Should a commercial contract be in writing?
While an oral contract is valid and legally enforceable (provided you can find witness to prove such), we highly encourage you to put commercial contracts in writing. A written contract allows each party the opportunity to fully understand his or her obligations and rights under the contract. In the event of a law suit, the court will just have to interpret and analyse wording used in a written contract, as opposed to rely on oral testimonials from both parties to find out the real intention and truth of their contractual arrangement.
What is a breach of contract?
A breach of contract happens when a party doesn’t perform on time; performs in a way that is inconsistent with the terms of the contract; or refuses to perform his obligations at all. The non-breaching party can therefore sue the breaching party to claim compensation for such breach.
What remedies can I get in the event of a breach?
You can claim for damages, specific performance, cancellation and restitution. Damages come in the form of payment by the breaching party to the non-breaching party. Examples of damages include compensatory damages, consequential damages, punitive damages, recission of contract and liquidated damages. Specific performance is where the breaching party is ordered by the court to perform its duties under the contract. The non-breaching party also can ask the court to cancel the contract and sue for restitution, which would then put the non-breaching party in the position it was in before the breaching party breached the contract.
What are the key clauses to include in commercial contracts?
The following are key clauses that should appear in commercial contracts:
- Date of commencement
- Details of each party (full names, addresses, entity numbers)
- Definitions and interpretation
- Background leading to the contract
- Conditions precedent (if applicable)
- Performance and payment obligations
- Limitations and exclusions
- Intellectual property
- Boilerplate standard clauses
What are “unfair terms” in a contract?
In Malaysia, the law recognises the concept of “freedom to contract” so long as the terms are not illegal or against public policy or law. Malaysia does not have a general unfair contract terms law. That said, for consumer contracts, the Consumer Protection Act 1999 states that if a contract contains terms that are harsh, oppressive, unconscionable, limit liability for own mistakes or negligence or breach of contract, such terms will be considered “unfair terms” and will be unenforceable under the law. Also, if a seller sells goods that are different from their description, or unfit goods, buyer has the right to return the goods and cancel the contract. Other than this, we also have the Competition Act and Price Control and Anti-Profiteering Act to protect consumers from unfair business practices.
Can I still amend a contract after it is signed and stamped?
Yes, it is still possible to amend or update a contract after it is signed and stamped, provided both parties agree to such amendment or update. You will usually find a variation/ amendment clause in the contract that provides this option. The process usually involves both parties agreeing to sign a supplementary agreement to replace certain clauses in the original contract.
Under what circumstances can a contract be terminated?
There are mainly two types of termination grounds, namely, termination with cause and termination without cause.
Termination with cause means that either party can terminate the contract when a specified event occurs. It is advisable to spell out the triggering events in the contract. Examples of such events include:
- breach of contract (usually comes with an option that parties will allow a reasonable time to rectify/remedy the breach if it can be rectified/remedied)
- insolvency or bankruptcy
- change of ownership or control of either party
Even if the contract does not give express right to terminate in a particular scenario, if one party breaches the contract substantially (known as “repudiatory breach”), the non-breaching party may be entitled to accept the repudiatory breach and terminate the contract and sue for damages against the breaching party.
Termination without cause means that either party can terminate the contract by giving notice according to the notice period stated in the contract, even when there is no breach or default on either party.
When is a contract unenforceable under the law?
Certain contracts, even if signed, can still be challenged because they are unenforceable under the law. Examples include:
- duress/signed a contract by force
- violation of public policy, laws, regulations or guidelines
- impossibility to perform the contract because of events outside the control of the parties
- illegal purpose
- lack of capacity i.e. party is not of legal age to enter into a contract
What advice can I get from a lawyer on commercial contracts?
A competent lawyer will be able to advise you on:
- the process of entering into commercial contracts
- negotiating and drafting commercial contracts
- interpreting clauses in the commercial contracts
- reviewing commercial contracts to give an opinion on their impact
- amending commercial contracts
- terminating commercial contracts
- resolving disputes about commercial contracts
Are all contracts standard and lawyers just cut and paste from their templates?
How we wish lawyering life can be so easy!
If there are standard contracts, it means just that – standard, and they don’t reflect the individual circumstance of every commercial arrangement. There is a great temptation to just google a sample and use it without proper legal advice, which often results in the contract being vague, ambiguous and open to different interpretation.
While lawyers sometimes do draft a contract based off a template, it serves as a base document and lawyers still need to spend a huge amount of time and efforts to edit, customise and draft out new clauses that cater to clients’ specific needs and arrangements. It is therefore incorrect to say we just “cut-and-paste”.