The purpose of contract verification

Contents:

• Stages of contract verification
• Verification of a contract for compliance with the law. Negative consequences in case of non-compliance
• Features of contract verification
• In what situations verification of contract is mandatory
• What kind of work is performed by the expert responsible for checking a contract
• What parts and clauses of contracts should be checked
• Checking the implementation of a contract

In accordance with civil legislation of the Russian Federation a contract is an agreement that can create, change or terminate specific rights and obligations of contracting parties. They are concluded between two or more parties.

In simple terms, contract is a kind of civil transaction. In general, when a document enters into force, one of the parties receives the right of claim, and the other party must satisfy this right of claim. If the contract does not meet legal requirements related to a particular type of contract, it is invalid.

Stages of contract verification

All actions required to verify any contract can be divided into three stages:

• Preparatory stage, on the quality of which the entire audit depends; it includes collection of up-to-date and reliable information;
• Ensuring full compliance of contract with current legislation requirements. Identification of all possible risks;
• Preparation of a report document on the results of audit carried out.

Initially, it is necessary to decide on the task and purpose of check. In simple terms, the first step is to compose several questions that need to be answered. The answers should be detailed and well-founded.

The next stage of checking an agreement or contract is a direct study of the document, an analysis of terms and conditions. In this case, the purpose of checking the contract is to make sure that it complies with current legislation, namely current rules of civil law.

It is no secret that laws are constantly changing or being adjusted to fully meet the goals of civil turnover. As a rule, people who constantly monitor changes in legal sphere are professional lawyers or private law firms. The specialist, based on the current legislation, compares it with the conditions included in the contract. This procedure is an additional reason to seek help of professional lawyers who will carry out a legal examination of an agreement.

Is this procedure really necessary? Sure, but most citizens do not pay enough attention to the control of contractual relationships. Due to this fact, there are still many risks of a mistake occurring at the time of entering into agreements. For example: legal rules may change or become outdated, and therefore the contract may be declared invalid. Thus, the main task of a specialist is to prevent such situations.

The third and final stage is analysis of all the information received and formation of an expert opinion. Most often, such conclusions are presented orally or on paper, indicating recommendations of a specialist. In addition, the client has the opportunity to receive a “final contract”, in which everything has already been corrected and adjusted. It is considered that such outcome is more effective since the contract that meets the current legislation and requirements falls into the hands of the customer. As a bonus, the expert leaves recommendations for the parties of the contract.

Verification of a contract for compliance with the law. Negative consequences in case of non-compliance

This is the first answer to the question: “What is the purpose of contract verification?”. By checking and evaluating the document for compliance with requirements of civil legislation of the Russian Federation, the contracting parties can avoid such negative consequences as:

• Legal proceedings; 
• Disputes between the parties;
• Contract’s invalidation.

In other words, one of the main tasks of checking a contract is to detect inconsistencies and violations of civil legislation that can lead to negative consequences.

During the review, contracts are checked whether they meet legal requirements related to specific contract. In addition, the content of the contract is carefully analyzed for legal risks that client may face in future. It is worth saying that legal expertise of contract is able to exclude possibility of negative consequences after its conclusion. 

Features of contract verification.

Before sending the agreed contract, it is necessary to check correctness of its formulation, and if there are any mistakes, the contract will be sent for drafting, and then for approval once again. Failure to check and analyze increases the risk of financial loss due to careless drafting of the contract. 

The next important purpose of contract verification is to detect and eliminate risks that are directly contained in the terms of the contract. They can adversely affect the client’s condition. Such contractual conventions are usually called: burdensome conditions, additional circumstances attached to the contracts. To minimize the risks, it is necessary to carry out a check, which is a guarantee of client’s protection from negative consequences.

In what situations verification of contract is mandatory?

• If the contract is concluded for a significant amount;
• If the contract to be concluded is a mixed or complex one;
• If the agreement is concluded for the transfer of valuable real estate or transport;
• If the agreement is concluded with a new counterparty.

What kind of work is performed by the expert responsible for checking a contract?

• Search for legal mistakes, inaccuracies, and incorrect data;
• Search for ambiguous and suspicious terms;
• Identification of terms and conditions that require adjustment;
• Search for conditions that negatively affect the client;
• Taking actions to prevent the document from being declared invalid;
• Control of the counterparty.

According to the heads of large companies: “Constant verification of contracts is necessary when the contract itself at the drafting stage was overlooked legal risks, which led to the need for constant monitoring.”

What parts and clauses of contracts should be checked?

The first step is to answer the question: “Who is the counterparty in the current transaction?”. Therefore, it is necessary to check the counterparties before entering into a contract. A simple option is to order an extract from the state register of legal entities, then check the company in public databases for the presence of court proceedings. The last step is to check the existence of debts to the state and confirm the legality of management’s authority.

In addition, there is a group of people who have the right to act on behalf of the company, when this particular right is confirmed by a power of attorney. For this reason, it is necessary to read this document. It is recommended to carefully consider the validity period of the power of attorney and confirm the fact that the representative of the company has the right to act on its behalf. After that, it is necessary to examine the power of attorney, find the point where the powers of the representative are listed.

It should be noted that verification of counterparties is not something complicated and does not require special skills. When you have finished checking the representative, you should start familiarizing yourself with the contract and analyzing its terms. The terms of the contract should not be interpreted in two ways. That is, all the terms of the agreement must be written clearly, this is done to avoid problems related to understanding the document. The contract must contain all the necessary conditions, their indispensable presence is stipulated by legislation of the Russian Federation.

Checking the implementation of a contract

In legal terms a well-written contract is an effective way to achieve the desired goals. In addition, the contract can become a mean of protection against unfounded accusations, disputes with the counterparty and save from future problems.

Execution of a contract is performance of actions that are part of the subject matter of the contract.  If one of the parties does not comply with the agreement, it can be held liable (for example, possibility to collect a penalty), based on the clauses of the contract.

The contract is deemed to be performed after the actual end of specified actions or works. Some agreements have a separate clause “Possible changes in the scope or duration of the contract”, in this situation, the contract cannot be considered fulfilled until the additional conditions are met. Another way to complete the execution of the contract is to create a bilateral act of “acceptance-delivery”, which must be signed by the heads and deputies of the participating parties (contractor/customer).The main thing to remember from all of the above material is that verification of contracts or agreements, has been and remains an important part of any deal, which helps to minimize all possible risks. It also protects customers from possible negative consequences associated with execution of the contract.