COMMENTARY TO CH. 30 OF THE RUSSIAN FEDERATION CIVIL CODE

	Introduction A widely used major form of contractual obligation stipulated in Section 4 of Part Two of the Russian Civil is a sale contract. Pursuant to a sale contract, a seller commits to transfer an item to a seller, and a seller commits to accept these goods and pay a certain price for them. In the new CC, lawmakers have not changed a traditional definition but what is more important, they have established that its rules shall be applicable to all contracts specified in Chapter 30 of Part Two of the CC if otherwise is not defined by the rules of the Civil Code for certain types of sale contracts. On the one hand, these contracts are not business contracts in a full sense, but being regulated by separate paragraphs of the Civil Code, they are regarded as independent contracts in the system of contractual legal relations. So, what is the first step in drafting a legal document and what covenants of a sale contract are essential for recognising a contract being concluded?
	Subject of contract The subject of a contract can be any property, provided it was not exempt or otherwise restricted is business usage in accordance with the law and other regulations. The CC introduces a new rule which stipulates that a sale contract can be concluded in respect of products on hand of a seller as well as goods to be manufactured or purchased by a seller in the future. However, the covenant of a sale contract in respect of the goods is considered agreed if a contract allows to understand real intentions of the parties, in other words, to define: 1.1. Name of goods; 1.2. Quantity of goods; 1.3. Assortment of goods; 1.4. Completeness of goods; 1.5. Tare and packaging of goods; 1.6. Location of goods; 1.7. Manufacturer of goods; 1.8. Documents on goods that a seller shall pass to a buyer. Like the Civil Code of 1964, the Civil Code of 1994 denotes a number of so called determinative and specially defined covenants, and if they are missing, in certain cases a contract cannot be considered not concluded. For example, if the assortment of the ordered goods is not specified in the contract, but it is clear from the contractual commitment that they should be transferred or delivered to a buyer in accordance with certain dimensions, shape, colour (an extended bill of goods), a seller is entitled to transfer goods to a buyer in the assortment defined from his needs which became known to a buyer at the date of acquisition of the goods or refuse execution of the contract. In other words, if the subject of a contract is agreed, namely, the name and quantity of goods, but the assortment is not defined, this fact cannot be a sufficient basis for recognising the contract not concluded. The determinative covenants also include terms of completeness tare and packaging, marking, pricing and quality of goods about which a seller must advise a buyer. However, one should remember that the key covenant of any contract, including a sale contract, is a definition of the object of the transaction. When defining the object of a contract, it is necessary to specify the exact and most commonly used name of goods which would make its substitution impossible. If goods under the same name can have different properties and characteristics, the parties should specify in the contract the exact characteristics of the goods. If a buyer intends to acquire different goods, the quantity of each type of good to be transferred under the contract should be specified. As a rule, in this case special appendices or specifications are used, which define all the details of the goods characteristics, with a mandatory reference in the text of the contract that the specifications are its integral part (see table). SPECIFICATIONS Of goods to be supplied N Name of goods (account) Unit of measurement Quantity Prices in rubbles per unit of measure Amount, rubbles Term of delivery Quarters I II III IV 1. Book "Business Operations" copies 400 2500 1000000 100 100 100 100 2. Book "Intermediate Trade" copies 500 2000 1000000 100 200 100 100
	Quantity of goods When defining quantity in a contract, the parties should specify the unit of measurement or its monetary equivalent since the quantity of goods along with the name of goods is the subject of a contract and is an essential covenant without which the contract cannot be considered concluded (p. 2, Article 465 of the CC). However, the CC also allows for the parties to agree on a procedure of determining the quantity of goods in the contract. When it is impossible to define the exact quantity of goods, for example, if the goods are supplied in bulk, the quantity of goods can be defined by an option to be indicated before or after the figure specifying the quantity of goods: "more or less by _ %" or "+ _ %". Thus, having defined the initial quantity of goods by a measure of weight (ton), volume (barrel) or length (meter), you can stipulate a covenant on the procedure of defining the quantity by indicating + 5% and specify which party has the right to use this deviation from the established limit of the quantity of goods. When defining the quantity, non-conventional units of measurement can be also used: packaging cases, boxes, and sacks. If the parties wish to avoid any misunderstanding, they should specify their weight, size and volume. As a rule, the choice of a unit of measurement depends on the properties of goods and the established business practice. Thus, the quantity of individual goods is defined on the basis of conventional units. For example, the quantity of a number of chemical goods can be defined on the basis of 100% of the basic substance. If weight is used as a unit of measurement, the contract should include: net or gross weight (net weight - weight of goods without tare and packaging; gross weight - weight including tare and packaging materials; semi-gross weight - weight including inside packaging; net-gross weight - weight of goods with tare when the cost of tare is included into the cost of goods). If a covenant on the quantity of goods is breached, a buyer is entitled, if it was not otherwise agreed by the parties, to refuse the transferred goods, and if the goods are already paid for, to claim that the paid amount to be returned (p. 1, Article 466 of the CC).
	Quality of goods The quality of the goods supplied by a seller must conform to the standards established in the Russian Federation. The quality of goods is assured by a seller in a manufacturer's certificate. Unlike other rules stipulated in Article 30, Part Two of the CC, the requirement for appropriate quality of goods supplied to a buyer deserves special attention. The CC provides for well-defined protection of the buyer's rights and unlimited liability of a seller for not meeting the quality requirements. As a rule, while such covenants as assortment, completeness, tare and packaging of goods are facultative, the requirement of quality of the goods is biding, and the seller is liable to transfer to the buyer goods whose quality meets the terms of the contract. If these terms are not agreed upon by the parties and not included in the contract, the seller is liable to transfer to the buyer goods suitable for the purposes of the buyer provided that he advised the seller about them. In other words, a product is transferred to a buyer in accordance with its purpose, which means - for the purposes for which it is usually used. However, the quality of goods is not always in control of the parties. The Civil Code requires that businessmen should assure the quality which conforms to the mandatory requirements established by the state quality standards for particular goods. The list of products subject to mandatory certification is included in the nomenclature established by the RF State Standards and is affirmed by the RF Government. Pursuant to the Law "On Certification Of Products And Services", the goods subject to certification may not be sold without a certificate which proves that their quality conforms to the established requirements. Warranty assurance of goods An innovation of the Civil Code is the introduction of two types of warranty assurance of goods stipulated in Article 470: legal and contractual, and consequently, different legal consequences for the seller's liability for breaching this obligation. Legal warranty requires that a seller is obliged to supply goods to the buyer that must suit the purposes for which they are being purchased at the date of transfer and which are also suitable to be used for their purposes during a reasonable period. Thus, any goods realised by a seller will be assured by legal warranty. Contractual warranty provides for quality assurance of goods by a seller during a certain period specified in the contract. The goods must meet the quality requirements within this warranty period. For example, if certain goods are suitable for usage and retain their consumer properties within one year, and the parties agreed on a warranty period of one month, the monthly warranty will be effective, but for this reason the price for the goods may be considerably reduced. The legal meaning of legal and contractual warranties is defined in Article 476 of the CC and is expressed in the distribution of the burden of evidence between the parties if during the warranty period flaws in goods supplied by a seller were detected. If the goods were protected by legal warranty, a seller is responsible for the flaws in the goods which appeared before they were transferred to a buyer who will have to prove this fact. In this situation it is the buyer who bears the burden of evidence that flaws in the goods appeared before they were transferred. If the parties agreed on the warranty, but during the warranty period flaws were detected in the goods, it is enough for the buyer to claim for elimination of flaws by the seller, and it is the seller who will have to prove that flaws appeared after the goods were transferred to the buyer and through his fault, if, of course, he does not agree with this claim. Serviceable life of goods. Unlike a warranty period of goods, the law introduces a special clause on the serviceable life of goods, which earlier was included only in the law on protection of consumers' rights. Pursuant to Article 472 of the CC, upon expiry of the serviceable life specified by law, the goods are considered unfit for use for their stated purpose. This provision is very important because it stipulates that, firstly, the contractual warranty may not exceed the serviceable life of the goods and, secondly, a seller is bound to transfer the goods for which the expiry date is established so that they can be used for their purpose before the expiry date. In order to claim for elimination of flaws or replacement of the goods with similar ones by a seller, the flaws in goods must be detected within their serviceable life. In cases when neither the expiration date or the warranty period is established, a seller is liable for inflicting harm to the goods in the form of flaws within 10 years after they have been transferred to a buyer. If against the law the expiry date is not stated, and if a buyer was not informed about the necessary actions upon expiry of the serviceable life and possible consequences of not taking them, the seller's liability is not restricted by time limits. The period of detecting and eliminating flaws. The issue of detecting flaws in goods is very important, and especially when the buyer has detected them because his right to realise a possible claim in the future will specifically depend on this. The Russian Civil Code follows the general provision of the Vienna Convention on International Sales of Goods, according to which, flaws should be detected in goods protected by both legal and contractual warranty within the warranty period, and if the warranty is absent, within a reasonable period but not longer than within two years after the date of transfer of the goods. The law also provides for a special regulation. If a warranty period is less than 2 years, and flaws in the goods were detected by the buyer when the warranty period expired but within two years from the date of transfer of the goods, a seller is liable if a buyer succeeds in proving that the flaws originated in the goods before they were transferred or for reasons apparent before this date. Thus, the period for detecting flaws in the transferred goods is restricted by two years. Article 475 of the CC defines the consequences of non-fulfilment of the obligation of a seller to transfer goods of appropriate quality, which did not change a great deal. However, while listing traditional rights of a buyer, the CC singles out the right for replacement of goods by new ones if they do not conform to the quality requirements. For example, if irreplaceable flaws are detected that cannot be eliminated without inadequately high amounts of expenditure and time, a buyer has the right either to refuse to execute the sale contract and demand a return of money paid for the goods and compensation for the incurred losses or to require replacement of the faulty goods by the goods of appropriate quality. A new provision introduced in the Civil Code is the obligation of a buyer to inform a seller about improper execution of the sale contract when certain departures from the contract were detected. In order for a buyer to be able to claim for elimination of flaws by a seller, he has to inform the seller about the inconsistency of the goods as soon as possible if a certain period is not defined by the contract. Otherwise, in certain cases and under certain conditions, for example, if he was not informed and does not have an opportunity to satisfy the requirement of the buyer, he is entitled to refuse replacement of the product by another one of appropriate quality or fulfilment of other related requirements. However, notification of the seller about improper execution of the contract, namely regarding breach of the terms of quantity, assortment, quality, completeness, tare and packaging does not affect the claim of the buyer to reduce prices for goods proportionally since in this case the fact of notification of the seller (or the absence of this fact) does not have any legal value.
	Date of transfer of goods The goods shall be transferred to a buyer within the period specified in the contract. Having obtained the goods, a buyer must confirm by fax that the goods were obtained on a certain date. The seller is responsible for delivering the goods within the period established by the sale contract. If this period is not specified, he is liable to transfer the goods within a reasonable time after the date of the contract commencement. The term "reasonable time" is not explained by the Civil Code. Normally, if a dispute arises about non-execution of the contract in the proper time, a reasonable time of fulfilment of obligations in each case is defined by the court of arbitration which takes into consideration consumer properties of goods or the requirement to assure the continuity of the seller's production. If a seller failed to deliver the goods to a buyer, he is liable to do this within seven days after the buyer has raised a claim for transfer of the product. As a rule, the term of delivery under the contract is defined by the parties either by specifying the date or a certain period of time when the obligation is to be fulfilled, or established in another way which allows for definition of the date of execution of the obligation. The date of the obligation execution is considered as the date of an acceptance document which proves the acceptance of the goods by a buyer. It plays a very significant role since this document determines the date of the obligation execution by a seller and on the basis of which the law defines the transfer of the risk of accidental loss of goods to the buyer. A buyer should know that the obligation of a seller to transfer the goods is considered fulfilled and that he is no longer liable for the damage of the product or its loss if the goods were handed to the buyer by the seller who was bound to deliver them by the contract; as well as if the goods were transferred to the buyer at the place of the goods location (under the condition of loading and shipment of goods by the buyer), if the parties did not agree that the right of ownership to the goods belongs to the seller until the goods are paid for or until other circumstances take place, we must then consider the following. In this event, if the goods were not identified for a particular contract by marking, shipment documents or otherwise, they are not considered delivered to a buyer, and the risk of accidental loss or damage of goods will remain on the seller. It often happens that the obligation of a seller to deliver the goods to a buyer or transfer them at the location of the goods does not follow from the sale contract. As a rule, this happens when a buyer contracts a forwarding company, a carrier or a communication company. If the goods are handed to a "carrier" to be shipped to a buyer and they are damaged or lost during shipment, a seller is not liable, and a buyer is entitled to claim from a carrier compensation for the incurred losses caused by non-fulfilment or improper fulfilment of the shipment contract.
	Price of goods A buyer pays for the supplied goods at a general price defined in specifications attached to the contract. Prices under the contract are indicated without VAT. As a rule, the price of goods is a constructive term of a contract in the cases directly defined in the law, for example, when the goods are sold on credit. If it is not stated in a contract and cannot be determined from its terms, a facultative rule stipulated in p. 3, Article 424 of the CC on execution of an obligation of unlimited duration is applied: when there is no direct indication of price in a contract and when it cannot be defined from its terms, the payment shall be made at a price which is normally charged for similar goods under similar circumstances. The similarity of circumstances which allow for determination of a single-value price shall be proven by the interested party. However, if the parties did not specify the price of goods in the contract and failed to reach an agreement on payment of goods at a general price charged under similar circumstances and, have disagree on this issue, the rule of p. 3 Article 424 of the CC is not applied. The contract is considered as not concluded. The key obligation of a buyer under a sale contract is not only a commitment to pay for the goods in accordance with the reached agreement but also to accept them. This means that he shall execute all actions necessary to accept the goods and if, in accordance with the contract, the goods are to be paid for after they have been supplied, to execute all actions necessary to make payments. Thus, for example, if a consignment of goods is transferred at the place of its location at the seller's warehouse, a buyer shall provide for transportation of goods in accordance with general shipment terms if not otherwise agreed upon by the parties to the contract. Similarly, if, in accordance with the contract, the cost of goods transferred to the buyer can be indisputably charged-off, a buyer shall instruct his bank to accept payment orders from a seller in respect of a particular contract. It is from this position that in the future it will be judged whether a buyer has executed all the necessary actions to accept the goods or not. Thus, the terms and the date of payment for the goods are contractual covenants and, if they are not defined in the contract and do not follow from the obligation automatically, the CC envisages a facultative rule according to which the goods shall be paid for either directly before or after they have been transferred by a seller. This means that a rule on execution of the contract within seven days, if the date of the obligation execution is not defined in the contract and a reasonable period of its execution has expired, is not applied. In this case, a special rule on payment of goods directly after they have been received by a buyer is applied if otherwise not defined by the parties in the contract. The Civil Code introduces a term of prepayment for the goods. A prepayment equal to a certain per cent of the contract price shall be transferred to the seller within the established period after the date of the goods acceptance. When a contract requires that a buyer should pay for the goods in part or in full before they have been transferred, a buyer shall pay for the goods within the dates defined in the contract. If this term was not fulfilled by the buyer, the seller is entitled to refuse the contract and claim compensation for the losses or to suspend his obligation to transfer the goods until they are paid for. If a seller delayed to fulfil his obligation to transfer the goods after a prepayment has been made, he shall be liable for deforcement and embezzlement in accordance with Article 395 of the CC. Pursuant to p. 1, Article 395 of the CC, starting from the date when the goods were to be transferred, the interest is added to the prepayment based on the bank interest rate at the place of residence (location) of the seller. The interest shall be added until the goods are actually transferred to a buyer or until the amounts he has prepaid for the goods are returned. If the losses exceed the amount of the paid interest, a creditor is entitled to claim compensation for losses exceeding this amount. A certain part of goods delivered to a buyer shall be paid within the dates defined by a contract. The Civil Code also contains a new rule stipulated in Article 488 on payment of goods sold on credit. In accordance with Article 488, when a buyer fails to fulfil his obligation to pay for the goods, a seller shall acquire the rights to the sold but not paid for goods with the right of priority over other creditors to recover compensation for these goods. Type of settlement - bank clearing. Form of settlement - a payment order. A buyer shall notify a seller by fax on making a payment within the specified period after the date of acceptance of the goods. Cash flow in the Russian Federation is governed by the Regulation on Bank Clearing affirmed by Letter of the Central Bank of Russia N 14 dated 9.07.92 and the Regulation on Cash Operations in the Russian Federation affirmed by Letter of the Central Bank of Russia N 18 dated 4.10.93. Pursuant to Government Decree N 1258 dated November 17, 1994 "On Establishing The Limit For Cash Settlements Between Companies In The Russian Federation", the maximum amount of cash settlements between companies is limited by 2 thousand rubles per one payment. Payments made by one company to other companies on one day using several payment instruments in respect of one contract in an amount under 2 thousand rubbles shall be considered as a single total payment. All settlements exceeding this amount shall be made through bank settlement accounts of companies in a form of bank clearing. As a rule, it is made with payment orders if other instruments of settlements, for example, a credit, a cheque or a collection letter, were not defined by the parties to the contract. An exception to this rule is the establishment of a maximum amount of cash payment equal to 5 thousand rubbles for consumer co-operation Enterprises when they purchase goods, agricultural products and raw material from companies (Letter of the CB of the RF N 191 dated 18 September, 1995). It is also important that, in accordance with p. 7 of the Regulation on Cash Operations in the RF affirmed by Letter of the CB of the RF N 14-4/35 dated 17 January, 1994 "On Explanation Of Application Of The Regulation On Cash Operations In The RF", companies that have constant revenues under an agreement with their banks are entitled to use them for remuneration of labour, social benefits, travelling expenses and purchase of tare and goods from the public. However, they are not allowed to accumulate cash which exceeds the established limits for incurring expenses, including remuneration of labour. It follows that the amount of cash settlements between companies and private entrepreneurs is not limited. If they exceed the established limits for cash settlements, penalties stipulated by Decree of President of the RF N 1006 dated 23 May, 1994 "On Package Measures on Full and Timely Payment of Taxes and Other Mandatory Allocations" are not applied to them. Government Regulation N 1258 does not mention private entrepreneurs and does not include into its purview business relations between private entrepreneurs, including their legal contracts with companies. On the other hand, one must take into consideration Presidential Decree N 1212 dated 18 August, 1996 "On Measures for Improving Tax Collection and Regularising Cash and Bank Money Flows" which changed the existing order of monetary exchange between private individuals. Pursuant to Presidential Decree N 1212, companies cannot transfer money to settlement accounts of private entrepreneurs directly from their till bypassing their settlement account. All cash must be transferred to the settlement account of the company which makes a payment and then transferred to the bank account of a private entrepreneur by the bank. A Breach of the established settlement order will be penalised with a fine equal to the amount of cash paid to a private individual directly. Strict financial sanctions are also established by Decree of President of the RF N 1006 dated 23 May, 1994: for cash settlements between companies exceeding the established limits there is a penalty imposed by the tax authority of a fine equal to double the amount of the payment. As Instructional Letter of the Central Bank of the RF N 14-4/308 dated 24 December, 1994 explains, a fine shall be imposed on the company which makes a payment to another company, that is, on the buyer.
	Liabilities of parties Should a party breach the terms of the contract, he shall make compensation for damages caused, including the lost profit, as is established by the existing legislation. A general rule is applied in accordance with which, the proper execution of obligations under a sale contract is assured by the liability of the party who fails or refuses to properly execute his obligation to the other party with his property. The Civil Code clearly states the consequences of non- fulfilment of the buyer's obligation to transfer the goods. Firstly, as we know, the law allows a party to refuse to execute his obligation unilaterally under certain circumstances, which results in its turn in the termination of the contract. In this event, in accordance with Article 15 of the CC, a buyer has the right to claim full compensation for damages, including income not received which he would normally receive had his right not been infringed (lost profit). Secondly, if the subject of the contract is a particular thing, and the seller failed to execute his obligation to transfer it to the buyer, the buyer has the right to require alienation and transfer of this thing under the terms stated in the sale contract or compensation for the incurred pecuniary losses. This is the cost the lost property, expenses which the buyer incurred or will have to incur in connection with losing the property (real loss) as well as the income obtained by the seller as a result of infringing the right of the buyer. In this case, Article 396 of the CC is applied, in accordance with which, compensation for losses caused by improper execution of the obligation frees the debtor from execution of the obligation in kind. That is why the buyer has the right to require the seller either to transfer the goods to him or compensate for pecuniary losses. In civil relations, compensation for losses is the most common form of liability. Normally, if a contract does not contain a clause on compensation for losses, they shall be compensated in full. Only under certain circumstances, for example, when a contract establishes very large penalties or by the decision of a court, if losses exceed the damage which was foreseen or should have been foreseen by the default party at the date of conclusion of the contract, can the liability can be reduced. One should also remember that the degree of the claim's effectiveness depends on the degree of its proof. In order for the claim to be sustained, it is not enough for the party to refer to the fact of non-obtaining income due to non-execution of the obligation by the other party, but it is also necessary to submit all written evidence: protocols of intentions and preliminary agreements demonstrating the possibility of gaining profits. In this case, the proof of the amount of losses and, consequently, the operative resolution of the claimant's problems will depend on the system of accounting used in the company. Usually, the amount of losses is estimated on the basis of tariffs and standards used by the aggrieved party. If the incurred losses are higher than these indicators, they are not subject to compensation. As a rule, by the decision of the court of arbitration a defendant compensates for losses in a monetary form. If the required monetary funds are unavailable, a claimant is entitled to apply to the court of arbitration with the motion to change the method of execution of the decision of the court of arbitration either by levying the execution on the defendant's property or, in accordance with Article 143 APC, by initiating a case of bankruptcy of the debtor. Parties are fully discharged from liability for non-execution or improper execution of obligations under the contract should any acts of God arise (force-majeur): earthquake, military operations, mass disease (epidemics), strikes, restriction of transportation and other circumstances that are beyond their control. Pursuant to the existing legislation, a businessman shall be liable until he proves that it was due to acts of God (force-majeur) that he could not execute or properly execute his obligation. The CC gives a clear definition of circumstances which do not have features of exclusiveness and objective irresistibility and cannot be classified as force-majeur and cannot discharge a party from his liability should he fail to fulfil the terms of the contract. These circumstances include the conditions associated with market changes: absence of goods necessary for fulfilment of the contract or non-execution of the obligation due to a fault of the debtor's subcontractors. In all other cases, pursuant to the Regulation "On the Procedure of Certification of Force-Majeur by a Chamber of Industry and Commerce" dated 30 September 1994, should natural disasters, war actions and other public phenomena arise, the party who did not meet his obligation, if he proves that the proper execution of his obligation was impossible due to these circumstances, will be discharged from liability. However, in accordance with the existing legislation, even should force-majeur arise, the parties are required to undertake all possible actions to ensure proper fulfilment of the obligations. Passive waiting for the "act of God" to happen, when from business point of view it was possible to undertake actions which would meet the other party's interests and could be partially considered as a substitution of the way of fulfilment of the obligation, cannot be justified. The party is also not discharged from the liability for breaching the contract if when taking on the obligation he knew that it was impossible to meet it due to force-majeur as well as when an irresistible circumstance was provoked by his faulty actions. However, the practice of concluding foreign trade contracts has shown that it is advisable to include a clear and all-embracing definition of circumstances under which the parties can be discharged fully or partially from fulfilment of their obligations to the contract. Under the contract, a buyer is liable: for breaching the term of transferring goods to a buyer within the established period, a penalty is imposed equal to 3% of the amount of the contract. As we know, the necessary condition for the liability of the defaulting party under the contract are losses incurred by the other party. However, sometimes it happens that losses have not yet been incurred, and it seems that there are no grounds for civil liability of the defaulting party. When the obligation was not met, the amount of compensation, disregarding whether the losses were incurred or not, is estimated on the basis of the penalty clause designed to encourage due execution of obligations. Thus, a creditor, pursuant to the penalty clause, has the right to obtain preliminary compensation for losses in respect of long-term obligations at the moment of its non-fulfilment even if their amount is estimated later. In this situation the creditor does not have to prove the fact of incurred losses. A penalty is a monetary amount defined by the contract which a debtor shall pay to the other party if he fails to fulfil his obligation or fulfils it improperly, for example, when he delays to execute the obligation within the dates established by the contract. If penalty sanctions are not determined in the contract, the sanctions provided by law shall be applied. In accordance with Regulation of the Presidium of the Supreme Soviet of the RF and the Government of the RF N 2831-7 dated 25 May, 1992 "On Urgent Measures for Regularisation of Settlements in Economy and Increasing Accountability of Enterprises for their Financial Condition", from 1 July 1992 a fine was established which is equal to 0.5% for each day of overdue payment to suppliers when its amount is not defined in a contract between a supplier and a buyer. The amount of the legal penalty can be increased by an agreement of the parties, if it is not prohibited by law. Nowadays, since trials can take long time, a contractual penalty has been widely used in business practices of entrepreneurs. Parties are entitled to define a penalty in the contract with the exception of some cases stated by law. To be effective, an agreement on the penalty shall be executed in writing. It can be defined either as a fixed amount in rubles or as a percentage of the total cost of the non-fulfilled obligation, for example, as a percentage of the total amount of the contract. Depending on the correlation between the right to recover a penalty and the right to compensation for damages, the CC defines four types of penalties: countable, punitive, exclusive and alternative. A countable penalty, if otherwise is not established by the contract, provides for recovering losses in the part which is not covered by the amount of penalty, that is, the previously recovered penalty is counted in the amount of losses to be compensated. Punitive or cumulative penalty can be imposed in respect of any obligation of the other party under the contract and shall be paid in the event of any kind of breach in addition to the compensation of losses. Exclusive penalty eliminates the right of a damages claim when the parties have agreed beforehand on the amount of compensation, for example, the parties established that the debtor is bound to pay the creditor a certain amount proportionate to the amount of overdue payment for each day of delay (fine). Alternative penalty allows either for recovery of penalty or compensation for losses. This means that as soon as the amount of losses is defined, it is not possible to refuse the paid penalty and demand the compensation of losses. It should be remembered that when considering the dispute, the court of arbitration, in accordance with Article 333 of the CC, has the right to reduce the penalty to be recovered if it is clearly irrelevant to the consequences of the breach of the obligation and also overrated in respect of the creditor's losses. Payment of the penalty does not free the party from execution of the obligation in accordance with the terms of the contract, if was otherwise not agreed upon by the parties. For a unilateral, groundless refusal to fulfil his obligation within the duration of the contract, a defaulting party shall pay a fine equal to 1000 MROT (minimum salary) established on the date of the contract breach. A variant of the penalty is a fine which is a monetary amount defined by the contract to be paid by a debtor to a creditor either as a fixed before sum or as percentage of the amount of debt or the subject of execution. The grounds on which penalty sanctions can be applied are not only a delay in the execution of the contract but also any other civil breach connected with non-execution or improper execution of an obligation.
	Amendments and cancellation of contract Amendments can be made to the contract only when agreed upon by all parties. If the parties decide to amend any of the terms of the contract after the contract is concluded, all amendments must be duly executed since any unilateral refusal to fulfil the obligation as well as unilateral amendment of the terms of the contract are not allowed by the general rule. Any amendments can be made to the concluded contract only if they are agreed upon by the parties after the procedure of preliminary approval. Thus, the party who wants to amend the contract is bound to submit to the other party his suggestion which shall be considered within 10 days from the date it was received if otherwise is not defined in the suggestion. If one of the parties objects to amending any terms of the contract, the contract shall be duly executed on the basis of the terms agreed upon when the contract was concluded. Any amendments and additions to the concluded contract shall be effected in the same way in which the contract was effected, that is, in writing. But usually amendments and additions to the contract are executed in a separate agreement of the parties or a protocol if the parties did not exchange letters, telegrams or faxes. For some types of contracts in certain cases stated by law, for example, lease contracts, if neither of the parties demand its termination, the contract is considered automatically extended. The contract is also extended for a new term if the parties have agreed on this when the contract was concluded. Besides amending the terms of the contract, the parties can also agree on cancellation of the contract. The agreement may include a possibility of the contract cancellation from the date of its commencement as well as in the future. In this event, the contract will not create any rights or obligations and will be considered а priori not concluded in due time. An agreement on the contract cancellation shall be effected by a protocol or any other bilateral document.
	Disputes settlement Any disputes between the parties on which agreement was not reached shall be settled in accordance with the RF legislation by the court of arbitration. The parties establish that any possible claim in respect of the contract will be considered by them within ten days after the date of the receipt of the claim. When a dispute has not yet arisen but the parties revealed disagreement on the terms of the contract, for example, in respect of the terms of delivery, the CC introduces a special rule enabling the parties to avoid possible problems. Thus, if a seller secured a buyer's consent on conclusion of a contract with an additional suggestion to reduce the price of goods, he is bound to inform the other party within 30 days on his acceptance of the suggestion or refusal of further negotiations. Should the seller fail to inform the buyer on accepting or declining his suggestion, he is entitled to claim damage from the buyer incurred by long absence of the response and ungrounded evasion from concluding the contract. Thus, by regulating pre-contract relations between the parties, the CC assures the absence of possible disputes arising between the parties. The CC also allows for protection of the buyer's rights at the stage of preparation of execution of the contract when a buyer forms his production program and takes actions to prepare for execution of the contract. An additional protection of the seller's rights is his right, which is directly stipulated in Article 491 of the CC, to demand from the buyer the goods he has not paid for if under the contract the right of ownership was not assigned to the buyer. The parties must indicate in the contract how the possible disputes will be settled: in court or court of arbitration. Should any differences arise between the parties in respect of the terms of the contract, they are entitled to apply to the court of arbitration, if an arbitration agreement was not effected beforehand. In accordance with Law of the RF N 5338-1 dated 7 July, 1993, an arbitration agreement is an agreement of the parties to settle any or some disputes which have arisen or may arise between them in connection with any legal relation, disregarding whether it is contractual or not, in the court of arbitration. An arbitration agreement is made in writing either in a form of an arbitration clause in the contract signed by the parties or in a separate document attached to the contract. The reference in the contract to the document containing the clause is an arbitration agreement provided the agreement is made in writing and this reference is formulated in such a way that it makes the above said clause an integral part of the contract. Normally, disputes are settled by a court of arbitration either at the location of a defendant or at place where the dispute over property has arisen. Should one party or both parties appeal with a substantiated motion to dismiss the panel of the court of arbitration considering the dispute and it was satisfied, the case can be transferred to the arbitration court of a different region. The decision of the court of arbitration can be appealed at the board of appeals of this arbitration court or at the board of appeal of the Federation Court of Arbitration. The highest appeal court is the Supreme Court of Arbitration.