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Contract Drafting

Every day of our life runs by contract. From home sell to loan, mortgage, lease, banking transaction essentially leads by contracts some way of the other. Every legal relationship between the two parties is based on contracts. A contract is often in the form of a written agreement between parties. The two parties must contribute a Quid pro quo to the understanding or reach the same consensus on the agreement. Contracts can also be in the form of an oral agreement, but oral agreements can be much harder to prove when a dispute arises. Once the contract is drafted, it must be registered and signed by both parties. In contract drafting, there needs to specify some set of clauses or terms and conditions as the parties require. According to the Indian Contract Act, 1872, each individual is competent to contract who has attained the age of majority and is of sound mind. 

Generally, a written contract contains information such as:

  1. the names of the parties to the contract;
  2. Time and place where the contract was made;
  3. terms and conditions specified by the parties
  4. what service, product, or good is provided;
  5. what is being exchanged (e.g., money) for the service, product, or good that is provided;
  6. acknowledgment that the parties 
  7. signature of the parties

Commercial contracts form the backbone of many commercial transactions, from vendor agreements to client engagement agreements. While no two businesses or industries are the same, all commercial contracts share specific fundamental structures and clauses that have become part of the body of “best practices.” There is both an art and science to drafting them, and the following provisions are some of the most critical in forming a complete commercial contract.

Clauses to be included in the Commercial contract are mentioned below.

Names of the parties

The full legal name of the parties or signatories must be included in the agreement.

Obligations

The obligations or actions required by each party must be crystal clear regarding the commencement of the agreement, delivery and payment terms and must succinctly define what constitutes the completion of the obligations.

Confidentiality clause

The clause is vital to protect sensitive information on business or trade. When parties enterers into a contract, there might be some sensitive information lying between the agreement. Under the confidentiality, clause parties should make sure that there is no breach of sensitive or secret information to the third party, failure to which the aggrieved party can terminate the agreement.

Force Majeure

The term ‘Force Majure’ translates to ‘greater force.’ Now, as the name suggests, this clause comes into play when there exists an unforeseeable situation and beyond anyone’s control. Some examples are riots, strikes, wars, and floods. It is equally important to include clauses that concern inherently necessary actions performed by third parties before performing contractual obligations. These are sometimes seen as subject to clauses; for example, Party A would only satisfy its obligation subject to Party B delivering the parts, material, data, etc., by a specific date.

Termination clause

When one party fails to satisfy their contractual obligations due to an unforeseen event or for any reason not stipulated within the terms of the contract, damages will need to be paid to the party that has been wronged. The terms of these damages should be as sharply defined as possible in the contract negotiation.

Legal Jurisdiction

Whether one is negotiating a contract within the same country or across international borders, the civil laws of the respective jurisdictions may be fundamentally different. A solid contract must specify which jurisdiction and location will litigate a contractual disagreement.

Incorporate Arbitration Features

A well-drafted clause should contain a dispute resolution clause or mechanism to settle the legal dispute amicably. Regarding dispute resolution, ADR (Alternative Disputes Resolution) mechanisms are practical and efficient, less time-consuming, and also save horrendous legal costs. Implementing an agreed-upon arbitration process to handle disputes should they arise, both parties may achieve a less expensive and quicker means of settling potential disputes.

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