A commercial agreement, which delineates the rights, responsibilities, and obligations of two or more parties with respect to a particular business transaction, is a legally enforceable contract. These agreements are fundamental in safeguarding the interests of all participating entities and establish a structure for carrying out commerce. In this article, Commercial Agreements, we take a look at the process and mechanism involved.
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Does an agreement have to be in writing?
In legal terms, a contract can be expressed verbally, implicitly, or in writing; documentation is not a prerequisite. When details of the arrangement are not in writing, however, you will have nothing to rely on in the event of a dispute or misunderstanding. Consequently, it is strongly advised that all contracts be executed in writing to avoid finding oneself in the situation of “your word against theirs.”
What are the Components fundamental to a commercial agreement?
Certain fundamental components are required for a commercial agreement to be legally enforceable. These components are essential for ascertaining the contract’s validity and may differ based on the jurisdiction and the particular form of agreement. In general, the fundamental elements of a commercial agreement comprise:
Offer and acceptance: The proposal (the offer) put forth by one party must be agreed to by the other party in its entirety, serving as the foundation for the contractual agreement.
Intention to create a legal relationship: The contracting parties are required to possess a reciprocal intention to establish a legally enforceable relationship through the execution of the agreement.
Consideration: In exchange for the promise or performance of the other party, each party must provide something of value, such as payment or the provision of products and services. The consideration must adhere to legal regulations and not be in conflict with public policy.
Legal Capacity: In order to enter into the contract, all parties must possess the requisite mental capacity and be of a certain age to fully understand the provisions of the agreement.
Legality: The agreement’s subject matter must be permissible and not in opposition to public policy. Contracts that are associated with unlawful activities or that advance immoral goals shall be deemed null and void.
Can agreements be modified or revised?
Agreements may be modified or revised with the consent of both parties. Generally, solicitors refer to this procedure as contract variation.
If your counterparty refuses to accept a change, you should consider the contract’s remaining term and/or whether you can provide notice to terminate. Then, you could either renegotiate the agreement or seek out a different company with more favourable contractual conditions.
It is important to seek legal advice prior to attempting to vary a contract, as you could incur financial and legal penalties if you fail to follow the correct procedure (which may be outlined in the “Amendment” or “Variation” clause) or if you lack the necessary grounds to terminate.
A contract may be for any duration that the parties to the agreement agree upon. It may be described as:
- For a fixed term that terminates automatically at the specified date. There will be no notice obligation at the conclusion of the term. It is preferable to renegotiate rather than let the situation continue.
- In order to maintain the relationship, the contract stipulates a notice of termination at some point following the expiration of the initial specified term.
- The contract is for a fixed period under a rolling subscription model, during which it renews automatically for subsequent fixed periods unless terminated by written notice.
- The contract has no fixed duration and may be terminated with written notice. You must be explicit regarding the termination date and the reasons for its occurrence.
Reviewing whether the contract will continue indefinitely without notice is advisable to prevent it from being automatically renewed in opposition to the business’s best interests.
What causes disputes with commercial agreements?
Diverse factors can give birth to commercial agreement-related disputes; therefore, it is advantageous to identify the most prevalent causes in order to prevent and effectively manage conflicts. These can include the following:
- The use of ambiguous terms or clauses within an agreement that is susceptible to multiple interpretations can result in misunderstandings and disputes. Such language should be precise, devoid of any ambiguity or contradiction.
- Fraud or Misrepresentation: Disputes may ensue when one party discovers the deception of the other regarding the subject matter of the agreement if one party has knowingly supplied false or misleading information.
- Errors and omissions in the agreement’s drafting process, as well as misunderstandings regarding its implications, have the potential to cause disputes when parties find inconsistencies between the terms of the contract and their initial expectations.
- Non-performance or breach: Disputes may arise when one party fails to fulfil their contractual obligations, whether entirely or in part, particularly when the failure results in financial losses or other damages for the other party.
- Force majeure events, alterations in market conditions, or modifications in legislation can give rise to conflicts when the parties attempt to modify the contractual terms or performance obligations to accommodate the change.
Proactive measures can aid in the prevention and resolution of commercial agreement disputes, thereby safeguarding the interests of the involved parties and preserving amicable business relationships. A few examples of such measures include:
Thorough contract drafting: To reduce the likelihood of misunderstandings or ambiguities, use language that is precise, clear, and concise. Consult legal experts or specialists as necessary to guarantee the completion of a thorough and precise document.
Maintain transparent and open lines of communication with all parties throughout the contract drafting, performance, and negotiation processes. Respond to inquiries, concerns, and doubts as they emerge in order to prevent potential disputes.
Prior to resolving a dispute, the involved parties should consider the feasibility of negotiating and reaching a compromise as a way to reconcile their differences and identify solutions that are advantageous to all. Informal discussions or structured, pre-defined negotiation processes may be utilised by the parties.
Subsequent to the unsuccessful resolution of the dispute through negotiation, the involved parties may contemplate resorting to alternative dispute resolution mechanisms, including arbitration or mediation. In these cases, impartial third parties assist the involved parties in attaining a resolution that is satisfactory to all. This can be achieved through facilitated dialogue (mediation) or a legally binding decision (arbitration).
Contract renegotiation: In the event that the provisions of the agreement are no longer viable or circumstances have undergone substantial changes, the involved parties may elect to amend the agreement in order to more accurately represent their present requirements and expectations.
How we can help
We have a proven track record of helping clients deal with the process involved in drafting commercial agreements. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of a commercial agreement. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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