04/12/23

Anuradha Maheshwari

MUMBAIOCT,2010

NMIMS-MBA

04/12/23

Discussions on Contracts Formation, performance, discharge, &

remedies Case solving exercises Special contracts Sale of goods Question time

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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.

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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

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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

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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

Franchise Consultancy, Joint Venture, Turnkey Projects

etc.

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FormationPerformanceDischargeRemedies

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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 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

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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, 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.

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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.

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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.

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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 those specially disqualified by the law from contracting are

considered incompetent. Incompetent persons by reason of judgment or

circumstances 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 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.

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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

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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.

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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 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

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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

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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

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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

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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.

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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.

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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.

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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.

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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 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!

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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

Introductions

Definitions

Grant

Royalties

Representations & Warranties

Signatures

Miscellaneous terms

Assignments & Transfer

Terms & termination

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

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.

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Thank You ! ! !

email: anuradha@rediffmail.com