This document provides guidance on properly drafting the parties clause in a contract. It discusses identifying the correct legal name and details of individual parties, companies, LLPs, partnership firms, sole proprietors, and government bodies. Key points covered include:
1. Identifying parties by their correct legal name and including important identifying details to avoid ambiguity.
2. Ensuring the person executing the contract has proper authority to do so on behalf of their organization.
3. Including language to make the contract enforceable by successors, heirs, assigns and executors of the original parties.
4. Examples of properly drafting the name for different types of parties according to relevant contract and company law.
1. The document discusses various aspects of legal drafting such as the scope of legal drafting, types of legal documents, principles of drafting, and the process of drafting different legal documents such as contracts and deeds.
2. It provides definitions for key terms like drafting, deed, and document. It also outlines important points to consider when drafting contracts, such as the requirements for a valid contract, contracting parties, subject matter, and time for performance.
3. The document explains the process of drafting documents and deeds in detail, covering aspects like collecting facts, determining the appropriate document, drafting different clauses, execution, attestation and supplemental deeds. It aims to provide guidance on drafting clear, coherent and legally compliant documents.
The document provides information on legal drafting and the process of drafting different types of legal documents. It discusses the key aspects of drafting contracts, deeds, and other legal documents. Some main points covered include:
- Legal drafting involves synthesizing law, facts, and language to prepare legal agreements, contracts, deeds, etc. It requires conceptual thinking as well as composing the document.
- Important laws relating to drafting include the Constitution of India, Contract Act, Evidence Act, and more.
- Key elements of a valid contract include consideration, capacity, intention, formalities, and legal purpose.
- Drafting a deed requires including elements like the name, date, parties, recitals, operative part
The document discusses the nature and importance of contract law. It provides 7 definitions of a contract from various sources. A contract is generally defined as a promise or set of promises that is legally binding and enforceable. For a valid contract to exist there must be an offer, acceptance, and consideration. Contract law protects business interests and transactions by enforcing agreements and providing remedies for breach of contract. It is an essential part of business and commerce.
This document discusses the key elements and nature of contracts under Indian law. It provides definitions of contracts from various legal scholars and the Indian Contract Act. The main points are:
1. A contract is an agreement that is enforceable by law, containing an offer, acceptance, and consideration. It requires lawful consent between two or more parties.
2. There are several essential elements for a valid contract including offer/acceptance, lawful object and consideration, capacity of parties, free consent, certainty and possibility of performance.
3. Not all agreements are contracts as they must satisfy the requirements of intent to create legal obligations, lawful consideration, and enforceability under law. Certain types of agreements are specifically prohibited or regulated by
This document discusses free consent in contracts. It defines consent as two parties agreeing on the same thing in the same sense. Free consent means willingly entering an agreement without coercion, undue influence, fraud or misrepresentation. Free consent is important because it forms the basis of a valid contract and protects parties from being compelled into agreements against their will. Consent is not considered free if it is caused by coercion, undue influence, fraud, misrepresentation or mistake, in which case the contract can be considered void.
This document discusses the key concepts of law and contracts. It begins by defining law from different perspectives such as a citizen obeying rules, a lawyer practicing law as a vocation, and a judge applying guiding principles. The document then discusses the need for law, particularly for businessmen to avoid conflicts. It provides definitions of a contract from various legal scholars and sections of the Indian Contract Act. The essential elements of a valid contract are described as offer, acceptance, intention to create legal relations, lawful consideration, competency of parties, free consent, lawful object, agreement not declared void, certainty and possibility of performance, and compliance with legal formalities. The document also classifies contracts based on validity, formation, and performance. It concludes
Contracts and agreements have dominates so many aspects of the economy in our daily lives. Practically every personal business activity involves a contract, such as enrollment in college, renting a house or an apartment, buying and selling a land or a vehicle, and many more. A contracts define the relationship, the rights, and the obligations of the parties. And one of the essential elements of a contract is an agreement. An agreement is formed when an offer is accepted. If the agreement has been poured in written form, then the Agreement is called Contract. The content of the Contract are in fact the Agreement itself. The terms of the contract and the agreement are identical, without needing to be differentiated and can be used simultaneously. The term of contract is more often used in business practice.
This document provides an overview of contract law in India. It defines a contract as an agreement that is enforceable by law. The key elements of a valid contract are offer and acceptance, lawful consideration, capacity and consent of parties, lawful object, agreement not declared void, certainty and possibility of performance. Contracts can be classified based on validity, formation, and performance. Remedies for breach of contract include rescission, damages, specific performance, and injunction. Damages aim to compensate the injured party and can include ordinary damages arising naturally from the breach or special damages that were contemplated by the parties.
1. The document discusses various aspects of legal drafting such as the scope of legal drafting, types of legal documents, principles of drafting, and the process of drafting different legal documents such as contracts and deeds.
2. It provides definitions for key terms like drafting, deed, and document. It also outlines important points to consider when drafting contracts, such as the requirements for a valid contract, contracting parties, subject matter, and time for performance.
3. The document explains the process of drafting documents and deeds in detail, covering aspects like collecting facts, determining the appropriate document, drafting different clauses, execution, attestation and supplemental deeds. It aims to provide guidance on drafting clear, coherent and legally compliant documents.
The document provides information on legal drafting and the process of drafting different types of legal documents. It discusses the key aspects of drafting contracts, deeds, and other legal documents. Some main points covered include:
- Legal drafting involves synthesizing law, facts, and language to prepare legal agreements, contracts, deeds, etc. It requires conceptual thinking as well as composing the document.
- Important laws relating to drafting include the Constitution of India, Contract Act, Evidence Act, and more.
- Key elements of a valid contract include consideration, capacity, intention, formalities, and legal purpose.
- Drafting a deed requires including elements like the name, date, parties, recitals, operative part
The document discusses the nature and importance of contract law. It provides 7 definitions of a contract from various sources. A contract is generally defined as a promise or set of promises that is legally binding and enforceable. For a valid contract to exist there must be an offer, acceptance, and consideration. Contract law protects business interests and transactions by enforcing agreements and providing remedies for breach of contract. It is an essential part of business and commerce.
This document discusses the key elements and nature of contracts under Indian law. It provides definitions of contracts from various legal scholars and the Indian Contract Act. The main points are:
1. A contract is an agreement that is enforceable by law, containing an offer, acceptance, and consideration. It requires lawful consent between two or more parties.
2. There are several essential elements for a valid contract including offer/acceptance, lawful object and consideration, capacity of parties, free consent, certainty and possibility of performance.
3. Not all agreements are contracts as they must satisfy the requirements of intent to create legal obligations, lawful consideration, and enforceability under law. Certain types of agreements are specifically prohibited or regulated by
This document discusses free consent in contracts. It defines consent as two parties agreeing on the same thing in the same sense. Free consent means willingly entering an agreement without coercion, undue influence, fraud or misrepresentation. Free consent is important because it forms the basis of a valid contract and protects parties from being compelled into agreements against their will. Consent is not considered free if it is caused by coercion, undue influence, fraud, misrepresentation or mistake, in which case the contract can be considered void.
This document discusses the key concepts of law and contracts. It begins by defining law from different perspectives such as a citizen obeying rules, a lawyer practicing law as a vocation, and a judge applying guiding principles. The document then discusses the need for law, particularly for businessmen to avoid conflicts. It provides definitions of a contract from various legal scholars and sections of the Indian Contract Act. The essential elements of a valid contract are described as offer, acceptance, intention to create legal relations, lawful consideration, competency of parties, free consent, lawful object, agreement not declared void, certainty and possibility of performance, and compliance with legal formalities. The document also classifies contracts based on validity, formation, and performance. It concludes
Contracts and agreements have dominates so many aspects of the economy in our daily lives. Practically every personal business activity involves a contract, such as enrollment in college, renting a house or an apartment, buying and selling a land or a vehicle, and many more. A contracts define the relationship, the rights, and the obligations of the parties. And one of the essential elements of a contract is an agreement. An agreement is formed when an offer is accepted. If the agreement has been poured in written form, then the Agreement is called Contract. The content of the Contract are in fact the Agreement itself. The terms of the contract and the agreement are identical, without needing to be differentiated and can be used simultaneously. The term of contract is more often used in business practice.
This document provides an overview of contract law in India. It defines a contract as an agreement that is enforceable by law. The key elements of a valid contract are offer and acceptance, lawful consideration, capacity and consent of parties, lawful object, agreement not declared void, certainty and possibility of performance. Contracts can be classified based on validity, formation, and performance. Remedies for breach of contract include rescission, damages, specific performance, and injunction. Damages aim to compensate the injured party and can include ordinary damages arising naturally from the breach or special damages that were contemplated by the parties.
This document discusses key aspects of contract law in India according to the Indian Contract Act of 1872. It defines a contract and outlines essential elements for a valid contract, including offer and acceptance, lawful consideration, capacity of parties to contract, free consent, and lawful object. It also discusses types of contracts like indemnity, guarantee, bailment, and agency. Overall, the document provides a comprehensive overview of Indian contract law fundamentals and framework.
The document discusses business law and contracts. It begins by defining law and business law. Business law encompasses the laws governing how to start, manage, and close a business. The objectives and requirements of effective business law are then outlined. The key sources of Indian business/commercial law are the common law, equity, statute law, law merchant, and precedents. The essential elements of a valid contract are then defined, including minimum two parties, agreement through offer and acceptance, capacity to contract, free consent, lawful consideration, lawful object, certainty of terms, and possibility of performance. Key contract types like void, voidable, illegal, unilateral, and bilateral contracts are also explained.
The document discusses various concepts related to contracts including the definition of a contract, essential elements of a valid contract, classification of contracts, joint ventures, and complex contract terminology. It provides details on the Indian Contract Act of 1872, general principles of contracts in India, tendering processes, and requests for proposals. Key points covered include the history and objectives of the Contract Act, types of contracts based on validity and performance, advantages of joint ventures, and considerations for negotiating complex contracts.
This document provides an overview of key concepts in business law in India including definitions of law, the need for business laws, sources of business law, the Indian Contract Act of 1872, essential elements of a valid contract, and classifications of contracts. It defines law, discusses the objectives of business law and contract law, and provides examples to illustrate concepts like void, voidable, and valid contracts.
After midsem-slides-1224252673846877-9 niravniravjingar
This document provides an overview of key concepts in business law in India including definitions of law, the need for business laws, sources of business law, the Indian Contract Act of 1872, essential elements of a valid contract, and classifications of contracts. It defines law, discusses the objectives of business law and contract law, and outlines essential elements for a valid contract such as offer and acceptance, lawful consideration, capacity and consent of parties. It also classifies contracts based on validity, formation, and performance.
The document outlines the essential elements required for a valid contract according to Section 10 of the Indian Contract Act. The key elements discussed are: offer and acceptance, intention to create a legal relationship, lawful consideration, capacity of parties, free consent, lawful object, certainty, possibility of performance, not being declared void or illegal, and legal formalities. It provides details on each element, such as definitions of consideration and consent. The summary concludes that for a contract to be valid, it must contain all of these elements.
The document summarizes key aspects of contract law in India according to the Indian Contract Act of 1872. It defines a contract as an agreement that is enforceable by law, consisting of an agreement and enforceability. It outlines the essential elements that must be present for an agreement to be considered a valid contract, including offer and acceptance, lawful consideration, capacity and consent of parties, a lawful object, and certainty of terms. It also distinguishes between different types of contracts based on validity, formation, and performance. Finally, it compares the differences between void, voidable, and illegal agreements.
All agreement are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.
The document discusses key concepts related to Indian contract law. It defines a contract according to Indian law as an agreement that is enforceable by law. It outlines the essential elements of a valid contract including offer and acceptance, intention to create legal relations, consensus ad idem, consideration, capacity to contract, lawful object, certainty and possibility of performance, and enforceability by law. It also discusses different types of contracts based on validity, formation and performance.
The document discusses key concepts related to Indian contract law. It defines a contract according to Indian law as an agreement that is enforceable by law. It outlines the essential elements of a valid contract including offer and acceptance, intention to create legal relations, consensus ad idem, consideration, capacity to contract, lawful object, certainty and possibility of performance, and enforceability by law. It also discusses different types of contracts based on validity, formation and performance.
The document discusses the definition and essential elements of a valid contract. It defines a contract as an agreement that is enforceable by law, made between two or more parties where each party provides something in return. The essential elements for a valid contract are: agreement between two competent parties, lawful consideration, lawful object, intention to create a legal relationship, free consent, and certainty of terms. The document also discusses different types of contracts based on validity, formation, and performance, including valid, void, voidable, illegal, unilateral, bilateral, executed, and executory contracts.
The document provides an overview of contract law in India, including:
- The Indian Contract Act of 1872 governs contracts in India and defines key terms like agreement, promise, and consideration.
- For a contract to be valid it must meet characteristics like being based on a valid agreement between competent parties, having lawful consideration, clear and lawful terms, and free consent.
- Contracts are classified in various ways including by their enforceability, formation, performance, and obligations. Valid contracts that meet all requirements are enforceable, while void, voidable, or illegal contracts may not be.
1. The document discusses the major principles of contract law from the Somali civil code, including the definition of a contract, formation of contracts, capacity to enter contracts, types of contracts, and sources of contractual obligations.
2. It states that a contract is a legally binding agreement that requires elements like offer, acceptance, consideration, and intention to be legally enforceable.
3. The document also explains the sources of contractual obligations in Somali law and who has the legal capacity to enter into contracts.
Man interacts with others in various social and legal capacities, requiring a set of rules to govern these interactions and make them beneficial to society. Law encompasses all rules regulating relationships between individuals and the state. The Indian Contract Act of 1872 defines a contract as an agreement enforceable by law and outlines essential elements for a valid contract such as offer, acceptance, lawful consideration, capacity and consent of parties. The document discusses various types of contracts and their classification based on validity.
The document outlines the 10 essential elements of a valid contract according to Indian contract law: 1) Proper offer and acceptance, 2) Intention to create a legal relationship, 3) Lawful consideration, 4) Competent parties, 5) Free consent, 6) Lawful object, 7) Certainty of meaning, 8) Possibility of performance, 9) Not declared void or illegal, and 10) Compliance with legal formalities such as writing or registration requirements. The elements must all be present for an agreement to be considered an enforceable contract under Indian law.
The document summarizes key aspects of contract law under the Indian Contract Act of 1872. It defines a contract as an agreement that is enforceable by law. The essential elements of a valid contract are offer and acceptance, lawful consideration, capacity of parties to contract, lawful object, and free consent. A contract can be discharged through performance, mutual consent, lapse of time, operation of law, impossibility of performance or breach. In case of breach, the aggrieved party may seek remedies like rescission, damages, specific performance, quantum meruit or injunction.
Business Law Principles and Practices Golclman, A ., .docxRAHUL126667
Business Law
Principles and Practices
Golclma:n, A ., & Sigismond, W. (2014). Business Law: Principles and Practices (9th ed.). South-
Western Cengage Learning.
Cengage Advantage
Books
PRINCIPLES AND PRACTICES
emorialize Contracts in
riting Statute ol Frauds
~APTER PREVIEW
e Status of Oral and Written
ntracts
ntracts Required to Be in Writing
- Contract to Personally Pay the Debt of
Another Person
- Contract to Personally Pay the Debt of a
Deceased Person
- Contract Involving the Sale of an Interest
in Real Property
- Contract Made in Consideration of
.Marriage
- Contract That by its Terms Cannot Be
Performed Within One Year of the Date
the Contract Was Formed
e Sufficiency of the Written Record
ectronic Signatures
rol Evidence Rule
201
> ~
CHAPTER
·HIGHLIGHTS
~
IN A BUSINESS
SETTING
This chapter identifies the relatively few contracts that are required by the Ia·
of each state (called a statute of frauds) to be in writing to be enforceable in
court. The chapter also summarizes the essential information that the writing
must contain so as to satisfy the law. A brief opening discussion points out tr:
advantages that written contracts have over those that are made orally. This ::
followed by a discussion of parol evidence, a rule determining whether oral
testimony external to a written contract that changes the terms of this writter
contract may be introduced at a court trial. The concluding pages of the
chapter introduce the electronic signature as a way to sign records.
Adams, an attorney, represented Hall, who called himself an International Trader,
in a deal with a company in India that was to result in Hall receiving $10 mi llion .
Adams and Hall resided in the state of Maine. The attorney's fee of $1 mill ion
for handling the case was to be paid when Hall received his money from the
company. In order to receive this $10 million, however, Hall was required to pay
an upfront fee of $100,000 to an agent of the company handling the deal in India.
Hall had done business with this Indian company on prior occasions, but the
agent was new to the company. Hall borrowed the fee from Garlock, a business
associate, and signed a promissory note agreeing to pay back the $100,000
within five days. Adams made arrangements with a local bank to wire the money
to the agent in India. Neither Hall nor Adams heard from the agent once the
money was sent. Adams had orally guaranteed to repay Garlock if Hall did not
himself repay the debt. When the due date of the note arrived, Garlock requested
his $100,000, but Hall was unable to make payment. Garlock therefore brought
a lawsuit against Hall for the money. He hired Adams as his attorney. The court
awarded damages to Garlock requiring Hall to make payment. However, Hall had
no assets from which to collect it. During the trial, Adams publicly reprimanded
Hall during cross-examination for not paying his loan as scheduled ...
This document provides an overview of Indian contract law under the Indian Contract Act of 1872. It defines key terms like what constitutes a contract, agreement, and consideration. The essential elements of a valid contract are also outlined, including offer and acceptance, intention to create a legal relationship, lawful consideration, capacity of parties, free consent, lawful object, certainty of meaning, possibility of performance, and compliance with required legal formalities. Contracts are also classified based on their validity, formation, performance obligations, and other attributes as defined by the Act.
This document provides an overview of business law. It defines law as the set of rules recognized and enforced by the state to regulate conduct. Business law regulates business relations and transactions. The key sources of business law discussed are English mercantile law, statute law, common law, and customs/usages.
The document then discusses contract law in more detail. It defines a contract as an agreement enforceable by law. The essential elements of a valid contract are discussed as offer and acceptance, intention to create legal relations, lawful consideration, capacity of parties, free consent, lawful object, certainty and possibility of performance, and any required legal formalities. Finally, the document briefly mentions the different types of contracts based on validity.
Class-4-Drafting of various important clauses in a contract.pptxAnuj Pandey
This document provides information about various important clauses in contracts, including termination clauses, renewal clauses, confidentiality and non-disclosure clauses, indemnification clauses, and non-compete clauses. It discusses the meaning and purpose of these clauses, provides examples, and explains how they work and what they cover. Specifically, it outlines the key elements that should be included in confidentiality agreements to protect proprietary information.
Drafting of Pre Contractual Instruments-Class-2.pptxAnuj Pandey
This document provides information about pre-contractual instruments such as term sheets, letters of intent, and memorandums of understanding. It defines these instruments and provides examples of their purpose and common components. Term sheets outline the key terms of an agreement in a list format before legal contracts are drafted. Letters of intent declare the preliminary commitment to do business and include important deal points. Memorandums of understanding describe the mutual understanding between parties on a project scope but are not always legally binding. These pre-contractual documents help establish agreement early in negotiations.
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This document discusses key aspects of contract law in India according to the Indian Contract Act of 1872. It defines a contract and outlines essential elements for a valid contract, including offer and acceptance, lawful consideration, capacity of parties to contract, free consent, and lawful object. It also discusses types of contracts like indemnity, guarantee, bailment, and agency. Overall, the document provides a comprehensive overview of Indian contract law fundamentals and framework.
The document discusses business law and contracts. It begins by defining law and business law. Business law encompasses the laws governing how to start, manage, and close a business. The objectives and requirements of effective business law are then outlined. The key sources of Indian business/commercial law are the common law, equity, statute law, law merchant, and precedents. The essential elements of a valid contract are then defined, including minimum two parties, agreement through offer and acceptance, capacity to contract, free consent, lawful consideration, lawful object, certainty of terms, and possibility of performance. Key contract types like void, voidable, illegal, unilateral, and bilateral contracts are also explained.
The document discusses various concepts related to contracts including the definition of a contract, essential elements of a valid contract, classification of contracts, joint ventures, and complex contract terminology. It provides details on the Indian Contract Act of 1872, general principles of contracts in India, tendering processes, and requests for proposals. Key points covered include the history and objectives of the Contract Act, types of contracts based on validity and performance, advantages of joint ventures, and considerations for negotiating complex contracts.
This document provides an overview of key concepts in business law in India including definitions of law, the need for business laws, sources of business law, the Indian Contract Act of 1872, essential elements of a valid contract, and classifications of contracts. It defines law, discusses the objectives of business law and contract law, and provides examples to illustrate concepts like void, voidable, and valid contracts.
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This document provides an overview of key concepts in business law in India including definitions of law, the need for business laws, sources of business law, the Indian Contract Act of 1872, essential elements of a valid contract, and classifications of contracts. It defines law, discusses the objectives of business law and contract law, and outlines essential elements for a valid contract such as offer and acceptance, lawful consideration, capacity and consent of parties. It also classifies contracts based on validity, formation, and performance.
The document outlines the essential elements required for a valid contract according to Section 10 of the Indian Contract Act. The key elements discussed are: offer and acceptance, intention to create a legal relationship, lawful consideration, capacity of parties, free consent, lawful object, certainty, possibility of performance, not being declared void or illegal, and legal formalities. It provides details on each element, such as definitions of consideration and consent. The summary concludes that for a contract to be valid, it must contain all of these elements.
The document summarizes key aspects of contract law in India according to the Indian Contract Act of 1872. It defines a contract as an agreement that is enforceable by law, consisting of an agreement and enforceability. It outlines the essential elements that must be present for an agreement to be considered a valid contract, including offer and acceptance, lawful consideration, capacity and consent of parties, a lawful object, and certainty of terms. It also distinguishes between different types of contracts based on validity, formation, and performance. Finally, it compares the differences between void, voidable, and illegal agreements.
All agreement are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void.
The document discusses key concepts related to Indian contract law. It defines a contract according to Indian law as an agreement that is enforceable by law. It outlines the essential elements of a valid contract including offer and acceptance, intention to create legal relations, consensus ad idem, consideration, capacity to contract, lawful object, certainty and possibility of performance, and enforceability by law. It also discusses different types of contracts based on validity, formation and performance.
The document discusses key concepts related to Indian contract law. It defines a contract according to Indian law as an agreement that is enforceable by law. It outlines the essential elements of a valid contract including offer and acceptance, intention to create legal relations, consensus ad idem, consideration, capacity to contract, lawful object, certainty and possibility of performance, and enforceability by law. It also discusses different types of contracts based on validity, formation and performance.
The document discusses the definition and essential elements of a valid contract. It defines a contract as an agreement that is enforceable by law, made between two or more parties where each party provides something in return. The essential elements for a valid contract are: agreement between two competent parties, lawful consideration, lawful object, intention to create a legal relationship, free consent, and certainty of terms. The document also discusses different types of contracts based on validity, formation, and performance, including valid, void, voidable, illegal, unilateral, bilateral, executed, and executory contracts.
The document provides an overview of contract law in India, including:
- The Indian Contract Act of 1872 governs contracts in India and defines key terms like agreement, promise, and consideration.
- For a contract to be valid it must meet characteristics like being based on a valid agreement between competent parties, having lawful consideration, clear and lawful terms, and free consent.
- Contracts are classified in various ways including by their enforceability, formation, performance, and obligations. Valid contracts that meet all requirements are enforceable, while void, voidable, or illegal contracts may not be.
1. The document discusses the major principles of contract law from the Somali civil code, including the definition of a contract, formation of contracts, capacity to enter contracts, types of contracts, and sources of contractual obligations.
2. It states that a contract is a legally binding agreement that requires elements like offer, acceptance, consideration, and intention to be legally enforceable.
3. The document also explains the sources of contractual obligations in Somali law and who has the legal capacity to enter into contracts.
Man interacts with others in various social and legal capacities, requiring a set of rules to govern these interactions and make them beneficial to society. Law encompasses all rules regulating relationships between individuals and the state. The Indian Contract Act of 1872 defines a contract as an agreement enforceable by law and outlines essential elements for a valid contract such as offer, acceptance, lawful consideration, capacity and consent of parties. The document discusses various types of contracts and their classification based on validity.
The document outlines the 10 essential elements of a valid contract according to Indian contract law: 1) Proper offer and acceptance, 2) Intention to create a legal relationship, 3) Lawful consideration, 4) Competent parties, 5) Free consent, 6) Lawful object, 7) Certainty of meaning, 8) Possibility of performance, 9) Not declared void or illegal, and 10) Compliance with legal formalities such as writing or registration requirements. The elements must all be present for an agreement to be considered an enforceable contract under Indian law.
The document summarizes key aspects of contract law under the Indian Contract Act of 1872. It defines a contract as an agreement that is enforceable by law. The essential elements of a valid contract are offer and acceptance, lawful consideration, capacity of parties to contract, lawful object, and free consent. A contract can be discharged through performance, mutual consent, lapse of time, operation of law, impossibility of performance or breach. In case of breach, the aggrieved party may seek remedies like rescission, damages, specific performance, quantum meruit or injunction.
Business Law Principles and Practices Golclman, A ., .docxRAHUL126667
Business Law
Principles and Practices
Golclma:n, A ., & Sigismond, W. (2014). Business Law: Principles and Practices (9th ed.). South-
Western Cengage Learning.
Cengage Advantage
Books
PRINCIPLES AND PRACTICES
emorialize Contracts in
riting Statute ol Frauds
~APTER PREVIEW
e Status of Oral and Written
ntracts
ntracts Required to Be in Writing
- Contract to Personally Pay the Debt of
Another Person
- Contract to Personally Pay the Debt of a
Deceased Person
- Contract Involving the Sale of an Interest
in Real Property
- Contract Made in Consideration of
.Marriage
- Contract That by its Terms Cannot Be
Performed Within One Year of the Date
the Contract Was Formed
e Sufficiency of the Written Record
ectronic Signatures
rol Evidence Rule
201
> ~
CHAPTER
·HIGHLIGHTS
~
IN A BUSINESS
SETTING
This chapter identifies the relatively few contracts that are required by the Ia·
of each state (called a statute of frauds) to be in writing to be enforceable in
court. The chapter also summarizes the essential information that the writing
must contain so as to satisfy the law. A brief opening discussion points out tr:
advantages that written contracts have over those that are made orally. This ::
followed by a discussion of parol evidence, a rule determining whether oral
testimony external to a written contract that changes the terms of this writter
contract may be introduced at a court trial. The concluding pages of the
chapter introduce the electronic signature as a way to sign records.
Adams, an attorney, represented Hall, who called himself an International Trader,
in a deal with a company in India that was to result in Hall receiving $10 mi llion .
Adams and Hall resided in the state of Maine. The attorney's fee of $1 mill ion
for handling the case was to be paid when Hall received his money from the
company. In order to receive this $10 million, however, Hall was required to pay
an upfront fee of $100,000 to an agent of the company handling the deal in India.
Hall had done business with this Indian company on prior occasions, but the
agent was new to the company. Hall borrowed the fee from Garlock, a business
associate, and signed a promissory note agreeing to pay back the $100,000
within five days. Adams made arrangements with a local bank to wire the money
to the agent in India. Neither Hall nor Adams heard from the agent once the
money was sent. Adams had orally guaranteed to repay Garlock if Hall did not
himself repay the debt. When the due date of the note arrived, Garlock requested
his $100,000, but Hall was unable to make payment. Garlock therefore brought
a lawsuit against Hall for the money. He hired Adams as his attorney. The court
awarded damages to Garlock requiring Hall to make payment. However, Hall had
no assets from which to collect it. During the trial, Adams publicly reprimanded
Hall during cross-examination for not paying his loan as scheduled ...
This document provides an overview of Indian contract law under the Indian Contract Act of 1872. It defines key terms like what constitutes a contract, agreement, and consideration. The essential elements of a valid contract are also outlined, including offer and acceptance, intention to create a legal relationship, lawful consideration, capacity of parties, free consent, lawful object, certainty of meaning, possibility of performance, and compliance with required legal formalities. Contracts are also classified based on their validity, formation, performance obligations, and other attributes as defined by the Act.
This document provides an overview of business law. It defines law as the set of rules recognized and enforced by the state to regulate conduct. Business law regulates business relations and transactions. The key sources of business law discussed are English mercantile law, statute law, common law, and customs/usages.
The document then discusses contract law in more detail. It defines a contract as an agreement enforceable by law. The essential elements of a valid contract are discussed as offer and acceptance, intention to create legal relations, lawful consideration, capacity of parties, free consent, lawful object, certainty and possibility of performance, and any required legal formalities. Finally, the document briefly mentions the different types of contracts based on validity.
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Class-3-Drafting of various important clauses in a contract.pptx
1. Contract Drafting and Negotiation
Class-3
Prepared by: Anuj Pandey, Adv.
(CS, LLM, LLB, B Com (Hons))
Corporate Lawyer & Company Secretary
Email Id: info.anujpandey@gmail.com
Contact No.: 9555613873
2. Drafting of various important clauses in a contract
1. Parties’ clause (Individual, Company, Sole proprietorship
etc.) ;
2. Definition & Interpretation clause;
3. Reps & warranties ;
4. Condition clause (Precedent or subsequent) ;
3. “
Meaning of clauses in a contract
“a clause in a contract is a unique section
that addresses a specific need,
privilege, right, deadline, or duty.”
“Basically, a contract clause is a written
section that unscrambles any
contractual confusion.”
3
4. Clauses generally fall into three categories:
1. Enforcement Clause;
2. Interpretation clauses; and
3. Execution clauses.
6. 6
The first step, while forming a contract is to identify the parties to such contract;
A party to a contract may be an individual, company, LLP, partnership firm, trust, sole
proprietor etc.
The naming of parties is not a one size fits all mechanism. It is different for different sets of
parties.
Naming a party also helps in identifying the nature of that party. It shall be adequate and
correct for the contract to be valid.
7. Name of the parties shall also include the details of parties.
Whenever the Party to the contract is an individual, or
a sole proprietor, or partners of a partnership firm,
or trustees of a trust, the details shall include father’s
name, permanent address, identification number
including PAN, Aadhaar, voter id, or driving license
etc.
7
8. Contracting party is an LLP or a company:-
In this case, the correct name of the LLP or the company can be ascertained and verified
from the registrar of companies.
Along with the name, other details shall include LLPIN/CIN, the registered address
of LLP/company. Details such as email address, PAN, telephone number may also
be mentioned for the purposes of ease.
9. Contracting party is a government body, or a
society, or a statutory body,
In cases where the party is a government body, or a society, or a statutory body,
the details shall include along with the name of such body or association or
council, as the case may be, the details of the person including his name and
designation, who has the authority to represent the party….etc.
9
10. Purpose of proper naming clause:
This is done for precise information about the contracting parties , in
order to ensure that there is no chance of ambiguity in any situation
such as
1. tracing the person,
2. in cases of fraud,
3. misrepresentation,
4. discrepancies,
5. certainty about the authority of that person.
10
11. Consequences if the Name is wrong
The name of the parties in the contract shall be mentioned with
utmost care and precision.
If the name of a party is described incorrectly in the contract, it
will render the contract voidable at the option of the aggrieved
party. Such a thing will amount to misrepresentation under
Section 18 of the Indian Contract Act, 1872.
11
12. Authority to Contract:
It shall be kept in mind that the person, who is executing the contract should have the
authority to do so. The contract entered into by a person not having the authority shall
render the contract voidable at the option of the aggrieved party.
◈ In the case of an individual, the individual himself is the authority.
◈ In the case of a company, the authority can be traced from the articles of association of the
company.
◈ In the case of an LLP, the authority can be traced from the LLP agreement.
◈ In the case of a partnership, the authority comprises of all the partners to the partnership
agreement.
◈ In the case of a trust, the name of the trustees can be ascertained from the trust deed.
◈ When the Party is a government body, the authority can generally be traced from the laws in
force or rules framed under the law or by notifications issued by the state or central
government, as the case may be.
12
13. Name of the Parties to include successors and heirs
After naming the parties, we will always see something written like this ‘which
expression unless repugnant to the context or meaning thereof, shall mean and
include their successors, heirs, assigns and executors’.
◈ This is to keep the contract enforceable in case of death of the executor or the
business taken over by successors or devolved upon heirs etc
◈ This expression does not restrict the contract only to the person who executes it but
makes it enforceable with the person who takes charge of such entity with same
terms and conditions as mentioned in the contract. The person who is the present in
charge will have to abide by all the terms and conditions of the contract.
◈ He shall fulfill all the rights and obligations conferred upon him by the contract.
13
15. When the Party is an Individual
When the contracting party is an individual, the contract is executed in the
complete name of the person who is the party to such a contract. Along with
the complete name of the individual, other details shall include the father’s
name, aadhaar number, and/or passport number, and/or PAN, and
permanent address.
For Example: Mr. Anuj Pandey, son of Mr. Naresh Pandey, having aadhaar
number xxxxxxxxxxxx, and PAN xxxxxxxxxx, and residing at -------Delhi.
15
16. When the Party is a Company
◈ Since a company is a separate legal entity and has its own separate legal existence, the
contract is executed in the name of the company itself.
◈ As per Section 9 of the Companies Act, 2013, ‘a company is a separate legal entity and can
sue and be sued in its own name.
◈ According to Section 12 (3) (c) of the Companies Act, 2013 ‘Every company shall get its
name, address of its registered office and the corporate identity number along with telephone
number, fax number, if any, email and website addresses, if any, printed in all its business
letters, billheads, letter papers, and in all its notices, and other official publications
◈ Therefore, the name of the party shall include the name of the company, address of its
registered office (head-office), corporate identification number (CIN), telephone and/or fax
number, if any, email and/or website address, if any. However, one may also include the PAN
of the company.
◈ For example: ABC Ltd., a Company within the meaning of Companies Act, 2013, with CIN
xxxxxxxxxxxxxxxxxxxxx and PAN xxxxxxxxxx, having its registered office at 24, Block-A,
Connaught Place, New Delhi-110001 and email address abc@gmail.com.
16
17. When the Party is an LLP
An LLP is a body corporate in terms of Section 2(d) of the Limited Liability Partnership Act,
2008.
◈ As per Section 3 (1) of the act, an LLP is a body corporate formed under this act and is a
legal entity separate from its partners.
◈ Section 14 of the act states the effect of registration. Section 14 (1) states that on
incorporation, an LLP shall by its name be capable of suing and be sued.
◈ Therefore, a contract shall be executed in the name of the LLP itself.
◈ For example, CRL LLP, a limited liability partnership within the meaning of Limited
Liability Partnership Act, 2008 with LLPIN xxxxxxx and having its registered office at 12,
Block-L, Connaught Place, New Delhi-110001.’
17
18. When the Party is a Partnership Firm
Since a partnership is not a legal entity but an association of persons as per Section 4 of the Indian
Partnership Act, 1932, hence, the contract shall be executed in the name of all the partners along
with their details including the father’s name, aadhaar number and permanent address.
◈ For a contract to be enforceable, a partnership firm may be registered or unregistered but for a
suit to be instituted in court arising out of such contract, the partnership firm has to be registered
under the Indian Partnership Act, 1932.
◈ For Example: Mr. Anuj Pandey, son of Mr. Naresh Pandey, with aadhaar number
xxxxxxxxxxxx, residing at House Number 24, Sector 13, Noida and Mr. Sunit Kumar, son of
Mr. Baldeep Kumar, with aadhaar number xxxxxxxxxxxx, residing at House Number 8, Sector
8, Rohni, carrying on the business of cloth trading under the firm name ‘CRL Trading’, a
registered partnership firm within the meaning of Indian Partnership Act, 1932 having its
registered office at Shop Number 118, Cloth Market, Noida.
18
19. When the Party is a Sole Proprietor
If the party is a sole proprietor, the contract is entered and executed in
the name of the proprietor himself and not the proprietorship
concern.
◈ For Example: Mr. Sima Singh, D/o r. Gati Singh, carrying on
business as the sole proprietor of ‘Singh Electricals’, with PAN
xxxxxxxxxx, residing at 112, Urban Estate, Mumbai, PIN---.
19
20. When the Party is a Government:
Whenever the party to a contract is the Central Government i.e. Government of India, the
contract is executed in the name of the President of India and Whenever the party is any
State Government, the contract is executed in the name of the Governor of that State.
◈ Article 299 (1) states that ‘All contracts made in the exercise of the Executive power of the Union or of a State
shall be expressed to be made by the President, or by the Governor of that state, as the case may be and all
such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of
the President or the Governor by such persons and in such manner as he may direct or authorise.’
◈ In New Marine Coal Pvt. Ltd. v. Union of India AIR 1964 SC 152, the Hon’ble Supreme Court held that a
contract not complying with any of the requirements stated under Article 299 (1) is void and is not binding on
and non-enforceable by the Government.
◈ The authority to execute the contract may generally be found in rules framed or notifications issued by the
respective government.
◈ For Example: 1. The President of India, acting through Mr. AK Pandey, Additional Chief Secretary, Ministry
of Finance, Government of India.
◈ 2. The Governor of Jharkhand , acting through Mr. Sandeep Pandey, District Magistrate, Ranchi, Government
of Jharkhand.
20
21. When the Party is a Statutory Body
Statutory bodies are formed by way of a statute and by using the authority
conferred by a statute.
◈ A contract, in this case, is executed in the name of the statutory body, its
representative’s designation and registered address.
◈ For example, National Human Rights Commission, represented by Mr. AK
Pandey, Secretary General Chief Executive Officer, having its office at
GPO Complex, Manav Adhikar Bhawan, Block-C, INA, New Delhi-
110023.
21
22. When the Party is a Society
When the party to a contract is a ‘society’ registered under the Societies
Registration Act, 1860 or any other state laws, the contract shall be
executed in the name of the society itself. It shall also include the registered
address of the society and the details of the persons authorised to execute
the contract.
◈ For example: Unique Art, a society within the meaning of Delhi
Registration and Regulation of Societies Act, ---, with PAN xxxxxxxxxx,
having its registered office at ------, Delhi– 110001, represented by its
chairperson Mr. Rajeev Banrjee.
22
23. When the Party is a Trust
When the party to a contract is a trust created within the meaning of Indian Trusts Act, the
contract shall be executed in the name of the trustees of such trust and not in the name of the
trust itself.
◈ As per Section 13 of the Indian Trusts Act, 1882, a trustee is bound to maintain and defend all such suits, and
(subject to the provisions of the instrument of trust) to take such other steps as, regard being had to the nature
and the amount of the value of the trust property, maybe reasonably required for the preservation of the trust
property and the assertion or the protection of the title thereto.
◈ For example: Ms. Nibha Pandey, daughter of Mr. Nitya Pandey, trustee, representing NPN Trust, a trust
formed under Indian Trusts Act, 1882.
◈ Section 48 states that where there are more trustees than one, all must join in the execution of the trust,
except where the instrument of trust otherwise provides.
◈ Therefore, where there are more than one trustees, the name and details of all the trustees shall be provided.
23
25. 25
Definitions clauses:
Contain as many or as few contract definitions as necessary. They can affect the outcome of your relationship and any
potential disputes.
For example, an employment agreement may define critical terms in the definitions clause, including:
Employee
Full-time
Pay rate
Manager
Liability
Each term has a corresponding definition in case applicability questions arise in the future. Contracting parties may refer
to the definitions clause to answer specific questions.
Purpose of a Definitions Clause
The most significant purpose of a definitions clause is that they clarify contract-specific terms. It can also aid in future
risk mitigation. When both parties understand expectations clearly, it’s easier to meet them.
26. 26
Interpretation clause:
Uncertainty makes it difficult for anyone to take decisive action, in business, as well as in
contracts. Thus, it is our duty as lawyers representing our clients to help them avoid ambiguity in
contractual terms and wrong interpretation of contracts by the court in case of dispute. The
procedure by which the courts determine the meaning of a contract based on the terms in which
it is expressed, is known as interpretation.
Contract interpretation aims to determine and ascertain the intention of the parties when they
signed the contract.
27. General rule of interpretation by court:
◈ Generally, when interpreting a commercial contract, a court applies such standards of
interpretation:
• Putting itself in the shoes of a reasonable individual in possession of the
background details reasonably available to the parties, the court will attempt to
determine the parties’ objective purpose when entering into the contract; and
• If the wording is ambiguous, the court would take the interpretation that makes the
most commercial sense.
◈ From this, it can be observed that the client will benefit from clear and concise language
in his contract, and thus interpretation clauses should be introduced while drafting a
contract. Interpretation clauses specify which legal rules would be used to interpret
ambiguous or contradictory language in a contract
27
28. Benefits of an interpretation clause
An Interpretation clause expressly states how the parties intend particular
grammatical conventions adopted in the contract should be interpreted. Further,
it also sets out the breadth with which particular concepts are intended to be
treated by the contracting parties.
It clarifies certain common law construction principles, which may apply to the
interpretation of the contract and seeks to achieve a level of certainty between
the parties about the rules which a court should apply when interpreting the
contract.
28
29. General principles for interpretation
In addition to the Interpretation clauses that are incorporated by the parties in an agreement,
courts also consider certain general principles while interpreting the contract, if
necessary.
These principles are generally applied when the parties have not specifically included the
Interpretation clauses in the agreement. Some of the principles are as follows-
29
30. 30
1.Usage of trade:
Any practice or method of dealing that is practiced with such regularity in a place,
vocation, or trade, as to justify an assumption that it will be observed with respect to the
transaction in question is referred to as ‘usage of trade’.
The burden of proving the existence of a trade usage lies on the party propounding it, and
the party has to demonstrate a dominant pattern of use within the industry to establish
“regularity of observance” of the trade usage.
31. 31
Functions of usage of trade:
1. Trade linguistics
This clause helps courts to understand that certain terms have a specialized meaning when used by people involved in such activities or
professions, even though these terms convey a completely different meaning when used in a traditional sense. In Hurst vs Lake & Co, B
agreed to buy horse-meat scraps from A, who was in the same market, at a $5.00 per ton for meat with less than 50% protein but at least
49.5%. Since it was a known trade usage to consider a protein content of not less than 49.5% as equal to 50% protein, the Oregon
Supreme Court held that if the parties meant not less than 50% protein, they should have expressly negated the usage (49.5%) in the
agreement.
2. Providing for the unprovided:
The function of trade usage is to provide proof of usage to fill in the details omitted in the written contract. In La Nasa v. Russell
Packing Co., the United States Court of Appeals held that once a court decides to look beyond the terms of writing to determine the
intent of the parties, usage will ordinarily be admitted. However, if it appears from the contract that the parties intended to exclude the
usage, the usage will be rejected. Also, where the usage or general trade customs are expressly excluded in the contract, the usage will be
denied.
32. 32
2. Course of performance
refers to the systematic and consistent behavior that parties engage in after signing the agreement. The intent of the
parties vis-à-vis the agreement is ascertainable through course of performance the agreement involves a repetitive series
of performances. There must be more than one performance, but there is no specific number. However, the less the
performances, the more likely it is that they cannot be considered a course of performance.
Functions of course of performance
•Written contract may be modified :-Course of performance may revoke rights granted under the original agreement
and can either extend existing responsibilities or add new responsibilities on the parties. For example- If a gardener and
her client agree that the gardener will mow the client’s lawn every Sunday during the summer, but the gardener mows
the lawn every Saturday without the client’s objection during the month of July, course of performance may have
changed the contract, requiring Saturday mowing.
Protects reasonable reliance of a relying party:
More specifically, if one contractual party regularly allows a practice to continue without objection, the other party will
assume that the practice has become a part of their contractual relationship. To protect the reliance interest of the relying
party, the doctrine allows the party’s course of conduct to alter the written contract.
34. 34
Introduction
One of the most common clauses to be found in contracts is the Representation and warranties clause. They
basically tend to provide particulars and safeties against loss if the statements made in a contract are false. A difficulty
arises when a lawyer tends to ascertain the difference between both of them as very often both terms are grouped
together. The very basic role of Representation and warranties clause in a contract is to display the facts of a contract as
and when they are present in the contract. Representation and Warranties can be defined in a very simple manner as
assurances given by one party to another.
Representation
In General Practice, representation clause is defined as a statement made by one party to the contract towards the other
party or conjoint statements made by parties to a contract towards each other. This clause lays down the facts and
circumstances of a particular agreement and acts as the foundation of a particular agreement which thereby displays a
guarantee to the parties to a particular agreement that both the parties shall make the agreement work. A party to a
contract may claim for misrepresentation when the representation given by the other party is found to be false in nature
which may result in setting aside the contract, thereby entitling the receiving party to claim for damages. Black’s Law
Dictionary has defined Representation as “A presentation of fact either by words or by conduct which is made to
convince someone to act by entering into a contract
35. 35
Warranties
In General Practice, warranties clause can be defined as a statement of fact contained in a contract. If the
statement is found to be false, then the opposite party can claim for damages but however, unlike
misrepresentation, the contract is not set aside by the opposite party. Warranties in a contract can either be of
express or implied nature.
•Express Warranties are usually written in the contract and the buyers insist on having warranties of express
nature
•whereas Implied Warranties fall under a Uniform Commercial Code wherein the sale of a particular good
implies that there should be presence of fitness for a particular reason.
In Great Atlantic & Pacific Tea Co & Walker 104 S.W.2d 627, 632, the court defined warranty as “a
statement or representation made contemporaneously with or as a part of, the contract of sale having reference to
character, quality or title of goods, and by which he promises or undertakes to ensure that certain facts are, or
shall be as he represents them.
36. 36
Types of Contracts which require Representation & Warranties Clause
Representation & Warranties clauses are commonly found in agreements like loan agreement, employment
agreement, joint venture agreement.
The purpose of representation & warranties clause in a loan agreement is to involve the Borrower in a financial
transaction with the Lender in order to convince the Lender to sanction Borrower’s Loan.
With respect to Mergers & Acquisition agreements, Company purchasing or acquiring another company, would
want the other company to agree on certain representations and warranties in order to complete the deal which
could include:
•Material Contracts,
•Taxes,
•Authority,
•Compliance of Laws,
•Employment,
•Capitalization,
•Intellectual Property,
•Financial Statements.
37. 37
Importance & purpose of Representation & Warranties
Why is it important to have Representation & Warranties in a contract or agreement? It is because this clause simply acts as
an assurance which one party gives to the other party at the time of entering in a contract. Though there might be differences
in the actual terms and conditions in a contract, the idea is to protect parties across all forms of contract. It serves as
formidable protection for the buyer.
There are three main purpose of Representation & Warranties:
1. Allowing the buyer to collect necessary information regarding buyer or the company and make a thorough decision;
2. Supporting the parties to a contract by displaying the background for penalties & consequences of misrepresentation;
3. To provide protection to the buyer by giving the buyer the option to either cancel or renegotiate contract terms either
before or after entering in contract.
During the period of Due Diligence, Representation & Warranties play a crucial role as it allows the person signing a contract
to carry out a detailed investigation of claims before entering the contract. Indemnification is also included during the said
investigation period.
Various Laws may describe Representation & Warranties differently but in loan and other agreements Representations refers
to facts made by a party and Warranties refers to securing the other party in case of misrepresentation or false
representation.
39. 39
Meaning of Condition Precedent (CP) :
A Condition Precedent (CP) can be defined as a condition which is supposed to be fulfilled or satisfied to create a right,
obligation or contractual relationship between two parties. It is a condition that creates a situation or takes place prior to
or before a party has to perform a duty in the contractual relationship.
Meaning of condition subsequent (CS) :-
A Condition Subsequent (CS) can be defined as a condition which is supposed to be fulfilled or satisfied to excuse a
party from the contractual relationship which means creation of an obligation or termination of the contract between the
parties due to a future uncertain fact or event that may or may not occur.
It is quite clear that, both conditions CP as well as CS, when satisfied; either gives rise to a right, obligation, or
contractual relationship or terminates the same.
40. Investment agreement
For understanding, I am taking an example of investment agreement :-
◈ An investment agreement is an agreement that deals with the share
subscription by the investing parties or investors in return for the
investment consideration. It binds all the participating investors, even any
separate funding parties that have invested in the company.
◈ An investment agreement is a contract between a company and its
shareholders and an investor dealing with a proposed investment in the
company. The investing party can be an existing shareholder of the
company or all the shareholders of the company but it might be impractical
for all the minority shareholders to be a party if they are in huge numbers.
40
41. 41
Why is investment agreement important?
When a company wants to accept a new investment, there can be various challenges and risks that are supposed to
come with new funds. To manage these issues, the company finds a way to monitor such risks and maintain good
contractual relations with the investor. This usually plays a vital role for the start-up companies and companies that
are going through initial investments to provide clarification to all the parties on what the investor is entitled to now
as well as in the future.
Hence, Investment Agreement helps the company to create a legally binding agreement that lays down the risk and
rights and obligations of each party, including provisions to clarify on what all the parties know to do if things do
not go as expected which might create a breach or violation of the investment agreement and provision related
to dispute resolution and termination of the agreement.
If an investor is receiving minority shareholding, it is advisable for the investor to use the investment agreement to
ensure the rights and protections set out in the agreement are consistent with the law of the land. In the end, the
investor is willing to have a legally binding contract which can help him/her to have an adequate say in the
company’s decisions for the sake of justification of his/her investment.
42. 42
How condition precedent and condition subsequent play a role in investment agreements?
First of all, in investment agreement under the Purchase and Sale of Shares clause it is mentioned that the
payments are to be “tranched”, i.e., a portion of the amount or segment of funds which are supposed to be paid
according to certain conditions. Usually, these conditions are mentioned in the investment agreement, to make sure
the monetary claims required for the development of the company at various stages are satisfied. In simple
language, the company will want funds to be coming in at various stages of its development which need to be
planned precisely to avoid any kind of violation.
So, the term “tranche” can be interpreted as Condition Precedent and Condition Subsequent because tranche
indirectly means milestones or in simple language a certain condition which shall be fulfilled or satisfied. An
investment agreement requires two types of tranches “Initial tranche” and “Subsequent tranche” much like
Condition Precedent (Initial Tranche) and Condition Subsequent (Subsequent Tranche). This term exists because
the investors will be paying money in parts or portions only if the conditions are fulfilled, so in short, a tranche can
be said to be a payment paid only after fulfillment of the conditions. Now, let us understand the aforementioned
terms in detail.
43. 43
Initial tranches
The investors will want certain conditions to be fulfilled before the initial tranche of the investment i.e., initial
investment in the company.
The conditions required to be fulfilled are as follows:
•Due diligence of the company;
•A convincing business plan and accounts management;
•Tax clearances (if any);
•Formation of requisite authorities (Board and Shareholder) to issue new shares to the investors and adoption of new
articles of association;
•Issuance of shares or options to the founders and key management people;
•Assignment of all the intellectual property rights owned by the founders to the company; and
•Appropriate insurance for the investors as well as company employees.
44. 44
Initial tranche completion mechanics
The measures required to be taken for the completion of the initial tranche of the investment are as follows:
•Investment Agreement approval and disclosure letter if required;
•Issuance of Subscription Shares and certificates pertaining to the investment to the investors;
•The Board of Directors shall have Investor Director(s);
•Investors are obligated to pay the subscription monies to the company’s official bank account;
•If the founders are willing to become executive directors of the company, then there shall be approval and
execution of service agreements; and
•Adoption of a share option plan.
The investment agreement shall mention that proceeds of the investment (initial or subsequent tranches) shall
be used for fulfilling the agreed conditions and business plan or budget.
45. 45
Subsequent tranches
For each subsequent tranche of investment there exists a certain completion condition or conditions which
might include the following:
•Initial investment or initial tranche occurring shall be completed;
•No adverse changes materially;
•Achievement of the agreed condition pertaining to the tranche in question;
•Ensuring that there is no material breach of the investment agreement, articles of association or executive
director’s service agreement;
•Retaining the employment of the company founders and certain important employees; and
46. 46
Subsequent tranche completion mechanics
The measures taken for the completion of the subsequent tranches of the investment:
•Issuance of new shares and certificates pertaining to the investment by the investors; and
• Investors are obligated to pay the subscription monies to the company’s official bank account.
47. 47
Difference between condition precedent and condition subsequent:
From the definition we get an idea that condition precedent and condition subsequent according to
the perspective of an investment agreement can be stated as tranches which shall be paid on
completion or fulfillment of certain conditions (precedent and subsequent).
If there is any fault in fulfillment of such conditions, it might lead to termination of the whole
investment agreement, like a condition subsequent clause does for instance, if an investor does not
pay the subsequent tranche the investment agreement shall collapse.
48. 48
No. Condition Precedent Condition Subsequent
1.
A condition precedent is one the fulfillment of which completes an
inchoate title.
A condition subsequent is one of the fulfillments which extinguishes a title
already completed.
2. A condition precedent always comes before the creation of an interest.
A condition subsequent always follows the vesting of an interest which is
already complete.
3.
In the case of Condition precedent, the vesting of the estate is
postponed till the performance of the condition precedent.
In the case of condition subsequent, vesting is complete and not postponed.
4.
In the case of condition precedent, an interest once vested can never be
divested by reason of non-fulfillment of the condition.
In the case of condition subsequent, interest even though vested, is liable to
be divested by reason of the non-fulfillment of the condition.
5.
In the case of condition precedent, an estate is not in the grantee until
the condition precedent is performed.
In the case of subsequent, the estate immediately vests in the grantee and
remains in him till the condition is broken.
6.
In the case of condition precedent, transfer will be void if the condition
precedent is impossible to perform, or immoral or opposed to public
policy.
In the case subsequent, the transfer becomes absolute and the condition will
be ignored if that condition is impossible of performance or immoral or against
public policy.
7.
In the case of condition precedent, the condition precedent must be
valid in law.
In the case of subsequent, it need not be so, and the invalidity of the
conditions can be ignored.
8.
In the case of condition precedent, the doctrine of cy press applies and
the condition precedent is fulfilled if it is subsequently complied with.
The doctrine of cy press does not apply.