All About Drafting A Contract

INTRODUCTION

The law of contract is the most significant sub-category of Mercantile Law. Thus, without such a law it would be very challenging if not impossible to run any form of trade or business in a loses riff. The law of contract has relevance in all business and personal interactions that may take place in the society every day. In fact, each one of us conducts several contracts from the break of dawn until sunset. Whenever a person purchases a newspaper, rides a bus, buys goods, takes his radio for repairs, or borrows a book. Instead, in joining what is in essence a contract with the university through the library, he is indeed given the opportunity to participate in the contract. All these transactions are governed by the provisions of the law of contract. As the name suggests, business law entails the rules that apply and control business undertaking. Such rules regulations etc give a business transactions a serious and definitive outlook. They give provisions on legal requirements on making of contracts and their enforcement. In the Indian Contract Act, 1872, unless otherwise stated, the materials used in thus writing are based on the information presented to the third law commission of British India established in the year 1861 under the chairmanship of Sir John. Romily provided the information on the contract law for the India case. The law commission submitted a draft on the 28th July, 1866 on the above-mentioned subject. The contract bill after going through several revisions was passed into law as The Act 9 of 1872 On 25th April the bill was assented and came into force w. e. f 1st September. The Indian Contract Act, 1872 is one of the earliest pieces of legislation in India in the contractual regime. This act got its assent on the 25th of April in the year 1872. The statute includes fundamentals for formation of contract and also Indemnity law, warranty, pawnee, pledge and agency. 

In its general form, a contract may be defined as a mutual and reciprocal agreement between two or more individuals to perform or not to perform some particular act. A contract always gives rise to legal relations pursuant to which a specific set of obligations is vested in one party and a corresponding legal right is accorded to the other party. According to the Indian legal system, the law of contracts is one of the most vital and significant aspects of the mercantile law. It establishes when a promise made by the parties to a contract will be enforceable and where a person who failed to perform his promise may be proceeded against. This branch of law is governed by the Indian Contract Act 1872 which provides the general principles of law that apply to all contracts ‘and the special laws that apply to specific types of contracts such as bailment, pledge, indemnity guarantee, agency etc. Section 2(h) of the Act defines what constitutes a contract by defining an agreement enforceable by law as a contract. As for these two elements, they can be discussed in the following manner. Thus, every contract consists of two elements, namely (i) agreement; and (ii) obligation. It sets up entitlements and reciprocities of the contracting parties which are mutual, in the event that a party fails to fulfil a contacted undertaking it shall give cause of action to the other party. In Section 10 of the Act, an agreement is a contract if the parties made the agreement willingly, they have the capacity to contract, act in consideration of lawful purposes and the purpose of the agreement is lawful and they are not void by operation of law. On analysing this definition of contract, we can notice that a contract essentially consists of two elements: It can be seen as being established between two entities, (i) an agreement and (ii) it’s contract enforceability.

WHAT MAKES A CONTRACT LEGAL?

As any legal relationship, a contract has to meet some conventions for it to be legally enforceable and binding. Superimpositions are, pursuant to the law of the state where the agreement was made. As for the sales of goods, the rules are set out under the Sales of Goods Act, and partnerships are dealt under the Partnership Act, which are standard provisions for commercial activities.

In a nutshell, a contract begins when one services or proposes to the other, to do something in exchange for a certain thing and the latter agrees to it. To expand, there are some core elements that every contract must incorporate to be considered valid. To expand, there are some core elements that every contract must incorporate to be considered valid:

• Contractual intent
• Lawful subject matter
• A valid offer
• A valid acceptance
• A swapping of an object that is deemed to be valuable.
• A written document, where needed.

Offer: A contract is formed through an offer from one of the parties to the other. Some scenarios if none of the other party accepts the offer are as follows. For example, the offeror could withdraw the original offer before the other party agrees to it. Therefore, for a revocation appropriately to be termed as legal rather than a breach of contract, it has to occur prior to any form of acceptance. If the other party accepts and the offeror revokes the offer this is deemed as breach of contract. In the same magnitude, if the offeror has agreed to keep the offer open for a certain period of time that is referred to as option contract and the offeror cannot withdraw the offer until the option time has elapsed.

The other party could also decline the offer and ask for more than what was offered and proposed. A counteroffer becomes the proposition and so the original proposition maker has no option than to either accept or reject it or else make another counteroffer.

SKILLS FOR DRAFTING

Communication: The most relevant requirement is that you need to be able to communicate with your client on any level. Through a conversation, it will be possible to determine what the client expects from you, especially when he/she is writing his/her contract.

Chafing husk from the grain: Basically, your client will recollect and describe the whole scene or event. It is a fundamental principle that you cannot put everything under a contract. Undoubtedly, one of the most significant unaliasable rules every legal draftsman has to know when drafting a contract is the principle of certainty. It entails determining specific features of the matter, in other words, points marked with emphasis. For this, you should have that differentiating skill.

Ability to simplify complex and chaotic things: At various times, you will be expected to take notes from a given document or a deed that has complicated points. One should indeed be capable of being in a position to popularise, or put in other words, simplify things.

Art of negotiation: At times there may be a contingency whereby the parties will not assent to any of the provisions of the contract. Thus, in such a case you should play the role of a negotiator that will drive both parties to a level of agreement and idem (terms). 

Command over language: While drafting, it is advisable to have adequate knowledge in the language that one is going to use in drafting. If there is anything that creates ambiguity in the language adopted, then it will rebound on the contract itself and the very exercise of entering into a contract, that is, communicating one’s intention to the other party, becomes irrelevant.

Brevity, precision and uniformity: One more principle that is implemented to the largest extent in contract drafting is the principle of brevity. Contract drafters should also note that all they write is only what is expected in a specific clause. The information, which actually requires bolstering the enforceability of the contract needs to be included in such a way that it cannot leak. It is suggested that the speaking of shorter adapted sentences should be recommended for more effective comprehension. It should always be borne in mind that the parties to the contract are persons who are planning to engage in the business and therefore are not lawyers; the use of very legal language thus becomes an impediment to the understanding of the contract. Hence, small sentences and required information practices should be incorporated in such contracts. 

It is deemed proper and important to avoid digression of the style used throughout the draft process. Hence, it becomes a proofreading task for the drafter to ensure that the requirement of the uniformity with regard to a particle kind of writing, terms, presentation whatever be must be adhered to. While presenting a draft it’s not a legal or statutory requirement, it is a professional practice which puts a good face on the receiver of the draft. 

Thus, accurate statements offer certainty concerning the measures that are permitted, and it is desirable that they be of a punitive nature. It eliminates imprecise terms such as the ‘reasonable man’ which was common in previous jurisprudence. Here, it is never clearly stated on how one should quantify the degree of reasonability. Such kinds of terms that create chances of assumption and chances for parties to take their own advantage out of it, should be minimum used and resorted to very sparingly, and can be used in situations where there are no other ways open.

ESSENTIALS OF CONTRACT DRAFTING 

Subject matter: Thus, regarding the very subject of creating a very good contract, it is the subject matter that counts. They observed that one should be to certain extent familiar with the topic under consideration. As for the term subject matter, it implies the character of the contract. The laws thereby governing that particular contract or in other words, whether or not that particular contract can be enforced as per the laws of the land. Everything will be incorporated under the topic of discussion as highlighted above. 

Format: After you understand the material, all that is needed is a particular structure in terms of which you are going to develop the specific contractual agreement. In the format, one has to arrange all the points noted down here under understanding the provisions of the subject matter of the contract and that ought to be included in such a contract. If it is a numbered list of the draft, then the numbers should be assigned sequentially and with a clear and comprehensible scheme. 

Mandatory clauses: The names of the parties, the consideration amount, the type of services, etc. are some requirements that are to be integrated into every contract. The names of the parties have to be in the contract whether the party or parties are individuals or business giants.

Use of simple language: The purpose of the contract is to express their intentions. Hence, it should be written in a language that is clear and easy to fathom by anyone.

Inclusivity: In motioning the formation of a contract there are some points that should be taken into consideration namely; the probable events that are likely to happen in the future and also the measures that the two parties can take in the event of such future occurrences. 

Liquidated damages: In most of the cases, the parties in their privity fix the amount of the stipulated sum, i.e., some sort of compensation where the contract is not performed. Therefore, liquidated damages should also be included in the contract. 

Stipulation of time: In particular, the time for the contract execution has to be stated if the party wants it to be included into the contract – within what period it is to be done. Hence, in the situation where the contract has not been performed the injured party can maintain an action for breach of contract. 

Rights and duties of the parties: The basic requirement of any contract is that it must state the rights and obligations of the parties. Exchanged here means that the right of one party will be the duty of the other party and vice versa. 

Provisions for ADR: It becomes possible to note the existence of different circumstances that affect the relationship between the parties in the course of performing the contract and here there may be differences taking even the smallest difference. To resolve such minor disparities, the parties can try the ADR techniques first of all. Like, Arbitration, Mediation, etc., instead of involving in suits wherein a suit is a slow method of grievance addressal. 

Cure periods: Default may be accorded at any time in a contract thus in such a contract the obligator will have some time to clear out his default before the obligee can take it to court. Thus, in such scenarios, directing a letter to the obligor by the obligee prevents the expiration of the specified time; the period within which the obligor is allowed to clear the amount is referred to as the cure period.

Jurisdiction and opt out clause: In its turn the jurisdiction clause means that in case of any controversy or breach of the terms of the contract, in which court, the action is to be brought. This is commonly referred to as the jurisdiction clause. At times they opt that if at all there is a dispute, then the law suit must be filed in the same location. This is not possible because it provision is acknowledged as the ‘opt out clause’. For instance, all the related disputes or conflicts of the parties shall be resolved by the Delhi Courts. 

Force majeure clause: As such, every good drafter should always incorporate a force majeure clause into a contract they are preparing. Indeed, the force majeure clause is one of the strongest legal weapons. A force majeure clause enables the innocent party to be out of the action of breach of contract in circumstances where the party was unable to, owing to some event of the element of surprise or God’s act (deluge, fire, earthquake, among others) to meet a contract’s obligation in a given period. 

Residuary clause: The residuary clause is also regarded to as the protecting clause, i.e., If something beyond the contract’s specification happens, what could be the strategy to manage that particular occurrence. The residuary clause contains provisions as to apposite to such a case. 

STEPS BEFORE FILING

• When drafting a contract, the first thing that has to be assessed is whether all the parties to the contract are legal capacitated, meaning they are eighteen years or older and are of sound mind. 
• The second step being the assessment of consideration; Some thought has to be given; without thought there cannot be a contract even if it is the simplest, a trade of any object or service, or a promise of the same, etc. 
• The third and final step is to inform the parties of the terms of the contract and both parties must agree upon all the terms of the contract. 
• In cases where the contract is likely to contain such items as trade secrets or any other type of data that is deemed to be confidential, then a confidentiality clause must be included in the contract. This confidentiality clause is highly recommended since the issue is basically kept under wraps and security is assured.
• There is the legal requirement that one should ensure that he or she is not violating the law through the contract formed. If the terms of the contract are against the provisions of the law, the particular contract would not be valid. The contract and all its clauses must locally be in accordance with the law. 
• Once all the above stated points are agreed to, it is typed as a draft that is open for acceptance and this means that the contract is tested and confirmed by both parties before it becomes enforceable and signed (normally at the end of the document). 

CONCLUSION 

In entering into a contract another crucial element is the specifications of the responsibility that each and every party has when engaging in each of the transactions. Following are the basic principles that have to be fulfilled and ensured before presenting any contract for execution. Apart from what is discussed above, depend on the nature of each of the contracts; this is the stamping and registration with appropriate authorities of the above mentioned. As far as the above steps are concerned, it is highly advised that an attorney is sought for the same. Every business transaction is different and each individual when developing the contract for the same shall satisfy the above and be comfortable with the draft that s/he is going to provide.

FREQUENTLY ASKED QUESTIONS

1.    Can I draft my own contract?

Yes, one can draft his/her own contract. However, legal expertise is required while forming the contract into fruition as legal personnel would be well versed with the vocabulary and renditions of a contract filing. 

2.    Do I have to be an advocate to draft my contract?

No, that is not necessary. Most of the contracts drafted between parties are done themselves by using the correct requirements such as an offer and acceptance. And thorough reading of the Indian Contract Act, 1872. 

3.    Are some contracts unenforceable or void?

Contracts in some cases may be found to be unenforceable or voidable due to misrepresentation, illegality, unconscionability, duress, undue influence, or incapacity of one of the parties.