BUSINESS REGULATORY FRAMEWORK

UNIT I
1. Offer must be communicated and accepted to become an agreement
LALMAN SHUKLA VS. GAURI DUTT
In this case, Gauri Dutt sent his servant, Lalman to search his missing nephew. After L had left in search of the
boy, G issued hand bills announcing a reward of Rs. 5000 to anyone who might find out the boy. L who was
ignorant of such reward, he claimed the reward. Held, L was not entitled for reward since he was ignorant of it i.e.
proposal. Also, this is a leading case wherein the important principle of General Offer was laid down. In such
case, a contract could be made only with the person who has the knowledge about the offer and accepts it
by acting accordingly to fulfil the conditions mentioned in the offer.

2. A general offer creates an obligation

A General offer may be accepted by any person from among the public who has the knowledge of it. The
performance of conditions of offer will amount to acceptance.
CARLILL VS. CARBOLIC SMOKE BALL CO. The case of Carlill vs. Carbolic Smoke Ball Co. is an
illustration of a contract arising out of a general offer. As per the facts of the case, the company issued an
advertisement in a newspaper about its product, “the smoke ball” a preventive medicine against influenza. In the
advertisement, the company offered to pay a sum of $ 1,000 as compensation to anyone who contacted influenza
or a cold after having used the smoke ball according to the printed directions. The advertisement also contained
that a sum of $ 1,000 had been deposited with the Alliance bank to show the sincerity of the company. A lady,
Mrs. Carlill relying on the advertisement purchased and used the smoke balls as per directions but still contacted
influenza. She sued the company to claim the compensation of $ 1,000. Held, it was a general offer and Mrs. Carlill
had accepted it by her act, by performing the conditions for acceptance. She was therefore entitled to get the claim.

3. Invitation to an offer is not an offer

HARVEY v. FACEY 1893
Brief facts: Mr. Facey was a real estate owner who was interested to sell his property which was in Jamaica.
Harvey who was interested in buying that property sent a telegraph asking he would sell his property to Harvey on
lowest cash price to be paid. Replying to his telegraph Facey replied to his second question only. Facey’s telegraph
read, lowest price for Bumper Hall Pen is £900. To which Harvey later replied, he agreed to buy Bumper Hall Pen
which was asked for and he also asked Facey to send him property deed so that he could get early possession. Facey
denied to sell his property to Harvey at that price. Later, Harvey filed a case in the court of appeal, Harvey won
the case. Facey who was unhappy appealed against the decision and case went to Privy Council which upheld the
trial court’s decision.
It was held by the Privy Council that it would be a contract only if Facey had replied to Harvey’s third telegraph.
Harvey took Facey’s response to his question as an offer to sell at the named price by him. There was no
commitment to sell the property because the offer which was made by the Harvey by replying to the invitation of
an offer was not accepted. Thus, there was no contract between the two.

4. Consensus ad idem- “meeting of minds”

RAFFELS v. WICHELHAUS ……
Brief facts: Mr. Raffels and Mr. Whichelhaus had a contract that Mr. Raffels would send him 125 bales of Surat
cotton via a ship named peerless from Bombay. But there were two ships with the name peerless. The same name
of two different ships mislead them and they agreed upon two different ships in their minds, which means there
was no meeting of mind while binding the contract. When the ship containing cotton reached Liverpool in
December, Wichelhaus refused to receive the shipment and to pay for it. In his understanding the consignment was
late as he mis-understood that the ship earmarked with nomenclature as some other which was supposed to reach
in the month of October. Both of them had mis-understanding in reference to ship names. Later, due to this
delay according the defendant who did not received the order was sued for the breach of contract by the plaintiff
(Raffels).

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 The court held that the contract was vague and hence, it was not an enforceable contract. For binding of a
contract, there should be meeting of minds between the parties. In this case, there was no consensus ad-idem. At
the time they had entered into this contract, there was ambiguity on the issue as to which ship shall carry the cotton
to be delivered. Since, it was a well-documented deed and not a fraud and hence, it should not be interrupted by
extrinsic evidence.

5. Introduction: Landmark judgement on the intention to create a legal relationship as an essential element of
contract. BALFOUR v. BALFOUR 1919]
Where parties to contract do not intend to create binding agreement, the agreement cannot be enforced.
The case of Balfour vs Balfour is a well-known illustration of a domestic agreement. In this case a husband (Mr.
Balfour) was working in Ceylone. During the holidays, he and his wife (Mrs. Balfour) went to England to enjoy
the leave. When Mr. Balfour was to return to Ceylone, his wife was advised to remain in England, due to ill health.
Mr. Balfour agreed to send a sum of $930 per month for probable expense of maintenance. For some time he sent
the amount but afterwards differences arose between them which resulted in their separation and the allowance
fell into arrears. Mrs. Balfour suit for recovery was dismissed by Lord Atkin on the ground that parties did not
intend that it will be attended by legal consequences. The appellate court held that the arrangement between Mrs
and Mr Balfour was merely a social agreement and not a contract and Mr. Balfour had ‘no intention to create a
legal obligation’. Court also made the argument that if the courts will they’ll start to enforce such intimate
arrangements made between couples treating them as a legal contract then the courts shall be flooded by with
matrimonial disputes.

6. Glaring example of a business deal in which the parties did not intend to create legal relations.
ROSE AND FRANK CO VS. J R COMPTON
As per the facts of the case, an agreement was drawn between the American and English firms. The agreement
mentioned that “this agreement is not entered into as a formal legal agreement and shall not be subject to legal
jurisdiction of law courts.” The agreement was terminated by one of the parties and other party brought an action
for breach of contract. Held, the agreement was not a binding contract as there was no intention to create legal
relations.

7. Promise to perform is sufficient consideration

KEDAR NATH VS. GORIE MOHAMED 1887
In order to construct a town hall at Howrah, the Commissioner of Howrah Municipality started to obtain necessary
fund by public subscription. A also promised to subscribed Rs. 1000 to fund by signing his name in the subscription
book for the purpose. On the faith of the promised subscriptions, the secretary of the town hall construction
committee engaged a contractor for construction of town hall and thus, incurred liability. A refused to pay his
subscription. Held, engaging a contractor and starting the construction work on the faith of the promise to
subscribe was sufficient consideration. Hence, A was liable to pay the amount to the extent of the liability
incurred by the promise.

8. Agreement involving a minor

MOHORI BIBEE VS. DHARMODAS GHOSE
In this case, a minor (Dharmodas) mortgaged his house for Rs. 20,000 and received Rs. 10,500 from the mortgage.
Subsequently, the mortgagor sued for setting aside the mortgage on the ground of his minority at the time of
execution of mortgage deed. The Privy Council held that according to Section 11, a minor is incompetent to
contract and therefore, minor’s agreement was absolutely void, not merely voidable. It also held that any contract
with a minor or an infant is ‘void ab-initio’. Hence, mortgage was cancelled. Moreover, the mortgagee’s request
for refund of Rs. 10,500 was also turned down on the ground that minor’s agreement was void from the
beginning and therefore, mortgagee has no right of restitution. Since minors are incompetent to contract hence,
such contracts are void and invalid in the eyes of law. The minor is not obliged to pay back the amount that was
advanced to him as he was not bound by the promise that was executed in contract.

9. Free consent
RANGANAYAKAMMA V ALWAR SETTI (1889)

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 A 13 year old widow was prohibited from removing the corpse of her husband until she consented for the adoption
of a boy. The adoption is not valid as it is not out of free consent but rather a result of coercion.

10. ROBERT BOVARD sold American Horse Enterprise to JAMES RALPH in return for several promissory notes.
The latter failed to honour the promissory notes. Robert Bovard filed a case. In the trial it was found that the firms
was manufacturing drug paraphernalia (Equipments) like roach clips and bong, used to smoke marijuana. Is the
contract contrary to public policy? It was held that while manufacturing drug paraphernalia is not unlawful in itself,
a refusal to enforce the contract will put manufacturers of drug paraphernalia on notice that the judicial system
will not protect them.

11. NEWELL V. ROYAL BANK OF CANADA

Newell’s wide forged his signature on 40 cheques. To shield her from prosecution, her husband marked a letter of
purpose arranged by the bank in which he consented to accept and assume all obligations, liabilities and duty for
forged cheques. Held, the contract was enforceable because its object was to ‘stop criminal prosecution’.

12. Agreements declared void

a. SHRAWAN KUMAR VS NIRMALA Agreements that are in Restraint of Marriage – Sec. 26
In this case, the plaintiff SK contended that his marriage was agreed to be solemnized with respondent (defendant)
N but now it appears that she is likely to marry someone else and therefore, a decree of permanent injunction be
passed restraining her from marrying any other person except the petitioner. The case was decided against the
plaintiff as the agreement was considered void.
Under section 26 of the Indian Contract Act, all agreements in restraint of marriage are deemed to be expressly
void agreements, unless they involve a minor. Entering into an agreement that prevents party/parties from getting
married or restraining marriage is not enforceable by law and hence it is expressly void. The provision aims at
protecting the right of every individual to enter into a marital relationship. If an adult agrees to not enter into
marriage in lieu of consideration, it is an agreement expressly declared void.
Example: A agrees with B, stating that B will not marry C. Such an agreement will be deemed void. Or…A agrees
to not marry B if C agrees to pay him a certain amount. Such an agreement is considered expressly void.

Right to marry is an integral part of right to life and liberty and is akin to a fundamental right. A fundamental right
of a person cannot be taken away and therefore, also the suit as filed is clearly against the public policy.

b. Agreement in Restraint of Trade

An agreement by which any person is restrained from plying a trade or practising a legal profession or exercising a
business of any kind is an expressly void agreement. Such an agreement violates the constitutional rights of a person.
However, there are a few exceptions to this rule. If a person sells his business along with the goodwill then the buyer
can ask the seller to refrain from practising the same business at the local limits.
Also, a contract between partners not to carry out any competing business during the continuance of a partnership is
also a valid contract.

c. Agreement in Restraint of Legal Proceedings

An agreement that prevents one party from enforcing his legal rights under a contract through the legal process (of
courts, arbitration, etc.) then such an agreement is expressly void agreement.
However, there are exceptions like, if the agreement states that any dispute between parties will be referred to
arbitration and the amount awarded in such arbitration will be final will be a valid contract. But such a contract has to
be in writing.

d.Wagering Agreement …betting

According to the Indian Contract Act, an agreement to wager (gamble, bet) is a void agreement. The basis of a wager
is that the agreement depends on the happening or non-happening of an uncertain event. Here each side would either
win or lose money depending on the outcome of such an uncertain event.

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13. Certainty and Possibility of performance
a. The case of Taylor v. Caldwell (1863) tremendously changed the law of contracts in England. In this
case, an opera house was rented for the purpose of holding concerts. The opera house, however, was
destroyed by fire before the night of the concert. The plaintiffs (T) sued the music hall owners for breach
of contract for failing to rent out the music hall to them. There was no clause within the contract itself
which allocated the risk to the underlying facilities, except for the phrase "God's will permitting" at the
end of the contract.

It was held that on the frustration of a contract (Impossibility to perform), it gets discharged. The civil
code of France and the Roman law were cited for the proposition that when the existence of a particular
thing is essential to a contract, and the thing is destroyed by no fault of the party selling it, the parties
are freed from obligation to deliver the thing.

b. An Agreement Whose Meaning is Uncertain

An agreement whose meaning is uncertain cannot be a valid agreement, it is a void agreement. If the
essential meaning of the contract is not assured, obviously the contract cannot go ahead. But if such
uncertainty can be removed, then the contract becomes valid.
Say for example A agrees to sell to B 100 kg of fruit. This is a void contract since what type of fruit is not
mentioned. But if A exclusively sells only oranges then the agreement would be valid because the meaning
would now be certain.

VOIDABLE CONTRACT
Samina Venkata Sureswara v Meesala Kota Muvullayya 1996
Buyer filed a case of breach of contract as seller could not vacate the house by evicting the tenants. Seller
kept extending the date and also received (accepted) subsequent payments from the buyer. Seller later
pleaded for voidable contract as he could not evict the tenants. Held, nothing to show that enough effort
had been made to evict, only request was made….which is not sincere in effort. Only if contingency is
impossible to perform the contract can become voidable.

VOID AGREEMENT
Neminath Appayya Hanamannanavar v Jamboorao Satappa Kocheri, 1964.
If the performance of a promise violates some law, it is a void agreement. The sale of land between would
have resulted into breaching the land ceiling rule and therefore though the contract was valid it was
adjudged as a void agreement on account of its final outcome.

VOID CONTRACT
Hartog v Colin Shields 1939
The seller by mistake mentioned the price of hare skin cheaper by one-third than was agreed upon orally.
Held, the mistake had made the contract void because of the ‘snap up principle’. When it is obvious that
a party has made a mistake in terms of an offer, the other party cannot simply ‘snap up’ the offer and
enforce the contract.

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 IMPLIED CONTRACT
Upton Rural District Council Vs Powell 1942
POWELL requested the police to send fire brigade when his farm caught fire. However, the farm was
situated in the area under another fire brigade and therefore not under free service zone. It created a
liability on Powell to pay.
HELD: the appellant must be treated as having asked for the Upton fire brigade to be sent to his farm,
and the fact that at the time the parties thought that the fire was in, its area did not prevent there being a
contractual relationship. The appellant was, therefore, liable under an implied contract to pay for the
brigade 's services.

Executed contract but its effects may still continue - IMPLIED CONDITIONS IN THE SALE OF
GOODS.
In Chapronier v. Mason,(1905)21 TLR633, C brought a Bun from a baker’s shop .The bun contained a
stone which broke of C’s teeth. The court held that the seller was liable to pay damages as he breached
the condition of wholesomeness.

PERFORMANCE OF CONTRACT
tender – act of offering to perform
Valid tender
a. FINCH V. MILLER 1848. A held premises of B under a lease for three, seven, or ten years, determinable on
notice with a stipulation that the amount of a quarter's rent should be paid by A on taking possession.
Towards the end of three years, a notice to determine the lease at the expiration of the third year had been
given, and before its expiration, the parties verbally agreed that A should continue tenant for another year.
There was no express mention being made of the terms of tenancy for the fourth year. A tender of a quarter's
rent was made and receipt for the fourth year was demanded. The tender was invalid.

b. Shipton, Anderson & Co v Weil Bros & Co [1912] 1 KB 574 FACTS The parties entered into a contract
for the sale and purchase of a cargo of wheat. The vendors were to supply “4500 tons, 2% more or less”
and could tender an additional 8% if they so wished – giving an allowable maximum of 4950 tons. The
wheat delivered weighed 4950 tons 55 pounds and, although they were only charged for 4950 tons, the
purchasers refused to accept it because the vendor’s performance was not exact.

ISSUE: a contracting party falls short of exact performance by an insignificant margin. Is the contract
affected by the shortfall?

VALIDITY OF TENDER IN TERMS OF TIMING OF DELIVERY:

Startup v Macdonald (1843) is a case in which a contract stated that 10 tons of oil were to be
delivered to the defendant within the last 14 days of March. The claimant delivered the oil at 8.30pm
Saturday March 31st. The defendant refused to accept the delivery because of the lateness of the hour.

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The court held that the claimant had tendered performance within the agreed contractual period and was
thus entitled to damages for non-acceptance.
The argument of the court was that the party who is to receive is bound to attend at a reasonable place
and wait till a reasonable time, for the purpose of receiving what the other party is bound to deliver.
Since in the present case, M was present at the warehouse and was in a position to reasonably ascertain
the quality, quantity of the product delivered, hence, there was a valid tender even when made at
unreasonable time for it was made within the time stipulated under the contract and thus rendered literal
possibility of performance within the letter of contract.
CHINNAYA VS. RAMAYYA…PRIVITY OF CONSIDERATION
A lady granted/gifted a property consisting of some land to her daughter (defendant) by a gift deed. The
deed was registered to the proper authorities. One of the terms of the deed was that the daughter had to
pay a sum of Rs.653 annually. Later the old lady died, and the defendant refused to pay the money the
sister whom she had promised to pay so. And hence the plaintiff sued the defendant for the recovery of
the same.

Issue: Whether the plaintiff can bring an action against the defendant for the amount promised in a
contract where the consideration for such promise has been furnished by the mother of the defendant
(plaintiff’s sister)?

Appellant’s argument: The consideration for getting the property was a promise to pay the amount
annually to the plaintiff.

Respondents argument: The plaintiff was not a party to contract, hence was had no right to compel
respondent for paying the promised amount.

Judgement: The Madras High Court held that in this agreement between the defendant and plaintiff the
consideration has been furnished on behalf of the plaintiff (sister) by her own sister (respondent’s
mother). Although the plaintiff was stranger to the consideration but since he was a party to the contract
he could enforce the promise to the promisor, since under law, Consideration may be given by the promise
or anyone on her behalf – vide section 2(D) of Indian Contract Act, 1872.

In Indian Law, consideration may be given by the promise or any other person. In India, there is a
possibility that consideration for the promise may move not from the promise but a third person, who is
not a party to the contract, different from the English Law in which the consideration must move from
only the promise.