Contracts

Vishakha Gupta: How is a contract rescinded?

Jyoti Dahiya: Ah, you mean, how is a contract formally cancelled? This is a special case of termination of contracts. Contracts can end in two ways: Either they end on their own at the end of the term of the contract, or they are cancelled by one or more of the parties.

Vishakha Gupta: Yes, I’m talking about cancellation.

Jyoti Dahiya: In practical life, a contract can be abandoned simply by the parties not doing anything about it, and none of the parties requiring the other to perform the contract. But this is not the formal way of doing it. For formal cancellation aka rescission, you first need to check the terms  of the contract itself.

Vishakha Gupta: How’s that again?

Jyoti Dahiya: Most contracts have clauses that specify the conditions under which they can be terminated, and the form or manner of termination.

There are two types of termination by the parties. One is ‘at will’ and the other is ‘for cause’.

Vishakha Gupta: ‘For cause’ refers to a breach of contract, right?

Jyoti Dahiya: Correct, though the phrase ‘for cause’ itself may not appear in the contract. That’s straightforward enough: one party finds that the other has breached the terms of the contract and elects to cancel it.

Vishakha Gupta: Is it really straightforward in all cases?

Jyoti Dahiya: Not always. Often enough, the fact of a breach is itself the subject of dispute. What one party insists is a material breach, the other party calls a minor breach or a curable action.

Vishakha Gupta: And what is ‘termination at will’?

Jyoti Dahiya: In many contracts, there is a clause that one or both parties may terminate the contract without giving any reason. Usually, there is a requirement of adequate notice, and there are other conditions like payment for work completed, return of each others’ property, and the like. These may be implied or explicit.

Vishakha Gupta: And the notice, of course, has to be formal.

Jyoti Dahiya: Yes, and it is usually specified in the contract. If the period of notice is not specified, a reasonable period has to be provided. That usually comes from context. Different industries, for example, may have differences in what is considered reasonable. If you are cancelling an order from your local grocery store, you may simply call up and tell them not to send it, and the cancellation is immediate. But if the contract is for laying a railway track in a remote area, a few months may be reasonable.

Similarly, the mode of notice is also either explicitly given in the contract or implied. With the grocer, a verbal cancellation is sufficient. For contracts in writing, the notice is also usually in writing. Who is authorised to cancel, the opportunity to the other party to contest the cancellation, the exact mode, all these have to be scrupulously followed, otherwise the rescission can be challenged. If the contract says it has to be sent by Speed Post, for example, the other party may refuse to accept a courier. 

Vishakha Gupta: That is being hyper-technical!

Jyoti Dahiya: No doubt, but why get embroiled in litigation over a procedural matter? Issues also arise when the contract did not envisage the conditions that actually come up, so we are back to the old advice of getting your contract done properly by a good contract lawyer.

13 November 2023  #ConversationsInLaw #ContractLaw #Contracts #RescindContract #CancelContract #Rescission

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Vishakha Gupta: I have a question for you: are prenuptial agreements legal in India?

Jyoti Dahiya: Well, that’s an interesting question. They are certainly not something one comes across often over here. But I see no reason why they cannot be made.

Vishakha: Are you sure? If they are, why don’t people do them more often?

Jyoti Dahiya: It depends on what kind of agreement. In other countries where they are common, there are a lot of restrictions that can be placed on a spouse in case of breakdown of a marriage. It is possible to restrict the claims made on the other spouse, or limits to alimony.

Vishakha Gupta: That’s kind of the point to such agreements, isn’t it? And that’s why I think they cannot be done here.

Jyoti Dahiya: It’s very common in celebrity prenuptial agreements abroad, which is why we hear a lot about it. A prenuptial agreement can cover these aspects:

• What constitutes a breakdown of marriage. While nobody expects their marriage to fail, a practical couple will calmly consider: what if it does?

• In the event of a breakdown, what will both parties do? They can contract to go their separate ways peacefully, and avoid messy public fights.

• If there is a divorce for the fault of one party, the agreement can specify the consequences, like lack of child custody, higher alimony/maintenance, and the like.

• There can be restrictions on the claims on each other in the event of a break-up, particularly property sharing and that there will be only one-time alimony. Some pre-nups (as they are called) may even require one or both spouses to waive any rights to alimony or maintenance.

• Lastly, there is child custody and child support.

Vishakha Gupta: But is it all legal?

Jyoti Dahiya: Some of it is. As we have repeated often enough, the prerequisites for a contract are

• Ability to give consent

• Consideration, that is the promises in return for promises

• The giving of free consent

• The legal purpose of the agreement

A prenuptial agreement is like any other agreement under Contract Law. Parties who are free to consent to marriage are also free to consent to contracts. The promises made to each other are in consideration of the marriage itself. The consent should be freely given, and one party should not be coerced or be at a significant negotiating disadvantage. The purpose should be legal.

Vishakha Gupta: Tell me more about the last two.

Jyoti Dahiya: Celebrities’ spouses may not be celebrities, and are likely to suffer negotiating disadvantages. Hence, the kind of celebrity spouse contract possible in, say, the USA, would likely not fly in India, where unequal contracts are frowned upon.

As to legal purpose, if the contract contains clauses that limit or waive statutory rights, they would not be enforceable in India. While some courts have also started granting alimony to men, statutory protection is available for women and the children of the marriage under personal marriage laws, and also under common laws like the Criminal Procedure Code 1973 and the Domestic Violence Act 2005. Under the Contract Act 1872, a contract that is against the law or public policy is bad and void.

Vishakha Gupta: What do courts say about prenups?

Jyoti Dahiya: While there is no specific law that permits or prohibits prenuptial contracts per se, courts have started looking at such agreements more favourably. As long as a prenuptial agreement covers the disposition of property, arrangements for children, and the actions to be taken in case of breakdown of marriage, they can be enforced. If they purport to waive rights to alimony and maintenance, they are void to that extent at least.

Vishakha Gupta: I think it’s clearer now. Prenups should be treated like we treat any other contract that happens to not be between spouses.

Jyoti Dahiya: That’s the right approach!  No need to be shy. 

11 November 2023 #ConversationsInLaw #MarriageLaw #ContractLaw #PrenuptialAgreement

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Vishakha Gupta: You mentioned that, under Islam, marriage is a contract. That comes across as strange to members of other religions, who are more used to treating it as a sacrament.

Jyoti Dahiya: True. Marriage arises from social customs, and in early times, marriages were given social recognition through religious rituals. Hence, they are treated as religious sacraments in most major religions.

Islam was the first major religion to give marriage a contractual form. What used to be religion-based vows became contractual vows. The parties to the marriage can specify certain conditions which the other party must vow to fulfil. In addition, there are certain sums associated with the marriage, the most famous being mehr, which is the right of the wife to an amount sufficient for her maintenance if the marriage is dissolved. Similar to liquidated damages in contract law, mehr can be specified as a fixed amount at the time of the wedding. Like in contract law, the consent of the parties has to be freely given, and hence they have to be capable of consent. Under customary law, the age of consent in Muslim Law in India is much lower than that of majority. However, as a consequence of The Prohibition of Child Marriage Act, 2006, the age of majority has been defined as 21 years for a male Indian and 18 years for a female Indian, irrespective of the personal law they come under.

It is also interesting to note that, worldwide, the trend is to give marriage more and more colour as a contractual act. Within India itself, marriage reforms under the Hindu Marriage Act and other marriage-related acts have taken a lot of the aspects of contract law. For example, there are requirements for the parties to the marriage to be capable of giving consent, and that the consent is not obtained by force, fraud or the equivalent of misrepresentation. This aspect of modification of what used to be treated as a sacrament, but is now more contractual, has often been noticed by the courts, especially when it comes to interpretation of the section on divorce by mutual consent. The laws on maintenance of the spouse are similar in many ways to the treatment of breach of contract in contract law, viz., the party in default has to compensate the other party for the breach.

The general trend is to treat marriage as an agreement between the spouses and to enforce the promises or compensate for breaches. You can see the legislation and practices in other countries where, for example, civil unions are recognised as more or less equivalent to marriage, while being agnostic to the religion of the parties.

Vishakha Gupta: So, marriage itself may or may not be a contract?

Jyoti Dahiya: Yes, it mainly depends on the personal law that is applicable. The trend is towards treating marriage more and more as a contract with civil remedies, than as a sacrament with no or few remedies. Like registration of contracts is not mandatory, but recommended, registration of marriages is also recommended and records the facts of the marriage, the parties and witnesses. There is already no prescribed ritual for a wedding ceremony under the Special Marriages Act. Indeed, even the captain of a ship historically has had the power to perform weddings while the ship is sailing!

Hence, you can see that while marriages may or may not be contracts, the trend is for them to be treated by law as a special case of contracts with additional statutory protection for the weaker party and minor children.

31 October 2023 #ConversationsInLaw #ContractLaw #Marriage

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Vishakha Gupta: There is some reference in the Indian Contract Act, 1872, to marriage and contracts that are or are not enforceable with respect to marriage. Does marriage come under contract law?

Jyoti Dahiya: Are you referring to section 27 that says that “Every agreement in restraint of the marriage of any person, other than a minor, is void”?

Vishakha Gupta: Actually, I’m looking at several illustrations of different sections, in which they refer to contracts to marry or to give sums of money to persons in the event of marriage.

Jyoti Dahiya: Ah, yes. Agreements under which a person promises to marry someone are enforceable and hence they are contracts. The exception is when the promisor or promisee is already married and the law which they are subject to, forbids polygamy. A breach of the promise gives rise to a right to compensation.

An interesting point is that B can promise C a certain sum of money in case C marries D, or in case D marries E, or even in case D does not marry E! But B cannot promise C a sum of money or other consideration in case C does not marry D, due to section 26. Basically, an agreement in restraint of marriage is void, but an agreement under which a marriage happens is valid and enforceable.

Vishakha Gupta: Except in the case of minors.

Jyoti Dahiya: Exactly. The Prohibition of Child Marriage Act, 2006, applies to such marriages. However, in the case of minors, an agreement in the restraint of their marriage is enforceable. Like B agrees to give C a certain sum of money in case C does not get C’s daughter D married before the age of 18. C can demand the sum from B when D reaches the age of 18 years and is still unmarried.

Notwithstanding the provisions of the Contract Act, though, giving or taking, offering or demanding dowry, are all prohibited under The Dowry Prohibition Act, 1961, because dowry is a social evil.

By the way, did you know that marriage is considered to be a contract under Islam?

Vishakha Gupta: Interesting. Let’s discuss this next week.

24 October 2023 #ConversationsInLaw #ContractLaw #Marriage

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Vishakha Gupta: My client wants me to draft a non-compete agreement that they will get their key employees to sign. Can you explain it to me? 

Jyoti Dahiya: A non-compete agreement is an agreement between the employer and the employee, restraining the employees from working for a competitor. Many companies do make employees sign such agreements, sometimes even after employment, for a certain length of time. The logic is that the key employees know the entire strategy of the company, and will be able to advise the competitor on the basis of this confidential knowledge, to the detriment of the company. Some confidentiality clauses are enforceable. The company can protect its confidential matters (like formulae, for example), but they cannot restrain the employee from working with or even setting up a competing business.

Recall that section 27 of the Indian Contract Act, 1872, states that every agreement in restraint of profession, trade or business, is void to that extent.

It is now settled law in India that any non-compete clause in a contract may only apply to an employee for the period of employment and not beyond.

Earlier, an employee could be restrained, but only for the entire period of contract, if the employee left employment of her own volition before the period of the contract. However, subsequent rulings have now refused such restraint, even if the employee left of her own volition. This was laid down by the Hon’ble Supreme Court in 1981 in Superintendence Company of India (P) Ltd. Vs. Krishan Murgai [1980 AIR 1717, 1980 SCR (3)1278] and was more recently summarised by the Hon’ble Delhi High Court in 2018 in Navigators Logistics Ltd. vs Kashif Qureshi & Ors [CS(COMM) 735/2016 on 17 Sep 2018].

The logic is simple: Day to day affairs of employment which are in the knowledge of many and are commonly known to others cannot be protected as trade secrets. In a business house, employees come across so many matters but all these matters are not trade secrets or confidential matters or formulae, the divulgence of which may be injurious to the employer. If an employee on account of employment has learnt some business acumen or ways of dealing with the customers or clients, the same do not constitute trade secrets or confidential information, divulgence or use of which should be prohibited.

Logically, a person who has acquired experience in one field and/or in one industry, is best qualified to work in that field and/or in that industry. Most such options available to a person would come in jobs offered by competitors. Permitting such non-compete conditions would unnaturally constrain ex-employees from earning their livelihood by means of their skills and capabilities.

Vishakha Gupta: But how come the protection of the law is claimed by the client qua their US offices for such non-compete agreements? How does the company then protect its trade secrets in India?

Jyoti Dahiya: Some jurisdictions, such as the United States, treat trade secrets as property, and hence an ex-employee using the trade secret is treated as a case of theft or misappropriation of property. India does not treat information as property. Hence, perhaps your client is able to enforce such terms in those jurisdictions.

Vishakha Gupta: It’s a point of caution that what is legal in one jurisdiction may not be legal in another, and vice versa!

Jyoti Dahiya: Yes. I also used to be of the opinion that contract law, being one of the most basic of human laws, would be similar all over the world. It’s not!

17 October 2023 #ConversationsInLaw #EmploymentContract #NonCompete #IndianContractLaw

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Vishakha Gupta: I’ve been advising this client to get some of the terms of the contract changed because they are very much against my client. However, they say that they will have to accept the suggested contract unchanged, otherwise they will not get the work. It just doesn’t seem fair that they have to blindly accept what the other party says just because the other side is bigger.

Jyoti Dahiya: A lot of companies provide their employees, suppliers and customers with ‘standard’ contracts, and pressurise them to sign blindly. This can be under the guise of a ‘standard’ contract or ‘company policy’. However, there are some protections that the weaker party can avail of.

First, they can always negotiate harder. Many people don’t realise that the other party is often as eager as them to proceed, and that they can get concessions on matters of greater importance for themselves, but which are not very material to the other side.

Second, they are free to cut out those parts that they do not agree with, or mark them ‘accepted under protest’. The rest of the contract would be enforceable, the part that is not accepted freely would not be. Recall that we had discussed ‘consensus ad idem’ last time. If there is no ‘ad idem’, the contract would become void. Hence, it is in the interests of the other party to allow such deletions and changes. However, do ensure that the party that is making these changes signs against them to indicate their intention. 

Third, courts generally  interpret clauses against the party that drafts them. Hence, the courts will insist on stricter performance of clauses that are drafted by the party in the stronger position, and will be less strict with the other party. Any ambiguity will be interpreted ‘contra proferentem’, i.e. against the party drafting the contract language.

Lastly, and most importantly, such ‘contracts of adhesion’ are frowned upon in India. In 2019, the Supreme Court came down heavily on one-sided contracts in the case titled Pioneer Urban Land & Infrastructure Limited v. Govindan Raghavan (C.A. No. 12238 of 2018), holding that such one-sided contracts constituted an unfair trade practice under Section 2(r) of the Consumer Protection Act, 1986.

So, it’s not as if your client has no choice but to knuckle under.

Vishakha Gupta: Yes, that was a landmark case, indeed.

09 October 2023 #ConversationsInLaw #ContractLaw #StandardContract #FormContract #ContractsOfAdhesion

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Vishakha Gupta: Take a look at this sentence in a contract: “The second party shall pay certain utility charges.” There is no mention anywhere in the rest of the contract about any utility charges. What is the party liable to pay?

Jyoti Dahiya: Is there a dispute in this regard?

Vishakha Gupta: Yes, there is. The second party is refusing to pay water bills for common maintenance. The first party is insisting on the payment, saying that the second party has to pay its share.

Jyoti Dahiya: Did they have any discussions or correspondence in this regard either before or after executing the contract?

Vishakha Gupta: No. In fact, that is what the second party says, that this is not part of the contract, but is a sudden and whimsical demand by the first party.

Jyoti Dahiya: Ambiguous contracts are void for uncertainty and are unenforceable. This arises from the Indian Contract Act, 1872, which states that “Agreements, the meaning of which is not certain, or capable of being made certain, are void.” Had it been possible to make out from the circumstances surrounding the contract what exactly was meant by that clause, the contract would become ‘capable of being made certain’. Recourse can be taken to common business or industry or local practices as well. But if a contract cannot be made certain, it becomes void. That appears to be the case here. Unspecified ‘certain utility charges’ cannot be made certain just because the word ‘certain’ occurs there.

Vishakha Gupta: It seems counter-intuitive to the client that a written contract can be unenforceable.

Jyoti Dahiya: People do tend to imbue the written word with a lot of undue mystique, don’t they! But the concept is straightforward. A contract requires both parties to agree to the same thing. This is called being ‘consensus ad idem’ or being of one mind. As the Supreme Court has remarked: “The Law of Contract is based on the ideal of freedom of contract and it provides the limiting principles within which the parties are free to make their own contracts.” Further, one party can ask for the actual execution of the contract, but only according to its stipulations and terms. “The stipulations and terms of the contract have, therefore, to be certain and the parties must have been consensus ad idem.”

It seems to me that the best solution would be for the parties to come to a fresh agreement on this point, which would become effective from that point on.

Vishakha Gupta: Yes, they can novate (make new) the contract by either modifying the existing contract or by making a fresh agreement on this point.

Jyoti Dahiya: Well, they will have to come back to the negotiating table if they want to settle this amicably.

Vishakha Gupta: Better sooner than later!

02 October 2023 #ConversationsInLaw #ContractLaw #AmbiguityContract #UncertaintyContract

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Vishakha Gupta: Take a look at this joining letter which my friend has received from their would-be employer and let me know what you think.

Jyoti Dahiya: I’m happy to see that your friend is consulting you as a lawyer. Most people do not realise that their joining letter is a contract.

Vishakha Gupta: Yes, that is true. But isn’t it a rather standardised document?

@ Jyoti: At entry level positions, many organisations do have a rather standardised document, but at senior levels, it is usually a custom-made document. It is only at senior levels that employees have greater bargaining power and the awareness to negotiate a contract, rather than accept the first draft of the company. Of course, the employment of workmen is protected under many statutes, so it is mainly people at the managerial and highly-paid individual contributor positions that need to examine their joining letter more carefully.

Vishakha Gupta: Would you list down the clauses that should definitely be reviewed? 

Jyoti Dahiya: First, and rather obvious, but it does get missed out: do check that the names, addresses, and designations are clearly mentioned. This includes not only the details of the employee but those of the signatory from the organisation and their authority to execute the document. Do pay attention to the description of the job including key deliverables, and the compensation (both salary and benefits). These should be clear and unambiguous. Other things to examine carefully are: the notice period, process and factors of performance evaluation, postings to other locations, joining and retirement benefits. For employees with a very high variable compensation component, it is critical to check the conditions that apply. It is also important to check the conditions under which the employment can be terminated, at both ends. 

Vishakha Gupta: Does it make a difference if the employment is not a regular but a contract employment?

Jyoti Dahiya: Yes, it does. Contract employees may have different working conditions, like attendance, facilities, etc. Also, the statutory benefits like EPF, insurance, gratuity, etc. are not mandatory for contract employees and are usually not given, so the employee has to provide for these on their own. Contract employees may also not be bound to work full-time for the organisation, and may have the flexibility to do other work also. If the employee desires such flexibility, they have to negotiate this and put it into the terms of joining.

26 September 2023 #ConversationsInLaw #ContractLaw #JoiningLetter #EmploymentContract

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Jyoti Dahiya came in singing “Jo vadaa kiya voh nibhana padega” (The promise that was made must be fulfilled) and declared it to be the Contract Anthem.

Jyoti Dahiya: It’s the encapsulation of the premise of contracts. If you make a promise, you have to keep it. If it becomes commercially onerous, or you can get a better deal elsewhere, it does not matter. If you contracted to do something, you are bound to do it, or compensate the other party for actual damages suffered. For example, if you short-sell shares in the market, you are bound to deliver the share at the stated time and at the stated price. If the market did not drop as you expected, and you have to take a loss to meet that delivery, well, you just have to absorb the loss and deliver the shares. If you don’t, you will have to pay the current (higher) market price to the buyer, to enable them to buy the same number of shares on the spot.

Vishakha Gupta: What about the next line? “Roke zamana chahe roke khudai, tumko aana padega” (Whether society or god stops you, you will have to come here).

Jyoti Dahiya: That’s actually a slightly more subtle point. Even if external factors like government actions or unforeseeable events beyond your control prevent you from fulfilling your contractual obligations, such as meeting a deadline, you remain obligated by the contract terms. Consequently, you could potentially be liable for penalties stipulated in the contract for any failures to meet these obligations. 

However, if you have included a ‘force majeure’ clause, you can protect yourself from the consequences of zamana (government) and khudai (Act of God) stopping you. 

‘Force majeure’ is a phrase meaning a superior or overwhelming force. Natural calamities like earthquakes and floods, also referred to as ‘Acts of God’, are one such force majeure condition. Court orders or laws passed by the government, like the National Green Tribunal banning construction activities while air pollution is high, is another. War or civil disturbances are also force majeure conditions that are worth putting in the contract.

Under a force majeure clause, a party that is prevented from performing its obligations by such ‘force majeure’ conditions is permitted to extend the deadlines until the force majeure conditions no longer exist. Basically, the promises are suspended for the duration of the force majeure condition.

A lot of people scrambled to claim force majeure protection during the Covid19 lockdown. However, the courts have only given protection to those who had included ‘epidemics’ or ‘government orders’ under their force majeure clauses. Hence, it is important to word your force majeure clauses carefully.

Otherwise, you are in the situation of “Ham apni vafaa pe na ilzam lenge. Tumhe dil diya hai, tumhe jaan bhi denge” (I will not accept any insult to my faithfulness. I gave you my heart, I will give my life also).

Vishakha Gupta: Ok, then what about the line--?

Jyoti Dahiya: I surrender! It’s not the Contract Anthem. Shall we discuss mediation instead, please?

19 September 2023 #ConversationsInLaw #Contracts #ForceMajeure #EnforcingContract #PromisesInContracts

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Vishakha Gupta : Why are you holding your head like that?

Jyoti Dahiya : Someone sent a new client to me. I introduced myself as a contract lawyer. They looked very sad and got up, saying, “Oh, we need a house lease lawyer.”

Vishakha Gupta : Hahahahaha. That is so funny. What did you say?

Jyoti Dahiya : I explained that a house lease is also a contract. It fulfils the conditions of a valid contract:

•     The parties have to be legally capable of giving their consent,

•     They have freely given their consent in actual fact,

•     They have made promises to each other, one promise against the other, and

•     The objective of the contract is itself legal.

If these conditions are met, an agreement is enforceable in law and is a contract. Lease Agreements, if enforceable, are also contracts.

Like other contracts, it is wise to have a lawyer look at the terms. I have seen lease agreements with the same clause, in slightly different words, repeated three times in the contract! Can you believe that people even get the area under lease wrong, and end up having disputes?

Vishakha Gupta : Yes, that often happens when people copy-paste from so-called ‘standard agreements’ from the internet.

Jyoti Dahiya : Not just that, it gives funnier results when they copy from more than one such sample! Sometimes even the sample agreements on Government websites are not enforceable. That can happen because people copy the whole thing, keeping all the options when they are supposed to keep only one. Or because, sadly, even the sample formats on these websites can be legally flawed.

Getting your lease drafted by a lawyer is more important for larger lease values, where particular attention has to be paid to lock-in clauses, force majeure, and dispute resolution. Commercial leases often have fit-out arrangements and requirements of due diligence.

Possibly the most interesting part of the discussion was about whether or not the ‘standard term is 11 months’. But I’ll tell you about that some other time.

12 September 2023 #ConversationsInLaw #Contract #HouseLease #LeaseDeed #LeaseAgreement #CommercialLease

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Vishakha Gupta : The client has understood the need for putting a contract in writing, but are reluctant to show it to me before they sign it. I don’t think this is a good idea, but they don’t seem convinced.

Jyoti Dahiya : It is perfectly legal to write a contract yourself. The reason why people sometimes hesitate to involve lawyers in contracts is because they worry about introducing complexity and fear that it may result in an intimidating document. On the other hand, some clients request contracts to be intentionally intimidating to deter the other party from causing issues. This reinforces the perception that lawyers make contracts appear "scary."

That said, the two main reasons for getting a lawyer in before you sign a contract are:

• Lawyers make the contract clearer to both parties, so that the ‘what, who, when, how much’ becomes more obvious. That’s my biggest role as a contract lawyer.

• Experienced contract lawyers can anticipate where the contract could break down for lack of clarity and can spot clauses inserted by the other party to take undue advantage. They can help to ward off the issues that would arise from such breakdown. While clients may be shy about confronting the other side, their lawyer would handle it professionally and calmly.

The language in a contract does come across as stilted because we try so hard to make it as unambiguous as possible. Some documents do turn out to be long-winded, however, it is not true that lawyers make the contract overly complex. For example, have you ever seen the Privacy Policy or Terms of Use of a major portal or website, like Google? The bigger the company (and the more experienced the lawyers they hire), the simpler, cleaner (and even friendlier) the policies. And yet, when it comes to enforcement, the terms are perfectly enforceable.

Most importantly, your lawyer can help you discover where you could find yourself at an unexpected disadvantage, and so you can protect yourself from exploitation by a clever and unscrupulous opposite party.

05 September 2023 #ContractLaw #MakingContractsSimpler #IndianContractAct #ConversationsInLaw

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Vishakha Gupta: Hi, I need to convince a client to put the contract in writing after you said that oral contracts are valid and binding.

Jyoti Dahiya: Generally, contracts spanning over years and with obligations on the parties to do (or not do) certain acts are usually in writing. Oral contracts are more suitable for very short and simple contracts, such as free home delivery of one’s purchases.

Here are some good reasons for putting a contract in writing:

• Weak human memory We think we can remember everything perfectly for years. We can’t. It’s better to have the terms in writing, where all the parties to the contract can refer to them.

• Disputes regarding the terms In case of a dispute, it is advisable to be able to refer to a document and see exactly what was agreed.

• Litigation In case the dispute goes to court or arbitration, the judge or the arbitrator needs to be able to have a clear understanding of the terms. That is best done with a written contract. Otherwise, it can be complicated to prove what was understood between the parties, especially if a long time has passed since the agreement.

Vishakha Gupta: Many articles on this topic say that a strong reason to reduce contracts to writing is that The Indian Evidence Act, 1872, states that oral evidence of the contents of a document is not relevant, and also that oral evidence of the terms of a contract is inadmissible in court.

Jyoti Dahiya: Such articles are somewhat misleading. The Indian Evidence Act does provide that, if there is a document, nobody can prove a contrary term only by oral evidence. This is logical, since memory can fail the parties, but the document remains fresh as to the terms even after long periods of time. However, the Evidence Act does not bar anyone from proving an oral contract that was never converted into a document. It also does not mean that the terms of a contract that have subsequently been modified orally, or a fresh oral contract, or a related oral contract, are not allowed to be proved in court. They very well can.

No, the primary reason for written contracts is to record the terms for easy future reference. It’s not that you expect every contract to end up in court. It’s because the parties to the contract need to be able to check who will do what, when, and for how much.

02 September 2023 #ConversationsInLaw #Contract #OralContract #WrittenContract #TheIndianEvidenceAct1872

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Vishakha Gupta: Hey, have you heard the expression “An oral contract isn’t worth the paper it is written on”?

Jyoti Dahiya: Oh, yes, this is a common expression. It indicates the difficulty of proving an oral contract.

However, oral contracts themselves are perfectly legal in India. Section 10 of the Indian Contract Act, 1872, talks about what makes a contract valid.

A contract can be oral unless there is a specific law to the effect that the particular type of contract necessarily has to be in writing.

The critical aspects of an oral contract are that:

• All sides (parties) should be legally allowed to give their consent (cannot be minors, for example),

• They have actually given their consent freely,

• They have made reciprocal promises to each other, and

• The objective of the contract is itself not illegal. 

Once these conditions are met, then an oral contract is as binding as a written one.

We are quite familiar with it in day-to-day life. For example, we pay the shopkeeper near our house to deliver the goods at home without taking the promise in writing.

We are less familiar with the fact that oral contracts can also be enforced in court. This is a very old, well-settled law, and gets reiterated from time to time by the Indian Courts. Of course, it is unlikely that someone will sue the shop if they don’t deliver the goods home; it is more likely that they angrily demand their money back - and get it. However, people do sue for things like enforcing an agreement to sell a house property, like Parmatma Devi succeeded against Kanika Bose (through her legal heirs), in the case titled Aloka Bose vs. Parmatma Devi & Ors., decided by the Supreme Court on 17 December, 2008.

Vishakha Gupta: As lawyers, we always advise people to have written contracts.

Jyoti Dahiya: True. Would those reading like to take a go at why the advice is always to go with written contracts?

26 August 2023 #ConversationsInLaw #Contracts #OralContract

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