and welcome to the series of lectures on principles of construction management and today we will
be talking about basics of contracting what constitutes a valid contract whats a void
contract and what conditions can i contract be declared void and basically what is a contract
and how is it different from an agreement what are the conditions that make an agreement
a contract i must acknowledge the discussions that i have had with professor k c iyer and
k n jha of the department of civil engineering at i i t delhi who initiated mean to this
process of understanding construction laws and the importance of having a component of
understanding of contracts as part of a course and construction management now what is a
contract as per the indian contract act of eighteen seventy two a contract is defined
as agreements which are enforceable as such having been made by free consent of parties
by persons competent to contract for a lawful consideration and lawful object and which
are not expressly declared to be void by any statute
so this is a technical definition of what the contract is so we can see that there are
certain clauses or sub clauses that are underlined this definition first thing we must understand
is in the contract in our case most of the time we will be talking of contracts signed
by individuals who should obviously be empowered to sign that contract so they are basically
committing their organizations or institutions to doing certain things so first thing is
competence that those individuals should be competent to do that then there has to be
a free consent there has to be the fact that whatever is being contracted for is legal
and not declared illegal in any way of form we must also remember that the legality of
something is related to the social values the society and the society has the judiciary
as the arm which interprets the law and therefore a contract has to be seen in the context that
whatever is being contracted for should be legal and whether it is legal or not it will
be decided by the judiciary so there is an important component of social
values social thought processes and so on which is involved when we are talking of a
contract in that sense of the word not trying to understand each of these terms a little
bit more first of all there must be a mutual agreement between the two parties so basically
what we have is that there is an object or there is a service or the absence there of
what somebody promises to do or promises not to do now in written for that there is a consideration
so these two parties who are coming together through this or for this object or service
lets call them a and b there has to be a mutual agreement between the two parties it cannot
be forced upon any of them the second thing is there must be an offer
made by one party call the promisor so basically for this object or service party a or company
a has to make an offer and thats by an construction we often talk of bits we have a bit to be
submitted so the bidder offers to execute the job which has been defined in a tender
at a certain cost so there has to be an offer made by one party called the promisor and
the other party call the promisee must accept the offer so having a unilateral offer by
one party or many parties of its does not constitute any contract so the offer has to
be made by the promisor and accepted by the promisee so once that offer has been made
and accepted then we are one step closer to the contract there must be considerations
usually payment in the form of money for doing an act or abstinence from doing a particular
act by the promisee for the promise so the promisor makes an offer that i am willing
to do such and such a thing for such and such a cost and the promisee agrees to that and
promises to pay the promisor a certain amount of money which is usually called a consideration
one must remember that in legal parlance very often a contract without a consideration is
looked upon with a lot of suspicion because it is not clear as to what is going on which
is not part of the contract it is not expected that a person will do something or an institution
will do something for another personal institution without any consideration say for some very
specific conditions which are also laid down in the law so there must be consideration
usually in the form of money for doing an act or abstaining from doing an act by the
promisee for the promise the offer and acceptance should relate to something that is not prohibited
by law so obviously this object to service which
we are talking about should not be something which is prohibited by law that is it should
not be illegal the contracting parties into the agreement should be competent that is
there not disqualified by reasons of infancy infinity etcetera to make such agreement in
that is what is called being competent to commit an institution being competent to sign
the agreement or the contract so this is the in a nutshell what constitutes the essential
elements of a contract in a nutshell again the offer and acceptance constitute and agreement
which when enforceable by law becomes a contract so when there is an offer and an acceptance
of the offer that is precisely what is called an agreement i offered to do something for
some consideration and somebody else excepts that offer thats an agreement now whether
that agreement is enforceable by law or not that will determine whether that agreement
is a contract if it is enforceable by law yes its a contract
and to be enforceable by law then we have to have conditions such as prohibited by law
we can have agreements which may be between children or minors they may agree to do something
for each other but that does not become contracts because that is something which is not enforceable
by law for the simple reason then that agreement was entered between minors who are not considered
competent to enter into in enforceable legal agreement or a contract so now whats an agreement
every promise and every act of promise forming the consideration for each other constitution
agreement thats what we have defined just now and what is enforceable by law all agreements
are contracts if they are made by the free consent of parties competent to contract for
lawful consideration and with a lawful object and not here by expressly declared to be void
so not only the object should be lawful but even the consideration has to be lawful if
the payment has to be made in means which are prohibited by law then again of course
the contract becomes void it is not a valid contract
once again to reiterate lets say the contract is an agreement which is enforceable by law
so an agreement is between competent persons of parties it has to have a proposal and acceptance
and a consideration so the proposal acceptance considerations and competent people that can
define an agreement once it comes to enforceability by law there has to be intention to create
legal obligation and to follow legal consequences when people enter into an agreement or enter
into a contract more a specifically they are explicitly stating their willingness to create
some legal obligations towards each other and to follow legal consequences that may
arise out of following or not following that contract so that intention has to be very
very clear and understood by the people who are entering into a contract so enforceable
by law essentially implies intention to create legal obligations and to follow legal consequences
for a lawful object lawful gains and the contract should not be void so these are the kind of
conditions that were important to understand when it comes to enforceability by law as
we go into this discussion you will realize that most of the things that we are talking
about are more or less common sense and thats what i had said at the beginning of this module
that as for as most of the laws are concerned except if its a technically issue involved
are quite common sense and therefore its important for a construction manager to just have a
feel for the legal provisions how they are to be interpreted under what conditions that
to be integrated and so on we simply cannot make you lawyers and complete with lawyers
when it comes to a thirty minute lecture or a four hour discussion on construction loss
but yes i indeed hope that you will have some insight into the processes that are important
to appreciate when it comes to contracting now what is competence of people now as far
as competence of people is concerned one thing is that they should be majors children cannot
enter into a contract they should be of a sound mind and not disqualified by law there
may be certain situations where due to certain reasons certain individuals may be disqualified
by law to enter into any contracting position they may be forbidden by the company or by
the institution into making a legal commitment for something which may be binding on the
company or the institution so if so long as that is not the case the person is competent
as for as incompetence is concerned of course then there is a minor children cannot enter
into a contract lunatic or unsound mind obviously person who is not sound as for as mind is
concerned is not able to understand what is entering into what kind of legal implications
there will be is incompetent as far as entering into an agreement is concerned and whats a
proposal it is an offer for a lawful object with certainty and possibility of performance
this is another interesting and a very important thing to understand that as far as construction
laws are concerned there has to be a certainty and possibility of performance and increment
or a contract for something which is not possible to perform that cannot be viewed as a contract
so impossible situations if the object is impossible to achieve then the contract is
not valid the proposal is not valid similarly there has to be a certainty of performance
a reasonable certainty that yes such a such a project will be completed within such a
such a time as we have seen in our discussion we are always talking about projects of project
may have certain foundation certain equipment certain a processes but all of that has to
be having a certain certainty of performance that yes these things can be done for things
that cannot be done with the reasonable certainty we will not be viewed as valid contracts we
must also remember that this has an issue of technology also
certain things which may be viewed as impossible or some certain things which were viewed as
reasonably impossible in lets say fifty sixty or hundred years ago have become possible
through technology so this interpretation of what is certainty and what is possibility
of course is a little tricky but you must understand the spirit of it this spirit of
it being that all contract should be for objects or the proposals that we have should be objects
which are reasonably performable they can be completed with reasonable certainty in
a fixed or a reasonable amount of time now lets come to another question can acceptance
or the consent be conditional so if the proposal is made can the person accept the proposal
with conditions the acceptance has to be without coercion that is there has to be no force
the person does not have to be under duress these are the conditions which have to be
applied when we are examining whether the acceptance is acceptable as far as the law
is concerned that acceptance has to be without coercion or duress that is further it should
be without undue influence nobody should be influenced into accepting an offer there should
be no fraud there should be no miss representation there should be no mistakes there should be
no conditions that is acceptance must be absolute and unqualified by accepting the conditions
of the proposal so the when accepting the conditions when
accepting the proposal the proposal has to be accepted along with the conditions that
the promisor is placing as far as that contract is concerned in certain cases it does become
necessary to negotiate a little bit after the proposal has been made that well whether
this condition is acceptable not acceptable and so on but at the end of it the contract
cannot be based on conditional acceptance of the offer now let us examine what is a
lawful object we all understand what a lawful object is but lets try to look at what the
losses about a lawful object it should be something which is obviously not forbidden
by law it should not defeat the provisions of the law and it should not involve or imply
injury to the property or a person so we cannot have a contract which will involve
injury to a person or a property because that itself is cons that itself is considered an
unlawful act or an unlawful that itself will be considered an unlawful result the implications
of completing that proposal should also be lawful the code does not regarded it as in
moral now thats what i had said right in the beginning of this discussion today that there
is an issue of morality also involved as far as interpretation of the law is concerned
and that interpretation is very often left to the courts that the object that we are
talking about should be such that it is not immoral and is not considered immoral by the
courts we must also remember that quotes most of the time do not free in laws the task or
the job of framing the loss is left to somebody else the codes usually confined themselves
to interpreting what is a law or what is the law prevailing at that point in time at that
particular place and therefore the issue of morality is also something which is often
interpreted by the courts in construction contracts of course we do
not very often encounter the situations where the morality of the proposal comes into examination
not opposed to public policy now that again is a very important component as far as defining
a lawful object is concerned the object should not be opposed to public policy which is also
again interpreted by the courts in order to have a valid contract what are the conditions
therefore there has to be an offer and acceptance there has to be an intention to create legal
relationship there has to be a lawful object lawful consideration competent parties free
and genuine consent un condition agreement not declared void otherwise and uncertainty
of object and possibility of promise so these are some of the arts takes on which we can
examine whether or not a contract is valid now on the contrary what is a void contract
a void contract therefore will be one which has been entered by in competent parties where
the considerations and the object is unlawful so it is for a proposal which is forbidden
by law it defeats the provision of law involves or implies injury to persons of property courts
regarded as immoral and is opposed to public policy and continuing it could be an agreement
without consideration except for natural love and affection so now had said at the beginning
of this discussion today that usually an agreement without a consideration that is the promisor
offers to do something or not to do something but does not expect anything in return no
consideration this is going to be looked upon with a lot of suspicion and construction contrast
or any contrast for that matter except for the condition such has a natural love and
affection now one very simple example of natural love
and affection is the kind of relationship which apparent may have towards the child
or a child my have towards the parents so there yes there can be a contract which has
no consideration so that is something which is accepted and incorporated into the legal
process itself then there are other condition such as promised to compensate voluntary services
or compliance of law promise to pay time barred debt gift actually made and creating an agency
then lets try to examine when a contract can be avoided thats again retraction of something
which we have already done and acceptance obtained without free and genuine consent
by coercion undue influence fraud miss representation or mistake if any one or more of these conditions
are found to be applicable then the contract can be avoided which means that even if a
contract has been signed it can be declared as void at a later point and time by a court
of law there is what is called and express or a implied
contract contracts could be express or implied now whats the difference between that in so
far as the proposal or the acceptance of any promise is made in words the promise is said
to be express that is it is explicitly stated in words that this is whats going to be done
this what the consideration will be and so on so if it is expressed in words explicitly
then the contract is said to be express contract contrary to that or on the other hand in so
far as the proposal or acceptance is made otherwise than in words the promise is said
to be implied that is it is something which is not explicitly stated what is implicit
in certain other statements being made usually it will be difficult to establish implied
promises except in very simple situations then therefore very often as first contracting
is concerned we should try to make it as explicit as possible and try to work with express contracts
an example which i can think of as for as express contracts is concerned could be keeping
the foundation area dry during construction so if it is said that if the contract provides
for keeping the foundation area dry during construction of the footing or the column
thats below the ground level and so on then it is implied that the contractor will de
water the footing if there is any need to do that now whether we want to enter into
a situation where we just say that the contractor shall keep the footing area drive or we should
include de watering explicitly into the description of the item that keeping the area dry including
cost of dewatering if any and so on so this situation where de watering has be made implicit
in our statement that the area shall be kept dry is something which may be challenged and
thats why i am saying that we should try to have explicit contracts as far as possible
so as to avoid any difficulty in the interpretations at the later point in time
the situation is becoming more complex these days when we have international contracts
with people from different countries trying to do projects in other countries apart from
all the other things the contract should explicitly mention what the agencies will be in case
there is an arbitration which is required that is dispute resolution is what has to
be done what are the rules of arbitration the controls of country a or country b or
some international agreement what will be the framework in which a dispute arising between
two parties belonging to different countries will be educated the laws applicable and the
venue of arbitration other legal proceedings because obviously if it comes to arbitration
and dispute resolution under those conditions then they will be a lot of travel which would
be involved and therefore its important that the venue of arbitration and legal proceedings
we laid down in the contract itself now in the next discussions we will have a
small discussion on disputes and dispute resolution so therefore i would like to throw at you
the whole idea of what really constitutes a dispute before we close the discussion today
a dispute implies on assertion of a right by one party and the reputation thereof by
another so its important that there has to be an assertion that assertion has to be repudiated
or dismissed by the other party as a corollary to that mere claim without repudiation
or a claim and a counter claim do not constitute a dispute so now if you look at this example
which is given as a food for thought for the day in a little lets a dated thirty th june
of nineteen ninety eight a contract a mixer claim for rupees five lakhs of additional
work in dewatering of foundations resulting from unforeseen rains in the season and the
item not being provided for in the contract so on thirty th june lets see the contract
makes an assertion that a payment of five lakhs is due because of additional cost in
dewatering the details of the cost incurred in terms of man power equipment power consumption
overtime payments etcetera is annexed to the claim so basically the contractor has made
a case that due to unforeseen raise in that season certain places for flooded and had
to be dewatered in order to continue the work dewatering was not provided for in the contract
and therefore an additional payment of or an extra payment of five lakhs has been passed
along with all the details of overtime payments and so on and so forth now in a letter dated
thirteen th july which is after this later the owners or the other party lets see acknowledge
the receipt of the letter from the contractor of thirty th june so they say that yes we
were received your letter and inform them that is the contractor of the owners decision
to impose l d l d is liquidated damages that is the cost of the delay in the project and
recover lets say two lakhs towards that liquidated damages in the next running account bill
so here we have a situation then on thirty th june the contractor makes a claim for five
lakhs and on thirteen july while accepting or acknowledge its not accepting it is acknowledging
the fact that yes we have got your claim but what we are doing is we are imposing a liquidated
damages of two lakhs on you and it will be recovered from the next running bill the question
of the food for thought is that does the above
constitute or dispute now what we have just discussed that a claim and a counterclaim
or the claim without its reputation does not constitute a dispute and
in that framework of things this discussion here this case here does not qualify for a
dispute there is
a claim which is not been repudiated and there is a counterclaim being made and that is also
of course not being repudiated from the amount of information available with us and therefore
what we have here is at best situation of a claim and
a counter claim and therefore it does not constitute a dispute
so these are the kind of things that we have to be aware of when we talk of construction
laws we will talk about disputes and dispute resolution in a subsequent discussion later
on and for the today this slide here gives you some references
which might help you understand the issues on the definitions of the terms that
we have talked about today better and i will look forward to seeing you in a subsequent
discussion thank you