ARE CONTRACTS NECESSARY IN ARE CONTRACTS NECESSARY IN THE MODERN BUSINESS THE MODERN BUSINESS

WORLD ?WORLD ?

What is a contract?What is a contract?

Exchange of promises between two or Exchange of promises between two or more parties to do or refrain from doing more parties to do or refrain from doing an act which is enforceable in court of an act which is enforceable in court of law.law.

• A mutual agreementA mutual agreement• Supported by consideration by both Supported by consideration by both

partiesparties• With an intention to create legal relationWith an intention to create legal relation

Significance of ContractSignificance of Contract

• Contract help to avoid misunderstandingContract help to avoid misunderstanding• Written contracts can be forced more Written contracts can be forced more

effectively than oral contracteffectively than oral contract• A Contract intends to formalize an A Contract intends to formalize an

agreement between two or more parties agreement between two or more parties in relation to a particular subject.in relation to a particular subject.

• The contract creates rights and The contract creates rights and obligations that may be enforced in the obligations that may be enforced in the courts.courts.

Who can enter into Who can enter into contractcontract

• A person who has reached the age of A person who has reached the age of maturity according to law of land.maturity according to law of land.

• Minors and the mentally Minors and the mentally incompetent lack the legal capacity incompetent lack the legal capacity to enter into contractto enter into contract

• Corporation have the power to enter Corporation have the power to enter into contract through their into contract through their agents ,officers and the employeesagents ,officers and the employees

Elements of contractElements of contract

• Meeting of the minds (mutual Meeting of the minds (mutual consent)consent)

• Offer and acceptance Offer and acceptance • Mutual consideration (the mutual Mutual consideration (the mutual

exchange of something of value)exchange of something of value)• Performance or deliveryPerformance or delivery• Good faithGood faith• No violation of public policyNo violation of public policy

Historical evidence of Historical evidence of contractscontracts

• Contract for Marriage, 591 B.C.Contract for Marriage, 591 B.C. This contract is dated at Babylon, in the thirteenth year of This contract is dated at Babylon, in the thirteenth year of

the Biblical Nebuchadnezzar, and is an example of marriage the Biblical Nebuchadnezzar, and is an example of marriage by purchase---a form of marriage which had practically fallen by purchase---a form of marriage which had practically fallen into disuse at this time.into disuse at this time.

e.g Dagil-ili, son of Zambubu, spoke to Khammashe shall e.g Dagil-ili, son of Zambubu, spoke to Khammashe shall   

• Contract for Partners to Borrow Contract for Partners to Borrow Money against Harvest, c. 2000 Money against Harvest, c. 2000 B.C.B.C.

The two farmers who borrow the money on their crop are The two farmers who borrow the money on their crop are partners.partners.

Types of ContractTypes of Contract

• Void ContractVoid Contract• Voidable ContractVoidable Contract• Contract of guaranteeContract of guarantee• Contract of IndemnityContract of Indemnity• Quasi ContractQuasi Contract• Contract of BailmentContract of Bailment• Partnership ContractPartnership Contract

Ways to contractWays to contract

• Written contractWritten contract

• Oral contractOral contract

• E - contractE - contract

Written ContractWritten Contract

““An agreement between one or more parties especially An agreement between one or more parties especially one that is written & enforceable by law”.one that is written & enforceable by law”.

Sample format of a contractSample format of a contract

Oral Contracts - The Invisible Oral Contracts - The Invisible ContractContract

• Written contracts are usually obvious. What aren't Written contracts are usually obvious. What aren't as obvious are the contracts that we form when we as obvious are the contracts that we form when we speak with each other.   speak with each other.  

• If the terms of the agreement were not specified. If If the terms of the agreement were not specified. If an amount or a specific action was not indicated, an amount or a specific action was not indicated, you don't have a contract. you don't have a contract.

• If one or both parties were mistaken about a If one or both parties were mistaken about a fundamental part of the agreement (ex. I agreed to fundamental part of the agreement (ex. I agreed to purchase your stereo but I thought we were talking purchase your stereo but I thought we were talking about the big one and you thought we were talking about the big one and you thought we were talking about the small one) about the small one)

• The subject or terms of the agreement are The subject or terms of the agreement are prohibited under the law. Eg :- Real estate prohibited under the law. Eg :- Real estate agreements.agreements.

• E-contract is a contract modeled, E-contract is a contract modeled, specified, executed and deployed by a specified, executed and deployed by a software system. software system.

• E-contracts are conceptually very similar E-contracts are conceptually very similar to traditional (paper based) commercial to traditional (paper based) commercial contracts.contracts.

• Nevertheless, because of the ways in Nevertheless, because of the ways in which it differs from traditional commerce, which it differs from traditional commerce, electronic commerce raises some new and electronic commerce raises some new and interesting technical and legal challenges interesting technical and legal challenges

E-Contracts/Virtual E-Contracts/Virtual ContractsContracts

Recognition of E - Recognition of E - ContractContract

• OfferOffer• AcceptanceAcceptance• ConsiderationConsideration• PerformancePerformance• Liability and DamagesLiability and Damages

Types of ContractTypes of Contract

• Void ContractVoid Contract• Voidable ContractVoidable Contract• Contract of guaranteeContract of guarantee• Contract of IndemnityContract of Indemnity• Quasi ContractQuasi Contract• Contract of BailmentContract of Bailment• Partnership ContractPartnership Contract

Has the internet changed the Has the internet changed the way of forming a contract?????way of forming a contract?????• The impact of Internet on Indian businesses The impact of Internet on Indian businesses

has been more effective from the emergence of has been more effective from the emergence of the Information Technology Act, which was the Information Technology Act, which was passed in the year 2000. The Act has one very passed in the year 2000. The Act has one very important Chapter (V). This deals with 'digital important Chapter (V). This deals with 'digital signature'. This chapter says that a person can signature'. This chapter says that a person can now attach his digital signature to a now attach his digital signature to a document to attest it in his own name. The document to attest it in his own name. The digital signature is the person's equivalent digital signature is the person's equivalent of his handwritten signature. What it of his handwritten signature. What it effectively means is that contracts can now effectively means is that contracts can now be accepted in the electronic format over be accepted in the electronic format over the Internet. the Internet.

Let us now take a case of how Let us now take a case of how contracts are formed in real contracts are formed in real

life.life.• Before the Internet came, people would make an offer and Before the Internet came, people would make an offer and

others would respond by either sound/ signs {Auction Sales} others would respond by either sound/ signs {Auction Sales} or written messages attested with their handwritten or written messages attested with their handwritten signatures {Tenders or other agreements etc}. Now, let us signatures {Tenders or other agreements etc}. Now, let us see the world of today. Here the offer (let us assume it is a see the world of today. Here the offer (let us assume it is a tender for works) is posted on a web-site. This would be tender for works) is posted on a web-site. This would be equivalent to it being placed in the newspapers & coming into equivalent to it being placed in the newspapers & coming into public domain. It could alternatively be sent to the intended public domain. It could alternatively be sent to the intended recipients via e-mail. This e-mail or web-site page could be recipients via e-mail. This e-mail or web-site page could be encrypted / password protected so as to not allow encrypted / password protected so as to not allow unauthorized eyes to see vital information. This unauthorized eyes to see vital information. This encrypted message can be opened only by people who encrypted message can be opened only by people who have access to it's password key. Thus complete secrecy at have access to it's password key. Thus complete secrecy at the time of making the offer can be ensured. Now let us the time of making the offer can be ensured. Now let us see what happens at the recipient's end. Only an see what happens at the recipient's end. Only an authorized person will open the offer e-mail. He will accept authorized person will open the offer e-mail. He will accept the offer, thus making it an agreement. At both times the the offer, thus making it an agreement. At both times the offer & acceptance will be attested using the digital offer & acceptance will be attested using the digital signature. Thus it will lead to a legally binding contract.signature. Thus it will lead to a legally binding contract.

Drawbacks of E contractDrawbacks of E contract

• The first is of secrecy. The entire The first is of secrecy. The entire corporate sector is aware of the dangerous corporate sector is aware of the dangerous extent of hacking that is now possible extent of hacking that is now possible wherein hackers sitting in one corner of wherein hackers sitting in one corner of the world logged on the Net can enter the world logged on the Net can enter restricted areas & make unwanted restricted areas & make unwanted changes on web pages / corporate data-changes on web pages / corporate data-bases. bases.

• If the offeree has dispatched an acceptance If the offeree has dispatched an acceptance which either is never received by the offeror which either is never received by the offeror or arrives after the expiry of the offer. or arrives after the expiry of the offer.

• The next is that of legal issues such as 'stamp-The next is that of legal issues such as 'stamp-duty' & 'registration'. Stamp-duty is payable on duty' & 'registration'. Stamp-duty is payable on certain agreements, usually those dealing in certain agreements, usually those dealing in property. In Chapter II (covering Sec 4, 5 & 6) titled property. In Chapter II (covering Sec 4, 5 & 6) titled 'Electronic Governance. It says that Government will 'Electronic Governance. It says that Government will accept documents from the public in electronic form accept documents from the public in electronic form if they are digi-sign attested; but goes on to say if they are digi-sign attested; but goes on to say that the individual cannot force a Govt. agency that the individual cannot force a Govt. agency to so accept it only in the electronic form. to so accept it only in the electronic form.

• Another issue is that of 'Jurisdiction'. How do two Another issue is that of 'Jurisdiction'. How do two parties to the contract decide disputes that arise out parties to the contract decide disputes that arise out of such contracts? Will the country which has of such contracts? Will the country which has the contract on it's server be the arbitrating the contract on it's server be the arbitrating agency? Or will it be the country that has agency? Or will it be the country that has authenticated the two parts of the documents? But authenticated the two parts of the documents? But then that too is not acceptable if the parties are then that too is not acceptable if the parties are from two different countries as now two from two different countries as now two Certifying Agencies from their respective Certifying Agencies from their respective countries will be involved. countries will be involved.

• In the event of E-contracts, the identity proof In the event of E-contracts, the identity proof is only the digital signatures and nothing else.is only the digital signatures and nothing else.

• In case of online or web contracts, the In case of online or web contracts, the agreement is said to be accepted by a party agreement is said to be accepted by a party when it clicks the “I Agree” button on the when it clicks the “I Agree” button on the screen irrespective of the fact whether he/ screen irrespective of the fact whether he/ she has read the terms of the agreement or she has read the terms of the agreement or not. It is well known that such terms and not. It is well known that such terms and conditions are very lengthy and generally no conditions are very lengthy and generally no one reads those. In the event of breach of one reads those. In the event of breach of such a condition if litigation takes place, the such a condition if litigation takes place, the courts may take judicial notice of such a fact courts may take judicial notice of such a fact that nobody reads such terms and declare the that nobody reads such terms and declare the contract as void. contract as void.

Advantages of Paper Advantages of Paper ContractContract

■ Paper contracts are signed either in physical presence of each Paper contracts are signed either in physical presence of each other or separately in the presence of their respective other or separately in the presence of their respective witnesses. In the event of litigation, the evidence of witnesses as witnesses. In the event of litigation, the evidence of witnesses as to discussions etc. during execution of the contract play a vital to discussions etc. during execution of the contract play a vital role in proving execution of a contract. role in proving execution of a contract.

■ Signing of a contract by both the parties means execution of the Signing of a contract by both the parties means execution of the contract after which the terms of the contract become effective. contract after which the terms of the contract become effective. Further, the signing of the contract by the parties is witnessed Further, the signing of the contract by the parties is witnessed by their witnesses who are generally produced by the parties in by their witnesses who are generally produced by the parties in the event of any litigation to prove the execution of a contractthe event of any litigation to prove the execution of a contract

■ Paper contracts are signed by the parties by hand and identity Paper contracts are signed by the parties by hand and identity proof of a party signing it can be seen by the other party. proof of a party signing it can be seen by the other party.

■ The terms of a paper contract are generally read by the parties The terms of a paper contract are generally read by the parties due to which the chances of such a contract being declared void due to which the chances of such a contract being declared void by courts on this ground are less. by courts on this ground are less.

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