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Agreement and Contracts
The terms “agreement” and “contract” are used interchangeably, but legally speaking, they are two different things. An agreement is simply an understanding or arrangement between two or more parties. A contract is a specific agreement with terms and conditions that are enforceable in court.
Objects of drafting an Agreement and Contracts
The Contracts and agreements are basically ‘meeting of minds, however as all the businesses run with various ups and downs so the intentions of parties are always advised to be noted down on a piece of paper with clear communicable terms and conditions. It must be such that it can be defined harmoniously and in the true letter and spirit of the document. It must not be misinterpreted and provide a clear picture of intention conveyed in such contracts/ Agreements.
From this understanding, the objectives are:
- Mitigation of Financial and Legal Risks
- Creation of Legal rights and liabilities
- Protection of Business Strategies and Ideas
Components of a Contract
A contract should include:
an offer, an acceptance, and Consideration. Consideration is an exchange of promises and/or performance: usually goods, services, and/or money.
The contract is binding and enforceable only if the offer is made and accepted.
One party makes a clear and intentional offer, and the other party to the contract accepts all of the terms of said offer. Both parties must have the same knowledge and understanding of what the contract entails. This is called mutual assent.
Consideration
For a contract to be valid, something of value must be exchanged by both parties. This is called “consideration,” and a valid contract is not formed without it. Different types of goods and/or services can be exchanged, cash, intellectual property, services, goods, promise to do or not do something, etc., but most contracts involve the exchange of a product or a money service. For a contract to be “fair” contract law requires that the consideration be “adequate.”
Why Agreements and Contracts?
A simple handshake or oral agreement, while legally binding, will not always be provable if a dispute arises. To ensure all appropriate information is included and all legal requirements are met, a contract should be drafted and signed. A contract does not need to be multiple pages long or complicated. It should just be a basic contract agreement in clear and simple terms, even for business agreements. This will protect all parties and ensure fairness.
The terms, including, but not limited to the consideration exchanged under the contract, must be clear to be enforceable. This way, you know all parties are aware or should have been aware of what has been agreed to.
How Do You Form a Contract?
Forming a contract includes the following steps:
Offer: One party will present the other with an offer. The offer must include the terms to be agreed upon.
Acceptance: After receiving an offer, the other party can accept or decline the offer terms. If they accept, they are agreeing to the terms of the offer. They may also choose to counteroffer. If the person accepts, the contract is created. This party must notify the other party that they have accepted the contract.
Consideration: Contracts often require that each party gives something up. This ensures that each party is given something of value.
Mutual assent: Both parties must understand that they are legally bound to the contract and its details. This is the one important piece of a contract that is often missing in informal verbal agreements.
Material terms: Material terms place a value on the contract’s components. If one party breaches the contract, a monetary value can be assigned to the agreement. Material terms include names, dates, a clear description of what is being transferred, and payment terms and dates.
Forming a contract includes the following steps:
Offer: One party will present the other with an offer. The offer must include the terms to be agreed upon.
Acceptance: After receiving an offer, the other party can accept or decline the offer terms. If they accept, they are agreeing to the terms of the offer. They may also choose to counteroffer. If the person accepts, the contract is created. This party must notify the other party that they have accepted the contract.
Consideration: Contracts often require that each party gives something up. This ensures that each party is given something of value.
Mutual assent: Both parties must understand that they are legally bound to the contract and its details. This is the one important piece of a contract that is often missing in informal verbal agreements.
Material terms: Material terms place a value on the contract’s components. If one party breaches the contract, a monetary value can be assigned to the agreement. Material terms include names, dates, a clear description of what is being transferred, and payment terms and dates.In creating a valid contract and Agreement, all parties must be legally competent. A contract will not be valid if either party does not have the legal ability, or “capacity,” to enter into a contract. Capacity is determined by both a person’s age and his or her mental competency.
This ensures that everyone entering into the contract is fully able to understand what they are signing.
Requirements for competency:
- Most states require parties to be 18 years or older.
- Liberated minors can enter into binding contracts.
- If neither 18+ nor an emancipated minor, a parent or guardian may be able to enter into a contract on behalf of their child/ward.
- All parties must have the mental capacity to enter into the contract.
- This is determined by whether or not the party has the capacity to understand the contract and the legal obligations/duties required of him or her under the contract.
- Not intemperate or mentally impaired when the contract was signed.
- If one of the parties is a company or business, ensure that the person agreeing to the contract has the legal authority to do so for the company.
- No difficulty or coercion to induce a party to enter into the contract.
Business Contracts and Agreements
In a business contract, the document lays out the terms of the agreement(s) including the services to be provided and/or the products being sold. It will also layout deadlines, prices, and payment plans.
Business contracts are very important to and protect both companies/partners in the contractual relationship.
Ask these questions when drafting and/or signing a business contract and Agreements :
- Does this agreement address all of the possible situations or problems that may arise?
- Do we have a contingency plan?
- Are any of the provisions ambiguous or unclear?
A business contract should include the following:
- Names of all parties
- Contract beginning and end dates
- Payment amounts and schedule
- Steps to take when a party breaks the contract
- Signature with a date.
Registration, Stamping and Attestation:
The most important factor while drafting the agreements or contracts is that they must be registered and stamped as per applicable law and regulation and It is an integral part of a document. As most of the agreements and Contracts in the commercial World are entered into between parties, therefore the instrument contains its legal dispute resolution mechanism until and unless mandated by law to be registrable. All the agreements or contracts need to be made on a stamp paper of Rs. 100/- or more until and less mandated by Stamp Acts and Rules variously adopted by each State specifically for a particular type of Document. Instruments / Agreements must be attested and testified by Two witnesses competent to hold the identity of the parties.
Generally while starting any business and its operations, whether as a corporate body, partnership, proprietorship or startup, there are few contracts and agreements which are notably be entered into, such as Service Agreement, Joint venture Agreement, Shareholder or Share purchase or Share-subscription Agreement, IPR Licensing (Trademark and Copyrights Licensing), Employment agreement etc.
Therefore, we can conclude that to protect the business and to meet the objectives of Agreements and Contracts mitigating its legal, financial and business risks, the drafting of such documents is a notable exercise that requires time and resources to save the business from any future legal disputes.
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