Contracts are part of day to day life of many businesses, but having strong and structured contracts helps you to run business in a smooth manner.. ‘Contract’ is one of the essential terms for any business to enter into the formal and legally binding deal between two or more parties and creates a base for every commercial relationship. Contracts should be comprehensive as we know that each and every small detail always matters. Before drafting any contract it is necessary to look at some important provisions.
Now we will discuss 10 important clauses of the contract that should be considered as part of every contract.
1. Identification of the Parties- First and foremost, the parties to the agreement should be mentioned with complete details in a contract. The names of businesses and their contact information must be included in the contract. There should be nothing ambiguous as to who’s subject the agreement is being made.
2. Defined Scope of work and Duration-A well-drafted business contracts have a clearly defined scope of work and duration mentioned. In many cases, disputes arise because parties don’t agree on the same point, so to avoid any future disputes, always discuss with the other party and then draft your agreement.
With a clearly defined scope, the parties to the contract know exactly what he or she’s paying for, and the service provider can feel comfortable in knowing he or she doesn’t have to work beyond the scope of work and according to that scope of work pricing can be determined. If complete details are shared in a scope of work, then more confident both parties to the contract will be about the agreement.
3. Reference to the Governing Law-The parties should clarify the law that governs the contract. It may not always be Indian law particularly if you’re doing business with a company or individual from another country. The governing law clause, sometimes also called the choice of law clause, determines what state laws will be used to interpret the contract and which jurisdiction will oversee the enforcement of its terms and conditions. Governing law is an important clause because a dispute may hinge on differences in local laws.
Notwithstanding, the parties in a contract aren’t ipso facto (by the very fact) bound to where they live or where the contract is signed. A governing law provision allows the parties to agree to use a particular state’s laws to interpret the agreement that they are doing.
4. An Integration Clause– If you have multiple agreements with the same counterparty, it’s generally a best practice to consider an integration clause. We need to just put an integration clause in a contract so that it’ll allow some foregoing agreements to be conflated into the current contract.
5. Confidentiality – A confidentiality clause provides an outline to maintain data in a confidential manner. A confidentiality clause (also applied to as a nondisclosure agreement) is a legally binding contract where an individual or enterprise guarantees to deal with particular data as a corporate secret and guarantees to not disclose alike information to others without authorization of the concerned party to the contract.
6. Force Majeure – Force majeure clauses are one of the major clauses which is in limelight after the covid-19 pandemic, this clause in contracts provides protection from unseen and out of control circumstances. This clause releases the obligations of parties, either temporarily or fully, due to circumstances beyond their control. Without such a clause, a party to a contract may be subject to common law doctrines such as “impracticability” or “frustration of purpose,” and find themselves liable for potentially crippling costs and these common law doctrines rarely result in excuse of contractual obligations.
7. Indemnification and Other Liability Provisions– The indemnity clause is an ordinarily used principle in corporate contracts. The purpose of putting the indemnity clause in any contract is to allocate the threat or cost from one party to another. The liability of the contract should always be addressed in a business contract. Indemnity is a concept where one side of a contract can agree to compensate another for “losses that that party has incurred” as a consequence of certain predefined issues.
8. Termination-A termination of agreement clause provides details of the circumstances under which parties can end their legal relationship and discontinue the fulfillment of their obligations by giving proper justification. Common law explains that parties can terminate an agreement for a fundamental or a material breach of the agreement, corporate agreements don’t always last for their original duration. It’s always best to include some type of early termination clause as part of the contract so that the work is on time and it stops automatic or implied renewal of contracts.
9. Waiver of Remedies and Guaranty- A release of breach of contract can be used to waive your rights to sue a party who has breached a contract. Releases can be granted in multitudinous forms, and will only apply to the specific breach, not the entire contract. Through a waiver of remedies and warranty provision, one or both parties to the business contract may agree to voluntarily abstain from performing certain rights. To be enforceable, contract releases must be considerately narrow in scope and shall be duly drafted.
10. Dispute Resolution-Finally, every business contract should include provisions for dispute resolution. As we know that disagreements happen in the contracts but it is always good to work out a process for resolving contract disputes before or after an issue arises. It makes resolution much more efficient and cost-effective.
The contract is much more than a legal document that binds the parties to do certain acts. There have been cases where courts are unwilling to enforce a clause that takes away the rights of parties hence, consulting a good lawyer and having deep knowledge in drafting contractual agreements will help you save in litigation costs and help in drafting structured contracts as per the needs of the client.