Commercial Contracts in Italy: What Foreign Companies Need to Know

When a foreign company decides to operate in Italy — whether by entering into a partnership, appointing a distributor, purchasing goods from an Italian supplier, or licensing its intellectual property — it will almost inevitably have to negotiate and sign a contract governed, in whole or in part, by Italian law. The Italian Codice Civile regulates commercial contracts with precise rules that differ, in several important respects, from those of common law systems and from many other continental European legal frameworks.

The differences go beyond mere formalities: they affect the very structure of the contractual relationship, the remedies available in the event of a breach, the limits on freedom of contract, and the behavioural obligations that Italian law imposes on the parties beyond what is written in the agreement. Overlooking these rules can result in unenforceable clauses, unexpected obligations, pre-contractual liability, or — in the worst cases — litigation before an Italian court.

This guide covers the essential points every foreign company should understand before signing a commercial contract in Italy: the applicable legal framework, the requirements for a valid contract, the most critical clauses, the rules governing breach, and the remedies available.

The Legal Framework

Italian contract law is contained primarily in the Civil Code of 1942 (Codice Civile, R.D. 16 March 1942, no. 262), from Art. 1321 to Art. 1469. Unlike common law systems, which build contract law on a predominantly case-law basis, the Italian Civil Code provides a systematic, codified framework governing the formation, interpretation, performance, and termination of contracts.

A further fundamental difference from Anglo-Saxon systems is that the Italian Civil Code does not sharply separate contract law from the broader law of obligations: obligations arise from the law, from contract, from tort, or from any other act or fact recognised by the legal system (Art. 1173 c.c.). In practical terms, this means that contractual gaps — matters the parties have not addressed — may be filled by specific statutory provisions, even where the parties’ written agreement is silent.

For international contracts involving a foreign party, the regulatory framework is further layered:

• Regulation (EC) No. 593/2008 (Rome I) determines which national law governs contractual obligations between parties from different states. The parties may freely choose the applicable law (Art. 3), but absent such a choice, contracts for the sale of goods are generally governed by the law of the seller’s country, and contracts for services by the law of the service provider (Art. 4).
• The Vienna Convention of 1980 (CISG) applies automatically to international sales of goods between companies based in contracting states, unless expressly excluded (Art. 6 CISG). Italy has ratified the CISG: a sale contract between an Italian company and a US, Canadian, German, or Chinese counterpart is therefore governed by the CISG in the absence of a contrary choice.
• Regulation (EU) No. 1215/2012 (Brussels I bis) determines which court has jurisdiction over contractual disputes between parties from different EU member states.

The choice of applicable law and jurisdiction is therefore not a formality: it is a strategic decision with concrete consequences for how the contract will be interpreted and enforced if a dispute arises. For a broader overview of the legal framework governing foreign companies operating in Italy, see our guide on starting a business in Italy as a foreign company.

Essential Requirements for a Valid Contract

Under Art. 1325 c.c., a contract is valid only if it contains four essential elements. The absence of even one renders the contract null and void (nullo) under Art. 1418 c.c. — a defect that can be raised by any interested party at any time and cannot be cured by the passage of time.

1. Agreement of the parties (accordo): the common intention must be clearly expressed. Offer and acceptance must coincide on all essential terms (Art. 1326 c.c.). An acceptance that introduces modifications does not constitute acceptance but rather a counter-offer (Art. 1326, para. 5, c.c.). In complex commercial negotiations, care should be taken with informal exchanges — emails and messages that contain detailed proposals followed by explicit agreement may be treated as binding contracts under Italian law.
2. Cause (causa): the contract must have a lawful economic and legal purpose (Art. 1343 c.c.). The causa is a concept with no direct equivalent in common law: it is not the subjective motive of the parties, but the objective rationale of the exchange. Contracts without a cause, with an unlawful cause, or entered into in fraud of the law are null and void.
3. Object (oggetto): the subject matter must be possible, lawful, and either determined or determinable (Art. 1346 c.c.). A contract with an indeterminate or non-determinable object is void. It is good practice to define the required performance precisely, along with quality criteria and the method for determining the price where it is not fixed from the outset.
4. Form (forma): Italian law does not require written form for most commercial contracts. Exceptions exist for specific categories: contracts concerning real property rights (Art. 1350 c.c.) require written form under pain of nullity; the transfer of shares in an S.r.l. requires a notarial deed. For all other contracts, written form is not mandatory but is always strongly recommended. Having a written contract carries significant practical advantages from an evidentiary standpoint if a dispute later arises between the parties.

In addition to nullity, the Civil Code also provides for voidability (annullabilità, Art. 1441 c.c.), which applies in cases of incapacity of a party, defects of consent (mistake, fraud, duress), and certain conflicts of interest. Unlike nullity, voidability may only be invoked by the protected party and is extinguished if not raised within five years.

Good Faith: An Obligation That Goes Beyond the Written Text

One of the aspects that most surprises foreign companies — particularly those from Anglo-Saxon legal cultures — is the pervasiveness of the principle of good faith in Italian contract law. Good faith is not a vague concept of fair dealing: it is a legal obligation with concrete consequences, codified in multiple provisions of the Civil Code.

The principle operates at three distinct stages of the contractual relationship:

• Pre-contractual stage (Art. 1337 c.c.): the parties must conduct negotiations in good faith. A party that breaks off negotiations without justification, after having induced reasonable reliance in the other party that a contract would be concluded, may be liable in damages — even if no contract was ever signed. This is the doctrine of responsabilità precontrattuale (culpa in contrahendo).
• Contract interpretation (Art. 1366 c.c.): the contract must be interpreted in good faith. An Italian court will not confine itself to the literal meaning of the clauses but will seek to reconstruct the common intention of the parties (Art. 1362 c.c.), taking into account the parties’ conduct both during and after conclusion of the contract (Art. 1362, para. 2, c.c.).
• Performance (Art. 1375 c.c.): the contract must be performed in good faith. This means, among other things, that each party is required to cooperate to allow the other to perform, and that exercising contractual rights in an abusive manner — contrary to the other party’s legitimate expectations — may itself constitute a breach.

In practice, this means that unilateral termination clauses, clauses allowing unilateral amendment of terms, or total exclusions of liability may be rendered unenforceable or give rise to damages if exercised contrary to good faith — even where they are formally valid under the written contract.

Standard Terms and Onerous Clauses: The Trap of Art. 1341 c.c.

When a foreign company sends an Italian counterpart a standard-form contract drafted according to its own legal system, it frequently runs into a technical obstacle that does not exist in common law: the Italian rules on general contract terms.

Art. 1341 c.c. provides that general terms and conditions pre-drafted by one party are only effective against the other if that party knew them, or could have known them using ordinary diligence, at the time the contract was concluded. But paragraph 2 goes further: certain categories of clauses — including those providing for limitations of liability, rights of unilateral termination, automatic renewals, arbitration, and derogations from judicial jurisdiction — have no effect unless they are specifically approved in writing by the party that did not draft them.

Specific written approval requires a separate signature on the clause itself, or an explicit written reference to it: a signature at the foot of the contract is not sufficient. Failure to comply renders the clauses null and void — the drafting party will be unable to enforce them before an Italian court.

This is one of the most common sources of unpleasant surprises for foreign companies operating in Italy under contracts drafted according to Anglo-Saxon or German models. Liability-limitation clauses or jurisdiction clauses, treated as standard in their home legal system, prove unenforceable before an Italian judge for want of specific written approval. The problem typically arises in contracts unilaterally drafted by one party — in particular where no genuine negotiation took place between the parties. This practice is especially common when large companies contract with smaller suppliers. The legislature’s clear intent in 1942 was to protect the weaker contracting party from the unilateral imposition of burdensome terms.

Key Clauses in Italian Commercial Contracts

Penalty Clause and Earnest Money

The Italian Civil Code provides two distinct mechanisms for securing performance and pre-determining compensation:

• The penalty clause (clausola penale, Art. 1382 c.c.) fixes in advance the compensation due in the event of non-performance or delay, relieving the creditor of the need to prove actual loss. The court may reduce it equitably if it is manifestly excessive in relation to the creditor’s interest (Art. 1384 c.c.) — a power of judicial intervention that does not exist in most common law systems, and which makes the enforcement of very high penalties less certain.
• The earnest money (caparra confirmatoria, Art. 1385 c.c.) is a sum paid at the time of contracting as security. If the paying party defaults, the receiving party retains it; if the receiving party defaults, it must return double the amount. The non-defaulting party may alternatively choose to seek specific performance or rescission with damages.

The two mechanisms are not interchangeable: the contract should specify clearly which applies, and whether the earnest money is intended to have a confirmatory function or exclusively a penitential one (Art. 1386 c.c.).

Choice of Law and Jurisdiction

Parties to an international contract may freely choose both the applicable law (under Regulation Rome I) and the competent court (prorogation of jurisdiction, under Regulation Brussels I bis for intra-EU disputes). Best practice is to always include:

• A choice of law clause (e.g., “This agreement is governed by Italian law”). Note that even with such a clause, certain Italian rules apply regardless as overriding mandatory provisions (norme di applicazione necessaria, Art. 9, Reg. Rome I).
• A jurisdiction clause or arbitration clause. If arbitration is chosen, specify whether it is arbitrato rituale (formal arbitration, governed by the Code of Civil Procedure, with an award challengeable before the Court of Appeal) or arbitrato irrituale (informal, contractual arbitration), and indicate the seat, the language of the proceedings, and the applicable rules (e.g., ICC, Milan Chamber of Arbitration).

Without these clauses, the applicable law and jurisdiction will be determined by the default criteria of the European Regulations, with results that may not always be favourable to the foreign party.

In practice, arbitration clauses are frequently encountered in commercial contracts, and opting for arbitration is often a sound choice: it generally allows for a decision within a relatively short timeframe compared with ordinary court proceedings. However, where a dispute concerns unpaid commercial invoices, an arbitration clause may create a significant practical obstacle: it becomes extremely difficult to use the expedited procedure of the decreto ingiuntivo (injunction order). For a full overview of that procedure, see our complete guide to the Italian injunction decree.

Agency and Distribution Agreements

Where the contract involves the appointment of a commercial agent in Italy, Legislative Decree no. 303 of 10 September 1991 (implementing Directive 86/653/EEC) applies, together with the relevant Accordi Economici Collettivi (AEC) for the product sector. These rules impose mandatory minimum obligations that apply even where the parties have chosen a foreign law to govern the contract:

• A termination indemnity in favour of the agent (Art. 1751 c.c.), which is due even where the principal terminates for just cause and is calculated on the basis of commissions earned over the preceding five years.
• Minimum notice periods upon termination (ranging from one month for contracts of less than one year to six months for contracts exceeding five years).
• The agent’s right to commissions accrued on transactions concluded or initiated before the end of the relationship.

For exclusive distribution agreements, the rules are less prescriptive — there is no specific statutory framework equivalent to agency law — but Italian courts consistently apply the principles of good faith and proportionate notice where a long-standing distribution relationship is terminated.

Breach of Contract: Remedies and Procedures

Where an Italian counterpart fails to perform, Italian law provides a range of remedies governed primarily by Art. 1453 et seq. c.c.:

• Action for specific performance: the performing party may seek forced execution of the contract in kind (Art. 2932 c.c. for preliminary contracts) or by monetary equivalent.
• Rescission for non-performance (Art. 1453 c.c.): may be sought judicially, or may occur automatically by operation of law where the contract contains an express termination clause (clausola risolutiva espressa, Art. 1456 c.c.), or following a formal notice to perform (diffida ad adempiere, Art. 1454 c.c.) that has gone unheeded — a procedure explained in detail in our guide on the formal notice to comply under Italian law. The notice must set a deadline of not less than fifteen days, unless a different period is indicated by the nature of the contract or by trade usage.
• Damages (Art. 1223 c.c.): encompass danno emergente (actual loss suffered) and lucro cessante (loss of profit). For non-wilful non-performance, compensation is limited to loss that was foreseeable at the time the contract was concluded (Art. 1225 c.c.). The burden of proving the loss rests on the creditor.
• Plea of non-performance (exceptio inadimpleti contractus, Art. 1460 c.c.): in reciprocal contracts, a party may refuse to perform its own obligation where the other party has not performed or offered to perform simultaneously, unless the terms for performance differ.

Before commencing court proceedings, for many categories of commercial disputes it is mandatory to attempt civil and commercial mediation (Legislative Decree no. 28 of 4 March 2010). Mandatory mediation covers disputes relating to, among others, company contracts, works contracts, franchising, intellectual property, lease and loan for use. Failure to attempt mediation where required renders the claim inadmissible and may be raised by the court of its own motion.

For a comprehensive overview of debt recovery tools and procedures available to foreign companies holding claims against Italian counterparts, see our guides: the formal notice of the Italian debtor and How to Recover an Unpaid Debt in Italy. Our debt collection service is available to foreign creditors across Italy.

Language, Written Form, and Evidentiary Value

Italian law does not require contracts between businesses to be drafted in Italian: a contract in English, French, or German is fully valid on its merits, provided it meets the substantive requirements of the Civil Code.

However, where a contract is bilingual (e.g., Italian and English) and contains no clause indicating which version prevails, an Italian court will tend to treat the Italian text as controlling. It is therefore essential to include a language-prevalence clause and to verify that the two versions are substantively aligned.

From an evidentiary standpoint, a written contract signed by both parties constitutes privileged evidence of its contents. In the absence of written form, the existence and terms of the agreement may be established by any means, including emails and electronic communications, provided they allow the terms agreed to be reconstructed with sufficient certainty.

An increasingly relevant issue is that of contracts concluded by electronic correspondence: exchanges of emails in which one party makes a detailed proposal and the other responds with an explicit acceptance may constitute a binding contract under Art. 1326 c.c., even without a formal written document. Foreign companies should therefore pay close attention to the content of pre-contractual communications with Italian counterparts.

Frequently Asked Questions

Is a contract drafted in English valid in Italy?

Yes. Italian law does not require contracts between businesses to be in Italian. A contract in English is fully valid provided it meets the substantive requirements of the Civil Code. It is nonetheless advisable to specify expressly which language version prevails in the event of any discrepancy between the Italian and English texts.

Do our standard terms and conditions sent by email bind the Italian counterpart?

Not automatically. For standard terms to be enforceable against the other party, that party must have known them — or have been able to know them using ordinary diligence — at the time the contract was concluded (Art. 1341, para. 1, c.c.). Furthermore, the more onerous clauses — such as those limiting liability or derogating from judicial jurisdiction — must be specifically approved in writing (Art. 1341, para. 2, c.c.) with a separate signature. A signature at the foot of the contract is not sufficient.

Can we choose English or US law to govern our contract with an Italian company?

Yes. For international contracts, the parties may freely choose the applicable law under Regulation Rome I. However, certain Italian rules apply regardless as overriding mandatory provisions, irrespective of the chosen law: this is the case, for example, with the rules protecting commercial agents (Legislative Decree no. 303/1991) and mandatory provisions protecting specific categories of contracting parties.

What happens if the Italian counterpart breaches the contract and there is no penalty clause?

In the absence of a penalty clause, the injured party must prove the extent of the loss suffered — both actual loss and loss of profit — under the general rules of Art. 1223 et seq. c.c. Merely proving non-performance is not sufficient: the amount of the loss must be evidenced. The penalty clause exists precisely to avoid this evidentiary uncertainty.

Is mediation mandatory before suing an Italian company?

It depends on the subject matter of the dispute. For certain categories of commercial disputes — including works contracts, franchising, company contracts, and intellectual property — Legislative Decree no. 28/2010 makes mediation a mandatory precondition for commencing court proceedings. Failure to attempt mediation may render the claim inadmissible, a defect the court may raise of its own motion. Before initiating any legal action, it is therefore necessary to verify whether the specific dispute falls within the categories subject to mandatory mediation.

Conclusion

Italian contract law provides foreign companies with a solid and well-structured legal framework, but it has distinctive features that cannot be overlooked when drafting and negotiating agreements. The pervasiveness of good faith, the rules on specific written approval of onerous clauses, the mandatory protections in agency contracts, and the mechanisms for rescission all distinguish the Italian system from its Anglo-Saxon counterpart and require a considered approach.

The most common risk is not entering into a formally invalid contract, but finding oneself with unenforceable clauses, unexpected obligations, or inadequate remedies when the commercial relationship breaks down. A preventive legal review by a lawyer with experience in Italian commercial law is the most effective tool for managing these risks.

For an assessment of the specific clauses in your contract, or for assistance in drafting commercial agreements with Italian counterparts, Studio Legale Giorgianni is available for an initial review of your documentation. Further information about our Italian Business Lawyer services is available on our website, or visit our Italian Lawyer hub for a full overview of the assistance we provide to foreign clients.