Filling the Trust Deficit: The importance of well-drafted agreements

The practice of skipping the quintessential step of entering into a written agreement is not uncommon, for it appears to us as an unjust expense.
Force Majeure Contract
Force Majeure Contract

Mr. Trust will never be the same nonchalant man again. He has suffered setbacks in his tenancy business, courtesy COVID-19. Even though Mr. Trust is an eminent name in the tenancy business based in Delhi, the contagion has not helped him sail through on his ship of glory because his business functioned only on one leg of operations - Trust.

Turns out, Mr. Trust rented his accommodations on a ‘trust’ basis to several potential tenants, most of whom were unknown to him. Only to now know that a major portion of those tenants have now vacated their premises to become members of the ‘Work From Home’ cult, thus refusing to pay their rents accrued, the amount and terms of payment of which had been decided ‘verbally’.

Regrettably, Mr. Trust neither entered into a tenancy agreement with his potential tenants, nor did he attempt to maintain a record of any transaction with his tenants and the respective rents payable. As of today, Mr. Trust is left to lament about his woes while hastily trying to find ways to assuage his situation, looking for remedial action.

Not hard to suspect, there might be several people like Mr. Trust whose businesses and trades function on the ‘reliability’ factor, having no account or trace of their transactions with second/third parties. They are of the opinion that even if everything falls apart, their ‘trust’ would be stand unwaveringly strong and that there are no chances of any ‘trust deficit’.

The above account is demonstrative of the importance and significance of a well-drafted agreement in all realms of transactions. However, the practice of skipping the quintessential step of entering into a written agreement is not uncommon for it appears to us as an unjust expense, or perhaps, a task that is most unwanted, unnecessarily involving draftsmen and the letter of law.

As atypical as it may sound, the significance of a written agreement cannot be brushed aside. Any amount, time and energy spent towards its execution is an investment towards the security of the transaction, which, even if done under bona fide beliefs, may become frustrated or take the form of a dispute.

For several of those who have dealings with third parties in large numbers, it is only sagacious to maintain a record of such arrangements so as to mitigate the perils associated with oral promises and assurances.

Having said that, even if it is assumed that one is a believer in the sacrosanctity of written agreements, one cannot become blasé about its contents. For a poorly drafted contract is like a saw-scaled viper which can engulf you in legal tumult and prove fatal to your interests.

A classic example of the importance of drafting is one clause whose usage has swelled up like the after-effect of a bee sting: the Force Majeure clause. An otherwise forlorn and isolated clause, legal practitioners saw it swing in action to help parties to a contract squirm out of their liabilities and obligations.

However, the task is not as easy as it appears. Imperfectly drafted force majeure clauses and dismally laid out conditions therein make the clause look purposeless and incompetent. They are bereft of any recital to the effect of providing relief to the sufferer during an epidemic/pandemic.

The force majeure clause is illustrative of one of several clauses that demand and deserve close attention of the parties to the agreement. Take for instance the ‘dispute resolution’ clause. From referring disputes arising out of an agreement to courts to now referring them to mediation and/or arbitration, hasn’t been an easy transition, for it has taken intense convincing of stakeholders to make them aware about the ease of alternative modes of settling disputes.

However, such a clause is today far from being a concrete method of bringing an end to clashes. The absence of clarity on the ‘seat’ and ‘venue’ of arbitration in the clause is only an addition to the number of disputes arising from the obligations of the parties to a contract. Though both the terms have had and in fact, continue to have their fair share of discussion in various courts, it would not be profitable to discuss their conundrum here. Lucidity of the dispute resolution clause is, ergo, paramount to the smooth and unhindered settlement between the parties.

It wouldn’t be just if the discussion is solely limited to transactional contracts. Members of workforces and hired hands could not escape unscarred by the whirlwind of events lately. A considerable figure of employees working in the organised as well as the unorganised sector bore the brunt. Rendering work in the exclusion of any employment contract made them handicapped to enforce their rights. Their remunerations have been cut short, their work load has escalated and their security of employment is shrouded behind the cloak of uncertainty.

As of today, they have been constrained to mull upon approaching the courts to get their rightful dues while being on tenterhooks, relying upon equity and fair play in order to get their grievances addressed.

As a matter of fact, even the ones who were confident of working under ornate agreements in the hope that their employment stood on sound footing have now come to terms with the lopsided agreements they signed in haste without giving even a moment’s thought to the ramifications that were to follow. Clearly, they were misguided and unperceptive of the importance of a balanced agreement.

While the contagion continues to affect people, policies and performance in businesses and professions, it has certainly transmuted the modus operandi of transactions, more particularly in the commercial sector. While the setback has made us unlearn things, it has driven us to adopt practices that are transparent and invulnerable which includes making ourselves stronger and intuitive from a legal standpoint.

As men in trade and business disentangle themselves from the rigours of a fallen economy and charm their counterparts in a dwindling market while alluring a customer base already wary of spending their pennies, they would, it is expected, ensure that their transactions are documented by perspicacious draftsmen so that the same stand the test of time and do not render them ill-equipped at the next instance of hardship.

Undeniably, it would be riveting to note how and in what manner transactions, bargains and negotiations in the foreseeable future would be underpinned by legal agreements and how the role of draftsmen and legal practitioners would become more prominent and valuable.

After all, Mr. Trust wouldn’t want himself to suffer again, for he now knows that trust is better suited only when it is complimented by a balanced written agreement.

The author is a practicing advocate at the High Court of Punjab and Haryana, Chandigarh.

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