4 basic contract terms & conditions and how to write them

When it comes to legal language, the intent is everything. Each word of a contract is picked with great deliberation, however despite the concerted effort often litigants have fought over the interpretation and implication of a simple clause or term.

While lawyers are the ultimate authority when it comes to drafting contracts, they too can make mistakes. Lack of clarity in the language can cause confusion and misunderstandings in legal agreements and communications. Let’s look at some commonly confused legal terms:

Assure vs Ensure

Some sources note that people use ‘assure’ and ‘ensure’ interchangeably. However, legally speaking, both terms can have significantly different implications. The terms ’assure’ means to make safe or secure; to inform positively, as to remove doubt; to satisfy.

For example, a Statute may read like this: Independent directors must “pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company…” Here the term ‘assure’ means to make certain; to satisfy. The independent directors will approve related party transactions only if they are satisfied that doing so is in the interest of the company.

Ensure means to make sure, certain, or safe. For example “during site visits, the professional shall ’ensure’ the contractor’s work is being done in conformance with the construction documents,” Here the term ‘ensure’ means to make sure. A professional is required to ‘make sure’ that the work is in accordance with terms laid out in a contract.

Indemnity vs Guarantee

Indemnity and Guarantee are kinds of contingent contracts governed by Contract Law. Put merely, indemnity implies protection against loss, in terms of money to be paid for a loss.

The promise of compensating the loss occurred to the other party, by actions of a promisor or any other party is called Indemnity. On the other hand, a Guarantee is when a person assures the other party that he/she will perform the promise or fulfil the obligation of the third party, in case he/she defaults.

Arbitration vs Alternative Dispute Resolution

Alternative Dispute Resolution or ADR refers to alternate means of settling disputes outside of the courtroom. ADR generally comprises arbitration, early neutral evaluation, negotiation, conciliation, and mediation. In simpler words, any method of resolving disputes without litigation. Courts may often be asked to review the validity of ADR methods, but they rarely overturn their decision or awards if the disputing parties formed a valid contract to abide by them.

Arbitration is a form of Alternate Dispute Resolution, it is by no means a separate construct. Arbitration is a formal mediation that closely resembles a simplified version of a trial with simplified rules of evidence and limited discovery. The contracting parties usually enter into a binding arbitration agreement or may include an arbitration clause to any agreement. The contract or the clause lays out major terms for the arbitration process, such as the number of arbitrators, the forum, rules and the fee etc.

Governing Clause vs Jurisdiction Clause

Governing Clause

A commercial contract is a legal relationship, which raises the question: a relationship under what laws? Each country, in fact, each state has different laws, and the content and effect of those laws can greatly vary.

It is, therefore, advisable to clearly mention the set of laws that will govern the dispute. Otherwise, either party run a high risk of a wasteful preliminary battle, focused around the laws that will be used to interpret the obligations of the parties.

A governing clause comes in handy, especially in the international context. The contract may connect to several places and legal systems. A governing clause does this by expressly setting out the parties’ choice of the law applicable.

Jurisdiction clauses

Contracts inevitably produce disputes; How should those disputes be handled? Some parties make use of arbitration while others rely on courts and tribunals to resolve the dispute. Which raises another question: which court should the parties appeal to?

As mentioned previously parties may run the risk of costly, wasteful preliminary battles over where the disputes should be handled. A jurisdiction clause, therefore, clearly states the jurisdiction (region) where the dispute will be resolved. Generally, jurisdiction clauses provide for “exclusive” or “non-exclusive” jurisdiction, interpretation of these terms vary across legal systems. However, in a broad sense “exclusive jurisdiction” states that a specific court will have jurisdiction to hear the disputes.

Drafting, reviewing and reading contracts can be time-consuming and labour-intensive. Drafting the contract from scratch can take a toll on the company and may even delay the contracting process.As a result of which the legal team is constantly under pressure to deliver.

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