IN brief, a contract is an exchange of one or more promises or obligations between two or more parties; business disputes often arise as a result of an inadequately drafted contract.
Whether it is a job agreement, buying a property, or applying for a loan, a legal contract is not something that can be taken for granted. There are so many loopholes in those pages that can easily be missed. But overlooking them can cause a lot of trouble in future.
This goes without saying that before signing a contract or any legal document for that matter, you must read it carefully. However just reading will not be much of a help in certain cases. The language in which these contracts are written is called legal English, which is quite different from what we are used to.
You might have to look up certain words and sentences to know their exact meaning. So here are a few things that should be considered before signing a contract, anyone that is considering entering into a contract should consider these points: Research-Do you know exactly who you are going to enter in to a contract with?
It is important that due diligence (research) is carried out carefully against the business or individual (s) you intend to go into business with. 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.
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 welldrafted 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. Consult a Lawyer- Legal jargon is not something that everyone understands completely and signing a contract without a proper understanding would mean putting a lot at stake. At such a case it is always advisable to seek professional help.
Depending on the nature of your contract, you must hire a specialised lawyer. This might also let you know some of the things that are hidden in the contract, which only a professional can understand. Legal documentation requires a deep analysis. It is better to take precautions before that deal is closed.
Along with professional help, you should also consider consulting a friend or acquaintance, who has recently been in the similar situation as you.
Even seemingly trifling steps can prove to be very lucrative sometimes, it goes therefore that, the contract should be drawn up by a lawyer or advocate 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.
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. Termination-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. Y ou should check your rights to bring the contract to an end before signing the contract.
Governing law- It is important that a clause is included within the contract to state that which country’s law will apply to the interpretation of the contract. This is particularly important if one of the parties are from different countries and a dispute arises.
Rights Vis-à-vis Obligations- Always look for the rights you are given in a certain contract. This would mean what actions can you take if another party is not able to stand to their commitment. Moreover, you must read the obligations and actions that can be taken against you if you land up in the same situation and make sure that they are justified with your rights.
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).
The author, Yusto Habiye is the Managing Partner of Tan-Law Associates LLP, can be reached via Email:email@example.com, or 0743 666111.