Chapter 5: Formation of Agreement: Cases

Legal Aspects of Business, 3rd Edition

Formation of Agreement: Cases

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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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.

Summary
The simplest agreement is also a bundle of offers. These are also called terms of the agreement.

Case: Exchange of Books

Aman brings books and CDs to the cash counter of a self-service store. The girl at the counter enters the details in the computer and declares the amount to be Rs. 2880. Aman pays the money, collects the bag containing the books and CDs, and the change and receipt and walks out of the shop. The backside of the receipt had the following printed on it.

Terms and Conditions

1. Any dispute arising from the goods supplied under the cover of this invoice is subject to Delhi jurisdiction only. 2. Goods once sold will be exchanged and redeemed within 15 days of purchase. Please retain and present your bill (cash memo) for the exchange. Books on Travel, Astrology, Cookery and Magazine would be exchanged at our discretion only. 3. We do not offer guarantee on behalf of the manufacturers of the items sold in our store. 7

Case: Lost Courier Packet

Ramesh sent a courier containing an expensive book. The courier company lost the packet. Ramesh had signed the customers request form. The signed sheet had several terms. The terms were as follows:

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 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 10

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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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7. Queries on consignment should be raised within 30 days from the date 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. 12

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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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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. 3. The following articles will not be accepted for carriage: 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 14 any consequential losses.

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? 2. Who makes the offer? 3. Who accepts it?

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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 enable 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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Case: Readers Offer

The [Link] is an internet site which, among others, sells and auctions goods and merchandise. It puts up newspaper advertisement in the Times of India described as Readers Offer. A person can place an order by calling a phone number. The payment can be made by credit card or cheque pickup. In this arrangement, who makes the offer? Who accept?

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At the bottom of the advertisement, in smaller font, the following is mentioned: By choosing to buy this product you agree to our terms & conditions mentioned @[Link] Standard seller warranty applies. In case of non-shipment within 15 days from the date of realization of payment, order will stand cancelled and payment, if any, will be refunded. Offer valid for TOI readers of Mumbai only.
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The terms and conditions mentioned at the site [Link] include the following: All products/services and information displayed on [Link] Shopping constitute an invitation to offer. Your order for purchase constitutes your offer which shall be subject to the terms and conditions as listed below. [Link] reserves the right to accept or reject your offer. How do these stipulations change as to who offers and accepts? 22

Case: Prospecting to Sell Shares

Ajay says to Jeet, I offer to sell 60 shares of Rubicon Ltd. For Rs. 3 lakhs. Jeet responds, I will get back to you by 5.00 PM but you cannot revoke the offer. Ajay replies, Agreed.

Ajay saw the price of the script go up at the stock exchange. Ajay called Jeet at 3.00 PM and told him he was withdrawing the offer.
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Issues for Exploration

1. How many distinct offers are there between Ajay and Jeet? 2. How many agreements are formed between Ajay and Jeet? 3. Can Ajay withdraw the offer?

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Case: Voluntary Retirement

The nationalised banks came up with a scheme for voluntary retirement of employees. Those meeting the criterion, could apply through proper channel and mark a copy to the head office. Some of the terms of the scheme were as follows: 10.4. A mere request of an employee seeking voluntary retirement under the Scheme will not take effect until and unless it is accepted in writing by the competent authority. 10.5. It will not be open for an employee to withdraw the request made for Voluntary Retirement under the scheme after having 25 exercised such option.

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10.6. The competent authority shall have absolute discretion either to accept or reject the request of an employee seeking Voluntary Retirement under the Scheme depending upon the requirement of the bank. The reasons for rejection of request of an employee seeking voluntary retirement shall be recorded in writing by the competent authority. Acceptance or otherwise of the request of an employee seeking voluntary retirement will be communicated to him in writing.

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Issues for Exploration

1. Identify invitation to offer, offer and acceptance in the case. 2. Identify the parties making the invitation to offer, offer and acceptance. 3. What are the different agreements one can delineate in the case?

4. Can an offer be withdrawn before it is accepted?

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Case: Refrigerator Sale on Approval

Sumit placed a order for refrigerators and gave an advance of Rs. 25, 000. The confirmation of sale at a concessional price was awaited from the head office. Sumit decided to pull out from the sale.

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Case: Provisional Acceptance

July 22, 1970: Announcement of auction Aug 7, 1970: Holding of auction. Oct 30, 1970: DFO explains to Finance Dept on minimum bid Nov 3, 1970: Haridwar Singh communicated to the DFO to take the block for Rs. 95, 000 Nov 27, 1970: Minister sent communication to the DFO in favour of Haridwar Singh After Nov, 1970: Md. Yadub represented to the Govt to take the coupe for Rs. 1,01,125 Minister cancelled the previous order in favour of Hardwar Singh and ordered award to Md. Yadub. Dec 23, 1970: DFO directed M. Yadub to pay security deposit, which he did. 29

Case: Life Insurance

Rajan got examined by a panel of doctors, filled up the form for life insurance and enclosed two cheques for an amount mentioned in the form. The Life Insurance Corporation (LIC) encashed the [Link], Rajan died.

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

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Issues for Exploration

Who makes the offer? Who has set the terms of offer? To whom has the offer been communicated? Who should communicate the acceptance of the offer? To whom should the communication of offer be made? Has the acceptance of offer been communicated? Has the offer been accepted? Has a contract been formed between the parties?
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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.

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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.
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