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  • 4.1-CONTRACTS-INTRODUCTION TO CONTRACTS

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  • Introduction to contracts

     
     

    International trade in coffee would not be possible without general agreement on the basic conditions of sale. Otherwise it would endlessly be necessary to repeat each and every contract stipulation for a proposed transaction, essentially very time consuming and open to mistakes. To avoid this the coffee trade has developed standard forms of contract of which the most frequently used are those issued by the European Coffee Federation (ECF - 04.04.02; www.ecf-coffee.org ) in Amsterdam and the Green Coffee Association (GCA - 04.04.03; www.green-coffee-assoc.org) of New York. Although many individual transaction details must be still agreed before a contract is concluded, the basic conditions of sale, unchanging conditions that apply time and time again can be covered simply and easily by stipulating the applicable standard form of contract. Even so, an offer to sell (or a bid to buy) must of course stipulate the quality, quantity and price, the shipment period, the specific conditions of sale, the period during which the offer or bid is firm (valid), and so on.

    When things go wrong 

    There will always be problems and mistakes, delays and even disasters, both avoidable and unavoidable. The most important rule is: Keep the buyer informed! If a problem is advised in time the buyer may be able to re-position the contract and resolve the problem. If buyers are not promptly informed it becomes impossible for them to protect themselves and, indirectly, often the exporter as well. If it is clear the quality is not quite what it ought to be, do not hope to get away with it but tell your buyer. If a shipment will be delayed, do not wait to announce this but tell the buyer immediately - Article 11(v) of the European Contract for Coffee specifically requires that the buyer be kept informed without delay. If a claim is reasonable, settle it, promptly and efficiently. The buyer is not an enemy but a partner, and should be treated as such.

    Arbitration (07.00) always dents reputations and usually spells the end of a business relationship, but correctly settled claims can help to cement relationships. Bear in mind that many buyers will not bother to lodge smallish claims or pursue them through to arbitration - their time is too expensive. Instead they will simply strike the name of the offending party off their list of acceptable counterparts, often without saying so. And..

    Mitigation of loss 

    When loss is likely, both the seller and the buyer are required to mitigate the loss as much as possible: that is, they must keep the loss to a minimum. Regardless of who is liable to pay, both parties are responsible to keep the loss to a minimum. A good example is when documents are lost. Yes, it is the responsibility of the seller to trace and present them as soon as possible. Yet the buyer cannot just let the coffee sit on the dock building late penalties (demurrage, container charges, etc.). The buyer is required to take all reasonable action necessary to keep the late charges to a minimum and when claiming damages has to prove both the reasonableness of the claim and that all possible action was taken to keep the loss to the unavoidable minimum.

    Variations to standard forms of contract 

    Commercial contracts can be and often are concluded with conditions other than those of the standard forms of contract, as long as these are well understood and are clearly set out in unambiguous language (leaving no room for differing interpretations). For example, one might agree to change the shipment quantity tolerance in Article 2 of the European Contract for Coffee (ECC) from 3% to 5%. In this case the contract should then include a paragraph to the effect that "Article 2 of ECC is amended for this contract by mutual agreement to read a tolerance of 5%".

    If a modification to an existing contract is agreed it should be confirmed in writing, preferably countersigned by both parties. Adding the words "without prejudice to the original terms and conditions of the contract" ensures that the modification does not result in unintended or unforeseen change to the original contract. If a modification is not confirmed in writing then one of the parties could subsequently repudiate or dispute it. Human memory is fallible and there is nothing offensive in ensuring that all matters of record are on record.

    The same applies to business under GCA contracts. Some North American roasters have small booklets containing their proprietary terms and conditions, which all suppliers must sign on to before they become approved vendors. In the * GCA XML contract there is a huge field (350 characters) entitled exceptions.