Legal Aspects of Business

REM Session 1 10 Oct 2012

Legal Framework for Contracts

Legal Framework of Contracts
Should be Independent of directions of State Should be signed by Consenting parties Consideration: Agreements have to be exchange of two-sided benefits for it to become a contract. Courts can only insist on a consideration, and not on examining whether it is proportionate or not. (Pepper-Corn) All agreements are not contracts and only contracts can be enforced Social relationships are not mediated by law Contracts should not violate the existing law prevalent Compensation is present in-case of a breach or non-conformity Meeting of minds happens No coercion of either party.

Step 1: Identify whether it is a contract or not Examples: Buying a flat in a building Govt compulsorily acquiring land from farmers

Identification of parties and offer

Identify the invitation to offer, the offer, offeror and the offeree
Intent to offer is not measured, actual modalities is used for determining an offer Written contracts and oral contracts have same legal sanctity Offers and acceptances can be explicit or implicit Invitation to Offer: Any communication preceding the formation of an agreement is an invitation to offer Displays in shop windows, price lists and product catalogues are invitations to offer Advertisements Unless explicitly stated as an offer, they are treated to be an invitation to offers

Identification of parties and offer

Auction
Offerer Bidder Offeree Auctioneer (Accepts the offer)

In without reserve auction, the highest bid should be accepted In with reserve auction, the highest bid may or may not be accepted.
Tender -

A tender is only a communication and can be an offer, acceptance or just negotiation as the case maybe Step 2: Identify the invitation to offer, the offer, offerror and the offeree Examples: A company announced an IPO, public were requested to send bank drafts within a stipulated period. Decisions would be taken later

Acceptance of Offers
Acceptance vs Rejection
Acceptance must be unqualified, absolute and out of free consent. A long silence implies rejection of offer If terms of an offer are changed, then it is an implicit rejection

Step 3: Identify whether the offer was accepted, rejected and what the final contract was.

Time and Place of Contract

Two types of Communication Face-to-Face Communication
Time: Contract is complete when the offeror receives the acceptance Place: Place of contract formation is where the contractor is situated

Communication by Post
Time: When offeree sends acceptance via Post an is out of his control Place: Place where the offeree posts the acceptance from

Plaintiff Bhagwandas Offerer Offer made Kedia Khamgaon Accepted

Offeree Purshottamdas Ahmedabad Claim: Jurisdiction is Ahmedabad

Defendant - Kedia Offeree Kedia Khamgaon Accepted Trial Court Offeree Kedia Khamgaon Accepted High Court Rejected the appeal by defendant in limine. The appeal was preferred with special leave Offer made Offerer Purshottamdas Ahmedabad Offer made Offerer Purshottamdas Ahmedabad Claim: Jurisdiction is Khamgaon

Acceptance was made in Ahmedabad , Jurisdiction : Ahmedabad Telephone instantaneous

Supreme Court Majority : Accept Trial Courts decision. The place of acceptance is the place of contract Hidyatullah

Communication by telephone is like Post. The moment the acceptance is sent by the offeree the contract is made, hence the place of contract is in Khamgaon

Communication: Section 4 The moment the communicated of the offer acceptance is received by the offerer the contract is made. Therefore the place of contract is at the place of acceptance received Communication by post the moment the acceptance of offer is sent, the contract is made. Y is the offeree - the moment he sends the acceptance by post, X (offerer) is bound by it When X receives it, Y is bound by it.

Breach of contracts and Damages

Breach of a term in a contract can be of 2 types
Breach of a core part (Condition) - Terminate the contract Breach of a subsidiary part (Waarranty) Claim damages

Breach of a condition gives the right to the innocent party to terminate the contract and is called a repudiatory breach Breach of contract by one party does not automatically terminate the obligation under a contract, the injured party has the right or the option to treat the contract as still in existence, or to regard himself as discharged

Breach of contracts and Damages

The innocent party must communicate the decision to terminate the contract until which time they are bound by the contract. Communication may again be express or implied. Anticipatory breach When one party informs the other of a forthcoming breach of contract

Damages
No damaged for indirect loss Liquidated damages Damage amounts are specified in the contract. In most cases, damages <= liquidated damages Loss of profit is used to determine the damage amount if not explicitly specified Compensation for mental agony is never awarded

Steps for analysis of news articles

Step 1: Identify whether it is a contract or not Step 2: Identify the invitation to offer, the offer, offerror and the offeree

Step 3: Identify whether the offer was accepted, rejected and what the final contract was
Step 4: Identify the time and place of Contract Step 5: Identify breach of contract, if any, and hence the extent of damages

Case Studies
AIG vs RMZ Corporation http://articles.economictimes.indiatimes.co m/2012-10-03/news/34238731_1_rmz-aigglobal-real-estate-hyderabad-project Kingfisher Airlines http://timesofindia.indiatimes.com/business /india-business/Banks-may-crack-whip-onKingfisher/articleshow/16648846.cms