CONTRACT/ AGREEMENT IMPORTANT NOTES TO REVIEW
Contract Important – Why?
> It serves as a written record of commitments for both parties.
> Agreements prevent unnecessary conflicts and mitigate risk in case of disputes. > It helps an organization to maintain compliance.
> it serves as a collaboration and communication tool.
> it also helps generate revenue.
> It increases operational efficiency.
> it extends a company’s brand and values.
Contract should be framed in such a way that the purpose behind it is lawfully positioned, performed, and protected!”
The contract should be adequately titled so as to give the reader a preliminary sense of the object of the agreement.
An effective contract is not only a reflection of the parties’ intention to get into a legal relationship, but clearly lays out the respective obligations of the parties with necessary safeguards and efficacious remedies. There are two specific nature of Contracts:-
A. Domestic Contract.
B. International Contracts.
A contract review is a thorough examination of a legal agreement before it is signed to ensure that everything stated in the document is clear and accurate, and that your company is comfortable moving forward according to the terms of the agreement. After the agreement is signed initially, contract reviews are also important leading up to specific contracting events, such as re-negotiation or opt-out windows. A contract review is typically your last opportunity to identify and request needed changes before getting locked into an agreement.
Even then, sloppy and careless drafting and/or review of contracts have hurt the corporates all over. A contract is not a compilation of standard terms, but a considerate replication of the understanding of the parties with regard to the purpose of the agreement, nature of services, form of performance, kind of consideration, and type of industry.
So, the structure of the contract in general, the hierarchy and the construction of the terms will differ and depend on:
> Parties, purpose, services, industry, location, and law.
Having said the above, certain basic rules govern the drafting and/or review of contracts which keep on progressing with change in the law and practices. To ensure a successful contract, before initiating drafting and/or review of a contract, these questions shall be answered:
1. Who has drafted or will draft/review the contract?
2. What is the purpose of the contract?
3. Whether it is a domestic or an international contract?
4. Are all important terms carefully inserted in the contract?
5. Is there a correct arbitration clause in the contract?
6. Whether Important Dates & Deadlines checked and confirmed?
7. Whether Default Terms reviewed?
8. Whether Termination & Renewal Terms mutually agreed?
While answering these questions, one must keep in mind the following:
1. The purpose or the object of the contract is instrumental in the construction of the contract. The purpose defines the scope, design, and requirement of the terms to be included in the contract.
2. Although, with each passing day the terms of the domestic and international contracts are finding common ground, nonetheless, the geographical nature of the contract may attract some different construction of both. Where a domestic contract attracts certain fixed language for certain clauses, an international contract attracts some ground work which may include serious negotiations. While drafting and/or review of an international contract, specific attention/modification shall be given to the following clauses:
> Location of Performance
> Payment Currency
> Governing Law
There are certain clauses important for all kinds of contract i.e. assignment, governing law, arbitration, force majeure, severability, counterparts, entire agreement, termination, indemnity etc. Though standard, these clauses cannot be used mutatis mutandis in all contracts, and so, while drafting and/or review of a contract it is necessary to understand the usage of these clauses in the context of the contract.
Apart from the above the terms of the contract shall be clear with regard to:
> Parties: Name and complete address of the parties.
> Duration of the contract: Whether the contract is for a fixed term, or is renewable. If renewable, specific terms and conditions.
> Defect removal: In case one party fails to perform an obligation under the contract, is there any time provided for defect removal or rectification?
> Payment of interest: If the work is not completed on time or the payment is not made in time, is there a provision for payment of interest on such defaulted amount?
> Intellectual property: What is licensed, and to what extent? The purpose of such license, and the remedy in case of infringement?
> Confidentiality: What is confidential, and what is not-confidential?
> Territorial restriction: Is there any restriction as to the area for the operation of the contract? If yes, then the duration and exceptions, if any?
> Implied and express warranties: Which party is responsible for what? This includes the obligation of any party to pay any taxes, fines etc. arising out of the contract.
> Arbitration Clause- It should be constructed in such a way that it reflects a clear intention to settle disputes by means of arbitration.
Thus contract review is an art having clarity on all the terms with thorough reading of the clauses detailed with intention and purpose of the draft.