Checklist for taking over any Business, in brief

Checklist for taking over any Business, in brief

Starting from scratch is not the only way to go. There are many examples of how even buying an existing company has been less risky than setting up your own start up. Buyers can rely on the brand’s goodwill, steady customer base, key managers who are familiar with the business inside out. However, one has to understand that Buying the right business can make or break you. In order to avoid any breaks, the buyers shall perform due diligence about the business they are planning to buy.

Due diligence is the research that a potential buyer does to assess the viability of a purchase of a business entity. If due diligence is not properly completed, you may be in for an unpleasant surprise after the contract for the purchase of the business is formed and it becomes too late for you to change your mind about purchasing the business. For example, you may discover that the business may have committed to onerous contracts, or that key employees crucial to the success of the business have left.

a) Compliance
First and foremost do ensure that the proposed business is totally in compliance of all the legal laws wherever their business operations are and there shall be an update of all the compliances as well as remarks as being called for non-compliances. The reasons of knowing this compliance in totality is that it is normally difficult for the proposed buyers to rectify past wrongdoings of the previous owners as the process would be time-consuming and they would not have a clear understanding of what had happened before they took over the business. Compliance includes knowing all the Legal status of the business, their litigation, notices, update stand and other. This is the most crucial factors post financial due diligence as this gives the idea to move further or not if the financial due diligence is found in good shape.

b) Financial Due Diligence
Performing Financial Due Diligence will allow the buyer to better understand the financial position of the business, enabling him to assess the right price to pay for it.

c) Assets
The inventory of a business changes over time. Therefore, it is important for a buyer to check the physical assets of the business to ensure that they are in good condition and are still in the company’s possession.

d) Intellectual Property
The buyer should obtain a schedule of all intellectual property rights, both registered and unregistered, belonging to the business.

e) Key Employees
Key placement holders are integral to the success of a company. The buyer should ensure that the key employees remain with the company using contractual means. Additionally, it is essential to ensure that the employment contracts and employment handbooks comply with employment law. This prevents non-compliant documents that can result in fines.

f) Licenses and Permits
The buyer should ensure that the business has all necessary licenses and permits required for operation.

g) Contracts
The buyer should review all of the business’ contracts to ascertain its rights and obligations. He should also check if there are any change-of-control clauses in the contracts that will result in a breach of contract when the owner of the business changes. The buyer should also assess the risks the company is exposed to.

While drafting the agreement for the purchase of the business, you can insert warranties and other terms that will protect you from losses suffered upon taking over the business.

Private Complaint Vs FIR Difference, Section Procedure And Withdrawal

Private Complaint vs FIR: Difference, Section Procedure and Withdrawal

Man is believed to have evolved from an ape-like ancestor. With evolution of man, he has evolved his mind and thinking. Man has not only started using the raw leaves fruits but later insects and animals as for the survival. Later, on discovery of fire, they learnt that food was tastier when cooked. they used animal skin to cover their body. stayed in caves to protect themself from the extremities of Natural Calamities. From raw leaves to pizzas, from fire to gas, microwave, from animal skin to leather jackets, clothing’s from caves to skyscrapers human mind and thinking capacity has evolved and which has led to many comfortable and easy life. But humans are the most selfish creature in world, these evolving has not only taken place in positive way but negative outlook also. In order to fulfill any basic necessity a man can reach to any step even if it’s against the moral of society. Thus, crime displays the need of law for protection of society.
Crime is a public law, an offence which is the violation of law. Crime is manifestation of countless complex factors. The causes of criminal behavior lie within the social forms and structures. Individuals commit crimes due to the method of socialization that does not create solid sense of right or off-base and due to the developing openings, the broadening wants that act as solid inspiration for taking to wrongdoing to fulfill these wants. The beginning of crimes can be followed to interaction of different social, financial, statistic, and other components. The assumption that crime happens since of the disappointments of police subsequently shows a total need of understanding of the theories of criminal behavior.
Further, these social factors besides other inactive and associated components vary significantly over diverse regions, states and societies. The differences in strategies over large geological regions and styles of working inherent between organizations moreover make wide changes which consequently effect people and forcing them to commit a crime.
Further, no weightage has been assigned to the gravity or nature of the crime. All crimes have thus been treated equal in counting the total crime for a State or City. As of 2019, a total of 51.5 lakh crimes were registered nationwide. With increase in the crime rate, there has been an amendment in laws as well. Informing of a commission of crime is one of the Important processes in Criminal Justice System. Thus, the framers of constitution have included FIR (First report information) and Private complaint as a way to file a case against the criminal.
First Information Report (FIR) is a written document prepared by the police when they receive information about the commission of a cognizable offence. Cognizable Offence is an offence wherein the police may arrest a person without warrant. They are authorized to start an investigation into a cognizable case on their own and they do not require any orders from the court to do so. A police officer is bound to register the FIR in such cases and can even start an investigation without any FIR. These are heinous crimes generally and non-bailable offences. FIR is a report of information that reaches the police first in point of time and that is why it is called the First Information Report. It is generally a complaint lodged with the police by the victim of a cognizable offence or by someone on his/her behalf. Anyone can report the commission of a cognizable offence either orally or in writing to the police. Even a telephonic message can be treated as an FIR. If the information given by the woman against whom an offence u/s 326A,326 B, 354, 354A-D,376,376A-E and 509 of Indian Penal Code is alleged then such information shall be recorded by a women police officer.
Section 154[1] of the Criminal Procedure Code (hereinafter referred to as CrPC), 1973, makes it clear that an FIR can be registered in cognizable offenses [2] only. Cognizable crimes are those offenses in which a police officer can arrest an accused without a warrant. Due to the nature of gravity involved in the offences, police authorities can arrest without a warrant under CrPC. The classification of cognizable and non-cognizable offences is furnished under the first schedule of CrPC.
How to lodge an FIR?
The process of filing an FIR is very simple. It is as simple as narrating a story to the police. The informant has to visit the police station (ideally near the crime scene) and furnish all the information he/she has pertaining to the commission of an offence. Section 154 of the CrPC gives a choice to the informant to furnish information orally or in writing. If the information is disclosed orally then, the report must be reduced to writing by the police officer himself or under his direction. The report must be read out to the informant. Every report whether reduced to writing or submitted in written form, shall be signed by the informant.
How to register non-cognizable offenses?
In non-cognizable offenses, when an informant approaches the officer in charge, the officer enters such information in his book (maintained as per the format prescribed by the State Government).
Secondly, a police officer can begin with the investigation for a non-cognizable offense, only after receiving an order from the magistrate under section 155(3) of the CrPC. The investigating powers of a police officer are the same in cognizable and non-cognizable offenses, except the power to arrest without a warrant.
The Hon’ble Supreme Court in State of West Bengal & Ors vs. Swapan Kumar Guha & Ors held that “there is no such thing like unfettered discretion in the realm of powers defined by statutes and indeed, unlimited discretion in that sphere can become a ruthless destroyer of personal freedom. The power to investigate into cognizable offenses must, therefore, be exercised strictly on the condition on which it is granted by the Code”.
Thus, if a person wants to register a complaint regarding the commission of a non-cognizable offense, he/she has to first register a complaint with the magistrate having proper jurisdiction. There are no strict norms pertaining to the format of a complaint. A complaint can be in the form of an affidavit or a petition as the case may be. After receiving the complaint, the magistrate will decide upon the issue of cognizance. If the magistrate is satisfied that a non-cognizable offense has been committed, he will order for further investigations.
What are the remedies available if the police refuse to lodge our FIR?
It is not always illegal when the officer in charge refuses to lodge an FIR. As it all depends upon the reason because of which the police officer refuses to lodge an FIR. If the police officer refuses to lodge an FIR because the case does not fall within their jurisdiction, deals with an offense which is non-cognizable in nature or it is outside their legal capacity to take cognizance of such an offense, in such circumstances the refusal to lodge an FIR is legitimate and justified.
Although, if an FIR is refused on the ground of jurisdiction, it is mandatory for the police officer to record information about the commission of a cognizable offense and forward the same to the police station having proper jurisdiction. Otherwise, it would amount to dereliction of duty.
Statutory Remedies
Under section 154(3) CrPC, when an informant’s right to register an FIR is refused, he/she can approach the Superintendent of Police and submit the substance of such information in writing by post. If the Superintendent of Police is satisfied that such information discloses the commission of a cognizable offense then, he might investigate the case himself or direct an investigation to be made by any police officer subordinate to him.
Under section 156(3), read with section 190 CrPC – If an informant remains unsatisfied even after pursuing the remedy under section 154(3), he/she can further pursue the remedy mentioned under section 156(3) read with section 190 CrPC.
This is a different channel to get the FIR registered. This remedy is similar to the process of registering a complaint for non-cognizable offenses. As through this channel, a magistrate first takes cognizance of an offense under section 190 and then order for consequential investigations under section 156(3).
Judicial remedy- Mandamus is one of the prerogative writs issued by the superior Courts (High Court or Supreme Court), which is in the form of a command to the State, its instrumentality or its functionaries as the case may be, to compel them to perform their constitutional/statutory/public duty. Hence, a writ of mandamus can be filed under Article 226 or Article 32 of the Constitution of India, directing the police officials to perform their duty and register an FIR.
Cancellation or withdrawal of FIR?
Quashment is also used for the phrase quashing of FIR. In certain cases, if court find that it is not necessary to pursue the case further is needed court quash the proceedings and stop the frivolous proceedings. These Powers are imbibed in Section 482 of the code of Criminal Procedure. Section 482 is corresponding to section 151 of Civil Procedure Code, and proceeds to the same principles.
Supreme Court and High court have power to quash a FIR which is frivolous in nature and there is no need to pursue the case necessarily against the alleged person. The Apex court has to quash a FIR very cautiously and sparingly and has to see many reasons in the case for quashing an FIR. Inherent Powers are in Sec. 482 of Crpc, this section is to prevent abuse of the process of any court or otherwise to secure the ends of justice.
In Manoj Sharma V. State & Ors. the Apex Court held that were continuing with the proceeding would be a futility, quashing of FIR should not be refused.
Private Complaint
Complaint is defined under section 2 (d) of Crpc, which means any allegation made orally or in writing to a magistrate, with a view to his taking action under the code, that some person whether known or unknown has committed an offence. It, does not include a police report.
Under section 200 CrPC, a complaint can be submitted to the magistrate orally or in writing under section 200 of the CrPC. After the submission of a complaint, the magistrate will conduct a hearing, deciding upon the issue of cognizance. In this channel, the complainant and the witnesses thereof are examined on oath in front of the magistrate.
Withdrawal of Complaint? Section 257 of CPCR focuses on Withdrawal of complaint, if a complainant, at any time before a final order is passed in any case under this Chapter, satisfies the Magistrate that there are sufficient grounds for permitting him to withdraw his complaint against the accused, or if there be more than one accused, against all or any of them, the Magistrate may permit him to withdraw the same, and shall thereupon acquit the accused against whom the complaint is so withdrawn.
Thus, First Information Report is nothing but the information registered by the on-duty police officer, concerning an offence by any person. On the other hand, a complaint is a form of appeal made to the magistrate, concerning an offence and making a request for justice.

Does Contract Boost Your Business and Its Valuation?

Does Contract Boost Your Business and Its Valuation?

Consider the implications of the following statistics:
● Sixty-three percent of private businesses are owned by baby boomers.
● Approximately 10,000 baby boomers are reaching retirement age each day.
● Seventy-eight percent of business owners expect to fund 80% or more of their retirement through the sale of their business.
● Only 20% to 30% of the businesses that go to market actually sell.
While a massive number of people are retiring each year and counting on the value of their business as part of their retirement plan, many are unable to actually generate any liquidity beyond normal compensation. They may even have a very valuable business, but can’t convert any of that value into cash. What a terrible situation! They may feel like a sailor stranded on a desert island—surrounded by water, but dying of thirst.
Attaining liquidity from your business and increasing business value are two topics that go hand in hand. Factors that increase business value often also increase the ease of selling the business. Even if your plan is to never sell, increasing profitability and liquidity will make planning easier. In this blog post, we will identify five ways business owners can improve business value and increase the likelihood of selling the business at a desirable price.
One of the major factor to outshine in business is to Incentivize key employees to sign long-term employment contracts
By planning ahead and implementing this, business owners may be in a much better position for retirement.
Every day, a new technology emerges, and the number of rivals grows. As a result, numerous people have created low-cost online standard legal templates. In each business, contracts play a crucial role, whether it is a small company or large company. Each contract has its unique attribute and this can be useful to avoid any future litigation process. Standard templates, on the other hand, are unreliable in the event of a commercial dispute. It is good to advise a lawyer in-person for referring to standard templates. Many people avoid seeing lawyers because they believe they will charge a high fee for their services. Why is it that when a doctor prescribes medicine and charges a fee that is excessive for the consultation, the patient does not confront him about it? Advocates are similar to doctors in a way that they will provide a solution for their clients’ problems.
Standard legal templates are easy, cheap and faster to get it through online. But one cannot be sure how authentic it can be. People go in for minimal costing for their business but they don’t understand that this minimal costing on legal can take a toll on their business when a dispute arises. Legal templates are like investment for their business but not the standard form. At the time when a dispute arises, the standard template will be inspected and it may go against the person issuing such template. So it is always better to consult an advocate before issuing a standard template to any person in their business. Consulting a legal professional for their business will help to understand your business in a manner which will benefit the person’s business in some way or the other and will help in any further future disputes that will be arising.
Keep in mind that you are not paying for the document, but for the guidance and security it provides: someone to provide remedy in case of any difficulties arises. In fact, if done properly, these documents can help you save money in the long run.

Essential Elements For A Valid Contract

Essential Elements For A Valid Contract

Section 10 provides for the essential elements for a valid contract, which include:
Proper offer and proper acceptance: There must be at least two parties in order to create a valid contract, one making the offer and the other accepting it. Such an offer and acceptance must be valid.
The law has had specific rules for making the offer and its acceptance, that is, it must be absolute and unconditional.
An intention to create a legal relationship: The agreement must be capable of creating legal obligation among the parties. It does not mean that it is not a contract. As in case of social or domestic agreements the usual presumption is that the parties do not intend to create a legal relationship however in commercial or business agreements, the usual presumption is that the parties intend to create legal relationship unless otherwise agreed upon.
Free consent of the parties: It is essential that there must be free and genuine consent of the parties to the contract so as to create a valid contract. According to Section 14, Consent is said to be free when it is not caused by:
● Coercion.
● Undue influence.
● Fraud.
● Misrepresentation.
● Mistake. The contract is voidable at the option of the aggrieved party if the consent is obtained by any of the above four factors.
Capacity of parties: The parties to the contract must be capable of entering into a contract. The contract is not valid if any of the parties is not competent to contract. According to Section 11 of the Act, states that every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.
Lawful consideration: The agreement must be based on a consideration. Consideration means something in return. In other words, it is the price paid by one party to buy the promise of the other. The consideration may be past, present or future, however it must be real.
Lawful object: An agreement which is made for any act which is prohibited by law is not valid. That is the object of an agreement must be lawful.
Agreements not expressly declared void: Sections 24 to 30 clearly specify certain types of agreements which have been expressly declared void.
Certainty of meaning: The terms of the contract must be certain and unambiguous. As per Section 29 of the Indian Contract Act, agreements the meaning of which is not certain or capable of being made certain are void.
Possibility of performance: The terms of the agreement must be such that they are capable of performance. According to Section 56, an agreement to do an impossible act is void.
Legal formalities: The agreement must comply with the required formalities as to writing, registration, stamping, etc. so necessary to make it enforceable at law.

What takes for a Contract to be Enforceable and Breach and Remedies

What takes for a Contract to be Enforceable and Breach and Remedies

What Does It Take for a Contract to Be Enforceable?
Not every agreement to engage in a commercial transaction will be legally enforceable in a court of law if conflicts arise down the road. Instead, contracts must have certain elements in order to be enforced. These are largely legal requirements that have developed over the years.
First, and foremost, contracts require consideration. This element means that each party agrees to provide something of value to the other. This can be an affirmative offering of something, or an agreement not to do something. Thus, for instance, consideration can involve agreeing not to compete with another business. Second, contracts require a clear offer and acceptance. Contracts are not necessarily created just because one party offers something to another. Typically, a clear acceptance is required. In offering and accepting a contract, the parties must also have a “meeting of the minds” as to what the contract entails. Both parties cannot believe that they are agreeing to entirely different contracts.
Additionally, in order for a contract to be enforceable, both parties must have the capacity to contract, meaning that they must mentally understand what they are agreeing to. Individuals who are incapacitated are often deemed unable to engage in contractual agreements, and those who are insane or are minors are presumed to lack such capacity. Lastly, contracts can only be enforceable if they have a legal purpose. This means that a contract agreeing to engage in illegal activity is not enforceable in a court of law.
While these requirements for enforceability encompass important concepts that all contracts must include, there are also practical requirements in contract creation. In many states, certain contracts must be in writing, such as contracts for real estate or those that will last more than a year. Even if a contract is not required to be in writing, it is often important to do so because oral contracts can be difficult, if not impossible, to prove in court.
Breach of Contract
When any party to a contract, whether oral or written, fails to perform any of the contract’s terms, they may be found in breach of contract. While there are many ways to breach a contract, common failures include failure to deliver goods or services, failure to fully complete the job, failure to pay on time, or providing inferior goods or services. In other words, a breach of contract is a broken promise to do or provide something.
People enter into contracts for mutual advantage because each has something the other party wants. It may be something as simple as buying a product for money, or something more complicated such as an employment contract with a no-compete clause.
If either of the parties do not fulfill their end of the contract, a breach of contract has occurred. At that time, you can try to resolve the issue with a letter or by negotiation. If all attempts fail, you may end up in a breach of contract case in a civil court.
When you are faced with a breach of contract, it is always wise to seek the advice of a business attorney who is experienced in that area. Your attorney will work to find the solution that is best and most efficient for you.
Breach of Contract Example Cases
Here are some examples of various kinds of breach of contract cases and attempts to resolve them.
Breach of Contract Example Number 1: Failure to Provide Services
Your business depends on other companies for some of its needs, including services like building maintenance and transporting clients. You have had a contract with a company for over ten years which is supposed to send in employees to do basic tasks like taking out the trash and cleaning common areas, but the company has failed to send anyone for the last two weeks.
When you called your main contact, you learned that the company had taken on extra work and was struggling to keep up with all the work. You got a promise that someone would come out when available.
You may either have a personal or business contract with another party who is supposed to perform services for you, but the reason you have a contract is that you depend on those services. In this case, you don’t have anyone you can spare to do this particular work, besides which you have already paid another company to perform those functions.
Best Option: Negotiation
In this case, you have a long-standing relationship with another company that you may want to protect. They are breaking the contract and being highly disrespectful, but they probably don’t want to lose your business either at this point.
Let them know that you are serious about enforcing the contract and that you expect to get credit for the work not done. You may want to talk to an attorney about whether it is better to find a mutual resolution where both parties walk away from the contract if the other company can no longer perform the necessary work.
Breach of Contract Example Number 2: Violation of Employment Non-Compete Clause
Your business has standard non-compete clauses in all its sales and technology employment contracts. In exchange, your employees receive several benefits, including training and certifications they won’t get at other businesses. One of your employees left on a bad note and immediately went to work for one of your local competitors. Your Human Resources Department sent a letter reminding him of the contract and providing a copy, but he has not responded.
Before you designed your standard contracts, you sat down with an attorney to make sure they complied with state law expectations. In Arizona, non-compete clauses are enforceable as long as they protect legitimate business interests, are reasonable in scope and duration, and as long as they don’t violate public policy. Your business stays ahead of the competition with some innovative training and methods, and you only require former employers not to work for local competitors for one year after separation from your company.
Best Option: Litigation and Attempt to Force Compliance
Although no one wants to go to court against a former employee, your rights in this matter are important. Once you can prove you have given consideration in exchange for their agreement not to work for competitors, you should seek to enforce the contract.
The Steps You Will Need to Take
1. Write your demand letter. This will always be your first step when you know you may be litigating the matter.
2. If your former employee doesn’t comply at that point, draft your complaint and explain what you are asking for. In this case, you may be asking for the Court to order compliance instead of asking for monetary damages. Make copies of everything.
3. Send a summons to your former employee.
4. Follow the rules of discovery and answer and crossclaims.
5. Prepare for court by gathering all your necessary proof. Also, bring to court with you information regarding the legal basis of your claim, so you can prove the contract was reasonable under Arizona law.
Breach of Contract Example Number 3: Misrepresentation of Assets Being Used As Collateral
You negotiated a contract with another party who wanted to purchase a larger property for their business. As part of the collateral, you eventually agreed to accept a smaller property the other party purported to own. The other party has taken possession of the property but almost immediately stopped making the agreed on payments. When you tried to contact the buyer, your phone calls were refused. Upon further investigation, you discovered that the property being used for collateral was not worth as much as was represented to you during the negotiations and that the party would have known the actual value.
This case seems frustrating because the other party is being evasive and dishonest. Negotiation will be difficult if not impossible with a party attempting to trick you. However, you may be able to get results when you try the same methods with an attorney. While the offending party may not take you or the situation seriously, the threat of legal action up front may be more persuasive.
Best Option: Litigation and Attempt to Recover Damages
In this case, you have a valid reason to believe the other party committed fraud when entering into the contract. In order to secure the contract, there was a material misrepresentation as to the value of the collateral. That means that if you have to go to court, you could qualify for both compensatory and punitive damages. Punitive damages go above and beyond the actual amount of the claim and are aimed at punishing parties who act in bad faith.
The Steps You Will Need to Take
1. Send your demand letter. Make it clear in your letter exactly what you are asking for, and that you know about the fraud.
2. Draft and file a complaint in the correct court, citing the amount of damages you are seeking. Sign everything and make copies. If you were asking for an amount less than $50,000, you would be required to go through dispute resolution first, but if you are asking for punitive damages that won’t be an option.
3. Send a summons to the other party.
4. If the other party responds, you will need to respond quickly. Otherwise, prepare for trial and comply with the rules of discovery.
5. Go to court and present your case to a judge or jury.
When you are the victim of a breach of contract, you only have a limited amount of time to bring a civil suit. There may be other reasons related to the contract that also make it urgent to resolve the issue as quickly as possible. If you contact a business attorney, you can learn your various options and how they might play out for your case.
Contract: A tool to estimate the loss or damage arising from a breach of contract
In the event of breach of contract, the other party earns certain rights including the right to claim damages or loss arising therefrom. What amount shall be recoverable as damages? Section 73 of the Indian Contract Act provides that when a contract has been broken, the party who suffers by such breach shall be entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, (i) which naturally arose, or (ii) which the parties knew, when they made a contract, likely to result from the breach it.
Section 73 further provides that such compensation is not to be given for any remote and indirect loss or damage sustained by the reason of breach.
Besides, Section 73 provides for compensation for failure to discharge obligation resembling those created by contract(i.e., quasi-contract).
These rules and others, as recognized through decided cases, may be studied under the following four heads:
● Ordinary Damages,
● Special Damages
● Vindictive/Punitive/Exemplary Damages, and
● Nominal Damages.
1. Ordinary Damages. Ordinary damages are those which naturally arose in the usual course of things from such breach. The measure of ordinary damages is the difference between the contract price and the market price at the date of breach. If the seller retains the goods after the breach, he cannot recover from the buyer any further loss if the market falls, nor is he liable to have the damages reduced if the market rises.
2. Special Damages. Special damages are those resulting from a breach of contract under some special or unusual circumstances. When there are certain special or extraordinary circumstances present and their existence is communicated to the promisor, the non performance of the promise entitles the promisee to not only the ordinary damages but also special damages that may result therefrom.
Example: A, a builder contracts to erect and finish a house by the 1st of January, in order that B may give possession of it at the time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that before the first January, it falls down and has to be rebuilt by B, who in consequence loses the rent which he was to have received from C, and is obliged to make compensation to C for breach of his contract. A must make compensation to B for the cost of re-building the house, for the rent lost, and for the compensation paid to C. It should however be emphasised again that the communication of the special circumstances is a prerequisite to a claim for special damages. In Hadley vs. Baxandale, X’s mill was stopped due to the breakdown of a shaft. He delivered the shaft to Y, a common carrier to be taken to a manufacturer to copy it and make it a new one. X did not make known to Y that delay would result in loss of profits. By some neglect on not making it known to Y that delay would result in loss of profits. By some neglect on the part of Y, the delivery of the shaft was delayed in transit beyond the reasonable time. As a result, the mill remained idle for a longer time than otherwise would have been had the shaft been delivered in time. Held, Y was not liable for loss of profits during the period of delay as the circumstances communicated to Y did not show that the delay in the delivery of shaft would entail loss of profits to the mill.
3. Vindictive/Punitive/Exemplary damages. Vindictive damages are awarded with a view to punish the defendant and not solely with the idea of awarding compensation to the plaintiff. They have been awarded: (a) for a breach of promise to marry; (b) for wrongful dishonour of a cheque by a banker. The measure of damages in the first case i.e., (a), is dependent upon the severity of the shock to the sentiments of the promisee. In the second case [i.e., (b)], the rule is – smaller the amount of cheque dishonoured, larger will be the amount of damages awarded.
4. Nominal damages. Nominal damages are awarded in cases of breach of contract where there is only a technical violation of the legal right, but no substantial loss is caused thereby. The damages granted in such a case are called nominal because they are very small.
Remedies for Breach of Contract
A ‘breach of contract’ occurs when-
(i) a party renounces his liability under the contract, or
(ii) by his own act makes it impossible that he should perform his obligations under the contract, or
(iii) totally or partially fails to perform his part of the contract. The failure to perform or renunciation may take place when the time for performance has arrived (present or actual breach) or even before that (anticipatory breach).
In the case of an ‘anticipatory breach’ (discussed earlier in the present book), the innocent party is excused from further performance and it entitles the injured party to an option either to sue immediately or to wait till the time the act was to be done. If, however, the injured party does not accept the repudiation and keeps the contract alive till the date of performance, he becomes bound to accept the performance of the contract if rendered, and if a supervening impossibility discharges the contract, he loses his claim to damages. In such a case, the contract ends by frustration and not by breach, so no damages need to be paid.
The date for assessment of damages in case the anticipatory repudiation is accepted, is the date of repudiation. If it is not accepted, then the date for assessment of damages is the date of performance.
Remedies for Breach of Contracts
Three remedies are available for breach of contract, namely:
(1) Rescission and Damages – It is the most common remedy. This entitles the injured party to recover compensation for the loss suffered by it due to the breach of contract, from the party who causes the breach (Secs. 73-75). Applying to the court for ‘rescission of the contract’ is necessary for claiming damages for breach. However, in certain cases a suit for ‘rescission’ may be filed even when no damages are to be claimed.
(2) Specific performance and Injunction – Specific performance of the contract consists in the contracting party’s exact fulfilment of the obligation which he has assumed -in his doing or omitting the very act which he has undertaken to do or omit. It is an equitable relief given by the courts, under the Specific Relief Act, requiring the defendant to actually perform the contract according to its terms and stipulations. It is allowed when damages would not be an adequate remedy.
The courts issue a decree for specific performance only where it is just and equitable to do so, i.e. where the legal remedy is inadequate or ineffective. Specific performance is not granted where monetary compensation is an adequate relief, or where the court cannot supervise the actual execution of the contract (viz. a building construction contract), or where the contract is for personal services (viz. a contract to paint a picture). Specific performance is usually granted in contracts with lands, buildings, rare articles and unique goods having some special value to the party suing.
An injunction restrains the other party from making a breach of the contract. It is also issued under the Specific Relief Act. It is a preventive relief and is appropriate in cases of ‘anticipatory breach of contract’ where damages would not be an adequate relief. It secures the specific performance of the negative terms of the contract (i.e. where a party is doing something which he promised not to do). In contracts for personal services, an injunction is granted in place of specific performance.
(3) Quantum Meruit – It literally means “as much as is earned” or “in proportion to the work done”. When the injured party has performed a part of his obligation under the contract before the breach of contract has occurred, he is entitled to recover the value of what he has done, under this remedy. It is an action which is alternative to an action for the breach of contract. This action in essence is one of restitution, putting the party injured by the breach of contract in a position in which he would have been had the contract not been entered into. It may be noted that if the party making a breach of contract has done a part of the work in connection with it, he cannot claim anything in respect thereof under this remedy. The party in default cannot sue upon quantum meruit.
The law tries to give an appropriate remedy for every type of breach. But even so the maxim ubi jus ibi remedium (‘where there is a right, there is a remedy’) is not wholly true. There are cases, for example, where a contract has been broken and the plaintiff has suffered no loss, according to a few decisions of the Supreme Court, damages would not be allowed.
Damages for Breach
The party who is injured by the breach of a contract may bring an action for damages. ‘Damages’ means compensation in terms of money for the loss suffered by the injured party. In every case of assessment of damages, there are two problems:
(1) Remoteness of damage, and
(2) Measure of damages.
(1) Remoteness of Damage
Theoretically the consequences of a breach may be endless (e.g. loss of profits, loss of social prestige and of business reputation, time and money and energy wasted on defence), but there must be an end to liability. The defendant cannot be held liable for all that follows from his breach. In other words, the compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach.
The decision in Hadley v Baxendale3 (1854) 9 Ex 341, laid down two rules:
(i) General damages- those which arise naturally in the usual course of things from the breach itself. This rule is ‘objective’ as it makes the liability dependent upon a “reasonable man’s foresight” of the loss that will naturally result from the breach.
(ii) Special damages- those which arise on account of the unusual circumstances affecting the plaintiff. They are not recoverable unless the special circumstances are brought to the knowledge of the defendant so that the possibility of the special loss was in the “contemplation of the parties”. This rule is ‘subjective’ as the extent of liability depends upon the actual knowledge of parties at the time of the contract about the likely result of breach.
The relationship between the two rules was re-examined in Victoria Laundry Ltd. v Newman Industries Ltd. (1949) 1 All ER 997. The judgment emphasizes that both the rules are based upon the principle of “foreseeability”.
Foreseeability depends upon knowledge. Accordingly what was at that time reasonably foreseeable depends upon the knowledge then possessed by the parties. Knowledge possessed is of two types: One imputed i.e. assumed to be possessed by everyone (‘first rule’ in Hadley v Baxendale), and the other actual (‘second rule’). Thus, two rules formulated in Hadley are only two different instances of the application of a single rule. The Victoria Laundry case had virtually replaced the expression “contemplation of the parties” with “reasonable man’s foresight” and this being the principle in the law of tort also, hardly any distinction remained between tort and contract principles relating to remoteness of damages.
But in Heron II, Koufos v Czarnikow Ltd., (1967) 3 All ER 686, the decision restored the distinction by again laying emphasis upon the “contemplation of the parties”, as laid down in Hadley case. It was observed that a result which will happen in the great majority of cases should reasonably be regarded as having been in the contemplation of the panics, but a result which, though foreseeable as a substantial possibility would happen only in a small minority of cases should not be regarded as having been in their contemplation. Thus the damages recoverable for breach of contract are such as flow naturally in most cases from the breach, whether under ordinary circumstances or from special circumstances due to the knowledge either in the possession of or communicated to the defendants. This means that the claim depends on the contemplation of the parties to the contract and the question of remoteness as such does not arise. Consequently liability in tort may often be of a wider kind.
The facts of major English cases could be summarized as below: (i) In Hadley v Baxendale (1854) 9 Ex 341, the plaintiff’s mill had been stopped due to the breakage of a crankshaft. The defendants, a firm of carriers, were engaged to carry the shaft to the manufacturers as a pattern for a new one. The plaintiff’s servant told the defendants that the mill was stopped, and that the shaft must be sent immediately. But the defendants delayed the delivery by some neglect, thus the mill remained stopped for a longer time than it would have been. The action was brought for the loss of profits arising out of the delay. The defendants were held not liable for the loss of profits, because in the great multitude of cases of millers sending off broken shafts for repair, it does not follow the ordinary circumstances that the mill is stopped (as the millers might have another shaft in reserve). The fact that the mill was out of action for the want of shaft was a ‘special circumstance’ affecting the plaintiff’s mill and the same should have been pointed out to the defendants in clear terms.
(ii) In British Columbia Saw Mills v Nettleship (1868) LR 3 CP 499, also, lack of knowledge of special circumstances once again prevented recovery of special damages. The parts of a saw mill machinery, packed in cases, were given to the defendant, a carrier, for carriage to Vancouver. One of the cases was lost and consequently a complete mill could not be erected and operated. The plaintiff claimed the cost of lost machinery and the profits which could have been earned if the mill had been installed in time. Holding that the defendant was a mere carrier having no knowledge of the purpose to be served by the goods to be transported by it, his liability was only for the cost of lost machinery. The court gave an illustration: “If a barrister is on his way to practice at the Calcutta Bar, where he may have a large number of briefs awaiting him. got stranded in the Suez boat through the default of Peninsular and Oriental Company, is the company to be responsible for that, because they happened to know the purpose for which the traveller was going?”
(iii) In Simpson v London & North Western Railway Co. (1876) 1 QBD 274, held that if the special circumstances are already within the knowledge of the party breaking the contract, the formality of communicating them to him may not be necessary. The plaintiff was in the habit of exhibiting samples of his implements at cattle shows. He delivered his samples to the defendant company for consignment to the showground at New Castle. The consignment note said: “must be at NewCastle on Monday certain”. But no mention was made of the intention to place the goods in the exhibition. Due to the defendant’s negligence, the goods reached the destination only after the exhibition was over. It was held that since the defendant company was having the knowledge of the special circumstances that the goods were being sent for the New Castle show, they were liable for the loss of profits resulting from late arrival of goods.
(iv) In Diamond v Campbell-Jones (1960) 1 All ER 583, the defendants contracted to sell certain leasehold premises to the plaintiff, who intended to make profits by converting the premises into offices. The defendants having made a breach of contract, the plaintiff sued them for recovering loss of profits which he could earn by using premises according to his intended use. The court disallowed on the ground that the defendants did not have the knowledge about the plaintiff’s intended use of premises.
Section 73, Contract Act Compensation for loss or damage caused by breach of contract- “When a contract has been broken, the party who suffers by such breach is entitled to receive, from the other party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.”
Thus, Sec. 73 is declaratory of the common law as to damages (i.e. rule of Hadley v Baxendale). In Hadley case, Alderson, J. laid down the following rule: “Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in the respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally i.e. according to the usual course of things, from such breach of contract itself, or such as may be reasonably supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it.” Sec. 73 also provides that the same principles will apply in relation to breach of a quasi- contract.
Illustration (i) (Delay caused by carrier)5- A delivers to B, a common carrier, a machine, to be conveyed without delay, to A’s mill, informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine, and A in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profits which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract (This illustration is a Hadley v Baxendale module). (A is entitled to profit as A has brought to the knowledge of B the ‘special circumstance’ affecting him i.e. mill is stopped for want of machine. A is not entitled to loss sustained through the loss of Government contract as this fact was not brought to the knowledge of B).
In Madras Railway Co. v Govinda Rau6 (1898) 21 Mad 172, the plaintiff, a tailor, delivered a sewing machine and some cloth to the defendant railway company to be sent to a place where he expected to carry on his business with special profit by reason of a forthcoming festival. The goods were delayed due to the company’s negligence and were delivered after the conclusion of the festival. The plaintiff claimed damages for the expenses of travelling up to the place of the festival and of staying there and the loss of profits, which he would have earned. The court held that the damages claimed were too remote. All of these were due to the frustration of the ‘special purpose’ and that was not known to the company.
A similar case is – Fazal Illahi v East Indian Railway Co. (AIR 1922 All. 774)
In Dominion of India v All India Reporter Ltd. (AIR 1952 Nag 32), the loss by railways of three volumes of a set of books without which the set of 8 volumes became useless, recovery allowed only for the lost volumes. Since the fact that the loss of three volumes would render the whole set useless was not brought to the knowledge of the defendant, the value of the whole set could not be claimed. Compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Illustration (n) to Sec. 73 reads: A contracts to pay a sum of money to B on a specific day. A does not pay money on that day. B, in consequence of not receiving the money on that day, is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to the date of payment.
In Union of India v Steel Stockholders Syndicate, Poona (1976) 3 SCC 108, a consignment of goods with the railways reached its destination after an inordinate delay of seven months. The plaintiff’s money remained blocked for the period. He was allowed to recover interest on the money by way of damages for the loss.
In Dwarka Das v State of M.P. (AIR 1999 SC 1031), a works contract was rescinded on the ground that the contractor had not completed within the stipulated time even 10% of the works. But evidence showed that the contract was improperly rescinded and, therefore, it amounted to a breach of contract. The contractor claimed Rs. 20,000 as compensation, being 10% of the value of the contract. The court said that the contractor was entitled to claim damages for loss of profit which he expected from the project. His claim was held to be fully justified. The High Court erred in holding that the claim should’ve been based on actual loss suffered.
Loss of Profits is a Special Loss
The loss of profits, which were to accrue upon resale, cannot be recovered unless it is communicated to the other party that the goods are for resale upon a special contract.
Illustration (J) [knowledge of resale, loss of profit)- A, having contracted with B to supply B with 1,000 tons of iron at 100 Rs./ ton, to be delivered at a stated time, contracts with C for the purchase of 1000 tons of iron at 80 Rs./ ton, telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure other iron, and B in consequence, rescinds the contract. C must pay to A Rs. 20,000, being the profit, which A would have made by the performance of his contract with B.
Illustration (k) (Where no knowledge of resale agreement, no more than market difference recoverable)- A contracts with B to deliver to B, by a fixed day, for a specified price, a machinery. On A’s failure to do so, B is obliged to procure another piece at a higher price, and is prevented from performing a contract which B had made with a third person at the time of his contract with A (but which had not been communicated to A), and is compelled to make compensation for breach of that contract. A must pay to B the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation.
In this case, there was a contract to supply 200 tons of scrap iron. The buyer undertook to supply the same quantity to the Export Corporation, Calcutta. The seller failed to supply in consequence the buyer could not perform his contract with the Corporation. The Corporation recovered from him the difference between the contract price and the market price. The seller contended that he should not be held liable for anything because the control price of iron scrap was still the same and he had no knowledge of the contract of resale to the Corporation. The court accepted the seller’s contentions. The court observed: Sec. 73 lays down that when a contract has been broken, the party who suffers by such breach is entitled to receive, from the other party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
According to illustration (k), Sec. 73, the seller has not to pay any compensation that the buyer may have to pay to his sub-buyers by reason of the breach unless he was made aware of the buyer’s promise at the time of the contract, in the present case, on account of non-delivery of scrap iron the buyer would have purchased the scrap iron from the market at the same controlled price. This means that the buyer did not stand to pay a higher price than what he was to pay to the respondent (the seller) and therefore he could not have suffered any loss on account of the breach … Thus, the loss which could have naturally arisen in the usual course of things from the breach of contract by the respondent would be nil. The actual loss he (the buyer) suffered on account of the breach was the result of his contracting to sell 200 tons of scrap iron for export to the Corporation. As the parties did not know and could not have known when the contract was made that the scrap iron would be ultimately sold by the appellant (buyer) to the Corporation, the parties could not have known of the likelihood of the loss actually suffered by the appellant on account of the failure of the respondent to fulfil the contract.]
Market Rate Theory
Illustration (a) (Market rate criterion) – A contracts to sell and deliver certain goods to B, at a certain price. A breaks his promise, B is entitled to receive from A, the sum, if any, by which the contract price falls short of the price for which B might have obtained goods of like quality at the time when the goods ought to have been delivered.
Illustration (h) (Buyer’s breach, difference between market and contract prices) – A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it. In almost all sale transactions, which fail to go through, the normal yardstick for working out the sum of money to which the aggrieved party is entitled is the difference between the contract and market prices.
This rule presupposes the existence of a market and the possibility of ascertaining the price of the goods in that market. The ‘market price’ is the buying price at which the buyer can obtain equivalent goods. It is the current price at the contractual time of delivery when the buyer can obtain identical goods in an available market. The buyer has not to prove that he actually bought the goods after the seller had failed to deliver. Sec. 73 does not envisage that the buyer must resort to actual purchase before claiming damages.
In Shearson Lehman Hutton Inc. v Machine Watson & Co. (1990) 3 All ER 723 QBD, the buyer refused to accept the goods. The court observed: In assessing damages for failure to perform a contract for the purchase of goods the measure of damages payable by the defaulting buyer is the difference between the contract price and the current or market price ‘at the date of the breach.’ This is based on a hypothetical sale of the particular amount of the goods in question in the available market (disregarding any characteristics of the seller which might have led to a lower price being obtained). In determining whether there is an ‘available market’ for the goods in question, if the seller actually offered the goods for sale there is no available market unless there is one actual buyer on that day at a fair price. If, on the other hand, there is only a hypothetical sale there is no available. market unless on the relevant day there were in the market sufficient traders potentially in touch with each other to evidence a market in which the seller could if he had wished have sold the goods. Furthermore, the market price on a hypothetical sale is the fair market price for the total quantity of goods if they had to be sold on the relevant day but taking into account the price which might be negotiated within a few days with other potential buyers who were not part of the market on that day only because of difficulties in communication.
Thus the damages are based on the fair market or current price on the date of the breach, which in turn is based on both the price obtained by a sale of all goods on the date of the breach and the price obtained by sales negotiated over a short period before or after that date.
In Rajasthan Rajya Sahkari Kraya Vikrya Sangh Ltd., Jaipur (1988) 2 Raj LR 962 (a case of seller’s breach),
It was observed that it is not necessary to prove actual loss. Anticipated loss of profits can be determined by the court while determining compensation. What is necessary is that the plaintiff should establish what the contractual rate of purchase was and what the rate of the article was on the date on which it was to be supplied. The difference between the two is a loss to the purchaser, if it is not supplied by the seller to the purchaser. This is so because the buyer cannot be allowed to be put in a better position than he would have been if the contract had been performed. What would be the position when the goods are delivered, but delivered late?
In Wertheim v Chicoutimi Pulp Co. (1911) AC 301
Goods were delivered by the seller late when they were worth Rs. 50 per ton in the market as against the contract price of Rs. 80, but the buyer got Rs. 70 per ton on resale. He was allowed Rs. 10 per ton by way of his loss. If :he carrier causes the delay in delivering the goods at the destination he can be made liable to pay the difference between the prices prevailing on the agreed date of delivery and that on which the goods are actually delivered (Koufos v C. Czarmilkow Ltd.).
(2) Measure of Damages
Once the extent of recoverable loss is determined, it has to be evaluated in terms of money. This is the problem of measure of damages and is governed by certain fundamental principles. It may be noted that the fact that damages are difficult to assess does not prevent the injured party from recovering them. The governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if the rights have been observed. “The object of damages is to put the suffering party in the same position as if the contract had been performed. Hence, loss of profits can be awarded, as part of damages” [A. T. Brij Paul Singh & Bros, v State of Gujarat AIR 1984 SC 1703].
(a) Damages are Compensatory, not Penal
Damages are compensatory in nature. The object of awarding damages to the aggrieved party is to put him in the same position in which he would have been if the contract had been performed. Damages are, therefore, assessed on that basis. Thus, in Robinson v Harman (1848) 18 LJ Ex 202, the defendant, having agreed to grant a lease of a certain property to the plaintiff, refused to do so. The plaintiff was allowed by way of damages the expenses incurred by him on the preliminary legal work and also for the profits which he would have earned if the lease had been granted to him. Thus damages are given by way of compensation for the loss suffered by the plaintiff and not for the purpose of punishing the defendant for the breach (i.e. damages are not penal). Motive for and the manner of breach is not taken into account because generally “punitive damages” are not recoverable for the breach of contract. But the inconvenience caused by breach may be taken into account.
In this case, the Ghaziabad Development Authority had announced through advertisements schemes for allotment of developed plots. There was unreasonable delay by the Authority in completing the scheme for development of plots. Thus, the complainants filed petitions against Authority on grounds of excessive delay and failure to hand over possession of plots. The question arose whether compensation can be awarded for mental agony suffered by the claimants. Also, whether in the absence of any contract or promise held out by the Authority, an amount by way of interest can be directed to be paid on the amount (refund) found due and payable by the Authority to the claimants. There was a term in the brochure issued by the Authority that it shall not be liable to pay interest in the event of the applicant withdrawing its offer i.e. in the event of an occasion arising for refund.
The Supreme Court observed that broadly the principle underlying the assessment of damages is to put the aggrieved party in the same position as far as possible, in which he would have been if the contract had been performed. It was held that “mental anguish” cannot be a head of damages for breach of ordinary commercial contract.
The ordinary heads of damages allowable in contracts for sale of land are settled. A vendor who breaks the contract by failing to convey the land to the purchaser is liable to damages for the purchaser’s loss of bargain by paying the market value of the property at the fixed time for completion less the contract price. The purchaser could claim the loss of profit which occurred due to delay by the vendor of the plots if the vendor had actual or imputed knowledge thereof (normally it is the use of the land for the period of delay viz. its rental value). However, the buyer of plots could not claim any compensation for mental anguish and vexation caused by the delay in the performance of the contract. The court further held that interest on equitable grounds can be awarded in appropriate cases (for example, where the claimant himself is not responsible). The Authority is liable to pay interest as it was at fault, although the brochure issued by it provided that no interest would be payable by it. The rate of interest should not be too high or too low viz. rate of 12 per cent per annum would be just and proper.]
(c) Nominal Damages
Where the plaintiff suffered no loss the court may still award him nominal damages (small sum of money) in recognition of his right. However, Sec. 73 does not give any cause of action unless and until damage is actually suffered. “If actual loss is not proved, no damages will be awarded.” In the State of M.P. v Recondo Ltd. (1989 MPLJ 822), a Government contract was terminated before the expiry of the notice period in circumstances which did not entitle the contractor to recover loss of profit, but he was allowed nominal damages.
In Union of India v Tribhuwan Das Lalji Patel (AIR 1971 Del 120), a person agreed to supply sleepers to the Railway on the condition that irrespective of whether the Railway suffered any loss or not on account of the contractor’s failure to supply the sleepers the Railway will be entitled to damages. The contractor failed to supply but the Railway did not suffer any loss. The court dismissed the action for damages. In such a case, the nominal damages may be awarded by the court.
(d) Exemplary or Vindictive Damages
These are awarded with a view to punishing the guilty party for the breach and not by way of compensation. Thus these damages have no place in the law of contract. There are, however, certain exceptional cases, viz. breach of a contract to marry, dishonour of a cheque by a banker when there are sufficient funds to the credit of the customer.
(e) Duty to Mitigate
Explanation to Sec. 73 says: In estimating the loss or damages arising from a breach of contract, the means, which existed of remedying the inconvenience caused by the non-performance of the contract, must be taken into account.
Thus the injured party has to make reasonable efforts to avoid the losses resulting from the breach so that his as well as other party’s loss is kept to the minimum. The plaintiff is debarred from claiming any part of the damage, which is due to his neglect to make such efforts. The onus of proof is on the defendant to show that the plaintiff has failed in his duty of mitigation and the plaintiff is free from the burden of proving that he tried his best to mitigate the loss.
The duty to mitigate damages in its essence means that the court can take into account the conduct of the injured party so as to see what he ought in reason to have done, whereby his loss has been or would have been diminished. What matters is the reasonableness of the conduct of the injured party which is a question of fact. Where the aggrieved party increases his loss by unreasonable conduct, he cannot hold the defendant liable for the same. However, he is under no obligation to destroy his property or to injure himself or his commercial reputation to keep down the damages payable by the defendant.
The Explanation to Sec. 73 is not in the nature of an independent rule but is merely a factor to be taken into account in assessing the damages naturally arising from the breach, for the purpose of main part of Sec. 73 (K.G Hiranandani v Bharat Barrel & Drum Mfg. Co. AIR 1963 Bom. 373).
Thus, the principle of mitigation of loss does not give any right to a party in breach of contract but it is a circumstance to be borne in mind in assessing damages [M. Lochia Setty & Sons Ltd. v Coffee Board, Bangalore (1980) 4 SCC 636]. It is a positive defence in the matter of quantum of damages.
The loss to be ascertained is the loss at the date of the breach of contract. If at that date the plaintiff could do something to mitigate the damage, the defendant is entitled to the benefit of it. However, the rule in regard to mitigation must be applied with discretion and a man who has already put himself in the wrong by breaking his contract has no right to impose new and extraordinary duties on the aggrieved party (Pollock and Mulla).
The most frequent application of this rule takes place in contracts for sale or purchase of goods. On the buyer’s refusal to take delivery, the seller could resell the goods at the prevailing market price and he may then recover from the defaulting buyer the difference between the price he realized and the contract price. If the seller does not resell the goods and his loss is aggravated by the falling market, he cannot recover the enhanced loss. Similarly, where the seller refuses to perform the contract, the buyer should buy the goods if they are available from any alternative source and cannot recover any further loss that may be due to his own neglect. It is important to note that it is not necessary that the seller (or buyer) should resell (or re-purchase) on the date of breach of the contract. Actual re-sale by the seller is not necessary; similarly, actual re-purchase by the buyer is not necessary.

When does a Contract become Inevitable?

When does a Contract become Inevitable?

A contract becomes inevitable due to the following reasons:
Proof of Details:
The prime purpose of creating a contract is related to the recording of details, which both parties have agreed with mutual consent. It provides a precise knowledge of the services provided by the third party or monetary expectations to be met by the person. These details will serve as legitimate proof and are very important in a contract.
Avoids Misunderstanding:
Misunderstanding is a common problem confronted in any business due to several reasons. To avoid such cases, drafting a contract is a mandate and it is required for both parties to read the consented rules and abide by them. It has a large impact on the business as breaching the contract rules can lead to conflicts between the parties and thereby affect the business overall.
Provides Security:
A contract document plays a pivotal role in making the parties secure as it clearly specifies the tenure of the contract and set of responsibilities. Here, an employer is lawfully responsible to pay the committed salary on time and the employee is responsible to perform his duties as designated. Any deviation is considered contract breaching and, either of them has the sole rights to take appropriate action.
The contract can act as legal evidence if any of the party files a case against the other at times of contract breaching.
Provides Confidentiality:
It includes an NDA (Non-disclosure agreement, which protects confidential information. According to this agreement, concerned parties are not entitled to reveal the business and monetary transactions between them with any third person. In case of disclosure, either of them will be subjected to suffering as per contract rules, enforced by the law legally.
Acts as a Record of the Business:
A written contract is a relevant record stating the mutual consent of the proceedings listed in the agreement. It can be used for future reference and, comprises information regarding the stipulated delivery timeline of any work assigned as per contract. The tenure of the contract is also highlighted in the agreement, which provides more clarity regarding the termination details. However, the contract may be terminated in the worst case if the other party is not fulfilling the rules mentioned in the contract or bypassing the terms.

Why You Need a Contract in Business and its Relevance in Your Business?

Why You Need a Contract in Business and its Relevance in Your Business?

Starting work without a signed contract means that your position isn’t clear, or even worse –it’s weak.

It provides a solid and concise foundation that will help you navigate the law and make sure that you are on the right side of it. Along with aiding to minimise disputes and resolve any problems that may arise; a contract will communicate to a client, not only the amount that they are required to pay, but also invoice and payment dates. It also means that the contract is legally enforceable and will be able to support you if you decide to take legal action.


Written contracts set out the rights and obligations of each party, and reduce the risk of uncertainty. Many businesses are put off by the cost of having a contract as well as terms and conditions drafted by a professional – but it far outweighs the potential cost that doing business with them could threaten later.


1. Provides certainty- Although while getting into business transactions, there is no such thing as zero uncertainty. Contracts provide some sense of security and certainty to both parties. A well-drafted contract specifies each parties’ expectation and mentions in depth all the aspects of the transaction hence providing more clarity and certainty to both parties.


2. Outlines the scope of Agreement- Like mentioned above, a well- drafted contract defines all the aspects of the transaction. It states important information like what kind of work is to be performed, how it is to be performed, due dates, payments, etc. It also defines the obligations and remedies in case of any breach.
3. Procedure for dispute resolution- What happens when there is a disagreement between you and the client? While lawsuit seems like the obvious answer. However, it isn’t a very effective way of resolving disputes. A contract specifies alternative means of resolution like mediation, negotiation, and arbitration. Most parties prefer going for these methods as a lawsuit can be expensive and time-consuming.

4. Protects both parties- Having a written contract provides security to both parties as it put pressure on the other party to meet its obligation. Having a written contract also makes it enforceable in court.


5. Provides Confidentiality-No Entrepreneur would want its companies secret getting out. To ensure that does not happen, a contract includes an NDA (Nondisclosure agreement), which protects confidential information. According to an NDA, transactions involve a third party. In case of disclosure, the concerned party will be subjected to the agreed suffering.
6. Helps in ending relationships neatly – A contract contains a termination clause that defines the provision for ending the relationship or canceling the contract with the other party. Since the contract is an agreement and is made with the consent of both parties, having a termination clause lays down the steps if one has to get out of the agreement. This helps in ending the business relationship on good terms. For eg – When your supplier of raw material suddenly cancels the deal, it can cause many problems like a sudden halt in production. A contract will require your supplier to give you prior notice before canceling the deal hence providing you time to look for a new supplier
7. Helps in keeping a record of the business – A written contract acts as a record of the business also showing the mutual consent of both parties. It contains all the relevant details about the transaction and can be used for future reference for things like delivery dates, payment methods, etc
8. Addresses the Unforeseen – A contract usually has a clause called “Act of God” which addresses the events that are beyond our control like natural disasters which makes it impossible to fulfil the contractual obligation. With this clause, in case of any unforeseen event, the concerned party won’t be deemed guilty for breach even though it failed to fulfill the duty.
9. Ensures timely payments – If mentioned in the contract, it ensures timely and accurate payment. Since it is legally binding, it also puts pressure on the parties to make timely payments. The contract also specifies the mode of payment and EMI options in case of large payments.
The above-listed points show how beneficial contracts are to entrepreneurs and how they can assist them in their business. One cannot separate contracts from business as they go hand in hand. Not only do contracts help in safeguarding the interest of the entrepreneur, but they also safeguard the interest of the employees working for the organization. Drafting a contract can be a challenging and time-consuming process. Therefore, it is advised that you should seek the help of a legal attorney to guide you through the process. A written contract ensures that strict legal action is taken in case of any breach. This in turn ensures that people in the future adhere to the rules stated in the contract.

Relationship between Business Entities and Law has to be Harmonious for Growth

Relationship between Business Entities and Law has to be Harmonious for Growth

President Theodore Roosevelt once said, 
“Ours is a government of liberty, by, through and under the law. No man is above it, and no man is below it.” whether the relationship between “Business Entities and Recovery Laws” is really smooth enough for growth?

Today the world is commonly recognized with rapid growth that requires a number of conditions that are not always strictly towards social development but shifting towards economic factor. Business entities and law needs to go hand in hand but are they really effective? It is often believed that India’s regulatory problems are due to the lack of regulatory standards and poor compliance to process. Due to the legal absence of appropriate and enforced legal rules the entire business society has to face the burden as its effect would be seen from corporation sector, banking system to overall each and every large business entity.

The First Pillar should focus on legally binding rules. Such rules are not only known for theory. They are actually enforced by the State on all relevant parties, and are subject to modification pursuant only to previously known procedures.

The Second Pillar must be of appropriate processes through which such rules are made, and through which they are either enforced in practice or are deviated from when necessary. The appropriateness of such processes will obviously differ according to the circumstances of each country. Legal procedure might succeed; however, they did not be arbitrary, and are based on a system of consultation with the people affected by the rules.

The Third Pillar of the legal framework must consist of efficient public institutions that are occupied by trained and dedicated individuals, are transparent and accountable to citizens, are bound by and adhere to regulations, and apply such regulations without arbitrariness or corruption. An efficient and fair judicial system serves as the final arbiter of a functioning legal system.

There is a saying that “Justice Delayed is Justice Denied”, but this applies to each and every case. There is a complete lack of focus on judges and the system. Apart from the overall number of cases (more than 3 crore) the country seems to ignore the loss of time and economy an individual or a business firm is putting. Despite judges working extremely long hours, why is that there is no serious dent being made in the mountain of delays? How long do different types of cases remain in the system and why? How can we maximize judicial time? Answers to these questions are most important to bring about change. However, no systematic effort has been made until recently to collect data that will help obtain the answers to these questions. The dictum ‘Justice should be done’ is satisfied by mere observance of the principles of natural justice. However, the principle does not end here. It extends further. Justice should manifestly be seen to be done. If this is ignored, then the decision would be affected, especially in cases where an allegation of bias or interest or favor is noticed and affording proper hearing is not approaching from the decision.

In the outbreak of Novel Coronavirus, the impact of physical, mental and economic strain can be seen every defaulter or a complainant is facing problem with no proper functioning of court. It’s peculiar to see court’s behavior towards different individual or association; one is receiving preferential treatment like top projects, travel perks and frees time. Meanwhile, the other person discovers that his requests are denied without reasonable explanation. It is nowhere wrong to say that court is equally liable in harassing the complainant or defaulter. A Firm waiting for the judgment but the court keeps on delaying, by the time judgment is given, the Firm has no value in market.

We can see that if you file a case in the Karnataka High Court today, at the very least, you could expect to be in court until the beginning of 2023. In these two years and eight months (969 days), you can expect to go to court about 12-13 times, as the average time between hearings in the Karnataka High Court is 78 days. For instance, regular first appeals (RFAs) constitute seven per cent of the total cases in the Karnataka High Court. On average, RFAs are pending for four years and three months (1,553 days). On the other hand, company petitions, although constituting a mere one per cent of the total cases in the Karnataka High Court, are pending on an average for six years.

Law is a set of rules and regulations drafted for the smooth functioning of the country and if one fails to abide by the rules, one can expect the whole society to fall apart, such as the power of law. This rule book is a way of keeping our justice system fair and ensuring that everyone complies with the law. It not only allows people to understand what is expected of them in their capacities but also sets forth rules for businesses so that they, too, know what is expected of them in their dealings and transactions. The rule of law plays an important role in the business world when setting up a business. Laws determine what type of business it is to become, it sets up reasonable expectations on how the business should operate, it creates an honest environment where consumers and business owners’ interests can be protected and we have ways to solve any disputes that arise Law provides guidance and direction in every area of business. A crucial component in the relationship between businesses and the law is that it creates the regulatory environment within which the business should operate. This means that the law creates rules that govern the business and how it operates from how its relationships between it and its employees are regulated, it would regulate how much and when it should pay tax as well as to whom, as well as how it should promote, sell or advertise it’s goods/services. Government policy highly influences interest rates. Higher rates lead to decreased consumer spending. Lower interest rates attract investment as businesses increase production. Taxation policy is one of the government policies that affect businesses directly because taxation is based on the amount of money earned by all businesses.
The business environment in India has a number of problems that adversely impact business. Aside from persisting bureaucratization leading to delay in approvals and clearances for business and structural factors such as poor quality of infrastructure, there are some policy and legal constraints that affect business. One very important factor is the regulatory framework. The regulatory framework in India, has not been conducive for business, either at the entry stage or during operations. Among the major impediments to the improvement of the business environment are business regulations/legislations originally formulated under the command and control. A plethora of government authorities continue to exercise wide discretionary powers, nailing business from their inception for minor procedural lapses. To illustrate the consequences, on an average starting a business in India takes twice as long as that in the region and because of various rules and regulations, formalities and procedures. Enforcement of these regulations and associated licenses unnecessarily hampers the smooth operation of business, and thereby unnecessarily increases the transaction costs of doing business, thus putting India at competitive disadvantage.

As India is a federal State, taxes are levied and regulated by both Central and State governments. The new system of tax neutrality does not differentiate luxury goods and normal goods which makes it difficult for small businesses to sustain. Under GST implementation, all goods and services pay the same tax which will lead to the rich becoming richer and poor becoming poorer. It is not an ideal situation for small industries and businesses competing against large businesses. In GST Council meeting, it was decided by the ministry that those assessments having turnover of less than Rs 1.5 crores will be assessed by state government and existing Service Tax assessments, irrespective of turnover will be assessed by the Central government as there is lack of expertise with the State Government in relation to Service Tax matters. As a result of this, small traders dealing in both goods and services will have dual administrative control both by Centre and State.

A lawful framework that empowers financial choice, advances moral and sound commerce hones, cuts exchange costs and empowers solid commercial dealings through reasonable contracts is as basic as great framework and sound arrangements. Our standing within the ease of doing commerce rankings is still moo basically since of the delays in our legal framework. Tragically, in spite of the fact that this issue has been decaying for more than a century, the law doesn’t seem to change.

We often talk of getting to be a financial superpower and wish to create our economy reasonable and straightforward. When we know this big business entities are the backbone of economy, yet the functioning of our judiciary fails to build a smooth relationship between business entities and law. An essential prerequisite for accomplishing this is a proficient and straightforward legitimate framework.


“Justice denied anywhere diminishes justice everywhere” – By Martine Luther King Jr. 


“Sufferer”/ “Aggrieved Party” / “Non-Defaulter”: Be Ready to Run for Recovering Money

"Sufferer"/ "Aggrieved Party" / "Non-Defaulter": Be Ready to Run for Recovering Money

Courts and Legislative wants the “Sufferer”/”Aggrieved Party”/Non-Defaulter” to do all homework for Recovery and Long Lasting Process and Ensuring of giving peace to Accused
The Purpose of Law is to ensure Sufferer gets justice but it seems that in recovery of money, the Law and Courts are ensuring and assuring the Peace and Long Lasting Time to Defaulter to come to the Court as if IBC was not enough to take away the rights of Awards passed in MSME and or Arbitration and or Decree via Courts.
Section 138 of Negotiable Instrument Act provides for the compensation to the complainant, and it also allows for the parties to reach a compromise during the pendency of a complaint. It encourages parties to settle disputes through the ultimate closure of the case rather than protracted litigation.
Ingredient of offence- drawing the cheque:
• Presentation of the cheque to the bank,
• Returning the cheque unpaid by the drawee bank,
• Giving notice in writing to the drawer of the cheque demanding payment of cheque amount
• Failure of the drawer to make payment within 15 days of receipt of the notice.
Recently the IN THE SUPREME COURT OF INDIA, CRIMINAL APPELLATE JURISDICTION, CRIMINAL APPEAL NO(S). 1206 OF 2021 (Arising out of SLP(Criminal) No(s). 7573 of 2014) ASHUTOSH ASHOK PARASRAMPURIYA & ANR (APPELLANT(S)) Vs M/S. GHARRKUL INDUSTRIES PVT. LTD. & ORS …RESPONDENT(S) = CRIMINAL APPEAL NO(S). 1207 OF 2021 (Arising out of SLP(Criminal) No(s). 9520 of 2014) = By Rastogi, J. = NEW DELHI = OCTOBER 08, 2021 has passed the Order of stating that “Summons To Directors Justified If Complaint Avers That They Were In and Responsible of Business Of Company” and the brief of the case is as under:
The case is of the complaint of a Private Limited Company which is engaged in the business of production and sale of spices named M/s Gharkul Industries Pvt Ltd and its directors. The Applicants approached the respondents for financial assistance. The two being well-known by each other, respondents provided financial assistance. The parties involved executed a Memorandum of Understanding with consent of all applicants and it was decided that the amount that was received would be returned within 1 or 2 years. An amount of Rs 1,50,19,831 was received by the applicants. On August 18, 2010, a letter was issued to the concerned applicants demanding their balance-sheet. It showed that as on 31/3/2012, the outstanding balance of the company was Rs. 1,49,94,831/-.
According to the Respondents, the Directors of the company are responsible for the conduct of the business of the company. Hence, they should be held responsible for the affairs of the company. Further on 2/6/2012, the Company issued a cheque in favour of respondent No. 1 for encashment of the said amount. However, the said cheque was dishonoured due to funds not sufficient.
The Respondents filed a complaint against the applicants under Section 138 of the said Act. The learned Trial Court issued the summons in the name of the applicants for the offences punishable under Section 138 of the NIA.
The Applicants filed a criminal application before the High Court praying for quashing and setting aside the criminal complaint filed by Respondent No. 1 as well as the summons issued by the learned Trial Court in pursuance of the complaint. The High Court affirmed the decision of the Trial Court. The Respondent approached the Supreme Court.
The Supreme Court held that a person who has issued a bounced cheque does not sufficiently become liable referring the ruling of SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Another.
The person can be held liable only when he’s been in charge of the actions of the company at the time of their alleged wrongdoing. The Court explained that in order for a process to be initiated against a director, it is necessary to aver that the directors were in charge of the company’s business at the time of the offence under Section 138 read with Section 141 of the NI Act.
The Court noted that averment is very important because it is the basic averment that persuades the Magistrate to issue process against a Director. In cases where the basic allegation of a case is missing, a Magistrate may be justified in not issuing a process order, the Bench noted.
The Court has also ruled that before a Director is summoned for trial in a case, the Court must be satisfied that there is no prima facie evidence that shows that the Director was not involved in the issuing of cheques. The court noted that even if the basic allegation is there, the court may come to the conclusion that no case has been made out against the accused Director.
The Supreme Court has held that the Directors of a company were not signatories to the company’s cheques. However, it is clear that the allegations are that at the time of the cheques being issued and dishonoured, the Directors were responsible for the company’s business, the court noted.
The context of this case is that now the Person who is filing the case under Section 138 has to ensure and is being presumed of assumption that the Complainant shall be aware of which Director signed the Cheque, who were taking care of the business and others and if not, then Section 138 cannot be filed. This is purely ridiculous for reasons that a business person has to do business and there is no way of such person being given the information as to who has signed and who is responsible and such in this case, the whole concept of Section 138 for Business is ZEROED. The Laws off late and Judgements has just been getting more technical and infact making the Aggrieved Party to run and chase Accused and there is no balance being made. For reasons, even after getting Order against Accused and Accused don’t pay, the only option is Decree and for that it takes a year or two years and then if done, then it is the duty of the Complainant to know the Property Details to get attached and to find out it is next to impossible. There is no way the Courts and Laws intent to make simpler way for recovery of money which is very sad and damn bad
The Law is with Accused/ Default Party- how fair is this?
The law is with accused and default party which means that the Constitution never denies any right to anyone be it accused or victim in other words laws are uniform to every citizen. Article 21 of the Indian Constitution states that. “No person shall be deprived of his life or personal liberty except according to procedures established by law.”
Yet the question arises is it fair?
How fair is the law when it comes to practicality? They say the framers of the constitution have framed laws which wouldn’t discriminate anyone with regards to gender, caste, religion, class etc. or even accused yet in the case of Ashutosh Ashok Parasrampuriya & ANR. V.s Ms. Gharrkul Industries Pvt. Ltd & Ors, the Supreme Court held that a person who has issued a bounced cheque does not sufficiently become liable referring the ruling of SMS Pharmaceuticals Ltd. v. Neeta Bhalla and Another.
The person can be held liable only when he’s been in charge of the actions of the company at the time of their alleged wrongdoing. The Court explained that in order for a process to be initiated against a director, it is necessary to aver that the directors were in charge of the company’s business at the time of the offence under Section 138 read with Section 141 of the NI Act.
Section 141 of Negotiable Instruments Act shows that person who is in charge or responsible to the company is by act liable and deemed to be guilty only if offence is committed with his consent or due to any neglect on his part. Similar is the case with any Director, Manager, Secretary or other officer of company. If such person shows that offence was committed without his knowledge or that he had exercised due diligence to prevent commission of such offence, he may be immune from prosecution.
Here the Director has a scope by manipulating the respondent by withdrawing his or her responsibility in company and getting away by the crime. The aggrieved party or the entrepreneur not only loses faith in company but towards law too.
Today Trial Court’s main aim is to ascertain truth to the victims, accused society in large. Every person has the right to be treated and dealt fairly. Denial of trial is denial of justice. Our constitution has enshrined the right to defend under Article 21 of Constitution of India. Our country follows the principal of every accused is presumed to be innocent until proved guilty. At the same time if accused is found threat to society is held in custody for the time being.
Today the right to a reasonable trial isn’t unused, but the quality and nature of the challenge. The number of individuals specifically included in criminal equity is developing as new cases are emerging every day. Countries develop faster mechanisms for imposing sanctions, usually without trial; “international war terrorism” and the erroneous political rhetoric of “re-aligning” criminal justice systems to make us safer have a negative impact; dictators and dictatorial regimes find new ways to use criminal justice as a tool of oppression; and human rights are facing new threats from increasing cross-border cooperation to fight crime.
We are working toward a worldwide objective. We can’t get there overnight, and we can’t do it for ourselves. But with each step we take towards our vision of a world where everybody is entitled to a reasonable trial, we ensure individuals from the manhandle of equity and make reasonable and compelling criminal equity frameworks that advantages all.
The existence of corporation in the commercial world is almost like a money hunger. Today MNC see nothing but profit so is the laws made in favour of them. Assume a Chief of a company being charged beneath section 141 of NI Act but court rules out the judgment in support of Chief by expressing that the offence was committed without Executive’s information or that he had worked out due perseverance to avoid commission of such offence, he may be safe from arraignment. In any case, how is that the executive of a company where each detail of company rotates around him/her isn’t dependable for the previously mentioned offence? For occurrence when a bargain is marked between a company and person, how can a person know which chief signed the cheques, how can one anticipate the person to be mindful of each individual of company. It’s the court function that ought to examine the reality. This tosses an impressive sum of address on the composers of the law, for making this law so one-sided which should be transformed for demonstrating its straightforwardness towards society.
 Hence, the saying law is with accused and default party may not be reasonable because it is obtrusively made a law which makes the accused free. What must be taken into consideration is the legitimate saying Audi Alteram Partem which suggests listen both the side but too make law which is uniform for both parties.
Law is Equal “as said by Courts and Parliament”, Let’s find out how and where for Business Entrepreneurs

Importance of Written Contracts in Business

Importance of Written Contracts in Business

Importance of Contract in business
An entrepreneur has 99 problems and a contract can help solve almost half of them. A well-drafted contract is a key to a good and healthy business. One cannot even imagine starting a business without getting into a contract: from signing purchasing raw material from a vendor to hiring an employee everything is bound by a well-drafted contract or a written agreement. A contract is a written or spoken agreement concerning employment, sales, and other aspects and is enforceable by law. Now imagine getting in a transaction in older times, where two parties agreed to trade in barter, both the parties honored their commitment and the transaction was complete. Now imagine doing the same in the 21 st century, where we are all aware of the history of frauds in the corporate world. This is where contracts come into the picture. It lays down the expectations for both the parties and also protects both the parties as it is legally binding.
Importance of Written Contract
In Roop Kumar v Mohan Thedani (AIR 2003 SC 2418), the Supreme Court outlined the significance and consequences of reducing a contract into writing. It observed: “The integration of the act consists in embodying it in a single utterance or memorial- commonly, of course, a written one. This process of integration may be required by law, or it may be adopted voluntarily by the actors either wholly or partially. Thus, the question in its usual form is whether the particular document was intended by the parties to cover certain subjects of transaction between them and, therefore, to deprive of legal effect all other (oral) utterances”. “The practical consequence of integration is that its scattered parts, in their former and inchoate shape, have no longer any jural effect; they are replaced by a single embodiment of the act. This rule is based upon an assumed intention on the part of the contracting parties, evidenced by the existence of the written contract, to place themselves above the uncertainties of oral evidence and on a disinclination of the courts to defeat this object. Written contracts presume deliberation on the part of the contracting parties and it is natural they should be treated with careful consideration by the courts and with a disinclination to disturb the conditions of matters as embodied in them by the act of the parties.”
For those of us involved in regular business transactions as a part of our professions, even a normal exchange of goods or services often makes us wish that we had had a contract in writing with the opposite party. This is usually because most of us believe that several kinds of transactions work well on trust, but when things are ambiguous or go awry, we realize that a written document should have been in place and regret avoiding one to begin with. Thus, while written contracts are usually circumvented in day-to-day business transactions to do away with complications or avoid “bad blood”, one usually ends up creating more by choosing not to have them!
Contracts form the foundation of all business relationships. But with a growing number of contracts, an increasing complexity and the ongoing need for amendments, it becomes challenging to manage the valuable information in the contracts. Contract management is the process that enables both parties to a contract to meet their obligations in order to deliver the objectives required from the contract. It is a Relationship Management. It also involves building a good working relationship between customer and provider. It continues throughout the life of a contract and involves managing proactively to anticipate future needs, as well as reacting to situations that arise. In other words, Contract management is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms and conditions, as well as documenting and agreeing on any changes that may arise during its implementation or execution. It can be summarized as the process of systematically and efficiently managing contract creation, execution and analysis for the purpose of maximizing financial and operational performance and minimizing risk. Contract management contributes significantly to a company’s financial health and is viewed as a strategic weapon in optimizing contract performance and improving the return on investments.
A contract is a formal document, accepted by both parties, employer and employee, and is the base for any flourishing business. Contracts provide better visibility to meet the duties and achieve the objectives as agreed per the agreement. It serves as a great support for building a good rapport with the customer or the desired party.
Concerning this, Contract management is a strategy adapted to manage contracts legally signed with customers, partners, or employees. Contract management includes adjusting the terms and conditions in contracts and ensuring adherence to the rules as per contract. Contracts guarantee a standard business procedure, by giving clarity of your requirements. It helps to achieve the desired goals easily and serves as proof in case the expectations of one party is not fulfilled. It is viewed as breaching the contract and the person has to bear the loss for the service.
It is important to get your contract drafted and approved by a lawyer legally.
Why do you need a contract? The main reason that you need a contract is to protect your rights when you enter an agreement with another party. For example, if you agree to help someone complete a project in exchange for money, you might have trouble getting the person to pay you if you don’t have a valid contract in place.