Contract : Law & Management

Dr. D. S. Sengar
Professor and Chairman, Legal Management Group

Indian Institute of Management Lucknow

Why Law of Contract?

To ensure expectations created by promise To develop confidence that rights existing today will be enforced tomorrow To protect and enforce contractual rights To regulate the behavior of other parties To ensure that freedom of contract is not misused Where to apply ? Every activity of the commercial world Foundation for other branches of commercial law

 What is idea behind the contract ?

Meeting of mind through offer and acceptance Common consensus/ mutuality of mind

CONTRACT : LAW & MANAGEMENT

Modern Economy rest in law In todays business world contracts are a necessity Numerous laws, regulations and unforeseen events make contracts complicated Business, government and organizations need to understand: intricacies involved in contract formulation, interpretation, review, negotiation, performance, enforcement & the remedies in case of breach Parties need to know the strengths, weaknesses, risks and missing terms before signing an agreement Thus, final agreement should be effective and enforceable

Contract management
Process which ensures that both parties to a contract fully meet up their respective obligations in order to deliver business and operational objectives
An understanding of legal issues in contract formulation and management will helps: To avoid the pitfalls in contracting To make it easier to deal with lawyers and arbitrators To guarantee for avoiding loss and profitability to the organization.

What is a Contract?
An agreement enforceable by law is contract An agreement is set of promises forming the consideration for each other A Contract is an agreement which is intended to be enforceable at law and -is constituted by acceptance of an offer -to do or to abstain from doing some act.

 A contract is an agreement between two or more persons: (individuals, businesses, organizations or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value.

Contracts generally can be written, using formal or informal terms, or entirely verbal.

 The terms of the contract - the who, what, where, when, and how of the agreement define the binding promises of each party to the contract. If one side fails to live up to his/her part of the bargain, there's a "breach" and certain remedies for solving the differences are available.

Key elements of a binding contract

A meeting of the minds between the parties demonstrating they both understand and agree to the essentials of the deal -rights and obligations : not only communication of intention

Competent Parties - Legal competency- A drugged or mentally-impaired person and Minors cannot, generally, enter into a binding contract Consideration - something of value in exchange. No side can obtain something without providing something in exchange.

 Intension to create Legal relationship:

No obligation if parties never intended to create legal relationship.

even there is acceptance and consideration

Lawful object: Agreement fulfilling all conditions must not be unlawful object Putting the deal down on paper : to avoid future misunderstandings and disputes (although oral contracts are also valid) Every agreement and promise enforceable at law is contract

Why Contract Management :

Allow the parties an opportunity to:

Clearly define their obligations to and expectations from each other

Limit their liability

Lay out payment terms Divide up business risks Make sure each side understands its responsibilities

Management of Contract
After contract is concluded, It is important to comply legal and contractual requirements Monitor performance: Both parties should check that the other is fulfilling its obligations - timescales and payment plans are being adhered to. Have regular project meetings: to ensure that everything is going according to plan and to solve any problems as they arise. Avail Contract management advice : for most effective contract management job in the most effective manner possible.

 Identify yourself whether a legal issues is involved before resorting court and hiring an advocate and manage them before they legal problem Maintain Records to avoid business and reputation loss : have contact document , mails and other documents evidences you need should things deteriorate into a breach of contract and enforcement actions become necessary. Do not change contract conditions unilaterally, it will amount to counter offer , not enforceable