LAW OF CONTRACTS – I

Offer, Acceptance and Consideration

 Carlill v Carbolic Smoke Ball Co. [1892] EWCA Civ 1

1. Identification of unilateral offer: “advertisement is offer to the world”
2. Conditions to constitute acceptance = use of smoke ball
3. Purchase/use of smoke ball = good consideration for use of the smoke ball
constituted ‘benefit’ to the company
4. Company’s deposit of 1000 pounds = serious legal intentions
5. Extravagant promise is not an excuse in law
6. Need for judicial intervention in case of unequal bargaining power
7. Lindley (dismiss of appeal): reasonable interpretation is necessary

 Thornton v Shoe Lake Parking Ltd. [1970] EWCA Civ 2

Facts: Thornton parks car in SLP Ltd. – issues ticket on entry – terms on ticket that
company won’t be responsible – undergoes accident and sues SLP – SLP claims
defence under exclusion clause on ticket.
1. SLP has not successfully incorporated exclusion clause into contract
2. Not enough done to bring the clause to Thornton’s notice: since offer was
initially at entrance and not on ticket, new terms could not be added on the
ticket

 Hyde v Wrench (1840) 49 ER 132

Facts: Related to different amounts quoted for a farm and ultimate refusal by Wrench
to sell the same – issue related to counter offer and validity of open offers.
1. No binding contract emerges as there was no clear acceptance of the offer
made by Hyde
2. When a counter offer is made, it supersedes and destroys the original offer
(which is no longer available)

 Harvey v Facey [1893] UKPC 1

1. Lowest price claimed by seller (supply of information) does not constitute a
valid offer
2. Invitations and quotations differ from offers
 Felthouse v Bindley [1862] EWHC CP J35
 Facts: Uncle and nephew – if you remain silent I will consider your acceptance as to
selling of the horse to me
1. Silence does not always amount to acceptance
2. Burden of refusal cannot be put on another party (similar to mobile operator
case discussed in class)
3. Communication of acceptance is necessary

 Adams v Lindsell (1818) 1 B & Ald 681

1. A posted acceptance prevails over a previously posted withdrawal of offer
which has not yet reached the offeree when the acceptance was posted
2. In case of postal or similar communication, place of formation of contract =
place of acceptor; otherwise place of offeror is place of contract formation

 Entores v Miles Far East Corporation [1955] 2 QB 327

1. Issue was regarding jurisdiction under Dutch/English Law: held that since
Telex is a form of instantaneous communication, the acceptance would be
when Telex message was received (eg. You cannot consider a contract to be
formed even if the other party hasn’t signified acceptance over the phone)
2. 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.

 Balfour v Balfour [1919] 2 KB 571

Facts: Balfour and Balfour husband and wife – husband moves to Sri Lanka –
promises to pay wife maintenance while he is there – eventually decide to separate –
husband denies maintenance - wife goes to court for breach of contract citing
intention to enter legal obligation.
1. No enforceable agreement existed: did not enter into promise which is
enforceable in law in any sense
2. Relations of love and affection like husband and wife have promises which are
not necessarily contracts (mere mutual promise)

 Simpkins v Pays [1955] 1 WLR 975

Facts: Ms. Simpkins was a paying boarder at Ms. Pays house, who lived with her
granddaughter. Ms. Simpkins habitually entered into newspaper competitions. The
 three agreed that Ms. Simpkins would fill in a weekly coupon, with each person
making three forecasts, yet submitting them in Ms. Pays name, and divide the prize in
the event of winning. A forecast made by Ms. Pays’ granddaughter in one of the
coupons submitted won a prize of £750 under Ms. Pays name. Ms. Pays refused to
distribute the prize and Ms. Simpkins claimed for one-third of the prize under their
agreement.
1. Mutuality of arrangement
2. There was intention to create legal relations, no matter how informal the
context of the contract was

 Beswick v Beswick [1968] AC 58

1. Privity of contract: parties strangers to a contract cannot sue [see also: Dunlop
Pneumatic Tyre Ltd. v Selfridge & Co. Ltd. (1915) AC 847]
2. Indian case equivalent: Krishna Lal Sadhu v. Pramila Bala Dasi (1928);
Jamna Das v. Ram Autar (1916)

 Tweddle v Atkinson [1861] EWHC J57 (QB)

Facts: Fathers of husband and wife enter into contract that they will pay their in law in
case of death of their child and agree that their children can sue as well – both fathers
die – after death of wife’s father husband sues the wife’s father’s executor asking for
sum
1. Consideration must move from the promisee
2. Since no consideration has been moved from the husband towards the other
party, the agreement was merely gratuitous and not enforceable in nature
3. Privity of contract will apply
4. In India however, consideration can move from any other person as well:
Chinnayya v. Ramayya (1882)

 Chappell & Co. Ltd. v Nestle Co. Ltd [1960] AC 87

Facts: Nestle giving away records of album owned by plaintiffs in exchange for three
wrappers – plaintiff argued for adequate consideration
1. Consideration need not be sufficient but can be adequate: wrappers can be
considered adequate source of consideration
 Kedarnath v. Gorie Mahomed
 Facts: Erection of Howrah town hall in Kolkata – people promised to pay Rs. 100 and
had signed their name in the subscription register – later person refuses to pay.

 Percival v London County Council Asylum (1918) 87 L.J.K.B. Rep. 677

1. Acceptance in case of tenders having words like “as and when you may order”
occurs when an order is placed
 Abdul Aziz v. Masum Ali
Facts: The secretary of a Mosque Committee filed a suit to enforce a promise which
the promisor had made to subscribe Rs. 500 to the re-building of a mosque
1. The promise was not enforceable because there was no consideration in the
sense of benefit, as the person who made the promise gained nothing in return
for the promise made
2. Secretary had not suffered any material detriment as even the construction had
not started

 Durga Prasad v. Baldeo

Facts: B spent some money on the improvement of a market at the desire of the
Collector of the district. In consideration of this D who was using the market
promised to pay some money to B.
1. Consideration was not considered valid as it has not moved from D

 Collins v Godefroy (1831) 1 B & Ad 950

1. The rule of performing something one is already bound to do either by general
or specific law doesn’t amount to good consideration of the promise
2. Rule of statutory compulsion laid down

 Hogan v Stophelt (1899) 170 III 150 (Supreme Court of Illinois)

1. If a constable for making extraordinary efforts to perform an ordinary official
act, may not only receive, but also collect by law a compensation beyond what
the statute allows for the act, any other officer may do the same; and sheriffs,
legislators and judges might, and soon would, put their extraordinary efforts in
the markets, to be had by the higher bidder. This is sickening and revolting
view of the subject

 Bismillah Begum v. Rahmatullah Khan AIR 1998 SC 970

1. If the parties to a contract are deceased, the mutual obligations are enforceable
as against the legal representatives unless otherwise stated
  M/s Jasper lnfotech Private Limited v. M/s Kaff Appliances (India) Pvt. Ltd
1. Kaif cannot regulate Snapdeal by blatantly enforcing clause – Privity breach
2. Resale clauses are valid till they affect competition among sellers

 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

1. To avoid detriment through Waltons' unconscionable behaviour, Waltons was
estopped from denying the contract
2. Whilst the mere exercise of legal right not to exchange contracts was not
unconscionable, there were two additional elements which made Waltons'
conduct unconscionable: a) element of urgency, b) Maher executed and
forwarded on 11/11 and assumed execution by Walton was a formality.
3. Because Maher had acted to his detriment, in reliance on the encouragement
of Walton Stores, which had acted unconscionably, equity would intervene.

 Kashiba v. Navnath
1. Rule of “lex loci contractus” introduced by Privy Council: party shall be
governed by that law of contract of where he is domiciled

Quasi Contractual Obligations

 Necessaries supplied to Minor:

1. Ryder v Wombwell (Diamonds and rubies)
2. Roberts v Gray (Billiards)
3. Nash v Inmam (12 designer coats)
4. Chaplin v Leslie Frewin (Publication of book)
 Lunacy:
1. Inder Singh v. Parmeshwardhari (congenital idiot)

What can render a contract void or voidable

 TGM Asadi v Coffee Board AIR 1969 Mys 230

1. Court recognised that the manner in which “coercion” is defined under
sections 72 and 15 are different
2. Section 72 = any act which is of coercive nature, Section 15 = only an act
recognised under IPC

 Chikkam Ammi Raju v. Chikkam Ammi Seshamma

 1. An act is not necessarily supposed to be “punishable” under IPC, it can simply
be “forbidden” to invoke Section 15
2. The ambit of Section 15 is to be wider

 Dai ichi Karkaria Pvt. Ltd. v. ONGC AIR 1992 Bom 309
1. Bombay High Court recognised two major principles to determine Economic
Duress:
a. No effective remedy
b. Renegotiated terms

 B & S Contracts & Design Ltd v Victor Green Publications Ltd [1984] ICR 419
1. Duress - financial situation was such that if Plaintiff did not pay it, the non-
completion of the works would leave them financially destitute.
2. Identification of economic duress

 Hadley v Baxendale [1854] EWHC J70

1. Test of “reasonable contemplation of parties” of contract to the breach must
exist for claim of damages to succeed
2. Because plaintiffs failed to inform defendant of the special circumstances
surrounding the shaft and the fact that it was the sole reason for the mill’s
closure, the defendant had no reason to believe that a delay in delivering the
shaft would result in several days’ worth of lost profits.

Misrepresentation

 Derry v Peek [1889] UKHL 1

Facts: The Plymouth, the Devonport and District Tramways Company issued a
prospectus stating that the company had permission to use steam trams, which would
replace their horse-powered trams. In fact, the company had no such permission
because the right to use steam power was subject to the Board of Trade's consent. The
company applied, honestly believing that they would get permission because it was a
mere formality. In reality, after the prospectus was issued, permission was refused and
the company ended up in liquidation.
1. 3-part test for fraudulent misrepresentation, if the defendant:
a. knows the statement to be false,
b. does not believe in the statement,
 c. is reckless as to its truth.

 Redgrave v Hurd (1881) 20 Ch D 1

1. Existence of innocent misrepresentation can render contract void
2. If a man is induced to enter a contract by a false representation it is not a
sufficient answer to him to say, ‘If you had used due diligence you would have
found out that the statement was untrue. You had the means afforded you of
discovering its falsity, and did not choose to avail yourself of them... If it is a
material representation calculated to induce him to enter into the contract, it is
an inference of law that he was induced by the representation to enter into it’
and so it is for the person alleging otherwise to show it

 Raffles v Wichelhaus [1864] EWHC Exch J19 – Contract could not be held to be
enforceable due to mutual mistake of fact of the parties (no consensus ad idem)

Negative Stipulation and Non Compete Clauses

 Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. 1967

AIR 1098
1. Negative covenants are enforceable by the employer if they are reasonable and
not against public policy.
2. However, if they subject the employee to idleness or force him to return back
to the employer, they cannot be enforceable and violate Section 27

 Gujarat Bottling Co. Ltd. v. Coca Cola and Ors. (1995) 5 SCC 545
1. To obtain injunction, the test is: prima facie case, irreparable loss to the
plaintiff, balance of conveniences in favour of the plaintiff, no disturbance of
status quo
2. Restraints which are reasonable are necessary for the purpose of freedom of
trade – negative stipulations for advancement of trade are permissible even
under Section 27
3. Since negative stipulation is present only during subsistence of the agreement,
it is valid
4. SC upheld validity of franchise agreements and also said that reasonable
notices are valid in law

 Kamarbai v. Badrinarayan AIR 1977 Bom 228

 Powell v Lee (1908) 99 LT 284 - Acceptance of an offer must be communicated to
offeror by offeree himself or authorized agent

Electronic Contracts

 Bhagwandas Goverdhandas Kedia v. M/s. Girdharilal Parshottamdas 1966 AIR

543
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.
1. Contract formed at Ahmedabad
2. Unless a proposal is communicated to the person to whom it is made, it is not
complete, and is inchoate and inconclusive

 Trimex v Vedanta 2010 (1) SCALE 574

1. The acceptance conveyed by Vedanta satisfied the requirements of Section 4
of the Contract Act 1872 - when Trimex's representative opened the email
from Vedanta at 3:06pm on October 16 2007, it came to his knowledge that an
irrevocable contract was concluded

 P R Transport Agency v. Union of India AIR 2006 All 23

1. The Court relied on Section 13 (3) of the Information Technology Act and
held that when the mail was sent, it was intended for the address from where
the Company was working. Since, the office of the Company was in Chamauli
and Varanasi, both of which fell within U.P so the High Court had jurisdiction.
So, a partial cause of action arose which allows the High Court to exercise its
jurisdiction.

 Mehta v J Perreira Fernandes SA [2006] 2 All ER 891

1. The court of chancery held that the offer sent through an
unsigned e-mail communication is not sufficient and the e-
 mail address of the defendant cannot be deemed as his
signature.
2. Every message needs digital signature

 Rudder v Microsoft Corporation [1999] OJ No 3778 (Sup Ct J)

Facts: Plaintiff filed a class action suit against Microsoft challenging the forum
selection clause which restricted arbitration proceedings only to California, USA.
1. Clause was held to be enforceable as it is believed that parties had read the
entire agreement before clicking “I Accept”
2. Just because it is materially long and online does not distinguish it from a
normal paper contract

 Chwee Kin Keong v Digilandmall Pte Ltd [2005] 1 SLR(R) 502

Facts: Pricing mistake made when posting cost of printer on the website.
1. It was held that the contract between the parties was void. This pricing was a
mistake, which was fundamental to the contract and the complainants must
have known that this ‘absurdly low’ pricing was an error by the defendants. In
this case, there was no consensus ad idem or meeting of the minds between the
parties, which meant that there could be no binding contract between them.

 MHADA v Shapoorji Pallonji

Facts: Shapoorji placed a bid on the MHADA website online without pressing the
“freeze” option, but the company received a screenshot stating that the bid was
uploaded. It was also present on the NIC website. However, MHADA denied
existence of the tender due to lack of upload.
1. Court held that the bud should be allowed and the tender should be continued
for the spirit of competition

 The Kodak Case – facts similar to Chwee Kin Keong case, court held that contract
had been entered into as employee had accepted bids at the lower price as well.

 Specht v Netscape
Facts: Users were made to enter into a “License Agreement” automatically on
download of a particular app – this was not on the same page. Challenged by
plaintiffs.
 1. Agreement was not deemed to have been entered into by the plaintiffs because
the License Agreement was not in the same page – this cannot be a method of
entering into a contract

 Percept D’Markr India v. Zaheer Khan (2006) 4 SCC 227

1. The contract of agency as is of personal nature such that forcing the negative
covenant will mean compelling the defendant to get his affairs managed by the
plaintiff company even after the initial agreement has not been breached and has
been lawfully terminated; this will be in restrain of his right to trade with any
person in any manner he chooses.
2. So long as it is sought to enforce the covenant while the subsisting of the
agreement it is valid, but the moment it is sought to be enforced after the contract
has been terminated, it will be violative of Section 27 and hence, void and
unenforceable.
3. The doctrine of “restraint of trade” is not confined to contracts of employment
only, but is also applicable to all other contracts with respect to obligations after
the contractual relationship is terminated.

 Desiccant Rotors International Pvt. Ltd v. Bappaditya Sarkar & Anr

1. Court ruled that in the clash between the attempt of employers to protect
themselves from competition and the right of employees to seek employment
wherever they choose, the right of livelihood of employees must prevail
2. Employers cannot claim defence of trade secrets
3. Here, market manager did not possess the requisite “confidential information”
as argued by Dessicant

 VFS Global Services Pvt. Ltd. v. Suprit Roy

1. Garden leave clause is held to be in a restraint of trade and hit by Section 27 of

the Indian Contract Act