Contract Law Enforcement (CLE) Program

Articles

PUT IT ON PAPER

I bet you are trying to recall your bitter experiences you had with agreements?

Supposedly you had such an experience whereby you made a commercial agreement and the other party was not fair with respect to their obligations.

All of this because of the trust placed on the gentelmen’s agreement and avoiding the formal path.

In order to avoid such experiences “Put it on paper,” the relevant institutions are there to offer solutions.

In fact, there is an ongoing debate regarding the oral vs. written agreements. There are many reasons why people choose one agreement over the other, however, usually the choice is based on the TRUST and the way of doing business.

Traditionally, commercial agreements in Kosovo have been based on the so called “institution of besa” whereby business is conducted based on the given word/promise.

The argument, let’s call it conditionally “traditional” that is often used in favor of doing business, through the given word/promise, relies on the fact that the other party is a friend, a trustful person or simply “ a good person.”

In addition, we often encounter the attitude that “the party does not trust the judicial system in Kosovo” and the formality of the issue (in this case of the agreement) seems like a waste of time and effort. However, being part of the global era where businesses are overloaded by transactions, oral agreements are proven to be inefficient and at the same time problematic.

It only takes a misunderstanding or unfairness (with oral agreements) to cause a chain of financial problems, therefore written contracts in practical and functional aspect remain necessary.

Contrary to oral agreements, the written ones remind the parties their obligations and the deadlines and in case of any dispute, they serve as legal evidence.

Based on the often encountered problems from the everyday practice, drafting and signing a contract shall never be considered as a waste of time; and in case the parties do not want to go through judicial procedures, they can solve their disputes without having to go to the court, simply, by using the mechanisms of arbitration and mediation. However, in order to use those mechanisms, on the written contract there has to be a clause which states that '[...alternative dispute resolution mechanisms, such as arbitration and mediation, can be used.]'

Only those contracts that are drafted clearly as a result of a good negotiation are considered complete and offer adequate protection for businesses.

Businesses use, respectably should use, written contracts in order to distribute the risk, clarify expectations, remind the obligations to each party and determine relevant institutions in case of an eventual dispute.

Another interesting fact is that written contracts have an immediate psychological effect: written agreements commit the parties to take their obligations more seriously. There are cases when one of the parties hesitates to sign a contract, nonetheless, this hesitation can serve as a tool to measure their seriousness and will help you decide if you really want to collaborate with such a partner, not excluding even the cases when he/she is a friend of yours.

Written agreements or contracts include terms upon which the parties agree and they serve as means to prevent any potential commercial conflict. Let’s take as example the following case: Agreeing to deliver a ton of “big apples “or “high quality apples”. How big should the apples be? What is meant by the word quality; does it refer to the taste, color or what?

Let’s take another example where two parties to an agreement through the given word/promise agree to deliver the goods within a week, whereby one of the parties has understood the term “ one week” as seven (7) days (including the weekend) and the other party has understood the same term as five (5) working days (Monday-Friday). Who is right on this case? Who should be held responsible for the damages caused?

As you may realize, when parties fail to memorialize the terms of a transaction and understand their obligations differently from one another, disputes are more likely to occur.

Written agreements or contracts set the parties' obligations, and in case of failure to fulfill these obligations, they offer legal evidence. Agreeing and formalizing an agreement is extremely helpful and at the same time necessary and serves as argumentative evidence and protection in case of a dispute. It is important to remember that judges are law experts and competent to undertake/solve those kind of problems, and not other issues. For this reason, judges must be provided with the necessary legal evidence to rule on a dispute, in order for them to understand more easily the conflict and decide fairly and efficiently.

As it is pointed out above, parties that don’t want to depend on judicial procedures can choose alternative mechanisms. Alternative Dispute Resolution (ADR) mechanisms, which include mediation and arbitration, are faster and more effective ways for resolving disputes compared to judicial proceedings.

Mediation and arbitration enable conflict resolution without going to court. ADR is a complement to, not a replacement for, an over-burdened court system. Arbitration is similar to court adjudication; arbitrators, like judges, issue binding decisions, except, it is far quicker and cheaper than court processes.

Mediation, on the other hand, is a less formal process in which the disputants select one or more neutral persons (“mediators”) to assist them in reaching a mutually satisfactory settlement. Mediation is interest base - Arbitration is rights based. Mediation includes the third party to find a common solution in order to continue with the agreement and not for identifying the violations. In contrast to court litigation and arbitration, through mediation the parties retain control over the process, and the mediator does not issue a judgment. When disputes arise, parties often find it hard to agree to use such alternatives; in these cases one party cannot oblige the other to use alternatives if it is not stated so in the contract. Therefore, using written contracts containing clauses on mediation and/or arbitration is necessary for making use of these alternatives.

In Kosovo, contractual relations are regulated by Law No. 04/L-077 on Obligational Relationships, which entered into force in December 2012. The Law is quite modern and adjusted to Kosovo and international regulations for contractual relations.

Given the existence of the relevant law, the judicial system and the alternative dispute resolution mechanisms there is no reason for you to become subject to any dispute that may arise from verbal agreements, which can be easily forgotten or changed due to personal interests.

Besides, there are standard form contracts which are drafted professionally and can be used as templates for commercial agreements, thus, don’t lose, Put it on Paper!

DISCLAIMER:

This article was prepared by the USAID Contract Law Enforcement (CLE) Program. The content of this article is the responsibility of the USAID Contract Enforcement (CLE) Program, and the views of the author do not necessarily reflect the views of the United States Agency for International Development (USAID) or the United States Government.

<< Back