Signing Contract: What You Must Know

Contract as an agreement is more executed and signed than said. Contracts are executed by almost every company irrespective of the industry in which they are working. Although different contracts would have different clauses to meet their objectives, certain clauses should make an appearance incontract almost all contracts. Thus, while drafting a contract, it is of paramount importance that these indispensable clauses are not omitted so as to protect your business from miscommunication and lawsuits. And while signing contract what you must know has been listed below:


1) Obligations of the Parties

A well-drafted contract apart from the job to be done and specifics to be performed should also mention the obligations of the individuals or entities who are a party to it. The obligations of the parties should define their liability and obligations in case a specific set of task or job is missed or not performed or underperformed. In the event of no such clause, it might invite unnecessary dispute and lawsuits which might lead to unplanned expenditure in dealing with the litigation process.


2) Confidentiality

When an agreement is entered between parties, they are bound to share some key information and documents which are required to perform their duties specified under the contract agreement. And to protect the rights, documents, and confidentiality of each of the parties, a confidentiality clause is a very crucial part which should form part of the contract agreement. This clause goes a long way in building trust and long-term relationships when businesses enter into a contract.


3) Breach of Contract

While a contract is signed and executed to perform certain duties that are expected of each party, however, there are also innumerable instances where the contract has been breached and tasks have not been performed. In such cases, it is important to include a clause in an agreement which should define the liability in case of damages for breach of contract. This clause is usually drafted in such a way so as to compensate the other party with a predetermined amount. However, this should not bar one from approaching the court of law to claim further compensation.


4) Termination

When there is a breach of contract by any of the party in a contract agreement, it might also lead to termination of the contract. There might be several other factors which may lead to termination. For example, in the case of mergers or amalgamations, or takeover of one entity by another entity might also trigger termination. To deal with such events and situation, a part of the agreement should define and clearly lay out the circumstances under which the parties to the agreement may break out of the contract and the implications of breaking such contract.


5) Force Majeure

‘Force Majeure’ has been derived from French meaning ‘Superior Force’. It is defined as an event or effect which is beyond anyone’s control and cannot be reasonably anticipated or controlled and is compared to an ‘Act of God’. Consider a situation when two companies have entered into a contract agreement and due to floods, the products of the company which were supposed to be delivered to the other company within 10 days does not get delivered in time. Such kind of disruption which occurred due to some external forces was beyond company’s control, and in such situation, the company which failed to perform its duty should not be penalized, and thus to protect itself, the parties while signing the contract should include the clause of Force Majeure. This clause shall ensure that failure to perform a duty due to unforeseen or unavoidable disruption shall not be considered as a breach of contract.


6) Jurisdiction

With liberalization in the economy, it is very common these days that the parties to the contract are located in different states or sometimes different countries. In such a situation, what would happen if there is a dispute? Two parties, one of which is located in India and the other in the USA, which state laws shall apply? Thus, to keep things clear, a contract when drafted should include the jurisdiction clause which should define the governing law and the place where it shall be dealt with in case of a dispute.


The above six clauses are an important part of a contract agreement which should find a place when the contract is drafted. Also, it is crucial that the selection of words and language while drafting the contract are such that the interest of the parties are addressed and any kind of deadlocks or disputes are resolved by referring to the contract without any ambiguity. A legally and professionally drafted contract paves the way in setting up a successful business.



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