MODULE 3

Clauses to be included in the contract are mentioned below

Title of agreement

It is necessary to name the agreement. The title of the agreement denotes nature or type of
agreement.

Names of the parties

The parties are provided with a particular name that is used to refer them in the entire agreement.

Recitals

This clause gives the background of the parties and the purpose of entering into the agreement. If
it is a supplementary (additional) agreement then the reference of the main agreement is provided
under this clause.

Definitions

There are certain terms used in the agreement which have a technical meaning. Such terms
should be defined under this clause of the agreement that makes interpretation accurate.

Representation and Warranties

This clause provides an underlying statement of fact by the parties (for example, Mr. X is sole
owner of the property, the property is free from encumbrances). In future, if it is proved that the
other party has misrepresented the facts, the party has the right to seek compensation from the
guilty party.

Covenants

Covenant means a promise to do certain acts in future. Unlike representations and warranties, it
does not include statements of fact (for example, Mr. X shall make payments to Mr. Y before the
10th day of each month).

Term
The duration of the agreement should be included in the agreement (in year or months). The term
of the agreement shall be in force unless contract is terminated by either parties or on mutual
consent of both the parties (term clause is linked to termination clause).

Consideration

One of the essential elements for a contract to be considered valid is consideration.

Terms of Payment

Duration of Payment:

1. Time based payments – every 30 days, 45 days, etc.

Method of Payment:

1. Fixed Based Model – a fixed amount of payment shall be made;

Mode of Payment:

1. Cash,
2. Cheque,
3. Net Banking.

Indemnification

It is basically about shifting the risk to another party. In case breach of any provision by one
party causes loss to another party, the defaulting party has to make good the losses caused to the
non-defaulting party. How indemnification will be done should also be mentioned in this clause.

Termination

Circumstances when the agreement can be brought to an end by either parties shall be
mentioned. Also, how many days prior written notice period is mandatory should be specified.
 Invoices (in some contracts)

What all things should be included in an invoice? Date of invoice, name of the parties, name of
item/activity/service for which invoice is made, amount of invoice, percentage of taxes, etc.

Note: If you are registered as MSME (Micro, Small or Medium Enterprise), the invoice should
specify the same.

Notices

The address or email-id of the parties should be provided in this clause to deliver notice to the
parties.

Force Majeure

In case any event is beyond the control of parties or unforeseeable, whether the agreement can be
terminated due to non-performance by either parties?

Intellectual Property (in some contracts)

This clause will help to know who shall own the intellectual property (patents, copyright and
trademark) that is created out of contract and whether such intellectual property can be assigned
or transferred to a third party.

Confidentiality

Whether the confidential information exchanged between the parties can be shared with a third
party. Also provide with the exceptions to it. It is recommended to define “confidential
information” in the definition clause.

Exclusivity (in some contracts)

The parties can be restrained from providing the same kind of services or entering into the same
nature of agreement with a third party during the existence of this agreement.

Severability

In case, some part of contract is declared illegal then other part of contract shall be valid. Such a
clause saves the contract from being entirely dysfunctional.
 Amendment

If the Parties wants to make any alteration in the contract, its procedure should be specified in
this clause.

Jurisdiction

In case of any dispute between the parties, which court shall have jurisdiction to handle such
matters? The Parties shall use the word ‘exclusive jurisdiction’ to limit the location.

Governing Law

The laws applicable to the contract are very important (for example, this agreement shall be
governed by the laws of India).

Dispute Resolution

How the dispute shall be resolved? There are different modes of dispute resolution such as
mediation, arbitration or conciliation.

Signature sections

First and last pages need to be signed by the parties along with initials on other pages. Signature
is mandatory for validity of the contract. In certain contracts, attestation from witnesses shall also
be required.

Schedules or Annexures (in some contracts)

When the information is too lengthy to be included in the clauses section, such details can be
mentioned in tabular or pointer form at the end of the agreement (for example: list of properties
sold, services to be provided by event managers).

Entire Agreement

This clause specifies that the agreement covers all rights and obligations of the parties and
supersedes all other agreements whether written or oral between the parties. Such a clause helps
to avoid negotiations earlier made which were not finalised later.

Duplicate Copies
It is recommended that each party should have a copy of the agreement and both the parties have
understood and agreed upon terms and conditions of the agreement.

References

1. https://indiankanoon.org/doc/53894809/
2. https://indiankanoon.org/doc/16443/
3. 2006 (32) PTC 609 Del, 130 (2006) DLT 330
4. 1989 AIR 1239, 1989 SCR (2) 1
5. https://www.business.gov.au/Products-and-services/Contracts-and-tenders/How-to-
prepare-a-contract
6. https://www.brownejacobson.com/training-and-resources/resources/legal-
updates/2019/04/drafting-the-perfect-contract
7. https://blog.ipleaders.in/important-clauses-forming-perfect-contract/