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

A. B. Suraj
 Formation
Stage I – PROPOSAL

 An Offer of willingness being communicated

 Differs from an Invitation to Offer

 Presence of an Intention to create legal

relations – Promise + expectation/request

A. B. Suraj
 Formation …
Stage II – 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?

A. B. Suraj
 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

A. B. Suraj
 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

A. B. Suraj
 DISCHARGE OF CONTRACT
 By Performance

 By Agreement

 By Impossibility

 By Breach

A. B. Suraj
Discharge by Performance
 Substantial performance standard
 Warranties – literal and equitable standards

 Reasonable opportunity to examine due

performance

 Readiness and Willingness to comply is

inferred

A. B. Suraj
 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

A. B. Suraj
 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

A. B. Suraj
 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

A. B. Suraj
 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
A. B. Suraj
 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

A. B. Suraj
SPECIFIC CONTRACTS OF:
EMPLOYMENT; and PPPs

Discussion on special features of

Contracts
 Employment Contract
 Restrictive Conditions

 Non-compete clauses

 Non-disclosure agreements

 Sharing of Intellectual Property Rights

 Conditional benefits
 Public-Private Contracts
 Public-Private contractual engagements:

1. Privatization and sector-specific Licensing

 Dedicated policy and regulatory framework

2. Public Procurement and ‘Outsourcing’

 Direct provision of and payment for goods/services
 Bound by strict regulations and procedures
 Clear and pre-determined terms and conditions

3. Concession-based arrangements [PPP]

 Structured to independently operate
 Comprehensive Public service nature of project
 Competitive bidding (usual mode); or OPP approach