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Chapter 2 to 7 Chapter 13 Introduction to Contract Law Time and Place of Contract

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Contract Law is commonsense

Law and Business have been there for long. Courts decided disputes of traders on the basis of commonsense and justice- Common law. Principles formulated by the courts got used from case to case. Traders assimilated the court decisions either to take advantage of them or neutralize their effect.
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Key Themes in Contracts

1. Offer, acceptance and formation of agreements 2. Consideration

3. Setting aside of bad contracts

4. Damages and Compensation

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Chapter 2: Summary
The State, through law, imposes itself on the subjects. The impositions have to be followed. Beyond the impositions of the law, individuals are free to do what they like. Contracts fall within this domain of individual freedom. Consideration is the material benefit that the parties to a contract exchange. Only agreements with consideration are enforceable. Such agreements are called contracts.
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cont
Contracts tainted with illegality or suffering from other vice are not enforced. In the case where a party to a contract does not meet his obligations, the suffering party is awarded damages.

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Chapter 3: Summary
Agreements are formed when two minds become one, that is, the parties are consensus ad idem. An offer can be accepted to form an agreement or rejected to quash it. An offer must be firm, unambiguous and clear.

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Offer and acceptance can be expressed (spoken or written in words) or implied in gestures, body language, actions, commissions and omissions. Non-written contracts are as valid as written contracts. An agreement is formed on the acceptance of an offer.

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The communications preceding an offer can be aimed at soliciting offers. For this reason, these are called invitation to offer.

In understanding any communication, it is not important what the person actually meant (subjective intention) but what the communication would mean to an external, reasonable person (objective viewpoint).
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Everyday Experiences

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 Customer: Give me a cup of tea. Shop: Yes

Are the offer and acceptance express or implied?

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 Customer: Give me two AA Sony batteries. Attendant: Sorry, we are out of stock.

Are the offer and acceptance express or implied?

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 Customer: Give me two AA Sony batteries. The attendant picked up the batteries from a shelf, put it in a bag and gave to the customer. Are the offer and acceptance express or implied?

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 Pre-recorded voice on the customer service of a satellite television service: For the sports add-on package, press 1.

The customer pressed 1 on the phone pad.

Are the offer and acceptance express or implied?

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 A mail to a customer from a credit card company: We are pleased to have sanctioned a loan of Rs.5000 to
you. To avail the loan, kindly sign below and send it back to us. The amount would be credited to your credit card account.

The customer signed the form and sent it back. Are the offer and acceptance express or implied?
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Auction

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Case: Auction
Himalaya Private Limited owns a shopping mall. It advertised in the newspapers for the interested persons to come to its office for an auction of the space for advertising. The auction was conducted by the Administrative Officer of the company. Several bids were made. The last bid was by Gyan for Rs. 1.90 lakhs, followed by the striking of hammer by the Administrative Officer.
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Questions for Exploration

Facts: Advertisement by company. Last bidder Gyan. Striking of hammer by the Administrative Officer.

Who makes the offer? Is the offer expressed or implied? Who accepts it? Is the acceptance expressed or implied? Is there an invitation to offer? When was the agreement formed?
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Auction
The last act before the formation of an agreement between the auctioneer and Gyan is by the auctioneer in striking the hammer. The auctioneer impliedly accepts the offer made by Gyan. Thus, in an auction, if there are no further terms, the bidders offer and the auctioneer accepts.

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Tender

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Tender
Sigma Communications Limited, a call centre, for transportation of its employees, advertised in the newspapers informing interested persons to submit tenders for supplying two Qualis cars with drivers for a year. The interested persons were to type in, on a sheet of paper the relevant details, including their address and the tender amount. Six persons applied for the tender. The tenders were opened in front of everyone and the details of the persons and the tender amount was noted. The bid of Ramesh was the lowest. Sigma, however, changed its mind and awarded the contract to a reputed travel agency.
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Questions for Exploration

Has an agreement been formed between Ramesh and Sigma Communications Ltd.? In the arrangement, who makes an offer and acceptance?

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Price List
A caf in an office campus has displayed a price list declaring the price of a sandwich to be Rs. 40. The average sale of sandwich in a day was 100 pieces. A person demands 200 sandwiches. The caf did not have the stock to serve 200 sandwiches and thus, declined the request of the customer. The customer claims that the caf is bound to serve him. Is the price list an offer? Has the customer accepted the offer to gain the right to be served 200 sandwiches?

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cont
Price list is only an invitation to offer. A person requests the caf for one sandwich. The caf declined to serve him as the caf had run out of sandwiches. The customer claims that the caf is bound to serve him.

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cont
A caf in an office campus has displayed a price list declaring the price of a sandwich to be Rs. 40. A person requests the caf for a sandwich. The caf told the person that the sandwich would be for Rs. 50 as the price was raised that morning itself. A new display board was being painted. The customer claims that the caf is bound to serve him a sandwich for Rs. 40.

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Pamphlet
A retail store published and distributed pamphlets, showing pictures of a popular brand of washing powder: 1 Kg. priced at Rs. 60 is being sold this Saturday and Sunday for only Rs. 40. The store had made a mistake in sending the draft to the printer. It intended to print Rs. 50, not Rs. 40. The store refused to sell at the advertised price while the customers claim the store was bound to sell at the advertised price.
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Shop window
A sports store had put a cricket bat of a particular make and size with a price sticker in its shop window. A customer demanded 10 bats. The store had only 3 bats and requested the customer to come the next week. The customer lives in another city and was catching a flight that evening. He claims he has a right to be given 10 bats. Is the display in shop window an offer from the store?
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Shop window
A sports store had put a cricket bat of a particular make and size with a price sticker in its shop window. A customer demanded the very bat in the shop window as the store was inaugurated by a famous cricketer and he had held the bat in his hand. The store is willing to sell a bat of the same description but not the one put on display. The customer claims that the display of the bat with a price sticker in the shop window is an offer to sell that very piece.
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Fisher v. Bell

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Facts
A knife was put in a shop window- Bells Music Shop, behind which was a ticket upon which the words "Ejector knife - 4s." were printed. Such knives were also called Flick knives. The blade of the knife could be opened by pressing a button on the handle of the knife. The Restriction of Offensive Weapons Act, 1959 provided : Any person who manufactures, sells or hires or offers for sale or hire, or lends or gives to any other person a flick knife was punishable with imprisonment and/or a fine.
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cont
A visiting police officer examined the knife and assessed it to be a flick knife. The shop owner - Mr. Bell, passing the onus on manufacturers, said, "Why do manufacturers still bring them round for us to sell?" The constable, said to Mr. Bell that he would be reported for offering for sale a flick knife. Mr. Bell was prosecuted for offering for sale a flick knife.

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Judgement
I confess that I think most lay people and, indeed, I myself when I first read the papers, would be inclined to the view that to say that if a knife was displayed in a window like that with a price attached; it was not offering it for sale was just nonsense. It is perfectly clear that according to the ordinary law of contract the display of an article with a price on it in a shop window is merely an invitation to treat. It is in no sense an offer for sale the acceptance of which constitutes a contract. That is clearly the general law of the country. In those circumstances I am driven to the conclusion, though I confess reluctantly, that no offence was here committed.
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Case: Self-Service Store

A self-service store put up the following bold declarations everywhere in the store: Goods get sold, once selected and put in the basket or trolley. The customer has to pay and take it. A customer at the stage of billing abandoned a packet of batteries as he did not need it. The store insists he has to take it. Decide.
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Case: Self-Service Store

A customer in a self-service store heaped up his trolley with the entire stock of CDs put on the shelf of a self service store. At the cash counter, the attendant told him he could take only 5 CDs. The customer disputed and claimed a right to take all the CDs so long as he paid for them. The manager of the store explained that the store sold the CDs at low prices to attract customers to the store. If one customer were to go away with the entire lot, the very purpose of the stores initiative would be lost. The customer is insistent that he has a right to take all the CDs. Decide.
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Questions
1. Is the display of goods on the shelves an implied offer? 2. Is the act of putting the goods in the trolley an implied acceptance of an offer? 3. When and where does the sale take place, at the cashiers desk or when the customer selects an item from the shelf and puts it in his trolley?
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Self Service Store

A customer in a self-service store was pleased to see a sticker on a box of detergent declaring the price to be Rs. 200. The product ordinarily sold for Rs. 300. He readily put in his trolley. At the cash counter, the attendant informed him that the store staff had made a mistake in putting the sticker. The price of the box was Rs. 300 only. The customer claims the right to the box for Rs. 200.

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Advertisement by Store
A self service book store published the following advertisement in the local newspapers. Saturday 9 A.M. sharp 3 Axel Calculators worth Rs. 900 First come first serve basis, for Rs. 50 each only Neil was the first one to reach the counter but the store refused to sell the calculators to Neil stating that it was a store rule that the advertised goods would be sold only to students.
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Sale of car
The owner of a car wrote to a prospective buyer: I agree to sell the car to you for rupees two lakhs, to be decided and communicated by you within two week. The owner did not get a reply and sold the car to another person. The prospective buyer is claiming damages for breach of contract.

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Laptops for sale

A manufacturer advertisement: of laptops published an

We now offer a new model of laptop for less than Rs. 30, 000 Contact nearest dealer. Is the statement an offer?

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Sale of Summer Shirts

Deep is the seller of summer shirts and Asim, the buyer. 1000 pieces of summer shirts were to be delivered in April. The parties signed a sale contract on January 10. Consider the following three situations.

Situation 1: Asim was to pay in April, on delivery of the shirts. On January, 12 Deep told Asim that he would not be able to supply the shirts.
When was the agreement made? When were the considerations to transact? Can Asim claim damages?
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cont
Situation 2: Asim was required to pay on signing of the contract. He had paid the money on January 11. On January, 12 Deep told Asim that he would not be able to supply the shirts. When was the agreement made? What were the considerations to transact? Can Asim claim damages?

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cont
Situation 3: Asim was to pay after the summer season, in July. On January 12, Deep told Asim that he would not be able to supply the shirts. When was the agreement made? What were the considerations to transact? Can Asim claim damages?

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Agreements: bundle of offers

A customer utters to a shopkeeper, Give me a Coke. The shopkeeper opens a bottle of Coke puts a straw and gives it to him. What are the details in this transaction impliedly shared between the shopkeeper and the customer?

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cont
1. The buyer will pay cash immediately after finishing his drink. 2. The buyer will not take away the bottle. 3. The price will not exceed the maximum retail sale price. 4. The drink will be cold.
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Summary
The simplest agreement is also a bundle of offers. These are also called terms of the agreement.

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Lost Courier Packet

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Case: Lost Courier Packet

The agent on a printed sheet copied the details from the packet, wrote the price of the book Rs. 2500 and asked Ramesh to sign the form. The agent tore the bottom part of the form, signed it and gave it to Ramesh. The signed sheet had several terms.

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Terms and Conditions

1. The sender must mention the complete postal address with pincode. In addition, the telephone number of the receiver must be mentioned.

2. In the case of a consignment which is not a document, the sender will provide the description of the goods and its value.

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cont
3. The following articles will not be accepted for carriage: a. Chemicals and inflammable material b. Drugs (Narcotics) c. Live Animals and Plants d. Food stuff e. Fire Arms f. Bulk commodity of any description g. Fragile commodities i.e. glass and china h. Currency, Gold, Silver, jewellery and any other precious semi-precious items i. Passport, bearer cheques and Debit Cards j. Any articles restricted by the IATA
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cont
4. City Express will not provide any insurance coverage for any consignments sent, even if the value of the consignment is declared by the sender or required to be declared by City Express. 5. The liability of City Express for any loss or damage to the shipment is limited to Rs. 100/- for each consignment. Further, City Express will not be responsible for any consequential losses. 6. No compensation or refund will be paid due to late delivery of this consignment.
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cont
7. Queries on consignment should be raised within 30 days from the date of dispatch of consignment. 8. Octroi, or any other tax or duty levied on the consignment shall be born by the consignor/consignee. The amount would need to be paid by the consignor/consignee immediately on demand. 9. The sender will be entirely responsible for civil and criminal consequences arising from consigning or attempting to consign any prohibited item listed under clause 3.
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cont
10. Any dispute, controversy or claim arising out of or relating to the contract shall be subject to the jurisdiction of Courts of Mumbai.

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Relevant Terms
4. City Express will not provide any insurance coverage for any consignments sent, even if the value of the consignment is declared by the sender or required to be declared by City Express.

5. The liability of City Express for any loss or damage to the shipment is limited to Rs. 100/- for each consignment. Further, City Express will not be responsible for any consequential losses.

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Issues
1. Who has set the terms of offer? 2. Who makes the offer?

3. Who accepts it?

4. What are the liabilities of the courier company for the lost packet?

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cont
5. People are made to sign on standard printed forms without reading the terms. Ramesh was no exception. Ramesh contends that there is no meeting of the minds on the terms. Thus, according to Ramesh, the terms do not bind him and the courier company should compensate by paying the full value of the book. 6. Would it make any difference to the liabilities of the courier company if clause 5 were not there in the above terms and conditions?

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Bharati Knitting v. DHL Courier

Bharati Knitting sent important original documents relating to an export consignment to a party in Germany with DHL. Only the original documents would have enabled the party in receiving the consignment. DHL lost the courier, causing losses to Bharati Knitting. Bharati Knitting was demanding the actual losses suffered by it. DHL made its customers sign a form containing the terms. Clause 5 of the terms of courier had limited the liability of the DHL in the event of loss of courier to $100.
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Judgement: Consumer Court

It is manifest that the appellant ( DHL) was negligent in not delivering the consignment and due to the deficiency in service, the consignment was lost. and because of the negligence, loss has occurred to the complainant (Bharati). However, we are of the view that the loss has to be restricted as per the terms of the contract. Under clause 5 of the agreed terms the liability of the appellant for any loss or damage to the shipment is limited to the lesser of US $ 100 or the amount of loss actually sustained In this case, therefore, the loss has to be restricted in the sum of US $ 100.
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Judgement: Supreme Court

a person who signed, a document containing contract and terms is normally bound by them even though he has not read them, and even though he is ignorant of their precise legal effect. The only exceptions are obtaining signature by coercion, fraud or misrepresentation.

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Justice Denning in Curtis Case

...people sign printed forms without reading them, only to find afterwards that they contain stringent clauses exempting the other side from their common law liabilities. If the party affected signs a written document, knowing it to be a contract which governs the relations between him and the other party, his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation.

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Auction
A company was selling several things, including a used car, by auction. The advertisement for the auction mentioned: The advertised goods would be sold to the highest bidder. For the car, there were only two bids. The last bid was for Rs. 15,000. The company refused to sell the car to the bidder as it was a ridiculously low price.
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Company shares
A shareholder prospecting to sell his shares to one of the two other large shareholders sent the following email: Kindly send via email by tomorrow evening 5.00 PM the price you are willing to pay for the shares. The shares will be sold to the person quoting the higher price.

The shareholder sold the shares to the lower bidder. A dispute developed with the higher bidder.
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Supply of Soap
Tender of a soap manufacturer: We undertake to supply to Avon hotel soap in 10 gram pack for Rupees 2 a piece with such quantities as they may order from time to time during January 1, 2008 to December 31, 2008. The Hotel responded to the tender: We are pleased to inform you that your tender for the supply of soap to the hotel has been accepted. We will be in communication with you.
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Tender on a Pre-printed Form

Energy Power Ltd., a company in the business of fabricating power projects, advertised in the newspapers informing interested persons in submitting tenders for supplying heavy duty industrial pumps. The specifications of the pumps were mentioned in the advertisement. Interested persons were to apply in tender document. The tender document could be bought from the company for Rs. 5000.

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cont
The documents had provided the complete details of the required pumps. It had also mentioned the expected delivery date. The second best bidder, Vinay Electrical Ltd., was awarded the contract. The best bidder disputes the award. 1. Who is the offeror and the acceptor? 2. Who has set the details of the offer? 3. Can Energy Power Ltd. award the contract to Vinay Electrical Ltd.?
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Case: Premises for a Bank

Sun Bank requires a suitable premise at Rajkot, Gujarat, on lease basis. The premises should be of carpet area 1500 to 2000 sq. ft. on Ground/First Floor with adequate parking space for opening a new branch. Interested parties may send their Technical and Financial Offers in two separate sealed envelops The Technical Bid should contain technical specifications like size, location of the premises, parking area etc. The Financial Bid should contain Financial aspects of lease of premises including expected rent and other terms and conditions of lease.

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Questions
Identify, invitation to offer, offer and acceptance. From whom is tender being sought? What is the significance/ meaning of Technical and Financial bid?

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cont
The advertisement declares: The Bank reserves the right to accept or reject any or all offers without assigning any reasons. What is the significance of this? Would it make any difference if this declaration were not there?

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cont
The Bank settles on the bid by Devendra and writes to him that the bank accepts the offer to lease the premises from April 1. Devendra is not ready to lease the premises. He claimed he was only prospecting and exploring different options. A dispute arises between the parties. Decide.

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Jupiter Ltd.
Jupiter Trading Ltd., a trading company, required its managers to advertise for tenders and award the contract to the best bidder. In a tender, a branch manager did not award to the best bidder, as he feared the best bidder would not be able to meet the supplies. The second best bidder had supplied several times to the company. The branch manager awarded the contract to the second best bidder. The best bidder is aggrieved and claims that he has a right to be awarded the contract. Decide.
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