MODULE 1[C] CONTRACT DRAFTING

1. WHAT IS DRAFTING?

In most simple language, Drafting is an act of writing down the happenings. It is an act of
recording an incident by way of written language. It is the language based synthesis of Law and
Facts. To achieve an upper hand in drafting, a nexus between Facts, Law and Language must be
made. Drafting can hence be described as the practice, technique or skill involved in preparing
legal documents that set forth the rights of the parties.

1.1. Essential Steps for a Good Drafting:

 Deciding the title of the transaction based on its Nature.

 Identifying the Parties to the Transaction and mentioning relevant details.
 Ascertaining in detail, the nature and amount of consideration involved.
 Highlighting the mode and manner of payment.
 Being very specific about the Terms and Conditions of the Contract. These terms should
be drafted in very clear and precise language. The words used should be unambiguous so
that only one meaning/interpretation is possible. It should be ensured that no condition is
left out.
 The Contractual Document must bear the signature and seal of the contracting parties,
wherever required.
 Attestation of Witness should be placed wherever required.
 In case the Document requires any official seal or stamp, that must be adhered to. The
date and place where the contract is executed should also be mentioned clearly.

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  If a document is required to be registered, it should be presented for registration before
the appropriate authority, within a reasonable time after execution.
 Necessary number of copies of the document should also be prepared on stamp paper of
appropriate value, if so required.

1.2. Elementary Checklist for Drafting of Contracts:

The following essentials must be complied with, in order to get an elementary understanding of
contract drafting.

 A thorough outline must be prepared.

 Principal of division should be uniform between the subject matters of the contract.
 The items and parts to the contract must be arranged in logical sequence.
 Headings must be appropriate and revealing.
 The Contract must be drafted in accordance with the needs and status of the parties.
 Sentences must be short and simple.
 Use of punctuations must be proper.
 Active voice should be used more frequently for drafting and the use of passive voice
should be avoided.
 The statements must be assertive and positive as far as possible.
 Non- Committal Language and unnecessary hesitation should be avoided in the
document.
 Uniform Tense should be followed (Generally Present Tense).

2. TYPES OF DOCUMENTS AND CONTRACTS THAT

REQUIRE DRAFTING.
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As mentioned, every contract is unique in its own, and hence for all types becomes unique on its
own. It would be impossible to provide an exhaustive list of different kinds of contracts and their
drafts, however, broad sub categorization may be given as:

I. Business Agreements

1) Acquisition Agreement

2) Agency Agreement

3) Advertising Agreements

4) Consultancy Agreement

5) Construction Agreement

6) Distribution Agreement

7) Franchisee Agreement

8) Foreign Collaboration Agreement

9) Hire Purchase Agreement

10) Investment Agreement

11) Joint Venture Agreement

12) Service Agreement

13) Shareholder Agreement

14) Stock Purchase Agreement

15) Sale Agreement

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16) Technology Sharing Agreement

17) Agreement to act as technical or management adviser

18) Agreement to supply technical know-how

19) Technical collaboration agreement

20) Agreement between manufacturer and sole selling agents

21) Appointment of sole selling agents by a foreign company

22) Agreement for underwriting shares of a company

23) Agreement to Underwrite Debenture Stock

24) Agreement between a company and its manager

25) Agreement between a company and security service company for providing security services
to the company's property

26) Brokerage agreement

27) Agreement between a Firm And A Broker For Agency

28) Agreement between Manufacturer And Commission Agent

29) Dealership Agreements

30) Deed of indemnity by the partner retaining assets and liabilities to a partner on the
dissolution of the partnership firm

31) Indemnity For Loss Of Allotment Letter

32) Indemnity By Debtor To His Guarantor

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 II. Documents for Formation of an Entity

1) Memorandum of Association & Articles of Association

2) Partnership Deed

3) LLP Incorporation document and LLP Agreement

4) Trust Deed

5) Conversion of Partnership into Limited company

6) Association of Persons agreement

7) Section 25 company - Memorandum and Articles of Association

8) Memorandum of Association and Rules and Regulations of Society

III. Alternative Dispute Resolution

9) Agreement of reference to sole arbitrator

10) Agreement of reference to common arbitrator

11) Model Arbitration Clauses in an Agreement

12) Model Conciliation clauses

13) Model Mediation clauses

14) Mediation Agreement

15) Appointment Of Sole Arbitrator On Default Of Other Party

16) Agreement For Reference To Arbitration Between Partners

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 IV. Property related documents

1) Purchase of Flat/house/apartment (commercial/residential)

2) Purchase of Land

3) Leave and Licence Agreement

4) Licence authorizing the licensee to use the part of land of the licensor as way to the house of
the licensee

5) Development Agreement

6) Transfer Deed

7) Power of Attorney

8) Lease of building or office

9) Lease of agricultural land

10) Lease of a furnished house for residential purposes

11) Deed of surrender of lease

12) Deed of renewal of lease

13) Tripartite lease agreement between lessor, lessee and the guarantor

14) Deed Of Sub-Lease

15) Deed For Modification Of The Terms Of The Lease

16) Gift Deed of Property 65) Partition Deed

17) Settlement Deed

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18) Construction Agreement

19) Rent Agreement

20) Sale/ Purchase Agreement

21) Agreement to Sell

22) Deed of Mortgage of Property

23) Relinquishment Deed

24) Surrender Deed in Cooperative Housing Society

25) Simple Mortgage Deed

26) Reconveyance Deed

27) Deed Of Mortgage By Conditional Sale

28) Mortgage by deposit of Title deeds

29) Deed Creating Charge On The Property

V. Intellectual Property Documents

1) Patent and High Technology Agreements

2) Licensing Agreements

3) Consulting and Know-How Agreements

4) Joint Development Agreements

5) Software Development Agreements

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6) Agreement for Sale of Technical Know-How

7) License of use of copy right

8) Agreements relating to protection of designs/ trademarks/ patents/ and know how

9) Agreement for use of Trade Mark

VI. Documents relating to Cyber law

1) Software Services Agreement

2) Internet services agreement

3) Privacy Policy and User Agreement

4) Software Escrow Agreement

5) Website Development Agreement

6) Internet Gateway Merchant Legal Agreement

7) Technology related contracts

VII. Banking / Financial Documents

1) Loan Agreements

2) Bank Guarantee

3) Promissory Note

4) Letter Of Credit & Reimbursement Agreement

5) Indemnity Given To Bank For Issue Of A Duplicate Bank Draft

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6) Indemnity given to the bank by the natural guardian of minor children

7) Indemnity For Loss Of Deposit Receipt

VIII. Import/Export related documents

IX. Documents related to labour and employment

1) Employment agreements

2) Non-disclosure Agreement

3) Compensation Agreement

4) Collective Bargaining Agreement

5) Wage Agreement

6) Agreement between employer and employee going abroad

7) Agreement to refer disputes to arbitration

8) Contract Labour Agreement

9) Agreement for appointment of Managing Director

10) On the Job Training Agreement

X. Insurance related documents

XI. Documents for Private Equity Funding

1) Business Plan

2) Term Sheet

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3) Warranties and Indemnities

4) Disclosure Letter

5) Shareholders' / Investors' Rights/ Subscription Agreement

XII. Wills

XIII. Other legal documents

1) Affidavit

2) Plaint

3) Written Statement

4) Notices

3. IMPORTANCE OF DRAFTING
 The importance of Drafting is enormous, and its idea can be gauged by looking at the
importance of Contract and Labour Laws for a corporate legal professional.
 Corporate laws include large scale or medium scale law firms and lawyers. A corporate
legal professional handles all the business transactions of the firm, along with counseling
their clients in terms of Legal advices, contract laws and the like.
 They are also involved in Drafting, negotiation, and review of contracts and other
agreements associated with the activities carried out by the virtue of the business of the
firm.
 Such business may also include mergers, acquisitions, and divestitures. We see that the
very Nature of Corporate Legal Professionals involve intensive dealings with Contract
Laws and Labour Laws.

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  Law of Contracts itself is a rather universal arena of Law, which can be seen in day to
day lives and involve innumerable dealings and agreements between the parties to
Contract.
 While doing any kind of work, it is important to have a contract. Contracts are the legally
enforced agreements, both written and implied. They outline full understanding of the
terms and conditions of the business relationship between the parties so that in due course
of time, none of the two indulge into any illicit legality or suit.
 On the other hand, Labour Laws codify and clears the duties of the firm/ business owners
to their employees.
 They strive for the protection of the rights of the employees and the workers, improve
their safety, prevent forced and child labour, and surge the bargaining power of the
employees.
 They are pivotal in keeping the employees safe, healthy, happy, satisfied and more
productive.
 A corporate professional, in every point of his professional dealings, needs to apply the
principles of Laws meant and designed for the purpose of firms and businesses. Such
businesses may involve application of any of the two laws in question.
 Even when the professional starts working for the firm, he enters into a contract with the
firm wherein he agrees to work as an employee to the firm and would be governed by the
Principles of Contract.
 His rights, duties and working style may be governed by that of Labour Laws therein. He
hence needs to be acquainted enough with the two fields of Law, because they take up
both his Personal and Professional dealings of life.
 To specifically point out the areas wherein the laws can be applied with respect to the
work of the Legal Professional may be given as-

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  Well settled and unambiguous contracts entered with the clients and companies help in
hassle free settlement of disputes, in cases of breach.
 Further, the knowledge of Labour Laws is more of a nature of personal benefits to the
employees as they may be made aware of what are their rights and duties and may be
made immune to any form of exploitation and work politics.
 Summing up, it is clear that Law as a field is divided into some broad categories, and
each category has its own area of implementation.
 Contracts and Labour Laws make up the maximum domain of Corporate Profession and
the professionals in their day to day lives are bound by the basic to the most complex
principles of the same.
 To get an understanding of the working of these laws, the idea of drafting is
indispensible.
 Good lawyers are capable of identifying what is important and truly necessary in a
contract and leaving out unnecessary language.
 Poorly qualified lawyers use all kinds of funny phrases and useless legalese to impress
the parties, which makes it difficult for those who will actually work with the contract to
understand what it means (if anything is meant at all).
 Also, their clients will probably not read such an illegible contract and will probably not
even be interested in the contract negotiations where archaic language is defended.

4. DISADVANTAGES OF POOR DRAFTING

Daniel Webster said, “The power of a clear statement is the great power at the bar.”A good
drafting is not merely a symbol of sound literature, but is also the corner value for being a good
advocate or law professional. Undeniably there has been a time where complicated drafting and
verbosity in writing was the peculiar characteristic of advocates and was relied upon to
distinguish between a legal and a non- legal professional. However, today the world is making a
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paradigm shift towards consumerism and focus has gradually been shifted from providers to
customers.

It then goes without saying that the parties to a contract would want their contract to be
understandable to them rather than being complicated to comprehend due to verbosity. Today
even the Courts have indicated their displeasure with wordiness 1 and lack of clarity2 in briefs and
pleadings.

A poor or ambiguous drafting may result in any of the following outcomes:

1. Contract being one sided.

2. Terms not being clear may result in failure of performance.

3. Inability to secure damages or performance due to unclear terms of the contract.

4. Loss of Legal Claim.

5. Sanctions on the Professional.

6. Unnecessary and delayed legal proceedings for enforcement/ revocation/ damages.

1
Gordon v. Green, 602 F.2d 743, 744–45 (5th Cir. 1979).
2
Slater v. Gallman, 339 N.E.2d 863, 864 (N.Y. 1975).
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