Landmark Judgement In Contract Law

OFFER

1. Communication of Offer

Lalman Shukla v Gauri Dutta

Defendant’s nephew absconded from home. He sent his servant in search of the boy. After servant left, defendant declared prize money which was not known to servant. Servant came back with boy and asked for prize money.

The Court held that an offer cannot be accepted unless it has been brought to the knowledge of person to whom it is made.

1. Difference b/w invitation to offer and offer

Havey v Facie

The plaintiffs telegraphed to the defendants, writing, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price”. The defendants replied, by another telegram, “Lowest price for Pen, £ 900”. The plaintiffs immediately sent their last telegram stating, “We agree to buy Pen for £ 900 asked by you”. The defendants, however, refused to sell the plot of land at that price. The court observed that the defendants gave only the lowest price and did not expressed his willingness to sell.

The Court held that letter quoting lowest prize is invitation to offer and not offer.

Harris v Nickerson

The defendant was an auctioneer who had advertised in the London papers that certain brewing materials, plant and office furniture would be sold by him by auction at Bury St. Edmunds over a period of three specified days. The plaintiff was a commission broker in London, who attended the sale on the final day (on which it had been advertised that the office furniture, which he had commission to purchase, would be sold). However, on that day, all the lots of furniture were withdrawn by the defendant.

The claimant sought to recover his expenses and the time which he had wasted in attending the auction from the defendant, arguing that the withdrawal of the lots was a breach of contract which had been formed by the offer made by the defendant in the advertisement, and accepted by the claimant in attending the auction.

The issue was whether the advertisement placed by the defendant was a legally binding offer of sale, which had been accepted by the claimant’s attendance at the auction, forming a completed contract?

The court, dismissing the claimant’s case, held that the advertisement was merely a declaration to inform potential purchasers that the sale was taking place. It was not an offer to contract with anyone who might act upon it by attending the auction, nor was it a warranty that all the articles advertised would be put on sale. As such, it did not legally bind the defendant to auction the items in question on any particular day.

1. General Offer

Carlil v Carolic Smoke Ball

The defendant, the Carbolic Smoke Ball Company, placed an advertisement in a newspaper for their products, stating that any person who purchased and used their product but still contracted influenza despite properly following the instructions would be entitled to a £100 reward. The advertisement further stated that the company had demonstrated its sincerity by placing £1000 in a bank account to act as the reward. The claimant, Mrs Carlill, thus purchased some smoke balls and, despite proper use, contracted influenza and attempted to claim the £100 reward from the defendants. The defendants contended that they could not be bound by the advertisement as it was an invitation to treat rather than an offer on the grounds that the advertisement was: mere ‘puff’ and lacking true intent; that an offer could not be made ‘to the world’; the claimant had not technically provided acceptance; the wording of the advert was insufficiently precise; and, that there was no consideration, as necessary for the creation of a binding contract in law.

Whether the advertisement in question constituted an offer or an invitation to treat?

The Court of Appeal found for the claimant, determining that the advertisement amounted to the offer for a unilateral contract by the defendants. In completing the conditions stipulated by the advertisement, Mrs Carlill provided acceptance. The Court further found that: the advertiser’s himself claim sincerity in his assertion. An offer could indeed be made to the world at large.

INTENTION TO CREATE LEGAL RELATIONSHIP

Balfour v Balfour

A husband promised to pay his wife a £30 per month allowance. The wife sued her husband to enforce the promise.

The Court held that agreements between husband and wife to provide monies are generally not contracts because generally the “parties do not intend that they should be attended by legal consequences.”

Jones v Padavattan

A mother agreed with her daughter that if she would give up her job and study in England, the mother would pay maintenance. The mother gave monthly payments of 42 pounds and then bought a London house where she lived in and rented out. Then they had a quarrel. Mother brought an action for possession of the house. The daughter argued there was a binding contract that she could stay.

The Court held that it is not binding contract but mere family arrangement.

ACCEPTANCE

1. Communication of acceptance

Felthouse v Bindley

A person want to buy the horse from his nephew. After a letter from the nephew about a previous discussion regarding buying the horse, the uncle replied,”If I hear no more, from him I consider the horse mine at £30 and 15s.”

The nephew did not reply. He told the man running the auctions, William Bindley, not to sell the horse. But by accident, Bindley did.

The court ruled that the plaintiff did not have ownership of the horse as there was no acceptance of the contract. Acceptance must be communicated clearly and cannot be imposed due to silence of one of the parties.

Brogden v Metropolitan Railway Company

B had supplied the Company with coals for a number of years. B then suggested that a formal contract should be entered into between them for longer term coal supply. Each side’s agents met together and negotiated. Metropolitan’s agents drew up some terms of agreement and sent them to B. B wrote in some parts which had been left blank and inserted an arbitrator who would decide upon differences which might arise. He wrote “approved” at the end and sent back the agreement documents. Company’s agent filed the documents, put it in the drawer and did nothing more. For a while, both acted according to the agreement document’s terms. But then some more serious disagreements arose, and B argued that there had been no formal contract actually established.

The Court said that the conduct of the company’s agent in keeping the agreement in his drawer was an evidence of the fact that he had mentally accepted it. The mere fact of retaining the draft was not a sufficient acceptance. But the subsequent conduct of the parties in supplying and accepting coal on basis of the proposed agreement was a conduct of the parties in supplying and accepting coal on basis of the proposed agreement was a conduct that evidenced or manifested their intention. The court held that final acceptance was clearly given.

Hindustan Insurance Co. v Shyamsunder

The proposor at the request of an organizer of the company verbally agreed to insure his life on an endowment policy. The organizer said him that if he submitted the proposal form and deposited the half-yearly premium without delay the company would accept his life for insurance and would issue a policy promptly. The proposal from was filled in, and was signed by the proposor and made over to the organizer with the cheque of first premium. The company encashed the cheque and just after few days the proposor died. The deceased dependents sued for the compensation.

The Court held that the company by cashing the cheque and appropriating the money accepted the proposal. No communication was necessary to be made to the assured to complete the acceptance. The contract was made at the moment the money was appropriated. It was a concluded contract.

1. Communication must be in form of method prescribed

Elliason v Henshaw

E sent a letter by wagon to H offering to buy flour and requesting the answer be sent by the returning wagon. H claimed to accept the offer through an alternative method of communication which he expected would arrive sooner but which in fact arrived six days after the wagon.

Was the offer accepted in the right time, place and manner?

The Court held that held there had been no acceptance and hence no contract was formed. Three things were amiss: the contract was not accepted within the proper time – not sent back by the wagon; the contract was not accepted in the right place – the acceptance should have been sent back to Harper’s ferry, not to Georgetown; and the contract was not accepted by the correct manner – should have been sent by wagon, but was sent by mail. Finding it is perfectly reasonable for Eliason to have dictated the terms of acceptance, he finds no contract was created and hence no breach.

INSTANTANEOUS COMMUNICATION

Entores Ltd v Miles Far East Corporation

Entores was a London-based trading company that sent an offer by telex for the purchase of copper cathodes from a company based in Amsterdam. The Dutch company sent an acceptance by telex. The contract was not fulfilled and so Entores attempted to sue the owner of the Dutch company for damages. The controlling company, Entores, was based in the UK and under English law Entores could only bring the action in the UK (serve notice of writ outside the jurisdiction) if it could prove that the contract was formed within the jurisdiction, i.e. in London rather than Amsterdam.

The English Court of Appeal held that contract law is formed the moment of acceptance of a contract over telex. Lord Denning found that the regular postal rule did not apply for instantaneous means of communications such as a telex. Instead, acceptance occurs when and where the message of acceptance is received.

MINOR CONTRACT

Mohoribibi v Dharmodas Ghose

The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favour of the defendant, Brahmo Dutt, who was a moneylender to secure a loan of Rs. 20,000. The actual amount of loan given was less than Rs. 20,000. At the time of the transaction the attorney, who acted on behalf of the money lender, had the knowledge that the plaintiff is a minor.

The plaintiff brought an action against the defendant stating that he was a minor when the mortgage was executed by him and, therefore, mortgage was void and inoperative and the same should be cancelled. By the time of Appeal to the Privy Council the defendant, Brahmo Dutt died and the Appeal was prosecuted by his executors.

The Defendant, amongst other points, contended that the plaintiff had fraudulently misrepresented his age and therefore no relief should be given to him, and that, if mortgage is cancelled as requested by the plaintiff, the plaintiff should be asked to repay the sum of Rs. 10,500 advanced to him.

The Privy Council held that the minors contract is void and not merely voidable on the basis of section 10, 11, 183, 184 and old sections 246 and 247(now section 30 of the Partnership Act). The combine effect of these sections and particularly section 10 and 11 renders the minor contact completely void . According to the Privy Council, section 11 should be literally construed and that only a person who is of the age of the majority is competent to contract. A minor’s contract is, therefore, ab initio and wholly void. In the view of the Privy Council, this was also in accordance with the Hindu Notion of a minor’s incompetence to contract

CONSENSUS ID IDEM (S. 13)

Smith v Hughes

Smith agreed to purchase some oats from Hughes to feed his racehorse. Hughes delivered green oats (also known as new oats) to Smith.Racehorses cannot be fed on green oats, they must be fed on much more expensive ‘old oats’ which Smith believed he was going to get.

The Court held that there was a contract, it did not matter that the subjective intention of the parties differed – that is, that Smith intended to sell new oats and Hughes intended to buy old oats. Hughes’ conduct was such that a reasonable person would believe he was consenting to the terms offered by Smith.

COERCION(S. 15)

Ranganayakamma v. Alwar Setti

The case is regarding the validity of the adoption of a boy by a widow, aged 13 years. On the death of her husband, the husband’s dead body was not allowed to be removed from her house by the relatives of the adopted boy until she adopt the boy.

The Court held that the adoption was not binding on the widow as retention of death body amount to coercion.

UNDUE INFLUENCE (S. 16)

1. Able to dominate will of other

Mahboob Khan v Hakim Abdul Rahim

The Court held that undue influence is said to be subtle species of fraud whereby mastery is obtained by insidious approach and seductive artifices.

FRAUD (S. 17)

1. Assertion of fact

Derry v Peek

In the prospectus released by the defendant company, it was stated that the company was permitted to use trams that were powered by steam, rather than by horses. In reality, the company did not possess such a right as this had to be approved by a Board of Trade. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business after it became liquidated.

The claim of the shareholders was rejected by the House of Lords. The court held that it was not proven by the shareholders that the director of the company was dishonest in his belief. The court defined fraudulent misrepresentation as a statement known to be false or a statement made recklessly or carelessly. On this basis, the plaintiff could not claim anything against the defendant company for deceit.

[Editor’s Comment: It is important to note that the law regarding false misrepresentation was still developing at the time of this decision and this was an important case in doing so. In this case, the court was required to assess the statement made by the defendant company in its prospectus to see whether the statement was fraudulent or simply incorrect]

1. Mere Silence Is No Fraud

Shri Krishna v Kurushetra University

In this case, a candidate had full knowledge of the fact that he has short attendance and he has not mentioned it in examination form.

The Court held that there is no fraud as it is duty of the University to scrutinize forms and to call for verification or information in case of doubt.

MISREPRESENTATION ( S. 18)

1. Unwarranted statement

Oceanic Steam Navigation Co. v Sunderdas Dharmasey

The defendants charted a ship from a company. The plaintiff had made a claim that the ship was not more than 2800 tonnage even though the plaintiff had not known about it. In reality the ship turned out to be more than 3000 tonnes.

The court held it to be misrepresentation and the defendants were allowed to avoid the contract because it was an assertion not warranted by any information the plaintiff had that time and which was not true.

1. Breach of Duty

Oriental Baking Corporation v John Fleming

The plaintiff due to the paucity of time signed the deed on the impression given by the defendant that it contained nothing but formal matters which were already settled between them. The deed however contained a release favouring the defendant.

The Court held that there was misrepresentation since the plaintiff placed confidence on the defendant and it became a duty for defendant to tell the plaintiff about everything in the document

1. Inducing Mistake About Subject Matter

Dimmock v Hallett

In this case, Hallett won a bid at an auction for a piece of land, only to later discover that a part of it was not “very fertile and improvable”, as described in the sales particulars. Therefore, he sued on the grounds of misrepresentation.

The Court held that Misrepresentation should be of fact material to the contract, mere “Commendatory expressions” about the goods are not sufficient to avoid the contract. Misrepresentation should be of fact material to contract.

MISTAKE AS TO IDENTITY OF PARTY

1. False name

Jaggan Nath v Secretary, State of India

In this case the brother to the plaintiff, represented himself as the plaintiff and thereby induced a government agent to contract with him.

The Court held that there is not an existence of any valid agreement or contract as the defendant intended to contract only with A

1. Takeover

Boulton v Jones

Jones used to have business dealings with Brockle Hurst. He sent an order (offer) to Brockle Hurst for the purchase of certain goods. By the time the order reached Brockle Hurst, he had sold his business to Boulton. Boulton receiving the order sent all the goods to Jones as per the order without informing Jones about the takeover of the business. When Jones learnt that the goods were not supplied by Brockle Hurst, he refused to pay for the goods. His contention was that he had never placed an order to Boulton, the offer being made to Brockle Hurst, and therefore had no intention to make a contract with Boulton.

The Court held that Jones was not liable to pay because the person intends to contract with Brockle Hurst. In this case, the order of goods was given to Brocklehurst and not Boulton therefore Boulton cannot perform the offer which intended to be performed by Brocklehurt.

1. Fraud

Cundy v Lindsey

The claimant received an order for sale of handkerchiefs from a person named Blenkarn, who signed in his name in a manner resembling “Blenkiron & Co.”- a reputed firm located at “123, Wood Street”. The purchaser further mentioned his address to be at “37, Wood Street, Cheapside”, to which the claimant sent the goods. Although no payment was made by Blenkarn, he sold the goods to a third person- the defendants.

Later on, the claimants alleged that as they sold the goods to Blenkarn under the mistaken assumption that they were selling it to Blenkiron & Co., there was no real consent to the contract of sale. Consequently, there was no valid transfer of title and accordingly, they sued the defendants for conversion of goods.

It was held that, as the claimant did not intend to sell the handkerchiefs to Blenkarn but to Blenkiron & Co., there was no consent of the claimant. Accordingly, as no contract was concluded between the claimant and Blenkarn to constitute a valid transfer of title therefore the title remained with the claimant. Hence, the defendant being in possession without a title over such goods, were held liable for conversion.

1. Parties in presence of each other

Phillips v Brooks

A man named Mr North entered Phillip’s jewellery shop and said, “I am Sir George Bullough”. He wrote a dubious cheque for £3000 for some pearls and a ring. He said he lived in St. James’s Square. Mr Phillips checked the phone directory and found there was someone there by that name. Mr Phillips asked if he would like to take the jewellery with him and Mr North said he would leave the pearls but take the ring ‘for his wife’s birthday tomorrow’. Mr North then pawned the ring to Brooks Ltd for £350. When the false cheque was dishonoured, Phillips sued Brooks Ltd to get the ring back.

The Court held that the contract was not void(meaning thereby valid) for mistake. Where the parties transact face to face the law presumes they intend to deal with the person in front of them not the person they claim to be.

MISTAKE AS TO SUBJECT MATTER.

1. Non-existence of subject matter

Couturier v Hastie

A cargo of corn was being shipped from the Mediterranean to England. The owner of the cargo sold the corn to a buyer in London. The cargo had, perished and been disposed of before the contract was made. The seller sought to enforce payment for the goods on the grounds that the purchaser had attained title to the goods and therefore bore the risk of the goods being damaged, lost or stolen.

The court held that the contract was void because the subject matter of the contract did not exist at the time the contract was made.

CONSIDERATION (S. 2(D))

1. Doctrine of privity of contract

Khawaja Md Khan v Hussaini Begum

Khawaja Muhammad Khan was the father of bridegroom. Hussaini Begum was the bride. Both the bride and bridegroom were minors at the time of marriage. Khawaja Muhammad Khan and Hussaini Begum’s father entered into an agreement at the time of marriage. Khawaja Muhammad Khan executed an agreement with Hussaini Begum’s father that in consideration of the respondents marriage with his son, he would pay to her a sum of Rs.500 every month in perpetuity for the expenses. He also charged certain properties with the payment giving the power to Hussaini Begum to enforce it. The marriage took place. After some years, Hussaini Begum and her husband separated due to the differences, quarrels between them. She sued Khawaja Muhammad Khan for the recovery of the difference, quarrels between them. She suedKhawaja Muhammad Khan for the recovery of the arrears of annuity @ Rs. 500 per month. The appellant Khawaja Muhammad Khan argued that Hussaini Begum was not a party to the contract entered by him with the father of Hussaini Begum.

The Privy Council gave the judgment in favour of Hussaini Begum. It held that Hussaini Begum, although no party to the agreement, was clearly entitled to proceed in equity. The Court further said that she was the beneficiary of the contract therefore she could enforce her claim.

ANTICIPATORY BREACH

Frost v Knight

The defendant had promised to marry the plaintiff on the death of his father, and he afterwards, during his father’s life, refuse to fulfil his promise.

The Court held that the plaintiff can sue for breach as the case is of anticipatory breach.

IMPOSSIBILITY OF PERFORMANCE

Kerliv v Henry ( Coronation Case)

The defendant hired a flat for the sole purpose of viewing King Edward VII’s coronation procession. The price agreed was £75 for two days. The defendant paid £25 deposit. Due to illness of the King the coronation was cancelled. Consequently, the defendant did not use the flat. The claimant sought to claim the outstanding £50.

The Court held that the contract was frustrated because of cancellation of the procession. Therefore the claimant’s action for breach of contract was thus unsuccessful.

Satyabrata Ghose Vs. Mugneeram Bangur & Co

Satyabrata (plaintiff), assignee of Bejoy Krishna Roy, sued defendant alongwith Bejoy as party defendant, for wrongfully repudiating the contract of developing the lands which were sold to the plaintiff, and asked for specific performance of the same. Defendant took the defence of frustration as the lands which needed to be developed were temporarily requisitioned by the Govt. for unspecified period of time and any development work if executed on the land would be illegal. The contract was made at a time when war conditions were prevailing and any such requisition was imputed to be in contemplation of the parties while forming contract. Further, no time was specified in the contract.

The Court held that the contract is not frustrated u/s 56 of Indian Contract Act.

QUASI CONTRACT

Moses v Macferlan

Lord Mansfield in this case explained the situations in which quasi contract can be invoked:

1. Money paid

2. in cases where consideration failed totally

3. money paid under imposition/ extortion/ oppression.

BREACH OF CONTRACT

Hadley v Baxendale

Hadley (plaintiff) owned and operated a corn mill in Gloucester. The crank shaft that operated the mill broke and halted all mill operations. To obtain a new shaft, Hadley was required to ship the old crank shaft to Joyce & Co., an engineering company in Greenwich to be used as a model for a new shaft. Hadley contacted Pickford & Co. (Pickford) a shipping company owned by Baxendale (defendant) and obtained shipping information for the crank shaft. Hadley was informed that if the crank shaft was delivered to Pickford before noon, it would be shipped and delivered to Greenwich the following day. Hadley delivered the crank shaft to Pickford before and paid the shipping price in full. However, Pickford negligently delayed shipping and the crank shaft was not delivered. As a result, Hadley obtained the new crank shaft several days later than expected during which time the mill remained closed. Hadley brought suit against Baxendale for damages including lost profits from the delay.

The Court held that where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such which can reasonably be considered either arising naturally (according to the usual course of things) from such breach of contract itself. The Court held that if a special circumstance under which the contract was actually made is communicated by the plaintiffs to the defendants then damages could certainly be claimed from the other party. On the other hand, if these special circumstances were wholly unknown to the party breaking the contract then the damages arising could not be claimed.

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