Professional Documents
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Facts
Facts
CarlillThe Carbolic Smoke Ball Co produced the 'Carbolic Smoke Ball' designed
to prevent users contracting influenza or similar illnesses. The company's
advertised (in part) that:
“100 pounds reward will be paid by the Carbolic Smoke Ball Company to any
person who contracts the increasing epidemic influenza, colds, or any disease
caused by taking cold, after having used the ball three times daily for two
weeks according to the printed directions supplied with each ball. 1,000
pounds is deposited with the Alliance Bank, Regent Street, showing our
sincerity in the matter”.
After seeing this advertisement Mrs Carlill bought one of the balls and used it
as directed. She subsequently caught the flu and claimed the reward. The
company refused to pay. Mrs Carlill sued for the reward.
Legal Issue
1. Can one make a contract with the whole world?
2. How does one interpret vague terms?
3. Was the ad a "mere puff"?
4. Does performance of the conditions advertised in the paper constitute
acceptance of an offer?
5. Was there any consideration?
Judgment
At the trial stage the defendants denied that there was any contract between
them and the plaintiff; and alternatively, that, if there were any, it was void
as a wagering agreement. The trial court gave judgment in favour of the
plaintiff and the defendants appealed.
The appellate court observed as following on the issues raised and gave the
judgment in favour of Mrs. Carlill:
1. Can one make a contract with the whole world?
It is quite possible to make an offer to the world.
Questions of law :
1. Can a minor validly execute a mortgage deed?
2. What is the effect of the minor's misrepresentation of his age?
3. If the deed of mortgage was cancelled can the Court order the minor to
refund the amount to the lender?
JUDGEMENT:
The Privy Council rejected the defence of estoppel of the defendant stating
that the defendant's agent knew the real age of the minor at the time of
execution of the document and held that there was no estoppel. It was held
that the question whether a contract is void or voidable presupposes the
existence of contract within the meaning of the Act, and cannot arise in the
case of an infant (Section 10 & Section 11 of Contract Act). In this case court
held that the mortgage was entered into with a minor and hence void. Request
for repayment of the amount advanced to the minor as part of consideration
also turned down.
The court although took note of the s. 41 of the Specific Relief Act which says
“On adjudging the cancellation of the instrument the Court may require the
party to whom such relief is granted to make any compensation to the other
which justice may require” and s. 38 which provides in similar terms for a
case of rescission of a contract; but observed under the circumstances of this
case justice did not require them to order the return by the respondent of
money advanced to him with full knowledge of his infancy.
Khan Gul v. Lakha Singh (1928) - A minor fraudulently concealed his age
and contracted to sell a plot of land to another. The minor received the
consideration of Rs. 17, 500/- and then refused to fulfil his part of the bargain.
The other party prayed for possession or refund of consideration. The question
rose whether a minor who entered a contract through false representation
retain the benefits from the contract while refusing to perform his part. Since
a minor’s contract is void, specific performance was not granted. However,
the court ordered refund of the consideration.
The questions raised in this case were: (1) Whether a minor, who, by
falsely representing himself to be a major, has induced person to enter into a
contract, is estopped from pleading his minority to avoid the contract. (2)
Whether a party who, when a minor, has entered into a contract by means of
a false representation of his age, whether he be defendant or plaintiff, in a
subsequent litigation, refuse to perform the contract and at the same time
retain the benefit he may have derived therefrom.
Regarding the first question court has held that where an infant has
induced a person to contract with him by means of false representation that
he was of full age, he is not estopped (i.e. prevented) from pleading his infancy
in avoidance of the contract.
Regarding the second question the court observed that an infant though
not liable under the contract, may in equity, be required to return the benefit
he has received by making a false representation as to his age. It makes no
difference whether in such litigation he is plaintiff or the defendant.
In this case the court order the minor to refund Rs. 17,500 which he
had taken as advance payment, thus the scope of the doctrine of equitable
restitution was extended to cover cash also.
The Law Commission of India in its Ninth Report expressed its agreement with
case of Khan Gul. Further, the new Specific Relief Act, 1963 incorporated the
principle of restitution under Section 33.
Section 33 of the Specific Relief Act, 1963 greatly reduces the potential for
ambiguities and uncertainty in the matter. Section 33(1) seeks to restore the
parties to their original position to the extent possible. If a void or voidable
contract is cancelled at the instance of a party to the contract, the court may
require such party to restore the benefits received under the contract and to
such compensation as justice may require.
This discretion can also be exercised where the plaintiff is a minor. Thus, under
Section 33(1), a minor who is a plaintiff can be compelled to return all the
advantages and benefits received under the void contract as under the older
law.
However, the court will not compel any restitution by a minor (even if he is a
plaintiff) if:
a) the other party was aware of the fact of infancy and thus, was not deceived;
b) the other party was unscrupulous in his dealings with the minor;
c) the other party was overzealous to enter into the agreement that the
minor’s misrepresentation did not influence him;
d) the other party provided no material for the court to conclude that justice
required return of the money paid to the minor in the instant case.
Section 33(2) attempts to put the parties in the pre-contract position. Even if
the defendant is a minor and successfully resists a suit on grounds of his
incompetence and resultant void agreement, he can be compelled to account
for the advantage, the money or anything else received by him which benefits
him personally, such as education or training, or results in a benefit of a
permanent nature to his estate. It is implied in Section 33(2) (b) that the
English law as laid down in Leslie v Sheill is not applicable in India as it if for
it extends the doctrine of restitution to money matters.
CONTENTION(S):
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 did not have the jurisdiction to try the suit.
Abdul Aziz v. Masum Ali – In this case the appeal arise out of a suit brought
by the plaintiffs against heirs of Muslim Abdul Karim who promised made a
subscription for repairing and reconstructing a mosque. But the cheque was
returned by Bank as it was out of date and in the meanwhile Muslim Abdul
Karim died. The plaintiffs demanded the subscription from his heirs. In this
case court has held that the subscription of Muslim Abdul Karim was a mere
gratuitous promise on his part and thus dismissed the claim.
Raghunath Prasad v. Sarju Prasad – The case was for recovery of the
amount of principal and interest due by the appellant to the respondents (the
plaintiffs) under a mortgage. The question in this case was whether the
contract was induced by undue influence (Section 16 of the Indian Contract
Act).
The court observed that to make a case for undue influence three matter
are to be dealt with. In the first place the relations between the parties to
each other must be such that one is in a position to dominate the will of the
other. Once that position is substantiated the second stage has been reached
– namely the issue whether the contract has been induced by undue influence.
Upon the determination of this issue a third point emerges, which is that of
the onus probandi. If the transaction appears to be unconscionable, then the
burden of proving that the contract was not induced by undue influence is to
lie upon the person who was in a position to dominate the will of the other.
And the orders stated above must be followed to avoid any error.
In this case the court has held that only relation between the parties
that was proved was simply that they were lender and borrower. In these
circumstances, even though the bargain had been unconscionable (and it has
the appearance of being so), a remedy under the Indian Contract Act does not
come into view until the initial fact to dominate the will has been established.
Thus, the apex court held that the events which have happened in this case
cannot be said to have made the performance of the contract impossible and
the contract has not been frustrated at all and set aside the order of the High
Court and restored those of the courts below it i.e. in favour of the plaintiff.
The apex court also observed that the doctrine of frustration is really an aspect
or part of the law of discharge of contract by reason of supervening
impossibility or illegality of the act agreed to be done and hence comes within
the purview of S. 56 of the Indian Contract Act. The view that s. 56 applies
only to cases of physical impossibility and that where this section is not
applicable recourse can be had to the principles of English law on the subject
of frustration is not correct. English cases can have only a persuasive value,
and are only helpful in showing how English courts decided cases under similar
circumstances. Section 56 of the Indian Contract Act lays down a rule of
positive law and does not leave the matter to be determined according to the
intention of the parties. In cases, therefore, where the court gathers as a
matter of construction that the contract itself contained impliedly or expressly
a term, according to which it would stand discharged on the happening of
certain circumstances, the dissolution of the contract would take place under
the terms of the contract itself and such cases would be outside the purview
of S. 56 altogether. Although in English law these cases are treated as cases
of frustration, in India they would be dealt with under s. 32 of the Indian
Contract Act which deals with contingent contracts or similar other provisions
contained in the Act.
Hadley v. Baxendale
Plaintiffs operated a mill, and a component of their steam engine broke
causing them to shut down the mill. Plaintiffs then contracted with Defendants,
common carriers, to take the component to W. Joyce & Co. to have a new part
created. When delivery was delayed due to Defendants’ neglect, causing
Plaintiffs’ mill to remain closed longer than expected, Plaintiffs sued to recover
damages. The Defendant argued that he was unaware that the mill would have
to be closed during the delay and therefore the loss of profit was too remote.
Issues:
Under what circumstances a breaching party should be held liable for
consequential damages?
Held:
The Court of Exchequer declined to allow Hadley to recover lost profits in this
case, holding that Baxendale could only be held liable for losses that were
generally foreseeable, or if Hadley had mentioned his special circumstances in
advance. The mere fact that a party is sending something to be repaired does
not indicate that the party would lose profits if it is not delivered on time. The
court suggested various other circumstances under which Hadley could have
entered into this contract that would not have presented such dire
circumstances, and noted that where special circumstances exist, provisions
can be made in the contract voluntarily entered into by the parties to impose
extra damages for a breach.
The court further observed that it is obvious, in the great multitude of cases
of millers sending off broken shafts to third persons by a carrier under ordinary
circumstances, such consequences would not, in all probability, have
occurred, and these special circumstances were here never communicated by
the plaintiffs to the defendants. It follows, therefore, that the loss of profits
here cannot reasonably be considered such a consequence of the breach of
contract as could have been fairly and reasonably contemplated by both the
parties when they made this contract.
The court laid down the rule such a case as the present is this as follows:
Where two parties have made a contract which one of them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either
arising naturally, i.e., according to the usual course of things, from such
breach of contract itself, or such as may reasonably be supposed to have been
in the contemplation of both parties, at the time they made the contract, as
the probable result of the breach of it. Now, if the special circumstances under
which the contract was actually made were communicated by the plaintiffs to
the defendants, and thus known to both parties, the damages resulting from
the breach of such a contract, which they would reasonably contemplate,
would be the amount of injury which would ordinarily follow from a breach of
contract under these special circumstances so known and communicated. But,
on the other hand, if these special circumstances were wholly unknown to the
party breaking the contract, he, at the most, could only be supposed to have
had in his contemplation the amount of injury which would arise generally,
and in the great multitude of cases not affected by any special circumstances,
from such a breach of contract. For, had the special circumstances been
known, the parties might have specially provided for the breach of contract
by special terms as to the damages in that case, and of this advantage it would
be very unjust to deprive them.
(Thus it led to reducing contractual remoteness to foreseeability)
ISSUES:
Whether there was any contract between the State of W.B. and plaintiff?
Whether the rule of Promissory Estoppel can be evoked?
Whether plaintiff can claim under S.70 of Indian Contract Act (ICA)?
HELD:
The trial Judge found that although there was no valid contract, the claim was
justified under s.70 of the
Contract and decreed the suit. The Court of appeal affirmed that decree. The
State appealed by special leave. The apex court held that the courts below
were right in holding that s.70 of the Contract Act applied to the case and the
appeal must fail.
S.70 does not deal with rights and liberties arising from contracts rather from
relations which resemble those created by contracts. Therefore, person
offering benefit to another could not compel for specific performance thereof
nor could ask for any damages for breach for there was never a contract
between the persons. But if the other person voluntarily enjoys the benefit
there from, former may claim either compensation or restoration u/s 70;
though such a claim for compensation is in no way to be treated as borne
contractually.
After the plaintiff constructed the warehouse it was open to the State of W.B.
to have the benefit of it or to demolish it and instruct the plaintiff to take the
materials used therein. The government, by voluntarily enjoying the benefit
accruing from the constructed warehouses, became liable u/s 70. However, it
is urged by the defendant that allowing this cause of action would amount to
enforcing a contract in infringement of mandatory provisions of A.299 of the
constitution, rendering it invalid. But, the contention is not well founded for
the plaintiff did not allege any contract at all while claiming u/s 70. The cause
of action u/s 70 is independent of any contract. A.299 may forbid a
government to take work under a contract rendered invalid on account of its
not being in compliance with its terms, but does not make it unlawful for the
government to take the benefit of work done for it under no contract at all.
In Kanhaiya Lal Agarwal vs. Union of India (2002 SC), the appellant made
an offer of concessional rate if tender offered by him was finalised within a
short period. This offer was made at the time of submitting the tender. The
respondent also made a similar offer but after opening the tender. It was held
that the acceptance of tender offered by the appellant which was made at the
time of submission of tender itself, was not illegal or arbitrary.
Haridwar Singh v. Bagun Sumbrui (1973) - In this case the Bihar Forest
department held an auction for settlement of right to exploit a bamboo coup.
Though the reserve price fixed in the tender was higher than the bids received,
the appellant’s bid was accepted being the highest. When the matter for
finalization of contract was pending the appellant expressed his willingness to
take the settlement at the reserve price. In the meantime, another bidder filed
a petition to take the settlements of the coup for a price higher than the
reserved price. Finally the settlement of the coup with the appellant was
cancelled and settled with another bidder quoting higher price than reserved
price. The appellant sued the defendant stating that there was a concluded
contract when the bid of the appellant was accepted subject to confirmation
by the Government. The court in this case has held that the appellant himself
revoked the offer made by him earlier by proposing a higher bid subsequently.
Ajudhia Prasad Vs. Chandan Lal (1937) - two minors borrowed money
under a mortgage deed. They were over 18 but less than 21 years of age,
but fraudulently concealed the fact that a guardian had been appointed for
them under Guardians and Wards Act. Question was whether the lender could
get a decree for the principal amount or sale of mortgaged property. It was
held that a mortgagee cannot recover the money lent by him to a minor on
the principle of restitution. The court refused to follow the enlarged view of
restitution and held that the grant of a money decree against the minor would
be tantamount to enforcing the minor’s pecuniary liability under the contract
which is void.
Subhash Chandra v. Ganga Prasad (1967) – Suit was filed for declaring
that a deed of settlement executed by the plaintiff’s father and the plaintiff’s
sister in favour of the plaintiff’s brother’s son in respect of certain properties
as fraudulent, collusive and invalid and for cancellation of the said document.
The High Court went on to presume from the great age of the donor that his
intelligence or understanding must have deteriorated with advancing years
and consequently it was for the court to presume that he was under the
influence of his younger son at the date of the gift. The Supreme Court based
on the English Common Law observed that there is no presumption of
imposition or fraud merely because a donor is old or of weak character.
Moreover, there is no presumption of undue influence in the case of a gift to
a son, grandson, or son-in-law, although made during the donor’s illness and
a few days before his death.
The SC observed in the present case there was practically no evidence
about the domination of plaintiff’s younger brother at the time of the execution
of the deed of gift or even thereafter. The circumstances that a grandfather
made a gift of a portion of his properties to his only grandson a few years
before his death is not on the face of it a unconscionable transaction.