How to draft contracts...



INTRODUCTION

A contract is a document that contains a set of terms and clauses framed by individuals, businesses, and other legal entities that specifically dictate the future relationship between such individuals. Once the contract is drawn up, affirmed and signed by the parties, registration is required.

Drafting of a contract includes the specific clauses, terms and conditions expressed in accordance with the contracting party's/parties' needs and wishes. We need to consider different issues when making a draft, including the subject of the contract, the amount of consideration, compensation, dispute resolution, etc.

So before drafting a contract the essential requirement of contract must be fulfilled which includes offer, acceptance, consideration, competency and legal intention.


Types of contract

Basically, contracts are of two types: oral and written. Oral contracts can be seen as a scheme of agreement between the parties under which they agree and act on such orally formulated terms. Written contracts are contracts where each and every term of the transaction between them is conveyed and registered by the party or parties to the contract.

As it is always advisable that a written contract must be used. Such a contract shall consist of clear provisions which may be drawn up by one or more of the parties to the contract, but shall be deemed to be legally binding only if all the parties to the contract agree to it. Thus, in a written manner, the terms agreed upon are registered. In practicality, these contracts are much easier to rely on when the relationship between the parties to the contract and the rights & responsibilities are mentioned expressly in the contract itself, removing any sort of uncertainty that might exist in the future.


Considerations to be made before drafting.

  • The draftsman must understand the intention and purpose of the contract before drafting it. It is important to consider the subject and object of the arrangement and the role played by the parties in obtaining the intended subject/object. The arrangement shall contain the rights and obligations that the negotiating parties have in relation to each other.


  • Then the draftsman must determine whether the contract is possible to perform or nor i.e. whether the terms and conditions stated in the contract are capable of being fulfilled; whether the parties to the contract are capable of performing their rights and responsibilities; which party/parties receive the most and which one exercises the most of the obligation during the tenure of the contract; etc.


  • At the end he/she must be able to predict the issues, problems or disputes that may arise out of the contract in future scenarios. The drafting person as well as the contract reviewing person must be able to understand what terms and clauses may give rise to a risk that may in the future cause disputes between the parties. The draftsman must be aware about the weak clauses in the contract and must advice the possible solutions which the parties to the contract may later use to avoid such disputes.


Things to be kept in mind while drafting-

  • We must use plain words and avoid language that will create ambiguity.

  • We must include the date and number of each paragraph at the beginning of the contract to make it easier to reference.

  • For better recognition of specific clauses, logical headings are added to each clause.

  • We must ensure to record of arrangements and potential contingencies.

  • Punctuation marks must be placed properly, because it can alter the context of a word.

  • Conjunctions are to be used wisely, as they can affect a words’ meaning.

  • After drafting the advocate must retain a copy for record.

  • Must be signed in such a way to make it more distinguishable.


Things must be avoided during drafting-

  • Every contract should to unique avoid repetition of same kind of contract.

  • Sentences must not be very long as it may create confusion to the readers.

  • We must not try to act on oral explanation, everything must be included in a written manner.

Clauses and conditions required

There are certain basic terms and conditions that are very general in nature. Such clauses are required in every kind of contract. The following are a few of such clauses: -


1.Introduction clause:

This includes the parties to the agreement, the date of the agreement, the place of creation of contract, and the addresses of the contracting parties and their place of business. This clause identifies certain parties by their relationship with other parties, such as corporate parents, subsidiaries, trustees and guarantors, if multiple affiliated parties are involved. This clause lists all parties intended to be bound, their legal status, place of business, the intended degree of liability, the change of ownership of the party and the beneficiary of the third party.


2.Subject matter of the contract:

After the introduction the foremost requirement to begin the drafting of a contract is to determine what the subject of the contract is. It also provides whether the contract will be legally enforceable or not. 3.Definitions:

Definitions are required to be included in each and every contract. This clause includes all the definitions that are used throughout the contract for different words. Some words with a general meaning may be used throughout a contract, but a definition of such a word may be included in the contract, which could specifically describe the meaning of such a word in relation to that contract. No other meaning of the word will be accepted in such cases, as the word has been expressly stated and agreed upon by the parties to the contract and, as such, is binding on them.

4.Term of contract:

Contracts, no matter how long the time frame may be, are usually made for a definite period of time. The term consists of a specific period during which the relationship between the parties will be governed by the terms of the contract, and the contract gets automatically dissolved once the period expires.

5.Renewal of contract:

In order to fulfil the need to make new contract for the same transaction again and again, certain clauses are added. If it is not appropriate to alter the terms stipulated in the contract over a lengthy period of time, a renewal clause can be added to guarantee the continuing contractual value of the contract without incurring, over and over again, the cost of writing and registering multiple contracts. These conditions are also contained in a clause specifying the length of the contract.

6.Consideration and condition:

This clause includes the amount to be paid, the payment terms and any financial formulas for adjustments after closing.

Such consideration must always be legal in nature – the consideration must be paid through an instrument or object that is legally recognized by the law in force. A consideration paid through an illegal object will render the entire contract to be void and have no legal enforceability.

Condition to avoid misrepresentation:

This clause helps the parties to protect themselves from cases of fraud or misrepresentation that may arise because of the inadequate quality of the products and goods delivered in such a way. This enables the purchaser to inspect all goods in order to ensure that the goods received are of the kind agreed between them.

It also provides the selling party with a safety net, so that if the quality of the good is inspected and approved, the buyer will not keep the seller accountable in the future for any quality-related problems.

7.Return/refund:

This provision outlines all the situations and scenarios in which the parties are entitled to return and/or request repayment of the consideration charged for the commodity in question. This is commonly seen in movable property purchase contracts.

8.Dispute redressal clause:

This is also an important clause for drafting, one must never forget. This clause determines what mode of dispute resolution or which legal remedy the parties to the contract will take when a dispute arises between them. Every contract has this provision in the present world, and most of them opt for alternate conflict settlement mechanisms such as arbitration, mediation, and so on to settle conflicts.


The clause describing the jurisdiction in which any dispute will be resolved is another clause which is generally included in the dispute settlement clause. For example, many multi-national companies include a jurisdiction clause stating that any case which involves litigation may only be filed against the company in a specific city, town or area.

9.Terms related to cancellation of the contract:

These are clauses which document the circumstances of the cancellation of the contract. It usually requires such actions under which the parties are barred and the cancellation clause will be invoked and the agreement will be cancelled in breach of such a term. That also affects the parties' rights and obligations as the deal is terminated.

10. Code of conduct:

A code of ethics can be drawn up by the parties to comply with it, setting out a set of rules and conditions for the execution of the contract.


11.Contingency clause:

Under the Contract provisions must be made for unforeseeable and unpredictable scenarios and circumstances which may stop one from executing his/her duty, thereby leaving the contract unfulfilled. So, this clause provides the role of such parties when such a situation of contingency may arise during the tenure of the contract.

This clause should not be overlooked because it saves the cost during contingencies.

12.Payments of expenses:

This clause state about what expenses to be incurred by whom throughout the tenure and makes provisions for the same.

13.Profit sharing ratio:

The contract must state the ratio in which the profits are to be shared. Such ratio is usually determined on the basis of funds invested by the parties. The clause also states the amount of profit to be used for corporate social responsibility in case of company.

14.Compensation:

The compensation clause specifies the amount with which one must compensate another for the former's actions/omissions/defaults that have resulted in some type of loss to the latter.


15. confidentiality:

Contracting parties may insist on keeping confidential all information that would be available to the other party during the performance of the contract. etc.


Conclusion

According to me drafting plays a very important role in determining the skills of a lawyer. In this era of growing business contracts are required in almost every business and related transactions. So, contract drafting is becoming a day-to-day practice. Sometimes mere small errors in drafting leads to a big dispute. Hence it is the duty of a lawyer to prepare the contracts in such a manner that it will be free from any confusion and ambiguity. The provisions of a contract must be clear enough to decide each and every details of that particular transaction. The whole contract must be based on legal principles and must protect the rights of the parties.

References; 1.Adv Lubna, on fundamental principles of contract drafting; available at-Legal services http://www.legalserviceindia.com/legal/article-3044-basics-to-contract-drafting-and-contract-review.html (last visited on 12.01.2021) 2.Medha Kolhatkar, Drafting, pleading ang conveyncing,Lexis Nexis 2nd edition august 2020 3.Adv K Daga,Basics to contract drafting and contract review, Legal services India, available at; https://www.techuz.com/blog/an-ultimate-guide-to-draft-a-better-app-requirement-document/

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