What is a business contract?
A business contract is a legal binding or an agreement between the two parties, involving you as one of the party, which is used where services are provided for a fee or when specific duties are to be performed which outlines various key elements to follow and bind to.
Why are business contracts important?
Written business contracts and agreements provide businesses and individuals with a legal document that lists down the expectations of both parties and how adverse situations it can resolve. They are legally enforceable in the court of law and it is often used by businesses and companies to safeguard their resources.
What makes contracts valid?
All contracts have to be in writing and it should include the following information – information about the parties contracting, consent from the parties involved, a lawful object and a consideration.
What are the advantages of having a contract?
Written contracts provide more certainty and security for both the involved parties as compared to verbal discussion. The contracts set the agreed details and both parties sign to abide by the agreement and hence provide the safety and security of the resources from both ends. Moreover, contracts are enforceable in the court.
What is the difference between an agreement and a contract?
The agreement is an understanding between the two or more parties whereas the contract is a specific agreement that binds the parties with its terms and elements which is also enforceable in a court of law.
What are the 4 elements of a contract?
For a contract to be valid and legally binding, it must have the following four elements:
- an offer
- an acceptance
- an intention to create a legal relationship
- a consideration (usually money).
However, it may still be considered invalid if it:
- entices someone to commit a crime, or is illegal
- is entered into by someone that lacks capacity, such as a minor or bankrupt
- was agreed through misleading or deceptive conduct, duress, unconscionable conduct or undue influence.
What is a voidable contract?
A voidable contract is a valid contract which may be rejected or affirmed by one of the parties. At most, one of the party is bound to the contract however unbound party may reject the contract whereby it becomes void.
What is contract discharge?
Contract discharge means contract termination. When a contract is fully performed and is made to be nullified then it is said to be contract discharge.
Standard form contracts and unfair terms
A standard form contract is a pre-prepared contract where most of the terms are set in advance with little or no negotiation between the parties. They usually print these contracts with only a few blank spaces for adding names, signatures, dates, etc.
Examples of standard form contracts can include:
- employment contracts
- lease agreements
- insurance agreements
- financial agreements
We write standard form contracts to benefit the interests of the person offering the contract. It is possible to negotiate the terms of a standard form contract. However, sometimes your only option may be to ‘take it or leave it’. You should read the entire contract, including the fine print, before signing.
If you intend to offer standard form contracts, you must not include terms that unfair. This could include terms that:
- allow one party (but not another) to avoid or limit their obligations
- allow one party (but not the other) to end the contract
- penalise one party (but not another) for breaching or ending the contract
- allow one party (but not another) to vary the terms of the contract.
There are laws protecting consumers from unfair contract terms if they had little or no opportunity to negotiate with businesses (such as standard form contracts).
Before signing a contract
Before you sign a contract:
- read every word, including the fine print
- ensure that it reflects the negotiated terms and conditions
- seek legal advice
- allow plenty of time to consider and understand the contract
- don’t be pressured into signing a contract if you are unsure
- never leave blank spaces on a signed contract – cross them out if you have nothing to add so they cannot be altered later
- make sure that you and the other party initial any changes to the contract
- get a copy of the signed contract for your records.
Once you’ve signed a contract, you may not get out of it without compensating the other party for their genuine loss and expenses. Compensation to the other party could include additional court costs if the other party takes their claim against you to court. Some contracts may allow you to terminate early, with or without having to pay compensation to the other party. You should seek legal advice if you want to include an opting-out clause.
Ending a contract
Most contracts end once the work is complete and payment has been made.
Contracts can also end:
- by agreement – both parties agree to end contract before the work is completed.
- by frustration – where the contract cannot continue due to some unforeseen circumstances outside the parties’ control.
- for convenience – where the contract allows a party to terminate at any time by providing notice to the other party.
- because of a breach – where one party has not complied with an essential contract condition, the other party may decide to terminate the contract and seek compensation or damages.
If someone has breached a contract warranty or minor term, it is unlikely that it can be terminated, though the other party may seek compensation or damages.
Some contracts may specify what will be payable if there is a breach. They often call this liquidated damages.
If there is a dispute regarding the contract, it is important both parties communicate to resolve the matter. You may use low-cost Alternative Dispute Resolution (ADR) service or seek legal advice to help resolve your dispute.
Structure of an agreement
There is no specific format that a contract must follow. It will include some terms, either expressed or implied, that will form the basis of the agreement. These terms may outline contract conditions or contract warranties.
Contract conditions are fundamental to the agreement. If the contract conditions are not met it is possible to terminate the contract and seek compensation or damages.
Contract warranties are less important terms and not fundamental to the agreement. You cannot end a contract if the warranties are not fulfilled, however, you may seek compensation for any losses incurred.
When negotiating the contract terms make sure the conditions of the contract are clearly defined and agreed to by all parties.
Contracts may follow a structure that can include, but are not limited to, the following items:
- details of the parties to the contract, including any sub-contracting arrangements
- duration or period of the contract
- definitions of key terms used within the contract
- a description of the goods and/or services that your business will receive or provide, including key deliverables
- payment details and dates, including whether interest will apply to late payments
- key dates and milestones
- required insurance and indemnity provisions
- guarantee provisions, including director’s guarantees
- damages or penalty provisions
- renegotiation or renewal options
- complaints and dispute resolution process
- termination conditions
- special conditions
Hire a business contract lawyer
To ensure you get the best advice and representation, select a lawyer that:
- has experience and expertise in dealing with your legal issue
- can communicate using simple language
- is easily accessible
- you feel comfortable with
- charges fees that are reasonable and acceptable to you.