Is Your Export Contract Legally Enforceable Contract

You’ve owned a big export sales contract. So, you are going to invest a considerable amount. But, is your export contract is legally enforceable?

 

If it is not legally enforceable, you are running a higher risk of nonpayment by the buyer. The question is, how you can be sure that the contract is enforceable by Law?

 

We will discuss the straightforward way to understand whether your contract is a valid contract for legal enforcement in case of any breach.

When You Will Need Legal Enforcement

 

Many of the exporters and importers are dealing with their businesses depending on the contract. The question of legal enforcement comes only when any of the parties breaches the contractual obligations.

 

For example- export is done as per terms of the contract, but payment is not received. Or, export is done, and payment is made, but quality and quantity of the export goods are not as per contract, etc.

 

Common Elements of a Legally Enforceable Contract

 

The Law of contracts may differ slightly from country to country. But the elements are almost standard in every country. The presence of these common elements determines whether the contract is a legally enforceable contract or not.

 

The Law of the contract will be Law of the country where the lawsuit is filed.

 

A contract will be a valid contract if the agreement contains all of the following elements: i. Offer, ii. Acceptance, iii. Consideration, iv. Intention to Create Legal Relations, v. Certainty and vi. Legal capacity of the parties to act.

 

Checking: Is Your Export Contract Legally Enforceable Contract

 

You can quickly check your contract to see whether is it is legally enforceable or not. In the following six easy steps, we’ll discuss the issue.

 

Step 1. Offer

 

The first element of a valid or enforceable contract is an offer. In the case of an export sales contract, this offer is usually made in the form of a Proforma Invoice. However, it can take place in other forms. Finally, the offer turns into a Sales Contract.

 

When a buyer offers to purchase goods or services, they offer in a purchase order or other form of letters. Finally, this offer turns into a Purchase Contract.

 

Example of an offer in Enforceable Export Contract: 

 

Fashion Apparels Ltd. offers to sell 5000 pcs of Basic T-shirt for $12,000.

 

As per contract Acts of different countries, this offer can be in verbal or written form. But in the case of export or import contract, an offer must be made in written form.

 

Step 2. Acceptance

 

The second element of a legally enforceable export or import contract is accepting the offer from the seller or buyer. The buyer of goods and services will read all the terms and conditions mentioned in an offer carefully. Then they will accept the offer (maybe a proforma invoice), putting signature and preferably using an official stamp or seal.

 

In the same way, if the buyer makes the offer of purchase, the seller will carefully read the offer and accept it, putting their signature and official seal.

 

Example of an acceptance in Enforceable Export Sales Contract: 

 

Apparels House Ltd. accepts the offer to buy 5000 pcs of Basic T-shirt for $12,000 offered by Fashion Apparels Ltd. The Managing Director has signed and put his seal where the word “Accepted” is written.

 

Step 3. Consideration or Exchange Value

 

The third important element for a valid contract is the consideration or exchange value. That means each party must promise to pay or provide something of value to the other party in the agreement.

 

For a valid export contract, a buyer must promise to pay the agreed amount upon the seller's fulfillment of the contract. On the other hand, a seller must fulfil the contracted task or send goods as per contract in exchange for the price paid by the buyer.

 

Example of Consideration in Export Contract: 

 

Fashion Apparels Ltd.’s consideration is their undertaking to sell 5000 pcs of Basic T-shirt for $12,000. Similarly, Apparels House Ltd.’s consideration is their commitment to pay Fashion Apparels Ltd. $12,000.

 

Step 4. Intention to Create Binding Relation or Legal Relations

 

When an offer is accepted, it is called “meeting of the minds”. It is an essential element for a valid contract. Each party in the contract must have the intention to bind themselves by the contractual agreement.

 

So, both buyer and seller must intend to perform as per contract and be bound by the agreement.

 

Step 5. Certainty

 

Another essential element in an enforceable contract is a certainty. An export contract should contain all the terms and conditions clearly. These terms and conditions must be in a simple form to make all parties understand them.

 

If the terms and conditions in an export contract are not specific, this contract will not be legally enforceable.

 

Example for Certainty in Export Sales Contract: 

 

In Fashion Apparels Ltd. and Apparels House Ltd. (mentioned above), delivery or shipment date is not mentioned. In such a case, neither party can get legal support regarding the dispute on late shipment.

 

Step 6. Legal capacity of the parties to act

 

In the contract Act of some countries, the Capacity and Legality of the contract is discussed separately. But, we’ll discuss these issues at the same time under this heading. Parties in the agreement must be capable of performing the contractual obligations on each of them.

 

Moreover, this capability must also be the legal capacity because a person may have the capacity to perform a specific task that is not permitted by the country law.

 

Example of Legal Capacity in Export Contract:

 

Fashion Apparels Ltd.’s Managing Director signed the contract using his seal. But the person is below 18 years old. So, he does not have the legal capacity to sign being a minor.

 

Another example may be, Apparels House Ltd. has entered into the buying contract for $12000, but they do not have the paying capacity for that amount or are already bankrupt.

 

The purpose of the contract cannot violate the Law. For example - An export contract to sell something which is prohibited in a country. It makes the contract invalid or an unenforceable agreement.

 

Conclusion: Elements in an Enforceable Contract

 

After all the above discussion, you can easily identify a valid contract or an enforceable contract. An export contract must be a valid contract for the security of the exporter. Moreover, every banker must ensure that the export contract they’re considering for export finance is legally enforceable. It will secure the exporter as well as their Bank.

 

If you’re a Trade-Finance professional, you should also know what to check in an export contract before accepting.

 

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