Contracts and Dispute Resolution in Sales of Goods to US Customers
By Charles S. Baldwin, IV, and Ryan C. Fairchild, Brooks, Pierce, McLendon, Humphrey & Leonard, LLP
So, you decided to sell your awardwinning goods in the US market and your talks with a US buyer, distributor or other representative (herein ‘Partner’) are going well. What are the key contract issues under US law that you and your Partner should be discussing?
US law does not provide basic contractual legal terms, so any eventual written agreement is primarily a matter of private contract. Because parties may contract freely, you should not use a simple purchase order or form document. If you do, you may miss key terms. Consider at least four main areas, to include: (1) party identifying information; (2) products, price, performance and delivery terms; (3) scope of liability, representations and warranties; and (4) dispute resolution(1).
1. Party Identifying Information
The contract must state the full legal names of the parties to the agreement. Omitting the correct legal entities may leave you without legal recourse. A contract should also include the date, original signatures of both parties, officers’ correct titles, addresses, email addresses and other appropriate contact information.
2. Description of the Goods, Prices, Performance and Delivery
The contract should, in detail, accurately describe the goods, prices and parties’ performance. This description should be as practical as possible, and should describe the time frame(s) for performance and any period to cure a breach (e.g. 7-30 days). If you and your US Partner choose to utilise a thirdparty service provider or broker, you should incorporate the related deal terms into the contract. Also, include the transaction payment method. Together with payment, note the delivery terms in detail, including transfer of title to the goods and risk of loss (typically provided by the International Chamber of Commerce’s International Commercial Terms (‘INCOTERMS’)). Ensure these terms are accurate for the deal structure.
3. Scope of Liability, Warranties, Representations and Allocation of Risk
The contract may specifically include a limitation of liability, narrowing the range of potential money damages for which your company could be responsible if something goes awry. For example, liability could be limited to the cost of replacing the goods involved and could also expressly disclaim any and all incidental or consequential damages including, but not limited to, lost income, lost use or profits, additional wages, administrative expenses, or any punitive, statutory or multiplicative damages.
The contract should detail any express warranties applicable to the products and may provide a clear disclaimer of implied warranties. A warranty is a promise by a seller of goods to the buyer that the goods will be as represented, and can be express or implied. Express warranties arise from the seller’s representations to the buyer regarding the quality of the goods. Implied warranties arise out of general contract law, and apply to all contracts, particularly for goods, unless disclaimed. Contracts also typically include representations, such as corporate authority, right to sell the goods, and ability to perform, etc. A contract may include indemnity provisions for breach of a representation or warranty.
Lastly, this group of terms should include provisions allocating among the parties the specific risks associated with the deal, such as market or currency fluctuations. You should also consider including a force majeure clause recognising that the parties (except for payment obligations) will be free from liability in the event of certain extraordinary circumstances and unforeseen risks, such as acts of God, strikes, wars, etc.
4. Dispute Resolution
If the parties are unable to amicably resolve a disagreement, will an arbitrator, mediator, or court decide the issue? Consider two preliminary questions before determining what method(s) of dispute resolution to incorporate into the contract. First, what types of disputes are likely to arise out of this agreement? Disputes can range from contract claims to business or personal injury claims and beyond. Second, who are the likely parties in any dispute that arises? Choose dispute resolution terms that can bring all the necessary parties into one forum – a forum detailed in the contract and chosen for its convenience to the parties, evidence and assets.
Consider whether the contract should require arbitration or litigation. In international contracts, arbitration is often preferable due to its efficiency, including in the enforcement of awards. In contrast, a problem arises if litigation is the chosen method of dispute resolution – foreign court judgments may not be automatically enforceable in other countries’ legal systems. Typically, foreign judgments involving the US are enforceable only under notions of comity, and no treaty currently exists on this issue between Italy and the US Therefore, arbitration is often the preferable course.
The contract should provide the specific location, procedures and terms of arbitration, and should reference a recognised arbitral tribunal and rules (AAA; ICDR; ICC; etc.). Other considerations include ad hoc vs. tribunal administration, whether to require mandatory mediation, language, number of arbitrators (usually one due to cost), and which country’s laws will govern. The Convention on the International Sale of Goods (CISG) rules will apply to contracts between a US and foreign party to the Convention, including Italy, unless expressly disclaimed.
For many foreign companies, entering into contractual relations with a US Partner is a great opportunity. The probability of a successful venture increases when you consider, in advance, the applicable rights and remedies of the parties and put them into a written contract.
Note: The views and opinions herein are those of the author and do not necessarily represent those of Brooks, Pierce, McLendon, Humphrey & Leonard, LLP. This article does not constitute legal advice. Consulting with a knowledgeable lawyer about transactions within the US is advised.
1) Among other contract matters, tax provisions and customs duties are important terms to consider. The US tax structure, however, is too complex to adequately discuss here. Review by a qualified tax advisor is recommended. Also, prior to drafting, identify the person who has authority to bind the US company. He or she must have the individual capacity and institutional authority to enter into contractual relations on behalf of the company. Verify that your US Partner has such negotiation and signature authority.
Charles S. Baldwin, IVBrooks, Pierce, McLendon, Humphrey & Leonard, LLP, Greensboro, Raleigh, Wilmington, NC, USA
T: +1 336 271 31 12
Ryan C. FairchildBrooks, Pierce, McLendon, Humphrey & Leonard, LLP, Greensboro, Raleigh, Wilmington, NC, USA
T: +1 336 271 31 12
Published: November 2017 l Photo: Voy_ager - Fotolia.com