Contracting and Contract Law Nilima Bhadbhade, PhD (Law) Nilima.firstname.lastname@example.org
Keeping promises • Why do parties keep their promises? • Why do parties want their contract to be ‘legal’ ? • What is ‘legal’ ?
Enforceability What is ‘enforceability’?
Contract law Enforceability • What parties have agreed binds them • failing which they have ‘broken’ the contract • in which case the other party has rights • which can be enforced.
Parties’ freedom • How to make it - formation • How and when they will perform it – performance • Effect of not performing – breach,consequences • Can they make changes - variation • How long will their relationship last - term • How will their relationship end – discharge • What thereafter – consequences
Parties’ freedom • which law will apply • which court will have jurisdiction • arbitration
Role of Law • Indian Contract Act 1872 • find the contract • general principles for all contracts • enables full freedom • ‘default’ rules • limits of enforceability • remedy of damages
Role of Law • for particular contracts • Agency • Bailment • Pledge • Indemnity • Guarantee • Sale of goods • Carriage • Negotiable Instruments • Powers-of-attorney
Other laws • Other laws • for control and regulation • for protecting a class of persons • Procedure • Case-law
Enforcement of a contract • Has it formed at all? • Is there agreement. • Is it enforceable • Competent parties • Free consent • Consideration • Not declared ‘void’ • It is a contract if it is enforceable.
Contract law is strict • Perform exactly as agreed • Damages • Reason for non-performance irrelevant • No excuses
Formation • Formal document • Informal document • Oral • Offer and acceptance analysis • Writing has advantages
Enforceability • writing • other formalities • if required by other laws • Art. 299 of Constitution of India
Which is the contract • Offer and acceptance • Written document • Some terms implied • Many written documents • Tender • Acceptance • General conditions • Special conditions • Indicate hierarchy
Is the writing final ? • Court attempts to uphold contract • Interpretation • Implying terms
The task of interpretation • “Intention of parties”
Interpretation • “Front portion of land” • Insurance - burglary of cash or jewellery in a ‘safe’
Rogers Cable Communications v. Aliant Telecom Inc. 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.
Interpretation • X shall be entitled to terminate the contract if Y (the other party)…(a) being a Company, goes into liquidation,or(b) assigns the contract without permission, or(c) abandons the contract, or …., or(k) persistently disregards the instructions of X’s Engineer, or contravenes any provisions of the contract, or…
Implying terms • Terms may be added • As additional terms agreed • As implied terms • seller will obtain permission for sale
Negotiation - IS THERE A CONTRACT? • P needs 70,000 pieces of machine parts – specified specs • Letters to S1, S2 and S3 for quotations • S2 quotes Rs 45 per item, specs modified • P : interested, 90000 items, quote for defined specs • S2 : For this quantity Rs 44 per item, 50 % advance, 50 % against delivery
Negotiation - IS THERE A CONTRACT? • P : Price acceptable, send items on 20 Sep, sends 25 % price of this lot as advance; Propose 25 % advance, balance at delivery on inspection. • S2 : Items will be sent on 20 Sep, send 50 % advance. • S2: does not receive advance, but sends items. • P : does not accept delivery, having already got them from S3. • S2 : claims amount of loss being required to sell the items as scrap.
Negotiation - IS THERE A CONTRACT? • P needs 70,000 pieces of machine parts – specified specs • Letters to S1, S2 and S3 for quotations • S2 quotes Rs 45 per item, specs modified • P : interested, 90000 items, quote for defined specs • S2 : For this quantity Rs 44 per item, 50 % advance, 50 % against delivery • P : Price acceptable, send items on 20 Sep, sends 25 % price of this lot as advance; Propose 25 % advance, balance at delivery on inspection. • S2 : Items will be sent on 20 Sep, send 50 % advance. • S2: does not receive advance, but sends items. • P : does not accept delivery, having already got them from S3. • S2 : claims amount of loss being required to sell the items as scrap.
Offer • “Proposal” • Willingness to do or not to do something with a view to get assent of another • Contain all terms
Invitation to offer • Invitation to offer • Tender Notices • Enquiries
Offer • Offeror is master of his offer • Time for acceptance • Condition, eg. Advance • Bound only if acceptance received • Manner of acceptance
Acceptance • “YES” to the offer is its acceptance • Unqualified and unconditional • OF ALL TERMS OF OFFER • Else - counter-offer • Acceptance ‘subject to condition’“subject to confirmation”“subject to formal document”
Communication of acceptance • Acceptance must be communicated to offeror • Not mere decision, resolution • Binds offeror • Oral – immediately • Telephone – when it reaches the offeror • If by post, e-mail - when posted. • Place of contract
Tenders • Process • Tender notice (invitation) • Tenders (OFFER) • Decision • Acceptance • Communication of acceptance
Revocation of offer • Right to revoke • Despite promise to keep offer open • Despite agreement not to revoke • Forfeiture of earnest money • Until acceptance binds him
Revocation of offer • Revocation by • Express notice • Not accepted within time prescribed • Rejection of proposal by offerree • Counter-offer • Death of offeror
Process of formation - example IS THERE A CONTRACT? • Tender accepted by officer subject to confirmation of government, submitted for confirmation • Tenderer gave fresh bid • Fresh bid confirmed by government, informed officer • Not informed to Tenderer • Tender of another bidder accepted
Formation • Offer when accepted agreement • If enforceable by law contract if it satisfies further conditions • IMMEDIATELY BINDING !!!
Freedom in contract formation • No interference in making a contract • Freedom to negotiate • With anyone • In any manner • Withdraw at any stage
Public contracts • Article 14 of the Constitution • Equality before law and equal protection of laws • State cannot act arbitrarily • When a State contracts, it must do so fairly, without discrimination and without unfair procedure.
Public contracts • Rule – have public auction or call tenders • Follow tender procedure • Adequate publicity • Opportunity to all • Pre-qualification allowed • Can prescribe qualifications • Tender form available • Any change – opportunity to all • Rejection
Public contracts • Judicial review • of decision making process • not of merits • Judicial restraint in interference • Government needs ‘fair play in its joints’ • Court will not • substitute its expertise • scrutinise terms of invitation to tender
Public contracts Once contract made, Government is like a private party
Negotiation process • Exchange of information • Parties can change positions freely • Parties entitled to advance own interest • One party may assume there is a contract
Special documents • Letters of intent • Memorandum of Understanding (MOU)
Letters of intent • Purpose • Understanding reached • Further actions, investigations, negotiations
Letter of Intent BINDING • Intention to be gathered from words NOT BINDING • Clear intention not to be bound • Further negotiations expected
Four elements of validity • Competency • Free consent • Consideration • Not declared void
Competency • COMPETENCY • Age - 18 years • Sound mind • Not legally disqualified • Effect – agreement is VOID
Authority • Authority • Corporation, company • Partnership • Who can sign? • Agent - POA • Partner • For a Company • Manner of signature
Who should be parties Doctrine of privity
Doctrine of privity • Contracts binds parties only • Two questions • C cannot enforce a contract between A and B, even if it is for C’s benefit • A or B cannot enforce obligation against C • Who should be parties? • The sub-contractor