Module 5

COMMERCIAL
CONTRACTS

CERTIFICATE COURSE

DEVELOPED BY
Corp Comm Legal

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MODULE - 5

GOALS THAT CONTRACT SERVE

A "liability" in a company refers to a legal liability - what they've been contracted to do, thus reducing
a situation in which the company might be sued or confusion and increasing focus.
face other legal action that would require it to pay
out money. Companies often attempt to draw up 5.1 Goals that Contract serve
contracts with employees, contractors, consumers
or other associates with the purpose of limiting the The Contracts Law provides the legal framework
company's liability. This process has a number of for establishing legally valid and enforceable
advantages, but it also carries certain drawbacks. agreements. In real-life commercial situations –
and especially with the advent of technology and
The main goal of drawing up of contracts is to the speed and manner in which transactions are
minimize liabilities is that it reduces the risk that effected – parties may not always achieve the
the company issuing the contracts will be sued. By certainty required to ensure that an agreement or
making sure that all parties agree on the terms of a contract term is valid and enforceable. The
particular agreement and making everyone sign a pressure associated with reaching an agreement
contract attesting to this, this strategy reduces the often causes parties to defer important contract
chance that one party will have grounds for legal terms in order to close a deal at the expense of
action lateron. certainty and, ultimately, enforceability.

In addition to reducing the risk of lawsuits, Drafting stage
contracts can also provide clarity to employees and
partners in their mission. Contracts often outline At the drafting stage, parties carry the burden of
exactly what's expected of each party. In addition transposing their intentions, safeguards and
to reducing the likelihood that one party will be expectations into several pages to which they will
able to sue the other party later on, these contracts be able to resort and hold the other contracting
can also help each party remain mindful of exactly party accountable if something goes wrong

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somewhere along the line. Frequently, parties do using language that denotes certainty of
not have all of the answers at the drafting stage or obligation such as 'shall' or 'best endeavours';
even a clear idea of how their cooperation will pan and
out, so they may opt to defer certain decisions by
adopting more flexible and non-committal refraining from referring to phrases such as 'to
language for a specific contract term. The problem be agreed' or 'option' where their intention is in
arises when one party has acted in reliance to a fact to agree at the time the contract is entered
clause that the other party deems to be non- into.
binding and thus unenforceable.
Provides proof of what was agreed between you
Parties negotiating contract terms should apply and the other party
certainty while their contract is being drafted. It is Helps to prevent future misunderstandings or
important to engage experienced professionals disputes by making the agreement clear from the
who will assist in expressly setting out those terms beginning
which are material to a contract. For terms that Gives you security and peace of mind by having
cannot be agreed at the time the contract is the terms of the agreement down on paper which
entered into, a flexible approach may be adopted the terms do not change
by: Reduce the risk of a dispute regarding payments,
responsibilities, and timeframes that the service to
incorporating terms that will apply objectively be performed under the contract
in case the parties cannot reach their Sets how disputes will be resolved
agreement in the future (eg, determination by Specifies how either party can end the
an objective third party such as an expert or contract before the work is completed
arbitrator);
5.2 What should be included in a written contract ?
including a mechanism or a standard
(reasonableness) that would allow a third party To be legally binding, a contract needs two
to objectively evaluate the outstanding essential components: 1. an agreement, and 2.
contract term; consideration. Within the agreement and

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consideration lies an assortment of provisions that Entire Agreement Clause – states that what is
add to the legality of a contract. These include the written in the contract is what is exactly agreed to
offer, terms, performance, conditions, obligations, and that nothing outside of this contract is
paymentclauses,liability,and defaultorbreach of applicable
the contract. Force Majeure Clause – states that should
something happen outside the control of either
For an agreement to be binding, it must have some party, such as a fire or earthquake or some rare
form of consideration. This means that all parties event that no one is responsible for, then the
involved must receive consideration or something contract is no longer valid.
of value. Otherwise, it is considered a gift rather Arbitration or Mediation Clause – this dictates
than acontract. how disputes will be handled, either with a third-
party independent arbitration or mediator.
Typically, you want to make sure you cover the
following elements in a contract: 5.3 Conclusion

Obligations and Responsibilities – what A clearly drafted contract provides a written
each party needs to do under the contract record of the terms agreed to and is more reliable
Performance – how well each party will evidence of the parties’ intentions than the
perform the terms of the contract memories of what was said. The act of signing an
Payment Terms – detailing how payments agreement reinforces the fact that a contract gives
will be made under the contract rise to legal rights and duties.
Liabilities – how liability and responsibilities
will be handled once there’s a problem The drafting process identifies misunderstandings
Breach of Contract – what will happen if or unclear points that might otherwise surface only
either side fails to fulfill their obligations in the event of a later dispute or lawsuit that could
lead to expensive and complicated lawsuits.
Although it’s not legally required, a written
contract should also contain several provisions Further, the process of negotiating a detailed
known as “boilerplate” provisions. These include: contract, when paired with trust, can enhance the
trust value received by each party.

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When negotiations are being drawn out, the however, the parties to the contract may find
parties can avoid ambiguity about what they finally themselves differing as to what they thought they
agreed to by including a clause to the effect that had originally agreed on.
“this agreement constitutes the entire agreement
of the parties and supersedes all prior and It is always recommended to have any form of
contemporaneous agreements, representations, agreement formalized in a written contract to
and understandings of the parties.” This is called a prevent possible disputes in the future.
merger clause or integration.
The strength of a contract lies in carefully drafted
During negotiations some issues may seem so written agreements. By using clear, specific
obvious that no one even thinks to include them in language to state their understandings, parties can
the contract. As time passes and memories fade, often avoid quarrels later.

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