Contract Tips

 

It is a good idea to understand some fundamentals of the way a contract works, even if you engage a lawyer to draft or review the document.

1.  Correct Parties

The contract should record the correct entities which are engaging in the contract.  A business name is not sufficient – use the name of the entity which owns the business name.  If someone is signing the contract on behalf a company or trust, then that should be recorded in the contract.

2.  Purpose of the Contract

It is important to record the reason why the contract is being made and what each party expects to achieve from the contract.  This is often done in the section at the start of the contract, called “recitals”.

Recording the purpose of the contract helps put the contract in context and may aid correct interpretation in the event of a dispute.  However it also may help the parties focus their minds on what the contract needs to contain in order to be effective for them.

3.  Does the Contract Contain the Whole Agreement?

It is not unusual for a contract to fail to include important aspects of the parties’ agreement (eg, promises made during negotiations).  There can be problems in allowing the contract to be incomplete:

  • verbal promises can be hard to prove;
  • it can be difficult to prove that a promise in a separate document (eg, email) should be part of the contract;
  • often contracts will contain a clause that states that the contract is the total agreement – essentially if it isn’t written in the contract, it doesn’t form part of the agreement and cannot be enforced.

If there is any promise or matter you are relying upon, you should make sure that it is correctly recorded in the terms of the contract.

4.  The Contract Doesn’t Comprise the Entire Agreement!

Regardless of the terms of the contract, there may be certain laws which cannot be excluded from applying to the parties’ dealings.

For example, the Federal Fair Work Act or the WA Construction Contracts Act can imply obligations into certain contracts.

On the other hand, a contract which breaches the Australian Competition and Consumer Law or Sale of Land Act WA may be void (ie, the contract has no effect in law).

Other external rules may affect a contract.  For instance, a court may imply industry standards into the obligations of the parties under the contract.  Or a court may consider a restraint of trade clause to be excessive and will decline to enforce it in part or at all.

 

The content of this article is intended to provide a general guide to the subject matter.  Specialist legal advice and business advice should be sought about your specific circumstances. For specific Legal Advice please contact us.

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