This checklist provides a systematic approach to assess critical aspects of the contract, including parties involved, goods description, delivery terms, price, payment terms, quality standards, warranties and termination provisions. By conducting a thorough review and addressing specific considerations such as intellectual property rights, risk allocation, and dispute resolution mechanisms, you can mitigate risks, promote transparency, and foster a mutually beneficial relationship. It is recommended to seek legal guidance to customize the contract to suit your specific requirements and ensure compliance with relevant laws and regulations. With this checklist as your guide, you can enhance contractual clarity and pave the way for effective supply of goods arrangements.
Parties: Confirm that the contract accurately identifies the parties involved, including their legal names and addresses.
Goods Description: Review the description of the goods being supplied, ensuring it is clear, detailed, and accurately matches the agreed-upon specifications.
Quantity: Verify the quantity of goods in the agreement. Depending on the nature of the goods being sold, the parties may consider addressing the scenario where the actual quantity of goods delivered differs from the exact quantity specified in the contract. This situation may arise if the goods are challenging to accurately count or weigh. To safeguard the supplier's interests, it is advisable to include provisions for tolerances to the contract quantity. For instance, the supplier may have the right to deliver goods in quantities that are 3% more or less than the contract quantity. The issue of adjusting the payment to account for the excess or shortfall of goods should also be discussed. If the contract allows for a tolerance beyond a minimal amount, it is likely that a pro rata adjustment to the price will be considered.
Delivery Terms: Verify the agreed-upon delivery terms, including shipment dates, delivery location, and any applicable incoterms.
Quality Standards: Check if the contract specifies the quality standards that the goods must meet, including any industry-specific or regulatory requirements.
Price and Payment Terms: Review the agreed-upon price for the goods and ensure the payment terms, such as payment schedule, currency, and method, are clearly defined. Difficulties may arise when the parties initially agree on a price but subsequently intend to negotiate future price increases without establishing a clear mechanism, such as referencing a specific measurable factor. Generally, an agreement to agree becomes unenforceable if it lacks sufficient certainty regarding the terms.
Inspection and Acceptance: Determine the process for inspecting and accepting the goods upon delivery. Confirm if there are any provisions for rejecting non-conforming or defective goods and the timeframe for notifying the supplier.
Warranties and Remedies: Assess the warranties provided by the supplier regarding the quality, fitness for purpose, or performance of the goods. Verify the available remedies in case of breach of warranty or non-conforming goods.
Risk of Loss and Title Transfer: Determine when the risk of loss and title to the goods transfer from the supplier to the buyer. The transfer of risk in the goods typically coincides with the transfer of title, unless otherwise agreed upon. Retention of title clause often delays the transfer of title until the customer has made payment for the goods, which usually occurs after the delivery, however the supplier generally seeks to limit their responsibility for any loss or damage to the goods once they are no longer under their physical control.
Retention of Title (Romalpa clause): The purpose of a retention of title clause is to provide the supplier of the goods with a means to obtain priority over other creditors of the customer, whether they are secured or unsecured. This priority is sought when the customer becomes insolvent or fails to make payment for the goods, as outlined in the clause.
Limitation of liability: Carefully review the limitation and exclusion of liability clauses which are frequently employed in contracts for the sale of goods to allocate risk between the parties in case of default. Such clauses can take various forms: complete exclusion of liability or exclusion for specific classes of risks; limitation of liability to a specific capped amount; restriction on the types of losses that can be recovered or the remedies that are available; imposition of a time limit within which claims must be made.
Indemnity: An indemnity is a contractual commitment to reimburse the other party for a particular kind of loss or a loss stemming from a specific risk. The purpose of an indemnity is to provide compensation to the party being indemnified, matching the amount of loss suffered, dollar-for-dollar, as specified. In the context of goods supply, one party may request the other to provide an indemnity for losses resulting from various scenarios, such as a breach or failure to fulfill the contract, negligence, fraudulent or wrongful behavior, and non-compliance with laws or regulations. Additionally, a customer might seek an indemnity from a supplier to cover specific risks or losses that could be incurred by the customer, such as claims from third parties alleging infringement of their intellectual property rights by the supplied goods.
Insurance: In order to protect against the potential risk of goods being destroyed after delivery, but before payment is made, which could leave the customer unable to fulfill their payment obligations, it is advisable for the supplier to incorporate a provision in the contract. This provision should require the customer, upon delivery, to obtain insurance coverage for the goods through a reputable insurance company.
Intellectual Property Rights: Check if the contract addresses the ownership and licensing of any intellectual property rights associated with the supplied goods.
Termination: Review the provisions related to contract termination, including termination for breach, convenience, or other specified reasons. Verify the notice periods and any applicable termination rights or penalties.
Governing Law and Jurisdiction: Determine the governing law and jurisdiction that will apply in case of disputes arising from the contract.
Force Majeure: Assess if the contract includes a force majeure clause, which outlines the parties' rights and obligations in the event of unforeseen circumstances or events beyond their control.
Please note that this checklist provides general guidance and may not cover all specific considerations for your particular situation. It is always recommended to seek legal advice to ensure the supply of goods contract is tailored to your specific needs and complies with relevant laws and regulations.
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