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Contracts, contract, contracts – what do they do and why do we need them?

January 26, 2017, By

Let’s say that you and I are friends, we’ve known each other for ages, we trust each other and recently we’ve decided to work together on a business venture. Maybe we’re going to jointly own a business, maybe I’m going to make some goods for you, or maybe you’re going to design a logo for me. In any of these circumstances, and hundreds of others, we need a written contract.

“But I thought we were mates?” I hear you ask, “don’t you trust me??”. Well yes I do but a contract isn’t about that, instead it’s about a mutual understanding. Until an agreement is written down in full it’s very hard to know whether both parties are on the same page. Business relationships, like people, are complicated and so the more clarification you can lend to them, the easier they’ll be to understand. That’s what a contract does, it explains to both parties, in black and white, what their relationship is. Once this is clear it then explains how their relationship is going to work in the future and what happens if things go wrong. Now isn’t that useful (even though we are such good friends)?

Now imagine that we’re not mates, or even acquaintances (this may be hard for you). Imagine that we have never met face-to-face and we don’t even do business in the same country – in those circumstances wouldn’t it be even more important that a contract outlines our commercial relationship? Well yes it would.

Surprisingly though, commercial parties often neglect written contracts and sometimes their full relationship terms aren’t even discussed. In those circumstances the chances of a dispute occurring further down the line are high, normally because one of the parties does or doesn’t do something, wrongly thinking that the opposing party will have no objection. Unfortunately once a dispute occurs, it is much harder to deal with when there is no contract in place, because there’s no magic “clause 4.3” to refer to which addresses the issue. As a result, the parties invariably argue about conversations which took place in the past, where recollection is vague and hard to prove. This leads to a longer and more expensive dispute with an uncertain outcome, which really is something to be avoided. Fortunately, it normally can be avoided, with a contract!

So, I hope you’ll agree that contracts are hugely valuable to commercial parties regardless of their relationship. Briffa provides contract drafting and review on a fixed fee basis, please just contact one of our expert solicitors if you would like to discuss this further.

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