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Developing contracts-an oversight
WHY CRY OVER SPILT MILK?
All commercial transactions predominantly revolve around the Contract. It is thus of immense importance to concentrate on the development of the contracts. An experience tells us great Court battles and Arbitration disputes have been won and lost over absence or presence material clauses unclear and ambiguous terms. So no body dare disagree with this thought that its important to be focused on the documents while you draft them rather than crib over deficiencies later. It's in this context that the study of law governing contract need to be given the importance it deserves. In an ideal world the drafting of a contract runs parallel to the negotiations on its subject matter. In reality however, the drafting will start somewhat into the negotiations requiring the drafters or those who review the draft, to educate themselves quickly about the transaction.
INTERPRETATION OF CONTRACTS:
The law relating to Contracts in India is on a British Model. Its legislation dates back to British India. It came into force on 25th April 1872. Barring few necessary amendments the substantive law of contracts under 'THE INDIAN CONTRACT ACT 1872" has remained same over all these years, but the meaning given to it by court has met the needs of socio and economic changes. In fact the English law has been modified to suit the Indian ethos. In this article, an attempt has been made to give emphasis primarily to the pronouncements of Supreme Court of India in context of contract and its interpretation, which not only has a value as a binding precedent but is a Constitutionally recognized law2, binding on all. The construction of a written contract involves the ascertainment of the words used by the parties and the determination, subject to any rule of law, of the legal effect of those words.
1 Swetank Shantanu, Advocate-on-Record, Supreme Court of India 2 Article 141 of Constitution Of India.
WHAT IS CONTRACT?
No doubt, an agreement enforceable in law is a contract.3 The Contract is essentially an agreement between the parties, which rests on consensus of mind.4 Every contract has to pass through several stages beginning with the stage of negotiation during which the parties discuss and negotiate proposals and counter- proposals as also the consideration resulting finally in the acceptance of the proposal. The proposal when accepted gives rise to an agreement. It is at this stage that the agreement is reduced into writing and a formal document is executed on which parties affix their signatures or seal so as to be bound by the terms of the agreement set out in that document. Such an agreement is lawful and is enforceable by law. It is a contract.5 The Contract does not require any form, so if consensus of mind is reached by exchange of correspondence it would amount to a binding contract. But there is a vast difference between negotiating a bargain and entering into a binding contract. In a case where the exchange of correspondence showed that a term for a standby letter of credit and performance guarantee were never accepted, it was held that it may amount to a negotiation but it is not a binding contract.6 The object sought to be achieved in construing any contract is to ascertain what the mutual intentions of the parties were as to the legal obligations each assumed by the contractual words in which they sought to express them. There is no intention independent of the meaning of the words they have used.
VALIDITY OF AN E-OUTSOURCING CONTRACT:
The contract in a tangible form is a document containing matter which is inscribed, expressed or described upon any substance by means of letters, figures or marks or by more than one of these means which is intended to be used or which may be used for the purpose of recording that matter.7 A matter expressed in an Electronic form too constitutes a document even though it may not be tangible8. Any information, data, text, image, computer programme in electronic form would also constitute a "document"9.
3 Section 2 (h) Indian Contract Act 1872. 4 Maharaja Shree Umaid Mills Ltd Vs Union Of India 1963(Supp) 2 SCR 515 5 Tarsem Singh Vs Sukhminder Singh (1998) 3 SCC 471. 6 Rickmers Verwaltung GMBH Vs Indian Oil (1999)1SCC1.
IGNORANCE IS NOT A BLISS:
Quite often it seen that the contract and its terms are best read when its in dispute. Really strange! This happens more often when: -
- a contract documents are not negotiated properly.
- the terms and conditions , schedules , annexure make it a bulky.
- its repetitive and repetition is not consistent and in harmony with each other.
If you sign a document, it is needless to say that, even if you had not read them or had no occasion to read them or are ignorant of its precise legal effect, its binding on you.10 You are thus presumed to mean and intend what you right. When a contract is reduced to writing, undoubtedly the presumption is parties intended what they have said.11 You must know what you agree for. For god sake understand the value of your signatures. It's not merely an unreadable graphics of your identity but its some thing much more than that. It demonstrates, certifies that the person signing is the author of it and authenticates its accuracy, its binding.12 So why not, avoid crying over the spilt milk and concentrate on document while you execute them.
7 Section 3 Indian Evidence Act & Section 3(18) General Clauses Act 1897 8 Information Technology Act 2000. 9 Chapter I to IV of IT ACT 2000& S 29 I. Penal Code. 10 Bihar State Electricity Board Vs Green Rubber Industires (1990)1SCC731. 11 Syed Abdul Khader Vs Rami Reddy (1979) 2 SCC 601. 12 Hind Construction vs Union Of India 1967(1) SCR 843.
DID YOU MAKE YOUR INTENTIONS CLEAR?
It is because of this crafty skill, that the parties, hire a professional, to put their intentions into writing and all that it requires is, and in that order mind you,
- Lawyer needs to know facts and your intentions
- The goals should be clearly spelt out.
- Interaction and lots of brain storming session with client.
- Lawyer needs to act pretend like an idiot (Did I hear, "why pretend?).
- Client needs to instruct lawyer thinking he is a fool, it helps in concentrating on many "taken for granted issues".
- Clarity of thought.
- Ability to give simple meaning to intention of parties.
- Compliance and adherence to legal provisions.
- Avoid ambiguity.
What is, however, seen is that the above Golden rules are either not followed or not given the priority they deserve? Lawyers instead of interacting with the Clients to ascertain the intent get into a legal jargon. The golden legal phraseology of "infra", 'supra" "notwithstanding" "hereinabove" "hereinafter", "observe and perform", "act and deed' comes to govern the intent. They tend to overuse these phrases. The endless and limitless sentences with no punctuation running into pages after pages make the meaning confusing even though the intention may be straight and simple. The end user who finally receives the draft signs it even though finds it strange and alien to his thoughts and intent. Do we really need to follow this Imperialistic Style of drafting? It has not served its purpose. A simple straight language and a short sentence is the need of the hour.
The good, fair, equitable, clear, unambiguous development of Commercial Contracts, lays not only a foundation for strong and healthy business relationship between the parties, but it is also found that it prevents dispute. In fact, it is the one sided, unfair contracts, which have led to disputes and court actions. A carefully worded preamble saves a lot of work for the drafters as it clearly describes the reason for being of the contract and that in turn helps with interpretation issues in case of a contractual disputes long after the original drafters left for greener pastures.Back