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  • Tudor Cristina

Everything you need to know before sign a commercial contract

Updated: Oct 15, 2023

This article can protect your business.


Protect your business from abusive contracts

Handling Commercial Contracts in Romania: A Guide for Foreign Businesses.


The main clauses that need your attention. Do you know what are you about to sign?


In your day-by-day activity, contracts are the main tools used for links with business partners. The conclusion of contracts should ensure the protection of both of its parties.


The termination and execution of commercial contracts should operate in accordance with all the legal provisions. Paying close attention to these clauses is highly recommended.


Furthermore, the obligations of both parties should be clearly mentioned in the commercial deed, in an accessible language that allows the real identification of the relationship between them.


In other words, the services that should be provided or the goods that should be delivered must be expressly reflected in the commercial agreement. Additionally, the method and terms of payment should be precisely detailed.


In other words, it's imperative that the obligations of both parties to be explicitly outlined in the commercial agreement, using clear and accessible language to define the relationship between them.


Reflecting these essential matters can help you to avoid any potential problems that may lead to contractual disputes and legal action.


Last but not least, in case of dispute, the commercial contract will be the main document analyzed by the court, so this interpretation can help or affect you, as the case may be.


It is essential to review the terms of the contract and execute it only after you understand and agree with all of its. Moreover, it is recommended to avoid wording that may later create confusion.


Read on: everything you need to know before signing a commercial contract


Contents:

  • Commercial contracts negotiation. Conclusion

  • Commercial contract execution. Parties obligations.

  • Termination clauses.

  • 5 clauses you shouldn't skip over


Execution of the Commercial Contract and Parties' Obligations


Before execute any contract, the parties should agree at least on the object of it and the conditions under which it should be performed.


In commercial contracts, typically involving services provision or the supply of goods, clarity and precision in defining these elements are essential.


For example, the conditions under which the services are about to be performed or the goods supplied, as well as the effective date on which the price is required be paid for them, should be explicitly specified, including the amounts.


Such clauses can sound like this:

The Provider shall provide/ undertakes to provide the Services (...) starting from (...), 2 times a month, on the specific days agreed with the Beneficiary."


For the Services provided, the Beneficiary shall pay/ undertakes to make monthly payments to the Provider (...).


At the same time, in the above mentioned example, it is necessary to reflect the terms of Services.


For the purposes of this Agreement, the following services are taken into account by the term „Services”: e.g. professional training activities, etc.


Why is nedeed to reflect these conditions in your contract?


To prevent any legal action that may have harmful results on the activity you perform. The more clear a commercial contract is, the less chance there is for an unfavorable interpretations.


Clarity in a commercial contract reduces the likelihood of unfavorable interpretations, thus minimizing the risk of costly legal actions.


In other words, I recommend to you to clarify any aspect that at first sight may raise to you some questions. In this way, you can prevent an expensive legal action.


You may also reach out a commercial law lawyer to clarify the unclear aspects of your deed, but also to review or modify it. Contact us via e-mail address office@cristinatudor.ro or by phone (number +40766.706.561) and make sure that you understand the all clauses of the contract you are about to sign.


Execution of the commercial contract and Parties' Obligations


Another important aspect that need your attention is represented by the all obligations of the parties within the contract, that should be accordingly reflected.


A clear and precise list of the parties obligations can prevent misunderstandings with your business partners in the future.


What can you do about it?


To do this effectively, set the obligations with clear time frames, indicating when and how they should be fulfilled.


For example, such clauses could sound like this: The provider shall provide the services monthly/until a specified date.


or


The beneficiary shall pay the price of the services by a particular deadline.


Why are these aspects so important?


They are essential to determine when a party fails to fulfill its contractual obligations and how long this non-performance lasts. This information is essential for the application of certain remedies that can lead to contract termination.


In order to use such remedies (i.e., termination, exception of non-performance) it is necessary to set up the moment from which the other party no longer fulfilled its contractual obligations.


Termination of the commercial contract


The main reasons that lead to the termination of the commercial contract are represented by:


(i) termination (resolution), which may be followed by the payment of the damages and occurs when one party fails to fulfill its obligations under the contract, such as non-payment or non-provision of goods/services.


In order to operate, the entitled party should send a declaration of resolution within a specific period, typically three years for commercial contracts.


The parties may expressly set up the obligations, the failure of which will result in the termination of the contract.


(ii) unilateral termination is available for service contracts with indefinite durations, allowing either party to terminate the contract with prior notice.


Thus, services contract concluded for an indefinite period, each of the parties may exercise its right to terminate the contract, subject to a notice period, even if a clause in this respect no longer exist in the contract.


(iii) termination by agreement between the parties, defined through an addendum, specifying the conditions for termination.


The parties can terminate the commercial contract by concluding an addendum, in which they will reflect the conditions under which its termination will operate.


5 clauses in commercial contract that you should never skip


  • Law and Jurisdiction: Pay close attention to the choice of law and jurisdiction clauses. Ensure they align with your expectations, especially when contracting with foreign partners.


At first sight, this standard clause, found in most commercial contracts, does not raise any problem. However, you need to pay attention to this clause, as it can cost you more later.


How exactly can this clause affect you?


For example, although you are going to conclude the contract with a Romanian business partner, there may be clauses according to which:


(i) the contract is governed by the law of another state, or

(ii) the competent court to judge disputes, which may arise later, is not a court in Romania, but the competent institution of the group, to which the commercial partner belongs.


  • Conciliation and Arbitration Provisions: These can save time and money, but ensure you agree with these alternative dispute resolution methods before signing the contract.


As disagreements that may arise later can be resolved not only in court, but also in these alternative dispute resolution procedures (mediation or arbitration), which in some situations also implies a low cost.


If you do not agree with these alternative resolution procedures, you should communicate this aspect to your business partner, prior to signing the contract.


  • Assignment and Subcontracting: Carefully consider clauses regarding the transfer of contracts or subcontracting, ensuring they align with your interests.


If the possibility of transfer (assignment) of the contract is mentioned, it is recommended this mechanism to be done with your notification or consent, as you may end up in the situation to have a new business partner, without being notified, and the qualities of the original business partner represented the main reason, in consideration of which you agreed to enter into the contract.


The above are also applicable in the case of clauses that allow subcontracting.


  • Penalty Clauses: Review and negotiate penalty clauses to avoid excessive costs in the event of non-performance.


There are not rare situations when commercial contracts contain huge penalties for non-execution of certain obligations or for their late execution.


These clauses should be carefully read and negotiated, so as to avoid the application of the excessive costs.


  • Disclaimer Clauses: Scrutinize these clauses to understand your partner's limitations of liability.


Perhaps the most important, disclaimer clauses are those when the commercial partner sets up those situations when he/she is not liable.


Therefore, it is necessary to pay attention to these contractual provisions and put on the table the clauses that are not agreed by you.


If you have any questions or need our assistance with drafting and reviewing of the commercial contracts, please contact us at: office@cristinatudor.ro or at by phone (number +40766.706.561).



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