Commercial contracts will differ from one to another considerably and each commercial contract will have its own individually negotiated and agreed upon terms.
- What is to be supplied?
- The price for supply?
Nonetheless, other terms and conditions will have a more widespread and comprehensive application and will need to be considered carefully, notwithstanding its subject matter.
WHAT CONSTITUTES AN ENFORCEABLE AGREEMENT?
The saying that “if it looks like a duck and quacks like a duck, then it probably is a duck”, may not always be correct when it comes to contracts. This is due to the fact that every contract requires the presence of certain elements.
Consequently, if the contract lacks one or more elements, the agreement may be deemed as not legally binding or enforceable. Accordingly, the following requirements must be present in every contract:
- There must be a clear intention by all parties to be bound;
- There must be an unequivocal acceptance of the terms;
- There must be some form of consideration (i.e., exchange of something for something else – goods for payment)
It is only once the above elements have been established that a legally binding agreement is potentially created.
WHO MAKES THE AGREEMENT?
The parties to any contractual agreement must be clearly identified and listed correctly. The purpose for this is not just for practical reasons. According to contract law, contractual agreements can be enforced only by and against a person or legal entity who is a party to the contract. This rule applies even if the contract is made for the purpose of conferring a benefit upon a third party.
This far reaching rule can be limited in its scope by certain exceptions (i.e., agreements made by agents). Regardless, it is critically important that the correct parties are carefully identified. A well drafted contractual agreement will expressly state whether the agreement does or does not intend to confer a benefit upon a third party.
Statements made during the course of negotiations may be binding upon the parties, if it can be said that the parties intended that they be so. In some instances, it may be appropriate to include an ‘entire agreement’ clause. Such clause would strengthen the inference that all previous statements and conversations made outside the written contract will hold no binding effect in law.
Exiting a contractual agreement is as equally important as entering one. For this reason, it is important to understand how a contractual legal relationship may end. The contract may end in a variety of ways and it is important to be aware of the legal exit strategies available to you. Accordingly, a contract may end in one of the following ways:
- Termination – by virtue of contractual provision allowing for mutual or unilateral termination in certain specified circumstances;
- Discharge by full performance – i.e., meeting all obligations under the agreement by satisfying necessary performance;
- Breach – a breach of contract will not in itself discharge the contract, but an innocent party may be permitted to treat himself as being discharged under certain circumstances;
- Frustration – in rare cases – a contract will be deemed automatically discharged where it becomes illegal or otherwise impossible (by an event unforeseen at the time of contract) to perform.
It is a good practice to consider the prospect that the other party will not perform what was promised. During the negotiation process it is easy to get carried away and solely focus on what it is hoped to be done. Reducing risk and considering what will happen when things do not go according to plan should not be underestimated.
Self -help remedies may reduce risk and provide solutions to problems arising from non-performance of obligations. For example, a commercial contract may contain a provision to allow Party A to withhold performance from Party B, in the event Party B breaches its obligation to Party A. The right to set off may also be explored and application of interest on late payments may be included. Forfeit of deposit, or similar prepayments, may also be provided for under appropriate circumstances.
Whilst many commercial contracts may differ considerably in individual scope, there are certain contractual considerations which will always need to be considered. A well-prepared contract will protect the client not only in regard to the anticipated outcome, but also in relation to unexpected events. For this reason, it is important to ensure, that whatever the outcome of the bargain, there are always options available to reduce and manage the party’s risks.
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