What is a Contract?

A contract is a transaction that is formed by the mutual declaration of will of one or more persons or organizations and aims to produce legal results. Unless otherwise stated in the law, the validity of a contract is not dependent on the form condition, but at least the basic points must be agreed.

According to the Contracts for the International Sale of Goods (CISG), to which 94 states are parties as of April 2021, the main issues expected to be agreed in the contracts are as follows:

·       Quality and quantity of goods

·       Price

·       Payment term and method

·       Delivery date, place, and type

·       Obligations of the parties

·       Additions or terms for disputes

Validity Rules of Contracts

For contracts to be valid, certain conditions must be met. These conditions are generally as follows:

1.     No violation of capacity

For contracts to be valid, the parties must have the capacity to enter into the contract. The ability of the person making the declaration of will to have the power to distinguish is the basic condition of the legal action capacity. Otherwise, the contracts are absolutely void.

2.     Compliance with law, morality, personal rights and public order

Contracts must comply not only with the Law of Obligations, but also with all the imperative rules of law, morality, personal rights, and public order.

3.     Realizability of the subject of the contract

In order for the contracts to be valid, the subject of the contract must not be physically or legally impossible.

4.     Mutual Agreement

In order for the contracts to be valid, the parties must be in agreement and the declarations of intent must be given properly.

5.     The price is specified

Trading contracts without unit price and total amount are not valid.

United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention, CISG)

On 11 April 1980, the UN Conference on Contracts for the International Sale of Goods convened in Vienna, the headquarters of the United Nations Commission on International Trade Law (UNCITRAL), and Contracts for the International Sale of Goods (CISG) was adopted.

The basis in CISG is the freedom of will of the parties and the enforceability of the contract. In the provisions of the CISG, it has been decided that, within the scope of the applicability of the agreement, the contracts for the sale of goods between the parties whose workplaces are in different contracting states are subject to CISG, unless otherwise agreed, and that the CISG can be applied to the sales contracts between the parties that are not from the contracting states.

According to CISG, which makes international sales law uniform and contributes to the removal of legal obstacles in international trade, the rights and obligations of the parties are subject to the Convention unless otherwise agreed.

The content of the Convention is as follows:

·       Sphere of Application and General Provisions

·       Formation of the Contract

·       Sale of Goods

§  General Provisions

§  Obligations of the Seller

1.     Delivery of the Goods and Handing Over of Documents

2.     Conformity of the Goods and Third-Party Claims

3.     Remedies for Breach of Contract by the Seller

§  Obligations of the Buyer

1.     Payment of the Price

2.     Taking delivery

3.     Remedies for Breach of Contract by the Buyer

§  Passing of Risk

§  Provisions Common to the Obligations of the Seller and of the Buyer

1.     Anticipatory Breach and Instalment Contracts

2.     Damages

3.     Interest

4.     Exemptions

5.     Effects of Avoidance

6.     Preservation of the Goods

·       Final Provisions

Key Contract Elements and Considerations

Although it varies according to the subject of the contract to be made between the parties (purchase and sale contract, service contract, construction contract, etc.), the contents of commercial contracts in general are as follows:

1.     Contract Title: The contract must have a title that will express the subject of the contract.

2.     Parties: The commercial titles, addresses and contact information of the parties should be stated in full in the contracts. In international commercial contracts, the nationalities of the parties should also be written.

3.     Subject of the Contract: If the contract is a purchase and sale contract, the details of the goods must be clearly stated. Details can be specified in this article of the contract, as well as documents such as technical reports or drawings can be attached to the contract. It is important that the documents annexed to the contract are clearly written in the relevant article and that they are an integral part of the contract.

4.     Rights and Obligations of the Parties: The rights and obligations of the parties should be clearly stated in the contract.

5.     Amount of Goods, Unit Price and Contract Amount: It is very important to write the quantity, unit price and contract amount of the goods in purchase and sale contracts. The use of international measurement units when specifying the quantity of the goods is important in terms of preventing any disputes that may arise. While writing the unit price and contract amount, it should be stated in which country's currency the payment will be made. For the works that are agreed on a turnkey basis, there is no need to specify the unit price, it is sufficient to specify the contract amount.

6.     Payment Terms: There are many payment types in international trade. The type of payment to be used must be clearly stated in the contract. The bank to be worked with and IBAN numbers can be added to the contract.

7.     Fees and Expenditures: It is important to clearly write which party will bear the fees and expenditures, such as customs fees, document costs and taxes that may arise due to the contract, in order to avoid any disputes that may arise.

8.     Delivery Place, Time, and Delivery Method of the Goods: The place and time of delivery of the goods should be specified in the contract in order to change the party responsible for costs and risks and to determine the delivery time. Incoterms prepared by the International Chamber of Commerce (ICC) are widely used for delivery methods. Incoterms applications are not taken into account unless expressly stated in the contract. The parties must clearly indicate the agreed delivery method in the contract. Incoterms are not used in service contracts.

9.     Packaging Conditions: When it is desired to reach an agreement on the packaging and labeling conditions of the goods in the purchase and sale contracts, it must be clearly stated in the contract.

10.  Commercial Documents: Although the documents vary according to the subject of the contract, which party will provide the necessary documents such as import-export documents, quality certificate and the time should be specified in the contract.

11.  Insurance: Information such as the type of insurance that the parties have agreed to have, by which party it will be paid, and the duration of the insurance policy should be specified in the contracts.

12.  Warranty: If a warranty is given for the work subject to the contract, information such as the date, duration, scope of the warranty, and the terms of return of the goods should be included in the contract.

13.  Penalties for Delays: If there are mutually agreed penalties for delays in shipment or payments, they should be specified in the contract.

14.  Intellectual and Industrial Property Rights: It is important to specify the regulations regarding intellectual and industrial property rights in the contract in accordance with the subject of the contract. Legal regulations regarding intellectual and industrial rights may vary on a country basis.

15.  After-Sales Services: Details of services such as assembly, training and support agreed to be provided after the sale, the fees for these services, if any, and the payment method should be specified in the contracts.

16.  Maintenance, Repair and Spare Parts Supply: The details of time and cost for maintenance and repair, where and how spare parts can be obtained should be specified in the contracts.

17.  Guarantees: If there is a guarantee in the agreement, details should be added to the agreements.

18.  Inspection: If it is agreed that an inspection will be made in the production, shipment or delivery of the goods subject to the contract, it should be included in the contract. A reasonable time should be given for this inspection, and it should be stated by whom and where it will be carried out.

19.  Failure to Fulfill the Conditions of the Contract: The penalty to be incurred by the parties in case of not fulfilling the conditions agreed by the parties in the contract should be included in the contract in detail.

20.  Resolution of Disputes and Applicable Law: The contract should clearly state which method will be used, such as resorting to legal remedies or arbitration, which is one of the alternative ways, in resolving disputes that may arise in international commercial contracts. In addition, due to the differences in the legal regulations of the countries, it is of great importance to decide which law to use in case of disputes.

21.  Unexpected Circumstances, Force Majeure: Due to the occurrence of circumstances beyond the control of the parties and unforeseen during the preparation of the contract, it may be difficult or impossible to fulfill the obligations. For these cases, the Force Majeure and Hardship Clauses prepared by the International Chamber of Commerce (ICC) can be used while preparing the contracts.

22.  Arrangements and Amendments: Details such as how the amendments and arrangements to be made in the contract will be valid, how they will be accepted as notified, and what the changes can be about should be clarified in the contracts. Otherwise, it can be claimed that verbal changes were made.

23.  Term and Date of Contract

24.  Effective Date of the Agreement

25.  Termination of Contract

26.  Language of Agreement and Number of Copies

27.  Signature, Stamp, Seal

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