As a corporate law consultant, I have vetted and drafted various legal Agreements. Whether it’s a simple five-page Rent Agreement or a complex thirty-page Term-Sheet Agreement, I found most of my clients get confused among the complex legal terminologies of the agreements. At worse, sometimes I have seen people even signing it, without understanding the complex legal impact of the clauses and repent when the other party takes any undue benefit of it. Though there are thousands of legal phrases and its connotations, based on my experience I have written this article on 10 common legal phrases which are used in Agreements. The idea is to make things simpler for people who are getting into any type of Agreement so that one understand various legal implications of these words on the overall scheme of things and execute it only after having proper knowledge of it.
Though there are thousands of legal phrases and its connotations, based on my experience I have written this article on 10 common legal phrases which are used in Agreements. The idea is to make things simpler for people who are getting into any type of Agreement so that one understand various legal implications of these words on the overall scheme of things and execute it only after having proper knowledge of it.
Void ab initio- An act which is completely non-valid right from the starting and can be challenged by anyone at any time. In other words, unenforceable from the very beginning.
An example of the clause- “If the party of the first part performs any actions, which is not included in clause V of this agreement, such actions shall be deemed as void ab initio.”
Mutatis Mutandis- It is used when the parties to the contract have or previously had a similar agreement among themselves, and a certain clause or obligation used in that contract is being transferred from that agreement to the new one.
An example of the clause- A rent Agreement is about to be renewed. The new agreement may include terms that are identical to those in its predecessor, such as the permitted use of the premises. The new agreement might state that “the terms of that certain rent between the Parties dated July 1, 2015, governing the permitted uses of the rented premises shall are hereby incorporated mutatis mutandis.”
Pari passu– This means equal and even. Usually, it’s used to denote that newly issued shares have the same rights and restrictions as those of the same class which already exist.
An example of the clause- “The Company has issued 50,000 (Fifty thousand) equity to the Investor on a pari passu basis with the Promoters.”
Representations and warranties- It is a term used to describe the assertions that a buyer and/or seller makes a purchase and sale agreement. Both parties are relying on each other to provide a true account of all information and supporting documents to close the transaction.
An example of the clause- “The Company and the Promoters expressly agree and undertake that the representations and warranties will be valid and enforceable against them, jointly and severally, by the Investors.”
Ad Hoc- Without any particular rate, percentage, proportion.
An example of the clause- “The Service Associate commit through this Agreement that they will not accept any agreement on Ad Hoc basis without prior approval of the companies.”
Force majeure- The reason of a force majeure clause is to define circumstances that release the parties from liability. The clause itself defines the hazards, dangers or ‘Acts of God’ that have this effect and state in case this event occurs then the concerned party shall not have the liability to provide compensation in lieu of the same.
An example of the clause- “Except where the nature of the event shall prevent it from doing so, the Party suffering such force majeure event shall notify the other Party in writing within ten (10) days after the occurrence of such force majeure event and shall in every instance, to the extent it is capable of doing so, use its best efforts to remove or remedy such cause with all reasonable dispatch.”
Pro rata– This signifies proportionally.
An Example of the clause- “In case any of the shareholders want to sell their shares, they need to first offer their shares to the existing shareholders on pro rata basis.”
Ex Gratia- This refers a situation where an action or compensation is committed from a sense of moral obligation rather than because of any legal requirement.
An example of the clause- “The Company agrees to pay the Associate an Ex Gratia payment of Rs 2,00,000 for its service in the company in the last financial year”
audi alteram- This clause is used in Arbitration Agreement and it means that the other side should be heard before deciding any decision. It believes that no person should be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against them.
An example of the clause- “In case any issue goes through the arbitration process, both the parties shall enjoy the benefit of audi alteram and any decision taken by the arbitrators post this shall be binding on both the parties.”
Status Quo- It means the existing state of affairs.
An example of the clause– “In case any dispute arises between the business partners of the firm, and its tried in a court of law, the parties agree that there shall be status quo in regards to the financial activities of the business until the dispute is resolved.”
These are some of the phrases that are frequently used in Agreements. Needless to say, its implications are far reaching. Thus one should be very careful while executing any agreement. Though this article is just a fragment of the entire legal lexicon, I hope this also helps to the reader to understand the agreement correctly so as to any informed decisions.