Home Contract Law 20 notable Contract Law cases

20 notable Contract Law cases

November 2, 2024

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This article has been written by Oishika Banerji and has been further updated by Sakshi Kuthari. This article discusses the different aspects and dimensions of a contract, and also its essentials as well as the legality and voidability of the same before delving upon the notable contract case laws. It discusses in detail their facts, issues, and judgements. These cases range from fundamental principles like offer and acceptance, minority, consideration to impossibility to perform the contract. These cases have helped the courts maintain consistency in the application of legal principles across different cases.

Table of Contents

Introduction

The Indian Contract Act, 1872 (hereinafter referred to as the Act of 1872) lays down the foundation of contract law in India. It ensures fairness and clarity in any type of commercial transaction taking place between private individuals. Contract law is rooted in the rules relating to offer, acceptance, consideration, competency, lawful object, etc. The Act of 1872 provides a number of rights and obligations to the parties entering into a lawful contract. The Indian courts have interpreted and expanded the principles of contract law through various landmark judgements, shaping the evolution of contract law.

The contract law generally relates to rights in personam which means “private rights.” It means that a contract is formed between only two private individuals who enter into a contract with one another. In various cases, the courts have reinforced the idea that contracts are not just agreements between two private individuals, but are also formed for maintaining trust in the market for fulfilling the contractual obligations. With the evolution of time and the needs of society, the judiciary’s role in interpreting and applying contract law has become more important.

Each case law in some way or the other advances the understanding of contract law, by offering clarity on ambiguous provisions and also addressing the commercial complexities arising at the time of the contract. There are different concepts in relation to contract law that can be better understood with the help of case laws. This article aims to provide the same to its readers.

Essentials of a valid contract

Section 2(h) of the Act of 1972 defines “contract” as a legally binding agreement between two or more parties. It is necessary to have all the essential elements of a valid contract before its performance, because it sets out the terms and conditions set out between the parties to the contract. Before getting into the important cases, let’s understand the essentials of a valid contract for better understanding of the cases, which are as follows:

Offer/Proposal: The term “proposal” is defined under Section 2(a) of the Act of 1872, and is a promise to do (or not do) something, provided the offeree does (or does not do) something in return.
Acceptance: Section 2(b) of the Act of 1872 defines the term “acceptance”. A proposal, when accepted, converts into an agreement. If the proposal is accepted, the formation of a contract between the two parties takes place.
Consideration: Consideration in simple terms means “something in return”. It is defined under Section 2(d) of the Act of 1872. This provision provides that consideration may be past, present or future transactions. Under Section 25 of the Act of 1872, there is a general rule that an agreement without consideration is void, subject to certain exceptions.
Lawful object: In case the consideration or the object of an agreement is unlawful, the agreement is considered illegal or unlawful. For instance, sale of liquor without a valid licence is considered illegal.
Competency of the contracting parties: Section 11 of the Act of 1872 provides that all persons are competent to contract except a minor, a person of unsound mind and a person disqualified by law from entering into a contract.
Consent and free consent: Under Section 13 of the Act of 1872, the term “consent” is defined. The parties should enter into the contract with their free consent defined under Section 14 of the Act of 1872.
Lawful intent: From a bare reading of Section 10 of the Act of 1872, it can be understood that the essentials needed to form a valid contract, does not specify the ‘intention to create legal relations’ as one of the ingredients.
Contract not declared to be void: An agreement though of such a nature that it satisfies all the conditions of a valid contract, must not be declared expressly to be void by any law in force in the Country.

Notable case laws

The case laws discussed below relate to the contract law jurisprudence and they hold utmost importance on the law of contracts.

Balfour vs. Balfour (1919)

Facts of the case

In this case, a couple got married in August, 1900. The husband was an employee of the Government of Ceylon (now Sri Lanka) and lived there together until the year 1915. Both of them came back to England in November, 1915, since the husband was on leave. They stayed in England together till August, 1916, when the husband’s leave ended and he had to return.
As per the doctor’s advice, the wife was to stay for a few more months in England. She was suffering from rheumatoid arthritis. On 8 August, 1916, as the husband was preparing to sail, he made an oral promise to provide his wife thirty pounds per month until she joined him in Ceylon.
There was no agreement between the husband and the wife to live apart. But later, matrimonial differences started to take place between them. The wife then filed a suit to enforce the defendant’s promise to pay her thirty pounds per month.
The husband contended that the promise made by him was a domestic arrangement without the intention to create legal relations and contractual obligations.

Issues raised

Whether between the husband and wife there existed a lawful contract?

Judgement of the case

The Court of Appeal in this case held that there was no contract because there was no intention to create a legal relationship, therefore, the husband was not liable. There exists a general presumption that domestic and social agreements made between spouses are not meant to be legally binding contracts. It also established an implied presumption for similar domestic agreements in future.
This case established the “Legal Reaction Theory”. This theory means that one lawful act will be responsible for a subsequent legal act to take effect. It is also the duty of the court to determine whether the parties to the suit have an intention to enter into an agreement or not and fulfil their part of the obligations.
It was observed by Lord Justice Atkin that agreements made between a husband and his wife, especially in personal family relationships, to provide them with maintenance costs, and other costs are generally not considered as contracts. The reason is that because the parties to the agreement do not intend to enter into an agreement that should be legally enforced.
The onus lies on the party claiming that a domestic agreement is legally binding. It should also prove that the parties to the suit had an intention to create legal relations. In this case, it was found that the wife was not able to prove that her husband intended to create a legally enforceable agreement. It was held in this case that the burden of proof lies upon the party seeking to enforce the contract.
It is the duty of the courts to take into account a wider approach and consider the existing circumstances when evaluating the object behind the creation of domestic agreements. It was also deemed necessary by courts to check the facts of the case and the status of the marital relationship existing between the spouses in presuming that there existed an intention to create legal relations.
This case led to the differentiation between socially and legally binding agreements.

For more details refer to this article Balfour vs. Balfour (1919).

Lalman Shukla vs. Gauri Datt (1913)

Facts of the case

In this case, the nephew of the defendant ran away from home. The defendant asked his servants to search for his nephew in different places. Among these was the plaintiff, who was appointed as a munim in his firm.
The plaintiff was sent to Haridwar in search of the defendant’s nephew. He gave the plaintiff the money for his railway fare and other expenses. Later, the defendant issued handbills at different places offering a reward of Rs. 501 to anyone whoever would find his nephew.
The plaintiff traced the defendant’s nephew at Rishikesh and found him there. He returned the defendant’s nephew before seeing the handbills and thus did not ask for a reward of Rs. 501. After about six months the plaintiff was dismissed and he then claimed the amount of reward from the defendant. The plaintiff contended that a privity of contract, motive or knowledge was not necessary.
The defendant contended that the claim of the plaintiff could only be maintained on the basis of a contract. There must have been an acceptance of the offer and an assent to it. There was no contract between the parties in this case and that in any case the plaintiff was already under an obligation to do what he did and was, therefore, not entitled to recover.

Issues raised

Whether the plaintiff’s action be treated as a valid acceptance of the defendant’s offer?
Whether it is a legally binding contract or not?
Whether the plaintiff should be awarded Rs. 501?

Judgement of the case

The Hon’ble Court observed that the plaintiff was unaware of the amount of reward advertised by the defendant. Bringing back the defendant’s nephew did not constitute the acceptance of the offer from the side of the plaintiff. The plaintiff did not have the right to claim the reward of Rs. 501.
This case laid emphasis on the importance of knowledge and communication at the time of formation of a contract. For a case to be legally enforceable, it is necessary that there exists both knowledge and consent in relation to a proposal. It is only then a proposal converts into an agreement.
In this case, none of the conditions for enforcing a lawful agreement were fulfilled, as the plaintiff was unaware of and did not consent to the defendant’s offer. This is also an important principle governing general offers in contract law, and a classic example of a general offer is offering a reward by means of an advertisement for finding a lost article. The person who completes the required task by the offeror is said to accept the offer.
It was also further held that there was already an existing obligation upon the plaintiff to search for the nephew. Therefore, the performance of the required act to be eligible for reward of Rs. 501 cannot be considered as a consideration of the defendant’s promise. For this reason, the plaintiff’s application was dismissed.

For more details refer to this article Lalman Shukla vs. Gauri Dutt (1913).

Harvey vs. Facey (1893)

Facts of the case

In this case, Mr. Harvey wanted to purchase a piece of land owned by Mr. Facey. On 7 October, 1892, a telegram from Harvey was sent to Facey asking whether he would sell Bumper Hall Penn by reverting with the price of the piece of land. Facey responded through telegram on the same day that the lowest price for Bumper Hall Penn was nine hundred pounds. As soon as Mr. Harvey received this reply, he sent further a telegram saying, “We agree to buy Bumper Hall Penn for nine hundred pounds as asked by you”. He also asked for title deeds of that land by Mr. Facey.
Harvey was under a belief that Facey had made a clear offer to sell the land for nine hundred pounds, by replying back to him. Harvey believed that a contract had been formed between the two of them and there was no response from Facey to Harvey’s last message.
Facey was sued by Harvey on the ground that the response of Facey to his inquiry constituted an offer to sell the land, which he had accepted, thereby forming a valid contract.

Issues raised

Whether Facey made an explicit offer to sell the land to Harvey for nine hundred pounds?
Whether the telegram sent by Facey citing the lowest price, an offer capable of acceptance?
Whether a contract was formed between Harvey and Facey?

Judgement of the case

It was held by the Judicial Committee of the Privy Council that Facey had not made an explicit offer to sell the land to Harvey. Harvey was under a misconception in assuming that Facey made an offer when, in fact, he did not. A mere statement of the minimum selling price constitutes only an invitation to offer, not an offer. Consequently, the telegram did not create any contractual and legal obligation.
The response of Harvey accepting the nine hundred pounds, was actually an offer in itself, which Facey was under the discretion to accept or reject. As Facey did not accept Harvey’s offer, no contract was formed between them. It is also important to note that no contract was formed between them as Facey did not answer Harvey’s first question about whether he would sell the piece of land.

Instead, he merely provided information about the price of the land, which does not constitute an offer. It was held that until and unless a clear and explicit offer is made, there can be no acceptance. Without both the offer and acceptance, a valid contract cannot take place.

The communication done by Harvey requesting to buy the land was an offer that Facey did not revert to. The response of Facey only provided the lowest price of the property, without showing any intention to accept the offer of Harvey. The response of Facey was not a valid offer but merely an invitation to offer. Therefore, no valid contract was formed between Harvey and Facey, resisting Harvey’s attempt to acquire the property.
This landmark case established the concept of an “invitation to offer” and the difference between an invitation to offer and offer. Invitation to offer means that it is only a preliminary statement of terms on which they might be willing to involve in a further discussion in relation to a contract.
The acceptance of the proposal must be brought to the notice of the individual who proposes the offer. It is because a legally enforceable agreement requires the acts of the parties to form a contract. The absence of mutual agreement (consensus ad idem) between the two parties is the reason why it does not constitute an offer. Thus, this case clearly explained that an invitation to offer cannot constitute a valid offer and does not form a basis of a valid contract.

Felthouse vs. Bindley (1862)

Facts of the case

In this case, Paul Felthouse, the petitioner, had a conversation with his nephew, John Felthouse, about buying his horse. Paul replied to John by a letter. It was stated in the letter that if Paul did not hear back regarding the horse, he would assume the horse was his.
There was no reply from John’s side to the petitioner’s letter. John was busy at the auctions and informed his auctioneer, Bindley, that he wishes to keep the said horse and asked him to not sell the horse.
The auctioneer (Bindley) disposed of the horse accidentally to someone else.
Felthouse sued Bindley and claimed ownership of the horse.

Issues raised

Whether Paul Felthouse should be considered as the lawful owner of the horse?
Whether the silence or a failure to reject an offer constitute an acceptance?

Judgement of the case

It was held that no contract had been formed because the nephew did not communicate his acceptance to Paul Felthouse. This implies that Paul Felthouse did not become the owner of the horse, and neither was his action accepted by the Court.
It was observed that the intention of the nephew to accept the offer or communicate that intention to the auctioneer was insufficient to create a contract.
It was further held that an offeror cannot require the offeree to reply back to the invitation to the offer. Therefore, silence cannot be regarded as an acceptance of the offer.
It is the right of the offeree to allow the offer to lapse by not accepting the offer within the specified time.
It was also made clear by the Court that there should be an absolute clarity in respect of the communication of acceptance of an offer, so as to proceed towards the formation of a valid contract.

Pharmaceutical Society of Great Britain vs. Boots Cash Chemist (Southern) Ltd. (1953)

Facts of the case

In this case, the shopkeeper (the defendant) had a business in a “self service shop”. The goods were displayed in the shop with the price chits attached. Upon entering, each customer had to pass a barrier and then proceeded to one of the two exits of the shop.
Each exit was equipped with a check desk. In each desk, a cashier managed the items selected by the customers, checked their value and processed the payment for the selected items.
One section of the shop was set aside for drugs which were described as the chemists department. Some of the drugs contained poisons, which must be sold by a registered pharmacist.
A registered pharmacist was on duty in the shop. The items were inspected by the pharmacist and were shown to the cashier. The cashier had the defendant’s authority to restrict any customer from buying drugs from the shop’s premises if he considered it necessary.
One day, two customers followed the outlined procedure and selected drugs which contained some poison.
The plaintiff contended that the display of goods on the shelves constituted an offer by the shopkeeper, which the customer accepted by picking an item.
The shopkeeper argued that merely displaying goods for sale does not constitute an offer but rather an invitation to offer. Therefore, the customer makes an offer to buy by picking up an item.

Issues raised

Whether the offer which initiates the negotiations is an offer by the shopkeeper or an offer by the buyer?

Judgement of the case

The court held that displaying the articles, even in a “self service” store, does not constitute an offer but is merely an invitation to offer. When a customer selected an item and brought the same to the cash desk, it was considered an offer to buy, which the shopkeeper could choose to accept or reject.
It was emphasised by Lord Goddard, C.J., that the mere display of goods for sale is an indication to the public that he is willing to offer the goods. But, it does not constitute an offer to sell. He also observed that this principle is not affected by the “self service scheme”. It would be incorrect to say that the shopkeeper is making an offer to sell every item in the shop to any person who might come and that person can insist on buying any item. A contract is considered to be complete only when the shopkeeper expresses his willingness to sell the item.
It was also observed that when a customer brings any item to the shopkeeper, it does not amount to an acceptance of an offer to sell, but is an offer by the customer to buy, and there is no sale effected until the offer of the buyer is accepted by the acceptance of the parties. The shopkeeper has a discretion to either accept or reject the offer of the customer.
The Court held that displaying medicines to the customers in this is an “invitation of offer, rather than an offer”.

For more details refer to this article Pharmaceutical Society of Great Britain vs. M/s Boots Cash Chemists (Southern) Ltd. (1953).

Bhagwandas Goverdhandas Kedia vs. M/S. Girdharilal Parshottamdas And Co. (1966)

Facts of the case

In this case, an offer was made by the plaintiffs on the telephone from Ahmedabad for purchasing cotton seed cake from the defendants.
The defendants accepted the plaintiff’s offer by telephone at Khamgaon. The defendants did not supply the cotton seed cake to the plaintiff. The plaintiff filed a suit at Ahmedabad and sued the defendants claiming a compensation amount of Rs. 31,150 for the breach of contract.
It was argued by the defendant that the Ahmedabad Court had no jurisdiction to try the case because the contract was completed by the acceptance of on telephone.
The plaintiffs contrarily argued that the contract was completed when the acceptance was communicated to him (he heard the acceptance over the telephone) at Ahmedabad. Therefore, the suit was within the jurisdiction of the Ahmedabad Court.

Issues raised

Whether the contract was considered completed at the place of acceptance or at the place where the acceptance was received?

Judgement of the case

The Hon’ble Supreme Court held that in case of a telephonic conversation, the position of the contract is the same as if the parties to the contract were present in person. A contract is considered to be complete when the offeror gets the acceptance from the side of the offeree, and not when the offeror makes an offer.
The Court held that since the defendant’s acceptance was communicated in Ahmedabad, and the cause of action for the breach of contract arose from the same place, therefore, the case came within the jurisdiction of Ahmedabad Court.
In case of a telephonic conversation, there is a presumption that the parties are present with each other because both the parties to the contract can hear the voice of the other. The instant communication of speech, whether it is an offer, acceptance, rejection or counter-offer, is facilitated by an electronic mode. This does not change the nature of the conversation to resemble communication through post or by telegraph.
In the same case, it has been held by the Hon’ble Supreme Court that communication by fax is also instantaneous and is in fact through, by means of a telephone communication. In case of communication by telex, the normal rule would apply and the contract would be completed only when the acceptance was received by the offeror.
The Hon’ble Supreme Court of India while deciding the case took into account Sections 2, 3, and 4 of the Act of 1872. It was also observed if the place of making the offer is different and the place of acceptance of offer is different, it does not ipso facto form part of the cause of action in case of a breach of contract or for claiming damages. Generally, a contract becomes enforceable by an acceptance of offer and the intimation of acceptance must be by the same external manifestation which is recognized by the law, or is sufficient in the eyes of law.

Kedarnath Bhattacharji vs. Gorie Mahomed (1886)

Facts of the case

In this case, there was an offer made to build a Town Hall in Howrah, Kolkata provided sufficient funds of Rs. 40,000 would be available by way of public subscription.
The Commissioners, including the plaintiff, who was also the Vice-Chairman of the Municipality, entered into a contract with the contractor for building the Town Hall. The subscriptions were received for the required amount of Rs. 40,000.
The defendant was one of the subscribers who promised to pay Rs. 100 by signing his name in the subscription book for the said purpose.
As per the promised subscriptions, a contractor was hired and construction work of the proposed Town Hall began.
The defendant later refused to pay his share of subscription, arguing that he was not legally bound by his promise because of the absence of consideration.
The plaintiff (Kedarnath) as Vice-Chairman of the Municipality and trustee of the Howrah Town Hall Fund, sued the defendant for his non-performance.

Issues raised

Whether the plaintiff’s suit is legally maintainable?
Whether the defendant is under an obligation to pay the subscription amount?

Judgement of the case

The Hon’ble Calcutta High Court held that after entering into a lawful contract and starting the construction work on the faith of the promise was a sufficient consideration to enforce the promise. Therefore, the defendant was bound to pay the amount promised by him.
In this case, persons were asked to subscribe knowing the purpose for which the money was to be applied. They know on the faith of their subscription an obligation was to be incurred to pay the contractor for the work.
It was observed that under circumstances where undertaking is taken through subscription for erecting a building, it may be said that such promise or undertaking amounts to consideration or promise. A promise is also a consideration.
It was held that it was a valid contract and had a valid consideration. The contract contained all the essential elements of a contract which is enforceable by law and created a lawful obligation upon the persons for fulfilling their share of promise.

For more details refer to this article Kedarnath Bhattacharji vs. Gorie Mahomed (1886).

Durga Prasad vs. Baldeo And Others (1880)

Facts of the case

In this case, certain shops were constructed by Durga Prasad, the plaintiff, in a market at the instance of the Collector of that place. Later, Baldeo and other shopkeepers, the defendants occupied one of the shops in the market.
Since the plaintiff had spent money for the construction of the market, the defendants, in consideration thereof, made a promise to pay to the plaintiff commission on the articles sold through their (defendant’s) agency in that market. The defendants did not pay the promised commission.
The plaintiff brought an action to recover the commission from the defendant.

Issued raised

Is the verbal agreement between Durga Prasad and Baldeo legally binding?
Whether the verbal agreement satisfies all the requirements of a valid contract under the Act of 1872, especially relating to consideration?

Judgement of the case

Justices Pearson and Oldfield of the Allahabad High Court held that since the consideration did not come from the side of the defendants (promisors in this case), it did not constitute a valid consideration. For this reason, the defendants had no liability in respect of the promise made by them.
In this case, the doctrine of “rule of law” was applied. This case is related to Section 2(d) of the Act of 1872. Section 2(d) along with Section 25 of the Act of 1872 state that “any agreement without consideration is void”.
Thus, when the legislation itself clears the necessities of a valid agreement, there cannot exist any case which walks against the statutory rules.

Leslie Ltd vs. Sheill (1914) 3 K.B.607

Facts of the case

In this case, the defendant, a minor, represented himself to be a major. He obtained two loans of 200 Pounds each from the plaintiffs, (the money-lenders).
An action was brought by the plaintiffs to recover 475 Pounds, being the amount of loan taken and the amount of interest thereon.

Issues raised

Whether a minor who has fraudulently misrepresented himself as an adult can enter into a contract and be held responsible for repaying money received under that contract?

Judgement of the case

The English Court of Appeal explained the “Doctrine of Equitable Restitution”. This English law states that if a minor has obtained undue advantage in any transaction, he/she is under an obligation to restore back the benefit so received. The said rule applies only to goods or property received by a minor so long as they can be traced, and are still in the possession of the minor.
This doctrine does not apply to money because it is difficult to identify money and to prove whether it is the same money or different one.
In case of goods or property, if they have been consumed or transferred and are not traceable, the doctrine of restitution is inapplicable.
The main object of the doctrine of restitution is to restore the unlawful gains taken by the minor, rather than enforcing the contract. In case a minor is asked to pay money that he earned unlawfully, which cannot be traced and is not in his possession, it results in enforcing the agreement.
The court went further to state that restitution stops whenever the repayment begins, and the principles of equity do not enforce any kind of contractual obligations against a minor.

Taylor vs. Caldwell (1863)

Facts of the case

In this case, Taylor, the plaintiff and Caldwell, the defendant had entered into a contract by which the defendant agreed to let the plaintiff use the music hall for four days for the purpose of giving a series of four grand concerts, and the plaintiff agreed to pay one hundred pounds for each day.
After making the agreement and before the first day of which a contract was to be given, the hall was accidentally destroyed by fire without fault of either party. The destruction was so complete that in consequence, the concert could not be given as intended.
The plaintiff sued the defendant for damages for breach of the agreement.

Issues raised

Whether Caldwell is liable for the damages despite the destruction of the Hall, which made performance of the contract impossible?

Judgement of the case

The musical hall ceased to exist, without fault of either party. It was held that the contract had become void because of the destruction of the musicall hall without any part on the part of Caldwell. The performance of the contract had become impossible and therefore, Caldwell was not liable for the non-performance of the contract.
In this case, it was also found out that the parties contracted on the basis of the continued existence of the music hall at the time when the concerts were to be given, that being essential to their performance.

Mohori Bibee vs. Dharmodas Ghose (1903)

Facts of the case

In this case, the plaintiff-respondent, Dharmodas Ghose, while he was a minor, mortgaged his houses in favour of the defendant, Brahmo Dutt, who was a money-lender to secure a loan of Rs. 20,000 at 12% interest.
A part of this amount was actually advanced to the plaintiff. The money-lender himself did not take part in the negotiations. On his behalf the negotiations were made by his attorney.
While considering the proposed advance the attorney received information that the respondent was still a minor. The day on which the mortgage was executed, the attorney got the minor to sign a long declaration which he had prepared, stating that the minor had attained the age of majority about a month earlier. Relying on this, the money-lender agreed to advance to the minor Rs. 20,000.
The attorney was fully aware at the time the mortgage was executed of the minority of the respondent.
Later, the minor brought an action against the money-lender stating that he was a minor when he executed the mortgage. He prayed for a declaration that the mortgage deed was void and inoperative, and therefore, be cancelled.
It was contended by the defendant that the plaintiff had fraudulently misrepresented his age, and the doctrine of estoppel is applicable against him. In short, the plaintiff should not be allowed to plead that at the time of getting into the contract he was a minor and, therefore, no relief should be granted to the minor in this case.
It was also contended by the defendant that even if the mortgage-deed was cancelled as requested by the minor, the minor should also be under an obligation to return back the amount of loan which he had taken.

Issues raised

Whether mortgage deed in the said case is void under Sections 2, 10(5), and 11(6) of the Act of 1872?
Whether the mortgage initiated by the defendant is voidable?
Whether the defendant was required to return the loan amount received under the mortgage deed?

Judgement of the case

Agreement with the minor was declared to be void as the mortgage execution was carried out by a minor individual, and that the minor could not be asked to repay the loan amount.
The Court found the plaintiff to be a minor at the time of making the agreement and this fact was known to the defendant’s agent. It was held that the law of estoppel as stated in Section 11 of the Indian Evidence Act, 1872, was not applicable in this case, because in this case the statement relating to the age was made to a person who knew the real facts and was not misled by the untrue statement.
It was also contended by the defendant that if the plaintiff’s claim to order the cancellation of the mortgage is allowed, the minor refund the amount of loan taken by him, under Sections 64 and 65 of the Act of 1872. The Privy Council held that restitution of money under Section 64 of the Act of 1872 cannot be granted because a minor’s agreement is absolutely void and not voidable. Similarly no relief was granted under Section 65 of the Act of 1872.
The defendant claimed the refund of the mortgage money under another provision also, i.e., Section 41 of the Specific Relief Act, 1877. The said section gives the court the discretion to order compensation. In this case, justice did not require the return of the money advanced to the minor, as the money had been advanced with the full knowledge of the plaintiff’s infancy. The claim for relief under Specific Relief Act, 1877 was, therefore, disallowed.

Donoghue vs. Stevenson (1932)

Facts of the case

In this case, Mrs. Donoghue’s friend brought her a bottle of ginger beer on 26 August, 1928, from Wellmeadow Cafe in Paisley, Scotland. The bottle was made of dark opaque glass and gave no indication of anything other than ginger beer.
After Mrs. Donoghue had consumed nearly half of ginger beer; she poured the remaining of it into a glass and found that it contained dead, decomposed remains of a snail. This gave Mrs. Donoghue a severe shock and caused her gastro-enteritis.
The case was initially brought before the Second Division of the Sessions Court of Scotland, where Lord Ordinary issued an interlocutor for proof, having found a valid cause of action. However, a subsequent majority interlocutor recalled the earlier decision, resulting in the dismissal of the case.
An appeal was filed to the House of Lords. It was argued by the appellants that the respondents failed in their responsibilities, leading to the accident.
Furthermore, the appellants asserted that the principle of res ipsa loquitur applied in this case. The presence of remains of a snail in the bottle clearly indicated the negligence of the manufacturer.
The appellants also argued that the exceptions to the general principle of negligence were too restrictive and limited.
The respondents argued that the appellant’s claims of injury were overstated and not attributable to the alleged remains of snail but rather to pre-existing health issues.

Issues raised

Was the ginger beer manufacturer aware of a defect in the product that rendered it unfit for consumption, and was this defect concealed from the consumer?
Whether the product be considered inherently dangerous, and did the manufacturer fail to alert the consumer to this risk?
Whether an action for negligence be applicable in this case, given that no contract existed between the plaintiff and the manufacturer?
Whether the defendant owed a duty of care towards the plaintiff or not?

Judgement of the case

The judgement was laid down by the House of Lords in favour of the appellant, Mrs. Donoghue. It was stated that the manufacturer had a duty of care to all end-consumers of their product. The liability of the respondent could arise only if there was no way of intermediate inspection of the product, and thus injury was a proximate cause of breach of duty.
Although the manufacturer did not have a contractual obligation to the appellant (consistent with the doctrine of privity of contract), they still owed a general duty of care to ensure the product’s safety and integrity.
This case laid emphasis on three legal principles:

Negligence: It was established that negligence could only be proved by showing a breach of duty or failure to act as a man of ordinary prudence would, without the need for getting into a contractual relationship, and that this breach resulted in legal injury.
Duty to care: Lord Atkin observed that it is the duty of a manufacturer to take care of the customers who purchase their products. He stated that a manufacturer who sells a product that reaches the final consumer in its original form owes a duty of care towards them. This principle also brought advancements in the field of consumer protection and their rights.
The “Neighbour” Principle: The “neighbour principle” was applied by Lord Atkin, in order to determine upon whom the duty of care is imposed. He defined “neighbours” as those persons who are directly and closely affected by one’s actions. The principle of reasonable foreseeability was used to identify those individuals who could have foreseen the impact of one’s actions upon the other if any injury is caused and for claiming damages.

For more details refer to this article Donoghue vs. Stevenson (1932).

Phillips vs. Brooks (1919) 2 KB 243

Facts of the case

In this case, a person, North, went to Phillip’s (the plaintiff) shop and selected some pearls worth 2,550 Pounds and a ring worth 450 Pounds. He wrote a cheque for a sum of 3,000 Pounds.
While writing the cheque he told the plaintiff that he is “Sir George Bullough” and he also mentioned Sir George Bullough’s residential address. The plaintiff had heard about Sir George Bullough, being a person of credit and he confirmed the address from the directory.
North asked for a favour from the plaintiff, that he wishes to take the ring with himself since it was his wife’s birthday the next day. He told Phillips that he would collect the pearls from him once the cheque gets cleared. The plaintiff gave the ring to North under the impression that he was Sir George Bullough.
North then pledged the ring to Brooks, the defendants, for 350 Pounds, who took the same in good faith and without any notice of fraud.
The plaintiff sued the defendant and claimed the ring back, on the ground that no ownership rights were vested in North because of a mistake regarding his identity.

Issues raised

Whether a mistake of identity, an essential of a contract ipso facto makes the contract void or not?
Whether the defendant is under an obligation to return the ring to the petitioner?
Who would be the rightful owner of the ring in such a situation?

Judgement of the case

Justice Horridge held that the plaintiff was under the impression that the person to whom he was handing the ring was Sir George Bullough. He in fact contracted to sell and deliver it to the person who came into his shop and who was not Sir George Bullough, but a man of the name of North, who obtained the sale and delivery by means of the false pretence that he was Sir George Bullough.
The seller intended to contract with the person present, and there was an error as to the person with whom he contracted although the plaintiff would not have given his consent if there had been a fraudulent misrepresentation. In this case there was a passing of property and the purchaser had a good title.
The agreement was not held to be void. It was not declared void because of the mistake insofar as the plaintiff contracted to sell and deliver the ring to the person who was present in the shop. The contract was only of a voidable nature on the ground of fraud.
It was also noted by the court that when a person receives some goods under a voidable contract and he further transfers the goods before the contract has been avoided, to a bona fide transferee, acting in good faith and having no notice about the defective title of the transferor, the transferee gets the title. Therefore, the defendants had acquired a good title in this case (Section 29) of the Sales of Goods Act, 1930).
The court ruled in favour of the defendant and observed that the claimant intended to sell the ring to the man in front of him, that is a face-to-face contract, whoever that man turned out to be.

Dunlop Pneumatic Tyre Co Ltd. vs. Selfridge & Co (1915)

Facts of the case

In this case, Dew & Co. entered into a contract with the appellants (Dunlop Co.) to purchase tyres and other goods from them at the price in their list, in consideration of receiving certain discounts. Dew & Co. also undertook not to sell the goods below the list price, except to the persons who were engaged in motor trade.
They agreed further that when they sell any of the goods to motor traders below the list price, they would, as agent for the Dunlop Co. on that behalf, obtain a written undertaking from the trader that would similarly observe the Dunlop Co. list price, and would forward such undertaking to the Dunlop Co.
The goods were sold by Dew & Co. to the defendants (Selfridge & Co.) who had agreed in writing not to sell the tyres to any private customer below the list price. Selfridge & Co. also undertook to pay five pounds to Dunlop Co. by way of liquidated damages for each sale in breach of the list price.
Dunlop Co. sued Selfridge & Co. for obtaining injunction and damages for breach of the agreement alleging that Dew & Co. acted as their agents in making the agreement with Selfridge & Co.

Issues raised

Whether it is possible for Dunlop & Co. to recover damages as per the terms of the agreement entered into between Dew & Co. and Selfridge & Co.?

Judgement of the case

It was held by the House of Lords that there was no contract between the Dunlop Co. & Selfridge Co. Under the law of England, certain principles are fundamental. They are as follows:

Only a person who is a party to a contract sues on it; and
If a person wants to enforce a contract not under seal, it is necessary that some consideration must have been provided.

In order to entitle him to sue, he must have given consideration either personally, or through the promisee, acting as his agent in giving it.
This case remains good law for the proposition that only a person who is party to a contract can sue on it.
In respect to the privity of contract, it was observed by the court that only the parties to a contract can sue each other in case of a breach of the contract entered, and the only exception to this general rule will be in case of a principal-agent relationship where the agent was unnamed by the party under whom he/ she was appointed.

Hadley vs. Baxendale (1854) 9 Exch 341

Facts of the case

In this case, Hadley, the plaintiff, had a business mill at Gloucester in England. All the work done in the mill was done with the help of a steam engine. The mill of the plaintiff had been stopped because of the breakage of a crankshaft. The broken crankshaft was sent to the makers at Greenwich in England for preparing the new one.
Hadley sent the crankshaft to Pickford & Co. (a firm of common carriers). Pickford & Co. was represented by Baxendale. The only information given to the carriers was that the article to be carried was the broken shaft of a mill and the plaintiffs were the millers of that mill. Baxendale was never told that Hadley would lose profits if delivery to the engineers at Greenwich was delayed.
The carriers promised to deliver the shaft at Greenwich the next day and took in consideration two pounds for doing this task. The crankshaft was then sent by the carriers by canal rather than by rail. Due to this negligence of the common carriers there was a delay of five days. As a result, the new shaft was delivered late to Hadley.
This delay led to the mill remaining stopped for a longer time than it would have, had the shaft been delivered at Greenwich without any delay.
The plaintiffs brought an action owing to the negligence of the defendant to recover damages for the loss of profits arising due to the delay.

Issue raised

Whether Baxandale was under an obligation to compensate for the loss resulting from the non-operation of the mill?

Judgement of the case

The Bench ruled that Hadley could not recover the lost profits from Baxandale because the mill’s shutdown was not anticipated as a consequence of the breach of contract. Hadley did not indicate at the time of contracting with Baxandale that the mill would be non-operational until the new shaft was installed. A party to the suit cannot be held responsible for the losses incurred that were not reasonably known at the time when the parties entered into the contract.
The judges opined that in other cases, a mill owner generally has a spare part to keep the mill running or the mill remains operational in the absence of the specific component. Given the critical nature of the component, Hadley should have informed Baxandale about the potential losses if the delivery was delayed. It is not reasonable for a party to expect to anticipate such specific consequences without being informed explicitly.
Justice Sir Edward Hall Alderson gave an opinion relating to damages caused by a breach of contract. He opined that when two parties enter into a contract and one party breaches any or all of the terms of the contract, the damages owed to the other party should be those that can be reasonably and fairly be considered as either arising naturally from the breach, according to the usual course of events, or as those that both parties could have reasonably anticipated as a result of the breach at the time when the contract was made.
The rule, as stated above, talks about two types of damages, namely:

General damages: These are the types of damages that may fairly and reasonably be considered arising naturally, i.e., according to the usual course of things. The parties to the contract can readily anticipate as the natural result of a failure to fulfil the contractual obligations and may be claimed by the non-breaching party; and
Consequential damages: When entering into a contract each party may have various types of interests that are not always shared or known by the other party. In such situations, a contractual breach can cause a number of negative effects on the parties that, while not directly resulting from the breach, are still consequential. Consequential damages are made to compensate for any type of indirect or remote losses. These damages cannot be quantified easily, as compared to general damages.

The English Court in this case determined Consequential damage over breach of contract. The non-breaching party can only claim consequential damages, if both the parties to the contract were aware of the potential losses at the time of contract formation. This rule is based on the knowledge of the parties at the time of entering into a contract and is evaluated by the standards of a reasonable person. It intends to limit the liability of the parties when a contractual breach takes place.
The provision contained in Section 73 (para 1) is similar to the rule contained in the above stated judgement in Hadley vs. Baxendale.

Powell vs. Lee (1908)

Facts of the case

In this case, Powell, the plaintiff, was a candidate for the headmaster position. He applied for this post and was selected for this post as well. By three votes to two the members of the Board passed a resolution that the plaintiff should be appointed.
No communication was made by members officially as to communicating the results of the voting of the plaintiff.
One of the members of the Board who had not been authorised to communicate this decision, acting in his individual capacity, informed Powell about his selection for the post.
Subsequently, the Board of Managers met again and decided to cancel the appointment of Powell and appoint another candidate Parker, in place of Powell.
A lawsuit was filed by Powell, against both Lee and the Chairman of the Board of Managers for contractual breach.

Issues raised

Whether a contract existed between both the plaintiff and the defendant, for appointing the plaintiff as headmaster?
Whether the Board of Managers had conducted a breach of contract or not as stated by Powell?
Whether an unauthorised person is capable of communicating the details regarding the contract?

Judgement of the case

The King’s Division Bench held that the resolution passed by the Board of Managers was not communicated to Powell by them, or any authorised person on their behalf. It cannot give enforcement to a contract. Therefore, the action brought by Powell declared a failure.
It was held that for a valid acceptance, it must be communicated and carried out by the person acting in authorised capacity. It was determined by the court that the breach of contract could not be challenged, as the acceptance was never communicated. Therefore, the issue of breach of contract did not come into question.
For a valid acceptance, it is essential that there is an authorised person who conveys the same to the plaintiff. Powell did not have any defence against the Board of Manager’s decision. The information was not yet officially communicated to him.
The court stated that in order to constitute a valid contract, it has to be informed to the offeree by an authorised entity. The Board Members in this case were the persons who had the authority to do so. Therefore, it was held that there was no contract in action in the first place which could be considered as breached.
The plaintiff’s plea for the breach of contract was dismissed.

Carlill vs. Carbolic Smoke Ball Co. (1893)

Facts of the case

In this case, the defendants made an advertisement for their product “Carlill Smoke Ball”. This product was a preventive remedy against influenza. In the advertisement they offered to pay a sum of one hundred pounds as reward to anyone who contracted influenza, cold or any disease caused by catching a cold, after having used the smoke ball three times a day for two weeks, in accordance with the printed directions. They also announced that a sum of one thousand pounds had been deposited with the Alliance Bank to show their sincerity in the matter.
Mrs. Carlill, relying on the advertisement, purchased a smoke ball from a chemist. She used the product as per the prescribed directions laid down, but still she caught influenza. She sued the defendants to claim the reward of one hundred pounds advertised by them.
She was denied the claim of reward on the ground that they did not intend the advertisement to act as an actual offer. It was contended by the defendants that their offer was neither legally binding nor a valid contract. They also argued that the language used in the advertisement was too vague to constitute a promise or a contractual agreement. Additionally, they also argued that the advertisement lacked a specific time limit and there was no way to verify whether the consumers had used the carbolic smoke ball correctly, as per the instructions provided.
They held their offer to be not legally binding valid because a fundamental requirement of a contract is the communication of acceptance, which Carlill had neither expressly or impliedly communicated, nor had she done any other act to show her acceptance. The Company additionally stated that the advertisement was a mere marketing strategy, and they had no intention to create a contract when they made the offer to the public at large.

Issues raised

Whether the contract had a binding effect on the parties to the suit?
Whether a formal notification of acceptance was required from the claimant?
Whether it is sufficient to accept the terms of offer to form a valid contract?
Whether there was any consideration provided by the claimant in exchange for the one hundred pounds reward offered by the Carbolic Smoke Ball Company?

Judgement of the case

The defendant’s contentions were rejected by the court. The court held that the protection from influenza was during the time the smoke ball was being used. The offer was both sufficient and definite. It was stated in the advertisement that one thousand pounds was deposited at the Alliance Bank for the purpose of reward. Therefore, it could not be said that the statement that one hundred pounds would be paid was intended to be a mere puff. The advertisement was intended to be understood by the public as an offer which was to be acted upon.
It was held that it was an offer made to the whole world which was to convert into a contract with anybody who came forward and performed the condition. The advertisement done by the defendant constituted an offer. The defendants became liable to anyone before it was retracted from performing the conditions of the advertisement.
Thus, an offer need not be made to anyone in particular. In this case, the offer was made to the whole of the public, and the plaintiff being a member of the public had a right to accept the advertisement’s conditions after complying with the terms of the advertisement.
It was also held that where a person makes an offer to another person, expressly or impliedly, intimating a particular mode of acceptance sufficient to make the contract binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance. In case the person making the offer, expressly or impliedly, intimates his offer it will be sufficient to act on the performance of these conditions as sufficient acceptance without notification. Thus, notice of acceptance of the offer was not required in this case.
Lastly, it was held that there existed a consideration for the promise in the offer. There was a request to use the smoke ball in the offer. Inconvenience caused to one party at the request of another is sufficient enough to create a consideration. It is a consideration that the plaintiff took the trouble of consuming the smoke ball. The defendants also received a benefit additionally. It was because the consumption of the smoke ball promoted their sale.
Hence, Carlill was allowed to recover from the Carbolic Smoke Ball Company the reward of one hundred pounds.

For more details refer to this article Carlill vs. Carbolic Smoke Ball Co. (1892).

Chinnaya Rau vs. Ramayya (1882) I.L.R. 4 Mad. 137

Facts of the case

In this case ‘A’, an old lady, granted an estate to her daughter (the defendant) with a direction that the daughter should pay an annuity of Rs. 653, to ‘A’s’ brother (the plaintiff).
On the same day, the defendants made a promise with plaintiffs that she would pay the annuity as directed by ‘A’. The defendant failed to pay the stipulated sum. In an action against her by the plaintiffs she contended that since the plaintiffs themselves had furnished no consideration, they had no right of action.

Issues raised

Whether the rule of privity applies in this case?
Whether the defendant is obligated to pay an annual amount to the plaintiff in exchange for a property gift from ‘A’?

Judgement of the case

The Hon’ble Madras High Court held that the consideration was furnished by the defendant’s mother and that constitutes a sufficient consideration to enforce the promise made between the plaintiff and the defendant.
It was noted by the court that ‘A’ entered into a contract with her daughter, making the plaintiff a third party to the contract. Since consideration was indirectly provided by the mother to the daughter through the gift of the property, the daughter was under an obligation to pay the agreed amount to the mother’s brother.
The court relied on the precedent set in the English case of Dutton vs. Poole (1688) and held that, in India, there is no application of the rule of privity of consideration. It means that third parties to the consideration can sue for the enforcement of contracts.
The court also referred to the provisions of Section 2(d) of the Act of 1872. It provides that consideration can be provided either by the promisee or by any other person. On the basis of this provision, the court directed the defendant to pay the sum to the plaintiff.

For more details refer to this article Chinnaya Rau vs. Ramayya (1882)

Satyabrata Ghose vs. Mugneeram Bangur & Co., And Another (1953)

Facts of the case

In this case, the respondent company was an owner of a large tract of land located near the vicinity of lakes in Greater Calcutta. The Company started a scheme for the development of this land for residential purposes and in furtherance of the scheme, the entire area was divided into a large number of work plans of the company. It seemed to be entering into agreements with different purchasers for sale of these plots of land and accepting from them only a small portion of the consideration money by way of earnest money at the time of the agreement.
The company undertook to construct the roads and drains necessary for making the lands suitable for buildings and residential purposes. As soon as they were completed, the purchasers would be called upon to complete the conveyance by payment of the balance of the consideration money. The appellant entered into a contract with the company for purchasing a plot of land covered by the scheme. He paid Rs. 101 as earnest money. But before anything could be done, a considerable portion of the land was requisitioned to be taken by the government for military purposes during the Second World War.
The company gave a notice to the purchaser to treat the contract as cancelled because the performance of the contract became impossible on account of supervening circumstances. The purchaser refused to accept the contentions of the company and filed a suit in 1946 against the defendant company.
The appellant contended the following :

(a) The doctrine of English law relating to frustration of contract has no application in India in view of the statutory provision contained in Section 56 of the Act of 1872;

(b) Even if the English law applies, it can have no application to contract for sale of land;

(c) On the basis of the facts and circumstances of the case, there was no frustrating event which could be regarded to have taken away the basis of the contract or rendered its performance impossible.

Issues raised

Whether the contract for sale of land was discharged and came to an end by reason of supervening circumstances which affected the performance of the material part of the contract?
Whether the contract was frustrated under Section 56 of the Act of 1857?
Whether the appellant had the locus standi to bring the suit against the respondent?

Judgement of the case

The Hon’ble Supreme Court did not accept the first contention of the appellant because of the doctrine of frustration recognised under English law. It does not come under the ambit of Section 56 of the Act of 1872.
The second contention was rejected because in India the contractual obligations of the parties to the contract for sale of land are the same as in case of other ordinary contracts.
The court accepted the third contention of the appellant and observed that the requisition orders were of a temporary nature. It was held that the temporary requirement of the land by the government does not make the contract for sale of land void by reason of supervening impossibility.
For the purpose of deciding cases in India, the only doctrine applicable is that of supervening impossibility or “impossible” in its practical sense and not in its literal sense. However, it must be borne in mind that Section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intentions of the parties.
Where the contract in itself contains, implicitly or expressly, a term according to which the contract would be discharged, in such cases the contract is governed by the provisions of Section 32 of the Act of 1872 or similar other related provisions of the Act. Although in English law, these are treated as cases of frustration. The result was that the appeal was allowed.
In a number of cases, the doctrine of frustration is applied not on the ground that the parties themselves agreed to an implied term which operate to release them from the performance of the contract. The relief is given by the courts on the ground of subsequent impossibility and when it finds that the whole purpose or basis of contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement.

Haji Abdul Rehman Allarakhia vs. The Bombay and Persia Steam Navigation Co. (1892)

Facts of the case

In this case, the plaintiff, Abdul Rehman, required a steamer to sail from Jeddah “fifteen days after the Haj”, in order to convey pilgrims returning to Bombay. He chartered a steamer from the defendant in June, 1891, for that purpose.
The defendants chartered their steamers by English dates. The date inserted in the charter-party was 10 August, 1892 (fifteen days after the Haj). The said date was given by the plaintiff, under the impression that it corresponded with the fifteenth day after the Haj.
The defendants were unaware about the subject, and contracted only with respect to the English date. The date of 19 July, 1892, and not the date of 10 August, 1892, corresponded with the fifteenth day after the Haj.
In March, 1892, the plaintiff found his mistake relating to the date and brought a suit for rectification with the charter-party by inserting the correct date, i.e., 19 July, 1892, instead of the erroneous date of 10 August, 1892.

Issues raised

Whether the date 10 August, 1892, was inserted by mistake in the memorandum of charter?
Whether such a date was not inserted by the direction of the plaintiff?
Whether the said date is not the true date?
Whether the plaintiffs are entitled to any and what relief in this suit?

Judgement of the case

The Hon’ble Bombay High Court held that the agreement was one for the 10 August, 1892. As that date was a matter materially inducing the agreement, there can be no rectification, but only cancellation, even if both the parties were under a mistake.
It was further held that it was not a bilateral mistake. Instead it was a mistake on the part of the plaintiff only. Therefore, there could be no rectification. A plaintiff seeking rectification must show that there was an actual contract antecedent to the instrument sought to be rectified, and that such contract is inaccurately represented in the instrument.

Conclusion

The Indian Contract Act, 1872 is a dynamic and an evolving area of law. The contract law is constantly being shaped by various judicial pronouncements and interpretations. These landmark cases show that contract law in India has become more robust and adaptable to the changing economic and commercial conditions. The judiciary has consistently sought to balance the strict letter of the law with the demands of justice.

These cases lay down certain important precedents that help in determining how the contracts are to be approached and interpreted in future, also emphasising on the need of contractual freedom simultaneously reminding the opposite party of their contractual and legal obligations. They not only show the importance of contract law, but also its flexibility in dealing with challenges which come up frequently before the court of law.

Moreover, it is important for the students of law to be familiar with these contract law cases, as they often asked in a number of competitive law examinations. Although the list of twenty cases provided in this article is not exhaustive, they surely are the foremost ones to be learned along with the contract law.

Frequently Asked Questions (FAQs)

What is a contract?

Section 2(h) of the Contract Act, 1872 defines a contract as an agreement enforceable by law. According to Sir William Anson, a contract is a legally binding agreement made between two or more persons, by which rights are acquired by one or more to acts or forbearance on the part of the other or others.

What is the Contract Act, 1872?

The Contract Act, 1872, defines and regulates the formation, enforcement and frustration of contracts. It establishes a legal framework for contractual obligations and remedies at the time of a breach of contract. The date of enactment of the said Act is 01 September, 1872.

Can all agreements be termed as contracts?

Section 2(e) of the Act of 1872 defines “agreement” as every promise and every set of promises, forming the consideration for each other. Section 2(h) of the Act of 1872 defines “contract” as an agreement enforceable by law. It can be said that all agreements are not contracts. An agreement, in order to become a contract, must fulfil certain conditions which are the essential elements of a valid contract.

What is a void agreement and a voidable contract?

A void agreement is not legally enforceable from the beginning and has no legal effect. For example, illegal agreements. Section 2(g) defines a void agreement.

A voidable contract is initially valid but can anytime be declared void by one party due to factors like misrepresentation or coercion. The affected party by such an act has the right to enforce or cancel the contract. Section 2(i) defines a voidable contract.

Are oral contracts enforceable?

Oral contracts are enforceable. The drawback of non-registered or oral contracts is that it is often harder to prove as compared to written and registered contracts. Some types of contracts such as those involving financial transactions should only be in writing.

What is meant by performance of a contract?

Performance of contract refers to the fulfilment of the terms and conditions as agreed upon by the parties to the contract. It can be complete or partial. Failure to perform contractual obligations as agreed between the parties, can result in breach of contract.

What is a unilateral contract?

A “unilateral contract” is a type of contract where one party makes a promise in exchange for the performance of an act by the other party. For instance, in a reward contract, the payment is promised for the return of a lost item.

What is the difference between contractual and substantial performance of a contract?

Contractual performance refers to conforming with the contractual obligations. Substantial performance occurs when a party has completed most of the obligations of the contract but has not followed the minor terms of the contract. The party to the contract is still entitled to the payment, but the deductions might be done for incomplete contractual performance.

References

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