Five things to consider before signing a contract

Articles, Commercial Contracts

In both the business and personal world, contracts govern the relationship between parties to a transactions.  When considering entering into a contract with another party, it is essential to consider the following:

1. Have you read the entire contract? Is it consistent with all prior negotiations?

The general rule is that each party is bound by all the written terms of a contract, whether they have in fact read those terms or not. So make sure you read them!

It is essential that you read the contract in its entirety. Failing to make yourself aware of the details of contractual provisions does not change the binding nature of the agreement.

The Australian courts will generally not accept evidence of prior negotiations.

2. Ensure the contract is clear as to each parties’ intentions

When interpreting a contract, Australian courts will consider what the contract says and what was intended by the words used. The court will generally look to use the ordinary and plain meaning of the words. You should ensure that the terms of the contract are simply worded and directly to the point.

3. Does the agreement include a right to terminate the contract?

Clauses in a contract allowing for termination by either or both of the parties are often necessary in commercial agreements. However, they significantly alter the balance of risk in a contract.

It is essential that you consider how such a termination will affect you or your business and include provisions to address your circumstances.

Further, the exact processes that need to be followed in such an instance should be clearly set out in the contract.

4. Does the contract have an end date?

Contractual agreements can run for an indefinite period of time. If it is the parties’ intention that the contractual relations are to expire at a specified time in the future, ensure that the period that the contract is to operate is explicitly mentioned.

5. Get competent legal advice

Competent lawyers are well equipped at interpreting commercial contractual agreements and ensuring your circumstances and risks in a transaction can be adequately protected in the contractual terms.

For assistance with any contract matters please contact ERA Legal.

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