The specifics of business contracts differ, but most share similar common elements. Most business contracts will include the following sections:
What is a Representation?
A representation can be:
- A listing of the parties involved in the transaction
- The date of the transaction
- The item or service involved in the transaction.
It is a way of saying "here is what I am all about and this is the deal we're going to make". It is done most often to meet the Statute of Frauds, but is also commonly done to clearly state the will of the parties and to clarify the transaction to be made.
Conflicts tend to arise about the date of the transaction because it may affect insurance and liability. Mistakes or misrepresentations about the deal are only dealt with after the fact. Representations deal only with the present or the recent past.
What Is a Covenant?
A covenant is a promise or agreement by a party to the contract. It is a way of saying "here is what I commit myself to do, and here is what I promise not to do, after this agreement has been signed." Examples of covenants to do something include:
- Allowing the other party to investigate their credit or assets
- Paying taxes
- Indemnification against third-party lawsuits
- Applying for any necessary permits.
Examples of covenants not to do something include:
- Not dealing with other potential buyers
- Not sabotaging the business
- Not making large purchases or sales that alter any assets.
The majority of covenants tend to fall on the seller because the seller usually seeks money from the buyer. Covenants relate to the future and cover the time before closing.
What Is a Condition?
A condition is something that must be true or must occur for a deal to close. It is a way of saying "here is what you are entitled to get from me at or before the closing. If you don't get it, you can walk away from the deal."
Typical conditions include:
- Proof that the buyer can pay (usually a credit check)
- Guarantee that every representation made by the seller will still be true at the closing date.
Conflicts frequently arise over small mistake. The issue is whether these small mistakes are enough to allow one party to walk away from the deal. Conditions relate to the future and apply at the time of closing.
Should I Get an Attorney to Help Me with My Contracts Issue?
Yes. Contracts are complicated and can contain a lot of dense language. An experienced business attorney can explain every part of your contract, as well as recommend changes and additions.