Whilst certain contracts require to be in writing e.g. for the sale of land, guarantees and various other matters, many contracts can be and are entered into verbally. A written contract, however, plays a vital role in any business transaction. Apart from ensuring the agreement reached is legally binding, contracts also highlight important matters which the parties should consider.
A few random observations on contracts may be of interest: –
• Disputes frequently arise with contracts and, if those contracts have not been committed to writing, it is sometimes difficult to establish what actually was agreed at the time the contract was entered into. Parties can have a different understanding of certain terms of a contract or, in some cases, simply do not consider certain matters. It is often left for a court to try to determine what the parties intended based on the evidence available. It is inevitably more costly to try to work out what was intended than it would have been to document the terms of the contract from the outset.
• Contract discussions can take place during sensitive business dealings between parties. Although it may sound self-explanatory, a written contract gives each party the chance to read and have a clear understanding of the terms or conditions, including the expectations of each party as well as what terms they have agreed to after discussion.
• Another less obvious benefit of written contracts is that they provide the opportunity to agree on confidentiality and non-disclosure provisions protecting sensitive information. As part of such a contract, the parties may agree to be legally bound to hold in secrecy the transactions involved and the information shared. The party who violates this confidentiality provision would be held liable under the agreement.
• When a party to a contract breaches a written contract, there is a document which can be used to determine what the parties have agreed and to determine who really is at fault. Having a readily available written contract reduces the chances of bringing the issue to litigation proceedings or delaying matters through litigation more than may be necessary. This can therefore avoid cost and delay in achieving performance of the contract.
• Within written contracts, where personal performance is not required, terms can be included to allow for assignment (transfer) of contractual rights and obligations to a third party. A written contract defines issues to be clearly considered on assignment and the terms to be included in any assignment documentation.
• A useful tool in many written contracts is a commercial device used where the party not in breach is appointed attorney for the other party. This allows the innocent party, where there is a breach by the other party, then to exercise its remedies without further recourse to e.g. litigation. A carefully worded power of attorney clause for example in a lease would allow a landlord to surrender the lease or transfer the lease to another party in the event of default by the tenant.
• Dispute resolution clauses can also prove very useful and can avoid expensive litigation. A written contract should contain a carefully worded clause to cover such disputes and their resolution.
• One of the hardest things for any solicitor is to convince a client that, even when a contract does not have to be in writing, the safest method of proceeding is to document the agreement. Parties involved in expensive contract dispute litigation frequently reflect on how little it would have cost from the outset to have documented matters.
As always, it is advisable that a party should consult its legal and financial advisers before entering into a contract, particularly a contract containing complexities or substantial financial consideration.
DISCLAIMER: The information contained in this article is not advice and should not be treated as such. It is based on Queensland Law and where applicable Commonwealth Legislation. You must not rely on the information in this article as an alternative to legal and financial advice from a properly qualified professional. If you have any specific questions about any legal and/or financial matters, you should consult an appropriately qualified professional.