damages caused by reason of supplier’s products and dealings. An
obligation to hold one party harmless while not allowing a similar
obligation on the other party represents a one-way arrangement.
Balance, by definition, ensures even-handed dealing between the
3. Assignment. If the agreement prohibits
the distributor from assigning the agreement
to a third party without written approval
from the supplier, the agreement should likewise prohibit the manufacturer from assigning the agreement to a third party without
written authorization from the distributor. If
the agreement prohibits assignment by one
party, it should prohibit the other party from
assigning the agreement, also.
4. Time to Cure. In a distribution agreement with a termination for cause section,
there must be a “cure period” during which
a breaching party has time in which to fix
the problem. Typical cure times range from
one week to one month. If the agreement
allows one party time to cure its breaches,
the agreement must provide the other party
time in which to cure its breaches, too. This
balanced approach encourages both parties
to contribute toward development of the
The Termination section of a distribution
agreement is arguably the most important.
The parties must understand how they may
terminate the agreement. Equally important,
the parties must understand the conditions
under which their partners may terminate
the agreement. Having been involved in
litigation of several distribution agreements,
I have learned that some clauses (force
majeure, severability, etc.), are rarely issues
that lead to litigation. Conditions related to
termination are frequently the kernel that
leads a party to file a claim.
There are routinely two forms of termination in a distribution agreement: Termination for Convenience and Termination for
Cause. Some agreements use only convenience. Others use only cause. Some use
both. Seasoned parties to distribution agreements usually prefer to use termination for
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convenience because they know that the parties won’t needlessly
argue about cause when it comes time to unwind the distribution
relationship. Arguing about cause frequently leads to litigation.
Suppliers routinely regret arguing about cause in court or arbitration because the costs quickly get out of control. Litigation acts as
a massive drain on management time and a company’s financial