Commercial contracts are documents that cover a combination of legal and commercial factors. The term encapsulates a large body of laws that regulate business transactions. The Uniform Commercial Code (UCC) is the primary authority that governs business transactions and contracts, but states also have regulations related to commercial contracts.

What Are Commercial Contracts?

A commercial contract is a legally binding document that puts one party into a binding position either to do something or not to engage in the stated activity. It's used for businesses and organizations and its key requirement is to ensure that legal arrangements allow full benefits of the contract to be realized. Also stated in the contract are the terms of the arrangement that cover all important factors. In the event one party fails to meet their side of the agreement, a breach of contract happens. Commercial contracts that aren't drawn up correctly and have weak areas can undermine the agreement outlined within. It's important to have a contract created by a lawyer to avoid loopholes and weaknesses prior to everyone's signing.

Types of Commercial Contracts

Commercial contracts can be verbal or written, but it's preferable to have a written contract as it's more difficult to enforce a verbal contract in court due to lack of documentation. Contracts can be formal or informal and relate to any kind of business activity such as wages, hiring, and safety. It's possible to execute a contract to establish terms regarding any business activity as long as the components listed below are in the contract:

  • Sales of goods, either retail or parts
  • Provision of services such as vendor services and employment
  • Use of intellectual property including patents, trademarks, copyrights, and trade secrets
  • The right of any given party to disclose confidential information or engage in competition
  • Lease or purchase of real property

Process of a Commercial Contract

A commercial contract has two parties with one party requesting the other party to perform a specified job or activity. They are also used when one party is agreeing not to engage in a specified activity such as a non-compete agreement. 

What Is a Commercial Contract Format?

A commercial contract format is a template for contracts that deal with:

  • Bulk sales or purchases of products
  • Buying or selling a company
  • Licensing technical knowledge
  • Copyrights

These are some of the things a commercial contract format covers. 

Elements Needed for a Valid and Enforceable Contract

While all states have legislation that rules commercial contracts, the Uniform Commercial Code (UCC) dictates the legal guidelines as they relate to the sale of products. The UCC states that there needs to be an agreement in which an offer must be made, followed by an acceptance. The core of this requirement is that both parties are in agreement over each an every aspect of the material, services, and financial elements of the agreement. Those elements include:

  • The item being bought, sold, or delivered
  • The amount being paid
  • When the services and/or goods are to be delivered

Both parties have to exchange something with one another. This is the part that separates the contract from being thought of as a gift and is known as consideration. It means that both parties have to give up something they had the right to keep (money, goods, services) or not do something they had the right to do. Each party also needs to be legally eligible to create a contract agreement. As previously mentioned, most states have legal guidelines indicating that individuals below a specific age are ineligible to enter in a contract. Individuals who sign contracts cannot be:

  • Under 18 years of age
  • Under the influence of drugs
  • Intoxicated
  • Incapacitated by a handicap or an illness

Parties have to enter into a contract willingly. In the event when one party entered into a contract against their will or was misled to agree or sign a contract, that party may have the ability to void the settlement. A party may also be able to cancel the contract if there's an error about the items being sold, offered, or purchased. The subject material of the contract has to be legal and authorized. Parties cannot enter into a contract to carry out unlawful acts of any kind. 

If you need help with commercial contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only 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.