Commercial Contracts

Commercial contracts refer to legally binding agreements that are generally made to record business transactions or dealings.


Essential Elements Of A Valid Commercial Contract


Commercial contracts have a tendency to be highly complex and technical. They are often drafted and redrafted to reflect ongoing negotiations between the parties. For the contract to be valid it must have the following elements:

  • Offer: An offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed.
  • Acceptance: It is the unequivocal statement by the offeree agreeing to the offer.
  • Intention to create legal relation: A contract does not exist simply because there is an agreement between two parties. The parties to the agreement must intend to enter into a legally binding agreement.
  • Consideration: It is the price asked by the promisor in exchange for their promise.

Besides the above, the other important elements of a commercial contract are tenure of the contract, description of the goods and services, amount payable and details of payment dates including interest on late payment, delivery dates of goods and performance dates for services, provisions relating to insurance, indemnity, termination, penalty for breach, arbitration etc.


Capacity To Contract And Ability To Fulfill Contractual Obligations


It is essential to ensure a party has the capacity to enter into a contract as well as the ability to fulfil its obligations under the contract. If you are entering into a contract with a company, you need to make sure the person signing off on the contract has the authority to do so. In addition, as a part of your risk management strategy you should carry out due diligence checks on the company.


Privity Of Contract


Only parties to the contract have the rights and obligations under the contract. Therefore, a contract entered upon by two parties cannot be imposed on a third party even if the third party benefits from such contract.

Commercial Contract Becoming Invalid


A commercial contract can be rendered invalid if:

  • The contract is illegal; or
  • The contract breaches any provision of the applicable legislation; or
  • The contract involves misleading or deceptive conduct, mistake, duress, undue influence, unconscionable conduct or other *Categories that at law can cause the contract to be voided.

Discharge And Termination Of Commercial Contract


A contract may be discharged upon the complete and exact performance of the contractual obligations by the parties to contract and not only upon the substantial performance. A contract may further be discharged by the parties pursuant to:

  • An agreement: Parties may choose to terminate

A breach of any term of the contract: The non-breaching party may terminate a contract for breach if:

  • A provision of the contract permits discharge for breach; or
  • Ff the other party repudiates the contract; or
  • The breach is sufficiently serious.
  • Frustration: Where a contract cannot continue for some reason beyond the control of the parties and neither party is at fault.

Dispute Resolution


Any dispute arising out of a provision of a commercial contract can be resolved either through negotiation, the Alternative Dispute Resolution (ADR) mechanism or by resorting to legal action. Most commercial contracts include a dispute resolution clause which provides a dispute resolution process that the parties are required to follow before commencing legal action.


Legal advice should be sought before entering into any binding contract and if potential problems arise. Owen Hodge Lawyers can provide comprehensive assistance with regards to your commercial contracts requirements.

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