by Harmanjot Kaur
Introduction
Whenever
we buy any electronic gadget, order a pizza from Zomato, buy a new
refrigerator, we see that both parties make a contract. It includes an offer
and an acceptance. However, the legal language is not that simple to define the
terms and conditions in layman terms. This blog would be trying to address the
nuances of what would be the intricate details related to the differences of
'contract' and 'agreement', 'offer' and 'invitation to offer', 'what are the
clauses related to the drafting of a contract, with special emphasis on
shipping contracts.
What are the
areas related to the Contract Act?
Difference between
'Offer' and 'Invitation to Offer'
In
the case of Pharmaceutical
Society of Great Britain vs. Boots Cash Chemists Ltd., it was held that
the price tag on the goods displayed in a supermarket is merely the 'invitation
to the offer'. These are not the actual 'offers'. Similarly, in the case of Harvey
vs. Facey, 1893 it was held that the quotation of the price was held
not to be an offer.
Intention to create
a legal relationship
There
should be an intention to create a legal relationship. This includes formal or
legal agreements which would have legal enforceability. The agreement for going
for a walk, going to a movie, playing a game, to go to dinner with a person
does not form any legal obligations. These are not formal in nature and hence
are not enforceable in the eyes of law.
Express and Implied
Offers
The
express offers are those which are expressed in nature. These would be those
which would be 'expressed' in oral or written form. Those offers would be
implied by the conduct of the parties. These include the 'implied' contracts.
The
drafting of a contract determines the intentions of the parties and their
respective roles in a particular contract. The drafting lays down the
provisions related to a particular area of law. These are thereafter holding
tangible proof of what was said and agreed upon by parties and they are liable
for the performance.
The
'implied offers' are those which includes areas such as paying for a fare after
asking a taxi for a lift. Similarly, asking the municipal authorities for help
in case a fire broke out in anyone's house would invite the liability to pay
the fire brigade the compensation for their service.
Indian
Contracts Act, 1872
Parties to the contract:
Section
10 and Section 11 of
the Indian Contracts Act, 1872 would provide a clear definition of the
jurisdiction related to this case. It includes a person with:
1) A sound mind: The parties to the contract should be of a sound mind.
2) Competent to contract: i.e., he is not minor or lunatic.
3) Laws in the case of the parties are minor: In the case of Mohiribibi vs Dharmodas Ghose, it was held that the contract with a minor would be void ab-initio. The parties may supply the necessities to the minor under the provisions related to 'Quasi Contracts' would be applicable here.
4) Lawful object: There should be a lawful object regarding the subject matter. There cannot be an object related to illicit trafficking, child labour, murdering someone.
5) Lawful Consideration: Section 2(d) defines the term consideration under the Indian Contracts Act, 1872. It would include past, present and future considerations.
5.1) Past Consideration
This would mean the considerations for any promise that was given earlier and the promise is made thereafter. The words such as 'has done or abstained from doing' in Section 2(d) of the Indian Contract Act, 1872.
5.2) Present Consideration
This means the consideration which would include at the time of the performance of the contract. It is called an executed consideration. When one of the parties to the contract has performed his part, this would include the present consideration.
5.3) Future Consideration
This means that the performance would be executory in
nature. It would include subsequent consideration.
Free consent
The
contract so entered into should be having the free consent of parties to the
contract. It should not be influenced due to:
Coercion
Coercion includes the acts
which are forbidden by the Indian Penal Code. This includes the Acts which
would include the unlawful detaining of the property. This would include any
person who would coerce one party to enter into the contract with the other
party, without any lawful justification.
Undue Influence
This
includes the person in a dominant and a submissive position. This could be a
real or apparent authority, having a fiduciary relationship of doctor and
patience, landlord and tenant, priest and the disciple etc. Additionally, we
see that the person in mental or bodily distress would be covered as the one in
the field of undue influence.
Fraud
The
false statement of fact, with an intent to defraud, would constitute 'fraud'. However, in
the case of XYZ, it was held that mere silence would not amount to fraud.
Therefore, the proper due diligence of the facts is a must before diving into
the real into a contract.
Misrepresentation
There
can be an instance where the person would we with bonafide intend to
believe in something to be true. And for that, they pass off the same
information to the other party believing it to be true. This would be a case of
misrepresentation.
Mistake
In
case, where there is no consensus ad idem or consent is absent, one has to be
very particular about the facts of the case. The mistake can be due to the
wrongful assumption of one or both parties. The mistake can be due to the
title, promise, possibility of performance of the contract, identity of persons
or any other matter.
Quantum Meruit in
case of a breach
In
case there would be a breach of the rights and duties, there would be
compensation. This compensation would be based on the market value. Section 73, Section 74 and Section 75 of the Act discusses
this provision. In case of no discharge, the basis on which the compensation
would be given would be based on the specific circumstances whether known to
the other party or not. In the case of Hadley
vs Baxendale, the measure of damages should be demarcated. In
this case, the plaintiff incurred a loss worth $4000/- due to non-compliance
with the terms and conditions. However, the plaintiff was only provided with
the 'compensatory damages' as the special circumstances were not known to the
other party. In case, the plaintiff wanted to have the exemplary damages, he
should have let the other party know about the special circumstances.
What would
make the contract void or voidable?
In
case the contract was entered into by some means such as coercion, fraud,
misrepresentation; it would be termed as void. On the other hand, if it is
entered due to a mutual mistake among parties, it would be termed as a 'void' contract.
Would the contract with the minor be void?
In
the case of Mohini
Bibi vs Dharmodas Ghose, it was held that the contract with a minor would
be void ab-initio. However, in the case of Quasi-Contracts, where there
would be some benefit of a minor from the transaction related to the 'necessities,
the contract can be held as a valid one. However, later on, the
compensation for the payment on the goods can be asked from the minor. (After
the age of majority)
How is this
related to the Sales of Goods Act?
The
provisions related to the unpaid seller (Section 46) and the Part Delivery
(Section 48) talks about the areas related to the sale of goods. The Chapter
related to the Unpaid Seller talks that in case the person has not paid the
requisite money, his pertinent goods can be sold in case the money has not been
settled related to the debt.
Nature of Goods: It is crucial to
identify the nature of the goods. If they are perishable or not.
Conditions related to the Unpaid Seller: Conditions such as resale rights, transit rights, and cargo
retention rights should be delineated.
What would be
the areas concerned about wharfingers?
Wharf
means the area which is alongside the river or sea for loading and unloading
vessels. Wharfinger means a person who owns or has the care of a wharf. A
wharfinger has a lien over the goods of his customer, until his wharfage i.e.
the charges for the use of the wharf, are paid to him. His claim regarding the
general lenient in respect of the goods will be valid.
How can this
be related to the Transfer of Property Act?
Whenever
there is a transfer of property, there would be a transfer of ownership of a
property, here, there would also be a transfer of the 'possession of the goods.
However, we see that Section 3
of the Transfer of Property Act talks about the non-inclusion of the
standing crops, timber and grass as included in the definition of the term 'immovable
property'. Therefore, we see that the transfer, in this case, would be held as
possible. There would be a transfer of the property. These are termed movable
properties.
However,
we know that there would be a transfer from one place, say, the place of
growing to a factory where the goods were deemed to get transferred. Here the
contractor who would be an intermediary would be held liable for the transfer
of the goods.
What would be
the clauses in the contract drafting related to the shipping agreement?[1]
Preamble
It
consists of a basic introduction. It talks about the reason for entering into
the contract. In addition, it also includes the reasons why the parties signed
the contract.
Terms of
Contract
These
consist of the terms related to the contract. The scope of novation includes
areas such as definitions. The terms and conditions are well tailored in this
section. In this case, definitions, pertinent sections of the Act relevant to
the contract are defined.
Names of
parties
This
clause tailors the name of the parties in simple and lucid language. The
parties are demarcated as 'offeror' and 'offeree', 'transferor' and
'transferee', 'buyer' and 'seller' as the case may be. This has to be done in a
bonafide way i.e. it should be free from coercion, misrepresentation or
the intention to defraud.
Conditions
of performance
The
conditions which one have to go through before entering into the contract
should be demarcated. There should be clear terms regarding who would be liable
for the damages to the goods in case of transit, from the buyer's place to the
seller. What would be the scope of redemption of the contract? Can there be any
altercation possible in case of a contract?
All
this should be mentioned in the contract.
Furthermore,
there should be terms and conditions regarding the areas of parties entering
into a contract in good faith and with a bonafide intention. Nothing was
holding them back. These were no instances of coercion, undue influence,
Nature of goods and the related sections of Sales of
Goods Act
It
should be mentioned in the contract that about which goods would be termed as
'perishable' or 'non-perishable'. The specific period for the period or the
termination of the contract and the related terms should be demarcated. Proper
Compliance with the 'conditions'
and 'warranties' as defined in the Sales of Goods Act should be there. There
should be compliance with the terms and conditions of the contract. The terms
should be clearly explained in the 'definitions' clause of the Act.
Caveat Emptor
In
case the purpose of the goods are told to the seller, the skills and the
experience of the seller would be liable to give the correct goods according to
the specific needs of the seller.
Liabilities
The
'limited liability in case the contract is related to the making of a portrait
etc can be observed. In case the actual person died, the liability of the heirs
should be demarcated.
Jurisdiction
In
case of a dispute, the specific jurisdiction of the cases should be demarcated
in a clear format. In case there would be a dispute, there should be a clause
describing the jurisdiction. This can be the court based in the 'sellers' place
or the 'buyers place' as the case may be. Additionally, it is always better to
have an arbitration clause.
Remedies
for Breach
In
the case of a breach, which is of two types i.e. actual breach and anticipatory
breach. In case the breach is on the actual date of the fulfilment of the
contract, it is termed as an actual breach. In case the breach is before the
actual completion of the contract, it will be defined as an anticipatory
breach.
Limitation
Clause
The
limitation, in case of the liability due to some unnatural event such as
earthquakes, tsunami, flood etc. there should be the terms which should be
mentioned. In case of force majeure clause, which limits the liability in case
of Act of God or some unnatural circumstances should be demarcated.
Force Majeure Clause
One
should limit the liability related to unnatural events. This includes tsunami,
earthquakes, cyclones etc. or any unnatural event. However, if we look at the
provisions of the Indian Contract Act, 1872 we see that the person in the lien
of the goods or is handling the goods would be liable to the same degree of care
and caution to the goods as if he would be the real owner of the goods. This is
true in the case of a bailee as well.
Definite time
The
period for the performance of the contract should be demarcated. One should be
very articulate in crafting the right time and deadlines for the performance of
the task.
Let
us take a hypothetical case here. Consider that there was a marriage on the
21st of the month. One cannot claim that one would readily accept the receipt
of the wedding clothes on the 21st of the following month. It is because the
wedding has already taken place.
Dispute
resolution clause
In
case there is a dispute, there should be a clause describing the jurisdiction.
It shall be the court based in the 'sellers' place or the 'buyers place' as the
case may be. Additionally, it is always better to have an arbitration clause.
Details of
payment
The
complete knowledge about the payment, related taxes and GST etc. should be
written in the contract. This would create transparency. In the case of the
breach, there should be a clear demarcation of the compensation provided to
both parties.
Termination
In
case of the repudiation of the contract, there should be terms that should be
demarcated. There should be terms related to the terms such as whether the legal
heirs would be liable or not. What would be the scope of recovery of the costs
incurred in case of partial performance etc?
Scope for
reformation
In
case there would be a change in conditions, there should be enough scope for
arbitration, novation, altercation and revising the whole contract. There
should be changes demarcated in case there would be some changes between the
parties to the contract. In the case where one of the parties would die, would
the performance of the contract be laid upon the legal heirs, such conditions
should be demarcated.
Representations
and Warranties Clause
In
this case, the conditions and warranties should be demarcated. Here the
'conditions' and 'warranties' are defined in a well-crafted format. Conditions
stand for the condition precedent without the presence of which, the
whole contract would be void. In the case of warranties, they
would be the conditions subsidiary to the main contract. These do not hold the
same weightage as the conditions, however, at the same time, their importance
cannot be avoided. These are related to the warrantees. In case the conditions
are not fulfilled, the contract can be rejected altogether.
End
The
termination of a contract is a smooth ending. Here there would be an acknowledgement
that the reader has understood the terms and conditions. Here at the end of the
contractual terms', both the parties whether it is the relation of a
buyer-seller, transferor-transferee would rectify the terms with their
signatures.
What
would be the relation with the Insurance Law, International Law and Maritime
Law?
Insurance Act, 1906
There
can be instances of injury or the loss of goods in the way. Therefore, there
should be an insurance policy. Here the insurance would make the parent company
as the 'agency' in the contract. He would be liable for the determination of
the contract in case of default.
Principle of utmost good
faith
The
principle of 'Ubi Jus Ibi Remedium' should be followed along the way.
There should be a liability in case of breach of duty without any lawful
justification. There should be remedies present in such a case.
Rule of Law and Natural
Justice
In
case of a breach of contract, both parties should be given equal opportunity to
be heard. There should be the opportunity to be heard. Everyone should be equal
in the eyes of the law. There should be no undue influence or the dominance of
one party who is rich over the poor.
Proximate cause
The
proximate causes for the non-completion of the contract should be known. This
would range from fraud to Vis-Majoris. Hence, each case should be
carefully studied in light of its facts and circumstances.
The marine insurance
contract as a contract of indemnity
The
maritime insurance contract should have an indemnity clause in case of the
termination of one of the parties of the contract. One should not suffer the
loss at the non-performance of the contract by the other person.
Warranties
These
warranties are similar to the Sales of Goods Act, 1930 which are discussed
earlier. It would include the areas such as liability, scope, collateral terms
related to the main contract, essential stipulations etc. Section 12 of the
Sales of Goods Act, 1930 defines it.
Extraneous
risks
Areas
such as unnatural events would be covered here. These include areas such as
earthquakes, tsunami, cyclones under this.
Perils not covered
The
areas which won't be covered should be demarcated. This would prevent the
parties from overstepping their liability.
Cargo clauses and other
related concepts
The
clear meaning of terms such as 'cargo', 'ships', 'dockyards', 'wharfs' should
be given in the definition clauses of the Act.
Conclusion
In
the light of the above discussion, we see that there are various areas which
are related to shipping contracts. Thus, we see contractual terms form a basic
part of our everyday life. Whether it is the buying and selling of a car, a
sale of some perishable goods or any other.
However,
the scope cannot be limited to the maritime laws related to shipping. This
includes even the contracts related to the transportation of goods from one
place to another such as shifting of houses from old to new. Similarly, we see
that the buying of a new refrigerator is also transported from the shop to the
home. This is also called ‘shipping’. However, it is even interesting to note
that the jurisdiction would be pertaining to the Insurance act, Agency act,
Indian Contracts Act, Sales of Goods Act and even International Law. Thus, we
see that the homonym of ‘shipping’ has a very wide scope. It is only because of
the grace of law as a profession which holds differences in the meaning of even
‘contracts’ and ‘agreements’ which may sound similar to the layman person.
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