A commercial contract is a type of contract that defines the terms of a commercial transaction. There are several types of commercial contracts and these will depend upon the type of services or products that are being supplied.

Many negotiation disputes centre around the drafting of the exact wording of the contract. During negotiations, you should consider not only the terms but also the legal enforceability of the contract. Even if you never go to court, the mere possibility of legal action should influence how the contract is negotiated and drafted.

The parties must at least agree on the basic terms of the agreement and consent to them. If one term is not explicitly stated in the written agreement, a court may imply terms in litigation, but it is best not to rely on what a court may later imply. It is best to spell out all terms in the written agreement.

A contract has 5 broad elements:

• an offer;
• acceptance of the offer;
• the agreement must be intended to create legal obligations (e.g. not a family arrangement, although these can involve contracts);
• consideration (paying a price or promising to do or not to do something); and
• privity - you can only sue the person with whom you made the contract, though you may be able to sue other people associated with the contract under other laws.

When it comes time to drafting the commercial agreement, it is important to:

• Create a preamble in which you identify the parties to the contract by legal names and addresses. A common mistake is to identify an individual as a party to the contract when the company that the individual represents is the real party. If this happens, the person who signed the contract may become legally liable to perform the contract, while the company will not be bound. You should also briefly state the broad purpose of the contract. Courts can use the purpose clause as a guide to interpreting the rest of the contract.
• Identify the goods and/or services that are the subject of the agreement. In the case of goods, you should be as specific as possible - include catalogue or model numbers, for example. If many types of goods are being purchased, you can list them in an appendix. Agreements are legally required to list the products being sold - if the goods are not listed clearly enough, a court may void the contract.
• State the price for each item, the currency of payment, payment due dates and the means of payment. You should be specific about the means of payment - in the case of a bank transfer, for example, list the account details. In the case of a sale of goods, a price must be stated in order for the agreement to be enforced.
• Insert a section detailing the seller's representations and warranties. Representations are statements such as those regarding the quality or nature of the products and warranties are guarantees for example that the products will perform up to a certain standard.
• Include terms on refunds and exchanges. In the event of a lawsuit, the seller can be held liable if a representation turns out to be untrue or if a warranty is not honoured.
• Include a disclaimer section in which the seller limits its liability for defective products. The seller will probably want to disclaim liability for "consequential damages" or lost profits. For example, if the seller's widget malfunctions causing the buyer's factory to shut down for a week, the seller would not want to be held responsible for the buyer's lost sales. Certain legal warranties are considered "implied", meaning that courts will enforce them even if they are not mentioned in the agreement.

Call one of our Commercial Lawyers for free initial telephone advice on your circumstances on (02) 9525 8688.