20 January 2018

Seven simple rules of dealing with commercial contracts

In this article we will talk about some simple rules-recommendations, which should be observed in the commercial agreements drafting process in order to protect one from potential legal claims and disputes. They are based exclusively on practical aspects, so their execution will help you to act the most rationally in different situations.

Rule number 1: Perform a preliminary check of the counterparty:

Check carefully the credentials of the representative of the counterparty, who signs the transaction documents. If the documents are signed by the director, you should request a copy of the order on his appointment for the position. If the person acts upon the order, ask for a copy of the relevant order and check its details. Also, before signing the agreement, it is recommended to study the registration and statutory documents of the counterparty in order to understand how long the counterparty’s business has been operating, to check the amount of the authorized capital of the company and the list of the owners. It is also necessary to request copies of permits (if there is a need for the agreement: licenses, certificates, etc.). Copies of these documents are recommended to be kept in your company archive.

Rule number 2: Study the dispute history of your counterparty:

Before signing an agreement it is recommended to check how often your counterparty was involved in litigation and in which particular cases. To do this, we recommend using the court registry, which is available for free use on the Internet.

Rule number 3: Avoid unjust and over-charged penalties:

Pay particular attention to the contracts relating to liability (fines, penalties). Very often penalties are unreasonably overestimated in relation to one of the parties of the agreement. Firstly, it should be remembered that the maximum amount of fines for late execution of monetary obligations in accordance with the current legislation cannot exceed the amount of the double discount rate of the National Bank of Ukraine. Secondly, according to the principle of the fairness of the contract, the size and procedure of imposing fines in relation to counterparties should be equivalent and fair for each party.

Rule number 4: Sign all the pages of the agreement:

In our practice, there were cases when the counterparty tried to provide the fabricated text of the contract in court, using the fact that the signature of the director and the seal of the company were only on the last page of the document. Therefore, we strongly advise you always to sign all pages of the agreement in order to avoid possible falsifications by unconscientiously counterparties.

Rule number 5: Properly execute the fact of performance of agreement:

A significant percentage of commercial disputes arise due to improper execution of the agreement execution. For example, signing of the acts of acceptance and transfer of services by non-authorized persons, the lack of signatures on the acts of acceptance of the goods by representative of the supplier and the buyer, etc. It should be remembered that the execution of documents confirming the fact of the transaction, in practice, is even more important than the agreement itself. Therefore, always keep in mind that each of your agreements must be completed with relevant documents, which confirm the fact of agreement execution. Persons who sign such documents should be authorized to do so, and the documents themselves should not contain inaccuracies.

Rule number 6: Properly execute the fact of payment under an agreement:

To confirm the transfer of funds under an agreement, execute the relevant payment documents. This applies especially for cash settlements between private entrepreneurs, individuals or between legal entities and individuals. When making payments between a legal entity and an individual, a valid document confirming the payment is a fiscal check. During cash payments made between private entrepreneurs, a bilateral act of acceptance-transfer of funds must be issued. It is not recommended to use such a document as a receipt for confirmation of settlements under an agreement, as it is not a document confirming the fulfillment of obligations of both parties, and the fact of the execution of such a document in judicial practice is often disputed.

Rule number 7: Keep all documents on transactions in your archive:

It is recommended to have an archive of documents on contractors of the company, and the documents should be kept in for at least three years. It often happens that you have made a one-time deal with the counterparty and two months later forgot about it, forgetting about the documents on the deal. Suddenly, it turns out that your counterparty is involved in the some tax criminal case, and the investigating authority denies all transactions that the party concluded with other counterparties. In such case you will need the initial documentation to confirm the reality of your transaction and the so-called “merchantability”.