7 points to consider before entering into a contract
Business disputes often arise as a result of an inadequately drafted contract. Anyone that is considering entering into a contract for the supply of goods or services should consider these 7 points:
Do you know exactly who you are going to enter in to a contract with?
Are you contracting with a subsidiary, the head company in a group of companies, or a charity?
It is important that due diligence (research) is carried out carefully, against the business or individual (s) you intend to go into business with.
You may wish to carry out creditworthiness searches against the party you intend to enter into the contract with. In addition to this, it is important that you check that the parties are clearly defined in the contract and that all parties are capable of entering into the contract (this may be an important consideration for a party entering into a contract with a business with a complex structure).
2. Written contract
Although a contract can be formed orally it may be difficult to enforce this type of contract in court. Therefore, a written contract is the preferred form. A well drafted contract will ensure that the parties understand their rights and obligations in the business transaction. In addition this document will be useful where a dispute arises.
The contract should reflect the terms agreed between the parties and if this is not the case amendments should be made to the draft contract until the parties are happy with its content.
There is always the possibility of a business relationship breakdown, even between family and friends therefore, where you enter into a business arrangement with family or friends it is important to keep a written record of the terms and conditions agreed or to consult a solicitor to draft a contract.
3. Consult a Lawyer
The contract should be drawn up by a solicitor and should include (but should not be limited to) the following:
- The scope of transaction agreed between the parties.
- The roles and responsibilities of each party.
- The time frame agreed for performance of the contract.
- The consequences of failing to meet obligations under the contract.
- Early termination clause.
- Payment terms.
4. Payment terms
If under the contract you are the paying party you must check that you agree and that you are able to meet the payment terms. The consequences of failing to pay on time could result in debt recovery proceedings being commenced against you. In some contracts the party supplying the goods or services may be entitled to claim interest on any outstanding debt.
Once the contract has been signed by all parties, a legally binding contract is formed. Only in certain circumstances may a party terminate the contract.
There is always a risk that there may be a breakdown in a business relationship between the parties. This often happens where a dispute arises between the parties or where a party no longer needs the goods or services being supplied under the contract. In these circumstances a party may want to bring the contract to an end. Some contracts contain a termination clause allowing a party to exercise its right of early termination, whereas others make it difficult to terminate the contract and may impose penalties for early termination. You should check your rights to bring the contract to an end before signing the contract.
6. Governing law
It is important that a clause is included within the contract to state that English law will apply to the interpretation of the contract. This is particularly important if one of the parties based outside of the UK and a dispute arises.
7. Signing the contract
The contract should be read carefully and the terms and conditions should be understood by all parties before signing the contract. It would be wise to consult a lawyer if there is anything within the contract that you do not understand. A lawyer will explain all aspects of the contract so that you understand your rights and obligations under the contract.
The parties to the contract should ensure that they have authority to sign the contract (this is important if an individual is signing the contract on behalf of a company).
Commercial Litigation Lawyers in London
The commercial litigation team at Saunders Law have extensive experience of dealing with straightforward and complex contractual disputes, on behalf of both Claimants and Defendants. If you are faced with a contractual dispute please contact the commercial litigation team on 02076324300 or make an enquiry online.