1. BLA-CLE/ISLP 2011 COMMERCIAL LAW PROGRAMME
Session 8
CONTRACTING FOR GOODS AND SERVICES
July 2011
East London:
Linda Robinson
TOR_P2Z:

2. Companies (and individuals) carry on business with a variety of contractual relationships with: their employees, their suppliers, their customers or clients, their service providers, their equipment providers and their landlords.
Each of these areas of activities gives rise to a contractual relationship

3. Area of Activity Agreement
Human resources or services
Suppliers of goods and services
Employment contracts and/or consulting or personal services contracts. (When use one and not the other?)
Supplier contracts/ product supply agreements (generally standard form and provided by the supplier of the goods)

4. Area of Activity Agreement
Customers for the products or services of the company
Space/Facilities in which to carry on business
Purchase orders (standard forms), customer contracts (either standard form or customized)
Lease of land and buildings

5. Area of Activity Agreement
Utilities (electricity, gas, telephone, internet) to service the business
Equipment to produce the goods
Sales
Standard form contract from the utility
Lease of personal property/equipment lease
Distribution Agreement
Sales Agency Agreement
Licensing Agreement
Franchising Agreement

6. Area of Activity Agreement
Know-how and technology
Advertising and marketing
Storage
Software and technology licenses
Agreements with the service providers of advertising and marketing,
promotion etc.
Warehousing Agreement

7. (Except for employment contracts), most commercial contracts have a similar form and structure:
Identification of the parties
Obligations of the supplier/seller of the product or service
Description of the product or service
Obligations of the company receiving the service/the buyer
Price and payment terms
Warranties of the supplier/seller; standards of services
Timing, term and termination
Default and remedies for default; damages, indemnities, exclusions, caps on liability
Dispute Resolution Procedure
Boilerplate (interpretation, domicilium, whole agreement, notice, no waiver, severability, assignment)
Other (when applicable) - confidentiality

8. SALE AND PURCHASE CONTRACTS
Anything capable of ownership may be sold, including:
Immovable assets
Movable assets
Incorporeal Assets
In addition to the general requirements for a valid contract - consensus, capacity and legality – for a Sale and Purchase contract to be valid there must be consensus between the Parties on:
the Goods purchased and sold; and
the Purchase price for the Goods

9. GOODS Goods must either be –
Specific – 100 ordinary shares in a company
Ascertainable –
any single portion of land comprising 10 hectares capable of subdivision from the 100, 000 hectares of land adjacent to the company’s business premises
Generic sales – a specified quantity of Goods
Example 1 – ml blue bottles
Example 2 – 100 bottles of the size and quality utilised by the company to store its oil

10. PURCHASE PRICE
Purchase price must be definite or ascertainable, i.e. The purchase price could be –
a price per unit
determined through calculation of a formula
could be linked to an independent index/ valuation
determined by a third party
Can the purchase price be in a foreign currency?
Can purchase price be payable other than in cash?
What if the Parties do not specify how the purchase price is to be paid?

11. Delivery - Key objective of Sale and Purchase Contracts
Transfer could be conditional upon
Credit facilities being granted Guarantees being raised
Licences being issued
Transfer of –
Immovable Assets– registration of transfer of title
Movable Assets – delivery
Incorporeal Assets – assignment/ cession and delegation
Transfer of Movable Assets could be through –
Actual Delivery (physical handing over of Assets)
Symbolic (handing over of keys to car)
Long-hand delivery (pointing out the Goods which are too large for physical handing over)
Short-hand delivery (goods already in Purchaser’s possession)

12. BRINGING PRODUCTS TO MARKET
Options
Direct sales force
Sales agents
Distributors
Patents and Know-How Licenses
Franchisees

13. DIRECT SALES FORCE
Employees sell the product at the company-set price over a counter in a retail store or wholesale shop
Or out of an office or offices around the country or the world
Or on the street
Or on the phone
Or on the internet
Or a combination of all or some of the above

14. Point to note is:-Sales people are company employees selling the product or service at the company's set price, using company space, brochures or selling documents. They sell or lease on credit or with terms controlled by the company. They are compensated with a salary or a combination of salary and bonus if sales targets set by the company are met. The company can allocate them at will across the country or the continent, and give them responsibilities in any manner the company chooses.

15. Sales Agents
Not employees, but they can still do all that an employee can for the manufacturer
Independent agents working for themselves in offices supplied by themselves
Hire their own employees
Take orders at prices set by the company
Send the orders to the company for approval
Company ships to the customer
Or the agent could keep an inventory belonging to the manufacturer on consignment, and ships from that after the manufacturer approves the order
Agent collects from the customer and sends proceeds to the manufacturer after deducting the agent's percentage

16. Point to note:-The agent is in the business of selling the manufacturer's product, and is working for him/herself usually out of the agent’s own office space, and getting paid by a percentage of the sales price paid by the customer. The agent pays for his or her own employees and follows the manufacturer’s instructions as to price, territory, terms and conditions, credit and service.

17. Distributors
Pay the manufacturer for an inventory of the manufacturer's product at an agreed price and thus takes title to the products
Resell the product to customers and retain the proceeds of sale
Responsible for maintaining an adequate inventory to meet demand
Responsible for promotion and advertising

18. Point to note:-The distributor makes a greater investment in the business than either the employee or the agent because the distributor invests in and takes title to the inventory of the manufacturer. The manufacturer, therefore, gives up title and receives payment regardless of what the ultimate customer does. The manufacturer also parts with a measure of control – it may not be able to control the ultimate price of the product, nor the territory in which it is sold.

19. Licensees
Are licensed by the owner of technology (know-how or patents or trade secrets) or trade-marks to produce products either under the name of the owner or under any other name
Common in the technology industry
Will be subject to standards set by the owner

20. Franchisees
A form of licensing, in which the owner (the franchisor) of a business system (think MacDonald’s) licenses the right to use its format, business systems and trademarks to the franchisee
Products of the franchisor are required to be bought by the franchisee

21. AGENCY, DISTRIBUTION, LICENSING AND FRANCHISING AGREEMENTS
Legal issues and differences
Agents
Distributors
Licensees
Franchisees
Territories, pricing, termination

22. Distribution Agreements
Agency Agreements
Services Agreement in terms of which the Agent sells goods or services for and on behalf of the Principal (manufacturer/distributor)
Agent earns commission payments based on sales made
Delivery could be effected by Principal
Distribution Agreements
Manufacturer utilises Distributor’s distribution network and marketing and sales organisation to market and distribute the Product
Distributor appointed as distributor within designated Territory with the right to distribute, market, sell and service the Product
Appointed either exclusively or non-exclusively
Licensing Agreements
Right to manufacture Product using Licensor’s patents and/or know-how and other intellectual property (such as trade marks)
Could be infused in the Distribution Agreement or there could be an option provided in favour of the Distributor to this effect

23. Franchise Agreements
Licensed commercial use by Franchisee of Franchisor’s developed business systems and the intellectual property
Depending on the franchise, the intellectual property could comprise patents, know-how, trade-marks, service marks and get-up
Franchisor offers or is obliged to maintain a continued interest in the business of the Franchisee, particularly in relation to know-how, training and marketing
Franchisor operates under a common name, format and business operating procedures owned and/or controlled by the Franchisor
Franchisor is required to make significant investments in the business – initial payment to Franchisor, marketing and royalty payments and improvements to decor as these evolve
Ongoing support – training, assist with purchasing
Adequate supply of Product
Building from which selling to be approved
Payment of royalties

24. Right of first refusal in relation to new Product range
Payment of marketing fees
Discontinuation of particular types of Product
Restricted list of suppliers
Product promotion
Control over business system
Product packaging – legal requirements
Access to training
Ownership of trademarks
Metering
Product liability
Restraint of Trade in respect of similar products
Product supplies – order, supply and delivery procedures
Consistency of quality
Take-or-Pay provisions
Strict compliance with specification
Prices, price adjustments and terms of payment
Standardised Agreements

25. Distribution vs. Agency
Advantages and disadvantages
Licensing
When is it optimal?
Franchising
Commitment involved and benefits arising

26. ISSUES IN AGENCY, DISTRIBUTION AND LICENSING AGREEMENTS
Appointment
Exclusive/Non-Exclusive
Period/Term (when does appointment commence and expire)
Services to be rendered
When are the Services to be rendered
Standard of Services
Nature of Services
Appointing
Commitment involved and benefits arising

27. Issues, cont’d Warranties Damages and Indemnity Negligence
Exclusion of consequential damages
Caps of liability
Remuneration (Fees and Expenses)
Confidentiality
Labour law applicability
Forum for resolving disputes
Termination