Business Contracts and Legal Framework
Formation rules
A contract needs offer, acceptance, lawful consideration, capacity, free consent and a lawful object. Acceptance must be absolute and unqualified and must be communicated. A price list, menu or advertisement is generally an invitation to offer, not an offer. Consideration need not be adequate, but it must be real and lawful. A minor's agreement is void ab initio. Consent is not free if caused by coercion, undue influence, fraud, misrepresentation or mistake.
Discharge and remedies
A contract may be discharged by performance, agreement, impossibility or breach. For breach, the injured party can claim damages, specific performance or injunction. Ordinary damages are the natural loss; special damages require notice of the special circumstances. Section 74 allows reasonable compensation for a stipulated sum, not necessarily the full amount. The Limitation Act, 1963 generally gives three years from the cause of action.
Arbitration
The Arbitration and Conciliation Act, 1996 governs arbitration. A valid arbitration agreement allows a court to refer parties to arbitration under section 8. Interim measures are available under section 9, and arbitral awards are enforced as decrees.
Worked example
A agrees to supply 100 bags at 500 each and breaches. B buys equivalent bags at 600 each. B's ordinary damages are 100 x (600 - 500) = 10,000. If B lost a sub-sale profit, that is special damages and B must prove that A knew of the sub-sale at the time of contracting. B cannot recover both the price difference and the same loss twice.
Traps that cost marks
Do not treat an invitation to offer as an offer. Silence is not acceptance unless the parties agreed. A penalty clause is not automatically enforceable; section 74 gives reasonable compensation. An arbitration clause does not destroy the contract; it routes disputes to arbitration.