A contract is a promise. If a party does not perform their stated promise(s) then the other party has a remedy against them. Business contracts are drafted and negotiated every day. You will want to consider the following criteria when drafting a contract:
- The parties’ relationship with one another.
- The negotiating leverage of each side.
- How big or small the transaction is and what it will cover.
- How reliable, reputable and creditworthy the parties are.
- Whether the transaction is “standard” or unique.
- How the contract might impact any other agreements already in place between the parties and any interplay between them.
Before putting pen to paper, you should consider the above factors and review all material terms agreed to by the parties with any appropriate people.
Components of Business Contracts
The main components of commercial contracts are:
- Warranties and Representations: A warranty is a promise that what’s being asserted is true fact and is supported by an implied promise of indemnity if it later turns out to be untrue or false. A representation on the other hand is an assertion of fact made by one party for the purpose of inducing the other to enter into the agreement or to take some sort of action.
- Covenants: A covenant is also called an agreement. It is a promise made by one party to another party to take some sort of action or to not take some sort of action.
- Rights: A right is the opposite of a covenant. In other words, it is the benefit you get from the other party’s promise to take a certain action or to refrain from taking a certain action owed to you.
- Conditions. A condition is something must to take place or something that must be true before a party’s rights or obligations are triggered under the contract.
- Mutual Statements of fact. A mutual statement of fact is a informational and declaratory statement (examples include definitions or choice of law provisions) that expands, clarifies, or limits the meaning of warranties, representations, rights, covenants and other conditions.
Top 10 Business Contract Clauses:
- Expenses – This clause states how all of the costs and expenses are to paid and under what terms.
- Attorneys’ Fees – This clause generally states that if one party sues the other party and prevails in court, that it will be entitled to attorney’s fees in connection with the lawsuit. Absent a specific statute or written agreement, attorney’s fees are not recoverable by the prevailing party to a judicial proceeding. Therefore, parties will want to address this issue in every written contract.
- Severability – This clause provides that if any one part of the contract should ruled to be invalid, illegal, or otherwise unenforceable by the court that the remainder of the contract will be valid and enforceable.
- Amendment and Modification – This clause typically states that the contract can only be changed or amended by a separate written agreement signed by all the parties.
- Assignment – This clause either allows, disallows or places conditions on the parties should they want to assign their rights under the contract.
- Governing Law – This clause provides for which laws are to govern the contract.
- Waiver of Jury Trial – Absent a showing of fraud or other illegality, a waiver of jury trial clause will be enforced and upheld by the court.
- Force Majeure – This clause provides that no party will be liable to the other party should it breach the contract if there is an act of God that it prevents it from performing. Examples of acts of God are fires, floods, earthquakes, war, labor strikes, civil unjust, and embargos.
- Time is of the Essence – This clause states that time is of the essence. This means that the time provisions in the contract are strict and that if a party does not do something within he stated time, that it will be in material breach of the contract.
- Indemnification – This clause helps ensure that a party will not be on the hook for certain under certain circumstances. It provides that a third party will cover those losses.
The best way is to avoid having a business contract dispute is to have a well thought out business contract. Towards that end, before entering into any business contract, you should review the following:
- Outline all the major points of the deal and play out certain “what if” scenarios with your lawyer.
- Have your lawyer write in simple terms from a generic contract at first. Like a building, a contract should have a good solid foundation.
- List all of the accurate legal names of the parties to the contract in in the opening paragraph. This is one of the most typical problems in business contracts.
- Lastly, title your contract “Contract”. There is no need to dance around it. A contract should be called a contract and signed by both parties.
Do You Have a Question About a Business Contract?
Whether you’re considering entering into a contract or whether you’re currently embroiled in a dispute arising out of a failed contract, let a Miami Business lawyer stand by your side. I can draft, review and advise you on the legal ramifications of your business contracts.
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