CS Professional · Drafting, Pleadings and Appearances

Drafting of Commercial Contracts: formula sheet

Full chapter guide

Key formulas

Valid contract (Section 10): Agreement + free consent + competent parties + lawful consideration + lawful object + not expressly declared void = contract; Writing, witnesses or registration are needed only where another law requires them.
Undue influence (Section 16): Position to dominate the will + use of that position to obtain unfair advantage = undue influence; If the transaction looks unconscionable, the burden of proving no undue influence lies on the dominant party.
Mistake of law (Section 21): Mistake as to a law in force in India does not make a contract voidable; A mistake as to a law not in force in India is treated like a mistake of fact.
Restraint of legal proceedings (Section 28): Absolute restriction on enforcing rights through ordinary tribunals, or limit on time to enforce = void to that extent; Exceptions save arbitration agreements, and certain bank or financial institution guarantee clauses with a period of at least one year.
Restitution (Section 65): Advantage received under a void agreement or a contract that becomes void must be restored or compensated for; Useful when you draft refund and restoration clauses.
Standard structure: Title → date and place → parties → recitals → operative clauses → schedules → execution; Recitals give background. Operative clauses create obligations.
Definition (Section 31): Contingent contract = contract to do / not do something + if an event collateral to it does / does not happen; Example in the Act: pay ₹10,000 if B's house is burnt.
Event must happen (Section 32): Enforceable only when the event has happened; void if the event becomes impossible; Example: pay when B marries C; C dies unmarried, contract void.
Event must not happen (Section 33): Enforceable when the event becomes impossible, and not before; Example: pay if the ship does not return; enforceable when the ship sinks.
Future conduct of a person (Section 34): Event is impossible when the person does something that makes it impossible within any definite time, or otherwise than under further contingencies; Example: C marries D, so B's marriage to C is treated as impossible.
Fixed time (Section 35): Event to happen within time: void if not happened by expiry or if it becomes impossible earlier. Event not to happen within time: enforceable when time expires without it, or when it becomes certain it will not happen; Ship returns within a year: void if burnt within the year.
Impossible event (Section 36): Contingent agreement to act if an impossible event happens is void, whether or not the parties knew of the impossibility; Example: pay ₹1,000 if two straight lines enclose a space.
Wager (Section 30): Wagering agreement is void; no suit to recover what is won; Distinguish from contingent contracts by the collateral event and real interest.
Section 32: event happening: Enforceable only after the event happens; void if the event becomes impossible; Applies where no time limit is fixed. Enforcement waits for the event.
Section 33: event not happening: Enforceable when the event becomes impossible, and not before; Applies where no time limit is fixed. Until impossibility is established, the contract cannot be enforced.
Section 35, first part: event happening within fixed time: Void if the time expires without the event, or the event becomes impossible before the time; If the event happens within the time, the contract may be enforced.
Section 35, second part: event not happening within fixed time: Enforceable when the time expires without the event, or earlier when it becomes certain the event will not happen; Mirror image of the first part.
Section 34: conduct of a living person: Event is impossible when the person does something that rules out acting within any definite time, or otherwise than under further contingencies; Used when the event is how a person will act at an unspecified time. Example: C marries D, so B marrying C is treated as impossible.
Section 36: impossible event: Contingent agreement to do something if an impossible event happens is void; Void whether or not the parties knew of the impossibility when contracting.
Section 226: enforcement: Contract through agent = contract by principal in person; Contracts and obligations from the agent's acts are enforced with the same legal consequences as if the principal had acted.
Section 230: agent's personal position: No contract to the contrary → agent cannot sue and is not bound; Contract to the contrary is presumed if: (1) sale or purchase of goods for a merchant resident abroad; (2) the agent does not disclose the name of his principal (the third party may know there is an agent but not who the principal is); (3) principal, though disclosed, cannot be sued.
Section 231: agency unknown to the third party: Principal may require performance; third party has against principal the same rights as against the agent; Applies where the third party neither knows nor has reason to suspect the person is an agent. If the principal discloses himself before the contract is completed, the third party may refuse if he would not have contracted had he known.
Section 227: excess of authority: Separable acts: only the part within authority is binding as between agent and principal; Illustration: authority to insure the ship for ₹4,000; the agent also takes a ₹4,000 policy on the cargo. The principal must pay the premium for the ship policy, not for the cargo policy. The principal's liability to third parties for unauthorised acts is dealt with under section 237.
Section 237: holding out: Unauthorised act binds principal if his words or conduct induced the third party to believe it was authorised; Applies even where the agent ignored private instructions.
Section 238: misrepresentation or fraud by agent: In the course of business: same effect as if by principal; outside authority: no effect on principal; The contract is voidable at the option of the third party.
Section 222: indemnity to agent: Employer indemnifies agent against consequences of all lawful acts done within authority; Draft an express indemnity clause to match.
Validity of a contract (Section 10): Free consent + competent parties + lawful consideration + lawful object + not expressly declared void; Your drafting must not break any of these. Law requiring writing, witnesses or registration still applies.
Consideration (Section 2(d)): Act, abstinence or promise at the desire of the promisor = consideration; It can move from the promisee or any other person. State price and payment terms clearly.
No consideration (Section 25): Agreement without consideration is void, except: registered written deed for natural love and affection between near relations; promise to compensate for past voluntary act; written signed promise to pay a time-barred debt; Inadequate consideration does not make an agreement void if consent was free.
Indemnity (Section 124): Promise to save the other from loss caused by the promisor's conduct or another person's conduct; Two parties: indemnifier and indemnified.
Guarantee (Section 126): Contract to perform the promise or discharge the liability of a third person in case of his default; Three parties: surety, principal debtor, creditor. May be oral or written.
Guarantee consideration (Section 127): Anything done or promised for the benefit of the principal debtor can be sufficient consideration for the surety; Past benefit without a fresh promise at the surety's request does not support a guarantee.
Surety discharged (Section 134): Release or discharge of principal debtor by contract or by creditor's act or omission discharges the surety; Draft a clause preserving surety liability on specified events.
Restraint of legal proceedings (Section 28): Absolute restriction on legal remedy, or limit on time to enforce rights, is void to that extent; Exception 1 saves arbitration agreements; Exception 3 saves a bank or financial institution guarantee clause extinguishing liability after a period of not less than one year.

Quick revision

Section 31: a contingent contract depends on an event collateral to the contract happening or not happening.
Section 32: a contract contingent on an event happening cannot be enforced until the event happens.
Section 32: if the event becomes impossible, the contract becomes void.
Section 33: a contract contingent on an event not happening is enforced when the event becomes impossible, and not before.
Section 35: a contract contingent on an event happening within a fixed time becomes void if the event has not happened when the time ends, or becomes impossible earlier.
Section 35: a contract contingent on an event not happening within a fixed time is enforceable when the time expires without the event, or when it becomes certain the event will not happen.
Section 226: contracts through an agent have the same legal consequences as if the principal had made them in person.
Section 230: without a contrary contract, the agent can neither enforce nor be bound by the principal's contracts.
Section 230: a contrary contract is presumed where the principal is undisclosed, cannot be sued, or is a merchant resident abroad buying or selling goods.
Section 234: if a person induces the agent or principal to believe only the other is liable, he cannot later hold the other liable.
Section 238: an agent's fraud or misrepresentation within authority affects the agreement as if the principal had done it.
In every answer: rule, facts, conclusion, then the draft clause.

Common mistakes

Starting to draft without checking the Section 10 elements. Fix: Spend the first two lines of your answer checking parties, consent, consideration and object.
Confusing recitals with operative clauses. Fix: Keep recitals for background only. Put every binding duty in the operative part.
Calling every conditional promise a contingent contract. Fix: Check that the event is outside the promise itself and uncertain.
Treating a contingent contract as a wager. Fix: Show the collateral event and real interest in a genuine transaction. A wager is void under Section 30, while a contingent contract is valid.
Treating a contract contingent on an event not happening as enforceable immediately. Fix: Under Section 33, enforcement waits until the event becomes impossible. Not yet happened is not the same as impossible.
Saying a Section 32 contract is void just because the event has not happened yet. Fix: It is void only when the event becomes impossible. Until then it is simply not enforceable.
Saying the agent is always personally liable on the contract. Fix: State that, absent a contrary contract, the agent is not bound and cannot enforce, then check the three presumed exceptions.
Listing only section 226 and ignoring sections 230, 231 and 237. Fix: Treat section 226 as the base rule and add the sections that decide who is liable and when authority is lacking.
Treating indemnity and guarantee as the same Fix: Remember the parties. Indemnity is between two parties under Section 124. Guarantee has three parties under Section 126 and covers a third person's default.
Drafting force majeure as a vague list with no notice or end point Fix: Include events, notice within a stated time, suspension of obligations, mitigation duty and a right to terminate if the event lasts beyond a stated period.

Exam tips

Open every drafting answer with a short Section 10 check. It shows the examiner you tested validity first.
Follow the order: provision, analysis of facts, conclusion. Then add the draft clauses.
Quote Section numbers only where you are sure, such as Sections 10, 16, 21, 28 and 65.
Show the structure with clear labels, so the examiner can find recitals, operative clauses and execution quickly.
Keep clause wording short and specific. Name the parties, amounts and dates given in the question.
Quote the section number with the rule, then apply it to the facts. Do not stop at the definition.
Use the Act's illustrations, such as the ship and the house, but adapt the facts to the question.
In drafting questions, include the condition, a long-stop date, waiver and the consequence of failure.