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What is a Contract?
A contract is an agreement between two or more individuals, businesses, organizations or government agencies to do, or to refrain from doing, a particular thing in exchange of something in value. In law, a contract is a binding legal agreement that is enforceable in a court of law. A contract is an exchange of promises for the breach of which the law will provide a remedy. As long as the goods or services provided are legal, any oral agreement between two parties can constitute a binding legal contract.
Traditionally We:
Are contract averse Perceive lawyers as black-coat-sporting litigators Do not perceive any harm in having contracts drawn up by a Chartered Accountant or a Company Secretary Do not perceive any harm in using templates or old agreements for new deals
What is Risk?
Definition hazard: a source of danger; a possibility of incurring loss or misfortune Financial Political Fidelity Legal
Oxford Dictionary
as a chance or probability of danger, loss, injury or other adverse consequence peril, hazard or chance of loss a chance of encountering a situation in which one has to suffer loss or injury
Types of Contracts
Marketing Contracts
(With Dealers, Agents) (Consumer Goods, Electrical, Electronics)
Distribution Agreements
Agency Agreements (Sole Selling Agents) Procurement Agreements Sale and Purchase Contracts Job Work, Production or Manufacturing Contracts Warranty Agreements Employment Contracts Web portal Terms and Conditions Share Holder Agreements
Provisions Liabilities of parties not documented Parties A agrees to sell 10 mtrs of cloth No description of the cloth
Contract Management
Responsibility Company Officers In Charge conduct of the affairs of the company Civil i.e. compliance defaults, breach of contract etc. or Criminal i.e. cheating, breach of trust, fraud etc.
Offence
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Advantages of Contracts
Contracts help define the scope of services and the deliverables of a product They help define expectations and obligations Well defined expectations and obligations are imperative to manage client or customer relationships Written contracts mitigate ambiguities and misunderstandings Reduce risks
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Minimized by
Inserting clauses clearing defining liability and limiting it Limiting liability of the manufacturer and fixing the liability on the sub-contractors wherever appropriate
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Mitigation of Risk
Definition Ways Reduction of the loss or injury arising out of legal risk Limiting the liability of parties to the contract Quantifying Damages Insurance Specific representations and warranty clauses Due Diligence Indemnity
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and
interests
of
Ways
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Examine
Maintain
concepts of consideration
clear communication record of all contracts tabulate time lines to ensure compliance tabulate deliverables to ensure compliance conditions and warranty clauses
Analyze
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Utilize Analyze
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Provide Ensure
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Litigation
Formal No control over Judges Public Domain No experience in the subject matter of the dispute Judges powers limited determine and enforce the contractual rights of parties
Arbitration
Informal Arbitrators appointed by parties Confidentiality Practical experience of technicalities in question Arbitrators can modify the contractual rights of the parties May substitute their discretion as rights expressly given by agreement
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Contract Enforceability
Examine legal enforceability - clause example - Contract of wagering - void in India but enforceable in Australia ambiguity impact of recent indemnities case law on contractual
Remove Review
Understand
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Contract Review
A rational analysis of Contract includes:
i. feasibility of contract ii. forecast of contract risks
Prior Drafting Review - A review of the Contract from legal perspective with
special attention emphasis on potential contingencies
Post Drafting Review - Review of the Contract taking into account the
Divisions requirement and anticipating practical issues
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Contract Review..Contd
Authorized Signatory Ensure Compliance with Current Policies Ask for proof of requisite registrations or licenses Insist on Board Resolution Granting Authority Domestic/Foreign FDI Direct/Indirect RBI Approvals Governments and other statutory authority/ies Example: Labour Laws Procedural Compliance relating to Securities laws i.e. Stock Exchange/ SEBI requirements
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Contract Review..Contd
Execution of Agreements Proper stamp duty been paid on the agreements
Immovable property valuing Rs.100 or more
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Substantive Review
Scope and Deliverables Rights and Obligations of parties to the Contract
Substantive Review
Capacity to Contract Example
Capital Structure
Shareholder
Directors
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