- What are the Key Requirements for Creating a Valid Commercial Contract?
- Should a Commercial Agreement Be in Writing?
- Different Types of Commercial Agreements
Commercial agreements are legally binding contracts between two or more parties that clearly outline their mutual obligations enforceable by law. If any party fails to fulfill an obligation, the agreement also provides remedies to the other party/parties for implications caused by to breach of contract. In such cases, the party involved in the breach of contract is liable for specific performance or monetary damages as mentioned in the agreement.
In any business dealing, the ideal way to protect your best interests is with a valid, legally enforceable contract. Typically, a commercial contract comes in written form and must fulfill specific requirements to be enforceable by law. In the U.S., the Uniform Commercial Code (UCC) regulates commercial agreements, such sale of goods & services or supply contracts. However, the statutes governing commercial contracts may vary among states. Therefore, it is important to have a thorough understanding of state regulations concerning the agreement.
What are the Key Requirements for Creating a Valid Commercial Contract?
Suppose, you are setting up a franchise business in the U.S. Before you can start selling products or services, you must enter into a contract with the franchisor. Through the agreement, the franchisor gives you (the franchisee) the authority to use its brand and expertise and sell its products and services in lieu of a franchise fee.
The contract between the franchisor and the franchisee will be considered valid and legally enforceable only if it fulfills the following elements –
There must be mutual assent – Commercial agreements are considered legally binding and valid only if there is mutual assent. A contract is formed only when an offer is made and there is an acceptance of the offer. There should be evidence indicating that the party who makes the offer intends it to be binding. It must also express that the party who accepts the offer knows that it is intended to enter into an enforceable contract. There must be a minimum of two parties to have a legally binding contract.
The parties to the contract must voluntarily agree to the agreement – Any of the parties must not use force (physical or mental) to have another party enter into the contract. Contracts made using undue influence, coercion, duress, fraud, or misrepresentation are not considered valid or enforceable.
There must be a consideration –The parties to commercial agreements must understand that they are bargaining for “something of value,” or consideration. This may be in the form of a promise, or transfer of money or items of value.
The subject matter must be lawful – If the subject matter of the agreement is illegal, then the terms & conditions mentioned in it will not be enforceable lawfully.
The parties must be in ‘capacity’ at the time of signing the contract – The contract will be considered legally binding only if the parties have the mental ability to understand the terms and conditions at the time of signing it. Parties who enter the agreement under the conditions of mental impairment, intoxication, or age may seek the court to void the contract.
Should a Commercial Agreement Be in Writing?
According to the Uniform Commercial Code and as authorized by all the U.S. states, commercial agreements related to the “sale of goods” exceeding an amount of $500 must be in writing to be legally binding. This also covers bulk sales law prevalent in certain states such as New Jersey. However, UCC statutes do not apply to agreements related to commercial services.
However, every state incorporates a “Statute of Fraud” in their commercial contract law. According to the statute, specific types of agreements should be in writing to be enforceable by law. This also includes agreements related to the sale of an interest in land.
Different Types of Commercial Agreements
A commercial agreement stands viable for any type of business relationship or dealings, including common ones such as –
- Employment agreements
- Customer and vendor agreements
- Partnership or shareholder agreements
- Licensing and intellectual property contracts
- Real estate agreements
- Non-disclosure and confidentiality agreements
Commercial agreements are breached due to either of the parties failing to fulfill their obligations as per the contract. In such cases, you can consider working with a commercial litigation attorney who will work towards protecting your best interests in case a lawsuit is filed.
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