Purchase Order (P.O.) vs Sale Contract: The risk of doing business without a sale contract
Nowadays, global business opportunities enable companies of all sizes, to seek new markets, to bid on national and international opportunities.
Most Quebec business owners are aware that selling their products outside the province of Quebec isn’t rocket science. However, not all business owners are aware of the fact that selling their products in any other Canadian province involves the same risks and legal questions as entering into the same contract with European, African or Asian companies. The risk lies in the globalisation of the market. In all the aforementioned cases, business is done outside of the province of Quebec, hence with an entity in a different jurisdiction with the possible application of foreign laws.
For contracts within Quebec, businesses are often satisfied committing themselves through a simple purchase order and thereafter, issuing an invoice based on the terms of the latter. In case of a lack of choice of the applicable jurisdiction in a purchase order, the parties involved in that transaction may not be aware of the applicable laws and their scope. Therefore, they may be breaching their obligations unbeknownst to them.
The choice of jurisdiction and, therefore, the applicable laws will impact namely but not limited to warranties, quality standards, product liability, determination of ownership, responsibility for losses, etc.
Lack of clear indications regarding the applicable jurisdiction exposes many possibilities as to the relevant laws governing the contractual relationship. In general, and according to section 3114 of the Civil Code of Quebec, the sale will be governed by the laws where the seller has its establishment at the time the contract is concluded. However, there are exceptions and the contract will be governed by the laws where the buyer has its place of business when: a) negotiation and acceptance have been concluded at the buyer place of business b) if the contract states that delivery shall be perform in that state or c) if your company is participating in a public offering abroad. Furthermore, section 3097 of the Civil Code of Quebec states that real rights on property in transit are govern by the law of the State of their place of destination. Finally, sometimes, the client imposes the applicable law and it is not negotiable. This can quickly become complicated!
To solve this uncertainty, you can stipulate which laws apply to the contract. In case of a deadlock between the parties, there can be a choice of neutral forums such as the United Nations convention on contract for the international sale of goods (1980) CISG. In 2011, the Court of Appeal of the Province of Quebec confirmed the application of the said convention to international sales made by Quebec companies when no specific laws have been indicated by the parties. There are also solutions to be found in applying Incoterms definitions or such as providing for an arbitration clause.
It is never too late to do it right and avoid surprises, downfall and sometimes, huge losses. The important is to be aware of the scope of your responsibility and obligations in all your dealings. We, at AVENS, provide the expertise on doing business abroad and protecting our clients in their global dealings, in collaboration with our international network at Concerto