About the Article
Rapid Contract Enforcement is an essential requirement for the growth and prosperity of India. It will enable more investment, entrepreneurship, and trust for all stakeholders in business and commerce. The community of lawyers in India does not have access to a practical and scholarly manual that gives them a path to deliver rapid contract enforcement to their clients. Such a manual will also help lawyers to draft contracts that enable timely enforcement. Rapid enforcement requires the effective use of the Arbitration Act, the institutional framework, and technology-enabled dispute resolution infrastructure. This article belongs to a series where the author analyses each of the Illustrations available in the Contract Act and recommends practical approaches to rapid enforcement.
An illustrated rapid resolution example that is useful when lawyers draft contracts for clients who enter into sale agreements for goods or services, and for rapid resolution of disputes arising out of buyer’s refusal to accept goods or services based on allegations of delay.
Keywords: Purchase Contracts, Service Contracts, Deliver of Goods, Non-performance
Reference: The Indian Contract Act: Section 47: Illustration
Indian Contract Act: Section 47
Section 47 of the Indian Contract Act deals with a situation where the date for the promise’s performance is provided in the contract, but the time is not. Per the section when a promisor has undertaken to perform the promise without the application of the promisee on a certain day, then the promisor may perform the promise at any time during the usual business hours on such day and at the place at which the promise is to be performed.
Illustration – Contract Act: Section 47
The illustration of section 47 is as follows:
“A promises to deliver goods at B’s warehouse on the 1st of January. On that day, A brings the goods to B’s warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise.”
Illustration 1 – A modern-day example
Let us examine a modern-day example of this type of agreement:
“X, a food products manufacturer, entered into a contract with Z, a cheese supplier to buy 1 tonne of cheese. The cheese was to be delivered at X’s factory on Saturday, the 13th of February. While on weekdays, the factory closed at 8 PM, it closed at 5 PM on Saturdays. Therefore, when Z’s employees brought the Cheese to X’s factory on the 13th of February at 6 PM, they found the factory closed. When Z informed X that his employees had reached his factory, X refused to accept the goods, and the cheese could not be shipped or stored effectively for delivery the next day, and the entire consignment was damaged and lost. As a result, Z sued X for compensation and damages.
Interpretation and scenarios
In the above example, the dispute arose due to the ambiguity in the contract.
In court, Z would contend that 6 PM ought to be considered ‘usual hours of business,’ Hence, he had performed his obligations under the agreement. On the contrary, X would contend that, since his factory closed at 5 PM every Saturday, Z could contend that he had delivered the goods during the usual business hours.
Even if the court or arbitrator arrived at a finding that X was in breach of the agreement, Z would also need to lead substantial evidence to prove his claims of compensation and damages.
Making this Rapid Resolution friendly – Strategy
A dispute arising out of the above example would be friendly to a rapid resolution if the contract specified the date, location, and time at which Z was to deliver the goods to X. If these details were specified in the contract, there would be no ambiguity, and it would be easy for an arbitrator to determine who was in breach of the contract.
The contract can easily be made rapid resolution friendly by incorporating just a couple of clauses.
The Drafting Solutions
Clause 1- Makes It Clear How The Contract Is To Be Performed
Contracts like the one in our example can be made rapid resolution friendly by ensuring there is no ambiguity concerning how the parties are to perform their respective obligations.
In our example, this would entail incorporating a clause that provides the exact date, time, and location, at which Z is required to deliver the goods to X.
Solution 2 – Makes It Easy To Quantify The Damages Payable By The Party That Breaches The Contract
Any contract, especially one of delivery of goods or services, must provide the consequences for breach of the contract by either party. If, as is the case for almost all business contracts, the consequences for breach include compensation and damages, then the contract must either quantify the amounts to be paid by the party in breach or provide the formula for computing the amount.
Incorporating the above provisions does away with the need for a party to lead voluminous evidence to prove the quantification of the compensation and damages claimed.
Solution 3 – Accelerates dispute resolution for both parties by pre-deciding the contentious elements of the Arbitration process
The agreement gives the claimant the right to ask for the arbitrator’s appointment by a named institution or ODR platform; and for such appointment to be made within 35 days of receipt of the defendant receiving notice.
In these cases, it will better serve the parties if the institution or ODR platform promises a process that binds the arbitrator to rapid resolution. Platforms often do this by minimizing oral hearings, not accepting documentation delays, and not allowing adjournments unless in emergencies.
A contract for sale and purchase of goods, or performance of a service can be made rapid resolution friendly by ensuring how the parties are to perform their obligations is unambiguously spelled out in the contract itself.
Further, the contract must also be clear about the consequences of a party breaching the contract.
Simple Explainer For The Layman
Rahul, the owner of a food products manufacturing factory, entered into a contract with Kabir to buy 1 tonne of cheese. The cheese was to be delivered on Saturday, the 13th of February.
While on weekdays, the factory closed at 8 PM, it closed at 5 PM on Saturdays. Therefore, when Kabir’s employees brought the cheese in a refrigerated container to Rahul’s factory on the 13th of February at 6 PM, they found the factory closed. When Kabir informed Rahul that his employees had reached his factory, Rahul refused to accept the goods.
There was no reasonable way for the cheese to be refrigerated until the next working day and so the entire consignment was damaged and had to be thrown away.
As a result, Kabir sued Rahul for breach of contract, compensation, and damages.
Kabir claimed that since the contract did not specify the time the goods were to be delivered, he delivered it during regular business hours. Rahul, on the other hand, claimed that the factory closed at 5 PM every Saturday, and therefore 6 PM could not be considered to be regular business hours.
Had the contract contained three clauses, the entire dispute could have been avoided altogether or resolved quickly and inexpensively.
First, the agreement should have specified the date, location, and time for delivery, especially since the factory closed early on Saturdays.
Second, the contract should have provided for the consequences for breach of the contract by either party, including either quantifying the monetary compensation or providing the formula to compute the same in case of a breach.
Finally, the agreement ought to have included an ODR friendly arbitration clause that pre-decides contentious aspects of the dispute resolution process.
About the Authors
Dushyant Krishnan is a Mumbai based lawyer and the co-founder of House Court, an online dispute resolution platform.
Devansh Garg is a third-year law student at the Vivekananda Institute of Professional Studies and an associate editor of Indian Law Portal, an online legal news publication.