Supply Agreements in Ontario: Key Terms for Buyers and Sellers of Goods

Many Ontario businesses buy or sell goods for years on nothing more than a purchase order and an invoice. That can work fine — until a shipment arrives damaged, a price dispute breaks out, or a key supplier suddenly stops answering the phone. A proper supply agreement is what settles those questions in advance, instead of leaving them to be argued after something has already gone wrong.

This article sets out the core terms a supply agreement should cover, whether you are the buyer bringing in raw materials or inventory, or the seller shipping goods to a business customer.

The Core Terms, at a Glance

A one-off purchase order rarely addresses more than the first two. A standing supply relationship — repeat orders over months or years — genuinely benefits from a master agreement covering the rest.

Pricing and Volume

Pricing terms should specify not just the current price, but the mechanism for changing it — a fixed price for a defined term, an index-linked adjustment, or a right to renegotiate at set intervals. Vague language like "prices subject to change" gives the seller effectively unlimited discretion, which is rarely what a buyer intends to agree to.

Volume terms matter for a different reason: they set expectations about how firm any forecast is. A buyer's non-binding forecast is very different from a binding minimum purchase commitment, and confusing the two is a common source of disputes later.

Risk of Loss and Inspection

Risk of loss

At some point in a transaction, responsibility for goods that are lost, stolen, or damaged in transit shifts from seller to buyer. Absent clear contract language, this can turn into an argument about who bears the loss on a shipment that never arrives. A supply agreement should say plainly whether risk passes on shipment, on delivery, or at some other defined point — and should align that point with who is actually arranging and insuring the shipping.

Inspection and acceptance

The agreement should set out:

• How much time the buyer has to inspect goods after delivery.
• What counts as a defect serious enough to justify rejection.
• What happens procedurally when goods are rejected — return, replacement, credit, or some combination.
• Whether silence after the inspection period is treated as acceptance.

Without these terms, a buyer who discovers a problem weeks later may find it far harder to argue the goods were ever non-conforming in the first place.

Warranties and Remedies

Sellers typically warrant, at minimum, that goods will conform to the agreed specifications and be free of defects at the time of delivery. Buyers should look closely at:

• Whether the warranty period is long enough to catch defects that only appear in use.
• Whether the seller's remedy is limited to repair or replacement, and whether that limitation is reasonable given what the goods are used for.
• Whether any warranty disclaimer is broad enough to undercut the promises made elsewhere in the agreement.

Term, Renewal, and Exit

A supply relationship that has run informally for years can be surprisingly hard to unwind if nothing was ever put in writing about how it ends. A proper agreement should specify:

• [ ] The initial term and whether it renews automatically
• [ ] The notice period required to terminate for convenience
• [ ] Grounds for terminating immediately (non-payment, repeated non-conforming shipments, insolvency)
• [ ] What happens to open purchase orders when the agreement ends

Most commercial contracts in Ontario do not need to be in writing to be enforceable, but an unwritten supply arrangement makes every one of these questions much harder to resolve when the relationship eventually changes.

Frequently asked questions