FAQ - Contracts

CONTRACT LAW

Romanian contract law

What should a contract necessarily contain?
What is the quantum of the delay penalties as provided by the law?
What should be the quantum of the delay penalties?
Is the written form for completing a contract mandatory?
Which are the consequences of the authentication of a contract at a notary? What are the advantages?
What clauses should I put in the contract in order to protect myself against the price risk?
What clauses should I put in the contract in order to protect myself against the foreign currency risk?
What are the specific clauses to be contained by a contract of representation?
What clauses should be put in the contract in order to be able to get out of it if the collaboration is not satisfactory?
The negotiations about the contract are over. Which of the parties draws up the written contract?
What are the effects of vaguely defining the contractual obligations?
What happens in case the delivered merchandise is not in concordance with the contract, the buyer refuses the reception and the seller sues asking for the execution?

International contract law

Romanian contract law

1. What should a contract necessarily contain?
First of all, speaking of "a contract" in general terms is not recommended. There are various types of contracts which most of the times apply to particular situations. However, some clauses should not miss from any contract. These would be:

The identification dates of the parties: headquarters, registration in the Register of Commerce, the person who represents the firm and the quality in which he/she does so;
The object of the contract. Clearly specify what goods are sold and what services are rendered, their quantity and quality;
The price.
Delivery-reception deadlines, payment deadlines, intermediary deadlines (for the contracts stipulating successive services to be rendered), other deadlines needed for specific situations.
Delivery-check on delivery (reception)
Delay penalties
Emergency situations
The signature of the parties

Attorney Dan Livescu

2. What is the quantum of the delay penalties as provided by the law?
There is no legal quantum of the delay penalties. At a given moment there was the Law 76/1996 which stipulated a minimal quantum, but this law was abrogated by the Emergency Ordinance of the Executive no.10/1997 on the diminishing of financial blockage and economic losses. Many entrepreneurs are misled in this respect and there are many contracts that have clauses of the type "in case of delay, penalties provided by the law will be paid". Such a clause has no juridical value. The delay penalties in the carrying out of the contractual obligations are only those negotiated by the parties and specified in the contract.
Attorney Dan Livescu

3. What should be the quantum of the delay penalties?
First, let us clarify the purpose of the delay penalties (of the penal clause). They have a double purpose: on one hand, to compel the parties to carry out in time their contractual obligations and, on the other hand, to cover for the eventual losses underwent by one of the parties because of lack of compliance with the deadlines by the other party. The quantum of the delay penalties must be established in such a way that it ensures the achieving of these purposes.
Let's analyze a little.
An incorrect entrepreneur or one who is in a difficult financial position will always weigh the two variants: carrying out his obligation in time or avoiding to meet the deadline even if he has to pay penalties. If he/she notices that it is more profitable for him/her to delay the carrying out of his obligation, in most of the cases he/she will do so.
As a conclusion, in establishing the quantum of the delay penalties you must take into account at least two aspects: the interest rate in the banks and the inflation. The quantum of the delay penalties will have to be bigger that these. Otherwise you risk a situation in which an incorrect partner will take advantage of this fact and to congratulate himself/herself for the cheap credit without any guarantees he/she "obtained" from you.
Attorney Dan Livescu

Is the written form for completing a contract mandatory?
No. In order to have a contract, the written form is not mandatory. The law stipulates that the written form is a necessary condition only for the completing of some types of contracts (the contract for the selling of real estate, the company contract).
In business practice it is recommended that a written contract be completed (even if it is not mandatory).
Attorney Dan Livescu

5. Which are the consequences of the authentication of a contract at a notary? What are the advantages?
The main consequence resides in the fact that an authenticated contract represents an executory title. From practical point of view, this means that, in case the contractual obligations are not fulfilled, you may proceed at the forced execution and avoid the long and expensive stage of the lawsuit. This is the advantage.
The disadvantage is the extra costs represented by the notarial taxes.
Businesses are, however, different. Depending on their particular features, the most advantageous decision can be made only after a thorough analysis, together with a specialized jurist, of the risks of the non-execution.
Attorney Dan Livescu

6. What clauses should I put in the contract in order to protect myself against the price risk?
The price risk appears when the payment is made after the signing of the contract. Thus, in case of long-term contracts or in contracts that presuppose successive deliveries, there may be situations in which the price established in the contract is lower or higher than the market price at the time of the payment.
In order to maintain the equilibrium of the contract, the following clauses are used in the international business practice:

The clause of indexing the price - the contractual price is linked to a standard (a reference good or various indicators). In the situation in which, the difference between the contractual price and the value of the standard surpasses the quantum agreed upon by the parties, the contractual price modifies to the same quantum.
The clause of the escalated price - the parties stipulate in the contract both the price at the day the contract is signed and the way it is formed. This type of clause will contain: the price of the raw materials and of the fuel, of the labour force as well as of other fluctuating elements; the costs that do not modify regardless of the circumstances; the weight of the costs in the forming of the price; the quantum of the variation of fluctuating elements which, if surpassed, will lead to the modification of the price.
The clause of price modification - the parties stipulate that, in case some circumstances appear, they have the right to demand the modification of the price. In practice, this type of clause may, sometimes, lead to tough renegotiations which prolong the time-span of the contract or even block its carrying out.

Attorney Dan Livescu

7. What clauses should I put in the contract in order to protect myself against the foreign currency risk?
The problem of the foreign currency risk is raised in the moment when, between the point of the signing of the contract and its being carried out, fluctuations of the exchange rate of the currencies appear. In order to cover this risk, in practice, the following clauses are used:

"The foreign currency cost" - through this type of clause, the currency established in the contract for the payments is not linked to one single foreign currency but to a "basket" of foreign currencies. This way, the possible fluctuations of the foreign currencies of the "basket" compensate each other.
The clause of choice of the payment currency - the price is expressed in several foreign currencies and one of the partners (usually the beneficiary of the obligation) has the right to choose the currency in which the payment will be done.
The indexation clause - a prediction on the depreciation rate of the payment currency that will take place until payment day will be stipulated in the contract.

Attorney Dan Livescu

8. What are the specific clauses to be contained by a contract of representation?
There is no rule in what concerns the content of the contract of representation, because the matters that are represented are various. Many times, in practice, the signed contracts superficially define the obligations of the parties. This leads to blockages or even to liability of the representer for breeches/mistakes that belong to the one represented. In order to avoid situations of this kind, when signing the contract you must take into account, besides the data from question 1, at least the following (* the party who represents=principal; the represented party=agent):

the interdiction of the agent to act in the name of the principal and to create obligations in his/her account must be specifically stipulated; in case the agent acts in the name of the principal, the documents that he may sign and the limits within he/she may act must be mentioned;
if the sell of goods will (will not) be done by the agent in his/her own name and on his/her own;
minimal quantities that must be sold over a certain period of time (this clause has the purpose to avoid the lack of loyalty of the agent and the situation in which he/she may work for the competition);
the level of the mandatory price;
the deadlines within which the principal is obliged to deliver the goods ordered by the agent;
the way the goods delivered by the principal and the services of the agent will be paid; the payment deadlines;
who ensures the territorial advertising for the products of the principal and who will pay for the advertising; methods of advertising;
if the agent provides or not free service to the buyers for the bought products;
guarantees given by the principal for the sold products; guarantees the agent offers the buyers for the sold products and the obligation that the products are the same with the ones he received from the principal;
the reports the agent must periodically send to the principal; sold products, stocks, necessary products, etc.
non-competition clauses that oblige the agent not to sell or manufacture products identical or similar to the ones of the principal. In the situation in which he/she is allowed to do so, it can only be done with the written agreement of the principal;
ways to communicate between the principal and the agent;
consequences of non-compliance with the contractual clauses;

Attorney Dan Livescu

9. What clauses should be put in the contract in order to be able to get out of it if the collaboration is not satisfactory?
First of all we must mention that a contract is a willing agreement between two or more parties, each of them having rights and obligations. Getting out of a contract cannot be left up to one party only and to the prejudice of the other. In practice, there are however situations in which terminating a contract is necessary. To this purpose, certain contractual clauses may be stipulated:

Suspensive clauses - these clauses delay the coming into force of the contract until the fulfillment of some conditions, such as: the down payment, the ratification (by the administrative board or by other body entitled to ratify contracts for that respective party), obtaining the license, opening of the accreditives, etc.)
Resolutory clauses - these clauses allow, in the situation when one of the parties does not respect certain obligations, that the contract may be annulled with retroactive character and the one at fault pay the damages. For example, these situations may be: not delivering in time the land for constructions, not delivering the technical documentation; in case of complex installations, not delivering in time components, this leading to an extension of the deadline for the beginning of the functioning, etc.
Emergency clause - is a type of clause, accepted and stipulated in the majority of the countries, which removes responsibility of the parties in case the contractual obligations are not fulfilled. Generally, by emergency we understand an unpredictable, unavoidable event, independent of the will of the parties, such as earthquakes, floods or other events of the same nature.
We mention that resolutory clauses that allow an elastic way of getting out of the contract represent one of the "delicate" issues that appear in the contractual negotiations. We recommend that, prior to any negotiation, the manager, together with a team of specialists and a specialized business jurist, give some time for an analysis of potential situations that may occur.

Attorney Dan Livescu

10. The negotiations about the contract are over. Which of the parties draws up the written contract?
This is the question encountered at the end of any negotiation. It usually generates two types of attitudes:

the drawing up of the contract is avoided because it is considered that as long as the parties agreed on the essential clauses it is of less importance who draws it up. Either of the parties prefer not to waste time on this matter;
the drawing up of the contract is solicited;
A clever manager knows, however, that the second attitude is in his/her interest. Even if, following the negotiations, the parties agreed on the essential clauses, the balance of the contract is in the hands of the one who draws up the contract. A jurist with experience in contracts will KNOW HOW to draw up the contract so that it includes clauses favourable to him/her and which represent nothing (are of no importance) for the other party.
Even in the situation in which the other party has, in its turn, a jurist specialized in contracts, the party that draws up the written contract has an advantage out of situations such as: fear that the other party will feel offended if too many modifications of the contract are required, time pressure, etc.
As a conclusion, if you have at your disposal a jurist with experience in contracts, who has the capacity to analyze and anticipate potential situations and risks of the contract, VOLUNTEER TO DRAW UP THE WRITTEN CONTRACT.

Attorney Dan Livescu

11. What are the effects of vaguely defining the contractual obligations?
Defining the rights and obligations of the parties in a vague or insufficiently explicit manner may have as consequence blockages in the execution of the contract. These lead to delays or even to the impossibility of the execution. In such situations, the parties usually renegotiate- process which delays the execution of the contract. If negotiations fail, most of the times legal forced execution is required.
Even so, the forced execution may become impossible because the court may find it difficult to ascertain the real will of the partners concerning their rights and duties.
Attorney Dan Livescu

12. What happens in case the delivered merchandise is not in concordance with the contract, the buyer refuses the reception and the seller sues asking for the execution?
It depends if the parties have in the contract clauses about this situation. If there are clauses in this respect, they apply. If the clauses are missing or if there is a clause such as "the buyer may refuse check on delivery if the lack of concordance with the contract is significant", the court may rule in favor of the execution, as required by the seller, if the former acknowledges that the lack of concordance is significant and that it is equitable that the contract is executed.
Attorney Dan Livescu

International contract law

1. What is the binding legal power of the United Nations Convention on Contracts for the International Sale of Goods (CISG) adopted in Vienna in 1980?
The convention has the binding power of a law for the parties that have the headquarters located in states that are signatories. Yet, article 6 indicates the fact that the provisions of the Convention have a facultative character. This means that the parties in a contract can choose not to have the entire Convention or parts of it apply to the contract. The choice of not having the provisions of CISG apply to the contract is done only by explicit specifications in the contract (contractual clauses to this purpose) or in an implicit manner (another regulation applicable to the contract is indicated.)
Therefore, pay attention! If the country where the headquarters of your company is, signed the CISG and you did not expressly specified in the contract (explicitly or implicitly) that you exclude the applying of its provisions, the provisions of CISG have the power of a law.
Attorney Dan Livescu

2. What is better in the case of an international contract: to have the provisions of CISG apply to it or to exclude their being applied?
It depends on the particular features of your business. Keep in mind: in business in general and in international business even more, TRUST PLAYS A VERY IMPORTANT ROLE. Applying the provisions of an international convention, which contains uniform clauses and was adopted by a great number of states, CREATES TRUST. The partner will be easier convinced of your good intentions. Thus, blockages in concluding a business will be avoided.
Attorney Dan Livescu

3. In what cases do the CISG provisions apply?
According to art.1, (1): "This Convention applies to contracts of sale of goods between parties whose places of business are in different States;
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law of a Contracting State"
A few clarifications:
Before they conclude the contract, the parties must be aware of the fact that the headquarters are in different states.(Article 1, paragraph 2)
Contracting states, in the sense of the CISG, means the signatory states. (art.91).
Some states do not accept the criterion under letter b). These states are specified in the list of UNCITRAL (United Nations Commission on International Trade Law)
Attorney Dan Livescu

4. Do the provisions of CISG apply in the case of a contract on the selling of goods made with a US partner?
Yes, they do. The Convention has been applying in the USA since 1988.
Attorney Dan Livescu

5. What are the signatories of CISG (United Nations Convention on Contracts for the International Sale of Goods - Vienna 1980)?
According to the data provided by UNCITRAL (United Nations Commission on International Trade Law) by November 2, 2000, the Convention on Contracts For The International Sale of Goods (Vienna 1980) had been signed by 59 states: Argentina, Australia, Austria, Belarus, Belgium, Bosnia-Herzegovina, Bulgaria, Burundi, Canada, Chile, China, Kirghizstan, Croatia, Cuba, The Czech Republic, Denmark, Ecuador, Egypt, Switzerland, Estonia, Finland, France, Georgia, Germany, Ghana, Greece, Guinea, Iraq, Italy, Yugoslavia, Latvia, Lesotho, Lithuania, Luxembourg, Mauritania, Mexico, Moldova, Mongolia, Norway, New Zealand, Holland, Peru, Poland, Romania, Russia, Singapore, Slovakia, Slovenia, Spain, Syria, Sweden, USA, Ukraine, Uganda, Uruguay, Uzbekistan, Venezuela, Zambia.
Attorney Dan Livescu

6. CISG uses the term "goods" when specifying the object or when regulating. Does the term "goods" apply to the selling of services, too?
CISG does not define the term "goods". There are, however, elements that make us consider that the term applies only to the trading of mobile goods. Precisely:

Article 3, point 2: "This Convention does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consist in the supply of labour or other services"
Comment on the CISG made by the UN Secretariat.
The spirit of the Convention; the manner it approaches the issues related to the trading of goods.

Attorney Dan Livescu

7. Is the written form mandatory in the case of an international contract to which the CISG applies?
According to Article 11 of CISG: "A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witness."
However, it is highly recommended, even more than in the case of a domestic contract, that it be concluded in the written form.
Attorney Dan Livescu

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