Basics of a contract recent

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Basics of a contract recent

  1. 1. Anuradha Maheshwari MUMBAI OCT,2010 NMIMS-MBA 03/22/12
  2. 2.  Discussions on Contracts Formation, performance, discharge, & remedies Case solving exercises Special contracts Sale of goods Question time 03/22/12
  3. 3.  Mundane every day activities involve a contract- except that we don’t realize it. We enter into contracts all the time Boarding a bus, buying drinks, putting money in 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. 03/22/12
  4. 4. LAW COMES 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 03/22/12
  5. 5.  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 their Performances. Contracts controls and regulate the market place 03/22/12
  6. 6.  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 03/22/12
  7. 7.  Sale/Transfer- goods, immoveable property Deeds- Partnership, Conveyance Formation of a Company, Society Negotiable Instruments Technology transfer agreements ◦ Assignment ◦ Licensing ◦ Pledge ◦ Know-How contracts Franchise Consultancy, Joint Venture, Turnkey Projects etc. 03/22/12
  8. 8.  Formation Performance Discharge Remedies 03/22/12
  9. 9.  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 03/22/12
  10. 10.  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 a proposal. Offer is like a ‘gun powder’- unless ignited it does not 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 03/22/12
  11. 11.  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 03/22/12
  12. 12. 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. 03/22/12
  13. 13.  When an agreement is made will decide its future. Time is important when deciding jurisdiction, legality of contract and application of taxation laws. The purpose of the parties is to communicate and come to an understanding. An understanding can only be reached when each get to know what the other intends. Cycle of communication between parties is completed when the acceptance or rejection of the offer reaches the offeree. 03/22/12
  14. 14.  Communication of proposal is complete when it comes to the knowledge of the person to whom it is made. Thus the place of formation of the contract would be the place where the offeror is situated. The communication of acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor As against the acceptor, it is complete when it comes to the knowledge of the proposer WE GET INTO CONTRACTS KNOWINGLY – express or implied. 03/22/12
  15. 15.  No consideration no contract! The material things that two sides promise each other are called the consideration of the contract. Consideration means something in return for something, 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. 03/22/12
  16. 16.  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. 03/22/12
  17. 17. INCAPACITY Contracts made by parties lacking the capacity/ competency to contract cannot be enforced by law. Minors, persons of unsound mind, and those specially disqualified by the law from contracting are considered incompetent.p Incompetent persons by reason of judgment or circumstances cannot be made liable. Contracts with incompetent persons are VOID-AB- INITIO 03/22/12
  18. 18.  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 ALSO BE 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. 03/22/12
  19. 19.  Coercion- Criminal threat & unlawful detention of property- Voidable Undue Influence- Unfair advantage by dominant party - Voidable Fraud- Acts to deceive- Voidable Misrepresentation- False statement- Voidable Mistake- Unilateral, bilateral - Void 03/22/12
  20. 20.  Forbidden by the law. Object is fraudulent. Causes injury to person/property of another Immoral & opposed to public policy. Agreements made without consideration. Agreements in restraint of marriage, trade, legal proceedings. Agreements where meaning is uncertain- ambiguous. Wagering agreements & contingent contracts. 03/22/12
  21. 21.  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 03/22/12
  22. 22.  Discharge means termination of contractual relationship – rights & duties created by contract comes to an end Discharge by performance-when parties to a contract fulfill their obligations in time and manner prescribed Discharge by agreement- by novation, alteration, accord and satisfaction, remission & waiver, merger & recission Discharge by frustration- by destruction of subject matter, death or physical incapacity of party, changes in the law, war, change in the state of things( Krell v Henry). Discharge by operation of law- insolvency, death etc 03/22/12
  23. 23.  Discharge by Breach- party refuses to perform his promise 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 communicates inability (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 the time of performance 03/22/12
  24. 24.  Rescission of contract- cancellation of all or some of the terms of the contract-In case of mutual consent, anticipatory breach, voidable contracts Suit for specific performance- damages are not an adequate remedy or where actual damage or loss caused by breach is impossible to ascertain Suit for an injunction -is a preventive relief. It is an order of the court directing the other party to do or refrain from doing some act which is the subject matter of the contract -Temporary or permanent 03/22/12
  25. 25.  Suit for damages- means monetary compensation to the injured party for the financial damage or loss suffered by him due to breach of contract Object of damages is to put the party in the same 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 Baxendale 1854 Suit for Quantum Meruit- means as much as is merited or deserved - Sumpter V Hedges, Cutter V Powell 03/22/12
  26. 26.  One party promises to save another from loss. Loss must be caused by conduct - of the promisor or any other person. Does not include events or accidents like an insurance contract. Contingent contract- only on condition of loss. Promisee acting within scope of authority is entitled to recover form the promisor. 03/22/12
  27. 27.  Contract to perform promise or discharge liability of ‘another’. 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. Surety’s liability coextensive with that of PD. Surety’s rights-to be indemnified by the PD, to be subrogated to rights of creditor, to be reimbursed by other co-sureties. 03/22/12
  28. 28.  Agent- person employed act for another or represent 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. 03/22/12
  29. 29.  Sale- where a seller transfers or agrees to transfer the property in the goods to the buyer for a price. Sale only of moveable goods, from an owner (title) and against payment of money. Differences between sale & agreement to resale- former ownership transferred. Risk follows ownership. Time when property in the goods transferred. 03/22/12
  30. 30.  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 rise to suit for damages. Whether condition or warranty breached depends upon construction of contract. Conditions- express or implied-right to title, specific purpose, sale by description, sample, right to goods of merchantable quality. Caveat Emptor- Buyer beware! 03/22/12
  31. 31.  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 03/22/12
  32. 32. IntroductionsDefinitions SignaturesGrant Miscellaneous termsRoyalties Assignments & TransferRepresentations & Warranties Terms & termination
  33. 33.  Money! Activity creates revenues- royalties Cross licenses-no royalties-exchange of rights- Dell & IBM Licenses –vehicle to enter new geographic or product markets Sometimes licenses strengthen the licensors market position Licenses provide variety & choice of product line Helps to strengthen the licensed patent
  34. 34.  In the US-royalties from patent licensing increased from $15 billion in 1990 to > $ 110 billion. Recent survey found that 2/3rds of US co’s own IP that is neither used nor licensed. Investors value a dollar of royalty income 4 or 5 times over a dollar of operating earnings IP was deemed an important factor driving M&As by 51% of surveyed business execs. Experts say that a well managed IP portfolio should yield 1% of a firm’s revenues & 5% of its net profits.
  35. 35. Thank You !!!email: anuradha@rediffmail.com 03/22/12

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