Important cases on the Law of Contract for Entrance Exams

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May 30, 2018

There are some cases governing the Law of Contract in India which have become an Authority in streamlining and defining the contract law. These English and Indian cases form the very foundation of Law of Contract in India. In this article we present an exhaustive list of cases which are helpful for law entrance exam as well as judicial services exam in India.

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Offer and Invitation to Treat

Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd. – When the goods are displayed either in a show-window or inside the shop and such goods bear price-tags, the question which arises in such case is, whether that amounts to an offer to sell goods at prices mentioned on the price tags. In this case, it was held that display of goods alongwith price tags merely amounts to invitation to treat and therefore if an intending buyer is willing to purchase the goods at a price mentioned on the tag, he makes an offer to buy the goods. Thus, the shopkeeper has the right to accept or reject the same. The contract would arise only when the offer is accepted.

Harvey v. Facey- In this case, the quotation of the price was held not to be an offer. In this case, the defendants were the owners of a plot of land known as Bumper Hall Pen. The plaintiffs being interested in purchasing the same sent a telegram to the defendants- “Will you sell us Bumper Hall Pen? Telegraph lowest cash price.” The defendant’s in reply telegraphed- “lowest price for Bumper Hall Pen, £ 900.”

The Plaintiffs sent another telegram to the defendants saying “we agree to buy Bumper Hall Pen for £ 900 asked by you…”

The Plaintiffs in the Court contended that the second telegram from defendants quoting the lowest price was an offer and the same had been accepted by the Plaintiff, hence the contract was complete. In the case it was eventually held that the exchange of aforesaid telegrams had not resulted in formation of a contract. It was observed that the first telegram had asked two questions, one regarding willingness to sell and other regarding the lowest price. In reply only lowest price was quoted and this quoting of the price was not an offer. That the third telegram from the Plaintiffs saying we agree to buy was only an offer and not the acceptance of an offer. Since this offer had not been accepted by defendants, there was no binding contract between the parties.

Intention to create legal relationship

Balfour v. Balfour- The concept of intention to create legal relationship was implied in the case of Balfour v. Balfour. In this case, the defendant who was employed on a government job in Ceylon, went to England with his wife on leave. For health reasons the wife was unable to accompany the husband Ceylon. The husband promised to pay £300/ month as maintenance to wife for the time she lived apart. The husband however failed to pay the amount and was eventually sued by his wife.

In the case it was held that the husband was not liable to pay as there was no intention to create a legal relationship between the parties.

Communication of Offer is Necessary

Lalman Shukla v. Gauri Dutt- Under the Law of Contract an offer can be accepted only after the same has come to the knowledge of the offeree. It means that the offer has to be communicated to the offeree in order that the offeree can accept it. Section 4 of the Indian Contract Act states that the communication of a proposal id complete when it comes to the knowledge of the person to whom it is made.

In Lalman case the defendant’s nephew absconded from home. The plaintiff who was defendant’s servant was sent to search for the missing boy. After the plaintiff had left in search of the boy, the defendant issued handbills announcing a reward of Rs. 501 to anyone who might find out the boy. The plaintiff who was unaware of this reward, was successful in searching the boy. When he came to know of the reward, which had been announced in his absence, he brought an action against the defendant to claim this reward. It was held that since the plaintiff was ignorant of the offer of reward, his act of bringing the lost boy did not amount to the acceptance of the offer and therefore he was not entitled to claim the reward.

Contract arising out of a general offer

Carlill v. Carbolic Smoke Ball Co.- in the case, the defendants advertised their product Carboli Smoke Ball for a preventive remedy against influenza and in the ad they offered to pay £100 as reward to anyone who contacted influenza, cold or any disease caused after having used the product in prescribed manner. The plaintiff relying on the ad purchased a Smoke Ball and used the same in accordance with the directions, but she still caught influenza. Thus, she sued the defendants to claim the reward of £100. It was held that this being a general offer addressed to all the world had ripened into contract with the plaintiff by her act of performance of the required conditions and thus accepting the offer. Hence, the plaintiff was held entitled to claim the reward.

This case is also an illustration of communication of acceptance of offer by conduct.

Acceptance should be communicated

Felthouse v. Bindley- For a valid contract the acceptance should be communicated and moreover such communication should be made to the offeror. Another point of law explained in the case was that the offeror cannot impose upon the offeree duty to reply and therefor an offeror cannot say that failure to reply will be deemed to be acceptance of the offer.

Communication of Acceptance can be made by Offeree or his authorized agent

Powell v. Lee– In order that an acceptance is treated as valid, it is necessary that the same must be communicated to the offeror either by the offeree or by some duly authorized person on his behalf. If the communication is made by an unauthorized person, it does not result in a contract.

Terms of the Contract should be reasonable

Central Inland Water Transport Corporation Ltd. v. Brojo Nath- In the case one of the clauses of the employment contract was that the employer could terminate the services of a permanent employee by giving him 3 months’ notice or 3 months’ salary. The services of the respondent and one other was accordingly terminated instantly by giving three months’ salary. When the case came up before the Supreme Court the Court held the contract to be void under Section 23 of the Contract Act and observed that such a clause in the service agreement between persons having gross inequality of bargaining power was wholly unreasonable and was against the public policy.

Consideration only at the desire of the Promisor

Durga Prasad v. Baldeo- In the case it was held that it is essential that the consideration must have been given at the desire of the promisor, rather than merely voluntarily or at the instance of some third party.

Privity of Contract

The doctrine means that only those persons who are parties to the contract can enforce the same.

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.- The concept of privity of contract under the English Law was explained in this case. It was observed that only a person who is party to a contract can sue on it. Our law knows nothing of a Jus quaesitum tertio arising by way of contract. However such a right may be conferred by way of property, for example under a trust, but cannot be enforced on a stranger to a contract as a right to enforce the contract in personam.

A Minor’s Capacity to Contract

Mohori Bibee v. Dharmodas Ghose– In this case it was held that an agreement by a minor is void.