Risk examination and clause designing of the oil equipment

purchase contract

• Part One Risk examination of the oil equipment purchase contract

• Part Two Intro of the structure of contract

Part One Risk examination of the oil equipment purchase contract

• 1. Main content of the risk examination of the contract

• (1)Proper contracting parties• (2)Legal content and true manifestation of

intention • (3)Protection of legal interest, legal and perfect

contract form

2. The basic principle of risk examination of contract

• (1) The principle of legality• Including the legality of contracting parties, content and form

as below:• The contracting parties shall has capacity for civil rights and

capacity for civil conduct;• The content of contract shall not violate the compulsory

provisions of law and regulations;• The contracting form shall fill the requirement of law and

regulations.

• (2)The principle of factuality

• The manifestation of intention of contracting parties shall be true. The contract shall not be concluded by means of fraud, duress, exploitation of unfavorable position by one party, material misunderstanding or malicious collaboration.

3)Principle of integrity

•In light of the nature of the contract, the contract clause shall be made without omission and the content of each clause shall be clear, specific and feasible.Clauses which are incomplete, simple, abstract shall be avoided to in order to make the performance of contract easier and avoid disputes.

• (4)Principle of normative

• To review the norm of the word in contract in order to check whether there are words causing contradiction in the context or ambiguous meanings and misunderstandings.

• (5)Principle of fairness

• The contracting parties shall observe the principle of fairness in determining rights and obligations, balancing the interests of parties.

• 3. Risks in oil equipment purchase contract

• (1)Risk of the validity of contract

• The validity risk caused by non-presentment, wrong presentment and wrong judgment shall be considered in the review and amending of contract.

• Firstly, the review of the validity of contact is the first important content in the review of contract. The contract might be judged as an invalid one by court or arbitrator caused by no review or neglecting the review of validity, which will put one of the parties, whose interest might not be protected, at a serious disadvantage.

Generally, most clients only review the word of the context without its validity in the review of contract. In fact, seriously review of validity is demanded in order to avoid the unnecessary loss caused by validity of contract. Which situation will cause the validity of contract to a dispute? This is a problem we have to consider and review. We have to consider all the factors, manifestation of intention of the parties in order to prevent the invalidity of contract and contract fraud.

• Secondly, review of proper contracting parties is also a content in reviewing contract.

• In case of review of proper contracting parties, it will make no sense if review is just for the context of contract. We have to make responsible investigation such as requesting for the other party to provide their reference, reviewing business license provided by the other party. We shall view whether the business license has been annual examined and the expiry date of the license. If the contract party is an suboffice, we shall request for the business license of its head office. Moreover, we shall review whether the power of attorney is valid and clear. Essentially speaking, the review of proper contracting parties depends on the review of license.

• (2)Risk of misunderstanding

• The purpose of trading is a motivation or an economical purpose of client’s signing contract in the trading which involved in the contract submitted by the client. We shall have a good knowledge of the background of the trading and have idea of whether it is buyer’s market or seller’s market in reviewing or amending the contract. We also should know the bottom line and condition of the parties if they can reach an agreement, the dispute clause in the negotiation of the contract. In that case, we could make good selection of basic spirit, mood and clause in reviewing and amending contract efficiently and accurately, and could know the proportion of the contract and the risk of the contract, so that we can make efficient action to prevent risks.

• (3)Risk of contractual capacity

• In case of wrong judgment of the parties’ capacity of performance and lacking clauses for failure performance in the contract may cause legal risks. In most cases, the parties always overrate its capacity of performance to sign the contracts which are above their capacity. Once the terms of performance have changed, the limit of capacity of parties may lead failure of performance of one party or both parties, which might cause huge loss of parties. However, once the disputes arise, the parties will discuss and study whether there are remedy clauses, such as, responsibility of breach of contract, liability of guarantee, liability for compensation or conditions and standards of the compensation, methods of settling disputes and jurisdiction, have foreseen the results.

(4)Risk of lack of clause

In case of lacking review of the client’s contract, there will be serious obstacle in performing the contract. The review of completeness of the main clause is the main content of reviewing and amending contract.

• (5)Risk of sequence of performance

• The terms of time of performance are the clauses parties seek to. The experienced lawyer will not design the clause in which the obligation clause of performance of his clients on a particular date. The experienced lawyer will make the time of performances of his client after the one of the other party, and the time of rights will be before the one of the other party, designing the clauses fulfill the defense right in performance according to the Clause 66,67,68 of the Contract Law of P.R.C. In practice, this kind of clause will reduce the risk of clients.

(6)Risk of imbalanced interest

The imbalance of parties’ rights and obligation, or parties’ interests may cause legal riks.In a bilateral contract, the obligations and rights of parties shall be balanced. Once lawyers find the rights and obligations are not balance, such as there are rights of only one party in the contract and only the other party bear the obligations, or the obligations of one party is obviously heavier that the other one, it is difficult to reach the agreement. Even though the parties reach that kind of agreement, it is controversial whether this agreement will come into force. Since the judgment will consider this kind of agreement is obviously unfair and will make proper adjustment once there are disputes arises.

• (7)Risk of obstacles in performance• Clauses that seems like good for client but cannot be

performed in practice may lead the client to obstacles in performance of the contract and huge risks. In practice, we find some clients provide draft in which there are some clauses good for client but cannot perform. We have to consider the operability of the clause which contains rights and obligations in reviewing and amending contract.

• (8)Risk of misplacing of personal reference

• In reviewing or amending contract, lawyers shall pay attention to risks and disputes caused by the misplacing of personal reference. In practice, the parties will be substituted by “Party A” or “Party B”. However, we shall notice once there are rights and obligations stipulated in the contract, the misplacing of personal reference are not allowed.

• (9)Risk of vague expression• We shall pay attention to the legal risk caused by the vague

expression of word or wrong expression. The expression of word in contract shall be very rigorous. The comprehension of the word in the contract shall not cause confusions.

Part Two Intro of the structure of contract

1. Definition clause is required in the “Purchase Contract”

• Contract: The agreement signed by representative of buyer and seller.(including all the attachment, graph paper, catalog, etc)

• Buyer: The party who buy the product• Seller: The party, such as factory, company, economic entity, who provide production or

service according to the requirements in the contract • Production: All the equipment, material, spare components/parts, tool, handbook, technical

documents and other articles required in the contract, which seller shall provide to buyer according to the contract.

• Service: Including Looking after the equipment or material, technically guiding of installation, setting and running test, technically service during the period of designing and construction, training employee of buyer and other obligation, which are provided by seller t from the effective date of the contract till the expiry date of the mechanical guarantee.

• Jobsite: The construction site of the project taken by the buyer, where is the production installed and used.

• Inspection: The program and mean to accept the production provided by seller, according to the attached technical documents, scopes and means regulated in the attachment.

• Total contract price: The amounts that buy shall pay to the seller, which regulated in the contract, after the seller’s conforming performance.

2.The detail requirements of drafting clauses of purchase contract.• (1)Request for the documents provided by the seller.• (2)Technical service provided by the seller.• (3)Contract price• (4)The terms of payment• (5)Quality assurance• (6)Time of delivery, place of delivery ( must be detailed; the cost of

freight has been involved in the total contract price.)• (7)Condition of delivery. After the qualified equipment has been

produced with inspection, adjusting, running test, it will be delivered to the place appointed in the contract. After inspecting by the buyer, the delivery has been achieved. There exists two ways of delivery: partial delivery and overall delivery.

• (8)Demand delivery of goods• (9)Inspection and supervision

• (10)The open-package inspection• (11)Notice of the disposition of the nonconforming production• (12)Communication• (13)Requirements of package, mark and • transportation• (14)Requirements of package, mark and • transportation• (15)Termination• (16)Assignment and subcontracting• (17)Amendment, come into force and expiry • date• (18)Arbitration or litigation• (19)Appendix

SHANGHAI JINNENG LAW FIRMYUE WEN HUI Chife PartnerADD ： RoomA1 、 Floor14 、 Mingdao Building8 Ganhe Rd.Shanghai . China TEL ： 021—60940366 FAX ： 021—60940368 M T ： 13601716788 E-mail ： ywhlawyer@ yahoo. com.cn http ： //www.jinnenglaw.com P C ： 200437