Free Product Distribution Agreement

Usually the consignee is entitled to receive a reasonable compensation for its services. For example, the compensation may be a fixed percentage of the retail sales price that is retained by the consignee while the balance of the retail sales price is given to the consignor.

The consignor will insist that a default section is included. If the agreement requires the consignee to remit proceeds, it is recommended that the optional phrase "including the obligation to remit the consignment payment to the consignor" be included. The consignee will want to include the optional provision that allows the consignee time to "cure" the default by taking corrective action within the specified grace period.

A records paragraph requires the consignee to maintain sales and inventory records and allows the consignor to inspect those records after giving reasonable notice to the consignee. This paragraph is important to the consignor if a commission will be earned by the consignee and if the commission is based on the proceeds of the merchandise that is sold. The right to inspect allows the consignor to verify that the commission is being calculated properly.

The consignor usually owns the consigned merchandise outright. Under the product distribution agreement, the consignor then grants the consignee either an "exclusive" or "non-exclusive" right to sell the consigned merchandise.

The grant is "exclusive" if only the consignee (and not other third parties) will have the consignment. The grant is "non-exclusive" if the consignor may also allow other parties to sell the merchandise. Furthermore, the right to sell may be restricted to a specified geographic area. The grant may be exclusive to this consignee for that area, while other consignees may be allowed to sell in other areas.

For example, a screen printer who owns the "exclusive" right to print the "University of Iowa" logo on T-shirts may grant "non-exclusive" rights to several marketers or retailers to sell such T-shirts. Or it may grant "exclusive" rights to several marketers, each being assigned a different territory.

A product distribution agreement should include provisions that:

(i) make it clear that the agreement contains the entire agreement of the parties,

(ii) require changes to the agreement to be in writing, signed by both parties,

(iii) protect the balance of the agreement if one of its provisions is unenforceable,

(iv) specify the effect of a party's failure to always strictly enforce the terms of the agreement, and

(v) specify which state's laws will govern disputes between the parties.

A Product Distribution Agreement is a document under which one party (the "consignor") grants another party (the "consignee") the right to sell certain merchandise owned by the consignor. Typically, the consignee collects the sales price of the merchandise, keeps a percentage as its commission, and remits the balance to the consignor.

The Product Distribution Agreement provided here is a simple but flexible document that provides a variety of optional paragraphs. If your situation presents unusual circumstances, or if you have any legal questions, it is advisable to consult with an attorney.

1. The Product Distribution Agreement should be signed and dated by both parties. It is not necessary that the signatures be witnessed or notarized. The Agreement becomes effective as of the date indicated in the document.

2. Each party should retain a copy of the signed agreement in a secure location.

3. The document should be reviewed periodically to ensure that the parties are each complying with their respective obligations.

A termination paragraph is an important provision. If disputes arise and it seems too costly to resolve the issues through arbitration or the court system, being able to terminate the agreement upon 30 days' notice may be a way to resolve the situation.

Please note that both options can be used. For example, a "one-year" agreement can be made by specifying a date for automatic termination that is one year after the date that the agreement is made. In addition, the parties can provide for earlier termination by allowing either party to terminate the agreement by giving a specified period of prior notice, perhaps 60 or 90 days.

This paragraph explains the effect of the product distribution agreement on parties who become "successors" to the parties. For example, if the consignee "sells" or "transfers" its rights under the agreement to a third party, that third party becomes bound under the agreement.

The second part of this provision allows the user to include a sentence that prohibits such transfers, unless the other party consents. In the above example, the consignee would not be able to "sell" or "transfer" its rights to a third party, unless the consignor's consent was obtained.

Generally, the consignor makes no warranties regarding the consigned merchandise, although in some cases the consignor may be willing to provide at least some type of "money-back" guaranty for a thirty day period. This type of guaranty could be added as a part of the "free-form" product distribution agreement paragraph, but should be done only after consulting with an attorney.