Contracts
(E)
by
Laurus Nobilis
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What
is the purpose of the contract? What are the main
elements of contract? Do you need a legal advisor
for contract design?
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Posted:
Nov 2008 |
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During
any process or activity there is usually more than
one party. In case that there are
more parties in process, they interact between
each other. During this interaction there is
exchange of service, product, raw material,
assets, money, consulting or anything else that
represent value for parties involves. |
In
this process parties have their own interests to
interact, but they all have a concern of risks, that
other party might not always act according the
agreement. In order to define parameters of
relationships, parties set rules of their interaction in
a written form that is most commonly known as Contract
or Agreement.
By
making Contract or Agreement, involved parties defines
mutual relationship, by describing their activities,
activity framework, time span, rights and obligations
and, finally, define consequences for breaking these
rules, if that is necessary.
It
is recommended to have professional legal advisor,
whether he/she is employed by one of parties,
or a hired advisor, to compose
the contract. However, involved parties should have
basic knowledge of contract design. No matter how
skillful is the legal advisor, contracting parties know
their business the best. Therefore involved parties
should actively participate in design of the contract.
The
concept, design and length of contracts can vary in
details and complexity, but usually there are common
elements of any contract.
- Contract
is written in common language of contracting
parties. If there is a need, the contract can be
written in bi-lingual or multilingual form, where
translations of paragraphs are placed next to each
other.
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- Introduction
to contract should give details about involved
parties ( company name, Address, Representative,
registration number, VAT number,
etc ).
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- Elements
of contract are defined in separate articles,
numerically marked from Article 1. onwards. Every
article describes a certain logical unit.
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- Scope
of the Agreement should be the first set of articles
that
describes basic elements
of interaction of parties involved. These activities
can be selling, renting, hiring, exchange,
consulting, ...
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- Business
Partner's Rights and Duties are the set of articles
that defines rights and responsibilities of parties.
These rights and responsibilities are not limited
only to the scope of the contracts itself. Rights
and responsibilities can also be stated to annex to
the contract.
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- Prices,
discounts and terms of payment define the process of
settling the balance of exchange defined by the
contract.
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- Extent
of the agreement defines the period of contract
validity. The contract can be defined to be
terminated at the end of period, but it can also
automatically extend, until the new document is
signed.
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- Interim
and Final Provisions defines elements not directly
related to main activity. This set of articles
should define the procedure in case of unexpected
events that influence or prevent normal development
of contracted activities.
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- All
involved parties should sign and stamp the contract
at the bottom of the last page. It is recommended to
stamp all copies of the contract, in order to make
contract difficult to change by any party. Every
party keeps usually more than one copy of the
contract.
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- Annexes
can be added next to the contract, in case that some
process activity needs be explained in more details.
Also, annexes can be signed any time after the
contract is signed, in order to define additional
elements of relationships, that didn't exist or the
parties were not aware of at the moment of contract
signing.
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These
are main elements of contract agreement. Content of the
contract may differ, depending of the contract type. It
is important that all parties participate in contract
design. It is better to avoid any misunderstanding or
disagreement before the contract is created and signed,
since conflicts that comes out of breaking of signed
contracted elements are leading to anything else but not
to the purpose of the contract – benefit and
prosperity of involved parties.
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