Business contracts are very important documents that define the relationships between the organization and their business partners. It is a legal document that holds both the parties to a set of requirements and makes sure that both uphold their end of the bargain.
The wording of the business contracts helps to prevent any disputes between the signatories and in the event of a dispute, helps to resolve the issue as per the terms of agreement mentioned in the contract.
As you may have noted, a business contract is a very important piece of document, and entails a lot of attention to detail and possible interpretations of the wording, while writing it.
The Indian Contract Act
Before writing any legal document such as a business contract, you must be aware of the laws governing the regulation of such contracts. As per the act a contract ‘is an agreement that is enforceable by law’. As per the act, an agreement is a set of promises or even a single promise which includes the following components:
• Making the offer from one party, and
• An acceptance of the offer form one or more parties
A contract is considered valid subject to free consent from both the parties. The parties involved must have legal authority to write such a contract.
In case of a breach of contract, the wronged party may require the accused party to concede to the following demands under the provisions of the act.
• Suit for rescission – releasing the wronged party from the contract.
• Suit for damages – monetary compensation
• Suit for ‘Quantum Meruit’ – A claim can be made against the price of the material used or supplied under the said contract
Writing a business contract is an exhaustive process and several pointers and steps need to be kept in mind:
1. Label the document: The terms ‘contract ’or ‘agreement’ must be used to distinguish this document from any other legal documents written for your organization.
2. Index the document: The content of the document must be separated into segments such that each segment or paragraph serves a different purpose or intent. Label each of these paragraphs by numbers or letters to distinguish them.
3. List the parties involved: In the beginning at least, list the complete information of the parties involved. Later on in the document, you can use abbreviations to refer to the involved parties.
4. Purpose of the document: Before writing any details of the agreement, make it a point to write the purpose of the contract. The purpose may include the services offered, the products manufactured, labor provided or any other such purpose.
5. Monetary Issues: Make a mention of any monetary issues that might come under the agreement. These involve costs, arrangements to make payments and interest rates in case of late payments.
6. Identify important dates and deadlines: Make a detailed mention of any and all deadlines and dates associated with the agreement. These include project completion and project delivery dates. Also mention the expiration date of the contract along with the terms of renewal.
7. Breach of contract: One of the most important things to include in the contract is the consequences in case of a breach of contract. These may include remissions, reimbursement for damages and termination of contract.
8. Confidentiality clause: Including a confidentiality clause also becomes important if you don’t want the other party to open up the transactions between the two parties to the public.
9. Provision for termination of contract: A time might come when either or both parties might want to terminate the contract. Make provisions for the steps involved in handling such termination requests such that neither party is adversely affected.
10. Create signature lines: At the end, provide space for all the involved parties to make their signatures. Also include the date of these signatures next to the said signatures.
Writing a contract is a tricky proposition because of the legal language involved. It is best to hire an attorney to go over the language before you submit the contract to the other party for review. It will also be easier to write the contract if you already have a template to work upon. Fish one from any of the past contracts made by your organization.