Introduction
Contract drafting is more than just a skill; it’s truly the heart and soul of every lawyer’s practice, whether you find yourself in the fast-paced world of litigation or the dynamic field of corporate law. Remember the wise Latin saying, “verba volant, scripta manent.” This means that while spoken words may fade away, the words we write endure.
You might wonder: why not rely on a handshake deal? After all, oral contracts are valid under contract law. Why go through the hassle of negotiations, drafting, engaging lawyers, and spending money on legal fees? The answer is simple: certainty, enforceability, and protection.
A handshake deal can be quick and easy, but it often misses out on clarity, completeness, and real commitment. This approach may lead to misunderstandings, disputes, and even breaches down the line. In contrast, a well-drafted contract provides the precision, enforceability, and effectiveness needed in any transaction.
After all, we can all agree that the acquisition of Jaguar and Land Rover by the Tatas wasn’t just a simple handshake! The more complex the transaction, the more important it is to have carefully crafted contractual terms in place.
Therefore, contract drafting is more than just putting words on paper. It’s a precise form of legal communication. A well-drafted contract ensures that all parties are on the same page and that the terms of the agreement are crystal clear.
Let’s break this down with a simple example:
Suhas owns a factory that manufactures jeans and t-shirts. He decides to sell 500 pairs of jeans to Tom, who owns a retail store. Tom provides specific requirements for the jeans. When the contract was drafted, the following clause was written: “Suhas agrees to sell and deliver jeans to Tom.”
While this may seem like a valid clause, it is riddled with ambiguity. What’s missing?
- The exact number of jeans isn’t specified.
- The timeframe for delivery is unclear.
- The place of delivery isn’t mentioned.
- The specifications of the jeans are absent.
Such vagueness can lead to disputes. What if Suhas delivers jeans that don’t match Tom’s requirements? A well-drafted contract eliminates such risks. Here’s a revised version of the clause:
“Suhas agrees to sell and deliver 500 pieces of jeans manufactured at Suhas’ manufacturing unit to Tom within 30 days of execution of this Agreement. The said jeans will have the specifications set out in Schedule A and will be delivered to Tom’s retail store in South Extension Part 2, New Delhi.”
This revised clause is precise, enforceable, and leaves no room for ambiguity.
Your Turn: Think Like a Lawyer!
- What else do you think is missing from the revised clause? Could we further refine it?
- How would you draft this clause differently to ensure even more clarity?
Mastering contract drafting is one of the most essential tricks of the trade. Whether you’re negotiating multi-million-dollar M&A deals or drafting a simple vendor agreement, understanding the key elements of a well-drafted contract is crucial.
So, let’s sharpen those drafting skills because in law, what’s written matters!
Preliminary Terms of an Agreement
Now, certain preliminary terms help set the stage before examining an agreement’s operative clauses. These include the title, party descriptions, recitals explaining the contract’s background, and a section on definitions and interpretation.
Title
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The title defines the nature of the agreement. If your client is buying shares in a company, calling the document simply a “Contract” or “Agreement” is vague. A precise title like “Share Purchase Agreement” avoids confusion and ensures clarity.
The right terminology matters. Calling a joint venture agreement a “Partnership Agreement” could create unintended legal consequences. While courts prioritize substance over form, using clear and accurate titles makes interpretation easier and minimizes disputes.
Preamble
The title is typically followed by the preamble, which sets out key details like the agreement’s name, abbreviation (if any), date of execution, and place of execution.
Example: “This Share Purchase Agreement (SPA) is executed in New Delhi on July 20, 2019.”
Check out more sample clauses here.
Date and Place of Execution
Date of Execution
The date on an agreement isn’t just a formality. It legally binds parties to their obligations and can be crucial for registration under the Registration Act, 1908.
Now, do all parties need to sign on the same day? Not necessarily. In multi-jurisdictional contracts, it’s common to date the agreement based on when the last party signs. So, if Suhas signs on July 5 and Tom on July 6, the agreement is dated July 6.
That said, this isn’t a hard rule. Some agreements have parties signing only as a formality. For example, if Atul sells 2% of his ABC Ltd. shares to Rahul, ABC Ltd. may sign as a confirming party at a later date. But the execution date is based on when Atul and Rahul sign, not when ABC Ltd. does.
Execution Date v. Effective Date
An agreement can take effect:
- Immediately upon signing
- Retroactively
- From a future date (the Effective Date)
If there’s no explicit mention of an Effective Date, the default is the execution date. However, to avoid confusion, it’s best to define it clearly in the agreement.
Sample: Say, in a Joint Venture (JV) Agreement, if effectiveness is tied to capital infusion, the preamble will mention the execution date, while a separate clause will specify when it takes effect.
It will be drafted as follows:
“Preamble: This Joint Venture Agreement is executed on July 6, 20xx, at New Delhi.
Effectiveness: This Joint Venture Agreement shall come into effect from the date on which capital infusion in the JV entity is completed by the parties to this Joint Venture Agreement.”
Place of Execution
Where an agreement is executed matters, mainly because it determines the stamp duty payable. A share purchase agreement signed in New Delhi attracts Delhi’s stamp duty, while one signed in Mumbai follows Maharashtra’s rates.
As a lawyer, you may need to suggest a location that minimizes stamp duty. If the amount is significant. However, this isn’t always flexible. Some agreements, like those involving land mortgages, must be executed where the property is located, meaning stamp duty is non-negotiable.
Check out some useful sample clauses here.
Identification of Parties
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Clearly identifying the parties in a contract is crucial. It ensures they can be located if needed and prevents disputes over incorrect details. What information is required, you ask?
For Individuals
- Full name (as per official documents like PAN, Aadhaar, passport, or voter ID)
- Father’s name
- Permanent address
- PAN/Passport/Aadhaar/GST number (if applicable)
- Director Identification Number (if applicable)
Example: “Mr. Suhas Sinha, son of Mr. [insert name], an Indian citizen and tax resident, holding passport number [insert], residing at [insert] (hereinafter referred to as “Party A,” which includes his heirs, executors, administrators, permitted assigns, and legal representatives).”
For Companies/LLPs/Firms or other entities
- Registered address
- Email ID
- PAN
- Corporate Identification Number (for companies/LLPs)
- Registration Number (for firms)
- GST registration number
Example: “ABC Private Limited, a company incorporated under Indian law, bearing CIN [insert], and having its registered office at [insert] (hereinafter referred to as “Party B,” which includes its successors, administrators, and permitted assigns).”
For Minors
If a minor is represented by a guardian under a will, this must be reflected.
Example: Kavita, a minor, acting through Mr. Raj Singh, her father and natural guardian.
For Trusts
If trustees sign on behalf of a trust, this must be specified.
Example: Kiran and Pooja, trustees representing PDP Trust, a trust formed under the Indian Trusts Act. (Full trustee details must be included.)
Check out some interesting sample clauses here.
Recitals
Recitals set the stage for a contract, giving a brief backstory on why the agreement is being made. They help a layperson understand the essence of the contract, introduce the parties, outline their business, and highlight the transaction and intent behind formalizing it.
Typically, recitals start with “WHEREAS”.
Example:
“WHEREAS Rajesh Gupta (Executive) is a qualified company secretary to serve as the Company’s Secretarial and Compliance Officer;
WHEREAS the Company desires to appoint the Executive as its Secretarial and Compliance Officer under the terms of this Agreement;
WHEREAS the Executive agrees to be employed by the Company.”
Even without reading the full contract, you can tell this is for an employment agreement.
Types of Recitals
There are two main types according to their function:
- Narrative Recitals: Cover the history of the parties, their business, and prior discussions.
- Introductory Recitals: Explain why the agreement is being executed.
Drafting Tips for the Perfect Recitals
- Ensure the recitals clearly explain the transaction and the parties’ commercial understanding.
- Maintain chronological order.
- Avoid including operative clauses like representations, warranties, or indemnities. Those belong in the main agreement.
- If recitals contradict the operative clauses, disputes can arise. The operative part takes precedence if it’s clear.
- Formatting options:
- Use “Whereas” at the start of each recital.
- Start with “Whereas” and follow with “And Whereas” for subsequent points.
- Use “Background” or “Recitals” as a heading and list the details.
- Number your recitals (using numerals or alphabets).
Check out some useful drafts here.
Definitions and Interpretation
This clause defines commonly used terms in the agreement, reducing repetition and ensuring clarity. It also assigns specific meanings to key terms like Material Adverse Effect, Confidential Information, or Loss, which might otherwise be open to different interpretations. Since these terms are often negotiated, defining them helps prevent disputes.
The Definitions and Interpretation section is typically placed after the recitals, but it can also be included in a separate schedule. Its positioning doesn’t impact its legal effect.
Definitions
If a term isn’t defined in the agreement, it will be given its ordinary or natural meaning. However, if the agreement’s context suggests a different intent, courts may rely on expert evidence to interpret it. Similarly, industry-specific terms not defined in the contract may also require expert interpretation, which can be avoided by clearly assigning meanings.
Drafting Tips
- List definitions alphabetically for easy reference.
- No need to redefine terms already explained in the operative clauses—just cross-reference them (e.g., “Confidential Information has the meaning given in Clause [X]”).
- Each contract is unique. Avoid copy-pasting definitions from past agreements without careful consideration.
- Avoid circular definitions (e.g., don’t define Confidential Information as Confidential Information means the confidential information of a party).
- Capitalize defined terms to indicate they carry a specific meaning.
Interpretation
The interpretation clause sets out rules for understanding the contract. If no specific interpretation clause is included, common law and statutory rules apply.
Key Elements
- Headings: Titles and headings are for reference only and don’t impact the meaning of the contract. A well-drafted clause ensures clarity: “The headings and titles in this Agreement are for reference purposes only and shall not affect its interpretation.”
- Gender: Any reference to a particular gender includes all genders.
- Singular & Plural: Words in the singular include the plural, and vice versa, ensuring flexibility in interpretation.
- Days & Dates: If specified, dates will follow the Gregorian calendar.
- Laws & Regulations: References to laws include rules, regulations, amendments, and re-enactments.
- Clause Referencing: A reference to a clause means a clause of this agreement, so there’s no need to repeat “of this contract” each time.
- Undefined Terms: If a word isn’t defined in the contract, it may be interpreted based on relevant legislation, where applicable.
- Recitals, Schedules & Annexures: These form part of the contract unless stated otherwise.
- Ejusdem Generis Rule: This rule restricts interpretation to similar items (e.g., a list of land-based vehicles wouldn’t include aeroplanes). However, a contract can override this rule to allow for broader interpretation.
Some sample clauses can be found here.
There’s Always More to Learn!
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The content above is just the starting point in your journey to mastering contract drafting. These insights are drawn from meticulously crafted modules of the ‘Online Certificate Course on ‘Contract Drafting & Negotiation’ by LLS. These courses by LLS are:
- Developed by experts who have worked at top law firms like Trilegal, SAM, and Khaitan and Co., and in-house at corporates like HDFC and Infosys.
- Packed with practical, real-life content to help young lawyers start earning, and law students stand out during internships.
- Reviewing simple agreements can earn you Rs. 5000 per agreement, while drafting complex agreements can bring in 2-10 lakh rupees.
- Includes a module on negotiation, a crucial skill that can help you negotiate rent agreements, employment contracts, and M&A deals worth crores.
- Save yourself 4 years of legal career learning by mastering the same skills in just 2 months.
- Learn how to negotiate effectively in daily life, job interviews, contractual negotiations, and competitions.
Looking to freelance part-time as a law student or dive into full-time remote contract drafting? We’ve got you covered!
The ‘6-Month Long Course ‘Becoming a Freelance Contract Drafting Expert’ by LLS consists of 44 live sessions led by industry experts and empowers students to draft over 24 complex contracts, including website terms and international agreements. It also teaches you how to excel as a Contract Drafting Freelancer through platforms like Upwork, LinkedIn, etc. Get the following benefits:
- Well-researched, practical, and detailed reading resources.
- Weekly live sessions for the first 2 months. 7-8 live sessions per month for the next 4 months.
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- Recorded lectures by industry experts.
- Monthly freelancing and networking sessions.
- Practical assignments on real-life scenarios, including drafting and receiving feedback on the agreements you draft.
