Agreement & Contract

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Legal Remedies for Termination of Contracts
Agreement & Contract

Legal Remedies for Termination of Contracts

A contract is typically a written agreement wherein the parties fix the terms and conditions of their relationship and transactions. Termination of a contract is very important as it provides parties with an exit option. Under the Indian Contract Act 1872, a contract can be terminated by the parties involved by giving legitimate reasons like frustration, repudiatory breach, termination by prior agreement, rescission, or on completion.

 

Such termination may occur by the mutual consent of the parties or by law. However, if a contract is breached or terminated without mutual consent, then the party other than the one breaching it can seek certain legal remedies on account of such termination. 

 

 

Following remedies may be pursued for if there is a termination of the contract: 

 

  1. Suit for breach of contract: A suit for breach of contract can be instituted when either party breaches an enforceable agreement. The remedies can be obtained in the form of damages, restituting the suffering party, rescinding the contract, or ordering the breaching party to perform the contract. These damages shall include the compensation given for financial losses caused by a breach of contract.
  2. Damages: Under Section 73 of the Indian Contract Act, any party can claim compensation for loss or damages caused to them in the normal course of business if the other party breaches it. The liquidated damages are pre-decided by the parties while forming the contract. The unliquidated damages are assessed and determined by the courts or appropriate authorities after the contract is breached. The general aim of an award of damages for breach of contract is to compensate the innocent party for the actual loss suffered and to put the party back in the same position as it was before the formation of the contract. The damages incurred are assessed as at the date of the breach of contract. These damages may be for the pecuniary loss, non-pecuniary, and nominal damages. 
  3. Specific Performance: Specific performance is an equitable and discretionary remedy given by the court in case of breach of contract, which compels the breaching party to perform a contractual obligation. It is generally awarded when the required obligation is unique and difficult to value. It may be ordered when the property is not an ordinary article of commerce or consists of goods which are not easily obtainable in the market. 
  4. Injunction: Injunctive relief is a legal order that either makes it mandatory for the defaulting party to perform specific obligations or prohibits the defaulting party from performing certain tasks. It is also at the discretion of the court and can be ordered on an interim basis or a final basis. A common instance of interim injunctive relief is an order restraining the party from dealing in certain property until the substantive dispute has been concluded. 
  5. Indemnity: Indemnity clauses are the contractual provisions that allow the parties to manage the risks attached to a contract by making one party compensate for the loss suffered by the other, due to specific events. An indemnity may be claimed for losses arising on account of the conduct of a third party. The damages, the amount paid under the terms of the agreement, legal costs of judgment, are some of the claims which Indemnity holders can include in its claims. 

 

 

Conclusion

It is important that a contract includes all these remedies in writing. It is advisable to approach a lawyer and assess which remedies to termination of the contract, maybe the most beneficial.
 

What does Indemnity In Service Contracts mean?
Agreement & Contract

What does Indemnity In Service Contracts mean?

Indemnity is a term that you may have heard or read often while going through commercial contracts. Do you know what does indemnity mean? Indemnity is defined as compensation which one contractual party gives to the other for the loss suffered. However, it is not this simple, and there are many contractual issues involved. We shall discuss and explain the issues associated with indemnity. 

 

 

What is an Indemnity Clause?

 

It is a promise to hold a person harmless from the consequences of his act. It can be express or implied. Companies, while entering into a contract, happen to mention an indemnity clause so as to manage risk arising out of acts by another party effectively. It is viewed as a form of security against a financial loss. The contracting party who promises/gives the indemnity is called the indemnifier while the contracting party to whom indemnity is given is called the indemnity holder. The definition of Indemnity in Indian Law is narrower compared to the English Law. While the latter definition includes within its scope losses arising from any cause (fire, ravages of the sea, etc.), the Indian definition only allows for a promise to indemnify losses arising out of actions directly attributable to the promisor or by any other person. Basically, loss must be on account of human agency. 

 

 

What Can be Claimed as Indemnity?


An indemnity is typically required under certain events. These include intellectual property rights infringement, loss to property, losses to third parties, etc. Even if one has indemnified a product for a particular amount, a valid claim can only be made for the exact amount of loss made and not the entire amount. Also, it is a settled law position that a party can be indemnified before suffering actual loss provided that such loss is imminent. 

 

 

Are Indemnity and Damages Same?


Damages are described as compensation for legal injury. The following are differences between Damages and Indemnity : 

  1. Action for damages arises when a breach of contract has occurred. The loss incurred needs to be due to the actions of the contracting party. In Indemnity, losses arising out of third-party actions can be claimed and does not necessarily entail a breach of contract. 
  2. Damages can be claimed only for losses arising out of reasonably foreseeable events. Indirect or remote losses cannot be claimed. This is not the case with indemnity where indirect and remote losses can be claimed.
  3. A duty to make up for the the loss by the party is implied in damages, whereas it has to be explicitly included in Indemnity clauses.

 

How to draft an effective Indemnity Clause?

 

There is a tendency to simply use previous indemnity clauses without tailoring it to the requirements of the contract at hand. This diminishes its effectiveness. Certain key points to keep in mind while drafting the Indemnity Clause are:

  1. Sources from which potential losses may arise, need to be identified, so as to ensure a proper comprehensive indemnity clause.
  2. One should define loss in an exhaustive manner as remote, consequential, and indirect losses can be claimed under this clause. Such an attempt reduces the possibility of a loophole.
  3. Also, wide definitions, vague expressions should be avoided as they might be read down, which might lead to the exclusion of some of the anticipated liabilities.
  4. An Indemnifier should consider adding a clause to put an obligation on the Indemnity Holder to mitigate its loss following the breach. 
  5. The indemnity holder should be limited from benefitting from his own negligent/irresponsible conduct.
  6. It is absolutely necessary to ensure that the indemnifier is financially capable of making good on the loss suffered in accordance with the contract.

 

 

Conclusion


Thus, Indemnity clauses seek compensation for actual or potential damages arising out of certain set events. They are usually subject to intense negotiations on account of the liabilities they impose. Such clauses should be drafted with care and should be tailored as per the requirements of the contracting circumstances. Otherwise, they are likely to be rendered useless when a dispute arises. 
 

All You Need To Know About Drafting Lease Agreements?
Agreement & Contract

All You Need To Know About Drafting Lease Agreements?

A Lease agreement is quite common among corporate entities. It is like an arrangement between two parties with respect to rights of possession over some property for a specific time period and consideration. The basic function of the agreement is to ensure a clear demarcation of the terms and conditions involved in the said transfer. A poorly drafted agreement, more often than not, is the reason for extended litigation in Courts. Therefore, it is absolutely essential to understand the fundamental aspects of a Lease Agreement and the necessary points to incorporate in the same. 

 

 

What is a Lease?


A Lease is a transfer of possession rights over some property over an agreed-upon time period and monetary value. An important thing to note here is that in a lease, the ownership of the property is not transferred. The law governing the transfer of immovable property is the Transfer of Property Act, 1882. 

 

 

Key Terms


The following are certain key terms involved in the framing of a Lease Agreement:

  1. Lessor: The person who transfers the property
  2. Lessee: The person to whom the property is transferred
  3. Rent: Consideration for the transaction to take place
  4. Duration: The time period of the transfer begins from the day the Agreement mentions, otherwise on the date, it was entered into

 

 

Essentials of Lease Agreement

  1. Parties entering into the agreement need to be competent to contract. 
  2. The Lesser should be the true owner of the property being leased. 
  3. The Rent i.e., periodic payment or Premium, needs to be agreed upon.
  4. The nature of agreement entails acceptance by the lessee in the entirety.

 

 

Key Drafting Points

A Lease Agreement needs to be specific and exhaustive enough to cover the subject matter at hand and, at the same time, protect one's interests. The following are certain key drafting points to keep in mind while framing a Lease Agreement:

 

  1. Name and Addresses of everyone involved: It is necessary to mention the name of all the owners of property along with their addresses. At the same time, it is required to mention the names of all the parties to whom the property is being leased so that the enforceability of the conditions mentioned in the lease remains effective.
  2. Specification of the Property: The property needs to be properly demarcated and identified so as to prevent any possible miscommunication.
  3. Amount of Rent: The premium/rent with their due periods needs to be mentioned in the contract. Also, it is pertinent to mention what happens if the payment is not paid on time, the penalties and conditions surrounding the same.
  4. Amenities: To avoid any confusion, it is frugal to mention the amenities that the lessee is entitled to use on account of the lease agreement.
  5. Method of Termination: The method of terminating the Lease Agreement, grounds, time period of notices, and other incidental matters effectively preclude any possible lacuna leading to litigation.
  6. Time Period: The term of the Lease deed should be specified.
  7. Charges: The agreement should specify who is required to pay the Utility charges (electricity, water, telephone, internet, etc.) and land taxes and other incidental governmental charges.
  8. Permitted Usage: The permitted usage (material alteration, subletting, etc.) of property should be mentioned so as to avoid any future litigation.
  9. Redressal Mechanism: It is absolutely necessary to identify the jurisdiction of the appropriate Court along with a dispute redressal mechanism.
  10. Indemnity Clause: Clause covering possible damages and liability to compensate needs to be agreed upon.

 

 

Conclusion


Lease Agreements, especially in a commercial transaction, consists of various complicating circumstances, especially on account of the amount of money involved. This merits proper understanding of exactly what one expects out of the lease agreement and framing the same accordingly. The twin objective of any well-drafted agreement should be to grant peace of mind to the parties entering into a contract and prevent frivolous litigation. The points discussed above, though not exhaustive in any sense, should help achieve the same.