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Legal Aspects of Contract

Class 4
Advantages of Standard Form for
Business
• Provides convenience to business organisations

• Reduce burden of negotiating and forming a new

contract for each customer

• Prevalent in all form of business/commercial

activities
Example/Situation
• BK Ltd. sent important original documents relating
to an export consignment to a party in Germany
with DHL.
• Only the original documents would have enabled the
party in receiving the consignment.
• DHL lost the courier, causing losses to BK Ltd.
• BK Ltd. was demanding the actual losses suffered by
them.
Cont.
• DHL made all its customers sign a standard form
containing a term that limited the liability of the
DHL in the event of loss of courier to Rs.1000
• Are standard form contract and limited liability
clause enforceable?
• Are limited liability clauses significant for business?
• Court held: A person who signed a document
containing contract and terms is normally
bound by them even though he has not read
them, and even though he is ignorant of their
precise legal effect
• Standard form contract and limited liability
clauses are usually enforceable
Are standard contracts one-sided?
• Standard contracts are criticised for being only
advantageous for business organisations- One
sided contracts
• What about consumer’s interest?
“A typical contract for the purchase of house from a
developer is so one-sided as to be a joke, except that
the joke is on you, when you are the home-buyer.

Take some typical clauses. If the buyer delays an


instalment by fifteen days, he pays a penal interest at
the rate of 18% per annum; but when a builder
delays on his promise by a year, he rarely pays more
than 1% per annum on the buyer payments! And
these payments could well amount to a lifetime
savings of an average professional.”
(Dealing with one-sided contracts, ET 2008)
• Are standard form contract a business necessity?
• Should consumer interest be incorporated in
standard contracts? If yes, how?
Cont.
Govt wants to clamp down on one-sided
contracts
“Soon, your telecom operator, bank or real estate
developer may not be able to get away with one-
sided contracts. Government officials said
discussions are on to bring in transparent rules
on unfair contracts. Under the present laws, the
contracts are unilateral and there is no
protection against unfair contracts”
Recent decision of National Consumer
Dispute Redressal Commission
• Builders can’t hide behind the clause in the
builder-buyer agreement

• Pay only Rs 5 per sq feet per month as


compensation for delay.

• Higher compensation could be asked by the


consumers if the delay is for a prolonged period
of time
Recent Development-Regulatory
Bodies
• Real Estate Regulatory Authority-

• A default on the possession timeline by JNC


Construction prompted the Uttar Pradesh RERA
authority to order a refund with 24 percent
interest and a compensation of Rs 2.5 lakh for
mental distress

• RERA can strike down the one sided clauses


• Insurance Regulatory and Development
Authority- Mandatory grace period of 15 days to
cancel the insurance contract to be provided by
all insurance companies - Free look period
Important points to remember
§ The terms of a signed contract bind the parties
to the contract even if they have not read the
terms or are not aware of them.

§ Standard Form Contracts are pre-printed forms


containing the terms on which a corporation
does business with its customers.
Termination of Contract
• McDonald’s terminates franchise Pact
• McDonald’s India Pvt. Ltd, the local unit of the
American fast food chain, terminated its franchise
agreement with Connaught Plaza Restaurants
• McDonald’s cited “default in payment of royalties
by CPRL” as the primary reason for termination.
Cont.
• Termination: Ending the contractual
relationship
• Termination could be for breach of contract
condition
• Termination as per the clause in contract
Cont.
• Termination for breach of contract condition
▫ Example: Sakshi ordered for a taxi cab at 6 am to
go to the airport
▫ The cab didn’t reach the destination even by 6.15
am.
▫ Example: Ordering for vegetables from Bigbasket
for today and it arrives 3 days later
▫ Is reaching/delivering at a stipulated time a
contract condition ?
Cont.
• Termination as per the contract terms
▫ Example: ABC Ltd. Entered into a Dealership
Agreement with XYZ Ltd.
▫ Dealership Agreement contained a clause stating
that either parties could terminate the contract by
giving a one month prior notice.
▫ The termination clause also mentions that either
of the parties need not provide any specific reason
for issuing notice for termination.
Cont.
• ONGC issues notice to return 27 hired
ships as rates plunge
• Oil and Natural Gas Corp. Ltd (ONGC) has
issued notices to terminate the contracts of 27
Indian registered ships it had hired for three-
year periods more than a year ago from 10
local fleet owners to support oil exploration
activities
• ONGC is looking to cut costs by taking
advantage of the drop in daily hiring rates for
such ships
• Eg. Apple to terminate distribution arrangement
with HCL Infosystems- there was no specific
reason provided for the same. (ET, 2018)

• OpTic India Terminate Contract of players-


cheating was clearly mentioned as a reason
which gives OpTic the right to terminate
(Talkesport website, 2018)
• Salil Parekh's CEO contract contains a detailed
causes for termination of the agreement.
• This, including “failure or refusal to follow the
reasonable and lawful instructions of the Board”,
if it continues for 10 days after a written notice
from the board outlining the flouted
instructions.
• “Engaging in any willful misconduct which is
injurious to the financial condition, reputation
or goodwill of the Company,” is listed as another
potential cause for getting terminated
Important Points

• On breach of a condition, the innocent party gets

the option to terminate the contract.

• Parties may choose to terminate a contract based

on the termination clause in the contract


Cont.

• Is termination clause a necessity in a contract?

• Does it provide flexibility for business

managers?

• What should a termination clause include?