This article has been written by Arpita Tripathy, pursuing BA LL.B (Business Honours) at KIIT School of Law. This is an exhaustive article that analyzes the landmark case of Lalman Shukla versus Gauri Dutt.
A contract is one of the basic elements of everyday transactions. Wherever we go, we encounter a contract in our daily life. From buying a bar of simple chocolate or riding on a bus to the employment agreement, everywhere a contract is entered into. The contract is the basis of all financial transactions. Knowingly or unknowingly we all enter into contracts. Contracts can be either written or oral. In India, the contracts are governed under the Indian Contract Act, 1872. In this article, we would be dealing with the case analysis of Lalman Shukla v. Gauri Dutt and along with it we would examine the aspects of the contract which are, offer and acceptance.
The case, Lalman Shukla v. Gauri Dutt, was dealt with in Allahabad High Court after the lower court dismissed the claims of the plaintiff. In this case, the nephew of the defendant departed from his home secretly and no one was able to find him. The defendant sent his servants to different places to search for his nephew. All the servants went to Haridwar to search for the nephew of the defendant. The defendant for their passage handed over some money for travel and spent it on their other expenses.
The Plaintiff acted as the munib of the firm who was sent to Haridwar to search for the defendant’s nephew. Meanwhile, the defendant issued handbills claiming that if anyone finds his nephew and brings him back then he would be rewarded with Rs. 501. In Haridwar, the plaintiff found the nephew of the defendant and communicated the same to the defendant and brought him back to Cawnpore. The plaintiff on his return was rewarded with two sovereigns and twenty rupees. The plaintiff satisfied with the reward started with his usual daily work.
After 6 months, the defendant removed the plaintiff from work due to some dispute. Thereafter, the plaintiff claimed Rs. 499 as the reward for tracing down the defendant’s nephew. The plaintiff alleged that while leaving for Haridwar, along with the expenses and other gifts, he was also promised to be paid Rs. 501. The main claim of the plaintiff against the defendant was that he did not provide him with a reward even after performing the given task.
Questions of law
- Whether the decision given by the lower court is valid?
- What kind of offer did the defendant claim to have made?
- Can the act of the plaintiff be termed as a valid acceptance of the offer made by the defendant?
- Is this a valid contract?
- Whether the reward of Rs. 499 claimed by the plaintiff should be provided?
The contention of the parties
The plaintiff argued that when he performed his part which was the essential element to claim reward then it was an implied acceptance of the general offer made by the defendant. The terms of the offer need not be communicated to the plaintiff for the contract to be completed. It was also contended that the handbill containing the offer was sent to the plaintiff. The plaintiff relied on two landmark judgments that supported their claims and had declared that the performance of the act was associated with the reward.
They cited the case of Gibbons v. Proctor, where the Superintendent of Police offered a reward to anyone who provides information regarding a criminal. A police officer did not know about the reward but provided some useful information to the superintendent through a third-party. He came to know about the reward before the information reached the Superintendent. He claimed his reward and the court held that reward should be provided. This case set a precedent to the contention that an offer can be accepted without having its knowledge.
The case, Wiliams v. Crawardine, has also set the same precedent that the knowledge of a general offer is not necessary for its acceptance. Plaintiff cited section 8 of the Indian Contract Act which mentions that if the party to the contract performs the conditions mentioned in the offer then it is valid acceptance of the offer.
The formation of an agreement is based on the acceptance of the offer. If the petitioner did not have any knowledge about the offer then even no acceptance can be there. The petitioner had no idea of the reward offered by the defendant because the handbill was released after the plaintiff went for tracing the nephew. The defendant relied on the case, Fitch v. Snedekar, where the whole case revolved around finding the suspect or culprit of a murder. Fitch came forward and helped to reveal the identity of the culprit. There was a reward offered by the Governor to anyone who provides information about the same. Fitch did not know about the reward but subsequent to providing information to the police he got to know about the reward. He filed suit for claiming a reward. However, the court said that there can be no acceptance of the offer without its knowledge.
Laws and concepts which were considered during the case
- General offer;
- When communication of general offer is completed;
- Implied acceptance under section 8;
The Allahabad High Court correctly decided on the case, that the acceptance of the offer as was claimed to be fulfilled by the plaintiff was not a complete one because the plaintiff had no information about the hand-bills. For the acceptance of an offer, knowledge of the offer is essential. The handbills were advertised after the plaintiff went for tracing the defendant’s nephew in Haridwar. The act of the plaintiff to search for the defendant’s nephew was not because of the reward offered in the hand-bill but was because it was his duty to search for him. He already had a subsisting employee obligation to be fulfilled.
The offer and agreement cannot also be said to be valid because the plaintiff did not do any new act for receiving the award. The act that the plaintiff performed was a part of employment and not a part of the agreement for reward. There was no consideration on behalf of the plaintiff for which he can claim the defendant’s reward. There was no fresh benefit for the defendant. No doubt the case cited by the plaintiff supported their contention but their judgments have been criticized.
Agreement and contract
When two or more parties enter into an agreement which they intend to enforce legally or in other words, they would hold each other legally liable in case of non-compliance with the terms of the agreement, then such an agreement is called a contract. All contracts are agreements but not all agreements are contracts. This can be understood with the help of the definitions under section 2 of the Indian Contract Act. The agreement is an understanding between parties regarding the agreed terms as to which has to be complied with by the parties.
Section 2(h) has defined a contract as any agreement which is legally enforceable. When a person promises to do something in exchange for consideration then it is called an agreement. When a person offers to do or abstain from doing something and the offer is accepted by the other party then such an offer becomes a promise. An offer is a willingness shown by the offeror, to do any act or omission, to the offeree with an intention to receive assent to the offer. Therefore, a contract can be said as an accepted offer in exchange for consideration with an intention to legally bound the parties with the agreement.
An agreement will only become a contract when there is legal enforceability attached to it. When two parties enter into an agreement without any intention to take the matter to court if one breaches the performance then such an agreement cannot be termed as a contract. To see the legal enforceability both intention and essential elements of the contract have to be taken into account.
Illustration: If A invites B to dinner but later does not show up then B cannot go to the court for the performance of the agreement. Here, the intention of the parties is to be seen.
Case law: Balfour v Balfour is one of the landmark cases which explains legal intention as the basis of a contract. Here, both husband and wife visit England for vacation. But because of his wife’s health, she was recommended to stay back in England. Husband had worked in Ceylon and had to return back. Before going back to Ceylon, he promised his wife to send her a certain sum of money every month. For a few months the husband sent his wife money, however, the relationship became strained and he stopped sending her money. The wife sued her husband and claimed breach of contract. However, the court held that this is just a domestic agreement between husband and wife and this cannot be legally enforced because of lack of intention.
Competency to contract
Section 11 of the Indian Contract Act specifies who is not competent to enter into a contract. If a person is minor, or is of unsound mind or is disqualified from entering into a contract then such people are not considered to be competent to contract. A person is a minor if he/she has not attained 18 years of age. If the guardian has been appointed by the court then the age of majority is 21 years. However, minors can be beneficiaries of a contract. The section does not clarify if the contract entered into by the minor is voidable at the option of the minor or void from the starting.
Section 12 lays down the laws regarding people with unsound minds. When a person does not understand the implications or his rights or liabilities under the contract due to mental illness while entering into the contract then he is not competent to enter into a contract. If a person is lunatic for most of the day but is in a correct state of mind for 2 hours then the person can enter into a contract within those 2 hours.
Case law: The landmark case of Mohori Bibee V. Dharmodas Ghose is a landmark case that explains the competency to contract of a minor. Dharmodas Ghose was a minor who mortgaged his property in favor of Brahmo Das for a sum of Rs. 20,000. On the same day morning, before Dharmodas Ghose entered into the contract, his mother had informed Brahmo Dutt about the age of the respondent. However, he entered into the contract. Later, Dharmodas Ghose and his mother sued Brahmo Dutt and sought to revoke the contract on the basis that while entering into the contract, Dharmodas Ghose was a minor. It was held by the Privy court that the contract is void from the very beginning (void ab-initio).
While entering into a contract, free will is the basic element. Every contract should be based on true and genuine consent which should not be violated. If consent is forced then it is not a valid one. A fair contract is one that is entered into with valid consent. Section 14 of the Indian Contract Act has defined free consent as consent that is free of coercion, duress, undue influence, fraud, misrepresentation and mistake. When these factors influence one of the parties to enter into the contract then the contract can be declared as void by the party whose consent is a forced one.
Coercion has been defined under section 15 of the Indian Contract Act. According to the section, any act or omission which is forbidden under the Indian Penal Code or detaining, threatening or to detain any property is said to be coercion. Even when a person threatens to commit suicide even then the act is said to be coercion. Any consent given under coercion is a coerced consent. Putting a gun on the head and asking to enter into a contract is one of the classic examples of coercion. Coercion can be applied to not only the person entering into the contract but can also be applied to even a stranger to the contract. For proving coercion it is not important to prove immediate danger.
Under Indian law, there is no difference between coercion and duress. However, according to the English law both coercion and duress are two different terms. Duress is also an act that is forbidden by the penal code in order to force a person to give consent. But, duress is when the act is on the person himself or his family members. There has to be an immediate threat of violence for duress to be proved. It has to be noted that coercion is a wider term than duress. Coercion also includes a threat to detain property, the threat need not be only against the person who has to enter into the contract. Further, it is not mandatory to prove the threat of immediate violence for an act to constitute coercion.
Undue influence has been defined under section 16 of the Indian Contract Act. When one of the parties to the contract is forced to consent to the contract because of the relation between the parties. To prove undue influence, both the parties should have a prior relation and one of the parties should have authority over the other or one of the parties is dominating the will of the other party because of his/her mental illness or bodily distress. Section 16 has also prohibited any unconscionable contract. An unconscionable contract means a contract where the terms of the contract are biased towards and favors only one of the parties and discriminate against the other because of its weaker position.
Case law: Wajid Khan v. Raja Ewaj Ali Khan is a case of unconscionable contract. In this case, an old illiterate woman entered into a contract without any proper consideration. Court held that the contract just took advantage of the position of the woman without anything in her favor.
Misrepresentation has been defined under section 18 of the Indian Contract Act. When a party misrepresents a material fact of a contract then it is called misrepresentation which is voidable at the option of the party who has given the consent under a misrepresented material fact. Misrepresentation means that the party has falsely represented a fact which he himself had no knowledge about. Even when a person innocently wrongly represents but such faulty representation benefits the person making it then it is called misrepresentation.
Fraud has been defined under section 17 of the Indian Contract Act. Fraud means asserting a material fact about the contract which the person asserting it knows to be false. The active concealment of any material fact is also fraud or a promise made without any intention to fulfill the same is also a fraud. When a party keeps a mere silence for any material fact then it is not fraud. Passive concealment of facts is not fraud. But if the person is asked about a material fact but he chooses to actively conceal a material fact then the active concealment would be taken as fraud.
When there is any act or omission which is done in order to deceive the other party then such an act or omission is called fraud. The main difference between misrepresentation and fraud is that in misrepresentation, the person innocently wrongly represents the material facts of the contract but in fraud, the person knowingly tries to deceive the other party. Fraud is only said to be done when the intention is to deceive.
Mistake and its consequence have been stated under section 20 of the Indian Contract Act. Misrepresentation, fraud, undue influence, duress and coercion where the commission of the same would render the contract voidable. However, a mistake would lead to a void contract. Mistake means when both the parties are under a false impression regarding a material fact of the contract. Thus the essential element to constitute a mistake is that both the parties should be under a mistaken belief about a material fact of the contract and the belief should be for a matter of fact. If the belief is regarding a matter of law then the contract will not be voidable.
A contract is said to be formed when a party offers to another party and such an offer is accepted by the other party. Without offer, acceptance and consideration no contract can be formed and the whole process of entering into a contract begins with an offer. A person making an offer is called an offeror and the person accepting the offer is an offeree. An offer can only turn into an agreement when there is a reciprocal acceptance. After acceptance has been communicated no revocation of the offer can be made. If the offer is revoked before the acceptance of the other party then an acceptance after revocation would not make a valid agreement.
For example, if A offers to sell his car at Rs. 7,00,000 to B, but before acceptance of B, A revoked the offer then an agreement cannot be formed. If B accepts the offer before the revocation then the offer cannot be revoked by A. The offer must be clearly communicated to the person intended to have a legal contract with. There must be a willingness to comply with the offer and the offer should not be mere statements without any intention. There are different essential elements of a valid contract which will be discussed below. Offers are of different types, express offer, implied offer, general offer and specific offer.
Offer and invitation to offer
Offer and invitation to offer are not the same terms. When a shopkeeper displays his items in his showroom then that is not an offer but an invitation to offer. When a person displays goods in his shop he does not intend to make an offer to any specific person but it is an invitation to offer to the general public to offer the best deal for his goods which he would accept.
For example, if a shop displays, “Flat 35% off on all goods” then it is an invitation to offer and not an offer itself. Therefore, advertisements are not offers but an invitation to offer and no agreement can be formed without acceptance of the shopkeeper.
Essential elements of a valid offer
Communication of the offer
Communication of an offer is important to make it a legally valid one. If an offer has not been communicated then it can be revoked. It is the duty of the offeror to clearly communicate the terms of the agreement to the offeree. If some of the terms of the agreement have been communicated but the others have not been communicated then it will depend on the facts and circumstances of the case if the offer is to be considered as a valid offer or not.
If some terms of the agreement have not been communicated by the person making the offer and those terms are in dispute between the parties then the offeree is not bound by those terms which were not communicated. It has to be established that the offeror made sufficient efforts to communicate the terms of the contract. Sometimes the communication of the terms of the contract is sometimes not clear-cut and there is some ambiguity in it.
Case law: In the case, Thomson v. L.M & S Rly. a ticket was bought by Thomson. There were certain conditions mentioned at the back of the ticket, one of the conditions mentioned at the back of the ticket was that the railway company will not be liable for any personal injuries of the passengers. On the front page of the ticket it was clearly written, “for conditions see back”. However, the plaintiff claimed that he could not read and therefore, not liable under the contract and claimed damages for his injury caused because of a railway accident. The court held that Thomson was bound under the contract because the railway company had made enough attempts to communicate the terms of the contract.
For an offer to be a valid offer there has to be a willingness of the party who is offering to enter into an agreement to do or abstain from doing any act. The willingness should be to bind the parties in a legal relationship with each other. If there is no legal intention to enter into an agreement then it cannot be termed as a contract because of lack of legal enforceability. The case, Balfour v Balfour which has been discussed above, is a perfect example of an offer to enter into an agreement without any intention of legal implications, in case of breach of contract.
Must be certain or definite
The person offering another person to enter into an agreement should clarify the terms of the contract clearly. If the terms of the agreement have not been defined then the offer is not valid. For example, if A offers to sell his bicycle without mentioning anything about price, specifications, etc., in return of consideration to B, even then the offer is not a valid one because of lack of specifications.
Types of offers
General offers are the offers that are not made to any certain person. It is a type of offer that is to the public at large. However, the offer will not be converted into an agreement when any person accepts the offer. Once an offer has been accepted by someone then no other person can accept the same offer, in simpler terms, once an offer has been accepted then the offer is exhausted. If A advertises in the newspaper for the reward to any person who finds his lost diamond brooch then he would reward the person finding it with Rs. 3000. If B finds it and returns the brooch then he would be eligible for the money under the general offer made by A.
Case law: In the case Carlill v. Carbolic Smoke Ball Co. an advertisement was displayed in the newspaper claiming that if anyone contracted influenza even after having the medicine by Carbolic Smoke Ball Co. would be paid 100 Pounds. For showing their sincerity towards the offer they also claimed that they have deposited 1000 Pounds in Alliance Bank. Mrs. Carlil took the medicine but suffered from influenza and hence, sued the company.
The company claimed that the money was just a part of an advertisement and no reasonable man would have taken it seriously. However, the Court held that the defendant attempted to show sincerity by depositing 1000 Pounds in the Bank. The company also claimed that notification of acceptance should have been made to them but the Court said that the offer was a general offer and anyone can accept it. A general offer needs no notification of acceptance.
Specific offers are the ones that are made to a certain person, personally. The acceptance of the offer can only be made by that certain person only and not anyone else. For example, A offers to sell his bike to B, the acceptance can only be made by B and not anyone else.
Case law: In the case Boulton v. Jones, Jones offered to buy 50 feet of leather from Z. Z had accepted the offer. However, later the business of Z was taken over by Boulton. Boulton thereafter supplied the leather as was offered by Boulton. Jones refused to take the delivery of the leather and claimed that the offer was made to Z personally and not Boulton. It was held by the court that the offer can only be accepted by Z and not B as it was directed towards Z.
Express offer or implied offer
Section 3 of the Indian Contract Act has specified two types of communication of an offer which is communicated through words and the other which is communicated by actions. Express offer means an offer that is made through words. Express offers can be made through email, letter, fax, advertisements, etc. Implied offers are communicated through acts of the parties. One of the examples of implied offers can be that buses in Odisha run at different routes at fixed rates, this is an implied offer.
General offers are the ones that are made to the public in general and not to any particular person. The judgment was indeed a celebrated one because it clarified what is an acceptance under general offers which are expressed ones. It has clarified the stance that the general offers can only be accepted when there is knowledge about the offer. The case, Lalman Shukla v. Gauri Dutt touched upon the basic concepts of contract, the vital elements that form an agreement, offer and acceptance.
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