Things To Keep In Mind While Drafting A Commercial Contract
A commercial contract is an agreement between two or more parties. Commercial contract drafting can be written and signed by them or it can be oral and unwritten, but in most cases, businesses have to have a written contract. The purpose of a contract is to clearly state the terms of an agreement between two parties. This helps in preventing any confusion that may arise during the process and helps with solving any dispute that may arise out of the contract. Before any business enters into a commercial contract, it should be kept in mind that it should be fair and equitable for both parties.
Trading partners enter into contracts for all sorts of reasons. They might be making a long-term purchase or sale, or they might just be exchanging goods on an ad hoc basis. Whatever the contract’s purpose, you should think about a variety of issues before signing on the dotted line.
The basic elements of any contract are the parties to the contract, its purpose and its duration. You also may want to add provisions dealing with how disputes will be resolved and how long it will take before those disputes are resolved. It is always best to draft a contract in order to ensure that all parties are operating within the boundaries of agreed terms. This helps to avoid any misunderstandings and ensures that payments are made within the agreed time frames. Before you begin drafting, it is important that you are aware of the main points that need to be covered so that the final contract will be as effective as possible. Here are some things to keep in mind while drafting a commercial contract:
Parties of Contract
It is important to have an overview of the various parties involved in the contract. You need to include information about specific roles such as the employer, employee, regular business partner, and so on. Also, consider whether there are any agents involved with powers of representation and if there are any subcontractors or consultants included. This will make it easier for everyone to know their responsibilities and it will also help in case of disputes that may arise.
All the parties involved in the transaction must be mentioned in the contract. These include the Seller, Buyer, Agent, Broker, and any third party. Each party should know their responsibilities regarding this commercial transaction and any breach of contract by any party must be duly compensated for by them.
Mutual obligations and pre-conditions for the obligations of the parties should be succinctly defined.
It should be ensured that necessary corporate law provisions are being parallelly followed like resolution for entering into the business agreement is passed and the person signing the agreement is duly authorized by the company.
Purpose Of The Contract
Your next step should be to identify what the purpose of the contract is. This can be anything from providing a service, conveying goods or services, franchising rights, buying/selling goods or performing a research project, etc. Full considerations should be given for defining the whole obligations of the parties under the Commercial Contract.
Contract Duration And Termination
Commencement or Effective Date for the commercial contract should be specifically defined and also terms of termination should be clear so as to avoid any scope of doubt. A commercial contract differs from other contracts because it is suitable for a long-term business transaction. Some examples include renting out an apartment or selling a house or land. The duration can also differ depending on what is agreed upon by both parties.
Agreeing To Quick Dispute Resolution Or Alternate Dispute Resolution Mechanism
Both parties have the right to agree to quickly resolve disputes that may arise in the future due to breach of contract or unforeseen circumstances during the course of a business transaction. For example, delayed delivery, quality dispute, etc. Parties to the commercial contract have a remedy to opt for an Alternative Dispute Resolution as a dispute resolution mechanism. Apart from it parties should decide in advance which court shall have jurisdiction in case of any dispute.
Location Of Contract Enforcement
Location of contract enforcement is a vital thing to be kept in mind during the process of commercial contract drafting. The most common location for enforcement of contracts is a court of law. However, in commercial dealings, the parties may prefer arbitration as the method of enforcement. This also depends on the specific nature of the agreement and other considerations. In the case of arbitration, it is important to decide the place where the arbitration will be conducted.
Charging & Invoicing
The charging and invoicing clause is crucial in a Commercial Contract since it contains the mutually agreed provisions regarding raising of invoice by one party and making the payment of the invoice within an agreed period of time. A mechanism to resolve any issue arising out of the provisions of invoices, payment, and charges should also be specified.
Non-Compete Or Non-Solicitation
This clause imposes prohibitory terms on the employees or other parties (as the case may be) from revealing proprietary information or secrets or confidential information to any other parties during or after the employment.
The non-solicitation clause typically refers to an agreement between an employer and employee that prohibits an employee from utilizing the company’s clients, customers, contact lists, etc. after such employee leaves/exits the Company.
This clause is significant and crucial in Commercial contracts as it provides the role of the parties in handling personal or business data and their obligations arising from it. It ensures that the chain of responsibility to handle and use personal and business data is clear to each participant in the process. This clause restricts the parties to share and use personal and business data apart from the agreed purpose for which access to the data has been allowed by the parties to each other.
This clause in Commercial Contract restricts and prohibits the parties from sharing unique business ideas and information which are sensitive in nature. This clause imposes an obligation of non-disclosure of any confidential information and discussions concerning the business to any third party.
However, there must be some information that may not be considered confidential and thus are excluded, and revealing those information shall not be treated as a breach of the confidential clause.
Warranties And Representation
This clause in Commercial Contract simply acts as an assurance which one party gives to the other party at the time of entering into a contract. In this clause, each party represents and warrants to any given statement of fact concurrently and interchangeably. So, each statement of fact serves as both a representation and a warranty.
Representations and warranties are the two key components of any commercial contract. While drafting and reviewing any commercial contract, consideration should be made of every representation made and warranty provided and it should also consider whether it is required to include a corresponding covenant. A commercial contract should contain standard representations and warranties which are directly or directly related to the enforceability of the contract or any transaction-related warranty or representations which are related to the subject matter of the transaction referred to in the contract.
This clause relieves parties from the obligations imposed upon them in the Commercial Contractwhen a delay in performance or non-performance of obligations is due to any circumstance beyond the control of parties. Force Majeure is present in common law as the doctrine of frustration of contract. A Commercial Contract should specifically determine the circumstances which will be covered by the force majeure clause. Parties are free to allocate the risks as they see fit and it is also possible that parties may not be willing to assume the risk of performing in the face of certain clearly foreseeable events.
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The content of this article is intended to provide general information. No reader or user should act or refrain from acting on the basis of information written above without first seeking legal advice from qualified law practitioner.