Introduction:
The agreement includes the main part as essentials of agreement/contract given in Indian Contract Act,1872 and subordinate part as collateral general terms on that particular party depends. The clauses in agreements are a particular provision that forms specific agreements. The object behind having clauses in the agreement is to be preventing future damages and secure the contract.
Agreement
The Indian Contract Act 1872, section 2(e), defines an agreement as “every promise and every set of promises, forming the consideration for each other is an agreement.”[1] The Indian Contract Act 1872, section 2(h), the definition of contract as, “An agreement enforceable by law is a contract.”
Following are the basis of agreement or contract:
- Proposal
- Acceptance
- Lawful Object
- Lawful Consideration
- Capacity to Contract
Meaning of Clause
A clause is a specific part of an agreement that gives a specific feature to the whole agreement. The clause should be in accordance with the law. The Clauses define each party’s rights, duties, and privileges under the terms of the agreement. Some common clauses are arbitration clause, jurisdiction clause, limitation clause, non-disclosure clause etc. There may be specific clauses like exclusive jurisdiction clause, merger clause, force majeure clause, non-compete clause etc.
General Terms of Agreements
The structured set of rules forms the general terms of agreement which should be the first priority of the owner. A general term of agreement forms the whole agreement procedurally just, fair and reasonable. The general terms may differ from agreement to agreement. The terms and conditions of the agreement should be precise and understandable to the user. “Terms and Conditions” is the document governing the contractual relationship between the provider of a service and its user. On the web, this document is often also called “Terms of Service” (ToS), “Terms of Use”, EULA (“End-User License Agreement”), “General Conditions” or “Legal Notes”[2]. For example- In the limitation clause, the limitation period may differ to 60 days or 90 days.
Following are some common clauses used in agreements:
Definitions and Interpretation
This clause defines terms/words which became necessary during enforcement of the agreement. In some agreements, particular terms/words need to be specifically interpreted in the particular sense only. For example- in a sale agreement “sale” means the sale of movable property.
Governing Law and Jurisdiction
If an agreement between the parties who are residents of and course of business of the same country then governing laws will be the same of that country but in an international agreement, the jurisdiction clause and governing clause needs to be mention precisely.
Indemnification
This state that what actions are indemnified by parties. for example- suits, proceedings, actionable claims, losses, liabilities etc.
Limitation Clause
The limitation period is used to file suit within that expiry of the period in case of any breach of terms of the agreement. The limitation period may differ from the agreement wise.
Termination of Agreement
In this clause commonly methods include as the party may terminate the agreement by giving notice to the other party or as any defaulting party may cure breach terms of the agreement.
Force Majeure
This clause protects the party from future damages. Natural calamities like floods, explosions, earthquakes or lockdown, pandemic diseases, strikes, national emergency etc. The act of god or unexpected situation is included in the Force Majeure clause.
Confidentiality/Non-disclosure Clause
This clause is related to the maintainability of secrecy between two parties (people or organizations) that prohibit the sharing of confidential information shared between both ends.
Severability Clause
This severability clause secured the whole agreement as if any term or clause become void that term will be repealed from the agreement in spite of declaring the whole agreement void. Many times ambiguity is seen in agreements but this clause saves agreement to become void.
Arbitration Clause
This Arbitration clause helps the party to settle their disputes within a short time period without approaching to courts.
Importance of General Terms
- The objective of general terms is used to protect business and prevent future damages.
- It provides rights, liabilities, responsibilities, representation etc. used for continuing a business.
- It establishes legal enforceability between the parties.
- It is easy to set general terms rather than facing lengthy court proceedings.
- It provides procedures to run a business in a particular situation (unexpected).
- It also provides consistency and faith between owner and their clients.
Integrity of General Terms with the Agreement
A general term of the agreement covers every minute detail of the agreement. These General Terms are not mandatory to form an agreement but if you set general terms for agreement then it gives binding effect legally. General terms give a specific structure to the agreement. Although the agreement does not mandate terms the general terms forms basis of the agreement. The General terms avoid misunderstanding and give clarity about how the agreement proceeds.
Case Laws
- V.F.S. Global Services Ltd. v. Mr. Suprit Roy[3] decision of the Bombay High Court upon the matters of restraint of trade and protection of trade secrets[4]. the Bombay High Court introduces necessary protection to trade secrets by removing the ambit of restraint of trade
- In Supreme Court case Dhanrajamal Gobindram v. Shamji Kalidas & Co.elaborated the distinction between ‘Act of God’/‘Vis Major’ and ‘Force Majeure’.
- The Supreme Court in its recent judgment of Swastik Gases Private Limited v. Indian Oil Corporation Limited dealt with the issue of “exclusive jurisdiction” clauses in the context of an application u/s.11 of the Arbitration and Conciliation Act, 1996. The Supreme Court specifically held that usage of words, “only”, “exclusively”, and “alone” in jurisdiction clauses are not mandatorily required to convey the intention of parties to ouster jurisdiction of courts other than courts to which jurisdiction is conferred by the parties under the agreement.[5]
- The Supreme Court in Nabha Power Limited (“NPL”) vs Punjab State Power Corporation Limited (“PSPCL”) & another was seized with the issue of interpreting provisions of an agreement and implying terms into the language of the impugned clauses. The Court analysed domestic and international jurisprudence on the concept of implied terms in contracts. Henceforth, while attempting to apply the said tests, the Court stated that such standardized principles should not substitute the Court’s own view of the presumed understanding of the commercial terms by parties.[6]
- The Supreme Court in its decision of N. Radhakrishnan v. Masestro Engineers &Ors[7] (Masestro) had taken a decision that where the case relates to allegations of fraud and serious malpractices, in such a situation, the issue can be resolved and settled by the Court through furtherance of detailed evidence by either parties and such a situation cannot be adjudicated by an Arbitrator[8].
- The Hon’ble Supreme Court recently in the case of World Sport Group (Mauritius) Ltd (“WSG”) v. MSM Satellite (Singapore) Pvt. Ltd [9] has restricted the aforesaid view only to domestic arbitration and has held that allegation of fraud in a foreign seated arbitration cannot operate as a bar to refer the parties to the arbitration. Further, the Court held that in case of foreign seated arbitration, the Court is obliged to refer the parties to arbitration unless the arbitration agreement is null and void, inoperative or incapable of being performed[10]
Criticism on Terms of Agreement[11]:
AOL
In 1994, the Washington Times reported that America Online (AOL) used to sell detailed personal information about its subscribers to third party business partners including a marketing firm without obtaining the consent of its subscribers. Three years later AOL posted revised terms but several days before only changes were made and effected. This information known to media and on the internet influx AOL page permitted users to opt-out names and numbers on marketing lists
Sony
In 2011 Sony Corporation sued George Hotz and other members. By claiming that the terms of service of the PlayStation Network were violated and the Digital Millennium Copyright Act, Hotz and others were committing a breach of contract.
On December 17, 2012, Instagram announced a change to its terms which cause misinterpretation of language. The controversial clause stated: “you agree that a business or other entity may pay us to display your username, likeness, photos and/or actions you take, in connection with paid or sponsored content or promotions, without any compensation to you”. Later its co-founder stated that there was no intention to sell photos and they are working on their language.
Zappos
Some terms of service show that the unilateral amendment, where one party can change the agreement at any time without the consent of other parties. A 2012 court case “In Rre v. Zappos.com ”held that Zoppos.com’s terms of use, with one such clause, was unenforceable.
Conclusion
Therefore general terms of agreements are necessary for easy regulation of business. The general terms of agreements include clauses and provisions. The terms of agreements speak about the nature of agreement, performance, roles etc. These terms explain the owner’s expectations from the user and motive of business. It further explains rights, liabilities and their roles. These clauses are nothing but umbrella protection to the agreement. Nowadays these general terms indirectly become necessary for agreements. Usually, general terms are seen in every commercial agreement rather than in web services.
References:
[1] The Indian Contract Act,1872
[2]https://www.iubenda.com/en/help/2859-terms-and-conditions-when-are-they-needed
[3] 2008 (2) BomCR 446
[4] https://indiankanoon.org/doc/1547420/
[5] https://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/supreme-court-clarifies-on-application-of-exclusive-jurisdiction-clauses.html?no_cache=1&cHash=8532c5934e06500bd3244254041f1438
[6] https://www.mondaq.com/india/contracts-and-commercial-law/645868/implying-terms-into-a-contract-supreme-court-sets-contours
[7] (2010) 1 SCC 72
[8] file:///C:/Users/SAI/Downloads/Resources_%20Newslex%20-%20January%202014%20-%20D.%20H.pdf
[9] Civil Appeal No. 895 of 2014 (Arising out of S.L.P. (C) No. 34978 of 2010)
[10] (2010) 1 SCC 72
[11] https://en.wikipedia.org/wiki/Terms_of_service#Criticism_and_lawsuits
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