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Additional reading. Structure of a commercial contract. Heading. Commencement and date. Parties. Recitals. Operative provisions
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ADDITIONAL READING
Text 1
STRUCTURE OF A COMMERCIAL CONTRACT
Part I
Most written contracts have a similar structure consisting of certain essential clauses, irrespective of the subject matter of the contract. The general pattern of a contract can be:
Heading
For example, ‘Distribution Agreement’.
Commencement and Date
Usually a commercial contract contains a brief introduction which describes the nature of the agreement, for example ‘This Agreement for the sale of …’ or ‘This Share Agreement …’. The commencement clause will state the date on which the provisions, or conditions of the contract, are to come into effect. The date is usually inserted in the relevant space at completion – the last stage in the formation of a contract.
Parties
The full details of parties are set out. In the case of a company, the registered number is included. This remains unchanged during the life of the company despite any changes of name or registered office.
Recitals
Also known as Background or Preamble. These paragraphs are traditionally introduced by the word WHEREAS (conventionally, key words are in capital letters or have an initial capital). The recitals consist of a statement of background facts and the reasons why parties are to enter into the contract. Related or preceding transactions may be referred to. If a later dispute arises concerning the operative part, the recitals may be used to interpret intentions.
Operative provisions
Often introduced by expression ‘ The Parties Hereby Agree as follows…’ or similar words, for example, ‘Whereby it is Agreed as follows …’. These words signal the start of the operative part of the contract, containing various clauses which create rights and obligations, or create and transfer interests in property. Operative provisions in more complex agreements may refer to more details.
Definitions
This section states the meaning to be attributed to terms essential to the contract – the defined terms. Most defined terms are conventionally given capital initial letters, for example, Security Documents or Completion Date. In the absence of a definition, words within the contract will be given their ordinary and natural meaning.
Interpretation
The aim of this section is to assist in the interpretation and construction of the whole contract by referring to specific uses. There are a number of provisions included in most contracts, for example ‘Words denoting the singular include the plural meaning and vice versa’.
Conditions precedent
These pre-conditions must be satisfied in order for the agreement, or the relevant part of it, to come into force, for example the grant of planning permission. The conditions precedent clause stipulates, or imposes, obligations on the relevant party to procure the satisfaction of the condition and provide a date by which time the condition precedent must be satisfied. It is usual for an agreement to terminate automatically if this is not achieved by the specific date.
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Consideration
For a contract to be enforceable, something of value must be given, for example, a price, even if it is of nominal value, say $1.
Schedules
Section at the end of the contract containing specific provisions and documents, for example the Transfer Deed in a contract for a sale of land.
Do the task.
Decide which part of a contract these extracts come from.
1. “the Schedule” – The Schedule in four Parts annexed and signed as relevant to this Agreement.
“the Buyer” – shall mean the purchaser of goods from the Company.
2. The consideration for the sale and purchase of the Contract Shares shall be the net asset value of the Company plus Three hundred and fifty thousand pounds for goodwill subject to adjustment as follows….
3. WHEREAS the Vendors have agreed to sell to the Purchaser, and the Purchaser has agreed to purchase, the entire issued share capital of Red Boots Limited (“the Company”) on the terms set out in this Agreement.
4. THIS AGREEMENT is made the 1st day of October 2009 BETWEEN Red Boots Limited having its registered office at 101 Green Valley, Beeston, (hereinafter referred to as “the Purchaser”) and Matching Socks Limited having its registered office at 7 High Street Dornberg, (hereinafter referred to as “the Vendor”).
5. The masculine includes the feminine and vice versa.
6. The sale and purchase hereby agreed is conditional upon and subject to the following conditions being satisfied on or before the Completion Date: -
(i) The Vendors exhibiting to the Purchasers’ Solicitors a valid marketable lease in the name of the Company free from any encumbrances to the Property;
7. The provisions set out in the Fourth Schedule shall have effect and the parties shall undertake their respective obligations as specified therein.
8. THEREFORE the parties Have Agreed and Hereby CONTRACT AND AGREE as follows: -
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