Business contract review

Jan, 13 2021

The civil legislation of the Russian Federation means by a contract an agreement between two or more parties. This agreement creates, modifies or terminates the respective rights and obligations of the contracting parties.

In other words, a contract is a type of a civil transaction. As a result, one party, as a rule, acquires the right of claim, and the other party has the obligation to satisfy this right. For a contract to be valid, it must not only meet all legal requirements, but also not contradict Russian legislation. That is, the agreement cannot fix conditions that violate the current law.

Why is it necessary to check the contract texts 

The need for contract evaluation and verification relates to several important aspects at once. First, you need to make sure the contract can be considered valid. Accordingly, specialists should check it for compliance with the requirements of Russian civil legislation. Violation of these requirements may lead to the contract invalidity causing negative consequences for the parties.

Secondly, the contract review is designed to protect the interests of the parties. Professionals will ensure the document does not contain delivberately unfavorable conditions. They will make sure there are no loopholes in the contract text that may lead to litigation and trial in the future.

So, one of the main principles of the Russian civil legislation is the contract freedom. This principle implies that individuals and legal entities can enter into agreements at their discretion. Subjects of civil turnover are entitled to conclude any contracts that do not contradict the basics of civil legislation.

Legal contract review allows to conduct a detailed analysis of the compliance of a particular contract with legal requirements, including an analysis of its content in terms of possible legal risks for the client in the event of its conclusion. In other words, a legal contract review is a document verification that allows to prevent undesirable consequences caused by its conclusion. Neglect of legal review significantly increases the risk of financial losses because of an unfair contract.

When is it necessary to resort to legal contract review:

  • when concluding a contract for a large amount;
  • at the conclusion of a mixed or complex contract;
  • when concluding a contract for the alienation of expensive real or movable property;
  • when concluding a contract with a new counterparty.

There is no need to apply for expertise if you sign a standard contract that has been repeatedly checked in practice, approved by in-house lawyers or experienced consultants. However, it is better to seek the help of qualified lawyers if you are negotiating with a new counterparty and planning to conclude a complex or atypical for your business transaction.

What tasks are solved by the specialist responsible for conducting legal contract review:

  • identification of contract clauses with legal errors and incorrect data;
  • identification of controversial and suspicious language;
  • determining the terms of the contract that should be excluded or, conversely, supplemented;
  • identification of conditions that worsen the situation of the client party;
  • adoption of measures aimed at preventing the contract invalidation;
  • offer of alternative options for a contract conclusion;
  • verification of the counterparty.

The entire process of legal contract review can be divided into three stages. First, it is necessary to set specific goals for checking the contract. Thus, the first stage includes the formation of questions that require a full written justification.

The second stage of legal contract review is a direct analysis and verification of the contract terms for compliance with the current legislation. It is especially important to note that the contract must comply with the norms of civil law that are currently in force.

While the legislation is changing and modifying actively to meet the civil circulation goals, the expert will analyze and compare it with the conditions enshrined in the contract. This aspect is other rather important incentive factor for applying to a professional lawyer for a legal contract review. 

What is the reason for this? The answer is very simple: most citizens do not pay due attention to the legislative regulation of contractual legal relations, which means there is a significant risk of making a mistake when concluding a transaction, because certain rules may become outdated and not be applicable in practice, which, in turn, may lead to the contract recognition as invalid in the future. It is the expert who faces the task of preventing such situations.

The third and final stage involves the preparation of an expert opinion. As a rule, such an opinion can be presented orally or in writing with the expert recommendations. In addition, the customer of the legal contract review can simply receive the final contract, given all corrections and wishes. This course of events is the most effective, as the client receives a ready contract that fully complies with the legislation and meets all the requirements and wishes of the parties.

So, let us consider some risks that can be identified by the results of the legal contract review:

  • the contract does not contain any essential conditions, so it is considered to be concluded;
  • the contract contains provisions that contradict the current legislation;
  • the contract is subject to mandatory registration;
  • the agreement signatory does not have the authority for its signing;
  • the agreement contains provisions that infringe on the client rights and interests;
  • the contract contains controversial or vague wording that may later lead to legal disputes;
  • the agreement contains any other risks.

A well-written contract is the key to the successful goal achievement by economic entities. In addition, the contract can protect the party from unfounded accusations and claims from the counterparty, that is, protect against any problems related to the future contract performance.

At the same time, an incorrectly drawn up contract is a danger for the party that concluded it, and almost inevitably leads to civil disputes.

Therefore, when planning a transaction, it is necessary to perform a set of actions aimed at preventing possible adverse consequences. Such actions include:

  • analysis of the parties to the contract, which determines the correctness of the counterparty’s details (the relevance of the provided legal and financial details), checks the powers of the counterparty’s authorized person, checks the counterparty’s integrity using open databases;
  • analysis of the contract subject;
  • analysis of the procedure for determining and forming the contract price.

The most effective way to cope with the above objectives will be a qualified law specialist, who will correct all inaccuracies and prepare the final version of the contract for signing.

What negative consequences can result from the refusal to conduct a legal contract review:

1. A deal with a bankrupt. If the other party to the agreement declares bankruptcy, the negative consequences will affect you as well. You risk not receiving a significant part of the counter-performance under the contract. This situation can be corrected by including claims in the register of creditors. However, do not expect that you will quickly and freely receive your funds. Therefore, it is better to make sure in advance that the counterparty is not on the verge of bankruptcy.

2. Deliberately invalid agreement. The Civil Code of the Russian Federation establishes an exhaustive list of grounds that may lead to the transaction invalidity. It is mainly important to note that an invalid contract does not create rights and obligations for the parties and does not protect your interests.

3. Recognition of the transaction as not concluded. The contract may be deemed not concluded if the parties have not agreed or reflected in the contract the essential conditions that must be contained in the contract by the law.

4. Losses/damages and financial cost/losses. The contract may contain extremely unfavorable, even burdensome conditions on the liability of the parties. In the future, signing such an agreement will lead to material losses.

Mistakes when drawing up the contract are fraught with financial losses and long legal proceedings. You should not rely on the opinion of lawyers working for the other side of the agreement, as their view may be biased. To avoid difficulties, refer to highly qualified independent experts. Not everyone with a law degree can conduct a competent legal contract review.

The contract review service is paid. However, it saves your money, because it allows you to achieve more favorable agreement terms and avoid future conflicts and litigation.

Author of the article

Business contract review
Ignat Shevchenko
Lawyer

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