ESSENTIALS OF DRAFTING

ESSENTIALS OF DRAFTING

 

Why to Draft?

A draft serves as a checklist to evaluate all the basic requirements of your-to-do-list.  When you draft an agreement to be legally enforceable it becomes a contract.

Benefits of Drafting a Contract:

Prevents Misunderstandings and Disputes,

Reduces risk of dispute relating to payment and work performed under the Contract

Security of: work done, to be done, other considerations

Protects Rights and Contractual Relations of the parties, etc

What is a contract?

A contract is formed when a legally capable person makes an offer and the other legally capable person accepts the offer, with a legal consideration monetary or non-monetary involved.

In order to make a contract, there should be an agreement which must include valid consideration. That is at least two parties having the legal capacity to contract must contribute a to the agreement such as money, labor, a return promise, etc. to each other with their free consent for a legal objective (i.e. the object which is not forbidden by law or fraudulent or leads to injury to a person or property or is immoral or against the public policy).

That is to say a contract is an agreement which describes rights, obligations, liabilities etc of the parties, between the parties to perform a lawful object and is enforceable by law.

What is legal capacity of a person to contract?

As per Section 11 of the Indian Contract Act, 1872 Who are competent to contract?

Every person is competent to contract who is-

1.      Of the age of majority according to the law to which he is subject,

2.      Who is of sound mind,

3.      who is not disqualified from contracting by any law

What is Free Consent, in a Contract?

As per Section 14 of the Indian Contract Act, Free Consent means when the parties to the contract voluntarily agree on similar things in the similar sense. Consent is considered to be free when it is not caused by:

Coercion

Undue Influence

Fraud

Mis- representation

Mistake

SOME INPORTANT POINTS IN A CONTRACT

a)     DefiningParties

The parties to the agreement should be properly defined that is the name, age, father’s name, address. In case a company is an artificial legal person i.e. a company, partnership, body corporate etc. in that case the name, year of incorporation, registered office address and authorized representative of such artificial legal person should be properly described

b)     Assignment Clause

The agreement may contain an assignment clause allowing the other party to substitute another party to perform the contractual obligations. It requires the assignment to be effective only with other party’s approval, and assuring availability of appropriate recourse against one or both parties for failure to deliver

c)     Obligations of the parties

The contract must adequately specify the obligation of both of the parties. Think through what one wants to be delivered as a product/service, and how progress will be measured how the consideration be paid, the pre requisites to the contract and tied to the obligation, so that interest of none of the party is affected.

d)     PaymentTerms

Requirement of prepayment, if any, is to be clearly brought out. When does the contract require the party to pay? Pay in advance fully or partly or await performance? or to make payments matching progress of deliveries if the contract calls for performance over a period of time.

e)     Force Majeure Clause

This clause is very important in forming a contract, this clause includes the reasons which are beyond the control of parties if happens, then none of the parties will be liable for the losses of each other, or to what work completion stage the parties will be liable to each other is described in this clause.

f)      Dispute Redressal Clause

It is surprising how many times such contracts get disputed. It is advisable to include a clause which defines how the disputes will be solved, do the parties agree for out of court settlement i.e arbitration, which court will be referred, what will be the jurisdiction to file suit, if any, etc

g)     IntegrationClause

Written contracts often have an integration clause that specifies that the contract represents the whole understanding of the parties, and that no changes are binding unless executed in writing. Such clauses are acceptable as long as the contract is managed in that manner ensuring adherence to the requirement for documenting by amendment any changes

h)     Termination

How a contract can be terminated or termination prior to the end of the term may be for Breach of contract (failure of the other party to meet its commitment), Effect of refusal of party to perform promise wholly, for occurrence of an event (such as loss of access to key personnel or products) or for convenience of a party (a party no longer wishes to continue the relationship)

CONCLUSION:

Usually there are many more clauses in a formal contract and therefore such clauses can be added as per the needs, requirements, nature, purpose, time and other essentials of the contract and at will of the parties. There is no prescribed set format provided for formation of the contract. It is upon the understanding of the parties to the contract and is desired at their end.

Although a contract can be prepared by any person/individual. Although for a more secure and reliable contract it should be drafted by a lawyer.

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