What Is a Commercial Agreement?

Terry Masters

A commercial agreement is a contract typically between two business entities. It states its terms in plain language but includes warranties and boilerplate that have usually been reviewed by a business attorney in advance. This type of agreement can ordinarily be one of the standardized forms that are used over and over again with suppliers and business customers in the ordinary course of operations.

A commercial agreement must be signed by an authorized representative from each business.
A commercial agreement must be signed by an authorized representative from each business.

Business-to-business transactions have a different legal character than business-to-consumer sales. There are fewer default legal protections built into business-to-business transactions that are designed to protect uninformed or uneducated parties, or will allow such parties to escape from a properly executed deal. The law assumes that the average business is aware of its legal obligations and will rely on the specific terms of a contract to resolve disputes.

Commercial agreements are formed between business entities.
Commercial agreements are formed between business entities.

The negotiated terms of a commercial agreement are particularly important. Basic contract law will look to the written terms of the agreement to identify the intentions of the parties, and will not consider outside circumstances unless there is a claim of fraud. Businesses are expected to know how to protect their interests, and part of that responsibility is to understand what constitutes a valid and enforceable commercial agreement.

Since commercial agreements are used between business parties, plain language instead of legal jargon should be used when preparing the contract. The first part of an agreement usually requires the most work. It should identify the parties, define any unusual terms, and detail the substance of the transaction with specificity, such as the product or service being sold, dates, times, delivery, and price. Contract law requires all parties to clearly understand the basis of the bargain, and using clear language in a contract that is used for ordinary business purposes will help meet this requirement.

The second part of the contract should include terms that address nonperformance. This section might contain some boilerplate from an attorney and would be standard from contract to contract. Warranties, indemnification, termination, and liquidated damages clauses would typically be included here. This boilerplate is sometimes provided on the back of the contract form for convenience.

A place for signatures should be included on the bottom of the form. An authorized representative from each business should sign the contract. It is important to verify that the person signing the commercial agreement is authorized to do so by the contracting company. An unauthorized signer will invalidate the transaction and may precipitate an unrecoverable loss.

It's important for commercial agreements to be clearly spelled out and written down.
It's important for commercial agreements to be clearly spelled out and written down.

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Discussion Comments


What's the difference between an MSA and commercial agreement?


Legal jargon should always be avoided, but that is particularly true when it comes to contracts. It is in no party's interest to get into an agreement which is not fully understood by all parties to the contract. When contracts are not clear and a bit confusing, that simply invites a breech at some point.

There is absolutely no reason why the rights, obligations and everything else in a contract can't be explained in terms that most people will understand.

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