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FAQ ON COMMERCIAL AGREEMENTS & CONTRACTS LAW

 

 
COMPETITION LAW
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COMMERCIAL AGREEMENTS & CONTRACTS LAW
 
The Indian Contract Act, 1872
Drafting of Commercial Agreements and Contracts
FAQ on Commercial Agreements and Contracts
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INDIAN STANDARD'S LAW (BIS)
 
  1. What are agreements?

    According to Section 2(e) of The Indian Contracts Act, 1872, every promise and every set of promises, forming the consideration for each other, is an agreement.

  2. Are all agreements contract?

    It is important to note that all Contracts are Agreements but all Agreements are not Contracts and only agreements enforceable by law are called contracts.

  3. What are contracts?

    Agreements which are legally enforceable are called contracts. Valid contracts create legal obligations on all parties to the contracts and the parties are bound to fulfill their obligations under the contract.

  4. How many parties are needed for a contract?

    A minimum of two parties are needed to enter into a contract.

  5. What are different types of contracts based on their validity?

    On the basis of validity there are three types of contracts: a) Void Contracts b) Voidable Contracts c) Valid Contracts

  6. What is a void contract?

    A contract which is unenforceable by law is a void contract. A contract may be Void ab initio i.e. since the very beginning or may become void later due to a change in law or public policy.

  7. What is a voidable contract?

    A voidable contract is a valid contract which is enforceable by law at the option of one or more of the parties to the contract but not at the option of the other party or parties to the contract. In case such a party or parties decides to repudiate (reject) the contract, the contract becomes void.

  8. What is valid contract and what are its essentials?

    A contract is considered to be a Valid Contract if the following essentials are fulfilled:

    1. An Offer is made by one party to another, laying out the party’s willingness to do or abstain from doing something;

    2. Acceptance by the other party of such an offer;

    3. There must be intention on the part of parties to create a legal obligation;

    4. Free Consent of both Parties;

    5. The parties must be competent to enter into a Contract;

    6. There must be a Lawful Object;

    7. Lawful Consideration.

  9. What is consideration?

    When a party or parties agrees to do or abstain from doing something and in return the other party or parties also agrees to do or abstain something, such act or abstinence is called consideration. It is pertinent to note that the consideration must be lawful i.e. the parties making the promise to do or abstain from doing something must be legally allowed to make such a promise.

  10. Is a contract valid even without consideration?

    One of the essentials of a Valid Contract is the existence of consideration. As a general rule, No Contract is valid without consideration but it is pertinent to note that it is not necessary that the consideration is sufficient, it may merely be adequate.

  11. What are the exceptions to the rule, No Consideration, No Contract?

    There are certain exceptions to the rule of No Consideration, No Contract. Following are the cases where an agreement without consideration is valid and not void;

    1. A promise made out of material love and affection

    2. A promise made to compensate for voluntary services

    3. Written promise to pay a time-barred debt

  12. What is offer and acceptance according to Indian Contracts Act, 1872 ?

    An offer is a promise in return of a performance or payment by the other party. Offer can be specific if made to one person or general if made to larger group of people. Acceptance is the confirmation of the offer from the other party. After an offer and the acceptance of the said offer, the contract is considered complete.

  13. What is invitation to offer under the Indian Contracts Act, 1872?

    There is stark difference between offer and invitation to offer. An offer is at the confirmatory stage of the contract whereas invitation to offer is only done with intention to initiate negotiation about the contract.

  14. What is the capacity to contract under the Indian Contracts Act, 1872?

    According to Sec 7 of the Indian Contracts Act, 1872, Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.

  15. What is consent?

    According to Section 13 of the Indian Contracts Act, 1872, consent is defined as when two or more persons are said to consent when they agree upon the same thing in the same sense.

  16. What is Free Consent according to the Indian Contracts Act, 1872?

    According to Section 14 of the Indian Contracts Act, 1872, Consent is said to be free when it is not caused by-

    1. Coercion, as defined in section 15, or

    2. Undue influence, as defined in section 16, or

    3. Fraud, as defined in section 17, or

    4. Misrepresentation, as defined in section 18, or

    5. Mistake, subject to the provisions of sections 20, 21, and 22.

    Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake.

  17. What are commercial Agreements according to the Indian Contracts Act, 1872?

    A Commercial Agreement refers to a legal agreement between parties in which they are obligated to do or restrain from doing particular things. A commercial agreement is a type of contract generally executed for business activities. Some examples of commercial agreements that may be executed are:

    1. The sale of goods or provision of services;

    2. The right to use intellectual property, such as patents, copyrights, trademarks and trade secrets;

    3. A party’s right to disclose confidential information, or to engage in competition;

    4. The purchase or lease of a property.

  18. Which law governs contracts and commercial agreements in India?

    Contracts and commercial agreements are governed by The Indian Contract Act, 1872 (‘Act’).

  19. What is privity of contract according to Indian Contracts Act, 1872 ?

    Privity of contract means that a stranger to a party cannot sue. According to this doctrine, only those parties who are party to a contract can sue each other and a stranger to a contract cannot sue those parties. This is done to protect the interest of parties to the contract.

  20. What is coercion?

    According to Section 15 of the Indian Contracts Act, 1872, Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code 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.

  21. What is undue influence under Indian the Contracts Act, 1872?

    According to Section 16 of the Indian Contracts Act, 1872, the following acts are called as undue influence;

    1. A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

    2. In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another-

      1. where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or

      2. where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

    3. 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 adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

  22. What is fraud under the Indian Contracts Act, 1872?

    According to Section 17 if the Indian Contracts Act, 1872, Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agents , with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:

    1. the suggestion as a fact, of that which is not true, by one who does not believe it to be true;

    2. the active concealment of a fact by one having knowledge or belief of the fact;

    3. a promise made without any intention of performing it; d) any other act fitted to deceive;

    4. any such act or omission as the law specially declares to be fraudulent.

  23. What is misrepresentation according to Indian Contracts Act, 1872?

    According to Section 18 of the Indian Contracts Act, 1872, Misrepresentation means and includes-

    1. the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;

    2. any breach of duty which, without an intent to deceive, gains and advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him;

    3. 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.

  24. How can a contract be discharged under the Indian Contracts Act, 1872?

    Discharge of a contract is when both the parties release each other of their obligations. It can be discharged in these ways:

    1. Discharge by performance.

    2. Discharge by mutual agreement.

    3. Discharge by impossibility of performance.

    4. Discharge by lapse of time.

    5. Discharge by operation of law.

    6. Discharge by breach of contract.

  25. What is discharge by performance according to Indian Contracts Act, 1872?

    When both the parties have completed their performance or their obligations towards each other then a contract is discharged by performance.

  26. What is discharge by mutual agreement according to Indian Contracts Act, 1872?

    If both the parties agree at the same thing in the same sense then the contract is dissolved by mutual agreement.

  27. What is discharge by impossibility of performance under the Indian Contracts Act, 1872?

    A contract with an impossible act is considered illegal but if after the contract is made the act becomes impossible then the parties have to discharge the contract due to this reason. If any party was aware of the impossibility of the act or had the apprehension will have to compensate the other party at such event.

  28. What is discharge by lapse of time?

    Due to the different limitation period on different contracts if that said time is completed then neither of the party can enforce the other party for the performance of the contract. This is called discharge by lapse of time.

  29. What is discharge by operation of law under the Indian Contracts Act, 1872?

    Discharge by operation of law takes place when there is an alteration in the contract without the consent of either of the party or in case of death/ insolvency of either of the party.

  30. What is discharge by breach of contract?

    When there is a default from either side of the party in either not performing or payment then the contract is said to be breached and the party sustaining loss has a right to get damages.

  31. What are the remedies for breach of contracts under Indian Contracts Act, 1872 ?

    Remedies available to the party suffering loss under the Act are following:

    1. Compensation of loss and damage for breach of contracts.

    2. Compensation of breach of contract where penalty is stipulated.

    3. Right for rescission of contract

  32. What is compensation of loss and damage for breach of contracts?

    Compensation for loss and damage are of 4 kinds:

    1. Liability for Special Damages.

    2. Liability for Exemplary Damages.

    3. Liability to pay Nominal Damages.

    4. Liability to pay damages for deterioration caused by the day.

  33. What is compensation of breach of contract where penalty is stipulated for?

    Breach of contracts can be divided into damages payable as Penalty or Liquidated Damages. Liquidated damages are imposed as compensation to the party whereas penalty is imposed for punishment.

  34. What is the right of rescinding the contract?

    When there is a breach of contract then the aggrieved party has the right to cancel the contract and sue the other party for damages under the provisions provided by Indian Contracts Act, 1872.

  35. What is contracts in restraint of trade?

    According to Section 27 of the Indian Contracts Act, 1872, Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

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