Chapter 10

Negotiation of Contract

Objectives

After studying this chapter，you should be able to

1. describe steps of signing the contract.

2. explain what offer and counter⁃offer are .

3. understand the conditions that an offer shall possess.

4. understand conditions of acceptance .

5. describe the form and contents of the contract

Key terms

Enquiry　　　　　　　　　　　　  Sales contract

Offer　　　　　　　　　　　　　   Preamble

Counter⁃offer    Body

Acceptance             Witness clause

10.1The steps of signing a contract

Business negotiation may be conducted through letters，faxes，e-mails and face-to-face etc. Whatever is chosen，it generally involves four steps：enquiry，offer，counter-offer and acceptance. It is not necessary to have the four steps taken for every transaction，but offer and acceptance are two indispensable steps to reach an agreement and conclude a contract.

• 10.1.1 Enquiry

• Enquiry means the seller or the buyer requests for business information to each other. The content of enquiry involves quality，quantity，price，packing，shipment，asking for samples and catalogue etc. Either buyer or seller can make enquiry by oral or written form. The enquiry made by the seller is called invitation to bid and the enquiry made by the buyer is called invitation to offer.

• Example：Buying Enquiry：Please quote the best price of CIF New York for 10 000 M/T Northeast Soybean at the earliest delivery.

• Example：Selling Enquiry：We can offer Bitter Apricot Kernels with shipment in July. Please fax us if you are interested in it.

10.1.2 Offer

Example：Selling Enquiry：We can offer Bitter Apricot Kernels with shipment in July. Please fax us if you are interested in it.

Conditions to form an offer 

• （1）The offer shall be made to one or more specific persons.

• （2）The offer shall indicate the willingness of the offeror to be bound by the offer in case of acceptance by the offeree.  

• （3）Contents of the offer must be sufficiently definite.

• （1）Stipulate the latest date for acceptance.

• （2）Stipulate a period of time for acceptance.

• （3）Stipulate in general terms，not the fixed time of validity.

Discussion：An American company received a letter：5 000 dozen of scarves，article No.133，USD100 per dozen CIF New York，every 100 dozen to a carton，shipment in August，payment by sight L/C，subject to your reply here before May 20. Is it a valid offer？ 

Validity of offer

In most cases，an offer shall contain the term of validity，before which the acceptance made by the offeree is effective. If an offer does not stipulate the validity time，the offeree should make acceptance within a reasonable time，otherwise the acceptance is not effective. The most commonly used methods to stipulate time of validity are： 

Effective time of the offer 

• （1）Offer by oral，it is effective from the time the offeree knows contents of the offer.

• （2）Offer in written，there are two opinions：posting opinion and arrival opinion

• Withdrawal of the offer

• As an offer becomes valid when it is received by the offeree，it can only be withdrawn if the withdrawal reaches the offeree before or at the same time with the offer. This means that the offeror must send the withdrawal by a quicker communication way. Therefore，even if an offer is irrevocable，the offer may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

• Revocation of the offer 

• As to whether an offer can be revoked or not，different laws have different explanations. According to Article 16 of the United Nations Convention on Contracts for the International Sale of Goods，an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance. However，an offer cannot be revoked under the following circumstances： 

• •The offer specifies a fixed time for acceptance or indicates that it is an irrevocable offer.

• •It is reasonable for the offeree to conceive the offer irrevocable and the offeree has taken actions in reliance on the offer.

• Termination of an offer

• An offer can be terminated under certain circumstances and the reasons of the termination indicate as follows： 

• （1）The time validity stipulated in the offer becomes due.

• （2）The offeree rejects or makes a counter offer.

• （3）The offeror revokes the offer legally.

• （4）Force majeure happens after the offeror sends an offer to the offeree.

• （5）The offeror or offeree loses their action abilities before the offer is accepted.

• Case analysis：One Chinese company made a firm offer to a client in London by cable in the morning on August 1，subject to their reply reaching here before August 3. An urgent notice from the head office was received the moment the offer was sent out：the price of the goods would increase by 20%.The Chinese company immediately notify the client by telex of revocation of the offer. On August 2，the Chinese company received telex from the client. It said they accept the offer of August 1 unconditionally. Please analyze whether the deal between two parties closed or not. 

• 

• 10.1.3 Counter-offer

• Counter-offer means that the offeree doesn't accept the offer wholly and puts forward some additions，modifications，limitations，etc. as to the basic terms and conditions contained in the offer. Once a counter-offer is made by the offeree，the original offer made by the offeror loses its effectiveness. The counter-offer will be a new offer and the original offeror will be the new offeree.

• The United Nations Convention on Contracts for the International Sale of Goods stipulates： 

• （1）A reply that purports to be an acceptance but contains additions，modifications or limitations for the terms of the original offer is a rejection of the offer and constitutes a counter-offer.

• （2）A reply to an offer that purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance，unless the offeror，without undue delay，objects to the discrepancy orally or by a written notice. 

• （3）Additions or modifications relating to basic terms of transaction such as the price，quality and quantity of the goods，place and time of delivery，payment，extent of one party's liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.

• Case analysis：One Chinese export company made an offer to an England client on March 3 by telex，subject to reply reaching here before March 7. On March 5，the Chinese company received telex from the client，and it said if the price was decreased by 10% they would accept the offer. The Chinese company didn't reply. Since the international price of the goods has risen sharply，on March 6 the client sent telex and accepted the offer of March 3 unconditionally，asking for contract number. Under such cases，what will the company do with it ？ 

• 10.1.4 Acceptance 

• The conditions to constitute the acceptance

• （1）Acceptance should be made by a specific offeree，the particular person or a group of persons，who are clearly stipulated in an offer.

• （2）An acceptance should be an unreserved assent to all the terms designated in the offer. If any additions，modifications or limitations to the offer are made，they are a counter-offer，and not an acceptance.

• （3）Acceptance should reach the offeror within the time of validity.An offer usually contains the term of validity，implying the offeror is bound within this term.

• （4）Acceptance should be declared by the ways stipulated in the offer，either orally or in a written form

• Effective time of the acceptance 

• According to the relevant article of the United Nations Convention on Contracts for the International Sale of Goods，an acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or，if no time is fixed，within a reasonable time.

• In addition，acceptance can be effective when the seller delivers the goods or the buyer makes the payment according to the terms of the offer.

• 

• 1 Late acceptance

• The acceptance notice that doesn't reach the offeror within the time of validity is called a late acceptance. Late acceptance is generally considered invalid. But under the following conditions，the late acceptance is effective： 

• （1）Without delay，the offeror orally or in written form informs the offeree that the late acceptance will be accepted.

• （2）If a letter or other writing containing a late acceptance shows that it has been sent in such circumstances，that if its transmission had been normal，it would have reached the offeror in due time.The late acceptance is effective，unless，without delay，the offeror informs the offeree by oral or written way that he rejects the late acceptance.

• Withdrawal of acceptance 

• According to the article 22 of the United Nations Convention on Contracts for the International Sale of Goods，an acceptance may be withdrawn if the withdrawal reaches the offeror before or at the same time as the acceptance would have become effective. But acceptance cannot be revoked.

• 

• 10.1.5 negotiation 

• 

• （1）Enquiry made by buyer.

• （2）Enquiry made by seller.

• Example：Enquiry：Please offer Northeast Soybean lowest price FOB Dalian.

• Offer：We can offer 1 000 M/Ts Northeast Soybean lowest USD200/MT FOB Dalian，shipment during April，2014，Irrevocable L/C for payment.

• Counter-offer：Your cable 10^TH counter-offer USD200/MT CIF New York.

• Acceptance：Your cable 12^TH we accepted.

• Questions

•   ( 1）How to judge an enquiry and an offer？ 

（2）Is enquiry a necessary step in signing a contract？ 

•  （3）What is late acceptance

• Terminology Practice

• The following terms appeared in the text. Select one correct term for each of the following statements.

• Enquiry Counter-offer Offer Acceptance

• （1）A request to business information.

• （2）A proposal for concluding a contract.

• （3）Addition，modification and limitation of an offer.

• （4）A statement made by the offeree indicating assent to an offer.

• 10.2The form and contents of a contract

• Written contract

• The contract in written form is the main form of contract in practice.It clearly specifies the rights and obligations of both parties for legal purpose. A formal contract should be prepared in duplicate；each copy should be signed by both parties，and each party should keep a signed copy of it. A contract can be worked out either by the seller or the buyer，and is called a sales contract or a purchase contract respectively.

• （1）The functions of the written contract.

• ①As an evidence of formation of contract. 

• ②As a basis for implementation of contract.The contract in written form ensures the smooth implementation of the contract.

• ③Sometimes a prerequisite for conclusion of contract.

• （2）The types of the written contract.

• ①Contract.It includes sales contract and purchase contract. The contents of a contract shall be complete and detailed and shall include the main trade terms and conditions.

• ②Confirmation.It is usually a simplified contract，but it has the same legal effect as a contract. It also includes sales confirmation and purchase confirmation.

• ③Agreement.Agreement is seldom used to name the international trade contract and it often refers to the economic or trade documents concluded by the states.

• Oral contract 

• Oral contract means the seller and the buyer reach an agreement through face-to-face negotiation or by telephone and thus conclude a contract by oral. This kind of contract can save the time for transaction，but it is difficult to distinguish the responsibility of each when disputes arise between the seller and the buyer. This is why the oral contract is illegal in many countries.

• Other forms of contract 

• The contract can be concluded by other forms besides the written form or oral form. For instance，the seller and the buyer have cultivated a business habit in a long run transaction，or the offer stipulates that the offeree can make the acceptance by conduct directly.

• 10.2.2 The contents of contract

•  Preamble 

• Preamble usually includes the following contents： 

• （1）Name of contract，such as Sales Contract，Purchases Confirmation.

• （2）The number of contract.

• （3）Each party's name and their nationalities，principal place of business or residence addresses，telephone or fax number.

• （4）Date and place of signing.

•  ( 5 ) Introductory remark (expressing mutual desire for entering into the contract and pleding compliance

• Body 

• This part includes the main clauses in a contract. The agreement of the negotiation is shown in this part.

• （1）Name of commodity. In avoidance of possible misunderstanding，the name of commodity should be clear and correspond to the names in the customs list of the importing country.

• （2）Quality and specification. Different methods can be used to express the quality and specification，such as by sample or by illustrations.

• （3）Quantity. Quantity mainly refers to the length，weight，and volume of the product.

• （4）Method of packing. Packing method，packing materials，and marking，etc must be specified clearly in the contract. The exporter must pack and mark the goods in strict conformity with the contract requirements. Improper packing or marking may cause damages to goods in transit，or difficulties in customs clearance.

• （5）Price. Unit price and total amount should be concluded in the contract. Unit price includes money of account，price，measuring unit and trade terms.

• （6）Term of payment. According to the different payment methods，terms of payment are varied. Sight letter of credit is the most popular payment method.

• （7）Shipment. Time of shipment，port of loading and port of destination should be stipulated in the contract. Sometimes partial shipment and transshipment clauses are included.

• （8）Insurance. The insurance clause should include the specific type of insurance coverage required and any additional risks that are to be covered，which party is responsible to insure the shipment，the insurance value of the goods to be insured and so on.

• （9）Arbitration. The dispute can be settled directly through friendly negotiation，and arbitration is the next best alternative. In this clause，the place of arbitration，the organization of arbitration should be clearly stipulated.

• （10）Inspection. This clause specifies the place where the goods to be inspected and the type of the inspection certificate that the concerning party should get.

• （11）Discrepancy and Claims. Discrepancy and claim clause entitles the party to file a claim against the party who breaches the contract and it also includes proofs，effective period for filing a claim，and the amount for claim.

• （12）Other clauses. Clause of force majeure，documents required and notice of shipment should also be included in a sales contract.

• Witness clause 

• （1）Concluding sentence.

• （2）Signature of the seller and the buyer.

• （3）Seal.

• Questions

• （1）What is contract？ 

• （2）What kinds of clauses should be included in a sales contract？

•  Terminology Practice

• The following terms appeared in the text. Select one correct term for each of the following statements.

• ContractPreambleBodyWitness clause

• （1）An agreement enforceable by law，which stipulates the rights and obligations between the buyer and the seller.

• （2）A preliminary statement，especially the introduction to a formal document that serves to explain its purpose.

• （3）The main or central part of a sales contract.

• （4）Latter end in a sales contract.

• Key words，phrases and special terms

• Acceptancen.接受

• Ambiguousadj.不明确的

• Bodyn.正文

• Constitutev.组成，构成

• Counter⁃offern.还盘

• Cultivatev.培养， 养成

• Executionn.完成，执行

• Facsimilev.传真

• Indispensableadj. 不可缺少的， 绝对必要的

• Enquiryn.询盘

• Late acceptancen.逾期接受

• Offern.发盘

• Offereen.受盘人

• Offerorn.发盘人

• Preamblen.约首

•  Prerequisiten. adj.先决条件，首要必备的

• Reservationn.保留

• Revocationn.撤销

• Sanctionn. v. 认可，批准，同意

• Terminationn.终止

• Transmissionn.传送

• Validityn.有效性

• Withdrawaln.撤回

• Witness clausen.约尾