Business Contracts

Have you ever entered into an agreement with another person? Often when two parties enter into an agreement, they are also entering into a binding contract. Some agreements can be binding contracts even if they are entirely oral. Some types of contracts need to be in writing in order to be enforceable. An example of this is a contract for the sale of land. Sometimes it can be difficult to know whether or not there is a legally binding contract in place.

All contracts have certain elements in common. In every contract you have to be exchanging something for something else. Some lawyers still use old-fashioned terms such as quid pro quo to describe this. You also need "consideration" passing between parties. Consideration essentially means that there must be payment provided in exchange for the goods provided or services rendered. As well, there must be an intention to create legal relations between the parties. That is, a contract has to be something more than an agreement or promise to enter into an agreement. There must be certainty to the terms that are agreed upon between the parties.

When you enter into an agreement, it is good practice to set out all relevant terms and conditions of the agreement in writing. Having written terms and conditions can protect the position of the parties. Where a contract is simply oral, it can be difficult to prove the terms that were agreed upon if a dispute subsequently arises. Without written terms there can be considerable uncertainty about the operation of the agreement that can result in litigation and unexpected outcomes.

Most agreements share a number of key clauses in common. For starters, it is important to properly identify the parties and ensure that you are entering into an agreement with the appropriate legal entity, particularly when entering into an agreement with a business or other organisation. The agreement must also clearly identify the obligations of the parties and should clearly identify the goods that are to be provided or the services that are to be performed. It can also be important to define the duration of the agreement and the process of renewing the agreement, if applicable.

While identifying the parties and setting out the obligations may be more obvious components of an agreement, there are a number of other elements that should not be overlooked. Your legal advisor can help identify other issues which may be relevant to your agreement and assist you in drafting appropriate clauses that suit your needs. For instance, contracts commonly contain clauses that address important issues such as:

what happens if the contract is frustrated by an "act of God";  

whether the parties can sub-contract to other parties;  

what insurances need to be taken out by either party;  

what indemnities either party will provide the other; and  

whether parts of a contract can be severed and effect still be given to the remainder of the contract.

Special provisions may be required in certain industries. Take for instance the construction industry. In this industry it is common to use specialised clauses pertaining to the cost structure of providing goods or services. Those clauses pertaining to costs may also contain provisions that vary the costs according to the time at which the project is finished or according to external factors (such as the price of items that are essential to carrying out the contract). If the contract is relating to the delivery of goods on a regular basis, such a contract might set out extensive provisions in relation to how the delivery should take place.

As a result of the differences between contracts in different areas, it can be of great benefit to consult with a legal professional who has experience drafting contracts in a particular area. Often agreements may determine who holds the right to use or own certain property or they may place restrictions upon activities that can be carried out by either party and it is important to get the terms of the agreement right.