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Implications of Indian Contracts System Under the Governance Structure and Regime

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Implications of Indian Contracts System under the governance structure and regime

The importance of a well-drafted contract:-

A contract is put together mainly to ensure that either party involved in the process is protected. Therefore it is highly important that the contract is well written. There should not be any ambiguity in understanding the clauses of the contract. This helps in reducing the liabilities of each of the parties if something goes wrong. Given its impact on the business relationships, it is incredibly important for contracts to be well-drafted, well-structured and well-suited for the both the parties. The most important thing to keep in mind while drafting the contract is to make it as detailed as possible.

The expectations of the parties out of the deal that is about to happen should be properly outlined in the contract. All of the obligations and rights of both parties included should be clearly mentioned. Everything that both the parties agree upon verbally should be noted down in the contract including the payment details. The details of payment must be outlined explicitly and should also include the details of the method of payment, date when the payment is expected and what shall be the recourse in case of a late payment. Clauses outlining details of how the contract can be terminated must also be included. The steps to be taken in case of a dispute between the parties which might arise should be included as well since it will reduce the liability of the parties.

A well-drafted contract clearly defines the details of the parties, their responsibilities and the timelines. It also includes all the anticipated problems that may arise in the course of the contract and should have provisions for the unforeseen as well. The ability to provide for the unforeseen when preparing the draft of a contract is a skill that takes years of experience to develop which is why extreme care should be taken while putting down the details in a contract.

The parties involved generally focus on the project and often miss the potential risks that are inherent to all the contracts. Such risks may include the financial stability of the companies, delays, personality clashes between the parties and other unforeseen market conditions which may arise in the duration of the contract. Therefore, it is great importance that the contract includes the provisions for the worst case scenarios. This will ensure that the parties are protected if things do not go as planned.

Some of the main reasons why a well-drafted contract is important are:

  1. It helps both the parties involved in the contract in getting on the same page. It allows them to get a clearer idea of what the project includes and the details of the payment terms, the project timeline, and the expected project deliverables. The contract acts as a tool that helps both parties to stay on track.

  1. It helps to avoid the ambiguity in the scope of the contract and thus avoid the ever-growing project demands. It may involve really small matters but, even these minor changes in the client’s expectations to the project can cost you deeply in terms of both time and money if you aren’t careful. So, if there is a well-written contract for the business proposal, then both the parties can clearly see the scope of the project which is agreed upon.

  1. The parties should make sure that there are provisions which lay out the costs associated with any expansion of the workload or significant changes which may occur during the course of the project are included in the contract. If managed correctly, this can actually be beneficial as it will allow you to get paid for doing some more work on a project on which you are already working.
  1. A well drafted contract provides legal protection to both the parties, since everyone would like to avoid any type of confrontation. But, there is no guarantee that the client will also behave the same way. So, protect yourself by making a proper authorized contract. As long as you follow your duties in the deal, a signed contract will always come to your defense. Thus, a well-drafted contract actually protects both the parties involved.
  1. If a client is unwilling to sign a contract, this is a sign of trouble ahead. But if they sign a contract, it indicates that they take the project seriously. Rather than regretting after the agreement, this helps to identify that the client at least has intentions to pay.

Consequences of a void, void-ab-initio and illegal agreement/contract:-

The law relating to contracts in India is The Indian Contract Act, 1872 which regulates and validates the contracts between the parties. A contract is an agreement or a promise or an accepted proposal by the parties. Thus, every contract is the result of a proposal from one party and its acceptance by the other party. An accepted proposal is regarded as a contract when it is enforceable by law. According to The Indian Contract Act, an agreement is a contract if it is made for some consideration, between parties who are competent to contract, with free consent and for a lawful object.

Thus, a valid contract will include all the essential elements of a contract and can be enforced by law. The agreements which does not include the essential elements as stated by the law are said to be void. A void contract cannot be enforced by law. Void contracts are different from voidable contracts, which are nullified.

A contract can be declared as void only by a court of law. For example, an agreement to carry out an illegal act is an example of a void agreement. For example, a contract between drug dealers and buyers is a void contract simply because the terms of the contract are illegal. In such a case, neither party can go to court to enforce the contract.

A void agreement is void-ab-initio, i.e. void from the beginning. But, a voidable contract is not void-ab-initio, i.e., initially it is valid and later, it becomes void due to some changes in the conditions. There is no any discretion on the part of the parties in a void contract. They do not have the power to enforce a void contract. In fact, a void contract means that the contract does not exist at all and the law cannot enforce any legal obligation on any of the parties as they are not entitled to any securities as far as contracts are concerned.

An agreement is said to be void if any of the following holds true:-

  1. Made by incompetent parties (e.g., under the age of consent, incapacitated).
  2. Has a material bilateral mistake of fact material to the agreement
  3. Agreement where the consideration or object is unlawful (e.g., marijuana)
  4. Has no consideration on one side
  5. Restricts a person from marrying
  6. Restricts trade for a business
  7. Restricts legal proceedings
  8. Has uncertain material terms
  9. Incorporates a wager, gamble, or bet
  10. Contingent upon the happening of an impossible event
  11. Requires the performance of impossible act
  12. Agreement of which the consideration or object is unlawful in part and the illegal part cannot be separated from the legal part.

Remedies against Breach of Contract:-

        Breach of contract occurs when any party of the contract fails to perform his part in the contract. It may also occur when any party to the contract makes it impossible for the other to perform his obligation under the contract. The breach can be an anticipated one wherein a party declares his intention of not performing the contract before the due date or it can be an actual breach of where the party does not deliver on the due date of the performance.  



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