This article is written by Srishti Sinha, from the Institute of Law, Nirma University, Ahmedabad. This article thoroughly analyzes the principles of English commercial contracts and international commercial contracts.
Table of Contents
Introduction
We enter into different contracts in our day-to-day life, some are enforceable by law and some are not. One such type of contract which is usually entered by organizations and enterprises is commercial contracts. The definition of commercial contracts is the same all over the world but the principles are somewhat different, as in the case of English and International Commercial Contracts. The principles of both these contracts are different and can be compared easily. The comparison and analysis of these commercial contracts are discussed further in this article.
Commercial contracts – an overview
A commercial contract is a legally enforceable instrument that obligates one party to do something or refrain from doing something. It’s for enterprises and organizations, and one of its main requirements is that legal structures allow the contract’s full advantages to be achieved. Commercial contracts are usually written papers, although they can also be verbal agreements in some cases. Commercial contracts explain exactly what each party must do to keep the contract valid, as well as the ramifications if any of the terms and conditions are broken. Commercial contracts are like normal contracts, the conditions of the agreement, which encompass all the key issues, are also included in the contract. A breach of contract occurs when one party fails to fulfil its obligations under the contract. Commercial contracts that aren’t properly written and have flaws might jeopardize the agreement specified therein. The Uniform Commercial Code (UCC) is the basic authority for regulating business transactions and contracts, but each state has its own set of rules.
Clauses in commercial contracts
Contracts are utilized in almost every business, and many of the contract terms are relevant to all industries. In reality, some contract terms are almost certain to occur in each contract that is formed. Commercial contracts, in particular, are more likely to include a set of standard terms and conditions. Some of the key clauses of commercial contracts are:
- Confidentiality: When two or more businesses engage in a contract, there will almost certainly be a substantial amount of information exchanged for both parties to fulfil their contractual duties. Given the necessity of providing some information regarding each party’s financial and business operations, the contract must include a robust secrecy provision.
- Force majeure: This clause should always be included in commercial contracts because it can safeguard parties from events that are beyond their control, for example, earthquakes, cyclones, etc. This clause ensures that if any of the parties failed to perform their tasks due to an unforeseen event then, that failure to perform the task will not be considered a breach of contract and the person will not be held liable.
- Jurisdiction: When the parties to a contract are from different states, or even different countries, it can be difficult to determine which state’s laws apply to the contract. As a result, commercial contracts should explicitly mention which state will have jurisdiction over the transaction, so that the applicable laws are crystal obvious.
- Termination clause: It is very common to have disputes during contracts and so, a termination clause should always be included in the commercial contracts. Regardless of the remaining time under the contract, this section of the contract must explicitly state the conditions under which one or both parties may cancel the deal.
- Dispute resolution: Even the most carefully prepared contracts are prone to disagreement. As a result, it’s critical to understand the parties’ preparations for resolving disputes if one emerges.
Types of commercial contracts
Commercial contracts are used to lay down agreements with customers, suppliers, partners, and other stakeholders. They are part and parcel of every entrepreneur’s life and are crucial to any enterprise. They are an integral part of any entrepreneur’s life and are essential to any business. Certain types of commercial contracts are mentioned below:
- Sale and purchase agreements: A Sales and Purchase Agreement (SPA) is a legally enforceable contract between two parties that binds a buyer and seller to a transaction. SPAs are commonly used in real estate deals, although they may be used in any industry. Negotiations between the buyer and the seller are based on the necessity for a SPA.
- Purchase and supply conditions: A Purchase and Supply agreement is the agreement for the sale of goods between two parties.
- Letters of intent: A Letter of Intent (LOI) is a document that states a party’s preliminary commitment to do business with another party. The letter lays out the key elements of a potential agreement. LOIs are comparable to term sheets in substance and are commonly used in significant corporate deals.
- Agency and distribution agreements: An agency distribution agreement establishes a fiduciary connection between the agent and the manufacturer, allowing the agent to enter into legal agreements with the manufacturer’s consumers. The agency distribution agreement specifies the terms and circumstances under which the agent is authorized to advertise items, as well as the sales region and price limits.
- Franchise agreements: A franchise agreement is a legally enforceable contract between a franchisor and a franchisee. The contract outlines the franchisor’s expectations of the franchisee, as well as how the firm must be run. It is an agreement in which the franchisor (company) agrees to provide the franchisee with the use of the corporate name or system (individual or entity).
- Service Level Agreements: A service-level agreement (SLA) specifies the amount of service that a customer expects from a supplier, as well as the metrics that are used to assess that service, as well as any remedies or penalties that may be imposed if the agreed-upon service standards are not fulfilled. SLAs are most commonly used between firms and external suppliers, although they may also be used between two divisions inside the same firm.
- Management and shareholders’ agreements: Management agreements are used by providers of management services. The particular administrative, managerial, and development services offered, as well as the pay for such services, are detailed in these agreements. The contract may also specify how the deal will be terminated, if it may be assigned, and how disputes will be addressed. On the other hand, a shareholder agreement is a contract between a corporation and its stockholders. It defines the shareholders’ rights and duties, as well as provisions relating to the company’s management and authorities. The agreement’s goal is to safeguard the shareholders’ interests.
- Non-disclosure agreements (NDAs): A non-disclosure agreement is a legally enforceable contract that creates a confidential connection between two parties. The signatory party or parties agree that any sensitive information they collect will not be shared with anyone else.
- Performance contract: A legal arrangement in which one company promises to pay another when the latter completes the project or work for which they were hired.
- Licensing and ICT agreements: A licensing agreement is a formal, written contract between two parties in which the property owner authorizes the use of their brand, patent, or trademark by another party.
Comparative analysis between the principles of English commercial contracts and international commercial contracts
English commercial contracts
The law governing contracts in England and Wales is known as English contract law. Because a contract is a voluntary obligation, as opposed to paying compensation for a tort or restitution to reverse unjust enrichment, English law places a premium on ensuring that people have truly consented to the agreements that bind them in court, as long as they comply with statutory and human rights.
The principles which govern an English commercial contract are as follows:
- Formation of a contract with offer, acceptance, valid consideration, the intention of both the parties and enforceable under law.
- Contents of contract, i.e., express and implied terms
- Inclusion of a clause called the end of the contract. This clause includes termination, expiration, vitiation, and frustration of the contract.
- Damages and remedies available to the affected party.
- Disputes will be resolved in a certain manner.
International commercial contracts
The backbone of international trade is regarded to be transactions undertaken under International Commercial Contracts, particularly those involving the sale of products. The Principles of International Commercial Contracts, 2016 (also known as PICC) is a set of 211 principles governing international contracts. It is most commonly referred to as UNIDROIT Principles. They were drafted by an international working group of the intergovernmental organization UNIDROIT in 1984, and they were confirmed by the Council of UNIDROIT, which represents the governments of 64 member nations. These principles, as soft law, aid in the harmonization of International Commercial Contract law by giving guidelines to support international instruments such as the CISG and even national laws. In private practice, they provide a neutral contractual regime that the parties can select from, either by incorporating the UNIDROIT Principles into their contracts (in whole or in part) or by simply choosing the UNIDROIT Principles.
The UNIDROIT Principles of International Commercial contracts are as follows:
- Chapter I: Under this chapter, the principle talks about the general provisions of a commercial contract which includes freedom of contract, binding relation between parties, mandatory and non-mandatory characters, and fair dealings
- Chapter II: Under this chapter, the principle mentions the formation of contract which includes the manner of formation of the contract (offer acceptance, revocation, confirmation of acceptance, withdrawal of acceptance, etc.) terms of a contract, clauses such as confidentiality; dispute resolution; etc, the battle of forms and authority of agents.
- Chapter III: Under this chapter, the principle talks about the validity of the commercial contracts which includes general provisions, grounds for avoidance and illegality in contracts.
- Chapter IV: Under this chapter, the principle talks about the interpretation of the contract. Under this chapter interpretation of statements, the intention of both the parties and contra performance rule.
- Chapter V: Chapter V of this principle talks about the content, third-party rights and conditions.
- Chapter VI: Chapter VI of this principle talks about the performance of the contract. Under this chapter performance in general and hardships are included.
- Chapter VII: Chapter VII of this principle talks about the non-performance of the contract which includes non-performance in general, right to performance, termination and damages.
- Chapter VIII: Chapter VIII of this principle talks about the set-off principles of the contract.
- Chapter IX: Under this chapter, the principle includes the assignment of rights, transfer of obligations, assignment of contracts.
- Chapter X: Under this chapter, the principle includes the limitation period of the contract.
- Chapter XI: Chapter XI of this principle mentions the plurality of obligors and obligees.
After comparing English Commercial Contracts and International Commercial Contracts we can find out that the international commercial contracts are governed by UNIDROIT principles while there are no such principles under English commercial laws, i.e., they follow the same principles of a normal contract. Further, most of the principles and clauses between the two commercial contracts are common but the UNIDROIT Principles of International Commercial Contracts explain these principles in a more detailed manner.
Conclusion
Contracts are governed by laws and principles so that the parties have certain securities in their agreements. Commercial contracts are related to business agreements that involve a lot of security and so there are certain principles and clauses in every contract, be it Indian contracts or English contracts, or international contracts. There might be some differences in certain principles like we saw in English commercial contracts and International Commercial Contracts but the main purpose of the principles and clauses is to always protect the affected party.
References
- https://www.nyulawglobal.org/globalex/International_commercial_contracts.html
- https://www.jus.uio.no/lm/en/html/unidroit.international.commercial.contracts.principles.1994.commented/s006.html
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