A commercial agreement is a set of
promises between the parties – such promises are intended be binding in
law. These  promises made by the parties define the respective rights
and obligations of the parties under an agreement which are
either enforced or fulfilled respectively. A contract is like a private law of
the parties which allows the parties to define their relationship by
demarcating the boundaries of acceptable conduct.

If there is no fulfilment of
obligations by a party or a party’s right is violated, the parties have to
approach appropriate courts for enforcement. The courts may compel the
defaulting parties to perform their respective obligations under the
agreement and / or award damages for breach of their obligations.

Contractual rights are the set of
rights committed or guaranteed when parties enter into a commercial
relationship with each other. These rights invariably involve business matters,
including the provision of products and services.

Few examples of contractual rights:

(i)        Rights
to be sold products or service

(ii)
     Right of first refusal

(iii)      Right
to appoint majority directors

(iv)      Right
to repair and maintenance

(v)       Rights
to receive timely payment

(vi)      Right
to receive notice of any intended change in terms of the agreement

(vii)     Rights
to exclusivity

(viii)    Right to
seek compensation for non-performance

(ix)      Right
to terminate the agreement

These contractual rights can be
express or implied. In addition to the rights expressly incorporated in an
agreement, there could also be certain implied rights based on the law of
contract and other legal provisions (say, consumer laws). There may not be a
legal requirement to incorporate such rights in each agreement explicitly, as
they are implied by specific laws on the subject laws. These include:

Good faith. Each party should operate
according to good faith, must not act deceptively and should disclose all
relevant information regarding the transaction.

Free will, No duress: Contracts
should only be formed out of the free, informed decision of each party. A
contract that is formed under duress (i.e., forcing one party to sign) is
invalid.

No misrepresentation: Likewise,
the parties have a right to be free from fraudulent misrepresentation of
information.

If a party’s contractual rights are
violated, it can enforce such rights or take legal action for damages caused by
the breach. Such non-breaching party may also be entitled to multiple remedies,
for example:

(1) damages;

(2) specific performance;

(3) termination of the agreement;

(4) restitution for any benefit
arising to the breaching party.

An obligation works in the other end
in the matrix of rights and obligations. A party’s right is invariably the
other’s party’s obligation.

The difference between rights and
contract obligations is that the former is a benefit you derive from a
contract; the other is a duty or responsibility that is cast upon a party or
what a party promises to perform under the contract. Contractual obligations
are those duties which a party is accountable for and responsible to perform
under an agreement.

These obligations can be in terms of
payments, performance of certain services, supply of goods, adherence to
timelines or quality standards, cooperation in pursuing some common objective
or any other promise made to the other party. If any party fails to perform its
obligations under an agreement, it is deemed a breach on its part and the
non-breaching party can take action against such breach.

An agreement must clearly describe the
respective rights and responsibilities of the parties. It should describe the
activities supposed to be performed by a party towards fulfilment of its
obligations, timeframes for fulfilment of the obligations, etc. the
agreement should also incorporate terms confirming whether the assignment
of any obligations of a party is permitted. It is better to incorporate
the obligations as much as possible in details to set acceptable standards of
fulfilment of obligations.

Once the parties enter into an
agreement, each party is expected to deliver on its obligations. Each
party needs to fulfil its contractual obligations with regard to its
performance for a valid discharge of the agreement. If a party fails in
its obligations, the other party has multiple options and it would really boils
down to the reasons and circumstances that the defaulting party failed to
deliver performance. Sometimes, if an agreement has been substantially
performed, then payment for any completed work done is payable with a deduction
for the uncompleted work. This is the simplest way to deal with such a
situation.

To sum up, the duties and obligations
provisions are a detailed description of the duties and obligations of the
parties and the deadlines for performance. The rights and obligations of the
parties are determined by terms of an agreement, subject to limits imposed by
relevant statutes. 

Therefore, the parties must judiciously
incorporate respective rights and obligations of each party in clear and
detailed terms to avoid any confusion later between themselves.

The process and procedure to adhere to
and enforce these rights and obligations should also be clearly mentioned. The
agreement should provide as to how a party will exercise its rights or seek
fulfilment of the other party’s obligations within the framework of the
agreement.

The enforcement mechanism could lie
within the parties or a party may have to seek outside support (industry body,
court, mediators, arbitration, etc.).

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About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in “The A-List – India’s Top 100 Lawyers” by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at [email protected].