Do you need a good contract? - please read and think about.

🕕Time to read the following text is about 8 minutes.

Many myths have grown up around contracts. Unfortunately, very often, instead of a good, secure, written contract, we prefer to fall back on the arrangements, and in fact, even more on our (one-sided) ideas about these arrangements. Needless to say, just as often, the other party to the contract has already a completely different idea of what has been "agreed on”. 

Myth No. 1.

Why do I need a contract? You can always come to an agreement.

Ostensibly, yes. On the other hand, such good "getting along" is also a contract - a verbal agreement. And in principle, with the implementation of such a contract there are usually no problems as long as they do not appear. And they usually appear as quickly as the agreement (getting along) was made, and once they appear they begin to multiply. And then we begin to understand written (or at least documentary) form is much better.

Myth No. 2.

We don't make any contracts, we only (sell and) invoice.

It may sound unbelievable, but many "salesmen" do not know that transferring goods to someone in exchange for a certain compensation is in fact a contract - a sales contract. Of course, there is nothing wrong with the fact that many such contracts are concluded orally (and sometimes per facta concludentia), this is perfectly legal. What is problematic is the lack of awareness that contracts of sale are being made. In a tax case file, I saw testimony from an employee of a large trading company who, when asked by an official - "did the company enter into any agreements with contractors?", rather unreflectively testified that "the company did not enter into any agreements," while all along he "only issued invoices." It's easy to imagine how this was interpreted.

Myth No. 3.

A good contract must be simple and short.

Sometimes this is possible. There are times when the matter of the contract is not that complicated, and indeed one can limit oneself to a few drafting units of text. Often, however, you end up with the fact that each party expected something different, and something different was written (or rather, precisely, not written) in the body of the contract. Is this a problem? Often times yes, because not much is clear from the text of the contract, and when we do have a dispute in the attempt to assess what was the consensual will of the parties at the time of the contract - usually ends up in Court. 

Myth No. 4.

Only complicated, preferably "Anglo-Saxon" contracts are good.

Sometimes this will be the case, but rather extremely rarely. Why? First of all, because (usually) living in Poland and "doing business" in Poland, we use the Polish language, we apply (even not entirely consciously) Polish law, while we seek resolution of disputes (including those concerning interpretation or implementation of contracts) in Polish (and not "Anglo-Saxon") Courts. So-called "Anglo-Saxon" contracts, suitable for a different legal system, may not only fail to protect our interests, but directly harm them.

Myth No. 5.

It is a waste of time to "discover America" (consult the content of the agreement with a lawyer), a template from the Internet will suffice.

In fact, sometimes it will be completely sufficient. It is also prudent to see how others do (write) it. However, this should not be done completely unreflectively. Importantly, solutions presented on the Internet, are sometimes wrong, for example, due to the passage of time and changes in regulations. However, if such a model is presented by a serious and reliable institution, company or legal professional (legal counsel, attorney), it seems safe to use it - only will it be adequate to our needs?

Myth No. 6.

I just have to sign it. Everything else will be worked out later.

Such a pattern of contracting often occurs in public procurement. And while it is usually difficult to argue that such contracts or their specific provisions are illegal, unilaterally imposed conditions can be extremely strict and unfavorable to the contractor. Of course, usually "later" (after the conclusion of the contract) there is little that can be done - vide Article 455 of the Public Procurement Law (i.e., dated May 18, 2021, Journal of Laws of 2021, item 1129). Therefore, in public procurement (and not only), however, consultations with a lawyer regarding the content of the contract (and therefore future rights and obligations) should take place before the contract is concluded. You can, for example, take advantage of the possibilities referred to in the provision of Article 135 of the Public Procurement Law (i.e., as of May 18, 2021, Journal of Laws of 2021, item 1129) and, above all, you can prepare well for the execution of the contract not only in terms of performance but also in terms of the formal requirements of the contracting authority. A separate but very important problem is fixed-term contracts. When entering into such a contract, you should be aware that, although its termination before the expiration of the time for which it was concluded is always possible (hypothetically, you can actually stop its execution), nevertheless it can be a very costly solution, as the other party may demand contractual (or other) penalties or compensation.

What kind of contract is a good one?

A good contract will be one whose content is adequate to the expectations of the parties, while the expectations themselves are confronted with the content of the relevant legislation. Why is this so important and how to "find yourself" in it? First - the typology of contracts. Named and unnamed contracts, and it is not entirely a question of whether or not we name our contract somehow (give it a title). The issue is whether our contract will be a contract that is regulated by some legal act (named contract, normative type) or whether it will be a contract, although not regulated by any law, but known in practice (named contract, empirical type, once a lease). And what practical significance does this have? It may be of fundamental importance. Let me give a simple example. Not everyone is familiar with the content of the provision of Article 4499 of the Civil Code Act (i.e., dated September 16, 2020, Journal of Laws of 2020, item 1740), and since someone is not familiar with it, they may want to regulate this issue differently in the contract. Unfortunately, in practice, such expectations (and the corresponding provisions of the contract) will be completely ineffective, which will probably cause specific problems for the party intending to benefit from such a provision. Why will this be so? Because the aforementioned provision is a so-called mandatory provision (ius cogens). Norms of ius cogens are such norms, the application of which cannot be excluded or limited by the will of the parties or by contrary custom. This is, of course, only completely basic information and principles of contract drafting methodology. 

So how to write a good contract?

First of all, it is necessary to know what you expect from the counterparty, what he can expect from us, what benefits we want to achieve and what risks to mitigate. It is best to present such knowledge to a legal professional (legal counsel, attorney) with relevant experience in contract law, and he will draft a proper contract for us.

On top of that:

"According to the National Debt Register (data from September 2021), construction, right after trade, is one of the most debt-laden industries in the Polish economy. The total debt of companies in the construction sector already amounts to nearly PLN 1.8 billion, half of which is owed by sole proprietorships."

https://www.muratorplus.pl/biznes/raporty-i-prognozy/przybywa-bankructw-firm-budowlanych-aa-rTPY-9Zct-K2qb.html (26.11.2021)

The problem is not exclusive to the construction industry.

"In 2020, 587 company bankruptcies were published in the Court and Economic Monitor, according to analysis by the Central Economic Information Center .... Construction with the number of 77 companies ranked third."

https://www.muratorplus.pl/biznes/raporty-i-prognozy/przybywa-bankructw-firm-budowlanych-aa-rTPY-9Zct-K2qb.html (26.11.2021)

The above publication points to various reasons for this - such as financial congestion, price increases, etc. The author of the publication mentions the institution of salary indexation and cites the Directorate of National Roads and Motorways as an example.

However, the further conclusion is interesting -

"This [valorization] certainly favors construction companies involved in infrastructure with public money. Other segments of the construction industry have to fend for themselves, relying on investment growth and good contracts to secure their interests and safety."

https://www.muratorplus.pl/biznes/raporty-i-prognozy/przybywa-bankructw-firm-budowlanych-aa-rTPY-9Zct-K2qb.html (26.11.2021)

Should a lawyer be involved at every stage of contract drafting?

Most often yes. If only because of mandatory regulations. However, what if you don't want to involve a lawyer at the initial stage of working on the contract, but at the stage of drafting the assumptions for the contract? In that case, you can try to evaluate the project by answering a few simple questions for yourself:

Who? That is - the parties to the contract, but also other persons or entities that will (or can) perform some activities.

What? Here - first of all - the subject of the contract. Then the other rights and obligations of the parties. The benefits and, last but not least, the risks.

Where? And what I mean by that are all of the places of importance in the process of contract performance. The place of fulfillment of benefits. The places of performance of other obligations. But also, for example, the place that determines the jurisdiction of the Court in case of a dispute that cannot be resolved amicably.

When? How long? This is, of course, all dates, periods, etc. So, the date of the contract, the duration of the contract, the dates of expected performance of various obligations, etc.

How much? This is, for example, all financial issues - salary, compensation, penalties.

How? In what way? This question can be answered by drafting units (paragraphs, points, etc.) on various issues. These will include, for example, issues relating to the legal form of specific actions (in documentary or written form), but also the period of time for the performance of specific duties (e.g., immediately), and, of course, the expected ways of performing contractual obligations.

Why? Here there should be provisions explaining, for example, why the parties will be entitled to terminate the contract, or why one of the parties will be entitled to charge and enforce penalties.

As you can easily see, practically most of the provisions of such a draft agreement will answer more than one question. Could such a draft be already considered good enough? Certainly not, if only because such a draft will not address many legal issues, but it will certainly be good material for further work (with the involvement of a lawyer).

Do you need a good contract that protects your interests? Does your counterparty insist on signing a "typical" contract? Or have you already signed a contract that is not very favorable to you? Write to me or call me, together we will find a solution to the problem.