Landmark Case Laws related to Chapter 1 (Nature of Contract, Offer, Acceptance, and Communication).

1. Balfour v. Balfour (1919)

(The foundation of “Intention to Create Legal Relations”)

• Facts: Mr. Balfour was employed in Ceylon (Sri Lanka). He and his wife went to England on leave. When Mr. Balfour had to return to Ceylon, his wife stayed back in England on medical advice. Mr. Balfour promised to pay her £30 per month for her maintenance. Later, they drifted apart, and he stopped paying. The wife sued him.
• Issue: Was there a valid contract between the husband and wife? Did they intend to create legal relations?
• Ratio Decidendi: The court held that agreements between spouses (husband and wife) in daily domestic life are usually not contracts because the parties do not intend to be legally bound. If every domestic dispute went to court, the courts would be flooded.
• Judgement: The claim was dismissed. The agreement was a social/domestic agreement, not a legal contract.
• Section: Section 2(h) (Definition of Contract – requires enforceability).

2. Lalman Shukla v. Gauri Datt (1913)

(Communication of Offer)

• Facts: The defendant’s (Gauri Datt) nephew went missing. He sent his servant (Lalman Shukla) to find the boy. After the servant had left, the defendant announced a reward of ₹501 to anyone who found the boy. The servant found the boy without knowing about the reward. Later, upon learning of the reward, he claimed it.
• Issue: Can a person accept an offer they have no knowledge of?
• Ratio Decidendi: To form a contract, there must be an acceptance of an offer. One cannot accept an offer unless he knows of its existence. “Acceptance is to an offer what a lighted match is to a train of gunpowder”—it must come after knowledge of the offer.
• Judgement: The suit was dismissed. Lalman Shukla was not entitled to the reward because the communication of the offer was not complete (Section 4) when he performed the act.
• Section: Section 4 (Communication of Offer).

3. Carlill v. Carbolic Smoke Ball Co. (1893)

(General Offer & Acceptance by Performance)

• Facts: The Company advertised that they would pay £100 to anyone who caught influenza after using their “Smoke Ball” product as directed. To show sincerity, they deposited £1000 in a bank. Mrs. Carlill bought the ball, used it as directed, but still got the flu. She claimed the reward. The Company argued there was no specific offer to her and she never told them she accepted it.
• Issue: Was the advertisement a valid offer? Was notification of acceptance necessary?
• Ratio Decidendi:
  1. The advertisement was a General Offer to the whole world, not just a marketing puff (the £1000 deposit showed intent).
  2. In cases of General Offer, the performance of the condition (using the smoke ball) is sufficient acceptance. Formal communication of acceptance is not required.
• Judgement: Mrs. Carlill won the case. The Company was bound to pay the reward.
• Section: Section 8 (Acceptance by performing conditions) & General Offer.

4. Felthouse v. Bindley (1862)

(Silence is NOT Acceptance)

• Facts: Paul Felthouse wrote to his nephew offering to buy his horse, stating: “If I hear no more about him, I consider the horse mine at £30 15s.” The nephew did not reply but told the auctioneer (Bindley) not to sell the horse as it was sold to his uncle. By mistake, the auctioneer sold the horse. The uncle sued the auctioneer for conversion (selling his property).
• Issue: Did the uncle’s letter and the nephew’s silence constitute a valid contract?
• Ratio Decidendi: Acceptance must be communicated to the offeror. The offeror cannot impose a condition that “Silence shall be deemed acceptance.” The nephew intended to sell to his uncle, but he never communicated this intention to the uncle.
• Judgement: The suit failed. There was no contract between the uncle and nephew because silence cannot amount to acceptance. Therefore, the horse did not belong to the uncle.
• Section: Section 2(b) (Acceptance must be signified) & Section 7.

5. Harvey v. Facey (1893)

(Invitation to Offer vs. Offer)

• Facts: The plaintiffs (Harvey) telegraphed the defendants (Facey): “Will you sell us Bumper Hall Pen? Telegraph lowest cash price.”The defendants replied: “Lowest price for Bumper Hall Pen £900.”The plaintiffs immediately replied: “We agree to buy Bumper Hall Pen for the sum of £900 asked by you.”The defendants refused to sell.
• Issue: Was the defendant’s telegram stating the price an Offer?
• Ratio Decidendi: The defendant merely answered a question about the price. Stating the “lowest price” is an Invitation to Offer, not an Offer itself. It shows a willingness to negotiate, not a final willingness to sell.
• Judgement: There was no contract. The final telegram by the plaintiff was actually an “Offer” to buy for £900, which the defendant never accepted.
• Section: Section 2(a) (Difference between Offer and Invitation to Offer).

6. Pharmaceutical Society of Great Britain v. Boots Cash Chemists (1953)

(Display of Goods is Invitation to Offer)

• Facts: Boots Cash Chemists introduced a “self-service” system where customers picked medicines from shelves and took them to the cash counter. The Law required a pharmacist to supervise the “sale”. The pharmacist was at the cash counter, not the shelves. The Society argued the “sale” happened when the customer put the item in the basket (at the shelf), where there was no pharmacist.
• Issue: Is the display of goods on a shelf an Offer or an Invitation to Offer?
• Ratio Decidendi: The display of goods is an Invitation to Offer. When the customer picks the item, they are making an Offer to buy. The “Acceptance” happens only when the cashier takes the money at the counter. Since the pharmacist was at the counter, the sale was legal.
• Judgement: The shop owners were not liable. The contract is formed at the cash counter, not the shelf.
• Section: Section 2(a) (Invitation to Offer).

Summary Table for Quick Revision