Commercial Contracts and How to Draft Them
In today’s vast and competitive world of commerce, only those individuals and businesses that possess sufficient knowledge of the laws and principles governing commercial contracts and properly apply them in their professional relationships are able to achieve lasting success.
Key Legal Considerations in Drafting Commercial Contracts
Concept of a Commercial Contract and Its Drafting
A contract is one of the most fundamental pillars of commercial activity. In practice, the future of a business relationship is determined by written commercial contracts.
In the past, written agreements were rarely used, and in traditional markets, verbal commitments were often treated as binding. This practice led to numerous disputes and legal complications. Today, written contracts are an effective solution to many commercial issues.
By drafting contracts, parties to commercial transactions formally record and legally secure their verbal agreements. However, there is always a risk that the rights of one party may be undermined by the other party’s legal sophistication or by negligence in drafting the contract and including provisions that contradict prior verbal understandings.
Therefore, parties must exercise great care and precision with respect to every word used in a contract.
This principle applies equally to contracts used by large corporations, as such contracts are often standardized and include specific terms and conditions that can significantly affect the other party’s rights and obligations.
Types of Commercial Contracts
Commercial contracts may cover a wide range of activities, including but not limited to the following:
- Auction-related activities.
- Purchase of movable property for the purpose of lease or resale.
- Contracts relating to the organization of public exhibitions.
- Banking and currency exchange operations.
- Participation in transportation by land, sea, or air.
- Brokerage and commission-based activities.
- Provision of services.
- Establishment of various types of factories.
- Bills of exchange and negotiable instrument transactions.
- Transactions related to the purchase and sale of vessels in the shipbuilding and shipping industries.
- Marine and non-marine insurance activities.
Application of Domestic and International Commercial Contracts
Transactions conducted under commercial contracts form the foundation of international trade. The parties’ objectives, obligations, and conditions are set out in the contract, and commercial activities are interpreted and enforced under the framework of an international agreement.
In international commercial contracts, the contracting parties are typically nationals of different countries. As a result, such contracts are generally governed by international contract principles, unless the parties expressly agree that the contract shall be subject to the laws of a specific country.
Principles Governing International Commercial Contracts
The importance of contracts has been firmly established worldwide. In complex commercial and economic relationships, drafting contracts in accordance with international commercial principles ensures legal certainty, although it also increases complexity. For this reason, familiarity with negotiation techniques and the principles governing international contracts is essential.
Contracts are generally drafted in written form. Each contract, whether domestic or international, has its own structure and format, which require careful adherence to legal standards to prevent future disputes. The key elements of commercial contracts are outlined below.
Title of the Contract
The contract must clearly state a title that reflects the parties’ mutual agreement and intent.
Parties to the Contract
Every legal contract must involve at least two parties. These parties may be natural persons or legal entities.
Subject Matter of the Contract
The subject matter of the contract defines the obligations and activities upon which the agreement is based. In accordance with general principles of contract validity, the subject matter must not violate applicable domestic or international laws and must involve a legitimate and reasonable benefit.
Obligations
The obligations and responsibilities of each party must be clearly and precisely set forth in the contract.
Duration of the Contract
The contract must specify the period during which the obligations are to be performed, and the agreement remains in effect.
Contractual Guarantees
When drafting a contract, particularly when the subject matter involves the performance of work or the construction of goods, questions often arise regarding compensation for damages in the event of non-performance or defective performance.
In such cases, inclusion of appropriate guarantees and security provisions in the contract can provide effective legal protection and reduce potential losses.
Frequently Asked Questions About Commercial Contracts and Their Drafting
A commercial contract is a written agreement between two or more parties that defines their rights, obligations, and conditions in commercial transactions. Such contracts ensure proper performance of transactions and help prevent legal disputes.
Commercial contracts include auction agreements, purchase and sale of movable property, exhibition agreements, banking and exchange activities, transportation participation, brokerage agreements, service contracts, factory establishment agreements, negotiable instrument transactions, ship sale agreements, and insurance contracts.
International commercial contracts form the foundation of global trade by defining the objectives and obligations of parties from different countries. These contracts may be governed by international principles or the laws of a specific country if agreed by the parties.
Key principles include selecting an appropriate contract title, identifying the parties, defining the subject matter, specifying obligations, determining the contract duration, and providing adequate guarantees.
The subject matter must comply with domestic and international regulations and provide a legitimate and reasonable benefit.
Guarantees provide a mechanism for compensation in cases of non-performance or defective performance and help protect the parties from potential losses.
The duration must be clearly stated in the contract to define the timeframe for performance of obligations and to prevent misunderstandings or disputes. What is a commercial contract, and why is it important?
What are the main types of commercial contracts?
What is the purpose of international commercial contracts?
What are the essential principles in drafting commercial contracts?
What characteristics must the subject matter of a contract have?
Why are guarantees important in commercial contracts?
How should the duration of a contract be determined?
