Preventive measures for legal risks management in commercial transactions
In the market economy environment, the company's external business transactions are mainly to achieve various business expectations and purposes in the form of various business contracts. The conclusion of a contract is a legal act. The commercial environment is as same as the battlefield which is full of the temptation and competition of various interests, and various risks and pitfalls. How to prevent potential business risks from a legal perspective is a key issue concerned by all veteran businessmen. In the views of a professional lawyer, there are “three disadvantages” and “three advantages” related to legal risks in the company's commercial transactions. In the case of a company with “three disadvantages”, the legal risks in operation are large, and the litigation is also in a passive position. On the other hand, a company with “three advantages” will has a lower legal risk, and even if it faces litigation, it can be more easily solved, sometimes can be fixed by peaceful negotiation even without completing the enduring litigation process.
The company's "three disadvantages" are:
1. Not specialized or even invalid or revocable contract leads to block the realization of the transaction purpose.
Some companies have not concluded the contract according to the definition and stipulations of the statue law or regulations and the contract signed without a detailed contract name which specified the legal relationship of the contract parties, the parties to the contract are only be generally referred to as Party A and Party B, and the contract is not categorized into a detailed contract specified by the contract law of the P.R.C. once a dispute arise, it is hard to analysis the nature of the contract and its rights and obligations according to the statue law, even worse, some clauses or main clauses in the contract contradict the mandatory provisions of laws and regulations which cause the legal risks of void or revocable agreement. In this way, the parties have no effective legal protection for the trading interests expected under the terms of the contract.
2. Engulfed into lawsuits, long time pending
Some companies are in a passive position in litigation due to non-specialized contracts and insufficient evidence. The cases are pending for a long time, which consumes a lot of money and time, but the results of the case are still in an uncertain state.
3. unable to fulfill the enforcement of the winning verdict
Some companies, as plaintiffs, won the lawsuit, but because there was no previous credit investigation before the transaction finalized, and there was no property preservation before the complaint being filed to the court or arbitration commission in the lawsuit, the victory judgment could not be fully enforced for the lack of sufficient property or money can be seized or auctioned.
The company’s "three advantages" means:
1. Be Prepared before the lawsuit being filed
Be prepared in advance, take legal risk prevention measures before litigation, from the credit investigation of the transaction object and the counter party, to the conclusion of the contract, and the collection of evidences related to the important transaction
2. Capable to win the case in dispute
On the basis that the company has been prepared before the lawsuit, once the company actually enters into the lawsuit, it shall appioint a professional high-level lawyer to represent the company to respond to the lawsuit, and strives to achieve the purpose of litigation as soon as possible with effective professional legal service resources.
3. The verdict can be fully enforced
If the company has already carried ou the other party's credit investigation, and even apply to the court for made the property preservation of the defendant, once the case is won, the judgment can be fulfilled or fully enforced.
How to avoid or prevent the “three disadvantages” but get the “three advantages”?
The law is a professional field. It is unrealistic for unprofessional ones to master the essence of the law through rough learning and use it appropriately. Therefore, the best and effective way for companies to prevent potential legal risks is to directly hire professional lawyers as legal counsel. At the same time, staffs engaged in business transactions must have basic legal ideas. From the perspective of lawyers, it is crucial to prevent the legal risks in the company's operations and to take the following five preventative measures:
1.Carry out a credit investigation
Doing a good credit investigation is the first issue that should be paid attention to in the company's business transactions. The credit investigation includes the investigation of the transaction counter party, as well as the investigation of the transaction target or object, such as the company's reputation survey, the investigation of the group company and the affiliated company, and the real estate investigating in the real estate transaction, due diligence in mergers and acquisitions, etc., the credit investigation is important because it determines the efficiency of dispute resolution in business transactions and the capability to enforce the verdict after winning the case.
2.determine the specific party of the transaction
In the negotiation of business negotiations, it may be a group company or a subsidiary of a group company, one company may negotiate on behalf of another company, or it may be the general manager of the company who take party in the negotiation, but the actual contract may be affixed by a relevant company. The seal may also be signed by the company manager. Who is the party of the contract in legal sense, whether is it a group company or a subsidiary or a branch company or an affiliate company, is it the company's behavior or the company's legal representative's personal behavior, all these are crucial related to the legal question: who is responsible for the contract once a dispute arise? These seemingly simple problems, in actual litigation are often entangled and not clear.
The party of the contract refers to the party who signs or seals the contract and assumes the rights and obligations in the contract. According the basic principal of contract law, those who have not signed or sealed the contract usually do not have the rights and obligations in the contract. Therefore, when signing a contract, it is necessary to distinguish between the party of negotiation and the party of the transaction contract. The parties who sign and seal the contract are more important. In a transaction that does not conclude a written contract, such as a verbal contract, or a contract concluded in the form of an offer and an acceptance, it is particularly important to clarify the entity of the transaction, and only the party to the contract being clarified, the responsible party to a contract dispute can be identified.
3.Identify and clarify the legal relations and stipulate the rights and obligations of the parties accordingly.
China is a statute law country, and the laws and regulations concerning contracts are clearly stipulated in the form of statutory laws. The statute law is characterized by legislation that stipulates the rights and obligations of the parties according to the legal characteristics of different contracts (such as sales contracts, lease contracts, agent contracts, etc.). The fundamental principles of statute law are: First, the content of agreement cannot be contrary to the mandatory provisions of laws and regulations, otherwise it is invalid; second, the agreement clauses prevail in a dispute if there is a agreement available, once there is no agreed clause exist, then the statue clause will be applied. That is to say, even if the parties did not explicitly write the statutory clauses into the contract between the parties by consensus, the relevant provisions in the contract law and related laws are binding on the parties. How to rationalize the legal relationship, clearly define the transaction contract as a specific contract or clearly define the rights and obligations of the parties in the compound contract according to the rights and obligations of the named contract, which should be solved before the company finalize the contract. Otherwise, only the general contract such as "cooperation contract" with the "party A, Party B", etc. once a dispute arises, it is difficult to determine the type and nature of the applicable law to the contract and increase the difficulty to solve the dispute in court or arbitration tribunal.
4.Collect sufficient effective evidences
The lawsuit is to fight by evidence, the status and role of evidence in a lawsuit is crucial, and directly determine the success or failure of the case. Therefore, the company must improve the management system of correspondence, email, contract and other documents related to commercial transactions, and ensure that there is a contract for important transaction in the form of written correspondence. In this way, once a dispute arises, it will fulfill its obligation of proof of evidence, and it will be reasonable to obtain a successful lawsuit without losing a case by unfounded story without sufficient evidence support.
5. Resort to the professional lawyer timely.
Whether the company law, contract law or procedural law, many timeliness or periods are stipulated, and the consequences of ignoring these limitations or periods are to lose the right to win or giving up the relative rights directly. Therefore, the company's business managers or staff in charge must carry out their duty of care and resort to professional lawyer or legal counsel in a timely manner in case of disputes, to avoid losing their rights for delay or procrastination.
Written by Lawyer Enfu Zang of Liaoning Sincerus Law Firm
For the details profile of Lawyer Enfu Zang, please refer to the
Official website: http://www.cglawyer.cn/en/pd.jsp?id=3#_jcp=3_23