For business owners or individuals who are involved in a daily commercial transactions and see to sign a contract or an agreement with the other party to include their mutual understanding, it is essential and necessary when doing so to understand the main points that needs to be clarified, covered and included when drafting a contract or an agreement. It may vary from one contract to another based on the nature of the transaction or the type of the activity but in general it should comprise the main conditions of any contract. Here in this article we will try to highlight the most common mistakes that always committed by the parties which may unfortunately leads to lose the right to claim or fail to receive the full disputed right.
Essential Conditions of Contract: –
Place of the Contract:
Defining the place where the contract is made is very important point and it also differs than where the contract will be executed. It usually helps the court in determining its jurisdiction or the true will of the parties in certain occasions.
The Full Details of the Parties:
Apparently, you will think that it is not that important to care about this point, as definitely the Parties will write their names on the contract. But be advised that the loss of your rights may starts from that point.
Most of the Parties when drafting a contract, they negligently or intentionally don’t write their names in the correct way or in full, especially when the Parties are companies or a company and individual, also they forget to write the capacity of the contracting party or the signatory person on the contract whether personal or on behalf of a company or another individual.
Therefore, be reminded to write the full name of the two contracting parties, their nationalities and passport numbers or any ID numbers, his registered address, PO Box, Fax, Telephone and email address.
It is important also to collect a copy of the identification documents from the other contracting Party, if individual and a copy of a valid commercial license and copy of the Manager’s passport if the contracting party is a company, and if another signatory person will sign the contract on behalf of the Principal, you should have his passport or ID copy and his POA that authorize him to sign such contract.
Let us ease that matter by giving you an example for further clarification, Ahmed and Mona want to sign a Sale Agreement to sell Ahmed’s unit to Mona, but in fact Ahmed owns a Real Estate company LLC “called ABC” on which the unit is registered under its name, so let’s see the common mistakes when defining the contracting parties: –
- The wrong way:
1.Ahmed XYZ, …… (First Party)
2.Mona, ……… (Second Party)
- The correct way:
1.M/s ABC LLC, represented by Mr. Ahmed ………. (First Party)
2.Mona, …………… (Second Party)
You may add Ahmed and his Company as a First Party, because the property is registered under a company name and Ahmed is the real owner of the property.
Defining the parties clearly in the contract is a crucial step to protect your business transaction, some parties intentionally don’t give full details of their identification or capacity to sign this contract or don’t mention the legal form of the contracting company and this will lead to another problem when there are other companies holding the same name but slightly different in name or in legal form. So just make sure to review the identification documents of the other party or the Company license and its signatory person before signing any agreement.
The Subject of the Contract:
This clause should explain why the parties are signing this agreement, the purpose of having this understanding in writing, which will define in general type of the agreement whether its sale, lease, conditional sale, loan. Most of the parties fail to give proper explanation to the true will of the parties on which the judge will focus in interpreting the agreement. Thus, seeking your lawyer’s advice before you proceed with signing any agreement will be so helpful to cover any confusion that may arise afterwards.
The Value of the Contract and Payment Terms:
Carefully you have to write down the total value of the contract, stating in details how, when and where it should be settled by one of the parties. You may add some clauses to cover any default in payments.
The Term of the Contact:
If the contract has a fixed duration, so be very accurate on whether its renewable and the way of renewal or termination of the contract. In sale & purchase agreements “SPA” you have to determine when the sale will be effective whether upon signature or from the time of receiving the down payment. Additional clause can be added to avoid any default in payments such as holding the transfer of title until receipt of the full payments of the purchase price.
The Mutual Commitments of the Parties:
The parties are free to add all the points of their understanding, stating the obligations and when and how it will be fulfilled and the time frame. Make sure that there is no conflict or confusion between these clauses and any other clause of the contract, no repetition to the same phrase. The arrangement of the mutual obligations will help to determine whose commitments comes first, and this is one of the common arguments nowadays before the courts.
The Applicable Law & Court Jurisdiction:
Determining the applicable law and the competent court in the contract in resolving any disputes that may arise between the parties is very important in protecting your interests. Many factors will assist you in finding the most appropriate court jurisdiction such as nature of business, place of executing the contract and address of the parties.
You may use the Arbitration as an alternative dispute resolution, but you will definitely need an arbitration lawyer to help you in drafting an arbitration clause, after explaining not only the advantages and disadvantages of the Arbitration but also the proceedings and the cost of Arbitration in comparison to the courts.
Here are the main conditions that you should take in consideration when signing a new contract, there will be additional clauses to be added based on the nature of each transaction. In general, considering the above will help you in reducing the risks of any new business deal, but at all time seeking a legal advice before you sign any document will ensure that you are on the right way.
If you wish to discuss or have any questions, please contact Yasin Al Hamed Advocates and Legal Consultants :