Welcome to LegalRath! Contract Law forms the bedrock of commercial and even social dealings, defining the rules for when an agreement becomes a legally binding promise. Studying the key judicial pronouncements—the landmark cases—is the best way to understand these principles in action.
Here, we break down essential rulings that have shaped the law regarding offer and acceptance, intention to create legal relations, consideration, breach, and capacity.
I. Formation of a Contract: Offer & Acceptance
1. Carlill v. Carbolic Smoke Ball Co. (1893) – General Offers and Acceptance by Performance
This case is pivotal for establishing the concept of unilateral contracts.
| Aspect | Summary |
| Facts | The company advertised that anyone using their smoke ball as directed and still catching influenza would receive $\text{\textsterling}100$. Mrs. Carlill used it and contracted the flu, but the company refused to pay. |
| Held | * A general offer can be made to the public at large (a unilateral contract). |
| * Performing the condition (using the smoke ball) is sufficient acceptance; no separate communication is required. | |
| * Such an offer remains open for acceptance by anyone until properly revoked. |
2. Lalman Shukla v. Gauri Dutt (1913) – Knowledge of the Offer is Essential
- Facts: Gauri Dutt’s nephew went missing. His servant, Lalman Shukla, traced and brought him back. At the time of the performance, Shukla had no knowledge of a reward announced later by Gauri Dutt. He later claimed the reward.
- Principle: No contract was formed. An offer must come to the knowledge of the acceptor before it can be accepted. Performance of the act without knowledge of the offer is not a valid acceptance.
3. Felthouse v. Bindley (1863) – Silence is Not Acceptance
- Facts: An uncle offered to buy his nephew’s horse and wrote that if he did not hear further, he would assume acceptance. The nephew remained silent, and the horse was mistakenly sold to another person.
- Principle: Silence cannot be treated as acceptance. Acceptance must be communicated directly to the offeror. An offeror cannot impose on the offeree a duty to reject.
4. Powell v. Lee (1908) – Communication Must Be Authorized
- Facts: Powell was a candidate for headmaster. The school board decided to appoint him, but this was conveyed unofficially by an individual without authority. Later, the board appointed someone else.
- Principle: Communication of acceptance must come from an authorized source. Since the message was from someone unauthorized, no valid acceptance occurred, and thus, no binding contract.
II. Intention, Consideration, and Capacity
5. Balfour v. Balfour (1918) – Intention to Create Legal Relations
| Aspect | Summary |
| Facts | Mr. Balfour promised to pay $\text{\textsterling}30$ per month to his wife while she stayed in England for medical treatment. He stopped payments when their relationship soured. |
| Issue | Whether agreements between husband and wife are legally enforceable contracts. |
| Principle | Agreements in a domestic or social nature are not contracts because there is no intention to create legal relations. The court presumes parties in such relationships do not intend to be legally bound. |
6. Durga Prasad v. Baldeo (1880) – Valid Consideration
- Facts: The plaintiff, at the order of a collector, built shops in a market. The shopkeepers (defendants) promised to pay him a commission from their sales but later refused.
- Principle: The act (construction of shops) was not done at the request of the defendants but at the collector’s order. Only acts done at the promisor’s request can constitute valid consideration.
7. Mohori Bibee v. Dharmodas Ghose (1902) – Capacity of a Minor
- Facts: A minor mortgaged his property to a moneylender. Later, he sought to cancel the mortgage on the grounds that he was a minor when executing the contract.
- Principle: An agreement by a minor is void ab initio (void from the very beginning). Under Indian law, a minor cannot enter into a legally enforceable contract and is generally not bound to refund money or benefits received.
III. Breach and Discharge of Contract
8. Hadley v. Baxendale (1854) – Remoteness of Damages
| Aspect | Summary |
| Facts | Hadley & Co.’s mill crankshaft broke. They contracted with Baxendale (a carrier) to transport the broken shaft for repair. Delay caused by the carrier’s negligence resulted in the mill being closed longer than expected. Hadley sued for lost profits. |
| Rule Established | Damages for breach are limited to losses that may reasonably be foreseen by both parties at the time of the contract. Since the carriers were not informed that the mill was entirely dependent on this single shaft, the loss of profits was too remote. |
| Principle | Damages are recoverable only if they arise naturally from the breach or were within the reasonable contemplation of both parties at the time of the contract. |
9. Satyabrata Ghose v. Mugneeram Bangur & Co. (1954) – Doctrine of Frustration
- Facts: A company sold land plots for development. During WWII, the government temporarily requisitioned part of the land. The company claimed the contract was frustrated under Section 56 of the Indian Contract Act (ICA).
- Principle: The Supreme Court held that the contract was not frustrated. For a contract to be frustrated, performance must become truly impossible or unlawful due to a subsequent event. Mere delay does not amount to frustration.
These nine cases provide critical insights into how contracts are formed, the essential elements required for validity, and the consequences of their breach or discharge.
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