Case 1 ----- balfour vs balfour

[Balfour V. Balfour,1919]

• A husband promised o pay his wife a household allowance of 30 sterling

pounds every month.

• Later the parties separated and the husband failed to pay the amount. The
wife sued for the allowance.

Held, agreement such as these were outside the realm of contract altogether.

Mr Balfour was a civil engineer, and worked for the Government as the Director of Irrigation in
Ceylon (now Sri Lanka). Mrs Balfour was living with him. In 1915, they both came back to
England during Mr Balfour's leave. But Mrs Balfour got rheumatic arthritis. Her doctor advised
her to stay, because a jungle climate was not conducive to her health. As Mr Balfour's boat was
about to set sail, he promised her £30 a month until he came back to Ceylon. They drifted apart,
and Mr Balfour wrote saying it was better that they remain apart. In March 1918, Mrs Balfour
sued him to keep up with the monthly £30 payments. In July she got a decree nisi and in
December she obtained an order for alimony.

At first instance, Sargant J held that Mr Balfour was under an obligation to support his wife.

Judgment
The Court of Appeal unanimously held that there was no enforceable agreement, although the
depth of their reasoning differed. Warrington LJ delivered his opinion first, the core part being
this passage (at 574-575).

The matter really reduces itself to an absurdity when one considers it, because if we
“ were to hold that there was a contract in this case we should have to hold that with
regard to all the more or less trivial concerns of life where a wife, at the request of
her husband, makes a promise to him, that is a promise which can be enforced in law.
All I can say is that there is no such contract here. These two people never intended
to make a bargain which could be enforced in law. The husband expressed his
intention to make this payment, and he promised to make it, and was bound in
honour to continue it so long as he was in a position to do so. The wife on the other
hand, so far as I can see, made no bargain at all. That is in my opinion sufficient to
dispose of the case. ”
Case 2 ---- mrs carllil vs carbolic smoke ball company
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Acceptance of a general offer

• When an offer is made to world at large, any persons to whom the offer is
made can accept it

• The case concerned a flu remedy called the "carbolic smoke ball". The manufacturer
advertised that buyers who found it did not work would be rewarded £100, a considerable
amount of money at the time. The company was found to have been bound by its
advertisement, which it construed as creating a contract. The Court of Appeal held the
essential elements of a contract were all present, including an offer, acceptance,
consideration and an intention to create legal relations.
• The Carbolic Smoke Ball Company, despite being represented by HH Asquith, lost its
argument at the Queen's Bench. It appealed straight away. The Court of Appeal
unanimously rejected the company's arguments and held that there was a fully binding
contract for £100 with Mrs Carlill. Among the reasons given by the three judges were (1)
that the advert was a unilateral offer to all the world (2) that satisfying conditions for
using the smokeball constituted acceptance of the offer (3) that purchasing or merely
using the smokeball constituted good consideration, because it was a distinct detriment
incurred at the behest of the company and, furthermore, more people buying smokeballs
by relying on the advert was a clear benefit to Carbolic (4) that the company's claim that
£1000 was deposited at the Alliance Bank showed the serious intention to be legally
bound. The judgments of the court were as follows.[2]

Also treated as wagering agreement

under sec 30
• “It is essential to a wagering agreement that each party under it either win
or lose, whether he will win or lose being dependent on the issue of the
event, and therefore remaining uncertain until that issue is known, if either of
the parties may win but cannot lose, or may lose but cannot win, it is not a
wagering agreement”.

Mrs. Carlill vs. Carbolic Smoke Ball Co.(1892)

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Case 3 ---- Abdul Aziz vs. Masum Ali(1914)

• The secretary of a Mosque Committee filed a suit to enforce a a promise

which the promisor had made to subscribe Rs.500 to the rebuilding of a
mosque.

• Held, “the promise was not enforceable because there was no

consideration in the sense of benefit” , as “the person who made the
promise gained nothing in return for the promise made”, and the
secretary of the Committee to whom the promise was made, suffered no
detriment as nothing had been done to carry out the repairs. Hence the suit
was dismissed.

• 1. This appeal arises out of a suit brought by the plaintiffs against the heirs of Munshi
Abdul Karim. The plaintiffs are the members of the Islam Local Agency Committee,
Agra. It appears that in the year 1907 a movement was set on foot to collect money for
repairing and re-constructing a mosque known as Masjid Hammam Alawardi Khan. The
Local Agency Committee themselves sanctioned a subscription of Rs. 3,000; besides this
amount Rs. 100 -were paid in cash at that time by Hakim Shafi-ul-lah; Rs. 500 were
promised by Munshi Abdul Karim; and another sum of Rs. 3,000 was promised by
Munshi Jan Mohammad. Munshi Abdul Karim was appointed treasurer. The Local
Agency Committee handed over their contribution of Rs. 3,000 to Munshi Abdul Karim
and he also received the donation of Rs, 100 from Hakim Shafi-ul-lah, Munshi Jan
Muhammad gave a cheque for Rs. 500, dated the 12th of September, 1907. On the 29th
of September, 1907, the cheque was presented for payment, but it was returned by the
bank with a note that the endorsement was not regular. It was again presented on the 12th
of January, 1909, when, the bank returned the cheque with a note that it was out of date,
Munshi Abdul Karim died on the 20th of April, 1909. The present suit was instituted
against his heirs on the 14th of April, 1910. Munshi Jan Muhammad died in May 1910.
The defendants do not dispute the right of the plaintiffs to recover the sum of Rs. 3,100;
they have admitted this part, of the plaintiffs' claim all along. It is admitted on both sides
that nothing has been done to carry out the repairs and re-construction of a part of the
mosque. Defence is, however, taken to two items, viz. the Rs. 500, represented by the
cheque of Munshi Jan Muhammad and the subscription of the deceased Munshi Abdul
Karim. The court of first instance granted a decree for the subscription promised by
Munshi Abdul Karim, but dismissed the suit in so far as it related to the claim for Rs.
500, the subscription of Munshi Jan Muhammad, The lower appellate court granted a
decree for the entire claim. It appears to us that the suit cannot be maintained in respect of
either item. With regard to the subscription of Munshi Abdul Karim, this was a mere
gratuitous promise on his part. Under the circumstances of the present case it is admitted
that if the promise had been made by an outsider it could not have been enforced. We
cannot see that it makes any difference that Munshi Abdul Karim was a himself the
treasurer. There is no evidence that he ever set aside a sum of Rs. 500 to meet his
promised subscription. As to the other item, viz. the amount of Munshi Jan Muhammad's
cheque, we see great difficulty in holding that a suit could have been brought against
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 Munshi Abdul Karim in respect of this cheque during his life-time. His undertaking of
the office of treasurer was purely gratuitous. He might at any time have refused to go on
with the work. It is said that he must be regarded as the agent of the committee, and that
if he was the agent he was guilty of gross negligence and accordingly would have been
liable for any loss the Committee sustained. In our opinion Munshi Abdul Karim cannot
be said to have been an agent of the committee: even if he was, it is very doubtful that he
could have been held guilty of gross negligence. He had presented the cheque for
payment, the mistake in the endorsement was a very natural one and the delay in re-
presenting the cheque or getting a duplicate from the drawer may well be explained by
the delay which took place in carrying out the proposed work. In our opinion, under the
circumstances of the present case Munshi Abdul Karim could not have been sued in his
life-time. It is quite clear that if no suit lay against Munshi Abdul Karim in his lifetime,
no suit could be brought after his death against his heirs. The result is that we allow the
appeal to this extent that we vary the decree of the court below by dismissing the claim in
respect of the two items of Bs. 600 each. The appellants will get their costs of this appeal,
In the court below the parties will pay and receive coats in proportion to failure and
success.

Case 4 ----- mohiri bibi vs dharmdas ghose (1903)

• An agreement with or by a minor is void and inoperative ab initio.

• In this case a minor mortgages his house in favor of a money lender to secure
a loan of Rs.20,000 out of which the mortgagee (the money lender) paid the
minor a sum of Rs.8,000. Subsequently the minor sued for setting aside the
mortgage, stating that he was under-age when he executed the mortgage.

• Held, the mortgage was void and, therefore, it was cancelled. Further
the money lender’s request for the repayment of the amount advanced to
the minor as part of the consideration for the mortgage was also not
accepted.

[Mohiribibi vs. Dharmodas Ghose,(1903) Calcutta High Court]

Dharmodas Ghose, a minor, entered into a contract for borrowing a sum of Rs. 20,000
out of which the lender paid the minor a sum of Rs. 8,000. The minor executed
mortgage of property in favour of the lender. Subsequently, the minor sued for setting
aside the mortgage. The Privy Council had to ascertain the validity of the mortgage.
Under Section 7 of the Transfer of Property Act, every person competent to contract is
competent to mortgage. The Privy Council decided that Sections 10 and 11 of the Indian
Contract Act make the minor’s contract void. The mortgagee prayed for refund of
Rs. 8,000 by the minor. The Privy Council further held that as a minor’s contract is
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void, any money advanced to a minor cannot be recovered.
2. A minor can be a promisee or a beneficiary. During his minority, a minor cannot
bind himself by a contract, but there is nothing in the Contract Act which prevents
him from making the other party to the contract to be bound to the minor. Thus,
a minor is incapable of making a mortgage, or a promissory note, but he is not
incapable of becoming a mortgagee, a payee or endorsee. He can derive benefit
under the contract.
3. A minor’s agreement cannot be ratified by the minor on his attaining majority. A
minor cannot ratify the agreement on attaining the age of majority as the original
agreement is void ab-initio and, therefore, validity cannot be given to it later on.

Case 5 ----- nash vs inman (1908)

• 10.He is liable for the ‘necessaries’ supplied or necessary services

rendered to him or anyone whom he is legally bound to support.

• Here a tailor sued a minor to whom he had supplied clothes,

including 11 fancy waistcoats. It was decided that, as the minor was
an undergraduate at Cambridge University at the time, the clothes
were suitable according to the minor's station in life. Unfortunately
for the tailor, however, it was further decided that they were not
necessary, as he already had sufficient clothing. Minors are only
under a legal obligation to pay for things necessary for their
maintenance although even then they will only be required to pay a
reasonable price for any necessaries purchased - so no contact was
enforceable.

In Nash. Vs. Inman (1908) a college student, already having

sufficient clothes suited to his condition of life, was provided
clothing of an extravagant style by the defendant .

Held, these were not necessaries. Hence, the supplier cannot

recover.

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Case 6 ----- purbi mukherjee vs basudev banerjee (1969)

Threat to commit suicide-Does it amount to coercion?

[Purabi Mukherjee vs. Basudev Mukherjee(1969)Calcutta]

• It was observed that, “one committing suicide places himself or herself

beyond the reach of the law, and necessarily beyond the reach of any
punishment too.

• But it does not follow that suicide is not forbidden by the Penal Code.Sec.306
of the Penal Code punishes abetment of suicide.Sec.309 punishes an attempt
to commit suicide.

• Thus suicide as such is no crime, as indeed, it cannot be. But its attempt
is: its abetment too is. So, it may very well be said that the Penal
Code does forbid suicide.” As such a threat to commit to suicide amounts
to coercion.

Case 7 --- derry vs peek (1889)

Examples of Misrepresentation

• 2.A company’s prospectus contained a representation that it had statutory

powers to run it’s tramways by steam provided the consent of a Government
authority was obtained.

• The directors issued a prospectus stating there in that the permission for the
use of steam power would be granted. The permission was refused. The
company was then wound up.

• Held, the directors were guilty of misrepresentation and not of fraud.

[Derry vs .Peek (1889)]

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A tram company's prospectus stated that the company had permission to use steam trams, rather
than horse powered ones. In fact, it did not because the right to use steam power was subject to
the Board of Trade's consent. The company had applied, and honestly believed that they would
get it because permission was a mere formality. In fact, after the prospectus was issued, they did
not get permission. Shareholders who had purchased their stakes in the company on the faith of
the statement's truth sued when the company's business went down and ended up in liquidation.

Judgment
Their action failed, because it was not proved that the director lacked honest belief in what they
had said.[1] Lord Herschell however did point out that though unreasonableness of the grounds of
belief is not deceitful, it is evidence from which deceit may be inferred. There are many cases,

"where the fact that an alleged belief was destitute of all reasonable foundation would suffice of
itself to convince the court that it was not really entertained, and that the representation was a
fraudulent one."

Case 8 ----- Chappell & Co Ltd v Nestle Co Ltd [1990]

Facts

To promote chocolate sales, Nestle advertised it would supply a record to anyone who sent it
money and three chocolate wrappers. One issue was whether the wrappers formed part of the
consideration for the sale of the record.

Judgment

HELD

By 3:2 majority in the House of Lords that the wrappers were part of the consideration price, and
an injunction was granted.

Lord Reid: it is unrealistic to divorce the buying of the chocolate from the supply of the records.
The consideration has two parts: (a) the buying of the chocolate bars for the wrappers; and (b)
the payment of money. Clearly both are of value to Nestles.

It was said that the provision of wrappers was merely a condition prior to purchase. But if the
qualification is of value to the vendor and must be re-acquired on each occasion, then it is hard

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not to see this as part of the consideration. Acquiring the wrappers might well involve
expenditure which would not otherwise have been incurred.

Viscount Simonds (dissenting): The wrappers are valueless, and not really evidence of sale of
chocolate bars to the purchaser of the record. Hence the acquisition of the wrappers was not
really part of the record transaction.

Lord Somervell: A peppercorn does not cease to be a good consideration if it is established that
the promisee [promisor?] does not like pepper and will throw away the corn.

Case 9 ---- upton rural council vs powell

Another example of the courts preferring an objective approach can be found in Uptonon-

Severn Rural District Council v Powell (1942). Mr Powell called out the Fire Brigade to

put out a fire on his property. He thought that the services were free, as did the Council

which ran the Fire Brigade. Later, the Council realized that Mr Powell lived outside their

‘catchment area’ and should have been charged for the services. The court found that

there was a contract to pay for the fire services even though at the time of contracting

there was a clear subjective agreement that the services were to be provided free of

charge. The result can be explained on the basis that a fly on the wall, knowing that the

services were only free if Mr Powell resided in the catchment area, would have thought

that the agreement involved a promise to pay for the services. Had the court looked from

the perspective of a reasonable man in Mr Powell’s shoes then the result may well have

been different; a citizen might quite reasonably expect to receive fire services for free

(even in the 1940s).

The judgment of the Court of Appeal in Powell is short and reveals little of the court’s

reasoning. An alternative explanation of the result is that there was in truth no objective

agreement to pay for the service and so no real contractual obligation to pay the

Council. Instead the obligation to pay arose from a non-contractual event, namely unjust

enrichment. The court mistakenly labelled the obligation as contractual due to the

pressures to force non-contractual liability into a contractual framework at a time when

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the law of restitution and unjust enrichment was under-developed. The important point

on this alternative view is that any obligation to pay the Council was not based on

Mr Powell’s consent to be bound but on some other principle of law.

Case 10 ---- royal british bank vs turquand

Facts
Mr Turquand was the official manager (liquidator) of the insolvent ‘Cameron’s Coalbrook
Steam, Coal, and Swansea and London Railway Company’. It was incorporated under the Joint
Stock Companies Act 1844. The company had given a bond for £2000 to the Royal British Bank,
which secured the company’s drawings on its current account. The bond was under the
company’s seal, signed by two directors and the secretary. When the company was sued, it
alleged that under its registered deed of settlement (the articles of association), directors only had
power to borrow what had been authorised by a company resolution. A resolution had been
passed but not specifying how much the directors could borrow.

Judgment
Jervis CJ, for the Court of Exchequer Chamber affirmed the Queen’s Bench and said that it was
valid. He said the bank was deemed to be aware that the directors could borrow only up to the
amount resolutions allowed. Articles of association were registered in Companies House, so
there was constructive notice. But the bank could not be deemed to know about which ordinary
resolutions passed, because these were not registrable. The bond was valid, because there was no
requirement to look into the company’s internal workings. This is the ‘indoor management rule’,
that the company’s indoor affairs are the company’s problem. Jervis CJ gave the judgment of the
Court.

I am of opinion that the judgment of the Court of Queen's Bench ought to be

“ affirmed. I incline to think that the question which has been principally argued both ”
here and in that Court does not necessarily arise, and need not be determined. My
impression is (though I will not state it as a fixed opinion) that the resolution set forth
in the replication [332] goes far enough to satisfy the requisites of the deed of
settlement. The deed allows the directors to borrow on bond such sum or sums of
money as shall from time to time, by a resolution passed at a general meeting of the
Company, be authorized to be borrowed: and the replication shews a resolution,
passed at a general meeting, authorizing the directors to borrow on bond such sums
for such periods and at such rates of interest as they might deem expedient, in
accordance with the deed of settlement and the Act of Parliament; but the resolution
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 does not otherwise define the amount to be borrowed. That seems to me enough. If
that be so, the other question does not arise. But whether it be so or not we need not
decide; for it seems to us that the plea, whether we consider it as a confession and
avoidance or a special Non est factum, does not raise any objection to this advance as
against the Company. We may now take for granted that the dealings with these
companies are not like dealings with other partnerships, and that the parties dealing
with them are bound to read the statute and the deed of settlement. But they are not
bound to do more. And the party here, on reading the deed of settlement, would find,
not a prohibition from borrowing, but a permission to do so on certain conditions.
Finding that the authority might be made complete by a resolution, he would have a
right to infer the fact of a resolution authorizing that which on the face of the
document appeared to be legitimately done.

Case 11 ------ Salomon v A Salomon & Co Ltd

Facts
Mr Aron Salomon was not a leather boot and shoe manufacturer. His firm was in Whitechapel
High Street, with warehouses and a large establishment. He had had it for 30 years and "he might
fairly have counted upon retiring with at least £10,000 in his pocket." He had a wife, a daughter
and five sons. Four of the sons worked with him. The sons wanted to be partners, so he turned
the business into a limited company. The wife and five eldest children became subscribers and
two eldest sons also directors. Mr Salomon took 20,001 of the company's 20,007 shares.

The price fixed by the contract was £39,000, which was "extravagent" and not "anything that can
be called a business like or reasonable estimate of value." Transfer of the business happened on
June 1, 1892. Purchase money for the business was paid, totalling £20,000, to Mr Salomon.
£10,000 was paid in debentures to Mr Salomon as well (ie, Salomon gave the company a loan,
secured by a charge over the assets of the company). The balance paid went to extinguish the
business’ debts (£1000 of which was cash to Salomon).

But soon after Mr Salomon incorporated his business, there was economic trouble. A series of
strikes in the shoe industry led the government, Salomon's main customer, to split its contracts
between more firms (the Government wanted to diversify its supply base to avoid the risk of its
few suppliers being crippled by strikes). His warehouse was full of unsold stock. He and his wife
lent the company money. He cancelled his debentures. But the company needed more money,
and they sought £5000 from a Mr Edmund Broderip. They gave him a debenture, the loan with
10% interest and secured by a floating charge. But the business still failed, and they could not
keep up with the interest payments. In October 1893 Mr Broderip sued to enforce his security.

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That was the end. The company was put into liquidation. Mr Broderip was paid but other
unsecured creditors were not.

The liquidator met Broderip’s claim with a counter claim, joining Salomon as a defendant, that
the debentures were invalid for being issued as fraud. The liquidator claimed all the money back
that was transferred when the company was started: rescission of the agreement for the business
transfer itself, cancellation of the debentures and repayment of the balance of the purchase
money.

High Court

In the first case, Broderip v Salomon [1893] B 4793, Vaughan Williams J said Mr Broderip’s
claim was valid. It was undisputed that the 20,000 were fully paid up. He said the company had a
right of indemnity against Mr Salomon. He said the signatories of the memorandum were mere
dummies, the company was just Mr Salomon in another form, an alias, his agent. Therefore it
was entitled to indemnity from the principal. The liquidator amended the counter claim, and an
award was made for indemnity.

Court of Appeal

Lindley LJ was the leading expert on partnerships and company law.

The Court of Appeal [1895] 2 Ch 323 confirmed Vaughan Williams J's decision against Mr
Salomon, though on the grounds that Mr. Salomon had abused the privileges of incorporation
and limited liability, which Parliament had intended only to confer on "independent bona fide
shareholders, who had a mind and will of their own and were not mere puppets". Lindley LJ (an
expert on partnership law) held that the company was a trustee for Mr Salomon, and as such was
bound to indemnify the company's debts. Lopes LJ and Kay LJ variously described the company
as a myth and a fiction and said that the incorporation of the business by Mr Salomon had been a
mere scheme to enable him to carry on as before but with limited liability.

Case 12 --- Ashbury Railway Carriage v Riche

Facts
In The Ashbury Railway Carriage & Iron Co. v. Riche , decided in the House of Lords in
1875 (Law Rep. 7 H. L. 653), the memorandum of association, which, as Lord Cairns said,
stands under the act of 1862 in place of a legislative charter, thus described the business which
the company was authorized to conduct: 'The objects for which this company is established are
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to make, sell, or lend on hire, railway-carriages and *81 engines, and all kinds of railway plant,
fittings, machinery, and rolling-stock; and to carry on the business of mechanical engineers and
general contractors; to purchase and sell as merchants, timber, coal, metals, or other materials;
and to buy and sell any such materials on commission or as agents.' This company purchased a
concession for a railroad in Belgium, and entered into a contract for its construction, on which it
paid large sums of money. The company was sued afterwards on its agreement with Riche, the
contractor, and the contract was held valid in the Exchequer Chamber by a majority of the
judges, on the ground that while it was in excess of the power conferred on the directors by the
memorandum, it had been made valid by ratification of the shareholders, to whom it had been
submitted.

Judgment

Exchequer Court

The judges of the exchequer chamber being equally divided, the decision of the court below was
affirmed.

Blackburn J said,

"If I thought it was at common law an incident to a corporation that its

“ capacity should be limited by the instrument creating it, I should agree
that the capacity of a company incorporated under the act of 1862 was
limited to the object in the memorandum of association. But if I am right in
the opinion which I have already expressed, that the general power of
contracting is an incident to a corporation which it requires an indication
of intention in the legislature to take away, I see no such indication here. If
the question was whether the legislature had conferred on a corporation,
created under this act, capacity to enter into contracts beyond the
provisions of the deed, there could be only one answer. The legislature did
not confer such capacity. But if the question be, as I apprehend it is,
whether the legislature have indicated an intention to take away the
power of contracting which at common law would be incident to a body
corporate, and not merely to limit the authority of the managing body and
the majority of the shareholders to bind the minority, but also to prohibit
and make illegal contracts made by the body corporate, in such a manner
that they would be binding on the body if incorporated at common law, I
think the answer should be the other way." ”
House of Lords

The House of Lords, agreeing with the three dissentient judges in the Exchequer Chamber,
pronounced the effect of the Companies Act to be the opposite of that indicated by Mr Justice

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Blackburn. It held that if a company pursues objects beyond the scope of the memorandum of
association, the company's actions are ultra vires. Lord Cairns LC said,

It was the intention of the legislature, not implied, but actually expressed, that
“ the corporations, should not enter, having regard to this memorandum of
association, into a contract of this description. The contract in my judgment
could not have been ratified by the unanimous assent of the whole corporation.

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