Commercial Agreement: Everything You Need to Know
A commercial agreement is a legally binding contract between parties where both are required to do particular activities or refrain from doing something. 3 min read
Updated Octobe 15, 2020:
A commercial agreement is a legally binding contract between parties where both are required to do particular activities or refrain from doing something. They can be found in a variety of business types, including industrial, corporate, and retail.
What Are Commercial Agreements?
Commercial agreements can be verbal, in writing, or even implied in a formal or informal matter. They can cover all aspects of business, including wages, leases, loans, hiring, and employee safety. To breach a commercial agreement, one of the contracting parties fails to live up to their part of the agreement.
Commercial agreements utilize plain language, but they also include warranties and boilerplate language that has typically been reviewed by a lawyer beforehand. They are often standard forms that can be used on an ongoing basis with other providers or suppliers.
Business-to-business contracts are different from business-to-consumer sales. Business-to-business contracts have fewer default legal clauses to protect uneducated or uninformed parties or to give these parties an out to escape from a properly executed agreement. The terms of a commercial agreement are important, and the principles of contract law apply, but only in regard to the written terms of the agreement in order to clarify the parties' intentions. Courts will not consider outside influences unless a fraud claim is presented.
It is expected that businesses know how to protect their own interests, and an integral part of that is understanding what constitutes a legally valid and enforceable commercial agreement. Because these types of agreements are between business parties only, they use plain language rather than legal jargon when preparing the agreement.
Parts of a Commercial Agreement
The initial part of the contract typically requires the most work, as it will identify the parties, define any obscure terms, and discuss the details of the contract, including specifics like the product or service being sold, dates and times, delivery options, and the agreed-upon price. Because contract law requires involved parties to understand the terms of any agreement they are entering, using easy-to-understand language for an ordinary business purpose will help fulfill this requirement.
The next part of the contract should address specifics of non-performance. This is where you might find the use of boilerplate legal wording in each contract that covers specifics like the following:
- Liquidated damages
You need a spot for signatures at the bottom where a representative of each business will sign. It's crucial to verify that the representatives are truly authorized to sign on behalf of the contracting company; otherwise, an unauthorized signature can invalidate the agreement and result in an unrecoverable loss.
Examples of commercial contracts and agreements include the following:
- Licensing and franchise agreements
- Loan and finance agreements
- Supply of goods and services
- Shareholders and joint venture agreements
- Contracts for employment
Commercial Agreement Disputes
Disputes and disagreements surrounding commercial agreements typically center around how the contract is interpreted. Seek legal advice prior to signing any contracts for further explanation about what you're agreeing to and what the consequences are if you breach the contract.
Requirements in a Valid and Enforceable Contract
There are some basic details that must be present for any contract to be legal and enforceable:
- Agreement: There must be an agreement that includes an offer and acceptance, and the parties must be on the same page when it comes to the elements of the agreement.
- Consideration: Each party has to give something in the exchange. This is known as consideration and is what makes something a contract rather than a gift.
- Legal Capacity: All parties must have the legal capacity to enter into a contract. There are certain circumstances, such as when one party is under the age of majority or was intoxicated at the time, that can render the contract void.
- Willingness: A party must be willing to enter the contract. If you sign it against your will or were misled, etc., you may be able to void the agreement.
- Legal: The contract's subject matter has to be legal under state and federal law. You cannot enforce a contract if it's for the performance of an illegal act.
Executing a valid and legal contract essentially has three phases:
- Phase One: Contemplate the deal and evaluate pros and cons (risks) and future repercussions.
- Phase Two: Reach the agreement through negotiations; complete a formal agreement that outlines the terms of the agreement.
- Phase Three: Performance and enforcement of the contract; seek legal advice for breach and pursuit of damages.
If you need help with a commercial agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.