Contracted or Connected?

Part I (Fundamentals of Contract and Employment Contract)

Contract Vs Agreement
Contract is an agreement enforceable by law Section 2(h) of the Indian Contract Act, 1872 An agreement is an accepted proposal. It has two components.

They are;
Offer or Proposal (both are synonymous) An acceptance of that offer or proposal.

Every Promise and every set of promises, forming consideration

for each other is an agreement.

Section 2(e) of the Indian Contract Act, 1872

Not all agreements are contracts. Only those agreements which

create legal obligations are contracts.

It means an agreement which is social in nature cannot

constitute a contract (e.g., proposal for a date and acceptance thereof).

Proposal or Offer
A Proposal is a one in which a party expresses his

willingness to do (or not to do) something with an objective to get the acceptance of the other party to such act.
The valid offer has the following requirements
1. 2. 3. 4. 5. 6.

It should be made with an objective to elicit acceptance from the other party; It should be made with an intention to create a legal relationship; It should be definite, unambiguous and certain; It should be distinguished from a mere declaration of intention or an invitation to offer. It should be communicated to the other party for acceptance. It should not have a term or clause that failure to comply with a term or clause would be deemed to

Termination or Lapse of Offer

The offer would lapse if it is not accepted by the other

party within the stipulated time or within a reasonable time if there is no time limit specified. The reasonable time period may vary from case to case depending on the circumstances.
The offer lapses by the death or insanity of the

contracting party before acceptance. [There would be valid contract if the offer is accepted by the other party in ignorance of the death of the proposer.]
The offer terminates by Counter Offer.
A Counter Offer is a one where the offeree ( 2nd

Party) accepts the proposal from the offerer (1st Party) subject to certain conditions or qualification. It means acceptance must be unconditional and

Acceptance
When a person to whom the proposal is made,

signifies his assent thereto, the proposal is said to be accepted.

Acceptance must be communicated . It may be

express (in writing or word of mouth) or implied (by the performance of an act).
Acceptance must be in the format or mode

prescribed by the offerer. It should be communicated before the offer lapses or the offer is terminated or revoked or withdrawn.

Temporal Dimension of Contracts

A contract is an agreement between two or more parties involving two linked transactions, separated in time.
- An individual inserting coins into a weighing machine to get

his/her body weight.

- A car manufacturer writes a contract with a tyre manufacturer

indicating the specifications of the tyres, the delivery time, and a payment date some time after delivery.
- An employer signing a contract with an individual, in which the

employer commits to pay me a certain wage after the employee has worked for him for two weeks; a bonus payment may only occur after the employee has worked for him for a year.

Problem with the Temporal Dimension of Contracts

Consider the following situations:

- The pay that the employer may willing to give might change,

once the employer has recruited the individual and entered into an employment relationship.
- Once the employee has received the payment, increment or

bonus, the incentives for putting the effort might change, .

- Changes of Circumstances (Like Economic Recession).

Revocation of Proposal or Acceptance

A proposal may be revoked at any time before the

communication of its acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the

communication of the acceptance is complete as against the acceptor, but not afterwards.
An accepted offer becomes a contract.

However, an offeree may accept an offer subject to formal contract or subject to formal contract being approved by the lawyers.

It means that the contracting parties are not intend to be

bound by the offer / acceptance until a formal contract is prepared and signed by them.

Elements of Contract

All agreements are contracts if they are made

by free consent of parties, competent to contract, for a lawful consideration and with a lawful object; and are not hereby expressly declared to be void.

Section 10 of the Indian Contract Act, 1872.

Free consent

The agreement must be based on free and

genuine consent of the contracting parties and should not be obtained by misrepresentation, fraud, undue influence, coercion, or mistake.
This means the contracting parties must agree of

the same thing in the same sense (meeting of the minds or consensus ad idem)
If the consent is not based on free consent but by

other means as mentioned above, it is said to be void.

Competence

Contracting parties should be competent to enter

into a contract. The following people cannot enter into a contract.

Minors A person of unsound mind (Lunatics or Idiots)

A person who is drunk

Distinguishing Spoken, Oral, Written, Verbal, Express Contracts

A spoken contract is often called an "oral contract", not a

"verbal contract".

A verbal contract is simply a contract that uses words and thus

it includes both oral and written contracts. It is also known as express contract. All oral contracts and written contracts are verbal contracts or express contracts.

Also terms of the contract may be inferred from the behaviour

of the contracting parties or based circumstances of the case. It is known as implied contract(Section 9 of the Indian Contract Act, 1872)

An informal exchange of promises can still be binding and

legally as valid as a written contract.

Courts in Canada have generally ruled that if the parties have

a meeting of the minds (Consensus ad idem) and act as

Right to Receive Express Employment Contracts

In UK contracts of employment do not have to exist in

writing. All employees are protected by an implied employment contract from the moment they begin work with an employer even where they have not received a written contract.
Therefore, if a person is working for a business and is

being paid by that business then they automatically have an implied contract of employment, the comprehensive terms of which are stipulated in legislation.
This brings the employee various rights, one of which

is a right to receive a written statement of terms and conditions from his employer within eight weeks of starting work.

Executed Contract Vs Executory Contract

An executed contract is a one where all the

transactions or obligations are wholly carried out and nothing remains to be performed by the contracting parties.
However, an executory contract is a one where

the contracting parties have not wholly completed the transactions or obligations and have something left to be carried out in future.

Unilateral Contracts Vs Bilateral Contracts

In a Unilateral Contract, there is only one party who

has an obligation to complete the transactions when the contract is concluded i.e., when the other party has already fulfilled his promise.
On the contrary, in a Bilateral Contract, both parties

have obligations to perform or not to perform i.e., refrain from doing something in future.
Bilateral Contracts are similar to executory contracts

and employment contracts are usually bilateral and executory in nature (See Williamsons analysis on Employment Relationship).

Contracted or Connected?
Part II Contractual Connectedness as Applicable to Employment Relationship

Perspectives of Contract
Legal / Rational / Economic View (Weber)
Contracts are seen as

Relational Perspective (McNeil)

Discrete contractual

discrete utilitarian transactions between engaging parties pursuing economic gain

episodes leads to transactions

A series of transactions

lead to relationships with formal as well as informal enforcement and compliance mechanisms and processes which
contribute to the evolution

of the commercial relationship over the long term

Contractual Relationship and Behaviour

Bounded Rationality and Opportunism (Williamson)
Contractual

Machiavellian Manipulation (Joseph)

Contractual behaviour

relationship is a function of the interactive dynamics between bounded rationality and opportunism
This, in turn, creates

the need for appropriate governance

the

of the parties does not always go strictly by the letter of the contract but more often than not can be characterized by Machiavellian manipulativeness.

of

Governance of Contractual Relationship

A combination of economic incentives and

power sharing goes into the governance of contractual relationship

The governance of contractual relationship could

be understood through two paradigms. They are;

Associational Connectedness Communitarian Connectedness

Associational Connectedness

View of Human Resources An association of contracting individuals

Marginal concern to business success Focus on performance over relatively shorter time frame Process orientation through rules/and or procedures driven Authority through hierarchical authority system Responsibility through formal hierarchical demarcation

Communitarian Connectedness

View of Human Resources A community of cohesive individuals and teams

Central concern to business success Focus on performance over relatively longer time frame Process orientation through consensus approach Seat of authority obscure Responsibility through influence and persuasion rather than

control or dominance