Commercial Agreement Definition: Everything You Need to Know
The commercial agreement definition is a contract usually (but not always) between two business entities.3 min read
The commercial agreement definition is a contract usually (but not always) between two business entities. It expresses the contract terms in plain language yet also includes warranties and boilerplate, or typical contract provisions. Usually, a business or commercial attorney has reviewed it prior to the agreement. The majority of commercial contracts are under the governance of state law.
Transactions between businesses differ in their legal character than transactions between business and consumer. Business-to-business transactions have less legal protective measures that are intended to protect uninformed parties or enable such parties to get out of a contract. This is because the law assumes that business entities are aware of their legal obligations and can resolve disputes based on the particular terms of their contracts.
Commercial agreements may be written, oral, or implied in either a formal or an informal way. Although it may be harder to discern the details and parameters of oral contracts, they are still considered enforceable, with specific exceptions, such as agreements for the sale of real estate, or particular agreements related to the sale of goods.
Commercial Agreement Terms and Content
Of particular importance are the negotiated terms of a commercial or business agreement. Standard contract law will examine the written terms of the contract in order to discern the intentions of each party, and will not pay notice to outside circumstances unless a fraud claim has been raised. The responsibility of protecting a company's interests and understanding what comprises a valid and enforceable commercial contract is that of the company itself.
As required by contract law, all parties must clearly understand the terms of the agreement. Plain language should be utilized when the contract is prepared, as commercial agreements are used solely between business entities, and this will help ensure the mutual understanding and clarity of the contract. In general, the first section of a contract typically requires the most effort. It should include the following elements:
- Identification of parties
- Definitions of unusual terms
- Detailed and specific explanation of the transaction content, including any product or service being sold, prices, dates, times, and delivery
The second section of the agreement includes contractual terms that address nonperformance. This may include standard provisions from an attorney and is typically used among multiple contracts. Items such as warranties, termination, and liquidated damages clauses are included here. The boilerplate may also be positioned on the back of the agreement form, for the convenience of all parties.
Each business must provide a signature from an authorized representative. Before signing the documents, it's necessary to verify that the individual signing the commercial contract is authorized by the contracting business. After all, if an unauthorized individual signs the agreement, it may invalidate the exchange and may even result in an unrecoverable loss.
Elements of an Enforceable Contract
In order for a contract to be legally enforceable, it must include the following elements:
- Consideration: Each party to the contract must agree to provide something of value to the other. There is no contract without this basic premise.
- Offer and acceptance: There must be both a clear offer to contract (for example, "Would you like to purchase this?") and acceptance (for example, "Yes!").
- Legal purpose: The contract must not be used to violate the law. For example, requiring a party to pay high interest rates is, in many states, a violation of usury laws.
- Capable parties: In order to be considered capable of agreeing to a contract, each party must comprehend what they are doing. Some categories of people, such as minors and those with mental disabilities, are not considered capable. Contracts executed by these parties are not generally enforceable.
- Mutual assent: This is often called a "meeting of the minds." The parties agree on the terms and the binding nature of the contract.
These elements of a contract are general rules, and federal and state laws may regulate and require many more aspects of a contract. These aspects may vary depending on the type of contract as well. For example, real estate contracts are typically required to be in writing and may require the fulfillment of additional parameters.
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