CONTENT

Introduction.........................................................................................................................4 Commercial Agreements.....................................................................................................5 Features of commercial agreements....................................................................................6 Elements of commercial agreements...................................................................................7 Types of commercial agreements........................................................................................9 Drafting of commercial agreements...................................................................................11 Case study...........................................................................................................................12 Bibliography........................................................................................................................16

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INTRODUCTION
By definition, commercial contracts represent a combination of commercial and legal factors. For businesses and organizations, the key requirement is to ensure that the legal arrangements allow the full commercial benefits to be realized.In the day-to-day course of business, regardless of the size of your operation, it is fundamental to regulate and document your business relationships. To do this, your commercial contracts with suppliers, customers, distributors and agents must be drafted in a way which properly protects your business interests. Weak or non-existent commercial contracts make a business unstable. Sound legal advice is therefore essential when drafting these documents to prevent your business from entering into one-sided agreements and avoid time-consuming and financially dangerous repercussions in the event of breaches of contract, or if the matter needs to be taken to court.It is important to make sure that all of your business contracts are drawn up professionally and are legal watertight, as it is essential that both parties understand the terms included and are aware of their rights and responsibilities afforded by the contract. Poorly worded contract terms could have serious implications for both parties and their stakeholders. Aims and objectives: The researcher aims to find out the meaning of commercial agreements, its features and various types. She also aims to find out the process of drafting a commercial agreement and the advantages of commercial agreement. Methodology The researcher adopted non-doctrinal method of research. She has made intensive and extensive use of published sources. Sources of data: Books Journals Internet
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COMMERCIAL AGREEMENTS
A commercial agreement is a contract typically between two business entities. It states its terms in plain language but includes warranties and boilerplate that have usually been reviewed by a business attorney in advance. This type of agreement can ordinarily be one of the standardized forms that are used over and over again with suppliers and business customers in the ordinary course of operations.1 Business-to-business transactions have a different legal character than business-to-consumer sales. There are fewer default legal protections built into business-to-business transactions that are designed to protect uninformed or uneducated parties, or will allow such parties to escape from a properly executed deal. The law assumes that the average business is aware of its legal obligations and will rely on the specific terms of a contract to resolve disputes. The negotiated terms of a commercial agreement are particularly important. Basic contract law will look to the written terms of the agreement to identify the intentions of the parties, and will not consider outside circumstances unless there is a claim of fraud. Businesses are expected to know how to protect their interests, and part of that responsibility is to understand what constitutes a valid and enforceable commercial agreement. Since commercial agreements are used between business parties, plain language instead of legal jargon should be used when preparing the contract. The first part of an agreement usually requires the most work. It should identify the parties, define any unusual terms, and detail the substance of the transaction with specificity, such as the product or service being sold, dates, times, delivery, and price. Contract law requires all parties to clearly understand the basis of the bargain, and using clear language in a contract that is used for ordinary business purposes will help meet this requirement. The second part of the contract should include terms that address nonperformance. This section might contain some boilerplate from an attorney and would be standard from contract to contract. Warranties, indemnification, termination, and liquidated damages clauses would typically be included here. This boilerplate is sometimes provided on the back of the contract form for convenience.

http://www.wisegeek.com/what-is-a-commercial-agreement.htm

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A place for signatures should be included on the bottom of the form. An authorized representative from each business should sign the contract. It is important to verify that the person signing the commercial agreement is authorized to do so by the contracting company. An unauthorized signer will invalidate the transaction and may precipitate an unrecoverable loss.

MAIN FEATURES OF COMMERCIAL AGREEMENTS

During the term of the Agreement one is not entitled to appoint any other agent, distributor, franchisee or any other person for the purpose of seeking Commercial Benefits from the Invention. In return, other party is under an obligation to use our reasonable endeavours to find Commercial Benefits from the Invention. [one cannot negotiate with other people in good faith unless one has this commitment. If one dont make reasonable efforts to find a market for your idea then the agreement would end.] As ones representative a person or a group of persons will be involved in all negotiations with respect to seeking Commercial Benefits from the Invention. [ We cant help you properly and fulfil our obligations unless we have all the facts] The Agreement contains certain obligations upon you to assist us with the promotion of the Invention and to protect the intellectual property rights in the Invention. [We need to know that you will support us with explanations and demonstrations if they are needed and that you will remain in a position to assign or licence your intellectual property during the agreement, for example by keeping patents valid. In extreme circumstances you give us the authority to act on your behalf if failure to do so would be imprudent] The term of the agreement is for an initial term of 3 years which is extended until the end of the last of any Contracts entered into during the Term of the Agreement. [It can take a longtime to get inventions to market. Two years is not unusual and there may be several separate contracts during the life of the Invention] We are entitled to one third commission or equity (unless otherwise agreed) in respect of any Contracts entered into with respect to the Invention. The precise details of the circumstances in which we are entitled to Commission are contained in the full agreement and you should read them carefully. [Our initial evaluation processes for Inventors are highly subsidised so they can be available to the maximum number. Our financial structure is arranged so that the successful inventions pay for this. We believe that this percentage is still highly competitive when compared with alternatives]
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You will remain ultimately responsible for obligations to third parties in respect of the Invention and will cover us for any liabilities which we incur if you fail to follow these obligations.[ The Invention always remains your property until you sell it and you remain responsible for any claims that you make about it. For example that you really do own the Invention. Proving that it works or that it will be valuable is not the same thing, that risk may be passed to the purchaser of the idea]2

You make certain warranties to us for example that you own the intellectual property rights in the Invention, that you are not aware of any reasons why the Invention may not be exploited with respect to licences, registrations etc, and you have not entered into any agreements with any third party with respect to Commercial Benefits relating to the Inventions nor are you in any negotiations to do so. If any of these are untrue you should let us know prior to signing the Agreement.[ Obviously any of these things would make any commercial negotiations pointless and leave us open to costs if we deliberately mislead people and if we are deliberately misinformed we may seek to recover our costs]

Whilst we will use reasonable endeavours to seek Commercial Benefits from the Invention for you, we cannot, for obvious reasons, guarantee whether or not any such Commercial Benefits will be obtained.[ It is in our joint interests that the Invention succeeds, but we cant make other people sign agreements. It may also happen for example that the Invention is overtaken by a better product on the market]

ELEMENTS OF COMMERCIAL AGREEMENTS

Parties: The names and addresses of all the contracting parties should be clearly stated. Definitions and Interpretations: Explanations of the specific meaning of any terms defined in the contract.

Payment Provisions: Outlines the exact price to be paid for the goods or services provided and the date or dates for payment to be made should be clearly set out.

Description of Good or Services: A specific description of the goods or services that will be provided under the contract, including the level of service if the contract is for services.

Term of contract: Specifies the length of the contract. Timescale: The specific timescale for the project should be noted including any deadlines that have to be met.

http://ezinearticles.com/?Key-Characteristics-of-a-Commercial-Lease-Agreement&id=5999978

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Limitation of liability: For example, 'Neither party shall have any liability to the other party for a claim of loss of profits.

Termination provisions: Sets out the circumstances under which the parties can terminate the contract.

Change of Control: The procedures for change of ownership/controlling interest etc. For example if the first party transfers a controlling interest to a competitor of the other party.

Dispute Resolution: Sets out the procedures in the event of the parties having a dispute. Confidentiality: There should be confidentiality clauses drafted in the contract which identify the information being protected and the circumstances in which it can be used or disclosed.

Intellectual Property Rights: States who owns such rights to products provided under the contract.

Warranties: It is common for the party providing goods or services under a contract to provide certain warranties in relation to the delivery of the goods or services.

Indemnity: Indemnity clauses are an express obligation to compensate the indemnified party by making a money payment for some defined loss or damage.

Force Majeure: This clause should cover situations where performance of the contract is impossible through no fault of either party. For example, if there is a natural disaster or civil unrest.

Applicable law: There should be a clause indicating which law governs the contract. For example, 'This Agreement shall be governed by and construed in accordance with the laws of India'.3

http://www.scholarsden.org/list-of-abstracts/management-research-abstracts/346-commercial-contracts-andagreements.html

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TYPES OF COMMERCIAL CONTRACTS

1. LEASES: Leasing is a common form of commercial agreement. Leases are nothing more than agreements to rent property, equipment or services over a certain period of time for a determined amount of money. Leases offer the property owners the security of continued payments for the lease term. Businesses agreeing to a lease know what monies are necessary to meet the lease obligations without concern of increased costs or changes in the agreement before the end of the lease. Commercial lease agreements also offer other advantages. Lease payments and lease revenue involve tax provisions amenable to both lease parties. Also, leases can allow commercial interests to make arrangements to sub lease to other parties for additional revenue streams.4 The two types of leases are real property leases and equipment leases. Real property leases, sometimes called commercial leases, involve renting buildings, land or other space. Among the considerations for a commercial lease are defining the premises, defining how you can use the leased space, whether you or the landlord pays for alterations and improvements (and what you are allowed to change) and all monetary issues. An equipment lease might involve anything from renting a copier to a fleet of construction equipment. 2. SALES-RELATED CONTRACTS: A bill of sale legally transfers the title of property and is most commonly used for items such as cars and boats. An agreement for the sale of goods provides specific information about the goods or services being sold. A purchase order details the exact goods or services being purchased. Warranties are legal guarantees about goods or services sold. When a business sells good to a buyer paying in installments, a security agreement gives the business the right to repossess the goods if the buyer doesn't make payments. 3. EMPLOYMENT-RELATED CONTRACTS: Commercial employment agreements come in different forms. Some employees will have a contract agreement detailing salary, responsibilities and benefits. Negotiated terms with
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http://www.ehow.com/list_6693459_types-commercial-agreements.html

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groups of workers (for example, a union) can lead to a collective bargaining agreement. Commercial employment agreements can detail the terms and conditions an employer can use to discharge unsatisfactory workers or reduce the workforce if certain financial goals are not achieved.5 Businesses may have contracts with their employees, such as an employment agreement, employment separation agreement, employee noncompete agreement or confidentiality agreement. For non-employees providing services, a business may have an independent contractor agreement or consulting agreement. Commercial employment agreements also spell out what benefits the employer provides with the costs and conditions. The employment agreement may include the employee handbook with the rules and regulations for the workplace, disciplinary procedures and methods for handling grievances. 4. GENERAL BUSINESS CONTRACTS Contracts are available for almost any type of business arrangement. For example, someone who buys a franchise will enter into a franchise agreement with the home office. Businesses that decide to work together or pool resources on a project will have a partnership agreement or joint-venture agreement. With an indemnity agreement, one party agrees to protect the other party against specified future claims or losses. When doing business, the general rule to remember is, if something is not in writing, it's usually not legally enforceable.6 5. VENDOR AGREEMENTS: Commercial vendor agreements can be contracts for prices, open purchase orders for sales or specific terms and conditions for delivery and quality assurances. Commercial vendor agreements may be sole-source provider agreements, so businesses do not have to bid or negotiate constantly for prices and availability. The vendor benefits with an agreement knowing a certain volume of product will be purchased over a give time. Commercial vendor agreements will also state the terms and conditions both the commercial interest and vendor may activate to terminate the agreement.

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http://www.ehow.com/list_6693459_types-commercial-agreements.html http://smallbusiness.chron.com/kinds-business-contracts-21269.html

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DRAFTING OF A COMMERCIAL AGREEMENT

The first thing to do is to outline the agreement; including the most important provisions of the contract. This consists of what you expect from the deal, the due dates, quantities to be delivered, pricing issues and pre-conditions for the agreement. Once this is complete, you have to revise the list to include the wants of the other side. This way you will be able to frame the agreement to meet your terms. A sound commercial agreement is one that has clear and ordinary words used throughout rather than legal jargon. This removes the chances of misunderstandings occurring from either side. The first paragraph of the commercial agreement should recite and describe each party and the date of execution. Ensure that the signature lines at the end of the agreement well describe the parties involved in the agreement. There should also be space for the definition of important terms. The subject matter or substance of the commercial agreement comes next in line where you must accurately address what is being sold; describe its price and payment time, delivery date and mode of delivery and the expected term of the agreement if this is to be a long term association. Never rely on unwritten promises; make sure everything related to the deal is on paper. Next, include provisions that protect you if the other side does not meet its obligations or if you fail to meet yours. This should include appropriate warranties and representations, provisions for insurance and indemnification and in some cases, liquidated damages and cancellation clauses. And if the commercial agreement is for a defined term, there should be a termination clause where either party can terminate the agreement before the actual end date of the agreement. Go through the agreement and if you find any unclear or ambiguous terms or technical terms, add its definitions at the start of the contract. Ensure the contract is signed only by those who are authorised to do so. Though you may cover all aspects of the commercial agreement while drafting, it is important to have it reviewed by an experienced solicitor. Once the contract is signed, make sure that it is filed safely and is reviewed regularly.

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CASE STUDY
Asstt. CIT, Rg. 4(1) Vs. Claridges Investments and Finances (P) Ltd. Business disallowance under Section 14A--Expenditure incurred against exempt

income Interest on borrowed fund having no nexus with earning of dividend income-Assessee-company was dealing in securities in stock exchanges and for keeping margin money it borrowed certain sums and along with that fund and now fund was kept for business purposes. It had death in purchase of units in mutual funds and shares and from which dividend income was received. The revenue authorities disallowed interest expenditure under Section 14A on ad hoc basis against dividend income under Section 10(33). Held: Not rightly so. Dividend income was arose out of trading activities and being incidental income provision of Section 14A was not applicable and as such interest expenditure could not eb disallowed under Section 14A. Assessee had required substantial funds to deal in securities in the Stock Exchanges, which was met from the borrowed funds in addition to own funds. During the year under consideration, the total turnover of the company in shares was Rs. 9,218 crores. According to the requirements of the stock exchange, the company had to keep margin money of 20 per cent of its turnover. Therefore, the company had to utilize borrowed funds for payment of this huge margin money to the stock exchange. When borrowed funds were utilized for day-today running of the business, there could not be any justification for disallowance of interest. Secondly, the AO as also the CIT(A) have simply assumed that all the shares had been purchased out of borrowed funds. One cannot accept that merely because the payments were made from the overdraft account it entailed utilization of borrowed funds as distinguished from the assessee's own funds. The burden of proof as respects utilization of borrowed funds, for the purposes of the provisions of Section 14A, is on revenue. [Para 20] As a matter of legal proposition also it is not possible to accept that even in the case of a dealer/broker in shares as distinguished from an investor in shares the borrowed funds utilized for acquisition of shares should be related to earning of dividends. Where the shareholding is on trading account or on behalf of a third party the interest expenditure cannot be said to have been incurred for earning of dividend. There is force in the contention that the dividend income in the case of the present assessee has been to a large extent merely incidental income for which no borrowing was made. The legal position in this regard is not altered by the provisions of
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Section 14A that apply only when there is expenditure in relation to an exempt income. [Para 20] As a matter of legal proposition also it is not possible to accept that even in the case of a dealer/broker in shares as distinguished from an investor in shares the borrowed funds utilized for acquisition of shares should be related to earning of dividends. Where the shareholding is on trading account or on behalf of a third party the interest expenditure cannot be said to have been incurred for earning of dividend. There is force in the contention that the dividend income in the case of the present assessee has been to a large extent merely incidental income for which no borrowing was made. The legal position in this regard is not altered by the provisions of Section 14A that apply only when there is expenditure in relation to an exempt income. These provisions do not create any legal fiction to deem any expenditure as expenditure incurred in relation to exempt income. [Para 21] In view of the discussion in the foregoing paragraphs the CIT(A) erred in upholding the disallowance of Rs. 1,17,82,179 under Section 14A. The AO is directed to delete this disallowance. [Para 22] Classic Motors Ltd. Vs. Maruti Udyog Ltd.7 Contract Act, 1872 - Section 23--Franchise agreement--Contract opposed to public policy-Tests of--plaintiffs dealership cancelled by Maruti Udyog--Nature of transaction-Commercial--Powers of both the parties regarding cancellation of--No duress on the plaintiff or agreement was free and not vitiated by any coercion--Agreement cannot be held invalid. Section 39--Dealership agreement--Cancellation of--Applicability of--Powers to cancel dealership agreement--plaintiff breached the terms of contract--Sought stay of cancellation of--Stayed vacated--Various rounds of litigation--SLPs to Supreme Court-- Remanded to trial Court--Provisions of Section 39 of the Act not applicable to facts and circumstances of the present case--Contract legally and validly terminated.

Contract/agreement--Specific performance of--Injunction--Determination of--Relief of compensation against determination of--Agreement cancelled--Nature

of agreement permanent and indeterminable or determinable enforceable or not--Injunction against determination of--No specific performance permissible--No declaration and injunction could be granted to plaintiff--Suit dismissed.

Private Agreement--Private law--Termination of agreement between the parties--Clause of "without assigning any reason--Agreement cancelled--Challenged in civil suit-of--

Commercial transactions--Free will--Applicability--Restrictions

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on parties--Effect

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Agreement not intended to be permanent or held to be perpetual unless intended or specified construction of agreement--Effect of--Termination is valid without cause in common law. Waiver--Dealership agreement--Cancellation of--Powers of--Both parties to cancel the contract--Show cause notice issued to cancel contract--Action plan issued--plaintiff invested huge amount--Pleaded in view of investments--Show cause notice deemed to have been waived--Sought injunction by approaching to Supreme Court in SLP--Injunction granted and told to treat as dealer by the respondent--Not to be deemed to be an act of waiver. Constitution of India 1950 - Article 12--Authority--Maruti Udyog Ltd. --Defined--Dealership contract--Private/ commercial contract--Cancellation of--Action plan issued--plaintiff

invested huge amount in business in pursuance of action plan--Economic duress and uhconscionability pleaded by plaintiff--Availability of plea--In private contract and against cancellation of--Pleas not available--Transaction purely commercial between private parties. Jai Balaji Industries Ltd. and Anr. and Ajay Kumar Tantia Vs. The Union of India (UOI) and Ors. Commercial Tender/bids Competitive bidding Judicial Review Whether action of the tendering authority unreasonable, arbitrary and discriminatory - Held, judicial review is permissible in a commercial contract matter against the State and its instrumentality and the plea of unreasonableness, irrationality and discrimination is not enough, the plea of fraud, corruption or bad faith is sine qua non as reasonableness may differ from man to man, institution to institution but the fraud and corruption depends upon the act of the authority or institution like in a contractual matter In the instant case, there was no pleading of fraud, corruption or bad faith against any particular officer of either Respondent-State or the Respondents-GMDA Mere assertion or a vague or bald statement allegation is not sufficient, it has to be demonstrated and proved There was nothing on records that with an intention to eliminate the Petitioner-Company the Respondent-GMDA included the terms impugned in the bid documents Therefore, action of the official Respondents not unreasonable, irrational and for bad faith

Commercial Notice inviting tenders - Applicability of the provisions of Competition Act Whether the terms included in the bid documents illegal and contrary to the provisions of Section 3 and 4 of the competition Act Held, the primarily purpose of the Competition law is to avoid/restrict those situations where the activities of one individual firm or a Cartel between two parties In the instant case, dominant market is a market of DI pipe and neither the Respondent-GMDA nor the State Respondents have any dominant position in the relevant
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market being they are neither producing nor buying DI Pipes for business; rather they are only purchasers/consumers Competition law is enacted to protect the right of the consumers and the consumers have no role to play in the relevant market of the DI pipes, particularly when the competition is between the producer of the relevant products in the market Thus, the terms as alleged not illegal and contrary to the provision of Competition Act Civil Alternative remedy Held, it is within the jurisdiction of the High Court to grant, in appropriate case, relief under Article 226 - Therefore, it is the High Court who has to decide whether it will exercise its discretion for granting relief sought for or it would send back the matter to the statutory authority like CCI, an expert body with whom all the power vests to decide the issue like the issue involved in the case - Rule requiring exhaustion of statutory remedies before the grant of writ had nothing to do with the jurisdiction of the Court it was a rule of policy, convenience and discretion rather than a rule of law. Despite the existence of an alternative remedy, it is within the jurisdiction of and discretion of the High Court to grant, in an appropriate case

Civil - Necessary and proper party in a proceeding Determination thereof Held, law on the subject is well settled which says that a necessary party is one without whom no order can be made effectively; a proper party is one in who absence an effective order can be made but whose presence is necessary for a complete and final decision on the question involved in the proceeding - In the instant case also, admittedly, there was an agreementbetween the Union of India and JICA as well as GMDA regarding the project in question for which NIT was issued Petition not maintainable on the ground of Non-impalement of JICA as a party Writ petition being devoid of merit dismissed

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BILIOGRAPHY
WEBSITES:

http://www.dwt.co.uk/commercial/commercial-agreement.html http://www.scholarsden.org/list-of-abstracts/management-research-abstracts/346commercial-contracts-and-agreements.html http://www.pauldavid.co.nz/publications/construingcommercialcontracts.asp http://smallbusiness.chron.com/elements-business-contract-786.html http://en.wikipedia.org/wiki/Contract http://www.wisegeek.com/what-is-a-commercial-agreement.htm

BOOKS:

Drafting and negotiating commercial agreements by Mark Anderson and Victor Warner The managers guide to understanding commercial contract negotiation by Frank Adoranti Drafting commercial agreement by Richard Christou

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