Biz Brunei is linking up with the Brunei Law Society to give legal insight into business-related topics. This is part of the society’s contribution to hosting legal seminars for MSMEs with Darussalam Enterprise’s (DARe) Industry Business Academy. CCW’s Andrew J. Wong was one of the presenters in the legal seminar for MSMEs.
For many small to medium enterprise owners, the idea of entering into a written contract can be daunting. You may start to worry about how complicated contracts can be or how expensive some lawyers are. However, this isn’t always the case and this article aims to help you better understand the basics of contracts and to give you some of the ingredients you need to draft your own agreements.
1. What is a contract or agreement?
The words ‘contract’ and ‘agreement’ are commonly interchangeable and often mean the same thing. A contract or agreement can be both verbal and/or written.
Basically, when two (or sometimes more) parties have mutually agreed to legally bind themselves to exchange goods, payment or services it can be said they have entered into a contract or agreement.
2. What is the essence of a contract?
The elements of a contract are: i.) an agreement to perform certain terms or obligations (the ‘offer’ element); ii) a mutual intention to be bound by that agreement (the ‘acceptance’ element); and iii.) each party receives a benefit for doing their part of the contract (the ‘consideration’ element).
An example of a simple contract: John runs a Nasi Lemak delivery business on Instagram. Hazirah sends a direct message informing John that she would like to order 10 packets of Nasi Lemak for delivery to her home at 10:00 am on Friday. John informs Hazirah that the price of her order is B$12.00. Hazirah confirms that the price is acceptable and sends John her home address. John then accepts the order.
In the above example we can see: i.) the offer and acceptance’ elements when Hazirah offers to buy John’s Nasi Lemak and they both accept the terms of the agreement which are that Hazirah will pay John $12.00 and that John will deliver 10 packers of Nasi Lemak at 10:00 am on Friday; and ii.) the ‘consideration’ element where John will receive payment and Hazirah will receive Nasi Lemak.
3. Do I need to write down my contracts?
The simple answer might be: “Yes, of Course!”
The more practical answer is that it depends. Luckily for John and Hazirah they had communicated entirely by text message on Instagram so their agreement was conveniently written down.
If Hazirah and John had communicated verbally by a phone call, they would still have made a contract and given the simple nature of their agreement, it would not likely have mattered whether they wrote it down or not.
The best practice is always to keep an accurate written record of your contracts or agreements especially if the contract has complex requirements or many terms or involves large sums of money.
4. How should I write it down?
If the contract does have complex requirements or many terms or involves large sums of money, you should consider having the contract formally drafted by a qualified legal practitioner.
The Brunei Law Society maintains a list of qualified legal practitioners and their contact information on their website.
However, if the contract is simple enough, you could capture the contract informally by e-mail, WhatsApp or other forms of text message such as in the nasi lemak example above with Hazirah and John.
If you decide to draft your own contract it is important to have terms that address at least (but not only) the following issues:
i.) The exact thing you want each party to do;
ii.) When exactly should any payment be made; and
iii.) The time for performing each part of the contract.
5. What should I do before entering into a contract?
The most important thing you should do before entering into a contract is to read and understand the terms. Try to identify exactly what you will be obligated to do, provide or pay if you enter into the contract.
In the case of our Nasi Lemak example: Hazirah would be obligated to pay $12.00 to John if he performs his part of the agreement which is to deliver 10 packets of Nasi Lemak to Hazirah’s house by 10:00 am on Friday.
If there are terms of the contract that you really can’t understand and the other party won’t clarify or edit the terms then you should seek advice from a qualified legal practitioner.
A qualified lawyer would be the best person to tell you what might happen if you or the other party breaches the contract or does not fulfill your part.
6. Hungry already lah! Where’s the roti kahwin?
Having a written contract will better help you achieve your business goals because it allows you to clearly communicate your commercial intentions with your customers, clients, business partners, and employees.
A written contract manages everyone’s expectations by setting out exactly what all the parties are expected to do or perform and what is the objective of that contract. If all the terms are written down and agreed upon, this would also help to minimise disputes which might arise later on.
So, while you could do business without a written contract, having your agreements written down will help your business dealings go more smoothly. Just like how you could eat roti kahwin without any butter but a nice slab of butter might make it all taste much better.