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Contents matter
11/12/2007 The Star By BHAG
SINGH
In a transaction, the contents of the document establishes the rights and
obligations of both parties.
A CAPTION entitled “Be careful when signing agreement” caught a reader’s
attention. The article goes on to say that a person intending to buy or rent
a house must make sure that a lawyer is present when signing the agreement.
This has led to a question as to how important it is to have a lawyer
present when signing an agreement? Does this ensure the rights of the
parties are adequately protected and everything will proceed smoothly
thereafter?
Of course, the involvement of and the presence of a lawyer is likely to give
added confidence to the parties involved.
However, it is no guarantee that mere presence always ensures a completely
satisfactory outcome.
This is because what is crucially important is the contents of the document
that is being signed and which therefore becomes the contractual document
from which each party derives its rights and on which its obligation is
based. It is the interpretation of this document that would be the deciding
factor.
However, what is even more important than the lawyer being present at the
signing of the agreement is that the parties concerned have paid enough
attention to carefully record all the terms that are desired to be included
and which will thereafter govern them in their dealings.
Parties should also contemplate all possible difficulties and problems that
are likely to surface when the contract goes into effect, and to give
thought as to how they can be addressed and resolved when the differences
result in the parties being antagonistic to each other.
Once all the conditions and terms have been finalised, signing of the
agreement is merely the process of executing the document and the lawyer’s
presence will make little difference.
Of course, it would be a different matter if there are matters to be
finalised at the point of time and on the day of signing the agreement. In
such a situation the presence of the lawyer would no doubt be helpful and
could make a difference on the eventual outcome in the days ahead.
What is important in terms of a lawyer’s involvement is not his mere
presence as a formality but for his services to be used to guide the party
that seeks his advice so as to be advised of the possible pitfalls, and
where the pitfalls are obvious, on how to deal or provide for such
situations.
As an example it is common for a housebuyer to sign a sale and purchase
agreement and pay a 10% deposit. A time frame will then be provided for the
buyer to apply for and obtain a loan to pay the balance.
Invariably applying for and obtaining the loan is the buyer’s
responsibility.
What happens if the buyer fails to secure the loan? The common or prevalent
practice is to regard the buyer as having failed to complete the transaction
and therefore being in breach. The consequence of this is that in many, if
not most, cases the deposit that he has paid will be forfeited. When this
happens, the buyer will definitely feel aggrieved. However, this is a
contingency which can be foreseen and could be provided for. When
negotiating the purchase the buyer could ask for the agreement to be drafted
in such a way that if the loan is not secured then the 10% deposit will not
be forfeited, but refunded.
Alternatively, the parties could negotiate and be more compromising and
accommodating so that if the buyer does not succeed in his loan application
and for that reason is not able to complete the purchase then the entire
deposit is not forfeited but only a part of it. This could be 10% or 15%, or
even 25%.
A yet different compromise could be to allow the house buyer a further
extended period which is more than the usual one month to look for the
balance purchase price elsewhere. Of course, in suggesting such a provision
the buyer should have realistic expectations as to the other sources he can
resort to, from which he can obtain the required finance.
Of course the seller may not agree to any or all these alternatives, but
this will certainly depend on the market conditions prevailing – whether in
respect of the particular property, the seller is more keen to sell or the
buyer more keen to buy.
Depending on this, one party may stand its ground and the other be more
willing to compromise and make concessions depending on their personal
circumstances.
The mere presence or involvement of the lawyer at the signing of an
agreement is not the end of the matter. A relevant question is who the
lawyer is representing in a particular situation?
If he is representing the buyer, his duty is to protect the buyer in every
way and not the seller. The interest of the seller and the buyer may not
necessarily be the same. In fact in certain cases their interests may clash.
When it comes to purchase of landed properties, a solicitor should only act
for one party and not both. But there is no such restraint in a broad range
of commercial transactions.
That is the reason why parties entering a contractual relationship should
ideally have their own lawyers to advise them, unless any party involved is
or feels that he is capable of ensuring the protection of his own interest
without the presence of an outside lawyer.
Of course, there are situations where parties opt for a common lawyer to
draw up the contract documents and therefore save on the overall costs of
preparing the contract documents. This may be possible where the parties
involved are extremely familiar with the subject and capable of protecting
their own interest.
It has been said axiomatically that conflict cannot be excluded from social
life, nor can it be excluded from the substratum of commercial life. It has
already been asserted that an underlying assumption of the market economy is
that people act out of self-interest. There must therefore be incessant
conflict between competing individuals in the market place and disputes both
actual and potential are virtually assured in these conditions.
Agreements formulated and entered into should be designed and formulated
such that both parties avoid getting into difficult situations, or, failing
which, they should be able to extricate themselves on reasonable terms. |
