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Any agreement you enter into as a business owner should be underpinned by a legally enforceable contract. This forces your contracting party to abide by the terms of the agreement and is an excellent way to set out the terms of your agreement. However, contracts will sometimes be drafted poorly. This can cause issues between the parties. A common type of contract is a distributor agreement. This article will outline common mistakes in distributor agreements and how you can avoid them.

What Is a Distributor Agreement?

A distributor agreement is a type of contract with anyone who distributes your products or anyone from whom you receive products. A distributor agreement underpins these arrangements to ensure either party knows they are receiving whatever is promised. If either party breaches the terms of the agreement, the other party is able to sue to enforce the contract.

Common Mistakes

Uncertain Terms

One of the most common mistakes seen in all types of contracts is uncertain terms. For a contract to be legally binding, it must have certain terms. This means they should not be ambiguous and should clearly state the message the terms are trying to convey. If it there is a finding that a contract has uncertain terms, the courts could deem the agreement unenforceable, and your contracting party has no obligation to honour the terms.

Biased Agreement

Another common mistake that parties make when entering into distribution agreements is signing a biased agreement. When two parties enter into an agreement, there will usually be a weaker party due to their lack of business experience. It is often the case that the stronger party takes advantage of the weaker party. Therefore, the weaker party may end up signing an agreement that is more beneficial to the other party. To mitigate this risk, both parties should always get independent legal advice.

No Termination Clause

There may be a point where you want to terminate the agreement. However, if you do not have a termination clause, it can be hard to do this. A termination clause allows either party to cancel the agreement if certain circumstances are met. The agreement will outline these circumstances. For example, a circumstance could be if either party stumbles on to a better product or if the other party cannot provide the same service that they once did.

However, it is important to be aware that you can only invoke the termination clause if you meet the circumstances. If you terminate the agreement without meeting the criteria, the court could find you to have repudiated the contract. This can make you liable in court.

Over-Stretching

A further mistake that is often present in distribution agreements is overreaching by the distributor. This means that the distributor commits to supply an area that they cannot logistically handle. The consequence is that the distributor fails to meet their obligations under the agreement, and the party receiving the product is out of pocket. If you are entering into a distribution agreement, you should make sure that the agreement only covers what both parties can handle. Overcommitment by either party could lead to issues down the line and may result in court proceedings.

Product Guarantee

As a business, you must make sure that you are receiving the correct product. One of the ways you can ensure this is by including a product guarantee clause in your distribution agreement. A product guarantee clause will ensure that the product you receive is the one that you initially agreed to. The clause may also include an alternative product that the distributor agrees to provide if the initial product is not available.

Key Takeaways

It is vital that you take all the necessary steps to avoid any mistakes when negotiating your distributor agreement. The distributor agreements will govern your relationship with your distributor and will contain all the relevant terms. Avoiding mistakes in your distributor agreement will make sure that the agreement remains enforceable and will mean that a rogue term does not disadvantage you. Distributor agreements’ most common mistakes are not including important terms and not seeking independent legal advice during negotiations. If you need any legal assistance with distributor agreements, contact LegalVision’s experienced contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can a mistake be rectified?

Yes, a mistake can be rectified if both parties agree to amend the contractual term in question. 

What happens if a term is uncertain?

If there is a dispute to the term in question, a court can decide if the term is certain enough to be binding. If it is not, the courts can deem that clause unenforceable.

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