Indian Contract Act

Sameet Gambhir
Introduction

 The Indian Contract Act, 1872 prescribes the law relating

to contracts in India

 key act regulating Indian contract law.

 based on the principles of English Common Law.

 determines the circumstances in which promises made by

the parties to a contract shall be legally binding.

 describes different stages of formation of contract

Meaning of Contract
 Section 2 (h) “An agreement enforceable by law”.

 contract is anything that is an agreement and

enforceable by the law of the land.

 This definition has two major elements in it viz –

 “agreement”
 “enforceable by law”.
 3 elements of a legal contract

 The three elements required to create a legal contract :

 Offer / Proposal
 Acceptance and
 Consideration, which means the exchange of something
of value.

 https://youtu.be/HrZDpDvxqJo
 Offer / Proposal
 when one person signifies to another

 his willingness to do or

 to abstain from doing anything,

 with a view to obtaining the assent of that other to such act

 said to make a offer/ proposal

Essentials of a valid Offer

 An offer to be valid and enforceable following conditions are to be satisfied

1) There must be Two parties

2) Every proposal must be communicated

3) It must create Legal Relations

4) It must be Certain and definite

5) It may be specific or Public

 https://youtu.be/N2OfiK3PqfQ

 Example

Ramesh offer to sell his house to Rama for Rs. 5,00,000.

-This is a proposal.

-Ramesh is the offeror

-Rama is the offeree.

Types of offer
 General Offer- offer to the whole world.

 Specific offer-offer made to a particular person or group of persons

 Express offer-made by words either oral or in writing.

 Implied offer-made by conduct or gesture of the parties

 Counter offer-person to whom the offer is made does not accept

the offer [as it is] -counters the condition.

 Cross offer-two offers of same terms and conditions cross each

other

 Standing offer-intended to remain open for a specified period.

 Acceptance
 When the person to whom the proposal has been made

 signifies his assent thereto,

 the offer is said to be accepted.

 Thus the proposal when accepted becomes a promise.

 Performance of the conditions of a proposal, or the acceptance

of any consideration for a reciprocal promise which may be
offered with a proposal, is an acceptance of the proposal.
Valid Acceptance

 Acceptance must be absolute and unqualified

 Acceptance must be communicated to the offeror

 Acceptance must be in the mode prescribed

 Acceptance must be given within a reasonable

amount of time

 Mere silence is not acceptance

Types of Acceptance
 Express acceptance

 Implied acceptance

 Conditional acceptance / qualified acceptance

◦ a person who has given an offer tells the person who made the offer that
he or she will agree to the offer if there are some changes made to the
terms and conditions, or in the event of something happening.
◦ A conditional acceptance is useful when you are unsure of how your
situation will turn out or if there are things that could alter your current
standing.
◦ This is also used as a counteroffer. A counteroffer has to be accepted by
the original person who offers before the contract is established. It places
expectations on the acceptance of the offer.
◦ Condition of acceptance has to be very clearly communicated in the
agreement and needs to be understood right away.
Competency
Every person is competent to
contract who is-
 of the age of majority
 is of sound mind
 not disqualified from

contracting
 Essential Elements of Contract
1. Offers and Acceptance
 For an agreement there must be a lawful offer by one and lawful acceptance of
that offer from the other party.
 The offer must be made with the intention of creating legal relations otherwise,
there will be no agreement.

 Example: A say to B that he will sell his cycle to him for Rs.2000. This is an offer.
If B accepts this offer, there is an acceptance.

2. Legal Relationship
 The parties to an agreement must create legal relationship.

 It arises when parties know that if any one of them fails to fulfil his part of the

promise, he would be liable for the failure of the contract.

 Agreements of a social or domestic nature do not create legal relations and as

such cannot give rise to a contract.

 It is presumed in commercial agreements that parties intend to create legal

relations.
 https://youtu.be/G6aY5tJjrbM

 Example: A father promises to pay his son Rs.500 every month as pocket money.
Later, he refuses to pay. The son cannot recover as it is a social agreement and
does not create legal relations.
 3. Lawful Consideration or object
 Consideration is “something in return.”
 Consideration has been defined as the price paid by one party for the promise of
the other.
 An agreement is enforceable only when both the parties get something and give
something. The something given or obtained is the price of the promise and is
called consideration.
 Example: A agrees to sell his house to B for Rs.10 Lac. A’s promise to sell the
house is the consideration for B’s promise to pay Rs.10 Lac. These are lawful
considerations.
 It is also necessary that agreement should be made for a lawful object.
 The object for which the agreement has been entered into must not be
fraudulent, illegal, immoral, or opposed to public policy or must not imply injury
to the person or property of another.
 Every agreement of which the object or consideration is unlawful is illegal and
the therefore void.
 The consideration or object of an agreement is lawful, unless and until it is:
◦ Forbidden by law: If the object or the consideration of an agreement is for doing an act
forbidden by law, such agreement are void. for example, A, B and C enter into an
agreement for the division among them of gains acquired or to be acquired, by them by
fraud. The agreement is void, as its object is unlawful
◦ If it involves injury to a person or property of another: For example, "A" borrowed
Rs.100/- from "B" and executed a bond to work for "B" without pay for a period of 2
years. In case of default, "A" owes to pay the principal sum at once and huge amount of
interest. This contract was held void as it involved injury to the person.
 If courts regards it as immoral: An agreement in which consideration or object of
which is immoral is void. For example, An agreement between husband and wife
for future separation is void.
 Is of such nature that, if permitted, it would defeat the provisions of any law:
 Is fraudulent, or involves or implies injury to the person or property of another,
or
 Is opposed to public policy. An agreement which tends to be injurious to the
public or against the public good is void. For example, agreements of trading
with foreign enemy, agreement to commit crime, agreements which interfere
with the administration of justice, agreements which interfere with the course of
justice.
 Agreements in restrained of legal proceedings: This deals with two category.
One is, agreements restraining enforcement of rights and the other deals with
agreements curtailing period of limitation.
 Trafficking in public offices and titles: agreements for sale or transfer of public
offices and title or for procurement of a public recognition like Padma
Vibhushan or Padma Shri etc. for monetary consideration is unlawful, being
opposed to public policy.
 Agreements restricting personal liberty: agreements which unduly restricts the
personal liberty of parties to it are void as being opposed by public policy.
 Marriage brokerage contact: Agreements to procure marriages for rewards are
void under the ground that marriage ought to proceed with free and voluntary
decisions of parties.
 .
 Agreements interfering marital duties: Any agreement which interfere with
performance of marital duty is void being opposed to public policy. An
agreement between husband and wife that the wife will never leave her parental
house

Consideration may take in any form - money, goods, services, a promise to

marry, a promise to forbear etc.

 Contract Opposed to Public Policy can be repudiated by the Court of law even if
that contract is beneficial for all of the parties to the contract- What
considerations and objects are lawful and what not- Newar Marble Industries
Pvt. Ltd. Vs. Rajasthan State Electricity Board, Jaipur, 1993 Cr. L.J. 1191 at 1197,
1198 [Raj.]-
◦ Agreement of which object or consideration was opposed to public policy,
unlawful and void –
◦ What better and what more can be an admission of the fact that the
consideration or object of the compounding agreement was abstention by the
board from criminally prosecuting the petitioner-company from offense under
Section 39 of the act and that the Board has converted the crime into a source
of profit or benefit to itself.
◦ This consideration or object is clearly opposed to public policy and hence the
compounding agreement is unlawful and void under Section 23 of the Act. It
is unenforceable as against the Petitioner-Company
 4. Capacity of Parties:

 An agreement is enforceable only if it is entered into by parties who possess

contractual capacity.
 It means that the parities to an agreement must be competent to contract.
 the parties must be of the age of majority and of sound mind and must not be
disqualified from contracting by any law to which they are subject.
 A contract by a person of unsound mind is void ab-initio (from the beginning).
 If one of the parties to the agreement suffers from minority, madness,
drunkenness etc., the agreement is not enforceable at law, except in some
cases.

 Example: M, a person of unsound mind, enters into an agreement with S to sell

his house for Rs.2 lac. It is not a valid contract because M is not competent
 5. Free Consent:
 Consent means that the parties must have agreed upon the same thing
in the same sense.
 For a valid contract it is necessary that the consent of parties to the
contact must be free.
 Consent is said to be free when it is not caused by— coercion, undue
influence, fraud, misrepresentation or mistake
 Elements vitiating free Consent:
◦ (a) Coercion (Section 15): "Coercion" is the committing, or threatening to
commit, any act forbidden by the Indian Penal Code under(45,1860), or the
unlawful detaining, or threatening to detain, any property, to the prejudice of
any person whatever, with the intention of causing any person to enter into an
agreement. For example, "A" threatens to shoot "B" if he doesn't release him
from a debt which he owes to "B". "B" releases "A" under threat. Since the
release has been brought about by coercion, such release is not valid.
◦ (b) Undue influence (Section 16): "Where a person who is in a position to
dominate the will of another enters into a contract with him and the transaction
appears on the face of it, or on the evidence, to be unconscionable, the burden
of proving that such contract was not induced by undue influence shall lie upon
the person in the position to dominate the will of the other".
 (Section 16(2)) States that "A person is deemed to be in a position to
dominate the will of another; Where he holds a real or apparent authority
over the other. For example, an employer may be deemed to be having
authority over his employee. an income tax authority over to the
assessee.
 Where he stands in a fiduciary relationship to other, For example, the
relationship of Solicitor with his client, spiritual advisor and devotee.
 Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected by the reason of age, illness or
mental or bodily distress"
 (c) Fraud (Section 17): "Fraud" means and includes any act or
concealment of material fact or misrepresentation made knowingly by a
party to a contract, or with his connivance, or by his agent, with intent to
deceive another party thereto of his agent, or to induce him to enter into
the contract. Mere silence is not fraud. a contracting party is not obliged
to disclose each and everything to the other party. There are two
exceptions where even mere silence may be fraud, one is where there is
a duty to speak, then keeping silence is fraud. or when silence is in itself
equivalent to speech, such silence is fraud.
 (d) Misrepresentation (Section 18): "Causing, however innocently, a party
to an agreement to make a mistake as to the substance of the thing
which is the subject of the agreement".

 (e) Mistake of fact (Section 20): "Where both the parties to an agreement
are under a mistake as to a matter of fact essential to the agreement, the
agreement is void". A party cannot be allowed to get any relief on the
ground that he had done some particular act in ignorance of law.
Mistake may be bilateral mistake where both parties to an agreement are
under mistake as to the matter of fact. The mistake must relate to a
matter of fact essential to the agreement.
 6. Writing and Registration:
 a contract may be oral or in writing.
 However, a verbal contract if proved in the court will not be
considered invalid merely on the ground that it not in writing.
 It is essential for the validity of a contact that it must be in writing
signed and attested by witness and registered, if so required by the
law.

 Example: A Verbally promises to sell his book to y for Rs.200 it is a

valid contract because the law does not require it to be in writing.

7. Certainty:
 “Agreements the meaning of which are not certain or capable of
being made certain are void.”
 the terms of the agreement, must not be vague or uncertain.

 Example: A promised to sell 20 books to B. It is not clear which

books A has promised to sell. The agreement is void because the
terms are not clear.
 8. Possibility of Performance:
 “An agreement to do an act impossible in itself is void.”
 If the act is legally or physically impossible to perform, the
agreement cannot be enforced at law.

 Example: A agrees with B to discover treasure by magic, the

agreement is not enforceable.

9. Not Expressly Declared Void:

 An agreement must not be one of those, which have been expressly
declared to be void by the Act.

 An agreement in restraint of trade and an agreement by way of

wager have been expressly declared void.

 Example: A promise to close his business against the promise of B to

pay him Rs.2 lac is a void agreement because it is restraint of trade.
 Kinds of Contract
 On basis of formation

 Express Contract- where there is conversation or expression

 A person A sends a text from his phone to person B, proposing to sell

their bike for a cost of Rs. 10,000/-. The person B calls the first person
and agrees to the terms of the promise.

 Implied Contract- No given expression

 For example, you board a rickshaw and the driver starts to drive. You tell
the driver the address where he has to drop you. The driver stops and
you pay him

 Quasi Contract- No offer-No Acceptance

 For example, a bank mistakenly transfers a large amount of money into

your account. Now there is no written or oral or any sort of agreement
between you and the bank but the money doesn’t belong to you.
On the Basis of Nature of Consideration

 Bilateral Contract: This contract occurs if there is

consideration in either direction is moved after
the contract.

Example – A orders a meal at a restaurant and

pay money for it.

 Unilateral Contract: If the consideration is to be

moved in only one direction after the contract.

Example -insurance policy contract

On the Basis of Execution

 Executed Contract- An executed contract is when

a task is completed.

Example- A buys an apple and pays Rs. 50

 Executory Contract- When contractual obligations

are going to be performed at a later time

Example-lease agreement-Until the term expires,

the contract promises have not been fulfilled.
 Contracts on the Basis of Validity
 Valid: A contract that is enforceable in court is considered valid. To
be valid, the contract has to have specific features including
certainty, fulfillment of formalities, legal obligations, capacity of
parties

 Void: A contract that is not enforceable in court is considered void. If

the contract is deficient, it is voided. It includes contracts to do
anything illegal or is without proper legal components.

 Voidable: A contract that is deficient in free consent only is voidable.

This means the contract is made under some kind of pressure /
compulsion. A contract can become valid or void in the future at the
option of the party that has suffered. It is also voidable if one party
can abort the contract.

 Illegal: has any unlawful components

 Unenforceable: contract without proper legal formalities is not

enforceable.
 Agreement without consideration-void
 Agreement without consideration, void, unless it is in writing and
registered or is a promise to compensate for something done or is a
promise to pay a debt barred by limitation law

 An agreement made without consideration is void, unless-

 (1) it is expressed in writing and registered under the law and is made
on account of natural love and affection between parties standing in a
near relation to each other; or unless

 (2) it is a promise to compensate, wholly or in part, a person who has

already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do; or unless

 (3) it is a promise, made in writing and signed by the person to be

charged therewith or by his agent generally or specially authorized in
that behalf, to pay wholly or in part a debt of which the creditor might
have enforced payment but for the law for the limitation of suits.

 In any of these cases, such an agreement is a contract.

 Explanation 1 : Nothing in this section shall affect the validity, as
between the donor and donee, of any gift actually made.

 Explanation 2: An agreement to which the consent of the

promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the Court in
determining the question whether the consent of the promisor
was freely given.

 Illustrations

 (a) A promises, for no consideration, to give to B Rs. 1,000. This.

is a void agreement.

 (b) A, for natural love and affection, promise to give his son B,
Rs. 1,000 A puts his promise to B into writing and registers it.
This is a contract.
A Void Contract Once Valid But No Longer
 Ceases to have a legal effect.

 A few ways a contract could become legally void are:

 The contract becomes impossible to fulfill due to external circumstances

 Laws change since the initial agreement, and the agreement now requires
breaking the law

 Fulfilling the contract will result in something unlawful

 The contract was contingent on circumstances that cannot come to pass

 One party failed to disclose key information or provided inaccurate

information
 Expressly Declared Void Agreement
 Agreement in Restraint of Marriage (sect-26)

 Any agreement that restrains the marriage of a major (adult) is a void

agreement.
 This does not apply to minors.
 So A agrees that if B pays him 50,000/- he will not marry such an
agreement is a void agreement.

 Agreement in Restraint of Trade (Sect-27)

 An agreement by which any person is restrained from plying a trade

or practising a legal profession or exercising a business of any kind
is an expressly void agreement.
 Such an agreement violates the constitutional rights of a person.
 However, there are a few exceptions to this rule.
 If a person sells his business along with the goodwill then the buyer
can ask the seller to refrain from practising the same business at the
local limits.
 Agreement in Restraint of Legal Proceedings (Sect-28)

 An agreement that prevents one party from enforcing his

legal rights under a contract through the legal process (of courts,
arbitration, etc) then such an agreement is expressly void
agreement.
 However, there are exceptions like, if the agreement states that any
dispute between parties will be referred to arbitration and the
amount awarded in such arbitration will be final will be a valid
contract.

 An Agreement Whose Meaning is Uncertain (sect-29)

 An agreement whose meaning is uncertain cannot be a valid

agreement, it is a void agreement. If the essential meaning of the
contract is not assured, obviously the contract cannot go ahead. But
if such uncertainty can be removed, then the contract becomes valid.
 Say for example A agrees to sell to B 100 kg of fruit. This is a void
contract since what type of fruit is not mentioned. But if A
exclusively sells only oranges then the agreement would be valid
because the meaning would now be certain.
 Wagering Agreement (sect-30)
 According to the Indian Contract Act, an agreement to wager is a void
agreement.
 The basis of a wager is that the agreement depends on the happening or
non-happening of an uncertain event.

 The essentials of a wagering agreement are as follows-

1. Must contain a promise to pay money or money’s worth

2.Is conditional on the happening or non-happening of a certain event
3.The event must be uncertain. Neither party can have any control over it
4.Must be the common intention to bet at the time of making the agreement
5.Parties should have no other interest other than the stake of the bet

The following agreements are not considered wagering agreements-

1.Chit Fund
2.Commercial Transactions, i.e Transactions of the Share Market
3.Athletic Competition and Competitions involving Skills
4.Insurance Contracts
Frustration of Contracts: The Indian
Perspective
 A contract may be frustrated where there exists a change in circumstances,
after the contract was made, which is not the fault of either of the parties,
which renders the contract either impossible to perform or deprives the
contract of its commercial purpose.

 Where a contract is found to be frustrated, each party is discharged from

future obligations under the contract and neither party may sue for breach.
The compensation of the loss has also to be described by such contract.


Supreme Court in the case of Satyabrata Ghose v. Mugneeram Bangur &

Co [4].observed “This much is clear that the word ‘impossible’ has not been
used here in the sense of physical or literal impossibility. The performance of
the act may not be literally impossible but it may be impracticable and useless
from the point of view of the object and purpose which the parties had in view;
and if an untoward event or change of circumstances totally upsets the very
foundation upon which the parties rested their bargain, it can very well be said
that the promisor finds it impossible to do the act which he promises to do.”
Grounds
 Destruction of the subject matter
 Change of circumstances
 Non-occurrence of contemplated events
 Death or incapacity of the party
 Government, administration or legislation

intervention
Effects of Frustration
 Frustration should not be self-induced
 Frustration operates automatically
 Adjustment of Rights (Restitution)
When Frustration Does Not Happen
 Difficulty in performance
 Failure of third party

 Difference Between Impossibility And Frustration

 Frustration or impracticability occurs when a performance would be

deemed impractical because of an unforeseen event.
 Impossibility occurs when a party is not able to complete a contract
because of an event that happens after the contract is executed.
 The main difference is that frustration means a contract cannot be
performed because of an extreme burden to the contracting party,
while impossibility means the contract cannot physically be
performed.
 There are only certain events where frustration and impossibility can
be applied.
 Usually, these terms apply when there a risk involved in the
performance of a contract, making it impossible or frustrated through
no fault of the parties involved or the courts. When this occurs, the
parties are released from their obligation to perform the contract
automatically.
Sale of goods Act
 It is one of the special types of contract.
Initially, it was the part of the Indian Contract
Act, 1872.
 Later it was deleted and a separate sale of

Goods Act was passed in 1930.

Sale of goods Contract
 As per Section 4(i) of the Sale of Goods Act, 1930,
Contract of sale of Goods is a contract whereby the
seller transfers or agrees to transfer the property in
goods to the buyer for a price.

 Essential Elements: -
 There must be atleast two parties. (Bilateral Contracts) –
 The subject matter of the contract must be goods. –
 A price in money should be paid or promised. –
 A transfer of property in goods from seller to the buyer
must take place. –
 It must be absolute or conditional. –
 All other essentials of a valid contract must be present.
Sale of goods Contract – Risks &
Damages
 Section 26 of the Sale of Goods Act, 1930 states the goods are the
owner’s risk if the property in them has not been transferred to the
buyer. But if the property has been transferred to the buyer then the
goods are buyer’s risk.
 This provision is applicable if no specific provision has been signed by
the parties to the contract in their contract regarding this. This rule is
applicable irrespective of the fact that delivery has been made or not.
 It means that the risk is associated with ownership and not with mere
possession of the property.
 To decide whether the risk has been passed or not, we first need to find
whether the property in goods i.e. the ownership has passed or not.
 The passing of risk means the transfer of the liability for damage or loss
of the property from the seller of the immovable property to the buyer.
 The risk in the property prima facie passes with the property, but if the
parties to the contract agree to pass the risk on the property at some
other level of transaction, then that is also possible, depending upon the
terms of their contract.
Sale of goods Contract – Risks &
Damages
 Exceptions


 There are two exceptions to the general law that the risk passes
with the transfer of property in the goods. These are:
 If the delivery has been delayed due to the fault of either party,
then the liability of damage will lie on the party at fault. If the
seller has failed to deliver the goods as agreed by the parties and
the goods are damaged or lost due to that, then the seller will bear
the cost. If the buyer has failed to take delivery of goods despite
many reminders by the seller, then the buyer will bear the cost.
 In Demby Hamilton & Co. Ltd. v. Barden, the sellers agreed to
supply 30 tons of apple juice by samples. The seller crushed 30
tons of apples at once to ensure that they are according to the
samples and filled them in the casks. After some installments had
been delivered, the buyer refused to take further deliveries. The
apple juice became putrid. It was held that the property in the
goods was still with the sellers, but the loss had to be borne by
the buyer.
 “X, a seller of the goods, enters into a contract of sale of goods with Y, the
buyer, who visits X’s office to check the goods. Both the parties to the contract
agree that transfer of ownership will take place with the execution of the
contract, restricting X’s right to sell those goods to someone else. They both
agree X will bring the goods in the deliverable state in 2 days and after two
days, Y’s agent will collect the goods from X. Both the parties agree that X will
take care of Y’s goods for 5 days after the contract has been executed (if not
collected) and not beyond the period of 5 days. Hence, the agent of Y must turn
up within the stipulated time for collection of the goods. The contract regarding
payment was that Y’s bank would transfer the amount to X’s account within 3
days of execution of the contract.”
 This type of contract is perfectly valid for the Sale of Goods Act, 1930. In this
type of contract, each transaction takes place according to the will of the
parties. In this case, the property in the goods or ownership is transferred at the
same time when the contract is concluded, while the possession of the goods
passes at a later stage. If the contract had been silent about the transfer of risk,
then it would have passed with the conclusion of the contract. But in the instant
case, it has been decided by the parties that the risk will transfer after five days
of execution of contract if not collected by the parties.
 Now, as per the contract signed between the parties, if the goods are lost or
damaged within those five days after the conclusion of the contract, then the
seller will bear the cost. But if the goods are damaged after five days and the
buyer did not collect the goods, then the buyer will bear the loss. Also, if the
goods were lost after the 5th day (if not collected) but due to the negligence of
the seller, then the seller will bear the cost of damage or loss. In case the
buyer’s agent collects those goods before five days, then the risk will transfer
with it.
 Drafting of a contract :

 step-by-step inclusion of specific clauses, terms and conditions that are

expressed as per the needs and wants of the party/parties to the contract.
 consider various issues - the subject of the contract, goods to be
manufactured, amount of consideration, indemnity, dispute resolution,
 purpose of making the contract
 subject and object of the contract
 role played by the parties in achieving the desired object

 Right and duties - the parties have in relation to one another

 Each to fulfill a particular purpose that must be clearly understood

 feasibility of contract to be kept in mind –

◦ whether the terms and conditions are capable of being carried out;
◦ whether the parties are capable of executing their rights and duties;
◦ which party/parties gain most and which one takes upon most of the liability
during the tenure
◦
 Must be able to predict the issues / disputes that may arise in future scenarios
 understand what terms and clauses may give rise to a risk which may cause disputes
and/or losses between the parties in the future

 Definition clause: all the definitions to various words that are used throughout the
contract.
 definition of such word which might describe the meaning of such word specifically
in relation to said contract.
 In such cases no other meaning of the word will be accepted as the word has been
specifically stated and agreed upon by the parties to the contract and, as such, in
binding on them.

 Term of contract:
 generally made for definite period of time, no matter how long the time frame is
 once the time period expires, the contract automatically dissolves.
 In some cases, the term of the contract also depends on the achieving of a certain
goal for which the contract has been entered upon

For example: X and Y enter into a contract that will last for such time as it takes for
them to reach place ZZ, once they will reach the place ZZ the contract between them
will dissolve.


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 Renewal Clause
 to ensure continual binding effect of the contract without incurring the
expenses of drafting and registering different contracts over and over
again.
 Such clauses are often included in the clause describing the term of the
contract.

 Consideration amount and legality:

 the consideration amount that one or more parties must pay to the other
party/ parties for service done or goods produced by the latter
 consideration to be legal in nature �
 A consideration paid through an illegal object will render the entire
contract to be void and have no legal enforceability.

 Inspection of products and goods:

 Safeguard from cases of fraud or misrepresentation- insufficient quality
 safety net to selling party – once quality is inspected and accepted, the
purchaser cannot hold the seller liable for any quality-related issues
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 Return/refund:
 circumstances / scenarios in which parties are entitled to return the
product and/or receive refund of the consideration paid f
 used in contracts of sale of movable properties
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 Dispute settlement and jurisdiction:
 mode of dispute resolution or legal recourse to be taken if dispute arises
 almost every contract contains this clause and most of them opt for ADR
 the jurisdiction in which any dispute will be resolved

 Cancellation:
 circumstances under which the contract shall stand cancelled.
 generally includes certain acts that the parties are barred from and in
violation of such a term, the cancellation clause will be invoked
 rights and liabilities that parties will be entitled to when cancelled
 �
 Rights and duties of the parties: the crux of every contract and violation of
these clauses generally forms the core to the disputes
 Each and every must be specifically stated with as much detail as possible
to avoid any ambiguity or vagueness whatsoever.
 Force majeure:
 all such unforeseeable and unpredictable scenarios which may stop one
from executing his duty, thereby leaving the contract unfulfilled.
 various contingencies, conditions beyond control including but not limited
to Acts of God, Government restrictions, wars, insurrections, any other
cause beyond the reasonable control
 the role of parties when such a situation may arise
 often overlooked but as important as any other - it details the sharing of
expenses and costs that are incurred during the time of contingencies

 Delegation and liability:

 Mostly in contracts related to manufacture /sale of movable products
 what kind of work can be delegated to other third parties
 who may be held liable for any dispute that may arise due to insufficiency
or inefficiency of products and/or services provided by such third party

 Payments of expenses:
 what proportion the parties may share the expenses -mode of payments
 Profit sharing: the proportion - the profit will be shared –how to be used
for other purposes as agreed
 Compensation:
 the amount with which one must compensate another
 for the actions/omissions/defaults done by the former
 which has resulted in some sort of loss (financial, physical or mental) to
the latter.

 Representations and Warranties :

 identify the assumed facts underlying the agreement
 the real heart of the deal and to be heavily negotiated.
 An example would be a representation and warranty that the goods to be
sold are in working order.

 Indemnification:
 the allocation of liability in the event that all does not go as planned
 Questions to be addressed in this portion of the contract include who will
be liable for what, and to what extent.
 Breach and Cure - the possibility must be considered when drafting
 What all constitute the breach
 What opportunity will the parties have to “cure” the breach

 Limitation of Liability:
 disclaiming all warranties other than those expressly specified
 can also limit liability by including clauses that provide:
◦ a monetary cap on damages;
◦ exclusion of certain kinds of damages (such as special, incidental, or
consequential);
◦ exclusion of certain harms (such as harms resulting from defects etc)

 Termination :
 under what circumstances the parties can terminate the agreement
 the procedures for termination
 Remedies - consequences in the event of termination
 what the parties are entitled to in the event of breach or termination.
 It may identify an amount, a formula, or simply a mechanism for
determining the appropriate remedy (such as arbitration)

 Others- Assignment • Choice of Law • Amendment and Waiver •

Integration and Severability • Notice • Authority to Sign Section

 Before writing, make sure you are clear about what parts the contract must
include and what situations the contract must cover.
 Know what the parties want
 Reconcile yourself to writing many drafts
 Use clear, simple, business like language
 Use only the technical terms you need and define them if necessary
 Make each clause do one thing, not more.
 Breaking down the whole contract into a series of small points
 Review - check for ambiguities
 used only one term for one item or person
 reread the document as a whole
 look for larger contradictions rather than wording problems
 Consult others -no one person can imagine all the pitfalls
 No one person can imagine all the ways
 First draft be creative, thorough and imperfect - Include everything you
think necessary to the piece and all things that you think might be useful
 Then use second, third, fourth etc for rewriting, revising, and polishing.
 do not revise while you write
 Ask yourself the following questions:
 Is the content accurately stated?
 Could any points be misunderstood because of ambiguity?
 Are irrelevant facts or other irrelevant information excluded?
 Are terms of art used correctly?
 Are key terms used correctly?
 Are names of parties and their status correct?
 Are sentences overly long?
 Are lists clearly structured?
 Defined terms used ?

 Don’t get carried away.

 Some concepts are simple, basic enough, and sufficiently well understood
(or vagueness may work in favor) don’t need a definition.
 Conclusion:
 each transaction is unique and of paramount importance
 Apart from what is discussed above, the nature of each contract would
decide a lot of other things
 the requirement of stamping and registration with appropriate authorities
 Consultation