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TMH Copyright 2010 1


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Chapter 13

T

ime and Place of Contract

TMH Copyright 2010

Chapter 2 to 7Introduction to Contract Law

2


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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 fromcase to case.

Traders assimilated the court decisions either to takeadvantage 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 todo 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 meethis 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 orrejected to quash it.

An offer must be firm, unambiguous and clear.



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cont

Offer and acceptance can be expressed (spoken orwritten in words) or implied in gestures, bodylanguage, actions, commissions and omissions.

Non-written contracts are as valid as writtencontracts.

An agreement is formed on the acceptance of anoffer.



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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

10TMH Copyright 2010


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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.




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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.




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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.




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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 backto us. The amount would be credited to your credit cardaccount.

The customer signed the form and sent it back.




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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 bythe 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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Auction

The last act before the formation of an agreementbetween the auctioneer and Gyan is by the auctioneerin striking the hammer. The auctioneer impliedlyaccepts the offer made by Gyan. Thus, in an auction,if there are no further terms, the bidders offer and theauctioneer accepts.



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Tender



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Tender

Sigma Communications Limited, a call centre, fortransportation of its employees, advertised in thenewspapers informing interested persons to submittenders for supplying two Qualis cars with drivers

for a year. The interested persons were to type in, on asheet of paper the relevant details, including theiraddress and the tender amount. Six persons appliedfor the tender. The tenders were opened in front ofeveryone and the details of the persons and the tender

amount was noted. The bid of Ramesh was thelowest. Sigma, however, changed its mind andawarded the contract to a reputed travel agency.



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Questions for Exploration

Has an agreement been formed between Ramesh andSigma Communications Ltd.?

In the arrangement, who makes an offer andacceptance?



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Price List

A caf in an office campus has displayed a price listdeclaring the price of a sandwich to be Rs. 40. Theaverage sale of sandwich in a day was 100 pieces.

A person demands 200 sandwiches. The caf did nothave the stock to serve 200 sandwiches and thus,declined the request of the customer. The customerclaims that the caf is bound to serve him.

Is the price list an offer? Has the customer acceptedthe offer to gain the right to be served 200sandwiches?



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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 ofsandwiches. The customer claims that the caf isbound 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. Aperson requests the caf for a sandwich. The caf toldthe person that the sandwich would be for Rs. 50 asthe price was raised that morning itself. A newdisplay board was being painted.

The customer claims that the caf is bound to servehim 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 andSunday 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 storerefused 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 particularmake and size with a price sticker in its shop window.

A customer demanded 10 bats. The store had only 3bats and requested the customer to come the nextweek. The customer lives in another city and wascatching 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 particularmake and size with a price sticker in its shop window.

A customer demanded the very bat in the shopwindow as the store was inaugurated by a famouscricketer and he had held the bat in his hand. Thestore is willing to sell a bat of the same description

but not the one put on display. The customer claimsthat the display of the bat with a price sticker in theshop 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 "Ejectorknife - 4s." were printed. Such knives were also calledFlick 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 offersfor sale or hire, or lends or gives to any otherperson aflick knife was punishable with imprisonment and/or afine.



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cont

A visiting police officer examined the knife and assessedit to be a flick knife. The shop owner - Mr. Bell, passingthe onus on manufacturers, said, "Why do manufacturersstill bring them round for us to sell?" The constable, said

to Mr. Bell that he would be reported for offering for salea flick knife. Mr. Bell was prosecuted for offering forsale a flick knife.



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Judgement

I confess that I think most lay people and, indeed, Imyself when I first read the papers, would be inclined tothe view that to say that if a knife was displayed in awindow like that with a price attached; it was not offering

it for sale was just nonsense. It is perfectly clear thataccording to the ordinary law of contract the display of anarticle with a price on it in a shop window is merely aninvitation to treat. It is in no sense an offer for sale theacceptance of which constitutes a contract. That is clearlythe general law of the country. In those circumstances Iam 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 bolddeclarations everywhere in the store:

Goods get sold, once selected and put in thebasket or trolley. The customer has to pay and takeit.

A customer at the stage of billing abandoned a packetof batteries as he did not need it. The store insists hehas 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 animplied acceptance of an offer?

3. When and where does the sale take place, at thecashiers 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, theattendant 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 followingadvertisement 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 storerefused to sell the calculators to Neil stating that it was astorerule that the advertised goods would be sold onlyto 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 withintwo week.

The owner did not get a reply and sold the car to

another person. The prospective buyer is claimingdamages for breach of contract.



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Laptops for sale

A manufacturer of laptops published anadvertisement:

We now offer a new model of laptop for less thanRs. 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 inApril. 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 theshirts. On January, 12 Deep told Asim that he would not

be able to supply the shirts.

When was the agreement made? When were theconsiderations to transact? Can Asim claim damages?



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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 thathe would not be able to supply the shirts.

When was the agreement made? What were theconsiderations to transact? Can Asim claimdamages?



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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 impliedlyshared 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 saleprice.

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 fromthe packet, wrote the price of the book Rs. 2500 andasked 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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3. The following articles will not be accepted for carriage: a. Chemicals and inflammable materialb. 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 Cardsj. Any articles restricted by the IATA



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4. City Express will not provide any insurance coveragefor any consignments sent, even if the value of theconsignment is declared by the sender or required to bedeclared by City Express.

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

6. No compensation or refund will be paid due to latedelivery of this consignment.



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7. Queries on consignment should be raised within 30days 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 theconsignor/consignee immediately on demand.

9. The sender will be entirely responsible for civil and

criminal consequences arising from consigning orattempting to consign any prohibited item listed underclause 3.



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10. Any dispute, controversy or claim arising out ofor 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 insurancecoverage for any consignments sent, even if the valueof the consignment is declared by the sender orrequired to be declared by City Express.

5. The liability of City Express for any loss ordamage to the shipment is limited to Rs. 100/- foreach consignment. Further, City Express will not beresponsible 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 printedforms without reading the terms. Ramesh was noexception. Ramesh contends that there is nomeeting of the minds on the terms. Thus,

according to Ramesh, the terms do not bind himand the courier company should compensate bypaying the full value of the book.

6. Would it make any difference to the liabilities ofthe courier company if clause 5 were not there inthe above terms and conditions?

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Bharati Knitting v. DHL Courier

Bharati Knitting sent important original documentsrelating to an export consignment to a party inGermany with DHL. Only the original documentswould have enabled the party in receiving the

consignment. DHL lost the courier, causing losses toBharati Knitting. Bharati Knitting was demanding theactual losses suffered by it.

DHL made its customers sign a form containing theterms. Clause 5 of the terms of courier had limited theliability 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 negligentin not delivering the consignment and due to thedeficiency in service, the consignment was lost. and because of the negligence, loss has occurred to

the complainant (Bharati). However, we are of theview that the loss has to be restricted as per the termsof the contract. Under clause 5 of the agreed termsthe liability of the appellant for any loss or damage tothe 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 ofUS $ 100.



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Judgement: Supreme Court

a person who signed, a document containingcontract and terms is normally bound by them eventhough he has not read them, and even though he is

ignorant of their precise legal effect.

The only exceptions are obtaining signature bycoercion, 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 stringentclauses exempting the other side from their commonlaw liabilities. If the party affected signs a written

document, knowing it to be a contract which governsthe relations between him and the other party, hissignature is irrefragable evidence of his assent to thewhole contract, including the exempting clauses,

unless the signature is shown to be obtained by fraudor misrepresentation.



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Auction

A company was selling several things, including aused car, by auction. The advertisement for theauction mentioned:

The advertised goods would be sold to the highestbidder.

For the car, there were only two bids. The last bidwas for Rs. 15,000. The company refused to sell thecar 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 ofthe two other large shareholders sent the followingemail:

Kindly send via email by tomorrow evening 5.00PM the price you are willing to pay for the shares.The shares will be sold to the person quoting thehigher price.

The shareholder sold the shares to the lower bidder. Adispute 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 grampack for Rupees 2 a piece with such quantities as they

may order from time to time during January 1, 2008 toDecember 31, 2008.

The Hotel responded to the tender:

We are pleased to inform you that your tender for thesupply 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 offabricating power projects, advertised in thenewspapers informing interested persons insubmitting tenders for supplying heavy duty

industrial pumps. The specifications of the pumpswere mentioned in the advertisement. Interested

persons were to apply in tender document. Thetender 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 theexpected delivery date. The second best bidder, VinayElectrical 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 VinayElectrical 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 area1500 to 2000 sq. ft. on Ground/First Floor with adequate

parking space for opening a new branch. Interested partiesmay send their Technical and Financial Offers in two

separate sealed envelops

The Technical Bid should contain technical specificationslike size, location of the premises, parking area etc. The

Financial Bid should contain Financial aspects of lease ofpremises including expected rent and other terms andconditions of lease.


i


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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 thepremises from April 1. Devendra is not ready to leasethe premises. He claimed he was only prospecting

and exploring different options. A dispute arisesbetween the parties. Decide.


J i L d


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Jupiter Ltd.

Jupiter Trading Ltd., a trading company, required itsmanagers to advertise for tenders and award the contractto the best bidder.

In a tender, a branch manager did not award to the bestbidder, as he feared the best bidder would not be able tomeet the supplies. The second best bidder had suppliedseveral times to the company. The branch manager

awarded the contract to the second best bidder. The bestbidder is aggrieved and claims that he has a right to beawarded the contract. Decide.