Chapter 2 Business Negotiation and Conclusion of Contract

【Learning Objectives】

Knowledge Objectives：

1. Understand the forms and contents of business negotiation.

2. Know the general procedure of business negotiation.

3. Learn the establishment of contract.

Ability Objectives：

1. Master the definition of business negotiation.

2. Know how to establish a lawful contract.

3. Know the indispensable processes to a business negotiation.

2.1 Business Negotiation

Business negotiation is an important part of conducting an export trade. It is the dealings between the seller/exporter and the buyer/importer in order to reach an agreement on price, payment, quantity, quality, and other terms or conditions of a sale. Evidently, the conclusion of a sales contract results from the business negotiation to the satisfaction of both parties. Business negotiations are carried out ei ther by writing or verbally. In the latter case, traders talk about the terms or conditions of a sale with each other, in person or by telephone. The foreign merchant may call on the domestic trader upon invitation, or the exporter will make a visit to an overseas importer on his own account. Business talks are also held at international fairs where businessmen all over the world can negotiate with one another over export and import trading. Through verbal negotiations trading transactions between Chinese and foreign merchants are concluded in large amounts at the China Export Commodities Fair in Guangzhou twice a year.

When business negotiation is done by writing, communications by letter, by cable or by telex are the usual means which the traders use. In practice, letter-writing plays a vital part, and that is why a prosperous trader always has a great deal of correspondence to deal with. However, sometimes both types, communications in writing and in spoken words, are used interchangeably in one single transaction, as the case may be.

The formulation of the export sales contract represents the conclusion of some possibly difficult negotiations and, accordingly, particular care should be taken regarding the preparation of its terms. The following terms are talked over, for the main, in order to come to an agreement during a business negotiation. They are those terms about the description of the goods, about their quality, quantity, packing, price, shipment, insurance, payment, inspection, claims and disputes, arbitration and force majeure. Only when the two parties all agree on the various terms consulted can the business be done and the contract of sales concluded.

To reach an agreement of the various terms mentioned above, the business negotiation, in most cases, needs going through five stages or links: enquiry, offer, counter-offer, acceptance and conclusion of a contract. Of course, it is not necessary to have all the five steps taken for every transaction. Sometimes, only offer and acceptance will do. It is stipulated in the laws of some countries that only offer and acceptance are the two required factors, failure of which will make no contract.

2.2 General Procedure in Business Negotiation

Under normal circumstances, the business negotiation may be carried out through correspondence, cable and telex or be conducted orally or both. In international practices, the business negotiation will usually go through five steps, namely, enquiry, offer, counter-offer, acceptance and conclusion of contract.

Enquiry

Business negotiation in international trade usually commences with an enquiry by an overseas buyer to a seller, inquiring upon the terms of a sale. In international trade, enquiry is usually made by the buyer without engagement to get information about the goods to be ordered, such as the commodity's name, quality, price, mode, the desired quantity and delivery date as well as other terms. For example, a foreign customer may make an enquiry by cable to our Light Industrial Products Import & Export Company：

“BOOKABLE MAXAM BRAND DENTAL CREAM LARGE SIZE MAX 10,000 GROSS PLS CBL LOWEST PRICE EARLIEST DELIVERY TIME”

Nevertheless, sometimes, a seller can also initiate the negotiation by making an enquiry to a foreign buyer, including his intention of selling certain goods to the latter, which is also called an invitation to offer or invitation to make a bid. For example, the Light Industrial Products Import&Export Company may send a cable to a foreign company：

“CAN SUPPLY MAXAM DENTAL CREAM USD 0.50 PER PC SEPT SHPMT CBL RESP IF INTERESTED”.

It is worthy of note that whoever makes an enquiry is not liable for the buying or the selling, and, the opposite party, at the same time, can make no reply at all.However, according to the commercial practice, the receiver of an enquiry will respond without delay in the usual form of a quotation, an offer or a bid. An enquiry can be made not only to one party but also to several clients. In this way, the enquirer can make a comparison between the terms of sales stated in the different replies and thus trade beneficially with the one who has quoted or offered the best terms.

For exporters, promotional communication is a very important step before getting enquiry from importers. Through it, exporters can make themselves and their commodities known to potential customers. Many ways could be used for promotional communication. Advertisements could be made through various mass media. Sale literature and price lists can be distributed. Trade fairs could be used to exhibit commodities. Exporters may also send out invitation to offer directly to the potential customers. Following this, potential customers will send their enquiries to ask for the terms of transaction. These enquiries may come in by fax, email, telephone or mail. Response must be made immediately in the same way as the inquiry is sent.

For importers, they should pay attention to the following points when making an enquiry：

Although an enquiry can be made to one or more suppliers simultaneously, the importer should not give away his real intentions, otherwise, the suppliers will sense that he is in urgent demand for the goods.

When making an enquiry, in addition to the prices of the goods, the buyer may ask for more information, such as the specification, packing, delivery date and other terms.

Although making an enquiry is the first step in the business negotiation, it is not an essential one and the enquiry will not bind upon both parties.

Enquiry should be brief, specific, courteous and reasonable. In return, the answers to enquiry should be prompt, definite and helpful.

Although an enquiry is not binding upon both parties, if the contract is con cluded on the basis of it and any dispute arises in the performance of the contract, the contents of the enquiry can be taken as an integral part of the documents and be used as evidence to handle the dispute.

Offer

An offer is a proposal of terms and conditions presented in a potential contract by one party, called the offeror, to another party, called the offeree. For the sake of the agreement to be binding, the offeree must first accept the offer; otherwise there is no legal contract.

Like an enquiry, an offer can be made either by a seller or by a buyer. The offer made by the seller is customarily called“selling offer”in which such wording as“Can supply”, “Supply”, “Offer”or“Offer firm”is mostly used. If the offer is made by the buyer, it is commonly called“buying offer”. In it a different wording is used, such as“Book”, “Order”, or“Bid”. In general, it is the seller, the offeror, who offers the sale of certain commodities to the buyer, the offeree.

There are two kinds of offer: offer with engagement and offer without engagement.

Offer with engagement is the kind of offer, in which the offeror's intention of making a contract is definitely indicated, and under which the offeror cannot revoke or amend what he has offered during the validity of the offer. Once it is unconditionally accepted by the offeree within its validity, the transaction is completed and a contract is concluded right away. The contract is binding on both parties. Such an offer is also called“firm offer”or“irrevocable offer”. Though named as a firm offer, it is not necessary to have“firm offer”or“offer firm”appear all the time in the offer. What is important is that a firm offer or an offer with engagement should be clear, complete and final in its wording. To be clear means that the intention and terms in the offer should clearly be described without ambiguity. The main trading terms including those about the name of the goods, quality and speci fications, quantity, packing, price, delivery, and payment should be completely denoted. To be final signifies that the offeror intends, without reservation, to enter into a contract with the offeree if all the terms offered are accepted by the offeree.

As to the completeness of the main terms in an offer with engagement, it is understood that not all the terms specified above are required in every offer. If a usual practice has been formed between the traders through long business relationships established in the past or some general business terms have been agreed upon, there is no need to repeat them every time in the offer. It is important that the omission of certain understood terms should lead to no misunderstanding or ambiguity. Otherwise all main items should rather be completely stated in the offer.

An offer with engagement mostly provides a term of validity. In this case the offer remains valid until the validity ends. The acceptance made by the offeree before the validity expires is effective legally. However, there are different interpretations concerning this problem in different countries. Some hold that so long as the acceptance is made within the validity of the offer, it has legal force. While others maintain that an acceptance is binding under the law only when it reaches the offeror before the expiry date of the offer. Evidently, these are disputable and will bring about confusion or misunderstanding. What is worse, there are such firm offers with no stipulation of the validity term at all. According to common practice in foreign trade, they hold valid within a reasonable time, which seems also ambiguous and uncertain in its sense. Anyhow, in order to avoid misunderstanding, it is advisable to state in the firm offer the validity term and, in particular, the definite date and time at the offeror's end, before which the offeror should have received the acceptance.

A firm offer lapses when it exceeds the time limit because of passage of time, or when it is rejected or counter-offered. The lapsed offer, under such circumstances, is no longer binding on the offeror.

To be brief, a firm offer with clarity and precision should contain the following points：

A detailed description of the item

Price, currency

Packaging

Minimum or maximum quantity

Quality

Shipping date, mode

Terms of payment

A time frame during which your offer is available

Here is an example of firm offer by fax：

Dear Sirs，

We are in receipt of your letter dated June 6, 2016 and very pleased to be told that there are extremely brisk demands for captioned goods in Tokyo.

In order to start a concrete transaction between us, we take pleasure in making you a firm offer as follows：

Commodity: Hog Casings in Brine

Specification（cm.）:28/30 30/32 32/34 34/36 36/38 38/up

Quantity（Barrel）:1 2 7 10 10 20

Price: US㊣ 100 per barrel CIFC3% Tokyo

Shipment: September/ October,2010

Payment: By confirmed, irrevocable L/C payable by draft at sight to be opened 30 days before the time of shipment.

Certificate: Certificate of quality to be issued by the China Entry-Exit Inspection and Quarantine Bureau, certificate of origin to be issued by the China Council for the Promotion of International Trade.

We trust the above will be acceptable to you and await with keen interest your trial order.

Yours faithfully，

David

What is stated in an offer without engagement, contrary to the one with engagement, is unclear, incomplete and with reservations. This kind of offer is not binding on the offeror. Such expressions as“reference price”“subject to our final confirmation”and“subject to being unsold”are often used. The following cable, for example, is an offer of this kind：

OFFER APPROXIMATELY TWENTY THOUSAND METERS CHINESE HANGZHOU BROCADE REFERENCE PRICE USDOLLARS SIXTEEN PER METER CIF NEW YORK IRREVOCABLE L/C SUBJECT TO OUR FINAL CONFIR-MATION

From the above, we can see that the quantity, specifications and price terms are not clear or definite, and nothing is told about the packing and shipment. Furthermore, the offeror makes the offer with reservations-the offer is subject to his final confirmation.

Generally, quotation sheets and price lists serve as offers without engagement because they only include part of the terms, such as names, descriptions, specifications and unit prices. They do not include those terms about shipment, payment, etc. The main terms are not completely listed. Besides, the statements like“The prices are subject to change without notice”, and“Subject to our final confirmation”are commonly inserted in quotation sheets and price lists, thus making the offer not final.

It needs to be noted that different understandings exist regarding definite and indefinite offers in the world. It is stated in the“UN Convention on Contracts for the International Sale of Goods”that“a proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price”. In other words, an offer is considered definite or firm as long as it has the name, quantity and price of the goods, and other terms such as the phrase to indicate finality are not indispensable in a definite offer. Therefore, international traders need to be careful about when they will be bound by their own offers or how they should interpret offers made to them.

According to the“United Nations Convention on Contracts for the Internation al Sale of Goods”, an offer becomes valid when it is received. An offer can only be withdrawn if the withdrawal reaches the offeree before or at the same time with the offer. This means that the offerer must send the withdrawal by a quicker form of communications. Once an offer becomes valid, it can only be revoked before the acceptance is dispatched. However, if an offer itself states that it is irrevocable, it can not be revoked.

Counter-offer

A counter-offer is an offer made by an offeree to an offeror, accepting some terms and changing other terms. It can be made verbally or in writing. Like an offer, a counter-offer is also of two kinds, one with engagement, and the other without engagement.

A counter-offer, in fact, is a rejection of the offer. Hence, it is a new offer and at the same time, the original offer lapses. In a counter-offer a new price as well as other new terms is suggested. When used, it is often simply worded with only the new suggested terms stated. In order to make certain that the other terms embodied in the original offer remain unchanged, the date and/or reference number of the original offer is usually so referred to in the counter-offer as to be no mistaking what it is aimed at.

The following is a counter-offer：

Dear Sirs，

Thank you for making us the offer for printed cloth so promptly.

In reply, we regret to inform you that the price you quoted is found too high. It leaves us no margin of profit. To set up the trade, we suggest that you make some concessions, say 10%, on your quoted price, and we feel confident that it will be helpful to push the sale of your goods in our area. If this proposal is acceptable to you, we shall place an order with you immediately.

We look forward to your favorable reply.

Perrier Cooper

Import Manager

Acceptance

In business law, an acceptance is the assent to the terms of an offer, required before a contract can be valid. It must be absolute and unconditional（otherwise it is not an acceptance but a counter-offer）, may be tendered only by the person to whom the offer is directed, and must conform to any conditions concerning it that are set forth in the offer. In accordance with the usual practice in foreign trade, an acceptance should conform to the following conditions.

An acceptance can only be made in the form of a statement or any other conduct by an offeree, the particular person or a group of persons, who are clearly stipulated in a firm offer. Either a verbal or a written statement is good for this purpose. The conduct that the seller delivers the goods or the buyer makes the payment also serves. On the contrary, inactivity is by no means an acceptance. An acceptance must be unconditional. It should be an unreserved assent to all the terms designated in the offer. In principle, if any additions, modifications or limitations to the offer are made, they are a counter-offer, and not an acceptance.

It is necessary that an offeree should make an acceptance within the life of a firm offer. An acceptance, as a rule, takes effect when it reaches the offeror. However, under the laws of some countries an acceptance begins to function the moment the letter or cable of acceptance is posted or despatched. A contract is thus formed at this very moment. Even though the letter or cable may be lost in the mail or transmission, so that the offeror knows nothing about the acceptance until it is found out later, he is bound. To avoid subsequent disputes or confusion in this respect, it is the practice to clarify to the offeree that an acceptance would not be valid unless the letter or cable is received before the time limit.

The offeree should use the means authorized by the offeror to communicate the acceptance. If no particular means is specified, it is not proper to use any slower means than the one by which the offer is communicated. Two illustrations of cable acceptance（answering the firm offer shown in the above section under Offer）are given below：

YOURS SIXTEENTH ACCEPTED

Or

YC16TH ACCEPT SUNFLOWER BRAND CHINESE HANGZHOU BROCADE TYPE 944/6 TWENTY THOUSAND METERS PACKED IN STRONG LINED WOODEN CASES USDOLLARS SIXTEEN PER METER CIF NEW YORK NOV/DEC SHIPMENT IRREVOCABLE SIGHT L/C

Or a letter of something like this：

Dear sir，

This is to acknowledge with thanks your order No. GD368903 received on June 10, 2015. We expect to ship on from . Thanks for the opportunity to be of service to you.

Yours Faithfully，

John Brown

Please be noted that silence does not make an acceptance. For the example mentioned in counter-offer above, you can not tell the importer that you“Will ship 400 units at US㊣29 per unit CIF New York unless we hear from you by February 20,2012”. As no acceptance of your counter-offer occurs, the importer is not under any obligation to accept the goods, and can refuse to accept them.

Conclusion of Contract

A contract is an agreement that creates an obligation, which is a binding, legally enforceable agreement between two or more competent parties. It generally consists of an exchange of promises-an offer and an acceptance-resulting in an obligation to perform some particular act. In order to be valid, a contract must have the genuine assent of parties to it, that is, it must involve both offer and acceptance.

In export trade a sales contract is a legal document made by and entered into between a seller and a buyer on the basis of their offer and acceptance. In the contract the right and obligation of both the parties are definitely stipulated. The contract is binding on them all. When, in the course of business negotiation, an offer with engagement or a counter-offer of this kind is accepted, the transaction is completed and a contractual relationship between the offeror and the offeree is concluded. However, in keeping with the regular practice in international trade, a written contract or confirmation is usually signed to bind both the seller and the buyer. A formal contract or confirmation should be prepared in duplicate; each copy should be signed by both parties, and each party should keep a signed copy of it. Some of the contracts or confirmations commonly used in foreign trade are available in printed form, so that only the date, price, name of commodities, name of parties, and similar particulars need be filled in. A contract can be worked out either by the seller or the buyer, and is called a sales contract or a purchase contract respectively. The same is also applicable to a sales confirmation or a purchase confirmation.

Legally, both the sales contract（or the purchase contract）and the sales confirmation（or the purchase confirmation）are equally binding on the parties. On the whole, the former is more formal, and the latter, less formal. Besides, the former consists of not only such main terms as the name of commodities, specifications, quantity, packing, marking, price, shipment, port of shipment and port of destination, and payment, but also those clauses concerning insurance, commodity inspection, claims, arbitration and force majeure; while the latter covers several main items only. It goes without saying that both the parties will best benefit from the sales or the purchase contract if disputes occur because the contract has provided in detail the relative terms and the ways of how to handle and settle the disputes. It is, then, appropriate to transactions of large amount and huge quantity. If the a mount is not large or the business is done by means of agency arrangement or exclusive sales agreement, the sale or the purchase confirmation is often used.

Legal requirement for a contract refers to the necessary conditions for a lawful contract. The following represent the elements of enforceability in relation to contracts.

（1）A valid offer and a proper acceptance.

As stated in CISG, “A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention.”Therefore, offer and acceptance are two important components in the conclusion of a contract.

（2）Sufficiency of consideration.

Consideration is a concept existing in the Common Law Family, which refers to an act or the promise hereof, offered by the party to induce another to enter into a contract. Legal consideration concerns nothing about fairness of transaction, but consideration should exist between the buyer and the seller.

（3）Absence of fraud, force, or legal loopholes.

If either party makes use of fraud, force or deception to compel the order party to accept an illegal or unfair contract, the contract in question is legally invalid.

（4）Legal capacity.

Almost all law systems require that the relevant parties of a contract have a sufficient legal capacity before they can enter into contractual relationship.

NOTES

1. the forms of written contracts书面合同的形式

在国际贸易中，书面合同的形式没有特定的限制。双方当事人可采用“合同”（contract）、“确认书”（confirmation）、“协议”（agreement）等形式，也可采用“备忘录”（memorandum）。此外，还可使用“定单”（order）和“委托订购单”（indent）等形式。

我国外贸企业一般采用的书面合同，主要是“合同”和“确认书”。各外贸企业一般都有固定的格式，达成交易后，按双方商定的条件逐项填写即可。“合同”和“确认书”虽然在格式、条款项目的设立和措辞上有所不同，但两者的法律效力是相同的。

（1）合同（contract）

① 出口合同（export contract）

出口合同是对外贸易企业和外商经过贸易磋商活动就某项商品达成交易后所签订的书面契约。合同明确规定了交易双方的权利和义务，把双方确认的具体交易条件，用文字格式固定下来。出口合同是我国涉外经济合同之一，是具有法律效力的文件，也是对外贸易重要的单证之一。出口合同一经签订，双方必须严格履行。

对外贸易各专业公司所使用的出口合同格式不尽相同，其中有合同（contract）、售货合同、销售合同（均称 sales contract）等多种名称和式样。在对外贸易实务中，成交数额或成交批量较大的商品出口或成套机械设备的出口，均应制作正式的出口合同或销售合同；成交数额不大或出口批量小的一般商品出口则多采用销售确认书等。

出口合同的主体即合同的基本条款主要包括商品名称、品质规格、货号、数量、价格条件和货币、单价、金额、包装条款、装运条款、保险条款、付款条件和商检条款、索赔条款、异议条款以及不可抗力和仲裁条款等。其他如合同的转让、合同的修改与变更、通知条款，以及适用于本合同规定的如货款结算前货物所有权的规定、保证和担保的规定、货币保值的规定、合同签订后增加的费用的分摊规定等，均列为主体部分的一般条款，作为对合同的补充和说明。

出口合同的圆满执行，除了及时组织货源以外，主要靠运输和结汇单据来实现。而运输和制单工作能否顺利进行，又与合同条款的订立有着密切的关系。在签订合同时除了应该考虑买方的要求外，更要认真考虑己方履约的可能性。因此，出口合同的正确签订是顺利组织出口运输和制单结汇的基本保证。

② 进口合同（import contract）

进口合同又称“购货合同”（purchase contract），是订购进口商品应签订的合同。进口合同的形式分条款式和表格式，一般由买方根据交易磋商的具体情况拟订条款式或填写规定格式的书面合同，经卖方核对无误后签字生效。其内容与出口合同大致相同。

（2）确认书（confirmation）

确认书是一种简略的合同形式，其内容较销售合同简单。确认书虽与正式合同在格式、条款项目的说明上有繁简之分，在措辞上两者也有所不同，但作为契约的主体的交易条件都应是完整、明确、一致的，而且确认书一经交易双方签字后就具有与合同同等的法律效力。

确认书一般适用于金额不大、批数较多的出口商品交易。外贸企业单位均有自印的固定格式的确认书，经过磋商达成交易后，由业务人员将双方商定的各项条件，逐项填入，经双方负责人签字，即成为具有约束力的法律文件，双方据以执行。

2. United Nations Convention on Contracts for the International Sale of Goods （CISG）《联合国国际货物销售合同公约》

它是货物进出口贸易中最重要的一项国际条约。截至2015年12月29日，共有84个国家核准、参加或继承了该公约。我国在1986年12月11日核准该公约时提出了两项保留。

3. force majeure 不可抗力

不可抗力是一项免责条款，是指买卖合同签订后，不是由于合同当事人的过失或疏忽，而是由于发生了合同当事人无法预见、无法预防、无法避免和无法控制的事件，以致不能履行或不能如期履行合同时，发生意外事件的一方可以免除履行合同的责任或者推迟履行合同。这种情况在《中华人民共和国民法总则》（以下简称《民法总则》）中是指“不能预见、不能避免和不能克服的客观情况”。

4. arbitration 仲裁

仲裁一般是当事人根据他们之间订立的仲裁协议，自愿将其争议提交由非司法机构的仲裁员组成的仲裁庭进行裁判，并受该裁判约束的一种制度。仲裁协议有两种形式：一种是在争议发生之前订立的，它通常作为合同中的一项仲裁条款出现；另一种是在争议发生之后订立的，它是把已经发生的争议提交给仲裁的协议。这两种形式的仲裁协议，其法律效力是相同的。

EXERCISES

I. Translate the following Chinese terms into English.

还盘

受盘人

发盘人

发盘

交易

参考价格

虚盘

商品

撤回

失效

II. Translate the following English terms into Chinese.

international fair

claim

force majeure

offer without engagement

trade terms

place an order

arbitration

export licence

sales agreement

firm offer

III. Questions.

1. What's the significance of international business negotiations？

2. What are the processes for both import and export trade？

3. How many forms are adopted in the process of negotiations？

4. What makes a firm offer different from non-firm offer？

5. What can make an acceptance？