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CARLILL V. THE CARBOLIC SMOKE BALL COMPANY ( Offer v. Invitation to Offer-Legal Intention to be bound-Wagering ) The defendants, the proprietors of “the carbolic smoke ball” issued an advertisement in which they promised to pay 100 pounds to ‘any person’ who contracted the influenza ‘after’ having used one of their smoke balls in specified manner and for particular duration of time. They even alleged to have deposited 1000 pounds with a Bank to show their “sincerity in the matter”. The plaintiff purchased one of the smoke balls and used it as specified, but nevertheless contracted influenza and sued defendants for recovery of the sum. Issues brought before the trial court: Whether there was any consideration for the offer made, if it was made, by the defendants, sufficient to turn the offer, if made, into a valid contract? And, Was the contract a wagering contract? The trial court observed: ‘ A wagering agreement is one by which two persons mutually agree that upon determination of a future uncertain event, one shall win from other; neither party having any interest except in money he may win or lose. Each party under wagering agreement may either win or lose, if either may win but can’t lose or vice versa, it is not a wagering agreement. Further, in construing whether an agreement is wagering, Courts will arrive at the substance of the agreement and not merely go by the words. ’
- The contract was not of wagering in nature as here, plaintiff was to derive benefit if she contracts influenza but if she doesn’t, defendants couldn’t gain anything for there was no promise on the plaintiff’s part to pay or do anything if the ball had desired effect. When the appeal was filed by the defendant to the higher court, the following issues were raised:
- Whether there was any consideration for the offer made, if it was made, by the defendants, sufficient to turn the offer, if made, into a valid contract?
- Was the company liable to pay compensation to the persons who contract influenza even after they had ceased to use the smoke ball for many years? Or, is the reasonability of the time for which the contract should be valid, well determinable?
- In order to make a contract, there must either be a communication of intention to accept the offer or the performance of an overt act. Since in the present case there was none of the conditions fulfilled, hence there was no contract made.
- Since the advertisement was issued to world at large, hence, if it were a contract, it was very difficult to ascertain with whom the contract was made and in such an event, the contract lacked privity and hence was void.
- It was contended that the terms of the proposal were vague enough to render the proposal void as: Will the contract even apply to the case when the person steals the smoke ball and then use it? (Counsel: the person who lawfully procures the smoke ball could claim the benefit of the advertisement.) Will the contract even apply to the case when the person didn’t bring directly from the company but from a middleman? (Counsel: this is not the import of the words used in the advertisement and there is not any reason for such a limitation as the increased sale of balls though affected from any middlemen will increase their revenues) Will the contract even apply to the cases when the person, even before the advertisement was issued, contracted influenza despite using the carbolic smoke ball as in the prescribed format? (Counsel: It is only after the advertisement is published, that the period of fortnight will start from and only after using the medicine for the fortnight in a prescribed format, can the plaintiff file a suit in the court of the law.) The higher court observed:
- The advertisement was intended to be a promise and wasn’t merely a ‘puff’, which can be based on the fact that the defendants deposited 1000 pounds with the Alliance Bank calling it their “sincerity in the matter”. Against the argument that there was no consideration on the part of the plaintiff accruing to the defendants as the use of the ball was no advantage to them, the court observed that the use of the smoke ball by the public was directly beneficial to them for their sales revenue and hence there was sufficient consideration. The court also dwelt on
other viewpoint that the inconvenience sustained by the plaintiff upon the use of the smoke ball in the prescribed manner constituted sufficient consideration.
- The court upheld that there can be three possibilities as to the inference of time frame which was sought by the smoke ball co. It may be limited to persons catching influenza and other associated diseases during the prevailing epidemic, second, persons catching disease while continuing the use of the smoke ball after its use for specified period and in specified manner, and, thirdly, it may refer to the duration for which the effect of using the smoke ball would have reasonably continued as according to physicians or the chemists. In all three cases however, person must have used the smoke ball as specified in the offer.
- The court observed that if the notice of acceptance is required, the promisor must inform others about the same along with the offer. However, in the present case, going by the language of the adv. and the nature of transaction, there was neither the express nor the implied expectance of the notice of acceptance by the promisee. This was one of the class of cases in which, as in case of reward offered for information, or for recovery of lost property, there need be no acceptance of the offer other than performance of the condition. Performance of condition is sufficient acceptance even without any notification if it seems reasonably that offeror either expressly or impliedly so intends.
- The court equated the contention to all those advertisements that offer rewards. It observed that the advertisement was a general offer to pay 100 pounds to anybody who performs the conditions, the performance of which, with the knowledge of the offer, was its acceptance. If we argue that offer is accepted the moment Mrs. Carlill started using the ball, then notwithstanding the fact that she has yet not completed the use of the medicine the offeror i.e. the company is bound by the acceptance. The only question then arises is the obligation of the company to pay. It can be argued that in such a situation the contract formed is contingent as the payment is dependent upon the contracting of the influenza. On the other view there is no contract till the medicine is completely used and the influenza is contracted before the revocation of the offer. Since in Carbolic case the influenza was contracted prior to any revocation these points were not debated. Hence as a student of law you have the luxury of reading both the approaches. You can argue on either of these positions. Refer: “ O advertises promising 100/- to anyone who will walk to New York. A, relying on the offer, embarks on the journey. One view is accepted O’s offer is accepted only when A actually gets to NY. The difficulty about this view is that since offer are revocable until accepted it would appear to follow that O might revoke his offer when A was only 5 yards from York and going strong which would seem to be very unjust. An alternative view is that A accepts O’s express offer by embarking on performance, but a condition of his right to recover the 100/- is complete performance of the consideration. In accepting this view, problem lies in the fact that once A embarks on the journey, he is held to have accepted the offer and since in case of general offers like this there is no need for notice of acceptance to be sent to the offeror, hence, O will not be in a position to revoke the offer. Even when he doesn't know that A has embarked on such a journey, he will be held liable for breach if he revokes the offer. ” QUESTION: Suppose in fact situation of Carlill v. Carbolic Smoke Ball Co. case, a person started using the smoke ball in specified manner as given in offer, and completes the course of specified duration therein. Shortly after the offer is revoked by the Co., nevertheless person contracts influenza afterwards while continuing the use of smoke ball. ANS. In such contracts, performance of condition as given in offer coincides with its acceptance, which is itself a condition precedent to demanding performance by other part of its obligations. As per BOWEN L.J. in Carlill v. Carbolic Smoke Ball Co., in these cases “ Contract is formed the moment person fulfils the condition ”. Since here, condition was to contract influenza after using smoke ball in specified manner and for specified duration and offer was revoked before the fulfilment of condition precedent, hence, there was no contract between parties at any point of time and payment can’t be demanded.
physical delivery of the goods and hence the contract was made according to former’s terms and conditions. JUDGEMENT:
- As per Denning M.R., “when there is a ‘battle of the forms’, then there is a contract as soon as the last of the forms is sent and received without objection being taken to it” (LAST SHOT DOCTRINE). Here, the ‘last shot’ was fired by the buyers by attaching T&C to their order which were materially different from those of sellers. Since, that order was received and acknowledged without any objection to any of the T&C attached therewith, hence, buyers’ terms will prevail.
- Further, according to him, the documents comprised in ‘battle of forms’ were to be considered as a whole. Therefore, the acknowledgement made by the sellers was a decisive document which makes it clear that the contract was on the buyers’ terms and not on the sellers’ terms.
- Other judges though arrived at the same conclusion but followed the traditional pathway. They observed that the buyers’ order was a counter offer which destroyed the offer made in the sellers’ quotation. This was because the T&C mentioned in the order were poles apart from the T&C mentioned in the quotation. The sellers by acknowledging the receipt of the order, and, delivering the machine, accepted that offer. They, therefore, couldn’t claim the increase in price as the price variation clause of the original offer, made by them, stood cancelled.
- (As per Lawton L.J.) If the letter was taken to be a counter offer made by the sellers to the buyers, then, there was never a consensus ad idem, and, hence, there was never a valid offer, as the buyers had made it clear to the sellers, even before taking the delivery, that, they were not accepting the price variation clause.
- The court held that the letter enclosed with the acknowledgement slip, was in the business sense, referring to the quotation as to the price and the identity of the machine and not the small print conditions on the back of the quotation. Hence, it didn’t incorporate sellers’ terms back into the contract. CONCLUSION: The court therefore allowed the appeal and case was decided in favour of buyers. RATIO: A reply to an offer which purports to be an acceptance but which contains terms materially different from those originally set out in offer, shall amount to counter offer, which when duly acknowledged and accepted by the offeror shall amount to acceptance of the counter offer, and, shall bind him with the terms set out in the counter offer.
Balfour v. Balfour ( Consideration-Intention to create legal relations ) A husband was employed in Ceylon. He returned with his wife to England on leave, but she was unable to go back to Ceylon with him due to medical reasons. He consequently promised orally to make her an allowance per month until she rejoined him. He failed to make the payment and she sued him. Lord Atkin: “ The consideration may consist of either some right, interest, profit or benefit accruing to promisor, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by promisee.” Mrs. Balfour contended that if the wife is living apart from her husband by mutual consent then the right of the wife to pledge her husband’s credit arises. If however, instead of doing so, she agrees to give up that right and to accept an allowance instead, she is entitled to sue for it. Therefore, consideration for the promise by the husband to pay the allowance was that Mrs. Balfour gave up her right to pledge her husband’s credit (which means that, she will not be asking for greater sum of money from her husband directly, or, using the knowledge that she has the right to act in capacity of his agent, she would not use his credit to a greater advantage). To this lord Duke observed that the husband has a right to withdraw the authority from his wife to pledge his credit. Giving up of that which was not a right was not a consideration. There must be intention of parties to create legal relations while entering into any agreement so as to make it enforceable by law. This intention is to be determined objectively (Smith v. Hughes): If a reasonable person in the position of offree would consider that the offer made by the offeror was intended to create legal relations, then offeror will be so bound by contract subject to fulfilment of other requirements. In case of social engagements and family arrangements, there is a strong presumption that parties therein have no intention to enter into legally enforceable contract. Such agreements are made in amity, grounded on domestic relations between the parties and obligations arising out of those relations; and no legal consequences could reasonably have been contemplated by them for breach of such agreements. Since the agreement was made in the ordinary domestic relationship of husband and wife out of amity and necessity; intention to enter into a legally binding contract was missing and hence there was never a contract made b/w Mr. and Mrs. Balfour.
NESTLE V. CHAPPELL
( Condition v. Consideration, adequacy of consideration ) Facts: C were owners of copyright of a tune called ‘Rocking Shoes’ and N were manufacturers of chocolate who were selling to the public these records in return for 1s6d and three wrappers of chocolate bars manufactured by N. Under the statutory provision then in force, N were required to pay certain percentage of ‘ordinary retail selling’ price to C. C contended that N couldn’t rely on statute for it contemplated price consisting of money alone, whereas in this case consideration for records included three chocolate wrappers also. Issues: Whether chocolate wrappers formed a part of consideration? Court of Appeal: The three wrappers to be sent by anyone wishing to purchase records wasn’t part of the consideration for it acted as mere condition seeking to limit the class of the purchasers. Acc to Jenkins wrappers couldn’t constitute consideration because: Firstly, wrappers presented by given purchaser need not necessarily represent chocolate brought by him, Secondly, whatever price for which chocolate bars were sold and whatever profit Nestle got out of their sales was wholly attributable to and exhausted by the purchase of the chocolate. Thirdly, they acted as mere condition and not an addition to consideration. House of Lords: CoA decision overturned by a bare majority. A valuable consideration may consist in some right, interest, profit or benefit accruing to the promisor or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the promisee or any third party. Here the wrappers formed part of the consideration for they evidenced purchase of three chocolates manufactured by Nestle and hence were of value to them; “ A contracting party can stipulate for what consideration it chooses. A peppercorn doesn’t cease to be good consideration if it is established that the promise doesn’t like pepper and will throw away the corn. ” Nestlé’s contention that acquiring and delivering the wrappers was merely a condition which gave the qualification to purchase and wasn’t part of the consideration doesn’t hold well: “ Where qualification is the doing of something of value to the promisor, and where qualification only suffices for one sale and same must be required for another sale, such repeated acquisitions of qualifications is nothing but the part of consideration for the sales.”
Dunlop v. Selfridge ( Consideration-agency ) Facts: Dunlop, a tire manufacturing company, made a contract with Dew for sale of tires at a discounted price on condition that they would not resell the tires at less than the listed price and that any reseller who wanted to buy them from Dew had to agree not to sell at the lower price either. Dew sold the tires to Selfridge on the same Price Maintenance Terms, but Selfridge proceeded to sell the tires below the price he promised to sell them for. Issues: 1) Whether there was any contract between Dunlop and Selfridge?
- Whether Dew contracted with Selfridge in the capacity of an agent of Dunlop?
- Whether Dunlop gave any consideration by itself or through the promisee, acting as his agent in giving it? Judgment: 1) Dunlop was acting as complete stranger to the contract between Selfridge and Dew and thus on account of privity of contract couldn’t sue Selfridge for breach of its agreement with Dew. It was a mere beneficiary to it on account of Price Maintenance Clause.
- On whatever terms the contract between Selfridge and Dew was made was to be solely determined by them and was not in any way regulated or stipulated by Dunlop apart from the Price Maintenance Clause. While Dew was assumed to be acting as agent while inserting PMC in the contract it was acting as principal while stipulating terms of the contract with Selfridge--but as held by Court, a person can’t contract in two capacities in the same agreement. Hence, HoL held that Dunlop wasn’t acting as the undisclosed principal of Dew.
- Dew had the title to goods manufactured by Dunlop independently of any contract with Selfridge. They were free to sell the tyres to anyone they wished. Secondly, the consideration by way of discount was given wholly out of Dew and neither directly nor indirectly out of Dunlop. Neither Dunlop gave any consideration directly to Selfridge nor through Dew as his agent. Further since all the terms of the contract including whether to give any discount to Selfridge or not was solely stipulated by Dew on its own account and not as Dunlop’s agent, therefore HoL unanimously held appellant’s contention that their permitting and enabling Dew, with the knowledge and desire of Selfridge, to sell to the latter on the terms of its contract was consideration moving from Dunlop to Selfridge, as unsustainable.
BELIZE Telecommunications V. BELIZE Telecom ( S.9: Implied Promises ) Facts: The decision concerned the construction of the articles of association of a company incorporated to take over the undertaking of the Belize Telecommunications Authority, a public body which had been the monopoly provider of telecommunication services in Belize. The articles provided that any person who held both a "golden share" plus certain minimum amount of the issued ordinary shares in the company could appoint or remove two directors. The articles were silent as to what was to happen to the two directors if, as happened in this case, the golden shareholder no longer held the requisite percentage of ordinary shares. Contentions: Belize Telecom Ltd ("BTL"), which had been the golden shareholder, argued that the two directors were irremovable unless they resigned, died or vacated office under article 112 of the articles of association, which provided for vacation in circumstances of conflict of interest, bankruptcy or other specified reasons. The Attorney General of Belize (the "AG") argued that the articles should be construed as providing by implication that a director who had been appointed by a person holding the requisite percentage of ordinary shares vacated his office if his appointer ceased to hold such a shareholding. Rule Evolved: It is not the task of the Courts to make contracts for the parties or to improve them but only to interpret them. While interpreting the contracts Courts are only concerned with the meaning which the contracts would convey to a reasonable man having all the background knowledge that would reasonably be available to the public to whom such contract is addressed. This objective meaning is conventionally referred to as intention of the parties. Therefore in every case when Courts are to determine whether a provision is to be implied in a document, the question for the Court is: “ what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?” This question has been addressed by Courts in relatively different but overlapping ways: the implied term must be 1) reasonable and equitable; 2) necessary to give business efficacy to the contract such that no term will be implied if the contract is effective without it; 3) must go without saying; 4) must be capable of clear expression; and lastly, 5) must not contradict any express term in contract. Application of Rule: The Board of the company had been structured to reflect the level of interest of those participating in the company. Powers of appointment given to the Government (in the beginning) as special shareholder were carefully formulated to reflect the economic and political interest held at the time of the appointments. The Court held that, given the role of government appointed directors and the policy of the government to require redemption of the special share so that it could relinquish its influence over the conduct of the business, the Articles could not reasonably mean that government appointed directors could remain in office after the special share had ceased to exist. There was no difference if the special shareholder continued to exist but no longer had the requisite minimum shareholding that would have entitled it to appoint and remove special directors. Where a change in shareholding meant that the board of the company no longer reflected the appropriate shareholder interests, a term should be implied that, when the relevant shareholding ceased to exist, the directors appointed by reason of that shareholding should vacate their office. Accordingly, the special C directors could no longer remain in office.
Combe v. Combe ( Consideration—PE—Restraint of Court Proceedings ) Facts: A husband, upon divorce, promised his wife certain sum a year as permanent maintenance. In reliance upon this promise, the wife forbore to apply in the Court for maintenance. The Husband failed to make the payments and Wife sued him on the promise. Issues: 1) Whether there was any consideration by Wife to the promise made by the Husband?
- Whether the rule of Promissory Estoppel can be of any avail to Wife? Judgment: King’s Bench Division : The only consideration which could be deduced from the circumstances is implied promise by Wife not to sue Husband for permanent maintenance, but that any promise in restraint of applying to the Court was void and unenforceable. Whenever a promise is made with the intention of creating legal relationship-a promise that is intended to be acted on and was in fact acted on by the other party ( here, by forbearing to sue for 7 years )- then promisor is abstained from going back on the promise for it will be inequitable for him to do so. (Promissory Estoppel) Court of Appeal: There is no consideration merely because there is detrimental action by the promisee in reliance on the promise, but not in return for it. In present case, husband neither expressly nor impliedly requested wife to forbear from going to the Court, hence there was no consideration for husband’s promise. Her forbearance was neither intended by the husband nor was it at the husband’s request. Even if, in return for the promise, wife had promised to refrain from applying to the Court, such a promise being void and non-binding, would not be any real consideration. Promissory Estoppel doesn’t create new causes of action when none existed before; it is a shield and not a sword. Principle of Promissory Estoppel is to be employed to obviate the necessity for consideration in cases where parties are already bound contractually and one party promises to modify, waive or suspend its strict legal right. But in those cases also, it is to be used only as a part of cause of action and not an action in itself. ( Central London case ) In present case, the principle of PE therefore can’t do away with the necessity of consideration when that is an essential part of the cause of action. Central London Property Trust Ltd. v. High Trees House Ltd. ( Promissory Estoppell ) Facts and judgment in Anson Principle of Promissory Estoppell as in Combe v. Combe and Hughes v. Metropoliton Rly Co.; However, Lord Denning remarks: “ Courts have not gone so far as to give a cause of action in damages for breach of such a promise (which was made with the intention of creating legal relations, to be acted upon and was in fact acted upon) but they have refused to allow a party to act inconsistently with it. It is in that sense that such a promise gives rise to estoppell. ”
inequitable for promisor to go back on his promise which can be proven by adducing the evidence of any ‘detriment’ which will be suffered by promisee if such promise isn’t abided by. Though in English law, promissory Estoppel ‘can only be a shield and not a sword’ ( High Trees case ) i.e. plaintiff can’t have a cause of action solely on grounds of Promissory Estoppel though latter can serve as a part of cause of action for if an independent cause of action may arise then it will be tantamount to doing away with the necessity of consideration, and ‘ doctrine of consideration is too firmly fixed to be overthrown by a side wind ’ ( Combe v. Combe ). However, in Indian context such a limitation of application of doctrine of PE only by way of defence doesn’t apply ( Motilal Padampat Sugar Mills case ). This is because of following reasons: Firstly, it is not based on the principle of estoppel rather is under the realm of equity and hence, can’t be inhibited by same limitation as estoppel in strict sense of term; Secondly, rule of equity has been flexible enough to give ‘Propreitary Estoppel’ an independent cause of action, which in qualitative terms is similar to Promissory Estoppel, albeit with difference of its applicability only to cases of interest in land, equity must also allow an independent cause of action grounded on PE; SC hence refused to draw any distinction between PE and Prop E; thirdly, law must be constantly developing and changing according to changing social concepts and values, if equity demands promises to be enforced to promote justice, honesty and good faith, there is no reason that the “dead wood” of need for consideration as necessity in enforcing any promise is not dropped away. Where the government makes a promise, even in sovereign, administrative or governmental capacity, knowing or intending that it would be acted on by the promisee and, in fact, promisee, acting in reliance on it, alters his position, the Government will be abstained to go back on its promise if it will be inequitable to do so, notwithstanding that there is no consideration for the promise and promise is in fact is not recorded in form of a formal contract as required by Art.299 of Constitution. The defence of ‘ executive necessity ’ which holds that Government can’t fetter its future executive action to be determined by needs of community at relevant time do not release government from being bound by such promises for it will be ultra-vires to rule of law and justice. However, Firstly, Government can’t be bound by its promise to do an act or omission either expressly prohibited by Law or is in prevention of its acting in discharge of its public duty under the Law; Secondly, government can’t be bound by any promises made by officers or agents without any authority; Thirdly, if in accordance with facts that have subsequently transpired, it will be inequitable to hold Government to its promise, Courts will not invoke equity in favor of any such promise made, albeit this onerous burden to prove that any such enforcement of promise will be against ‘ public interest ’ and hence against ‘ equity ’ lies on the Government; Fourthly, even when there is no overriding public interest, if government gives a reasonable notice , thereby providing promisee a reasonable opportunity to resume his position, it will be allowed to go back on it unless promisee has so altered his position that status quo can’t be restored. Hence, in light of categorical promise made by Chief Secretary, on behalf of Government, that plaintiff will be entitled to sales tax exemption in respect of new industrial plant established in UP, and the knowledge of government that such promise is to be acted on, it will be inequitable to allow Government to go back on promise because it was in fact acted on by promisee resulting into altering his position which couldn’t now be restored. Plaintiff not only borrowed money from various financial institutions, purchased machinery but also established hydrogenation plant in UP and went ahead with production. Hence, rule of promissory estoppel can be evoked in present case to be of avail to plaintiff.
BHAGWANDAS GOVARDHANDAS KEDIA V. GIRDHARLAL ( S.3 and 4, place of formation of contract, postal rule ) Facts: Plaintiff offered to get certain goods supplied at Ahmedabad to defendants who accepted the offer at Khamgaon. On defendants’ failure to supply requisite goods, plaintiff sued them at Ahmedabad. Dispute arose as to where was contract formed- at Khamgaon where acceptance was given by defendants or at Ahmedabad where acceptance was received by plaintiffs. Contention: Defendants contended that according to the section 2, 3 and 4 of ICA, the place where the offer is accepted is the place where the contract is made and therefore Ahmedabad trial court didn’t have the jurisdiction to try the suit. Judgement: Majority Judgment: An agreement doesn’t result from mere intent to accept the offer: Acceptance must be by some external manifestation (either by speech, writing, conduct in further negotiations, or any other overt act) accompanied by its communication to the offeror ( Brogden v. Metropoliton Rly Co. ) unless expressly waived by him or impliedly by the course of negotiation to the contrary ( Carlill v. Carbolic Smoke Ball ). Entores v. Miles: An offer was made from London by telex to a party in Holland and was duly accepted through telex; the question arose as to which court had jurisdiction to try the dispute between the parties. Denning L.J. observed that in case of instantaneous communications between the parties, i.e. where parties are in each other’s presence or though separated in space are in direct communication with each other as for example by telephone or telex, contract is complete when the acceptance of offer is duly received by the offeror and the contract is formed where such acceptance is received. Adams v. Lindsell: An offer was made by defendants by post to sell certain goods. Though, the acceptance was duly posted by plaintiff but, it reached defendants nearly after a week when latter had already sold the goods to a third party. Court ruled that ‘when parties aren’t in each other’s presence and communicate long distance either by post or telegram, both parties get bound by contract as and when the acceptor puts the letter of acceptance in the course of transmission to offeror so as to be out of his power to recall’ ( postal rule ). But in India, according to S.4 of ICA, application of Postal Rule results that acceptor is bound only when the acceptance “comes to the knowledge of the proposer” while proposer becomes bound much before when letter was “put in course of transmission to him as to be out of the power of acceptor to recall”. “S.4 doesn’t imply that the contract is formed qua the proposer at one place and qua the acceptor at another place”. The gap of time between posting of acceptance and its coming into knowledge of proposer can be utilised by acceptor in revoking his acceptance by speedier communication which will overtake the acceptance (S.5 of ICA) The postal rule came into existence in Adams case for two prominent reasons: The rule was based on commercial expediency/empirical grounds : for if the defendants were not bound by their offer till the acceptance by the plaintiffs is not received by them, then the plaintiffs ought not to be bound till after they had received the notification that the defendants had received their acceptance and had assented to it; and so it might go on ad infinitum. Secondly, if the contract is not finally concluded till the intimation of the acceptance by the promisee to the promisor, then there may be instances that the promisor will deny the receiving of any acceptance even though he may have received it. This may lead to instances of fraud and also delay in commercial transactions. Further, the satisfactory evidence of posting a letter is generally available as against of its having been received. He held that the contract act doesn’t expressly deal with the place where a contract is made. The conversation over telephone is analogous to the conversation when the parties are in presence of each other, wherein, the negotiations are concluded by instantaneous speech and therefore communication of the acceptance becomes
Trimex v. Vedanta ( Formation of a contract ) Facts: Trimex offered, via an email, the supply of bauxite to VAL which, after several exchanges of e-mails, was subsequently accepted by latter, confirming the supply of 5 shipments of bauxite from Australia to India. Though a draft contract had also been prepared but it yet needed to be formalised. After VAL received first consignments of goods, it requested Trimex to hold back next consignment of goods so as to enable them to check bauxite’s utility value. However, on same day, ship owners nominated the ship for loading the cargo. Later when contract was cancelled by Trimex, it claimed damages paid to ship owners from VAL which latter refused by denying any contract. Issue: Whether there was any valid subsisting contract between the parties in absence of any formal contract? Judgment: Once the contract is concluded orally or in writing, the mere fact that a formal contract has not been prepared by the parties doesn’t affect either the acceptance of the contract so entered into or implementation thereof. A contract is said to be concluded when parties agree as to the ‘essential terms’ of the contract though minor details can be left over for them to decide later, albeit subject to satisfaction of other requirements as provided by S.10 : without such essential terms being decided, contract cannot be enforced by law as it is deemed to be incomplete.
- The SC held that all essential ingredients required for enforcing these kinds of shipment contracts were decided by parties including price, quantity, product specifications, delivery and payment terms, discharge port, shipment lots, demurrage rate, quality benchmark, applicable arbitration laws, etc. Further, minute to minute correspondences exchanged b/w the parties clearly show that both the parties were clearly aware of the various terms of the contract and were ad idem ( S.13 ) w.r.t. those.
- Communication of acceptance, according to S.4 , was complete as against VAL, as and when confirmation of 5 shipment lots came to the knowledge of Trimex. Further, the acceptance was unconditional and unqualified ( S.7 ): “ We confirm the deal for 5 shipments ”.
IMPERIAL LOAN CO. V. STONE (insanity) Facts: Defendant when lunatic signed a promissory note as surety upon which plaintiff brought an action and defendant took the defence of insanity Issues: Whether defendant can successfully claim insanity as a defence? Judgmnet: To successfully take the defence of insanity as breach of contract, defendant must show not only that he was so insane at the time of executing the deed such that he was incapable of understanding the implications of the agreement; but also that at the time of the contract his insanity was known to the plaintiff. The burden of proof must lie on the defendant. Since the jury didn’t find on the second question, hence there must be new trial. Mohiri Bibee v. Dharmodas Ghose ( Minor Agreements ) Facts: Agent of defendant advanced money to plaintiff, an infant, fully knowing his incompetency to contract, against mortgage of property belonging to latter. Plaintiff commenced this action to get the mortgage declared as void u/s 2, 10 and 11 of ICA and repossession of property thereunder conveyed to defendant. Issues: Whether the mortgage was void u/s 2, 10, 11 of ICA? Whether plaintiff to return the money received by him under such mortgage? Judgment: Laying emphasis on true literal construction of Indian Contract Act , notwithstanding the rules as to enforceability of contracts entered into by minors, Supreme Court held that unless the parties are competent to contract as u/s 11, no agreement is contract as u/s 10 and hence, is not enforceable by law u/s 2(h) and is void u/s 2(g). Since minor is not competent to contract u/s 11, hence every such agreement entered into by a minor is void ab initio ( void from the very inception ). Even u/s 68, a minor is deemed as incompetent to contract and isn’t to be personally liable for any necessaries supplied to him , albeit a statutory claim is created against his property. Quite controversially, Supreme Court observed, “ S.65 like S.64, starts from the basis of there being an agreement or contract between the competent parties and has no application to a case in which there never was and never could have been any contract. ”
Nash v. Inman ( Contract for necessity for minor enforceable ) Facts: A tailor supplied 13 waistcoats and other things of that kind to a undergraduate student when latter was a minor. Student refused to pay for the goods supplied and tailor brought this suit against him for recovery of price of those goods. Issues: Whether the goods so supplied fall into the category of necessary? If issue 1) is no, whether the contract was enforceable at law? On whom does the onus to prove or disprove the necessity of goods so supplied fall? Judgment: “Necessaries means goods or services suitable to the condition in life of minor, or any other person incapable of forming contract for himself, and as to his actual requirements at the time of sale and delivery”. This means that not only the goods need to be suitable and necessary to the condition in life of a minor (here) but also be needed by minor in actuality, i.e. he must not be already having sufficient supply of such goods. The onus to prove that the thing contracted for was a necessity lies on plaintiff, however difficult it may be to prove that it was needed by minor in actuality. In English Law, incompetent person is to compensate the supplier of necessities to him by paying a reasonable price for such necessities. However, if the necessities so supplied are services instead of goods, then action for recovery lies against estate of such person and not against him. Having settled the current legal position in English law, Court held for the defendant due to absence of any major evidence for plaintiff. Since plaintiff couldn’t prove that the clothes so delivered were actually needed as necessity by minor, hence, Court observed that the contract wasn’t the one for necessity and hence was void ab initio.
Proform v. Proactive ( Contract for Necessity-Voidable Contract recession ) Facts: Proform entered into a representation contract with wayne rooney, a famous footballer when he was a minor (of 15 years of age). The contract was to expire after two years. During the last year, Wayne entered into two agreements with Proactive having the same effect as that of contracts with Proform. But these agreements were never acted upon and were abrogated soon after their execution. When contract with Proform came to an end, then just after three days, Wayne entered into representation contract with Proactive. Issues: Whether Proactive can be held liable for inducement of Wayne to breach his contract with Proform? Judgment: In present case, the contract of proform with Wayne didn’t fall either into contract for necessity or analogous to contracts for employment, apprenticeship or education. Proform was neither giving any training to Wayne nor was it compulsory for him, as a professional footballer, to enter into such a contract. In these circumstances, the contract didn’t fall into the category of enforceable contracts against minor for it being contract of necessity rather was voidable at the option of Wayne. There could be no liability for inducing or facilitating the breach of a voidable contract with the minor. Where a contract was determinable, no liability was incurred merely by inducing a contracting party who enjoy the right to rescind, to determine the contract lawfully, for there was no breach. The contention raised by Proactive that given the legal advice of leading counsel to Wayne, former couldn’t be held to be responsible for procuring the breach of contract, was not held well. However, the court held that had the agreement been valid and if Proactive had first put into the mind of Wayne that Proform wasn’t appropriate for representative contract, then due to the Proactive directly leading to breaking agreement with Wayne, it would have been held to be liable.
