.

• Subsidies: 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 by utilising training, local market development and research to increase the financial stability of the trading environment to negate any harmful effects caused to the environment through global warming and decreasing 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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