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Taj Mahal Hotel v. United India Assurance Company Ltd. & Ors.
Citation: (2020) 2 SCC 224
Division bench of Supreme Court
Case number: CA 8611/2019
Relevant Sections: 148, 151, 152
Brief Facts: On the late night of 1/08/1998, a person handed over the keys to his car “Zen” to the valet of the Appellant Hotel. Later that night, 3 thieves who came to the hotel, cunningly tricked the security guard and obtained keys to the said Zen car and fled before the security could catch them. The car owner (who was the 2nd Respondent) had insured his car with the Respondent’s policy and hence the Respondent paid the value of the lost car back to the owner.
The car owner then executed a Power of Attorney and a letter of subrogation in favour of the Respondent and they jointly filed a suit before the State Consumer Disputes Redressal Commission seeking compensation for the value of the car and for deficiency of service. The State Commission dismissed the suit on the ground that the insurance company could not be a consumer. Consequently, an appeal was filed before the National Consumer Disputes Redressal Commission which decreed against the Appellant hotel by applying the rule of “Infra Hospitium”. The present matter before the Supreme Court is an appeal against the decision of the NCDRC.
1. Whether the respondent had locus standi to file a complaint as a subrogee
2. Whether the appellant hotel could be held liable under the laws of bailment
3. What is the degree of care to be exercised by a 5-Star Hotel
4. Whether a precluding clause issued by a bailee entitles an exception from infra hospitium
With regard to the first issue, the Court relied on the decision in Economic Transport Organisation v. Charan Spinning Mills (P) Ltd., 2010 4 SCC 114 to hold that an insurance company could possess the locus standi to present as a consumer if:
a. Filed by insurance company in the name of the assured and if the company is an attorney holder
b. The assured and company are both co-complainants
Since both the respondents had satisfied the same, the insurance company had locus standi to file the suit.
The judges restricted the discussion to the duty owed to the guests’ vehicles. The Court then delved into 2 approaches that could be adopted for this matter, namely:
a. The Common law rule of Infra Hospitium
b. Presumption against hotel unless they prove there was no gross negligence
The rule of Infra Hospitium was held to impose strict liability on innkeepers as and when a guest handed over the keys to the valet. This signified a relationship of bailment and the only exemptions that could be claimed by an innkeeper were that of: act of god, act of public enemy and fault of guest himself. However, it was recognized that the application of the rule was dwindling due to development and growth of hotels and tourism.
The second approach was widely accepted and used wherein it would be the duty of the hotel (bailee) to prove they had taken due care and had not acted negligently. In this regard, the Court overturned the application of “infra hospitium” as it was burdensome and viewed that the said principle had been used by the NCDRC for the first time. The second principle drew its roots from the common law case of Laird v. Eichold wherein an innkeeper is held prima facie liable for any loss and it places a burden of proof on him to show that he exercised strictest care and diligence.
The existence of bailment depended on the degree of control by the bailee. If a vehicle was purposefully handed over (via valet or otherwise), then the law of bailment would apply whereas if the guest was merely allowed to park his car, then the relationship would be that of a licensor-licensee. If a hotel collected a parking fee, that per se wouldn’t amount to delivered for some purpose under Section 148 of the Contract Act. Holding of a parking ticket shows an entitlement but not bailment.
It was established that the parking services provided by 5 star hotels was not truly free of charge but was instead accommodated through the exorbitant rates it charged. Herein, the relationship of bailment was said to have existed.
The Court averred to Sections 151 & 152 of the Act to establish the degree of care to be exercised by the Appellant. The charging of a higher price by the appellant hotel was held to have implied a greater degree of care. Section 151 is of such a nature that the standard of care is implied regardless of whether it was gratituour or for a fee.
In such an instance, the bailee is expected to take additional steps to ensure that the vehicle is not stolen or damaged.
In the present case, there was no evidence to prove that the hotel had taken extra steps to ensure safety of the car and away from the reach of others with mechanisms to identify real owners. Hence, the Appellants were negligent.
The parking ticket contained an “owner’s risk clause” that precluded the appellant hotel from all forms of liability in case of damage or theft. However, it was decided that even with a specific exclusion clause inserted, guests would be left without remedy if they were left to the mercy of these hotels. Section 151 would apply as the bare minimal standard and the precluding clause would operate only if Section 151 was fulfilled.
Interpretation of Section 152: “the absence of any contract” indicates taking a higher standard of care and not to remiss liability. Hotels can print such clauses and save themselves from third party acts, inherent defects, force majeure events and contributory negligence. Nonetheless, negligence wouldn’t be safeguarded which was the case here. Hence, the appeal was dismissed.
2. Western Coalfields Ltd. and Anr. v. Rajesh s/o Nandlal Biyani
Citation: 2011 SCC OnLine Bom 1217, (2012) 1 Mah LJ 394, (2012) 1 BC 395
Single Judge Bench of Bombay High Court at Nagpur
Case number: A.A.O. No. 85 of 2011
Category: Contingent Contracts, Bank Guarantee
Relevant Sections: 126, 31, 32
Brief facts: The Appellant (Western Coalfields) had awarded a work of making a diversion to the respondent (Rajesh) for about 13.95 crores. As per requirements, the respondent furnished 2 bank guarantees amounting to about 2.25 crores. However, the respondent was able to complete only 40% of the work within the stipulated time period and work to the tune of 7.9 crores remained incomplete.
It later came to the knowledge of the appellant that fake bank guarantees of a scheduled bank had been furnished and imposed penal interest for the same. Nine months prior to the expiry of the guarantees, the appellant invoked the guarantees not due to non-completion of work but furnishing of fraudulent guarantees.
The respondent proved that the fake ones were supplied by the Power of Attorney Holder and upon knowledge the respondent himself had drawn new guarantees which was accepted by the appellant. Moreover, non-completion was caused due to hindrances raised by the Central and State Government was not the respondent’s fault. Consequently, the respondent obtained an injunction from the Trial Court barring the appellants from invoking the guarantee. This appeal is against that order of civil judge that barred the appellants from invoking bank guarantee.
1. Whether the bank guarantee was unconditional or contingent
2. Whether the respondent had locus standi to obtain injunction against invocation of guarantee
Specific to the facts of this case, the Preamble of the guarantee stated that it was unconditional and payable without any demur. Moreover, the Appellant was held to be the sole judge and his decision would be binding.
It was dictated that to understand whether the guarantees were conditional or unconditional, the terms would be extremely important. It is an independent contract between the bank and the beneficiary and invocation has to be strictly according to the terms of the guarantee. Bank guarantees have to be in unequivocal terms, unconditional and recite the amount would be paid without demur or objection and irrespective of any dispute.
The Court added that the mere fact that a bank guarantee referred to a principal agreement didn’t make it a conditional one until any clause of the original agreement had been made a part of the guarantee. If a contract of guarantee permitted the creditor to invoke upon the happening of an uncertain future event, the same would be a contingent contract. Till the happening of the said event, the contract would remain unenforceable and the beneficiary has no unfettered right to invoke the same.
The guarantee in the instant case could be invoked only on the application of a written demand of the exact amount sought caused by failure/negligence of the respondent. Thus, the guarantee was not unconditional but a contingent contract according to Section 31.
The terms stated in the Preamble were held to represent the relationship between the Appellant the Bank and not the appellant and the respondent. This essentially meant the Bank couldn’t raise any dispute as to compliance.
Since the appellant hadn’t invoked according to the manner laid down in the terms and for extraneous grounds not found in the terms of the agreement, his claim for invocation couldn’t be validated. Once it is held that the Bank Guarantees are conditional or contingent and enforceable only upon happening of certain events and that those events have not yet happened, the violation of the terms of the guarantee can be regarded as species of the same genus as fraud, which disentitles a beneficiary to enforce the Bank Guarantees
It was decided that by virtue of Section 126, the respondent would have locus standi as he was the principal debtor and the guarantees were furnished at his instance. Thus he would undoubtedly have locus standi.
In addition to the aforementioned issues, the Court acknowledged that the guarantees had been invoked 5 months after termination and was hence not bona fide but an afterthought. Such an act was seen as a case of forgiveness and no damages could be claimed as non-completion was caused by hindrances by the Government.
In conclusion, the Court ordered the respondent to submit Bank Guarantees with renewed validity one month before the expiry of the old ones.
Govt. of Andhra Pradesh & Ors. v. K. Brahnandam & Ors.
Citation: (2008) 5 SCC 241
Single judge bench of Supreme Court
Case number: CA 3043/2008
Relevant Section: 70
Brief Facts: The respondents are 7 school teachers in an upper primary elementary school. However, their selection and appointment was not in consonance to the rules laid down by the Government with regard to appointment procedure in the AP Education Act, 1982 and its Rules, 1993. The respondents claimed they performed to the satisfaction of the authorities but weren’t paid salaries. They then made a representation to the District Education Officer but he rejected it. The Appellant State claimed that the respondents had been appointed hurriedly and through a side door without following due process. Thus the State contested that it was not liable to pay salaries when the educational institution failed to observe selection procedure laid down in rules.
Respondents filed a petition before the Andhra Pradesh High Court which was decreed in their favour. An appeal by the State to a division bench upheld the earlier decree. Hence, this appeal came into being.
Issue: Whether government was liable to pay salaries to school teachers when the educational institution hadn’t followed the prescribed procedure
Ratio: The right to claim salary arises under a contract.
Liability to pay salary could be imposed on the state for recognized schools only when statutory rules were complied with. Herein, there was no legal relation between the State and Respondents but only between respondents and the educational institution.
The respondents couldn’t avail the benefits of Article 14 & 16 for regularization since they rendered services satisfactorily for 8 years on the ratio that only irregularity could be normalized and an illegality couldn’t be ratified.
However, the respondents were entitled to claim salaries from the educational institution alone regardless of the existence of a valid contract by virtue of Section 70. Herein, the principles of quasi contract arose out of the relationship between the parties. The state was not a party as the appointment was illegal and thus the educational institution was even barred from claiming reimbursement.
Mahanagar Telephone Nigam Limited v. Tata Communications Limited
Citation: (2019) 5 SCC 341
Division Bench of Supreme Court
Case number: CA 1766/2019
Category: Quasi Contract, Damages for breach
Relevant Sections: 70, 73, 74
Brief Facts: Appellant had made a purchase order with the respondent. The Purchase Order contained a clause that mandated physical connectivity for bandwidth had to be done within 2 months and the respondent was to provide last-mile connectivity to the appellant. However, the respondent failed to do so and court lacked reliable material to assess damages concerning savings made by the respondent by not complying with the clause. A clause in the purchase order stated that liquidated damages to a maximum of 12% p.a. could be imposed whereas the Appellant unilaterally imposed rentals at their own rate over the fibre to the tune of 1.1 crores. According to the contract, the maximum permissible claim could only be 25 lakhs whereas quantum meruit had been the basis for claim.
1. When parties are governed by a contract whether a claim in quantum meruit under Section 70 would be permissible.
Section 70 falls under Chapter V pertaining to certain relations resembling those created by contract. Compensation quantum meruit is awarded for work or services rendered when the price is not fixed by the terms of a contract.
Section 73 made it evidently clear that damages arising from breach of contract was dealt with differently as compared to damages resulting from obligations resembling those created by a contract. A claim for damages for a quasi-contract would be dealt under the 3rd para of Section 73.
Herein, it would be Section 74 that would apply that deals with damages for breach of contract when penalty has been stipulated. Since a clause stipulated liquidated damages, a higher figure could not be claimed as quantum meruit. Thus, the appellant had no right to charge or claim a higher award than that stipulated in the contract. Hence, the appellant had to refund the additional amount charged after deducting 12% which came to the tune of 25 lakhs.
Principal Commissioner of Income Tax v. NRA Iron and Steel Pvt. Ltd.
Citation: (2019) 10 SCC 206.
Case number: CA 2463/2019
The matter was an appeal against a decision of the Supreme Court as the applicant company wasn’t served with a notice of the Special Leave Petition at the registered office. This resulted in the impugned award being passed ex-parte and the company has thus sought for a de novo hearing. It was found that an affidavit was filed by the revenue department containing a dasti service and an acknowledgement receipt from the company’s Chartered Accountant Mr. Sanjeev Narayan.
The Chartered Accountant claimed that he had received service from the Income Tax Department but hadn’t inspected on a bona fide belief that they were Income Tax Returns documents. The Company submitted that the Accountant was the authorized representative of the company and represented them in all cases. The Department further produced a Power of Attorney in favour of the CA and 3 other representatives of the company and claimed that he had ample time to inform the company about the proceedings.
1. Whether a Power of Attorney would imply agency between the Company and the CA.
An agent would most certainly include a Power of Attorney Holder. Thus, a Power of Attorney holder could be served with the notice of proceedings so as to bind the company.
Company couldn’t claim that a service couldn’t be given to the CA as according to Section 2(35) of the Income Tax Act, 1961 emphasized that a principal officer would include a manager or agent of the authority.
Herein, ample time was given to appear, matter was even adjourned but there was no appearance. The company’s claim that there was a bona fide belief of IT Returns wasn’t credible and couldn’t be given any value.
Virender Khullar v. American Consolidation Services Ltd. & Ors.
Citation: (2016) 15 SCC 308
Case number: CA 4861/2012
Relevant Section: 230
Brief Facts: Appellant wished to sell men’s wear to the 3rd Respondent (Zip Code Inc.) and had entrusted consignments with the 1st Respondent. The 1st respondent later handed over the consignments to the carrier (4th Respondent). Cargo receipts were made to the order of the 2nd Respondent (Bank) in order to ensure receipt of payment from the international buyer. However, the appellant didn’t receive payment even after it reached the destination. A suit was filed against the 1st respondent alone though he had merely received goods on behalf of the buyer.
The bailment agreed showed that after the 1st respondent handed over goods to the carrier, the responsibility would be that of the carrier alone. Additionally, the appellant had made no payment to the respondent for the said consignment. The respondent claimed that he was merely a forwarder and not a carrier and hence prayed exemption from Section 230.
The process was to be such that the 1st respondent was to intimate the buyer once the goods arrived at the destination. Consequently, the buyer would have to inform the bank and pay for the goods and only then would the goods be released by the bank to the buyer. In this case, the bank wasn’t informed about the arrival of goods and had no knowledge.
Suits were filed before the NCDRC and the impugned judgement that resulted in this appeal was caused by the fact that the NCDRC had held only the consignee liable and had exempted others.
1. Whether the respondent was to be held liable for the acts of its principal.
An agent can in no way be held liable for the acts of the principal. Section 230 of the ICA, 1872 exempts an agent from being personally liable to execute a contract entered into between its principal and the appellant.
The respondent had expressly stated it was merely an agent of the 3rd respondent. This agent’s liability was further excluded as the cargo slips held that the respondent agent would not be liable for the consignee’s failure.
The carrier couldn’t be held liable as it fulfilled its duty of shipping to destination and there existed no contract between the appellant and the 4th defendant (carrier). Moreover, the bank could not be held liable as it never received the payment from the consignees. Thus, the liability was held to be that of the 3rd respondent alone who was named in the cargo slips in the consignee and had collected goods without paying money.
Government of Goa v. Goa Urban Co-operative Bank Ltd. & Ors.
Citation: 2010 SCC OnLine Bom 1653, (2011) 2 Mah LJ 37, (2011) 3 Bom CR 382
Division Bench of Bombay High Court at Panaji-Goa.
Case number: FA 201/2006
Relevant Section: 237
Brief Facts: Appellant wished to raise a loan for 9.5 crores and appointed the 3rd Respondent (RBI) as its manager. Subsequently, the Appellant and RBI appointed certain branches of the 2nd Respondent (SBI) as their agent to collect deposits for loan.
The 1st Respondent applied for the allotment of the entire amount at the Treasury Branch of SBI. The said branch was to inform RBI by the evening of May 17, 1993 but informed only on the next day. Due to this delay, RBI made allotment to another party on the 17th and the application made by the respondent couldn’t be considered by RBI.
The deposited amount was finally transferred by the Treasury Branch to the 1st Respondent after a period of 53 days without any interest. The respondent hence filed a suit before the Trial Court which decreed the appellant to pay interest as it was the beneficiary. However, no liability was imposed on SBI. The present matter was an appeal against that decision.
1. Whether state could be held liable for negligence of SBI
2. Whether SBI can be held jointly/severally liable with the State.
If a Principal is the one who has selected the Agent and has delegated performance of acts to the Agent, the Principal should bear the risk. Though Principal hadn’t asked the Agent to act negligently, he can’t escape liability for the same.
RBI was appointed as the Manager for the loan and thus RBI was an Agent to the appellant state. SBI (2nd respondent) which had been appointed by both the State and RBI was thus either an agent to the state or a sub-agent of RBI.
There was negligence on part of SBI who was an agent and thus the Principal would be liable for negligence on part of the agent during the course of employment.
A clause in the agreement stated that refund would be made as soon as possible which was held to imply a period of 7 days. The Respondent was refunded after a period of 53 days without any interest though he had applied within the prescribed time limit with full amount. Thus, the State was liable for the loss suffered by Respondent and the order of the Trial Court was upheld
State contested that the liability should not only be for it, but joint and several upon the State and SBI. Principal held vicariously liable for negligence of Agent whereas Agent still holds the primary liability. Nonetheless, an agent could not be exonerated of his liability and left scot free.Thus, the court held the State and SBI jointly and severally liable
Kailash Nath Associates v. Delhi Development Authority & Anr.
Citation: (2015) 4 SCC 136
Case number: CA 193/2015
Category: Performance of contract, damages for breach
Relevant Section: 63, 73, 74
Brief Facts: The appellant was the highest bidder at the respondent’s public auction and deposited 25% of the amount payable as earnest money. The appellant was asked to deposit the remaining 75% in the next 5 months. However, due to industrial recession, the appellant sought for 2 extensions that were duly granted by the respondent. However, it was 1982 and there was an industrial recession and KNA made representations for extension. Post this, there was no further communication for a period of 43 months despite repeated letters by the appellants.
In 1987, the respondent wrote a letter to the appellant seeking consent for the payment of the remaining 75% but added that it didn’t create any commitment. In 1990, the appellant filed a suit as 2 other allottees had already paid the price and been given the land. Pursuant to this, the respondent terminated the appellant’s allotment by citing failure to deposit the balance amount and forfeited the earnest money. The respondent then re-auctioned the plot for a much greater sum while additionally claiming damages for breach from the appellant.
1. Whether time for performance could be extended
2. Whether the forfeiture by the respondent was valid
Under Section 63 unlike 62, promise can dispense or remit wholly or in part as well as extend the time for performance.
Three months was the initial time frame stipulated by the agreement but the conduct of the respondent was such that it kept granting extensions. Herein, the respondent was the promise and the appellant was the promisor. Thus, the respondent being the promise could unilaterally extend the time for performance in accordance with Section 63 and the same was done for the benefit of the appellant. Hence the extension was valid and it removed the element of time being the essence.
An act of forfeiture has to be in consonance with the terms of the contract and can be subject to the test of Article 14.
The contract stipulated that forfeiture would be permitted only in cases of default, breach, non-compliance or misrepresentation. The appellant hadn’t breached any terms as the respondent himself had extended the time for performance. Moreover, the appellant was ready and willing to perform his part of the contract as evident from the communication made even after 43 months. Hence, since there was no breach of terms, fraud or misrepresentation, the respondent couldn’t have forfeited the amount. Additionally, allowing the respondent to appropriate the earnest money to the tune of 78 lakhs was held arbitrary as there was no loss suffered and the respondent had in fact made a profit of 8 crores by re-auctioning.
Decision regarding Section 74:
If damage or loss is not suffered, the law does not provide for a windfall. The Court held that the said section cut across rules of English common law by enacting a uniform principle for all amounts payable in case of breach, whether in the form of penalty or otherwise.
A plain reading of Section 74 states that it deals with awarding damages for damage or loss caused by breach. Thus, for a party to claim the benefit of Section 74, actual damage is a sine qua non.
Additionally, the court will only award reasonable compensation and a penalty that does not exceed the terms stipulated in the contract. Fixing of reasonable compensation will further be based on the principles laid down under Section 73. They interpreted the term “whether or not actual damage or loss is proved to have been caused thereby” to merely mean that, liquidated damages named in the contract based on a genuine estimate could be awarded, if it was impossible or difficult to prove damage or loss.
However, no loss was suffered by the respondent and thus the benefit of this section couldn’t be claimed.
Anuradha Samir Vennangot v. Mohandas Samir Vennangot
Citation: (2015) 16 SCC 596
Division Bench of Supreme Court
Case number: TP(C) 702/2015
Category: Undue influence, Contract to do something someone is bound to do
Relevant Section: 16
Brief facts: The parties in the matter were a Hindu couple who sought a divorce by mutual consent under the Hindu Marriage Act, 1956. They resided in different states and hence by this petition, sought to transfer the matter pending before a Family Court from Bombay to Hyderabad.
The respondent husband initially sought divorce on alleged grounds of cruelty. Owing to a Supreme Court Mediation Centre for Amicable Settlement, the petitioner wife agreed to divorce by mutual consent whereby the respondent husband would pay a sum of Rs. 12.5 lakhs as alimony for the past and future.
However, the said application contained the fact that the petitioner wife was suffering from a life threatening disease and urgently required funds for medical treatment. The said disease would require about 6-8 cycles of medical care and chemotherapy costing 50000 each.
Whether the court could pass a decree of divorce wherein the wife is in dire need of money and the same is the consideration to dissolve the marriage.
The fact that the wife agreed to divorce due to urgent needs of funds couldn’t be ruled out. The disease compelled the petitioner to agree to divorce by mutual consent. The Court viewed the agreement as nothing but a settlement to dissolve marriage.
Sec. 23 of the HMA, 1956 states that it is the duty of the court to ensure that such consent was not obtained by fraud, force or undue influence. This was linked to Sec. 16 of the ICA, 1872- consent free when not obtained by undue influence. Undue Influence arises when the relation between the parties is such that one of the parties is in the position to dominate the will of the other.
Took into account the doctrine of pre-existing duty. If a party is already under a pre-existing duty, then no consideration is to be given for the modification of contract. Such a contract is therefore voidable. Performance of something one is already bound to do either by general law or specific obligation is not a good consideration for a promise. It is not a legal burden on the promisor, instead relieves the duty.
On applying the said principle to this case, it was decided that it was the duty of husband to take care of health and safety of wife. Primary duty of husband to facilitate treatment for wife. In present case, the court analyzed that the husband was promising to do something which he was already bound to do and thus is not valid consideration.
The husband was asked to pay Rs. 5 lakhs immediately for her treatment while allowing the petition for transfer. The Family court was asked to hear the matter afresh thereafter.
State Bank of India & Anr. v. Mula Sahakari Sakhar Karkhana Ltd.
Citation: (2006) 6 SCC 293
Case number: CA 2801/2006
Category: Guarantee, Indemnity, interpretation of contracts
Brief Facts: The respondent was a co-operative society that owned a sugar factory. In order to make use of the remaining bagasse, they decided to install a paper plant and entered into an agreement with M/s Pentagon Engineering Pvt. Ltd. As per agreed terms, the appellant furnished a bank guarantee in favour of Pentagon.
SBI then furnished the bank guarantee that covered 10% retention amount. Disputes arose later on and the respondent terminated the contract with Pentagon with both of them claiming damages against the other. It was at this stage that the bank guarantees were invoked by the respondent but the appellant refused to accept the same as it contested that no loss or damage had been suffered by the respondent and the bank guarantee was a contract of indemnity. A decision of the High Court ordered the appellant to pay the 10% amount at 14% interest against which this appeal arose.
1. Whether based on surrounding circumstances, the bank guarantee was a contract of guarantee or indemnity
A document is to be construed only with the terms it was formed with and nothing more should be added or removed. Surrounding circumstances are relevant for construction only if there exists any ambiguity.
Contracts of guarantee are usually absolute and unconditional. If the bank guarantee were a contract of guarantee, it would have mentioned “unequivocal condition” “or claim without any delay or demur”. However, the phrasings in this contract weren’t the same and the document expressly mentioned that it was a contract of indemnity and that the bank would indemnify subject to the occurrence of a specified event.
While dealing with the claim of the respondent that all the documents had to be construed their entirety in order to interpret that the document was one of guarantee, the court opined that other documents may be considered if they formed a part of the subject-matter of the contract. Nonetheless, the contract between the respondent and Pentagon didn’t contain any clause requiring the company to furnish a bank guarantee nor did the document mention any particular clause of the contract.
Thus, the decision of the High Court was struck down.
Industrial Investment Bank of India Limited v. Biswanath Jhunjhunwala
Citation: (2009) 9 SCC 478
Case number: CA 4613/2000
Brief Facts: The Appellant sanctioned a short-term working capital loan in favour of a company. The loan was signed by the Respondent who was the company’s director. On the same day, the respondent executed a demand promissory note on behalf of the company in favour of the appellant. The respondent also executed a deed of personal guarantee in favour of the said loan.
The company made multiple defaults thereafter. The appellant issued a demand notice recalling entire loan of 5.4 crore along with 17% interest and 2.1% damages while charging the respondent under Section 138 of the Negotiable Instruments Act.
The Appellant sought to realise the mortgaged assets of the company while additionally pressing the respondent on the basis of his personal guarantee. After a series of proceedings before tribunals and courts, a High Court granted stay against the appellants. This caused the appellant bank to file the present appeal.
1. Whether the liability of a principal debtor and guarantor is co-extensive or alternative
The liability of a principal debtor and guarantor is co-extensive. This was based on the understanding that the very purpose of guarantee would be defeated if the creditor was asked to postpone his remedies against surety.
In this instant matter, the appellant was continuing actions against both the borrower company and the guarantor in different courts. Struck down the High Court’s verdict as it was a crystallized principle of law that the liability would be co-extensive and not alternative.
H.R. Basavaraj (Dead) & Anr. v. Canara Bank & Ors.
Citation: (2010) 12 SCC 458
Case number: CA 233/2003
Category: Quasi Contract, Novation, Continuing Guarantee, Waiver of rights
Relevant Section: 62, 70, 129
Brief Facts: A trust by the name of Lokashikshana Trust (LST) that was involved in the publication of a daily newspaper and some periodicals transferred its property and publication rights to another company. The transferee company then transferred all the rights and liabilities to yet another company. The purpose for such transfers were to protect the business of LST that was undergoing losses.
The respondent sanctioned a loan in favour of the most recent company managing LST’s property and the same was secured by book debts and hypothecation provided by the appellant and other office bearers of the company who even executed a demand note. The appellants even executed an agreement of guarantee for the sum of Rs. 13 lakhs, extendable to a maximum of Rs. 30 lakhs. The bank later initiated proceedings against the appellants for the recovery of loan amount and in ultimatum, an Administrator was appointed as the receiver and was vested with control over the Trist’s property.
The issue pertained to three loans taken by 3 different entities for the management of the Trust.
1. Whether app and his legal representatives were liable to pay the amount for the agreement that was in the form of a continuing guarantee.
2. Whether the parties’ conduct amounted to novation
3. Whether the trust who benefited from the transactions could be estopped from denying liability.
The agreement between the appellant and the bank was that of a continuing guarantee dealt under Section 129 of the Contracts Act. Thus, the guarantee would continue across all future transactions unless expressly disclaimed by the appellant in a written statement (Section 130). However, the deed was such; between guarantor and borrower, the guarantor was merely a surety. However, between the bank and the guarantor, he would be the principal debtor with coextensive liability. Thus, the court held that the appellant had waived his rights conferred under Chapter VIII of the Act.
The Court applied the following principle: In case of waiver of rights by guarantor, there can be no waiver of liability in exercise of these rights.
It is an established principle of law that one has the right to waive the benefits of law provided it is for sole benefit of individual in private capacity and doesn’t affect public rights or policies. Herein, since the appellant hadn’t revoked his continuing guarantee despite newer agreements for loans, the liability stood fastened on the appellant and his legal representatives.
In order for any substitution, novation or alteration to the terms of an agreement, consent of both the parties is mandated by Section 62.
In the present case, the court held that depositing of an amount by a 3rd party towards liquidation of an outstanding amount would not by itself result in novation. App then tried to claim there was alteration as bank had appointed court receiver to deal with hypothecated property. Alteration under 62 would require both parties to voluntarily agree. The bank had no agreement at all and the property fell into the receiver’s hands due to a court order.
Since the board of trustees were competent to take a loan, the administrator appointed by the state took a loan that was deemed on behalf of the trust, the trust being the beneficiary in both the instances would be liable to pay by virtue of Section 70. However, LST’s liability was limited to that of its hypothecated property.
Estoppel is a principle applicable when one person induces another or intentionally causes the other to believe something is true and to act upon such belief as to change his/her position. In such a case, the former is estopped from going back to the word given.
All the transactions entered into since the very beginning were for the benefit of the Trust. The trust had in turn ratified the transactions and benefitted from the same. Thus, the trust being the sole beneficiary was not only liable to pay but also estopped from denying liability.
Central Bank of India v. Virudhunagar Steel Rolling Mills Limited & Ors.
Citation: (2015) 16 SCC 207
Case number: CA 3654/2006
Category: Guarantee, Interpretation of contracts, Contra proferentem
Brief Facts: The 1st respondent received various credit facilities from the appellate bank. The company provided security to the bank in the form of movables as well as raw materials. The loan was subsequently secured by Respondents 2-4 who were Directors of the company by means of a continuing guarantee.
The bank later filed a suit to recover about 4 lakhs. In the meanwhile, another creditor initiated recovery proceedings and recovered his dues from the auctioning the respondent company’s property. A trial Court by its verdict held the respondent company liable while absolving the directors from their guarantee on account of the dues having accrued prior to the execution of the guarantee.
1. Whether a continuing guarantee could be invoked for dues that arose prior to the execution of the guarantee.
The Appellants filed this appeal against that absolving as they contended that the guarantees made no mention as to any specific or liquidated amounts and thus past dues could be recovered from them.
The court read the document of the agreement and found that the directors hadn’t undertaken liability for any previous transactions and had expressly capped theirs at 12 lakhs. However, there was no such agreement or assumption of liability. The rule of Contra Profrentem was applied as there was a doubt in the contract. This principle established that in case of any doubt, the terms would be read against the person that drafted it.
However, this judgement emphasized on the fact that it didn’t mean a guarantor couldn’t be fastened with liability for past transactions. It would be subject to the terms of the agreement and the rule of contra proferentem would arise in case of ambiguities.
Hence, the verdict of the Trial Court absolving the Directos was upheld as the subject matter of the loans herein arose before the execution of the deeds.
The Managing Director, Kerala State Film Development Corporation v. Smt. Chandrakumari
Citation: (2016) 3 KLT 306
Division Bench of Kerala HC
Case number: A.S. no. 846/1998
Relevant Sections: 167
Brief Facts: There was a deliverance of film negatives of the movie “Father Damien” by the respondent to the appellant in this matter. However, the appellant failed to deliver the “goods” back to the respondent or her husband after fulfilling the purpose of development to make the film fit for exhibition. Nonetheless, there was no evidence on record to show that the bailor had taken any steps to recover the goods bailed and mitigate loss. A suit was hence filed to recover damages due to losses caused by the delay in release.
1. Whether a bailee could be held liable to pay damages when the good bailed was taken away by an authority of law and the bailor had not taken any steps to mitigate any loss.
The Court took into account section 161 of the Contracts Act to ascertain the ingredients loss, destruction or deterioration of goods bailed.
The following were laid down as ingredients for liability under 161-
1. Fault of bailee
2. Goods not returned, delivered or tendered at proper time
3. Goods put to loss, destruction or deterioration
A bailor would have to establish the co-existence of all the 3 ingredients and failure to establish any one would be fatal.
The court recorded that possession of goods was lost in the execution of a valid decree and by no fault of its own. In Jugilal Kamlapat Oil Mills v. Union of India AIR 1976 SC 227 it was held that a bailee was excused from returning subject matter of bailment if subject matter was taken away by authority of law.
However, the respondent had not taken any steps as such to ensure delivery. There were claims raised as to issues of video piracy caused by 4-year delay but there was nothing on record to show that the bailor had taken any steps to recover the goods.
Such a step would have mitigated the damages claimed which was essential to determine loss. Nonetheless, the inaction on part of the bailor unjustifiably saddled the burden of loss on the respondent and hence no compensation was awarded.
Mary v. State of Kerala & Ors.
Citation: (2014) 14 SCC 272
Case number: CA 9466/2003
Category: Frustration, Statutory Contracts
Relevant Sections: 56
Brief Facts: Mary was a successful bidder at an auction and obtained the privilege to vend arrack (liquor). In pursuance to the terms of the tender, she deposited 30% of the total sum. However, the residents in that area opposed to the opening of any Abkari (liquor) shops due to religious reasons. Mary understood that it was impossible to run a shop there. Thus, she addressed this issue to those concerned and asked them not to confirm the sale and requested for rescinding while seeking for the 30% deposit. Despite this request, she was asked to enter into a permanent agreement and asked to deposit the balance amount with 18% interest. The appellant’s failure to pay resulted in the forfeiture of the security amount to the tune of 7 lakhs.
The present matter is an appeal against a Division Bench verdict which held that the state was justified in forfeiting the amount due to the parties being regulated by statutory provisions.
1. Whether appellant could invoke Doctrine of Frustration or would the rules of the statutory contract apply or in other words, will a statutory contract destroy all incidents of an ordinary contract under ICA, 1872.
2. Whether Doctrine of Fairness and Reasonableness could be invoked for statutory contracts
Section 56 that deals with Doctrine of Frustration would come into play in ordinary contracts when the question as to position of parties after an agreement becomes invalid is silent. However, in cases of statutory contract where a party takes absolute liability, cannot be exempted from liability
The Court upheld that the appellant had no oblique motive of her own. A plain reading of Section 56 due to the impossibility of performance implied that forfeiture would ideally be illegal. However, the said contract was governed by statutory rules, namely, Kerala Abkari Shops (Disposal in Auction) Rules, 2014.
The position in the case was one in which the consequence for non-performance of contract was provided in the statutory contract itself.
In cases where consequences of non-performance have already been provided in the statutory contract, one cannot take shelter behind section 56. The statutory rules made it evident that forfeiture was guaranteed.
A contract made under a statute or rules involve a licensee undertaking to abide by the terms and conditions and thus cannot invoke the doctrine of fairness and reasonableness.
Appellant tried to raise the doctrine of fairness and reasonableness against certain rules that gave an unequal bargaining power. The intention was to subsequently strike down the forfeiture as arbitrary. Court reasoned the above doctrines were for acts that were administrative in nature. The same couldn’t be invoked to amend, vary, alter an express term in the contract. This rule would even carry on to statutory contracts.
The appeal was dismissed against Mary.
M/s Panjwani Packaging Ltd. & Ors. v. Allahabad Bank
Citation: 2015 SCC OnLine Del 7904,
Division Bench of Delhi High Court.
Case number: WP (C) 1803/2015
Category: Quasi Contract
Relevant Section: 72
Brief Facts: The petitioner was a company and the 2nd Petitioner was its Director. The petitioner had a current account in the respondent bank. In 1992, the bank had credited over 28 lakhs to the account of the petitioner company which the petitioner withdrew. The bank later made another credit on a later date which the petitioner withdrew again.
The bank was then called upon by the Income Tax Authority to present the statement of account of the petitioner company. It was this event which resulted in the respondent bank realizing that it had made an erroneous double credit in favour of the petititioner. The respondent asked the petitioner to return the amount but they refused.
A suit filed before the Debt Recovery Appellant Tribunal decreed in favour of the bank, thus resulting in this appeal by the petitioner company.
1. Whether the petitioner was bound to repay the erroneous credit
2. Whether the suit was barred by limitation
Settled principle of law that any payment made voluntarily or under a mistake of law or fact can be recovered once mistake has been established.
The Court observed that the amount wrongly credited was in the form of a liability owed by a customer to the bank. Section 72 would apply in this matter due to the issue of unjust enrichment.
Mistake under sec. 72 could have been could have been inadvertently or the result of commission or omission of a 3rd person (including employee, agent etc.) actuated by intent to deceive or defraud. Such a liability owed by a customer to a bank is a debt that can be raised before a Debts Recovery Tribunal.
The bank had no knowledge of such an error for 3 years, thus could claim defense under section 17 of limitation act.
Petition dismissed in limine and the order of the Debt Recovery Appellate Tribunal was upheld.
Suresh Kumar Wadhwa v. State of Madhya Pradesh & Ors.
Citation: (2017) 16 SCC 757
Case number: CA 7665/2009
Category: Formation of contracts
Brief facts: Respondent published an advertisement for public auctioning of 4 Nazul plots. Appellant was the highest bidder for one of the plots and furnished all relevant documents and deposited 3 lakhs as a security deposit. He then paid up for 1/4th of the of total amount as per conditions. After such payment, the respondent sent a notice telling that the plot was subject to special Terms and Conditions (T&C).
The appellant contended that this wasn’t published earlier and thus declined the T&C and sought to recover the 3 lakh deposit.
A few days later, the amount was forfeited. Appellant filed a suit to recover the said amount with interest as the T&C wasn’t a part of the original public auction and there was no clause as to forfeiture.
1. Whether appellant breached the T&C of the public auction
2. Whether the state was justified in forfeiting the money and had the power to do so
With regard to the 1st issue, the court recorded that the appellant hadn’t breached any of the T&C and had complied with all published terms.
Emphasis was placed on Section 74 to state that in order to forfeit, the contract must contain a stipulation of forfeiture. Right to forfeiture is a contractual right that is penal in nature and has to be stipulated by the parties in the contract. If no such stipulation has been made, there can be no right to forfeit.
A party to the contract has no right to unilaterally alter or add any additional T&C to a contract unless they both agree. Such an addition is not binding on the other party and the other one has no right to insist on performance.
No condition had been provided by the state during the time of the auction and neither was any provision made for forfeiture. It was ordered that the state should have mandatorily published those at the time of inviting bids as the bidders were entitled to know before making a decision.
The objects behind publishing all material items were laid down as follows:
1. To make them known to contracting parties
2. Make them aware of their rights, liabilities and consequences.
3. Empowers state to impose terms in case of breach
4. Express terms in contract/public notices make parties bound to them and their rights are subsequently determined in light of the same.
Hence, the appellant had the right to stop all further payment and get out of the contract and such an act wouldn’t amount to breach. The respondent state was thus directed to pay 3 lakhs along with 9% interest. Moreover, the respondent was directed to bear costs of Rs. 10000 as 21 years of litigation had passed.
Aloka Bose v. Parmatma Devi & Ors.
Citation: (2009) 2 SCC 582
Case number: C.A. 6197/2000
Category: Agreements, unilateral and bilateral agreements
Relevant Section: 10
Brief Facts: By a written agreement, Kanika bose had agreed to sell a part of a house to the Respondent (Parmatma Devi). Respondent transferred a portion of the entire amount as earnest money on the condition that the person selling would execute the sale deed within 3 months. However, Kanika Bose failed to execute and a suit for specific performance was filed which was decreed in favour of the respondent.
The present matter is an appeal by the legal heir of Kanika Bose as she died during the pendency of proceedings.
1. Whether an agreement of sale executed only by vendor but not purchaser is valid
An agreement of sale cannot be unilateral as that would refer to a gratuitous promise where only one party makes a promise without a return promise. All agreements of sale are bilateral contracts promised by both. However, an agreement of sale could be oral. Moreover, such an agreement would come into existence when a vendor agrees to sell and the purchaser agrees to buy. In such a situation, it can be through any exchange of communication whether or not signed.
The possible instances for valid contracts were hence laid down:
1. A single document signed by both
2. A document in 2 parts with one having the part with the sign of another
3. By a vendor executing a doc and delivering it to a purchaser who accepts it.
For an agreement to be a contract, it would have to fulfill Section 10- free consent, competent parties, lawful consideration, lawful object and not declared to be void under the Indian Contracts Act. However, the Court added that the proviso to Section 10 made it clear that it won’t apply to those that are required to be made in writing or in the presence of witness or registered
The practice of vendor alone signing a contract held to be common. The Court added that there was no practice of a purchaser alone signing the contract.
Notion of “subscribe their respective hands and seals” in a contract held to be archaic.
In the instance case, the intention was derived to be such that the signature of the vendor alone would suffice based on the communication between parties and payment of earnest money. Order of lower courts upheld as the respondent was entitled to specific performance.
State of Haryana & Ors. v. Malik Traders
Citation: (2011) 13 SCC 200
Case number: CA 7033/2011
Category: Agreements, Revocation of acceptance
Relevant Section: 5
Brief Facts: Appellant State had invited tenders for appointment of an agent for the collection of toll in which the respondent was the 2nd highest bidder. The Terms & Conditions (T&C) of the bid made it clear that each bidder was to keep his bid open for acceptance for a period of 90 days and any communication of acceptance dispatched within the 90 days would be binding on them. A clause for forfeiture was enclosed in the T&C in case a bidder withdrew or modified his bid.
The highest bidder failed to pay the first installment and thus the respondent was sent a letter of acceptance to pay security amount and first installment within 21 days. However, 11 days prior to this issuance of acceptance by the appellant, the respondent had written a letter stating it wasn’t interested and sought a refund of the security amount of 20 lakhs already deposited at the time of the bid. Subsequently, the respondent didn’t make any payment and the security deposit was cancelled.
The respondent thereafter filed a petition seeking the quashing of notice that forfeited their security amount in the bid. The High Court passed an order in favour of the respondent, resulting in this appeal.
1. Whether the appellant could forfeit the security deposit despite communication of revocation
Communication of revocation subject to terms of agreement between parties.
Section 5 states that a proposal can be revoked before communication of acceptance is complete as against the proposer. The right to withdraw an offer before its acceptance cannot nullify the agreement to suffer any penalty for the withdrawal of offer against the terms of the agreement.
If a person makes an offer on the condition that the security amount could be forfeited in case of withdrawal, then such forfeiture does not affect Section 5 of the Act. The purpose of such forfeiture was held to ensure genuineness of parties and ensure that those who are not interested or incompetent do not contract.
In the present case, the appellant had communicated within the 90-day period and thus the forfeiture was valid as the respondent was bound by the agreement. The order of the Punjab & Haryana High Court was set aside.
Braja Gopal Ghosh v. Central Coalfields Limited & Ors.
Citation: 2013 (2) AJR 17, 2013 (137) FLR 21, MANU/JH/0070/2013
Single Judge Bench of High Court of Jharkhand at Ranchi
Case number: W.P. (S) No. 5388/2006
Category: Unsoundness of mind, revocation
Relevant Section: 5, 12
Brief Facts: The petitioner was a government employee who suffered from depression, nervousness and a physiological problem. He was subsequently diagnosed with Severe Depression Psychosis. While suffering from the illness, the petitioner tendered a resignation and the same was accepted. Before the acceptance of the resignation, the petitioner’s wife also wrote letters and made representations describing her husband’s condition but to no avail.
Two representations were made before a competent authority citing the condition but was rejected both the times.
1. Whether the petitioner’s resignation was valid in law
Suffering from Severe Depression Psychosis constituted unsoundness of mind under Section 12.
Section 5 of ICA, 1872 entitles a party to withdraw before the same has been accepted.
Tendering of resignation by a government servant becomes final only when accepted by a competent authority.
Herein, the petitioner’s wife had written letters that were duly stamped and sent to the right postal address and the incapacity of the petitioner validated such revocation. The facts and material circumstances conveyed that he was suffering from mental illness before such resignation and had written the said letter of resignation under that unsoundness.
Had it not been so the letter of withdrawal would have been written by the petitioner himself.
Raja Ram v. Jai Prakash Singh & Ors.
Citation: AIR 2019 SC 4374, (2019) 8SCC 701, MANU/SC/1231/2019
Case number: CA 2896/2009
Category: Undue influence
Relevant Sections: 14, 16
Brief Facts: The appellant was the respondent’s uncle. It was the contention of the appellant that the respondent and his family had obtained a sale deed in their favour from the appellant’s father fraudulently, by deceit and undue influence. The appellant’s father was over 80 years of age and suffered from visual and auditory impairment. The father later died and the appellan challenged the said transfer of property.
1. Whether the deceased father had capacity to execute the deed
2. Whether the respondent’s father and mother exercised undue influence on grounds of physical infirmities.
When there is a question of good faith in a transaction between parties, the burden of proving good faith of the transaction is on the party who is in a position of active confidence. The said principle has been derived from Section 111 of the Indian Evidence Act, 1872.
The Court relied on the definition of “impairment” as laid down by P. Ramanatha Aiyar in The Advanced Law Lexicon, 3rd Edition, 2009: impairment in relation to a human being as total or partial loss of a body function, total or partial loss of a part of the body, malfunction of a part of the body and malfunction or disfigurement of a part of the body.
Mere old age cannot be equated with complete loss of mental faculties. Ageing is a process which affects individuals differently at distinguishable ages. Hardness of hearing by old age cannot be equated with deafness.
In this matter, apart from the claim of mental impairment, there was no evidence. Furthermore, the deceased had even appeared before a sub-registrar for registration and had signed and executed in his presence. In addition to that, the deceased had executed a sale deed 2 years prior to the suit property which hadn’t been challenged. Thus, as no evidence as to deterioration had been proved in the 2 years’ gap, the deceased had capacity.
In every cast, creed, religion and civilized society, looking after the elders of the family is considered a sacred and pious duty. Direct inference of undue influence merely because a sibling was looking after the family elder, is an extreme proposition which cannot be countenanced in absence of sufficient and adequate evidence.
Onus of proving undue influence under Section 16 would shift to the respondent only after the appellant has established a prima facie case. In the absence of any evidence, mere claims cannot suffice.
It was held that the original Defendants (respondent’s father and mother) were in a fiduciary relationship with the deceased. Such a conduct could have influenced the thinking of the deceased but that per se couldn’t lead to the conclusion that they were in a position to dominate the will of the deceased or that the sale deed executed was unconscionable.
A principle to the contrary would create doubts and apprehensions in the minds of those taking care. Hence, appeal was dismissed due to the lack of material evidence.
Soma Devi v. Mast Ram
Citation: ILR 2016 6 HP 596, MANU/HP/1430/2016
Single Judge Bench of High Court of Himachal Pradesh at Shimla
Case number: R.S.A. No. 243/2013
Category: Undue Influence, Duty of propounder of will, duty of person claiming undue influence
Brief facts: The petitioner was the wife of one Paras Ram. Paras Ram suffered from a long ailment and died issueless while leaving a will in favour of Mast Ram (respondent). The petitioner sought a permanent injunction against the will as she contested that Paras Ram was of an unsound mind and had executed such will under undue influence exercised by the respondent.
The petitioner contested that the will was fictitious whereas the respondent contended that the will was executed due to the services rendered by him to Paras Ram. The present matter is an appeal against verdicts of a Trial Court and an appellate court that decided against the petitioner.
1. What is the onus on the person claiming fraud, undue influence, coercion etc.
A party pleading undue influence must plead the precise nature of the influence exercised, the manner of use of the influence and the unfair advantage obtained by the other.
There is a general presumption that a registered document such as a will has been validly executed.
A party claiming fraud, undue influence etc. has to comply with Order 6 Rule 4 of the Civil Procedure Code which states: “In all cases in which the party pleadings relies on any misrepresentation, fraud, breach of trust, willful default, or undue influence, and in all other cases in which particulars may be necessary beyond such as are exemplified in the forms aforesaid, particulars (with dates and items if necessary) shall be stated in the pleading."
If suspicions arise surrounding the will, it becomes the duty of the propounder of the Will to repel all the suspicious circumstances surrounding the Will and to prove its genuineness. A propounder (the respondent herein) would also have to prove:
(i) the Will was signed by the testator
(ii) At the relevant time, testator was in sound disposing state of mind
(iii) Testator had understood the nature and effect of depositions and had put his signature on the document of his own free volition and will.
Taking into account the statements of various witnesses, the Court established that there was no unsoundness of mind for the Testator. The appeal was thus dismissed due to want of merit.
Bachchi Devi & Ors. v. Radheshyam Gupta & Ors.
Citation: 2019 (2) CGLJ 1, MANU/CG/0133/2019
Single judge Bench of the High Court of Chhattisgarh at Bilaspur
Case number: Second Appeal 65/2003
Relevant Sections: 17, 19
Brief Facts: One Chunnilal, (a brother amongst 3) executed a sale deed in favour of the respondent. The original plaintiff was Sonsai (Chunnilal’s brother) who died during the course of suit, alleged that the deed was executed by fraud as Chunnilal had been taken for treatment during that time.
However, Chunnilal only had 1/3rd of the share in the transferred property and was under no necessity to sell. On a suit, a trial court held that despite the deed being fraudulent, it didn’t attract Section 19 of ICA as he didn’t challenge the sale deed during his lifetime.
1. Whether the original plaintiff (Sonsai) had the right and authority to question the sale deed
2. Whether the alleged sale deed, though obtained by causing fraud is only voidable and cannot be set-aside by declaring void by operation of Section 19 of the Indian Contract Act, 1872?
It is open to the heirs of the executant of a document to raise the plea of fraud vitiating it.
The Court acknowledged that Sonsai was Chunnilal’s brother and had all the right and competency to question a transaction that was supposedly obtained by fraud. Moreover, Chunnilal had no absolute right to transfer the entire suit property.
There is a distinction between fraudulent misrepresentation as to the character of the document and that of the contents of the document. In case of fraudulent as to the character of the document, such a contract becomes void whereas with regard to contents, it becomes voidable.
Fraud under Section 17 was interpreted by the judge to imply that there is an intention to deceive and gives right to action ex delicto in addition to its effect of avoidance of the contract.
Right of a party defrauded is not affected by the mere lapse of time so long as he remains in ignorance of the fraud. The period of limitation commences from when it comes into knowledge.
Section 19 lets the contract be voidable at the option of the aggrieved party. In case of fraud or misrepresentation he may either choose to avoid the contract altogether or may insist on the same being carried out subject to his right of being put in the same position in which he would have been if the representation made had been true. The explanation to this section enunciates the well-established rule that a deceit which does not deceive is not fraud.
Herein, Chunnilal’s deed was executed by fraud without any consideration as he thought it was under the pretext of getting medical aid. Thus, there was fraud as to the character of the deed and the deed was void. Since Chunnilal was seriously ill, he couldn’t challenge it and thus the same wouldn’t bar the Plaintiff from questioning the sale deed as he was a successor in interest.
Union of India v. L.S.N. Murthy & Ors.
Citation: (2012) 1 SCC 718, 2012(1) ALL MR 963, MANU/SC/1377/2011
Case number: C.A. 2755/2007
Category: Void agreements
Relevant Section: 23
Brief Facts: The respondent was engaged in the supply of fresh fruits to the troops of the Appellant. However, the prices of fruits increased across all varieties and the respondent had to stop supply as it found it impossible to perform its part. Thereafter, the appellant rescinded the contract with the respondent, forfeited security deposit and stated it would recover costs for supply during the term of contract from the respondent.
There were counterclaims as the respondent sought to recover over Rs. 12 lakhs for the fruits supplied under the contract whereas the Appellant claimed Rs. 5 lakhs for the fruits supplied after the respondent stopped supply within the term of the contract. The matter went before an arbitrator and post 2 unsuccessful appeals, the respondent appealed to the Supreme Court.
It is pertinent to note that the Arbitrator held that the contract was void ab initio as the Ministry of Defense had notified by a letter that any tender quoting 20% lesser than reasonable rates should be fictitious and be rejected. The respondent’s tended fell under this bracket. The reasoning attributed was the said letter was a law and being in contravention of it made the agreement void under Section 23.
1. Whether the agreement was violative of Section 23 of the Indian Contracts Act, 1872 and hence void ab initio.
Section 23 of the Indian Contract Act states that the consideration or object of an agreement is lawful, unless the consideration or object of an agreement is of such a nature that, if permitted, it would defeat the provision of law and in such a case the consideration or object is unlawful and the agreement is void.
The word “law” under Section 23 is limited to the expressed terms of an Act of the legislature alone.
Unless the effect of an agreement results in performance of an unlawful act, an agreement which is otherwise legal cannot be held to be void. I the effect of an agreement did not result in performance of an unlawful act, as a matter of public policy, the court should refuse to declare the contract void with a view to save the bargain entered into by the parties and the solemn promises made there under.
Court relied on Article 13(a) to further understand the meaning of the word “law”. However, the said definition pertained acts concerning abridging of fundamental rights. The letter written by the Ministry of Defence was not an act of the legislature but merely an instruction issued to the appellant.
Hence, that aspect of the Arbitrator’s award was set aside and the case was remitted to the arbitrator to decide with regard to the facts and circumstances.
Kanchan Udyog Limited v. United Spirits Limited
Citation: (2017) 8 SCC 237, MANU/SC/0699/2017, (2017) 5 MLJ 616
Case number: C.A. 1168/2007
Category: Damages for breach of contract, waiver, reliance and expectation loss
Relevant Section: 63, 73
Brief Facts: The appellant (Kanchan Udyog) entered into an agreement with the Respondent for the establishment of a non-alcoholic beverages bottling plant and sale under the respondent’s trade mark. To facilitate the same, the appellant obtained a loan to set up the specialized plant. Nonetheless, within a year of commencing production, the respondent terminated the bottling agreement and ceased production. A single judge bench of the West Bengal High Court ordered 4.4 crores as compensation for costs of setting up and loss of anticipated profit whereas a Division Bench reversed it.
1. Whether respondent was liable for the loss caused to the appellant
2. Whether there was waiver of rights under the contract
3. Whether the appellant could claim reliance loss or expectation loss
In certain instances, the breach may have given an opportunity to incur the loss but not the loss itself. It is essential to understand the causal link to ascertain the remoteness of damages. Principle of causation was incorporated to ascertain loss of anticipated profits by breach of agreement.
In this case, the loss was caused by a composition of various factors like lack of brand acceptance, poor marketing by the appellant, appellant’s financial crunch and lack of adequate manpower and thus the claim for damages was remote.
Moreover, the appellant had projected that it expected to incur losses for the first 6 years and thus there was no question as to loss of profit due to the inability of the appellant. The appellant had taken no real steps to mitigate any losses whereas the respondent was in talks with Pepsi to purchase the said plant. Though the contract was terminated in 1988, the appellant took no steps to utilize or sell the plant until the auction sale in 1996. All these factors conveyed lapses on the part of the appellant.
A unilaterally projected profitability such as that in a loan application is an insufficient basis to assess damages. The reason being, they exclude various factors and profits are overstated to ensure that loan is approved.
Hence, the breach by the respondent could not be seen as primary cause for loss of anticipated profits and there was no causation between the breach and loss.
Waiver involves voluntary relinquishment of a known legal right, evincing awareness of the existence of the right and to waive the same. The principle for waiver lies in Section 63 of ICA, 1872
If a party entitled to a benefit under a contract, is denied the same, resulting in violation of a legal right, and does not protest, foregoing its legal right, and accepts compliance in another form and manner, it it said to have waived or acquiesced its rights under the contract.
The appellant didn’t take a recourse to any legal remedies for denial of its legal right to receive concentrates from the Respondent, and continued to obtain the same from another company and thus waived its right to that extent.
Reliance loss and expectation loss are mutually exclusive and if a person claims one, he is precluded from claiming the other else it would result in double counting.
Through the use of expectation interest, the aim of law is to protect the innocent party's defeated financial expectation and compensate him for his loss of bargain, subject to the rules of causation and remoteness. The purpose of protection of reliance interest is to put the Plaintiff in the position in which he would have been if the contract had never been made. (The Court relied on Pullock & Mulla, 14th Edition, Volume II, page 1174).
Appellant failed to take steps to mitigate it losses under the Explanation to Section 73 of the Act and it was its own inability and lapses that resulted in losses. Thus, the appellant couldn’t claim any expectation loss towards anticipated profits. Learned Single Judge of the High Court had already awarded compensation for 1.6 crores out of the total 2.52 crores expended for setting up the plant. Thus, reliance loss also couldn’t be awarded as it would result in giving benefit to the appellant for what was essentially its own fault. The appeal was thus dismissed due to want of merit.
Sankar Chandra Saha v. Badal Krishna Pal
Citation: 2017 SCC OnLine Cal 9544, 2017 4 CCC 320
Division Bench of Calcutta High Court
Case number: FA 14/2017
Category: Formation of contracts, unilateral agreements
Brief Facts: The appellant had agreed to transfer property to the respondent for Rs. 35 lakhs. The said property was under a mortgage and the appellant had assured that he would redeem the mortgage with earnest money paid by the respondent and obtain a clearance certificate from the bank as well as local municipal authority. The deed hadn’t been signed by the respondent in this matter and was only signed by the vendor. When the appellant failed to perform his part of the obligation, the respondent filed a suit for specific performance of a unilateral contract.
1. Whether a unilateral contract was enforceable
The respondent had paid the appellant about 6 lakhs as part consideration.
Considering the conduct of the parties, court held that the offer made by appellant had been accepted by the respondent through his conduct. Thus a unilateral contract matured into a concluded contract. Held it was a case of a contract that was executed by the vendor and accepted by the purchaser who also paid 6 lakhs as consideration money. Contract held to be a concluded one for which a suit for specific performance could be awarded.
Bina Rani Sarkar v. Hashi Rani Ghosh
Citation: 2013 SCC Online Cal 22881, (2014) 2 CHN 523
Single Judge Bench of Calcutta High Court
Case number: S.A. 20/2013
Category: Time as essence of contract
Brief facts: The appellant (Bina Rani) agreed to buy certain property from one Birendra Kumar Ghosh. On payment of advance, Birendra stated that he would execute the deed within 60 days of receipt of the balance money. The appellant filed a suit for specific performance when Birendra failed to perform his part of the contract and sought to cancel the agreement with the appellant due to delays.
1. Whether time was of essence of the contract
2. Whether the appellant was ready and willing to perform the contract
The Court recorded that the deed made no mention as to the time for performance for contract and the appellant was not in a financial position to pay the balance amount after the payment of balance. The acts of the respondent such as immediate compliance with terms of the agreement and quick search for another buyer when the appellant failed to pay, conveyed that time was of the essence of the contract to him though not expressly stated.
Even when time is not of essence, one has to perform within reasonable time based on surrounding circumstances, express terms of contract and the nature of property. When parties have prescribed certain time limit, it cannot be ignored altogether merely because time was not held to be of essence.
The Court also held that escalation in the price of property was also an important factor and that the respondent couldn’t be expected to wait for an indefinite period at the sweet will of the appellant. Thus, time was of the essence of the contract and the contract was validly cancelled due to the delays caused by the appellant.
Relying on a Supreme Court decision (1996 4 SCC 526), the court held that readiness meant the capacity of the person to perform the contract including financial capabilities and willingness could be inferred from the conduct. In this matter, the appellant wasn’t ready due to financial constraints and was unwilling based on her conduct such as not complying and following up on agreed terms.
Canara Bank v. United India Insurance Co. Ltd. & Ors.
Citation: (2020)3 SCC 455, (2020) 1 WBLR (SC) 511
Division Bench of the Supreme Court of India
Category: Privity to contract, Bailment, Interpretation of insurance contracts, assessment of damages
Brief Facts: A group of farmers who mainly grew Byadgi Chilli Crop along with some other crops stored their agricultural produce in a cold storage. The farmers had obtained loans from the appellant bank and security was provided in the form of the said produce stored in the cold storage.
A fire broke out in the unit and the entire cold store and agricultural produce was destroyed. The storage was insured but the insurance company refused to pay on the grounds of violation of a clause and lack of privity of contract between the insurance company and farmers.
The farmers filed a total of 91 claim petitions against the cold store, bank and insurance company for the price of agricultural produce on the day of fire in addition to damages. It is pertinent to mention that the farmers had to pay a price for the insurance premium while paying for the cold store units.
1. Whether there was privity of contract between the farmers and the insurance company
2. Whether goods were handed over by the farmers to the cold store on the basis of trust
3. Whether the market price on the day of fire would be a sound basis to assess damages
As long as it wasn’t insured who was responsible for the loss, the insurance company could not escape its liability.
Section 2(d) of the Consumer Protection Act, 1986 was wide enough to include beneficiaries of services i.e., a person other than the one who hires or avails services. They are consumers having locus standi to sue not because they are parties to the contract of insurance but because they are the beneficiaries of the policy taken out by the insured.
Based on this principle, there was no need for privity of contract between the farmers and the respondent insurance company. The reason being, the farmers were beneficiaries of the policy that was taken by the cold store unit as a separate policy was taken for produce. It is not necessary that those beneficiaries should be parties to the contract of insurance.
Interpretation of policy: The policy coverage provisions are to be interpreted broadly and in cases of ambiguity, be resolved in favour of insured. However, exclusion clauses are to be read narrowly.
In present case, the loan giving bank wanted the stock to be insured, the cold store charged insurance premium in the rent, and the farmers paid for such premium. Thus there was a clear intention that the farmers would be compensated in case of loss and couldn’t be excluded.
Goods delivered by bailor to bailee for possession on payment of rent amounts to a relationship of bailment.
An exclusion clause in the policy stated that goods held in trust would not be covered which the respondents sought to claim to avoid liability. The farmers paid consideration in the form of rent and possession was also handed over and thus satisfied Section 148.
Thus, insurance company liable to indemnify cold store and beneficiaries entitled to amount payable under this policy.
The farmers claimed the amount of the Byadgi chillis on the day of the fire. However, such a claim was not plausible as the price of the said produce varied from Rs. 32/kg to Rs. 173/kg based on quality. The only evidence for value of goods was the warehouse receipts signifying a bona fide estimate of the value of the goods by the farmers themselves. There was no mention as to quality and thus the claim for market price couldn’t be approved. The self-estimated warehouse receipts were approved only because the farmers had made a bona fide assumption while not knowing that these goods would get destroyed later on and that they would be able to claim its value.
In conclusion, the appellant Bank was entitled to recover principal amount advanced by it to each farmer whereas the insurance company liable to pay value of goods along with Simple interest @ 12% p.a.
Rajaram N.S. Bandekar & Company Pvt. Ltd. & Anr. v. Oriental insurance Company Ltd. & Anr.
Citation: (2009) 3 BOM CR 852, 2008 SCC OnLine Bom 1090
Division Bench of Bombay High Court (Panaji bench)
Case number: FA 6/2004
Category: Bailment, Repudiation of insurance
Relevant Section: 148, 151
Brief Facts: The 1st petitioner (Rajaram) had handed over his barge to the 2nd petitioner pursuant to an agreement of sale which however couldn’t take place as it was hypothecated to a bank. The 2nd Petitioner took the barge to the 2nd Defendant’s (hereinafter D2) yard to carry out major repairs as the barge was not seaworthy. A clause in the agreement stated that D2 wouldn’t be liable for any natural calamities, unavoidable circumstances and that repairs would be carried out at the owner’s risk.
On the instance of D2, the 2nd petitioner insured the barge with a policy from the respondent company. Subsequently, due to heavy rains, the barge was completely flooded and destroyed when at D2’s yard. The insurance policy came into effect exactly on the day of the incident and was thus liable to be covered.
Based on findings, a trial court recorded that no contract of sale had taken place and it was fictitious. Moreover, it was held that the barge was towed to D2’s yard by the 2nd petitioner at the instance of the 1st petitioner.
1. Whether D2 was liable to pay damages to the 1st petitioner
2. Whether repudiation of policy by the respondent insurance company was valid
A bailee can be held liable to make good the loss when there is negligence on his part. Under all circumstances of bailment, a bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would in similar circumstances.
Burden to not lie on bailor to prove loss or damage was caused by negligence rather the bailee has to discharge the same by leading his own evidence or taking benefit of the evidence given by the plaintiffs.
In the present case, D2 was a bailee and had to satisfy Section 151. Upon examination of the Petitioner Witness’ statement, the court came to the conclusion that D2 had taken efforts to save the barge and that is was tied to bollards. Attempted were made to pump out the water but heavy rain caused accumulation of water inside the barge. Herein, there was no negligence on part of D2 and was thus not liable to pay any damages to the 2nd petitioner.
There was no privity of contract between the petitioner and D2 in the present case as all communication exchanged was between the 2nd petitioner and D2. Thus, the petitioner couldn’t claim damages from D2 either.
Even a bailee has insurable interest to protect the property in a contract of insurance. However, a policy of insurance can be vitiated by fraud and misrepresentation. In case of a suppression of fact, acceptance of policy would not be binding on the officer.
The Trial Court had ruled that the 2nd petitioner had no insurable interest in the suit barge. Nonetheless, the Court proceeded on the assumption that he had an insurable interest as he had taken the same as a bailee from the petitioner.
The 2nd petitioner had misrepresented the respondent by showing his name as owner whereas all documents stated that the petitioner was the owner. It was also misrepresented that the barge was a sea-worthy vessel whereas it had been salvaged a week prior to the accident and was in a state of wreck. If these facts were disclosed to the respondent, he would not have issued insurance and was thus liable to be repudiated.
The appeal was said to have no merit and the petitioners were held to be jointly and severally to pay 5000 each to the respondent and D2.
International Airport Authority v. Televista Electronics (Pvt.) Ltd.
Citation: 2011 SCC OnLine Del 3178
Single Judge Bench of Delhi High Court
Case number: RFA 425/1999
Category: Bailment, sub-bailee, privity of contract
Brief Facts: The respondent (Televista) had booked a consignment of Integrated Circuits via a carrier M/s KLM Airlines which was received by the Appellant (Airport Authority). However, the goods went untraceable and the appellant lost custody. A suit was filed to recover damages which was decreed in favour of the respondent.
1. Whether there was privity of contract between the appellant and Respondent
2. Whether provisions of bailment under the ICA, 1872 would apply to a matter under Carriage by Air Act, 1972
Well settled that sub-bailment can arise even when there is no contract and sub-bailee is bound by the obligations of the bailee qua the bailor. Contract Act is not exhaustive of all the cases of bailment.
If originally bailor sues the sub-bailee, he needs to prove only that act of the sub-bailee which was wholly inconsistent with the sub-bailee’s duties qua original bailee. Bailor can directly sue sub-bailee for value of goods that have been lost.
The appellant was the handling agent of the carrier KLM Airlines with whom the goods were entrusted as a bailee. Thus, the status of the appellant was that of a sub-bailee. The appellant even admitted that he was an agent to the carrier and had thus stepped into the shoes of the carrier and couldn’t escape liability. Impleading of carrier as a party not necessary as there was privity of contract.
Certain commercial practices involve sub-bailing such as a carrier going long distances appointing a sub-contractor as a local delivery agent.
If a liability of bailee is governed by a special act, the liability of the sub-bailee would also be governed by that special Act. Provisions of bailment under Sections 151 and 152 of ICA, 1872 wouldn’t apply in cases of the relationship of bailment being governed by a Special Act. The reason being, a carrier could otherwise avoid strict liability by making a sub-bailment which would destroy the purpose of the Carriers Act.
Carriers Act imposes strict liability similar to that of an insurer and the normal law of bailor-bailee couldn’t apply to absolve liability. Hence, the appellant couldn’t plead Section 151 & 152 of the Act of 1872 when he was strictly liable under a Special Act.
Vijay & Sons, Mungavali v. Shivpura Guna Kshetriya Gramin Bank
Citation: 2016 (3) M.P.L.J.
Division bench of Madhya Pradesh High Court at Gwalior
Case number: FA 144/2007
Relevant Section: 176
Brief Facts: The appellant (Vijay) had taken a loan from the respondent bank and pledged goods stored in the 2nd Defendant’s (hereinafter D2) warehouse under Section 176 of the ICA. Vijay gave the bank the authority to sell the food grains in the warehouse in case of non-payment. Subsequently, the appellant took more loans and pledged more receipts for goods stored in D2’s warehouse.
Over time, the appellant could only make part payment of the loan, resulting in the respondent bank initiating proceedings for recovery. Due to his poor financial situation and further inability to repay, he requested the bank on multiple occasions to sell the food grains pledged which were of a higher amount than that due.
The respondent initiated different suits for recovery of different sums but the Trial Court came to know that the pledged receipts for the goods were forged and that proceedings had been initiated against D2 for fraud. This appeal challenged that order of the Trial Court which entitled the respondent bank to recover the sums from the appellant.
1. Whether a pawnee can file a suit for recovery only after it has sold the pledged goods.
From perusal of 176, court held that a pawnee had 3 rights:
1. Bring a suit upon debt
2. Retain pawn as collateral security
3. Sell it after giving pawnor reasonable notice of sale.
A pawnee cannot have payment of debt as well as retainment of goods.
Pawnee though entitled to retain pawn, has to redeliver them on payment of debt. The right to sue for debt is formed on this assumption that the pawnee is in a position to redeliver the goods. Thus, if a pawnee has put himself in a position whereby he cannot redeliver the goods, he cannot obtain a decree.
A Pawnee has both collateral and a concurrent rights and can institute suit to realize debt while retaining the goods as concurrent security. Sec. 176 vests a pawnee with discretionary power to choose from different options. Mere institution of suit to realise amount due does not take away the pawnee’s right in respect of pledged goods.
Herein, no steps taken by the respondent to recover the goods pledged or even obtain possession for that matter. Hence in this matter, the respondent could not be allowed to recover debt as well as retain pledged goods and it was additionally not in a position to redeliver food grains which is a perishable commodity due to its own lapses. Thus, the respondent was only entitled to recover the reminder of the balance amount due after adjusting the value of the food grains.
A claim that a suit cannot be raised until the pledged goods have been sold is misconceived and a misinterpretation of Section 176.
Central Bank of India v. Siriguppa Sugars & Chemicals Ltd. & Ors.
Citation: (2007) 8 SCC 353
Case number: CA 3499/2007
Relevant Section: 173
Brief facts: The matter was an appeal against decision of a High Court that ordered disbursal of amount realized from sale of sugar owned by the respondent but pledged with the appellant. The respondent owed various debts to workmen and cultivators and prior proceedings caused a recovery authority to forcibly take goods pledged to the appellant without making any reference to it.
The decision was challenged as the appellant was decreed only a sum of Rs. 20 lakhs and in secondary preference while failing to consider the appellant’s rights as a pawnee.
1. Whether the High Court was justified in dispersing amount in favour of unsecured creditors instead of secured ones.
Sec. 173 confers a pawnee with the right to retain goods for payment of debt including interest and all necessary expenses incurred.
The right to lien of a pawnee is capable of satisfaction from property that is even in the hands of the government as a result of a lawful seizure. Based on the principle that even a crown’s debt was subservient to the pawnee’s.
An unsecured creditor cannot have any right greater than that of a pawnee and is only entitled to the surplus money, if any, after realizing the pawnee’s dues.
The position of the cultivators and workers were that of unsecured creditors. They would become secured only if the respondent company underwent liquidation proceedings. However, given the facts of this case, the appellant had a preferential right over those of the workers and cultivators as no liquidation proceedings were due. Court: right of lender or pledgee is to retain the chattel until a proper tender of the amount inviting tender was made. Thus, the workers and cultivators could be paid only after the appellant’s debts had been realized.
MVx.press Annapurna & Ors. v. Gitanjali Woollens Pvt. Ltd. & Ors.
Citation: AIR 2011 Bom 105, 2011 (113) BOM LR 1075
Division Bench of Bombay High Court
Case number: Appeal No. 747/2005 in Admiralty Suit No. 27/1999
Category: Agency, Privity of contract
Brief Facts: The Respondent (Plaintiff) handed over cargo for shipment to the 3rd Defendant (Meridian Shipping Agency, hereinafter D3). D3 was in fact an acting agent who was an acting agent of the 2nd Defendant (Ignazio Messina & Co.). It was the claim of the respondent that he had paid necessary charges for the carriage of goods but hadn’t been issued a Bill of Lading. The cargo was subsequently lost and the respondent suffered losses as he couldn’t realize export proceeds from his buyers in Ethiopia. A precondition to the contract was that the respondent would clear its own dues and that of its sister concern, which it failed to do.
A suit before a Single Judge bench to assert maritime lien over the appellant (X-Press Annapurna) contending that they were under a duty to issue a Bill of Lading themselves. The appellant hence filed an appeal before the Division bench.
1. Whether D2 had breached any terms of the contract
2. What is the liability of an agent when the principal is a foreigner
3. Whether there was privity of contract between the appellant and respondent
The respondent’s agreement with D3 was such that a Bill of lading would be provided only on demand which the respondent failed to make. The reason for such failure was that the agreement stipulated that the appellant had to clear its own dues in addition to that of its sister concern which it failed to discharge. This fault of the respondents subsequently quashed all other issues and had no right to claim and decrees against the appellant and D3.
Once an agent discloses his principal, he cannot be held liable for specific performance or damages.
The Single Judge of the High Court had held that since the principal of D3 was a foreign one, D3 couldn’t be absolved from liability regardless of disclosing the principal. The Division bench set this aside as the exceptions under Section 230 could arise in cases of sale or purchase of goods for a merchant resident abroad. In the present case, the contract wasn’t for sale or purchase of goods but only carriage by sea. The word “to the contrary” under 230 to be strictly interpreted.
In the absence of existence of a contract between the parties and any evidence as to admitted duties, a party cannot claim damages against the same if the other party has fulfilled its restricted part.
In this matter, the respondent was to obtain the Bill of Lading from D3 and there was no requirement that the carrier ship would have to give the Bill of Lading. There was no contract per se between the respondent and the appellant ship and its ship owner. The ship was merely entrusted to deliver the cargo to Ethiopia which it successfully did.
Anil Kumar Agrawal v. National Garage & Ors.
Single Judge Bench of Chhattisgarh High Court
Case number: S.A. 509/2004
Relevant Sections: 230, 233
Brief Facts: The appellant wished to purchase a Pal Peugeot car and drew a cheque in its favour through its agent, the Respondent. The vehicle not supplied as per schedule and appellant wanted to cancel the booking. However, there was no reply from the principal or agent and the appellant filed a suit before a trial court which ruled in its favour.
The respondent thereafter filed an appeal citing protection under Section 230 which the appellate court agreed. Hence resulting in this appeal.
Issue: Whether the respondent agent was liable to compensate the appellant even after having disclosed the principal’s name.
Section 230 does not shield an agent from liability when the agent hasn’t disclosed the name of the principal. In such a case, the agent would be personally bound to satisfy a person’s claim.
However, when an agent himself becomes personally liable, Section 233 comes into being and a person may hold the principal or agent or both liable. Applicability of Section 230 and 233 depends on whether the agent is personally liable or not.
In the present case, there was no amount to received or kept by the agent himself and there was no clause in the booking agreement that held the agent would be personally liable for supply of vehicle or liability to compensate. Thus, there is no personally liability established against the agent. Subsequently, Section 233 has no application.
The appellant had drawn a cheque in favour of the principal’s name which conveyed that the principal’s name had been disclosed hence, the respondent could claim the benefit of Section 230.The agent wouldn’t be personally liable and it would only be the principal who had to refund the booking amount.
Anagha Prasad v. M.C. Abu
Citation: ILR 2014 (4) Kerala 175, 2014 (4) KLT 1
Single Judge Bench of the Kerala High Court
Case number: Crl. MC. No. 3805/2012
Category: Void agreements, Competency to contract, Dishonour of cheque drawn by minor
Relevant Section: 11, 68
Brief Facts: The petitioner was a minor who sought a loan from the respondent to pay fees to pursue engineering. She thus received a loan of Rs 2.5 lakhs under the pretext that she would repay it soon as her education loan would get sanctioned. An agreement was executed with a clause that it would be repaid by a certain date and failure to repay would cause the petitioner minor’s family to transfer a part of their property to the respondent. She was unable to pay on the due date but later drew 3 postdated cheques. However, these cheques were dishonoured due to deficiency of funds.
1. Whether a minor is capable of incurring a debt or liability
2. Whether the petitioner could be held liable under Section 68 of the Indian Contracts Act, 1872
3. Whether a postdated cheque drawn by an erstwhile minor could be binding upon on such minor after attaining majority.
Section 11 of the Indian Contract Act specifies that competency to contract i.e., attaining age of majority is a prerequisite to a valid contract. Section 26 of the Negotiable Instruments Act states that , a minor could draw, indorse, deliver and negotiate a cheque. However, such an act will bind all parties except for the minor.
It is clear that a contract with a minor as a party could not be enforced against him as it is void and thus no restitution can be claimed. A minor cannot be held personally liable under civil law for dishonor of cheques. Since the minor was incapable of occurring any debt or liability to bind herself, the essential ingredient to attract criminal liability would also not arise under Section 138 of the Negotiable Instruments Act.
Liability under sec. 68 is not to pay agreed price but to reimburse. In a case of a minor for supply of necessities, the minor wouldn’t be liable but the property would.
Hence, the respondent couldn’t prosecute the minor but enforce Section 68 against property.
If an erstwhile minor draws a postdated cheque in such minority and that cheque gets dishonoured after attaining majority, the minor can still not be held liable.
Section 6 of the NI Act defines a cheque as a bill of exchange drawn on a banker and payable on demand. A postdated cheque is not payable till the date which is shown on the fact of the document whereas the minor while drawing was incapable of binding herself.
Energy Watchdog & Ors. v. Central Electricity Regulatory Commission & Ors.
Citation: (2017) 14 SCC 80, 2017 (6) SCJ 398
Case number: CA 5399/2016
Category: Performance of contracts, Frustration
Relevant Section: 56
Brief facts: The matter was a culmination of various appeals and the Supreme Court had relied on the facts of one particular appeal to consider the uniformly applicable issues.
Gujarat Urja Vikas Nigam Ltd. (GUVNL) invited proposals for supply of power on a long term basis. A similar bid was opened by Haryana Utilities as well. The successful bidder in both these bids was Adani Enterprise Consortium and a Power Purchase Agreement was entered into between Adani & GUVNL and Adani & Haryana Utilities. However, there was a change in law in Indonesia that skyrocketed the price of Indonesian coal. Hence, Adani filed a petition filed before Central Electricity Regulation Commission to either discharge Adani on ground of frustration or evolve a mechanism to place petitioners at same economic condition before change in law. The said petition was dismissed on the grounds that benefit of frustration couldn’t be claimed. An appeal was made to the Appellate Tribunal which viewed that it was a case of force majeure and exempted Adani. The present appeal is against that order of the appellate tribunal
1. Whether the Doctrine of Frustration could be applied due to a rise in price or performance being onerous to a party.
Force Majeure when stipulated in a clause by the contract, is governed by Chapter III of the Contracts Act, more specifically Section 32. If a force majeure event occurs de hors (outside the scope of) the contract, it will be dealt under the rule of positive law under Section 56 of the Act.
The Court relied on the position in Satyabrata Ghose v. Mugneeram Bangur & Co. 1954 SCR 310, wherein the word impossible under Section 56 was held not to refer to physical or literal impossibility but rather impracticability and useless from the Point of view of the parties.
A frustration that takes place outside the scope of the terms of the contract will be dealt under Section 56 and not be seen as a contingent event anymore under Section 32. Performance of contract will not be discharged merely because it has become onerous to one of the parties. If a contract prescribes an alternative mode of performance, frustration under Section 56 cannot be claimed. A mere rise in price will not constitute “hindrance” of performance.
In the present case, the Doctrine of Frustration wouldn’t apply as the fundamental basis of the Power Purchase Agreements remained unaltered. The agreements made no mention that the coal had to be imported only from Indonesia at a particular price. Adani Group hence couldn’t seek repudiation on grounds of frustration or claim a compensatory tariff either.
Venunath v. Limbabai
Citation: 2016 (4) ALL MR 267
Single Judge of Bombay High Court at Aurangabad
Case number: SA 282/1992
Category: Time for performance
Relevant Section: 46
Brief Facts: By an agreement, Niranjan (1st Defendant in previous suits) had agreed to sell his house to the respondent for Rs. 1500 out of which Rs. 1000 was paid as earnest money. Niranjan later refused to perform his part of the contract despite requests from the respondent for specific performance. Thereafter, the appellant (Venunath) purchased the house from Niranjan despite knowledge of Niranjan’s prior agreement with the respondent. Thus, the respondent instituted suit for specific performance and sought perpetual injunction against Niranjan and the appellant from causing interferences.
Niranjan died during the pendency of proceedings thus leaving the appellant as the sole property. The trial court judge decreed against the appellant as the purchase was not bona fide. The appellant again appealed before a District court but the same was dismissed, resulting in this appeal.
1. Whether time was the essence for the contract
2. Whether the respondent’s suit for specific performance ought to be barred by limitation.
Even if an agreement doesn’t stipulate time for performance, it has to be performed within a reasonable time and cannot be interpreted to stipulate an indefinite period.
Section 46 of the Indian Contract Act, 1872 lays down that where, by the contract, a promise is to perform his promise without application by the promise and no time for performance is specified, the engagement must be performed within a reasonable time. The question as to what is reasonable time is a question of fact.
An intention to make time the essence has to be expressed in unequivocal language. Factors to be considered to ascertain reasonable time as laid down by the Supreme Court in Chand Rani (Smt) (dead) by L.Rs. Vs. Kamal Rani (Smt) (dead) by L.R.s, (1993) 1 SCC 519:
1. Express terms of contract
2. Nature of property
3. Surrounding circumstances such as object of contract
The issue arose in this case as the suit was filed after 7 years of agreement whereas no period of limitation had been prescribed in the agreement of sale. The Single Judge held that delay could not be invoked to deny relief to the respondent as Niranjan had never expressed that he would refuse to perform his part of the contract.
Ashok Kumar Sharma & Ors. v. State of Rajasthan & Ors.
Citation: MANU/RH/0703/2012, RLW 2013 (1) Raj 920
Single Judge Bench of the High Court of Rajasthan (Jaipur bench)
Case number: S.B. Civil Writ Petition No. 12519/2012
Category: Formation of contracts, reciprocal promises, sanctity of contract
Relevant Section: 4, 8
Brief Facts: The Urban Improvement Trust, Alwar brought about a special scheme to allot plots to eligible sculptors to empower their trade. The petitioner and several others applied for this scheme by paying Rs. 10000 as security deposit. The respondent constituted a committee to conduct a lottery to allot plots. A list of eligible successful allottees was prepared which included the petitioner and they were asked to pay 50% amount payable. The petitioner accordingly deposited the said amount on receipt of the letter of allotment. Nonetheless, 4 years after the issuance of such letter, the respondent took not steps to transfer the plots.
The petitioner even served a legal notice to hand over possession of plot and stated that he was willing to pay the reminder of the balance but received no reply. The present case is against arbitrariness of the action by the respondent.
1. Whether the UIT had a plausible legal ground or jurisdiction to cancel a concluded contract?
Section 8 of the ICA, 1872 states that: Performance of the conditions of a proposal or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal is an acceptance of the proposal.
Contractual obligation cannot be kept in abeyance on ground of pendency of criminal investigation, and a contract having been concluded between the parties, the only manner to impugn such a concluded contract would be to take proceedings before a competent civil court for a declaration as to its validity
There was valid communication of the proposal and acceptance by the person against whom it was made and satisfied Section 4. The letter made by the respondents for the scheme constituted a proposal. By paying the required amount, the petitioners had accepted such proposal and thus a binding contract came into being.
The respondent had vitiated and halted the scheme on suspicion against the conducting of the lottery to allot. However, they didn’t provide any material evidence to substantiate the same. Allotments letters weren’t cancelled and neither were any refunds provided. A plea of pendency of criminal investigation cannot be used by the State to escape from discharging its obligations under a concluded contract.
A fundamental principle for an orderly society is that of sanctity of contract. Sanctity of contract cannot be allowed to be lost to unilateral action as that would promote breaches of contract. Contracts thus hold even against equity and only cede to legislation. A mere change in ruling government cannot be taken as a cause for change in public policy as the state is a continuing body.
Thus, the respondent’s actions were declared arbitrary and unsustainable while the Court ordered them to hand over possession to the petitioners within 4 months.
Suresh Dhanuka v. Sunita Mohapatra
Citation: AIR 2012 SC 892, (2012) 1 SCC 578
3 Judge Bench of the Supreme Court
Case number: CA 10434/2011
Category: Void agreements, agreement in restraint of trade
Relevant Section: 27
Brief Facts: The appellant and respondent entered into agreement to jointly care business in the name of Abhilasha originally for a period of 5 years but later extended to 10. The respondent was carrying on a sole proprietorship during that time and had registered a Trade Mark by the name of “Naturoma Herbal
For the 1st 5-year period, the respondent executed a Deed of Assignment assigning 50% of her right, title and interest in the said Trade Mark 'Naturoma Herbal', with proportional goodwill of the business. There was an added condition that all goods manufactured by the respondent would be solely sold by the appellant.
Another clause stated on termination of the Joint Venture, neither the assignee nor assignor would be able to use or register the Trademark in its own name or jointly with some other party. Dispute arose as the appellant and his son floated a company by the name of 'Naturoma Herbal (P) Ltd. Both the parties sought injunction against each other as they tried to solicit the other’s business. Consequently, both the parties had conflicting orders with one barring the respondent from selling the products except through the appellant and another barring the appellant from selling, distributing and marketing goods with the concerned trademark.
1. Whether a grant of injunction to implement a negative covenant was violative of Section 27
The appellant contested that the injunction obtained against her was violative of Section 27 as it restricted her from using the said trade mark and was thus void.
Restriction on use of an intellectual property right such as a trademark not violative of Section 27
What is declared to be void by virtue of Section 27 is any Agreement to restrain any person from exercising his right to carry on a profession or trade or business and any restraint thereupon by an Agreement would be void. In the present matter, there was a bar on the use of a particular trade mark and not the trade itself in which the appellant had obtained a 50% interest.
The termination clause also supported this view as the right to use the trademark would case upon the cancellation or revocation of the agreement.
Chairman, Life Insurance Corporation. & Ors. v. Rajiv Kumar Bhasker
Citation: AIR 2005 SC 3087, (2005) 6 SCC 188
Case number: C.A. 6028/2002
Category: Agency, implied agency
Relevant Section: 186
Brief Facts: The appellant floated a salary savings scheme which offered a life insurance policy to salaried employees. An agreement was entered into between an employer and the appellant for the said scheme for which the appellant would be solely responsible for all related matters.
The responsibility for collection of the premium by deducting from the salary of the employee and handing over the same to the Corporation was of the employer. Thereafter, the employer opened the offer to the employees but employees weren’t aware of the correspondence between the Corporation and the employer.
However, the employer didn’t deduct premium from the salary of a concerned employee who later died. When his legal representatives sought to claim the policy, the insurance company refused.
1. Whether the employer could be seen as an agent to the appellant
An agency can be created expressly or by necessary implication. If the employee had reason to believe that his employer was acting on behalf of the Corporation, a contract of agency may be inferred.
Agent herein didn’t mean an LIC agent but would mean an agent in ordinary sense of the term. The employer had no duty to discharge to the Corporation either under the Act or the rules and regulations framed thereunder but since the Corporation did not make any offer to the employees nor would directly make any communication with them, it cannot be said that the employer had no role to play on behalf of the Corporation.
The Scheme clearly and unequivocally demonstrated that not only the contract of insurance was entered into by and between the employee and the insurer through the employer but even the terms and conditions of the policy were to be performed only through the employer. The employees couldn’t directly approach corporation and had to treat their employer as the agent of the corporation.
The employer was thus an agent in that limited sense. Once an agent is appointed, his authority may be express or implied in terms of Section 186 of the Contract Act. The relationship is consensual and not contractual. The employer had an ostensible/apparent authority by conduct.
When the existence of an agency relationship would help to decide an individual problem, and the facts permits a court to conclude that such a relationship existed at a material time, then whether or not any express or implied consent to the creation of an agency may have been given by one party to another, the court is entitled to conclude that such relationship was in existence at the time and for the purpose in question.
Hence, the insurance company was liable to pay the employee to the value of the policy.
Saradamani Kandappan & Ors. v. S. Rajalakshmi & Ors.
Citation: (2011) 12 SCC 18, (2011) 8 SCR 874
Case number: 7254/2002
Category: Time as essence of contract, reciprocal promises
Brief Facts: All the four respondents belonged to one family and entered into an agreement to sell various plots to the appellant for a total of 3.75 lakhs. Rs. 1 lakhs was paid in advance the rest was to be paid in a specified break up as time was expressly stated to be the essence of the contract.
The appellant failed to pay the last 2 installments totaling to Rs. 1.5 lakhs and this caused the respondent to cancel the agreement. The appellant contested that she was ready and willing to perform her part of the contract provided that the respondent would hand over the original title deeds. The appellant was allegedly aware of the fact that the deeds had been secured with a money lender as mortgage for a loan taken by the appellant. The respondent was unable to sell the property later on causing loss.
1. Whether time was the essence of the contract?
2. What is the order of performance
The appellant claimed that time was not the essence of the agreement of sale and thus termination of that ground by the respondents was invalid.
In a contract relating to sale of immovable property if time is specified for payment of the sale price but not in regard to the execution of the sale deed, time will become the essence only with reference to payment of sale price but not in regard to execution of the sale deed.
In contracts relating to sale of immovable properties, time is not considered to be the essence of the contract unless such an intention can be gathered either from the express terms of the contract or impliedly from the intention of the parties as expressed by the terms of the contract. Mere intention of the parties would also hold.
In the present case, the payment of balance price was clearly made the essence. However, time was declared not to be the essence with regard to the execution of the sale deed as it was subject to the satisfaction of the appellant. Thus, time was held to be the essence for the agreement of sale regarding payment of balance amount which the appellant failed to and thus respondent was justified in cancelling.
Nonetheless, the court laid down as a proposition on this topic for future consideration. It was stated that the Doctrine of time not of essence for immovable property came into being during a period when the market value of property was stable. However, there has been a drastic rise in prices since the last quarter of the 20th century with steep inflation.
A purchaser can no longer take shelter under the principle that time is not of essence in performance of contracts relating to immovable property, to cover his delays, laches, breaches and 'non-readiness'. The precedents from an era, when high inflation was unknown, holding that time is not of the essence of the contract in regard to immovable properties, may no longer apply, not because the principle laid down therein is unsound or erroneous, but the circumstances that existed when the said principle was evolved, no longer exist.
Section 51 provides that when a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise, unless the promisee is ready and willing to perform his reciprocal promise.
Section 54 held to apply in this case as it was a contract of reciprocal promises such that one couldn’t be performed until the other had been performed. The appellant could not claim that respondents should produce the original title deeds and satisfy her regarding their title unless and until she paid the entire consideration within the time stipulated, which would enable the vendors to repay the loans and obtain release of the original title deeds.
The order of performance of reciprocal promises does not depend upon the order in which the terms of the agreement are reduced into writing.
The sale deed had to be executed only after payment of complete sale consideration within the time stipulated. In these circumstances, Section 52 of the Contract Act did not help the Appellant but actually supported the respondents.
Bharat Petroleum Corporation Ltd. v. Chembur Service Station
Citation: (2011) 3 SCC 710,  3 SCR 632
Case number: C.A. 2276/2011
Category: Agency, Rights of agent
Facts: The appellant was vested with the undertaking of Burmah Shell who set up various Retail Petroleum Outlets. The appellant appointed the respondent as a dealer for selling petroleum products of the appellant from the outlet. A surprise inspection carried out by the appellant found that the respondent had manipulated the original chip to make illegal gain by cheating the customers of the company. The appellant then terminated the dealership agreement and barred the respondent from using the premises.
1. What was the nature of license granted by the appellant to the respondent
When an employer or principal permits its employee or agent to use the premises and such “use” whether referred to as 'possession' or 'occupation' or 'use' by the employee or the agent, is on behalf of the employer/principal. The employee/agent in such a relation is only a licensee who is permitted to enter premises for a limited purpose. Such a person cannot claim possession, occupation or right to use such property independently from the licensor.
An agent who is permitted to enter the premises every day to sell the goods cannot, on termination of the agency, contend that he continues to be in exclusive occupation of the premises and unless evicted through a court of law entitled to continue in occupation. There is no need for a licensor (employer/principal) to file a suit for eviction or injunction against the ex-employee or ex-agent.
Reliance was placed on decision in Southern Roadways Ltd. Madurai v. SM Krishnan, (1989) 4 SCC 603 which dealt with agent’s rights upon revocation. An agent can claim compensation under Section 205 or lien over the principal’s property under Section 221.
The agreement herein expressly stated agent would have no lien and had enabled the respondent to enter only for the limited purpose of using facilities to sell petroleum products. Consequently, the appellant was entitled to continue in possession of the petrol pump premises and use it for its business. The Appellant was also entitled to lawfully prevent the Respondent from entering upon the premises.
Puravankara Projects Ltd. v. Hotel Venus International & Ors.
Citation: (2007) 10 SCC 33
Division bench of Supreme Court
Case number: CA 7560/2005
Category: Doctrine of fairness and reasonableness in contracts
Brief Facts: The respondent was a successful bidder under a tender by Goshree Island Development Authority (GIDA) which was as a State Government undertaking. The respondent bid for plots whose area was less than the ceiling limit. The appellant was the second highest bidder in respect of plots that had been bid by the respondent.
The respondent raised a question as to whether general exemption under 81(3)(b) of Kerala Land Reforms Act would be obtained to which GIDA replied it would be obtained in a few days. GIDA accepted bids of R1 and sent a confirmation letter and accordingly, the respondent was to furnish a bank guarantee. However, the respondent insisted on obtaining the exemption before furnishing the guarantee. Knowing that the respondent didn’t furnish, the appellant matched the highest offer and agreed to pay a lumpsum. Meanwhile, as the respondent failed to furnish the guarantee, GIDA cancelled the letter of confirmation. Respondent challenged the cancellation and a Single Judge of the Kerala High Court held that the exemption should have preceded the tender. The appellants have challenged that order.
1. Whether the obtaining of exemption was a condition precedent.
2. Whether doctrine of fairness and reasonableness could be used to modify or add or remove terms from the contract
The Government can’t be compelled to grant permission by a contract as it has to decide within statutory parameters. Conditions may exist that require taking of steps to obtain permission, If such a permission is not obtained or declined, the agreement itself fails and the contract becomes unenforceable.
There was no privity of contract between the Government and bidders. Thus there can be no implied terms as far as the government is concerned. If any terms were to be implied, it would have to be between the contracting parties themselves.
The Court held that the High Court had erred by considering the obtaining of exemption as an implied term. There was no such mention made in the contract and the High Court had modified the terms by reading it in.
Principles of Natural Justice are invoked to ensure fair decision when the function Is quasi-jusicial. The Doctrine of fairness applies when the action is administrative. However, such principles cannot be invokeed to amend, alter or vary the expressed terms of a contract between parties.
In certain instances, there are terms “implied by law” that the law has accepted must be incorporated into the terms of the contract. However, terms implied by law are not exactly “implied terms” but rather duties that are imposed by law on certain types of contract. In such a case, the court doesn’t look into the intention of the parties but rather public policy. Judicial review is restrained in case of a governmental contract only to the validity of the decision making process and whether there was any arbitrariness or unreasonableness.
The condition in the present case was held to be a condition subsequent based on the absence of necessity for the same for plots under the ceiling limit. The order of the Single Judge was hence set aside whereas the Court empowered the appellant to pay for the tender.
A. Mohammed Basheer v. State of Kerala & Ors.
Citation: (2003) 6 SCC 159
3 judge bench of Supreme Court
Case number: CA 3948/1994
Category: Formation of contract
The Forest Department of Kerala decided to auction the right to collect and remove residue of tree growth and firewood in Pattanamthitta. On the day of the auction, the appellant bid 3.1 lakhs. However, before the bid was confirmed, a fire broke out and destroyed the residue of tree growth and firewood. Upon knowledge, the appellant wrote a letter to the respondent demanding either a reduction in the money offered by him or cancellation of the agreement due to the damage caused by the fire. However, the letter was of no avail and a letter of confirmation was sent by the respondent. Upon being asked to deposit the tender amount, the appellant refused to do so since he had already intimated his intent prior to confirmation.
The respondent re-auctioned the said subject matter which was sold for a loss of Rs 1.2 lakhs as compared to the bid placed by the appellant and sought compensation from the appellant.
1. Whether there was a concluded contract such that damages could be claimed.
The damage caused by fire was a vis major and no concluded contract came into effect. Hence, the respondents could not claim for damages as no contract existed between the two based on the conduct of the appellant. Appellant had sought revocation even before communication of acceptance and thus wasn’t liable to pay any damages.
Union of India v. Amar Singh
Citation: (1960) 2 SCR 75
3 judge bench of the Supreme Court
Case number: CA 478/1957
Category: Agency, Bailment, Finder of goods
Relevant Sections: 71, 148, 151, 194
Brief facts: The respondent (Amar Singh) had entrusted the appellant with the transit of goods from Quetta to New Delhi by way of a passenger train. According to the parcel way bill, Amar was to be both the consignor and the consignee. Owing to transportation from Pakistan to India, the goods were sent through a receiving railway in Quetta and were to be transported in India by the forwarding railway. The forwarding railway belonged to the Dominion of India and was regulated by the Indian Railways Act.
The goods were intact till they reached Ludhiana but remained stationary in the wagon for 2 months. The wagon finally reached New Delhi but the respondent wasn’t intimidated until 5 months later. When the respondent went to collect the goods, he was told that they were untraceable. Later on, he was informed that 15 of his goods were available which would be released only on payment of freight charges, which he declined to pay. A suit was filed for compensation and the court decreed to the tune of Rs. 80,000. An appeal filed by the Union was dismissed with the appellate court concurring with the findings. This resulted in the appeal.
1. Whether there was privity of contract between the forwarding railway and the respondent.
The receiving railway (In Quetta) was the bailee of the goods who had been authorized by the consignor to appoint the Forwarding Railway (In India) as the sub-bailee. Thus, there was a direct relationship between the two.
Sec. 72 of Indian Railways Act stated that the liability of railways for loss, destruction etc. would be that of the bailee under Sections 151, 152 and 161. There was no data on record to prove that the Forwarding Railway had been included as a party to any of the prior agreements. Nonetheless, the contract was of such a nature wherein an implied authority was passed on to enable the bailee to complete his task. Thus, the Appellant became the agent from the point the concerned wagon was put on its rails.
The Court held that a similar conclusion could be arrived under Section 194 of the Contracts Act as the appellant was an agent of the Receiving Railway formed by the implied authority of the latter. Thus, due to the absence of any treaties between the two nations for such carriage, the consignor had implied an authority in the receiving railway to appoint the Appellant to carry the goods to Delhi.
It was added that a similar duty could still be brought about under Section 71 of the Contract Act that dealt with a contract of bailment implied by law. The Railway Administration in Pakistan had left the goods at the border and the Appellant had taken the goods within its custody and hence had the same duties as a bailee. However, this section did not have to be invoked as the forwarding railway was an agent/bailee. The Court equated the position of the appellant to that of the finder of lost goods.
Furthermore, the conduct of the appellant such as negligence over the goods and delayed intimation showed that the appellant failed to take the minimal standard of care under Section 151 and was thus liable to compensate the respondent.
Ø 50 CASES OF THE CONTRACT LAW
I. BALFOUR vs. BALFOUR AIR  2KB 571
FACTS - In this case, Mr. Balfour and his wife went to England for a vacation, and his wife became ill and needed medical attention. They made an agreement that Mrs. Balfour was to remain behind in England when the husband returned to Ceylon (Sri Lanka) and that Mr. Balfour would pay her £3o a month until he returned. This understanding was made while their relationship was fine. However, the relationship later soured and the husband stops making the payments. Mrs. Balfour brought his action for the money her husband had promised to pay to her but had failed to do so. The lower court found that there was sufficient consideration in the consent of Mrs. Balfour and thus found the contract binding, which Mr. Balfour appealed
ISSUE- Was Mr.Balfour's offer intended to be legally binding.
DECISION-Mr. Balfour's appeal was allowed. Atkins held that the law of contracts is not made for personal family relationships. As there was no intent to be legally bound when the agreement was agreed upon, there can be no legally binding contract. He holds that if the courts were to allow all wives to come to court when agreements had been broken with their husbands then the courts would be overrun with frivolous cases. Warrington, concurring in the result, agreed substantially with him but added that there was no bargain of any kind made by Mrs. Balfour sufficient for a binding contract.
RATIO- Promises in spousal roles aren't legally binding.
II. LALMAN SHUKLA vs. GAURI DUTT 1913 40 ALJ 489
Facts - January 1913 defendant’s nephew has absconded from his house and to find his nephew he sent all his servants to different parts so that he can be traced his position. Defendant was among those several servants who were sent for the search of the master’s child. He was sent to Hardwar from Cawnpore and there he was able to trace the child and for this accomplishment, he was awarded two sovereigns and Rs. 2o when he returned to Cawnpore. In the meantime when the plaintiff was at the search of child defendant issued a handbill offering a reward of Rs. 5o1 to the person who traces the missing child and the defendant was totally ignorant of this reward. Later on, after 6 months of this incident plaintiff brought a suit against his master claiming Rs. 499 stating that the master had promised the person who will find the missing child a reward. He alleged his master of not providing a reward for the specific performance of his promise.
Statutes and provisions involved – section - 2 (h), and 8 of Indian Contracts Act, 1872
III. WILLIAM vs. CARWARDINE 110. ER.590
FACTS -Walter Carwardine was murdered between when he was last seen on March 24th, 1831, and when his body was found on April 12, 1831. He was seen on the night that he was supposedly murdered Mary Anne Williams who was questioned but gave no information to the magistrates of worth. William, Walter's brother, posted a handbill for information as should lead to the discovery of the murderer with a reward of £2o. Mary Anne Williams was beaten by her husband and believing she was going to die made a statement that led to the conviction of her husband for Walter's death.
Issue-Has the plaintiff formed a contract with the defendant although she was not motivated by the reward when the information was given?
Decision- Finding for the plaintiff. The court held that Mary Anne Williams had clearly performed the terms of the offer (giving information that leads to the conviction of the murderer) and the handbill, which she must have known of given that it was posted all over Hereford, promised to give money for that information. As a result, a contract was formed with any person who performed the condition, without considering the motivations of the individual.
Ratio-The motive of an individual in accepting the contract offered has nothing to do with his right to recover under the contract.
Neither mutual consent nor communication of assent is important in the case of reward.
IV. BOULTON vs. JONES  2H and N564
INTRODUCTION -This case is based on the offer made to a particular person. In Contract Law, an offer is a promise in exchange for performance by another party. An offer can be revoked or terminated under certain conditions.
FACTS - The defendant i.e. Jones sent a written order for goods to a shop which is owned by Brocklehurst and which was addressed to him by name. Unknown to the defendant, Brocklehurst had earlier that day sold and transferred his business to Boulton.But Boulton fulfilled the order and delivered the goods to the defendant without notifying him that he had taken over the business. The defendant accepted the goods and consumed them in the belief that they had been supplied by Brocklehurst. When he received Boulton’s invoice he refused to pay it claiming that he had intended to deal with Brocklehurst personally, since he had dealt with them previously and had a set-off on which he had intended to rely.
ISSUES - 1 Is whether Jones is liable to pay Boulton?
2 Is it the duty of Brocklehurst or Boulton to inform about the takeover of the business to Jones?
3 Can Boulton claim the amount of the goods which was used by the Jones?
HELD- The court held that the defendant i.e. Jones was not liable for the price. When a Contract is made for the identity of the person is important to the Contract. Hence, there was no Contract.
V. CARLILL vs. CARBOLIC SMOKE BALL COMPANY  EWCA Civil 1
FACTS- Defendant, the Carbolic Smoke Ball Company of London, placed an advertisement in several newspapers on November 13, 1891, stating that its product, “The Carbolic Smoke Ball”, when used three times daily, for two weeks, would prevent colds and influenza. The makers of the smoke ball additionally offered a 1oo£ reward to anyone who caught influenza using their product, guaranteeing this reward by stating in their advertisement that they had deposited 1ooo£ in the bank as a show of their sincerity. Plaintiff, Lilli Carlill), bought a smoke ball and used it as directed. Several weeks after she began using the smoke ball, Plaintiff caught the flu.
ISSUE- Lindley, L.J., on behalf of the Court of Appeals, notes that the main issue at hand is whether the language in Defendant’s advertisement, regarding the 1oo£ reward, was meant to be an express promise or, rather, a sales puff, which had no meaning whatsoever.
HELD- Defendant’s Appeal was dismissed, Plaintiff was entitled to recover 1oo£.
The Court acknowledges that in the case of vague advertisements, language regarding payment of a reward is generally a puff, which carries no enforceability. In this case, however, Defendant noted the deposit of £1ooo in their advertisement, as a show of their sincerity. Because Defendant did this, the Court found their offer to reward to be a promise, backed by their own sincerity.
VI. TINN vs. HOFFMAN  29 LT 271
Facts - The defendant, Mr. Hoffman wrote to the complainant, Mr. Tinn with an offer to sell him 800 tons of iron for the price of 69s per ton. He requested a reply to this offer by post. on the same day, without knowing of this offer, Mr. Tin also wrote to Mr. Hoffman. He offered to buy the iron on similar terms. This case concerned the validity of these two cross offers.
Issues - The issue ,in this case was whether there was a valid contract between Mr. Tinn and Mr. Hoffman for the sale of the iron. There was also the issue if acceptance had to be by post for it to be valid, as this was specified in the offer.
It was held in this case that there was no contract between Mr. Tinn and Mr. Hoffman for the iron. The cross offers were made simultaneously and without knowledge of one another; this was not a contract that would bind the parties for the iron. There is a difference between a cross offer and a counteroffer. To form a valid contract, there must be communication that consists of an offer and acceptance. There was no acceptance by post, as had been stated in the offer. The court also said that while post had been indicated in the offer, another equally fast method would have been successful, such as a telegram or verbal message.
VII. HYDE vs. WRENCH
Facts - The defendant, Mr. Wrench, offered to sell the farm he owned to the complainant, Mr. Hyde. He offered to sell the property for £1,200, but this was declined by Mr. Hyde. The defendant decided to write to the complainant with another offer; this time to sell the farm to him for £1,000. He made it clear that this would be his final offer regarding the property. In response, Mr. Hyde offered £950 for the farm in his letter. This was refused by Mr. Wrench and he confirmed this with the complainant. Mr. Hyde then agreed to buy the farm for £1,000, which was the sum that had previously been offered. However, Mr. Wrench refused to sell his farm.
Held -The court dismissed the claims and held that there was no binding contract for the farm between Mr. Hyde and Mr. Wrench. It was stated that when a counteroffer is made, this supersedes and destroys the original offer. This original offer is no longer available or on the table. In this case, when Mr. Hyde offered £950, he canceled the £1,000 offer and could not backtrack and accept
VIII. MERITT vs. MERITT EWCA
Mr. and Mrs. Merritt married in 1941. They held their matrimonial home in joint names. In 1966 Mr. Merritt left the family home to live with another woman. Mr. Merritt agreed to pay Mrs. Merritt £4o per month. At Mrs. Merritt’s request, he signed a document confirming that when she had repaid the balance on the mortgage, he would transfer the matrimonial home into her sole name. Mrs. Merritt paid off the mortgage and successfully acquired a declaration that the house belonged to her. Mr. Merritt appealed.
Mr. Merritt’s appeal was unsuccessful. When parties are in the process of separating or are separated, the presumption of there being no intention to create legal relations does not apply. The arrangement was sufficiently certain to be enforceable, and the paying of the mortgage was ample consideration for Mr. Merritt’s promise. Mrs. Merritt was entitled to the matrimonial home entirely.
An American company and an English company entered into a sole agency agreement in 1913 for the sale of paper goods in the USA. The written agreement contained a clause stipulating that it was not a formal nor legal agreement, and an “honorable pledge” between business partners. Subsequently, the American company placed orders for paper which were accepted by the British company. Before the orders were fulfilled, the British company terminated the agency agreement and refused to send the goods, claiming that the 1913 agreement was not legally binding and that, consequently, the orders did not create legal obligations.
Firstly, as to the 1913 agreement, the Court gave overriding weight to the provision in the agreement that expressly provides that it is to be solely an “honorable pledge”, demonstrating that the parties did not intend the arrangement as a legally-binding contract. The Court explained that the argument that clauses restricting the legal enforceability of a contract apply solely when the document is otherwise unquestionably of legal force. In this case, the document and circumstances did not intend to create any legal interest, and the clause expressly precluding the agreement’s legal enforceability applies. Secondly, the Court held that the fact that the arrangement does not constitute a legal contract does not preclude the orders and acceptances from constituting legally-binding contracts. The lack of enforceability of an express legal arrangement under an agency agreement does not preclude the legal transactions. The orders constituted mutual offers and acceptances with each transaction having ordinary legal significance.
Harvey was interested in buying a Jamaican property owned by Facey. He sent Facey a telegram stating “Will you sell us Bumper Hall Pen? Telegraph lowest cash price – answer paid.”
Facey responded stating “Bumper Hall Pen £9oo”
Harvey responded stating that he would accept £9oo and asking Facey to send the title deeds.
Facey then stated he did not want to sell.
Harvey sued, stating that the telegram was an offer and he had accepted, therefore there was a binding contract.
Was the telegram advising of the £9oo lowest price an offer capable of acceptance?
The House of Lords held that the telegram was an invitation to treat, not a valid offer. Therefore no valid contract existed.
The telegram only advised of the price, it did not explain other terms or information and therefore could not create any legal obligation.
Harvey’s telegram “accepting” the £9oo was instead an offer that Facey could either accept or reject. He rejected it so there was no contract created.
X. PHARMACEUTICAL SoCIETY oF GREAT BRITAIN V. BooTS CASH CHEMISTS
The defendant ran a self-service shop in which non-prescription drugs and medicines, many of which were listed in the Poisons List provided in the Pharmacy and Poisons Act 1933, were sold. These items were displayed on open shelves from which they could be selected by the customer, placed in a shopping basket, and taken to the till where they would be paid for. The till was operated by a registered pharmacist. However, the claimant brought proceedings against the defendant for breach of section 18(1) of the Pharmacy and Poisons Act 1933, which requires the supervision of a registered pharmacist for the sale of any item in the Poisons List.
The Court of Appeal held that the defendant was not in breach of the Act, as the contract was completed on payment under the supervision of the pharmacist. The display of the goods on the shelves was not an offer that was accepted when the customer selected the item; rather, the proper construction was that the customer made an offer to the cashier upon arriving at the till which was accepted when payment was taken. This analysis was supported by the fact that the customer would have been free to return any of the items to the shelves before payment had been made.
XI. HARRIS vs. NIKERSON
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 the commission to purchase, would be sold). However, on that day, all the lots of furniture were withdrawn by the defendant. He 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 court held, dismissing the claimant’s case, 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. As such, it did not legally bind the defendant to auction the items in question on any particular day.
XII. RAMSGATE VICToRIA HoTEL vs. MoNTEFIoRE
The defendant, Mr. Montefiore, wanted to purchase shares in the complainant’s hotel. He put in his offer to the complainant and paid a deposit to his bank account to buy them in June. This was for a certain price. He did not hear anything until six months later when the offer was accepted and he received a letter of acceptance from the complainant. By this time, the value of shares had dropped and the defendant was no longer interested. Mr. Montefiore had not withdrawn his offer, but he did not go through with the sale.
The court held that the Ramsgate Victoria Hotel’s action for specific performance was unsuccessful. The offer that the defendant had made back in June was no longer valid to form a contract. A reasonable period of time had passed and the offer had lapsed. The court stated that what would be classed a reasonable time for an offer to lapse would depend on the subject matter. In this case, it was decided that six months was the reasonable time before the automatic expiration of the offer for shares. Yet, for other property, this would be decided by the court in the individual cases.
XIII.FELTHoUSE V. BINDLEY
The complainant, Paul Felthouse, had a conversation with his nephew, John Felthouse, about buying his horse. After their discussion, the uncle replied by letter stating that if he didn’t hear anymore from his nephew concerning the horse, he would consider acceptance of the order done and he would own the horse. His nephew did not reply to this letter and was busy at auctions. The defendant, Mr Bindley, ran the auctions and the nephew advised him not to sell the horse. However, by accident he ended up selling the horse to someone else.
It was held that there was no contract for the horse between the complainant and his nephew. There had not been an acceptance of the offer; silence did not amount to acceptance and an obligation cannot be imposed by another. Any acceptance of an offer must be communicated clearly. Although the nephew had intended to sell the horse to the complainant and showed this interest, there was no contract of sale. Thus, the nephew’s failure to respond to the complainant did not amount to an acceptance of his offer.
XIV. PoWELL V. LEE
FACTS:-An acceptance to an offer can be considered as valid only when an offer is communicated to the offeree through a proper procedure. Unauthorized communication of any offer to the plaintiff does not constitute a valid offer. In this case, the court held that the accusation of breach of contract made against the defendant by the plaintiff did not stand valid owing to unofficial communication made to the candidate by the defendant George Dismore, which resulted in an incomplete, hence legally unenforceable contract.
HELD:- The King’s Bench Division agreed with the judgment given by the County Court on this matter. The following observations were made by the County Court:
The County Court held that the managers were acting according to their power and not beyond it. According to Clause 11 of 1st Schedule B to the Education Act 19o2, give power to the managing committee to rescind the earlier resolution if they want.
The Court further held that the power of appointing teachers for these schools is vested in the managing committee as per Section 7 (7) of the mentioned Act.
It was observed that there was no proper communication of the offer to the plaintiff as Mr. Dismore was only requested to telegram Parker regarding his rejection for the appointment. Even though Dismore informed Powell about his selection it was in an unofficial capacity and therefore no valid offer was there, neither did any contract come into existence.
JUDGMENT:- The judgment of the King’s Bench Division agreed with the judgment given by the County Court. The honorable Justice CHANNELL expressed his view by saying that the County Court was fair in its judgment as there was no evidence that Mr. Dismore made an official communication on behalf of any authority. Moreover, the Justice added that the evidence proving that there was an interview of the plaintiff in which defendant Lee expressed some difficulty on plaintiff’s appointment clearly states that no implied offer was made.
XV. BRoGDEN V. METRoPoLITAN RAILWAY
The complainants, Brogden, were suppliers of coal to the defendant, Metropolitan Railway. They completed business dealings regarding the coal frequently for many years, on an informal basis. There was no written contract between the complainant and the defendant. However, the parties decided that it would be best for a formal contract to be written for their future business dealings. The Metropolitan Railway made a draft contract and sent this to Brogden to review. The complainant made some minor amendments to this draft and filled in some blanks that were left. He sent this amended document back to the defendant. Metropolitan Railway filed this document, but they never communicated their acceptance of this amended contract to the complainants. During this time, business deals continued and Brogden continued to supply coal to the Metropolitan Railway.
The House of Lords held that there was a valid contract between suppliers, Brogden and the Metropolitan Railway. The draft contract that was amended constituted a counteroffer, which was accepted by the conduct of the parties. The prices agreed in the draft contract were paid and coal was delivered. Although there had been no communication of acceptance, performing the contract without any objections was enough.
XVI. DICKINSoN V. DoDDS
The defendant, Mr. Dodds, wrote to the complainant, Mr. Dickinson, with an offer to sell his house to him for £8oo. He promised that he would keep this offer open to him until Friday. However, on Thursday Mr. Dodds accepted an offer from a third party and sold his house to them. It was claimed that Mr. Dickinson was going to accept this offer, but had not said anything to Mr. Dodds because he understood that he had until Friday. Mr. Dodds communicated that the offer had been withdrawn through a friend to the complainant. After hearing this, Mr. Dickinson went to find the defendant, explaining his acceptance of the offer. The complainant brought an action for specific performance and breach of contract against the defendant.
The court held that the statement made by Mr. Dodds was nothing more than a promise; there was no binding contract formed. He had communicated an offer for buying his house to the complainant and this offer can be revoked any time before there is acceptance. There was no deposit to change this situation. Thus, as there was no obligation to keep the offer open, there could be no ‘meeting of the minds’ between the parties. Agreed, the court stated that a communication by a friend or other party that an offer had been withdrawn was valid and would be treated as if it came from the person themselves.
HELD-The Hon’ble Court held that the trial Court was right in taking that a part of the cause of action arose within the jurisdiction of the Civil City Court. Ahmedabad, where acceptance was communicated by telephone to the respondents. The appeal was dismissed with costs.
XVIII. Kedarnath vs. gorie mohammad
FACTS:-In Kedarnath Bhattacharji v. Gorie Mohammad, the offended party was a Municipal Commissioner of Howrah and one of the trustees of the Howrah City Council Fund. Sometime before, it was thought to make a City Hall in Howrah, they gave the essential resources that could be raised and, provided that things existed, people were intrigued to work to perceive what memberships they could obtain. After gaining enough membership to support the funds required to build the town hall, the commissioners including the offended party agreed with the defendant to build the town hall. The plans for the proposed structure were submitted and passed. But as the membership list increased the plans also expanded. Hence the expected cost of construction is increased from Rs. 26,ooo to Rs. 4o,ooo; the now increased amount of Rs. 4o,ooo stayed approved and obligated by the commissioners including the offended party. The offended party though as a member and one of the commissioners obligated under the agreement to the respondent can sue the respondent for the benefit of himself and each one of those members.
Judgment:-In the case, it was held that although the promise was for a charitable purpose and that D had no benefit, however, he is responsible for the promise made by him. So he was held liable. 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.
XIX.CHAPPEL & Co. LTD. V. NESTLE Co.LTD.
FACTS:-The defendants, Nestlé, contracted with a company manufacturing gramophone records to buy several recordings of music. The plaintiffs, Chappell & Co, held the copyright in these recordings. Nestlé offered to sell these records at a discount price to anyone presenting three wrappers from their chocolate bars. The wrappers themselves were worthless and were thrown away by Nestle. The plaintiffs sought an injunction restraining the manufacture and sale of the records because they breached copyright.
HELD:-The House of Lords held that the wrappers did form part of the consideration for the sale of records agreed they had no intrinsic economic value in themselves.
XX. CHINNAYE V. RAMAYYA
FACT:- A lady granted/ gifted a property consisting of some land to her daughter (defendant) by a gift deed. The deed was registered to the proper authorities. one of the terms of the deed was that the daughter had to pay a sum of Rs.653 annually. Later the old lady died, and the defendant refused to pay the money the sister whom she had promised to pay so. And hence the plaintiff sued the defendant for the recovery of the same.
HELD:- The sister was entitled to a decree for payment of the annual sum of money.
XXI.TWEEDIE V. ATKINSoN
FACTS:-The son and daughter of the parties involved in this dispute were getting married. As such, the father of the groom and father of the bride entered into an agreement that they would both pay sums of money to the couple. Unfortunately, the father of the bride died before he paid the money to the couple and the father of the son died before he could sue on the agreement between the parties. As a result of this, the groom brought a claim against the executor of the will for the payment that was previously agreed between the fathers.
HELD:- The groom’s claim was rejected by the court. It was held that the groom was not a part of the agreement between the fathers and he did not provide any consideration for the promise made by the father of the bride. Also, as a stranger to the contract, the son could not enforce it. on this basis, the court found in favour for the executor of the will.
XXII. TAYLoR V. CARDWELL
FACTS:- Plaintiff and Defendant entered into a contract, in which, Defendant agreed to let the Plaintiff use The Surrey Gardens and Music Hall on four certain days. After the signing of the contract, but before the first contract, the concert hall was destroyed by fire. The destruction was without fault of either party and was so extensive that the concerts could not be given.
HELD:-.The Defendant was discharged from performing, and his failure to perform was not a breach of the contract. When the contract is absolute, the contractor must perform it or pay damages for nonperformance although in consequence of unforeseen events the performance of the contract has become impossible. However, that occurs only where the contract is absolute. The contract here is subject to an implied condition that the parties shall be excused if performance becomes impossible from the perishing of the thing without fault of the contractor. The parties regarded the continuing existence of the hall as the foundation of the contract, and the contract contained an implied condition that both parties would be excused if the hall did not exist. Therefore, the destruction of the hall without fault of either party excuses both parties, the Plaintiff from taking the gardens and paying the money and the Defendant from performing their promise to give the use of the hall.
BENETT vs. BENETT
Facts:-This case concerned a transaction between a mother and her son and the presumption of advancement in equity. Mother, Ann Benett, wanted to help her son who was in some financial difficulty. Consequently, she gave Philip Benett £3oo in the way of a loan. Unfortunately, the son still went bankrupt and could not pay his debts. The trustee in bankruptcy tried to claim what was left of his money.
The court held that based on the evidence presented in this case there was no presumption of advancement between Ann Bennet and Philip Bennet. The money she had given his son was a loan to help him deal with his financial troubles. In addition, the courts stated that in equity, there was no presumption of advancement between mother and her child, as there was no moral obligation for a mother to provide for her child. This could only be a father or a male figure. Thus, the court upheld Ann Bennet’s claim and the £3oo sum was held on a resulting trust for the
XXIII. DULToN vs. PoLE
A son made a contract with his father for his father to not cut down an oak woodland. As consideration for this, the son would make a payment to his sister of £1ooo once she had married. The money gained from the woodland would have been paid to the sister. The father died before the sister was married and the son subsequently refused to pay his sister the money as was previously agreed, at the time of her marriage. The sister sued her brother for the amount that was originally promised between the father and son.
The concept of privity of contract had not been fully established at this stage and therefore this decision had significant importance to the broader subject. The court had to understand whether the daughter could be considered to be privy to the contract between the father and son regarding the payment. Within this, it was vital for the court to establish whether the daughter had given consideration for the promise that was made by the son, to his father, to pay the daughter the sum of money upon her marriage.
The court found in favour for the sister on the basis that the relationship between the father and the daughter had made the sister a party to the agreement, even if she was not included at the time the contract was agreed. The relationship between father and daughter was found to extend the consideration that the father gave in the promise to the children.
XXIV. R vs. CLARKE
Crown offered a reward for information that would lead to the conviction of the murderer. Clarke was aware of this reward. Clarke was under suspicion of the murder by crown, and to reduce his own sentence, gave the information leading to the arrest of the murderers. Without that evidence there would have been no case. Clarke admitted that he had no intention (at the time he gave the information) to earn the reward. Crown refuses to pay reward.
Was there a contract between Clarke and the Crown and how would one determine this contract?
The court, despite objecting on public policy grounds that not finding a contract would disuade other individuals from coming forward with evidence for rewards in the future, held that Clarke could not accept an offer he didn't know about citing Fitch v Snedaker and that forgetting about the reward was as good as ignorance. Further, Clarke had no expectation interest when he gave information to fulfill conditions of contract. The court ruled further than not only was a contract not formed, but Clarke had not fulfilled the terms of the contract as the reward stated a reward for "such information as shall lead to the arrest and conviction of the persons" and the arrests took place before the information was given.
one cannot accept an offer one doesn't know exists, or that one has forgotten exists.
one needs an expectation or reliance interest in the reward in order for that reward to be recoverable.
Dunlop was a tire manufacturer who agreed with their dealer to not sell the tires below a recommended retail price (RRP). As part of the agreement, Dunlop also required their dealers to gain the same agreement with their retailers, who in this instance was Selfridge. The agreement held that if tires were sold below the RRP, they would be required to pay £5 per tire in damages to Dunlop. This was agreed between the dealer and Selfridges, which effectively made Dunlop a third-party to that agreement. Sometime after this, Selfridge sold the tires below the agreed price and Dunlop sued for damages and an injunction to prevent them from continuing this activity. At the initial trial, the decision was given to Dunlop. This was appealed by Selfridge and the decision was reversed. Dunlop appealed.
Selfridge argued that Dunlop could not enforce the contract as Dunlop was not part of the agreement between the dealer and Selfridges. on this basis, the question for the court was whether Dunlop had the right to access damages without a contractual relationship.
The court held in a unanimous decision that Dunlop could not claim for damages in the circumstances. The court found that firstly, only a party to a contract can claim upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore there could be no binding contract between the parties. Lastly, Dunlop was not listed as an agent within the contract and could therefore not be included as a valid third-party who had rights to claim on the contract.
XXVI. MoHoRI BIBEE vs Dharmodas ghosh
Facts of the case-
Dharmodas Ghose was the respondent in this case. He was a minor (i.e. has not completed the 18 years of age) and he was the sole owner of his immovable property. The mother of Dharmodas Ghose was authorized as his legal custodian by Calcutta High court.
When he went for the mortgage of his own immovable property which was done in the favor of appellant i.e. Brahmo Dutta, he was a minor and secured this mortgage deed for Rs. 2o,ooo at 12% interest rate as per year.
Brahmo Dutta who was a money lender at that time and he secured a loan or amount of Rs. 2o,ooo, and the management of his business was in the control of Kedar Nath and Kedar Nath acted as the attorney of Brahmo Dutta.
Dharmodas Ghose’s mother sent a notification to Brahmo Dutta informing him about the minority of Dharmodas Ghose on the date on which such mortgage deed was commenced, but the proportion or the sum of loan that was actually provided was less then Rs. 2o,ooo.
The representative of the defendant, who actually acted instead of on behalf of money lender has given money to the plaintiff, who was a minor and he fully had knowledge about the incompetency of the plaintiff to perform or enter into contract and also that he was incompetent legally to mortgage his property which belonged to him.
on 1oth September 1895 Dharmodas Ghose along with his mother brought an legal action against Brahmo Dutta by saying that the mortgage that was executed by Dharmodas was commenced when he was a minor or infant and so such mortgage was void and disproportionate or improper and as a result of which such contract should be revoked.[i]
When this petition or claim was in process, Brahmo Dutta had died and then further the appeal or petition was litigated by his executor’s. The plaintiff argued or confronted that in such case no relaxation or any sought of aid should be provided to them because according to him, defendant had dishonestly misinterpreted the fact about his age and because if mortgage is cancelled at the request by defendant i.e. Dharmodas Ghose.
According to the verdict of Trial court, such mortgage deed or contract that was commenced between the plaintiff and the defendant was void as it was accomplished by the person who was an infant at the time of execution of mortgage.
When Brahmo Dutta was not satisfied with the verdict of Trial Court he filed an appeal in the Calcutta High court.
According to the decision of Calcutta High court, they agreed with the verdict that was given by Trial court and dismissed the appeal of Brahmo Dutta.
Then he later went to Privy Council for the appeal and later the Privy Council also dismissed the appeal of Brahmo Dutta and held that there cannot be any sought of contract between a minor and a major person.
The final decision that was passed by the council were-
Any sought of contract with a minor or infant is void/void ab- initio (void from beginning).
Since minor was incompetent to make such mortgage hence the contact such made or commenced shall also being void and not valid in the eyes of law.
The minor i.e. Dharmodas Gosh cannot be forced to give back the amount of money that was advanced to him, because he was not bound by the promise that was executed in a contract.
XXVII. Central Inland Water Transport Corporation v. Brojonath Ganguly
1986 SCR (2) 278
Plaintiffs worked in a company which was dissolved by Court’s order and they were then inducted into defendant Corporation upon latter’s T&C. After years of serving Corporation, plaintiffs were arbitrarily kicked out of the Corporation by virtue of Rule 9(i) of said T&C which provided for termination of employees’ services on three months’ notice on either side upon which three months’ salary to be paid by Corporation. Plaintiffs requested Court to quash Rule 9(i) on grounds of unconscionability.
HELD:When the bargain is harsh or unconscionable, equity, grounded upon ‘distributive justice’ curtails the freedom of contract so as to protect the interests of party who entered into such bargain under distress. Freedom of contract is of little value when parties don’t stand on equal footing; party with weaker bargaining power enjoys no realistic opportunity to bargain and party has no alternative between accepting a set of terms proposed by other or doing without the goods or services offered. These agreements are called as ‘Adhesion Contracts’, however not every such contract is unconscionable: only when there is gross inequality of bargaining power compounded with terms unreasonably favourable to stronger party can the indication that weaker party had no meaningful choice except to consent to the unfair and unreasonable terms, hold ground.
Therefore Courts will strike down any unfair or unreasonable clause/ agreement entered into by parties when there is gross inequality in their bargaining power, and the victimized party had no meaningful choice but to give his assent to the contract, however unreasonable, unfair and unconscionable a clause in that contract may be.
XXVIII. Combe vs. combe
· FactsDuring the divorce process, a husband promised to pay his wife a tax-free sum of £1oo each year to represent a permanent maintenance payment. The wife was aware that the husband was not in a good financial state and made no claim to this payment. Several years later, she brought an action to claim the arrears that were owed under their agreement.
· Held:- The court held that the wife could only enforce her agreement for the payment which was promised by the husband if she had given consideration. The court found that no consideration was given by the wife as she had not agreed to apply for the maintenance that was promised by the husband. The husband did not request the wife to refrain from taking the maintenance payment and therefore the wife could not claim for the money.
XXIX. BESWICK vs. BESWICK
Facts:- PB was in poor health and agreed with the defendant, his nephew, that he would transfer the trade and good will of his coal business to him on the basis that the nephew employed him as a consultant for the rest of his life and paid him for this. The nephew also agreed to pay PBs wife after PB died for the rest of her life. She was not a party to the agreement. Upon the death of PB, the nephew paid PB’s wife once but then not again. PBs widow brought an action as administrator of PB’s estate and also in her personal capacity claiming for specific performance.
XXX. PARTRIDGE vs. CRITTENDEN (1968)2 All ER 421
FACT :- Advertisements are also generally invitations to treat :The defendant placed an advert in a classified section of a magazine offering some bramble finches for sale .According to the protection of Birds Acts 1954 made it an offence to offer such birds for sale . He was charged and convicted of the offence and appealed against his conviction.
HELD :- The defendant’s conviction was quashed. The advert was an invitation to treat not an offer. The literal rule of statutory interpretation was applied.
XXXI. Spencer vs. Harding law Rep. 5 C.P. 561.
FACTS:- The defendants advertised a sale by tender of the stock in trade belonging Eilbeck &co. The advertisement specified where the goods could be viewed , the time of opening for tenders and that the goods must be paid for in cash. No reserve was started. The claimant submitted the highest tender but the defendant refused to sell to him.
HELD:- Unless the advertisement specifies that the highest tender would be accepted there was no obligation to sell to the person submitting the highest tender. The advert amounted to an invitation to treat , the tender was an offer, the defendant could choose whether to accept the offer or not.
XXXII. Heathcote Ball vs. Barry (2ooo) EWCA Civ 235.
FACTS:- The claimant has submitted the highest and only bids at an auction stated to be without reserve. The items were two Alan Smart engine analysers which were worth £14,ooo . The claimant had submitted bids of £2oo each. The auctioneer refused to sell them at that price . The claimant brought an action for breach of contract claiming damages of £27,6oo.
HELD:-The claimant was entitled to damages . Where an auction takes place without reserve the auctioneer makes a unilateral offer which is accepted by submitting the highest bid. There was thus a binding contract and the claimant entitled to damages covering the loss of bargain .
XXXIII. Thornton vs. Shoe Lane Parking (1971)2 WLR 585
FACT:- The claimant was injured in a car park partly due to the defendant's negligence. The claimant was given a ticket on entering the car park after putting money into a machine. The ticket stated the contract of parking was subject to terms and conditions which were displayed on the inside of the car park. one of the terms excluded liability for personal injuries arising through negligence. The question for the court was whether the term was incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the time the contract was made. This question depended upon where the offer and acceptance took place in relation to the machine.
The machine itself constituted the offer. The acceptance was by putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore the clause was not incorporated into the contract.
XXXIV. Errington vs. Errington Woods ( 1952) 1 KB 29o Court of appeal
HELD:- a A father-in-law purchased a house for his son and daughter-in-law to live in. The house was put in the father's name alone. He paid the deposit as a wedding gift and promised the couple that if they paid the mortgage instalments, the father would transfer the house to them. The father then became ill and died. The mother inherited the house. After the father's death the son went to live with his mother but the wife refused to live with the mother and continued to pay the mortgage instalments. The mother brought an action to remove the wife from the house.
The wife was entitled to remain in the house. The father had made the couple a unilateral offer. The wife was in course of performing the acceptance of the offer by continuing to meet the mortgage payments. Under normal contract principles an offer may be revoked at any time before acceptance takes place, however, with unilateral contracts acceptance takes place only on full performance. Lord Denning held that once performance had commenced the Mother was estopped from revoking the offer since it would be unconscionable for her to do so. Furthermore there was an intention to create legal relations despite it being a family agreement.
XXXV. Dahlia vs four millbank nominee (1978) Ch 231 Court of Appeal.
FACT:-The claimant wished to purchase some property from the defendant. The terms had been agreed but no written contract had been completed. The defendant promised the claimant that if he arranged for a bankers draft for the deposit to be delivered to the defendant before 1o.oo am on the 22nd December he would complete the written contract. The claimant duly complied with the request but the defendant refused to complete. The claimant brought an action stating that unilateral contract existed and the defendant was thus bound by that contract to complete the written contract for the sale of the property.
Held: A unilateral contract did exist.
XXXVI. Entorres vs. Miles Far East (1955)2 QB 327 Court of Appeal.
FACT:-The claimant sent a telex message from England offering to purchase 1oo tons of Cathodes from the defendants in Holland. The defendant sent back a telex from Holland to the London office accepting that offer. The question for the court was at what point the contract came into existence. If the acceptance was effective from the time the telex was sent the contract was made in Holland and Dutch law would apply. If the acceptance took place when the telex was received in London then the contract would be governed by English law.
To amount to an effective acceptance the acceptance needed to be communicated to the offeree. Therefore the contract was made in England.
XXXVII. Butler Machine Tool v Ex-Cell-o Corporation  1 WLR 4o1 Court of Appeal.
FACTS:- Ex-Cell-o wished to purchase a machine from Butler. Butler sent out a quotation of £75,535 along with a copy of their standard terms of sale. The terms included a price variation clause and a term that the seller's terms would prevail over any terms submitted by a purchaser. The machine would be delivered in 1o months. Ex-Cell-o put in an order for the machine at the stated price and sent a set of their terms which did not include the price variation clause. The order contained an acknowledgement slip which required a signature by Butler and was to be returned to Ex-Cell-o. This slip stated that the contract would be subject to the terms stated overleaf. Butler duly signed the slip and returned it. The machines were then delivered and Butler sought to enforce the price variation clause and demanded an extra £2,893. Ex-Cell-o refused to pay.
The offer to sell the machine on terms provided by Butler was destroyed by the counter offer made by Ex-Cell-o. Therefore the price variation clause was not part of the contract. The contract was concluded on Ex-Cell-o's terms since Butler signed the acknowledgement slip accepting those terms. Where there is a battle of the forms whereby each party submits their own terms the last shot rule applies whereby a contract is concluded on the terms submitted by the party who is the last to communicate those terms before performance of the contract commences.
XXXVIII. Adams v Lindsell (1818) 1o6 ER 25o.
FACTS:-The defendant wrote to the claimant offering to sell them some wool and asking for a reply 'in the course of post'. The letter was delayed in the post. on receiving the letter the claimant posted a letter of acceptance the same day. However, due to the delay the defendant's had assumed the claimant was not interested in the wool and sold it on to a third party. The claimant sued for breach of contract.
There was a valid contract which came in to existence the moment the letter of acceptance was placed in the post box.
This case established the postal rule. This applies where post is the agreed form of communication between the parties and the letter of acceptance is correctly addressed and carries the right postage stamp. The acceptance then becomes effective when the letter is posted.
XXXIX. Scammell and Nephew v ouston  AC 251
FACTS:-House of Lords The parties entered an agreement whereby Scammell were to supply a van for £286 on HP terms over 2 years and ouston was to trade in his old van for £1oo. There was then some disagreement and Scammel refused to supply the van.
There was no certainty as to the terms of the agreement. Whilst there was agreement on the price there was nothing in relation to the HP terms stating whether it would be weekly or monthly installments or how much the installments would be.
XL. Sudbrook Trading Estate v Eggleton  AC AC 444 .
FACTS :-A lease gave the tenant an option to purchase the freehold of the property at a price to be agreed by two surveyors one appointed by the tenant and one appointed by the landlord. The tenant sought to exercise the option but the landlord refused to appoint a surveyor. The landlord claimed that the clause was too vague to be enforceable as it did not specify a price.
The clause was not too vague to be enforceable as it put in place a mechanism to ascertain the price.
XLI. Jones v Padavatton  1 WLR 328 Court of Appeal.
FACTS :- A mother promised to pay her daughter $2oo per month if she gave up her job in the US and went to London to study for the bar. The daughter was reluctant to do so at first as she had a well paid job with the Indian embassy in Washington and was quite happy and settled, however, the mother persuaded her that it would be in her interest to do so. The mother's idea was that the daughter could then join her in Trinidad as a lawyer. This initial agreement wasn't working out as the daughter believed the $2oo was US dollars whereas the mother meant Trinidad dollars which was about less than half what she was expecting. This meant the daughter could only afford to rent one room for her and her son to live in. The Mother then agreed to purchase a house for the daughter to live in. She purchased a large house so that the daughter could rent out other rooms and use the income as her maintenance. The daughter then married and did not complete her studies. The mother sought possession of the house. The question for the court was whether there existed a legally binding agreement between the mother and daughter or whether the agreement was merely a family agreement not intended to be binding.
The agreement was purely a domestic agreement which raises a presumption that the parties do not intend to be legally bound by the agreement. There was no evidence to rebut this presumption.
XLII. Simpkins v Pays  1 WLR 975 Queen's Bench Division.
FACTS:- A Grandmother, granddaughter and a lodger entered into a weekly competition run by the Sunday Empire News. The coupon was sent in the Grandmothers name each week and all three made forecasts and they took it in turns to pay. They had agreed that if any of them won they would share the winnings between them. The grandmother received £25o in prize money and refused to share it with the other two. The lodger brought the action to claim one third of the prize money.
There was a binding contract despite the family connection as the lodger was also party to the contract. This rebutted the presumption of no intention to create legal relations.