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Mohi

Mohi | Updated: Apr 07, 2020 | Category: Legal

How To Draft A Legal Agreement Between Two Parties

A legal agreement is a formal written document or contract which defines the parties’ role and responsibilities in the agreement and also specifies the purpose of signing an agreement. Once the agreement drafted and it should be signed by both the parties either manually, digitally, or electronically. It is legally binding after signing the agreement by both parties. It means if any party fails to perform duties assigned under the agreement, then other parties can proceed legally. So, once the agreement signed by both parties, it better to perform duties and obligations as per the signed agreement to avoid a legal battle.

Essential elements of a legal agreement

These are the essential elements of a legal agreement which must be present for a valid agreement:

  1. Offer:  Giving an offer to the other party is a beginning for any agreement. This should include all the terms and conditions, roles, and responsibilities of each party, and the purpose of an agreement should be clear. The offeror can put an attempt to enter into an agreement with the other parties by giving an offer.  
  2. Acceptance: Once the offer has been given to the opposite party, it’s total discretion of the opposite party to reject or accept the offer. The offeror should give enough time to read the proposal to the other party. If the opposite party or offeree wants to amend something, then the same can be done after discussion with the offeror. If both parties are happy with all the terms and conditions, then only agreement can be accepted. 
  3. Meeting of the Minds: Agreement should be done mutually by both the parties once ready to fulfill the terms and conditions of the proposed agreement. Both parties should be well versed with purpose, terms, and conditions, obligations under the agreement, etc. to avoid any confusion in the future. There are several grounds on the basis of which an agreement considered to be void if it has been signed by misrepresentation or fraud, undue influence, etc.
  4. Consideration: There should be some consideration in order to have a valid legal agreement. Usually, if somebody signs a share purchase agreement or service agreement, then into consideration money offered for the share transfer, etc.  

If a business condition is  not in money terms, the parties should be sure that the court would view whatever they are trading, there should be some consideration. 

  1. Capacity: Both parties should fulfill the essentials of legal capacity to enter into the contract. For valid agreement, signing parties must be of sound mind, major, etc.. For example, a five-year-old child cannot enter into a legal agreement, or a mentally ill person cannot sign an agreement. If it happened, it wouldn’t be considered legally valid. Both parties shall enter into the agreement without any coercion or undue influence.  
  2. Legality: A legal agreement should be signed. No agreement is considered legal if it signs for some illegal products or trade or services.  For example: A drug dealer cannot go into a court with an agreement if the buyer doesn’t pay him. So, an agreement should be completely legal for the availability of legal rights.  

Steps For A Legal Agreement Between Two Parties

1. It should be in writing

Although oral agreements are considerable in a few situations, they are difficult to prove in the court. So, an agreement should always be in writing and should be signed by both the parties by fulfilling all the legal requirements of a valid legal agreement.   In today’s corporate world, everybody prefers a written agreement as A written agreement is less risky than an oral agreement. The written legal agreement contains all the terms and conditions, purpose, rights, and obligations of each party. It creates less confusion and helpful in legal proceedings.

2. It should be  simple  

Many lawyers use quite complicated and tough language while drafting a legal agreement, but Contrary to what most lawyers think, its always good to use simple, short, and clear sentences. The paragraph heading should be clear, and content inside the paragraph should be precise and relevant to the topic.  

3. Deal with the right person

Always cross-check details about the opposite party before signing an agreement. Make sure the person you are dealing with should have a clear background. Always speak directly to the owner of the company or any senior authority who has the power to make decisions for the business and is the incapacity to sign the agreement. It will avoid unnecessary delays. In a smaller business, it might be one of the owners; in a larger organization, it might be a chief executive officer or chief operating officer.

4. Parties detail should be mention correctly

Many times, it is surprising that in a various legal agreements, the name of the parties mentioned wrong, like in suffix. It’s important that the name of the parties shall be clear and correct because, in case of any legal fight in the court in relation to the agreement, it may affect. For example- if a business is organized as a Private limited, then its necessary to specify in the contract. 

5. Specify each detail in a legal agreement

A legal agreement should be very clear. It should contain all terms and conditions of an agreement. The purpose of the agreement should be specified in it. Each party’s rights and obligations should be mentioned in the agreement. Tenure, place of arbitration, the jurisdiction shall also be mentioned in the agreement clearly. Its always better to put it on stamp paper as per local jurisdiction and then sign. Any amendment can be done in the agreement by signing a separate amendment agreement by mentioning detail of 1st agreement.   

6. Payment obligations shall be clear

Payment terms shall always be clear, like when and how the payment must be made. Most of the time, any conflict arise in the contract is due to the payment issues. It’s always better to specify who will pay when and what amount. Like in many agreements, it is a step by step procedure . for example- In software development agreement, it’s a step by step procedure. When a particular step complete, accordingly, party release payment. Whether any party is going to pay in installments or quarterly or monthly should be clearly mentioned in the agreement. 

7. Termination Clause shall be mentioned 

It is necessary to put a termination clause in the legal agreement. It means that on what basis, a legal agreement can be terminated by each party. For instance, if one party is not meeting deadlines of an agreement and if it’s mentioned in the termination clause as a reason for the violation of an agreement, then the other party can terminate the agreement by considering the same.  

8. Dispute resolution 

It’s necessary to mention the agreement that in case if something goes wrong during the agreement period, then what should be the method for dispute resolution. For example- we usually prefer to go for arbitration or mediation rather than directly going to the court as it’s a very lengthy and time taken procedure. 

Its always advisable to mention this and place of arbitration also. 

9. Pick a state law to govern the agreement

If both parties belong to the different states, then sometime its necessary to mention under which state law the particular agreement shall be governed. In addition, one must specify a place of mediation, arbitration, place of jurisdiction, etc. This will simplify if a dispute arises in the future related to the agreement.

10. Confidentiality clause

When some company hires other companies to perform. Particular service, then they will share the confidential information also during the business transaction. So, to save the privacy of the business, an agreement must contain a confidential clause, where it should be mention that during the course of a transaction, whatever information shared with the service personnel shall not be disclosed by him to the third party. Otherwise, it shall be considered as violation of the agreement and may attract legal conflict.

Conclusion:

A legal agreement shall always be drafted with the help of legal experts as each agreement has few different clauses and criteria’s. There are various kinds of legal agreement can be drafted as per the requirement of business transactions. For example, in share transfer deal, share purchase agreement shall be drafted. Its very necessary to draft each agreement carefully as one mistake can cost a lot. 

Format  of a legal agreement

Here I am sharing format of a consultancy agreement with few clauses which are necessary to be mentioned in the agreement 

CONSULTANCY AGREEMENT

This Consultancy Agreement (the “Agreement”) is executed at………….on (the “Effective Date”).

BETWEEN

…………………Private Limited, Incorporated under the Companies Act,2013, and having its registered office located at ( Place) (hereinafter referred to as the “Company ” (which expression shall, unless repugnant to the context or meaning thereof, mean and include his successors and assigns) of the First Part

And

First Part

(hereinafter referred to as the “Consultant ” (which expression shall, unless repugnant to the context or meaning thereof, mean and include his successors and assigns) of the Other Part

As the context may require, the “Company” and the “Consultant” are hereinafter collectively referred to as “Parties” and individually as “Party”.

WHEREAS:

  1. The Consultant has expertise in business development areas and worked with many companies in the past. 
  2. The company is desirous to engage consultant for Business Development and the consultant agreed to provide services for the same.
  3. The Parties are desirous of executing this Agreement to record the terms and conditions for the provisioning of the services by the Consultant as provided hereunder. 

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES AND COVENANTS HEREIN CONTAINED AND OTHER GOOD AND VALUABLE CONSIDERATION, THE ADEQUACY OF WHICH IS ACKNOWLEDGED BY THE PARTIES, IT IS AGREED BY AND BETWEEN THE PARTIES AS FOLLOWS:

Services and responsibilities of a company

The Consultant hereby agrees to provide services related to Business development for the company as per Schedule I (collectively known as “Services”). Further Consultant hereby undertakes to sign/execute any documents for the purpose of this agreement.

The Consultant shall provide the service by using their all proficiency and it shall be performed with promptness and diligently. 

Responsibility of a company

The company shall provide access to all the information, materials which are required by the consultant to fulfil their services detail as mentioned in Schedule . 

Payment terms

Both the Parties have agreed that the Consultant shall be entitled for an all-inclusive and payable within 10 calendar days as per the payment schedule . 

Term and Termination clause

The duration of the Agreement shall be for a period of 1 year, from the date of this agreement commencing from (Date) unless terminated earlier as per this agreement or as decided between the parties.

This agreement can be terminated by either party at their discretion by giving prior written notice of 30 days to the other Party. Furthermore, Either Party may terminate this Agreement by giving a prior written notice of 30 days’ in the event (a) for a breach of the respective obligation by the Parties which is incapable of remedy or, if capable of remedy, is not remedied within such 90 days of written notice being given to the defaulting party; or (b) if the Company becomes  bankrupt or goes into liquidation (whether voluntary or compulsory), or is dissolved, or has a receiver or administrator appointed over the whole or any part of its assets or a petition is presented, or a meeting is convened for the purpose of considering a resolution for the winding-up, bankruptcy or dissolution of the Company or the Company suffers any similar process under the law of its domicile or place of its jurisdiction. 

Non-disclosure of confidential informations

“Confidential Information” means any information, technical data or know-how (whether disclosed before or after the date of this Agreement), to be confidential or proprietary or which information would, under the circumstances, appear to a reasonable person to be confidential or proprietary. Confidential Information does not include information, technical data or know-how that: (i) is in the possession of Company at the time of disclosure, as shown by Company’s files and records immediately prior to the time of disclosure; or (ii) becomes part of the public knowledge or literature, not as a direct or indirect result of any improper inaction or action of Company. 

The Consultant shall adopt all necessary security measures which are commonly observed in similar industries that rely on Confidential Information and as may be specifically required by the Client for securing such Confidential Information. 

Disputes:

In the event of any dispute, difference or question arising out of or in respect of this agreement or the commission of any breach of any terms thereof the same shall be referred for arbitration. 

Governing Law

This Agreement shall be governed by and construed under the Laws of India, without regard to principles of conflict of Laws there under. In the event of any dispute or difference between the Parties in relation to or in connection with this Agreement, such dispute or difference shall be referred to arbitration. Such arbitration shall be held in accordance with the Arbitration and Conciliation Act, 1996 and the place of arbitration shall be ………….. The Parties hereby agree that decision of the sole arbitrator shall be final and binding on them to preside over the arbitration. The arbitration award shall be final and binding on the Parties.

Modification and Amendments.  

This Agreement may not be modified or amended except in writing specifically referring to this Agreement and signed by each of the Parties hereto.

Use of English Language

This Agreement has been executed and delivered in the English language.  Any translation of this Agreement into another language shall have no interpretive effect.  All documents or notices to be delivered pursuant to or in connection with this Agreement shall be in the English language.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of …………..

WITNESS WHERE

Schedule I

Scope of Work:

Payment Criteria:

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Mohi

Mohi

Advocate Mohi Kumari has got 9+ years of experience in practicing law independently all over India. She has completed her Master in Laws from Rajiv Gandhi National University Of law, as well she has done Post Graduate diploma in Cyber Laws from Asian School of Cyber Laws and Diploma in Corporate Laws from Bharati Vidyapeeth Deemed University.


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