Non Circumvention and Fee Protection Agreements

The research methodology adopted herein is the Doctrinal methodology of research.The sources of information for the project is primarily various books, obtained from the NALSAR Law Library. The other source for information is the World Wide Web, which was accessed through the Internet Center.

chapter 1 : introduction

The term contract is defined in section 2(h) of the Indian contract act 1872 as follows “A contract is an agreement enforceable by law”. In other words an agreement between two or more parties creating obligations that is enforceable or otherwise recognizable at law [1] .

Section 10 of the Indian contract act 1872 defines a contract as “All agreements are contracts if they are made by the 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. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents”.

There are three main requisites for the creation of a contract they are namely an agreement, contractual intention and consideration .the normal test for determining whether the parties have reached an agreement or not are to ask whether an offer has been made by one party and accepted by another. [2] Sometimes even when an agreement is reached it may fail to give rise to a binding contract because it is not complete, or not sufficiently certain.

The objective test is applied by the courts when deciding whether the parties have reached an agreement .under this test once the parties have to all outward appearances agreed in the same terms on the same subject matter, then neither can rely on some constrained requirement or reservation to show that he had not in fact accepted the terms which he had appeared to agree. Such subject reservations of one party therefore avert the formation of a contract.

CHAPTER 2 ESSENCE OF A CONTRACT

The essential of a contract are

Proper offer and proper acceptance.

Lawful Consideration.

Capacity.

Free Consent.

Lawful Object and Agreement

Parties to the contract are competent

2.1 agreement

An agreement is defined as “every promise and set of promises, forming consideration for each other is an agreement”. [3] every promise is an agreement , so is every set of promises forming consideration for each other ,relates to the words ‘set of promises’ and does not qualify ‘every promise’ therefore a promise is an agreement without consideration [4] .

The two main components of an agreement are offer and acceptance . an agreement to comes into existence when there is an offer on the part of the offeror and there acceptance on the part of the offeree.

Offer:

A proposal is an expression of will or intention to do or not to do something. A proposal otherwise known as an offer is one of the basic components of an agreement .when a proposal is accepted it amounts to acceptance .Section 2 (a) of the Contract Act defines the proposal as “when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other, to such act or abstinence, he is said to make a proposal”. The person making the proposal is called the proposer or offeror or the promisor and the person to whom the proposal is made is called the offeree or promisee.

for example; Sakshi offers to sell her car to Priya for Rs. 50000. This is a proposal. Sakshi is the offeror and Priya is the offeree.

An offer may be express or implied. An offer which is expressed by words, written or spoken, is called an express offer. [5] An offer which is expressed by conduct is called an implied offer. An offer may be positive or negative.

Essentials of a valid offer:

1. A valid offer must intend to create legal relations [6] . It must not be a informal statement. If the offer is not intended to generate legal relationship, it is not an offer in the eyes of law.

an offer to perform social, religious or moral acts without any intention of creating legal relations will not be a valid offer.

2. The terms of an offer must be definite, unambiguous and certain. [7] They must not be loose and vague.

3. An offer may be made to a definite person or to the general public [8] . “A specific offer [9] can be accepted only by that person to whom it has been made and a general offer [10] can be accepted by any person

4. An offer to do or not to do must be made with the aim of obtaining the assent of the other party. Mere enquiry is not an offer.

5. An offer should may contain any term or condition. Under sec 7 of the Indian contract act 1872 ,The offeror may prescribe any mode of acceptance [11] But he cannot prescribe the form or time of refusal so as to fix a contract on the acceptor moreover he cannot say that if the acceptor does not communicate his acceptance within a specified time, he is deemed to have accepted the offer.

6. The offeror is free to lay down any terms any terms and conditions in his offer.even if the terms and conditions laid down are arbitrary , If the other party accepts it, then he has to abide by all the terms and conditions of the offer. The special terms or conditions in an offer must be brought to the notice of the offeree at the time of making a proposal.

7. Communication is essential in a offer whether it be a general offer of specific offer . if there is no communication , the offer isn’t valid.The offeror may communicate the offer by choosing any available means such as a word of mouth, mail, telegram, messenger, a written document, or even signs and gestures. Communication may also be implied by his conduct. A person can accept the offer only when he knows about it. If he does not know, he cannot accept it. An acceptance of an offer, in ignorance of the offer, is no acceptance at all [12] .

Acceptance

Acceptance is a final and unqualified expression of assent to the terms of an offer [13] . Sec 2(b) of The Indian contract Act 1872 defines acceptance as “when the person to whom the proposal is made signifies his assent , thereto the proposal is said to be accepted .”thus acceptance is the assent given to a proposal and it has the effect of converting a proposal into a promise [14] .

It is no defense to an action based on a contract for the defendant to state that he never anticipated that he would be bound by the agreement if under all the circumstances it is shown at trial that his conduct was such that it communicated to the other party or parties that the defendant had in fact agreed. Signing of a contract is one way a party may show his assent. on the other hand, an offer consisting of a promise to pay someone if the latter performs certain acts which the latter would not otherwise do ,for example paint a house ,it may be accepted by the requested conduct instead of a promise to do the act. The performance of the requested act indicates objectively the party’s assent to the terms of the offer.

The important necessity is that there be evidence that the parties had each from an objective perspective engaged in conduct manifesting their assent. This manifestation of assent theory of contract formation may be contrasted with older theories, in which it was sometimes argued that a contract required the parties to have a true meeting of the minds between the parties. Under the “meeting of the minds” theory of contract, a party could resist a claim of breach by proving that although it may have appeared objectively that he intended to be bound by the agreement, he had never truly intended to be bound [15] . This is unsatisfactory, as the other parties have no means of knowing their counterparts’ undisclosed intentions or understandings. They can only act upon what a party reveals objectively to be his intent. Hence, an actual meeting of the minds is not required [16] .

This requirement of an objective perspective is important in cases where a party claims that an offer was not accepted, taking advantage of the performance of the other party.

Communication of acceptance

Communication of acceptance is dealt with under sec 3 and sec 4 of the Indian There are several rules dealing with the communication of acceptance: [17]

* The Acceptance Must Be Communicated: Based on the construction of the contract, the acceptance may not have to come until the notification of the performance of the conditions in the offer as in Carlill’ v carbolic smoke ball company case, but nonetheless the acceptance must be communicated. An offer may be withdrawn prior to acceptance

* An offer can only be accepted by the offeree, that is, the person to whom the offer is made.

An offer is not bound if another person accepts the offer on his behalf without his authorization.

* It may be implied from the construction of the contract that the offeror has dispensed with the requirement of communication of acceptance

*under sec 7 of the Indian contract act 1872, If the offer specifies a method of acceptance (such as by post or fax), you must accept it using a method that is no less effective than the method specified [18] .

* Silence cannot be construed as acceptance: [19]

2.2 LAWFUL CONSIDERATION

Consideration is an essential element for the formation of a contract .Sec 2(d) of the indian contract act 1872 , when at the desire of the promisor , the promisee or any other person has done or has abstained from doing or does abstains from doing or promises to do or abstain from doing something such an act or abstinence or promise is called a consideration for the promise .

In other words, it may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. In a bilateral contract,an agreement by which both parties exchange mutual promises,each promise is regarded as sufficient consideration for the other. In a unilateral contract, an agreement by which one party makes a promise in exchange for the other’s performance, the performance is consideration for the promise, while the promise is consideration for the performance. [20]

Consideration must have a value that can be objectively determined. [21] A promise, for example, to make a gift or a promise of love or affection is not enforceable because of the subjective nature of the promise.

2.3 PARTIES TO THE CONTRACT ARE COMPETENT

Not only must there be a legal object to a contract, but there must be competent parties. Competent persons are those who have the power and capacity to enter into the formation of valid contracts. Sec 11 and sec 12 deal with competence of parties to the contract.

Corporations may make contracts in furtherance of the purposes for which they are organized. This power need not be expressly granted. Contracts not within the scope of the purposes for which the corporation is organized are said to be “ultra vires.” There is considerable difference of opinion over the question of how far such contracts will be enforced, when they have been partly performed [22] . Aliens may generally contract the same as citizens; contracts with alien enemies are, as a rule, absolutely void. As regards other persons there are generally two restrictions,

persons lacking mental capacity [23] ;

persons lacking legal capacity, though they may have mental capacity. Persons lacking mental capacity are lunatics, idiots and drunkards [24] .

Contracts with such persons, except for necessaries furnished in good faith and under justifiable circumstances, are either voidable or void. To be able to evade a contract made while intoxicated, a person must have been so much intoxicated as to have been unable to understand and appreciate the nature of his acts. Insane persons, provided they recover their reason, may ratify contracts made while in their former condition. Persons lacking legal capacity to contract are infants [25] and, in some jurisdictions, married women. In many States women become of age when eighteen, and in some prior to that time if married. Contracts made during infancy are voidable and not void that is, they may be evaded by the infant but not by the other person, who is not allowed to plead the infancy of the former as a reason for not fulfilling his part of the agreement. They may be avoided by the infant even after he becomes of age. Infants, however, are liable for necessaries furnished them – but only for their fair value [26] . Necessaries include not only the bare necessities of life but those things necessary to the infant to maintain his station in life. To recover against an infant the plaintiff must show [27]

that the articles were in fact necessaries;

that the infant was not already supplied with them;

their reasonable market value. When an infant repudiates a contract he must repudiate the whole contract; he cannot accept one part and escape the rest. Ratification of contracts by the infants is permitted however, after becoming of age, the infant either promises to perform what he has agreed to do, or does some act from which such promise can be implied. Under the old common law married women could not contract at all; all contracts made by them were absolutely void. Modern legislation, however, has greatly enlarged everywhere their power and capacity to contract. In general a married woman may now contract as fully as a single woman, and may sue and be sued apart from her husband.

CAPACITY

The Indian Contract Act vide Section 10 stipulates that the parties to a contract must be competent to contract. Section 11 of the said Act determines persons who are competent to contract. It states “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.” [28]

It can thus be determined that the following persons are incompetent to enter into any agreement:–

any minor

any person of unsound mind

any person disqualified by law to which he is subject.

The age of majority has been determined by the Indian Majority Act, 1875 which states “Every person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years, and not before. In the case, however, of a minor of whose person or property or both a guardian has been appointed by a court, or of whose property the superintendence is assumed by a court of wards, before the minor has attained the age of eighteen years, when he has completed the age of 21 years. [29] ”

Section 12 of the Contract Act determines when a person is said to be of sound mind. It states “A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. A person, who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person, who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.”

2.4 FREE CONSENT.

Sec 13 to sec 22 of the Indian contract act deals with free consent . sec 14 defines free consent as “ A consent is said to be free when it not caused by coercion(sec 15) or undue influence(sec 16 ) or fraud (sec 17 ) or misrepresentation(sec 18 ) or mistake(sec 20-22)”

2.5 LAWFUL OBJECT AND AGREEMENT

Sec 23-30 of the Indian contract act 1872 deals with lawful obejects .An agreement to be an enforceable contract must contemplate the attainment of an object not expressly forbidden by law nor contrary to public policy [30] . For example: An agreement for the sale of realty to be used expressly for the sale of alcoholic beverages is unenforceable as its object is contrary to law. So also an agreement by which A, a confirmed woman hater, promises B a house for B’s promise never to marry, is against public policy, as discouraging marriage, and therefore unenforceable

CHAPTER 3: NON CIRCUMVENTION AGREEMENT

A non circumvention agreement is defined as An international trade instrument; “non circumvention/non disclosure agreement” used in the preliminary stages of a business transaction where the Seller and Buyer do not know each other, but are brought into contact with each other by one or more intermediaries (also known as brokers or middlemen), to fulfill the transaction” [31] .

Non Circumvention/Non Disclosure Agreements ensure that the intermediaries in the transaction are not circumvented and excluded from the transaction by the Buyer and/or Seller and/or the other intermediaries. Many trade transactions are chain-like. Product flows like this: seller-broker-broker-broker-buyer. The brokers in the middle use NCNDs to ensure that they are not circumvented by anyone else in the chain; also, to ensure that information on the other parties in the chain is not disclosed to outside parties. They are valid for a specified term; usually two years [32]

Non circumvention agreements are similar to nondisclosure agreements otherwise called as confidentiality agreements are contracts intended to protect information considered to be proprietary or confidential. While executing a non circumvention agreement the parties involved in the agreement promise not to divulge secret or protected information disclosed during employment or other business transactions. For example, such an agreement is appropriate for prohibiting others from disclosing a new design, an idea for a new Web site, or confidential material contained in a copyrighted software program.A court can stop the person who violates a non circumvention agreement and discloses confidential information,from making any further disclosures and may award monetary damages.

Noncircumvention agreements can protect any type of trade secret or any information not generally known, providing a competitive advantage. However, the use of non circumvention agreement is not an end in itself. The purpose of these agreements is to create a confidential relationship between one person who has a trade secret and another to whom the secret is disclosed [33] .

Parties can also establish a confidential relationship casually, either through an oral agreement or through the conduct of the parties. Few people rely on such informal arrangements, however. A one-way agreement is used when only one party is making a disclosure—for example, when a secret is explained to a contractor or investor.

A company may need an employee to sign a nondisclosure agreement or modify an agreement furnished by the employee. Generally, it does not matter who formulates the nondisclosure agreement, so long as it contains the basic elements limiting disclosure.

Five Important Elements in a Nondisclosure/non circumvention Agreement [34]

definition of confidential information

exclusions from confidential information

obligations of receiving party

time periods

miscellaneous provisions

Nondisclosure agreements typically exclude certain information from protection. Usually, these exclusions cover information created or discovered by the receiving party prior to (or independent of) any involvement with the other party. Unless agreed upon otherwise, the receiving party has no obligation to protect this excluded information.

On the other hand, the receiving party generally must hold and maintain the protected information in strict confidence and limit its use. Under most state laws, the receiving party cannot breach the confidential relationship, induce others to breach it, or induce others to acquire the secret by improper means. Most businesses accept these contract obligations without discussion.

Some agreements require the receiving party to uphold secrecy of the information for a period of years. Five years is a common length, though the time period can be negotiated. eventually, the length of time decided upon depends on the relative bargaining power of the parties.

CHAPTER 4 : FEE PROTECTION AGREEMENT

The Fee Protection Agreement and non circumvention and non disclosure agreement usually go hand in hand. As an intermediary beware of anyone claiming to be the Mandate, Seller or Buyer while at the same time requesting Fee Protection Agreement and Non Circumvention –Non Disclosure agreements. A real mandate fears no circumvention because his interests are protected by the one extending a mandate to him. An intermediary may be circumvented, with ease if he is incompetent. Fee protection agreement / Non Circumvention-Non Disclosure agreement is not the proper way to protect broker’s interests [35] .

CONCLUSION

Thus contract law helps make agreements (offer and acceptance) created with a legal intention, lawful object, consideration and competent people enforceable by law. Contract law is used in various fields. In this project the use of contract law in protection of trade secrets has been shown. A non circumvention agreement where contract law is applied refers to an agreement. Is a type of agreement often surfaces in international contracts between buyers and sellers of product Its intention is to ensure non circumvention and protect the relevant person by reference to a bank . it is not always entirely effective and the desired result can be achieved by a simple form bank guarantee or injunction to a bank to make a relevant payment.

Non Circumvention, Non Disclosure Agreement. In the first instance it is not worth the paper on which it’s written as the document is notoriously hard to enforce and adjudicate against. The reference NCND is a sure sign that one is dealing with a missinformed intermediary/broker of some sorts. Contract law has also been applied to fee protection agreements in this project , fee protection agreement utislise contract law . a fee protection agreement protects the rights of the broker in international agreements .thus contract law plays a very vital role in the international scenario where buyers and seller come and exchange goods .