Commercial Contract Management: formula sheet

Key formulas

Lifecycle stages

Need and counterparty → Drafting → Negotiation and approval → Execution → Performance and monitoring → Amendment, renewal or termination → Closure and records

Use this order as the skeleton for any lifecycle answer.

Essentials of a valid contract

Proposal + acceptance + free consent + competent parties + lawful consideration and object + not expressly declared void

Test each element against the facts, one by one.

Undue influence (Section 16)

Position to dominate the will + use of that position + unfair advantage

Dominance is deemed where a person holds real or apparent authority, stands in a fiduciary relation, or deals with a person whose mental capacity is affected by age, illness or distress. If the transaction appears unconscionable, the burden of proof lies on the dominant party.

Revocation (Section 5)

Proposal: revocable until acceptance is complete against the proposer. Acceptance: revocable until communication is complete against the acceptor.

Uttar Pradesh has a state amendment to Section 5, so mention it only if the question is about that state.

Time of performance (Section 55)

Time essential: contract voidable at the promisee's option. Time not essential: contract stays valid, compensation for loss.

If the promisee accepts late performance in a voidable case, compensation cannot be claimed unless notice is given at the time of acceptance. Uttar Pradesh amended this paragraph (waiver instead of notice).

Contingent contract (Section 32)

Enforceable only when the event happens; void if the event becomes impossible

Draft a clear trigger event and a long-stop date.

Contingent contract (Section 31)

Contingent contract = promise to do or not do something + if a collateral event does or does not happen

The event must be collateral to the contract and uncertain. Quote the words of the section.

Event happening (Section 32)

Enforceable only after the event happens; void if the event becomes impossible

Example: pay B if B marries C. If C dies unmarried to B, the contract is void.

Event not happening (Section 33)

Enforceable when the happening of the event becomes impossible, and not before

Example: pay if the ship does not return. Enforceable when the ship is sunk.

Fixed time (Section 35)

Event within a fixed time: void if it has not happened by expiry or becomes impossible earlier. Event not within fixed time: enforceable on expiry or once it is certain it will not happen

Read the time limit in the facts. It changes the answer.

Prevention (Section 53)

Reciprocal promises + one party prevents the other = contract voidable at the option of the prevented party + compensation for loss

The option belongs only to the party prevented, not to the party who prevented.

Impossible event (Section 36)

Contingent agreement on an impossible event happening is void, whether or not the parties knew of the impossibility

Example: pay if two straight lines enclose a space.

Wager (Section 30)

Wager agreement = void; no suit to recover winnings

Contrast with a contingent contract where the event is collateral and the promisee has a real interest.

Contract of indemnity (Section 124)

Promise to save the other from loss caused by the promisor's own conduct or by the conduct of any other person

Two parties: indemnifier (promisor) and indemnity-holder (promisee). The loss source can be the promisor or any other person.

Rights of indemnity-holder (Section 125)

Recover: (1) damages paid in suit + (2) costs paid in suit + (3) sums paid under compromise

The promisee must act within the scope of his authority. Damages need the matter to be covered by the indemnity.

Condition for costs (Section 125(2))

No contravention of promisor's orders AND acted prudently as without indemnity, OR promisor authorised the suit

Read as: either the prudence route or the authorisation route.

Condition for compromise sums (Section 125(3))

Compromise not contrary to promisor's orders AND prudent without indemnity, OR promisor authorised it

Same two-route test as costs.

Contract of guarantee (Section 126)

Contract to perform the promise, or discharge the liability, of a third person in case of his default

Involves surety, principal debtor and creditor. May be oral or written.

Section 231, first paragraph

Agent contracts + third party neither knows nor has reason to suspect agency → principal may require performance; third party has against principal the same rights he would have had against the agent

Both conditions on the third party's state of mind matter: no knowledge and no reason to suspect.

Section 231, second paragraph

Principal discloses himself before contract is completed → third party may refuse if he shows he would not have contracted had he known the principal, or that the agent was not a principal

The burden is on the third party to show he would not have entered the contract. Timing is before completion.

Section 232

Principal's performance is subject to the rights and obligations subsisting between agent and third party

Illustration: the agent owes ₹500 to B and sells rice worth ₹1,000 to B. The principal cannot compel B to take the rice without allowing set-off of the ₹500.

Section 230 presumption

Agent not personally bound or entitled unless contrary contract; presumed where (1) goods for merchant resident abroad, (2) principal's name not disclosed, (3) principal cannot be sued

Read with Section 231 when the principal is undisclosed. Answer on who can sue and be sued turns on this.

Section 238

Agent's misrepresentation or fraud in the course of business has the same effect as the principal's; outside authority, it does not affect the principal

Useful when the third party was misled by the agent.

Core rule of Section 62

Agreement to substitute / rescind / alter ⇒ original contract need not be performed

The agreement must be between the parties to the contract. The section is about consent, not about unilateral change.

Novation

Old contract discharged + new contract in its place (same or new parties)

If a new party comes in, the old party, new party and creditor all must assent. Illustration (a): A, B and C agree that C replaces A as debtor to B.

Rescission

Parties agree to cancel ⇒ no performance of the original contract is required

Do not confuse this with Section 64, where a party entitled to avoid a voidable contract rescinds it.

Alteration

Agreed change of terms ⇒ contract performed as altered

Draft it as a supplemental agreement or deed of variation. State which clauses change and that the rest continue.

No assent, no novation

Substitution without assent of the party concerned ⇒ no new contract

Illustration (c): C did not assent, so B still owes C ₹1,000.

Novation versus assignment

Novation: consent of all parties, old obligation ends. Assignment: transfers benefit of rights; burden cannot be passed on without consent

This distinction is general contract law, not stated in Section 62. Use it to answer comparison questions, without quoting a section number.

Section 64, first limb

Voidable contract rescinded ⇒ other party need not perform his promises

Applies when the person at whose option the contract is voidable rescinds it. The other party is released from promises where he is promisor.

Section 64, second limb

Rescinding party must restore benefit received, so far as may be, to the person from whom it was received

Restoration is 'so far as may be'. It is not an absolute duty where exact restoration is impossible.

Section 66

Rescission is communicated or revoked like a proposal

Notice must reach the other party. It can be revoked before it is complete, under the rules of Sections 3 and 5.

Section 65 contrast

Agreement discovered void / contract becomes void ⇒ restore advantage or compensate

Applies to void agreements, not to rescission of voidable contracts.

Specific Relief Act, Section 27(2)

Court may refuse rescission: ratification; no substantial restoration; good-faith third party rights for value; non-severable part

Use these grounds when the facts show delay, affirmation, resale or part rescission.

Specific Relief Act, Section 30

On rescission, court may require restoration of benefit and compensation as justice requires

Court-ordered equity. Section 33 gives similar powers on cancellation of an instrument.

Quick revision

• A contingent contract is to do or not do something if an event collateral to the contract does or does not happen (Section 31).
• A contract contingent on an event happening cannot be enforced until the event happens; if the event becomes impossible, it is void (Section 32).
• A contract contingent on an event not happening can be enforced when the event becomes impossible, and not before (Section 33).
• For a fixed time: if the event has not happened by the end of the time, or becomes impossible earlier, the contract becomes void (Section 35).
• Where the event is a person's future conduct, it is treated as impossible once the person does something that makes it impossible (Section 34).
• A contract of indemnity is a promise to save the other party from loss caused by the promisor's own conduct or by anyone else's conduct (Section 124).
• An indemnity-holder acting within authority can recover damages, costs and compromise sums in a suit, subject to the conditions in Section 125.
• If an agent contracts with someone who does not know and has no reason to suspect agency, the principal may require performance, but the other party has the same rights against the principal as against the agent (Section 231).
• If the principal discloses himself before the contract is completed, the other party may refuse to fulfil it if he can show he would not have contracted had he known (Section 231).
• If the parties agree to substitute, rescind or alter a contract, the original need not be performed (Section 62).
• Novation needs the agreement of all parties; in the Act's illustration, if C does not assent, no new contract exists.
• A party rescinding a voidable contract must restore any benefit received, so far as may be, and the other party need not perform (Section 64).

Common mistakes

• Describing the lifecycle as only drafting and signing. Fix: Always cover performance monitoring, amendment, renewal, termination and record keeping.
• Listing the essentials of a valid contract without applying them to the facts. Fix: Take each element, state whether the facts satisfy it, and then conclude.
• Treating any conditional promise as a contingent contract. Fix: Check that the event is collateral. If the condition is part of the promise's own performance, it is not contingent under Section 31.
• Saying a contingent contract is not a contract until the event happens. Fix: Say the contract exists from the start, but it cannot be enforced until the event happens (Section 32).
• Treating every indemnity as a guarantee, or the reverse. Fix: Use Section 126: a guarantee involves a third person's default and three parties. An indemnity is a promise to save from loss, usually between two parties.
• Saying indemnity covers only loss caused by the promisor. Fix: Section 124 covers loss caused by the conduct of the promisor himself or by the conduct of any other person.
• Applying Section 231 when the third party knew the other party was an agent. Fix: Always test the third party's knowledge or reason to suspect first.
• Saying the third party can always refuse once the principal is revealed. Fix: State that he must show he would not have entered the contract had he known, and that disclosure was before completion.
• Treating novation as possible with the consent of only the old and new party. Fix: Remember illustration (a): A, B and C all agreed. The creditor must assent to the new party, otherwise the old contract continues.
• Saying novation and assignment are the same. Fix: Novation ends the old contract and creates a new one with consent of all. Assignment transfers the benefit of rights, and the burden of obligations cannot be passed on without the other party's consent.

Exam tips

• Structure answers as provision, analysis of facts, conclusion, then a practical drafting or compliance point.
• Quote the section number only when sure: Sections 5, 16, 32 and 55 are in the text for this topic.
• Write the lifecycle as a numbered list. Examiners can then see each stage quickly.
• Mention the state amendments to Sections 5 and 55 (Uttar Pradesh) only briefly and only when relevant.
• In case questions, name the parties and quote the facts. Generic answers lose marks.
• Begin with the Section 31 definition in the Act's own words, then apply it to the facts. Examiners reward provision first, then analysis.
• Always run the wager test when the facts mention betting, stakes or uncertain events with no real interest.
• Underline any time limit in the facts and decide between Sections 32, 33 and 35.