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SIGNED CONTRACTS AND

INCORPORATION OF TERMS
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?
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.


The simplest agreement is also a bundle of
offers. These are also called terms of the
agreement.
LOST COURIER PACKET
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.
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.
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
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.
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.
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.
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.
ISSUES
1. Who has set the terms of offer? – Courier Co.

2. Who makes the offer? – Ramesh by filling the


form and signing it.

3. Who accepts it? – the courier Co. accepts it by


giving the counter foil.

4. What are the liabilities of the courier


company for the lost packet? – the courier Co. is
liable to pay Rs. 100, as the contract is
voluntarily formed and it is for parties to settle
the terms and conditions.
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?
BHARATI KNITTING VS.
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.
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.
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.
•Coercion sec 15: When a person is compelled to enter into a contract by the use of force by the
other party or under a threat, “coercion” is said to be employed. Threat may even be from a
party stranger to the contract. Coercion includes fear, physical compulsion and menace to
goods. A threat to commit suicide amounts to coercion. The contract becomes Voidable at the
option of the party whose consent was obtained through coercion.

•Undue Influence sec 16: A contract is said to be under undue influence where the
relationship subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other, and uses that position to obtain an unfair advantage over the
other. Relationships where undue influence is presumed are (i) Parent and Child (ii)
Religious Guru and Disciple (iii) Doctor and Patient (iv) Solicitor and Client (v) Guardian &
Ward. When a person’s mental capacity is temporarily or permanently affected by reason of
age, illness, or mental or bodily distress. (Case of R S Lodha and Birla family)

•Presumption of Undue Influence: Pardanashin Woman contrary case Imail Mustafa and
Hafis boo.
•Threat To commit suicide

•However, undue influence is not presumed in case of (i) Husband and wife (ii) Landlord and
Tenant and (iii) Creditor and Debtor (iv) Mother and daughter (v) Landlord and tenant.
Impediments to free consent
• Misrepresentation : It is a mis-statement of a material fact made innocently with
an honest belief as to its truth or non-disclosure of a material fact, without any
intent to deceive the other party. (Mileage of vehicle)

• Fraud: When a false representation is made knowingly, it tantamount to a fraud.

• Mistake: Mistake is erroneous belief about something. It may be (i) mistake in


law or (ii) mistake of fact.
• The general rule as regards to the law of the country is “ignorance of law is not an
excuse”

• Mistake of fact may relate to (i) subject matter (ii) possibility of performance (iii)
unilateral mistake (iv) identity of person contracted with or (v) nature of
contract
Justice Denning in a case noted that

• ...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.
INCORPORATION OF TERMS
 Making terms binding on the parties is called incorporation. There
are different modalities through which incorporation happens.
 An agreement formed through a signed offer document is
irrefutably binding on the parties. The party signing the document
first is the offeror and the second is the acceptor.
 An agreement is made orally, impliedly or even by an exchange of
written communication. A party gives notice to the other of the
terms on which the contract is being made. After the formation of
the agreement, the party sends a ticket, voucher, receipt or
acknowledgement documenting the contract, introducing or
mentioning the terms of the contract.
 Prior dealings of parties, frequently dealing with each other, would
have settled some of the terms on which they generally do
business with each other. Importing terms from past agreements
is another means of incorporating terms. This is called ‘terms
arising from course of dealings or trade practices’.
CONTESTING WRITTEN TERMS

 An offer can prescribe the time of its validity.


The offer will get extinguished on the expiry of
that time.
 A long silence implies rejection of the offer.
SUMMARY
 The terms of a signed contract bind the parties to the contract even if
they have not read the terms or are not aware of them.
 Standard Form Contracts are pre-printed forms containing the terms
on which a corporation does business with its customers.
 General Conditions of Contracts (GCC) are standard terms on which a
corporation contracts with other corporations.
 Signing a document fully binds the party to its terms, even if the
person has not read or is not aware of the terms. This is the most
effective means of incorporating terms into a contract.
 Written terms exempting a party from liability or imposing
onerous liability on the other party, which come after a contract
has been formed, for example, as in the case of receipts, tickets
and vouchers, are not binding unless notice of the terms is given
to the party.
 Trade practices, course of dealing or customs are not implied in
contracts dealing with ordinary consumers clauses in contracts.
 Trade practices, course of dealing or customs can be implied in
business-to-business contracts. However, the courts apply the test of
uniformity of practice stringently.
 If a contract is in writing, it is taken that the written contract is the
whole contract. The courts are reluctant to qualify the written terms
with other evidence.
 The parties are free to set their terms. This is called ‘Freedom of
Contract’. Thus, courts do not insert terms.
 ‘Freedom of Contract’, at times, led to injustice for the weaker party. The
British courts addressed this problem by devising the doctrine of
‘fundamental breach’, according to which, an exemption clause could not
negate the very foundation of the contract. (e.g.. If courier company in our
example through its terms and condition tries to exempt itself from
delivering the parcel then it’s a fundamental breach
 The British courts interpreted the exemption terms strictly and were
interested in giving benefit to the weaker party.
 The enactment of the Unfair Contract Terms Act, 1977, by the British
Parliament, removed the need for judicial activism. In India, however, there is
no similar act limiting the impact of exemption clauses in contracts.
ACCEPTANCE, REVOCATION AND
TIME AND PLACE OF CONTRACT
LAPSE OF OFFER

 An offer can prescribe the time of its validity. The offer


will get extinguished on the expiry of that time.
 A long silence implies rejection of the offer.

What constitutes a reasonable period of time is a


question of facts and circumstances.

26
REVOCATION IN CONTRACT ACT
The provisions on revocation in the Indian Contract Act, 1872, are as
follows:
5. Revocation of proposals and acceptances- A proposal may be
revoked (officially cancel a decree, decision, or promise) at any time
before the communication of its acceptance is complete as against the
proposer, but not afterwards.
6. Revocation how made.- A proposal is revoked-
(1) by the communication of notice of revocation by the proposer
to the other party;
(2) by the lapse of the time prescribed in such proposal for its
acceptance, or, if no time is so prescribed, by the lapse of a reasonable
time, without communication of the acceptance;
(3) by the failure of the acceptor to fulfill a condition precedent to
acceptance; or
(4) by the death or insanity of the proposer, if the fact of his death
or insanity comes to the knowledge of the acceptor before acceptance.27
PROVISIONAL ACCEPTANCE
Section 7(1) of the Indian Contract Act, 1872 states:
‘the acceptance must be absolute and unqualified’

Anything short of an absolute acceptance will make the acceptance a


provisional acceptance.

When an offer is provisionally accepted, no agreement is reached, but it


does not extinguish the offer either. It keeps the offer open for the party
to subsequently accept it. A subsequent ‘absolute and unqualified’
acceptance must be made to form an agreement. An undue delay in
making such a communication would extinguish the offer. Also, as the
offer has not been accepted, the offeror is free to revoke the offer.

28
CASE: UNION OF INDIA V. M/S.
BHIMSEN WALAITI RAM
 In an auction to license a liquor shop in Delhi, Bhimsen Walaiti Ram
was the highest bidder.
 He was required to pay one-sixth the bid value within seven days.
 Clause 32 of the auction stated: ‘All final bids will be made subject to
the confirmation by the Chief Commissioner, who may reject any bid
without assigning any reasons.’
 Bhimsen did not make the deposit. The Chief Commissioner did not
confirm the bid made by Bhimsen.
 The Excise Department organised another auction to find a person to
license the shop.
 The new bid, which was accepted and sanctioned, was Rs. 1,81,000
less than Bhimsen’s bid.
 The Excise Department claimed this amount as damages for breach
of contract.
 Bhimsen contested this. 29
JUDGEMENT: SUPREME COURT

“… the contract of sale was not complete till the bid was confirmed by
the Chief Commissioner and till such confirmation, the person whose
bid has been provisionally accepted is entitled to withdraw his bid.
When the bid is so withdrawn before the confirmation of the Chief
Commissioner, the bidder will not be liable for damages on account of
any breach of contract or for the shortfall on the resale. An acceptance
of an offer may be either absolute or conditional. If the acceptance is
conditional, the offer can be withdrawn at any moment until absolute
acceptance has taken place.”

30
REJECTION OF OFFER

• An offer gets extinguished by expressed or


implied rejection.
• An offer should be accepted without changing any
of its terms. Changing the terms makes it an
implied rejection and a counter-offer.

31
CASE: SUPPLY OF KEYBOARDS

• Rajesh wrote to Deep, “We offer to supply you


100 keyboards of TVS Gold make, at the rate of
Rs. 1100 a piece, at your office premises. Kindly
confirm.”

• Deep replied, “We accept your offer. Kindly


supply us 200 keyboards to our office premises.”

• Rajesh replied, “We would not be supplying


keyboards to you.”
32
Cont…

• Deep got back, “As offered by you, kindly supply


us 100 keyboards.”

• Rajesh and Deep are disputing whether an


agreement is formed between the parties.

33
MIRROR IMAGE RULE

• The acceptance should not change any terms of


the offer.

34
MODALITIES OF COMMUNICATION
 Acceptance should be directed and communicated to the
person making the offer.
 An offer can specify the modality of communication of
acceptance. An agreement can be formed by following the
prescribed modality.
 Acceptance must be through the means of communication
indicated in the offer. However, the offeror can waive the
prescribed mode of communication.
 If the offer does not prescribe the modality of communication
of acceptance, the acceptance should be made by a
reasonable means of communication. Reasonableness will be
with reference to the modality of communication employed for
making the offer.
 Silence can only imply rejection, not acceptance.
35
CAR DEALER

• Shanti Sales Ltd. is a car dealer. Pratap, signed


a pre-printed form which was an offer document,
to buy a car. He paid the full price of the car in
advance by cheque. Shanti Sales encashed the
cheque. Pratap got to know from his bank
statement. Pratap assumed that the car was
coming.

36
Cont…
• A week later, however, Shanti Sales Ltd. wrote
to Pratap expressing their inability to supply
the car. They refunded the money by drawing a
cheque. In this while, the price of the cars went up.
To buy the same car, Pratap would have to pay
additional Rs. 25,000. Pratap insists an agreement
got formed between the parties when Shanti Sales
encashed the cheque.
• Decide. – If the offer doesn't provide the modality of
communication of acceptance, the acceptance should be made by
reasonable means of communication. Reasonableness will be
with reference to the modality of communication employed for
making the offer.
• Here the reasonable modality is that Pratap offered to buy the car
by filling a pre printed form and Shanti Sales wrote back to Pratap
expressing their inability to supply the car, therefore enchasing37
the cheque doesn't tantamount to acceptance
CASE: LIFE INSURANCE

• Sumit got examined by a panel of doctors and


submitted the form for life insurance with two
cheques for amounts mentioned in the form. The
Life Insurance Corporation (LIC) encashed the
cheques. Thereafter, Sumit died.

• Sumit’s wife claimed the insured amount but the


LIC claimed that no agreement was formed
between Sumit and the LIC and, thus, it refused
to pay the insured amount to the wife of Sumit.

38
ISSUES FOR EXPLORATION
• Who makes the offer? Sumit,
• Who has set the terms of offer? Insurance company
• To whom has the offer been communicated? LIC, by
filling up the Insurance proposal form
• To whom should the communication of offer be
made? LIC
• Who should communicate the acceptance of the
offer? LIC
• Has the acceptance of offer been communicated?
No
• Has the offer been accepted? No
• Has a contract been formed between the parties?
No 39
JUDGEMENT: SUPREME COURT

• The mere receipt and retention of premium until


after the death of the applicant or the mere
preparation of the policy document is not
acceptance. Acceptance must be signified by
some act or acts agreed on by the parties or
from which the law raises a presumption of
acceptance.

40
JUDGEMENT: SUPREME COURT
• …silence does not denote consent and no binding
contract arises until the person to whom an offer is made
says or does something to signify his acceptance. Mere
delay in giving an answer cannot be construed as an
acceptance, as, prima facie, acceptance must be
communicated to the offeror. The general rule is that the
contract of insurance will be concluded only when the
party to whom an offer has been made accepts it
unconditionally and communicates his acceptance to the
person making the offer.
• In the case of LIC of India Vs. Raja Vasireddy Komallavalli Kamba the
supreme court observed that “no contract is formed between parties
till the insurer communicates to the applicant.”

41
CASE: FELTHOUSE V. BINDLEY
 John had a horse to sell. His uncle, Felthouse, was
interested in buying the horse. The two had talked about it.
 Felthouse wrote to John, “If I hear no more about him, I
consider the horse is mine at £ 30 15s.”
 John was settled on selling the horse to his uncle, but he
did not send any reply.
 John got an auctioneer to sell his property. The auctioneer,
by mistake, sold the horse along with the other property.
 Felthouse contested the authority of the auctioneer to sell
the horse. He argued that a sale contract had got formed
between the parties and as a result, he had become the
owner of the horse, even if it was in possession of John.
 As the horse was not John’s property, the auctioneer was in
the wrong selling it.
42
JUDGEMENT
The court ruled:

It is clear, therefore, that the nephew, in his own mind,


intended his uncle to have the horse at … £ 30 15s.: but he
had not communicated his intention to his uncle, or done
anything to bind himself … there had been no bargain to
pass the property in the horse … and therefore that he had
no right to complain of the sale.

No agreement had got formed as John had not


communicated his acceptance.

43
Communication of Offer
• Indian contract Act, 1872: Section 4, The
communication of a proposal is complete when it
comes to the knowledge of the person to whom
it is made.
• However a contract will be formed when the
offeror would receive the acceptance.
• When parties are face to face, the contract
would be formed at the point of time at which the
offeror hears the acceptance but if the parties
are separated by a distance then the dimension
of place come into contract.
CONTRACT OVER THE PHONE
M/s Girdhalal Purshottamdas and Co., based in Ahmedabad,
made an offer to Kedia Ginning Factory and Oil Mills of
Khamgaon, to purchase cotton seed cake. Kedia Ginning Factory
accepted the offer in the same phone conversation. The contract
could not be performed and parties needed to go to a court to
work out the damages. The case could be filed only in the court of
the area where the contract was made.

Was the contract made in Ahmedabad or Khamgaon?


Hint: Contract is formed at a place where offerror receives
communication of acceptance. The relevance of place is to with
the jurisdiction to decide the dispute on the contract.
PROVISION IN THE CONTRACT ACT
4. Communication when complete.- The
communication of a proposal is complete when it
comes to the knowledge of the person to whom it is
made. The communication of an acceptance is
complete:

- as against the proposer, when it is put in a


course of transmission to him, so as to be out
of the power of the acceptor

- as against the acceptor, when it comes to


the knowledge of the proposer.
IDENTIFY PLACE OF CONTRACT
A makes an offer from New York and B in Delhi
accepts it. Where is the contract made in the
following modalities of communication (assuming
that the contract does not provide on it):

Phone

Letter

Courier

Email
TIME AND PLACE OF CONTRACT
A makes an offer from New York and B in Delhi
accepts it. Where is the contract made in the
following modalities of communication (assuming
that the contract does not provide on it):

Phone – New York

Letter

Courier

Email
TIME AND PLACE OF CONTRACT
A makes an offer from New York and B in Delhi
accepts it. Where is the contract made in the
following modalities of communication (assuming
that the contract does not provide on it):

Phone – New York

Letter - Delhi

Courier

Email
TIME AND PLACE OF CONTRACT
A makes an offer from New York and B in Delhi
accepts it. Where is the contract made in the
following modalities of communication (assuming
that the contract does not provide on it):

Phone – New York

Letter - Delhi

Courier - Delhi

Email
TIME AND PLACE OF CONTRACT
A makes an offer from New York and B in Delhi
accepts it. Where is the contract made in the
following modalities of communication (assuming
that the contract does not provide on it):
•Phone & Tele-conferencing – New York (face to
face, dialogic conversation, the logical rule would
apply)
•Letter – Delhi (Postal Rule)
•Courier – Delhi (Postal Rule)
•Email – Delhi (Postal Rule)
•SMS - Delhi (Postal Rule)
PLACE SPECIFIED
Ramesh signed the offer form for sending a courier
in Ahmedabad. The offer was accepted by the
courier company in Ahmedabad itself. The
consignment was being sent from Ahmedabad to
Pune. The courier company lost the consignment.

The contract provided that all disputes would be


subject to the jurisdiction of the courts in Mumbai.

Which city court would have jurisdiction over the


case?
SUMMARY
 An offer valid for a stipulated time gets extinguished on the expiry of
that time.
 A long silence implies a rejection of an offer.
 An offer can be revoked at any time before the communication of its
acceptance is complete.
 An acceptance with qualifications, riders or conditions is not an
acceptance.
 An offer gets extinguished by express or implied rejection.
 An offer should be accepted without changing its terms. Changing the
terms makes it an implied rejection and a counter-offer.
 Acceptance should be directed and communicated to the person
making the offer.
 An offer can specify the modality of communication of acceptance. An
agreement can be formed by following the prescribed modality.
 If the offer does not prescribe the modality of communication of
acceptance, the acceptance should be made by a reasonable means of
communication. Reasonableness will be with reference to the modality
of communication employed for making the offer.
 Silence can only imply rejection, not acceptance.
 In face to face communication, an agreement is reached when the
person making the offer hears the acceptance. The same rule is applied
to all other modes of communication where communication is
instantaneous and interactive, like telephone, fax and video
conferencing. The place of formation of a contract is where the offeror
received the acceptance.
 In the cases where letters are posted, the agreement is formed when the
acceptance is handed over to the post or courier. The place of
formation of contract is where the acceptor posted the letter.
 One of the courts which has jurisdiction over a contract is that of the
place of formation of the contract. To bring in certainty, written contracts
provide the court(s) which will have jurisdiction over the contract.
 The place of formation of a contract can also decide the law that will
apply to the contract. To bring in certainty, written contracts provide the
law that will apply to the contract.