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Legal Aspects of Contract

Understanding contract
• Example/Situation: You attend a job interview of a
reputed company
• The company selects you, offers a job and provides
an employment agreement
• You sign the employment agreement
• What does employment agreement contain? Is it a
contract?
Cont.

• Contract- Agreement enforceable by law

• Employment agreement is a contract


Cont.
• Example/Situation: Husband promised to take his
wife for a vacation to Singapore, but later refused.

• Is this a contract?
Cont.
• Not within the realm of contract law
• Social agreements are not enforceable by
contract law
• Contract law is primarily dealing with
commercial/business agreements
Non Binding Agreements
• Situation/Example: Bright Builders Ltd., a real
estate company and Best Resort Group Ltd., a
holiday destination venture, had an initial
meeting for discussion on possible collaboration
• At the end of meeting the broad areas for
possible future collaboration was mentioned in
a written agreement as building holiday resorts
on joint basis.
Cont.
• Each side signed the document.
• The title given to the document was ‘Non-
binding Memorandum of Understanding’
• Is this a contract?
• What is the relevance of non-binding
agreements in business?
Cont.

Force Motors enters non binding term


sheet
Force Motors Ltd entered into a non-binding
term sheet with Rolls-Royce Power Systems
to form an Indian Joint Venture for
producing engines
Cont.

Bringing some certainty to months of discussions,


Softbank-backed e-commerce firm Snapdeal has
finally agreed to a non-binding letter of intent (LoI)
for a merger with rival Flipkart, according to a
source privy to the development.
Cont.

• For forming a contract, parties should

have intention to create binding legal

relationship

• Hence non binding agreements are not contracts


Cont.
• Non-binding agreement provide flexibility to
business
▫ To continue the agreement
▫ No unwanted legal dispute and cost
▫ Test compatibility with the business partner and
market condition
Offer and Acceptance
• Agreement = Offer + Acceptance
• Offer, acceptance and consideration are
essential for a contract
• Example: Gayatri offers to sell her luxury flat for
Rs. 2 crore to Hema. Hema agrees to buy it
Important points to remember

• Contract are agreements enforceable by law


• Intention of parties to enter into binding
agreement is necessary
• Contract law is primarily dealing with
commercial agreements
• Agreement = Offer + Acceptance
Practical Points for Managers
• As business managers when you want to enter
into non-binding agreement please mention it
specifically.
• Offer and acceptance should be clear from the
contract.
• What is the relevance of written contracts?

• Are only written contracts enforceable?


Are only written contracts
enforceable?
• Ravi calls the toll free number of Jumbo Pizza
and asks for 1 Cheese Burst Pizza for Rs.500/-.
• Jumbo Pizza employee confirm 1 Cheese Burst
Pizza for Rs. 500/-
• When pizza was delivered Ravi denied to collect
and pay for it
Cont.
• Jumbo Pizza mentions that the recorded
telephone conversation is a contract. Is it
correct?
Cont.

• Contracts formed through spoken offers and

acceptances, are as valid as contracts formed

through a written offer and acceptance.

• Credit card companies, tele-marketing companies

use recordings of tele-conversation for this purpose.


Points to Ponder

• Which are the contracts relevant for start-ups?

• Which are the contracts relevant for JV?

• Which are other contracts usually used by corporate


organizations?

• “Comprehensive contracts for CEOs become the


new norm” - Times of India

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