LEGAL PRINCIPLES

GOVERNING CONTRACTS

Principles of formation, performance

and enforcement of contracts

Prof. Anil B. Suraj

 Contract – Basic features
 Agreement – when legally enforceable –
becomes contract – even oral agreement

 Freedom of the Parties

 “Free will” of the Parties – consensus ad idem –
“agree upon the same thing in the same sense”
 Flexibility of format and structure
 Emergence of Standard formats

 Based on bona fides and good faith

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 Formation
Stage I – DEFINITE PROPOSAL

 An Offer of willingness being communicated

 Differs from an Invitation to Offer

 Presence of an Intention to create legal

relations – Promise + expectation/request

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 Formation …
Stage II – MATCHING & UNCONDITIONAL
ACCEPTANCE
 Unconditional and final, else it becomes a counter
proposal

 Intention is vital – express or implied

 Communication is essential – silence is not (presumed)

acceptance!!
 Subsequent conduct?
 Compulsory/mandatory acceptance?

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 Formation …
Stage III – Determine Consideration

 Any reciprocal act, forbearance or promise (only present and

future – not past)

 Essential for a Promise to become legally enforceable

 Either Detriment or Benefit concept – must be valuable in

Law – excludes affection, respect, moral duty

 “Nominal” and “Inadequate” – No consideration

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 VITIATING FACTORS
 COERCION – Criminal Intimidation – Done by either party

 UNDUE INFLUENCE – Abuse of Dominant position – not

better bargaining power

 FRAUD – knowingly assert falsely; active concealment;

insincere promise; deception

 MISREPRESENTATION – False submission not

knowing the truth; non-disclosure

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 DISCHARGE OF CONTRACT
 By Performance

 By Agreement

 By Impossibility

 By Breach

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 When Time is of Essence
 Stipulation of time of performance
 Mere mention is insufficient

 Reasonable time-standard if no particular

stipulation is found

 Effect of violation:
 Voidable; Compensatory; Waiver

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 Discharge by Agreement
 Agreement to substitute; rescind; or alter

 Novation = new contract substituting the old;

could be with new parties

 Recission = released by mutual consent;

prospective effect

 Mutual consent is mandatory

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 Discharge by Impossibility
 Contract to do something impossible is void due to
frustration

 Unforeseen development frustrating the performance of

the contract

 Should have no relation to either party’s conduct –

uncertain event

 Force majeure = occurrence shall enable discharge

 Impact on long-term projects? Need follow-up procedures

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 Discharge by Breach
 Breach = either by failure; repudiation; or
voluntary disablement
 An available legal option = “Better an end with horror;
than horror without an end”!

 Intentional abandonment of the fundamental

promise – not mere non-performance

 Could even be considered as sufficient discharge of

contract
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 Liability and Damages
 Fair & reasonable damages; and not for remote or indirect losses

 Liquidated Damages – stipulated to deter breach

 Considered as the maximum limit
 Unliquidated = reasonable basis

 Unlimited scope of liability = statutory; and tortious

 Indemnity clause – to cover third party claims – could have limitations,

unless prohibited by law

 Factors considered – loss incurred or inevitable; profits

denied; unfair gains of other Party

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