This article is written by Yash Sharma , a law student at Vivekananda Institute of Professional Studies, Indraprastha University, New Delhi. This article covers all the basic rules and fundamentals of a legal agreement or a legal deed along with its components.
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We come across contracts and deeds every day in our lives in multiple instances. Both a legal agreement and a deed are enforceable in a court of law. These documents protect the rights and remedies of the parties bound in legal obligations mentioned in the contract. There must leave no scope or loophole for dispute or wrongful breach of contract for personal use by either party.
A legal agreement and a deed are slightly different in their use, but the fundamental principles of drafting these documents remain the same. In this article, basic and important fundamental rules of drafting an agreement or deed are compiled separately. All the elements or rules mentioned are important for achieving the goal or objective of the contract.
In Indian Laws, the concept of an agreement is mentioned in the Indian Contracts Act, 1872 . It states that an agreement is formed when a proposal is accepted and it becomes a promise. An agreement lacks legal enforceability. The very basic meaning of an agreement is proposing and accepting an agreement to legally bound them for consideration. In other words, a legal agreement can also be called a contract which is legally enforceable.
Consideration is essential to a contract each party has to do or abstain from doing some act as per the promise or give something in return for getting something done. In terms of consideration, a deed is different from a legal agreement as there is no requirement of consideration in a legal deed for it to be valid. A deed in itself is a solemn indication by the party that there is an intention to be bound for the fulfilment of the promise.
An agreement is formed when two parties make a promise and decide to get into a contract. As per the Indian Contract Act, 1872, the parties have to be legally capable of getting into a contract by acknowledging the proposal with a bonafide thought. This agreement binds the parties in a quid pro quo relationship where they both have to discharge their liabilities as promised or accepted by them.
As per the Indian Law, a person is competent to contract if he is major as defined by the Indian Majority Act, 1875 and is of sound mind and is not barred from any law. Good drafting is important as a contract is not a mere agreement but it protects the rights of the two parties and also gives them legal remedies. An agreement binds the two parties with some responsibilities, conditions, manners, issues, etc. That is why the drafting should be full-proof so that there leaves no loose end which may result in many damages.
A legal document shall have certain ingredients in the drafting of the content-
Some essential components of each legal agreement are mentioned as follows:-
This means that the parties should be validated in terms of their character, financial stability, mental health, and legal capacity. This also verifies that a party can not be exploitive, unethical, or reluctant towards one’s responsibility. If there is a possibility of substitution of either party to be done by some, either person, that too is mentioned when the parties are defined.
A scope for disputes widens if the obligations and liabilities of each party are not mentioned or defined sufficiently. Also, along with the consideration as an item, it is preferred that the progress measurement method is also stated. The obligations should be effective and just which also depends on the parties, but the remedy process in case of a breach in one’s liability to perform his task should also be mentioned.
In a contract often the consideration includes the payment for the act done. This payment may be done at various stages of the agreement completion. To avoid such disputes it is important that most of these installments of payments if foreseeable, specified in the agreement. It is advisable to make the payment after the delivery or discharge of liability to avoid such issues or to partially do the payments in proportion with the delivery. Also, at the time when the product or service quality and the standard is being verified, if there is any requirement of prepayment it should be brought up.
The integration clause specifies the scope for amendment in the contract in the future. It is important for the understanding of the parties that in the contract what all terms and conditions mentioned in the contract won’t be changed in the future. This condition is generally an incorporated component of the agreement. The clause must state that such amendments shall be made in writing or any other way as agreed by the parties. Such provisions are valid as long as they signify the need for such amendments.
Termination of contract or promise before the end of the term can be considered as a breach of contract. Certain cases in which the termination can happen is if a party refuses to discharge its obligations partially or wholly, due to the occurrence of an unforeseeable event such as some disaster or anything that renders the possibility to discharge one’s liability. Sometimes for the convenience of the parties, they may no longer wish to continue their relationship. Termination clauses mention such circumstances or conditions under which the contract can be terminated. These termination clauses can be quite problematic as it is sometimes hard to find a way to end the relationship in which all the parties get a satisfactory outcome or fulfil the constitution of the clause.
While drafting all these sections shall be kept intact in the agreement while holding on to the previously stated elements. Those sections are as follows-
The preamble states all the basic information important to bind the two parties in the contractual obligations such as the name of the parties, information regarding the date and time of the formation, and address of the places from where the business is being operated. The preamble identifies the possibility of more than one party involved and identifies those parties in the form of their relationship with other parties such as corporate parents, trustees, subsidiaries, and guarantors. Preamble shall specify information like all person party to the contract, their legal status and capacity, place of business, intended scope of liability, change in party ownership, and a third-party beneficiary.
These work as a catalyst for the contract by providing a basic structure, text, and context. A preamble is a non-binding declarative statement that is presented as a fact or statement specifying the intention. If the contract deals with the purchase of a product it will give an insight into the content while the specifications remain in the body of the contract.
They give a brief explanation of the contract mentioning the stage at which the contract is made, giving essential content, structure, and payment method. They lay down the soul of the contract by mentioning the goal and objective of the contract without getting into details of the specifications of the body.
It defines keywords, terms, and abbreviations that may appear multiple times in the contract and is essential for understanding.
This section lays down the provisions of the contract dealing with the transaction nature characterization by settling a particular method and scope of payment, completion time and the fundamental content of the contract.
It deals with all the variations in which the payment can be done such as the amount to be paid, the terms for payment, or any financial formula that could be used for closing the adjustments. This includes the break up of the final price inclusive of all the factors adding up to the total cost. This is done for the understanding as the tax implications can be different for buyer and seller.
This includes a list of all the products and services provided or sold in the form of consideration. It is essential to mention this for the clarity that both the parties are performing their responsibilities and what will they get in return. For this purpose, a proper schedule is to be created and adjoined with the contract.
One of the main purposes of a legal agreement is it is enforceable in court for any breach of terms. For that purpose, it is important to specify a provision related to indemnification if one party finds out that another party has breached the terms of the contract. This tool serves as a mechanism for getting security to the parties.
The only purpose of this section is if the two parties want the information and terms available to other parties confidential and secret, they can get that done using this provision.
A contract must not be vague and for that purpose, all the details must be specified correctly and exactly. It is important to mention a date when the contractual obligations were accepted by the parties. It may not be the date when the contract was signed but a futuristic date from when the obligations or rights of the parties may commence. The contract time or completion time is the time mentioned or given to the parties to discharge their liabilities. Validity time is an interval from one date or time to another between which the terms of a contract shall apply.
The termination clause mentions the way out of the contract with mutual agreement between the parties. This provision removes ambiguity regarding the end of this relationship.
This section consists of multiple provisions and sections that do not fall in any particular section. These provisions turn out to be of great use from time-to-time.
For drafting, it is important to understand the meaning of the deed. A deed is a document creating responsibilities and liabilities binding to both parties. The signing shall be done by the parties with unchallenged legal capacity and testified by a witness. Drafting of deeds is important for businesses and people dealing in services and products. Deeds come across us at multiple instances of life such as partnership deed, LLP deed, gift deed, share purchase deed, lease deed, etc.
A deed can be divided into 3 parts namely the Non-Operative part, the operative Part, and the Formal Part. For each part, a different drafting technique is followed. The drafting of each section is explained in the following manner-
THIS LEASE DEED is executed at New Delhi on this 7th day of January 2021 by and
ABC (hereinafter called the Lessor, which expression shall include their heirs, legal representatives, successors and assigns) of the one part:
XYZ Resident of address (hereinafter called the Lessees)
WHEREAS the Lessor represents that he/she is the absolute owner of the apartment situated at the address of the apartment consisting of details of the place and commodities .
WHEREAS the Lessee has requested the Lessor to grant lease with respect to the apartment and the Lessor have agreed to lease out to the Lessee the apartment, for residential purposes only, on the following terms and condition:
NOW THIS DEED WITNESSETH AS FOLLOWS:
a. That the Lessee shall not sublet, assign or part with the demised premises in whole or part thereof to any person in any circumstances whatsoever.
b. That the day-to-day minor repairs will be the responsibility of the Lessee at its own expense.
c. That the Lessee shall not carry out any structural additions and alterations of permanent nature to the demised premises.
d. That the Lessee shall comply with all the rules and regulations of the local authority applicable to the demised premises.
e. That the Lessor will keep the Lessee free and harmless of any demands, claims, actions or proceedings by Govt. authorities in respect of quiet possession of the premises.
That both the parties, the Landlord and the Tenets, have read and understood this agreement and have agreed to sign the same without any pressure from any side.
In WITNESS WHEREOF the Lessor and the Lessee have hereunto subscribed their hand at New Delhi on this 7th day of January 2021 first above mentioned in the presence of the following witnesses.
(Signature of the landlord) (Signature of Lessee)
The main motive of giving legal enforceability of an agreement or deed is to protect the rights of the parties that may get affected if the promise is wrongfully breached with any compensation for damages. That is why it is important to remove any scope for ambiguity or misconception. For that a good draft of a contract is essential. It helps to avoid any disputes regarding the terms and conditions of the contract or any related issue that may come up because of improper drafting of the document.
The basics like the preamble, party description, recital, and subject matter are common in both legal deed and legal agreement. In writing of these documents, the same principles of clarity, simplicity, and definitions among others are used. All the elements, sections, and parts must be properly written otherwise it will compromise the quality and security of rights of the parties.
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