Do I really need a contract?
Many think like INDIA legal system is still under developed in china, therefore whats the point in doing paperwork and signing a piece of contract. However, this is not very true, China’s legal system does give you some rights.
And if you had breach in contract and you wanted them to face the court, the act of having a proper contract makes this event extremely likely.
At-least it would help you have a stronger bargaining position when the outcome is unexpected. If problem occurs it would give you upper hand pressurizing and blaming the supplier for the breach.
We usually come across buyer who have been ripped off by Chinese suppliers. We usually ask them to send us the
Purchase/sales Contract that they might have signed with the supplier, most of them will sent us Proforma invoice (PI), and some also mail us email confirmation or instant messenger conversation.
Practically speaking, PI is too simple to protect your rights, you need to write a Sales Contract As per Contract law of People's Republic of China, a contract shall contain the following clauses:
- title or name and domicile of the parties;
- contract object;
- price or remuneration;
- time limit, place and method of performance;
- liability for breach of contract; and
- methods to settle disputes.
Few import considerations:
Just few emails, Instant messenger commitments or discussed about the product, or requirements are absolutely NOT enough. You need to get a written, stamped document from a factory manager/owner that says exactly what you both agree to. Don't just get the Sales person to sign off on the contract.
All/Any payment to the factory must only be made once the quality control (QC) standards you have set.
These QC standards must be detailed in the contract and have been signed, stamped and agreed upon by a decision maker. The contract is of no value, unless the right person signs off on the contract.
Never change your contract once it has been made. This says to the supplier – I’m willing to accept lower quality. It’s a slippery slope to follow.
A well written contract is an absolute necessity. It offers you a strong bargaining position and holds the factory accountable to the standards you have set.
Following are some suggestions while making the Sales Contract.
(1) Title or name and domicile of the parties; Making sure the company name, domicile, contact information mentioned on contract are correct. Refer to the supplier's registration form of foreign trade dealers For getting correct name and address
(2) Contract object, quantity and quality clauses; Using full product description will help avoid any confusion with the supplier so we can make sure the same is delivered. It is important to add a Quality Clause, use the detailed specification to define the product clearly.
(3) Price or remuneration; Due to rapid change is exchange rate of RMB against USD negotiating price and contract is more complex. The currency exchange rate should be based on the currency exchange rate chart provided by Bank of China (BOC).
(4) time limit, place and method of performance; Giving a specific delivery time, Loading port in case of FOB price, destination of delivery on contract. For LCL or FCL please make sure delivery and packing standards are mentioned.
(5) liability for breach of contract; Set a clear liability for breach of contract. Have a close look at the chapter of Liability for Breach of Contracts in contract law of People's Republic of China, don't make your clauses null and void by ignoring the provisions on the contract law.