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Reasons for Having Formal Agreements

Why Have a Formal Contract?

There are numerous reasons why it is advisable for any business to deal with other businesses on the basis of formal contracts where practicable. As to dealing with a consumer customer rather than with a business customer – see “What is the difference between a commercial contract and a consumer contract?” above.

The parties to a business agreement might enter into that agreement in a variety of ways including by means of a “formal contract”.

For present purposes, a “formal contract” means an agreement in writing (in hard copy or electronic form) which sets out all of the terms which the parties intend to agree with each other. The agreement might be comprised of a few or many pages but it would be a single document. There will usually be two identical copies of the document, and each copy would be signed and dated by both parties (or by their authorised representatives). Each party would then retain one of the copies for its records.

The point of making an agreement in this way is that it is then relatively easy for either party to prove that the agreement exists and that all of its terms are contained in that document. It thereby avoids or minimises the risk that one party might later claim that there are in addition or instead any terms of the agreement in one or more other documents, or that an agreement was not made.

As an example of such a “formal contract”, see the template “Supply of Goods Agreement – Resale” which you can find here, and note that, in line with the above point about a single document containing all of the terms of the agreement, Clause 23 is an “entire agreement” clause which states that the terms that have been agreed are all in this document (i.e. not also set out elsewhere). Please view Related Documents below for further examples.

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