Basics of a Contract

8/8/2019 Basics of a Contract

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12/21/2010

Anuradha Maheshwari

MUMBAI

OCT,2010

NMIMS-MBA

a1


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Slide 1

a1 abc, 1/28/2009


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Mundane every day activities involve a

contract- except that we dont realize it.

We enter into contracts all the time

Boarding a bus, buying drinks, putting moneyin a bank, investing in shares or licensing your

patent or giving someone the rights to

distribute your product like a movie.

` Contract is of essence to our society,

dominated by transactions of goods and services.


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LAWCOMES INTO BEING FROM ORDINARY

PRACTICES!

` Contract law developed through common law - the

decisions of the courts while settling disputes amongst

merchants and traders.

` Contract law like the rest of the commercial laws rose

from the practices of the merchants, traders and

mariners in Europe.

` It concerns everybody, more so in trade, commerce and

industry


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f In commercial and ordinary life promises are

made some of which are performed and some

of which are breached.

` Contract law deals with those promises, which

create legal obligations.

` So contract law deals with 2 Ps- creation of

Promises and theirPerformances.

` Contracts controls and regulate the market

place


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` It is An agreement enforceable by law - Section2 (h)

of the Indian Contract Act 1872

` Agreement + enforceability = Contract

Set of promises + Legal recognition= Contract

` Formation: whatever the contract how it comes into

existence is the same

` It requires communication-one person initiates the dialogue

and the other responds.

` No fixed formality unless specified under the law under

which it is made


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` Sale/Transfer- goods, immoveable property` Deeds- Partnership, Conveyance` Formation of a Company, Society` Negotiable Instruments` Technology transfer agreements

Assignment Licensing Pledge Know-How contracts

fFranchisefConsultancy, Joint Venture, Turnkey Projects

etc.


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` Formation

` Performance

` Discharge

` Remedies


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` All agreements are contracts if they are made

with the free consent of parties competent to

contract for a lawful consideration and with a

lawful object and not expressly declared to be

void -Sec 10 of ICA` An agreement in order to constitute a contract must

possess following elements: Lawful offer and acceptance Lawful consideration with a lawful object

Capacity to contract Free consent Agreement not expressly declared to be void


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` When one person signifies to another his

willingness to do or not to do something with a

view to obtain the assent of the other to such

act or abstinence he is said to make aproposal.

` Offer is like a gun powder- unless ignited it doesnot create an explosion.

` So offer is made with a view to it being accepted.` Offer is not valid unless it contemplates the

creation of a legal relationship.

` Balfour V Balfour, Kalai Haldar V Shaikh


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` Offer is different from invitation to offer- Tenders, auction

sales, advertisements..

` Offer may be made to a definite person, class of persons

or the general public.` An offer may be express or implied.

` Terms of an offer must be definite.

` Offer remains open till it has been accepted, rejected,

revoked or lapsed.` Offer must be communicated to the offeree

` Lalman Shukla V GauriDutt 1913


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Who can accept an offer?

` Only the person to whom it is made.

` Acceptance must be unqualified.

` Qualified acceptance amounts to a counter offer.

` Mental acceptance is no acceptance.

` Acceptance must be made in prescribed/reasonable

time and mode.


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` When an agreement is made will decide its future.

` Time is important when deciding jurisdiction, legalityof contract and application of taxation laws.

` The purpose of the parties is to communicate andcome to an understanding.

` An understanding can only be reached when eachget to know what the other intends.

` Cycle of communication between parties iscompleted when the acceptance or rejection of theoffer reaches the offeree.


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` No consideration no contract!

` The material things that two sides promise eachother are called the consideration of the contract.

` Consideration means something in return forsomething, the price of the promise.

` Broadly defined it means the rights, benefits,interests, profits accruing to one party or some

forbearance, detriment, loss or responsibility given,suffered or undertaken by the other.

` Consideration must be real.


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` Consideration must move at the desire of the

promisor and may be given by the promisee or

any other person- Kedarnath v Gorie Mahomad,Carbolic smoke ball case

` There must be a privity of contract- a stranger

to the contract cannot sue upon it.` Tweddle v Attkinson, Dunlop v Selfridges

` Consideration must be lawful.


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INCAPACITY

` Contracts made by parties lacking the capacity/competency to contract cannot be enforced by law.

` Minors, persons of unsound mind, and thosespecially disqualified by the law from contracting areconsidered incompetent.

Incompetent persons by reason of judgment orcircumstances cannot be made liable.

` Contracts with incompetent persons are VOID-AB-INITIO


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` Two people can contract only if there is a meeting of

minds.

` Consent means agreeing upon the same thing in the

same sense.` But CONSENT MUST ALSOBE FREE

` Consent is not free when it is caused by coercion,

undue influence, fraud, misrepresentation, and

mistake.

` Contracts without free consent, become VOIDABLE

and can be set aside at the option of the sufferer.


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` Coercion- Criminal threat & unlawful detention ofproperty- Voidable

` Undue Influence- Unfair advantage by dominantparty - Voidable

` Fraud- Acts to deceive- Voidable

` Misrepresentation- False statement- Voidable

` Mistake- Unilateral, bilateral - Void


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` Forbidden by the law.

` Object is fraudulent.

` Causes injury to person/property of another

` Immoral & opposed to public policy.Àgreements made without consideration.

Àgreements in restraint of marriage, trade, legalproceedings.

Àgreements where meaning is uncertain-ambiguous.

` Wagering agreements & contingent contracts.


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` Implied/ express contract

` Bilateral/ unilateral contracts

` Void/ voidable contracts

` Executed/executory contracts` Contingent contracts

` Wagering agreements

` Quasi contracts

` Contracts of record, specialty & simple

` Special Contracts


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` Discharge means termination of contractualrelationship rights & duties created by contract comesto an end

` Discharge by performance-when parties to a contract

fulfill their obligations in time and manner prescribed` Discharge by agreement- by novation, alteration,

accordand satisfaction, remission & waiver, merger & recission

` Discharge by frustration- by destruction of subject

matter, death or physical incapacity of party, changes inthe law, war, change in the state of things( Krellv Henry).

` Discharge by operation of law- insolvency, death etc


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` Discharge by Breach- party refuses to perform hispromise

` Actual breach- On due date party fails to perform

` Anticipatory breach -when a party refuses to perform

before the actual time of performance(a) Express repudiation - where party communicatesinability

(b) Impossibility of performance-party does some act,

makes performance impossible` Consequences of anticipatory breach is to either rescind

the contract or to treat it as still operative and wait for thetime of performance


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` Rescission of contract- cancellation of all orsome of the terms of the contract-In case ofmutual consent, anticipatory breach, voidablecontracts

` Suit for specific performance- damages arenot an adequate remedy or where actualdamage or loss caused by breach is impossibleto ascertain

`

Suit for an injunction -is a preventive relief. It isan order of the court directing the other party todo or refrain from doing some act which is thesubject matter of the contract-Temporary or permanent


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` Suit for damages- means monetarycompensation to the injured party for thefinancial damage or loss suffered by him due tobreach of contract

` Object of damages is to put the party in thesame financial position he would have been if

the contract had not been broken.` Damages should be fair and reasonable and for

actual loss in natural and usual way and not for

remote or indirect losses.- Hadley V Baxendale1854` Suit for Quantum Meruit- means as much as is

merited or deserved - Sumpter V Hedges, CutterV Powell


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` One party promises to save another from loss.

` Loss must be caused by conduct - of thepromisor or any other person.

` Does not include events or accidents like aninsurance contract.

` Contingent contract- only on condition of loss.

`

Promisee acting within scope of authority isentitled to recover form the promisor.


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` Contract to perform promise or discharge liability ofanother.

` Guarantor called surety, to whom it is given-

creditor and for whom it is given principal debtor.` Surety undertakes obligation at request of PD.

` Consideration- past/future benefit to PD.

` Suretys liability coextensive with that of PD.

` Suretys rights-to be indemnified by the PD, to besubrogated to rights of creditor, to be reimbursed byother co-sureties.


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` Agent- person employed act for another orrepresent him in dealings with third persons.

` The person represented is called the Principal

`

Any person who can contract may employ an agent.` Any person may become an agent.

` No consideration required to create agency.

` Authority of an agent may be express or implied-

necessity or ratification.` Different kinds of agents- subagents.

` Rights & duties of agents & principals.


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` Sale- where a seller transfers or agrees totransfer the property in the goods to the buyerfor a price.

` Sale only of moveable goods, from an owner(title) and against payment of money.

` Differences between sale & agreement toresale- former ownership transferred.

` Risk follows ownership.

` Time when property in the goods transferred.


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` Terms of sale- conditions & warranties.

` Conditions- essential to main purpose of the contract-breach gives right to repudiation.

` Warranties-collateral to main purpose- breach gives riseto suit for damages.

` Whether condition or warranty breached depends uponconstruction of contract.

` Conditions- express or implied-right to title, specific

purpose, sale by description, sample, right to goods ofmerchantable quality.

` Caveat Emptor- Buyer beware!


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` Rights against goods-

- right to lien

- right to stoppage in transit

- right to resale` Rights in case of agreement to sale

- withhold delivery, right to stoppage

` Rights against buyer

- suit for damages- suit for price

- suit for non-acceptance


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Introductions

Definitions

Grant

Royalties

Representations & Warranties

Signatures

Miscellaneous terms

Assignments & Transfer

Terms & termination


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` Money! Activity creates revenues- royalties

` Cross licenses-no royalties-exchange of rights-Dell & IBM

` Licenses vehicle to enter new geographic orproduct markets

` Sometimes licenses strengthen the licensorsmarket position

` Licenses provide variety & choice of product line` Helps to strengthen the licensed patent


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` In the US-royalties from patent licensing increasedfrom $15 billion in 1990 to > $ 110 billion.

` Recent survey found that 2/3rds of US cos own IPthat is neither used nor licensed.

` Investors value a dollar of royalty income 4 or 5 timesover a dollar of operating earnings

` IP was deemed an important factor driving M&As by51% of surveyed business execs.

` Experts say that a well managed IP portfolio shouldyield 1% of a firms revenues & 5% of its net profits.


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Thank You ! ! !

email: [email protected]

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Basics of a Contract

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