CORPORATE LEGAL ENVIRONMENT MBA 302

The Indian Contract Act 1872

Meaning and Nature of Contract: The Law of Contract consitites the most Important branch of Mercantile or Commercial Law. If affects everybody, more so trade, commerce and industry. It may be also said that Contract is the foundation of the Civilised world. The Law relating to contract governed by the Indian Contract Act 1872

Scheme of the Act

The Indian Contract act is divided into two main groups. General principles of Law of Contract (Section 1 to 75) Specific kinds of contracts viz . Contract of Indemnity and Guarantee (Sec 124 -147) Contracts of Bailments and Pledge (Sec 148 181) Contract of Agency (Sec 183 -238) Before 1930 the act also contained provisions relating to contracts of sale of goods and Partnership Sec 76-123

Definition of Contract: According to Section 2 (h) of the Indian Contract Act An Agreement enforceable by law is a contract. A contract therefore is an agreement the object of which is to create a legal obligation i.e. a duty enforceable by law. From the above definition you will find out that I have highlighted two elements a) An Agreement and 2) Legal Obligations i.e. duty enforceable by law.

STEPS IN ENTERING INTO LAWFUL CONTRACTS

As per Contract Act, an agreement enforceable by law is a contract. [section 2(h)]

An offer is the first step in forming a contract. The middle step is the other party's acceptance of the deal. The last step is performance -- where you each live up to your side of the bargain.

A contract is an agreement between 2 or more persons (individuals, businesses, organizations or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value. Contracts generally can be written, using formal or informal terms, or entirely verbal. The terms of the contract - the who, what, where, when, and how of the agreement define the binding promises of each party to the contract.

Elements of a valid contract- Indian Contract Act,1872

Offer & Acceptance Lawful object Legal binding/ relationship Consensus ad idem Free & genuine Consent Capacity to enter in to contracts Lawful Consideration Agreement not declared void Certainty & Possibility of Performance

A contract need not be in writing, unless there is specific provision in law that the contract should be in writing. Example.. * contract for sale of immovable property must be in writing, stamped and registered. * Contracts which need registration should be in writing * Bill of Exchange or Promissory Note must be in writing. * Trust should be created in writing * Promise to pay a time barred loan should be in writing, as per Limitation Act * Contract made without consideration on account of natural love and affection should be in writing .

A verbal contract is equally enforceable, if it can be proved.. A contract can be enforced or compensation/damages for breach of contract can be obtained through Civil Court

Parties to a contract Contract can be between 2 or more persons (individuals, businesses, organizations or govt agencies)
Vendors

Buyers
A party Buyers customers Government Job workers Employees

1.Offers
Words, gestures, or actions can signal an offer to enter into a contract and an acceptance. If you are forced to make an offer ("your money or life") it is not a valid offer. Similarly if you are tricked into accepting, it will not be deemed acceptance of the terms offered. To have a binding obligation on both sides, both sides must approve and accept the terms and conditions of the offer. Offers remain open until: (1) accepted, (2) rejected, (3) retracted prior to acceptance, (4) countered, or (5) expired by their own terms. If you reject an offer, you have no contract unless at a later date a new offer is put on the table (called a "counter-offer"). A counter-offer is a new set of terms and conditions given in response to the original offer. The difference between the original offer and the counter-offer may be just one clause in particular or multiple provisions or the entire contract.
Be mindful that you can take back or withdraw an offer at any time before the other side has agreed to the deal. This is called retraction (proving that you have withdrawn the offer before the other side accepted may present a problem). On the other hand, changing your mind after you have signed or agreed precludes retraction. Absent compelling reasons for not holding up to your end of the bargain, you will be a party to a contract.

Acceptance
In order to convert a proposal into a promise the acceptance must (1) be absolute and unqualified. (2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted; and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but; if he fails to do so, he accepts the acceptance.

2. Lawful object & Consideration

The consideration or object of an agreement is lawful, unless It is forbidden by law; or is of such nature that, if permitted it would defeat the provision of any law or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

3.CONSIDERATION If the other side is to be held to the contract, you must give up something in exchange. This is called consideration. No side can have a free way out or the ability to obtain something of value without providing something in exchange. Money is the most common form of compensation, but it can also be property, giving up a right or valid claim, making a promise to do or not to do something, or anything of value. Agreeing to perform an illegal or illicit act is not consideration and the contract is void.

These are few lawful considerations. (a) A agrees to sell his house to B for 10,000 rupees. Here, B's promise to pay the sum of 10,000 rupees is the consideration for A's promise to sell the house and A's promises to sell the house is the consideration for B's promise to pay the 10,000 rupees. (b) A promises to pay 10,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it, B promises to grant time to C accordingly. Here, the promises of each party is the consideration for the promises of the other party. (c) A promises, for a certain sum paid to him by B, to make goods to B the value of his ship of it is wrecked on a certain voyage. Here, A's promises is the consideration for B's payment and B's payment is the consideration for A's promise. (d) A promises to maintain B's child, and B promises to pay A 1,000 rupees yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party.

Unlawful objects & considerations

A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. (UO) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. (UO) A promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. (UC) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment, by A, on his principal. (UO &UC)

4. COMPETENT PARTIES Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. [section 11]. . For a contract to be valid, each side must have the capacity to enter into it. 2. People and companies have sufficient legal competency. 3. A drugged or mentally-impaired person has impaired capacity and chances are a court may not hold that person to the contract. 4.Minors (e.g., usually those under eighteen) cannot, generally, enter into a binding contract without parental consent, unless it is for the necessities of life, such as food, clothing, or for student loan contracts. Examples: (a) A patient in a lunatic asylum who is at intervals of sound mind, may contract during those intervals. (b) A sane man, who is delirious from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgement as to its effect on his interests, cannot contract whilst such delirium of drunkenness lasts.

3. A centenarian 4. A politician 5. A baby 6. A government 7. An animal rights activist 8. A purdah women 9. A private Ltd. company 10.A minor (aged below 21 as per Court of Wards Act?

5. Mutual Assent or Meeting of the Minds This means that each side must be clear as to the essential details, rights, and obligations of the contract. Putting the deal down on paper prior to signing it goes A LONG way to avoid future misunderstandings and disputes. Meeting of the minds sometimes can be expressed by words spoken or gestures made or can be inferred from the surrounding circumstances. There is no meeting of the minds if: (1) one side is obviously joking or bragging, (2) there is no actual agreement (i.e., the farmer who is selling a gelding and the buyer thinks the horse is a brood mare), or (3) both sides have made a material mistake as to the terms or details of the contract.

Terms to identify & know

Statute- what the govt. / authority wants Heading & TitlesPreamble- The essence & scope Definitions- define all abstract terms/ lingo Interpretations- to clarify an issue Provisos- the other portion of the section is deemed as subject matter. It usually starts asbut, Explanations- to explain the case & relevant issues Illustrations- to highlight the moot Schedules- tables & exhibits Quotes- Previous judgments & Judges observations

Case studies-3

Chicago based Waste Management has been operating in Australia since 1984 and has gained leading share of the garbage collection market through expansion and acquisition. In 1986, the firm issued shares in Australia and then listed these shares on the Australian exchanges. A principal reason for listing was to enhance its corporate profile. According to a Waste Management spokesman, We view Australia as a growth market, and what we really wanted was to increase our visibility.

Waste Management Corp. Lists Its Stock in Australia:

Dabhol Power Company Case

Background:
The Dabhol Power Company is an Indian joint venture promoted by three multinational companies - ENRON, General Electric and Bechtel. In 1994, the State of Maharashtra, whose legislature and government were then controlled by the Congress Party, awarded a contract to Dabhol to construct one of India's largest electric power generating stations, involving a capacity of 1920 megawatts.

Issues:

Many public interest groups filed petitions in the Bombay High Court and Delhi High Court challenging the validity of the award of the contract without inviting public tenders and the environmental and other regulatory clearances that had been given to it. The courts dismissed all these petitions. In 1995, general elections were held in the State of Maharashtra & before results are out, the EB signed the final docs.

Now..
But, before the long delayed work on the project could recommence, a public interest group called the Center of Indian Trade Unions ("CITU") filed a petition in the Bombay High Court against the Union of India and many other respondents, including Dabhol, challenging the re-negotiated and modified contract. The Bombay High Court, in a remarkably candid judgment reported in Center of Indian Trade Unions v Union of India (1997) 1 All Maharashtra Reporter, 39, dismissed the petition mainly on the ground that the matters in issue before the court had been heard and finally decided in the previous decisions of the Mumbai and Delhi High Courts. But in doing so, the court made scathing strictures against the Government. This case is a significant example of how the Indian judiciary continues to play an independent role in protecting the interests of both citizen and foreigner.

Then.
A coalition government comprising two political parties the Shiv Sena and the Bharatiya Janata Party ("BJP") assumed power in the State. These parties had been violently opposing the Dabhol power project before and during the election campaign. It ordered the stoppage of all work on the project and announced that it would review the contract. The main charge against Dabhol was that the contract had been fraudulently obtained and that it was void because it was against public policy. In 1996, as a result of protracted negotiations between Dabhol and the Government, the contract was renegotiated, amended and signed. The structure of the project and the power tariff to the consumers were modified.