Feb 07,2020 | 18 min read

Drafting of Contracts or Agreements

Author - Associate Sonal Dubey

An agreement is framed when a party with adequate legal capacity makes an offer to another party of adequate legitimate capacity who acknowledges the idea with a lawful thought. The contract must incorporate legitimate thinking to be an agreement. That is, the two parties must contribute a Quid pro quo to the understanding, for example, cash, work, an arrival guarantee, and so forth. 

In the Indian Contract Act, 1872 each individual is competent to contract who has attained the age of majority and is of sound mind and is not precluded from contracting by any law.

Essential aspects of contracts/agreements

Essential aspects of contracts/agreements are (a) Parties (b) Obligations of the parties (c) Payment Terms (d) Integration Clause (e) Termination. They may be defined as:

(a) Defining the parties

The contract might be useless if the other party is exploitative, unethical, reluctant to keep its responsibilities, and is in poor financial health. What is more, the contract may contain a task statement permitting the other party to substitute another to play out the agreement commitments. It requires the task to be effective just with other parties endorsement and guaranteeing accessibility of proper plan of action against one or the other party for the inability to complete.

(b) Obligations of the parties

Disputes regularly happen because the agreement doesn't sufficiently determine the commitment of one of the parties. Thorough consideration is needed to define what needs to be conveyed as an item and how progress will be estimated.

(c) Payment Terms

At the point when products or services are being verified, the necessity of prepayment, if any, is to be unmistakably brought out. When does the agreement require the gathering to pay? Pay ahead of time completely or substantially or anticipate execution?

(d) Integration clauses

Written agreements frequently have an incorporation condition that indicates that the agreement speaks to the entire understanding of the parties and that no charges are restricted except if executed in writing. Such provisions are adequate as long as the agreement is managed to guarantee adherence to the necessity for writing the amendments.

(e) Termination

Termination before the finish of the term might be for Breach of agreement (disappointment of the other party to meet its responsibility), Effect of refusal of party to perform guarantee completely, for the occurrence of any event, (for example, loss of access to key workforce or items) or for comfort of a party (a party never again wishes to proceed with the relationship). The end provisions should be unmistakably expressed.

Drafting

A contract is drafted with the following basic sections:

A. Preamble

This segment distinguishes the parties to the contract, the date of the contract, the place of arrangement and the addresses of the place of business of the contracting parties. If numerous subsidiary parties are included, the preamble distinguishes certain parties by their relationship to other parties, for example, corporate guardians, auxiliaries, trustees and underwriter. The preamble will list all parties expected to be bound, their lawful status, place of business, the planned level of risk, change in party proprietorship and outsider recipient.

B. Recitals

These set out the stage of the contract, providing the basic text, structure and context. Recitals are typically declarative statements of facts and intentions but not generally binding provisions of the contract. In case of a purchase agreement of a product, it will give a generic description with more specific information in the body of the contract.

These set out the phase of the agreement, giving the essential content, structure and setting of the transaction. Recitals are commonly explanatory statements of facts and goals, however not by and large restricting provisions of the agreement. 

C. Definitions

It defines terms that appear in different parts of the contract.

Example:

"GC" means the General Conditions (of Contract).

"SC" means the Special Conditions (of Contract).

"Technical Specifications" mean the technical details, schedules, designs and all other particulars of the contract.

D. Subject Matter of Contract

This segment accommodates structure of the transaction comprehensively characterizing the method and scope of payment, completion time and the fundamental matter of the agreement.

E. Consideration & Terms of Payment

This segment accommodates amount to be paid, payment terms and money related equations for post-closing alterations. It additionally accommodates the break-up of the price. These allocations of agreement cost have tax implications which might be distinctive for the purchaser than the dealer. What benefits one party might be impeding to the next and may affect the net amount.

F. Scope of Supply & Services

A fundamental piece of any agreement is a description of the transferred products or services. Because of this, a schedule is to be made.

G. Indemnity and Risk Allocations

The most significant part is to give the party indemnification right if the party finds that the other party has breached at least one of its portrayals. This way, it serves as an instrument for dispensing monetary risks between the parties.

H. Confidentiality

The parties to the contract may demand to keep all data that would be accessible to the next party during the execution of the agreement.

J. Effective Date, Time of Completion & Validity

The agreement or contract ought to have a date expressed as the agreement date or effective date. This date isn't the date when the agreement was signed, rather the date from which all the legally binding rights and commitments start and from which point any term of time, usually indicates. 

The time taken into the completion of all work required by the contract will be expressed and will be called the Contract Time. The validity time of an agreement decides the time interval over which the particulars of an agreement apply. Each agreement has a basic validity period by mentioning the beginning and the end date.

K. Termination

It is consistently preferred to have a termination clause in the agreement to decrease ambiguity. Common end arrangements incorporate provisions requiring the parties mutual agreements before allowing the termination.

L. Assignment

Agreement rights are openly assignable when an express arrangement is missing. This arrangement portrays what comprises an assignment.

M. Miscellaneous Provisions

These are normally kept at the end of the contract and are very useful in case of disputes.

Conclusion

In this way, drafting of the agreement must be finished with the aptitude to prevent disputes. The terms ought not to be uncertain so that if there should be an occurrence of any dispute, the issue can be settled easily.

 

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