CONTRACT

An effective contract is not only a reflection of the parties' intention to get into a legal relationship, but
clearly lays out the respective obligations of the parties with necessary safeguards and efficacious
remedies. And that role is played by good drafting. Contract drafting is very important because it provides
the foundation upon which legal rights and liabilities of parties depend. Clarity and precision in contract
drafting are essential for making sure that both parties needs are met.

MEANING OF CONTRACT
The Indian Contract Act, 1872 deals with the principles of law of contract, it’s essential elements, its
formation, its performance and the remedies for the breach of contracts. It determines the circumstances
in which promises are made by the parties to a contract, general principles of the formation of contract
and also prescribes the remedies which are available in the Court of law for the breach of contract against
a person who fails to perform his undertaking created under the Contract.

Section 2(h) of Indian Contract Act, 1872 defines contract as “An agreement
enforceable by law”. Thus, formation of a contract there must be an agreement, and
the agreement should be enforceable by law.

The agreement will create rights and obligations that may be enforced in the courts.
The normal method of enforcement is an action for damages for breach of contract,
though in some cases the court may order performance by the party in default.

ESSENTIALS OF A VALID CONTRACT

According to Section 10, “All agreements are contracts if they are made by the free
consent of the parties competent to contract, for a lawful consideration and with a
lawful object and are not hereby expressly declared to be void.”

The analysis of the provisions of Section 10 shows that a valid contract musthave the
following essential elements:

1. Proper Offer and Acceptance There must be at least two parties- one making
the offer and the other accepting it. Such offer any acceptance must be valid. An offer
to be valid must fulfil certain conditions, such as it must intend to create legal
relations, its term, must be certain and unambiguous, it must be communicated to the
person to whom it is made, etc. An acceptance to be valid must folds certain
conditions, such as it must be absolute and unqualified, it must be made in the
prescribed manner, it must be communicated by an authorised person before the offer
lapses.
2. Intention to Create Legal Relationship There must be an intention among the
parties to create a legal relationship. In case of social or domestic agreements, the
usual presumption is that the parties do not intend to create legal relationship but in
commercial or business agreements, the usual presumption is that the parties intend to
create legal relationship unless otherwise agreed upon.

Example: X invited Y to a dinner Y accepted the invitation. It is a social

agreement. If X fails to serve dinner to Y, Y cannot go to the courts of law for
enforcing the agreement. Similarly, if Y fails to attend the dinner, X cannot go to the
courts of law for enforcing the agreement.

But even a business agreement may not be enforceable by law where the agreement so
provides e.g. in Rose & Frank Co. v. Crompton Bros. (1925) A.C. 445, the agreement
entered into stated that it will not be subject to legal jurisdiction in the law courts, the
agreement was not enforceable by law as the parties never agreed to create legal
obligations despite being a business agreement.

3. Capacity of Parties The parties to an agreement must be competent to

contract. In other words, they must be capable of entering into a contract. According
to Section 11 of Indian Contract Act, 1872. “every person is competent to contract
who is of the age of majority according to the law to which he is subject and who is of
sound mind and is not disqualified from contracting by any law to which he is
subject.”

In other words. the person must be major, must be of sound mind and must not
be declared disqualified from contracting by any law to which he is subject. If the
parties to agreement are not competent to contract, then no valid contract comes into
existence.

Example: X a minor borrowed Rs 8,000 from Y and executed mortgage of his

property in favour of the lender. This was not a valid contract because X is not
competent to contract. Therefore, the mortgage was not valid and the money advanced
to minor could not be recovered.

4. Lawful Consideration An agreement must be supported by lawful

consideration. Consideration means something in return. According to Section 23 of
the Indian Contract Act, 1872, “the consideration is considered lawful unless it is
forbidden by law or is fraudulent or involves or implies injury to the person or
property of another or is immoral or is opposed to public policy.”
 Example : X agrees to sell his car to Y for Rs. 1,00,000. Here Y’s promise to
pay Rs. 1,00,000 is the consideration for X’s promise to sell the car and X’s promise
to sell the car is the consideration for Y’s promise to pay 1,00,000.

5. Free Consent There must be free consent of the parties to the contact.
According to Section 14, “Consent is said to be free when it is not caused by (i)
coercion, (ii) undue influence, (iii) fraud, (iv) misrepresentation, or (v) mistake”. If
the consent of the parties is not free, then no valid contract comes into existence.

Example: X threatens to kill Y if he does not sell his house to X. Y agrees to

sell his house to X. In this case, Y’s consent has been obtained by coercion and
therefore, it cannot be regarded as free.

6. Lawful Object The object of an agreement must be lawful. According to

Section 23 of the Indian Contract Act, 1872, “the object is considered lawful unless it
is forbidden by law or is fraudulent or involves or implies injury to the person or
property of another or is immoral or is opposed to public policy.”

Example : X, Y and Z enter into an agreement for the division among them of
gains acquired or to be acquired by them by fraud. The agreement is void because its
object is unlawful.

Example II: X lets a flat on hire to Y a prostitute, knowing that it would be used for
immoral purposes. The agreement is void because its object is for immoral purposes.

7. Agreement not Expressly Declared Void The agreement must not have been
expressly declared void under the provisions of Sections 24 to 30 of the Indian
Contract Act, 1872. Under these provisions, agreement in restraint of marriage,
agreement in restraint of legal proceedings, agreement in restraint of trade and
agreement by way of wager have been expressly declared void.

Example : X promised to marry none else except Y and in default pay her Rs
1,00,000. X married to Z and Y sued X for the recovery of Rs 1,00,000. It was held
that Y was not entitled to recover anything because this agreement was in restraint of
marriage and as such void.

8. Certainty of Meaning The terms of the agreement must be certain and

unambiguous. According to Section 29 of the Indian Contract Act, 1872, “agreements
the meaning of which is not certain or capable of being made certain are void.”
Example: X a dealer in different types of oils agreed to sell 100 tonnes of oil to Y.
This agreement is void on the ground of uncertainty because it is not clear what kind
of oil is intended to be sold. If, however, the meaning of the agreement could be made
certain from the circumstances of the case, it will be treated as a valid contract.
Example: X who is a dealer in mustard oil, agreed to sell 100 tonnes of oil to Y. This
agreement is valid because the meaning of the agreement could be easily ascertained
from the circumstances of the case.

9. Possibility of Performance The terms of the agreement must be such as are

capable of performance. According to Section 56, “an agreement to do an impossible
act is void.”

Example : X agrees with Y to discover treasure by magic and Y agrees to pay

Rs 1,000 to X. This agreement is void because it is an agreement to do an impossible
act. Example II: X agrees with Y to enclose some area between two parallel lines and
Y agrees to pay Rs 1,000 to X. This agreement is void because it is an agreement to
do an impossible act.

10. Legal Formalities The agreement must comply with the necessary formalities
as to writing, registration, stamping etc. if any required in order to make it enforceable
by law.

Online Contract

Traditionally the contracts are known as the piece of papers having legal force, but
nowadays as the internet is developing, now contracts are also formed online.
Contracts which are in electronic forms are known as E-Contracts. These contracts are
convenient to the companies, who have to form contracts at large scale because the E-
Contracts are inexpensive and time-saving.

Generally, there are three types of Online Contracts/E-Contracts, as follows;

● Shrink Wrap Contracts: Shrink-wrap agreements are usually the licensed

agreement applicable in case of software products buying. In case of shrink-
wrap agreements, with opening of the packaging of the software product, the
terms and conditions to access such software product are enforced upon the
person who buys it. Shrink-wrap agreements are simply those which are
accepted by user at the time of installation of software from a CD-ROM, for
example, Nokia pc-suite. Sometimes additional terms can be observed only
 after loading the product on the computer and then if the buyer does not
agree to those additional terms, then he has an option of returning the
software product. As soon as the purchaser tears the packaging or the cover
for accessing the software product, shrink-wrap agreement gives protection
by indemnifying the manufacturer of the product for any copyright or
intellectual property rights violation. Though, in India, there is no stable
judicial decision or precedent on the validity of shrink-wrap agreements.

● Click Wrap Contracts: Click- wrap agreements are web based agreements
which require the assent or consent of the user by way of clicking “I Agree’
or “I Accept” or “Ok” button on the dialog box. In click –wrap agreements,
the user basically have to agree to the terms and conditions for usage of the
particular software. Users who disagree to the terms and conditions will not
be able to use or buy the product upon cancellation or rejection. A person
witnesses web-wrap agreements almost regularly. The terms and conditions
for usage are exposed to the users prior to acceptance. For agreement of an
online shopping site etc.

● Browse Wrap Contracts: An agreement made intended to be binding on

two or more parties by the use of website can be called a browse wrap
agreement. In case of browse wrap agreement a regular user of a particular
website deemed to accept the terms of use and other policies of the website
for continuous use.

DRAFTING
Meaning- Drafting, in legal sense, means an act of preparing the legal documents like
agreements, contracts, deeds etc. Its important element are : Knowledge of LAW -
Knowledge of FACTS -To synthesis of law and fact in a language form. This is the
essence of the process of drafting. All It involves THINKING & COMPOSING, so as
to give a correct presentation of legal status, rights & duties of the parties, terms &
conditions, remedies etc. in a self explanatory manner without any ambiguity.

Components of Deed (Written Contract)

A deed is divided into different paragraphs. Under each part relevant and related
information is put in paragraph in simple and intelligible language as explained in the
earlier chapter. If a particular part is not applicable in a particular case that part is
omitted from the document.
The usual parts or components or clauses of deeds in general are mentioned as
follows:
(1) Description of the Deed Title.
(2) Place and Date of execution of a Deed.
(3) Description of Parties to the Deed.
(4) Recitals.
(5) Testatum.
(6) Consideration.
(7) Receipt Clause.
(8) Operative Clause.
(9) Description of Property.
(10) Parcels Clause.
(11) Exceptions and Reservations.
(12) Premises and Habendum.
(13) Covenants and Undertakings.
(14) Testimonium Clause.
(15) Signature and Attestation.
(16) Endorsements and Supplemental Deeds.
(17) Annexures or Schedules.

The above parts of the deeds are described as under:

1. Description of the Deed Title

The deed should contain the correct title such as “This Deed of Sale”, “This Deed of
Mortgage”, “This Deed of Lease”, “This Deed of Conveyance”, “This Deed of
Exchange”, “This Deed of Gift” etc. These words should be written in capital letters
in the beginning of document.
This part hints the nature of the deed and gives a signal to the reader about the
contents of the Deed.

2. Place and Date of Execution of a Deed

We first highlight the importance of “date”. The date on which the document is
executed comes immediately after the description of the deed. For example, “This
Deed of Mortgage made on the first day of January, 1986”. It is the date of execution
which is material in a document for the purpose of application of law of limitation,
maturity of period, registration of the document and passing on the title to the
property as described in the document.
The place determines the territorial and legal jurisdiction of a document as to its
registration and for claiming legal remedies for breaches committed by either parties
to the document and also for stamping the document, as the stamp duty payable on
document differs from State to State. An Illustration of this part follows:
“This Deed of Lease made at New Delhi on the First day of December One Thousand
Nine Hundred and Eighty Eight (1.12.1988)” etc.

3. Description of Parties
4. Recitals
One, narrative recitals which relates to the past history of the property transferred and
sets out the facts and instrument necessary to show the title and relation to the party to
the subject matter of the deed as to how the property was originally acquired and held
and in what manner it has developed upon the grantor or transferor. The extent of
interest and the title of the person should be recited. It should
. If the operative part of the deed is ambiguous anything contained in the recital will
help in its interpretation or meaning. recitals contain chronological events that must
be narrated
Recital generally begins with the words “Whereas” for example, “Whereas” —
1.
2.
3.
etc.

5. Testatum
This is the “witnessing” clause acknowledgement of its receipt. “Now This Deed
Witnesses”.

6. Consideration

7. Receipt
acknowledgement of the consideration to acknowledge the receipt of the amount.

9. Description of Property
Registration laws in India require that full description of the property for registration
under Registration Act. easier to locate the property in the Government records
10. Premises and Habendum
Habendum is a part of deed which states the interest, the purchaser is to take in the
property. Habendum clause starts with the words “THE HAVE AND TO HOLD”.. If
the parties to transfer enter into covenants, they should be entered after the habendum.
In India such phrases as “to have and to hold” well be avoided as in cases except those
of voluntary transfers such an expression is superfluous.

13. Covenants and Undertakings

The term “covenant” has been defined as an agreement under seal, whereby parties
stipulates for the truth of certain facts. In Whasten’s Law Lexicon, a covenant has
been explained as an agreement or consideration or promise by the parties, by deed in
writing, signed, sealed and delivered, by which either of the parties, pledged himself
to the other than something is either done or shall be done for stipulating the truth of
certain facts.
Covenant clause includes undertakings also. Usually, covenant is stated first. In some
instances the covenants and undertakings are mixed, i.e. can not be seperated in that
case, they are joint together, words put for this as
“The Parties aforesaid hereto hereby mutually agree with each other as follows:” Such
covenants may be
expressed or implied.

14. Testimonium Clause

Testimonium is the clause in the last part of the deed. Testimonium signifies that the
parties to the document have signed the deed. This clause marks the close of the deed
and is an essential part of the deed.
The usual form of testimonium clause is as under:
“In witness whereof the parties hereto have signed this day on the date above
written”.

15. Signature and Attestation Clause

After attestation clause, signatures of the executants of the documents and their
witnesses attesting their
signatures follow. In India, the Deed of Transfer is not required to be signed by the
transferee even though the transferee is
mentioned as party in the document.
Attestation is necessary in the case of some transfers, for example, mortgage, gift,
sale, and revocation of will. In other cases, though it is not necessary, it is always safe
to have the signatures of the executant attested.
Attestation should be done by at least two witnesses who should have seen the
executant signing the deed or should have received from the executant personal
acknowledgement to his signatures. It is not necessary that both the witnesses should
have been present at the same time. General practice followed in India is that the deed
is signed at the end of the document on the right side and attesting witnesses may sign
on the left side. If both the parties sign in the same line then the transferor may sign
on the right and the transferee on the left and witnesses may sign below the signatures.

16. Endorsements and Supplemental Deeds

Endorsement means to write on the back or on the face of a document wherein it is
necessary in relation to the contents of that document or instrument. The term
“endorsement” is used with reference to negotiable documents like cheques, bill of
exchange etc. For example, on the back of the cheque to sign one’s name as Payee to
obtain cash is an endorsement on the cheque. Thus, to inscribe one’s signatures on the
cheque, bill of exchange or promissory note is endorsement within the meaning of the
term with reference to the Negotiable Instrument Act, 1881. Endorsement is used to
give legal significance to a particular document with reference to new facts to be
added in it. Endorsement helps in putting new facts in words on such document with a
view to inscribe with a title or memorandum or to make offer to another by inscribing
one’s name on the document or to acknowledge receipt of any sum specified by one’s
signatures on the document or to express definite approval to a particular document.
Thus, endorsement is an act or process of endorsing something that is written in the
process of endorsing when a provision is added to a document altering its, scope or
application. Under the Registration Act, 1908 the word endorsement’ has significant
meaning and it applies to entry by the Registry Officer on a rider or covering slip
tendered for registration under the said Act.

17. Annexures or Schedules

A deed remains incomplete unless particulars as required under registration law about
the land or property are given in the Schedule to be appended to the deed. It
supplements information given in the parcels. A Site Plan or Map Plan showing exact
location with revenue no. Mutation No., Munipal No., Survey No., Street No., Ward
Sector/Village/Panchayat/Taluka/District etc………………. Plot No., etc. so that the
demised property could be traced easily.

Guidelines for good drafting- Do’s & Don’ts

The essence of the process of drafting is synthesis of law and fact in a languages. A
proper understanding of drafting cannot be realised unless the nexus between the law,
the facts and the language is fully understood and accepted. This requires serious
thinking followed by prompt action to reduce the available information into writing
with a legal meaning.
Some Do’s :
1. Reduce the group of words to single word;
2. Use simple verb for a group of words;
3. Avoid round-about construction;
4. Avoid unnecessary repetition;
5. Write shorter sentences;
6. Express the ideas in fewer words;
7. Prefer the active to the passive voice sentences;
8. Choose the right word;
9. know exactly the meaning of words and sentences you are writing; and
10. Put yourself in the place of reader, read the document and satisfy yourself about
the content, interpretation and the sense it carries.

Some Don’ts :
The following things should be avoided while drafting the documents :
(a) Avoid the use of words of same sound. For example, the words "Employer" and
"Employee". (b) When the clause in the document is numbered it is convenient to
refer to any one clause by using single number for it. For example, "in clause 2 above"
and so on.
(c) Negative in successive phrases would be very carefully employed.
(d) Draftsman should avoid the use of words "less than" or "more than”, instead they
must use "not exceeding".
(e) If the draftsman has provided for each of the two positions to happen without each
other and also happen without, "either" will not be sufficient; he should write "either
or express the meaning of the two in other clauses. In writing and typing the following
mistakes always occur which should be avoided: 1. "And" and "or"; 2. "Any" and
"my"; 3. "Know" and "now"; 4. "Appointed" and "Applied"; 5. "Present" and "Past"
tense.