Legal Desire Online Workshop on ‘Legal Drafting’

MODULE IV: CONTRACT DRAFTING

KEY CONTRACT CONCEPTS NECESSARY FOR DRAFTING

In any kind of drafting there are certain ground rules which must be kept in mind; one of the most
important key concepts is usage of language. Remember you are not drafting legislation or making a
paper presentation before a bunch of scholars! So it is not necessary to fill the draft-contract with all
complicated words, jargons which we are never heard of (or less heard of) in English language. Also
the opposite party is not going to increase the bid of the contract based on your complicated-words.
Therefore always remember to draft a contract with short & simple (Keep It Short & Simple)
words/terms, by adapting this way both the parties to the contracts can be trouble free; to be more
specific litigation-free.

Every word, every letter and every punctuation mark in a contract is essential. A single fault on the
phonetics committed by then King Pandia resulted in the execution of Kovalan (a discipline) in
Silapathikaram (one of the five great Tamil epics).Therefore second most important aspect in drafting
a contract is usage of punctuation marks. Correct use of punctuation marks must be ensured to
prevent misreading of sentences (which would more often reverse the whole crux/motive of the
contract). As required by law the contract between the parties must be understood in same way &
sense as the other party conveys.

I believe that all the legislative aspects of contracts are dealt in other modules, with this I shall now
move towards some of the core concepts of drafting contracts;

Adaptability

The conditions and terms put forth in the contract must be adaptable, to elaborate there must be
reference to those events which shall occur with most probability (e.g- if ‘A’ delivers goods to ‘B’ on
29/09/2014, ‘A’ is entitled to costs) rather events which with all possibility will not occur must not be
brought into; that is also barred in contract law (e.g-In the event of water flowing from earth to sky…)

It must struck your mind that contracts should be drafted in a way that conditions, events stipulated
therein are adaptable to the present situation

Clarity

This is the most important aspect in drafting a contract. Especially there must be outmost clarity in;

a. Rights, duties & responsibilities of parties

b. Remedy in case of any dispute

c. Party’s positions

d. essentials required by law (e.g- consideration to contract)

To draft a contract with good clarity one must try to analyze himself before drafting as to

i. What do I need from other party?

ii. What possibly could the other party expect in return?

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 Legal Desire Online Workshop on ‘Legal Drafting’
Once you are clear with the above mentioned inputs then it won’t be much difficult to express clarity
on paper.

Precision

The contents must be precise. Repetition of contents/elements does not make it sound that the
specific content is emphasized i.e brevity must be strictly avoided;

 (e.g) writing ‘I, Ramesh (1st party) is the S/o Suresh, Date of Birth 01.04.1994’ in 1st para of the
contract and

 writing ‘1st party is born on 01.04.1993 and hence completed 18 years of age, so can enter into
contract with 2nd party’ in last para of the contract is unnecessary.

The other party is not going to celebrate your birth day! So make sure that you do not repeat contents,
which also annoys the other party.

Object

Here is the final note which forms the crux of the contract, one must be very cautious to see that the
object of the contract is not contradicted in any part of the contract. e.g- 1. this contract is for sale of
goods; 2. This contract is for exchange of goods (2nd statement contradicts the 1st statement) It is
therefore clearly evident from the example above that how a misuse of single word can totally change
the object of the contract.

STRUCTURING OF THE CONTRACT

‘Structuring’ plays a dominant role in drafting contract. You can’t build a wall starting from top to
bottom. It has to start from foundation and reach the top (this is the only possible way a wall could be
build). In the similar fashion there is a basic structure which is generally followed in all types of
contracts.

Introductory clause/para of a contract starts with title, description of parties to the contract

o Description widely includes- residential address/corporate office (in case of judicial person)
address, and under what Act the entity is registered (e.g- abc Pvt Ltd. Is a company
registered under Companies Act, 1956)

o Date of signing of the contract should also be included.

Period

o Time period till which the present contract holds good. (e.g- from 1/05/2014 to 05/01/2015)

Definition Clause

o This clause can be inserted if the parties to the contract wish to mean certain words/terms in
the specified manner.

o E.g- ‘completed transaction’ means when the goods are delivered with invoice and the
amount against is received.

Next few paragraphs briefly mentions about the object for which the contract is entered

o The party’s desired outcome of the contract is expressed in these clauses.

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 Legal Desire Online Workshop on ‘Legal Drafting’
Consideration

o Consideration to a contract is necessary under Indian Contract Act, 1872.

o Widely a separate clause for consideration is not penned. But remember that a consideration
to a contract must be expressly and undoubtedly ascertained.

Fourthly the parties describe their own rights, duties & liabilities

o Usually the parties’ rights& duties are determined by themselves before adding it to the
contract.

o To the contrary the liabilities of one party on failure to perform the contract are determined
by the other party.

Termination

o The event on which termination of contract from both the parties are pre-decided and
inserted accordingly

o Although it is not necessary that termination has to happen from parties to contract. There are
certain other factors which naturally lead to termination of the contact. (e.g: Low demand for
cement in markets may terminate a contract between cement industry and retailer).

Renewal of contract

o If the contract can be renewed for further period or not, if yes, then what is the minimum time
period for which the agreement can be renewed.

o This clause includes the procedure for renewal of agreement in case the time period
stipulated elapses.

Damages

o Damages are determined as either liquidated or unliquidated damages.

o However, in contracts damages are mostly fixed. (i.e) liquidated at the time of entering into
contract.

Jurisdictional Clause

o Parties are free to decide a jurisdiction of courts (in accordance with CPC)

 This clause will be of more effective if parties enjoy different territorial

jurisdiction (e.g- parties from different states).

Arbitration Clause (not required if parties agree to adjudicate any dispute arising out of the contract in
Courts)

o This clause mainly speculates the place & manner in which any dispute shall be referred to
arbitration.

o Herein, parties also agree on procedure of appointing arbitrator.

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Declaration

o At last a general declaration is given by the parties with respect to above stated generic
clauses of contract.

o Generally with respect to the conduct of the parties’.

Witnesses (per se not necessary)

o There can also be witnesses to contracts.

o Witnesses also sign at the end of the contract after parties’ signatures are affixed.

o Impleading witnesses to contracts creates alertness to the parties with respect to their
contractual obligations.

MODEL CONTRACT DRAFTING

Model-Sample Contract

1. Whereas, Mr.ABC hereinafter referred to as party 1 presently residing at __(full

Address)__ agrees to contract with Mr.XYZ hereinafter referred to as party 2 residing at
(Full Address) enter into following contract signed by both the parties at (Place) on (Date).

Therefore in consideration of the foregoing representations and following terms and conditions, the
parties agree:

2. Briefly state all the terms that parties to the contract agreed to.. (this section must be vast and
must include all possible subjects that the parties earlier decided upon)

Payment Plan

This clause will be relevant when there is lump sum amount involved in transactions; whereby the
parties agree to pay those amounts in installments.

3. ‘2nd party hereby agrees to pay to the 1st party the sum as agree by the parties on 15th day
from completion of delivery of goods’

Non-assignment (delegation)

In this section, the parties agree that he or she will not transfer or subcontract the work in this contract
to someone else without the prior consent of the other party.

4. “Mr.XYZ agrees that this is a personal service contract, and the rights and obligations
hereunder may not be assigned or delegated without the prior written consent of Mr.ABC.”

Confidentiality

This clause will be sited in certain contracts involving confidential object.

5. ‘Mr.ABC will not disclose the object, amount involved or the nature of the transaction to
any competent dealers/persons’

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 Legal Desire Online Workshop on ‘Legal Drafting’
Terminating the Contract

This clause will tell you how and when either of the parties can terminate the agreement. Termination
can happen either with consent of parties or on maturity. This clause generally includes the time
period of notice required & reasonable attorneys’ fees for enforcing the contract.

6. Either of the party to the contract may terminate this contract with 30 days’ advance written
notice. Mr.ABC will provide all products developed while working on this agreement to
Mr.XYZ. Mr. ABC will be paid for items delivered before the termination date.

Renewal

7. The contract can be renewed for a initial term of six months by either of the parties provided
through written consent.

Arbitration Clause

The place and procedure for appointment of arbitrator are decided in this clause.

8. Place of arbitration will be Chennai, and the arbitrator shall be appointed in accordance
with section 11 of Arbitration and Conciliation Act,

Signature of 1st party

Signature of witnesses
Sd-/
1.
nd
Signature of 2 party

Sd-/
2.

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