Introduction• Contracts are valuable and most people come across contract in everyday life.• Every business enter into contract with its employees , suppliers and customers to conduct its day today business.• Most of the small and big transactions involves contracts. E.g. Sale and purchase of land,morgages, lease, loan agreement, agency, partnership, licen sing etc.• A proper contract management can save billion dollars.• More than millions of agreements drafted, reviewed and managed everyday.
What is a contract?• Contract is an agreement between the parties enforceable by law.• A contract is a: ▫ Promise or set of promises, ▫ For breach of which, ▫ The law provides a remedy, or ▫ The performance of which the law in some way recognizes as a duty.
Sources of Contract Law• Common Law• Restatement of Contracts• Uniform Commercial Code (UCC)• United Nations Convention on Contracts for the International Sale of Goods(CISG)• UNIDROIT Principles of International Commercial Contracts• Uniform Computer Transactions Act (UCITA)• Uniform Electronic Transactions Act (UETA)• Electronic Signatures in Global and National Commerce Act (E-Sign)
How the contract created?/formed?• Orally• In writing (including by electronic means or through a website);• By inference or conduct; or• By a combination of all or any of the above.
8Types of Contracts• Bilateral & Unilateral.• Express & Implied In Fact.• Quasi Contracts - Implied in law.• Formal & Informal.• Executed & Executory.
Essentials elements of valid contract• Two or more parties• Competency of parties• Agreement ( offer/proposal and acceptance)• Lawful consideration• Lawful object• Free consent• Certainty• Possibility of performance• Enforceable by law
10Enforceability of contracts• Valid. ▫ Agreement and Enforceability by Law( Competency of parties, free consent, lawful object and consideration)• Void. ▫ No contract.• Voidable (unenforceable). ▫ Valid contract can be avoided or rescinded.
Essentials of an agreement:• Agreement = offer + acceptance.• Parties must show mutual assent to terms of contract.• Once an agreement is reached, if the other elements of a contract are present, a valid contract is formed.
12Requirements of the Offer1.Offeror’s Serious intention (Expressions of opinion are not offers., Statements of Intention or preliminary negotiations are not offers.)2.Definiteness of terms. (Expressed or Implied). ▫ Identification of the parties. ▫ Object or subject matter of the contract. ▫ Consideration to be paid. ▫ Time of payment, Delivery, or Performance)3.Communication to Offeree ▫ Directly by the Offeror. ▫ Use of Agents.
13Termination of the Offer• An offer may be terminated prior to acceptance by either: ▫ Action of the Parties (Revocation by the offerorer before Offeree accepts the offer or Rejection of the offer by the Offeree) ▫ Operation of Law(Lapse of Time, Destruction of the Subject Matter, Death , Incompetence of the Offeror or Offeree, Illegality of the Contract)
14 Acceptance• An offer becomes a promise only when it is accepted by the other party to whom the offer is made.• Acceptance is the Voluntary act (expressed or implied),by the Offeree that shows assent (agreement) to the terms of an offer.• Mirror Image Rule.• Mail Box Rule
16Legality of contract• A contract to do something prohibited by federal or state statutory law is illegal and therefore void (never existed).• Contracts Contrary to Statute(Usury,Gambling, Sabbath Laws,Licensing Statutes, Contracts to Commit a Crime.)• Contracts Contrary to Public policy are void.• Unconscionable Contracts or Clauses.• Procedural or Substantive Unconscionability.• Unconscionable Contracts/Clauses.• Discriminatory Contracts.• Contracts for the Commission of a Tort.• Contracts in Restraint of Trade
17Consideration• Consideration is legal value given in return for a promise or performance. ▫ Must have something of legal value or sufficiency. ▫ Must be a bargained-for exchange. ▫ An agreement without consideration is void (exceptions-natural love and affection, compensation for voluntary services, promise to pay time barred debt)
18 Elements of Consideration• Consideration for a promise must be either: ▫ Legally detrimental to the promisee, or Legally beneficial to the promisor.• ―Legal Value‖: ▫ Promise, ▫ Performance, or ▫ Forbearance.•  Bargained exchange,•  Legal Detriment-A legal detriment exists where the party:• • engages in an act that the party was not previously obligated – whether statutorily or contractually – to perform; or• • refrains from exercising a legal right
19Sufficiency of Consideration• Forbearance of Claims and Defenses• Discharge of Obligation by Lesser or Greater Performance• Illusory Promises• Implied Promises of Best Efforts and Good Faith Dealing• False Recitals of Consideration• Nominal consideration
20Agreements That Lack Consideration• Preexisting Duty. ▫ A promise to do what one already has a legal duty to do does not constitute legally sufficient consideration. ▫ Exceptions: Unforeseen Difficulties. Recession and New Contract.• Past Consideration is no consideration because the bargained-for exchange element is missing.
21Unenforceable contracts ▫ Contract may be unenforceable if the parties have not genuinely assented to its terms by: a) Mistake(mistake of fact/mistake of value), b) Fraudulent Misrepresentation(Misrepresentation of Material Fact, Intent to Deceive, Reliance on Misrepresentation, Injury to the Innocent Party) c) Undue Influence(Confidential or Fiduciary Relationship, Relationship of dependence, Influence or Persuasion) d) Duress(force, threat)
22Discharge of contract1. Discharge by Performance(Complete Performance, Substantial Performance (minor breach),Performance to the Satisfaction of One of the Parties or a Third Party)2. Discharge by Breach3. Discharge by Agreement( Rescission, Novation, Substituted Agreement, Accord and Satisfaction)4. Discharge by operation of Law (Alteration of The Contract, Statutes of Limitations, Bankruptcy)5. Impossibility or Impracticability(Death or incapacitation prior to performance, Destruction of the Subject Matter,frustration of purpose,temporary impossibility)
Remedies for breach of contract ▫ Damages(Compensatory Damages—direct losses, Consequential (Special) Damages— foreseeable losses, Punitive Damages—punish or deter future conduct, Nominal Damages—no financial loss) ▫ Rescission and Restitution. ▫ Specific Performance. ▫ Reformation. ▫ Recovery Based on Quasi Contract.
Contract drafting and Review• Contract drafting is the essential part of the contract.• The skill of contract drafting- law school , experience etc• Contract must be clear, clarity, free from ambiguity, language, free from grammatical error,• Even a single comma can change the meaning of contract.• One shall follow contract checklist to ensure compliance
Contract drafting and review checklist• Identity of Parties • Governing law• Recitals • Modification of Agreement• Obligations of the each Parties • Severability• Terms of the Contract • Jury Trial Waivers• Price of the product or service- • Procedure for renewal fixed, determined by formula • Signatures• Payment Terms- • Time and place for performance installment, penalty for late • If insurance is required, types payment and levels of coverage listed?• Representations and Warranties • Spelling, formatting, grammar,• Liability of each parties on punctuation, and general breach appearance of document are• Termination of Contract professional and accurate.• Confidentiality • Legal Validity• Adjudication of disputes to be handled• Indemnification
Contract review• Review of draft contract to ensure compliance• Reviewing of existing contractual arrangements to optimize costs or terminate if not viable.• Review of terms before renewal.• Review of contracts to enforce obligations of each parties.• Review for new changes, additions or omissions.• Review for breach of any obligations or to prevent breach.
Types of Contract ReviewMainly two types:• Prior review (executory contract/ draft review)• Post review( review of executed/signed contract)Other types of review:• Procedural review• Legal Review• Formal Review• Substantial Review
Prior review• Contract prior review involves review of the contract before it is signed by the parties.• Contracts to comply with company rules and regulations.• Parties requirements have been clarified• Unclarified issues have been solved• Parties obligations have been defined• No changes or additions to agreed documents• All applicable law has been complied etc.• Company- contract review manual/checklist
Post review• Contract post review involves the review of the contract once it is signed by the both the parties• Identifying obligations of each parties and enforcement.• Suing for breach of contract.• Review to include new changes or modifications• Review for renewal.
Legal Review• Legal review of document involves the – review for statutory compliance E.g. In California, lease deeds requires to have compliance with the American Disabilities act and California building code.• Merger agreements -compliance with antitrust law.• Mortgage- lending and other statutes compliance.
Contract Management• Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees• A proper contract management oversees the performance of both party obligations
Contract management process• Involves various steps/process depending on the type of industry.• Contract Lifecycle Management (CLM)• Alerts on key dates.• Avoidance/mitigating risk• Important upcoming events,• Project and contract milestones, and deadlines.• Track of contract start and end dates.• Keep track of renewalsDisclaimer: All images belong to their respective owners. No copyright infringement intended. This ppt is made for educational purpose only.