You will probably have to draw up and sign many contracts as part of your company's daily business transactions. Some of the most common business contracts include:
- sale and purchase agreements for premises;
- lease/tenancy agreements for premises;
- hire-purchase or lease agreements for equipment;
- employment contracts;
- insurance contracts;
- sales contracts with customers;
- procurement contracts with suppliers;
- financing contracts (including loan agreements, mortgages and guarantees).
A contract can be made orally or in writing. In practice, many consumer contracts are made orally, but some contracts are required by law to be made in writing. Examples of such contracts include cheques, insurance policies, the transfer of shares of registered companies, hire-purchase agreements, leases and agreements for the sale and purchase of real estate.
For business transactions, it is always preferable that contracts are entered into in written form. If the contract involves a substantial amount of money, you should consult a lawyer before signing.
If one party breaches a contract term, what can the other party do? What are the possible liabilities of the defaulting party?
The first issue is whether the contract violation is a breach of condition or a breach of warranty. A condition is a central (major) term of the contract. If a party breaches a condition, the other party has the right to be discharged from the contract and to claim damages (compensation). A warranty is a minor term. Breach of a warranty by a party gives the other party the right to claim compensation, but not to be discharged from the contract.
Whether a contractual term is a condition or a warranty should be determined using common sense, but it also depends on the seriousness of the infringement. The trade custom or previous dealings between the parties (if any) should also be considered. If such a dispute is brought before a court, then the judge will make the final decision.
You should try to seek legal advice before taking legal action. Generally speaking, the innocent party can choose to take the following measures:
- treat the contract as discharged and sue for compensation (if a condition has been breached);
- continue to act on the contract but sue for compensation; or
- request the court to grant an order for specific performance, injunction, rectification or rescission , provided that no third party’s rights are affected.
The innocent party's duty to mitigate (minimise the loss)
A party who suffers loss as a result of a breach of contract must take reasonable steps to avoid further loss and to prevent the effects of the breach from multiplying unnecessarily, otherwise that party may not be entitled to full compensation from the defaulting party.