Payments Agreements

Payments agreements are concluded between two or more countries (bilateral and multilateral payments agreements) to settle their mutual obligations arising from the exchange of goods, from services mutually rendered and from financial payments, such as wages, salaries, fees, royalties, copyright fees, etc. Payments agreements usually supplement trade agreements.

The most usual type of payments agreements is the clearing-agreement. A clearing-agreement usually contains the following items: the clearing rate of exchange, clearing-accounts, the settlement of the balance on the clearing-account, and some other clauses.

The clearing rate of exchange is the rate which is applied for the conversion of the currency of one country into the currency of the other country. The official rate is usually fixed in advance and remains unchanged during the entire period of the validity of the payments agreement.

All payments between importers of one country and exporters of the other country are settled on the clearing accounts that are opened with the so-called clearing banks (usually banks of issue) in the countries concerned.

When the validity of the payments agreement has expired, the balance on the clearing accounts is stated and the debtor country settles it in one of the following ways: (a) it transfers the balance to the clearing account of a new payments agreement, if such has been concluded: (b) it undertakes to settle the balance by deliveries of goods within a given time after the expiration of the validity of the payments agreement; (e) it agrees to settle the balance in free foreign exchange; (d) it agrees to settle it in gold.

The Contract of Sale

A contract - in the most general sense of the word - is a legally binding agreement between two or more persons to do (or abstain from doing) something in return for something else. Generally, there are no formalities, and a contract may be written or oral. For example, if you call a taxi by phone you expect it to arrive on time, and if it doesn't you have reason to complain. At the Stock Exchange contracts involving large sums of money are made orally, and only later confirmed in writing.

The contract must be of such a kind that both parties should reasonably suppose that the agreement is legally binding. Thus, acceptance of an invitation to a dinner is an agreement but not a contract.

In most cases, however, writing is necessary to make a contract, as once it is made in writing neither party can change it or interpret it in different ways. In foreign trade, agreements made by telephone should be confirmed either by telex or by letter (telefax).

A sales contract must be written clearly and precisely. It must state who buys what (quantity and quality of the goods), from whom, for how much (price) and under what conditions (payment, delivery, special terms, etc.).

A sales contract usually contains the following points:

(1) The description of the goods. With certain types of goods (machinery, instruments, etc.) detailed specification is necessary, sometimes even blueprints and technical documentation. In some cases (chemicals, cosmetics, etc.) samples may be required. It is also usual to stipulate that the goods should be of fair average quality (f.a.q.) or good ordinary brand (G.O.B.).

(2) The quantity of the goods. Certain goods are sold by piece, pair, dozen or score. Other goods are sold by weight. If the weight is given in tons, you must bear in mind that there is a difference between the metric ton (1,000 kilos), the long ton (1,016 kilos) used in Britain and the short ton (907 kilos) used in the U.S.A. Liquids are sometimes measured in gallons (in Britain 4.54, in America 3.78 litres).

(3) Price and payment. The contract must state in what currency payment should be made and on what conditions.

(4) Delivery terms, which define who bears the risks and costs of the delivery.

(5) The delivery date (i.e. when the goods must be dispatched).

(6) The packing of the goods.