This article is written by Yash Sharma, a law student at Vivekananda Institute of Professional Studies, Indraprastha University, New Delhi. This article covers all the basic rules and fundamentals of a legal agreement or a legal deed along with its components.
Table of Contents
Introduction
We come across contracts and deeds every day in our lives in multiple instances. Both a legal agreement and a deed are enforceable in a court of law. These documents protect the rights and remedies of the parties bound in legal obligations mentioned in the contract. There must leave no scope or loophole for dispute or wrongful breach of contract for personal use by either party.
A legal agreement and a deed are slightly different in their use, but the fundamental principles of drafting these documents remain the same. In this article, basic and important fundamental rules of drafting an agreement or deed are compiled separately. All the elements or rules mentioned are important for achieving the goal or objective of the contract.
Brief difference between Agreements and Deeds
In Indian Laws, the concept of an agreement is mentioned in the Indian Contracts Act, 1872. It states that an agreement is formed when a proposal is accepted and it becomes a promise. An agreement lacks legal enforceability. The very basic meaning of an agreement is proposing and accepting an agreement to legally bound them for consideration. In other words, a legal agreement can also be called a contract which is legally enforceable.
Consideration is essential to a contract each party has to do or abstain from doing some act as per the promise or give something in return for getting something done. In terms of consideration, a deed is different from a legal agreement as there is no requirement of consideration in a legal deed for it to be valid. A deed in itself is a solemn indication by the party that there is an intention to be bound for the fulfilment of the promise.
Drafting of Agreements
An agreement is formed when two parties make a promise and decide to get into a contract. As per the Indian Contract Act, 1872, the parties have to be legally capable of getting into a contract by acknowledging the proposal with a bonafide thought. This agreement binds the parties in a quid pro quo relationship where they both have to discharge their liabilities as promised or accepted by them.
As per the Indian Law, a person is competent to contract if he is major as defined by the Indian Majority Act, 1875 and is of sound mind and is not barred from any law. Good drafting is important as a contract is not a mere agreement but it protects the rights of the two parties and also gives them legal remedies. An agreement binds the two parties with some responsibilities, conditions, manners, issues, etc. That is why the drafting should be full-proof so that there leaves no loose end which may result in many damages.
A legal document shall have certain ingredients in the drafting of the content-
- Simplicity.
- Clarity.
- Futuristic.
- Options.
- Definitions.
- Straight and small sentences.
Essential components of Contract
Some essential components of each legal agreement are mentioned as follows:-
Defining the parties
This means that the parties should be validated in terms of their character, financial stability, mental health, and legal capacity. This also verifies that a party can not be exploitive, unethical, or reluctant towards one’s responsibility. If there is a possibility of substitution of either party to be done by some, either person, that too is mentioned when the parties are defined.
Obligation of Parties
A scope for disputes widens if the obligations and liabilities of each party are not mentioned or defined sufficiently. Also, along with the consideration as an item, it is preferred that the progress measurement method is also stated. The obligations should be effective and just which also depends on the parties, but the remedy process in case of a breach in one’s liability to perform his task should also be mentioned.
Payment Terms
In a contract often the consideration includes the payment for the act done. This payment may be done at various stages of the agreement completion. To avoid such disputes it is important that most of these installments of payments if foreseeable, specified in the agreement. It is advisable to make the payment after the delivery or discharge of liability to avoid such issues or to partially do the payments in proportion with the delivery. Also, at the time when the product or service quality and the standard is being verified, if there is any requirement of prepayment it should be brought up.
Integration Clause
The integration clause specifies the scope for amendment in the contract in the future. It is important for the understanding of the parties that in the contract what all terms and conditions mentioned in the contract won’t be changed in the future. This condition is generally an incorporated component of the agreement. The clause must state that such amendments shall be made in writing or any other way as agreed by the parties. Such provisions are valid as long as they signify the need for such amendments.
Termination
Termination of contract or promise before the end of the term can be considered as a breach of contract. Certain cases in which the termination can happen is if a party refuses to discharge its obligations partially or wholly, due to the occurrence of an unforeseeable event such as some disaster or anything that renders the possibility to discharge one’s liability. Sometimes for the convenience of the parties, they may no longer wish to continue their relationship. Termination clauses mention such circumstances or conditions under which the contract can be terminated. These termination clauses can be quite problematic as it is sometimes hard to find a way to end the relationship in which all the parties get a satisfactory outcome or fulfil the constitution of the clause.
Sections an agreement shall include
While drafting all these sections shall be kept intact in the agreement while holding on to the previously stated elements. Those sections are as follows-
Preamble
The preamble states all the basic information important to bind the two parties in the contractual obligations such as the name of the parties, information regarding the date and time of the formation, and address of the places from where the business is being operated. The preamble identifies the possibility of more than one party involved and identifies those parties in the form of their relationship with other parties such as corporate parents, trustees, subsidiaries, and guarantors. Preamble shall specify information like all person party to the contract, their legal status and capacity, place of business, intended scope of liability, change in party ownership, and a third-party beneficiary.
Recitals
These work as a catalyst for the contract by providing a basic structure, text, and context. A preamble is a non-binding declarative statement that is presented as a fact or statement specifying the intention. If the contract deals with the purchase of a product it will give an insight into the content while the specifications remain in the body of the contract.
They give a brief explanation of the contract mentioning the stage at which the contract is made, giving essential content, structure, and payment method. They lay down the soul of the contract by mentioning the goal and objective of the contract without getting into details of the specifications of the body.
Definitions
It defines keywords, terms, and abbreviations that may appear multiple times in the contract and is essential for understanding.
Body or Matter of Content
This section lays down the provisions of the contract dealing with the transaction nature characterization by settling a particular method and scope of payment, completion time and the fundamental content of the contract.
Consideration and Terms of Payment
It deals with all the variations in which the payment can be done such as the amount to be paid, the terms for payment, or any financial formula that could be used for closing the adjustments. This includes the break up of the final price inclusive of all the factors adding up to the total cost. This is done for the understanding as the tax implications can be different for buyer and seller.
Scope of Supply and Services
This includes a list of all the products and services provided or sold in the form of consideration. It is essential to mention this for the clarity that both the parties are performing their responsibilities and what will they get in return. For this purpose, a proper schedule is to be created and adjoined with the contract.
Indemnity and Risk Allocations
One of the main purposes of a legal agreement is it is enforceable in court for any breach of terms. For that purpose, it is important to specify a provision related to indemnification if one party finds out that another party has breached the terms of the contract. This tool serves as a mechanism for getting security to the parties.
Confidentiality
The only purpose of this section is if the two parties want the information and terms available to other parties confidential and secret, they can get that done using this provision.
Effective Date, Completion Time, and Validity
A contract must not be vague and for that purpose, all the details must be specified correctly and exactly. It is important to mention a date when the contractual obligations were accepted by the parties. It may not be the date when the contract was signed but a futuristic date from when the obligations or rights of the parties may commence. The contract time or completion time is the time mentioned or given to the parties to discharge their liabilities. Validity time is an interval from one date or time to another between which the terms of a contract shall apply.
Termination
The termination clause mentions the way out of the contract with mutual agreement between the parties. This provision removes ambiguity regarding the end of this relationship.
Miscellaneous Provisions
This section consists of multiple provisions and sections that do not fall in any particular section. These provisions turn out to be of great use from time-to-time.
Drafting of Deeds
For drafting, it is important to understand the meaning of the deed. A deed is a document creating responsibilities and liabilities binding to both parties. The signing shall be done by the parties with unchallenged legal capacity and testified by a witness. Drafting of deeds is important for businesses and people dealing in services and products. Deeds come across us at multiple instances of life such as partnership deed, LLP deed, gift deed, share purchase deed, lease deed, etc.
Preparation of Deed
A deed can be divided into 3 parts namely the Non-Operative part, the operative Part, and the Formal Part. For each part, a different drafting technique is followed. The drafting of each section is explained in the following manner-
Non-Operative Part
- Title/ description of the deed, in brief, lays down the basic idea of what the deed is about and what objective or purpose it shall be covering.
- Place and date of the deed for removing any vagueness in the deed. There is a conventional manner for stating these details, that is “this Deed of Partnership is made at Mumbai on this Seventh Day of September, Two Thousand and Twenty between…..”.
- Next comes the description of the parties. The key is the identification of the parties, so the description is made in a way that their identification is also easy. In case of an artificial person: The law under which it has been constituted along with its registration number if any along with the registered address has to be given.
- Lastly, the recitals come into play with a brief description of the motive of the party for which they have agreed to be bound in a deed. It is stated as “Whereas the parties to the deed are desirous of…”
Operative Part
- This part deals with the consideration and transactions between the bound parties and the intentions for such transactions. This element is called “Testatum”.
- This is the Habendum part which defines the interests conveyed and sets a limitation on the property involved. For example “The property involved in the deed is encumbered/unencumbered.”
- The exception and Reservations part, according to the subject matter of the deed specifies some exceptions and reservations to deal with the consideration expected by the parties.
- The Forfeiture and Renewal part states certain conditions which if breached would result in terminations of deed along with damages related to such termination. Also, it lays down the conditions for renewal of the deed.
Formal
- The testimonium part states the fact that the parties have signed the deed. It usually starts in this manner-“IN WITNESS WHEREOF, the aforesaid parties to the deed, on the above-mentioned date and place have set forth their hands in the presence of witnesses”.
- Then comes the signature of the parties immediately after the testimonium. The parties must put their signature on the left side of the signing page in the presence of the witnesses.
- Next, it has to be attested by the witnesses. After the signature of the parties, the witnesses have to put their signatures mentioning, their name, father’s name, address and occupation on the right side of the signing page in a line parallel to the signature of parties and in presence of executants.
- A parcel of property or Schedule or annexure should be attached consisting of all the information if the property involved is immovable. The parcel should consist of basic details of the surroundings of the property.
Sample Rent Agreement
THIS LEASE DEED is executed at New Delhi on this 7th day of January 2021 by and
BETWEEN
ABC (hereinafter called the Lessor, which expression shall include their heirs, legal representatives, successors and assigns) of the one part:
AND
XYZ Resident of address (hereinafter called the Lessees)
WHEREAS the Lessor represents that he/she is the absolute owner of the apartment situated at the address of the apartment consisting of details of the place and commodities.
WHEREAS the Lessee has requested the Lessor to grant lease with respect to the apartment and the Lessor have agreed to lease out to the Lessee the apartment, for residential purposes only, on the following terms and condition:
NOW THIS DEED WITNESSETH AS FOLLOWS:
- Term of lease in respect of the premises would be for a period of 11 Months (eleven months) commencing with effect from 15th January 2021 and shall be valid till 15th December 2021. Thereafter, the same may be extended on mutually agreed terms.
- However, the Lessee may have the right to terminate the lease by giving one month notice in writing or one month’s rent in lieu thereof.
- That the Lessees shall pay the Lessor a monthly rent of Rs. xxx (in alphabets) for the demised premises. Rent shall be paid by cheque or by way of an RTGS/Bank Transfer in the name of ABC.
- That, in addition, to rent payable by the Lessee, the Lessee shall bear and liquidate all demands raised by the respective authorities towards consumption of electricity and water, cooking gas enjoined with the demised property besides House tax from the date of commencement of Lessee till its determination in respect of demised or till the surrender of its possession.
- That during the subsistence of the lease, the Lessee shall be bound to keep the demised premises along with the fittings and fixtures in good and habitable condition and shall be given back in the same condition, normal wear and tear accepted.
a. That the Lessee shall not sublet, assign or part with the demised premises in whole or part thereof to any person in any circumstances whatsoever.
b. That the day-to-day minor repairs will be the responsibility of the Lessee at its own expense.
c. That the Lessee shall not carry out any structural additions and alterations of permanent nature to the demised premises.
d. That the Lessee shall comply with all the rules and regulations of the local authority applicable to the demised premises.
e. That the Lessor will keep the Lessee free and harmless of any demands, claims, actions or proceedings by Govt. authorities in respect of quiet possession of the premises.
- That in the event of non-payment of rent by the Lessee within the stipulated date or being in arrears for two months, the Lessor shall serve upon the Lessee a demand notice, of not less than 15 (Fifteen) days, to remit the outstanding rent along with interest. The Lessor shall have the right to terminate the Lease forthwith and re-enter and take back possession of the said premises without prejudice to claim any outstanding or dues owed to the Lessor by the Lessee.
- That in case, where the Premises are not vacated by the Lessee on the determination of lease or otherwise on its termination by the Lessor in the manners explained hereinabove for default of the Lessee, the Lessee would pay the monthly rent commencing from the expiry of the Lease period on a monthly basis. The payment of rent as aforesaid will not preclude the Lessor from initiating legal proceedings against the Lessee for recovering possession of premises.
- That the LESSOR has installed complete, Fittings and Fixtures and electrical appliances in the premises. The Lessee shall maintain these with due care and keep them in good working condition.
- No change, variation or modification of the terms and conditions set forth in this Lease Agreement shall be valid unless incorporated in an amendment to this Lease Agreement
- That the Lessee shall not store any inflammable, hazardous, prohibited or obnoxious goods, material, things in/ or at the premises or any part thereof. The Lessee shall not carry out any illegal or immoral activities from the premises.
- The Lessee will allow the Lessor to show through their brokers, potential tenants the apartment 15 days prior to the expiration or termination of Lease after fixing the appointment for the visit with the Lessee based on their convenience.
VERIFICATION
That both the parties, the Landlord and the Tenets, have read and understood this agreement and have agreed to sign the same without any pressure from any side.
In WITNESS WHEREOF the Lessor and the Lessee have hereunto subscribed their hand at New Delhi on this 7th day of January 2021 first above mentioned in the presence of the following witnesses.
Witnesses:
1.
2.
(Signature of the landlord) (Signature of Lessee)
ABC XYZ
Conclusion
The main motive of giving legal enforceability of an agreement or deed is to protect the rights of the parties that may get affected if the promise is wrongfully breached with any compensation for damages. That is why it is important to remove any scope for ambiguity or misconception. For that a good draft of a contract is essential. It helps to avoid any disputes regarding the terms and conditions of the contract or any related issue that may come up because of improper drafting of the document.
The basics like the preamble, party description, recital, and subject matter are common in both legal deed and legal agreement. In writing of these documents, the same principles of clarity, simplicity, and definitions among others are used. All the elements, sections, and parts must be properly written otherwise it will compromise the quality and security of rights of the parties.
References
- https://vakilsearch.com/advice/types-legal-deeds-india/
- https://www.mondaq.com/india/contracts-and-commercial-law/445620/legal-contractsagreements-drafting-and-legal-vetting
- http://www.legalservicesindia.com/article/1669/Fundamental-Principles-of-Contract-Drafting.html
- https://www.lawyered.in/legal-disrupt/articles/drafting-contracts-or-agreements/
- https://taxguru.in/corporate-law/general-principles-drafting-focus-contents-deed.html#:~:text=Drafting%20is%20the%20collection%20and,be%20understood%20without%20any%20ambiguity.
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