The Legal Nature of Supply and Distribution Agreements
Supply and distribution agreements in Georgia are built on the general rules of sale contained in the Civil Code. Under a contract of sale, the seller must transfer to the buyer the ownership of property, hand over the documents related to it and deliver the goods, while the buyer must pay the seller the agreed price and accept the purchased property. A supply agreement is a repeated application of this model: a single document governs multiple obligations to deliver goods over time, while a distribution agreement adds the functions of placement, promotion and market representation. Every core issue that arises in a sale must therefore be regulated precisely in these agreements, because the general sale rules supply the default framework against which the parties' arrangements operate.
Price and the Means of Its Determination
The obligation to pay the price is the centre of the supply relationship. The buyer must pay the seller the agreed price and accept the purchased property. A direct statement of the price in the contract is not always necessary: where the price is not directly indicated, the parties may agree on the means of its determination. In distribution practice this opens the way to price formulas, indexation mechanisms or periodic supply price lists. The determination mechanism must nevertheless be drafted so that no room for dispute remains between the parties: the more precisely the price-setting rule is fixed, the more reliable the payment schedule and the lower the risk of delayed settlement. Where prices change over a long cooperation, the contract should state who communicates changes, by when, and from which delivery they apply.
Partial Deliveries and Refusal of the Contract
The defining feature of a supply agreement is delivery of the goods in parts, and it is precisely here that an important protective norm applies. Under Article 486 of the Civil Code, where sold goods are delivered in parts, if as a result of the non-performance of a single delivery obligation by one party a real danger arises that future delivery obligations will also not be performed, the other party may refuse the contract. This means that a single default does not by itself entitle the buyer to terminate the cooperation, but where the default genuinely shows that the supplier will be unable to perform future deliveries as well, refusal of the whole contract is permitted by law. Before taking such a step, a party should assess carefully whether a real danger exists, because a groundless refusal may itself become a breach of the contract and shift liability onto the refusing party.
The Quality Requirement: Delivery Free of Defects
Quality control accompanies every delivery in a supply cycle. Article 487 of the Civil Code establishes the general requirement: the seller must deliver to the buyer a thing free of material and legal defects. A material defect is an actual qualitative flaw in the goods, while a legal defect exists where a right of a third party attaches to the thing or is asserted against it. In a distribution agreement this requirement carries special weight, because the delivered goods pass into a further resale chain and every flaw reaches the end consumer. The supply procedure should therefore clearly regulate the manner of inspection and the form in which defects are recorded, so that claims can be substantiated with evidence rather than assertions.
Curing Defects: Repair, Replacement and Expenses
Where the sold thing has a defect, Article 490 of the Civil Code obliges the seller to remove it in one of two ways: the seller must either cure the defect or, where the thing is a generic thing, replace it within a period necessary for the purpose. Replacement is possible only with a defect-free thing of the same kind, so for unique or custom-made goods the realistic route is cure. The allocation of expenses is also resolved by law: the seller bears the reimbursement of the expenses necessary for curing the defect, including the costs of transport, road, work performance and materials.
Two additional rules complete this picture. First, the seller may refuse both to cure the defect and to replace the thing where this requires disproportionately large expenses. This protects the seller from an excessive burden, but whether the threshold is crossed is a disputable question, and pre-agreed criteria in the contract reduce this conflict considerably. Second, where the seller transfers to the buyer a defect-free thing in order to cure the defect, the seller may demand from the buyer the return of the defective thing. This is what happens, for example, in a replacement, where the defective unit goes back to the seller rather than remaining with the buyer.
Structuring Distribution: Commission and Brokerage
A distribution relationship is often not defined by sale alone. Article 723 of the Civil Code recognises the commission contract, to which the law on entrepreneurs and the chapter on trust of property apply. In the commission model the distributor acts in its own name but at the expense of the principal, which allows a manufacturer to reach the market without building its own trade infrastructure. Commission and sale complement each other well: the sale block regulates the delivery of goods, while the commission block regulates the authority to sell.
The rules on brokerage remuneration also matter in the distribution chain. Under Article 744 of the Civil Code, a person who promises another a remuneration for brokerage aimed at the conclusion of a contract must pay that remuneration only if the contract is concluded as a result of the brokerage. Where the contract is concluded subject to a condition, the remuneration may be demanded only after the condition has occurred. Where the amount of the remuneration is not determined, the customary remuneration is deemed to be agreed. Moreover, an agreement concluded to the detriment of the client deviating from these rules is void, which means that terms skewed in favour of the intermediary will not be activated by law.
How We Can Help
Our team handles supply and distribution agreements end to end: we structure delivery schedules and price determination mechanisms, design quality control procedures and the defect-cure block, address the risks of partial delivery, and balance commission and brokerage elements according to your business model. Where an ongoing cooperation has already suffered defaults, we assess whether a sufficient basis exists to refuse the contract and plan the next steps. Contact our specialists so that your supply chain is protected by a reliable agreement.