2012-05-22 00:00:00 General English https://quickbooks.intuit.com/in/resources/in_qrc/uploads/2017/05/May22_All-about-Contracts-II11.jpg All about Contracts – What the Law Says

All about Contracts – What the Law Says

2 min read

In the previous article (All about Contracts – Basics), we spoke about contracts, when it is used, what all should be included in a contract and the tips for making a good contract. In this article, we talk about the legal angle of contracts, their enforceability, options available for revoking a contract and recourse available in case there is a breach. But first, what constitutes an enforceable contract? As per the Indian Contract Act,1872, a “contract” is an agreement enforceable by law. The agreements that are not enforceable by law are not contracts. An “agreement” means ‘a promise or a set of promises’ forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an ‘offer’ and its ‘acceptance’. It is important to note the following points relating to a contract: • It is made by the free consent of parties competent to contract. A person is ‘competent’ to enter a contract when: o He has attained the age of majority o Is of a sound mind, and o Is not disqualified from contracting by any law to which he is subject Thus, minors, persons of unsound mind and persons disqualified from contracting by any law are incompetent to contract. • It should be for a lawful consideration and with a lawful object, and • It is not expressly declared to be void • The contract must be definite and its purpose should be to create a legal relationship. What if you want to revoke the contract? The law allows you to revoke a contract provided – • Such notice of revocation is communicated to the other party • The time prescribed in such proposal for its acceptance has lapsed • In cases where no time is prescribed, if no communication of the acceptance has been received within reasonable time; • The acceptor of the contract fails to fulfill a condition precedent to acceptance; or • In the case of the death or insanity of the proposer Compensation for loss/damage caused by Breach of Contract: In this section we talk about your rights in the case a contract is broken. In such a case, you, as the aggrieved party, are entitled to receive compensation for any loss or damage caused to you from the party who has broken the contract. If the amount is specified in the contract as the amount to be paid in case of such breach, such amount is to be paid as penalty. In case such amount is not specified, the loss from the breach is estimated by: • The actual loss as arose naturally in the usual course of such breach, or • Which you and your counterpart agreed during the make and signing of the contract, to be likely to result from the breach of it. Remember however that such compensation is not given for any remote and indirect loss or damage sustained by reason of the breach.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

The Biggest Cloud Computing Trends for 2017

Has your small business migrated to the cloud computing? Soon, 92% of all workloads…

Read more

Dos and Don’ts of Setting Up Small Family Business

Setting up a new business can be difficult enough on its own.…

Read more

Subscription Model or One-Time Sale: Which Should You Choose?

Research has found that subscription models are 217% more profitable for businesses than…

Read more