Structuring of Legal Contracts and Vetting

Legal contracts include manufacturing contracts, employment contracts, share purchase contracts, non-competition contracts, advertisement service contracts, sponsorship contracts, manufacturing contracts, trademark user contracts, trust deeds, rent deeds, security services contracts, non-disclose contracts, partnership contracts, shareholder contracts, etc.

 

 

What is a contract?

A contract can be defined as an instrument that binds its parties in a legal relationship.

 

What are the essential conditions of a contract?

The following conditions have to be fulfilled for the existence and enforcement of a legal contract: 

  • Intention to enter into a legal contract

  • Offer

  • Acceptance of that offer

  • Legal consideration paid in exchange of performance of that contract

 

How is a covenant different from a legal contract?

A covenant is more like a promise made in a contract, which gives rise to legal action if not carried out. In general, there are two types of covenants, such as negative covenants and affirmative covenants. In the former, the promisor agrees to avoid doing certain acts, while in the latter, he agrees to perform certain acts.

 

 

What is the general structure of a legal contract?

It starts by mentioning the names and addresses of the contracting parties, and they are to be referred to as in the contract. Then the terms used in the contract are defined within the ambit of the law being applied to that contract. Then the clauses and provisions of the contract are added with ordered numbering.

 

 

What provisions are generally found in a legal contract?

The following provisions are generally found in a legal contract:

  • Definitions

  • Scope of the Agreement

  • Recitals also known as the Preamble

  • Effective Date

  • Terms and Conditions

  • Termination of Contract

  • Non-competition and Confidentiality

  • Legal Authorization

  • Severability

  • Dispute Resolution

  • Condition Precedent

  • Risk of loss

  • Choice of law

  • Specific Performance

  • Boilerplate provisions

  • Event of Default

  • Force Majeure

 

 

What is meant by the vetting of a legal contract?

The vetting of a contract refers to examining it for any loopholes, mistakes, fraud, or injustice.

 

 

What are boilerplate provisions, and how important are these provisions?

These provisions are typically added as it is with minor changes at the end of each legal contract. These provisions are important because they clarify some of the most important issues, such as choice of law, interpretation, amendments, dispute resolution, procedures, etc.

 

 

What is the purpose of an ADR provision?

The provision of Alternate Dispute Resolution states that in case of any dispute or default, the contracting parties will try and resolve it outside of court. This provision protects the parties of the contract from the expenses and inconveniences of a legal battle in the court.

 

 

When does the ‘Battle of the Forms’ occur?

It is a rather common situation that occurs in the world of business. In the Battle of the Forms, the businesses send each other standardized forms for creating a relationship leading to a contract between them.

 

 

What law applies to the contract?

The parties have the choice to decide what country's law would apply to this contract. This choice is generally provided in case of international transactions. Otherwise, the law of the land (the country where the parties reside, and the contract is performed) is applicable.

 

 

What is a condition precedent?

It states that an event has to occur before that contract is performed. For instance, if party A does not fulfill that condition, then party B shall not either enter into the contract or will not perform its part.

 

 

What are contracts of adhesion?

These contracts do not give the other party any choice. It is a “take it or leave it” type of situation typically presented to the weaker party by the stronger one.

 

 

Why should I add the provision of force majeure?

The term ‘force majeure’ means ‘act of God’ and should be added in order to protect a party from a legal action where that party could not perform their part of the contract due to a natural hazard or act of God.

 

 

How to draft a legal contract?

First of all, it is crucial that both parties are clear what the contract is about and what aspects of their deal does it cover. Moreover, the following tips should be kept in mind while drafting a legal contract:

  • Use simple yet, formal, and legal language.

  • Do not be overly technical. Use technical terms as necessary.

  • Use short sentences.

  • Avoid punctuational, grammatical, and legal errors.

  • Each clause should focus on one thing.

  • Be 100% accurate.

  • Be specific and avoid any ambiguity.

  • Cover all the important issues and the minor ones as well.

  • Keep proofreading.

  • Do not cross the ambit of the law.

 

 

What is a survival clause, and why is it important?

It is a customary provision and is added for the purpose of survival of a certain obligation after the contract has been terminated.

 

 

Why should I add a remedies clause in my legal contract?

One should add a remedies clause in their legal contract to provide themselves and the other party with a set of legal remedies that can be availed at the time of the breach. These remedies will help you get better compensation as compared to the general remedies provided by the law.

 

 

How are vague and ambiguous clauses dealt with by the courts?

If the written is vague or ambiguous, then the court will focus on the implied. For instance, the dealings of the parties and the manner in which they were conducted will be brought into focus.

 

 

What is the legal value of omitted terms?

Omitted terms are dealt as if they were never a part of the legal contract.

 

 

What is a gap filler, and why is it important?

A gap filler is a statement that further clarifies the language of a provision in a contract. However, it does not override or supersede the intention of the parties but simply provides assistance or clarification.

Caution: 

Information contained in the above FAQs is for general understanding purposes only and may have altered or have become incorrect owing to variation in factual aspects and evolving laws, therefore, should not be treated as an alternate to professional legal advice.