ALL RIGHTS RESERVED BY PATHLEGAL. DO NOT COPY the contents of this webpage to another website or distribute it electronically.
Practical is very important to complete this module successfully. PathLegal can arrange a live LPO work for your practical and a tutor from LPO industry subject to a minimum fee. For more detail write to firstname.lastname@example.org
Contract Management is the management of contracts made with customers, vendors, partners or employees. It includes negotiating the terms and conditions in the contract and ensuring compliance with the terms and conditions as well as documenting and agreeing any changes that may arise during its implications or execution.
Contract administration can be summarized as the process of systematically and efficiently managing contract creating, execution and analysis for the purpose of maximizing financial and operational performance and minimizing risk.
WHAT IS A CONTRACT
A contract is an agreement enforceable by law. The analysis of the above stated definitions bring to the light the following points
· A contract is an agreement made between two or more persons
· The agreement should be enforceable by law
When an offer or proposal made by one person is accepted by another, it becomes an agreement. Thus there are two elements in an agreement .They are Offer and acceptance.
Agreement = offer + acceptance
When a person signifies to another his willingness to do or abstain from doing or abstain from doing anything with the view of obtaining the assent (consent) of that other, he is said to have made a proposal or offer .The person making the offer is called the offer or proposer.
Acceptance is an expression by the offered of his willingness to be bound by the terms of offer .When the person to whom the offer is made signifies his assent thereto ,the offer is said to be accepted .When an offer or proposal is accepted it becomes an agreement .
Enforceability by law
If the agreement is enforceable through court of law, the agreement is a contract .Only an enforceable agreement becomes a contract.
FORMATION OF CONTRACTS
The essential elements for the formation of contracts are
1. Valid offer
When a person signifies to another his willingness to do or abstain from doing or abstain from doing anything with the view of obtaining the assent (consent) of that other, he is said to have made a proposal or offer
Thus the essential elements for a valid offer are
· A person should have made a communication to another person
· The person who has made the communication should have expressed his willingness or readiness to do or abstain from doing something
· The communication should be made with a view to obtaining the assent
· An offer should be made with the intention to create legal relationship. It must be one capable of being accepted
· The terms must be definite ,unambiguous ,and certain .It should not be loose and vague
The offer comes to an end under the following circumstances.
· By communication of notice of termination or revocation of offer before the offer is accepted by the offeree
· By lapse of time, if a time is prescribed in the offer and if no time is prescribed the offer lapses by expiry of a reasonable time.
· By non fulfillment of a condition precedent
· By death or insanity
· By counter offer
Acceptance is an expression by the offered of his willingness to be bound by the terms of offer .When the person to whom the offer is made signifies his assent thereto ,the offer is said to be accepted .When an offer or proposal is accepted it becomes an agreement
Legal rules as to acceptance
· It must be absolute and unqualified
· The acceptance must be communicated to the offeror
· The acceptance should be given according to the mode prescribed by the offeror
· The acceptance cannot precede the offer
· There should be an intention to create legal obligation
· Acceptance should be by the offeree
· Acceptance should be given before the offeror lapses or terminates
3. Consensus ad idem
An agreement becomes a contract if it is entered into between parties who are competent to contract .every person is competent to contract if
· He has attained the age if majority
· He is of sound mind
· He is not disqualified from contracting by any law to which he is a subject
The following persons are incompetent to contract
· Persons of unsound mind
· Persons disqualified by law
5. Lawful consideration
· If the promisee or any other person has done something at the desire of the promisor, the act would be treated as consideration for the promise.
· If the promisee or any other person has abstained form doing something at the desire of the promisor ,the assistance will be treated as consideration for the promise
· If the promisee or any other person does something at the desire of the promisor ,the act becomes consideration for the promise
· If the promisee or any other person abstains from doing something at the desire of the promisor ,the act becomes consideration for the promise
· If the promisee or any other person promises to do or abstain from doing something at the desire of the promisor
· Consideration must be real and illusionary .consideration must be of some value in the eyes of the law
· Consideration need not be adequate
· Consideration must not be illegal ,immoral or opposed to public policy
6. Lawful object
7. Free consent
An agreement in order to be enforceable through court of law, there should be free consent of the parties .Two parties are said to be free when it is not caused or obtained by
· Undue influence
PERFORMANCE OF CONTRACT
The contracting parties have a strict duty to perform their obligations .The duty should be discharged with in the time limit specified in the contract .There is no need for performing the contract if agreement is impossible or frustrated .If one party refuses to perform then the other party can either rescind the contract or sue him
ENFORCEMENT OF CONTRACT
When a party breaches the contract, the other party has the following remedies
1. To seek remedy under specific performance act
2. To claim an injunction in the civil court, where the court orders a party to either do or not to do something
3. To claim damages from the breeching party, for the losses suffered as a result of the breech
THE IMPORTANCE OF CONTRACT IN BUISNESS WORLD
It is estimated that 80% of business transactions depends on contracts and agreements .Contracts form the basis of business world .A proper contract mitigate legal and financial risks .An improper one make time line delay ,financial loss and human resource drain. Many law departments cannot devote sufficient resources to draft, review, and manage contracts. This can lead to poor service for business unit clients. Moreover, companies that cannot meet the demand for contract advice and edits create real risks: Unapproved contract changes can create unwanted obligations Proliferation in language variations may increase the chances of inadvertent breaches Key dates for renewal or price escalation may be missed
The need for good contract administrator
Contract administrator is designed to address the management phase of a contract, once the deal is done and the contract is signed .Now the relationship has to be managed to the business and financial terms of the contract .The contract Administrator provides:
· Uploading of key terms to the back office system.
· Reporting against the terms, deliverables and disbursements.
· Notification of renewal and re-negotiation.
· Life cycle management
Different kinds of contracts
We can find a number of contracts in a business world .Ranging from common commercial contracts such as employment letters, sales invoices, purchase orders etc to complex contracts such as construction contracts, Soft ware agreements, IP agreements etc.
The common types of agreements
1. SLA agreements
The objective of this agreement is to agree the support services to be provided by the service provider and the service purchaser and their price .This agreement contains the following terms
· Period of the agreement
· Description of services
· Obligation of the service provider
· Obligation of the service purchaser
· Terms on confidentiality
· Terms on arbitration
· clause regarding termination
2. NDA agreements
Confidentiality agreements or NDA (non disclosure agreements)guarantee a person or organization that information or know how that it is about to be made available to another person or organization for example under a joint project ,will not be revealed to third parties and will possibly be returned to it at the end of the project .
3. Soft ware licensing agreements
Soft ware licensing agreements is made between the developer and the licensee. The developer has developed the software and licenses the users its software program marketed under the name.
4. Escrow agreements
If the company stops the production of particular product, and the buyer continues to use the same, he can get the same repaired or corrected if there is escrow Agreements .There will be an escrow fund which it use to get it deposited with a banker for the safe custody .The person can get the information needed by paying costs for the same.
5. Construction agreements
It refers to the teaming up of agreements .Two kinds of construction agreements -Vertical agreements and horizontal agreements. Vertical agreements –between prime contractor and sub contractors.Horizondal agreements –joint venture agreements; both parties have equal rights
Contracts and LPO
Contract drafting services
Contract Management and Contract Abstraction services
Corporate governance and cooperate secretary services
Contract drafting services
· Licensing Procurement ,
· Distribution or transfer ,
· Financing ,
· Industry Specific ,
· Review and comment against client form or standard positions ,
· Review and comment against client parameters (e.g., product specifications, service levels, insurance coverage)
Contract Management and Contract Abstraction Services
· Manage and administer entire contract review/revision process
· Contract Abstracts
· Lease Abstracts
· Playbook Creation and Maintenance
· Contract Management Software and Tools
Corporate Governance & Corporate Secretary Services
· Centralize the administration and maintenance of global corporate subsidiary minute books and other corporate filings and notices.
· Create, load & maintain global subsidiary database(s) content.
· Draft minutes for board meetings and general meetings, resolutions, notices and otherwise prepare other necessary corporate legal forms in accordance with local laws and best practices.
· Prepare annual reports.
· Calendar significant corporate existence and regulatory reporting events and ensure global subsidiary compliance with local regulatory requirements and filings.
· Verify subsidiary corporate good standing.
· Monitor subsidiary compliance with corporate governance laws and regulations and for changes in laws and best practices.
· Coordinate with third-party providers and local counsel, as needed.
A comparative study of contracts in US, UK and India
US and UK contract law is based on common law .India differs from both us and UK contract laws because India has codified its contract law under the Indian contract act of 1872.But India has retained the common law principles in the contact act
The elements of a contract are same in US, UK and India. Although, the US and UK simplifies the elements by focusing on offer, acceptance, consideration, defenses and damages .The concept of offer, acceptance and consideration is generally the same.
Except with some differences .In India a contract without consideration but under love and affection is valid but US and UK government does not recognize love and affection or any other moral consideration .India recognizes past services as valid consideration but it is not in US and UK because its viewed as lacking in bargain .In the US ,mutual mistakes makes a contract voidable and not void but in UK the contact entered by way of mutual mistake makes the contract void ab initio and not voidable .In India a contract is not voidable because of unilateral mistake and a contract created out of mutual mistake is void .
There are some agreements that are considered void in India but valid in US .India will not recognize an agreement not to marry, while the US would recognize such an agreement .India and UK will not recognize an agreement in restraint of trade, which is recognized in US. India will not recognize an agreement restricting the enforcement of a right .The US however does .India has a specific rule on wagers, while the US and UK would simply analyze the same as illegal contract.
In England a drunken persons contract is void able .in India the contract of a drunken person is void .A sane man who is so drunk ,that he cannot understand the terms of a contract or form a rational judgment as to its effect on his interests ,cannot contract whist such drunkenness lasts .
HOW TO READ AND ANALYSE A CONTRACT
We should read a contract both in a narrower way and the long way .The narrower view to examine the particular language in careful details and the long view to see that detail in the context of the transaction and the law of contracts .Contract reading is non linear ,imaginative ,non literal ,transformative and interactive Contract reading is non linear because you do not BEGIN AT THE BEGINNING AND END AT THE END .You must move around from place to place as you gather information and perceive relationships between the parts of the contract .It is an imaginative process because even when though contracts are written in the present ,they govern the future .You must use your imagination to consider what that future might bring in order to determine whether the contract provides for it Contract reading is non literal because you must supply text that does not appear on the page .The rules of contract law ,applicable regulations ,and custom and usage all provides additional text that you must consider .Contract reading is transformative because the text is not always static .You may have the opportunity to change the text through redrafting or negotiation .Most Importantly contract reading is interactive. Because a contract is such a text, you will not be able to grasp the significance of every term in one reading.
Contract reading can be divided into following stages
First stage –Orientation
In the orientation step .you will discover the general theme of the contract and legal relationships of the parties. You will also begin to see the structure around which contract is built. You have to consider the goals of the parties and how those goals might be reflected in the contract.
While ascertaining the general theme of the contract we have to look upon:
(a) The description of the instrument
(c) Recitals, for what the contract stands for?
(d) Primary exchange of promises between parties
While detecting the structure of contract we have to look for :
(a) Foundation or cathedral of the contract.
(b) Stepping stone or final agreement between the parties
(c) Goals of the parties
(d) Rules of contract law applicable to parties
Second stage –Explication
In the explication step you will identify the boilerplate declarations and focus on the rights and duties of each party. You will also detect whether those rights and duties are expressly conditional on the happening of some event.
Boilerplate provisions frequently include:
(c) Assignment and delegation
(f) Dispute resolution: Dispute resolution frequently include:-
(2) Choice of law
(3) Choice of forum
(4) Attorneys fees.
In this step you have to identify the rights and duties of each party. It includes –
(a) identify promises
(b) Watch for promises that are beyond customary norms.
(c) Determine the duration of contract
In the implication step, you will have to read into the contract terms and conditions that are not expressly stated in the contract. You will have to explore the relationships between the contract terms particularly those relationships that are not expressly stated.
You have to read the implied conditions of the contract, which include:
(a) Whether one party’s entire performance is a condition of the entire performance of the other party.
(b) Who should perform first?
(c) Did the party who performed, first protect itself.
(d) Identify the trade usage, course of dealing and course of performance
In the remediation step, you will ascertain the consequences of the non performance of party’s duties. Some of the consequences is expressly found in the agreement, but others may be implied.
Here, we will have to identify the following:-
1. Is a party’s nonperformance amount to breach? non performance may be excused by :-
(a) Changed circumstances
(b) Modification or waiver
(c) Nonoccurrence of a condition
(d) Trade usage
2. Result of nonperformance by a party:-
(a) Whether other party can recover damages
(b) Express terms relating to damages
3. Look for terms that address remedies :- these may include:-
(a) Specific performance
(b) Liquidated damages
(c) Limitation of remedies
(d) Dispute resolution
Fifth stage –Evaluation
In the evaluation step, you will make normative judgments about the terms of the agreement. You might find weaknesses in language, terms that are too harsh, terms that are missing or terms that may be negotiated.
In this step you can state omitted terms. You can also go through the following:-
(a) Whether you understand and agree with all stated terms.
(b) Do you understand and agree with the consequences of breach.
(c) Do you wish to alter any boilerplate terms?
(d) Is there any terms you wish to negotiate.
(e) Whether you find weakness with language:-
(1) plain English
Tips Before you draft a contract
Sample contract drafts
The basic elements which need to be checked
· Identify the parties
· Describe the subject matter
· State the material terms
· Include a signature
After checking the basic elements consider some of the more advanced touches ----integration or merger clause, choice of law clause, arbitration clause
Contract review helps clients in early identification of liabilities avoid lapses in fulfilling their obligations ,gain meaning full insight of the entire contracts portfolio and enable them to make the contractual key terms uniform across the portfolio.
Tips Before you draft a contract
It may seem a little silly to talk about issues such as which font to use and how much the line spacing should be in the contract, but remember that these things make a lot of difference in the practical world .Contracts are often negotiated back and forth a number of times ,and a minor error here or there can have huge implications for the parties to the contract.
The first thing you should be careful about is which font you use .Your organization ,or your client may specify exactly what font should be used in which documents ,and if this is so ,you must use this specifications very strictly .If not you can choose from two main families of fonts –times family or sans serif family
Once you have picked out a font that suits your style make sure that you choose the correct type size .The normal range of type sizes used in drafting legal documents is between 10 and 12.5 point.
The last thing to consider is what alignment you should use .Correct alignment makes the contract easier to read, and is less painful on the eyes.
Contract segmentation and numbering
Segmenting and numbering your draft contract may seem like a very trivial issue, but it is attention to details like these that will make your draft an effective communication tool. Remember that the contracts are documents that need to be discussed very often between attorneys, business officials and persons who actually do the work under a contract .If your contract is not an effective communication tool, it will affect the work. Your contract should be segmented in such a way that people who are looking for specific information can find it easily .For example, make sure that the paragraph headings are highlighted by putting the fonts in bold.
The parts of a contract.
Contracts are effective communication tool .So you must be clear on what you are trying to communicative ,and to whom .What is the deal between the parties ?what will each party do ?what happens if a problem arises ?contract drafting is nothing but the art of answering questions like these effectively
The beginning will contain the following parts
· The title
· The exortium
· The recitals
· The table of contents
· The definition section
Each contract should begin with a simple title, which sets out very briefly, what the contract is about or agreement .Use a separate title page ,if it is particularly large contract .For example ,it makes more sense to have a title that says employment contract or licensing agreements
The exortium is a short section that follows the title .It names the parties to the contract, the date of the contract, and provides the short hand references that will be used in the contract to identify the parties and the contract itself .A typical exortium will look like this:
This licensing agreement is entered into this 15th day of February 2007, by and between Break neck constructions Inc., New York Street and Sandy Materials .Pennsylvania.
The exortium should name the contract, the date of the contract and parties to the contract .Capitalize and embolden all defined terms.
Recitals are supposed to tell the reader a little bit about the history of the contract it should not go into any details of the contract as such .The main promises and obligations of the parties must be restricted to the main body of the contract, and should never spill over into recitals .The traditional system of writing recitals is to start off each sentence with ‘whereas’ .For e.g. where as buyer is a corporation engaged in the construction business .But nowadays the attorneys have left off using this word ,and simply breakdown the recitals into simple ,numbered sentences .A third way of doing this to put all information into a simple paragraph .The recitals should set out the intent of the parties .The recitals should set out the reason for entering into the contract .The recitals should not contain any substantive and operative provisions .
The table of contents
A table of contents is usually provided only for contracts that are very large .Inserting a table of contents is quite a simple affair with most word processing software, such as MS word .Remember that the software will only be able to generate a proper ,usable table of contents if you have taken care to segment and number your contract properly .The table of contents serves two purposes
· It makes the readers job of identifying particular provisions much easier
· It helps the draftspersons job by providing an outline of the structure of the contract
The definition section
Draftsperson use definitions to make the contract more easily readable, and to avoid unnecessary repetition. Make sure all defined terms are capitalized .Make sure the definitions are accurate, and properly convey the meanings of the terms as they are used in the contract.
The middle portion of a contract
The middle portion of the contract will vary according to the type of the contract that sets out the particulars of the deal between the parties .Typically, however every contract will contain the following parts in the middle
· Representations and warranties
· Obligations and rights of parties
Representation and warranties
This portion of the contract sets out some facts that the parties promise will be true. Representations are promises by the parties that some facts will be true when the time for the performance of the contract arises. Warranties are promises by the parties that some facts will be true when the time for the performance of the contract arises.
Obligations and rights of the parties
This portion of the contract can be regarded as the most important; since it sets out exactly what the parties are promising to do under the contract .This portion is also called by couple of other names
· operative provisions
· covenants of parties
what you put in this portion of the contract really depends on the agreement between the parties .To draft this portion properly ,you should go through the term sheet ,or what ever other documents are available ,very thoroughly. For large transactions the parties typically prepare a term sheet .This documents sets out the main points of agreements between the parties ,which need to be translated into the contract .In some cases ,the parties sign a letter of intent ,or a memorandum of understanding ,which is nothing but a simple document setting out the main points of agreements between the parties .
Conditions in the contract may be of two types
· Conditions precedent
· Condition subsequent
Condition precedent lay down certain conditions that must be satisfied before performance under the contract begins .If they are not met, performance under the contract is excused .Condition subsequent lay down certain conditions that must be satisfied at a later stage for the performance to continue .If these conditions are not satisfied, the performance is excused from that stage.
The last portion of the middle part of the contract tells the reader what will happen if either party under the contract fails to meet its obligation under the contract for some reason .For the most parts remedies are the part of the law, and most contracts will not have anything specific that needs to be put here .In some cases however the parties may decide on a liquidated damages clause ,indemnification provisions to cover losses that may not be otherwise covered in law ,and provisions for covering litigation costs and attorneys fees .
The end part of the contract
The last part of the contract typically contains the following
· Boiler plate provisions
· Testimonium and signatures
Boilerplate provisions are a series of clauses at the end of the contract, written in a general language that can fit a variety of situations .The following clauses are used as boiler plate provisions to seal the contract
· Notice provisions
· Assignment of rights and obligations
· Choice of law
· Forum for resolving disputes
· Arbitration clauses
Testimonium and signatures
In the last part of the contract we have the testimonium and signatures .The parties signatures are there at the end of the contract for a very obvious reason to show that they have actually agreed to all the provisions of the contract. Before the signature there will be usually be the statement similar to this: in witness whereof, the parties hereto have affixed their signatures to this agreement on the date first set forth above .There is no strict legal requirement for such a statement ,called a testimonium, but it is the normal custom to include such a line in most contracts .
Top 10 Contract Drafting Mistakes
Generally, in order for a contract to be enforceable, the nature and extent of the parties’ obligations must be certain. It is essential that there be a meeting of the minds on all material terms and the subject matter of the contract. If a contract is incomplete, indefinite, incapable of being performed, or lacking consideration, then a court may rule that the contract did not exist at all. Many times when non-attorneys draft contracts, enforceability and interpretation issues arise. A court may hold that a provision of a contract is ambiguous if it is reasonably or fairly susceptible to different interpretations. If a contract drafted by a layperson is ambiguous, a court may give greater latitude in construing such a contract to carry out the intent of the parties. However, whether drafted by a layperson or an attorney, an ambiguity in the construction of the contract will always be construed against the party who drafted the contract.
Below is a list of some of the most common drafting mistakes that business owners
Typically make when drafting a commercial contract for services:
1. Failing to accurately identify the parties to the contract. The contract should identify the parties as completely as possible. In the case of corporations or other business entities, it is important to verify the capacity of the contracting party to bind the corporation to the contract.
2. Omitting covenants and conditions of performance. The contract should clearly state whether each contractual obligation is absolute or conditional with the occurrence of some event. Also, the contract should specify the standard for determining satisfactory performance of an obligation.
3. Failing to adequately define how or when the contract terminates. A contract should specify the length of time of the contract – either terminating on a stated expiration date or on completion of performance. Many times, litigation may be avoided if the parties are clear about the specific grounds for termination and the damages for early termination.
4. Failing to adequately state the method for resolving disputes. This is particularly a problem when the drafter includes a vague arbitration clause or an arbitration provision that is contradicted by reference to a court having jurisdiction over any disputes. Other issues arise with the arbitration clause if it is drafted too narrowly; thereby, excluding certain types of disputes from arbitration. Other essential elements that are sometimes absent from arbitration provisions include the location of arbitration, the governing law, or which party pays for arbitration. Also, it is important to specify the type of notice necessary to invoke arbitration.
5. Failing to adequately define which rights and obligations under the contract are assignable. If you include an assignment clause, you should state whether consent of the non-assigning party is required or whether there is a fee for the ability to assign the contract.
6. Failing to specify which party pays the attorneys’ fees in the event of a contract dispute. Unless there is a provision in the contract stating that a party is entitled to attorneys’ fees or a specific statute provides for attorneys’ fees, a court cannot award attorney fees.
7. Failing to include a choice of law clause. Conflicts of law issues usually arise when the parties are residents of different jurisdictions, or when obligations are to be performed in more than one jurisdiction. This often-litigated issue can be resolved in advance with the proper choice of law provision. Without a choice of law clause, then generally the law of the place where the contract was made will apply.
8. Including invalid penalty clauses for breach. Penalty clauses are not enforceable. However, if the parties to the contract want to stipulate in advance as to what the damages will be for a breach of the contract, then the parties can include a liquidated damages clause, as opposed to a penalty clause. A valid liquidated damages clause, to be enforceable, must state a reasonable amount of damages under the circumstances. If the damages are excessive, then a court will likely consider it to be punitive rather than compensatory.
9. Lacking of consideration. In order for the agreement to be enforceable, there must be valid consideration – either by an act, or forbearance or a return promise which is negotiated for and given in exchange for that promise. It is a well settled principle of contract law that a promise unsupported by consideration is unenforceable.
10. Failing to include a contract effective date. It is important to make certain that the contract states when the contract is effective for purposes of determining obligations and the time for performance. Contract drafting is both an art and a science. Without the proper knowledge of the current law applicable to your industry, business owners run the risk that their contracts will not be enforced in the manner intended.
Question and Answer
Have a doubt on this chapter?
Do you need more information?
Do you like to talk to our LPO experts?
Do you want to get a professional training?
Are you looking for a practical section?
Are you looking for LPO Certification from PathLegal?
Write to email@example.com