FAQ's on Commercial Contracts

What is Force Majeure clause in Contract?
A Force Majeure clause (French for "superior force") is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. The provision may state that the contract is temporarily suspended, or that it is terminated if the event of force majeure continues for a prescribed period of time.
The list of events to be included is a matter of negotiation between the parties. A typical list of force majeure events might include war, riots, fire, flood, hurricane, typhoon, earthquake, lightning, explosion, strikes, lockouts, slowdowns, prolonged shortage of energy supplies, and acts of state or governmental action prohibiting or impeding any party from performing its respective obligations under the contract. So if, for example, a hurricane occurred that shut down a port, the seller planning to ship its goods through that port would not be liable for late delivery of the goods.
As such, the following elements should be addressed in a force majeure clause:
• Definition of force majeure events
• What happens when an event occurs
• Who can suspend performance; and
• What happens if the force majeure event continues for more than a specified period of time
Why the Force Majeure Clause is important in Contract?

The phrase force majeure literally translates as a “greater force.” This clause should always be included in commercial contracts, as it can protect parties from circumstances that arise that are beyond anyone’s control. For example, in the event of a natural catastrophe, such as an earthquake or hurricane, a shipment schedule may be unavoidably disrupted. In general, the definition of force majeure is rather broad, with many contracts including wording about things like terrorist attacks and even acts of God. This clause is important to include to ensure that any failure to perform due to such an unforeseeable disruption is not considered a breach.

What is the importance of Business Contracting?

• Provides proof of what was agreed between you and the other party
• Helps to prevent future misunderstandings or disputes by making the agreement clear from the beginning
• Gives you security and peace of mind by having the terms of the agreement down on paper which the terms do not change
• Reduce the risk of a dispute regarding payments, responsibilities, and timeframes that the service to be performed under the contract
• Sets how disputes will be resolved
• Specifies how either party can end the contract before the work is completed
• It’s key for both parties to have a valid and enforceable contract in case the contract needs to be enforced in court

What is the importance of Legal Audit?

• Legal Audit reduces the risk of a company getting penalized, prosecuted or barred due to any drawback in the documents, policies or operations. It will give an insight into how much a company is following the company laws set by the government and is it safe from any legal allegation.
• It helps the company to revise the records, licenses, registrations so that the company escapes from the risks of inaccuracy in the documents, helps claim compensations (if any).
• Let the company become aware of the changing laws of the government related to land acquisition, documents, employee management and lot more.
• Legal Audit is also beneficial when it comes to clearing the dues of the borrowers. The audit helps in clearing the dues without any visit to court.
• A legal audit is important because legal audit a review of the internal legal and administrative structure of business, how this operates and inter-connects with the external environment surrounding the company or firm.
• Several issues of employees related to legal compliance can be sorted, monetary grants for overtime, compensation claims, reimbursements, unfair labor practices, salary issues and lot more.
• Eliminates other issues related to Wills, Trusts, payment of compensations, legal proceedings in case of death, divorce, cancellation of partnership in the company, winding up of company and lot more.
• The process of going through a legal audit isn't easy, but the risks associated with avoiding the issue are too high for any company to bear. Doing so is not only necessary, but beneficial. It is the entrepreneurial company's reality check.

How the Legal Audit reduces the time & cost of litigation?

One of the Prominent reason for conducting Legal Audit is that it saves the company from getting fined, sued or prosecuted due to non-adherence of government law. Hence litigation cost of the company can saved. A Company hereby comes to know that what all laws of government it is violating unknowingly. Legal Audit directly/indirectly eliminates the chance of legal actions taken by the government due to deficiencies in the documents, undertakings or laws followed by the companies.

What is NDA (Non-Discloser Agreement)?

A contract by which one or more parties agree not to disclose confidential information that they have shared with each other as a necessary part of doing business together
If an NDA is breached by one party, the other party may seek court action to prevent any further disclosures and may sue the offending party for monetary damages.

What is the role of the confidentiality clause in NDA (Non-Discloser Agreement)?

• A confidentiality clause is generally set forth in many agreements, especially confidentiality agreements. Such agreements, also known as nondisclosure agreements (NDAs), are legal agreements between parties that state information to be kept confidential, thus barring the receiving party from disclosing the information.
• Protection from disclosure of intellectual property (including trade secrets, proprietary information, and other confidential information)
• In order to protect idea of company and the confidential information behind it, a confidentiality agreement clause necessary in the NDA Agreements. In times of competition in today’s market missing out on these small precautions can jeopardize the confidential information.
• Employers entering into NDA agreements with the employees of the company can really benefit from the Confidentiality clause as they are the only people, who are working with that information day in and day out.
• Every NDA agreement must have Confidentiality clause that in the case of breach of this agreement the primary party will have the right to proceed legally in a certain prescribed manner.

What is the importance of durability (period)/Time of the contract?

• A Time is of the Essence clause may mean that one party to the contract must perform its contractual obligations at a specific date and time as required in order to compel performance by the other party to the contract. A failure to perform by the time specified will be a material breach of the contract.
• If a contract contains a valid time is of the essence clause, it must be followed strictly. If a party fails to abide by provisions regarding the essence of time, it could result in several legal consequences, such as:
• Being held liable for losses caused by the delay
• If the party has refused to continue or render performance, they could face an injunction, which is a court order instructing them to fulfill their remaining contractual duties
• If the delay was intentional or involved tortious actions, they may be held liable for punitive damages.

What is Termination clause?

The Termination clause details the circumstances under which the parties may end their legal relationship and discontinue their obligations under the agreement. Under common law, the parties may terminate the agreement for material or fundamental breach of the agreement. The termination clause may set out how, why, and even when a contract may be terminated.

There are generally two types of termination clauses:
(1) Termination for Cause (also known as Termination for Default), and
Termination for default occurs because one of the parties to the contract “defaulted.” These clauses create situations where the contract may be terminated for a failure to perform specific or general duties under the contract.
(2) Termination for Convenience
Termination for convenience takes place when one party decides, through no fault of the other party, not to go through with a deal. A contract clause that covers termination for convenience often establishes a way to calculate how much the cancelling party owes the innocent party, and it limits the cancelling party's liability to that amount. For example, in a construction contract, a client who cancels for convenience may pay a contractor for the work that was done before the cancellation, including a reasonable profit, but the client ordinarily would not have to pay for work not done yet or for business opportunities the contractor lost because of the deal.
What is the importance of the Termination clause?

In business, things often do not occur as planned, and thus parties must be able to cut and run as necessary. For contracts, this usually involves the inclusion of a termination clause. This section of the contract must clearly lay out the circumstances under which one or both parties may terminate the contract, irrespective of the time left under the agreement. For example, if one of the parties is acquired by another entity, the other party to the contract may reserve the right to terminate the agreement.

What is the importance of Jurisdiction clause in Franchisee agreement?

Jurisdiction refers to the authority of a court to adjudicate upon a dispute. Generally jurisdiction is of three types:
• Territorial or activity-based jurisdiction i.e. relating to activities within the territorial limits ascribed to the court

• Personal jurisdiction i.e. based on the persons who are parties to a dispute

• Subject-matter jurisdiction i.e. based on the location of the subject matter that forms the essence of the dispute.

If both parties to the agreement were based in the same territory, then it would be rational to subject any disputes out of the agreement to courts in that territory. However, if the parties were based in different territories, the choice of jurisdiction becomes a point of negotiation.

What is Property Ownership Audit?

Property Ownership Audit means an inspection of title deeds, agreements or other ownership documents of property before its purchasing and preparation of Audit report of the same. Audit of Property helps in knowing about present status of Property regarding its encumbrance, whether it is mortgaged or free from any claims.

What is the benefit of Property Ownership Audit?

Audit of specific Property help to traces the history of a property like who was the original owner of the property and how it has moved hands over a period of time before reaching the present seller. This is an important part of a housing loan process. Audit Report can acts as a security for the purchase of a property. The Audit Report gives comfort to the purchaser that the title of the property he is planning to purchase is good and he will not face any problems at a later stage due to some pre-existing charges or encumbrance, or legal dispute on the property. Audit Report gives a buyer the confidence that he is undertaking a transaction with a genuine party.

What are the benefits of Property Audit?

• Enlightens the buyer about the property history / third party interfering (if any)
• Acquires complete details of the original owner and previous owners
• Checks for the rights of easements involved and the minor’s rights (if any)
• Checks for the Encumbrances (if any)
• Current property status / encroachments on the property
• Checks for the property revenue records such as Patta (A Patta is a legal document issued by the Government in the name of the actual owner of a particular plot of land.)/ Khata (Account) / Tax records
• Checks for property disputes / court involvements / pathways disputes / violations on the property
• Provides complete transparency in property buying

How do I protect my business ideas?

Depending on what is at stake, there are several options available for protecting your business ideas from being stolen or copied by others. If you would like to ensure that your business partners or employees do not share important business ideas or information with others, your best bet may be to create a non-disclosure or non-compete agreement that employees can be required to sign. These types of agreements help to ensure confidentiality among employees and other individuals associated with your business, and they also protect against their leaving your company to create a competing business nearby that utilizes your ideas. If your business idea is revolutionary or has required extensive money and time on your part, you may wish to seek a patent or trademark to protect your idea. These are legal protections offered by the government and typically require a fee to obtain. If your idea or trademark is complex, or similar to those already registered by others, it may also require the assistance of an attorney in order to navigate the patent and trademark registration process.

What do you mean by Non-Compete Agreements?

Many employers ask or require employees to sign non-compete agreements in addition to an employment contract. These are contracts, governed by state law, in which an employee promises not to work for a direct competitor for a specific period of time after leaving the employer. Non-compete agreements are valuable to employers not only because they protect against the loss of employees, but also because they may provide added protection for a company’s confidential information, such as client lists or trade secrets. Client lists and trade secrets can give companies competitive advantages. Trade secrets are formulas, patterns, compilations, programs, devices, methods, techniques, or processes that a business has made reasonable efforts to keep secret from others. Employees who leave one job for another or who are laid off or fired, may take these secrets to be used for personal advantage. For example, when an employee is laid off and faced with unemployment, he or she may want to open a competing business. A non-compete agreement prevents this possibility.

Whether the Non-Compete Agreements are Enforceable?

The extent to which a non-compete agreement is enforceable varies depending on the jurisdiction. Courts value an individual’s right to earn a living, and non-compete agreements may have to pass certain criteria to be enforceable. While the criteria and analysis differ from state to state, non-compete agreements usually need to be “reasonable,” supported by a good business reason, and meet the requirements that all contracts must meet to be enforceable. In order to be enforceable, a non-compete agreement must include an offer, acceptance, intent, and a benefit or “consideration” to the employee in exchange for his or her promise. The benefit could be as simple as getting the job or, for an existing employee, getting a promotion or raise. What do courts consider “reasonable”? While there are differences among the states, it is generally established that non-compete agreements should not violate public policy. They cannot last for an overly long time period, cover too wide a geographic area, or prevent a former employee from working in many different types of businesses. For example, a non-compete agreement that prohibits a doctor from engaging in medical practice indefinitely anywhere in the United States is not likely to be found reasonable in most jurisdictions. Similarly, a non-compete agreement that prohibits a software engineer from working at any software or hardware company in the state for 20 years is not likely to be found reasonable in most jurisdictions. When a non-compete agreement lasts for more than two years, it is likely to receive closer examination by a court and less likely to be considered reasonable. However, there is no set rule, so it is better to consult an attorney before signing an agreement like this in any state except those that usually void non-compete agreements. Generally, a business should have a good business reason for asking an employee to sign one of these agreements. It should not use it to punish the employee for leaving. Also, these agreements are more likely to be enforceable in instances when employees truly do acquire a company’s trade secrets or client lists. In some states, such as California, non-compete agreements are not legally enforceable except under very limited circumstances. In those states, employers may use other agreements, such as non-solicitation agreements or nondisclosure agreements, to protect client lists, employees, and trade secrets when an employee leaves the company.