Crafting Clear Contracts: An Introduction to Fundamental Principles of Contract Drafting

By Sandigdha Mishra, Adv.

Legal Consultant, School Compliance, Child Protectionist, Life Coach

https://www.linkedin.com/in/sandigdhamishra/

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 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.

While intensification of commerce and trade sector is on its peak, contracts are extremely important set of clauses and often play a central role in any corporate’s success. When drafting a contract, there are many things which one should keep in mind, for instance, assuring that contracts serve everybody’s eventual benefits and making sense of how to foresee a future agreement dispute. In such a developing corporate world, it is relevant that even little or sloppy mistakes while drafting can prompt awful outcomes of the agreement. Regardless of whether individuals are drafting contracts for real estate, construction management, a land contract or some other agreement, it is essential for them to draft effective business contracts. 

The contracting parties are those individuals and businesses the contract is written for and about. The contract creates a legal relationship between the parties and both parties must obey the terms of the contract.

Both parties must be able to perform their obligations and have a fair say in the terms of the contract. Keep in mind that the first draft of the contract rarely makes it to the end. Both parties will likely suggest changes to the contract before they are ready to sign.

According to the 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.

Understanding the basic principles of contract drafting is essential to ensure clarity, enforceability, and fairness in contractual relationships. Following are the fundamental principles of contract drafting under the Indian Contract Act, 1872.

Offer and Acceptance:

The first principle in contract drafting is the concept of offer and acceptance. An offer is a proposal made by one party to another, expressing the willingness to enter into a contract on specific terms. Acceptance occurs when the offeree agrees to the terms of the offer. To be valid, an offer must be communicated, clear, and definite, while acceptance should be unconditional and communicated to the offeror.

Intention to Create Legal Relations:

For a contract to be valid, there must be an intention by the parties to create legal relations. This principle ensures that parties understand the seriousness and legal consequences of their agreement. While certain agreements, such as social or domestic arrangements, may lack this intention, commercial and business contracts are generally presumed to have an intention to create legal relations.

Lawful Consideration:

Consideration refers to the price, benefit, or detriment exchanged between parties to make a contract enforceable. Under the Indian Contract Act, consideration must be lawful and may consist of money, goods, services, or a promise to do or not to do something. Adequate consideration is required to support the enforceability of a contract.

Free Consent:

The principle of free consent emphasises that a contract should be entered into voluntarily by parties without any coercion, undue influence, fraud, misrepresentation, or mistake. Consent must be obtained without any element of force or deception. Contracts entered into under duress or fraud are voidable at the option of the aggrieved party.

Capacity of Parties:

Contractual parties must have the legal capacity to enter into an agreement. The Indian Contract Act specifies that parties must be of sound mind and not disqualified by law from entering into a contract. Minors, persons of unsound mind, and individuals disqualified by law are generally incapable of entering into a valid contract.

Certainty and Possibility of Performance:

A contract must be certain and capable of being performed. The terms and conditions of the agreement should be clear, definite, and specific. Ambiguity and vagueness may lead to disputes or render the contract unenforceable. Additionally, the performance of the contract should be possible and legally permissible.

Legal Formalities:

While the Indian Contract Act does not require contracts to be in writing (except for certain specific types of agreements), it is advisable to have written contracts to ensure clarity and evidentiary value. In some cases, certain contracts may be required to be executed on stamp paper or registered to be valid and enforceable.

Conclusion:

Understanding the basic principles of contract drafting under the Indian Contract Act, 1872, is essential for creating legally binding agreements. Parties should ensure that their contracts incorporate these principles, including offer and acceptance, intention to create legal relations, lawful consideration, free consent, capacity of parties, certainty and possibility of performance, and adherence to legal formalities. Seeking professional legal advice during the contract drafting process is advisable to ensure compliance with the law and protect the interests of all parties involved.

Thank you!

advocate.sandigdhamishra@gmail.com.