This article is written by Nishka Kamath. Here, the author discusses all the important points a legal professional, lawyer or even law student must know regarding the essential elements of a well-written contract. Moreover, different types of contracts, the importance of drafting a well-written contract, important points to be kept in mind while drafting a contract, steps to draft a valid contract, some tips and tricks to draft a well-written contract, and the relevant FAQs are also discussed. 

Introduction

Contracts can be regarded as the backbone of several business and legal transactions. They serve as a blueprint for agreements between the parties. A well-written contract is not only a piece of document but also a tool that ensures clarity, defines expectations, sets forth obligations of the parties and protects the interests of all the parties to the contract. In order to be effective, it is crucial that a contract is inclusive of several essential elements that form the foundation of a legally binding agreement. 

However, in order to understand the essential elements of a well-written contract, it is crucial that one understands the essential elements of a contract. So let us discuss them in brief and move forward towards the drafting of a contract and its essential elements.

Essential elements of a valid contract

To become a contract, it is necessary for an agreement to be legally enforceable. For example, A and B can agree to smuggle alcohol from Goa to Mumbai. This may be an agreement between them, but it will not turn into a contract because it is not legally enforceable.

Under Section 10 of the Indian Contract Act, 1872, all agreements are contracts if they are made:

1. by the free consent
2. of parties competent to contract 
3. for a lawful consideration and a lawful object, and 
4. are not expressly declared to be void. 

Section 10 further states that if a contract has to be in writing in lieu of the provisions of any other law, then it must also be in writing. For instance, the Companies Act, 2013 prescribes that the Articles of Association and Memorandum of Association must be in writing and be duly signed under Section 7. Also, various documents like the sale deeds, leases, and mortgage deeds are required to be in writing under the Transfer of Property Act, 1882. Similarly, if the law requires witnesses to be present or that there is a need for compulsory registration (as, for example, the Indian Registration Act, 1908), such conditions must be met. 

The following are the essential elements of a valid contract and a very important point that one must learn while learning to draft the contracts.

Offer/Proposal

The offer/proposal thus made must be intended to establish and be capable of establishing a legal relationship to produce a contract.

Quick fact: At times, a  statement that may look like an offer, is a mere invitation to offer. Thus, an advertisement for an auction of goods is merely an invitation to offer and not an offer in itself, as it is for the bidder to announce a bid price and for the auctioneer to accept or decline the offer.

Acceptance

To form a contract, there has to be a lawful offer and acceptance. As per Section 7 of the Indian Contract Act, 1872, the two essentials for a valid acceptance which converts a proposal into a promise, are: 

1. It must be absolute and unqualified.
2. It must be expressed in some usual and reasonable manner unless there is a manner prescribed for a proposal to be accepted. 

It is important to emphasise that when there are any changes made in the acceptance, the acceptance will not be considered as an acceptance but a counter-proposal in itself, and thus, there won’t be any contract until the counter-proposal is accepted by the original proposer.

For instance, A offers to rent his bungalow to B for a period of 15 years in consideration for a certain amount of rent. B accepts the offer adding that there must be an option of renewal for another 3 years. This is not an unqualified acceptance, but a counter-offer, which must be accepted by A in order to be considered as a valid acceptance. 

Agreement (offer and acceptance)

One of the most important requirements for establishing a valid contract between two parties is an agreement. An agreement is created when an ‘offer’ or ‘proposal’ is ‘accepted’ for some ‘consideration’.

Competency of parties to a contract

For an agreement to turn into a valid contract, the first requisite is that the agreement must be made by the parties who are competent to contract. Competency of the parties refers to them being major (above the age of 18 years), of sound mind and not prevented by law from entering into a contract.

Consent and free consent

It is important to mention that, for creating a contract, the parties should agree on the same thing in the same sense and when such a decision is arrived upon,, it is said to be ad idem. As per Section 14, if there is no consensus ad idem (meeting of minds) between the parties, then there is no real agreement between them. Again, the parties may consent to enter into a contract, but it is imperative that such consent must be free. Where there is no free consent there can be no contract at all. 

Lawful consideration and lawful object

The next essential ingredient of a valid contract is that its consideration and object should be lawful.

Section 23 states that the consideration or object of an agreement is lawful unless:

i) it is forbidden by law; or

ii) it is of such a nature that, if permitted, it would defeat the provision of any law; or 

iii) it is fraudulent; or

iv) involves or implies injury to the person or property of another; or

v) the Court regards it as immoral or opposed to public policy. 

For instance, A promises to maintain B’s pet, and B  promises to pay A, a sum amount of Rs. 500/- annually for the same. Here, the promise of either of the parties is the consideration for the promise of the other party. These are lawful considerations.

Agreement must not be void

An agreement that is not enforceable in the eyes of law is considered as void. For instance, an agreement made by a minor is void. Further, agreements without consideration, an agreement in restraint of marriage, an agreement in restraint of trade, etc., are all regarded as void.

Invalidity of a contract

A contract may be considered to be invalid if it:

1. Forces or entices an individual to commit a crime,
2. Is entered into by anyone who does not have the capacity to do so, for example, in the case of minors or bankrupt individuals, or
3. Was agreed upon through misleading or deceptive conduct, or by duress, unconscionable conduct or undue influence.

Essential elements of a well-written contract 

Title

Adding a title is helpful in ascertaining the nature of the agreement that the parties are looking to execute. Let us understand this better with the help of an example. Say, you have a client who wants to purchase the shares of another company. Here, simply referring to a document as the ‘Contract of Agreement’ will not be of much help. Further, except for the individual drafting the agreement (the draftsman), every one else will have to read the contract completely to understand the nature of the contract. However, if the agreement is renamed as ‘Share Purchase Agreement’, it becomes quite evident that the agreement refers to purchase and sale of shares by the parties.

Preamble 

This is the first paragraph of a contract and is added after the ‘Title’. The preamble of a contract mentions the several details which are as follows:

1. The name given to the agreement;
2. Abbreviation of the agreement (if any);
3. The effective date or the date of execution;
4. The place of execution; and
5. The full legal name of the parties thus involved.

In case the parties are business entities, the preamble will mention about the entities and state the organisation of each business. Further, the preamble includes a descriptive noun, like ‘Service Provider’ and ‘Client’ to address the parties as per the same title all throughout the contract. 

Sample of preamble

This Creative Services Agreement (this “Agreement”) is entered into as on the 6th of August, 2023 (the “Effective Date”) by and between The Artisans Creative Inc., a Mumbai based corporation (the “Service Provider”) and Yuvansh Singh (the “Client”), in connection with Service Provider’s rendition of Creative services on behalf of the Client. Service Provider and Client are each sometimes herein are addressed as “Party”, and collectively as the “Parties”.

Another easy sample of preamble 

This Share Purchase Agreement (SPA) is executed in Mumbai as on July 23, 2022.

Date and place of execution

Date of execution

The date of agreement is an extremely crucial element when it comes to contracts. When we mention the effective date of the agreement, it helps in binding the parties to the obligations undertaken by them. The date of agreement is also crucial in case the agreement has to be registered under the Registration Act, 1908.

You may now wonder if this means that all the parties have to execute an agreement on the same day? What about those contracts that are multi-jurisdictional? Well, in such cases, it may not be logically possible to have all the parties at the same place on the same date to execute the agreement. The normal practice in such instances is to date the agreement after all the parties have signed the contract. 

Let us understand this with the help of an example. There are two individuals, Ram and Shyam. If Ram executes the agreement on July 5, 2021, and Shyam executes the same agreement on July 6, 2021 the agreement can be dated as of July 6, 2019. 

Further, if one is drafting a contract with multiple parties (and signatories) who reside in different locations, a similar approach must be followed. However, it is pertinent to note that this cannot be a thumb rule. It is possible that for some contracts, the parties to it have to sign them just for the sake of formality. 

Let us again take the help of an example to understand this better. Radha has shares in a company called Quantac Ltd. and she decides to sell 2% of her take to Krishna, in such case, Quantac Ltd. may sign the share purchase agreement as they are the confirming party, thus just for formality. Now, Quantico Ltd. may sign the contract later than Radha and Krishna may execute it on the same day. In such a scenario the date on which Quantico Ltd. (i.e., the confirming party) signs the agreement will not be taken into account to ascertain the actual date of execution.

Place of execution

A key element of drafting any agreement is to ascertain where such an agreement will be executed as this place determines the location where stamp duty for the agreement has to be paid. So, if a sale purchase agreement is executed in Maharashtra, then the stamp duty applicable in that state has to be paid, whereas, if the place of execution is Bangalore, then the requisite stamp duty applicable there has to be paid.

Sample of date and place of execution in a contract

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

Place of Execution: Mumbai, Maharashtra

Date of Execution: 7th of June, 2024

For Party A:

________________________________________________________________________

Name: Ramesh Gupta

Designation: Managing Director

Company: Jay Shree Krishna Pvt. Ltd.

Address: 005, Marine Drive, Mumbai, Maharashtra, India

For Party B:

_________________________________________________________________________

Name: Sita Sharma

Designation: CEO

Company: XYZ Ltd.

Address: 456, Bandra West, Mumbai, Maharashtra, India

_________________________________________________________________________

Description of parties

It is crucial to identify who the parties to the contract are and further mentions in description all the important information about the parties. This has to be done to ensure that any party can be identified and located easily in case such a need arises and that true and correct details of all the parties involved in the contract are mentioned.

What information is necessary to be added in the description

For individuals 

1. Full name [as mentioned in Aadhar and Pan card of the individual(s)];
2. Name of the father;
3. Permanent address;
4. PAN number/Passport number/Aadhar number/GST registration number (as may be applicable).

Sample

Ms. Suvarna Roy, daughter of Mr. Suresh Roy, an Indian citizen and tax resident in India, having Passport Number 23456897 and residing at 001, Gokuleshwar Nagar, Churchgate, Mumbai, 400 002, (hereinafter referred to as ‘Party A’ which expression shall, unless it is repugnant to the context or meaning thereof, be deemed to mean and include her heirs, executors, administrators, permitted assigns and legal representatives);

For company/LLP/Firm or other organisations that are not individuals

1. Registered address,
2. Email ID,
3. PAN,
4. Corporate Identification Number (for companies and LLPs- Limited Liability Partnerships),
5. Registration Number (for Firms),
6. GST registration number. 

Sample of an entity who is a party to the contract

Talent Hunt Limited, a Company incorporated under the laws of India bearing CIN L- 27100-MH- 1907 -PLC-000260 and having its registered office at Krishna, Churchgate, Mumbai, 400 002, (hereinafter referred to as ‘Party A’ which expression shall, unless it is repugnant to the context or meaning thereof, be deemed to mean and include its successors, administrators and permitted assigns);

In case of minor

If one of the parties is a minor and has a legal representative or guardian acting under a will, the information must be added in the description of the party.

Example

Kaveri Sinha, a minor, acting through Ms. Kara Sinha who is her mother and natural guardian…

In case of trustees 

If trustees are entering into a contract on behalf of the trust, such piece of information must be added in the description of the party.

Example

Reva and Reena, trustees, representing PDP Trust, a trust formed under Indian Trusts Act…

Word of advice: It is pertinent to mention all the details of the trustees (i.e., of all the individuals, as mentioned in the details to be added in the description for individuals part). 

Recitals

Basically, recitals portray the background and summary of the story thus presented through the contract. Simply put, recitals provide an introduction and clearly set out the gist of the contract, along with a brief background that led to formation of such a contract. They act as a tool for a layman to understand what exactly the complex contract is all about in simple words. They may also aid in introducing the parties, talk about their businesses, shed light on the type of transaction the parties are thinking of entering into and also the intent of the parties to incorporate their understanding in the form of a written contract. Generally, it starts with the term ‘WHEREAS’. 

Sample of recitals

WHEREAS, Ganesh Singh (Executive) is a competent Company

Secretary to serve as the Company’s Secretarial and Compliance Officer; and

WHEREAS, the Company desires to designate the Executive as the Company’s Secretarial and Compliance Officer and to hire the Executive on the terms and conditions set forth in this Agreement; and

WHEREAS, the Executive desires to be so employed by the Company.

Further, even without reading the whole document, one will get a rough idea of what the correct is about just blocking at the recitals. 

Types of recitals

Recitals are divided into 2 parts, namely:

Narrative recitals 

They discuss the history of the parties, the business they are engaged in and all the discussions that led to enacting such a contract.

Introductory recitals

These recitals explain the reason for the present agreement.

Important points to note while drafting a recital

While drafting a recital, one has to ensure that the following pointers are kept in mind:

1. The narration has to be clear enough so that any layman reader can understand how the parties have reached such a proposed transaction. It is pertinent to describe what is the transaction about and what is the commercial understanding of the parties in relation to such a transaction.
2. They should be in a chronological order.
3. Avoid including operative clauses like representation and warranties or indemnities in the recitals.
4. One may start recitals in numerous manners:

Start with “WHEREAS” and continue with “And Whereas” for the subsequent recitals OR write “Whereas” for the first recital and keep using a semicolon (;) and write the rest of the recitals sequentially OR use the words “Background” or “Recitals” and simply record the background information.

5. Make sure all the recitals are numbered. One can use numerals (1., 2., 3.,) or alphabets (a., b., c.,). 

Do all contracts have to have recitals

Usually, it is a general practice to add recitals, however, the parties, lawyers and legal professionals may choose to omit them in some instances. For instance, in the case of a loan agreement, once the lender and borrower are identified in the array of  parties, the lawyer can directly draft the operative clauses without having the need to add independent recitals.

Nonetheless, there are some documents that have to have recitals. For instance, in most of the sale deeds, one will find recitals on how the property has been sold and purchased by several individuals before it reached the present seller/owner. Such details are asked by officials when registering a sale deed. This helps identify from whom the trail is passed and locate file numbers as well as track the authenticity of the transaction if needed, from earlier track records and will also help at the time of getting the property mutated in the purchaser’s name in the municipal records.

Agreement clause

An agreement clause, also referred to as an ‘entire agreement clause’  or ‘integration clause’ is one of the most important components of a well-structured contract. Such a clause ensures that the written contract is considered to be the complete and final agreement between the parties involved. Further, such a clause is important for the setting the tone, scope and enforceability of the contract, thus making it a key lament of a well-structured contract.

Sample of agreement clause

This Agreement is made and entered into as of July 24, 2023, by and between Mr. Lalu Singh (Party A), with its principal place of business located at 001, Marine Drive, Mumbai, Maharashtra, India, 4000 020, and Mr. Lal singh Chadha (Party B), with its principal place of business located at 456, Bandra West, Mumbai, Maharashtra, India, 400 050. Party A agrees to provide transport services to Party B under the terms and conditions set forth herein.

Definitions and interpretation clause

It is quite common for definitions and interpretation Sections to be included just below the recitals, yet, they can be placed in a separate Schedule to the agreement. One must note that the position or chronology where such a contract has been added will, in no manner, affect the terms of the contract legally.

Definitions

Definitions of certain terms or defined terms are important to simply explain the meaning of the words or phrases used multiple times in a contract and to avoid recurrence. One must ensure that all the industrial phrases, legal jargons, and acronyms have to be described properly under this part. Further, one must ensure all the parties are in agreement of the meaning thus stated under this portion, as there is a possibility that such things often mean different things to different people.

Examples of definitional clauses

• “Agreement” means this agreement as may be amended from time to time including the Recitals, Annexures and Appendices.
• “Agreement Period” has the meaning ascribed thereto in Article—.
• “BTU” or “British Thermal Unit” means the amount of heat required to raise the temp of one pound of pure water by 1°F which is at 60°F and absolute pressure of 1013.25mbar (14.695 psi).
• “Contract” means this agreement as amended from time to time including the Recitals, Annexures and Appendices.
• “Effective Date” means (1.1.2022).

Some tips to follow while defining terms

1. The definitions must be listed in alphabetical order so it becomes easy for a reader to refer to individual definitions.
2. Any term that is defined under the operative clause of the agreement does not have to be defined again in the definition portion.
3. The first letter of each word of such defined terms must be in uppercase or capital letters. Doing so draws special attention to the fact that a term carries a particular meaning.
4. Do not use the defined term in the definition as it will become a circuitous interpretation (for instance, avoid defining Confidential Information as Confidential Information means the confidential information of a party).

Interpretation clause

The interpretation clause of a contract describes the general or specific rules for interpreting the contract. If there is no agreed clause on the rule of interpretation between the parties, then the common law and statutory rules of interpretation will be applicable. An interpretation clause most often includes interpretation relating to the following aspects (but one must note that the following is not an exhaustive list).

Headings

Usually, headings should not affect the interpretation of any provision of the contract. One must make a note that the title of the agreement or a heading clause only acts as a guide to the contents of the contract.

Example of heading

The headings and titles contained in the agreement are for the purpose of reference only and shall not affect the meaning or interpretation of this agreement.

Gender

Example of gender

A reference to one gender shall include a reference to the other reference. 

This means that a reference to a particular gender, be it male or female, will include other gender along with individuals who do not identify themselves as male or female.

Singular and plural 

Example

Words in the singular shall include the plural and in the plural shall include the singular.

These provisions are usually for the help in making the operative provisions more water tight.

Days and dates

The interpretation clause may mention that the days, months, year or any particular date stated in the contract shall be as per the English Gregorian calendar. 

Reference to laws

Further, the interpretation clause also includes that a reference to a law includes references to any delegated legislations or rules and regulations framed thereunder. Additionally, while interpreting such law, any amendment or reenactment of such a law has to be taken into consideration. Imagine where you have to make a regeneve to a particular statute on the contract, say, for instance, Mr. Lokesh shall comply with all the regulations stated in Income Tax Act, 1961, and thereafter the law is replaced by a fresh one.

Clause referencing

The interpretation clause can make it clear that a reference to a clause means a reference to a clause of this particular agreement. So, whenever a clause of contract is being referred to, the individual drafting the same does not have to include the suffix ‘of this contract’ every time.

Undefined words

The interpretation clause may mention that in situations when a particular word or phrase appears in the contract for which there is no definition provided in the contract, then the meaning of such a term will be taken from particular legislation so far as the context permits.

Recitals, schedules and annexures

The recital clause may mention that recitals, schedules and annexures form a part of the contract. It is quite rare a phenomenon for a party to make a suggestion that so is not the case.

Ejusdem Generis rule

This rule aids in narrowing interpreting lists and limits the interpretation of things which are of the same kind or nature.

Transaction

A transaction clause under a well drafted contract specifically mentions the details and conditions under which a transaction would occur. Such a clause can cover several aspects like:

1. The terms of the payment,
2. The delivery of good and services,
3. Other relevant terms related to such a transaction.

Example of transaction clause

1. Payment Terms:

Mr Lal (Party A) agrees to pay Mr. Pal (Party B) a sum total sum of ₹5 lakhs (five lakhs) for the goods/services provided under this agreement.

Payment shall be made via cheque within 30 days of receipt of invoice from Mr. Pal.

2. Delivery of Goods/Services:

Mr. Pal agrees to make delivery of goods to Mr Lal at the following address: 456, Bandra West, Mumbai, Maharashtra, India, 400 050.

Delivery shall be completed within 10 days of receipt of payment from Mr Lal.

3. Other Terms:

Any changes to the transaction must be agreed upon in writing by both parties.

Mr Lal shall incur all the costs that are associated with the delivery of goods unless otherwise specified in this agreement.

Scope of transaction

While drafting a well-written contract, it is crucial that the scope of transaction is well defined. Adding this clause ensures that all parties clearly understand their obligations, the nature of the transactions and the expectation the contract yields/demands.

Example of scope of transaction clause

The Transaction shall comprise- 

1. The sale of the Sold Business from Sellers to Purchaser or to one (1) or more Affiliated Purchaser(s) as defined in Section 2.2.1(b) (as the case may be), and 
2. The transfer of the Sold Business from Seller Group to Purchaser, or to one (1) or more Affiliates of Purchaser (as the case may be).

Scope of contract

This clause mentions all the criteria involved between the parties and includes all the products, services or deliverables.

Terms and termination clause

The terms and termination clause of agreements are interlinked.

Terms

This mentions the duration of the contract (meaning how long will a contract remain in full force and effect). Terms can be set for-

1. A specific time period, or
2. For an indefinite period of time, as required, and
3. Also for an automatic renewing period of time (commonly addressed as evergreen provisions).

Example of terms

The term of this Agreement shall continue until satisfactory completion of the services as contemplated for hereunder.

Termination clause

The termination clause of a contract sets forth rights of each party to cease the contract. Termination rights fall mainly under two brackets:

1. With cause, and
2. For convenience (meaning, without cause).

Further, termination clauses can be made in two manners:

1. Unilaterally (meaning this benefits only one parry), or
2. Mutual (meaning it benefits both the parties).

Example of terminations

Termination for cause

Either Party may terminate this Agreement immediately upon written notice to the other Party if the other Party:

1. Commits a material breach of any clause stated in this Agreement and errs to fix such breach within thirty (30) days of receipt of written notice specifying the breach.
2. Becomes insolvent or bankrupt, or a receiver, administrator, or similar officer is appointed over any of its assets.
3. Engages in any conduct that is deceitful, unlawful, or materially harmful to the business or reputation of the terminating Party.

Termination for Convenience

Either Party may terminate this Agreement for any reason upon ninety (90) days’ prior written notice to the other Party.

Effective date

There is a possibility that a contract can become effective as soon as it is executed or with retrospective effect or from a date later than the execution date. In case it is coming into effect from a date which is later than the execution date, it is called an effective date. 

Payment terms

A payment clause talks about all the intimation relating to the processing of transactions, the ways in which a particular payment is accepted, payment dates and penalties to be levied in case of delay in payments.

Consideration

Badicially, a consideration clause is a provision that discusses the exchange of value between the parties to the agreement. It particularly talks about what one party promises to give the other party in exchange for something else from the other party.

Example of consideration

In consideration of ₹5,000,000, the Seller agrees to transfer ownership of the Shizuka Car X23 to Buyer. In consideration of the car, Buyer agrees to pay Seller ₹5,000,000.

Obligations

Basically, such a clause mentions the situations or conditions wherein an individual is legally bound to perform a particular act or abstain from doing so. All the parties to the contract must be made aware of their obligations and duties in writing in a well written contract to avoid any sort of confusion in the future.

Confidentiality

As most of the agreements involve a lot of personal intonation between parties, a confidentiality clause is included so as to protect such information from unauthorised usage or disclosure.

Non solicitation

A non solicitation clause can be said to be an agreement between the parties to the contract stating that one party will not solicit the other party’s clients, customers, or ideas for their own personal benefit now and in the future.

Example of non solicitation clause

“During the term of this Agreement and for a one (1) year term thereafter, (Party A) shall not solicit or encourage any employee, vendor, independent contractor, or client of (Party B) to leave or terminate their relationship with (Company Name) for any reason.

Non compete clause

Such a clause is usually used in employment or business agreements to prevent one party from competing with another party after the contract has come to an end.

Example of non compete clause

During the Restriction Period, the Employee consents to not engage in competitive activities, including a job with competitors, acting as an officer or director, or selling services similar to those of the Company within the Restricted Territory. The Restriction period will last for a period of one (1) year once an Employee is terminated or has resigned.

Exclusivity

This clause is inserted in contracts to make sure that one party has exclusive rights to furnish certain goods or services in a particular area or market.

Example of exclusivity clause

During the term of this agreement, Mr. Lal (Party A) consents that they will exclusively use the services of Mr. Pal (Party B) as their sole real estate agent for the purchase of residential properties in Mumbai Metropolitan Region.

This means that Mr. Lal will not engage with any other real estate agent, broker, or intermediary for similar services in the specified location or region during the term of this agreement.

This clause is intended to ensure that Mr. Pal has the exclusive right to represent Mr. Lal in real estate transactions in the specified area, providing Mr. Pal with a level of certainty and commitment from Mr. Lal.

Intellectual Property (IP) clause

A well written contract must mention the ownership, use and rights related to intellectual property that is either created, used or exchanged during the course of the agreement. Such a clause is important to be inserted in a well written contract as it protects the interests of the parties involved, thus ensuring clarity on how IP is handled.

Example of IP clause

Section 3.1 Intellectual Property Ownership

Except as expressly set forth herein, as between the Parties, each Party shall continue to have ownership of all intellectual property thus owned or controlled by them, as of the Effective Date, as well as any intellectual property it develops or acquires thereafter.

Amendment clause 

An amendment clause under a well written contract enables parties to make changes or further modify the terms of the contract after it has been signed.

Example of amendment clause

1. Amendment Process:

Any amendment to this agreement must be made in writing and signed by both parties.

2. Effective Date:

The amendment shall become effective on the date specified in the written amendment document.

3. Scope of Amendment:

The amendment shall apply only to the specific terms or provisions outlined in the written amendment document and shall not affect the validity of any other provisions of this agreement.

4. No Waiver:

The failure of either party to enforce any provision of this agreement shall not be construed as a waiver of such provision or the right to enforce it in the future.

Representation and warranties

Representations and warranties are standard contractual provisions that give the non-representing party an assurance of certain facts and conditions from the representing party and that if there is a failure to perform them the non-representing party may file a claim for breach of contract.

Breach

This clause talks about the repercussions if one party does not fulfil the obligations they are obliged to perform under the contract.

Example of breach

Each Party shall have the right to terminate this Agreement immediately in its entirety upon written notice to the other Party if such other Party materially breaches this Agreement and has not cured such breach to the reasonable satisfaction of the other Party within 30 days after notice of such breach from the non-breaching Party (or within 45 days from the date of such notice in the event such breach is solely based on the breaching Party’s failure to pay any amounts or issue any shares due hereunder).

For more such instances, please refer to this link.

Force majeure clause

Force majeure clause can be described as that situation wherein either of the parties to the contract is prevented from temporarily or permanently performing their obligations as stated in the contract due to unforeseeable conditions. These events can be as follows:

1. Act of god (like earthquake, tsunami);
2. Acts of sovereign government (war, banning export);
3. Acts of individuals or groups (terrorism).

Such a provision must be carefully considered by the lawyers of the parties.0 This clause is oftentimes overlooked while drafting a contract, but as a legal professional, you must note that this is an important clause as it mentions all the specifications on sharing the expenses and costs thus incurred at the time of contingencies.

Example of force majeure clause

Example 1

Neither party will be held liable for inadequate performance to the extent caused by a condition (for instance, a natural disaster, act of war or terrorism, riot, labour condition, governmental action, and disturbance in the Internet) that was beyond the reasonable control of the party.

Example 2

If the performance of this Agreement cannot be proceeded with due to force majeure, the Parties may be exempted from liabilities in whole or in part according to the impact of the force majeure. If either party cannot perform this Agreement due to force majeure, it shall immediately notify the other party, and try its best to minimise the possible losses as sustained by the other party, and shall timely provide a proof to the other party.

For more such examples, please refer to this link.

Indemnification clause

Indemnification clauses, also addressed as ‘hold harmless provisions’ allocate the risk and expenses arising from the acts of either parties relating to breach, negligence or misconduct relating to the contract. The main object of such a clause is to safeguard the indemnified party from losses incurred from third party claims made pursuant to such an agreement.

Example of indemnification

Mr. Lal (Party A) agrees to indemnify, fend, and hold harmless Mr. Pal (Party B), its officers, directors, employees, and agents from and against any and all claims, liabilities, damages, losses, costs, and expenses (this also includes reasonable attorneys’ fees) arising out of or related to (specific circumstances, such as breach of contract, negligence, or violation of law) by Mr. Lal.

Mr. Pal agrees to indemnify, defend, and hold harmless Mr. Lal, its officers, directors, employees, and agents from and against any and all claims, liabilities, damages, losses, costs, and expenses (including reasonable attorneys’ fees) arising out of or related to (specific circumstances, such as breach of contract, negligence, or violation of law) by Mr. Pal.

The indemnification obligations set forth in this clause shall survive the termination or expiration of this Contract.

Limitation of liability or liquidated damages

Such a clause limits financial exposure of a certain party in case a lawsuit is filed against them. Thus, it is used for excluding liability of either or both the parties for specific types of damages like-

1. Indirect (including punitive damages, and otherwise standard tort remedy),
2. Consequential, and
3. Incidental, inter alia.

Attorney’s fees

This clause states that the prevailing party in the dispute may reimburse a reasonable amount of fees and related costs to the non prevailing party. 

Example of attorney fees

If either party incurs any legal fees associated with the enforcement of this Agreement or any of its rights hereunder, the prevailing party shall be entitled to recover, in addition to all other damages to which it may be entitled, its reasonable outside attorney’s fees and related costs and expenses from the other party.

Notices

Such a class provides for the parties a means to communicate in an official manner. This includes the manner in which official communications, notifications and other crucial information are to be exchanged between the parties. Such clauses are inserted in a contract to ensure that both the parties are well aware of where to send the notices and when they will be received by the appropriate party.

Severability clause

The severability clause (also known as ‘partial invalidity’ clause) is included in most of the commercial contracts nowadays. It effectively states that if any terms become unenforceable for whatsoever reason, the other provisions will continue to be in force and stay effective.

Waiver clause

Waiver clauses are very commonly seen in all the contracts. Such clauses are oftentimes referred to as ‘no waiver’. The main purpose of inserting such a clause is to prevent a party from accidentally or in an informal manner waive its right to bring claim and recover damages under an agreement in case there is a breach from the other side of the party to the contract.

Governing law

Under this clause, all the rules and regulations applicable to the contract will be included. 

Alternate dispute resolution (ADR)

This refers to those circumstances where parties to the contract resolve disputes without taking them to the court. Instead of filing suit for each breach and every other wrongdoing, parties can choose to resolve issues via ADR (this includes methods of arbitration, mediation, conciliation, etc.)

Signature and dates (also of witnesses, if any)

Last, but certainly not the least, adding signatures and dates at the end of a contract is of utmost importance. Signatures and dates of the parties and also the witnesses are of significant importance as they signify that the parties gave their assent to the terms stated in the contract. Further, the witness acts as an authenticator that both the parties signed the contract in his/her presence and thereby there was no undue influence of one party to the other.

Example of signature and dates of parties to the contract and witness

The Parties hereby agree to the terms and conditions set forth above and acknowledge receipt and sufficiency of consideration by signing below:

Party A: _______________________          Date: _______________

Party B: _______________________          Date: _______________

Witness: _______________________         Date: _______________

Some other essential elements of a well-written contract 

Some other essential elements of a well-written contract include, inter alia:

1. Conditions:

1. Pre Closing
2. Closing
3. Post Closing
4. Lock in

2. Remedial Actions
3. Assignment/Transfer
4. Subcontracting
5. Territory
6. Costs
7. Taxes
8. Insurance
9. Duration of a Contract
10. Renewal/ Extension

Types of contracts

There are numerous types of contracts based upon different grounds; let us take a quick look at each of them:

On the basis of the formation of the contract

Verbal contract

Verbal contracts, also known as ‘oral contracts’ can be referred to as those contracts that are formed by oral communication. Since they are very difficult to prove in a court of law, these types of contracts are not executed in a formal setting. However, in day-to-day life, we may see ourselves entering into such agreements. Yet, it is noteworthy that this form of contract is deemed to be valid under Section 10 of the Indian Contract Act, 1872.

Written contract

All contracts that are written and tangible are written contracts. These types of contracts are the most common types of contracts.

Express contract

A contract is said to be expressed if any sort of proposal or acceptance is made in words, and it could be in any form, i.e., written or oral. The provision is subject to the condition that there must be a valid acceptance to such offer.

Implied contract

An implied contract can be referred to as the opposite of an express contract which means that these contracts are not expressed in writing or in oral form. For instance, in an auction, if a customer raises the paddle, it is an implied offer and the final bang of the gavel by the auctioneer will imply that the offer is accepted and the subject of the auction is sold to the customer.

Quasi-contracts

Unlike other contracts, quasi-contracts do not hold contractual relations between parties but are created by the virtue of law. The court may form such contracts based in any of the following situations:

1. When there is a supply of essentials.
2. When the expenses of one individual are incurred by another individual.
3. In the case of the finder of goods.
4. When there is a mistake in the supply of goods or in making payments.

Provisions on quasi-contract 

For drafting a well-written contract, the following provisions under a quasi-contract clause are noteworthy:

1. Section 68 (This Section talks about claims for necessaries supplied to person incapable of contracting, or on his account),
2. Section 69 (This Section talks about reimbursement of person paying money due by another, in payment of which he is interested),
3. Section 70 (This Section talks about obligation of person enjoying the benefit of the non-gratuitous act),
4. Section 71 (This Section talks about the responsibilities of finder of goods),
5. Section 72 (This Section talks about the liability of an individual to whom money is paid or something that is delivered by mistake or under coercion).

E-contracts 

E-contracts, also known as ‘cyber contracts’ or ‘electronic data interchange contracts’ are those contracts that are formed via electronic means. In today’s scenario, they can be referred to as:

1. Emails,
2. Telephonic conversations,
3. Digital signatures, etc.

The contractual terms in such types of contracts are listed by electronic means or are implied through the actions of the users.

On the basis of validity of a contract

Valid contract

Valid contracts have to fulfil all the contract requirements, thus making it legally binding and enforceable. The requirements include:

• Before the contract, an offer was made by one party and the other party gave their assent to the same, thus making it eligible for registration (if need be).
• There has to be an existence of a legal relationship.
• There has to be free consent between the parties involved.
• The parties must be competent to enter into a contract (should not be a minor or in a state of intoxication, etc.)
• The consideration and the object of forming the contract must be lawful.
• The contract must not be referred to as void under any law and regulations.

Void contract/ contract void-ab-initio

Any type of contract that does not fulfil the above requirements of a valid contract is referred to as a void contract. Those contracts that never existed from the moment of their inception are said to be void ab initio contracts. The most common instance of such a contract would be a contract made by a minor.

Voidable contract

Voidable contracts are those contracts that can be declared to be voidable on the will of one of the parties. Voidability of such contracts is mentioned under Section 19 of the Contract Act. Generally, in such scenarios, the consent is not free and is obtained through:

1. Coercion (Section 15), 
2. Undue influence (Section 16), 
3. Fraud (Section 17), and 
4. Misrepresentation (Section 18).

In this circumstance, it is very likely that one party has defrauded the other party or caused an undue influence, here, there lies an option to make the contract voidable.

Unenforceable contract

A contract is regarded to be unenforceable, if it does not succeed in fulfilling the requisite legal obligations. Such contracts can be enforced when such requirements are met and upon completion of all such formalities, most of them are technical in nature.

Illegal contract

The court of law can declare any contract to be voidable if-

1. It allows one or all the parties to the contract to break any law or not adhere to any societal norms.
2. It is against public policy.

An instance of such a contract would be- contract killings facilitated by contracts for murdering (or causing harm to anyone). Such contracts are illegal in nature. 

On the basis of the nature of the contract

Unilateral contract

A unilateral contract is a contract where only one party makes a promise, and this could be availed by anyone who is ready to commit the requirements. Such a contract can only be compiled with if someone else fulfils the promise.

Bilateral contract

A bilateral contract (or reciprocal contract, also known as ‘two-sided contracts’) can be addressed as a contract that comes with mutual considerations. Such a contract is formed when two parties agree on each other’s contractual terms. In such contracts the parties are fixed. This is one of the most common types of contracts.

Unconscionable contract

An unconscionable contract can be referred to a contract that is clearly one sided and unfair to one of the parties involved. Such contracts cannot be enforceable by law and if a suit is filed against such a contract, the court will declare it to be void, however, it is up to the court’s discretion to determine whether such a contract is unconscionable or not.

Adhesion contract

An adhesion contract (also referred to as ‘boilerplate contract’ or ‘standard form contract’) is a contract between two parties wherein one party, who has greater bargaining skills establishes all or most of the provisions of the contract. Whereas, the other party, the one with less bargaining power, has little to no leverage to reach an acceptable agreement. In simple terms, such contracts can be defined as ‘take it or leave it’ contracts.

Aleatory contract

Under this type of contract, parties need not perform a contract until a specific event has occurred. The most common type of aleatory contract are insurance contracts where insurance premiums are paid and only in specific situations, like car damage if it is car insurance will the company perform and pay for the damages of the policy holder.

Option contract

Option contracts are those contracts that allow a party to enter into a new contract with another party at a later date, meaning the party enters into a second contract. An instance of option contract would be real estate where a prospective buyer will provide funds to a seller to remove his/her property from the market and give it to him (i.e., the buyer). Further, he will have to enter into a new contract to buy the property outright at a later date if they desire.

On the basis of execution of contracts

Executory contract

An executory contract can be said to be the one that involves the performance of the consideration in the future, meaning the promises of consideration cannot be fulfilled on an immediate basis like executed contracts (discussed below).

Executed contract

An executed contract is that contract whose performance is completed, either by one, both or all the parties to the contract. Generally, such contracts are performed on an immediate basis like buying of goods and/or services.

Importance of drafting a well-written contract

As we know contracts can be both, oral and written, however, in case any dispute arises between the parties and if the agreement was oral, it will quickly escalate into a verbal argument situation and it will become very difficult to prove in the court of law as opposed to a well-written contract. Thus, a well-drafted contract is essential to ensure a good risk management method. It further helps to do away with any disputes that may arise in the foreseeable future and any agreement that may lead to liability claims and other legal disputes. Moreover, it helps better protect the interests of business professionals. 

Importance of following a proper structure

Any contract that is ambiguous, vague and unstructured may cause legal repercussions in the foreseeable future. Following a proper structure will help to avert such issues. Further, a well-written contract is crucial for the following reasons:

Clarity and understanding

For better clarity and understanding between the parties to the contract, proper structure of a contract becomes utmost important. One must ensure that all the terms, conditions and obligations of the parties are clearly outlined in the contract.

Legality and compliance

Proper structuring ensures that the contract is in compliance with the applicable rules and regulations. This in turn will help to avoid any legal pitfall that may otherwise make the contract to be of unenforceable nature.

Helps to avert disputes

Properly structured contracts can help in averting legal disputes as it will discuss expectations and responsibilities in a clear way, thus reducing the scope for disagreements over any of the clauses stated in the contract.

Enhances readability

A properly structured contract is easier to navigate, thus making it simple for parties to refer back to any specific clauses, if need be. Following a proper structure is important in all contracts, but especially in those contracts that are made for a long term or those who have complex provisions.

Ensures that all aspects are covered

Following a proper structure ensures that all important components are covered, like:

1. Definitions, 
2. Obligations,
3. Warranties, 
4. Indemnities,
5. Alternative dispute mechanisms, 
6. Termination clause, etc.

This, in turn, ensures that the contract is exhaustive and covers all important aspects that must be added to the clauses that have to be incorporated in that particular contract.

Easier to amend

A properly structured contract makes it easy to make changes in the final draft as such clarity and layout makes it simple to identify and update specific portions, as and when instructed by the parties to the contract. Doing so helps in maintaining the contract’s relevance and accuracy over time.

Promotes mutual transparency

A well-structured contract promotes mutual transparency by clearly outlining obligations and expectations of each party to the contract. This openness fosters trust and cooperation, thus making sure that both the parties are in agreement to the terms and are well aware of the responsibilities.

Important points to note while drafting a contract

While drafting a contract, it is important that the following key points are kept in mind, thus ensuring that contracts are effective, succinct and clear.

Simplicity and clarity

The contracts should be drafted in such a way that is easily readable and understood by a layman. The language thus used must be simple and clear. One should avoid using legal jargons and terms that could cause confusion to the parties involved.

Consistency

One must make sure that the language and terms mentioned throughout the contract are uniform. Any sort of inconsistency here would leave a path for potential disputes or confusion in the future.

Balancing the rights of both parties

It is pertinent to note that contracts should not be one-sided. Even though it is important to protect the interests of one’s clients, it is fair only when the rights and obligations are put forward in a well-balanced manner rather than one side being dominant and having more rights and powers. A well-balanced contract would help nurture trust among parties and may reduce the likelihood of disagreements and disputes in the future.

Customised for each type of transaction

Contracts must be properly curated based upon the requirements of the client and the type  of agreement at hand. One must refrain from using generic templates that do not exhaustively cover the unique aspects of the agreement that one drafts.

Thorough review for any errors

Before the final draft is finalised for the signing of the parties, one must review it thoroughly to eradicate any mistakes. Here, mistakes would mean:

1. Typographical errors;
2. Grammatical errors;
3. Inconsistencies or the like.

Future proof

One must make sure they think about the future changes or developments that would affect the contract they are drafting and include provisions that discuss how such changes or amends will be handled, if such a need occurs.

Legal compliance

While drafting a contract, one must ensure that the contract is in compliance with all the relevant rules and regulations set forward in that jurisdiction or otherwise (i.e., even the international laws and regulations, if possible, have to be taken into consideration).

Step-by-step guide to drafting a valid contract

Every contract has to be customised in a specific manner based upon certain needs and circumstances of the parties and perhaps, each contract comes with its own set of requirements, yet, there is a standard protocol one can use to create a well written contract. Mentioned below is a 15 steps guide to be followed while drafting a contract.

Agreement

Drafting a contract is not just for the sake of it, perhaps, one must ensure that it carries a proper value and has a just and sound meaning to it. Agreement is one of the most important parts of a valid contract. This is essentially what the contract means. For instance, a contract between a tenant and a landlord would necessarily mean that the tenant agreed to pay rent for the property in exchange for a place to reside or do business on the property of the landlord. Such information is of utmost importance and must be included somewhere in the contract.

Quick tip for legal professionals: you must try to draft an agreement as clearly as possible in order to leave no place for any ambiguity or confusion in the future. 

Ascertain the type of contract needed

The first step towards drafting a proper contract would be to ascertain one’s clients’ legal needs and pay attention to the relationships one need to define formally. Take into consideration different types of contracts and select the one that best fits for the situation in hand. Let us understand this with the help of an instance. Say, you are to draft an agreement between an employee and employer, now the terms you will be adding will be far different than that of a sales contract, thus you have to ascertain which type of contract best suits your or your client’s circumstance.

Check out and confirm the necessary parties

Once you have ascertained which type of contract best fits your client’s circumstances, you may then decide upon the parties to such a contract. Say, if it is a contract between an employee and an employer, then one has to include individuals from the company who have vested interest in the contract’s terms and structure. This will include everyone from the project manager(s) to human resources. One must ensure that all the individuals who would be entitled to approve or provide signatures in the foreseeable future or at later stages must review such an agreement and give their assent to it. Further, one may also consider adding names of the individuals from external sources. Say, in an employee-employer agreement, one may add names of candidates, suppliers or vendors and other such individuals whose names have to be added in the final document. As a lawyer or an advocate, it is your duty to collect contact information of all such persons.

Further, it is noteworthy that parties to a contract are the most important element and without them, there lies absolutely no point in even drafting a contract as there would be no one to enact and enforce the terms of the contract. If you are a lawyer who is drafting the contract on behalf of the parties, you must know the parties inside out, which means that you know the intentions of the individuals drafting the contract, while also ensuring they are capable of entering into such an agreement. This means that they have to be over the age of 18 years and not under the influence of any intoxicating substance. From this point onwards, one can actually start drafting the contract.

Reach a consensus on the terms of the contract

It is crucial that one is as straightforward as they could be while writing the contract. Not only will this make it easier to manage the contract in the future, but also make the contract easy and convenient to draft in order to have the parties to unanimously agree to the terms of the contract before the draft has been prepared.

Quick tip for legal professionals: if need be, make all the parties sit together and let them hear the terms of the contract and give their assent. However, in case of simple contracts, one can simply receive the written intentions from all the parties.

Specify the duration of the contract

Let’s say, a car washer agreed to wash your car, however, he spends the entire day cleaning it and making it spotless, thus fulfilling his side of the bargain. Well, if you are especially litigious, you would contend that there was no agreement as to when one would stop washing the car, right? In this way, the cleaner may never be able to leave the driveway whatsoever. Such amusing incidents may not occur in the real world but this clearly demonstrates why it is crucial to mention some sort of endpoints to a contract once the agreement is outlined. There are so many contracts that are made up for ongoing work, but it is crucial that even such contracts include a termination clause (i.e., these clauses can be used for parties to end a contract prematurely).

Discuss the consequences and repercussions

Generally, we refer to contracts as an expression of good faith, yet, not everything goes exactly as planned. Once the contract is drafted and there is an agreement between the parties and the length of the contract is decided, it is important that all the parties be informed about the consequences of each party in case they act against the terms of the contract. However, this will solely depend on the type of contract thus produced. Say, for instance, in a rental agreement one will include the repercussions of not paying rent within the specified time period or causing any damage to the property. Without such protections and clauses, the value of the contract is negligible.

Discuss about how disputes would be resolved

Most certainly, simply adding a penalty clause will not be enough to manage these issues as it is always possible that parties to the contract would not agree to the failure of not being able to fulfil the agreement. Thus, parties must agree to some sort of methods to resolve the disputes. These methods may include:

1. Mediation,
2. Arbitration, or 
3. Civil litigation.

Incorporating these into the contract will mean that any dispute is fairly straightforward to resolve.

Think about confidentiality

At times, there is a chance that a contract is to be kept confidential as it may include any sensitive data or company secrets. So, if this is the case, one must make sure a confidentiality clause is incorporated in the contract. And in case if such confidentiality is breached it will be regarded to be a breach of contract itself.

Keeping an eye on the legality of the contract

While drafting a contract, one of the major worries would be to draft a legally enforceable contract. So, in order to ensure one’s contract is actually workable, it is crucial to ensure that everything mentioned in the contract is in accordance with the laws and local regulations and does not breach any of the regulations and provisions whatsoever.

Open it up for negotiations

Once the above steps are followed, you may consider opening the draft for negotiations between the different parties. This ensures that all the parties are in consensus with the contract and are happy to sign it. If the lawyer had undergone proper process of preparation and research, it is highly likely that all the parties will be satisfied with the agreement.

Ensure the contract is written with proper formatting

It is crucial that the contract should be formatted and written in a professional manner and whether one decides to use an existing template or start drafting from the very beginning. While drafting the contract, it is important to incorporate an introductory section that mentions all the interested parties. 

A well-written contract will have all the details regarding its duration and the specifics regarding the terms of the agreement thus entered upon between the parties. The tone of the contract must be formal and concise. All important terms must be highlighted and defined, especially those terms that carry a proprietary or technical meaning, this is to ensure that all the parties to the contract understand the terms and inclusions therewith. It is also advised that one makes the use of rather concrete words than industry jargon to make sure the intentions are crystal clear. Further, if the contract is elaborative or has numerous sections, a table of contents must be incorporated to make it easier for review. It is further advised that shorter passages be used and similar concepts be grouped together. Furthermore, one can break up the document into smaller chunks and headings and subheadings for better, enacted readability. Moreover, contracts are legally binding documents that, much necessarily, need signatures of all the parties thus involved in such an agreement. So, one must keep ample amount of space to collect the signatures of all the parties involved in the contract. To do this, one must type the name of each individual, his/her title, and company affiliation and leave room for them to sign either physically or electronically via e-signature.

Make some room for dates and signatures

A contract without a signature is not worthy and remains just the paper it is printed on. After all, it is only with the signatures of each party that a contract becomes legally binding, meaning that there must always be room for every party to sign the contract. Alongside this, a lot of contracts have to be dated. This is necessary in case any issues arise in the future. However, it may also have other effects at times, an agreement is in place from the moment that it is signed, while other contracts will have a specified contract effective date at some point in the future. 

Review the contract properly

Even when a template is used, you must go through the contract before issuing it for the signature of the parties.

Send the contract draft for review or revisions

Before the contract is being sent for external approval and signature, it is your duty to ensure that all the internal stakeholders have taken a look at the contents of the drafts. While the contract may be legally solid, there is a possibility that other team members may notice exclusions or may feel the need to make amends regarding the specifics related to their area of expertise.

Signing the contract either physically or electronically

With the finalisation of the contract, all parties must go through the details and choose to confirm the terms by signing the document. The parties must further receive and retain a completed copy of the contract for their records. The easiest way to do this is via e-signature as it cuts down on the time it takes to issue and collect approval from each party to the contract.

Tips and tricks to draft a well-written contract

Now that we know about the steps to create a contract and what elements have to be included in the contract, it is crucial that we understand the actual writing that goes into a contract. So, let us take a look at some tips and tricks that must be followed to ensure a contract is drafted in a sound and reasonable manner.

Keep it simple

Draft the contract in a manner that is simple. There is no need to add flowery prose and complex syntax. Further, legal jargons and legalese must be avoided. Rather, plain, lucid English must be used, and it should be in a manner that the parties to the contract and a potential non specialist litigation understand the contract.

Watch out for modal verbs

While drafting a contract, one must ensure that the verbs ‘may, ‘shall and ‘will’ have to be handled carefully. ‘Shall’ is used to describe an action by a party, say, for instance, the tenant shall pay rent on the 1st of every month, whereas will is used for events that do not need an obligation for a party. Likewise, the verb ‘may is usually used as a way of saying ‘reserves the right’.

Avoid synonyms

Generally, we try to mix up our vocabulary while writing; however, it is better that we stick to the same old words and phrases throughout a contract. This may, at times, make you feel that the contract is redundant and you might end up getting exasperated by using a word, say ‘services’, but doing so will leave no room for confusion. If one wants to ensure that the meaning of the terms is clear enough, one must define them at the very beginning of the contract. This means it is even more important to avoid using synonyms of a particular word.

Divide and conquer

While drafting a contract, one needs to aim for ease and clarity. Dividing the contract into small parts, thus adding multiple sections and subsections will be quite helpful to simplify the agreement. 

Quick tip for legal professionals:  One must try to avoid any large blocks of text and use bullet points when possible.

Some other points to be noted while drafting a well-written contract

Get the contract written in black and white

It is always advised to try to get a contract written in black and white and get the parties to sign it. However, in cases when writing a contract is not possible, one must ensure that the other documentation, like emails, quotes, or notes about the discussion, is stored properly to help one identify what exactly was discussed back then.

Ending contract

Generally, most contracts get terminated once the task they were made up for is completed. However, contracts may also end in the following circumstances:

By agreement

Here, both parties give their assent to end the contract before the work is done.

By frustration

When the contract cannot continue due to some unforeseen circumstances and basically the circumstances are beyond the control of the parties.

For convenience

Here, the contract allows a party to terminate at any point in time by giving proper notice to the other party or parties involved in the contract.

Breach

When one party does not comply with the terms stated in the contract, the other party may, at its discretion, decide to terminate the contract and seek composition for the damages thus incurred. Moreover, if a contract warranty or a minor term is infringed, it is highly unlikely that the whole contract will be terminated, however, the party may seek compensation if a contract warranty or minor term has been breached, but it is unlikely that it can be terminated. Also, some contracts may even specify the amount payable in case of breach as known as the liquidated damages.

Conclusion

Being able to draft a proper, well-written contract is a skillset every legal professional must learn. Taking into consideration all the essential points (as discussed in the elements) is crucial for the formation of a well-written contract. 

Further, to make sure the contract is legally enforceable, it is crucial that you, as a legal professional, refer to the essentials of a valid contract. Furthermore, to ensure that the contract is perfect and all the necessary pointers are discussed, it is crucial that one reviews and proofreads it with utmost scrutiny and makes the requisite changes as he/she deems fit and as per the suggestions of the client. 

Moreover, to conclude this article, we can say that, for a contract to be regarded as well-written, it should have essential elements like details like title, preamble, description of the parties, recitals, etc. It should also address key aspects like payment terms, dispute resulting mechanism, term and termination clause, inter alia. Making sure that all such important elements are incorporated in the contract can help avoid misunderstandings and disputes and provide a solid ground for a successful business relationship.

Frequently Asked Questions (FAQs)

Is it necessary for a contract to be in writing?

While it is not compulsory to have an agreement in written format, it is always advisable that one does so, especially for important and formal matters. Further, if the contract is not in written format, one must ensure that the basic elements of a contract are included.

What are void contracts?

Basically, void contracts (as mentioned above) are formal agreements that are not enforceable in nature. This is usually because the agreement did not fulfil the necessary requirements for it to be a legally binding contract.

At what point does a contract become legally binding?

A contract becomes legally binding as soon as all of the essential elements of a contract are met. Before this, we cannot say that it is enforceable or legally valid.

Can emails be used as legally binding contracts?

Emails can become legally binding contracts if the essential elements of the contract are met within the email chain.

What are some of the essential points that have to be included while drafting a well-written contract?

Before entering into the contract, all the parties to the contract have to clearly state their intention to enter into such a contract and give their assent to each and every part of the contract. All the parties must also have the capacity, i.e., the requisite ability to understand the terms and obligations enlisted in the contract. If one of the parties is underage (i.e., below 18 years of age), has a disability that prevents comprehension, or is under the influence of alcohol or intoxicated, then in such a case, the party may lack the capacity to enter into a contract. Mentioned below are some of the pointers on may consider to include while drafting a contract-

Basic information

The legal names and/or business names of the parties thus involved, along with their addresses, a description of the property or service being exchanged for money or other consideration must be discussed.

Rights and obligations

Here, the terms of the contracts, like the rights and responsibilities of each and every party to the contract must be added.

Specific considerations

An elaborate description of the property or item(s), including the condition, what the parties will and will not be held responsible for, and what, if any, warranty or guarantee exists has been mentioned.

Dates

The contract must necessarily consist of important dates like-

1. Date of sale, 
2. Dates of any warranties in effect,
3. Due dates for any payment instalments.

Termination

The different termination rights, if any, of the parties and what will happen after such a termination must also be discussed in detail.

Can a contract be legally binding in the absence of such elements?

Well, in order for a contract to be valid and legally binding, it is crucial for all such pointers to be present. If these elements are missing it is highly likely that the contract will be declared as void or voidable. 

What will happen if there are disagreements on the essential elements of a contract after the parties have signed the agreement?

If, after the contract has been signed, any issue on the essential elements of a contract occurs, the parties may have to seek legal assistance to resolve the issue. Depending upon the nature of the dispute, the court (or if they have chosen ADR methods, the mediation, conciliation, etc.) may declare a contract to be void or voidable. At times, the parties may be required to fulfil their obligations under the contract, thus not leaving room for it being declared void or voidable.

References

• https://www.icsi.edu/media/webmodules/Drafting_Apperances_Pleadings_NewSyllabus.pdf.pdf 
• http://docs.manupatra.in/newsline/articles/Upload/97A329C8-0027-49EF-851D-FA9F7D2C8B46.pdf