Basics of Contract Drafting

“A deal is a deal”— based on this principle the contract law was evolved. When two persons come to a mutual understanding with an intention to cooperate with each other in achieving an objective, they are said to have come to an agreement. Earlier times, agreements used to happen orally between two or more parties as the times were simpler and the trust issue was not an issue to the parties.

Basics of Contract Drafting

Introduction

A deal is a deal”— based on this principle the contract law was evolved. When two persons come to a mutual understanding with an intention to cooperate with each other in achieving an objective, they are said to have come to an agreement. Earlier times, agreements used to happen orally between two or more parties as the times were simpler and the trust issue was not an issue to the parties.

However, as the civilizations developed, a global market emerged and technology evolved, the subject matter of the agreements became complex and a trust issue became prominent. Oral agreements were no longer sufficient to address each and every circumstance and the parties began to grow a lack of confidence in each other. The need for written agreements became inevitable. But, these agreements always lacked the enforceability of the duties, and a legitimizing authority needed to be introduced. Thus eventually, the contract law was introduced.

Contracts and Requirements of Contract

When an Agreement receives legal enforceability, it becomes a Contract. Therefore, an agreement becomes a contract only if certain requirements are fulfilled. These requirements are—

  • Promises and reciprocal promises— each party indicating his willingness to do something or not to do something for the other party constitute a promise. Failing to fulfill the promises, results in liabilities.

  • Lawful object— the purpose of entering into a contract should be as per law. If the law designates that certain activities are not lawful, then an agreement made for the purpose of conducting such activities shall not be legal.

  • Valid consideration— a promise or reciprocal promise can be a consideration or part of the consideration. But in most of the situation consideration denotes some form of monetary consideration (payments).

  • Capacity to fulfill the obligations— the parties to an agreement must have the capacity or competency to fulfill the contractual obligations. Failing to fulfill this obligation may have serious consequences on the rights of the parties.


Purpose of Contract Drafting

As already mentioned in the foregoing sections, the primary objective of drafting a contract is to resolve the trust issues between the parties. Also, the enforceability of the promises exchanged between the parties is addressed through the drafting of the contract. But apart from these, there are certain other purposes are also there as well—

  • A contract is a structured document that embodies the rights and obligations of the parties.

  • It helps the parties as well as the enforcement authorities and dispute settlement bodies to interpret such rights and obligations of the parties effectively

  • A contract also indicates the willingness of the parties

  • It also indicates the status (e.g. weak or strong) of the parties and keeps the parties under the supervision of the law

Contents of a Contract

Almost every contract document contains three basic parts— the preamble, the body, and the remainder. Though, it has to be remembered that there is no hard and fast rule to follow while drafting a contract. The drafting of a contract depends on case to case basis according to the parties’ requirements.

The preamble generally consists—

  1. Title of the agreement

  2. Parties to the agreement

  3. Date of the agreement

  4. Recitals

  5. Purpose of the agreement

  6. Objectives of the agreement

  7. The willingness of the parties

The body of the agreement consists—

  1. Definitions and interpretations of the terms used in the agreement

  2. Rights and/or obligations of the parties

  3. Terms of agreement

  4. Considerations for the agreement

  5. Governing laws and jurisdiction

  6. Severability of the agreement

  7. Breach/default of the contract

  8. Notices

  9. Termination of contract

  10. Indemnity

The Remainder of the agreement contains

  1. Legality and bindingness of the agreement

  2. Amendments to the agreement

  3. Representation, Warranties, and covenants

  4. Signatures of the parties and witnesses along with the official stamp of registration

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Generally, after the meeting between the parties, one of the parties takes the responsibility of drafting the agreement. Thereafter the attorneys or counsels of all the parties organize meeting(s) to verify the proposals or to amend any proposal or to add any proposal or to delete any proposal according to their needs. Once the “meeting of minds” takes place between the parties, the draft agreement is then stamped (attaching a government stamp paper) by paying a certain amount. The valuation of the stamp paper depends on the considerable amount of the agreement. Then the registration of the agreement happens in the Office of the sub-registrar after paying the registration fee. The purpose of stamping and registration is to give legal enforceability to the contractual agreement.

Few points need to be kept in mind while drafting an agreement—

  • Language— the language of the agreement should be as simple, unambiguous, clear, and complete as possible.

  • Singularity— each section/article/clause of the draft agreement should contain only one proposal to avoid unnecessary complexities.

  • Authoritative— the draft agreement should contain authoritative text except in certain circumstances.

  • Review— the draft agreement should be reviewed more than once for any grammatical errors, punctuation errors, mistakes, referencing errors, etc.

Conclusion

Drafting a contract requires a sufficient amount of legal knowledge and intention of the parties. However, in today’s date, certain types of contract drafting require subject-specific knowledge because of the highly complex subject matter or highly technical subject matter. Nevertheless, the traditional way of contract drafting is still in practice and it is highly unlikely to fade so soon. The reason is, the genesis of contract drafting emerged from the requirement of the smooth running of businesses. And, in this era of businesses, the requirement for contract drafting is more than ever. It is however criticized why the drafting of contracts shall be subjected to the laws and regulations of the countries. The reason behind such criticism is, “trust”. If one party trusts another party and vice-versa, why there shall be a need for drafting an agreement? The simple reason could be, to address the remedy to unforeseeable future events. In light of this context, one fact is to be noted that, the colonial rulers of our country, the Britishers do not have any codified contract law but they had made one for our country. Therefore, the intention behind the codified contract law of India can always be a subject matter of debate among legal scholars.


 


BY- 

DEBKRIPA BURMAN