Corporate Learning and Development, NOIDA

कॉर्पोरे ट ज्ञानार्जन एवं ववकास, नोएडा

CONTRACT
MANAGEMENT

AN INTRODUCTION
TABLE OF CONTENTS

ELEMENTS OF A VALID CONTRACT ............................................................................... 3

TYPES OF CONTRACTS ........................................................................................................ 5

QUID PRO QUO ....................................................................................................................... 6

LEGALITY OF OBJECT......................................................................................................... 7

PERFORMANCE OF THE CONTRACT .............................................................................. 8

REMEDIES FOR BREACH OF CONTRACT ...................................................................... 8

DISTINCTION BETWEEN A CONTRACT OF INDEMNITY & A CONTRACT OF

GUARANTEE ......................................................................................................................... 10

BAILMENT AND PLEDGE .................................................................................................. 10

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 CONTRACT
The definition of Contract is given under Section 2(h) of the Indian Contract Act 1872, ‘A
contract is an agreement enforceable by law’. Thus a contract is an agreement made
between two or more parties which the law will enforce.

From the above definition it could be seen that the definition of contract consists two
elements-
An agreement and, 2. Its enforceability by law.

An agreement is defined u/s 2 (e) as ‘every promise and every set of promises, forming
consideration for each other. When a proposal is accepted it becomes a promise. Thus an
agreement is an accepted proposal. Therefore, in order to form an agreement there must
be a proposal or an offer by one party and its acceptance by other party.
In short Agreement-Proposal + Acceptance.
The second part of the definition deals with enforceability by law. An agreement is
enforceable u/s 10 if it is made by competent parties, out of their free consent and for
lawful object and consideration. Therefore,
CONTRACT = AGREEMENT + ENFORCEABILITY

Thus all contracts are agreements but all agreements are not necessarily contracts.

AGREEMENT = OFFER + ACCEPTANCE

 Should give rise to a legal obligation

 A legal tie which imposes upon a definite person or persons the necessity of doing or
abstaining from doing a definite act or acts
 Social agreements do not give rise to legal obligations and not enforceable in a court
of law.
 All contracts are agreements but all agreements are not necessarily contracts.
 A contract is a legally binding agreement between the parties identified in the
agreement to fulfill all the terms and conditions outlined in the agreement.
 A pre-requisite requirement for the enforcement of a contract, amongst other things,
is the condition that all the parties to the contract accept the terms of the claimed
contract.
 The forms of acceptance have expanded to include various forms of electronic
signature.

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 ELEMENTS OF A VALID CONTRACT

CONTRACT  OFFER + ACCEPTANCE

i. Offer and acceptance

When one person signifies to another his willingness to do or to abstain from doing anything with
a view to obtaining the assent of the other to such act, he is said to make an offer or proposal.
Usually, the offer is made by the proposer, and acceptance made by the insurer.

When a person to whom the offer is made signifies his assent thereto, this is deemed to be an
acceptance. Hence, when a proposal is accepted, it becomes a promise.

The acceptance needs to be communicated to the proposer which results in the formation of a
contract.

When a proposer accepts the terms of the insurance plan and signifies his assent by paying the
deposit amount, which, on acceptance of the proposal, gets converted to the first premium, the
proposal becomes a policy.

If any condition is put, it becomes a counter offer.

The policy bond becomes the evidence of the contract.

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ii. Consideration
This means that the contract must contain some mutual benefit for the parties. The premium is
the consideration from the insured, and the promise to indemnify, is the consideration from the
insurers.

iii. Agreement between the parties

There should be “consensus ad-idem” between both parties. i.e, Both the insurance company
and the policyholder must agree on the same thing in the same sense.

iv. Free consent

There should be free consent while entering into a contract. Consent is said to be free when it is
not caused by
 Coercion
 Undue influence
 Fraud
 Misrepresentation
 Mistake
When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement
is voidable.

v. Capacity of the parties

Both the parties to the contract must be legally competent to enter into the contract. The
policyholder must have attained the age of majority at the time of signing the proposal and
should be of sound mind and not disqualified under law. For example, minors cannot enter into
insurance contracts.

vi. Legality
The object of the contract must be legal. Every agreement of which the object or consideration
is unlawful is void.

Important
i. Coercion - Involves pressure applied through criminal means.
ii. Undue influence - When a person who is able to dominate the will of another, uses her position
to obtain an undue advantage over the other.
iii. Fraud - When a person induces another to act on a false belief that is caused by a
representation he or she does not believe to be true. It can arise either from deliberate
concealment of facts or through misrepresenting them.

iv. Mistake - Error in one’s knowledge or belief or interpretation of a thing or event. This can lead
to an error in understanding and agreement about the subject matter of contract.

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TYPES OF CONTRACTS
On the basis of nature of contract, it can be classified as following:

1. Valid Contract: A contract which satisfies all the essentials of a valid contract is known
as a valid contract. If one or more essential elements are absent, the contract
becomes void, or voidable or illegal.

2. Void Contract: A void contract is that contract which is not enforceable by either of
the parties to it. A void contract has no legal effect. A contract may be void from the
very beginning or may be valid originally when it was formed but has subsequently
became void due to change in circumstances.

3. Voidable Contract: A voidable contract is that contract in which free consent of one
of the parties to it is not secured. For example, contracts caused by Frauds, Coercion,
Mistake, Undue Influence, Misrepresentation, etc. Such contracts are valid till it is
avoided by the injured party.

4. Unenforceable Contract: An unenforceable contract is that contract which cannot be

enforced in courts due to some technical defect, such as absence of writing, payment
of inadequate stamp duty etc.

5. Illegal Contract: An illegal agreement is one the object of which is-

a. Fraudulent b) against the provisions of any law c) causes an injury or damage to any
person or his property d) immoral or opposed to public policy.

6. Express Contract: In express contracts, the terms are stated in writing expressly.

7. Implied Contract: An implied contract is one which is the result of the conduct of the
parties. For example, when a person boards a public bus or drinks a cup of tea in a
restaurant there is an implied contract and he has to pay the charges for it.

8. Executed Contract: An executed contract is that contract in which both the parties to
the contract have performed their respective promises.

9. Executory Contract: An executory contract is that contract in which both the parties
to it have yet to perform their promises.

10. Unilateral Contract: A unilateral contract is that contract in which only one party is
required to perform his obligation.

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 11. Bilateral Contract: A bilateral contract is one in which both the parties are required
to perform their obligations.

On the basis of the functionality of contract and parties involved, Contracts can be of
following type:

 A Sales Contract is a contract between your company (the Seller) and a Customer
that you are promising to sell products and/or services. The customer in return is
obligated to pay for the product/services bought. On the other side, it is a Purchasing
Contract between your customer (the Buyer) and we, who is promising to sell
products and/or services.

 A Partnership Agreement is a contract which formally establishes the terms of a

partnership between two legal entities such that they regard each other as 'partners'
in a commercial arrangement.

 A Trade Agreement (also known as Trade Pact) is a wide ranging tax, tariff and trade
treaty that often includes investment guarantees. The most common trade
agreements are of the preferential and free trade types are concluded in order to
reduce (or eliminate) tariff, quotas and other trade restrictions on
items traded between the signatories.

 Intellectual Property Agreement: The Agreement on Trade-Related Aspects of

Intellectual Property Rights (TRIPS) is an International Legal Agreement between all
the member nations of the World Trade Organization(WTO). It sets down minimum
standards for the regulation by national governments of many forms of Intellectual
Property (IP) as applied to nationals of other WTO member nations.

CONSIDERATION
 SOMETHING IN RETURN – The price for which the promise of the other is bought
“QUID PRO QUO”

 SEC 2D – DEFINITION: When at the desire of the promisor, the promise or any other
person has done or abstained from doing, or does or abstains from doing, or promises
to do or to abstain from doing something, such act or abstinence or promise is called
a consideration for the promise.

 CONSIDERATION IS NECESSARY ELEMENT FOR A VALID CONTRACT

 Gratuitous and voluntary promises are not considered valid Consideration

QUID PRO QUO

 Quid pro quo (Latin for "something for something”) indicates a more-or-less equal
exchange or substitution of goods or services.

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  English speakers often use the term to mean "a favor for a favor" and the phrases
"what for what", "give and take", "this for that" have similar meanings.
Legal usage
 In legal usage, quid pro quo indicates that an item or a service has been traded in
return for something of value, usually when the propriety or equity of the transaction
is in question.
 For example, under the common law (except in Scotland), a binding contract must
involve consideration: that is, the exchange of something of value for something else
of economic value. If the exchange appears excessively one sided, courts in some
jurisdictions may question whether a quid pro quo did not actually exist and the
contract may be void.

LEGALITY OF OBJECT
The consideration or object of an agreement is unlawful if

 It is forbidden by law
 It is of such nature that if permitted would defeat the provisions of any law
 It is fraudulent
 It involves or implies injury to the person or property of another.
 The court regards it as immoral (sexual immorality, opposing to public policy).

LEGAL RULES FOR CONSIDERATION

 It must move at the desire of the promisor
 It may move from the promise or any other person.
 It may be an act, abstinence or a return promise.
 It may be past, present or future. It need not be adequate
 It must be a real and not illusory
 Must be something which the promisor is not already bound to do.
 Must not be illegal, immoral or opposed to public policy

A CONTRACT WITHOUT CONSIDERATION IS VOID EXCEPTIONS

 LOVE AND AFFECTION If a Parent out of natural love and affection, promises to give
his son, B, 1,000. A puts his promise to B into writing and registers it. This is a contract.
 COMPENSATION FOR VOLUNTARY SERVICES A Finds B's purse and gives it to him. B
promises to give A 50. This is a contract.
 PROMISE TO PAY A TIME BARRED DEBT A owes B 1,000, but the debt is barred by
the Limitation Act. A signs a written promise to pay B 500 on account of the debt. This
is a contract.
 AGENCY Section 185 of the Contract Act lies down that no consideration is necessary
to create an agency.

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  COMPLETED GIFTA gift (which is not an agreement) does not require consideration
in order to be valid. “As between the donor and the done, any gift actually made will
be valid and binding even though without consideration

CAPACITY TO CONTRACT
The following persons are incompetent to contract
 Minors
 Persons of unsound mind
 Persons disqualified by any law to which they are subject

FREE CONSENT
 To agree upon the same thing in the same sense at the same time & their consent is
free & real
 Two or more persons are said to consent when they agree upon the same thing in
the same sense. A consent is said to be free when it is not caused by
 Coercion
 Undue influence
 Fraud
 Misrepresentation
 Mistake subject to provisions of section 20, 21 & 22

PERFORMANCE OF THE CONTRACT

The contract must be performed by the
 Promisor himself.
 Agent
 Representatives (in case of the death of promisor)
 Joint promisors
 Time is the essence of the contract

DISCHARGE OF CONTRACT
 By performance
 By agreement or consent
 By impossibility
 By lapse of time
 By operation of law
 By breach of contract

REMEDIES FOR BREACH OF CONTRACT

 Rescission of The Contract

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  Suit for Damages
 Suit Upon Quantum Meruit
 Suit for Specific Performance of the Contract
 Suit for Injunction

RESCISSION
 In contract law, rescission (to rescind or set aside a contract) has been defined as
the unmaking of a contract between the parties. Rescission is the unwinding of a
transaction. This is done to bring the parties, as far as possible, back to the position
in which they were before they entered into a contract (the "status quo ante"). This
an equitable remedy and is discretionary. The court may decline to rescind a
contract if one party has affirmed the contract by his action (see Long v Lloyd [1958]
1 WLR 753) or a third party has acquired some rights or there has been substantial
performance in implementing the contract.

 In common law jurisdictions, court judgments may also be rescinded, here meaning
to be set aside or made void, on application to the court that granted the judgment
or a higher court. Applications to rescind a judgment are usually made on the basis
of error or for good cause.

 In insurance, rescission is the termination of a contract from the beginning (as if it

never existed). The insurer has the right to rescind a policy due to concealment,
material misrepresentation, or material breach of warranty.

 In parliamentary procedure, the motion to rescind, repeal or annul is used to cancel

or countermand a motion previously adopted.

SUIT FOR DAMAGES

 Refers to any proceeding by one person or persons against another or others in a
court of law in which the plaintiff pursues the remedy that the law affords for the
redress of an injury or the enforcement of a right, whether at law or in Equity.

 Suit is - Filing of a complaint (or petition) asking for legal redress by judicial action,
often called a "lawsuit." In common parlance, a suit asking for a court order for
action rather than a money judgment is often called a "petition," but technically it
is a "suit in equity."

QUANTUM MERUIT
 Quantum Meruit is a Latin phrase meaning "as much as he has deserved". In the
context of contract law, it means something along the lines of "reasonable value of
services".
 When a person employs (impliedly or expressly) another to do work for him,
without any agreement as to his compensation, the law implies a promise from the

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 employer to the workman that he will pay him for his services, as much as he may
deserve or merit.

DISTINCTION BETWEEN A CONTRACT OF INDEMNITY & A CONTRACT OF

GUARANTEE
CONTRACT OF CONTRACT OF
INDEMNITY GUARANTEE
 There are two parties to the contract.  There are three parties to the
Viz., The indemnifier (promisor) & contract viz., The creditor, the
indemnified (promise). principal debtor and the surety.
 The liability of the indemnifier to the  The liability of the surety to the
indemnified is primary and creditor is collateral or secondary,
independent. the primary liability being that of
 There is only one contract in the case of the principal debtor.
a contract of indemnity, i.e., Between  In a contract of guarantee, there
the indemnifier and the indemnified. are three contracts: one between
 It is not necessary for the indemnifier to the principal debtor and the
act the request of the indemnified creditor, the second between the
 The liability of the indemnifier arises creditor and the surety and the
only on the happening of a contingency. third between the surety and the
 An indemnifier cannot sue a third party principal debtor.
for loss in his own name, because there  It is necessary that the surety
is no privity of contract. He can do so should give the guarantee at the
only if there is an assignment in his request of the debtor.
favour.  There is usually an existing debt
 The doctrine of privity of contract is or duty, the performance of
a common law principle which provides which is guaranteed by the
that a contract cannot confer rights nor surety.
impose its obligations upon any person  A surety, on discharging the debt
who is not a party to the contract. due by the principal debtor, steps
into the shoes of the creditor. He
can proceed against the principal
debtor in his own right.

BAILMENT AND PLEDGE

 According to Sec 148 of the Contract Act, 1872, 'A bailment is the delivery of goods
by one person to another for some purpose, upon a contract that they shall, when

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 the purpose is accomplished, be returned or otherwise disposed of according to the
directions of the person delivering them.
 According to Sec 172 of the Contract Act, 1872 Pledge implies a contract, in which
an article is delivered or say deposited with the money lender, as security for
repayment of a debt owed by him/her or performance of promise to pay back.

BAILMENT PLEDGE
Meaning When the goods are temporarily handed When the goods are delivered to act as
over from one person to another person for security against the debt owed by one
a specific purpose, it is known as bailment. person to another person, it is known
as the pledge.
Parties The person who delivers the goods is known as the The person who delivers the goods is known as
Bailor while the person to whom the goods are Pawnor while the person to whom the goods
delivered is known as Bailee. are delivered is known as Pawnee.
Consider May or may not be present. Always present.
ation
Right to The party whom goods are being delivered has no The party whom goods are being delivered as
sell the right to sell the goods. security has the right to sell the goods if the
goods party who delivers the goods fails to pay the
debt.
Use of The party whom goods are being delivered can use The party whom goods are being delivered has
Goods the goods only, for the specified purpose. no right to use the goods.
Purpose Safe keeping or repairs, etc. As security against payment of debt.

RIGHTS OF A BAILOR
 Enforcement of rights: can enforce by suit all the liabilities are duties of the Bailee
as his rights.
 Avoidance of contract: can terminate the bailment if the bailey does any act
inconsistent with the terms of the bailment.
 Return of the goods length gratuitously
 Compensation from a wrong doer
LAW RELATING TO LIEN
 Right of one person to retain possession of some goods belonging to other until
some debt or claim of the person in possession is satisfied.
 Particular lien: available to the Bailee against only those goods in respect of which
he has rendered some service involving exercise of labour or skill.
 General lien: a right to retain all the goods or any property until all the claims of the
holder are satisfied.

THANK YOU…
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