Have you got your contracts right?

Bad contracts could be detrimental to any business. Not to mention “enforcing contracts” in India is an uphill fruitless endeavor. It’s even getting worse for the small startups in the growth phase have little resources to fight legal cases when the contract goes wrong. Considering the current legal scenario which takes it own phase in delivering the justice, the start-ups can at least do is to create and govern contracts in a more deterministic manner.

What would go wrong?

Any error in a contract could undermine its legality and affect the abilities of parties while enforcing it before the Court of Law or before Arbitration. The affected party by such mistake will have not option but seeks to repeal or cancel the contract. In all parts, you may end up in facing ordeal and consequently facing business delays and waste of resources.

Why Oral Contracts are cardinal sin?

Promises are part and parcel of the business cycle but it seen broken easily by the parties who swears it. Building your business takes superhuman effort and you cannot afford to believe that your business is protected based on oral assurance by your co-founders, employees, suppliers and partners. Failed promises can wind-up your business. Law strictly recognizes oral contracts and nothing else, of-course in exceptional cases court considered oral contract but you cannot afford to take that chance if you take your business seriously. Also, writing contracts with the consultation of lawyer will make you to think through issues that did not come to your mind during the initial phase.

How things could go wrong?

Imagine, as a founder you are working day and night along with your partners. Co-founders or freelancers to create your product or service visible on the market and it did not strike your mind to have a contract to protect the know-how, trademark, inventions and etc., of the products/services developed during the initial stage. Soon one of the founder or partner flips about the success of business or dispute your ownership as he gets into some other idea or misconceived thoughts. When he or she chooses to leave the venture but refuses to assign the rights of his part in the work then you will end up in losing both the Intellectual property and immovable property of your business. This scenario is very often and we have seen many start-ups dies in womb or end up in an endless legal battle. So, having no written agreement/contract, you will have no space for negotiation, ground or legal recourse and no remedy.

Negotiation and Contract – What you should watch out?

Negotiation is imperative and is a combination of proposals, counter proposal and discussions before arriving to final conclusion which finally written as a part of contract. So, watch out for these three things when you negotiate a contract:

  1. Is there is lack of clarity or ambiguous point made during the discussion hoping that it would vanish sooner or later?
  2. Is there any undisclosed term or improper data in the earlier stage of proposal which was not altered or modified before signing the contract.
  3. Is there any orally agreed terms earlier but not written in the concluded contract.

The above might sound “minor” but indeed not as such imprudence could cause major loss when a contract dispute to be decided before the Court of Law.

So, have in mind it is near to impossible to substantiate oral agreements in the absence of tangible proof. Also, if some essential term is missing in your contract then the interpretation of court might be very different from what it was actually intended in the contract. If you contract does not envisage what is failure of performance, how it attributes the breach of contract, the form of remedy, forum of dispute resolution and option to terminate if things goes wrong then you must rethink about writing one in the first place.

Making contract before shaking hands- How do you do it?

Drafting business contracts could be risky when you are not well-versed in the legal issues and laws of the land. Admittedly, law is complex and it is difficult to learn or understand as it is made of multiple statutes legislated and layered with precedents of judicial system. Therefore, it is sensible to have a competent lawyer on board to create legally enforceable contracts instead of relying the free templates of agreements.