IMPORTANT CASE LAWS UNDER CONTRACT LAW

Balfour v. Balfour (1919)

The 1919 case of Balfour v. Balfour was the foundation for the contract law as it gave birth to
the purpose behind the creation of the legal reaction theory in contract law. Legal reaction
theory means that one lawful act will be responsible for a subsequent legal act to take place.
Lord Justice Atkin observed that agreements that are made between a husband and his wife,
specifically personal family relationships, to provide maintenance costs, and other related
capitals are generally not categorized as contracts because in general, the parties to the
agreement do not intend to enter into an agreement that should be attending legal ends.
Therefore, a contract cannot be enforceable by nature if the parties to the same do not
intend to create legal relations with each other.

Lalman Shukla v. Gauri Datt (1913)

The importance of knowledge and communication, in formation of a contract, was

highlighted by the Allahabad High Court in the landmark judgment of Lalman Shukla v.
Gauri Datt (1913). The Hon’ble Court observed that the fundamental necessity of a valid
contract is the knowledge and assent of a proposal in order to convert the concerned
proposal into an enforceable agreement. In the present case, none of the criteria discussed
are being fulfilled as the plaintiff was unaware and there was an absence of assent about the
particular act. This is also an important principle governing general offers in contract law,
and a classic example of a general offer is offering a reward by means of an advertisement for
finding a lost article. Only the person completing the required task is said to be accepting the
offer.

Harvey v. Facey (1893)

The difference between an “invitation to offer”, and “offer” has been laid down by the
Lords of Judicial Committee of the Privy Council on the appeal in the case of Harvey v
Facey (1893). While the case surrounded an issue that arose regarding the offer to sell a
Bumper Hall Pen, the Privy Council observed that there never existed an agreement
between the parties to the case. The Council went further to state that for a contract to be
valid, a proposal and an acceptance are needed and to make the contract binding. Further,
acceptance of the proposal must be notified to the individual who is proposing because a
legally enforceable agreement requires sureness to hold from both the parties to the contract.

Felthouse v. Bindley (1862)

The concept of acceptance was taken up by the Court of Exchequer Chamber, the United
Kingdom in the case of Felthouse v. Bindley (1862). While accepting an offer proposed to a
party, he or she cannot remain silent. If he or she remains so then the same cannot be
presumed to be an acceptance of the proposed offer. The Court of law made it clear that
there should be absolute clarity in the communication of the acceptance of an offer so as to
proceed towards the formation of a valid contract. And also that the acceptance must be
communicated to the proposer only.

Pharmaceutical Society of Great Britain v. Boots Cash Chemist (1953)

The case of Pharmaceutical Society of Great Britain v. Boots Cash Chemist (1953) revolves
specifically around the concept of “invitation to offer”. The case which appeared before the
Courts of Appeal of England and Wales involved the defendant, a pharmaceutical company
who introduced a new method of displaying the drugs for the shoppers, which could be used
for purchasing drugs, and the plaintiff objecting to the same. The Court of law observed
that “goods on a display are an invitation, not an offer” instead, the customers make an
offer when they take the medicines to the register with the cashier being under the
shopkeeper to accept the offer proposed. The Court reasoned that displaying medicines to the
customers will be treated as an “invitation to treat”, and not as an “offer”.

Bhagwandas Kedia v. Girdharilal & Co (1959)

The Supreme Court of India while deciding the case of Bhagwandas Kedia v. Girdharilal &
Co (1959) took into account Sections 2,3, and 4 of the Indian Contract Act, 1872. The Court
observed that making an offer at a place that has been accepted elsewhere does not ipso
facto form part of the cause of action in a suit for damage, in scenarios for breach of contract.
Generally, a contract is the consequence of acceptance of offer and intimation of that
acceptance, therefore the intimation must be by the same external manifestation which is
recognized by the law, or is sufficient in the eyes of law. The Supreme Court held that the
Trial Court was right in taking the view that part of the cause of action arose where the
acceptance of the offer was communicated to Plaintiff through telephone, i.e.
Ahmedabad. The Supreme Court had dismissed the appeal. So according to the Supreme
Court, the contract is said to be made at a place where the communication of acceptance is
made to the offeror. (telephone-face to face communication)

Kedarnath v. Gorie Muhammad (1886)

The Calcutta High Court in a notable case observed that although the promise made in this
case was in relation to a charitable purpose and that the defendant, in this case, had no
benefit, the defendant was held responsible for the promise made by him. The Court
believed that the defendant will be held liable, as it was noted that in this case people were
asked to knowingly subscribe to the purpose for which the money was to be applied or used.
Along with this, the people were aware that in the faith of their subscription they had to
incur the obligation to pay the contractor for the work. In this case, the law of the applicant
was recognized by the Hon’ble High Court as the conclusion of a contract with the contractor
was made at the will of the promoter, which was to be perceived as a good consideration
according to Section 2(d) of the Indian Contract Act, 1872.
Leslie Ltd v. Sheill (1914)

The English Court of Appeal in the well-known case took into account the issue as to whether
the defendants, in the case, are entitled to equitable restitution against a loan provided to a
minor or not. Explaining the doctrine of equitable restitution, the Court viewed that, “If an
infant obtains property or goods by misrepresenting his age, he can be compelled to restore
it so long as the same is traceable in his possession”. The Court went further to state that
restitution stops whenever the repayment begins, and the principles of equity do not enforce
any kind of contractual obligations against a minor.

Mohori Bibee v. DharmodasGhose (1903)

A bench of Judges Lord Mcnaughton, Lord Davey, Lord Lindley, Sir Ford North, Sir Andrew
Scoble, and Sir Andrew Wilson considered the ambit of minor’s agreement in the well-
known case. The Privy Council expressly barred any person below the age of eighteen
years to enter into a contract, and take major decisions in relation to the same. Thus in the
present case where the plaintiff and the defendant had entered into a mortgage deed, the
same was held to be void as the mortgage execution was carried out by a minor individual.

Raghava Chariar v. Srinivasa (1916)

The issue in the present case, the issue that appeared before the Madras High Court was
whether a mortgage that had been executed in favor of a minor who had also advanced the
mortgage money in totality, would be deemed to be enforceable by him or by any other
person on his behalf, or not. In comparison to previous observations in the case of Mohori
Bibee v. DharmodasGhose (1903) which has provided a restrictive view on the liability of
minors in contracts, the present case holds greater significance in the current scenario as it
facilitated in providing a divergent scope of safeguarding minors in the contracts.

Donoghue v. Stevenson (1932) (exception to PRIVITY OF CONTRACT)

The doctrine of negligence was laid down unambiguously by the House of Lords in the
English case of Donoghue v. Stevenson (1932). In the present case, the injuries that were
caused to the plaintiff from the defendant’s defective products were claimed on the basis of
the contract of sale between the parties to the case. While it was the plaintiff’s friend who
suffered the damage, the plaintiff did not, hence the plaintiff’s claim could only be on the
grounds of negligence by the defendant. The issue before the Court was whether the
defendant owed a duty of care to the plaintiff or not. Applying the “neighbor principle”, the
Court rules out that the defendant did owe a duty of care to the plaintiff. (manufacturers
owe a duty to the consumers who they intend to use their product)
Dunlop Pneumatic Tyre Co Ltd. v. Selfridge & Co (1915)

In the case of Dunlop Pneumatic Tyre Co Ltd. v. Selfridge & Co (1915), the House of Lords
delivered a judgment that accompanied the understanding of the concept of “construction of
contract”. Dismissing the appeal in the present case, the Court held that as there existed no
contract between the plaintiff and the defendant, therefore, the plaintiff, in this case, can
no way sue the defendant. Taking a cue on the aspect of privity of contract, the Court
observed that only the parties to a contract can sue each other over breach of the contract
entered into, and the only exception to this general rule will be in case of a principal-agent
relationship where the agent was unnamed by the party under whom he/ she was appointed.

Phillips v. Brooks (1919) (MISTAKE AS TO IDENTITY)

The issue as to whether a mistake to identify an essential of a contract ipso facto makes the
contract void or not came before Judge Horridge of the King’s Bench Division in the case
of Phillips v. Brooks (1919). The Court while ruling out in favor of the defendant observed
that the claimant in the case intended to sell the ring to the man in front of him, that is a face-
to-face contract, whoever that man turned out to be. No relevant mistake could therefore be
scooped out from this case. As the property had passed to the rogue, the claimant in the case
was therefore not entitled to recover the ring.

The earlier judgement of Cundy v Lindsay had established that contracts could be
automatically void for mistake to identity. Where this is the case, title does not pass to the
fraudulent buyer, and the third party loses out in the entirety. This principle is different where
parties contract face to face;

Hadley v. Baxendale (1854)

Consequential damage over breach of contract was determined by the English Court in the
well-known case of Hadley v. Baxendale (1854). When the defendant made an error in
carrying out his work which was assigned to him by the plaintiff in his mill, the latter claimed
professional negligence on the latter’s part. The issue before the Court was whether the claim
that was made by the plaintiff was disproportionate to the damages caused or not. Observing
that losses can be claimed if it can be reasonably viewed to have been the outcome of the
defendant’s actions, the Court ruled out that the defendant will not be liable to
compensate the plaintiff for his losses on grounds that the plaintiff had not reasonably
foreseen the consequences of the delay caused by the defendant.
Dickinson v. Dodds (1876)

England’s Court of Appeal, in the well-known case of Dickinson v. Dodds (1876) took into
account whether a defendant who had promised to keep his offer open till a certain day be
bound by contractual obligations if he had revoked his promise and sold off his offer to a
third party, prior to the specified date? Ruling out that there was no contract that was formed
between the parties to the case, the defendant had no obligations to follow before he could
revoke his promise. The Court reasoned that although the defendant had made an offer, he
did possess the right to revoke the same before the offer was accepted by the plaintiff, hence
was not liable for his action.

Doctrine of Frustration: Krell v. Henry (1903)

In this case, the defendant agreed to rent a flat of the plaintiff to watch the coronation of King
Edward VII from its balcony. The plaintiff had promised that the view from the flat’s balcony
will be satisfying since the procession will be perfectly visible from the room. The parties
corresponded through letters and agreed on a price of £75 for two days. Nowhere in their
written correspondence did the parties mention the coronation ceremony. The coronation did
not take place on the days the flat was booked for, as the kind fell ill. The defendant refused to
pay the whole sum of money that the parties had agreed upon, for this reason. It was held that
it could be incurred from the circumstances surrounding the contract what the implied
purpose behind the contract was. Due to the cancellation of the procession, the purpose of
booking the flat was frustrated.

Nash vs Inman (1908)

The Court observed that the claim made by the plaintiff against the defendant for the price of
the clothing could not be approved. Because the plaintiff could not establish that the goods
supplied to the minor were “necessaries”.

There was enough evidence that the minor’s father was an architect and was thus in a good
position with a town and country house. It could be said that the clothes supplied were suited
to the minor’s condition in life and standard of living. However, the father of the defendant
further proved that the defendant had adequate clothes of such type at the time when the
plaintiff delivered the clothing.

Powell v. Lee (1908)

A well-known case of offer and acceptance was the case of Powell v. Lee (1908) which
involved the plaintiff filing a suit against the defendant over breach of contract. The question
that the King’s Division Bench considered was whether a person who acted in an
unauthorized capacity, communicated an offer’s acceptance? Ruling that for an acceptance
to be valid, the same should be communicated, and the same should be carried out by
the person offering in an authorized capacity, the Court dismissed the plea of breach of
contract between the plaintiff, and the defendant.
Carlill Vs. Carbolic Smoke Ball Company (1893) 1 QB 256

Facts: The Pall Mall Gazette carried advertisements from the Carbolic Smoke Ball Company,
for their smoke ball product. In the advertisement, they guaranteed to pay 100 pounds in
compensation to anyone who catches the flu after using their ball as directed for two weeks,
three times per day. Additionally, it was stated in the advertisement that they had deposited
£1,000 with the Alliance bank as an assurance. After reading the advertisement, Mrs. Carlill
bought the smoke balls and utilised them according to the instructions, but she afterward had
the flu. After the defendant rejected the plaintiff's claim, the plaintiff filed a lawsuit against
them to try to get the money refunded.

Issues:

 Whether the agreement between the parties have any legal force or effect?
 Whether a formal notification of acceptance was necessary for the contract in question?
 Whether Mrs. Carlill was required to inform the Carbolic Smoke Ball Company that
she accepted the offer?
 Whether Mrs. Carlill gave anything in return for the 100 pounds that the company
offered as a reward?

Judgement: The Court of Appeal unanimously rejected the company's objections and decided
that Mrs. Carlill and the company had a legally enforceable contract for £100.

The three judges cited many reasons, including the following:

(1) The advertisement represented a unilateral offer to the entire world;

(2) Meeting the requirements for deploying the smoke ball amounted to acceptance of the offer.

(3) That buying or simply using the smoke ball constituted good consideration

(4) The company's assertion that £1000 was placed at the Alliance Bank demonstrated a sincere
desire to be held legally responsible.

Chinnaya Vs. Ramayya

Court: Madras High Court

Citation: (1882) ILR (1876-82) 4 Mad 137

Year: 1987

Facts: An elderly widow was providing funds from her estate to her sister (the plaintiff). Later,
through a deed of gift that was officially recorded by the relevant authorities, the elderly woman
passed her property to her daughter (the defendant). The deed was executed based on the
condition that the defendant would be paying some Rs. 653/- annually to the old woman’s
sister, the plaintiff. Thus, the defendant and plaintiff reached an agreement in which the
defendant committed to pay the agreed-upon sum each year. An elderly widow was providing
funds from her estate to her sister (the plaintiff). Later, through a deed of gift that was officially
recorded by the relevant authorities, the elderly woman passed her property to her daughter
(the defendant). The defendant agreed to execute the deed in exchange for paying the plaintiff,
the elderly woman's sister, a number of Rs. 653/- annually. Thus, the defendant and plaintiff
reached an agreement in which the defendant committed to pay the agreed-upon sum each year.
The defendant, however, refused her promise to the plaintiff regarding the annuity after the
elderly woman passed away. To get the annuity that the respondent had promised, the plaintiff
sued the defendant.

Issues:

Whether the plaintiff be able to sue the defendant for the sum promised in a contract where the
mother of defendant (the plaintiff's sister) provided the consideration?

Judgement: The Court held that the agreement enabling the respondent's mother to gift her the
estate and the arrangement to pay an annuity is a simultaneous agreement. Therefore, in light
of the definition and justification of compensation provided by section 2(d) of the Indian
Contract Act of 1872, each of these agreements shall be regarded as a single transaction.
Therefore, the respondent shall be obligated to pay the said payment because she consented to
do so while accepting the estate as a gift from her mother.

6. Hyde Vs. Wrench

Court: Rolls Court

Citation: (1840) 49 ER 132

Year: 1840

Facts: The defendant, Mr. Wrench, offered to sell the farm he owned to the complainant, Mr.
Hyde. He proposed to sell the house for £1,200, but Mr. Hyde rejected his offer. The defendant
decided to write the complaint again with an offer to sell the farm to him for £1,000 this time.
He was very clear that this was his final offer for the property. In response, Mr. Hyde made a
letter offer of £950 for the land. Mr. Wrench rejected this and confirmed it with the complaint.
Mr. Hyde subsequently decided to accept the previous offer of £1,000 to purchase the farm but
Mr. Wrench refused to sell his farm. So, Mr. Hyde filed a suit against him pleading for specific
performance of the contract.

Issues:

 Whether the parties had a valid contract, and if a counter offer was made in discussions,
whether the original offer would still be valid?

Judgement: The court rejected the claims and held that Mr. Hyde and Mr. Wrench had not
entered into a legally enforceable agreement about the property. The previous offer is
superseded and wiped out when a counteroffer is made. This initial proposal is no longer on
the table or available. In this instance, Mr. Hyde revoked his initial offer of £1,000 when he
made the £950 offer and was unable to retract and accept.

Durga Prasad Vs. Baldeo

Court: Allahbad High Court

Citation: (1881) ILR3ALL221

Year: 1880

Facts: The complainant demanded that the district collector establish a number of outlets in
his neighbourhood. The Defendant paid rent to those establishments in exchange for their
business. At the same time, the rent was affixed. Later, the defendant informed the plaintiff
that in return for the plaintiff's construction of the building through the expenditure of vast
sums of money, he would pay him a 5 percent commission on all goods that he will supply
from the shop. On the other side, the claimant chose not to pay the commission. Durga Prasad
thereafter filed a lawsuit against the shop owners who had denied to pay the commission.

Issues:

 Whether the Contract is valid or not?

 Whether the Contract is enforceable by law?

Judgement: The court dismissed the case after finding no merit in the claims of plantiff. This
decision was made in light of the absence of a prominent and recognized consideration in this
situation, which led section 2(d) of the Indian Contract Act, 1872 to reject the eligibility of
agreement for recognition as a contract. Section 25 of the Act states the absence of a
consideration resulted in the contract being termed as a void contract. Additionally, the judges
decided that there was no prospect for an appeal because the Act clearly states that
consideration is a necessary component of a contract and the appeal was rejected by the court.

Chikkam Amiraju v Chikkam Seshamma, 1918 (Coercion – Suicide Threat)

A threatens to commit suicide if his wife and son do not agree to sell their property to him.
The wife and son sign the agreement. The contract is voidable at the instance of the wife and
son for coercion. S.14 of the Contract Act provides that consent is said to be free when it is
not caused by Coercion, Undue Influence, Misrepresentation, Fraud, or Mistake.

Coercion is the committing of or threatening to commit, any act forbidden by the Indian
Penal Code, 1860, or the unlawful detaining of, or threat to detain, any property with the
intention of compelling any person to enter into a contract. (S.15, Contract Act) Mere
economic duress, however, would not amount to coercion.
White v Bluett 1853 (Consideration)

A owed a sum of money as a promissory note to his father. He kept complaining of unequal
treatment in the division of property, till his father told him that if he stopped complaining, he
would waive A’s debt.

A stopped complaining and then refused to repay the debt when the father asked him to do
so. It was held that A’s stopping complaining did not amount to valid consideration.

Jamna Das v Ram Autar Pande, 1911 (Privity of Contract)

This is one if the landmark cases in contract law pertaining to the Doctrine of Privity.

A borrowed Rs.40,000/- by executing a mortgage in favour of B. Later, A sold the property to

C for Rs.44,000/- and allowed C to retain Rs.40,000/- of the price in order to redeem the
mortgage. B, the mortgagee, sued C for the recovery of the mortgage. It was held that B
could not succeed because B was not a party to the contract between A and C.

As per the doctrine of privity, a contract cannot confer rights or impose obligations under it
on any person except the parties to it. A third person cannot be entitled to demand
performance of the contract.

The doctrine of privity of contract must not be confused with the concept of privity of
consideration.

While parties to a contract cannot confer rights or impose obligations under it on any third
person, S.2(d) implies that as long as there is a consideration for a promise, it is immaterial if
a third party has provided it.

Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co. Ltd., 1894 (S.27 Restraint of

Trade)

A, an inventor and manufacturer of guns and ammunition made a sale of goodwill and agreed
with the buyer

 (a) not to practice the same trade for twenty-five years, and
 (b) not to engage in any business competing or liable to compete in any way with
the business for the time being carried on by the buyer.
The first part of the agreement was held to be valid, but the second part was considered to be
unreasonable and void.
Satyabrata Ghose vs. Mugneeram Bangur and Comapny and Ors. (1953 - SC)

Facts: The plaintiff sued the defendants 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. under the defence rules such that
for unspecified period of time, 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.
Held: The court held that the doctrine of frustration is applicable in contracts where
performance of the act becomes unlawful or impossible thereby upsetting the object of the
contract. However, in this case the doctrine does not apply as there was a mere delay in the
performance of contract.

Collins v Godefroy (1831) 1 B & Ad 950; 109 ER 1040

Performance of an existing duty is no consideration.

Facts
Godefroy, the defendant, brought an action against an attorney for negligence and caused
Collins, the plaintiff, to be subpoenaed to attend and give evidence. Godefroy was keen to
ensure that Collins attended as this would help his case, so he promised to pay him one
guinea per day he was at court as compensation for the loss of his time. Collins attended court
for six days but was not called to give evidence. At the end of this Collins demanded payment
of six guineas as per the agreement. When this was not paid, he brought an action against the
defendant for the sun owing.

Issue
The question for the court was whether the agreement between the plaintiff and the defendant
was supported by valuable consideration.

Decision / Outcome
The court held that the agreement that the plaintiff’s should attend court was not supported by
consideration. This was because the plaintiff was under a public duty to attend court anyway
having been subpoenaed. The law would not allow someone to recover expenses incurred in
the performance of a duty that they were merely obliged to do anyway by law. Lord
Tenterden said (at 956):

‘If it be a duty imposed by law upon a party regularly subpoenaed, to attend from time to
time to give his evidence, then a promise to give him any remuneration for loss of time
incurred in such attendance is a promise without consideration. We think that such a duty is
imposed by law’.
Taylor and Another v. Caldwell and Another [1863] EWHC QB J1 122 ER 309;3 B. & S.
826
Facts: The following case centers around a music hall, The Surrey Gardens and Music Hall,
Newington, Surrey. The defendant (Caldwell) agreed to let the plaintiff (Taylor) take the place
for four particular days. These were- 17th June, 1861, 15th July, 1861, 5th August, 1861, 9th
August, 1861, for presenting a series of four grand concerts, along with day and night fetes.
This was done with a rent or sum of 100l. for each of those days. Owing to an accidental fire
on 11th June, 1861, in the interest of which neither party was at fault, the hall was destroyed.
With this, the plaintiff sued for a breach of the contract.
Issues: The legal issue arising from the destruction of the music hall was whether the aforesaid
destruction excuses the rights and liabilities of the obligations of the parties under the
agreement? Whether the loss suffered by the plaintiffs is recoverable from the defendant?
Rule: The rule of the doctrine of absolute obligations (1) is applied. Here, a party’s duties,
under a contract are said to be discharged if the performance of the said contract involves
particular chattels, which due to no fault of either of the parties, are destroyed. This in turn
renders the performance impossible, with the doctrine of frustration.

Gherulal Parakh vs Mahadeodas Maiya (1959 SC)

Case defined the word “forbidden by law” which is given under section 23 of the Indian Contract Act. It
states that the word “forbidden by law” is not the synonym of the word “void”, therefore it is not
necessary that whatever is void is forbidden by law. As per the Section 30 of the Indian Contract Act,
1872 every agreement by way of wager is void. Wager basically refers to something such as sum of
money risked on an uncertain event or we can say something on which the bet are laid, In simple terms
we can say it’s a gambling.

FACTS

1. Appellant and respondent entered the partnership agreement for the sale and purchase of
wheat with other firms on the condition that the Respondent will enter a contract on
behalf partnership and profit and loss will be distributed equally.
2. Transaction resulted in loss, which was fully paid by the respondent to the third parties.
3. When respondent ask appellant for the sharing of liability, appellant refused.
4. Respondent sued appellant to recover the amount which the appellant has refused.

 Whether the partnership agreement of entering wagering agreement was illegal

within the section 23 of the Indian Contract Act, 1872?

DECISION
 The court held that though the wagers are void under section 30 of the Indian Contract
Act, 1872 but cannot be forbidden by law under section 23 of the Indian Contract Act for
the person entering a wagering contract. Therefore, the agreement intending to wager the
contract cannot be declared void as it is forbidden by law under section 23.