CONTRACT LAW

SITUATION ASSIGNMENT
MOHIT LALIT GOGRI
FY L.L.B
ROLL NO: 07
SITUATION - 1
• A company advertises a new herbal spray, claiming it will prevent seasonal
flu and promises to pay anyone $500 if they contract the flu after using the
spray as directed. John follows the instructions but still catches the flu.
When he demands $500, the company refuses, stating it was mere
promotional language.

• Question 1: Does John have a right to the $500 based on a unilateral

contract?

• Question 2: Can the company's advertisement be considered a legally

binding offer rather than mere promotional language?
Does John have a right to the $500 based on a unilateral
contract?

• A contract requires an offer, acceptance, and consideration.

• The company's advertisement directions of the use of the spray as
directed and subsequent flu contraction could be considered a
unilateral offer, promising $500 if specific conditions were met
• John's action to use the spray as directed is a way of acceptance of
the offer and he fulfils his part.
• So Yes, John have a right to the $500 based on a unilateral contract as
the company’s direction were specific, quantifiable and clear.
Can the company's advertisement be
considered a legally binding offer rather than
mere promotional language?
• Sometimes there are brands that are promoting their products or
advertising with exaggerated claims that no person would take
seriously
• But there is a difference between it and enforceable or specific
offer/promises
• Company had clearly state the directions and specifically advertise it
with a prize claim that is reasonable to a common person so there is
no case of “mere puffery”
• In this case the company’s offer is seen more as a promising or
enforceable offer so it is considered to be a legally binding offer than
mere promotional language
Mrs. Carlill v. Carbolic Smoke Ball Co
(1893)
• Carlill v. Carbolic Smoke Ball Co (1893) [1893] 1 QB 256
• The carbolic smoke ball company advertised that buyer who used the smoke ball
as directed but still contracted influenza would received 100 Pounds reward
• Mrs Carlill purchased the smoked, used them as directed and still contracted
influenza
• She claim the reward from the company and the Court of Appeal ruled in her
favor
• The court ruled that this was an enforceable unilateral contract because:
• The promise was specific.
• The company demonstrated intent to be bound by depositing money in a bank.
• The customer fulfilled the conditions by using the product.
SITUATION – 2
• Raj and Riya, a married couple, agree that Raj, who is relocating for
work, will send Riya a monthly allowance to support her living
expenses while he is away. However, after a few months, Raj stops the
payments. Riya sues for breach of contract.

• Question 1: Can Riya legally enforce Raj's promise, or was this a

domestic arrangement without intention to create legal relations?

• Question 2: Could this agreement be seen as a valid contract, or is it

likely to be deemed non-binding in court?
Can Riya legally enforce Raj's promise, or was this a domestic
arrangement without intention to create legal relations?

• For a contract to be legally enforceable there must be offer, promise, lawful

consideration with free consent from both the parties
•In this case,
• Offer: Raj’s agreement to send a monthly allowance.
• Acceptance: Riya agreeing to this arrangement.
•Consideration: Raj paying to Riya is not bind to her providing something
in return (example performing specific actions or following duties) it is
lacking consideration
• So this proves more to be a domestic arrangement without a legal contract
Could this agreement be seen as a valid contract, or is it likely to be
deemed non-binding in court?

• If Riya demonstrate that the both parties intended the agreement to

be legally binding through written documents or provide evidence of
any formal terms like payment schedules , or amounts then it can be
proved that this arrangement was not a domestic arrangement
between families but a legal valid contract
• If she fails to provide it, then the agreement is a invalid contact and it
is likely to be deemed a non-binding in court
Balfour v. Balfour (1919) 2 KB 571
• Facts:
• Mr. Balfour worked abroad in Ceylon (now Sri Lanka)
• While he was away, Mrs. Balfour stayed in England due to health reasons
• Mr. Balfour orally agreed to send her £30 per month as an allowance for her living
expenses
• Later, their marriage deteriorated, and they separated. Mr. Balfour stopped sending the
payments.
• Mrs. Balfour sued for breach of contract, claiming the allowance was a binding agreement
• Judgment:
• Agreements between spouses, particularly those concerning day-to-day domestic
matters, are presumed not to be legally binding unless clear evidence suggests
otherwise.
• The court viewed the agreement as a personal arrangement arising from their
marital relationship, lacking the formality or intent necessary for a contract.
• Mrs. Balfour provided no consideration in exchange for the promise of £30 per
month, further weakening the claim of a binding contract.
SITUATION – 3
• A construction company agrees to complete a residential project by
December. However, due to unforeseen government restrictions on
construction materials during a crisis, the work halts. A buyer demands
that the company either finish the project on time or pay damages.

• Question 1: Can the company argue that the contract is frustrated due
to circumstances beyond their control?

• Question 2: Is the buyer entitled to demand timely completion or

damages despite the external restrictions?
Can the company argue that the contract is frustrated due to
circumstances beyond their control?

• Specific scenario revolves around the topics contractual obligations,

force majeure, and frustration of contract.

• Elements that play a key role in Doctrine of Frustration:

• The government restrictions were not foreseeable at the time of contracting.
• The restrictions make it impossible to procure the necessary materials, halting
construction.

• In this situation company could argue frustration as it is not

responsible for restrictions
Is the buyer entitled to demand timely completion
or damages despite the external restrictions?
• If the company proves it to be under doctrine of frustration and the external restrictions are
beyond the control of the company then the buyer is not entitle to demand timely completion
• In fact the buyer must allow reasonable adjustments to the timeline
• If the contractor delays due to lack of effort to mitigate alternate solutions or raw materials
due to negligence then the buyer can claim damages
• If the delay is due to restrictions that are impossible or out of control then the buyer may not
be entitled to any damages
• The company may be required to perform its obligations unless:
• The contract contains a force majeure clause explicitly covering government restrictions or material
shortages.
• The delays can be justified under the doctrine of impossibility or hardship.
• Without a frustration claim or force majeure clause, the buyer may argue breach of contract
and seek damages or specific performance.
Taylor v. Caldwell (1863) EWHC QB J1, 3 B & S
826, and 122 ER 309.

• The case was decided on May 6, 1863 by the Court of Queen's

Bench.
• The case involved a music hall, The Surrey Gardens and Music Hall,
that burned down a week before the first concert was scheduled to
take place.
• The plaintiffs, Taylor and Lewis, sued the defendants, Caldwell and
Bishop, for breach of contract.
• The court ruled in favor of the defendants, releasing them from their
obligations under the contract.
SITUATION – 4
• A supplier contracts with the government to deliver machinery, with a
clause specifying liquidated damages if delivery is delayed. Due to
issues beyond their control, the supplier is late, and the government
demands the penalty despite no actual loss.

• Question 1: Can the supplier contest the demand for liquidated

damages, arguing that no damage has been proved?

• Question 2: Does the government's demand for liquidated damages

hold if there is no proven loss?
Can the supplier contest the demand
for liquidated damages, arguing that
no damage has been proved?
• Yes, the supplier can contest the demand for liquidated damages
• Liquidated damages are pre-determined sums agreed upon at the time of
contracting, meant to compensate for potential breaches like delays. It is
enforceable without requiring proof of actual loss
• The supplier can contest the demand for liquidated damages, but he will
succeed or not depends on several legal factors such as the use of specific
terms when the contract was form and also the jurisdiction laws of the
liquidated damages.
• Liquidated damages can only be challenged
• if the amount demanded is proportionality high compare to the harm it has caused.
• If the delay is due to uncontrollable circumstances (Force Majeure)
Does the government's demand for liquidated
damages hold if there is no proven loss?
• No, the governments demand for liquidated damages cannot hold as
the supplier may apply Force Majeure clause
• Liquidated damages have a pre-assigned amount for breach of
contract in cases such as Late Delivery,
• But Liquidated damages can be challenged in cases mentioned
previously. In this case the situation is beyond the control of Supplier
so even if there is no proof of actual loss and breach of contract but
due to Force Majeure clause the demand may not hold only if the
supplier proves that the issue which made him late was beyond his
control
Holcim (Singapore) Pte Ltd v. Precise
Development Pte Ltd (2011)
• Holcim had agreed to supply ready-mix concrete to Precise for a construction project.
• The contract contained a liquidated damages clause that required Holcim to pay a
specific amount for each day of delay in supplying the concrete.
• Holcim was delayed in its supply due to a shortage of raw materials caused by
external factors, including the sudden imposition of a government ban on granite
exports from Indonesia.
• Judgement:
• The court upheld the enforceability of the liquidated damages clause.
• It ruled that the clause was a genuine pre-estimate of loss and not a penalty, as it was agreed
upon by commercial parties with equal bargaining power.
• The court noted that Holcim could have foreseen the risk of supply chain disruptions and taken
steps to mitigate it. And so the court rejected the Holcim argument that the delay was excusable
under Force Majeure
SITUATION -5
• A 17-year-old boy takes a loan, using his property as collateral. Later,
he refuses to repay, arguing that the contract is void as he was a
minor.

• Question 1: Can the lender enforce the contract, or is the minor‘s

argument valid?

• Question 2: Does the boy's age at the time of the contract affect its
enforceability under contract law?
Can the lender enforce the contract,
or is the minor‘s argument valid?
• Minor’s argument is valid under most contract laws
• In this case, if the minor successfully voids it then the lender cannot
enforce the contract directly as minor lacks the legal capacity to enter
into binding agreements
• The lender can seek restitution for the loan amount or enforce the
collateral if it is validly pledged under applicable property laws.
• Only if the loan was used for necessities or the collateral agreement
was legally binding, the lender may had a stronger case
Does the boy's age at the time of the contract affect its enforceability
under contract law ?

• For minors the legal capacity to contract is limited

• Contracts entered into by minors are generally voidable at the minor's
discretion
• The minor can either affirm the contract upon reaching the age of
majority (18) or repudiate (void) it without legal liability.
• If the boy misrepresented his age; the contract may still be voidable,
but the boy could be required to return the loan amount under the
principle of restitution to avoid unjust enrichment.
• If the boy does not disaffirm the contract within a reasonable time after
turning 18, he may be deemed to have ratified it, making it enforceable.
Nash v. Inman (1908)
• Nash: A tailor & Inman: a minor
• Contract:
• Nash, the tailor, provided Inman with 11 fancy waistcoats under a contract of
sale.
• Dispute:
• Inman did not pay for the waistcoats, and Nash sued to recover the cost.
• Defense:
• Inman argued that the contract was unenforceable because he was a minor
and that the waistcoats were not "necessaries."
SITUATION-6
• An employer offers a reward for the return of a lost valuable item. His
employee, unaware of the reward, finds and returns the item as part
of his job duties. Later, the employee learns of the reward and claims
it.

• Question 1: Can the employee enforce the reward offer, even though
he was unaware of it at the time?

• Question 2: Is awareness of the reward at the time of the act required

for claiming the reward?
Can the employee enforce the reward offer,
even though he was unaware of it at the time?
• No, the employee cannot enforce the reward offer even though he
was unaware of it at the time
• Offer in contract law requires acceptance, and acceptance must be
made while offeree is aware of the offer
• In this case, the employee did not know about the offer during he
returned the item hence there was no acceptance of the offer
according to the contract law. The act was more of a regular duty
then response of the reward so it does not constitute a valid response
Is awareness of the reward at the time of
the act required for claiming the reward?
• Yes awareness of the reward at the time of the act required for
claiming the reward in cases of unilateral contract
• In unilateral contract, the offeror promises to pay the reward to
anyone who performs a specific art : in this case returning the item
• A person must know about the offer to accept it so the awareness
about the reward is essential. It also ensures that the act is done in
response to the reward rather than out of some motivation
Lalman Shukla v. Gauri Datt (1913)
All LJ 489
• Gauri Datt’s nephew has absconded from his home. He sent his servant
Lalman Shukla to trace his missing nephew.
• When the servant had left, Gauri Datt then announced that anybody who
discovered the missing boy, would be given the reward of Rs.500.
• Lalman Shukla discovered the missing boy without knowing the reward.
When he came to know about the reward, he brought an action against Gauri
Datt to recover the same.
• The Allahabad High Court ruled in favor of Gauri Datt and held that Lalman
Shukla was not entitled to the reward.
• The reasoning was that for a unilateral contract (a reward offer) to be valid, the
person performing the act must be aware of the offer at the time of performing the
act.
SITUATION -7
• A buyer asks a seller if he’d sell his house and for what price. The
seller responds only with the price but does not explicitly agree to
sell. The buyer insists they have an agreement.

• Question 1: Is there a valid contract, or was the seller’s message

merely an invitation to treat?

• Question 2: Does the seller’s response with the price alone imply a
legally binding offer?
Is there a valid contract, or was the seller’s
message merely an invitation to treat?
• A valid contract is formed when an offer is proposed by one party and
accepted by other with a free consent and lawful consideration.
• Invitation to treat is a an expression of willingness to negotiate or
receive offers but it is not an concrete offer in itself. It is just an
indication that one party might be open to receiving offers
• In this situation, seller’s message is clearly an invitation to treat as he
had just mentioned a price to receive offers; but his willingness to sell
was not clear or implied. It is lack of commitment and has no clear
offer to sell the house at the said price
Does the seller’s response with the price
alone imply a legally binding offer?
• No, the seller’s response with the price alone doesn’t imply a legally
binding offer.
• There is a difference between offer and invitation to treat under
contract law
• The price alone is mere invitation to further start negotiations and not
a clear offer to sell something. Before seller’s offer, the buyer would
need to make an offer to purchase, which the seller could accept or
reject.
Harvey v. Facey (1893)
• Harvey (the plaintiff) saw an advertisement placed by Facey (the defendant) for
the sale of a property. The advertisement simply stated that the property was for
sale at a certain price, but did not provide any further details or confirm that the
property was for sale.
• On messages, Harvey asked the price to sell Bumper Hall pen, asking him to
quote the lowest price to which Facey replied 900 pounds. Harvey agreed to buy
the Bumper Hall pen but Facey refused to sell as there was no valid contract
• Judgement:
• The court ruled that merely stating a price does not indicate an intention to be bound by
that price. Facey's response of "£900" to Harvey's inquiry was not an offer but rather an
invitation to treat. It was simply providing information, which could lead to further
negotiation.
• So difference between offer and invitation to treat is essential to understand for such cases
SITUATION -8
• A factory owner contracts with a shipping company to urgently deliver
a broken mill part for repairs, explaining that any delay would halt
production. The shipment is delayed, causing significant losses to the
factory.
• Question 1: Can the factory owner claim compensation for these
losses, given that the shipping company knew the urgency?

• Question 2: To what extent is the shipping company liable for losses

due to the delay?
Can the factory owner claim compensation for these
losses, given that the shipping company knew the
urgency?
• Yes, the shipping company knew the urgency so the factory owner can
claim compensation for these losses
• It comes under Breach of Contract & Consequential damages
• Terms of the contract were implied so the knowledge of urgency and
timely delivery was crucial information that was clearly clarified
between the parties and the shippining company knew about the
losses that will be incurred if the delivery was delayed
• Under Indian Contract Act, 1872, specifically Section 73, when a party
breaches a contract, they are required to compensate the injured
party for the losses directly caused by the breach.
To what extent is the shipping company
liable for losses due to the delay?
• The shipping company’s liability to losses due to the delay will depend
upon the nature of contract, whether the delay was caused by the
shipping company’s fault or whether the losses were foreseeable during
the contract was made.
• The extent of losses will also be depend on the role of external factors
on the delay that are out of control and terms like force majeure or
limitation of liability clauses
• The factory owner may be entitled to full compensation for
foreseeable consequential losses, such as halted production and lost
profits, provided they can prove that these losses were directly linked to
the dela
Union of India v. Dinesh Engineering
Corporation (2001)
• Dinesh Engineering Corporation (the plaintiff) had entered into a contract with the Union of India
(the defendant), which involved the supply and installation of equipment.
• The contract specified a timeframe for the delivery of the equipment, and the work was to be
completed within a stipulated period. But due to delay in delivery Dinesh Engineering Corporation
suffered significant losses including profits and reputational damages
• The plaintiff argued that the delay was due to the defendant's failure to perform its obligations on
time, and sought compensation for the losses suffered due to the delay.
• Judgement:
• The court emphasized that when one party breaches a contract and causes foreseeable
losses to the other party, the breaching party can be held liable for those losses.
• The Court noted that in this case, the delay was a clear breach of the contract, and the losses
suffered by Dinesh Engineering Corporation were directly related to the delay and reasonably
foreseeable at the time of contract formation.
SITUATION -9
• A company sells tires to a wholesaler with a condition that they not
be resold below a set price. The wholesaler sells to another retailer,
who then sells at a lower price. The company wants to enforce the
price clause against the retailer.
• Question 1: Can the company enforce the price clause against the
retailer, even though they are not a party to the original contract?
• Question 2: Does the retailer's sale at a lower price constitute a
breach of the original agreement between the company and
wholesaler?
Can the company enforce the price clause against
the retailer, even though they are not a party to the
original contract?

• No, the company cannot enforce the price clause against the retailer as
the retailer is not bounds by the terms between the wholesaler and the
company
• The company may choose to enforce the price clause against the
wholesaler for selling to the retailer who violates the resale price
condition.
• This would involve breaching the contract with the wholesaler, but not
directly affecting the retailer unless the retailer is part of the breach (e.g.,
if the wholesaler sells at a lower price to the retailer, thereby violating the
company’s agreement).
Does the retailer's sale at a lower price constitute a
breach of the original agreement between the
company and wholesaler?

• No, Retailer’s sale at lower price doesn’t directly constitute a breach

of the original agreement between the company and wholesaler.
• Company can uphold wholesaler for selling to retailer at below the
minimum selling price set by the company only if there was a retail
price maintenance clause in the contract and that the wholesaler
would have breach then it might be held accountable by the company
Modi Enterprises v. Union of India
(1989)
• Facts: Modi Enterprises was a manufacturer that imposed a price maintenance
clause on its dealers to not resell its products below a specific price. The
Monopolies and Restrictive Trade Practices Commission (MRTPC) challenged
this, as it was argued that such price-fixing clauses hindered competition and
resulted in monopolistic practices
• Court's Decision: The Supreme Court ruled that such retail price maintenance
clauses could be considered anti-competitive and restrictive.
• Relevance: This case is relevant because it demonstrates how a manufacturer
(like the tire company in our situation) might struggle to enforce a price clause
under Indian competition law, as such clauses could be viewed as anti-
competitive, especially if they restrict free competition or hinder market
dynamics.
SITUATION -10
• A wealthy individual promises a large donation for a local temple’s
construction. Based on this, the temple committee hires workers and
buys materials. Later, the donor retracts the promise, causing losses
to the committee.

• Question 1: Can the committee enforce the donor’s promise, arguing

it was relied upon?

• Question 2: Does the committee’s reliance on the promise create an

enforceable obligation on the donor?
Can the committee enforce the donor’s
promise, arguing it was relied upon?
• Yes, the temple committee can argue for enforcement of the donor's
promise based on the legal principle of promissory estoppel, even though
the promise may not have been formalized in a contract.
• Promissory estoppel: It is a doctrine that can make a promise enforceable
even if there is no formal contract or no consideration involved, provided
that the promisee has relied on the promise to their detriment.
• Temple committee needs to prove some basic elements:
• A clear and definite promise
• Reasonable reliance to that promise
• Detrimental reliance
• Unjust to allow the donor to retract his promise
Does the committee’s reliance on the promise
create an enforceable obligation on the donor?
• Yes the committee reliance on the promise create an enforceable
obligation on the donor as explained in the previous question under
promissory estoppel
• This doctrine prevents the donor from going back on the promise if
the committee has reasonably relied on it and suffered harm as a
result. The reliance by the committee — such as spending money and
making commitments based on the promise of the donation — can
make the promise enforceable, even without a formal contract.
Indian Oil Corporation Ltd. v.
Amritsar Gas Service (1991)
• In Indian Oil Corporation Ltd. v. Amritsar Gas Service, the Indian Oil Corporation (IOC)
had verbally promised to supply gas to a retailer (Amritsar Gas Service) under certain
terms and conditions. Based on this verbal assurance, the retailer made significant
financial investments in infrastructure (such as setting up storage facilities and
ordering equipment).
• Later, the IOC retracted the promise to supply gas at the agreed-upon price and
imposed different terms, causing a significant financial loss to the retailer. The retailer
sued for breach of promise, asserting that they had relied on the verbal assurance and
made substantial investments as a result.
• Court’s Decision:
• The Supreme Court of India ruled in favor of Amritsar Gas Service, stating that promissory
estoppel applies where a party makes a promise that the other party relies upon to their
detriment. The Court found the actions taken by Amritsar Gas Service, including investments and
orders placed based on the promise, justified the application of promissory estoppel.