Contract Law

Acknowledgement
The images/ video clips in the presentations
are drawn from different internet sites. The
copyrights laws grant the right to use any
material for the purposes of classroom
instruction.
 Contract law is
common sense.
It is a popular myth, which lawyers do
little to dispel, that the contract law is a
highly technical matter with mysterious
rules leading to results which are
contrary to commonsense. Nothing could
be further from the truth …

- Justice Donaldson

Warinco A.G. v. Samor S.P.A., [1977] 2 Lloyd's Rep. 582

The reason for the claim is:

Trade has been there

since the rise of civilisation.
Trading from the coast of Gujarat
Indus Valley, 2500-1500 BC
across the Gulf.
Indus Valley trade route
Silk Route, 1 AD Onwards
 Marco Polo Travels
1260-95

Italy
to China by land

via Cochin and Ahmedabad

And back by sea

From the land trade,
Europe knew that
the East was prosperous.

Thus, the expeditions

to India
 Columbus, 1492

Drifted and found America instead

Vasco da Gama, 1497-8
Vasco’s route
Vasco lands in Calicut,1498
Since, world trade expanded
In each region, the traders
developed their laws/principles
to resolve disputes.

The local courts applied these

principles.
Trade was not only of goods but as
much of principles and laws.
Courts in Britain decided disputes of
traders on the basis of trade practices
and sense of justice.
 The law developed was called
common law.

It was common sense as it was

drawn from everyday practices and
not abstract theories.
British took common law
to the Empire.
The common law
was used with
the local laws.
 The industrial revolution
led to economic expansion
and with it of the
common law.
The common law on contracts
was written down as
the Indian Contract Act, 1872.
The principles of contract law
had assimilated
over the centuries.
And now
The businesses have expanded
on the foundations of
the commonsense laws
from the prior centuries.
Thus the assertion:

It is a popular myth, which lawyers do little to

dispel, that the [contract] law is a highly
technical matter with mysterious rules leading
to results which are contrary to
commonsense. Nothing could be further from
the truth …

- Justice Donaldson
 And now,
to the basics of contract law.
 The State, through law,
imposes itself on the subjects.

The law has

to be followed.
Beyond the impositions of the law,
we are free
to do what we like.
 Contracts fall in
this domain of
individual freedom.
 Contracts are
voluntarily formed.
 Two persons agree
when their minds meet.
Meeting of minds
happens through a
communicative process
A B

Agreement

Acceptance
Offer

Agreement on acceptance of offer.

 Agreements in which parties
exchange benefits
are contracts and enforced by law.
The benefits the parties receive
is called consideration.
A B
Agreement

Accepted
Offer: I will
give you a pen
for Rs. 10

The consideration for B is a pen

and for A Rs. 10.
The agreement is a contract.
A B
Agreement

Accepted
Offer: I will
give you a
pen free

There is no consideration for A.

The agreement is not a contract.
It is a gift.
Thus, a contract is an agreement
with consideration for
both the parties.
The parties have to perform
their obligations
under the contract.
 A party in breach
of his obligation
will have to pay damages.
 Exercise

Contracts are voluntary

 Contracts are voluntary
1. Yes 6. Yes
2. No 7. No (Law compels. No choice)
3. Yes 8. No. (Whether it suits or not, the
farmer has no choice.)
4. Yes 9. Yes (Acquisition law not
applied. Farmer is free)
5. Yes 10. No (Law compels. The
motorist has to pay)
 Exercise

Agreement, consideration
and contracts
 Agreement, consideration and
contracts
1. Yes 6. No. (Consideration-
Government has to display.)
2. Yes 7. Yes (No consideration for the
company.)
3. Yes 8. Yes. (Consideration, £1)
4. Yes 9. Yes
5. Yes 10. Yes
Communications
and Contracts
 We communicate
through action, gesture,
speech and writing.
A contract can be formed
through any means of
communication.
 Communications in words
(spoken or written)
are express communication.

Examples
email
 Others are
implied communications.
 Communication

Express Implied

Not in words-
In words (written or Action, expression
spoken) and gesture
 Implied Communication:
facial expressions, gesture,
and action.

Examples
 Exercise

Contracts and commnications

 Contracts and communications
1. No. 6. No. (Contracts can be formed
by any means of communication)
2. Yes 7. Yes
3. Yes 8. No. (It is a contract)
4. Yes 9. No. (Contract got formed on the
phone on acceptance of the offer.)
5. No 10. No. (Contracts can be formed
by any means of communication)
 Exercise

Communication of Offer:

Express and implied

 Offer: Express and Implied

1. Express 6. Express

2. Express 7. Express

3. Express 8. Express

4. Implied 9. Express

5. Implied 10. Implied

 Exercise

Communication of acceptance:

Express and implied

 Acceptance: Express and Implied

1. Express 6. Implied
(Activation)
2. Implied 7. Implied
(Act of Giving) (Hammer- No words)
3. Implied (Nod) 8. Express
4. Implied 9. Express
(Giving the key)
5. Express 10. Implied
 Communication: Subjective v.
Objective

Subjective
Objective
intentions
manifestation
Known only to
oneself
What others get
 Do we go with:
Subjective or Objective?

√
Subjective Objective
intentions manifestation
 Only objective viewpoint
is taken as communication.
 Communication

Subjective Objective

Our inner intentions Meaning given by a

reasonable person
‘I do not want to hear’ even if she
intends dialogue in her inner mind.
‘No’, even if he intends ‘yes’
in his inner mind.
‘Bored’, even if he is interested
in his inner mind.
Nod conveys yes and not ‘no’.
The sign means go right
even if she intended go left.
The action conveys permission.
A cheque for $ 975
even if he thinks in his inner
mind that he is signing for $795
 Exercise

Subjective and Objective intention

Subjective and objective intention
1. Nod (meaning yes)
2. Signed document (Acceptance of
the terms)
3. Rs. 4500, the price he wrote
4. Pressing on 2 (Acceptance)
5. Sending of request (Acceptance)
An offer if accepted
leads to a contract.

Offer is a
serious matter.
For a communication to be an offer:

- It must be clear and definite

- The offeror must intend to bind

himself
Communications soliciting
offer are called

‘invitation to offer’.
Only announcing flights and fare.
Invitation to offer.
Invitation to offer
Invitation to offer
Invitation to offer
 Use of the word ‘offer’
does not make a communication
an offer.
While the following sms from a credit
card company could be an offer:

Reply ‘yes’ to increase your credit limit to

Rs. 120,000.
The communication is an offer.
 Exercise

Offer and
Invitation to Offer
1. Offer
2. Invitation to offer
3. Invitation to offer
4. Offer
5. Offer
6-10. Invitation to offer
 Exercise

Offer, Acceptance and

Formation of agreement
 1. Customer at a shop

Is a contract made? Yes

Who offers? The customer

What is the offer? I offer to buy four Sony AAA

batteries for Rs. 40.
Is the offer express or implied? Express

When was the contract formed?

When the shopkeeper replied: ‘Definitely
Is the Acceptance express or implied? Express
 2. Customer at a bakery

Is a contract made? Yes

Who offers? The shop

Is the offer express or implied? Implied

To buy the whole wheat bread at
What is the offer?
the usual regular price.

When was the contract formed?

When the customer picked up the packet
Is the acceptance express or implied? Implied
 3. On the phone for a pizza

Is a contract made? Yes

Who offers? The customer

What is the offer? ‘I offer to buy one large, farm

fresh, deep pan pizza for Rs. 500.’
Is the offer express or implied? Express

When was the contract formed?

When the store replied: ‘Your order is confirmed’
Is the Acceptance express or implied? Express
 4. Vegetable vendor

Is a contract made? Yes

Who offers? The customer

What is the offer? I offer to buy one Kilo tomatoes

for Rs. 60.’
Is the offer express or implied? Express

When was the contract formed?

When the vendor nodded
Is the Acceptance express or implied? Implied
 5. Mobile phone company

Is a contract made? Yes

Who offers? The customer

What is the offer? The content of the signed form.

Is the offer express or implied? Express

When was the contract formed?

When the company activated the service.
Is the Acceptance express or implied? Implied
1.
Who offer? The Customer

What is the offer? ‘Sell me four Sony AAA

batteries for Rs. 40’

Is the offer express or implied? Express

Thank you
1.
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1.
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