BA; BBA; B.

Com LLB 2021: Spring 2022 Contract-I

Answering both Part A and Part B is mandatory

Answer any 3 out of 6 Questions in Part A
Answer any 2 out of 3 Questions in Part B
Total Marks 50

Part A
Answer any 3 out of 6
All Questions Carry 12 Marks each
Maximum Length 750 words

1. In light of statutory provisions and leading cases, critically analyse the application of the
‘postal’ rule and the ‘instantaneous communication’ rule to contracts formed over email.

2. On what basis do courts decide that there has been a ‘frustration of purpose’ in a contract?
Illustrate with reference to leading cases why frustration of purpose claims tends to be
successful only in a very narrow range of instances.

3. On which statutory provision(s) have the Indian courts rested the doctrine economic
duress? Do the provision(s) in question support the doctrine? Are there any alternative
provision(s) for resting the doctrine that you can suggest on a careful reading of the Indian
Contract Act, 1872?

4. What prevents a third party beneficiary to a contract from suing upon it? Are the
restrictions justified, given the phraseology of the Indian Contract Act?
 

5. “There is a double dissonance between the drafters’ blueprint and what has come to pass
for the law of stipulated sums in India. One is the superimposition of the liquidated damages
and penalty dichotomy on the provision; the other is the view that ‘reasonable compensation’
in section 74 could only mean compensation for loss or damage..”

Critically examine the jurisdiction of courts in awarding stipulated sums under S 74 of the
ICA in India in light of the above comment.

6. “Assumption of responsibility, which forms the basis of the law of remoteness of damage
in contract, is determined by more than what at the time of the contract was reasonably
foreseeable” Critically discuss the restricted nature of contractual liability relating to the law
of the remoteness of damage, with reference to case law and class discussions.
Part B (Hypos)
Answer any 2 out of 3
Each question carries 7 marks
Maximum length of each answer: 500 words

1. Inspired by the noted environmental activist Greta Thunberg and the encouraged by
Government of India’s initiative to promote local toy producers, Suraj and Chandni decided
to foray into manufacturing traditional toys with wood sourced from sustainable forestry
initiatives. They named their business ‘ECOTOY’. ECOTOY received wide publicity when
Greta tweeted a video of their operations. This resulted in a deluge of international orders
with a large consignment of deliveries to be made by May 2022. Whilst this was good news
for ECOTOY, Srivalli Timbers their existing supplier of organically sourced wood that was
used by ECOTOYS sensed an opportunity to cash in on some of this hype. Srivalli Timbers
informed ECOTOYS that unless ECOTOYS pays them double the rate for the consignment
of wood due in March, 2022, they would be unable to supply. This would have meant that
ECOTOYS could not meet their commitment their international purchasers to supply by
May. Furthermore, since ECOTOY’s supply commitments to international buyers included
specific organically sourced wood suitable to manufacture such toys that was not to be easily
sourced from other suppliers from within India, and given the narrow window of opportunity
to scale-up production, ECOTOY somewhat reluctantly agreed to the increased rates. Though
ECOTOY was able to meet its production targets, its profits were diminished owing to
escalation of costs. ECOTOY intends to initiate legal action against Srivalli Timbers for the
latter’s conduct so as to recover the additional amount paid.

What are the legal remedies available to ECOTOY against the Suppliers? What, if anything,
could be said in the defense of the Srivalli Timbers?

2. Michael was the CEO of Blunder Snifflin Paper Co. He was a successful entrepreneur with
a desire to give back to society. Unfortunately, an accident on the freeway resulted in
Michael losing one leg and severely restricted mobility. One day, Michael’s chauffer
requested him to employ his son, Stanley, as a caretaker. Stanley was a man of focus,
commitment and sheer will. As Michael was getting older and was feeling constricted by the
lack of mobility, he employed Stanley as the caretaker of his affairs. Over the next few years,
Michael and Stanley grew closer. In fact, Michael had once told his chauffer that Stanley was
“like a son” to him. Eventually, Michael retired from his company and sold all his shares. At
that time, Michael only wanted Stanley to give him company. Stanley grew closer to Michael
to the extent that he began handling Michael’s bank accounts. Michael began refusing to
meet his relatives, who started getting suspicious of Stanley. A few years later, the relatives
realised that several of Michael’s assets were being held in Stanley’s name, including
Michael’s own mansion. They demanded to meet Michael who, in their own words, ‘looked
like a person possessed by Stanley’. Michael told the relatives that he had sold his properties
to Stanley. The relatives then confronted Stanley, and demanded that he leave the house.
Stanley refused to leave the house, stating that an agreement was made between him and
Michael where all the properties were given to him, including the house. Upon some further
investigation, the relatives realised that Stanley had paid half the prevailing market price for
the properties. Michael, upon the urging of his relatives, filed a suit against Stanley on the
grounds that the contract had been vitiated by undue influence on Stanley’s part. Imagine that
you are a judge of the Delhi High Court deciding the matter. Deliberate upon the facts of the
case, the Indian case law on undue influence, and arrive at a reasoned decision.

3. Tesla Motors participates in Zero Day campus placements at Jindal Global Law School
and makes two students, Nemo and Marlyn, job offers on 1 March 2022. The individual offer
letters state “we will keep this offer open until 21 March, 2022, so please notify us of your
acceptance at any time before then”.

Marlyn replies back to Tesla saying that he will pay them Rs. 100 (a note that he received as
a good luck charm from his grandfather) as consideration to keep the offer open as he
believes it will bring him good luck in his job. Tesla replies back to Marlyn saying that they
will accept this token of Rs. 100 to respect his sentiments.

Pursuant to this, on 2 March 2022, Nemo and Marlyn travel to the Great Barrier Reef to
celebrate the job offers. They also turn down two other job offers from Google and Facebook.
On 14 March, just when Nemo and Marlyn decide to finally accept the offers and open their
respective laptops to type out their acceptances, they find an email from Tesla in their
inboxes stating that “we regret to say that your job offer is being withdrawn as we require
every penny saved to bid for the acquisition of Twitter”.

Advise Nemo and Marlyn on whether Tesla was legally bound to keep the offer open until 21
March, 2022.
The frustration of purpose of a contract has a very narrow scope of implementation. The
frustration of purpose is when an unforeseeable act hampers the ability of a party’s principal
purpose to enter into a contract.

The doctrine works on the idea of excusing any further performance whereby,
a. The nature of the contract and all catalysts of the same have contracted on the grounds
on the fundamental aspect that all state of things will continue to exist and
b. Before the breach of a contract, the matter will be stipulated such that
c. It renders the performance impossible, where it won’t be fault of either of the parties.
The primitive common law had it that man could not be excused from his duty to the contract
simply because the events have been deemed impossibility. In the landmark case of Taylor v.
Caldwell, the doctrine of impossibility was established. In the case, the defendant, Caldwell
had agreed to let Taylor, the plaintiff, to rent out his garden for four days i.e., 17th June 15th
July, 5th august and 9th August for a sum of 100 on each of those days. On 11th June, 1861,
there an unforeseen incident of a fire taking place that had destroyed the gardens, following
which the plaintiffs had sued the defendants.
It was held that the parties that entered into the contract, if failed to express any terms, the
performance will be excused. It was held that the contract was in line with bailments where
say a horse was loaned to another and it died, then the party would be released from the
contract unless it specified as such. Owing to this, the defendants were dismissed from their
obligations and all the advertising expenses that were covered by the plaintiffs were non-
recoverable. This led to the doctrine of impossibility.

The frustration of a contract, as mentioned above is dependant on very narrowing factors, i.e.
a. When the performance is impossible
b. The performance is illegal
c. The underlying performance of ‘frustration of object’.
The frustration of purpose is where t is possible to perform a contract, but the value of such a
promise is diminished or the cost of execution increases. This happens when,
a. The common object is defeated, but the doctrine is still is play.
b. The common foundation goes the extra mile to make sense of the significance of
supply which if not done is considered unnatural or odd
c. And lastly the notion of the abovementioned foundation is with respect to ‘common
mistake’ where the safest way is to distinguish between the identity of good and the mistake
of quality.
Because Krell brought about the aspect of foundational purpose, it is important that parties
invest in a force majeure clause where parties are allowed to make their own contract clause
to exempt them from being obligated to continue an impossible event.
Because the doctrine of frustration is so narrow, it requires the failure of common purpose.
The doctrine acts in binary events of happenstance. It ends the contract fully. Force majeure
clauses helps in clogging only part of the contract so the rest of it can be executed fully.
Moreover, it gives more clarity rather than unnecessarily getting into the test of frustration.
Because of these limiting factors, and the existence of force majeure clauses, the frustration
of purpose has a very narrow scope of working as it is highly dependant on the details of
case, the clauses of the contract and the mutuality between the party members that created the
contract and any event that takes place while the contract is in force that deems a part of the
obligation or the entirety of the contract to be void.
As time has progressed the courts have had to decide whether to the scope of the postal rule
can be extended to modern developments in communication, namely instantaneous
communication. As electronic methods have progressed, the dispatch and receipt of a
message tends to coincide and any law that dealt with the delay between the two, such as the
postal rule, seems to be rendered useless or obsolete. It has been held that a telephone
conversation is the same as a conversation that is held between two people in the same room
so the ‘receipt’ rule applies [10] ; this means that the offeror has to receive communication of
acceptance before a contract has been established, this is obviously different to the postal rule
in the fact that receipt has to be acknowledged by the offeror. However, there are some
instances where the dispatch doesn’t automatically mean acceptance has been communicated.
The telex was brought before the court in Entores Ltd v Miles Far East Corporation [11] in
1955, Lord Denning gives various examples of when an acceptance is communicated or not,
he concludes ‘the rule about instantaneous communications between parties is different from
the rule about post. The contract is only complete when the acceptance is received by the
offeror; and the contract is made at the place where the acceptance is received’. So it seem
that the responsibility lies with the offeree to communicate the acceptance effectively before
a contract is complete, this is unlike the postal rule as the law is not as in favour of the
consumer but seems more practical and just in the sense that the both parties are aware of
their position. The justification for this is that instantaneous communication tends to be
acknowledged whereas post does not [12] . There is also an assumption that a message of
acceptance sent during normal business hours by means of instantaneous communication can
be reasonably expected to have been received [13] . However, a problem arises where an
instantaneous method is used but the message is not actually instantaneous, Lord Fraser dealt
with this problem in Brinkibon Ltd v Stahag Stahl [14] and stated that responsibility and risk
was on the person who receives the message if they choose not to man their machines [15] .
This was reaffirmed and limited to within business hours by the courts in Mondial Shipping
and Chartering BV v Astarte Shipping Ltd [16] where a message sent later on in the day on a
Friday was held to only be communicated on the next working day (Monday morning). This
seems fair as it is not practical to regard all messages sent at all times as indifferent to face to
face communication. The law regarding instantaneous seems to be more concise and fairer
than the postal rule, instantaneous methods have been used for many years since the cases
above and has had little or no effect on commerce which could be an indicator that it is
perceived as just and acceptable by society.
The postal rule was one of the first specific rule for a mode of communication. It was established in the
case Adams v. Lindell (1818). In this case Defendant (D) sent a letter to Plaintiff (P) to sell wool on 2nd
September 1817, Due to wrong postal address P received the letter on 5t September 1817. The proposal
mentioned that it must be accepted till 7th September. After reading this P instantly posted his acceptance
back to D. It reached D on gth September 1817.

Until then D had sold his wool to some other party. So, P sued D for breach of contract The question
before the judge was whether the contract was made at the time of posting of mail by P or at the time of
receipt of mail by D. So, in this case postal rule was established which said that the contract is formed
when the acceptor posts the letter even if it does not reach to the proposer.

So, this rule is mentioned under the section 4 which says that "communication of acceptance is complete as
against proposer, when it is put during transmission to him so as to be out of the power of the acceptor.As
the world progressed, new modes of communication came in like email, phone calls etc.
So, there was a need to examine whether to apply the same rule as the postal rule to these instantaneous
modes of communication or have a separate statue for the same. In Entores It. v. Miles Far East corp., the
Plaintiff (P) which did business in London, sent out an offer to Defendant(D) which was based in
Amsterdam to buy 100 tons of copper. This communication took place with the help of instantaneous
communication device, Telex.

The Dutch company accepted the offer. The contract was not fulfilled and a major issue arised, which was
whether it should be treated according to the English or the Dutch law. So, this case after all the judgement
by lower courts went in Court of Appeal of England and Wales where Lord Denning decided that it would
be handled according to the English law and postal rule will not apply to instantaneous modes of
communication cases. So, he said that in instantaneous communication cases acceptance will be complete
when the message of acceptance reaches the other party.

The postal rule is one of the most unthought judgement as it disregarded the rule of aggreging to the same
thing in the same sense. This can also be said as meeting of minds of parties to the contract. Sending
contract via post have a lot of bad consequences as a post can be lost which can lead to lack of
communication over the deal between the parties. So, as there is no landmark judgement in India on the
treatment of email in a contract, I feel it should be kept as a part of instantaneous rule as it follows the
section 13.