The Art of Drafting a Commercial Contract

Lubna yusuf

A contract is formed when a party with sufficient legal capacity makes an offer and the other party of sufficient legal capacity accepts the offer with a legal consideration. In order to be a contract, the agreement must include valid consideration. That is, both parties must contribute a Quid pro quo [i] to the agreement such as money, labor, a return promise, etc. To form a valid contract, both parties must have the legal capacity to enter into a contract and the purpose or objective of the contract must be legal [ii]

Competency to Contract

In the Indian Contract Act, 1872 [iii]

Section 11 : Who are competent to contract.- 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.

A contract is therefore an agreement that is enforceable by law.

Essential aspects of contracts are (a) Parties (b) Obligations of the parties (c) Payment Terms (d) Integration Clause (e) Termination.

(a) Defining the parties

The agreement may be worthless if the other party is unethical, unwilling to keep its commitments, and/or in poor financial health. In addition, the agreement may contain an assignment clause allowing the other party to substitute another party to perform the contract obligations. It requires the assignment to be effective only with other party’s approval, and assuring availability of appropriate recourse against one or both parties for failure to deliver.

(b) Obligations of the parties

Disputes often occur because the contract does not adequately specify the obligation of one of the parties.  Think through what one wants to be delivered as a product, and how progress will be measured and tied to the obligation to make payment or deliver product or services.

(c) Payment Terms

When goods or services are being secured, requirement of prepayment, if any is to be clearly brought out. When does the contract require the party to pay? Pay in advance fully or partly or await performance?  It is surprising how many times such contracts get disputed.  It is advisable to require payment after delivery, or to make payments matching progress of deliveries if the contract calls for performance over a period of time.

(d) Integration clauses

Written contracts often have an integration clause that specifies that the contract represents the whole understanding of the parties, and that no changes are binding unless executed in writing.

Such clauses are acceptable as long as the contract is managed in that manner ensuring adherence to the requirement for documenting by amendment any changes

(e) Termination

Termination prior to the end of the term may be for Breach of contract  (failure of the other party to meet its commitment), Effect of refusal of party to perform promise wholly ,for occurrence of an event (such as loss of access to key personnel or products) or for convenience of a party (a party no longer wishes to continue the relationship) .

But termination clauses can be problematic in assuring fair treatment of both parties. So they must be clearly stated.

What happens upon death of either party?

Promises bind the representatives of the promisor in case of the death of such promisor before performance, unless a contrary intention appears from the contract.

Illustration 1-

A promises to deliver goods to B on a certain day on payment of Rs. 1, 000. A dies before that day. A’ s representatives are bound to deliver the goods to B, and B is bound to pay the Rs. 1, 000 to A’ s representatives.

However all such contracts cannot be enforced.

Illustration 2-

A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A’ s representatives or by B.

Drafting

A contract is drafted with following basic sections :

  1. Preamble
  2. Recitals
  3. Definitions.
  4. Subject matter of contract
  5. Consideration & method of payment
  6. Scope of Supply & Services
  7. Indemnity and Risk allocations
  8. Confidentiality
  9. Amendment.
  10. Effective Date & Validity
  11. Termination
  12. Assignment
  13. Miscellaneous (Boilerplate) Provisions
  14. Signatures

 

A. Preamble

This section identifies the parties to the agreement, the date of the agreement, the place of formation and the addresses of place of business of the contracting parties. If multiple affiliated parties are involved, the preamble identifies certain parties by their relationship to other parties such as corporate parents, subsidiaries, trustees and guarantor. Preamble shall list all parties intended to be bound, their legal status, place of business, intended degree of liability, change in party ownership and third party beneficiary.

Following is an Illustration

This Frame Agreement (hereinafter referred to as the “Agreement”) is entered into on this day of . . . . .

BY AND BETWEEN

XYZ Limited, a Company incorporated under the provisions of the Companies Act, …. and having its Registered Office ……, (hereinafter referred to as “XYZ” or “the Buyer” which expressions shall, unless repugnant to the context or meaning hereof, include its successors-in-interest and permitted assigns) of the ONE PART;

AND

………………. a ………………. Firm with its office at ………………  (hereinafter referred to as “the Supplier” which expression shall, unless repugnant to the context or meaning hereof, include its successors-in-interest and permitted assigns) of the OTHER PART.

 

B.        Recitals

These set out the stage of the contract, providing the basic text, structure and context of the transaction. Recitals are typically declarative statements of facts and intentions but not generally binding provisions of the contract. In case of a purchase agreement of a product it will give a generic description with more specific information in the body of the contract.

 

C.        Definitions

Here it defines terms that appear in different parts of the agreement.

Illustration :

“GCC” means the General Conditions of Contract hereof.

“SCC” means the Special Conditions of Contract.

“Technical Specifications” mean the technical specifications, schedules, detailed designs, statements of technical data, performance characteristics value and all other particulars of the Contract.

“Day” means calendar day of the Gregorian calendar.

“Month” means calendar month of the Gregorian calendar.

“Employer” means XYZ Ltd and includes the legal successors or permitted assigns of the Employer.

“Contractor” means the person(s) whose bid to perform the Contract has been accepted by the Employer and is named as such in the Contract Agreement, and includes the legal successors or permitted assigns of the Contractor. In case Contract is with Consortium of two or more members then the Contractor shall mean one or more members of Consortium as the case may be

D. SUBJECT MATTER OF CONTRACT

This section provides for structure of the transaction broadly defining the scope and the method of payment, time of completion and the main matter of the contract.

E. Consideration & Terms of Payment

This section provides for amount to be paid, the terms of payment, any financial formulas for post closing adjustments. It also provides for break-up of purchase price. These allocations of contract price have implications on tax matters which may be different for the buyer than the seller. What benefits one party may be detrimental to the other and may have effect on anticipated net consideration.[iv]

F. Scope of Supply & Services

Essential part of any contract is description of transferred item and / or services. Based on the nature of items being transferred (product / services / real estate / business / intellectual property) a schedule is to be made. Here is an Illustration

Scope of Facilities

1. The Contractor shall, unless specifically excluded in the Contract, perform all such work and / or supply all such items and materials not specifically mentioned in the Contract but that can be reasonably inferred from the Contract as being required for attaining Completion of the Facilities as if such work and / or items and materials were expressly mentioned in the Contract.

2. The Contractor shall furnish the items with its specifications & prices of spare parts required for the operation and maintenance of the Facilities

G. Indemnity and Risk Allocations

The most important part is to provide party’s right of indemnification if the party discovers that the other party has breached one or more of its representations. In this way representations serve as a mechanism for allocating economic risks between the parties.

H. Confidentiality

The contracting parties may insist on keeping all information that would be available to the other party during execution of the contract confidential.

J. Effective Date, Time of Completion & Validity

The contract or agreement should have a date stated as the contract date or effective date. This date is not necessarily the date when the contract was signed but rather the date from which all the contractual rights and obligations begin and from which point any term of time, usually commences.

The time allowed for completion of all work required by the Contract will be stated in this clause and will be known as the Contract Time.

Validity period of a contract determines time interval over which the terms of a contract apply. Each contract includes a basic validity period. The validity period consists of a start date and an end date.

K. Termination

To reduce ambiguity it is always preferred to have a termination clause in the contract. Typical termination provisions include clauses requiring mutual agreement of the parties before termination and clauses permitting termination due to failure to fulfill closing conditions before specified date.

L. Assignment

Contract rights are freely assignable in absence of an express provision to the contrary. This provision describes what constitutes an assignment and certain types of assignments.

However all assignments will not be enforced.

An assignment of a contract will not be enforced in the following situations:

 

a. The contract prohibits assignment.

Contract language, typically referred to as an anti-assignment clause, can prohibit (and “void”) any assignments.

 

b. The assignment materially alters what’s expected under the contract.

If the assignment affects the performance due under the contract, decreases the value or return anticipated, or increases the risks for the other party to the contract (the party who is not assigning contractual rights), courts are unlikely to enforce the arrangement.

 

c. The assignment violates the law or public policy.

Some laws limit or prohibit assignments. For example, many states prohibit the assignment of future wages by an employee, and the federal government prohibits the assignment of certain claims against the government.

Assignment by Act of parties may cause assignment of rights or of liabilities under a contract. As a rule a party to a contract cannot transfer his liabilities under the contract without consent of the other party. This rule applies both at the Common Law and in Equity[v].

 

M. Miscellaneous (Boilerplate) Provisions

These are normally kept at the end of the contract and become useful in case of disputes.

  1. Choice of Law – This Agreement, and any      dispute arising from the relationship between the parties to this      Agreement, shall be governed by [country/court] law, excluding any laws      that direct the application of another jurisdiction’s laws.
  2. Notice –

Any notices required or permitted to be given hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested, (c) by facsimile, or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt, and such notices shall be addressed as follows:

If to ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­______________:  Attention :

Fax:

If to ­­­­­­­­­­­­­­­­­­­­­­­­­­­­­______________:

Attention :

Fax:

Or to such other address as either party may from time to time specify in writing to the other party. Any notice shall be effective only upon delivery, which for any notice given by facsimile shall mean notice which has been received by the party to whom it is sent as evidenced by confirmation slip.

c.   Modification of Agreement:

This Agreement may be supplemented, amended, or modified only by the mutual agreement of the parties. No supplement, amendment, or modification of this Agreement shall be binding unless it is in writing and signed by all parties.

  1. Entire   Agreement.

This Agreement and all other agreements, exhibits, and schedules referred to in this Agreement constitute(s) the final, complete, and exclusive statement of the terms of the agreement between the parties pertaining to the subject matter of this Agreement and supersede all prior and contemporaneous understandings or agreements of the parties.

  1. Severability of  Agreement.

If any term or provision of this Agreement is determined to be illegal, unenforceable, or invalid in whole or in part for any reason, such illegal, unenforceable, or invalid provisions or part thereof shall be stricken from this Agreement, and such provision shall not affect the legality, enforceability, or validity of the remainder of this Agreement.

  1. Dispute      Resolution

All disputes arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall, unless amicably settled between the Parties, be finally settled by arbitration in accordance with the Arbitration and Conciliation Act …., and any modifications thereto and re-enactments thereof from time to time, by three arbitrators. Each Party shall appoint one arbitrator and the third arbitrator shall be appointed by the selected two arbitrators. The seat of arbitration shall be ….. The language to be used in the arbitration proceedings shall be English.

  1. Code of  Conduct –

The parties can draft a code of conduct to comply with, setting a set of the principles and requirements for the performance of the contract.

N. Signatures

Signatures – IN WITNESS WHEREOF, both the Parties have caused this Agreement to be signed by their respective duly authorized officers identified below on the day, month and year first hereinabove written.

 

 

For ABC Ltd.                                                    For ______________________

 

 

(i)         By: ________________                                      By: ________________

 

Name: _______________                       Name: ________________

 

Title: _________________                      Title: ________________

 

 

(ii)        By: ________________

 

Name: _____________                           By: ________________

 

Title: ______________                            Name: _____________

 

Title: ______________

Thus drafting of the contract must be done skillfully to prevent disputes. The terms should not be ambiguous so that in case of any dispute the matter can be resolved amicably. This is a standard draft of a commercial contract and the basic principles remain the same in all states.

 

ENDNOTES



[i] ) “This for that” in Latin^ Merriam-Webster, the American Heritage Dictionary of the English Language (Fourth Edition), and the New Dictionary of Cultural Literacy (Third Edition)

 

[ii] ) Drafting Contracts: How & Why Lawyers do What they do.” Aspen Publishers,2007

 

[iii] ) Indian CONTRACT Act, 1872 , section 11,  Henry Cunningham & Horation Shephard, revised by Justice S.Rafat Alam Edition : 12th edition, 2009

 

[iv] ) Commercial Contracts Rules for Drafting & Negotiation, Aspen Publishers 2001

[v] ) Vide para 337 of Halsburys Laws of England, Fourth Edition, Part 9

 

“CONSUMER PROTECTION ACT”

Ektaa Jha

Consumer Protection Act, 1986 was enacted for better protection of the interests of consumers. The provisions of the Act came into force with effect from 15-04-1987.The Act intends to provide simple, speedy & inexpensive redresses to the consumer’s grievances.

In India various Acts intended to protect the consumers against different forms of exploitation were enacted, such as, the Indian Penal Code, 1860; Indian Contract Act, 1872; Indian Standard Institution(Certification marks) Act, 1952,etc.

The Consumer Protection Act is an alternative and cheapest remedy already available to the aggrieved persons by way of civil suit. In the complaint or appeal the consumer does not have to pay any court fees under this Act.

 

CONSUMER: A person who buys any goods for a consideration and user of such goods where the use is with the approval of the buyers. Service of any description is covered under Consumer Protection Act & includes banking, financing, insurance, processing, housing, construction, board and lodging, among others.

 

How to file a consumer complaint?

A complaint can be filed by

-the consumer to whom the goods are being sold or services are provided

-any recognised consumer association

-one or more consumers with same interest

-the central government or state government

Further process of filing complaint-

Stage 0: Decide to file

This problem occurs when a consumer has been ignored, insulted or cheated from the company by whom you bought a product is helplessness, anger or revenge.

Consumer daddy i.e. the consumer court understands these emotions. But unfortunately the consumer court of our country is one of the most putrid, decadent, impersonal and sluggish system in the world.

Whatever your decision is regarding filing the complaint at consumer court, consumer court encourages the consumer to take few steps to ensure that the company will pay back its mistake, i.e.

Filing the complaint at consumer court website, filing the complaint at other popular consumer blogs in India, filing the case at local police as applicable, opting to move to the lok adalats, filing a complaint with state Human Rights Commission, etc.

 

Stage 1: Collect necessary documentation

Before a consumer complaint can be filed against a company, you need to ensure that you have all the supporting documentation that you need. Documents such as-

#invoice or bill for the purchase

#warranty card for product and SLA for services

#proof of the payment such as copy of the cheque or credit card statement

Or, any other documents which can show the negligence, insensitivity or lack of attention from the company.

In case you cannot get a copy of the bill, do not worry or feel helpless. Most of the billed purchases are entered into the ledger and accounting books of the company.

 

Stage 2: Send the notice to the company

In this step, you will be required to ‘officially’ notify the company of your grievance. Be detailed about what it is that you are complaining about and what you expect the company to do.

Points to be taken in the notice-

#providing clarity to the company on the nature of your grievance

#providing clarity to the company on how you expect the company to solve your complaint

#particular time should be given within which the grievance should be rectified

#provide a polite and stern notification that you intent to pursue the matter legally

Accordingly, the company will respond to your notice with the willingness to resolve your problem.

 

Stage 3: Get legal representation

The consumer court does not have a take on this. There is both advantage and disadvantage of having an advocate or a lawyer to represent you.

Advantage of having or hiring lawyer is that you do not need to read the remaining of this boring article. The advocate will know what to do from here on.

The biggest disadvantage of hiring a lawyer is that good ones don’t come free.

If you decide to get a legal representation, then the remaining steps will be followed through by your lawyer.

Stage 4: Prepare you complaint

Few important things which should be kept in mind while preparing the complaint.

How much time do I have?

The consumer protection act 1986, clause 24(1) a consumer court shall not admit a complaint unless it is filed within 2yrs on which the cause of action arisen.

Which court should I file the complaint in?

Depending upon the compensation you are filing for choose an appropriate courts. If the total amount in your complaint is below Rs.20lakhs, you must file the complaint with the District Consumer Dispute Redressal Forum. If it is between Rs.20lakhs and Rs.1crore than you must file the complaint with the State Consumer Disputes Redressal Commission and if it is more than Rs.1crore, than you must file the complaint with the National Consumer Disputes Redressal Commission.

 

Stage 5: File your complaint

Along with the complaint and the affidavit, attach a list of documents you are submitting as part of the complaint file. Ensure that you attach photocopies of the evidentiary documents and not the original. You also need to sign and attach a VAKALATNAMA, which is similar to a power of attorney authorizing your lawyer to represent you in court on this case, should you decide to hire a lawyer.

 

Stage 6: Attend the Admission Hearing

Till this point you have got a rosy picture of the concept of consumer protection in India. Most of the consumer courts such as District Consumer Redressal Forum in the country operate from shacks that are in high probability a little, if not any, better than a cattle shed. Also, it is a public secret that merely depositing the court fee will not get you a complaint reference number nor the admission hearing dates. You will also need to pay the unofficial “fee” or the bribe to the court desk.

We highly recommend that you do not miss the admission hearing or the subsequent hearings as if you are absent, your case will be decided in your absence based on its merits. It is recommended to spend a whole day in the court as it is difficult to predict when your case will be called for hearing. When called to the court, ensure that you are earnest in your appearance and polite, respectful, and stern in your tone of voice.

Typically, the judge will review your case file. Judges may ask you to give an explanation of the problem and what solution you seek. Be sure to explain the case in short and precise manner and also remember do not contradict on what have you written in your complaint. Judges using these ways may ask you short questions to clarify the merits of your case. Be short and precise in your answer. The judge may ask you for additional evidence or the original documents if there are any disputes regarding the authenticity of the documents. If this is the case, ensure that the documents are handed only to the court officials and not to any complain official.

 

Stage 7: Attend Subsequent hearing till the Verdict

This depends on the complexity of your case, and the number of times the judge wants to postpone or conduct hearings. It could be anywhere from one to seven hearings before which your case is disposed. Be sure to attend each hearing. The consumer court will finally reach a verdict on your case and will send you and the company the court orders. If the verdict is in your favor, you may be eligible for a refund, and the company may also have to pay for punitive damages that include compensating you for any mental agony, insult, inconvenience, or damage you may have suffered. In many cases, the court will also direct the company to pay for your legal and court expenses.

Stage 8: After the Verdict

Most lawyers will tell you that your actual legal battle with a company starts only after you obtain a verdict from a consumer court. Consumer court system in our country has no stalwart statutory powers to enforce their verdicts on any company. If the company does not follow the verdict of the consumer court, and neither does it file appeal within 30 days, to get a company to abide by the verdict of a consumer forum, you will have to file another proceeding to “execute the verdict” in the consumer court. Put simply, after you get a verdict from a consumer court, you will have to approach it again to issue a judgment to the company to follow the verdict of the consumer court or to face other civil and criminal penalties including attachment of properties or arrest. Sadly, this could mean another 2-5 years of your life fighting a legal battle against this company to remedy your problem.

Conclusion

Consumers play a vital role in the economic system of a nation because in the absence of effective demand that emanates from them, the economy virtually collapses. Mahatma Gandhi said, “A consumer is the most important visitor on our premises. He is not dependent on us, we are on him. He is not an interruption to our work; he is the purpose of it. We are not doing a favour to a consumer by giving him an opportunity. He is doing us a favour by giving us opportunity to serve him. But, of late, unfortunately cheating by way of overcharging, black marketing, misleading advertisements, etc has become the common practice of greedy sellers and manufacturers to make unreasonable profits. In this context, it is the duty of the government to confer some rights on consumers to safeguard their interests. Consumers are a vulnerable lot for exploitations, more so in a developing country with the prevalence of mass poverty and illiteracy. India too is no exception to it. Procedural simplicity and speedy and inexpensive redressal of consumer grievances as contained in the CPA are really unique and have few parallels in the world. Implementation of the Act reveals that interests of consumers are better protected than ever before. However, consumer awareness through consumer education and actions by the government, consumer activists, and associations are needed the most to make consumer protection movement a success in the country.

 

 

SOURCE: http://www.consumerdaddy.com/a-15-how-to-file-a-consumer-complaint.htm

Consumer Protection Act in India

It is not exactly the copy and paste from these sited but have taken some help from these sites.