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A2 - Contmgmt2&3
A2 - Contmgmt2&3
As projected in the last article, the attention can now be focused to Indian Contract
Act, 1872 and its significance for Contract Management Strategy.
i) Agreement
Normally, two parties to the contract are Promisor (Contractor) and Promisee
(Client). There must be an agreement between these two parties. One of the
parties should make a proposal which is called an offer and the other party
should give its consent to the offer which is called an acceptance. The offer
must be in definite terms and acceptance should be absolute and
unconditional. There should be proper communication about offer and
acceptance which are complete when it comes to the knowledge of other
party to whom it was conveyed.
The consent of the parties to the agreement must be free and genuine. The
consent is not free when it is affected by coercion, undue influence, mis-
representation and fraud.
v) Competent Parties
The parties to the agreement must be capable of entering into contract; not
being minor or of unsound mind. Such person should not have been
disqualified by any other law from entering into another contract.
The object of the contract agreement should be lawful, i.e. not illegal, immoral
or against the public policy, otherwise such agreement will not be enforceable.
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ix) Legal Formalities
All agreements should fulfil the necessary legal formalities for ensuring the
enforceability of the contract. Though an oral agreement can be valid, it is
better to have the agreement in writing. Similarly in certain cases necessary
stamp duty is to be paid as per Stamp Act. In such cases, it is necessary to
register the agreement.
Abovementioned nine points are like essential features which need to be in place if
the contract is to be legal and valid. But this discussion will not be complete without
discussing nature or type of contract that comes into existence during various
business transactions in any contracted activity.
Types of Contract
There are other ways to classify the contracts, such as based on performance or
mode of formation, which can be briefly discussed.
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Executed and Executory Contracts
Contingent Contracts
i) Introduction (Section 1)
ii) Proposal, Acceptance and Consideration etc. (Sections 2 to 9)
iii) Communication & Revocation (Sections 3, 7 and 8)
iv) Valid Contracts (Section 10)
v) Competency of parties to contract (Sections 11 and 12)
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vi) Consent & Free Consent (Sections 13 to 22)
vii) Lawful object & consideration (Sections 23, 24, 57 and 58)
ix) Contingent contracts (Sections 31 to 36)
The rest of the clauses can be covered selectively, keeping in mind its relevance to
construction business. Hence, issues such restraint of marriage or agreements by
way of wager (Sections 26 and 30) can be paid less attention and issues such
Performance Discharge and Breach of Contract need to be looked into due to its
importance for day today business of managing contracts.
Performance of Contract
Every contract signed by two parties creates certain obligations on each of the
parties involved in it. When both the parties to the contract fulfil their obligations
towards each other, the contract is said to be performed. In some cases, the
promisor (contractor) offers to perform his part of the contract at appropriate time
and place, but the promisee (client) does not accept the performance. This is known
as attempted performance or tender for performance.
A Valid Tender
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iii) Tender offer by party or person willing and capable of performing;
iv) Tender offer must be in proper form to the correct person and at proper time
and place of delivery;
vi) If there are several joint Promisees, tender offer may be made to any of
them;
Performance of Contract
vi) If contract is voidable type, at the option of one party and is rescinded.
This question appears unnecessary, but in some cases carries great importance, as
explained in some situations below.
ii) In some other cases, an agent of a Promisor may perform the contract,
without adversely affecting the promise made to the Promisee.
iii) Even third party can perform the Promise if accepted by the Promisee as
adequate.
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vi) In certain cases, there may be several promises and all the joint Promisors
are required to perform to fulfil the contract.
The further responsibilities between joint Promisors are also provided in the Indian
Contract Act in Sections 42 to 44 and can be referred when need arises.
The time and place for performance of contracts is sometimes not specified. In such
a situation, the Promisor has to perform the contract within reasonable time. What is
'reasonable time' is not made clear in the Act and may, therefore, depend upon each
case. But if the time has been decided in the contract, the Promisor should perform
it on the specified day, within normal business hours. If no place for performance is
fixed, the Promisor has to seek a place for performance from Promisor and work at
that place.
But if time is not the essence of contract as implied under Section 55 of the Act, and
the Promisor does not perform the contract within the normally stipulated time, the
contract does not become voidable. However, the Promisee can claim
compensation for the delayed performance.
The most important thing in any contract is that if time is going to be the essence of
the contract, it should be clearly mentioned in the contract.
Assignment of Contracts
When the rights and liabilities arising out of a contract are transferred to third parties,
it is known as Assignment Contract. The assignment may take place with or without
the consent of the other party unless expressly prohibited in contract conditions.
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The contracts of personal nature involving personal skill, cannot be assigned. Hence,
Singers, Musicians or Surgeons cannot assign their contract. However, Promisor
may assign a contract to other competent person who may perform the work for
Promisor and the Promisee does not object to it.
Discharge of Contract
Discharge of contract is achieved when the rights and liabilities created out of
contract come to an end. The discharge can arise out of any of the following
situations :
Though most of the above methods of discharge can be easily understood, some
comments are necessary to clarify certain issues arising out of discharge of contract.
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Impossibility of performance of contract comes into consideration due to Section 56
of the Indian Contract Act. The impossibility of performance may be known to the
parties at the time of forming of the contract or may be unknown to them at the time
of signing. Sometimes, at the formation of the contract, it is quite possible to
perform. Such impossibility, also called as 'Supervening Impossibility' arises due to
destruction of subject matter or due to change of law or outbreak of war, etc.
Breach of Contract
Though Breach of Contract is mentioned earlier, as one of the reason for discharge
of contract, the breach by contractor cannot get settled without compensation for the
loss caused due to such non-performance. Following remedies are available in the
Contract Act.
i) Rescission of Contract
If there is a breach of contract by one of the parties, the other party can
rescind the contract. In such cases, the other is relieved from performing its
part of contract. However, other party can claim compensation for the loss the
loss caused to him, by the first party.
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iv) Specific Performance
In case of breach of certain contracts, compensation in monetary terms is not
enough. In such cases, the court directs the defaulting party to perform its
part rather than awarding any damages.
vi) Injunction
Stay order is awarded by court when a party to a contract has agreed not to
do a certain thing as a part of the contract, but in fact showing an intention of
doing that thing. This can prevent defaulting party from doing non-contractual
wrong things.
By now some key issues of Indian Contract Act are covered here to the extent
necessary at general level. But there are many more topics in the Act that
also matter. For example, Quasi Contracts, Contracts of Indemnity, Bailment
and contract of agency, etc., the related topics which can affect the
contractual relationship, but instead of dealing with it here, these issues can
be commented in further articles, when appropriate occasion arises.
This review of Indian Contract Act was undertaken to dispel some wide spread
misunderstanding many project and contract engineers have about the legal frame
work. Many of them believe that whatever conditions written down in the contract
are automatically valid or applicable when both the parties sign the contract. In
reality, Indian Contract Act is like a frame work within which all the contract
conditions must be written. Any unreasonable contract conditions imposed by client
or contractor can get struck down if they are not fitting into legal frame work created
by Indian Contract Act. Many court verdicts are testimony to this fact.
By
Prof. Ajit Patwardhan,
64, Ideal Colony, Kohrud, Pune 411 029
Telephone No. 25461748, e-mail : [email protected]
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