Indian Contract Act- Important Cases

The Indian Contract Act, 1872 lays down the principles for forming valid contracts, including
provisions for offer, acceptance, consideration, and the conditions under which a contract is void
or voidable. Important case laws illustrate the application of these principles. Below are the key
case laws related to communication, acceptance, valid contract, void ab initio, and
consideration under the Act:

1. Communication of Offer and Acceptance:

 Case Law: Lalman Shukla v. Gauri Dutt (1913)

o Facts: The defendant sent his servant, Lalman Shukla, to search for a missing
boy. Later, the defendant issued a reward for anyone who found the boy. Lalman
was unaware of the reward but found the boy.
o Judgment: It was held that Lalman could not claim the reward since he was
unaware of the offer at the time of performing the task. Communication of the
offer is essential for acceptance.
o Principle: An offer must be communicated to the offeree, and only upon
knowledge of the offer can there be acceptance.

Elaboration:

Facts:

Lalman Shukla was employed as a servant by Gauri Dutt. Gauri Dutt’s nephew went missing,
and Lalman was sent by Gauri Dutt to search for him. After Lalman had already left to search for
the boy, Gauri Dutt announced a reward of ₹501 for anyone who found his nephew. Lalman
successfully found the boy and returned him. Later, when Lalman learned about the reward, he
demanded it from Gauri Dutt, who refused to pay.

Background:

This case revolved around whether an individual who performs the required act without
knowledge of the reward is entitled to the reward. Lalman argued that since he had found the
boy, he should be entitled to the reward. Gauri Dutt, on the other hand, contended that since
Lalman had no knowledge of the reward at the time of performing the act, he was not entitled to
it.

Judgment:

The court held that Lalman was not entitled to the reward. The reasoning was that Lalman did
not know about the reward at the time of performing the act. For an offer to be accepted, the
offeree must be aware of the offer and must perform the act with the intent to accept the offer.
Since Lalman was unaware of the reward when he found the boy, there was no valid acceptance
of the offer, and thus, he was not entitled to the reward.

Principle Established:

 Communication of Offer: An offer must be communicated to the offeree before they

can accept it. Performing an act without knowledge of the offer does not amount to
acceptance of the offer.

 Case Law: Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co.

(1966)
o Facts: This case dealt with the issue of when communication of acceptance takes
effect in a telephonic conversation.
o Judgment: The Supreme Court held that acceptance in a telephone conversation
is communicated when the proposer hears the acceptance.
o Principle: In instantaneous modes of communication like telephone, the contract
is completed when the acceptance is heard by the proposer.

Facts:

In this case, the dispute arose between two parties who were involved in a transaction over the
telephone. Bhagwandas Goverdhandas Kedia (plaintiff) was based in Ahmedabad, while
Girdharilal Parshottamdas (defendant) was in Khamgaon. The defendant accepted an offer made
by the plaintiff over the telephone. However, later on, the defendant refused to fulfill the
contract, and a dispute arose regarding when and where the contract was concluded.

Background:

The key issue in this case was the place of acceptance, which would determine the jurisdiction of
the court. The plaintiff claimed that since the acceptance was made over the telephone and was
heard in Ahmedabad, the contract was formed there. The defendant argued that since he was in
Khamgaon when he accepted the offer, the contract was concluded there.

Judgment:

The Supreme Court held that in cases of instantaneous communication, such as telephone calls,
the contract is concluded at the place where the acceptance is communicated and heard.
Therefore, the contract was formed in Ahmedabad, where the offeror (plaintiff) heard the
acceptance.

Principle Established:

 Communication of Acceptance: In cases of instantaneous communication (like

telephone), a contract is complete when the offeror hears the acceptance. The place where
 the offeror receives the communication of acceptance is the place where the contract is
concluded.

2. Acceptance of Offer:

 Case Law: Felthouse v. Bindley (1862) (English Case, often cited in Indian law)
o Facts: The uncle wrote to his nephew offering to buy his horse and mentioned
that if he did not hear from him, he would assume acceptance. The nephew did
not respond, but his auctioneer accidentally sold the horse.
o Judgment: The court held that silence cannot be considered as acceptance.
o Principle: Mere silence does not amount to acceptance of an offer unless there is
an express or implied intention to accept.
 Case Law: Carlill v. Carbolic Smoke Ball Co. (1893) (English Case, often cited in Indian
contract law)
o Facts: The company advertised a reward for anyone who used their product as
instructed and still contracted the flu. Mrs. Carlill used the product but contracted
the flu and claimed the reward.
o Judgment: The court held that a unilateral offer, such as an advertisement for a
reward, can be accepted by performing the conditions of the offer.
o Principle: A general offer can be accepted by performing the conditions set out in
the offer.

3. Valid Contract:

 Case Law: Balfour v. Balfour (1919) (English Case, often referred to in Indian courts)
o Facts: A husband promised his wife a monthly allowance while they were living
apart. Later, the couple separated, and the wife sued for the promised payments.
o Judgment: The court held that agreements between spouses are not enforceable
contracts because they do not intend to create legal relations.
o Principle: For a valid contract, there must be an intention to create legal relations.
 Case Law: Mohori Bibee v. Dharmodas Ghose (1903)
o Facts: A minor mortgaged his property to secure a loan. Later, he sued to have
the mortgage declared void, as he was a minor.
o Judgment: The Privy Council held that the contract was void ab initio because a
minor is not competent to contract.
o Principle: A contract with a minor is void ab initio and unenforceable.

Facts:

Dharmodas Ghose, a minor, entered into a contract to mortgage his property to a moneylender,
Brahmo Dutt, through his agent. Dharmodas was a minor at the time of the contract. His mother,
acting as his legal guardian, notified the moneylender that Dharmodas was a minor and that the
mortgage should not be executed. Despite this, the moneylender went ahead with the transaction.
Dharmodas later sued to have the mortgage set aside, arguing that it was void since he was a
minor.

Background:

The main issue was whether a contract entered into by a minor is void or voidable. Under the
Indian Contract Act, a person must be of the age of majority and of sound mind to enter into a
contract. A minor, therefore, lacks the capacity to contract.

Judgment:

The Privy Council held that the contract was void ab initio because a minor lacks the legal
capacity to enter into a contract. A contract entered into by a minor is not merely voidable but
void from the outset. Therefore, the mortgage deed was set aside.

Principle Established:

 Void ab initio: A contract entered into by a minor is void from the beginning and cannot
be enforced.
 Capacity to Contract: A minor is not competent to enter into a contract, and any
contract made by a minor is unenforceable.

4. Void Ab Initio:

 Case Law: Mohori Bibee v. Dharmodas Ghose (1903) (also relevant here)
o Principle: Contracts with minors or persons lacking capacity to contract are void
ab initio, meaning they have no legal effect from the outset.
 Case Law: Satyabrata Ghose v. Mugneeram Bangur & Co. (1954)
o Facts: The defendant agreed to sell land to the plaintiff. However, due to
government requisitioning of land during World War II, the contract became
impossible to perform.
o Judgment: The court held that the contract was frustrated and thus void under
Section 56 of the Indian Contract Act.
o Principle: A contract that becomes impossible to perform after its formation
becomes void.

Facts:

Mugneeram Bangur & Co. entered into an agreement with Satyabrata Ghose to sell a plot of
land. However, before the completion of the contract, the land was requisitioned by the
government for war purposes during World War II. Mugneeram Bangur & Co. argued that the
requisition of the land made the performance of the contract impossible, and hence, the contract
should be discharged due to frustration.
Background:

The issue in this case was whether the contract had become impossible to perform and was thus
frustrated under Section 56 of the Indian Contract Act, 1872. Section 56 states that a contract
becomes void when its performance is rendered impossible by an event beyond the control of the
parties.

Judgment:

The Supreme Court held that the requisitioning of the land by the government did not frustrate
the contract. The requisition was temporary, and there was no evidence that the contract could
not be performed after the requisition was lifted. Therefore, the contract was not frustrated, and
the seller was still bound to fulfill the terms of the contract.

Principle Established:

 Doctrine of Frustration (Section 56 of the Indian Contract Act): A contract is

frustrated when an unforeseen event renders the performance of the contract impossible,
and the contract becomes void. However, frustration cannot be claimed if the
impossibility is temporary or does not fundamentally affect the contract's purpose.

5. Consideration:

 Case Law: Chinnaya v. Ramayya (1882)

o Facts: A lady made a gift of land to her daughter on the condition that she would
pay a certain sum to her sister. The daughter refused to pay, claiming that she had
no consideration with her sister.
o Judgment: The court held that the consideration need not move from the
promisee. It can move from a third party.
o Principle: Consideration need not always flow from the promisee. A contract is
valid as long as there is consideration, even if it comes from a third party.

Facts:

A woman gifted her property to her daughter, Ramayya, on the condition that Ramayya would
pay an annuity to her sister, Chinnaya. However, Ramayya refused to make the payments,
claiming that there was no contract between her and her sister Chinnaya, as Chinnaya had
provided no consideration.

Background:

The issue was whether a contract is enforceable if the consideration does not move from the
promisee but from a third party. The daughter argued that since she had not received any
consideration from her sister, there was no valid contract.
Judgment:

The court held that the daughter was bound to pay the annuity to her sister. The contract was
valid, even though the consideration did not flow directly between the promisee (Chinnaya) and
the promisor (Ramayya). The consideration provided by the mother was sufficient to bind the
daughter to her promise.

Principle Established:

 Consideration from a Third Party: A contract can still be valid if the consideration
flows from a third party, as long as the contract itself is supported by consideration. The
law does not require that the consideration must always move from the promisee to the
promisor.

 Case Law: Durga Prasad v. Baldeo (1880)

o Facts: Durga Prasad, the plaintiff, spent money in improving the market at the
request of the collector. The defendant, a shopkeeper in the market, promised to
pay Durga a commission. Later, the defendant refused to pay.
o Judgment: The court held that the promise was unenforceable as Durga had not
incurred expenses at the defendant’s request.
o Principle: Consideration must be given at the promisor’s request; otherwise, the
promise is not enforceable.

6. Void Contracts:

 Case Law: Gherulal Parakh v. Mahadeodas Maiya (1959)

o Facts: The case dealt with an agreement to enter into a wagering contract.
o Judgment: The Supreme Court held that agreements based on wagering are void
under Section 30 of the Indian Contract Act, 1872.
o Principle: Wagering agreements are void and unenforceable under the Indian
Contract Act.

These cases illustrate how Indian courts interpret and apply the provisions of the Indian Contract
Act, 1872 concerning communication, acceptance, consideration, and the validity of contracts.
They help define the limits of enforceability and clarify situations where contracts may be void
or voidable.

Note: do look for the entire case for clear understanding.