Breakdown of Commercial Contracts
Breakdown of Commercial Contracts
The successful execution of a commercial transaction, whether it is goods sale-purchase, transportation, storage, procurement of services, or even corporate acquisitions, requires thoroughly written contractual clauses. Some clauses are universal and common to all of these types of contracts; those are either legally mandated or customary in nature to present in a commercial contract. Their absence or incomplete formulation can result in an unenforceable agreement or failure to achieve the intended purpose.
To avoid undesirable outcomes and ensure the enforceability of the parties’ obligations, the discussed provisions must be meticulously considered and precisely articulated, ideally in a single written document or a series of documents called “a contract”.
Conventionally, essential provisions of the contract are structured in clauses that are separated into various sections or chapters, each addressing a distinct aspect of the parties’ agreement.
Such essential sections would always be:
Parties
Including parties’ details to the agreement is absolutely necessary. This clause should contain the following information:
- The full party name, as it appears on their identification documents or company registration information. Abbreviations and acronyms should not be used.
- The place or jurisdiction of registration, typically referring to the country under which the company operates or is established, or sometimes a separate zone with its own legislative framework.
- The location, which is usually the headquarters address or principal place of business.
- The representative, in cases where a person is represented, or in cases of a company or any corporate entity, where the company is represented. In the latter case, the representative is typically a name and position of a director or manager.
- Additionally, the party details may be completed with other registration data such as company or license number.
Preamble
This section of the contract provides a detailed explanation of the premises and previous relevant events. This information is crucial in case of a dispute, as it allows the court to interpret the true intentions of the parties involved in the contract.
Subject Matter of the Contract
As in the case of the identification of the parties, one of the key elements of the enforceable contract. Equally important is a clear and concise description of the transaction itself, which is often reflected in the name of the contract. For example, it could be a sale-purchase agreement, a service procurement contract, an IP license transfer agreement, or a corporate acquisition agreement.
When describing the subject matter of the agreement, it is crucial to use precise and limiting language that accurately reflects the specific thing or act to be procured. In the case of an umbrella agreement that covers future operations, it is still better to ensure that the subject matter is not worded too broadly, which could lead the parties to take unforeseen actions that they might not intend.
Consideration
Another crucial piece of information that must be included for a document to be considered a binding commercial contract is the consideration. This provision is strongly related to the subject matter of the contract and outlines the benefits that each party will receive under the agreement. It also places a corresponding obligation on the other party to pay or otherwise fulfill their obligation as laid out in the contract.
Term
This is basically a provision for a certain period during which the parties must fulfil their obligations, or in other words, the timeline to perform the contract. Depending on the law applicable to the contract, the absence of a defined time frame can render the contract unenforceable if there are no alternative means to determine when the obligation should have become due.
Disputes Resolution
The absence of a dispute resolution mechanism will not vitiate the contract, yet it is a beneficial clause to consider, especially in international commercial contracts. However, even in domestic agreements, the parties may consider this clause in order to opt out of the state court system and select arbitration as a venue for their disputes.
What venue would work best, local courts, arbitration or any alternative dispute resolution, and whether parties at all should consider alternatives to court litigation is a question of each individual contract. Answering this requires taking into account its estimated value, whether the parties look for confidentiality of the proceedings and, of course, the prospective location of enforcement of the award/judgment. Each of these aspects presents an additional quite extensive topic for discussion and analysis that can be found in our other articles on the subject.
Definitions
This is another clause that is not legally mandatory, but its existence assists a lot when the contract needs to be interpreted by any third party, judge, or arbitrator. Though well-written definitions for the terms assist the parties to the contract as well by ensuring their overall understanding of the contract provision is in line with each other.
This is a very brief overview of the most common provisions of commercial contracts. Admittedly, each of these provisions requires further elaboration and nuanced explanations in order to gain a comprehensive understanding. For complex and extensive commercial arrangements, it is highly recommended to seek the advice of a competent legal practitioner.
How Al Dhaheri International Can Help
Al Dhaheri International understands the critical importance of well-drafted commercial contracts in ensuring the success and enforceability of business transactions. Our experienced team of lawyers in Dubai specializes in crafting meticulous contractual clauses tailored to various types of agreements, including goods sale-purchase, transportation, storage, procurement of services, and corporate acquisitions. With a commitment to precision and attention to detail, Al Dhaheri International ensures that essential contract sections, such as parties, preamble, subject matter, consideration, term, dispute resolution, and definitions, are thoughtfully structured and articulated. By engaging our services, clients benefit from expert Dubai Law Firm practitioners who navigate the complexities of commercial arrangements, offering nuanced explanations and comprehensive insights into each contractual provision. Al Dhaheri International is dedicated to facilitating successful business transactions through legally sound and enforceable agreements, providing valuable support and expertise throughout the contractual process.
Written by – Sr. Legal Consultant Alona Sadovets
