We are well familiar with that distant look on a client’s face as they sink into the chair at the sound of that mysterious word “indemnity”, or worse still “liability”. But investing a couple of hours of your time at the outset could save you a huge headache down the line.
By Alena Makarevich, Associate, Corporate and Commercial
Many of our clients come to our dispute resolution department as a result of some sort of disagreement with their business partner because of a lack of a mutual understanding of what has been agreed before a particular deal went ahead.
Often, the issue is that there is no written contract and commercial terms have only been agreed verbally or not agreed at all. Or there is a written contract, but it contains precisely five clauses in total and neither party can understand what they say.
Below, we’ve provided a very brief overview of the contract terms and issues to consider applicable to the supply of goods which clients often omit when contracting with another party.
Whether you’re a supplier or a buyer, we recommend that you make sure that your contract sets out in sufficient detail what the parties have agreed. Saying that, if your preferred strategy is to get the contract signed as quickly as possible, move on with your business and never see the contract again, you’re not alone!
We are well familiar with that distant look on a client’s face as they sink into the chair at the sound of that mysterious word “indemnity” (The what??) or worse still “liability”. Contracting stage can be daunting. However, if you can invest a couple of hours of your time at the outset to ensure that the contract contains what you want, it will potentially save you a huge headache down the line. And of course we are here to guide you every step of the way. Call it your ‘Aspirin’.
- Implied terms
Whilst English law permits a great degree of flexibility when it comes to contract terms, it is important to bear in mind that certain terms can be implied. You will see below that if your contract does not specify certain terms, you may be in for a surprise as the implied terms will not necessarily be in your favour. In business-to-business contracts implied terms can be mostly excluded, but the contract will need to be drafted carefully for such exclusion to be effective.
As a buyer, you will want to be very clear about when acceptance of the goods will take place. If the contract is silent on that point, you may find yourself in a position where you are deemed to have accepted the goods without even knowing about it. Make sure that the acceptance terms give you enough time to inspect the goods and raise any objections with the supplier.
As a supplier, you will want to have control over what happens to any rejected goods. If you want to be able to collect the goods within a certain period of time, make sure that the contract says so.
Does your contract say when the payment for the goods will be due? If not, as a buyer you may be surprised to find out that the payment becomes due when the goods are delivered.
Another unwelcome surprise for the buyer may be if the contract does not specify the place of delivery. If you are not prepared to collect your goods from the seller’s premises, make sure that your contract states where you want the goods to be delivered and who bears the cost of delivery.
Beware of the phrase “of the essence”, particularly if you are a supplier. If the contract terms state that the time for delivery of the goods shall be of the essence, the buyer has the right to terminate the whole contract if the goods do not arrive on time. That will be the case even if you are 5 minutes late.
- Quality and fitness for purpose
As a supplier, you may find yourself liable if the buyer has told you about some specific purpose for which they want to purchase the goods and the goods are not fit for that purpose. You will want to ensure that there are no promises or statements in the contract in relation to the quality of goods or fitness for purpose which go beyond what you can actually deliver.
- Limitation of liability
Limitation of liability is very commonly included in contracts for the supply of goods as a way of allocating commercial risks between the parties, but often these provisions are not understood. Limitation of liability is of a particular concern for a supplier as without such a provision the default legal position is that your liability to the buyer is potentially unlimited.
Usually, parties will agree some sort of a cap on liability. The value of any such cap will vary on a case-by-case basis and will depend on the value and quantity of the goods supplied and the negotiating position of the parties.
If you need a watertight contract or assistance with the negotiation of the above terms or any other contract terms Primas Law’s commercial department can assist you with contract drafting or review.
We specialise in a wide range of commercial contracts, including contracts for the supply of goods and services, manufacturing agreements and licensing, international supply of goods, standard terms and conditions, distribution and agency and many more.