Law of Contracts

-Poorvi

Chothani

What is a contract?

An agreement Between two or more parties Recognized by law Enforceable through the courts

Every Agreement is not a Contract.

Contract = Agreement + enforceable by law. (i.e. legal obligations to do or abstaining from doing anything.) All contracts are agreement but all agreements are not contracts. In order to classify as a contract, it must be legal binding

Distinction between an agreement and a contract

Agreement Offer and its acceptance constitute an agreement An agreement may or may not create a legal obligation Every agreement need not necessarily be a contract Agreement is not concluded or binding contract Contract Agreement and its enforceability constitute a contract A contract necessarily create a legal obligation All contracts are necessarily agreements. Contract is concluded and binding on the concerned parties

Types of Contracts

Voidable Contract: It is when one of the parties has not exercised his free consent. Void Contract: That which ceases to be enforceable by law becomes void. Unenforceable Contract: Valid but incapable of proof, hence not enforceable. Executed Contract: When parties have performed their obligations. Executory Contract: When any party has not performed his share of obligation or promise. Express Contract: When terms of contract are reduced in writing.

Types of Contracts

Implied Contract: Terms of contract inferred from conduct between parties. Quasi Contract: Obligations which are not contracts but fall under the purview of law.

Contingent Contract: Where a promise contained in the contract is conditional.

Contracts of Record: Contracts made on the records of a court. Specialty Contract: In writing, sealed and delivered by parties. Contract under Seal Simple Contract: Not under seal. Made in writing or spoken words. Statutory Contract: All or some terms & conditions are statutory.

Types of Contracts

Implied Contract: Terms of contract inferred from conduct between parties. Quasi Contract: Obligations which are not contracts but fall under the purview of law. Contingent Contract: Where a promise contained in the contract is conditional. Contracts of Record: Contracts made on the records of a court. Specialty Contract: In writing, sealed and delivered by parties. Contract under Seal Simple Contract: Not under seal. Made in writing or spoken words. Statutory Contract: All or some terms & conditions are statutory. Executory Contract: When any party has not performed his share of obligation or promise. Express Contract: When terms of contract are reduced in writing.

Essential Elements of a Valid Contract

Offer Acceptance Consideration Legally binding

Essentials of a Valid Contract

Capacity of the parties Free consent Lawful object Certainty of terms Possibility of performance Writing and registration

Offer

An offer is an act or statement that proposes definite terms and permits the other party to create a contract by accepting those terms. Person making the offer is called the offeror Person to whom the offer is made is called the offeree

What is NOT an Offer?

Invitation to bargain is not an offer. Price quote is generally not an offer. An advertisement is generally not an offer. Placing an item up for auction is not an offer, it is merely a request for an offer.

Termination of a Offer
Methods of termination of offer:

1. Lapse of time
2. 3. 4. 5. Death of either party Destruction of the subject matter Rejection by the offeree Revocation by the offeror

Negotiable Terms
JOE Offer BOB Accept or Reject or Counteroffer

Accept or Reject or Counteroffer

Valid Acceptance: Essentials

Must be absolute and unconditional. Must be expressed in usual & reasonable manner. Mental acceptance is not sufficient. Must be communicated to Offeror. Must be by a certain person. Must be given within a reasonable time. Must accept the offer.

Communication of Acceptance

The offeree must say or do something to accept the offer. If an offer demands acceptance in a particular medium or manner, the offeree must follow those requirements. If the offer does not specify a type of acceptance, the offeree may accept in any reasonable manner and medium.

Types of Agreements

Valid Agreement: An agreement enforceable by law. Void Agreement: Not enforceable by law. Enforceable Agreement: A contract enforceable by law. Voidable Agreement: It is valid so long as it is not avoided by the party entitled to do so. Unenforceable Agreement: It is valid but not enforceable due to some technical defect. Illegal Agreement: It is void ab-initio

Example

Ram offers to sell his car for Rs 1,00,000 to Shyam. Shyam accepts this offer. This offer after acceptance becomes promise and this promise is treated as an agreement between Ram and Shyam Therefore, an agreement consists of an offer by one party and its acceptance by the other. Agreement = Offer + Acceptance of offer

Consideration

Bargaining that leads to an exchange of value between the parties. Consideration can be anything that someone might want to bargain for. It is the inducement to make the deal, or the thing that is bargained-for. What each party is willing to give up for the other partys promise

Legally Binding

Legally Enforceable Parties capable of contracting Consent of the parties A lawful object Consideration.

Export Contracts

Contracts which apply exclusively to the international sale of goods. There are 2 types of export contracts a) CIF b) FOB

CIF Contracts

Means cost, insurance and freight. Under this type of contract, the price that the buyer pays the seller includes the charge for the goods, the cost of getting them to the ship (e.g., transportation costs from the factory to the ship), loading costs and money for taking out an insurance policy for the goods. Both seller and buyer have specific duties In a CIF contract, it is the port of destination that is named; e.g., a CIF contract which says, CIF Amsterdam means that the goods will be shipped on CIF terms to the port of Amsterdam.

FOB Contracts

Means free on board which indicates that the seller will bear all costs up to the point where the goods are loaded onto the ship. E.g., he will bear transportation costs (to take the goods to the ship) and loading costs (to put them on the ship). However, the buyer is responsible for paying the freight and insurance. The port named in a FOB contract is the port of shipment where the goods will be loaded. So a contract FOB Antwerp indicates that the goods will be shipped on FOB terms and will be loaded at the port of Antwerp.

Difference between CIF and FOB Contracts

CIF To fulfill the contract, the seller can buy good already afloat, he does not have to physically load goods Seller always pays the cost for transporting the goods to The ship, plus freight and insurance It is a destinations contract; e.g.., CIF London, means the ship will offload in London. The seller always takes out the contract of carriage so he is always the shipper No need for nomination of ship or port CIF contracts are always export contracts; i.e., the ship is always going to a foreign destination. There can be constructive delivery of the goods via transfer of the Bill of Lading

FOB To fulfil the contract, the seller must load actual goods onto the ship, he cannot buy goods already afloat. The buyer is usually responsible for paying freight and insurance, only for additional services seller does so. It is an arrivals contract; e.g., FOB Kingston, means the ship will arrive at Kingston for loading. Depending on the type of FOB, either seller or buyer can take out Contract of Carriage, so either can be shipper. The ship and port must be nominated by the buyer FOB contracts can be for either import or export of goods. Constructive delivery is not allowed under an FOB contract, there must be delivery of the actual goods shipped

Important Pointers

Care before Cure Approach Term sheet Preparation Engage in what if scenarios Ask for a similar contract Check for contract forms Signing of the letter of intent

Writing that First Word

Contract writing is not creative writing and is not meant to provoke reflective thoughts or controversies about nuances of meaning. Contract writing is clear, direct and precise. Therefore, use common words and common meanings. Consider including choice of law, venue selection, and attorneys fee clauses. If your contract gets litigated, you might as well give yourself some "ammunition" for the fight. Explain technical terms and concepts. Remember that the parties might understand technical jargon, but the judge who interpret and apply the contract do not Follow simple rules of drafting Print and sign the Draft

Remember

Be cautious before you enter a contract Legal agreements are serious They are binding commitments