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Drafting Commercial Contract in Italy

In Italy the majority of companies do not have internal legal departments. Frequently, managers and owners of the Italian companies negotiate and sign directly their commercial contracts without seeking any legal advice at all. Few of these companies ask for advice to commercial lawyers before any deal and usually only when it is very important. In general companies in Italy work with general conditions of sale and often their long term business relationships are not formalized in contractual documents.

Foreign companies doing business in Italy should know that there are opportunities but also risks in dealing with companies which are not familiar with contract negotiation.

Their underestimation of contractual obligations and/or the belief in future adjustments after binding themselves might lead to problems and delays during performance.

Moreover, some negotiations fail because of the difficulty to work through complex documents which are not fit for the organization and size of the Italian company.

An Italian commercial lawyer may find ways to make deals happen and overcome a wide variety of cultural and legal problems, during negotiation and performance of a contract in Italy. This would also prevent and reduce the risk of litigation or non-performance.

What are commercial contracts?

A commercial contract is a legally binding agreement between two or more commercial parties (i.e. companies and /or professionals) concerning a business transaction — typically the sale of a specified good or service. The contract lays out the terms and conditions of the transaction or relationship. Commercial contracts can be verbal or written, but it’s preferable to have a written contract as it’s more difficult to enforce a verbal contract in court without relying on a document.

If a contracting party fails to fulfill its obligations under the agreement, that failure constitutes a breach of contract. The other party to the contract can typically sue for damages or specific performance.

Commercial contracts that aren’t drawn up correctly and have weak parts can undermine the agreement outlined within. It’s important to have a contract drafted or corrected by a commercial lawyer prior to signing it.

Tipically, commercial contracts deal with:

  • Sales of goods
  • Provision of services, including services of sale intermediaries (mandate, commercial agency)
  • Use of intellectual property including patents, trademarks, copyrights, and trade secrets
  • Confidentiality and exclusivity: The right of any given party to disclose confidential information or engage in competition
  • Insurance
  • Transport and carriage of goods
  • Lease or purchase of real property
  • Engineering, Procurement and Construction

Types of Commercial Contracts in Italy

The Italian civil code and some other laws govern commercial contracts in Italy. The Italian civil code contains general provisions applying to every contract and specific provisions regulating some kinds of contracts.

Agreements are distinguished in typical and atypical.

Typical agreements are regulated by the law, and therefore if the parties do not sign a contract, Italian law provides for the rights and duties of each party.

Atypical agreements are not regulated by Italian law. Consequently, the parties should describe in detail all the obligations and rights in their contractual document, to avoid uncertainty. As an example, in Italian law, distribution contracts are atypical agreements: therefore, there is no legal definition of this kind of contract and the rights of the distributor and the manufacturer should be detailed in the contract ; otherwise the transaction will be interpreted according to other Italian provisions such as those concerning the contracts of sale.

Under Italian law, some general rules are mandatory for every contract. This is the case of Italian general rules on liability: a contractual party is always deemed liable for gross negligence and wilful misconduct, but contractually it can limit its liability for negligence.

In addition, specific legislation has been enacted to protect one of the party due to its weak bargaining power. Here we can mention:

  • The legislation on late payment in commercial transaction (D. Lgs. N° 231/2002 enacting Eu Directive 2000/35) aimed at protecting EU SMEs on terms of payments and against unfair commercial clauses concerning late payments or waiver of commercial interests and
  • The legislation on unfair commercial practices in the agri-food sector (D. Lgs. n. 198/2021, enacting Eu Directive 2019/633).

In addition, some contracts have specific mandatory provisions the parties may comply with: this is the case of franchisors in a franchising agreement, sub-suppliers in industrial sub-contracting and other sub-contractors for the provision of services or in the construction sector.

These national mandatory rules are applied by an Italian judge if the parties chose tacitly or expressly Italian law as the law governing the contract. If the parties did not choose Italian law as the law governing the contract, Italian law does not apply, unless the Italian mandatory rules invoked by a party are deemed as overriding in the meaning of par. 9 of the EU Regulation 593/2008 on the law applicable to contractual obligations. This condition is rarely met in commercial matters.

This EU regulation 593/2008 contain also specific provisions which are uniformly applied in the EU, concerning transport and insurance contracts.

Moreover, contracts with self employed commercial agents are subject to Italian rules derived from the special regime of the EU directive 86/653. The validity of a limitation clause in an agreement with an Italian commercial agent, should be carefully examined before signing the contract.

A check by an Italian commercial lawyer is also recommended, in general, when contracts are subject to Italian law.

Drafting and negotiating commercial contracts: how to choose the lawyer

The commercial contract is the indispensable tool for organizing the relationship with the business partner and for managing the related business risk. In addition, well-structured contracts by a commercial lawyer help the company to achieve multiple objectives:

  • shaping the business model
  • managing ordinary and / or extraordinary risks (think of the Covid-19 emergency)
  • developing the loyalty of customers and suppliers
  • IP Protection (including know-how and intangible assets)
  • Value creation and reputation over time
  • Smoother access to bank credit, to other financial facilities and export credit guarantees
  • Improvement of company’s rating and market value in M&A operations

We prepare, revise and negotiate international commercial contracts tailored for each company, in line with its specific needs and strategy, and, in particular: general conditions of sale and purchase, procurement, agency contracts, distribution, franchising, trademark licensing, contracts for the exchange and transfer of technology, letters of intent, non disclosure agreements, general conditions for e-commerce, contracts for the IT sector.

If you need assistance in drafting commercial contracts, you may contact us.