WHEN DO YOU NEED A CONTRACT?

WHEN DO YOU NEED A CONTRACT?

In my one year and few months of practice (we are getting there) I have seen a pretty much straight forward case get messy and complicated all because two parties entered a business relationship without a contract. On the other hand, I have also seen innocent (yet ignorant) people get punished for signing a contract without proper understanding of what they are getting themselves into.

Why do you need a contract
Contract

In this post and subsequently, we would be rubbing minds together on what a contract entails, why you need a contract in your business relationship with other people and why you should never sign a contract without a review and approval by your Lawyer.

NB: Trust me this is not another post on why you need a lawyer.

What is a Contract?

A Contract is simply an understanding or an agreement between two or more persons creating obligations that are enforceable or recognizable in law. In other words, a contract is a promise or set of promises made by a party to another, where either of the parties fails to fulfil the promise, the other party shall be entitled to a remedy in law.

Why do I need a Contract?

Have you ever heard someone say, “we don’t need an agreement, it is just a simple business relationship anyways” or ask, “we don’t need an agreement, don’t you trust me?” A contract will save you the conflict that can erupt when your simple business relationship goes sour or the “trust” becomes “distrust”.

You need a contract for the following reasons:

  1. A contract provides for the duties and responsibilities of Parties: A contract outlines the responsibilities and obligations of each party to the agreement. A contract creates certainty because the Parties know what they have and what is expected of them. This will help avoid confusion and disagreement as to what is expected of each party in the long run.
  2. A contract establish a duration for the contract: The contract creates a timeframe within which each party must perform their duties under the contract. The contract also provides for the duration of the contract and how the contract can be terminated without disagreements.
  3. A contract provides for the consideration for the contract: A contract specifies what to be paid for the services rendered. The contract can also provide for when the payment is to be made and how it should be made. When money related issues are agreed on and indicated by the parties, chances of disagreements over the contact are slim.
  4. A contract is binding on the parties: Where a party consents to a contract such contract becomes binding on the party and such party cannot back out of the contract. The terms and conditions of the contract will also bind the parties and either of the party can deny such terms.
  5. A contract minimise disputes and problems: Since a contract clearly provides for the terms and conditions and duties of each Party, chances of disputes is reduced. A contract also provides for how disputes between the parties can be resolved which is the dispute resolution clause.
  6. A contract limits your liability: A contract helps manage business and limit liability. A contract provides for disputes resolution mechanism, consideration for the contract and the protection of the confidential information, assets and property of the company.
  7. A contract helps to build trust and give peace of mind: A contract gives assurance and peace of mind to the parties because they know their transactions, work and interest are protected. A contract also builds trust and portrays one business in a positive light.
Why do you need a contract
Contract

Next time someone you about to enter into a business relationship says “we do not need a contract”, you should educate them on why you need a contract based on the reasons stated above.

Read also: Where there’s a will by Kehinde Takuro

In the next post we would be looking at the elements of a contract, the important clauses you should look out for in a contract or during a contract negotiation session and why you should never sign a contract without the review and approval of your lawyer.

Kindly drop your questions and opinions in the comment box below.

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