Every law student is well aware that it is the Civil and Commercial Codes of Ukraine that govern the making of a supply contract and its scope and essential terms. However, it is not an easy thing to put that knowledge into practice. Here is a detailed guide prepared by a prominent lawyer of Alva Privacy to show you how to draft such an agreement on your own by following the recommendations below. The guide is logically divided into sections to facilitate you creating a rather typical agreement for supply of goods/products.
Legal counsels are well versed in corporate contract making and know how much time it takes to do the job. Therefore, this guide can be very helpful to newly qualified and junior lawyers who are about to take their first steps in the profession and start with drafting and reviewing agreements.
Step 1: Identifying Essential Terms and Conditions of the Contract
Defining clearly the parties to the contract:
- Full legal names of the supplier and buyer.
- Signatories are persons who are authorized to act for the parties and enter into transactions. Checking powers and authorities of directors or representatives of the companies (legal entities) to verify whether they are limited under the articles of association or whether they act under the power of attorney.
- If it is a stand-alone business unit having no separate legal personality (such as a branch, representative office, etc.), the contract must contain a full name of the legal entity to whom it belongs and its identification details (identification code from the Unified State Register of Legal Entities and Organization of Ukraine). Checking powers and authorities of the head of the business unit (either in its regulation or the power of attorney).
Defining the scope of the contract:
- Outlining the goods to be delivered (the description must be clear and sufficient enough to identify their nature, quantity, quality). A reference should be made to specific technical specifications and standards whenever necessary, including units of measurement, marking and labeling, and packaging.
- If a list of products is too long, it may be attached to the contract as an annex containing a detailed specification.
Step 2: Negotiating the Delivery Terms
Delivery terms and timing:
- Specific timing to complete the delivery (dates, milestones, etc.). It may be stated in an annex to the contract as well.
- Delivery terms (such as EXW, FOB, CIF (in accordance with Incoterms)). If necessary, a specific place of delivery / destination must be mentioned.
- Obligation to deliver goods to their destination, hire a carrier, etc. A party who pays for the carriage and loading and unloading operations.
- Any obligations to insure and store the goods and complete their customs clearance (as it is the case for an international delivery or a foreign trade contract).
- Procedure for notifying the buyer that the goods are ready to be shipped.
Price and payments:
- Price per unit of the goods and total contract amount. It must be mentioned whether the price of the goods is inclusive of the cost of their delivery to the destination (transportation costs) or not.
- Payment procedure (by wire transfer to a bank account) and timing (by one-off payment, by installments, prepayment, advance payment, deferral).
- Bank details for payments (to be specified at the end of the contract).
- If a letter of credit is used as a method of payment, the contract must contain a clear procedure for payments and a list of necessary conditions and documents.
Accepting the goods:
- Procedure for accepting the goods as per their quantity and quality.
- A set of shipping documents that the supplier must hand over to the buyer together with each shipment of goods (such as, for example, invoice, waybill (consignment note), tax invoice, statement of delivery and acceptance, quality certificate, technical documentation, operation manuals, user manual, warranty card, etc.).
- Document evidencing powers and authorities of the person who accepts the goods on behalf of the buyer (for example, a power attorney).
- Time to report any defects found and procedure for calling a supplier’s representative to make a report.
Step 3: Liability and Warranties
Warranty obligations:
- Effective period of warranty obligations.
- Terms of replacement or return of the goods if defects are found.
Liability of the parties:
- Defining penalties and claiming procedure. Compensation for damage and loss caused by improper performance of contractual obligations.
- Defining clearly an amount payable (as a fine or default interest) for each violation of contractual obligations.
- Conditions of penalties to be imposed for failure to observe the time limits or other terms and conditions of the contract.
- Responsibility for quality, packaging, marking and labeling of the goods and their compliance with standards.
Step 4: Final Provisions of the Contract
Force Majeure:
- Force Majeure: a list of insuperable force events (Force Majeure) and procedure for their confirmation and notification.
- Actions to be taken by a party affected by Force Majeure.
Dispute resolution:
- Venue and dispute resolution procedure (commercial arbitration, commercial court, etc.).
- The law governing relations between the parties under the contract (laws of the relevant state if it is a foreign trade agreement).
- Pretrial dispute settlement (whether it is mandatory to send a letter of claim before filing an action with court or not).
Effective period and termination:
- Dates of commencement and expiration of the contract.
- Termination terms and procedure.
Details and signatures of the parties:
- The section must contain full names of the parties, their full bank details, contact details (telephone numbers, email), registered addresses (addresses of state registration), other potential details (postal, business, warehouse, etc.).
- Identities of the individual signatories who are authorized to act for the parties and who directly sign the contract must be verified.
Step 5: Preparing and Signing the Supply Contract
Negotiating and checking all of the contractual terms and conditions:
- Checking all contractual clauses to verify whether they meet the laws and actual intentions and interests of the parties (to avoid any work on drafting a protocol of disagreements).
- Proofreading the draft agreement text to find any errors and typos. Making necessary corrections.
Signing the contract:
- Parties' signatures and seals must be affixed to each document copy.
- Exchanging signed counterparts of the contract.
This structure and action plan will help you draft a supply contract of high quality, having due regard to all crucial aspects of an agreement and protecting your interests.
If you need to prepare a supply contract but, for some reason, cannot do it on your own, you are always welcomed to contact our business lawyer at Alva Privacy and entrust a professional to deal with drafting a supply contract meeting all of your individual needs!
Written by Illia Shaposhnikov, Attorney-at-Law.
