An effective contract reflects obligations of the parties with necessary safeguards and efficacious remedies along with intention of the parties getting into legal relationship. In modern era, world is economized by trade, domestic and international, and this trade is facilitated through contracts entered into by the parties. A domestic contract is one where both the parties operate their business from one and same country, whereas an international contract is one where both the parties operate their business from two different countries.
Contract drafting is a step by step process of adding specific clauses, terms and conditions that are expressed as per the needs and wants of the parties to the contract. It is germane while making draft of the contract to consider diverse issues including the subject of the contract, amount of consideration, conditions, indemnity, mechanism for dispute resolution etc.
What are the forms of contracts?
Contracts are of two types i.e. oral and written. Oral contracts are a system of understanding between the parties whereby they agree to certain terms that are orally made and to act on such term whereas, written contracts are contracts wherein the parties to the contract express and record each and every term of the agreement between them. Both types of contracts are considered as valid in numerous countries.
However, it is always difficult to enforce the oral contracts because of its nature. It is always recommended to enter into a written contract to eliminate any kind of ambiguity that may arise in the future. The terms that are agreed upon are recorded in a documented form and much easier to rely upon in practically as the relationship between and the rights and obligations of the parties to the contract are jotted down in the contract itself.
It is marked here that even if contract is made in written form but it cannot be considered reliable until and unless it is registered.
Is it mandatory to register a contract in India?
The laws in many nations do not expressly state that all the contracts must be registered in order to make them legally enforceable. Howbeit, when a party become a victim of some default made by the other party, it becomes hard for the victim to prove the legality, binding effect and validity of the contract. To exemplify, the Indian Contract Act, 1872 does not talk about registration or stamping of any contract.
Additionally, the Registration Act, 1908 enumerates the documents which must be compulsorily registered for enforceability before the court of law. These documents include the instruments related to immovable property, instruments of movable property amounting to Rs. 100 or above and so on. It notable here that term instruments connote the sale deed, lease deed, gift deed etc.
Besides this, Indian Stamp Act also expressly mentioned that documents such as Power of Attorney except in case of immovable property, development agreement etc. shall be made on a stamp paper but need not be compulsorily registered for legal enforcement.
These provisions create confusion as to what kinds of contracts are required to be registered or not for sustainability in the eyes of law. Thus, it is advised that parties must register their contracts if they want to avoid any hassles in whatever form in the long run.
What are the basic terms and clauses?
Here is the list of rudimentary terms and clauses of any contract.
Subject matter: – The first and foremost thing while drafting a contract is to determine the subject matter as it will define the nature as well as legal enforceability of the contract.
Definition clause: – It is vital part of every contract as it contains definition of all the words used throughout the contract. Although some words may be general meaning but these words could be defined specifically for the purpose of the contract.
Tenure of the contract: – Being a prominent factor in the contract it implies the time period during which the relationship between the parties will be governed by the terms and conditions of contract. Once the time period expires, the contract automatically dissolves. In various cases, the term of the contract also depends on achieving certain goal for which the contract has been entered upon.
Renewal clause: – This clause is required to be a part of the contract where nature of the work and terms laid in the contract need not to be changed for long period. Renewal clause can be inserted to ensure continual binding effect of the contract without incurring the expenses of drafting and registering different contracts time and again.
Right and duties of the parties: – Every contract must specify the right and duties of the parties in respect to each other. This clause is considered as crux of the contract and violation of this clause often leads to arise of dispute between the parties. Despite this, all the rights and duties must be mentioned in detail to avoid any ambiguity.
Consideration amount: – It states the amount of consideration that one party must have to pay to other party for the performance as agreed between them under the contract. Such consideration must be legal in nature and instrument through which the payment is to paid must be recognized by law too.
Dispute settlement and jurisdiction: – This clause defines the mode of dispute resolution or what legal recourse parties could take in the event of any dispute. The dispute resolution mechanism like arbitration, mediation etc. are considered to be integral part of any contract. The jurisdiction clause defines the place where such dispute may be resolved between the contracting parties.
Termination of the contract: – It generally defines the circumstances under which the contract shall stand terminated. Along with that this clause implies the rights and liabilities that the contracting parties will be entitled to when the contract stands cancelled.
Force majeure: – This clause depicts the unforeseeable and unpredictable circumstances which may stop one party from performing its part, thereby leaving the contract unfulfilled. It talks about the role of contracting parties when such a situation may arise during the tenure of the contract.
To recapitulate, it would be appropriate to hold the notion that violation of contracts covers the large area of litigation. A carefully drafted contract not only saves the time, effort and costs but even bestowed fruitful results in the growth of any corporation. Further, any dispute between the parties can be dealt efficiently if the well-defined clauses are enshrined as a part of the contract.
Associate at Aggarwals & Associates, S.A.S. Nagar, Mohali