How To Avoid The Common Legal Risks When A Company Signs A Contract

2012-08-20   |   by CusiGO

In economic activities, companies often have a variety of disputes, even litigation, or as plaintiff or defendant. However, in litigation, we must follow two “to” principles, that is, “to be based on facts, to be based on law.”.

With the deepening of China’s reform and opening up, the market subjects are increasingly diversified, but the company is still the most active subject in the modern market economy. In economic activities, the pursuit of individual interests maximization is the common nature of different subjects. Different market subjects in specific economic activities consider how to bring their own maximum interests or win-win. Therefore, in the specific game process, risks are everywhere. How can a company minimize or avoid risks in the ever-changing market economic activities and remain invincible? Because contracts are the most commonly used form of market subjects, the author starts with common contracts. The following are some companies that I have dealt with in the course of practice in daily business activities Some cases that are often encountered in the process of action and are easy to be ignored but bring great risks to the company, hoping to bring some enlightenment to the readers.

Sometimes, companies only pay attention to the qualification of the other party in order to make business and obtain certain economic benefits. Once there is a dispute, the contract is invalid due to the discomfort of the other party’s main body, which brings great losses to the company.

For example, company a is a real estate company, company B is a garden company. One day, the director of office of company a found company B and said that company a had to deal with a number of garden trees and rocks on the ground because it wanted to build a batch of commercial houses; Company B knows that the value of this batch of goods is very high after seeing the site, but when negotiating the price, it is found that company a may not be clear about the value of this batch of garden trees and rocks and is eager to dispose of them. So company B closed the deal with company a’s chief of staff at a very low price. Without the consent of company a, the office director of company B and company a quickly signed the contract and paid off the money in a lump sum. He felt as happy as picking up a gold dollar treasure. When company B was about to pull the goods, company a found out the situation and immediately stopped the act. However, company B reasonably requires company a to perform the contract. However, company a claims that this contract is invalid because the office director of company a has the office seal instead of the company seal of company A. Company a’s office is only an internal organization of company a, which has no right to represent company a externally, and is not the legal subject to sign the contract. Therefore, they have no right to sign contracts on behalf of the company. Article 9 of the contract law clearly stipulates that “when a party enters into a contract, it shall have the corresponding capacity for civil rights and civil conduct.” In this case, company B brought a lawsuit to the court, and the result ended with the termination of the contract. As a result of company B’s fluke and take advantage of the psychological to bring economic losses to company B.

In addition, in the process of handling some contract disputes, the author found that some contracts were signed without the legal signature of the opposite party, some of them were signed by the project department, even some of them didn’t even have a seal, just a project manager. However, the name of the two companies is clearly written on the main body of the contract. It is obvious that the subjects of signing the contract are not the same. Even in some purchase and sale contracts that the author has dealt with, there is not only no signature of the company, but only the name of the buyer. Such a contract is obviously ineffective, which brings great hidden danger to both parties of the contract. These are all details, but there are great risks. Once there is a dispute, it will bring incalculable losses to the company. After the event, the author communicates with the parties, they all have such a misunderstanding, in order to win the opportunity in the market, they must seize the business opportunity, and the opportunity is fleeting; if everything is haggling with the customer, the business can not be negotiated; or they have a fluke mentality, and they think there is no problem. We often use our own good will to replace the complicated social reality.

We know that in the market economy activities, we need to have the qualification of main body. Generally speaking, the company must be established according to law to carry out corresponding activities. There are even companies that have been written off and are operating outside in the name of the company. Therefore, in economic activities, it is necessary to verify the qualification of the other party’s main body. If you are afraid of trouble, you can ask a professional lawyer to conduct legal investigation on them to control the risk.

The contract implements the principle of autonomy of will, which fully embodies the free will of both parties. Article 12 of the company law stipulates: “the content of the contract shall be agreed by the parties, generally including the following clauses: 1. Name and address of the parties; 2. Subject matter; 3. Quantity; 4. Quality; 5. Price or remuneration; 6. Time limit, place and method of performance; 7. Liability for breach of contract; 8. Method of dispute resolution. The parties may conclude a contract with reference to the model texts of various contracts. ” But we should pay more attention to the equality, consideration, voluntariness and good faith of both parties to the contract.

If Party A and Party B fail to make an agreement or dispute jurisdiction agreement on the liquidated damages or one party has the right to terminate the contract when signing the contract, once one party breaches the contract, the opposite party can only claim compensation according to the actual loss or terminate the contract according to the legal provisions, which will not only bring certain losses to the observant party, but also long-lasting litigation Litigation, if the loss of litigation in other places will be greater. Therefore, the content of the contract is crucial, otherwise, it will bring great risks to the company.

Example: a Chinese company wants to develop and grow, and plans to make a joint venture with a foreign company. When negotiating the cooperation agreement, the terms of the contract drawn up by the foreign company are quite unfair. Under the same capital contribution, the foreign company requires more profits. In the board of directors, the directors of the foreign company are larger than the example, and it is agreed that the Chinese company shall bear the losses once they occur. Obviously, this is a contract that is extremely unfavorable to the Chinese company, and even unfair. However, when the Chinese company consults with the author, the contract has been officially signed and has come into force.