Contracts and It's rules

Corporate Agreements, Basic rules to know:-

By Sandigdha Mishra, Advocate 

advsandigdha@paydirtprofessionals.com 

Contracts are a necessary detail when doing business. As a particular deal becomes more complex, so does the contract that seals that deal.

Nonetheless, contracts follow a basic set of rules, whether they cover a partnership formation or a simple purchase or supply agreement. A business agreement involving companies needs to properly name the parties and use clear and concise language to accurately describe the deal and the proper execution of the agreement.

BASIC SET OF RULES OF Corporate Agreements:-

1. Name the parties properly. Use each business’s legal name, state of origin and principal place of business to make it clear that the contract is between the businesses and not between individuals. An example of a business name is “123 Corporation, a with a principal place of business at XYZ, BUILDING X,  ROAD- ADB, CITY, STATE, PIN-....... (ADDRESS SHOULD BE PROPER) 

2. Describe the material terms of the deal. This typically involves describing what is happening, who is doing what, who is paying what and how payment is being made. For example, in a purchase or supply contract, you must spell out specifics, such as the total cost -- often on a not-to-exceed cost basis budgeted over a specific amount of time, such as a year -- and the schedules for payment, delivery, amount per delivery and how to reject or replace the goods if they do not comply with the agreement.

3. Address dispute resolution procedures and remedies. Often the main concern for a supplier, for example, is timely payment; the supplier will therefore expect some provisions to explain what happens if the payment is late or or refused. Remedies may include termination of the contract.

4. Flesh out the contract with standard terms of agreement. It might be useful to review a contract template for a deal that is similar to the particular agreement you're contemplating. Tailor the terms to what is appropriate; a small contract for painting a house, for example, probably doesn’t need a 30-page contract with every provision under the sun.

5. Execute the agreement. When it comes time to sign and execute the contract, double-check that the people signing the agreement have the authority to bind the business. Typically, individuals such as directors, chief executive officers, presidents and general managers have authority to sign contracts, whereas the busboy or cashier probably does not.

IMPORTANT CLAUSES OF CONTRACTS:-

A contract clause is a specific provision or section within a written contract. Each clause in a contract addresses a specific aspect related to the overall subject matter of the agreement. Contract clauses are aimed at clearly defining the duties, rights and privileges that each party has under the contract terms. Clauses can be located in various places in the contract, but most of the time they appear towards the end of the document.

The use of various clauses all depends on the needs of the parties. Some clauses appear more frequently in contracts than other ones. There are “boilerplate” clauses that may appear as a standard part of some business contracts. Or, the parties may create specific clauses that are tailor-made for each contract with a client. 

Some common contract clauses include:

• Choice of Law / Forum Clause: In these types of clauses, the parties agree that the contract terms will only be interpreted according to the laws of a specific state. Also, they may agree that litigation will only occur in a specified jurisdiction. These are only enforceable if they don’t conflict with general requirements of law.
• Statue of Limitation Clause: These state the time frame in which a lawsuit can be filed after a breach of contract or other violation. Again, such clauses can’t violate already existing laws and filing requirements. 
• Time of Performance Clause: These indicate the time frame in which the contract duties can or can’t be performed. Some contracts state that “time is of the essence”, meaning that a breach of contract suit can be filed if the duties aren’t performed in a reasonable amount of time.
• Merger Clause: A merger or integration clause states that the current written contract overrides any previous oral or written agreements.
• Indemnification Clause: These agreements indemnify (release from liability) the other party in the event that losses or expenses are incurred. These should be used with caution, as they could limit the ability to recover damages for losses
• Non-Waiver Clause: These protect parties who excuse the other party for non-performance of contract terms. For example, suppose one party only makes payments every other month when the contract requires monthly payments. If the non-breaching party accepts the payments but doesn’t file a lawsuit, the non-waiver clause allows them to recover the missing payments. In other words, the party doesn’t “waive” their full contract rights by accepting non-complying action from the other party.
• Severability Clause: This ensures that the remainder of the contract is enforceable even if one part of the contract is determined to be invalid. Without such a clause, it’s possible for the entire contract to be invalidated by the court if only one provision is found to be invalid. Also called a savings clause.
• Arbitration Clause: States that any legal disputes are to be resolved through arbitration rather than litigation. 
• Liquidated damage Clause: Allows the non-breaching party to recover damages in the event that actual damages are difficult to calculate. However, the amount of liquidated damages needs to be reasonable in light of the circumstances.
• Attorney Fees Clause: These state that the losing party shall reimburse the other party for attorney’s fees (and sometimes other court fees and costs).

Getting a particular clause enforced depends largely on the laws in each region. Generally speaking, parties can form clauses are they need them, but they need to comply with existing contract laws and regulations.