The Step-by-Step Guide to Constructing a Legally Valid Business Contract

The Step-by-Step Guide to Constructing a Legally Valid Business Contract

Aug, 2022 | Business Law

The Step-by-Step Guide to Constructing a Legally Valid Business Contract

A specific and comprehensive contract can avoid a whole raft of issues. Business challenges between employees, suppliers and customers are all avoidable, with a clear contractual agreement that both parties are comfortable with.

There are several essentials that you should include in every business contract, including:

    • The actions required from each signatory.
    • Timescales involved.
    • Fees charged for delivery.
    • Clauses for returns or refunds.
    • Payment terms.
    • What happens if either party does not produce.
    • Late payment clauses and conditions.
    • The correct route to resolving disagreements.

While there are thousands of business contract templates online, they are rarely (if ever!) sufficient to protect the interests of your company.

Legally enforceable contracts make a world of difference when things go wrong, ensuring that every clause contributes to a factual instance of contractual breach.

Today The Law Firm Group looks at each element of a future-proof business contract to help you work through your documentation step-by-step.

1. Business Contract Offer and Acceptance

Contracts rely on evidence that each party intends to enter into a contractual relationship and agrees to be bound by the terms.

Offers can be verbal, but written contracts are much easier to prove in legal conflicts.

The intention must be clear since ambiguity can cause a challenge. Specific terms are key, as are records if you enter into a contract any way other than in writing.

Acceptance of a business contract must also be demonstrable, including an agreement to the established terms, with proof that every involved company took on the mutual understanding about what they, and the other parties, would deliver.

2. Establishing Contractual Consideration

Consideration means the payment made for services rendered or goods delivered. Payment doesn’t always have to be financial, but you need to evidence what you expect to receive.

For example:

    • Your business contract includes marketing of your enterprise in return for reduced price products.
    • The consideration is the reduction in revenue for the same item.
    • You need to prove that your customer has accepted the terms and agreed to provide marketing services in return for price reductions.

3. Entering Into Business Contracts With a Representative of Legal Capacity

Capacity comes into play if you end up with a conflict.

In essence, anybody who enters into a contract needs to have the authority and power to agree to the terms and commit the business to the agreement in question.

Examples include minors or individuals without the capacity to make informed judgements. Such a person cannot enter into any good faith agreement with an understanding of the commitment they are making.

It isn’t always easy to check the capacity of another enterprise, but a commercial solicitor can recommend steps to clarify whether your contract holds weight under this requirement.

The takeaway is that entering into a business contract with a person without sufficient legal capacity generally means your contract is void.

4. Commercial Contract Terminations

Whatever the nature of your contract, there should be provisions for terminating the contract. That means looking at:

    • Events or occurrences that mean either party cannot meet the terms.
    • Notice periods to request a contract termination.

Termination clauses are often overlooked but can give rise to numerous challenges, whereby you don’t have the legal grounding to dispute the termination without evidence in your business contract to back this up.

Another issue is deciding which scenarios to add to your contract and what exact situations would constitute a fair contract termination event.

The goal is to ensure you don’t end up in a situation where you are contractually obliged to fulfil a contract that you cannot.

5. Contractual Damage Provision

There is always a chance, even in the most long-standing agreement, one party to a business contract might fail to meet the terms, either intentionally or not.

Commercial contracts should always include a clause relating to damages, often precluding any necessity for formal court action but reinforcing your position if the other party does not meet their obligations.

This clause is a backup if things go wrong, but the aim is to encourage any party to meet the terms, thus avoiding legal action set out in the agreed contract.

Breaches of contract can be highly complex, so you’ll need to be precise. For example, is a delivery two days late a cause to claim damages? How about a week or a month late?

This decision means looking at material and minor contractual breaches, so legal advice is recommended.

As well as identifying situations where failure to deliver constitutes a breach, companies need to think about how they’d handle this situation.

The ideal is that the party that breaches the contract must pay damages equal to the costs and issues caused.

6. Establishing Commercial Contract Legalities

To hold weight under pressure, a business contract must be legally enforceable.

That means the transactions involved are legal without falling into a grey area.

If any transactions, agreements or processes are potentially unlawful, we recommend seeking legal advice. A contract that refers to any systems outside of regulated business activities may not be enforceable.

Understanding the Crucial Elements of a Business Contract

Template contracts and standard terms don’t cut it when it comes to putting arrangements in place of a commercially significant value to your business.

Vague contracts, the lack of a clear agreement, signatures from unauthorised representatives, and an absence of termination clauses can cause no end of headaches.

To be able to chase payments, seek damages or claim reparations for delays that have caused financial damage to your company, you must have a legally valid contract in place, compliant with each item on our step-by-step guide.

Comprehensive contracts may take a little time to construct. Still, they can be a saving grace when disputes arrive, giving no room for manoeuvre on what you expect and what the related business has agreed to deliver.

For more assistance creating exacting business documentation to ensure all your key contracts operate to the benefit of your business, please get in touch with The Law Firm Group.

Our capable commercial solicitors can advise on every aspect of contract law, setting you up for a successful future, whatever challenges come your way.

Call or email us to talk about it. 0300 303 3805

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

May, 2022 | Business Law

Swift Commercial Dispute Resolution – Your Checklist to Achieve a Successful Outcome

Commercial disputes can be extremely complex and involve substantial costs, reputational damage and harm to previously successful business relationships.

Finding a swift, fair and enforceable resolution is in the interest of all parties.

Even if you have a valid claim or have grounds to reject a claim made against your business, it is important to present a watertight case to avoid future issues.

In this guide, The Law Firm Group explains the process for resolving a commercial dispute, with a checklist to ensure you have everything you need to succeed.

Commercial Dispute Basics

Before we get into more detail, let’s rewind to step one, when a dispute first arises.

Usually, this begins with an informal notice, such as a request for an unpaid invoice to be settled.

Disputes require a paper trail to evidence that attempts have been made to resolve the problem before escalating. If you haven’t tried to resolve a conflict at the early stages, it may be challenging to progress things further.

Where these efforts have proven unsuccessful, the claimant will need to consider the costs of legal action compared to the benefits of seeking legal support to recover damages, expenses, or monies owed.

Solicitors often use a pre-action letter to gently caution that the claimant will make a legal claim if the matter is not concluded by a finite date.

Sending a Letter Before Action in Business Conflicts

Issuing this letter does not constitute the start of litigation, and rather, it is an attempt to reinforce the claimant’s position, demonstrating the legal basis for the claim.

If you receive a letter before action, we recommend seeking legal advice immediately, as the time limits are not negotiable, and you need to respond as quickly as possible.

Proceeding to Court Action to Progress a Commercial Dispute

Should an agreement not be forthcoming, court processes can begin. This is a critical stage in a commercial dispute and usually avoidable with decisive, swift action and a willingness to negotiate.

Once you initiate or receive notice of court proceedings, you are subject to the court’s regulations around paying for costs.

At this step, a claimant will prepare a formal legal case by filing a claim form and the particulars, which explain their argument and why they are seeking a court-ordered outcome.

Defendants must respond to the claim within 14 days of the notice being served, to submit a defence, or acknowledge the court action.

The Commercial Dispute Resolution Checklist

For most businesses, avoiding an expensive, public, and potentially lengthy court battle is highly preferable, so putting together your claim or defence is key to a quick and acceptable outcome.

If you have received a letter before action or wish to initiate a claim, this checklist will help ensure you have all the background information ready.

1. Review contracts and agreements It’s crucial to refresh your memory about any contracts, agreements or negotiations concerning the conduct between the two businesses.

Many disputes involve confusion over the clarity of contracts, so going back to the original documentation is important to identify how either party has broken the agreement and when.
2. Assess the loss Whether as the claimant or defendant, you need to know the costs involved to make decisions about a settlement agreement, out of court negotiations, or proceeding to litigation.
3. Collect evidence The more written documentation, the better!

Collect everything relevant to the situation, including emails, meeting minutes, contracts, agreements, statements referring to phone calls or verbal discussions, purchase orders, remittances and reports from other colleagues.
4.  Negotiate If you can reach a mutually agreeable decision before litigation, you usually both stand to save a considerable amount in court fees.

We suggest recording negotiations with letters and notes, or minutes, agendas and meeting records to avoid further conflicts or misunderstandings.
5. Consider alternative dispute resolutions The commercial team at The Law Firm Group can advise on out of court agreement processes, including arbitration or mediation, which may help reach an amicable solution without the expense and publicity of a court process.
6. Identify likely outcomes It’s essential to think about the likelihood of reaching the solution you are aiming for.

For example, if we consider the example earlier about an unpaid invoice, but you know that the other business is in severe financial difficulties, is it worth covering legal costs to instigate a court case if the potential for repayment is very low?
7. Seek legal advice If you haven’t already, now is a time to discuss the matter with an accredited commercial solicitor, assess the risks and rewards, and make clear decisions about the way forward.

Unless the dispute is straightforward, involves a small monetary value, and doesn’t seem to pose any risk of a counterclaim, legal advice is strongly advisable.
8. Evaluate the strength of your claim Most businesses in a conflict feel convinced that they are right, but you need to assess whether you have enough evidence and grounds to make a factual claim.

This process means looking at the legal position of the company and the documentation available. The potential for a counterclaim or even losing the case in court are also crucial factors.
9. Estimate timescales and costs Whichever legal action you take, there will be costs and timescales involved.

Speak with your solicitor to get a firm idea about the likely length of time before you reach an outcome and the total costs to decide whether the conflict is worth pursuing.
10. Make a final decision At this stage, you know how strong your claim is; you have all the evidence and benefit from legal advice about the right options for your business.

Now, you’ll need to decide whether you’re willing to compromise and perhaps accept staged payments, make a partial claim, or whether it’s worth abandoning the claim or pursuing full legal action.

 

Once your litigation has been finalised, you’ll still need to consider enforcement action, so a court case is often the last resort in a commercial dispute involving substantial amounts.

Expert Advice on Commercial Dispute Resolutions

If you need practical legal support deciding how to proceed with a business dispute or specific advice around commercial law relating to your claim, please get in touch with The Law Firm Group.

We’ll run through the situation, provide guidance, and help you choose the best approaches to successfully reach a favourable outcome, balancing risks versus rewards and costs versus returns.

Call or email us to talk about it. 0300 303 3805

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