Chapter 2:

Overview of Contract Law

Legal Aspects of Business,

3rd Edition

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Overview of Contract Law

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 Voluntary and Coercive Actions
Abhay, deciding to go to his office in his car than
by public transport, stopped at a cross-section
when the light turned red. He saw a colleague and
gave him a lift. Later, traffic police demanded
pollution control certificate from Abhay. The validity
of the certificate, which Abhay had, was over.
Abhay was fined Rs. 500 which he had to pay.

Which among the above actions Abhay could not

have avoided?

Which among the above actions of Abhay were

voluntary? 3
 Coercive Actions
• Stopping at the red light

• Producing certificate for inspection

• Paying fine for not possessing proper certificate

The state makes laws and requires compliance, at

the threat of punishment.

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 Voluntary Actions
• Going by car than public transport

• Giving a lift to his colleague

Beyond the impositions of the state and law, people

are free to do what they like. Let us explore this
domain of individual action and interaction.

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 Negotiations
Suman books to buy a car with a motor agency. If
the car is delivered and sold to him beyond two
weeks, he would have to pay Rs. 25, 000 more in
increased price of the car and taxes. The agency
said, “We cannot promise but will try to get it for you
within two weeks.” The car was delivered beyond
the two weeks.

Can Suman hold the motor agency responsible for

paying additional Rs. 25, 000 for the car?

Can he demand the additional money from the

agency? 6
 Agreement
A motor car agency selling motor cars agreed to
supply car of a certain make to Gaurav in a week.
The firm finally supplied him the car five months
later. In the process, Gaurav was required to pay
Rs. 45, 000 more as the price of the car had
increased.

Can Gaurav hold the motor agency responsible for

paying additional Rs. 45, 000 for the car?

Can he demand the additional money from the

agency?
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 Summary
Agreements must be performed by the parties.

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 Consideration and Contract
Dilip, son of an ex-colleague of Avinash, is in
Avinash’s office soliciting money as donation for his
studies. Avinash says, “I can give you Rs. 5, 000.”
Dilip says, “Thank you for this help.”

Raman, a caterer, also comes to Avinash’s office.

He has done the catering for a party hosted by
Avinash the previous evening, celebrating his son’s
birthday. Raman’s bill is for Rs. 10, 000.

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 Consideration and Contract
While Avinash was counting the money to give to
Dilip and Raman, the phone rang. A stockbroker
informed Avinash that he had lost 8 lakhs in a stock
transaction. Avinsh, as he has lost money, refuses
to give any money to Raman and Dilip.

Is there an agreement between Avinash and the

Raman, the caterer? Should Avinash be required to
Raman Rs. 10, 000?

Is there an agreement between Avinash and Dilip?

Should Avinash be required to pay Dilip Rs. 5000?
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 Summary
Consideration is the material benefits parties
transact. Only agreements which have
consideration for both the parties are to be
enforced. Such agreements are called contracts.

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 Offer and Acceptance
Situation 1: Arvind, “I want a Carrier, 1.5-ton air
conditioner. I will only pay Rs. 25, 000, the price
advertised by the company. Will you sell me one
for this price? Maulik, “Yes.”

Situation 2: Arvind, “I want to buy a Carrier, 1.5-ton

air conditioner.” Maulik, “It will be Rs 25,000, sir”.
Arvind, “I will buy one.”

Situation 3: Maulik, “I recommend a 1.5-ton air

conditioner for the size of the room you describe.
Carrier is a good brand. We will sell it to you for Rs
25,000. Arvind, “Fine. I will buy it.” 12
 Offer and Acceptance
Situation 1: Arvind offers Rs. 25, 000 for the AC.
Maulik accepts.

Situation 2: Maulik offers the AC for Rs. 25,000.

Arvind says yes.

Situation 3: Maulik recommends and offers AC for

Rs. 25,000.

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 Summary
An agreement is formed by acceptance of an offer
or proposal. Offer, acceptance and consideration
are the essential elements for formation of a
contract.

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 Contracts with Mischief
Mahim sold Abhay a fake pollution control
certificate for his car. He reassured him that the
traffic police would never be able to make it out.
Abhay was to pay him Rs. 500 for it the next
evening. The same morning Abhay encountered a
special traffic police force checking for the pollution
certificate. The traffic police had one look at the
certificate and declared it to be a fake one. Abhay
had to pay a fine of Rs. 1000. In this context, Abhay
is refusing to pay Rs. 500 to Mahim for the fake
certificate while Mahim is demanding the contracted
amount.

Decide. 15
 Summary
Contracts tainted with illegality should not be
enforced. There could be other similar grounds on
which contracts could be set aside.

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 Compensation
A shop selling motor cars agreed to supply car of a
certain make to Gaurav in a week. The firm finally
supplied him the car five months later. In the
process, Gaurav was required to pay Rs. 45, 000
more as the price of the car had increased.

How can we do justice to Gaurav?

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 Summary
In the cases where a contract is not performed, a
money equivalent can be worked out for the losses,
damages and suffering of the party. The infringing
party can be made to pay this.

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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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