If your company buys or sells goods of any kind, from raw materials and parts to consumables and equipment, the goods supply agreement is the most basic contract there is. Yet many companies don't realize that business-to-business sales of goods are governed by Commercial Act rules that are stricter than the general Civil Act.
The bottom line first
The core of a goods supply agreement is four clauses: delivery, inspection, defects, and payment. In particular, Article 69 of the Korean Commercial Act applies to sales between companies (merchants), so the buyer must inspect the goods received without delay and notify the seller immediately upon discovering a defect. Even for defects that aren't immediately apparent, if the buyer doesn't discover and give notice within six months of receipt, the buyer loses the right to rescind the contract, reduce the price, or claim damages (LawTalk).
Article 69 of the Commercial Act: the six-month rule
| Item | Details |
|---|---|
| Applies to | Sales between merchants (companies or businesses buying and selling goods from each other) |
| Buyer's duty | Inspect without delay after receipt; notify immediately upon discovering a defect or shortage |
| Defects not immediately apparent | Discover and notify immediately within six months of receipt |
| If missed | No right to rescind the contract, reduce the price, or claim damages |
| Exception | Where the seller knew of the defect |
The point to watch is that the six months is not a "grace period for giving notice" but "the deadline by which the defect must be discovered." Notice counts from dispatch rather than receipt, but since you'll need to prove you sent it, it's safer to send it in writing or by email, specifying the defect and the quantities involved (LawTalk, korea.legal).
Must-have clauses in a goods supply agreement
| Clause | What to specify |
|---|---|
| Subject matter | Product name, specifications, quantity, unit price (linked to an attached spec sheet) |
| Delivery | Place of delivery, schedule, who bears shipping costs and when risk passes |
| Inspection | Inspection period (e.g., 7 days after delivery), inspection criteria, handling of rejected goods |
| Defect warranty | Warranty period; replacement, repair, and refund procedures |
| Payment | Timing (X days after inspection is complete), method, tax invoice |
| Transfer of title | At delivery, or upon full payment |
| Liquidated damages for delay | Rate and cap for late delivery |
| Termination and rescission | Grounds, method of notice, settlement |
| Dispute resolution | Court of jurisdiction |
Rates and calculation methods for liquidated damages are covered in Liquidated damages for delay.
How to write clauses that prepare for defects
- Put the inspection period in numbers: Write something like "Inspection within 7 business days of delivery; if no objection is raised within that period, the goods are deemed accepted."
- Set a separate defect warranty period: If you need a warranty longer than the six months under the Commercial Act, set it separately in the contract, e.g., "12-month defect warranty from delivery."
- Fix the method of notice: Spell out the method (written notice, email, etc.) and the recipient, so there's no dispute later over whether notice was given.
- Avoid shortening the period in ways that are excessively unfavorable to the buyer: According to public commentary, clauses that cut the notice period to the buyer's disadvantage can become a point of dispute (LawTalk).
Even if the document is called a "supply agreement," if it's actually made-to-order production or consignment processing, it's closer to a contract for work and different rules may apply, and if the transaction falls under the Subcontracting Act, there are separate requirements such as the duty to issue written documents. If the nature of the transaction is ambiguous, check with your legal team first.
How not to miss the six months
The six-month rule under the Commercial Act runs from the "date of receipt." If a transaction involves multiple partial deliveries, a separate deadline starts with each delivery date. Record the delivery date, inspection deadline, and warranty expiry date together in a contract register. I've put together a template in Contract register Excel template.
For manufacturing and distribution companies with many supply contracts, a contract lifecycle management (CLM) system that keeps contracts, attachments, and change history in one place can help. According to a published article, manufacturing and distribution companies have adopted PRIX to manage project-based contracts and the history of their attached documents (HelloT).
Alpaca's takeaway
A goods supply agreement is a fight over deadlines more than over clauses. Just keeping proper track of three dates, the inspection period, the six-month defect notice window, and the warranty expiry date, will keep you from ending up on the wrong side of most disputes.
🦙 That was Researcher Alpaca's research notes. This post is a general summary of information, not legal advice for any specific case. If anything is wrong or you'd like to know more, let me know through 'Contact Josh' below.
Related reading
- Liquidated damages for delay: how to calculate them and write the clause
- 10 must-have clauses in a service agreement: what you'll fight over if they're missing
Sources
- Duty to give notice of defects in sales of goods between merchants (LawTalk) — Article 69 of the Commercial Act, the six-month rule, Supreme Court case 2013Da522
- Article 69 of the Commercial Act (korea.legal) — the buyer's duty to inspect the goods and give notice of defects
- AI-powered contract management SaaS 'PRIX' (HelloT) — adoption cases at manufacturing and distribution companies
