Contracts and Trade Agreements: Legal Framework for Business

Posted on Dec 13, 2024 in Law & Jurisprudence

The Contract

The law provides security to the relationship between people and enforceability of the duties that some have compared to others. Without security and enforceability, social life could not unfold properly. A person is in a legal relationship with another by various causes, a relation which determines that one of them has a right against the other, it being required to realize this right or not to hamper its exercise. Some causes are beyond their control and are determined by the situation in which they are embedded, which determines that each of us has rights and duties. These are attributed to the subjects involved and stem from the willingness of those individuals who freely establish a relationship. Each contract is a source of legal relationships between the contractors, and hence of rights and duties, and has great importance because most relationships are born of it.

Effects of Contracts

To have a contract, three factors have to be given:

  • The existence of an agreement between two or more wills.
  • Such agreement relates to a matter or thing required.
  • The contract must generate legally enforceable obligations between the parties.

The general effects of contracts between the contracting parties can be summarized as follows:

  • The contract requires the contracting parties from the time of perfection.
  • It must be completed under its terms, that is, “as expressly agreed” (Article 1091 of the Civil Code).
  • It must be complied with in good faith, that is, accepting all the consequences which, according to its nature, must conform to good faith, the use, and the law (Article 1258 of the Civil Code).

If all the terms have not been fulfilled, the links to contractors can be supplied only by the contractual obligations arising by mutual agreement, with few exceptions (Article 1298 of the Civil Code).

The Trade Agreement

Commercial law was born in the cities of northern Italy during the Middle Ages. The smallness of those political entities was always overwhelmed by the relationships between merchants, and the resolution of conflicts which could arise won the existence of rules which overcome the particularities of the legal systems of the different cities.

A. Contract of Sale

The previous law poses problems when it comes to a sales contract because Article 325 does not depend on its commercial character that it involved a merchant because it says “the sale of movables for resale will be considered a trade, either in the same way they were purchased or otherwise different, with a profit on resale.” It is certainly arguable that the position he holds that an isolated transaction is from the sale of a movable thing, intending to resell and profit on resale, made a commercial sale. But we must also admit, in practical terms, it is customary and professional performance of those who purchase for resale at a profit, leading to the conclusion that the commercial sale always spoke of a merchant. Thus, for the sale to be considered commercial, the following conditions are required:

  • That the purchase is made with the intention of reselling it.
  • That it intends to profit from the resale.

In the definition, it only refers to “movable property.” However, the doctrine also supports the sale of certain real estate, always carried out with the intention of reselling them for profit.

B. Sales Between Different Locations

This occurs when the seller and buyer reside in places or places of different countries. Therefore, we find added elements, such as transport and insurance of the merchandise. In the role of transport and who bears the insurance risk, we see many different clauses that recognize international trade as INCOTERMS. They were created to interpret the key terms used in contracts of sale.

Some INCOTERMS and their meaning:

  • EXW: The buyer assumes all expenses.
  • FAS: The price includes the cost of transport from origin to wharf or rail, but not the load. If included, the clause would be FOB.
  • CFR: The cost of freight to the destination port is provided by the seller.
  • CIF: Like CFR, but including the products safely to the port of destination.
  • DES: When the goods arrive at the destination port, the buyer bears the costs arising from that moment, even the download.
  • DDP: The vendor supports all expenses, from the origin to the agreed destination.

C. The Elements of the Sales Contract

The components of the sales contract, i.e., the parties need to be made in contracts so they can be classified as sales, are:

  • Personal Items:
    • Seller: The person delivering the subject matter of the contract and must have sufficient capacity to dispose of the goods under the contract.
    • Buyer: The person to receive the thing which the contract and must have sufficient capacity to be bound.
  • Real Elements:
    • The thing: Most times property, under contract, it must be possible, lawful, and determined.
    • The price: Let the buyer pay as payment and delivery must be in cash or a sign to represent him.
  • Formal Element: Although the purchase agreement requires no particular form, it merely formalizes the consent in writing should write the clauses that constitute the proof obligations that each party undertakes.

D. Contract Content

The content of the contract consists of the obligations assumed by the buyer and seller.

  • Obligations of Purchasers:
    • Reception of the thing under contract. “A buyer at the time of delivery of the goods the consideration to its content, will not have to repeat the action (claim) against the seller alleging vice or defect in quantity or quality of goods.”
    • Payment of the price. “Once the goods are sold to the purchaser, and giving it satisfied, will start for the buyer the obligation to pay the cash price or within the time agreed with the seller (Article 339 of the Commercial Code).”
    • “The delay in paying the price of the thing purchased the buyer will be obliged to pay legal interest on the amount due from the seller” (Article 341 of the Commercial Code).
  • Obligations of the Seller:
    • The delivery of the thing under contract. “While there is agreed upon delivery of a fixed amount, the goods covered by the contract is to be delivered in totality. The seller must deliver the goods within the stipulated time. If there had not been the time for delivery, the seller should have them available to the buyer within 24 hours after the contract.”
    • Warranty for defects and flaws. “In any commercial sale, the seller will be bound to the eviction (for services) and sanitation for the buyer, unless otherwise agreed.”

E. Completion of the Contract

The contract shall be terminated for several reasons:

  • Expiry of Time: A buyer has not made any claim based on internal defects of the thing sold within thirty days after its submission, any user action and right of recourse (complaints) by this case against the seller, unless agreed otherwise.
  • Agreement Between the Parties: At any time, the parties can reach, by mutual agreement, to terminate the contract and suspend the sales transaction.
  • Breach of Contract of Any Party: If any personal items in compliance with the terms reflected in the contract, may lead to the opposite party to terminate the contract and demand compensation.

Sales Contract Models

We must take into account current trends that aim to establish a procurement policy based on centralizing resulted in a group of suppliers who provide products through medium and longer-term contracts. This mode of sale is subject to tax Acts documented, with taxation of 0.5% of the value of the property.

Leasing

As a variant for the acquisition of movable or immovable property, we find the lease. It is very often a financial transaction, which has been gaining ground in the context of corporate finance, to become a widely accepted formula. To carry out this operation, it is necessary to formalize the related contract. Although the Commercial Code does not collect it within its articles of purchase, we need to know its importance within the company.

A. The Concept of Leasing

Leasing is a term derived from the English verb “to lease,” which translates into “lease, give or take on lease.” The lease is a contract between a lessor (leasing company) and the lessee (customer), under which the lessor, completed the agreement with the tenant, acquires certain assets in its own name, movable or immovable property to be leased for an agreed total price, distributed in installments, fixed or variable, over a period of time, after which, for a predetermined residual value (option), the well is capable of being acquired by the lessee, be returned or be leased in a new lease transaction. The following persons or entities are involved:

  • A company (the client) that needs to have a certain element, usually a fixed asset.
  • A financial institution which finances purchases of equipment leases (leasing company).
  • A manufacturer or supplier.

The leasing operation is complex, and within it are three different phases:

  • Commissioned by the lessor (leasing company) from its customer (lessee) to acquire on behalf of self and a particular good one to use the actual concerned for a specified period of time between the purchase.
  • Option the client may bring to the good at the end of the period of use.

B. Stipulations in the Contract of Leasing

The provisions that are normally agreed upon between the landlord and tenant in a lease can vary widely. However, they are fundamentally the following:

  • Description of the property under contract: The assets that could be recruited.
  • Duration of the contract: The period agreed between the parties may cover the entire economic life of the asset under the contract or, conversely, a part of it.
  • Effective interest rate that will be formalized the operation.
  • Payment for shares: They may be constant throughout the contract, either increase or decrease. Also, fees may be fixed or vary depending on several factors.
  • Obligations in taxes: Brokering, insurance, and maintenance, that may be payable by the lessor, lessee, or both.
  • Early cancellation of the contract: It may be cancelable by both parties, or not be canceled or settled by payment of a penalty.
  • Implication for non-payment of rents: Different obligations and privileges can be established in the event of default.
  • Tenant options to complete the contract: Returning good, buy the leased asset at its residual value or renew the contract for a further period.

C. Types of Leasing

  • Operating Lease: It is a contract under which a person, usually a manufacturer or supplier, cedes to another (lessee) the use of a given asset against payment of a lease fees, which cover both the financing and maintenance costs and repair. It may have a purchase consideration, although not so common as in the financial lease. Another distinctive feature is that the contract is made on standard assets such as computers, photocopiers, etc. A major feature of this approach is that the duration of the contract is basically fixed in the short term, given the risk of obsolescence of these assets.
  • Leasing: A contract by which a leasing company (lessor), as directed by their customers (tenants), offers the equipment requested by him in return for shares in excess lease the purchase price, divided over a period of time, which often coincides with the fiscal and economic life of the equipment, during which the contract is irrevocable. The risk is borne by the tenant, after the transitional period can return the equipment extend the contract or lease such. In this case, the repair and maintenance costs are borne by the user or tenant. The duration of this type of contract is fixed-term due to the high cost of acquiring such goods.
  • Direct Leasing: Is that done by negotiation between the prospective tenant and the leasing company (lessor). The latter, according to the instructions of the lessee to buy the material for subsequent leasing. This rate focuses primarily on specialized industrial equipment or machinery.
  • Indirect Leasing: This is promoted by the manufacturers themselves or distributors. The user, once elected and the provider team, goes to the leasing company to finance it, and it orders the supplier to provide the computer.
  • Lease Movable and Immovable: Depending on the type of goods involved in the leasing operation, we can distinguish two types: industrial equipment, vehicles, and consumer durables, which are financed by leasing furniture, the real estate leasing, which would include, for example, in the purchase and construction by a company Leasing of a local industrial or commercial use to lease a user with sales unilateral commitment, which allows the latter, after an irrevocable lease period, to become the owner of it or extend the lease.

D. Stages in a Leasing Operation

In a lease transaction we observe the following steps:

  • Study the material and supplier for the user.
  • Presentation of the leasing application.
  • Consideration of the proposal by the leasing company.
  • Leasing contract.
  • Delivery of the material.
  • Completion of the contract.