This article has been written by Radhika Pathania, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho and edited by Shashwat Kaushik.

Introduction

A contract is simply an agreement that we casually enter into on a daily basis. From buying groceries to ordering food or clothes online to paying bills and hailing a cab, everything is a contract. A contract is nevertheless a transaction that we do in our daily lives. Contracts can be verbal as well as written. Contracts can be expressed as well as implied. One can enter into several contracts at a time. Now, in an era where we engage in such a transaction a number of times, contract drafting comes into the picture.

What is drafting

In layman’s language, drafting is nothing but jotting down the transaction you have entered into or the points you and the other party have agreed to. It is the formal way of expressing every single point with precision.

What is a contract

A contract is an agreement enforceable by law, as per Section 2(h) of the Indian Contract Act of 1872. Now let’s understand what an agreement is. It is defined under Section 2(e) of the said Act as “every promise and every set of promises, forming the consideration for each other, is an agreement”. In layman’s terms, it means that when a person promises to give another person something in return for fulfilling a promise, the promise could be anything like rendering services, delivering goods, etc., and the consideration could also be anything, e.g., money, bonds, bills, etc., but it must be lawful. Unlawful consideration or promise will make the contract null and void.

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Objective of drafting

To understand the objective or purpose of contract drafting, let’s assume a situation. Suppose A and B are two parties. A agrees to sell his house to B for Rs. 5 lakh. Now, after some days, A refuses to complete the sale. Now, if there is no written document, how difficult would it be for B to prove the existence of a contract. How can B be able to bring a suit for breach of contract against A? So, drafting a contract binds the parties to its performance and the consequences of its non-performance.

Skills required for drafting a contract

The skills required for drafting a contract are:

  1. Communication: Communicating with your client is the foremost skill that you need. By communicating with your client, you will be able to understand what your client demands from you while drafting his/her contract.
  2. Chafing husk from the grain: Your client is going to narrate the whole story or scenario. You cannot add everything to a contract. One of the golden principles of contract drafting is that it should be precise. You have to identify the important points or highlighted areas of the matter. For this, you should have that differentiating skill.
  3. Ability to simplify complex and chaotic things: Many times, you will be required to jot down points from a document or a deed that are complex in nature. Therefore, one should have the calibre to popularise or simplify things.
  4. Use of simple language: The main aim of the contract is to describe the intentions of the parties. Therefore, it should be drafted in a simple language that can be easily understood by anyone.
  5. Art of negotiation: Sometimes, a situation might arise where both parties cannot agree to any term of a contract. So, in such a situation, you should have the negotiating skills to bring both parties to a stage of consensus and idem (mutual terms).
  6. Command over language: While drafting, one should have a good command over the language in which he/she is drafting. In the event of any ambiguity in the language, it will automatically reflect in your contract and the very purpose of drafting a contract, i.e., making the intention of the parties clear, will become unfructuous.

Essentials for drafting a contract

The essentials of contract drafting include:

  1. Subject matter: The essence of drafting a very good contract lies in the subject matter itself. One should be well acquainted with the subject matter. Subject matter simply refers to the nature of the contract. What are the laws that govern that contract or whether that particular contract is enforceable or not in the eyes of the law. All these things will be covered under the subject matter.
  2. Format: Once you get acquainted with the subject matter, all you need is a clear format in which you are going to draft the particular contract. By format, we mean putting in order all the points you have jotted down by understanding the subject matter and which are to be included in a contract. The order of the draft should be logical.
  3. Mandatory clauses: Parties names, consideration amount, type of service, etc. are some mandatory clauses that are to be put in every contract. The names of the parties must be in the contract, irrespective of whether a party is an individual or a business tycoon.
  4. Inclusivity: While drafting a contract, one should keep in mind to include all the anticipated events that could occur in the future and also the remedies that the parties can exhaust in the occasion of such future events.
  5. Liquidated damages: In most cases, the parties have agreed amongst themselves to a certain sum, i.e., damages to be paid in case of non-performance of the contract. Therefore, liquidated damages should also be added to the contract.
  6. Stipulation of time: Within what time period the contract has to be performed should also be stipulated in the contract if the party desires to put it there. So, in the event of its non-performance the aggrieved party would be able to bring a suit for breach of contract.
  7. Rights and duties of the parties: A contract must contain the rights and duties of the parties. The right of one party will be the duty of the other party and vice versa.
  8. Provisions for ADR: In the course of performing a contract, there might arise circumstances where minute differences may occur between the parties. To settle these minute differences, the parties can first go for ADR (Alternative Dispute Resolution) methods. Such as Arbitration, Mediation, etc., rather than filing a suit for every minute conflict (as we know, a suit is a time-consuming grievance redressal mechanism).
  9. Cure periods: Default may occur in a contract at any time so in such cases, the obligator will have certain amount of time to clear out his default before the obligee can seek legal remedies. So in such cases, the obligee must give the obligor a letter before the time runs out, so the period allotted for clearing that debt is known as the cure period.
  10. Jurisdiction and opt out clause: The contract should include a jurisdiction clause, i.e., in case of any dispute or breach of contract, in which court the suit will be filed. This is called the jurisdiction clause. Sometimes the parties agree to file the suit in the same place in case a dispute arises. This is known as the ‘opt out clause’. For example, all disputes or conflicts are subject to the Delhi Courts.
  11. Force majeure clause: A good drafter will always include a force majeure clause while drafting a contract. The force majeure clause is a very powerful tool. A force majeure clause protects the innocent party from the action of breach of contract in case the party could not, due to some unforeseen event or act of God (flood, fire, earthquake, etc.), perform the contract within a stipulated time.
  12. Residuary clause: The residuary clause acts as a protecting clause, i.e., if something apart from what is included in the contract occurs, what could be the possible approach to tackle that situation. The residuary clause consists of guidelines regarding such a situation.

Steps of contract drafting

The steps of contract drafting are:

  1. The first step in contract drafting is to determine whether all the parties to the contract are of legal age (18) and mentally fit.
  2. The second step is the determination of consideration. Some consideration must be given; without consideration a contract cannot exist, be it any good, service, promise of exchange, etc. 
  3. The third step is to make the parties familiar with the terms of the contract, and both parties must accept all the terms of the contract. 
  4. If the contract includes trade secrets or any other type of confidential information, then confidentiality clause must be added. This confidentiality clause is highly recommended, as it maintains secrecy and ensures that the information remains secure.
  5. After that, dispute resolution clauses and termination of contract clauses are discussed and the parties are made familiar with them.
  6. It must be made sure that the contract is not in conflict with the law. If the contract is in conflict with the law, it will be null and void. All the clauses of the contract must adhere to the law of the land
  7. After the fulfilment of all the above mentioned points, the contract is drawn up for acceptance, which means that at this stage both parties must check all the clauses of the contract thoroughly before it gets into force and sign it (generally on the last page). 

Sub details of each of these above mentioned points may be considered for effective drafting of the contract. Each contract is for a specific purpose, and the clauses may vary in accordance with that purpose, so many points and clauses may vary from contract to contract.

Conclusion

Contract drafting is an art. The more precise the contract is, the more clarity it will have. Therefore, while drafting a contract, one has to keep a balance between adding or jotting down all the important stuff on the one hand and, on the other hand, keeping it concise. Drafting is not about using fancy vocabulary; rather, it is about expressing the intentions of the parties to the contract in clear terms.

References

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