PROFESSIONAL PRACTICE

ASSIGNMENT NO. 1
DATE OF SUBMISSION : 27TH JUNE, 2020

KARAN A. JAIN
SEM VII
FOURTH YEAR B.ARCH
VIVA SCHOOL OF ARCHITECTURE
 Karan Jain

Q.1] What is Contract and Agreement/ Explain essentials for Valid Contract.
Agreement
An agreement is an expansive concept that includes any arrangement or understanding
between two or more parties about their rights and responsibilities with respect to one another. Such
informal arrangements often take on the form of ―gentlemen‘s agreements,‖ where adherence to the
terms of the agreement relies upon the honor of the parties involved rather than exterior means of
enforcement.
Contract
A contract is a specific type of agreement that meets certain requirements designed to
create legally binding obligations between parties that are enforceable by a court of law.

Essential Elements of a Valid Contract

According to the Act, ―All agreements are contracts if they are made by free consent of the parties,
competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly
declared to be void‖. The analysis of the definition reveals that an agreement must have certain essential
elements to constitute a contract. The essential elements of a valid contract are:

 Two Parties: To constitute a contract there must be at least two parties, i.e. one party making an
offer (offeror/proposer) and the other party accepting the offer (offeree/propose). The terms of
the offer must be definite. Offer means when a person reveals to another his willingness to do or
to decline from doing something. Acceptance means when the person to whom the acceptance is
made signifies his assent to it.
 Agreement: A contract is initially an agreement when the person to whom the offer has been
given signifies his acceptance on it. There arises an agreement which is the foundation of a
contract.
 Consent: The parties must agree to the same thing in the same sense and at the same time. An
agreement without consent is not legally binding.
 Intention to create a legal relationship: There must be an intention by both parties to create a
legal relationship and to legally bind themselves as a result of such an agreement. Thus,
agreements of social or household nature are not contracts, because the parties do not intend to
create a legal relationship. E.g. – where two parties agree to take a walk together would not
amount to a legal contract.
 Contractual Capacity: The parties to the agreement must be capable of entering into a valid
contract. According to the Act, every person is competent to contract if he or she,

1. is of the age of majority;

2. is of sound mind; and
3. is not disqualified from contracting by any law.

 Consideration: An agreement by an incompetent person is not valid. A valid contract must be

supported by consideration. Consideration means ―something in return‖. It can be cash, kind or
an act. It can be past, present or future. Consideration must be real and lawful.
 Free Consent: The parties are said to be in consent when they agree upon the same thing in the
same sense, in addition to it, to constitute a valid contract there must be a free and genuine
consent of the parties to the contract, i.e. not to be obtained by misrepresentation, fraud, undue
influence or mistake. If the consent is not free the contract becomes revocable.
  Unlawful Consideration: According to the Act, the consideration of an agreement is said to be
unlawful, if

1. it is forbidden by law,
2. it is of such nature that, if permitted it would defeat the provisions of any law,
3. it is fraudulent,
4. it involves or implies, injury to the person/property of another, and
5. the court regards it as immoral.

 Certainty: Terms of the agreement must be certain and not vague.

 Possibility to Perform: The promises made under a valid contract must be executable. An
agreement to do some impossible act is cancelled from the beginning and never converted into
the contract.
 Legal formalities: Although Indian Contract Act does not provide any formality to enter into a
contract, therefore, a contract may be express (oral or written) or even implied (by conduct).
However, where the law requires, it must comply with all legal formalities such as in writing,
registration, and attestation. For example, under the provisions of Immovable Properties Act, a
contract of immovable must be written, registered and duly stamped unless not enforceable by
law.

(Source: https://blog.finology.in/Legal-news/Essentials-of-Valid-Contract)
(Source: https://www.diffen.com/difference/Agreement_vs_Contract)
Q.2] How is a Proposal converted into Contract. Also explain process of Revocation.

Although proposals can be converted into legally-binding contracts, the language of the proposal
must be altered to contain all the elements of a contract. Once you instruct the party accepting the
proposal to date, sign, make payment, and abide by the proposal terms, it becomes a legally-binding
contract.
Contracts and proposals prevent financial disputes and help to eliminate ambiguity and second-
guessing. Such written documents spell out project details in order to clarify expectations and
obligations to the clients.

Process of Revocation

In the law of contracts, revocation is a type of remedy for buyers when the buyer accepts a
nonconforming good from the seller Upon receiving the nonconforming good, the buyer may choose to
accept it despite the nonconformity, reject it (although this may not be allowed under the perfect tender
rule and whether the Seller still has time to cure), or revoke their acceptance. Under Article 2 of
the Uniform Commercial Code, for a buyer to revoke, he must show
(1) the goods failed to conform to the contract and
(2) it substantially impaired the value of the goods (this is a question of fact).
If the buyer knew of the nonconformity at the time of acceptance, he can revoke only if he can
show he accepted the goods with the impression the seller would cure it and that did not happen. If he
did not know of the nonconformity at acceptance, he can revoke only if he can prove he
was reasonably induced by the difficulty of discovering the defect or by the seller's assurances. The
buyer can revoke if:
(1) It occurs within a reasonable time after the buyer discovers or should have discovered;
(2) Before any substantial change in the goods not caused by their own defects; and
(3) Not effective until the buyer notifies the seller he is going to revoke.
Upon revocation, the buyer can then cancel the contract and compel refund of the purchase price
of the goods. In some states, the courts allow the seller to set off the price for the time the buyer kept the
goods before the revocation.
In contract law, revocation can also refer to the termination of an offer.[2] An offeror may revoke
an offer before it has been accepted, but the revocation must be communicated to the offeree, although
not necessarily by the offeror. If the offer was made to the entire world, such as in Carlill v Carbolic
Smoke Ball Company, the revocation must take a form that is similar to the offer. However, an offer
may not be revoked if it has been encapsulated in an option.
If the offer is one that leads to a unilateral contract, then unless there was an ancillary contract
entered into that guaranteed that the main contract would not be withdrawn, the contract may be revoked
at any time.

(Source: https://www.upcounsel.com/is-a-proposal-a-legal-contract)
(Source: https://en.wikipedia.org/wiki/Revocation)
Q.3] What are the types of Building Contract? Differentiate between Lump sum Contract & Item
Rate Contract.

There are many types of contracts used in construction. Each type has its advantages and
disadvantages concerning the owner and the contractor. They are categorized into two major groups as
per the method of payment to the contractor. The following are the types of construction contracts
generally used in construction projects:

1. Lump-sum contract
2. Unit price contract
3. Cost-plus contract
4. Target cost contract
1. Lump-Sum Construction Contract
In this type, the contractor bids a single fixed price for overall activities in the project scope. The
contractor is responsible for estimating project costs from drawings then adds overhead and his profit to
determine the value of the project.All risks are assigned to the contractor, and there isn‘t any risk carried
by the owner. The contractor has an incentive in this contract as he is rewarded for an early finish, and
there is a penalty for a late finish.This contract is ideal when the project scope is well defined at the
design stage because there is limited flexibility for modifying the design during the construction period.

2. Unit Price Construction Contract

The total price of the project in the unit price contract is based on the price of each item‘s unit.
The contractor is paid as per the rates of items specified in the bill of quantity.The risk is shared with the
contractor and the owner. This type of contract has more flexibility for design changes than the lump
sum contract. The construction of the project can be started before finishing the designs, so the total cost
of the project will be uncertain at the early stages of the project.

3. Cost Plus Construction Contract

The contractor is paid based on the actual cost of the project, including direct and indirect costs,
plus a specific fee. This fee could be a fixed fee or percentage of costs.All risks are assigned to the
owner, and he gets involved with the contractor in the management of the project. The contractor has no
risk in case of increasing the cost of the project; also, there isn‘t any incentive for an early finish.This
type of contract is ideal when the project scope is uncertain in the early stages of the project. The
contractor can start the execution of the project before finishing the design. It is impossible to estimate
the cost of the project before the construction has been completed.
4. Target Cost Construction Contract
Target cost contract has common features of the lump sum and cost-plus contracts. The
contractor is paid based on the actual costs plus a certain fee either fixed or percentage of total cost in
case of the cost of the project doesn‘t exceed certain target cost specified by the owner.There is a risk
carried by the contractor in case of an increase in the cost of construction projects. The contractor is also
rewarded a percentage of any savings between target and actual cost.

Point of Differentiation Lump-Sum Contract Unit Price Contract

Advantages with respect to
Incentives for early finish Low risk
the contractor
Disadvantages with respect to No incentives for early
High risk
the contractor finish

Advantages with respect to No risk Share risk with the

the owner Total cost is defined at early stages contractor

Disadvantages with respect to Contractor desire to decrease costs may Total cost is uncertain at
the owner be to the detriment of quality the early stages
Has flexibility to change
Flexibility of design changing Limited flexibility
design

(Source: https://theconstructor.org/construction/types-of-construction-contracts-comparison)
Q.4] Explain:

1) Special, General and Cross Offer

Specific Offer

A specific offer refers to an offer made to a specific individual or group of individuals. It can
only be accepted by the individual or group of individuals to whom it is directed.

General Offer

When an offer is made to the general public, it is called a general offer and can be taken up by
any person who wishes to fulfill the terms of the offer. When an offer is accepted by the individual to
whom it is directed, the offeror and the offeree enter into a contract.

If the offer is accepted by a large number of people, the number of contracts formed will be
equal to the number of individuals who accept the offer. If a reward is offered for completing a certain
task, only the person who completes the task can accept the offer.

Cross Offer
A cross offer is made when two parties make the same offer to one another without knowing the
other party has made an offer, and the terms of both offers are identical. In this situation, there will not
be a contract because it cannot be construed that one party's offer is accepted by the other party.
(Source: https://www.upcounsel.com/types-of-offer-in-contract)

2) Earnest Money

Earnest money is a deposit made to a seller that represents a buyer's good faith to buy a home.
The money gives the buyer extra time to get financing and conduct the title search, property appraisal,
and inspections before closing. In many ways, earnest money can be considered a deposit on a home, an
escrow deposit, or good faith money.

 Earnest money is essentially a deposit a seller makes on a home they want to purchase.
 A contract is written up during the exchange of the earnest money that outlines the conditions for
refunding the amount.
 Earnest money deposits can be anywhere from 1–10% of the sales price, depending mostly on
market interest.

(Source: https://www.investopedia.com/terms/e/earnestmoney.asp)

3) Security Deposit

A security deposit is money that is given to a landlord, lender, or seller of a home or apartment
as proof of intent to move-in and care for the domicile. Security deposits can be either be refundable or
nonrefundable, depending on the terms of the transaction. A security deposit is intended as a measure of
security for the recipient, and can also be used to pay for damages or lost property.
  Security deposits serve as an intangible measure of security, or as a means of tangible security in
the event of damages or lost property.
 A security deposit serves as a means to fix or replace something in a rental unit that was
damaged, lost, or stolen by the renter.
 Security deposits are typically refunded upon departure if the property was left in ‗reasonably‘
good shape—to the point of normal depreciation)
 Security deposits typically must be paid prior to moving in and state laws dictate how security
deposits are applied once needed.

Requirements for a Security Deposit

The amount of a security deposit is typically one month‘s rent but can be higher. If the rental rate
on a property increases, the security deposit that is held in escrow might not be sufficient.

Security deposits can accrue interest while they are held but the rate of rent increases might
exceed that interest. The renter would then need to add more money to the security deposit that is being
held.

Security deposits are not considered taxable income, and local laws often treat security deposits
as trust funds. Security deposits that are used as final rent payments must be claimed as advance rent and
are taxable when paid.

(Source: https://www.investopedia.com/terms/s/security-deposit.asp)
Q.5] Explain:

1) Retention Money

Retention money is an amount held back from a payment made under a construction contract. It is
usually a percentage of the amount payable of each installment. It is generally held to ensure that a
contractor performs all of its obligations under the contract, and is then released either on practical
completion or after the end of a defects notification period. At the moment, retentions are not required to
be held on trust.

Retentions can be held at different levels, as between principal and head contractor, and between
head contractor and subcontractors, for example. Each retention has to be separately held by the
responsible payer at each level, even if they all ultimately relate to one construction contract.

(Source: https://duncancotterill.com/publications/construction-contracts-retentions-a-new-regime-from-31-march-2017

2) Mobilization Fund

Mobilization funding is a financial tool commonly used by contractors in the construction industry to
raise capital to cover costs before work begins on a project or prior to invoicing. Working capital for
new projects, cover cost of construction bonds and other general expenses.

Funding is contingent on contractors being pre-approved by a qualified sub-contractor assessment

process such as Sub guard. Typically mobilization funding advances up to 10% of the contract amount,
and up to 85% on issued invoices, and a total of 40% of contract amount.

(Source: https://cfgbusiness.net/mobilizationfunding.htm)

3) Bank Guarantee

A bank guarantee is a type of guarantee from a lending institution. The bank guarantee means a lending
institution ensures that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a
debt, the bank will cover it. A bank guarantee enables the customer, or debtor, to acquire goods, buy
equipment or draw down a loan.

 A bank guarantee is when a lending institution promises to cover a loss if a borrower defaults
on a loan, of which there are many examples.
 Individuals often choose direct guarantees for international and cross-border transactions.
 A bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw
down a loan.

(Source: https://www.investopedia.com/terms/b/bankguarantee.asp)