A significant amount of business law, otherwise known as commercial law, interacts with contract law in order to govern matters such as business deals, sales transactions, and employee non-disclosure agreements.
Because of the variety of different matters that contract laws are used in the operation of a business, it is important to understand the relationship between contract law and commercial law. This means it is important to understand both commercial contract law and how to execute a contract in commercial law validly.
In general, contract laws will regulate the following matters in a commercial setting:
- Merging with another business;
- Executing commercial real estate agreements;
- Forming an agreement with a certain distributor to sell their products;
- Providing a service to the business’ customers.
What Is a Contract?
The term contract refers to a legally enforceable agreement that is made between two or more parties. It is important to note that contracts may be written or oral. It is important to note that in order for most contracts to actually be legally enforceable, the contract must be made in writing and signed by both or all parties involved.
What Is Contract Drafting?
In general, commercial law requires the use of drafted contracts that outline the obligations of each party to the business relationship. Drafted contracts can be simple or more complex in nature and will generally include the terms of the arrangement, as well as what should be done if any party to the contract were to breach the contract.
Commercial contract rights may be expressly written, such as the exclusive rights to copyrighted material. However, contract rights may also be inferred from the contract, such as the party’s right to a fair and equal disclosure of the contract material.
Importantly, contract rights exist on both sides of the agreement. This means that all parties involved in a contract are granted certain rights. For example, one commercial party may have the right to purchase a product while the other party retains the right to supply that product to the buyer.
Each specific contract will address a different set of contract rights according to the needs of the types of parties that are involved. In addition to contract rights, all commercial or business parties that are involved in the contract will have certain contract obligations.
Once again, these obligations will be found in terms of the contract. Contract obligations may be thought of as duties that each party is legally responsible for. Referring back to the commercial sale example, one party to the contract has the obligation to transfer ownership of the property to the other party. In contrast, the receiving party has the obligation to pay for the property that was transferred to them.
Although anyone can prepare a contract, and there are contract forms that are readily available on the Internet, it is still in the best interest of all parties involved to have an experienced lawyer draft any commercial contracts. This is especially true if the nature of the business being conducted between the two parties is particularly complicated and intricate.
For example, a commercial real estate agreement often involves numerous parties and elaborate land descriptions. Depending on the specific type of commercial lease that the parties enter into, the contract will have to provide instructions. These include which party is responsible for making repairs and who is liable for paying real property taxes on the space.
Although there are many differences between a commercial lease agreement and a residential lease agreement, the defining difference between the two agreements would be the nature of the property that is being rented. For example, the terms of a commercial lease agreement will address the requirements of operating and maintaining a business on the premises. As such, in order to ensure your legal rights are protected, having an attorney draft the commercial real estate agreement is preferable to using a form contract.
Additionally, a commercial contract will also outline the consequences if a party breaches the terms of the contract. A well-written commercial agreement will include explicit depictions of what constitutes a breach of the agreement so that all parties can uphold their duties.
How Are Contracts Created?
Although the laws concerning the formation of legal contracts differ from state to state, generally speaking, in order to form a legally enforceable and valid contract, there must be:
- An Offer: One party must make an offer to enter into an agreement;
- Acceptance of the Offer: After an offer has been made by one party, the acceptance of the offer must then be expressed by another party
- It is important to note that acceptance of an offer may also be implied, such as a business owner accepting items that were delivered to them;
- Intent: If one party did not intend to enter into an agreed-upon exchange, then the transaction, in some cases, may be treated as a gift as opposed to a contract; and
- Consideration: The term consideration refers to the exchange of valued goods or services.
If any of the above elements is missing, then a contract may not be enforceable because the law will consider that there is no contract to be enforced. Examples of common commercial contracts include sales agreements, employment contracts, confidentiality agreements, and insurance contracts.
It is important to note that some contracts must be written in order to be considered a valid contract. This includes contracts that involve a significant amount of money, which are generally contracts involving the exchange of goods valued at greater than $500. Specifically, the “statute of frauds” is a law that requires contracts to be in writing. The statute of frauds describes that all of the following types of contracts must be written in order to be enforceable:
- Contracts that involve the sale or transfer of land;
- Promises to pay another party’s debt obligations;
- Contracts that cannot be completed within one year of their creation, according to the terms of the contract;
- Contracts that involve the sale of goods for more than $500; and
- Contracts that extend past the lifetime of the one performing the contract.
Further information regarding the relationship between contracts and commercial law may be found here:
Business and Commercial Law
Contract Drafting and Review
Covenants Not to Compete
Employment Contract Law
Franchises and Franchising
Should I Seek Legal Advice?
You might need help with any contract matters, such as determining what your legal rights as a business owner are under a commercial contract or dealing with a breach of contract terms. In that case, it is in your best interests to consult with an experienced contract lawyer.
An experienced contract attorney will be able to help you review your commercial contract in order to determine whether or not a breach of the contract terms has occurred. Additionally, an attorney will also be able to initiate a civil lawsuit or defend the interests of your business in a civil lawsuit, as needed.