Contract law is one of the fundamental legal subjects that are taught to law students in their first or second year of law school. Apart from being an interesting subject, a sound understanding of contract law also creates a strong foundation for other subjects such as Company law, Mergers, Acquisitions, etc. which involve contracts in some manner or form.
In this article, we have covered the Top 10 landmark cases in contract law that deal with the fundamental principles of contract law.
1. Balfour Vs. Balfour
Court: Court of Appeal (England and Wales)
Citation: (1919) 2KB 571
Facts: Mr. Balfour was a civil engineer who served as the Director of Irrigation for the Government of Ceylon (now Sri Lanka). Mrs. Balfour was living with him. They both went to England in 1915 when Mr. Balfour was on leave. However, Mrs. Balfour had rheumatoid arthritis. The weather in Ceylon would be bad for her health, therefore her doctor urged her to stay in England. Mr. Balfour verbally agreed to pay her £30 every month until she returned to Ceylon as his boat was about to set sail. However, when their relationship deteriorated over time, Mr. Balfour stopped paying Mrs. Balfour the required amount of maintenance. In a letter to his wife, Mr. Balfour made the suggestion that they dissolve their marriage. They later had a legal separation, which meant they were divorced. In 1918, Mrs. Balfour filed a lawsuit against Mr. Balfour for failing to pay the sum he was required to in court.
Did Mr. Balfour ever intend to enter into some kind of agreement with his wife, Mrs. Balfour?
Is the contract between Mr. and Mrs. Balfour actually enforceable?
The appeal by Mr. Balfour was successful, and the court decided that the wife and husband had no legal relationship or contract. By looking at the conditions under which the contract was drafted and executed, it is possible to determine if the parties intended to establish a legal relationship. Therefore, Mr. Balfour was not legally bound to pay money to Mrs. Balfour.
2. Lalman Shuka Vs. Gauri Dutt
Court: Allahabad High Court
Citation: (1913) 11 ALJ 489
Facts: The plaintiff worked as a minimum for the defendant. The defendant’s nephew absconded, and the plaintiff ordered to find out the missing boy. When the plaintiff was not present, the defendant published handbills with a prize of Rs. 501 for anyone that can find the boy. He was found by the plaintiff, who then claimed payment. At the time he found the boy, the plaintiff was unaware of the handbills. The plaintiff was duly rewarded with 2 sovereigns at Hardwar and Rs. 20 on coming back home. He filed a lawsuit against the defendant after learning about the reward received it.
The Honourable High court concluded after analyzing all the relevant facts that the proposer must have knowledge of and consent from the offeree in order for a contract to be legally binding. The plaintiff in this case was unaware of the reward prior to performing the act. He only came to know about it later, in which case there was no possibility of accepting the offer. There was therefore no contract. Plaintiff was therefore not entitled to receive or claim the reward.
3. Carlill Vs. Carbolic Smoke Ball Company
Court: Court of Appeal (England and Wales)
Citation: (1893) 1 QB 256; (1892) EWCA Civ 1
Facts: The Pall Mall Gazette carried advertisements from the Carbolic Smoke Ball Company, for their smoke ball product. In the advertisement, they guaranteed to pay 100 pounds in compensation to anyone who catches the flu after using their ball as directed for two weeks, three times per day. Additionally, it was stated in the advertisement that they had deposited £1,000 with the Alliance bank as an assurance. After reading the advertisement, Mrs. Carlill bought the smoke balls and utilised them according to the instructions, but she afterward had the flu. After the defendant rejected the plaintiff's claim, the plaintiff filed a lawsuit against them to try to get the money refunded.
Whether the agreement between the parties have any legal force or effect?
Whether a formal notification of acceptance was necessary for the contract in question?
Whether Mrs. Carlill was required to inform the Carbolic Smoke Ball Company that she accepted the offer?
Whether Mrs. Carlill gave anything in return for the 100 pounds that the company offered as a reward?
Judgement: The Court of Appeal unanimously rejected the company's objections and decided that Mrs. Carlill and the company had a legally enforceable contract for £100.
The three judges cited many reasons, including the following:
(1) The advertisement represented a unilateral offer to the entire world;
(2) Meeting the requirements for deploying the smoke ball amounted to acceptance of the offer.
(3) That buying or simply using the smoke ball constituted good consideration
(4) The company's assertion that £1000 was placed at the Alliance Bank demonstrated a sincere desire to be held legally responsible.
4. Mohori Bibee Vs. Dharmodas Ghose
Court: Calcutta High Court
Facts: Dharmodas Ghose, the respondent, was a minor who obtained a loan from Brahmodutt, a lender in Calcutta, by claiming to be an adult and having executed a mortgage deed in his favour. The fact that the respondent was a minor was discovered at the time the mortgage was being examined for an advance payment. As a result, Kedarnath, the agent of Brahmodutt, cannot execute the deed. But still, he executed a mortgage deed from Dharamdos Ghose. The minor then filed a lawsuit against Brahmodutt through his mother and legal guardian and urged the court to nullify the mortgage deed because he was a minor when it was executed. The mortgage deed was revoked by the trial court after accepting the respondent's appeal. The High Court also dismissed the appeal against the decision and then the appellant turned to the Privy Council to forward his case. When this appeal was submitted, Brahmodutt had passed away So, so his successor, Mohori Bibee, took his place as a result.
Whether the contract is void or not?
Whether the defendant was bound to repay the deed amount?
Whether the deed violated Sections 2, 10, and 11 of the Indian Contract Act of 1872?
Privy Council dismissed the appeal and held that there is no contract between the minor and the major person. The contract that was made or commenced shall likewise be void and not valid in the eyes of the law because the minor was ineligible to make such a mortgage. Therefore, as, he was not bound by the commitment that was expressed in a contract, Dharmodas Gosh cannot be made to return the sum of money that was advanced to him.
5. Chinnaya Vs. Ramayya
Court: Madras High Court
Citation: (1882) ILR (1876-82) 4 Mad 137
Facts: An elderly widow was providing funds from her estate to her sister (the plaintiff). Later, through a deed of gift that was officially recorded by the relevant authorities, the elderly woman passed her property to her daughter (the defendant). The deed was executed based on the condition that the defendant would be paying some Rs. 653/- annually to the old woman’s sister, the plaintiff. Thus, the defendant and plaintiff reached an agreement in which the defendant committed to pay the agreed-upon sum each year. An elderly widow was providing funds from her estate to her sister (the plaintiff). Later, through a deed of gift that was officially recorded by the relevant authorities, the elderly woman passed her property to her daughter (the defendant). The defendant agreed to execute the deed in exchange for paying the plaintiff, the elderly woman's sister, a number of Rs. 653/- annually. Thus, the defendant and plaintiff reached an agreement in which the defendant committed to pay the agreed-upon sum each year. The defendant, however, refused her promise to the plaintiff regarding the annuity after the elderly woman passed away. To get the annuity that the respondent had promised, the plaintiff sued the defendant.
Whether the plaintiff be able to sue the defendant for the sum promised in a contract where the mother of defendant (the plaintiff's sister) provided the consideration?
Judgement: The Court held that the agreement enabling the respondent's mother to gift her the estate and the arrangement to pay an annuity is a simultaneous agreement. Therefore, in light of the definition and justification of compensation provided by section 2(d) of the Indian Contract Act of 1872, each of these agreements shall be regarded as a single transaction. Therefore, the respondent shall be obligated to pay the said payment because she consented to do so while accepting the estate as a gift from her mother.
6. Hyde Vs. Wrench
Court: Rolls Court
Citation: (1840) 49 ER 132
Facts: The defendant, Mr. Wrench, offered to sell the farm he owned to the complainant, Mr. Hyde. He proposed to sell the house for £1,200, but Mr. Hyde rejected his offer. The defendant decided to write the complaint again with an offer to sell the farm to him for £1,000 this time. He was very clear that this was his final offer for the property. In response, Mr. Hyde made a letter offer of £950 for the land. Mr. Wrench rejected this and confirmed it with the complaint. Mr. Hyde subsequently decided to accept the previous offer of £1,000 to purchase the farm but Mr. Wrench refused to sell his farm. So, Mr. Hyde filed a suit against him pleading for specific performance of the contract.
- Whether the parties had a valid contract, and if a counter offer was made in discussions, whether the original offer would still be valid?
Judgement: The court rejected the claims and held that Mr. Hyde and Mr. Wrench had not entered into a legally enforceable agreement about the property. The previous offer is superseded and wiped out when a counteroffer is made. This initial proposal is no longer on the table or available. In this instance, Mr. Hyde revoked his initial offer of £1,000 when he made the £950 offer and was unable to retract and accept.
7. Harvey Vs. Facey
Court: Judicial Committee of the Privy Council
Citation: (1893) AC 552
Facts: Harvey, who was in charge of the Jamaican partnership firm, wanted to purchase the property owned by Facey, who was also negotiating for it with the mayor and council of Kingston City. In order to prevent the property from being sold to Kingston City, the appellant sent a telegram about the acquisition to Mr. Facey on October 6, 1893, who was traveling the train at the time. Telegram said “Will you sell us Bumper Hall Pen? Telegraph lowest cash price; answer paid. The lowest pricing for a Bumper Hall Pen is £900, in response to Mr. Facey. Mr. Harvey responded in turn, saying, "We agree to purchase Bumper Hall Pen for the nine hundred pounds you have asked. Send us your title deed as soon as possible so we can take ownership right away. Then Mr. Facey had a change of mind and refused to sell the property to Mr. Harvey. Mr. Harvey then filed a lawsuit against Mr. Facey, asserting that they had a contract and said that the telegram was an offer and he accepted it.
Did Mr. Facey explicitly offer Mr. Harvey the sale of the property in exchange for £900, and is such an offer capable of being accepted?
Was the contract valid or not?
Judgement: According to the Privy Council, the parties have never had a contract. The initial conversation does not constitute an offer that could be accepted, it was merely a request for information. As a result, the telegram by Mr. Facey was not credible. It was determined that Mr. Facey's telegram is just a piece of information. Mr. Facey never presented a proposal that could be accepted.
8. Hadley Vs. Baxendale
Court: The Court of Exchequer
Citation: (1854) 9 Exch 341
Facts: A steam-driven mill owned by the plaintiff has a fractured crankshaft. The broken piece had to be transported from Gloucester, in the west of England, to Greenwich, close to London, where it would be used as a model to create a replacement piece. Due to Plaintiff's lack of a replacement piece and the fact that the engine was out of order, the piece needed to be delivered as soon as possible. The plaintiff filed a claim for the lost profits brought on by Pickfords, the shipping company, who was delayed in delivering the part.
Whether the plaintiff was entitled to damages for lost profits and the defendant liable for breach of contract?
Judgement: The court ruled in favor of the defendant, holding that a party could only successfully sue for losses brought on by a breach of contract if the loss is reasonably viewed to have resulted naturally from the breach or if the possibility that such losses would occur should have been reasonably anticipated by the parties at the time the contract was formed. Baxendale was not responsible for the mill's lost profits because he had not responsibly foreseen them and Hadley had not informed him of their possibility.
9. Felthouse Vs. Bindley
Court: Court of Common Pleas
Citation: (1862) EWHC CP J 3
Facts: Felthouse negotiated with his nephew to buy a horse. A pricing discrepancy occurred because the uncle offered less than the nephew wanted. The nephew received a definite offer from the uncle in January, but neither a response nor any action was taken because the horse remained in the nephew's possesion. In spite of the nephew's instructions that the horse be reserved, the horse was sold in an auction in which the nephew sold all of his farm stock in February. To reclaim the horse, Felthouse filed a lawsuit against auctioneer Bindley.
Judgement: The Court decided that because there was no contract that was intended to be accepted, Paul Felthouse had no ownership rights to the horse from the beginning. It is the responsibility of accepting party to inform the offeror of their acceptance; an acceptance of the offer cannot be inferred from silence alone. The acceptance communication was finished on February 27th, the first date, but the auction had already happened on February 25th, proving that Felthouse had no interest in buying the property.
10. Durga Prasad Vs. Baldeo
Court: Allahbad High Court
Citation: (1881) ILR3ALL221
Facts: The complainant demanded that the district collector establish a number of outlets in his neighbourhood. The Defendant paid rent to those establishments in exchange for their business. At the same time, the rent was affixed. Later, the defendant informed the plaintiff that in return for the plaintiff's construction of the building through the expenditure of vast sums of money, he would pay him a 5 percent commission on all goods that he will supply from the shop. On the other side, the claimant chose not to pay the commission. Durga Prasad thereafter filed a lawsuit against the shop owners who had denied to pay the commission.
Judgement: The court dismissed the case after finding no merit in the claims of plantiff. This decision was made in light of the absence of a prominent and recognized consideration in this situation, which led section 2(d) of the Indian Contract Act, 1872 to reject the eligibility of agreement for recognition as a contract. Section 25 of the Act states the absence of a consideration resulted in the contract being termed as a void contract. Additionally, the judges decided that there was no prospect for an appeal because the Act clearly states that consideration is a necessary component of a contract and the appeal was rejected by the court.