Much before the articulation of customs and rules of contract into legislations, contracts existed in a different form than now. Merchants or tradespersons would usually enter into oral agreements. Gradually, written form of agreements emerged. The law of contracts in form Section 2(h) of the Indian Contracts Act, 1872 defines contract to be “an agreement enforceable by law”. This implies that any agreement which can be enforced in a court of law is a contract. Agreements which do not have the force of law are not per se futile; they just cannot be legally enforced. With the evolution of law of contracts over the centuries, it has become an indispensable part of modern day business transactions. It is essential to get a contract drafted for your business needs to streamline the day to day transactions, define the duties of the parties to the contract, liabilities, damages and modes of dispute resolution. The five reasons why a contract is essential for your business—
Sets Forth the Terms and Conditions of the Agreement
While entering an insurance agreement have you ever consented to plethora of terms and conditions proposed by the insurance companies to claim insurance? These terms and conditions are essential to be followed to claim insurance. If you breach any of these conditions, your claim nullifies. The parties while entering into an agreement have certain reservations which are moldeled in the form of terms and conditions in the contract. These terms and conditions define the scope of the agreement. For instance, a shoe maker when entering into an agreement with the supplier of leather shall agree to accept material of certain length only. If the material does not satisfy the defined length, the shoemaker shall have the right to reject it for not meeting the defined requirement in the contract.
One of the most prominent examples of terms and conditions is of contract between property dealer and buyer of a property. If the sale agreement specifies that the possession of property shall be delivered only when the buyer has paid entire consideration then the buyer cannot seek possession of property with partial payment of consideration.
Defines the Responsibilities of the Parties to the Contract
The responsibilities of the parties entering into an oral agreement might not be well drawn because of the nature of the oral agreement. In a written agreement, the parties can elaborate on the responsibilities they owe to each other and the conditions associated with such responsibilities. Even a minor breach of the duties can repudiate the contract or render it voidable. For instance, in plethora of sale of goods agreement the responsibilities of the buyer and the seller are well drawn. These responsibilities also include when the parties shall be liable for their actions or for the actions for which they shall not be liable for during the course of business.
This part is the cardinal part of insurance contracts. The responsibilities and duties of the insurer and the insured are drawn in intelligible and unambiguous manner.
Specifies the Consideration Involved
One of the essentials of a contract is lawful consideration. Ascertaining the consideration is more than the determining the cost involved. There are multiple factors surrounding the consideration such the time frame within which the party seeking services or goods or both from the other party shall make the payment, the mode of making the payment, the form of consideration etc. Consideration can be monetary or non-monetary as long as it is lawful i.e. even if consideration is in form of jewellery or land, it is lawful.
Sets Forth the Remedy In case of Breach and Mode of Dispute Resolution
The breach of contract is usually anticipated much before the parties enter into the contract. Therefore, multiple contracts include a clause on circumstances surrounding the legal injury and the remedy or damages which shall be granted to the injured party. Remedy can be in form on specific relief, or monetary. In case of unanticipated breach of contract or any other dispute surrounding the contract, the parties usually already decide on the mode of dispute resolution as well as the jurisdiction of courts. For instance, multiple contracts provide for mediation-arbitration to be the preferred mode of dispute resolution. A few contracts provide for jurisdiction of a particular court to be preferred mode of dispute resolution. Though the dispute resolution clause is ubiquitous in all forms of contract, the mode of dispute resolution can differ depending on the choice of parties.
Avoids Frivolous Litigation : Contract Management
Frivolous lawsuits are particularly common in cases where either or both the parties are small businesses. Such lawsuits can be financially distressful for small businesses. One of the ways to avoid such lawsuits is by contract management. Through contract management, the businesses can manage contract creation, execution and analysis to augment operational and financial performance. This can be done by hiring a professional legal documentation company or any attorney specializing in legal documentation. Contract management can aid in reduction of frivolous litigation and in amelioration of company’s performance. Contract management includes drafting and providing legal counsel on issues involving maternity benefits, provident fund, sexual harassment policy, gratuity policy, employment agreements etc..
A well drafted contract provides certainty in course of business. Handshake deals, on the other hand, can be uncertain and not be enforceable in court of law. A contract sets out the details of what the parties had consented to, consideration, dispute resolution etc. Besides, a contract gives more autonomy to parties with regard to their duties and responsibilities towards each other and to a third party, if any.