Wrong form, void contract: what to check first
Reviewing a contract before signature usually starts with who gets what. The question to ask first is whether the law prescribes a form for this kind of contract, because if it does and the form is not met, everything negotiated in the substance carries no effect.
Required form, and what follows from missing it
Section 152 of the Civil and Commercial Code is short and absolute: an act not done in the form required by law is void. The wording leaves no room for later cure, nor for treating the act as good because both sides understood each other. The first question in reviewing a contract is therefore a question of form, not of substance.
Not every contract has one, so it is checked case by case
Section 152 does not say which contracts have a required form; it states the consequence where one exists and is not met. The form lives in the provisions governing each type of contract, and a great many business contracts have none at all. Reviewing therefore begins by identifying what type of contract, in law, is about to be signed, because the type is what points to the provisions to check.
Interpretation according to good faith
Once form is settled, section 368 supplies the rule of construction: a contract is to be interpreted according to the intention in good faith, having regard also to ordinary usage. That bears directly on drafting, because ambiguous wording will not be read on its letter alone but alongside what the parties intended and what is usual in the field.
Ordinary usage cuts both ways in drafting
Because section 368 directs regard to ordinary usage, what was left unwritten may be supplied later. That helps where a contract is silent on something the trade does as a matter of course, and it is a risk where the parties meant to depart from the usual. In the second case, saying expressly that something different was agreed is worth more than leaving it unsaid.
A working order of review
Setting the two provisions in sequence gives a workable order: identify the type of contract; check under section 152 whether the law prescribes a form for it; then read the substance asking how the words will be construed under section 368; and finally state expressly wherever the intention is to depart from ordinary usage. That order surfaces the problems that cannot be cured before time is spent on the ones that can.
PREPARE
What to bring
- The current draft and every annex to it
- Any earlier understanding or memorandum
- Anything intended to differ from what the trade usually does
- Who may sign for each side, and the evidence of authority
- The negotiation timeline and what changed in each version
QUESTIONS
Questions this raises
We signed and only then found the form was incomplete.
Section 152 uses the word void, which is not the same as a contract that stands but is flawed. What to do is therefore not to make the existing document look complete, but first to establish whether that type of contract really has a prescribed form — many business contracts have none. If it does, the question becomes executing afresh in the correct form rather than repairing the old paper.
Is it better to keep the contract short?
Section 368 interprets according to intention in good faith, having regard to ordinary usage. A short contract therefore does not mean fewer obligations, because the gaps may be filled by what is usual in the field. Length is not the issue: what matters is that wherever the intention is to differ from ordinary usage, that has to be written down, while what simply follows the usual practice may be left unsaid.
LAW
The legislation
- Civil and Commercial Code, section 152
- Civil and Commercial Code, section 368
ENQUIRIES
