When Business Moves Faster Than Contracts

Andres Marroquin, Senior Associate at ARIAS Guatemala and an expert in Commercial Law, presents this article on the importance of properly documenting commercial relationships, highlighting how formalizing agreements allows companies to ensure legal certainty, mitigate risks, and tailor their operations to the specific needs of each business relationship.  

Without a doubt, business moves forward and, at times, it does not wait for supporting contracts to be drafted or formalized. While agility in business is important, legal certainty is equally essential to ensure that merchants have clarity regarding their rights and obligations. 

This does not mean that commercial relationships that are not documented (or recorded in written communications) are invalid; however, they may give rise to practical issues. For example: (a)  uncertainty as to when rights and obligations became effective; (b) lack of clarity regarding  termination events and liabilities; (c) absence of agreements on the confidentiality of communications and documents exchanged between merchants; (d) lack of regulation regarding force majeure or unforeseen events and how the parties should proceed if such events occur; and, most importantly, (e) the absence of self-regulation by the merchants in their business relationship, in which case the law would fill in the gaps, something that may not necessarily align with the needs of the specific relationship (particularly considering that Guatemalan commercial legislation is outdated). 

Therefore, documenting commercial relationships is important, whether through purchase orders, quotations, and/or contracts, depending on the type of business and its complexity. This determination will depend on factors such as the frequency of transactions between parties, whether commercial credit arrangements are involved, and whether the industry is regulated, among others. Accordingly, the analysis should be conducted on a case-by-case basis. 

At Arias, we have experienced attorneys in advising business contracting, both international and domestic. Should you have any comments or questions regarding the above, please feel free to contact us. 

The information provided by ARIAS® is presented for informational purposes only. This information is not legal advice and is not intended to create, and does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking advice from professional advisers.