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Businesses engage in transactions with many parties, including suppliers, clients and partners. Accordingly, agreeing to and signing commercial contracts is essential to protect your business interests. While you may believe a verbal agreement will suffice, you should record important or high-value commercial deals in writing. This article will explore the four main benefits of recording all commercial deals in written agreements and the risks of not doing so.
Is it Mandatory to Record Deals in Writing?
Generally, it is not mandatory. With a few exceptions, you can verbally agree to most commercial arrangements without signing agreed written terms. This is because English law aims to give companies flexibility regarding how they agree to and record commercial deals. However, if the agreement is of significant commercial value to your company, you should finalise a written agreement.
On the other hand, if your company agrees to sell a fixed number of goods each month to another business for hundreds of pounds, you should record this agreement in a signed legal document.
Types of Contracts to Record in Writing
There are several commercial contracts that require a written, signed document, including:
- an agreement to buy or sell land;
- any share transfer within your business;
- a regulated credit agreement; or
- any settlement agreement with an employee.
Aside from these limited exceptions, your organisation does not have to record its deals in writing. So, why should you do it? Let us explore some benefits of doing so below.
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Benefits of a Written Agreement
Certainty
Recording commercial deals in writing will ensure parties are certain of the terms of the agreement. If either party is unsure of their obligations or has forgotten specific details of the arrangement, they can review the contract itself. Furthermore, a written agreement ensures that if the original parties to the contract are absent, their delegates can review their obligations and perform on their behalf.
Evidence of a Commercial Arrangement
By recording your agreement in writing, you have proof that the parties have reached a commercial arrangement. Thus, the other party cannot claim that the arrangement does not exist.
For example, suppose one party no longer wishes to continue with an existing commercial arrangement. If there is no written agreement, they may claim there is no contract and end the arrangement. Alternatively, they may claim you had an oral agreement that they can terminate verbally without notice.
However, this party would struggle to end the arrangement easily if a written agreement existed. Thus, ensuring you have a written agreement protecting your commercial deals is in your business interests.
Creation of Contractual Obligations
It is beneficial for both parties to sign a contract as this creates legal obligations. Under English law, if a person has validly signed a contract, they must carry out the agreement or face repercussions. In contrast, a court will struggle to enforce an agreement where the parties have merely exchanged brief emails and have not signed any final document. Thus, agreements recorded in writing protect your commercial interests.
Obtaining Legal Advice
Finally, the existence of a written contract (or any plans to draft one) is likely to encourage your business to seek legal advice to ensure you draft it correctly. Some benefits of having a lawyer involved include:
- informing your company of what terms they can and cannot agree with the other organisation (because some clauses may contain unfair terms or be unenforceable);
- ensuring expert drafting, thereby maximising the likelihood that a court can enforce the contract;
- explaining complex legal terms and procedures;
- ensuring the other party is not taking advantage of you; and
- advising you on how to negotiate the commercial deal successfully.
Key Takeaways
While your company is not legally required to record its commercial arrangements within a legally binding contract, it may be worth doing so to avoid any confusion, disputes or disagreements in the future. A written agreement ensures you have proof of the agreement, certainty on what you have agreed to and a legally enforceable document to protect your commercial deal.
If you need help with writing your commercial agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Yes, situations involving fraud or misconduct are unlikely to bind a company. For example, a forged signature will not give rise to a binding agreement.
This is very unlikely. English law tends to hold companies accountable to the terms of a written contract regardless of whether they read it before signing. Our courts believe that everyone should thoroughly read any agreement before signing. Signing an unread contract is at your own risk.
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