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.
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.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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.
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.
Abimbola is a Law graduate of Lagos State University and a First class graduate of the Nigerian Law school. She has a strong bias for Corporate commercial law practice and Commercial Dispute Resolution.
Abimbola is an Associate at Probitas Partners LLP a corporate commercial practice and dispute resolution law firm in Lagos, Nigeria. Abimbola is part of the Dispute Resolution, Corporate Commercial and Power practice group of the Firm with extensive experience in corporate commercial practice where she provides general legal advisory on law and policy affecting operation of businesses, corporate finance, due diligence for investments, corporate governance and compliance.
Abimbola is a public speaker, a budding writer and an advocate for the rights of the girl child. She is also passionate about education and youth development hence her involvement in several social projects which focus on active youth participation in propelling growth in Nigeria and Africa.
She is a member of the Nigerian Institute of Management, impact fellows, the YALI Regional Leadership Conference West Africa and an alumnus of the Covenant Christian Centre Youth Boot camp.