2. Outline
Role and purpose of contract law
How is a contract formed?
Types of obligations : types, arrangement, securing
perfrormance
Contract law as default rules: some clauses that
abandon legal provisions
Some important themes: privity, warranties, indemnities
etc.
Specific Relief Amendment Act 2018
3. Types of contracts
Purchase of goods
Construction works
Supply or electricity or
telephony services
Professional services
Guarantee, mortgages
Network
– Purchase using credit card
– Construction of a house
5. The best contract is one that’s thrown in the file after it is signed
and never looked at again.
A contract is only as good as the parties that sign it.
- Peter Siviglia
6. Parties’ freedom
formation
performance
breach and consequences
variation
term
discharge
consequences after
discharge
choice of law
arbitration
choice of jurisdiction
7. Contract law: enforcing promises
What parties have agreed binds them,
– else contract is ‘broken’.
Then the other party has rights
– which can be enforced
8. Role of contract law
Indian Contract Act 1872
– Find the contract
– General principles for all contracts
– Limits of enforceability
– Remedy of damages
– Enables full freedom
– ‘Default’ rules
9. Other laws affecting contracts
Other laws for particular contracts
Procedure
Case-law
Laws – control and regulation
Laws – protect a class of persons
10. Enforcement of a contract
Has a contract formed at all?
Is it enforceable?
– Competent parties
– Free consent
– Lawful consideration
– Not declared void
– Formalities (if required by any other law)
What are its terms?
Whatever is agreed will be enforced.
11. Contract law is strict
Perform exactly as agreed
Damages
Reason for non-performance irrelevant
12. Formation
Document : Formal, Informal
Emails, Internet, Fax, Social media
Oral
Offer-acceptance
13. A contract is an agreement
Offer-acceptance analysis
14. Is there a contract ?
1. P needs 70000 pieces of machine parts – specified specs
2. Letters to S1, S2 and S3 for quotations
3. S2 quotes Rs 45 per item for modified specs
4. P : interested, 90000 items, quote for defined specs
5. S2 : For this quantity Rs 44 per item, 50 % advance, 50 %
against delivery
15. Is there a contract ?
1. P : “Price acceptable, send items on 20 Sep. Send 25 % price
of this lot as advance. Balance at delivery on inspection.”
7. S2 : “We will send items on 20 Sep”. “Send 50 % advance, I
need this amount”.
8. S2 does not receive advance, but sends items.
9. P does not accept delivery, having already got them from S3.
10. S2 : sells the items as scrap and claims his loss.
16. Is there a contract ?
1. P needs 70,000 pieces of machine parts – specified specs
2. Letters to S1, S2 and S3 for quotations
3. S2 quotes Rs 45 per item for modified specs
4. P : interested, 90000 items, quote for defined specs
5. S2 : For this quantity Rs 44 per item, 50 % advance, 50 %
against delivery
6. P : “Price acceptable, send items on 20 Sep. Send 25 % price
of this lot as advance. Balance at delivery on inspection.”
7. S2 : “We will send items on 20 Sep”. “Send 50 % advance, I
need this amount”.
8. S2 does not receive advance, but sends items.
9. P does not accept delivery, having already got them from S3.
10. S2 : sells the items as scrap and claims his loss.
22. Terms of an offer
“An offer must contain all terms”
23. CARBOLIC SMOKE BALL
WILL POSITIVELY CURE
COUGHS CATARRH HOARSENESS THROAT DEAFNESS INFLUENZA CROUP
COLD IN THE HEAD ASTHMA LOSS OF VOICE SNORING HAY FEVER WHOOPING COUGH
COLD ON THE CHEST BRONCHITIS SORE THROAT SORE EYES HEADACHE NEURALGIA
As all the Diseases mentioned above proceed from one cause,
they can be Cured by this Remedy.
£100 REWARD
WILL BE PAID BY THE
CARBOLIC SMOKE BALL CO.
to any Person who contracts the Increasing Epidemic,
INFLUENZA,
Cold, or any Diseases caused by taking Cold, after having used the
CARBOLIC SMOKE BALL according to the printed directions
supplied with each Ball.
£1000 IS DEPOSITED
with the ALLIANCE BANK, Regent Street,
showing our sincerity in the matter.
Carlill v Carbolic Smoke Ball Co
24. Offeror is master of his offer
Time for acceptance
Condition, eg. Advance
Bound only if acceptance received
Manner of acceptance
25. THE CARBOLIC SMOKE BALL CO., Ltd., now offer £200 REWARD
to the person who purchases a Carbolic Smoke Ball and afterwards
contracts … … … INFLUENZA . . or any disease caused by taking
cold while using the … Smoke Ball.
this offer is made to those who have purchased a Carbolic Smoke
Ball since January 1, 1893, and is subject to conditions to be
obtained upon application, a duplicate of which must be signed
and deposited with the Company in London by the applicant
before commencing the treatment specified in the
conditions. [Which included having to take the three doses each
day at corporate headquarters.]
This offer will remain open only until March 31, 1893.
Carbolic Smoke Ball Co - II
26. Starbucks coupon
Hi Everyone,
Starting today until September 30th, please join us in
"surprising and delighting" our family and friends, while
introducing you to our iced beverages.
Attached is an invitation for a complimentary iced
Grande beverage.
Please forward this invitation to everyone in your email
address book.
Thanks so much!
Kimberly Beasley
*Starbucks Coffee Company*
*Southeast Regional Coordinator*
*(404) 636-5200 ext 2200*
"C 2006 Starbucks Coffee Company. All rights reserved. One Grande beverage
per person per visit with this email. Please print and present this email to your Starbucks
Barista. Offer good only at participating Starbucks Coffee locations. Expires September 30,
2006. Barista, please use discount code 113."
27. Caribou
Taking advantage of the withdrawn Starbucks
promotion, the rival Caribou Coffee chain announced a
few days later that they would honor the voided
coupons on 8 September 2006 by giving free medium
Cold Press iced coffee, iced Americano, or iced tea to
persons presenting Starbucks iced coffee coupons at
Caribou outlets from noon until the close of business
that day, till stocks last.
28. Revocation
Any time before acceptance
Absolute right
Keeping offer open
– No obligation, even if time stipulated
– Forfeiture of earnest money
29. Response of the offeree
Options. No duty
– Keeps quiet
– Rejects
– Suggests changes
– Accepts (entirely)
30. Acceptance
“YES” to offer
Until offer is open
Unqualified
– The mirror rule : of all the terms of the offer
Unconditional
Manner
31. Acceptance: When is it complete ?
Face to face
On telephone
By post
– Acceptance binds offeror when posted
By email, fax
Offeror may specify that it will bind only on receipt
Place of contract
32. Formation
Offer when accepted becomes an agreement
An agreement enforceable by law is a contract
It is enforceable if it satisfied further conditions
BINDS AS SOON AS IT IS FORMED !!!
Writing and formalities
33. Freedom in contract formation
Courts do not interfere in process of making a contract
Freedom in formation
– With anyone, In any manner
– Withdraw at any time from negotiations
Public contracts
– Formation procedures subject to scrutiny by High Court.
35. Formalities
Other laws may require
– Writing
– Form
– Attestation
– Notarisation
– Registration
Government contracts
– Article 299 of the Constitution
36. Advantages of writing
Parties know obligations
Effective implementation of agreed terms
Evidentiary value
Terms will not be implied
Written terms cannot be contradicted
37. Is the writing conclusive ?
Interpretation
– “Intention of parties”
Implying terms
Courts will uphold contracts
38. Interpretation
A termination clause
Rogers Cable Communications v. Aliant Telecom Inc. (Canada)
This contract shall be effective from the date it is
made and shall continue in force for a period of five
(5) years from the date it is made, and thereafter for
successive five (5) year terms, unless and until
terminated by one year prior notice in writing by
either party.
39. Interpretation
“by 23 March 2019”
… sale of “entire copyright in ABC film”
“Front portion of land”
Insurance - burglary of cash or jewellery in a ‘safe’
40. Obligations
Section 37 of the ICA
Perform
Offer to perform
To do
– To sell, To provide service, To pay amount
Not to do
– Assign, Sub-contract, Divulge information, Compete,
Contract with competitors
42. Levels of obligations
Achieve specific results
Contingent – dependent on an event
Best efforts / Reasonable efforts
– Achieving purpose is not in promisor’s hands
Due diligence
Upon application by other party
45. Design of a clause
The Receiving Party agrees that it shall take all reasonable
measures to protect the secrecy of and avoid disclosure and
unauthorized use of the Confidential Information.
---
Receiving Party shall take at least those measures that
Receiving Party takes to protect its own most highly
confidential information and shall have its employees, if any,
who have access to Confidential Information sign a non-use and
non-disclosure agreement in content substantially similar to the
provisions hereof, prior to any disclosure of Confidential Information
to such employees.
47. Whose obligation
Promisor (party)
– Promisor himself, or employ competent person
– Sub-contractor
Joint promisors
Death - Legal representative
Assignee
48. A contract for sale of goods
Parties: Buyer and Seller
Formation: like any other contract
Single document
Offer and Acceptance
Correspondence
50. Delivery
Give or take
Where
Instalments
When ordered from time to time
51. Price
Basis
Base level to which the price is related
Break up – main goods, other supplies, spares,
documentation, training, maintenance etc.
Advance and stage payments
Manner of payment
54. Steps
Features of the transaction
Parties’ requirements
Identifying aspects
– Law applicable
– Default rule
Draft
– Use of precedents
55. Security for payment / performance
Arrangement of obligations
Self-help remedies: Retention and Set-off
Guarantees
– Personal Guarantees
– Bank guarantees
Security of property
56. Bank Guarantee
Bank promises to discharge liability in case of default. It
is a surety.
Beneficiary – interest in enforcing without botheration.
– Bank agrees to pay
– On demand
– Without demur
– Without reference to dispute between parties
Liability limited
Condition for payment – must be fulfilled
No injunction to stop its payment
57. Contract law as default rules
Express statement in law
– unless a different (or contrary) intention appears
– unless otherwise agreed
– unless it is otherwise provided by the contract
– unless there is an express agreement to that effect
– in the absence of agreement (or contract) to the contrary
– in the absence of express contract to the contrary
– in the absence of any provision to the contrary
Other situations
59. Rights upon Breach under the law
Withhold performance : dependent promises
Claim damages
– Liquidated damages
– Forfeiture from deposit
Right to terminate
Specific performance (SpRA 2018)
Injunction (SpRA 2018)
Substituted performance (SpRA 2018)
60. Damages under the ICA
Party committing breach liable to compensate party
which has suffered by the breach for loss suffered
arising from the breach.
Nature of loss
– Ordinarily arising from breach
– parties contemplated when they contracted
Amount of loss
Proof of loss and amount
Duty to mitigate
61. Damages – freedom of parties
Liable
– for certain losses only, and not others
– upto a certain amount only
– for stated amount – liquidated damages
Not liable at all – exclusion clauses
62. Limiting liability
Example – I
In no event shall either party be liable for any
consequential damages, even if either party knew or
should have known of the possibility thereof.
64. Limiting liability
Example - III
The aggregate liability of the parties under the contract shall be
limited to Rs. 2,00,00,000 (Rupees Two Crores only). This
limitation on the liability of the Parties under the contract shall
not prevent a party to claim compensation for claims arising out
of gross negligence or willful misconduct of the defaulting
parties.
65. Exclusion clauses
Exclusion and limitation clauses
Commercial contracts – no question of unfairness
Consumer contracts – protection
Must be made known clearly
66. Exclusion clause
The Contractor hereby acknowledges and agrees that the
company shall have no liability whatsoever in contract,
tort (including negligence) or otherwise for any loss of
goodwill, business, revenue or profits, anticipated savings
or wasted expenditure (whether reasonably foreseeable or
not) or indirect or consequential loss suffered by the
Contractor or any third party in relation to this Agreement.
67. Liquidated damages
Pre-estimate of damages
Advantages : Different amounts
Amount must be reasonable : Court’s control
Applies to penalties
Incentives
Calculations:
– Rate,
– Style (fixed sum or percentage),
– Time-basis – monthly, daily
68. Liquidated damages
Example
(In a contract for purchase of goods)
If the Seller commits a delay in delivery of goods as
mentioned in the delivery schedule, the Seller shall be liable to
pay to the Purchaser an amount of 1 % of the price of
deliverable goods for each day’s delay.
If the delivery is delayed by more than 15 days, the Purchaser
shall have the right to terminate the agreement.
69. Subsequent changes
It takes two (all parties)
– to make a new contract
– to alter it
– to cancel it
70. Variation clauses
Extent - matters
Who can order
Form - writing
Payment
Procedure (to be strictly followed)
71. Variation clause
The Engineer on behalf of the … shall be entitled by order
in writing to enlarge, extend, diminish or reduce the
works, or make alterations in their design, or method
of execution, or use of materials, or to order any
additional work to be done, or any work not to be done,
and the Contractor will not be entitled to any
compensation.
Accepted variation in quantity of each individual item
would be upto 25 % of work, which shall be calculated at
the same rates as this contract.
72. Variation Clause
Purchase price variation
The Company shall be entitled by notice … to vary the Purchase
Price upwards or downwards by reference to any variation in its
current list prices at any time up to the ___ th day before the
Delivery Date and the Purchase Price set out in the Schedule
(subject to the Purchaser’s rights of cancellation …) shall upon
receipt by the Purchaser of any such notice be deemed to be
amended. Upon receipt of a notice … above the Purchaser shall
upon not less than ___ days’ notice to the Company be entitled to
terminate this agreement.
Equipment variation
The Purchaser shall be entitled at any time up to the ___ th day
before the Delivery Date to vary all or any of the Equipment set
out in the Schedule save that the Company shall not be liable
for any resultant delay in the delivery or installation of the
Equipment so varied.
73. Termination under ICA
Right to terminate ONLY FOR
– refusal to perform whole of contract (39)
– preventing the other from performing (53)
– failure to perform, if time of essence (55)
74. Right to terminate under contract
Power to one or both parties
With our without reason
Grounds of termination
Notice procedure
Consequences on termination
76. Termination
This agreement may be terminated:
1. forthwith by the Company if the Purchaser fails to pay
any sum due hereunder within ____ days of the due date
therefor;
2. forthwith by either party if the other commits any material
breach of any term of this agreement (other than one falling
within 1. above) and which (in the case of a breach capable of
being remedied) shall not have been remedied within ____
days of a written request to remedy the same.
77. Termination
15. Either of the parties hereto namely Purchaser and Supplier
shall be entitled to terminate this agreement at any time on
giving “Three Months” prior notice in writing to the other party
without assigning or being obliged to assign any reason for such
termination.
21. FORTHWITH TERMINATION – Notwithstanding anything to the contrary
herein contained, PURCHASER shall be at liberty at its entire discretion to
terminate this contract, in writing, forthwith upon or at any time after the
happening of any of the following events, namely:
a. If Supplier shall commit a breach or default … such breach is not remedied
immediately upon Purchaser notifying ….
b. In the event that Supplier shall cease to carry on business.
c. Supplier shall not knowingly, engage any person with a criminal record …..
d. If any License or permit issued to Supplier .. is not renewed.
e. If any information given by Supplier … found … untrue.
78. Termination contd.
21. FORTHWITH TERMINATION – Notwithstanding anything to the contrary
herein contained, PURCHASER shall be at liberty at its entire discretion to
terminate this contract, in writing, forthwith upon or at any time after the
happening of any of the following events, namely:
a. If Supplier shall commit a breach or default … such breach is not remedied
immediately upon Purchaser notifying ….
b. In the event that Supplier shall cease to carry on business.
c. Supplier shall not knowingly, engage any person with a criminal record …..
d. If any License or permit issued to Supplier .. is not renewed.
e. If any information given by Supplier … found … untrue.
79. Effect of factors beyond control
Doctrine of impossibility : § 56 of ICA
”A contract to do an act which, after the contract is
made becomes impossible … becomes void when the act
becomes impossible….”
Satyabrata Ghose v/s Mugneeram Bangur 1954
Excuse of impossibility : no excuses.
80. Not excuses
Strikes and Lockouts
Non-availability of material
Destruction of material
Machinery breakdown
Damage to premises, plant
Difficulties
Increase in prices
Disappointed expectations
81. force majeure clause
Provision for failure or inability to perform caused by an
external event beyond control
Parties may provide for
– Any event beyond control
– Consequences
– Procedures to be followed
82. Force majeure clause
Neither party to this agreement shall be liable for any breach of its
obligations hereunder resulting from causes beyond its reasonable
control including but not limited to fires strikes (of its own or other
employees) insurrection or riots embargoes container shortages wrecks
or delays in transportation inability to obtain supplies and raw materials
requirements or regulations of any civil or military authority (an “Event
of Force Majeure”).
Each of the parties to this agreement agrees to give notice forthwith to
the other upon becoming aware of an Event of Force Majeure such
notice to contain details of the circumstances giving rise to the Event of
Force Majeure.
If a default due to an Event of Force Majeure shall continue for more
than ____ weeks then the party not in default shall be entitled to
terminate this agreement. Neither party shall have any liability to the
other in respect of the termination of this agreement as a result of an
Event of Force Majeure.
83. Force majeure clause
26. Notwithstanding the foregoing, Purchaser may cancel the contract
without liability or cancellation charges in the event of any causes
beyond its control , such as, but not limited to, flood, draught, fire
, war, riot, acts of terrorism , acts of God or acts or demands of
any Governmental Authority.
37. Force Majeure Clause – Neither party shall be liable to the other
for failure to perform its obligation under the contract when
performance is prevented by Flood, drought, fire, war, riot, acts of
terrorism, acts of God or Governments. During the Supplier’s
inability to supply the supplies, Purchaser may at its option, procure
such supplies from other Supplier but will revert to the contract once
the element of Force Majeure has been overcome.
84. Assignment
Under the law
– Rights can be assigned, unless prohibited by contract
– Liabilities cannot be assigned, unless permitted by
contract
Option to parties to provide
– Complete freedom
– Assignment with prior consent, which shall not be
unreasonably withheld.
85. Assignment
The Contractor shall not assign or sublet the contract or any
part thereof without permission of ….;
If this condition is broken, ___ can terminate the contract,
rendering the contractor liable for any loss or damage arising
from the termination.
86. Warranties and representations
Representations : statements that induce
Warranty: Assurance, a promise
– Failure is breach of contract
– Relieves promisee of duty to ascertain the truth
Examples:
“There is no pending litigation.”
“Accounts are accurate and there are no liabilities to
creditors other than those shown in accounts.”
87. Warranty
(In sale of immovable property)
The Seller hereby warrants that
– the Seller has a clear and marketable title to the property,
– the Seller has authority to sell the property,
– the Seller has not made any agreement or transaction with
any person in writing or orally for the transfer of the property,
– the property is not subject to any litigation.
(In the event of breach of this warranty, the seller shall only be
liable to repay to the purchaser the price paid by the purchaser
to the seller with interest @ 12 % p.a. and for no other
claims, losses or expenses)
88. Warranty in a sale of computer hardware
… the Company warrants to the Purchaser that:
8.1.1 the Equipment will for a period of ____ months from the
Acceptance Date be free from defects in or arising from design
materials workmanship delivery or installation; and …
8.2 The Purchaser shall give notice to the Company as soon as it is
reasonably able upon becoming aware of a breach of warranty.
8.3 The Company shall as soon as it is reasonably able investigate any
alleged breach of warranty and in the case of a breach of warranty falling
within clause 8.1.1 above shall remedy the same free of charge by:
- carrying out repairs modifications or alterations to the Equipment;
or
- replacing the Equipment or such component parts as it shall in its
absolute discretion think fit.
8.4 The obligations of the Company under clause 8.3 above shall be
discharged between 9 am to 5.30 pm Monday to Friday … … ….
89. Warranty
No warranty
Goods are sold and purchased “as is”. Neither party makes
any warranties, express, implied or otherwise, regarding
their quality, description, performance or fitness.
90. Warranty
18. Supplier warrants that all supplies will conform to the
Specifications and aesthetic requirement or samples furnished in
connection with the contract, and will be fit and sufficient for
the purpose intended, merchantable, of good material and
workmanship, free from defect. Supplier’s warranties shall survive
acceptance, inspection or payment by the Purchaser or the
Purchaser’s customers. …
20. With respect to any supplies not in conformity with the
requirements of the contract, the Purchaser shall have the right,
at its option, to require the Supplier to repair, replace or re-
perform such supplies or services immediately after notification
or to reject such supplies. … ….
91. Indemnities
Purpose – save from loss
– Conduct of one party or of any other person
– Event not dependent on conduct of any person
Consider
– Which conduct covered
– Which losses covered
– Limit on liability
– Necessity to take action to remedy, and loss during that
period
– Power to compromise
92. Indemnities
The publisher will take care that this book will not contain
any defamatory or scandalous material or any material in
breach of copy-right of any person and will indemnify
and keep indemnified the printer again any loss, costs,
charges or expenses suffered or incurred by the
printer on account of such material or writing.
93. Indemnities
Supplier warrants that the supplies specified below will not
infringe any patents, copyrights, trade names, trade secrets or
other intellectual property;
and agrees to indemnify and hold harmless Purchaser and
anyone selling or using the products of the Purchaser or the
Purchaser’s customer against all judgments, decrees, costs,
and expenses resulting from any alleged infringement,
and agrees that Supplier shall, upon request of Purchaser and at
Supplier’s own expense, defend or assist if the defense of any
action which may be brought against Purchaser or those selling
or using any of Purchaser’s products by reason of any such
alleged infringements.
94. Choice of jurisdiction
Within India
Jurisdiction decided by Code of Civil Procedure
– Defendant’s residence
– Cause of action
Parties can choose court
It must have jurisdiction under CPC
97. Receipt
Received from Shamcharanji an amount of Rs
75000/- on 15 January 2016.
----
Received from Shamcharanji an amount of Rs
75000/- on 15 January 2016 being earnest money
in connection with purchase price of plot no 523,
Pune.
----
Received from Shamcharanji an amount of Rs
75000/- on 15 January 2016 being advance
towards purchase price of plot no 523, Pune.
Possession will be handed over on 25 April 2016.
98. What’s in a name ?
MOU / Contract / LOI / Term-sheet / PO
Licence / Lease
Assignment or licence
Power of Attorney
100. Privity
Contracts bind parties only
Two questions:
– C cannot enforce a contract between A and B, even if it is
for C’s benefit
S sells property to B, and B agrees to pay part of sale price
to M, the mortgagee. M cannot recover from B.
S sells flat to B. Electricity supplier cannot recover S’s
electricity dues from B.
– A or B cannot enforce the obligation against C
Dunlop v Selfridge
A flat purchaser cannot claim from developer’s sub-
contractors for defects
The sub-contractor
101. Specific Relief (Amendment) Act 2018
Specific performance is a general remedy
– Not exceptional
– Not discretionary
Remedy of substituted performance
– Breach
– Notice of thirty days in writing
Calling performance
– On failure or refusal: Get the promise performed
By third party, or
By own agency
– Recover expenses and costs
– Claim only after contract got performed
No injunction if it impedes or delays infrastructure
projects
