Joint Contract: Everything You Need To Know
A joint contract is an agreement between two or more parties for the purpose of executing a specific business operation/transaction together.3 min read
A joint contract is an agreement between two or more parties for the purpose of executing a specific business operation/transaction together. In such a venture, the participating parties agree to share the losses and gains of the enterprise and are wholly and equally responsible for all contractual obligations and benefits.
Examples of a joint venture include situations where two manufacturers agree to bundle their products in a single package and sell them. Another instance is where two freshmen decide to become roommates since neither can solely afford the cost of an apartment. The landlord will present the freshmen with a lease agreement stipulating that they are both responsible for the rent and other payments. Such an agreement is an example of a joint contract since both freshmen are responsible for contractual obligations. Regardless of who actually brings out the money, the rent must be paid as at when due.
Parties must enter into joint ventures of their own free will. When drafting a joint contract, the contracting parties must express an intent to willingly participate in the business relationship and must agree to all the terms of the joint venture.
The Validity of a Venture Contract
To ensure the validity of a joint venture contract, all contracting parties must address the following requirements at the time they enter into the agreement. All parties:
- Must share a common interest
- Have the right to direct and govern policies
- Have the right to manage and control all property acquired for carrying out the venture
- Have equal fiduciary responsibilities and duties, including the sharing of losses and profits
A joint venture contract usually describes and addresses all the above items in detail. The contract should also state the names and contact information of all the parties participating in the venture.
Depending on the needs of the parties and the particular circumstances surrounding the venture, additional contract provisions and clauses may be added. For instance, a party may wish to include provisions detailing how legal disputes will be handled—whether through litigation or mediation. The contract may also address the handling of legal liabilities for misconduct.
Elements of Joint Venture Contracts
The elements of a joint venture agreement are similar to that of other bilateral contracts. They are as follows:
- An offer detailing what the venture will provide
- An acceptance of the above offer by contracting parties
- A consideration—which is money or something of value/interest that is exchanged between contracting parties
- Sufficient capacity of the contracting parties in terms of mental ability and promise
- The mutuality or intent of both parties to carry out their end of the agreement
The subject matter of the contract must be legal and not in violation of the law or against public policy
Differences Between Bilateral and Joint Venture Contracts
The difference between a bilateral contract and a joint contract is the number of parties involved. Bilateral contracts generally have two parties: an offeree and an offeror. Both have specific obligations.
Joint contracts may have more than one party acting as offerees and offerors. As such, all parties are jointly responsible for contractual obligations. A joint contract also has survivorship—meaning that the contract survives the death of any of the contracting parties. The remaining parties are still obligated to the terms of the contract.
Although the law mandates that all joint ventures must be created via a contract, there are jurisdictions that accept unwritten contracts. Some jurisdictions may sanction joint ventures with implied contracts—whether it is implied by the actions or oral agreement of the contracting parties.
However, due to the complicated nature of business ventures and transactions, it's best to draft a written contract when entering into a joint venture. Like all other contracts, joint contracts are subject to the provisions of the statute of frauds. This means that certain contracts (such as the sale of real estate) must be in writing.
Written contracts have numerous benefits over unwritten ones since it provides a clear and explicit record of the terms of the contract. This makes it easier for everyone involved. In the event of a lawsuit, written contracts can also be submitted as evidence during a court trial.
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