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% CONTRACT LAWS I I I I I I I ™ I

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J By I I a I I I | , | | Rahat Aziz

Faculty Member-I Sindh Judicial Academy

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SINDH JUDICIAL ACADEMY

TABLE OF CONTENTS.

SESSION - 1 • Overview of Contract Law. • Offer & Acceptance. • Free Consent • Legality of other object • Consideration • Case Law

Carlill V Carbolic Smoke • Ball Company

Annexure - 1 Annexure - 1A Annexure - IB Annexure - 1C Annexure - 2

Annexure - 3

SESSION - 2 • Contract = Agreement + Enforceability. • Terms of Contract • Types of Terms • Exclusion Clauses • Boilerplate Terms • Section 73 of Contract Act,

(Types of Remedies & Damages) • Case Law:

M/s. Kamran Construction (Pvt.) Ltd (Petitioner) V Nazir Talib (Respondent)

SESSION - 3 • Specialized Contract

(Important Issues of): • Indemnity & Guarantee • Bailment & Pledge • Agency

Annexure - 4 Annexure - 4A Annexure - 4B Annexure - 4C Annexure - 4D

Annexure - 5

Annexure - 6

Annexure - 7A Annexure - 7B Annexure - 7C

• Case Law: M/s. Karachi Catholic Co-Opt. Housing Society Ltd. V Mirza Jawad Baig (Respondent) Annexure - 8

ANNEXURE-1

Sindh Judicial Academy CONTRACT ACT, 1872

GENERAL PROVISIONS (Applicable on all type contracts)

CREATION OF CONTRACT

"*ef: Section 2 (h) Essentials of Valid Agreement "An Agreement enforceable by law is a Contract" Contract = Agreement + Enforceability

Promise

Consideration*—

Capacity

Consent

-> Lawful Object

Writing & Registration

Classification of Contract on the basis

Express a) Creation

b) Execution

Implied

Executed

Executory

r Val: aility -<j • Voi

L— voic c) Enforceabilit

Contingent Contracts.

Quasi Contracts.

Valid Void voidable

DISCHARGEMENT

Discharge:

(Ways) — B y Performance

By Mutual Agreement

> By Supervening Impossibility

•> By Operation of Law

> By Lapse of time

> By Breach

Contractual Remedies.

> Damages

Specific Performance.

> Injunction.

^ Quantum Meruit.

SPECIALISED CONTRACT (Have their own characteristic)

• Indemnity & Guarantee • Bailment & Pledge • Agency

Indemnity

Guarantee

Bailment

Insurance Concepts

Banking Concepts

Carrige of Goods • Bill of lading • Charter party agree:

Pledge

Agency

-> Mortgages & Charges

-> Partnership Concepts Corporate Eutity Con: Corporate Governance Con:

I BOD are the agents of the Co.

ANNEXURE1C

Sindh Judicial Academy Contract Laws

> Promised = Offer + Acceptance.

> Legal Rules Regarding A Valid Offer.

• An offer may be "express" or "implied".

• The terms of the offer must be certain and not loose or vague.

• An invitation to offer is not an offer.

• An offer may be "Specific" or "General".

• An offer should not contain a term, the non-compliance of which

would amount to Acceptance.

> Legal Rules Regarding A Valid Acceptance.

• Acceptance must be given only by the person to whom the offer

is made.

• Acceptance must be absolute and unqualified.

• Acceptance must be expressed in some usual and reasonable

manner, unless the proposal prescribes the manner in which it is

to be accepted.

> NOTE: Two identical cross-offer do not make a contract.

ANNEXUREIB


> FREE CONSENT

> "The complainant must prove that if he had known the truth, or had not

been forced to agree, I would not have entered into the contract".

> FORCED has two further vitiating elements.

• COERCION Section 15.

• UNDUE INFLUENCE Section 16.

> TRUTH has two further vitiating element.

• FRAUD Section 17.

• MISREPRESENTATION Section 18.

• When consent to an agreement is caused by coercion undue influence,

misrepresentation or fraud, there is "no free consent" and the contract is

voidable at the option of the party whose consent was so cause.

(Sections 19 & 19A).

• But when consent is caused by "bilateral mistake" as to the matter of

fact essential to the agreement, the agreement is void (Section 20).

• A contract is not voidable merely because it was mistake as to matter of

fact (Section 22). It is a "unilateral mistake".

ANNEXURE1C


> LEGALITY OF THE OBJECT.

"The words "object" and "consideration" used in Section 23 are not

synonymous.

The word object here means "PURPOSE OR DESIGN".

> The object of An Agreement is unlawful in the following

cases:

• If it is forbidden by law. 1) When it is punishable by the criminal laws.

2) When it is prohibited by special legislation.

• If it is of such a nature that, if permitted, it would defeat

the provisions of any law.

• If it is fraudulent.

• If it involves or implies injury to the person or property of

another.

• If COURT Regard it as "immoral".

. If COURT Regard it as "opposed to Public Policy".

».

ANNEXURE-4B

Sindh Judicial Academy "CONTRACT LAW"

Importance of the Contract Laws:

"Root law or Mother law for all commercial transactions".

"Just as the safety of a person and the property depends upon the rules of Criminal laws, so the security and stability of the business world are dependent upon the law of contract"

"That is why, it is also termed as law of obligations".

In commercial world, we normally come accrose with two type of contracts.

• Transactional contract.

• Relationship contract.

Transactional Contract:

"Where Consideration is offered and accepted"

Nature of Consideration:

Goods: Deals in Sale of Goods Act, 1930.

Goods: Definition: "Means every kind of moveable property other than actionable claims and money; and includes electricity, water, gas, stock and shares, growing corps, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale"

•=> Electricity •v Water ^ Gas

Electricity Act, 1910. WAPDA Act, 1958. (PEPCO + NEPRA)

O Stock & shares:

•=> Actionable claims:

<=> Property: ^ Services:

TRIPS: • Copy Right: • Trade Mark: • Patents:

• Registered Design:

^ LOANS:

Relationship Contracts:

<=> By sponsors of a Company:

•=> By Partners:

^ By Author & Trustee:

Securities & Exchange Ordinance, 1969 Companies Ordinance, 1984.

Contract Act, 1872.

(Immovable Property) The Transfer of Property Act, 1882 Contract Act, 1872 (All professionals have their associations and are bound by their statutes and by laws, like for Doctors: Pakistan Medical Association for Engineers: Pakistan Engineering Council).

Trade related intellectual properties. The Copy Right Ordinance, 1962. The Trade Marks Ordinance, 2001. The Patents Ordinance, 2000. Registered Design Ordinance, 2000.

Banking Companies Ordinance, 1962 Prudential Regulations. (Agricultural Financing, Corporate Commercial Banking, SMEs Financing, Consumer Financing Micro Finance Banks) NBFC Rules 2007 - Leasing Co.

Memorandum and Articles of Association.

Partnership Deed.

Trust Deed.

•=> By Principle & Agent: Agency Agreement.

arhlW Carbolic Smoke Ball Company - Wikipedia, the free encyclo... file:///E:/Carlill_v_Carbolic_Smoke_Ball_Company.

ANNEXURE-3

Carlill v Carbolic Smoke Ball Company From Wikipedia, the free encyclopedia

Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 (http://www.bailii.org/ew/cases/EWCA/Civ /1892/1.html) is an English contract law decision by the Court of Appeal. It is notable for its curious subject matter and how the influential judges (particularly Lindley LJ and Bowen LJ) developed the law in inventive ways. Carlill is frequently discussed as an introductory contract case, and may often be the first legal case a law student studies.

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 |id vert isement,i which it construed as creating a contract. The Court of Appeal held the essential elements of a contract were all present, including offer and acceptance, consideration and an intention to create legal relations.

Contents

1 Facts 2 Judgment

• 2.1 Lord Justice Lindley • 2.2 Lord Justice Bowen • 2.3 Lord Justice AL Smith

• 3 Legacy and modern perspectives • 4 Aftermath *!••<" • 5 See also '{ ; , > ( r .« ; L , f ' -• 6 Notes • 7 References • 8 External links

Facts

Carlill v Carbolic Smoke Ball Co

SMOKE BAIL

REWARD w»r» »• » • LV CO.

i s i CARBO^S«OKBJBMX,

SSS i-

Court

Full case name

Date decided

Citations

Judges sitting

Court of Appeal (Civil Division)

Louisa Carlill v Carbolic Smoke Ball Company

7 December 1892

[1892] EWCA Civ 1 (http://www.bailii.org/ew/cases /EWCA/Civ/1892/1.html) , [1893] 1 QB 256

Lindley LJ, Bowen LJ and AL Smith LJ

Case history

Prior actions Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484 (QBD)

Subsequent none

actions

Case opinions

Lindley LJ, Bowen LJ and AL Smith LJ

The Carbolic Smoke Ball Company made a product called the "smoke ball". It claimed to be a cure for influenza and a number of other diseases. The smoke ball was a rubber ball with a tube attached. It was filled with carbolic acid (phenol). The tube was then inserted into the user's nose. It was squeezed at the

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bottom to release the vapours into the nose of the user. This would cause the nose to run. and hopefully flush out the viral infection.

The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13, 1891, claiming that it would pay £100 to anyone who got sick with influenza after using its product according to the instructions set out in the advertisement.

"£100^ reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks, according to the printed directions supplied with each ball.

£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.

During the last epidemic of influenza many thousand carbolic smoke balls were sold as ) preventives against this disease, and in no ascertained case was the disease contracted by those

using the carbolic smoke ball.

One carbolic smoke ball will last a family several months, making it the cheapest remedy in the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address: "Carbolic Smoke Ball Company, "27, Princes Street, Hanover Square, London."

Mrs Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used three times daily for nearly two months until she contracted the flu on January 17, 1892. She claimed £100 from the Carbolic Smoke Ball Company. They ignored two letters from her husband, who had trained as a solicitor. On a third request for her reward, they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball's efficacy, but "to protect themselves against all fraudulent claims" they would need her to come to their office to use the ball each day and be checked by the secretary. Mrs Carlill brought a claim to court. The barristers representing her argued that the advertisement and her reliance on it was a contract between her and the company, and so they ought to pay. The company argued 't was not a serious contract.

Judgment

See also: Litigation before the judgment in Carlill v Carbolic Smoke Ball Company

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. ^

Lord Justice JLindley

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Lindley LJ gave the first judgment, after running through the facts again. He makes short shrift of the insurance and wagering contract arguments that were dealt with in the Queen's Bench.

U I will begin by referring to two points which were raised in the Court below. I refer to them simply for the purpose of dismissing them. First, it is said no action will lie upon this contract because it is a policy. You have only to look at the advertisement to dismiss that suggestion. Then it was said that it is a bet. Hawkins, J., came to the conclusion that nobody ever dreamt of a bet, and that the transaction had nothing whatever in common with a bet. I so entirely agree with him that I pass over this contention also as not worth serious attention.

Then, what is left? The first observation I will make is that we are not dealing with any inference of fact. We are dealing with an express promise to pay 100£. in certain events. Read the advertisement how you will, and twist it about as you will, here is a distinct promise expressed in language which is perfectly unmistakable —

"100£. reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the influenza after having used the ball three times daily for two weeks according to the printed directions supplied with each ball." 55

Already, it is apparent which way that Lindley LJ will decide. Judges often differ in their style, and in 19th century cases it was more usual to be short and direct, giving the decision first and then the reasons. Since the later 20th century, judges have made their opinions ever longer and wordier, often dealing with all sides and points of argument before reaching conclusions. He follows on with essentially five points. First, the advert was not "mere puff' as had been alleged by the company, because the deposit of £1000 in the bank evidenced seriousness.^ Second, the advertisement was an offer to the world. Third, communication of acceptance is not necessary for a contract when people's conduct manifests an intention to contract. Fourth, that the vagueness of the advert's terms was no insurmountable obstacle. And fifth, the nature of Mrs Carlill's consideration (what she gave in return for the offer) was good, because there is both an advantage in additional sales in reaction to the advertisement and a "distinct inconvenience" that people go to use a smokeball.

We must first consider whether this was intended to be a promise at all, or whether it was a mere puff which meant nothing. Was it a mere puff? My answer to that question isJSJo, and I base my answer upon this passage: " 1000C. is deposited with the Alliance Bank, shewing our sincerity in the matter." Now, for what was that money deposited or that statement made except to negative the suggestion that this was a mere puff and meant nothing at all? The deposit is called in aid by the advertiser as proof of his sincerity in the matter - that is, the sincerity of his promise to pay this 100£. in the event which he has specified. I say this for the purpose of giving point to the observation that we are not inferring a promise; there is the promise, as plain as words can make it.

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Then it is contended that it is not binding. In the first place, it is said that it is not made with anybody in particular. Now that point is common to the words of this advertisement and to the words of all other advertisements offering rewards. They are offers to anybody who performs the conditions named in the advertisement, and anybody who does perform the condition accepts the offer. In point of law this advertisement is an offer to pay 1006. to anybody who will perform these conditions, and the performance of the conditions is the acceptance of the offer. That rests upon a string of authorities, the earliest of which is Williams v Carwardine^ which has been followed by many other decisions upon advertisements offering rewards.y

But then it is said, "Supposing that the performance of the conditions is an acceptance of the offer, that acceptance ought to have been notified." Unquestionably, as a general proposition, when an offer is made, it is necessary in order to make a binding contract, not only that it should be accepted, but that the acceptance should be notified. But is that so in cases of this kind? I apprehend that they are an exception to that rule, or, if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance. This offer is a continuing offer. It was never revoked, and if notice of acceptance is required - which I doubt very much, for I rather think the true view is that which was expressed and explained by Lord Blackburn in the case of Brogden v Metropolitan Ry Co^ - if notice of acceptance is required, the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.

We, therefore, find here all the elements which are necessary to form a binding contract enforceable in point of law, subject to two observations. First of all it is said that this advertisement is so vague that you cannot really construe it as a promise - that the vagueness of the language shews that a legal promise was never intended or contemplated.v-The language is vague and uncertain in some respects, and particularly in this, that the 100L is to be paid to any person who contracts the increasing epidemic after having used the balls three times daily for two weeks. It is said, When are they to be used? According to the language of the advertisement no time is fixed, and, construing the offer most strongly against the person who has made it, one might infer that any time was meant. I do not think that was meant, and to hold the contrary would be pushing too far the doctrine of taking language most strongly against the person using it. I do not think that business people or reasonable people would understand the words as meaning that if you took a smoke ball and used it three times daily for two weeks you were to be guaranteed against influenza for the rest of your life, and I think it would be pushing the language of the advertisement too far to construe it as meaning, that. But if it does not mean that, what does it mean? It is for the defendants to shew what it does mean; and it strikes me that there are two, and possibly three, reasonable constructions to be put on this advertisement, any one of which will answer the purpose of the plaintiff. Possibly it may be limited to persons catching the "increasii^g epidemic" (that is, the then prevailing epidemic), or any colds or diseases caused by taking cold, during the prevalence of the increasing epidemic. That is one

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carbolic Smoke Ball Company - Wikipedia, the free encyclo... file:///E:/Carlill_v_Carbolic_Smoke_Ball_Company.t

suggestion; but it does not commend itself to me. Another suggested meaning is that you are warranted free from catching this epidemic, or colds or other diseases caused by taking cold, whilst you are using this remedy after using it for two weeks. If that is the meaning, the plaintiff is right, for she used the remedy for two weeks and went on using it till she got the epidemic. Another meaning, and the one Which I rather prefer, is that the reward is offered to any person who contracts the epidemic or other disease within a reasonable time after having used the smoke ball. Then it is asked, What is a reasonable time? It has been suggested that there is no standard of reasonableness; that it depends upon the reasonable time for a germ to develop! I do not feel pressed by that. It strikes me that a reasonable time may be ascertained in a business sense and in a sense satisfactory to a lawyer, in this way; find out from a chemist what the ingredients are; find out from a skilled physician how long the effect of such ingredients on the system could be reasonably expected to endure so as to protect a person from an epidemic or cold, and in that way you will get a standard to be laid before a jury, or a judge without a jury, by which they might exercise their judgment as to what a reasonable time would be. It strikes me, I confess, that the true construction of this advertisement is that 100£. will be paid to anybody who uses this smoke ball three times daily for two weeks according to the printed directions, and who gets the influenza or cold or other diseases caused by taking cold within a reasonable time after so using it; and if that

) is the true construction, it is enough for the plaintiff.

I come now to the last point which I think requires attention - that is, the consideration. It has been argued that this is nudum pactum - that there is no consideration. We must apply to that argument the usual legal tests. Let us see whether there is no advantage to the defendants. It is said that the use of the ball is no advantage to them, and that what benefits them is the sale; and the case is put that a lot of these balls might be stolen, and that it would be no advantage to the defendants if the thief or other people used them. The answer to that, I think, is as follows. It is quite obvious that in the view of the advertisers a use by the public of their remedy, if they can only get the public to have confidence enough to use it, will react and produce a sale which is directly beneficial to them. Therefore, the advertisers get out of the use an advantage which is enough to constitute a consideration.

But there is another view. Does not the person who acts upon this advertisement and accepts the offer put himself to some inconvenience at the request of the defendants? Is it nothing to use this ball three times daily for two weeks according to the directions at the

| request of the advertiser? Is that to go for nothing? It appears to me that there is a distinct inconvenience, not to say a detriment, to any person who so uses the smoke ball. I am of opinion, therefore, that there is ample consideration for the promise.

We were pressed upon this point with the case of Gerhard v Bates,^ which was the case of a promoter of companies who had promised the bearers of share warrants that they should have dividends for so many years, and the promise as alleged was held not to shew any consideration. Lord Campbell's judgment when you come to examine it is open to the explanation, that the real point in that case was that the promise, if any, was to the original bearer and not to the plaintiff, and that as the plaintiff was not suing in the name of the original bearer there was no contract with him. Then Lord Campbell goes on to enforce that view by shewing that .there was no consideration shewn for the promise to him. I cannot help thinking that Lord Campbell's observations would have been very different if the plaintiff in that action had been an original bearer, or if the declaration had gone on to shew

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what a societe anonyme was, and had alleged the promise to have been, not only to the first bearer, but to anybody who should become the bearer. There was no such allegation, and the Court said, in the absence of such allegation, they did not know (judicially, of course) what a societe anonyme was, and, therefore, there was no consideration. But in the present case, for the reasons I have given, I cannot see the slightest difficulty in coming to the conclusion that there is consideration.

It appears to me, therefore, that the defendants must perform their promise, and, if they have been so unwary as to expose themselves to a great many actions, so much the worse for them.

Lord Justice Bowen

^ w e n Lis opinion was more tightly structured in style and is frequently cited. Five main steps in his " s o n i n g can be identified. First, he says that the contract was not too vague to be enforced, because it could be interpreted according to what ordinary people would understand by it. He differed slightly to Lindley LJ on what time period one could contract flu and still have a claim (Lindley LJ said a "reasonable time" after use, while Bowen LJ said "while the smokeball is used") but this was not a crucial point, because the fact was the Mrs Carlill got flu while using the smokeball. Second, like Lindley LJ, Bowen LJ says that the advert was not mere puff because £1000 was deposited in the bank to pay rewards. Third, he said that although there was an offer to the whole world, there was not a contract with the whole world. Therefore, it was not an absurd basis for a contract, because only the people that used it would bind the company. Fourth, he says that communication is not necessary to accept the terms of an offer; conduct is and should be sufficient. Fifth, there was clearly good consideration given by Mrs Carlill because she went to the "inconvenience" of using it, and the company got the benefit of extra sales.

I am of the same opinion. We were asked to say that this document was a contract too " vague to be enforced.

J ^ ^ The first observation which arises is that the document itself is not a contract at all, it is only an offer made to the public. The defendants contend next, that it is an offer the terms of which are too vague to be treated as a definite offer, inasmuch as there is no limit of time fixed for the catching of the influenza, and it cannot be supposed that the advertisers seriously meant to promise to pay money to every person who catches the influenza at any time after the inhaling of the smoke ball. It was urged also, that if you look at this document you will find much vagueness as to the persons with whom the contract was intended to be made - that, in the first place, its terms are wide enough to include persons who may have used the smoke ball before the advertisement was issued; at all events, that it is an offer to the world in general, and, also, that it is unreasonable to suppose it to be a definite offer, because nobody in their senses would contract themselves out of the opportunity of checking the experiment which was going to be made at their own expense. It is also contended that the advertisement is rather in the nature of a puff or a proclamation than a promise or offer intended to mature into a contract when accepted. But the main point seems to be that the vagueness of the document shews that no contract whatever was intended. It seems to me that in order to arrive at a right conclusion we must read this advertisement in its plain meaning, as the public would understand it. It was intended to be issued to the public and to be read by the public. How would an ordinary person reading this

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document construe it? It was intended unquestionably to have some effect, and I think the effect which it was intended to have, was to make people use the smoke ball, because the suggestions and allegations which it contains are directed immediately to the use of the smoke ball as distinct from the purchase of it. It did not follow that the smoke ball was to be purchased from the defendants directly, or even from agents of theirs directly. The intention was that the circulation of the smoke ball should be promoted, and that the use of it should be increased. The advertisement begins by saying that a reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic after using the ball. It has been said that the words do not apply only to persons who contract the epidemic after the publication of the advertisement, but include persons who had previously contracted the influenza. I cannot so read the advertisement. It is written in colloquial and popular language, and I think that it is equivalent to this:

" 1001. will be paid to any person who shall contract the increasing epidemic after having used the carbolic smoke ball three times daily for two weeks."

And it seems to me that the way in which the public would read it would be this, that if anybody, after the advertisement was published, used three times daily for two weeks the

^ carbolic smoke ball, and then caught cold, he would be entitled to the reward. Then again it was said: "How long is this protection to endure? Is it to go on for ever, or for what limit of time?".I think that there are two constructions of this document, each of which is good sense, and each of which seems to me to satisfy the exigencies of the present action. It may mean that the protection is warranted to last during the epidemic, and it was during the epidemic that the plaintiff contracted the disease. I think, more probably, it means that the smoke ball will be a protection while it is in use. That seems to me the way in which an ordinary person would understand an advertisement about medicine, and about a specific against influenza. It could not be supposed that after you have left off using it you are still to be protected for ever, as if there was to be a stamp set upon your forehead that you were never to catch influenza because you had once used the carbolic smoke ball. I think the immunity is to last during the use of the ball. That is the way in which I should naturally read it, and it seems to me that the subsequent language of the advertisement supports that construction. It says: "During the last epidemic of influenza many thousand carbolic smoke balls were sold, and in no ascertained case was the disease contracted by those using" (not

t "who had used") "the carbolic smoke ball," and it concludes with saying that one smoke A ball will last a family several months (which imports that it is to be efficacious while it is

being used), and that the ball can be refilled at a cost of 5s. I, therefore, have myself no hesitation in saying that I think, on the construction of this advertisement, the protection was to enure during the time that the carbolic smoke ball was being used. My brother, the Lord Justice who preceded me, thinks that the contract would be sufficiently definite if you were to read it in the sense that the protection was to be warranted during a reasonable period after use. I have some difficulty myself on that point; but it is not necessary for me to consider it further, because the disease here was contracted during the use of the carbolic smoke ball.

Was it intended that the 1001. should, if the conditions were fulfilled, be paid? The advertisement says that 10001. is lodged at the bank for the purpose. Therefore, it cannot be said that the statement that 1001. would be paid was intended to be a mere puff. I think it was intended to be understood by the public as an offer which was to be acted upon.

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But it was said there was no check on the part of the persons who issued the advertisement, and that it would be an insensate thing to promise 1001. to a person who used the smoke ball unless you could check or superintend his manner of using it. The answer to that argument seems to me to be that if a person chooses to make extravagant promises of this kind he probably does so because it pays him to make them, and, if he has made them, the extravagance of the promises is no reason in law why he should not be bound by them.

It was also said that the contract is made with all the world - that is, with everybody; and that you cannot contract with everybody. It is not a contract made with all the world. There is the fallacy of the argument. It is an offer made to all the world; and why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? It is an offer to become liable to any one who, before it is retracted, performs the condition, and, although the offer is made to the world, the contract is made with that limited portion of the public who come forward and perform the condition on the faith of the advertisement. It is not like cases in which you offer to negotiate, or you issue advertisements that you have got a stock of books to sell, or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate - offers to receive offers - offers to chaffer, as, I think, some learned judge in one of the cases has said. If this is an offer to be bound, then it is a contract the moment the person fulfils the condition. That seems to me to be sense, and it is also the ground on which all these advertisement cases have been decided during the century; and it cannot be put better than in Willes, J.'s, judgment in Spencer v Harding. "In the advertisement cases," he says,

"there never was any doubt that the advertisement amounted to a promise to pay the money to the person who first gave information. The difficulty suggested was that it was a contract with all the world. But that, of course, was soon overruled. It was an offer to become liable to any person who before the offer should be retracted should happen to be the person to fulfil the contract, of which the advertisement was an offer or tender. That is not the sort of difficulty which presents itself here. If the circular had gone on, 'and we undertake to sell to the highest bidder,' the reward cases would have applied, and there would have been a good contract in respect of the persons."

As soon as the highest bidder presented himself, says Willes, J., the person who was to hold the vinculum juris on the other side of the contract was ascertained, and it became settled.

Then it was said that there was no notification of the acceptance of the contract. One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary according to the English law - I say nothing about the laws of other countries - to make a contract. But there is this clear gloss to be made upon that doctrine, that as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose there can be no doubt that where a person in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as

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sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer, expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification.

That seems to me to be the principle which lies at the bottom of the acceptance cases, of which two instances are the well-known judgment of Mellish, LJ, in Harris's Case^ and the very instructive judgment of Lord Blackburn in Brogden v Metropolitan Ry Co/5-' in which he appears to me to take exactly the line I have indicated.

Now, if that is the law, how are we to find out whether the person who makes the offer does intimate that notification of acceptance will not be necessary in order to constitute a binding bargain? In many cases you look to the offer itself. In many cases you extract from the character of the transaction that notification is not required, and in the advertisement cases it seems to me to follow as an inference to be drawn from the transaction itself that a person is not to notify his acceptance of the offer before he performs the condition, but that if he performs the condition notification is dispensed with. It seems to me that from the point of view of common sense no other idea could be entertained. If I advertise to the world that my dog is lost, and that anybody who brings the dog to a particular place will be paid some money, are all the police or other persons whose business it is to find lost dogs to be expected to sit down and write me a note saying that they have accepted my proposal? Why, of course, they at once look after the dog, and as soon as they find the dog they have performed the condition. The essence of the transaction is that the dog should be found, and it is not necessary under such circumstances, as it seems to me, that in order to make the contract binding there should be any notification of acceptance. It follows from the nature of the thing that the performance of the condition is sufficient acceptance without the notification of it, and a person who makes an offer in an advertisement of that kind makes an offer which must be read by the light of that common sense reflection. He does, therefore, in his offer impliedly indicate that he does not require notification of the acceptance of the offer.

A further argument for the defendants was that this was a nudum pactum - that there was no consideration for the promise - that taking the influenza was only a condition, and that the using the smoke ball was only a condition, and that there was no consideration at all; in fact, that there was no request, express or implied, to use the smoke ball. Now, I will not enter into an elaborate discussion upon the law as to requests in this kind of contracts. I will simply refer to Victors v Davies^ and Serjeant Manning's note to Fisher v Pyne,^ which everybody ought to read who wishes to embark in this controversy. The short answer, to abstain from academical discussion, is, it seems to me, that there is here a request to use involved in the offer. Then as to the alleged want of consideration. The definition of "consideration" given in Selwyn's Nisi Prius, 8th ed. p. 47, which is cited and adopted by Tindal CJ, in the case of Laythoarp v Bryant^^ is this:

"Any act of the plaintiff from which the defendant derives a benefit or advantage, or any labour, detriment, or inconvenience sustained by the plaintiff, provided such act is performed or such inconvenience suffered by the plaintiff, with the consent, either express or implied, of the defendant."

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V' Li 11 v Carbolic Smoke Ball Company - Wikipedia, the free encyclo... file:///E:/Carlill_v_Carbolic_Smoke_Ball_Company.hti

Can it be said here that if the person who reads this advertisement applies thrice daily, for such time as may seem to him tolerable, the carbolic smoke ball to his nostrils for a whole fortnight, he is doing nothing at all - that it is a mere act which is not to count towards consideration to support a promise (for the law does not require us to measure the adequacy of the consideration). Inconvenience sustained by one party at the request of the other is enough to create a consideration. I think, therefore, that it is consideration enough that the plaintiff took the trouble of using the smoke ball. But I think also that the defendants received a benefit from this user, for the use of the smoke ball was contemplated by the defendants as being indirectly a benefit to them, because the use of the smoke balls would promote their sale.

Then we were pressed with Gerhard v Bates In Gerhard v Bates, which arose upon demurrer, the point upon which the action failed was that the plaintiff did not allege that the promise was made to the class of which alone the plaintiff was a member, and that therefore there was no privity between the plaintiffs and the defendant. Then Lord Campbell went on to give a second reason. If his first reason was not enough, and the plaintiff and the defendant there had come together as contracting parties and the only question was consideration, it seems to me Lord Campbell's reasoning would not have been sound. It is only to be supported by reading it as an additional reason for thinking that they had not come into the relation of contracting parties; but, if so, the language was superfluous. The truth is, that if in that case you had found a contract between the parties there would have been no difficulty about consideration; but you could not find such a contract. Here, in the same way, if you once make up your mind that there was a promise made to this lady who is the plaintiff, as one of the public - a promise made to her that if she used the smoke ball three times daily for a fortnight and got the influenza, she should have 1001., it seems to me that her using the smoke ball was sufficient consideration. I cannot picture to myself the view of the law on which the contrary could be held when you have once found who are the contracting parties. If I say to a person, "If you use such and such a medicine for a week I will give you 51.," and he uses it, there is ample consideration for the promise.

Lord Justice A L Smith

AL Smith LJ's judgment was more general and concurred with both Lindley LJ and Bowen LJ's decisions.

• • The first point in this case is, whether the defendants' advertisement which appeared in the Pall Mall Gazette was an offer which, when accepted and its conditions performed, constituted a promise to pay, assuming there was good consideration to uphold'that promise, or whether it was only a puff from which no promise could be implied, or, as put by Mr. Finlay, a mere statement by the defendants of the confidence they entertained in the efficacy of their remedy. Or as I might put it in the words of Lord Campbell in Denton v Great

n

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Northern Ry. Co.J1 ^ whether this advertisement was mere waste paper. That is the first matter to be determined. It seems to me that this advertisement reads as follows:

"1001. reward will be paid by the Carbolic Smoke Ball Company to any person who after having used the ball three times daily for two weeks according to the printed directions supplied with such ball contracts the increasing epidemic influenza, colds, or any diseases caused by taking cold. The ball will last a family several months, and can be refilled at a cost of 5s."

If I may paraphrase it, it means this: "If you" - that is one of the public as yet not ascertained, but who, as Lindley and Bowen, L.JJ., have pointed out, will be ascertained by the performing the condition — "will hereafter use my smoke ball three times daily for two weeks according to my printed directions, I will pay you 1001. if you contract the influenza within the period mentioned in the advertisement." Now, is there not a request there? It comes to this: "In consideration of your buying my smoke ball, and then using it as I prescribe, I promise that if you catch the influenza within a certain time I will pay you 1001." It must not be forgotten that this advertisement states that as security for what is being offered, and as proof of the sincerity of the offer, 10001. is actually lodged at the bank wherewith to satisfy any possible demands which might be made in the event of the conditions contained therein being fulfilled and a person catching the epidemic so as to entitle him to the 1001. How can it be said that such a statement as that embodied only a mere expression of confidence in the wares which the defendants had to sell? I cannot read the advertisement in any such way. In my judgment, the advertisement was an offer intended to be acted upon, and when accepted and the conditions performed constituted a binding promise on which an action would lie, assuming there was consideration for that promise. The defendants have contended that it was a promise in honour or an agreement or a contract in honour - whatever that may mean. I understand that if there is no consideration for a promise, it may be a promise in honour, or, as we should call it, a promise without consideration and nudum pactum-, but if anything else is meant, I do not understand it. I do not understand what a bargain or a promise or an agreement in honour is unless it is one on which an action cannot be brought because it is nudum pactum, and about nudum pactum I will say a word in a moment.

In my judgment, therefore, this first point fails, and this was an offer intended to be acted ^ ^ upon, and, when acted upon and the conditions performed, constituted a promise to pay.

In the next place, it was said that the promise was too wide, because there is no limit of time within which the person has to catch the epidemic. There are three possible limits of time to this contract. The first is, catching the epidemic during its continuance; the second is, catching the influenza during the time you are using the ball; the third is, catching the influenza within a reasonable time after the expiration of the two weeks during which you have used the ball three times daily. It is not necessary to say which is the correct construction of this contract, for no question arises thereon. Whichever is the true construction, there is sufficient limit of time so as not to make the contract too vague on that account.

Then it was argued, that if the advertisement constituted an offer which might culminate in a contract if it was accepted, and its conditions performed, yet it was not accepted by the

• « •••

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plaintiff in the manner contemplated, and that the offer contemplated was such that notice of the acceptance had to be given by the party using the carbolic ball to the defendants before user, so that the defendants might be at liberty to superintend the experiment. All I can say is, that there is no such clause in the advertisement, and that, in my judgment, no such clause can be read into it; and I entirely agree with what has fallen from my Brothers, that this is one of those cases in which a performance of the condition by using these smoke balls for two weeks three times a day is an acceptance of the offer.

It was then said there was no person named in the advertisement with whom any contract was made. That, I suppose, has taken place in every case in which actions on advertisements have been maintained, from the time of Williams v Carwardineand before that, down to the present day. I have nothing to add to what has been said on that subject, except that a person becomes a persona designata and able to sue, when he performs the conditions mentioned in the advertisement.

O Lastly, it was said that there was no consideration, and that it was nudum pactum. There are two considerations here. One is the consideration of the inconvenience of having to use this carbolic smoke ball for two weeks three times a day; and the other more important consideration is the money gain likely to accrue to the defendants by the enhanced sale of the smoke balls, by reason of the plaintiffs user of them. There is ample consideration to support this promise. I have only to add that as regards the policy and the wagering points, in my judgment, there is nothing in either of them.

Legacy and modern perspectives

Carlill is frequently cited as a leading case in the common law of contract, particularly where unilateral contracts are concerned. This is perhaps due to the ingenuity of Counsel for the Defendant in running just about every available defence, requiring the court to deal with these points in turn in the judgment.

tovides an excellent study of the basic principles of contract and how they relate to every day life. The remains good law. It still binds the lower courts of England and Wales and is cited by judges with

approval/12^ However, in addition to the contractual remedy afforded to users, the same facts would give rise to a number of additional statutory remedies and punishments were an individual to place an advert in the same terms today.

Firstly, misleading advertising is a criminal offence. Under the Consumer Protection from Unfair Trading Regulations 2008/1277 (http://www.opsi.gov.uk/si/si2008/uksi_20081277_en_l) (secondary legislation, passed under the European Communities Act 1972), regulation 5 states that a commercial practice is misleading...

"if it contains false information and is therefore untruthful... or if it or its overall presentation in any way deceives or is likely to deceive the average consumer... even if the information is factually correct"

...in relation to a long list of actions and omissions by sellers. Misleading practices are unfair (r 3) and unfair practices are prohibited (r 4). They are also criminal offences (rr 8-18) and overseen by stringent enforcement mechanisms (rr 19-27)J13^ Sellers still have a defence of legitimate "puffery", or that their

http://www.opsi.gov.uk/si/si2008/uksi_20081277_en_l

V p p F v Carbolic Smoke Ball Company - Wikipedia, the free encyclo... file:///E:/Carlill_v_Carbolic_Smoke_Ball_Company.l

representations could not be taken seriously (e.g. "this washing powder makes your clothes whiter than white!").

v'

Secondly, although it was not discussed in the case, there was evidence at the time that using the smokeball actually made people more vulnerable to the flu (carbolic acid was put on the poisons register in 1900). The General Product Safety Regulations 2005/1803 (http://www.opsi.gov.uk/si/si2005/20051803.htm) which are part of a European Union wide consumer protection regime (Directive 2001/95/EC (http://eur-lex.europa.eu/smartapi/cgi/sga_doc?smartapi%21 celexapi%2 lprod%21 CELEXnumdoc&lg=en& numdoc=:32001L0095&model=guichett) ) again provide criminal penalties for unsafe products.

Thirdly, the Consumer Protection Act 1987 (which is also part of EU wide regulation under Directive 85/374/EEC (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31985L0374:EN:HTML)

creates a statutory tort of strict liability for defective products that cause any kind of personal injury or death, or damage over £100. This is the primary method for individuals to get compensation for any loss resulting from products. Similar regimes for product liability have developed around the world through statute and tort law since the early twentieth century, one of the leading cases being Donoghue v Stevenson.

, Fourthly, under the Enterprise Act 2002, s 8, as in most developed countries, industry members form a associations. Businesses are expected to collectively regulate one another by drawing up Codes of

^^ractice and have mechanisms for enforcement before tort or criminal law does.

Viewed with a modern eye, many have argued that Carlill should be seen as redolent of another era, not a foundational case in the law of contract. For instance, Professor Hugh Collins writes the following.

"The amusing circumstances of the case should not obscure the surprising extent to which the court was prepared to conceive social relations in terms of contracts. The parties to the alleged contract had never met or communicated with each other directly. Nor had they exchanged goods, money or services between themselves. The law of contract is used by the court as an instrument for discouraging misleading and extravagant claims in advertising and for deterring the marketing of unproven, and perhaps dangerous pharmaceuticals... The judges run through a shopping-list of questions: Was there a promise? Was the promise serious and intended to be acted upon? Was the promise sufficiently definite and certain? Was the promise accepted by the plaintiff? Did the plaintiff perform some action in exchange for the promise?... The generality and abstraction of the rules permit both the extensive utilization of [contract law]

• and its application to the case, without any discussion of such matters as the moral claims of the parties, the nature of the market for pharmaceuticals and the problems generated by misleading advertising... Its doctrinal integrity helps to achieve legitimacy, because the law can be presented as objective and neutral, not a matter of politics or preference, but a settled body of rules and principles, legitimated by tradition and routine observance, and applied impartially and fairly to all citizens."^15-'

Professor A. W. B. Simpson, in an article entitled 'Quackery and Contract L a W ^ gave the background of the case as part of the scare arising from the Russian influenza pandemic of 1889-90. He points out that nobody knew what the flu actually was yet, nor how to prevent or cure it. After it was patented, the Carbolic Smoke Ball had in fact become rather popular in many esteemed circles including the Bishop of London who found it "has helped me greatly" J17^ The inventor, Frederick Roe, had advertised heavily when the epidemic hit London, which was getting extensive press coverage. But in the Pall Mall Gazette (just one instance where he put ads) there were many, many more quack remedies for misunderstood

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http://www.opsi.gov.uk/si/si2005/20051803.htm

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31985L0374:EN:HTML


problems. Once the case had been decided by the Court of Appeal, it met with general approval, but especially so from the medical community. The Pharmaceutical Society of Great Britain had been fighting an ongoing battle against quack remedies, and had wanted specifically to get carbolic acid on the poisons register since 1882. Although without sympathy for the Carbolic Smoke Ball Company itself, Simpson casts doubt on whether Carlill was rightly decided.

"The analytical problems arose in a particularly acute form in the smoke ball case. Thus it seemed very peculiar to say that there had been any sort of agreement between Mrs Carlill and the company, which did not even know of her existence until January 20, when her husband wrote to them to complain. There were indeed earlier cases permitting the recovery of advertised rewards; the leading case here was Williams v Carwardine, where a reward of £20 had been promised by a handbill for information leading to the conviction of the murderer of Walter Carwardine, and Williams, who gave such information, successfully sued to recover the reward. But this was long before the more modern doctrines had become so firmly embodied in

(' ' legal thinking, and in any event the case was quite distinguishable. It concerned a reward, whereas Mrs Carlill was seeking compensation. There could be at most only a few claimants for this, but there is no limit on the number of those who may catch influenza. Furthermore, the Carbolic Smoke Ball Company had had no chance to check the validity of claims, of which there could be an indefinite number; much was made of this point in the argument. But the judges were not impressed with these difficulties, and their attitude was no doubt influenced by the view that the defendants were rogues. They fit their decision into the structure of the law by boldly declaring that the performance of the conditions was the acceptance, thus fictitiously extending the concept of acceptance to cover the facts. And, since 1893, law students have been introduced to the mysteries of the unilateral contract through the vehicle of Carlill v Carbolic Smoke Ball Co. and taught to repeat, as a sort of magical incantation of contract law, that in the case of unilateral contracts performance of the act specified in the offer constitutes acceptance, and need not be communicated to the offeror."

In a much more recent American case from the Southern District of New York, Leonard v Pepsico, Inc J18^ Judge Kimba Wood wrote,

^ "Long a staple of law school curricula, Carbolic Smoke Ball owes its fame not merely to "the comic and slightly mysterious object involved"... but also to its role in developing the law of unilateral offers."

Mr Leonard had sued Pepsi to get a fighter jet which had featured in a TV ad. Supposedly one might get the jet if one had acquired loads of "Pepsi Points" from buying the soft drink. It was held that Mr Leonard could not get the fighter jet, because the advertisement was not serious. Cashing in "Pepsi Points" could certainly mean various prizes, but the fighter jet thing was really a joke. Kimba Wood J distinguished the case on a number of different grounds from Carlill, but it is clear that not all advertisements are always to be taken seriously.

Aftermath

f 16 •7/c/onm n . 1 1 r»»


After the action, Mr Roe formed a new company with limited liability, and started up advertising again. Many people conclude after reading the case that the Carbolic Smoke Ball ("ompany would have been brought down by thousands of claims. The company did not have limited liability, which could have meant personal ruin for Mr Roe. In his submissions to the Court of Appeal, Finlay QC had used that as an argument against liability. He said that 10,000 people might now be sniffing at Smokeballs hoping for their £100, and it would be a travesty to inflict insolvency on this one unfortunate company. But this did not happen at all. In a new advert on February 25, 1893 in the Illustrated London News, Mr Roe cunningly turned the whole lost case to his advantage. He described the culpable advert, and then said,

"Many thousand Carbolic Smoke Balls were sold on these advertisements, but only three people claimed the reward of £100, thus proving conclusively that this invaluable remedy will prevent and cure the above mentioned diseases.

^ The CARBOLIC SMOKE BALL COMPANY LTD. now offer £200 REWARD to the person ^ who purchases a Carbolic Smoke Ball and afterwards contracts any of the following diseases..."

In the advertisement's small print were some restrictive conditions, with a period of 3 months to use the ball and claim, showing that legal advice had been adhered to. Mr Roe left the management of the new company to other new subscribers and directors, who did not pursue such an aggressive advertising policy. By 1895 the company had fallen on harder times, and it had to be wound up in 1896. Simpson suggests that the new management "had failed to grasp the fact that vigorous advertising was essential to success in the field of quack medicine." Mr Roe himself died at the age of 57 on June 3, 1899 of tuberculosis and valvular heart disease.

Mrs Louisa Carlill, however, lived to the ripe old age of 96. She died on March 10, 1942, according to her doctor, Mr Joseph M. Yarman, principally of old ageJ19^ There was one cause noted: influenza J20-"-21]

See also

• English contract law • Contract • Offer and acceptance • Invitation to treat

• Partridge v Crittenden • Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd • Wood v Letrick Ltd (The Times, January 12 and 13, 1932), a plaintiff recovered £500 for using a

useless electric comb. It claimed to remove all grey hair and was advertised with a "£500 guarantee".

Notes

1. A £7,792.31 in 2007 pounds/roughly $15,390 mid-2008 US dollars

2. A [1893] 1 Q.B. 256, 262-275 3. A The leading case of the time, which said that

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ANNEXURE-4B

Sindh Judicial Academy CONTRACT

A G R E E M E N T +

Terms of the Contract

• Type of Terms

• Nature of Terms

• Cases on Terms

E N F O R C E A B I L I T Y

y

Remedies/Consequences

• Measurement & Causes

•Nature of Remedies

• Cases on Remedies

; T E ^ M ^ OF^ThrtL ( ^ J M C T ; ANNEXURE-4A As a general principle, the parties to a contract may include in their contract whatever terms they choose.

The agreement reached on the terms must be complete in order to be legally binding and those terms must

be sufficiently clear and precise (Scammell v Ouston 1941). However, it is always possible for the parties to

leave an essential term to be settled by specified means outside the contract, for example by agreeing to sell

at open market value on the day of delivery or to invite an arbitrator to determine a fair price (Hillas & Co Ltd

vArcos Ltd 1932).

An express term may be defined as any term which has been included by the parties. It may be written or

unwritten and the court will ascertain as a question of fact whether any oral statement constitutes a term of

the contract or simply a representation. However, if a contract exists and contains all necessary terms to

make it an effective contract, generally speaking oral evidence will not be admitted in order to add to, vary or

contradict any of the written terms.

An implied term is one which is deemed to form part of a contract even though not expressly stated by the

parties, whether orally or in writing . Some terms are implied by the courts as necessary to give effect to the

parties' presumed intentions or by statute or in accordance with relevant trade practices. Implied terms can

normally be excluded or varied by the parties save where this is prevented by relevant statutory provisions.

The usual reason for a court to imply a term in a contract is in order to give business efficacy to that contract. In

such cases the term which is implied will be one which, it appears to the court, the parties inadvertently omitted or

which is so obv.ous that it goes without saying and it can be assumed that the parties simply took it for granted

that such a term would apply. The courts will be keen to prevent the failure of an otherwise sound contract and to

implement the manifested intention of the parties (The Moorcock 1889). The courts have also established a

number of implied terms into employment contracts concerning employers' and employees' duties.

Terms will be implied by statute where that is the expressed intention of the legislation, for example under the

Sale of Goods Act 1979, terms are implied as to the vendor's title and the description and quality of the goods in a

contract for the sale of goods. In some cases, the statute provides that the implied terms cannot be overridden

(there are several instances of this in SGA1979, but in others, express provisions to the contrary will prevail).

The parties may be considered to have entered into a contract subject to a custom or practice of their trade. In Hutton v Warren 1836, the defendant landlord gave the claimant, a tenant farmer, notice to quit the

farm. He insisted that the tenant should continue to farm the land during the period of notice. The tenant

asked for 'a fair allowance' for seeds and labour from which he received no benefit (as he left before harvest

time). It was held that by custom he was bound to farm the land until the end of the tenancy, but he was also

entitled to a fair allowance for seeds and labour. However, any express term overrides a term which might

be implied by custom (Les Affreteurs v Watford 1919).

In the absence of any express provision describing the contractual term as a condition or warranty (or any

statutory provision which implies certain conditions and warranties, as for example may be found in the Sale

of Goods Act), the court will seek to construe what was the intention of the parties at the time of the

contract as to whether a broken term was to be a condition or warranty (Bunge Corporation v Tradax SA

1981).

Where the intention is not clear, then the term is described as an innominate term and must be interpreted in the light of the actual effect of the breach. If the effect of the breach is to deprive the injured party of 'substantially the whole benefit of the contract' then the term will be treated as a condition giving rise to a right to treat the contract as repudiated and sue for damages. If the effect of the breach is not so severe, the injured party's rights will be the same as for breach of an express warranty.

In the case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisa Kaisha Ltd 1962, a term that provided for the

claimants to supply a ship which was 'in every way fitted for ordinary cargo service' was held to be

innominate as it could not automatically be construed as either a condition or a warranty. The court held that

the effect of the breach of this innominate term (the ship was not available for 7 out of 24 months) was

insufficient to be regarded as breach of condition and did not justify terminating the contract.

ANNEXURE-4B

: fyP&S O f luLftni /

Contractual terms are statements or promises which are incorporated into a contract. The contracting parties are

contractually bound to observe and perform contractual terms and in the event ot breach, the injured party's

remedies will depend on whether the term is classified as a condition or a warranty.

(a) Conditions A condition is a vital term of the contract which goes right to the heart of the contract, breach of which

allows the innocent party to treat the agreement as terminated and sue for damages. Alternatively, he may

elect to affirm the contract, in which case he can still sue for damages for any loss but must continue with

his own obligations.

In the leading case of Poussard v,Spiers 1876 it was held that failure by an opera singer to appear on the

opening night of a series of performances amounted to breach of a condition and the producer had been

entitled to treat the contract for the remaining performances as discharged.

(b) Warranties A warranty is a subsidiary contractual term which is less fundamental and breach of it gives only a right to damages, not to treat the contract as discharged.

If a party to the contract attempts to repudiate the contract following a breach of warranty, this will amount

to a wrongful repudiation. This would therefore make the party initially in breach open to a claim for breach

of contract.

In contrast to the Poussard case, above, the case of Bettini v Gye 1876 involved an opera singer who was booked to arrive six days before the first performance in order to attend rehearsals. He arrived three days before the first performance and it was held that this was a breach of a warranty. The defendants were not entitled to treat the contract as discharged and were ordered to compensate the claimant, whose services they had refused to accept.

(c) Innominate terms

In the absence of any express provision describing the contractual term as a condition or warranty (or any

statutory provision which implies certain conditions and warranties, as for example may be found in the Sale

of Goods Act), the court will seek to construe what was the intention of the parties at the time of the contract as to whether a broken term was to be a condition or warranty (Bunge Corporation v Tradax S/t 1981).

Where the intention is not clear, then the term is described as an innominate term and must be interpreted

in the light of the actual effect of the breach. If the effect of the breach is to deprive the injured party of

'substantially the whole benefit of the contract' then the term will be treated as a condition giving rise to a

right to treat the contract as repudiated and sue for damages. If the effect of the breach is not so severe, the

injured party's rights will be the same as for breach of an express warranty.

In the case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisa Kaisha Ltd 1962, a term that provided for the

claimants to supply a ship which was 'in every way fitted for ordinary cargo service' was held to be

innominate as it could not automatically be construed as either a condition or a warranty. The court held that

the effect of the breach of this innominate term (the ship was not available for 7 out of 24 months) was

insufficient to be regarded as breach of condition and did not justify terminating the contract.

•

\

22 Exclusion clauses ANNEXURE-4C

(a) An exclusion clause, or exemption clause, can be defined as a clause in a contract which purports to exclude liability altogether or to restrict it by limiting damages or by imposing other onerous conditions . As a general principle of contract law, the courts will not usually interfere where two parties negotiate a

contract from positions of comparable bargaining strength. However, the law will seek to protect a weaker party, for example ,n the case of standard term contracts put forward by the party in the stronger bargaining

position. The validity of exclusion clauses is governed by the common law, the Unfair Contract Terms Act

1977 and a number of other statutory regulations.

(b) (i) The common law provides that an exclusion clause must be properly incorporated into a contract, or

in a document which is an integral part of the contract, before it can be effective (Chapelton v Barty

UDCj. Provided this is the case, a term cannot usually be disputed if the document has been signed, even if the signatory could not read the terms (L'Estrange v Graucob), unless the party putting

forward the document gives a misleading explanation of the term's effects (Curtis v Chemical

Cleaning Co).

In the case of an unsigned contract, then it must be shown either that the party affected actually knew of the clause or that the person seeking to rely on the exemption clause has taken reasonable steps to

bring the existence of the clause to the attention of the other party at the time of or before the contract

was made. Thus a sign on a hotel room wall was not incorporated into the contract between hotel and

client since it was not seen until after the contract was made (Olley v Marlborough Court). The court

will have regard to the nature of the liability which is being excluded when deciding whether a clause

has been effectively incorporated. If the terms are particularly unusual or wide, a more prominent

notice may be necessary (Thornton v Shoe Lane Parking Ltd). Prior notice of the terms is not

necessary, however, where the parties have had previous consistent dealings and the documents used

previously contained similar terms (even if the claimant has never read them (Spurting v Bradshaw)).

Where there have been previous dealings, but not on a consistent basis, then the party to be bound by

the term must be sufficiently aware of it at the time of making the latest contract (Hollier v Rambler

Motors). A particularly unusual or onerous term must be highlighted if it is to be incorporated into the

contract (Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd).

At common law, under the contra proferentem rule, the courts interpret exclusion clauses strictly and

in favour of the weaker party. They presume that the clause is not intended to defeat the main

purpose of the contract. A general exemption will not be interpreted so as to cover negligence (Hollier

v Rambler Motors) unless to do so is the only means by which the clause is given meaning

(Alderslade v Hendon Laundry).

(ii) The scope of the common law in governing exclusion clauses has been significantly curtailed by

extensive statutory provisions. The main statutory limitations on exclusion clauses are contained in

the Unfair Contract Terms Act 1977. The Act applies to clauses inserted into most agreements by

commercial concerns or businesses (there are some exceptions, such as insurance contracts) and

provides that some clauses shall be void and some valid only as far as they are reasonable.

Thus liability for personal injury or death due to negligence may never be excluded (s 2(1)). An

exemption for loss due to negligence in other circumstances will be valid only insofar as it is

reasonable (s 2). 'Negligence' covers breach of contractual obligations of skill and care and the

common law duty of skill and care. Reasonableness is to be considered with reference to the factors

in s 11 and s 2. The court will consider the relative strength of the parties' bargaining power, whether

an inducement was offered to the customer, whether the customer knew or ought to have known of

the exemption clause and whether compliance with the contract's terms (so that the exemption

clause would never be needed) was practicable (Sch 2). The burden of proof lies with the person

relying on the clause and the court will consider the factors outlined above in reaching a decision.

This will be a matter of fact.

A term in a guarantee of goods which excludes or limits liability for loss or damage caused by a

defect of the goods in consumer use (s 5) will be void, as will a clause in any contract for the sale of

^ goods which excludes the condition that the seller has a right to sell the goods (s 6). Likewise a

clause which purports to exclude or limit liability for breach of the conditions relating to description, quality, fitness or sample (ss 6 and 7) will be void in a consumer contract and subject to the

reasonableness test in a non-consumer contract.

DISCHARGMENT OF CONTRACT

Q.

A.

What are the ways in which a contract can be discharged?

A Contract can be discharged in following ways.

Actual performance.

Attempted performance or tender -By performance

"By agreement

Novation

Alteration

Rescission

Remission

->By Subsequent Impossibility

Destruction of subject matter

Failure of ultimate purpose

••Death or personal in capacity

Change of law.

Out break of war

-> By operation of law

f Insolvency

Mergers

->By lapse of time Limitation Act

-> By breach of contract

Actual Breach

Anticipatory breach

U N IT 2 Contracts ANNEXURE-4D

a boilerplate term is a stan-dard provision that can be reused in various contractual settings in a virtually unchanged form

Boilerplate Terms Standard form agreements often includc a number of boilerplate terms. A boi lerpla te t e rm is a standard provision that can be reused in various con-tractual settings in a virtually unchanged form. Boilerplate clauses often help to provide a framework for commercial agreements. Without them, many of the parties' substantive rights that are contained in an agreement would have little meaning. Lawyers have come to rely on boilerplate terms to satisfy clients who require contracts to be drafted in a hurry at as little expense as possible. Because they play such an important role in many business transactions, we will briefly consider some of the more common types of boilerplate terms:

• exclusion clauses • force majeure clauses • confidentiality clauses • arbitration clauses • jurisdiction clauses • entire agreement clauses

Exclusion Clauses Many standard form agreements contain exclusion clauses, terms that arc designed to protect one party from various sorts of legal liability. (An example of an exclusion clause is on the following page.) Exclusion clauses may be per-fectly legitimate as long as they meet the certain requirements. See the section on exclusion clauses in this chapter.

A difficult question arises if the party trying to rely on an exclusion clause acted in a way that deprived the other party of substantially the whole benefit of a contract. Suppose you own a factory and enter into a contract with a secu-rity company to patrol your building on a regular basis. The security company's standard form contract excludes liability against "burglary, theft, fire, or any other cause." Although these are the very things that you are seeking to avoid in your decision to hire security, you figure that the low monthly fee makes the risk of agreeing to exclude liability seem reasonable. While making the required rounds one day, the security guard decides to light a small fire, which eventu-ally burns out of control and destroys your entire factory. Should the security company be able to take advantage of the exclusion clause, even though it failed to perform the fundamental term of the contract—to secure, rather than to destroy, your factory? To allow the security company to rely on the clause seems unjust, since it was the security company's misperformance of the contract that ultimately deprived you of its entire benefit.

The Supreme Court of Canada has held that an exclusion clause should generally be enforced according to its true meaning, even if the party relying on the exclusion clause has failed to live up to its end of the bargain and thereby deprived the other party of substantially the whole benefit to he obtained under the contract. However, it also held that an exclusion clause will not be enforced if it is "unconscionable" or if it would be "unfair or unreasonable" to enforce the exclusion clause."

31 Hunter Engineering Co v Svncrude Canada Ltd (1989) 57 D L R (4th) 421 (SCC).

i

A P P E N D I X 4A Boilerplate Terms 29

Exclusion Clause The Great Canadian Adventure Company

The Great Canadian Adventure Company: 1, , hereby acknowledge and agree that in my participation in adventure activities by The Great Canadian Adventure Company:

I will not hold The Great Canadian Adventure Company, its officers, directors and employees responsible for any injury, death, accident, illness, delay, personal loss, personal property damage or other loss sustained by me and hereby release The Great Canadian Adventure Company, its officers, directors and employees due to any cause whatsoever, including without limitation, negligence on the part of The Great Canadian Adventure Company or its employees. T further aqree to indemnify The Great Canadian Adventure Company and its employees for any and all legal fees (on a solicitor and his own client basis) or costs which may be incurred in defending any law-suit or claim I may bring against them.

2. AND I DO HEREBY ACKNOWLEDGE AND AGREE THAT: (a) I will participate in adventure activities entirely at my own risk. Participation in any out-

door activity and travel in natural, outdoor environments involve inherent risks, dangers and hazards. These risks may include, but are not limited to: natural disasters, forces of nature, weather conditions, rugged or steep terrain, avalanches, rock fall, slippery foot-ing, water, isolation from medical facilities, difficult evacuation, equipment failure, mechanical breakdown, human error and accidents. These and other risks may cause serious injury, illness, death, personal property damage or personal losses.

(b) That this Waiver of all Claims, Release from Liability and Assumption of Risk is binding myself, my heirs, my executors, administrators, personal representatives and assigns.

(c) That the term "adventure activities" as used in the Waiver of all Claims, Release from Liability and Assumption of Risk includes without limiting the generality of that term, training sessions, programmes and events that are in any way authorized, sanctioned, organ-ized or operated by The Great Canadian Adventure Company.

(d) I understand that by signing this release I may be forever prevented from suing or other-wise claiming against The Great Canadian Adventure Company, its officers, directors and employees for certain loss or damages, whether for property loss or personal injury, that I may sustain while participating in adventure activities.

(e) I understand that the included itinerary is a general guideline of what can be expected on my adventure trip, but is NOT a contract. Factors such as weather conditions, mechanical breakdown, flight cancellations, medical emergencies, political unrest, natural disasters or other uncontrollable circumstances can alter my trip.

(f) I will not hold The Great Canadian Adventure Company responsible for extra costs incurred by me which include, but are not limited to: extra meals, personal costs, or rebooking of com-mercial transportation in the event of unforeseen or uncontrollable circumstances.

tI confirm that I have carefully read this agreement and understand its terms as acknowledged by my signature below.

Dated at on , 20 _. Participant's Name: Participant's Signature:_

Witness's Name: Witness's Signature:

iding on

* Minors, under 18 years old, must have parent or legal guardian witness the form. Note: All par-ticipants in your party are required to read and sign a waiver before a booking/reservation can be confirmed. All waiver forms must be witnessed and dated. Any participants under 18 years old must also have their parent or legal guardian sign the waiver.

/ 96 30 U N I T 2 Contracts

a force majeure clause aims to protect the parties when part of the contract cannot be per-formed because of some event that is outside their control

Force Majeure Clauses

Another way for the parties to limit their potential liability is through the use of a force majeure clause. Force majeure literally means a superior or irresistible force, such as a flood, stormy weather, or war. A force majeure clause aims to protect the parties when part of the contract cannot be performed because of some event that is outside of their control and could not have been prevented by their exercise of due care. Sound risk-management principles dictate the use of such clauses. Unlike exclusions clauses, which ought to be drafted as nar-rowly as possible, an effective force majeure clause will be drafted as broadly as possible to include as many unpredictable events as are imaginable.

32 Force Majeure Clause O'Brien's Encyclopedia of Forms1

Where the Seller is unable to make delivery of any portion of the Items covered by this contract due to a labour dispute, accident, fire, war, government regulation or any cause whatsoever beyond the control of the Seller, the Seller shall not be liable for such liability to make deliv-ery if, within a reasonable time, it notifies the Buyer by prepaid post of the cause of such inability and that the contract for the undelivered portion of the Items is cancelled or that it will make delivery of such Items at a future date to be named in the notice of and the Buyer may within days after the date of mailing such notice, notify the Seller by prepaid post that it will accept the delivery of the Items pur-suant to the terms of the Seller's notice or cancel the undelivered por-tion of the contract but upon the Buyer's failure to so notify the Seller the undelivered portion shall be cancelled^/''

'"!<""». . t'"" "'I1 T "'•? •'w wmmmii ••MII.III.HI.I, . |»P|.| I mm lip.

a confidentiality clause pre-vents disclosure of certain infor-mation about the agreement to third parties

Confidentiality Clauses

In many business transactions, one or both parties want to prevent the disclo-sure of certain information to third parties. Business people generally do not want competitors or other customers to learn about such things as payment schedules, business operations, or trade secrets. When confidential treatment is warranted, the parties might chose to include a confidential i ty clause. Unlike the force majeure clause, an effective confidentiality provision should be draft-ed narrowly to apply to only specific, limited information* A good confidential-ity clause requires that materials be expressly designated as confidential by the party seeking confidential treatment and that the other party to the agreement have a sufficient lime to register objections! It provides that information is pre-sumed not to be confidential and that the burden lies with the party seeking confidential treatment to justify such treatment.

,2 O'Brien's Rnc\clopetliit n( Forms: Cominercinl fin/I (inirrnl, T 111* c<l loosolcnf vol 4 (1998) 39.21-39.22.

A P P E N D I X 4A Boilerplate Terms 9 7

Confidentiality Clause Liblicense, Yale University Library <www.library.yale.edu/-llicense/index.shtml> It is understood and agreed by the parties that specific reports and other disclosures required by this agreement, and any changes which may be effected thereto, are considered by both parties to be sensitive. Such information will not be disclosed by either party to third persons except as may be required by laW /

Arbitration Clauses

Parties often recogni/e that future disputes about the terms of an agreement could result in costly litigation. To avoid having to litigate such disputes, they sometimes insert an a rb i t ra t ion c lause into a contract.1 1 Arbitration clauses outline who should act to resolve the dispute and what method of arbitration should be used. Business people should consider these features of arbitration clauses:

• First, like exclusion clauses, a well-drafted arbitration clause is drafted in a clear, straightforward manner. By keeping the clause simple, one reduces the risk of hindering the arbitration process.

• Second, an effective arbitration clause stipulates how the expenses incurred in the course of arbitration are to be divided, v

• Third, the clause determines, in advance, the number, qualifications, and role of the arbitrators. v

• Fourth, an effective clause settles the procedural aspects of the arbitra-tion, including the order in which the parties will present their case and the amount of time allowed for each presentation. f

m Fifth, a well-constructed clause ensures that any information discussed at the arbitration will be kept confidential. ,

• Sixth, the clause contemplates whether the parties will require written reasons in support of the decision and whether there are avenues of appeal available to the parties.

Most of these details may not be specifically enumerated in the arbitration clause itself. They are often prescribed by reference to a document external to the contract, such as a set of rules or guidelines published by some arbitration institute.

an arbitration clause outlines who should act to resolve a dis-pute and what method of arbi-tration should be used

33- Arbitrat ion was discussed in Chap te r I; a rb i t ra t ion clauses will lx- discussed in Chap te r 24.

http://www.library.yale.edu/-llicense/index.shtml

/ s

9 8 U N I T 2 Contracts

Arbitration Clause BC International Commercial Arbitration Centre All disputes arising out of or in connection with this contract, or in respect of any legal relationship associated therewith or derived there-from, shall be referred to and finally solved by arbitration under the rules of the British Columbia International Commercial Arbitration Centre. The appointing authority shall be the British Columbia International commercial Arbitration Centre. The case shall be adminis-tered by the British Columbia International Commercial Arbitration Centre in accordance with its "Procedures for Cases under BCICAC Rules." The place of the arbitration shall be Vancouver, British Columbia, Canada., •wwnmw '«»• i .i.m minminim n n m n i ' i i m m m mwumi

Jurisdiction Clauses

a jurisdiction clause predeter-mines the locale of the court and whose Iqlvwill apply in the event of a legal dispute between the parties

. r>1

Parties that are not interested in arbitration as an alternative method of dispute resolution might still decide that it is worthwhile to contemplate where the court battle will take place, should there be one. A jurisdict ion clause prede-termines the locale of the court and whose law will apply in the event of a legal dispute between the parties. Such a clause is especially useful for situations where the parties are not governed by the same jurisdiction. If a business has a centralized structure, based in a single jurisdiction, it is usually wise to insert a jurisdiction clause.14 Such a clause will help to ensure that those involved in the litigation process, whether as lawyers or witnesses, are not required to travel to other jurisdictions to sue or be sued.

Jurisdiction Clause Typical Web Site This user agreement is governed by the laws of the Province of Ontario, Canada. You hereby consent to the exclusive jurisdiction and venue of courts in Middlesex County, Ontario, Canada in all disputes arising out of or relating to the use of this Web site. Use of this Web site is unautho-rized in any jurisdiction that does not give effect to all provisions of these terms and conditions, including, without limitation, this paragraph.

"ip.iinn i mill'

an entire agreement clause is a provision stating that the entire agreement between the parties is contained within the four comers of the contract

Entire Agreement Clauses

When parties to a contract negotiate both orally and in writing, it is sometimes difficult to know which communications arc to be incorporated as terms of the contract. One way to avoid uncertainty is to use an entire agreement clause. An ent i re agreement clause is a provision stating that the entire agreement between the parties is contained within the four corners of the contract. Such a clause ensures that none of the exceptions to the parol evidence will operate to defeat the written document. The principles of risk management therefore require business people to determine whether the standard forms they are sign-ing contain an entire agreement clause. If so, they must ensure that every sin-gle aspect of the agreement is captured in the written document.

We discuss that s i tuat ion in Chap te r 24.

A P P E N D I X 4A Boilerplate Terms 9 9

Entire Agreement Clause O'Brien's Encyclopedia of Forms''' This Agreement constitutes the entire agreement between the Lessor and Lessee and th» Lessee acknowledges that there are no promises, induce-ments, representations, collateral warranties, warranties, conditions, options or terms, oral or written, express or implied or otherwise, made by or on behalf of the Lessor or operating in favour of the Lessee with respect to any aspect of the Equipment (including, without limitation, its condition, design, capabilities, operation, use, suitability, fit-ness, durability, quality, merchantability, or history (e.g., new, used, reconditioned) or with respect to the appropriate treatment of this Agreement or payments to be made pursuant thereto for the Lessee's accounting or tax purposes, other than as may be expressly stated in this Agreement.

A P P E N D I X 4 A S U M M A R Y

Standard form agreements often include a number of boilerplate terms, which can be reused in various contractual settings. Exclusion clauses seek to protect one party from various sorts of legal liability. To be effective, they must be draft-ed in unambiguous language; the party against whom the exclusion clause is meant to operate must be given reasonable notice; and both parties must agree that the clause is part of the contract. Force majeure clauses aim to protect the parties from events beyond their control. Confidentiality clauses prevent dis-closure of certain information to third parties. Arbitration clauses outline who should act to resolve a dispute and what method of arbitration should be used. Jurisdictional clauses predetermine the locale of the court and whose law will apply in the event of a legal dispute between the parties. Entire agreement clauses state that the entire agreement between the parties is contained within the contract, preventing the assertion of oral terms.

JV O'Brien's F.ncvrlopeiliii of Forms: Commercial and General, I till i'<l loose loaf vol 4 (I99K) 39.21-39.22.

i

ANNEXURE-4B

73. Compensation for loss or damage caused by breach of contract. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract to be likely to result from the breach of it.

Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligations resembling those created by contract. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation. In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

TYPES OF REMEDIES:

Classified into:

FINANCIAL NON-FINANCIAL

• Damages • Quantum Meruit

• Specific Performance • Injunctions j -Spec i f i c Relief Act, 1877

TYPES OF DAMAGES:

• Nominal Damages (Or indirect damages) • Ordinary Damages (Or Naturally arose) • Special Damages (Or Parties new the special circumstances) • Liquidated Damages (Or pre-estimated)

ANNEXURE-4B

2010 S C M R 829

[Supreme Court of Pakistan]

Present: Mian Hamid Farooq, Syed Zawwar Hussain Jaffery and Sarmad Jalal Osmany, JJ

Messrs KAMRAN CONSTRUCTION (PVT.) LTD.—Petitioner

Versus

NAZIR TALIB—Respondent

Civil Petition No.431-K of 2007, decided on 7th November, 2008.

(a) Contract Act (IX of 1872)—

— S . 73—Suit for recovery of damages caused by breach of contract—Proof—Party claiming damages must establish contract, breach thereof and extent of damages—Burden would lie on plaintiff, who without discharging same could not succeed—Principles.

Under section 73 of the Contract Act, 1872, the party claiming damages has to firstly plead and then prove by sufficient, trustworthy, independent and cogent evidence that the concluded agreement existed between the parties, the other party committed breech of contract, such breach entitled the first party to damages and the foremost factor is quantum of damages. A party claiming damages suffered due to breach of contract must establish the contract, the breach thereof and the extent of damages. The onus is on the plaintiff and without discharging it, he cannot succeed. Section 73 of the Contract Act prescribes the rule for assessing the damages suffered due to breach of contract.

Islamic Republic of Pakistan v. Sh. Nawab Din 2003 CLC 991 fol.

(b)Contract Act (IX of 1 8 7 2 ) —

— S . 73—Specific Relief Act (I of 1877), Ss. 8 & 12—Suit for specific performance of sale agreement, possession and damages—Sale of residential flats by defendant—Booking of one flat by plaintiff and payment of its price—Non-completion of flat by defendant within stipulated period—Claim of plaintiff for specific performance of sale agreement, delivery of possession of flat and monthly rent Rs. 7000 as damages till completion of flat and its delivery by defendant—Trial Court passed decree as prayed for by plaintiff—Defendant's appeal challenging validity of such decree to extent of awarding damages affirmed by Appellate Court—Validity—Plaintiff had not produced any independent evidence except his own affidavit to prove that defendant had committed breach of contract, which entitled plaintiff for damages and to what extent—Terms and conditions attached with allotment application did not find mention that in case of non-completion of flat or non-compliance of terms and conditions, plaintiff would be entitled to claim damages, and if so at what rate—According to such terms and conditions, project was expected to be completed within 36 months, but its progress would depend upon flow of instalments and unforeseen circumstances etc.—Such terms and conditions did not provide any compensation or measure of damages—Plait6niff s application for allotment of flat was dated 3-7-1987, while advertisements relied upon by him were dated 17-6-1990 & 18-6-1990, thus, undertakings/ offers/commitments made therein would not apply retrospectively to preceding agreement executed

and in case of refusal by the defendants the honourable Court may kindly direct the Nazir of this honourable Court to do the same.

(ii) A decree for delivery of possession of Apartment No.802 Sea Breeze Marine Drive, to the plaintiff or to his attorney/ Nominee.

(iii) A decree for mandatory injunction restraining the defendants, their servants, successors and assignees from cancelling the allotment of Apartment No.802 Sea Breeze Marine Drive, Karachi situated on Plot No.Fl-2, Block-2, Clifton, Karachi of the plaintiff and from transferring giving possession of an executing any transfer deed/title deed of the aforesaid apartment in favour of any other person.

(iv) A decree for Rs.56,000 towards monthly rent payable by the defendant to the plaintiff for not delivering possession of the apartment in time viz. by 31-7-1990.

(v) A decree for further monthly rent of Rs.7000 to be paid by the defendant to the plaintiff w.e.f. 1-4-1991 to till actual physical and peaceful possession of the suit apartment is given to the plaintiff.

(vi) Any other relief which this honourable Court deem fit and proper be also granted to the plaintiff against the defendants.

(vii) Full cost of the suit"

The petitioner/defendant contested the suit through filing written statement thereby rejecting plaintiff's claim, highlighted in the plaint, however, it did not deny the payments made by the plaintiff through instalments. It was disputed by the petitioner that it made any commitment to complete the project by July, 1990 or in case of non-delivery of possession within the stipulated period a sum of Rs.7000 was offered to be paid as monthly rent to the allottees and no commitment was given on stamp paper as required in the advertisement.

3. Learned single judge of the High Court of Sindh, Karachi, out of the pleadings of the parties framed the following issues:—

"(1) Whether the defendant committed any breach of contract, if so, what effect?

(2) Whether the plaintiff is entitled to decree for specific performance of the contract?

(3) What should the decree be?"

The plaintiff appeared as his own witness and supported his claim. He produced certain documents, which were admitted in evidence as Exhs.P.l to P.12. The defendant examined one Muhammad Naqi son of Ghulam Haider (its authorized officer), who deposed that the plaintiff did not abide by the agreement and delayed payments; newspapers; publications were of the latter date and the cheques was returned because the payment was belated. The learned Single Judge concluded the trial and in the ultimate analysis, after finding that "the plaintiff has discharged his burden of proof. Issue Nos.l and 2 are answered in the affirmative", proceeded to decree respondent's suit, vide judgment and decree dated 15-9-2001, in the following manner:—

In view of the findings on Issues Nos.l and 2 the suit of the plaintiff is decreed as prayed with costs"

Petitioner's appeal (H.C.A. No.328 of 2001) was dismissed by the learned Division Bench of the High Court of Sindh at Karachi, vide judgment and decree dated 7-3-200(sic) (detailed reasons were given on 2-5-2007), hence the present petition. ,

5.(sic) Learned counsel for the petitioner, at the very outset, conceded qua the decree for specific performance and possession and stated that the petitioner has no objection to the execution of decree for specific performance and possession and he challenged the impugned decree only to the extent of awarding of damages for Rs.56,000 towards monthly rent and for future monthly rent of Rs.7000 to be paid by the petitioner to the respondent with effect from 1-4-1991. He submitted that the respondent booked flat, on 3-7-1987, subject to certain terms and conditions attached with the application form and the subsequent offer made through advertisements, appearing in the newspapers dated 17-6-1990 and 18-6-1990 (Exh.P.6 and P.7) regarding non-completion of the project by due date and undertaking to pay Rs.7,000 per month to the allottees was not part of the agreement, which was executed with the plaintiff. He has further submitted that publications in the newspaper (Exhs.P6 and P.7) were related to some other project and those had no nexus with the project, for which the respondent applied for allotment of flat. His further contention is that the respondent failed to prove breach of agreement entitling him for damages and quantum of damages. He concluded his arguments by submitting that decree to the extent of awarding of damages, as noted above, be set aside as both the Courts did not give any reasons for awarding the damages. He has referred to the judgments reported as Ahmed Saeed Kirmani v. Messrs Muslim Commercial Bank Ltd. 1993 SCMR 441 and Islamic Republic of Pakistan v. Sh. Nawab Din 2003 CLC 991.

6. Learned counsel for the respondent, while refuting the afore-noted contentions, reiterated the contentions raised before both the learned Courts and stated that advertisements appearing in different newspapers (Exhs.P.6 and P.7) were the part of petitioner's contract; that the projects were the same both floated by the petitioner and suit of the respondent was rightly decreed by both the Courts and awarding of damages to the respondent was justified in law. He has added that the petitioner stated on oath that the respondent is entitled for damages in the shape of monthly rent at the rate of Rs.7,000, which portion was not disputed by the petitioner in cross-examination. He has relied upon West Pakistan Industrial Development Corporation, Karachi v. Aziz Qureshi 1973 SCMR 555 and PLD SC 220/226A.

7. We have heard the learned counsel for the parties and examined the available record. It appears appropriate to reproduce the relevant portion of the decree dated 15-9-2001, challenged by the petitioner. It reads as under:

ii (i)

( i i )

(iv) That the defendants do pay to the plaintiff a sum of Rs.56,000 (Rupees fifty six thousands only) for not delivering possession of the apartment in time viz. by 31-7-1990.

(v) That the defendants do pay to the plaintiff monthly/rent a sum of Rs.7,000 (Rupees seven thousands only) w.e.f. 1-4-1991 £o till actual physical and peaceful possession of the suit apartment is given to the plaintiff.

Although the learned Single Judge passed the decree, as prayed for by the respondent, which included the decree of specific performance of agreement, decree for possession, for mandatory injunction and for damages etc., which was confirmed by the learned Division Bench, yet the learned counsel for the petitioner categorically conceded before us that he did not dispute the decree for specific performance and possession and has stated that the petitioner will extend maximum cooperation in executing the decree for specific performance and possession, for which the respondent has filed the execution petition.

8. In view of the said concession and admission, now we will confine ourselves to the only question as to whether the decree for damages and future damages at the rate of Rs.7000 (as reproduced above), was rightly passed by the Courts below. Obviously, the respondent in his plaint has tried to make out his case for awarding damages under section 73 of the Contract Act. It has been stated in para.7 of the plaint that "defendant committed breach of the agreement (sale of the apartment)". The respondent filed the suit claiming damages while relying upon the provisions of section 73 of the Contract Act. Under the said provisions of law, the party claiming damages has to firstly plead and then prove by sufficient, trustworthy, independent and cogent evidence that the concluded agreement existed between the parties, the other party committed breach of contract, such breach entitled the first party to damages and the foremost factor is quantum of damages. This Court in the case of Ahmed Saeed Kirmani (ibid), has inter alia held "that a party claiming damages suffered due to breach of contract must establish the contract, the breach thereof and the extent of damages. The onus is on the plaintiff and without discharging it he cannot succeed. Section 73 of the Contract Act prescribes the rule for assessing the damages suffered due to breach of contract." In this context, the case reported as "Islamic Republic of Pakistan v. Sh. Nawab Din 2003 CLC 991 can also be referred to.

9. While keeping the above principles in mind, now we come to the present case. As noted above, the respondent did not produce any independent evidence except his own affidavit to prove his case. The respondent also did not lead any evidence to show that the petitioner/ defendant committed breach of contract and that such breach entitled respondent for damages and to what extent. Although the respondent has stated in his affidavit that in view of the commitments of the petitioner made in the newspapers i.e. Daily Dawn of 18-6-1990 and Daily Jang of 18-6-1990 (Exhs.P6 and P7), he is entitled to claim damages, yet his solitary statement is not sufficient to grant him the claimed amount. His only case is that as the petitioner undertook through the aforesaid advertisements that in case it would not be able to complete the project, it would pay sum of Rs.7000 per month as monthly rent to allottees, therefore, he is also entitled for damages at that rate and according to that parameters. The respondent filed the application for the allotment of flat on 3-7-1987 and both the parties are relying upon the said document. Terms and conditions attached to the said application do not state that in case of non-completion of flat in question/and non-compliance of the terms and conditions, the respondent is entitled to claim daniages and if so at what rate. Clause 8 of the terms and conditions states that it is expected that project will be completed in 36 months, however, the progress will depend upon the flow of instalments and unforeseen circumstances etc. Thus it is clear that the said terms and conditions do not provide any compensation or measure of damages.

10. Now the question arises as to whether the aforesaid publications/advertisements (Exhs.P.6 and P.7) are part of the agreement dated 3-7-1987 entered between the parties. As noted above, the application

«

is dated 3-7-1987, while admittedly the advertisements are dated 17-6-1990 and 18-6-1990 (Exhs.P6 and P.7), both the learned counsel admit that there is no dispute about the dates of those publications appearing in different newspapers. The said advertisement do not even feebly indicate that the attractions/offers/commitments and undertakings incorporated therein will also be applicable to the preceding agreements executed between the petitioner and other customers. In view of non-mentioning of the said necessary condition, the publications (Exhs.P.6 and P.7) cannot be read as part of the respondent's agreement dated 3-7-1987 and in the absence of such a specific stipulation in the advertisements, the terms whereof could not be applied retrospectively. In our view the stipulations highlighted in the advertisements were neither attracted nor applicable in the case of respondent. So it is held that the parties were governed only by the terms and conditions attached with the application form dated 3-7-1987, signed by the parties and guarantees/assurances given in the publications were not the part of the agreement of the respondent. It is pertinent to mention here that in response to a Court question viz. as to whether this is a case of "novation of contract", both the learned counsel categorically stated that they did not press into service section 62 of the Contract Act as no case of novation of contract was made out by either of the parties.

11. We have noticed that learned Single Judge, while concerning respondent's suit in its totally, did not give any findings about breach of contract, the entitlement of the respondent to claim damages on the basis of such breach and the extent of damages and after having findings on Issues Nos.l and 2 straightway decreed the respondent's suit as prayed for. Similarly the learned Division Bench of the High Court did not state any reasons for confirming the decree for damages.

12. In the above perspective, we have examined the impugned judgment and find that the same, to the extent of awarding in the shape of monthly rent at the rate of Rs.7000 and future monthly rent is not sustainable in law and thus we are persuaded to set aide that portion of the decree.

13. For the foregoing reasons, the present petition is converted into appeal, same is partially allowed and the judgments an 1 decrees of both the Courts dated 15-9-2001 and 2-5-2007 to the following extent are set aside.

"(a) That the defendants do pay to the plaintiff a sum of Rs.56,000 (Rupees fifty-six thousands only) for not delivering possession of the apartment in time viz. by 31-7-1990.

(b) That the defendants further do pay to the plaintiff monthly rent a sum of Rs.7,000 (Rupees seven thousands only) w.e.f. 1-4-1991 to till actual physical and peaceful possession of the suit apartment is given to the plaintiff."

14. Before parting with the judgment, we direct the learned executing Court, before whom the execution petition is reportedly pending, to execute the decree of specific performance and possession within a minimum possible period and ensure delivery of possession of flat in question to the respondent without any further loss of time. The petitioner is also directed, as undertaking by it before this Court, to extend maximum cooperation and aid in getting that portion of the decree executed.

S.A.K./K-5/SC Appeal accepted.

ANNEXURE-4B

A1) INDEMNITY - MAKE GOOD THE LOSS

TYPES:

1) BY THE C O N D U C T O F TI IK PROMISOR HIMSELF.

la) Indemnity Bond lb) Implied Indemnity

Needs lo understand Fiduciary relation like :

• Principal V Agent • Author V Trustee • Partner V Partner • Company V B O D

2) BY Tl Hi C O N D U C T OF A N Y OTHER PERSON:

Insurance (Conventional) (Takaful) ^ U & x c ^ y y * ^

A2) GUARANTEE:

Does not fulfill two essential

Pr. Dr ^ 7 Cr

> 2 - Guarantee

Surety / Guarantor

1) The offer and acceptance rule is missing in between creditor V surety. 2) Section 127 - Says regarding consideration " Any thing done or any promise made for the

benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee. I his provision is applicable on personal guarantee but bank guarantee do carry consideration.

Distinction between a contract of indemnity and a contract of guarantee -

Basis Contract of Indemnity Contract of Guarantee No. of parties There arc two parties -- indemnifier and the

indemnity - holder There are three parties - principal debtor, creditor and surely

No. of Contracts

There is only one contract between indemnifier and indemnity - holder

There are three contracts, one between debtor, second between surety and principal debtor, and third between surety and the creditor.

Undertaking The indemnifier undertakes to save the indemnity - holder from any loss

The surety undertakes for the payment of debts of principal debtor

Nature o f . jjjj^aibility

The liability of indemnifier is primary and unconfidential.

The liability of surety is secondary and conditional. Surety's liability is secondary in the sense that the primary liability is of principal debtor. Surety's liability is conditional in the sense that it arises only on default of principal debtor.

Nature of event

The liability arises only on the happening of a contingency

The liability arises only on the non-performance of an existing promise or non-payment of an existing debt.

Request The indemnifier need not act at the request of indemnity - holder.

1 he surety acts at the request ol the principal debtor.

Right to Sue The indemnifier cannot sue a third party in his own name because of absence of privity of contract between him and a third party. I Ic can sue the third party in his own name if there in an assignment in his favour.

A surety , on discharging the debtol principal debtor, can sue the principal debtor in his own name.

Dischargement

Discussion on Case law: % ———— /laintitT: N.D Leasing Corp Verses

RightS of the Surety

National Fibers Ltd Respondent 2002 CLD 643

1) Right of subrogation S - 140. 2) Right to benefit ol 'Creditors ' securities S 141. 3) Right of contribution S. 146-147

13) Bailment & pledge:

B l ) Bailment

Purpose Delivery

Types:

•M

Disposed of

Return

ft (jjy

L

For safe Custody

Rent a Car

Repairs

Carriage of goods

Pledge

Gratuitous (Comodatom)

Non-Gratuitous (Commercial)

Bill of Lading

Charter Party

4 )uties Of Bailee

Of Bailor

B2) Pledge: "The bailment of goods as SECURITY for payment of a debt or performance of a promise is called "PLEDGE".

Distinction between BAILEMENT and PLEDGE: i ^ l t r / G ^ j ^ ) ' <j

1) As to Purpose: Pledge is the bailment of goods for a specific purpose I.e. to provide a security for a loan or for the fulfillment of an obligation, whereas there is no such purpose in case of ba i lment . A bailment is for a purpose other than the above two, e.g . for repairs, safe custody, etc.

2) As to right of Sale: in case of pledge, the pledge has a right of sale ( of goods pledged) on default after giving notice to the pledgers but there is no such right of sale to the bailee in case of bailment. The bailee may either retain the goods or sue the bailor for non-payment of his dues.

4) As to right of using the goods. In case of pledge, the pledgeee has no right of using the goods pledged, while no such restriction, exist for a bailee in case of bailment if, the nature of transaction so requires

Case of Adam j e e ^ Modarba

iscussion on Case law: Plaintiff: N.D Leasing Corp Verses

Rights of the Surety

ANNEXURE-4B

National Fibers Ltd - Respondent 2002 CLD 643

1) Right of subrogation S - 140, 2) Right to benefit of Creditors' securities S - 141, 3) Right of contribution S. 146-147

B) Bailment & pledge: Bl) Bailment

Purpose Delivery

Disposed of

Return

Q> u

Types:

For safe Custody

Rent a Car

-> . Gratuitous (Comodatom)

Non-Gratuitous (Commercial)

Repairs

Carriage of goods

Pledge

Duties

§

Bill of Lading

Charter Party

Of Bailee

Of Bailor

) Pledge: "The bailment of goods as SECURITY for payment of a debt or performance of a promise is called "PLEDGE".

Distinction between BAILEMENT and PLEDGE: -9 ^ t r / C ^ ^ V S

1) As to Purpose: Pledge is the bailment of goods for a specific purpose I.e. to provide a security for a loan or for the fulfillment of an obligation, whereas there is no such purpose in case of bailment. A bailment is for a purpose other than the above two, e.g , for repairs, safe custody, etc.

2) As to right of Sale: in case of pledge, the pledge has a right of sale ( of goods pledged) on default after giving notice to the pledgers but there is no such right of sale to the bailee in case of bailment. The bailee may either retain the goods or sue the bailor for non-payment of his dues.

4) As to right of using the goods. In case of pledge, the pledgeee has no right of using the goods pledged, while no such restriction, exist for a bailee in case of bailment if, the nature of transaction so requires

Case of Adamjee V Modarba J

ANNEXURE-4B

AGENCY

Role of agency and agency relationship

Agency is a relationship which exists between two legal persons (the principal and the agent) in which

the function of the agent is to form a cont rac t b e t w e e n his principal and a third party. Partners,

company directors, factors, brokers and commercial agents are all acting agents.

Agency is a very important feature of modern commercial life. It can be represented diagrammatically as

follows:

Types of agent

In practice, there are many example s of agency relationship, to which you are probably

accustomed in everyday life, although you might not know that they illustrate the law of

agency. The most important agency relationships for the F4 syllabus are those of partners and

company directors.

• Partners

• Company directors

• Factors

• Brokers

• Auctioneers

• Commercial agents

Formation of agency

The relationship of principal and agent is created by mutual consent in the vast majority of

cases. This agreement does not have to be formal, or written.

The mutual consent comes about usually by express agreement, even if it is informal. However,

it may also be implied agreement, due to the relationship or conduct of parties.

Express agreement

This is where the agent is expressly appointed by the principal. This may be orally, or in writing.

In most commercial situations, the appointment would be made in writing to ensure that

everything was clear. An agent expressly appointed by the principal has actual authority, which

we shall look at in Section 3.

Implied agreement

An agency relationship between two people may be implied by their relationship or by their

conduct.

Types of implied agreement • Agent by estoppels

An agency relationship may be formed by implication when the principal holds out to

third parties that a person is his agent, even if the principal and the 'agent' do not agree

to form such a relationship. In such a case, the principal is estopped from denying the

agent's apparent/ostensible authority. Hence the name 'agent by estoppel', an agency

relationship is not so formed if it is the 'agent' who create the impression that he is an

agency relationship with a 'principal'.

• Agent by necessity

In some rare situations, it may be necessity for a person to take action in respect of

someone else's goods in an emergency situation. That person can become an agent of

necessity of the owner of the goods, as he takes steps in respect of the goods.

194 Karachi ' All Pakistan Legal Decisions Vol. XLV1

under the Act cannot be sustained in absence of completion of the requirements of Sections 5 and 6 of Sindh Crimes Control Act. So far as the present applicant is concerned even proceedings have not been initiated by the I Tribunal whi h is required lo be done under the Act. '

Considering the above facts and circumstances, 1 had quashed the proceedings, by my short order dated 7-4-1993 and these are the reasons for the same. Bail bonds furnished by ihe applicant stand discharged.

N.H.O./A-1426/K Proceedings quashed.

P L D 1994 Karachi 194

Before Syed Haider Ali Pirzada and Nazim Hussai/i Siddiqui, JJ

KARACHI CATHOLIC COOPERATIVE HOUSING SOCIETY LTD.—Appellant

versus

Mir/.a JAWAD BAIG—Respondent

High Court Appeal No. 76 of 1990, decided on 21st January, 1993.

(a) Contract Act (IX of 1872)--

—-S. 202—Agent's authority coupled with interest in agcncy—Effect—Where agent had himself any interest in property, which formed subject matter of (

agency, such agcncy could not, in absence of any express contract, bt !

terminated to the prejudice of such interest and would become irrevocable-Where, however, agent's authority was not coupled with interest and was given independently, then with the death of principal, such agcncy would stand terminated, [p. 198] A

Mian Muhammad Latif v. Province of West Pakistan through The J Deputy Commissioner, Khairpur and another PLD 1970 SC 180; Amir Ali; Ebrahimji Shaikha and others v. Sadruddin and another 1973 SCMR 44; Bantva Mcmon Co-operative Housing Socicty Ltd. and others v. Anis Ali Khan and others 1979 SCMR 77; Fazal Begum and others v. Sh. Ijaz Ahmad and others 1985 SCMR 1928 and Malik Muhammad Akbar and 6 others v. Mia" Qamaruddin and 10 others PLD 1982 Lah. 558 ref.

(b) Transfer or Property Act (IV of 1882)—

-—S. 53-A—Agreement to sell—Connotation—Effect and implication « agreement to sell—Contract for sale of immovable property was a contr"11 that sale of such property would take place on terms settled between f>a!Ui

ANNEXURE-8

1994 Karachi Catholic Coop. Housing. Karachi 195 Socicty Ltd. v. Jawad Baig (Nazim Hussain Siddiqui, J)

but it would not by itself create any interest in or charge on such property unless in part performance of contract change of possession of suit property is effected which creates a legal right in favour of persons to whom the property was transferred, [pp. 199,200] B & C

Sh. Nazir Ahmad v. Haji Ghulam Hussain 1985 CLC 7; Imtiaz Ali v. Nasim Ahmad AIR 1987 Delhi 36; Manzoor Ahmad and others v. Mst. Iqbal Begum and others 1989 SCMR 949 and Amulya Gapol v. United Industrial Bank Ltd. AIR 1981 Cal. 404 rel.

(c) Transfer of Property Act (IV of 1882)—

— S . 53-A, proviso—Change of possession in part performance of contract— Effect—Right of transferee for consideration—Change of possession of property in question, would amount to an act of part performance which would create legal right in favour of person to whom property was transferred, [p. 200] C

(d) Cooperative Societies Act (VII of 1925)—

— S . 70—Notice—Maintainability of suit was challenged on ground of absence of notice—Effect—Plaintiff had taken specific plea that as per annexures to plaint relevant notices were sent—Such point of fact would not justify presumption at initial stage of suit that such notices 'were not sent.--[Notice]. [p. 201] D

Farida v. Prince Apartments Cooperative Housing Socicty 1984 CLC 2914 and Syed Azhar Imam Rizvi v. Met. Sahna Khatoon 1985 SCMR 24 rel.

(e) Sindh Cooperative Housing Authority Ordinance (V of 1982)—

— S s . 6, 2 & 4—Membership of Housing Socicty was confined to Catholic community of Christians—Housing Socicty approving transaction of sale between a Muslim and a Christian—Bye-laws of Housing Society although in the nature of contractual rights, could not be invoked against Muslim to show that he could not be owner of property in question, and that membership of society was confined to Catholic community only. [p. 202] E

(0 Qanun-e-Shahadat (10 of 1984)—

— A r t . 114—Estoppel by conduct—Applicability—Principle of estoppel by conduct, would apply to corporations, as well as to individuals, [p. 203] F & G

Muhammad Hanif v. Hyderabad Municipality and others PLD 1966 Kar. 219 and Krothapalli Satyanarayan v. Koganti Ramaiah and others AIR 1983 SC 452 rel.

(g) Civil. Procedure Code (V or 1908)—

—-O. XXXIX, Rr . l & 2—Interim injunction—Entitlement—Respondent

196 Karachi AH Pakistan Legal Decisions Vol. XLVI

being purchaser for value had established prima facie ease and balance of convenience was also in his favour; he would suffer irreparable loss if he was restrained from using his property—Trial Court had, thus, rightly granted interim injunction in favour of respondent, [p. 203] H

R.F. Virjee for Appellant.

Raja Haq Nawaz Khan for Respondent.

Date of hearing: 21st January, 1993.

JUDGMENT

NAZIM HUSSAIN SIDDIQUI, J.—Appellant Catholic Cooperative Housing Society Limited has impugned the order dated 22-3-1990, passed by a learned Single Judge of this Court, in Suit No.1049/89, whereby he allowed application under Order 39, Rules 1 and 2, C.P.C., restraining appellant from interfering (with) the development and re-construction work being carricd out on the property situate on Plot No.241/JM-2, Karachi, hereinafter called the 'suit property* till final decision of the suit. The facts relevant for decision of this appeal are as follows:—

Respondent Mirza Jawad Baig filed above suit against the appellant for declaration and permanent injunction. The case of respondent, as set up in the plaint, is that on 5-9-1966 he purchased property bearing City Survey No.551, Sheet NoJM-3 , situate at Dadabhoy Nauroji Road, Karachi, hereinafter referred as the 'first property* from one Khawaja Dawood Victor Ansari, as per sale-deed, registered on 7-9-1966 on market price and later on his name was mutated in record-of-rights. The first property originally belonged to one A. Holchand, who migrated to India and consequently it was declared as an evacuee property. Later on it was transferred to above-named person from whom the respondent had purchased it. The first property falls within the estate of appellant. The respondent got it converted into commercial premises and installed a petrol pump over it. The appellant during the last 23 years had raised no objection. It is alleged that appellant-Society is not altogether a separate entity. It is in two portions, which are divided and surrounded by Muslim population. Further, it is said that appellant-Society was established during prc-partilion days of British Rule, when discrimination between Christians and other religions was commonly practised and patronized by the then Government.

In the year 1987, M/s . Mark Anthony Andrew, Victor Felix Andrew, Raymond Vincent Andrew, Mrs. Mildred Andrew, Josephine Carmeline Andrew. Emmanual Stephen Andrew, and Louis Philips Andrew, who were the owners of 'suit property* which is situated within the area of appellant-Society like the 'first property', approachcd the respondent through Mr. Tajuddin Bhyani for a short term loan of Rs.12 lac against the surety of 'suit property'. The loan was given for a short period of five months against possession of 'suit

1994 Karachi Catholic Coop. Housing. Karachi 197 Socicty Ltd. v. Jawad Baig (Nazim Hussain Siddiqui, J)

property" without any interest, and with an option for extension for period of another 12 months on the condition of payment of compensation @ 12%. On 12-12-1987, an agreement to create mortgage was executed between above-named Christian owners and the respondent. Possession of 'suit property' was delivered to respondent. Since the loan was not returned back the respondent became an absolute owner of 'suit property" from 29-5-1989. Thereafter, record-of-rights was mutated in the name of respondent. It is alleged that the 'suit property" remained in peaceful possession of three Non-Catholics one after the other, since 1978. Firstly, Mr. Haider Ali attorney of Christian owners was in possession of it and thereafter Mr. Tajuddin Bhyani remained in its possession for about nine years and since 22-12-1987 it was in possession of respondent. It is averred in the plaint that there was no restriction on the members of the Society for obtaining loan from a third party. It is alleged that the respondent has already demolished the old structure of 'suit property", with permission of Karachi Development Authority, vide order dated 24-7-1989. According to the respondent, on 5-8-1989 Mr. E. R. Flario, claiming as President of the appellant-Society, went at the site and unauthoriscdly attempted to stop the work. On 6-8-1989 the appellant delivered a letter at the site raising objection about the construction work. On 20-8-1989 the appellant sent anotHcr letter disputing title of respondent. Hence the suit was filed in which, inter alia, the respondent prayed for a declaration that he was lawful owner of the 'suit property'.

The case of appellant, as disclosed in the written statement, is that on 19-7-1973 Mr. Mark Anthony, Victor Felix Andrew, Raymond Vincent Andrew, Mrs. Mildred Andrew and Josephine Carmcline Andrew, all residents of Toranto Ontario, Canada, had given a power of attorney in favour of Louis Philip Andrew and Emmanuel Stephen Andrew. Thereafter, an irrevocable power of attorney was executed by Emmanucl 'Stephen Andrew and Louis Philip Andrew for self and as attorney of above-named co-owners in favour of Mr. Haider Ali son of Muhammad Ghulam Hussain. Thereafter, another irrevocable general power of attorney was executed by Mr. Haider Ali in favour of Tajuddin Bhyani. This irrevocable general power of attorney was registered on 6-4-1986. The appellant has challenged that only short term loan was advanced. It is alleged that Louis Philips Andrew expired in Karachi on 23-8-1983, while Emmanuel Stephen Andrew also died in Karachi on 7-10-1985. It is contended that, after the death of above-named persons, the power of attorney ceased to exist and all subsequent actions had become illegal. The appellant has claimed that both the documents viz. agreement to create mortgage dated 27-12-1987 and deed of mortgage dated 25-5-1989, arc illegal, and do not confer any right. Maintainability of the suit has also been challenged under the provisions of the Cooperative Societies Act, 1925.

Alongwith the suit, the respondent had filed an application under Order 39, Rules 1 and 2, C.P.C. and the same was allowed by learned Single Judge vide ordcj dated 22-3-1990, which has been impugned in this appeal.

198 Karachi All Pakistan Legal Decisions Vol. XLVI

The principles for grant of temporary injunction are basically well settled. It is granted when in a suit it is proved by affidavit or otherwise by plaintiff or defendant that conditions enumerated in Order 39, rules 1 and 2, C.P.C arc fulfilled. According to. Jurist Spelling the "important restraining function is given effect by the great extraordinary of injunctions, which may appropriately be termed as strong arms of Equity". Generally, it is defined as restraining order and is of equitable nature. The party applying for injunction shall simultaneously establish 9 good prima facie case, the balance of convenience, and that an irreparable damage or injury will follow if the injunction is not granted in respect of invaded right. On these points, reference can be made to the cases reported in (1) PLD 1970 SC 180, Mian Muhammad Latif v. Province of West Pakistan through The Deputy Commissioner, Khairpur and another, (2) 1973 SCMR 44, Amir Ali Ebrahimji Shaikha and others v. Sadruddin and another, (3) 1979 SCMR 77, Bantva Memon Co-operative Housing Society Ltd., and others v. Anis Ali Khan and others, (4) 1985 SCMR 1928 Fazal Begum and others v. Sh. Ijaz Ahmed and others, (5) PLD 1982 Lahore 558, Malik Muhammad Akbar and 6 others v. Mian Qamaruddin and 10 others.

Mr. R.F. Virjec learned counsel for the appellant contended that the respondent has failed to establish a prima facie case in his favour. He submitted that Loius Andrew and Ammanucl Andrew had expired at Karachi on 23rd August, 1983 and 7th October 1983, respectively; as such, Haider Ali and Tajuddin Bhayani, had no locus standi to execute power of attorney and after their death all subsequent transactions were illegal and contrary to law. The argument of learned counsel is based upon Section 201 of the Contract Act, which speaks about termination of agency. According to this section, an agcncy is terminated by the principal revoking his authority or by the agent renouncing the business of the agency, or by the business of the agency being completed, or by cither the principal or agent dying or becoming of unsound mind, or by the principal being adjudicated an insolvent under the provisions of any Act. Learned counsel in this connection specifically referred to the commentary, at page No.740, under above section in the Pollock Mullah on Indian Contract and Specific Relief Act; which is as follows:—

"A jiower of attorney to any agent to present a document for registration is revoked by the death of the principal. It was accordingly held by the Privy Council that where the Principal died before the presentation and the Registrar knowing of the Principal's death, accepted and registered the documents, the registration was invalid."

The circumstances of the case show that Section 201 of the Contract Act is not attracted, but it is Section 202, which will apply. According to this section when the agent has himself an interest in the property, which forms the A subject-matter of the agency, the agency cannot in the abscncc of an express contract, be terminated to the prejudice of such interest. Thus, when the

1994 Karachi Catholic Coop. Housing Karachi 199 Socicty Ltd. v. Jawad Baig (Nazim Hussain Siddiqui, J)

agent's authority is coupled with an interest, it becomes irrevocable. Of coursc, when the authority is not coupled with interest and is given independently then with the death of Principal the agcncy is terminated. In the case in hand, there is documentary cvidcncc to show that the Christian owners had sold the suit property to one Mst. Jaina Bai wife of Muhammad for valuable consideration of Rs3,25,000 and handed over its vacant and pcaccful p6ssession to her, as per agreement to sell dated 21-8-1978. Aforesaid agreement of sale was accompanied by registered general irrevocable power of attorney. Thereafter, the Christian owners had no interest in the suit property and for all practical purposes it belonged to said Mst. Jaina Bai. Then there is evidence on record to show that said Mst. Jaina Bai, through her son Haider Ali, by an agreement of sajc and irrevocable general power of attorney, sold the 'suit property' to said Tajuddin Bayani, who, in his turn transferred it to the respondent. From 21-8-1978, the Christian owners ceased to be the owners of the suit properly. Since interest was created through agreement of sale and by irrevocable power of attorney the agcncy could not be terminated.

On this point reference can be made to the ease reported in PLD 1979 Kar. 22, Sycd Shafiquc Hussain v. Sycd Abdul Qasim, wherein an observation in this regard was made. We also hold the same view. Said observation is as follows:—

"It is no doubt true that the power of attorney docs not specifically mention the interest of the applicant in the land. But, as pointed out in ILR 20 Mad. 97, cited above, it is not necessary that express mention of the interest be made in document itself, as language of Section 202 of the Contract Act is wider and what is necessary under the said section is that the agent should 'have an interest' in the property forming the subject-matter of the agcncy which may be inferred cither from the document or from the coursc of dealings between the parties and, I would add, from the other surrounding circumstanccs. In other words, it is the existence of the interest, not the mode in which it is given, that is of importance."

Mr. Virjce next argued that agreement of sale, even accompanicd by General Power of Attorney, docs not by itself transfer title to the purchaser. In support of this contention, he cited (1) 1985 CLC 7, Sh. Nazir Ahmad v. Haji Ghulam Hussain, (2) AIR 1987 Delhi 36, Imtiaz Ali v. Nasim Ahmed, (3) 1989 SCMR 949, Sh. Manzoor Ahmed and others v. Mst. Iqbal Begum and others, (4) AIR 1981 Cal. 404, Amulya Gapol v. United Industrial Bank Ltd. In Sh. Nazir Ahmed's case it was observed that agreement to sell did not confer any title on prospective purchaser to sell or agree to sell such property until sale in his favour was complete. In Imtiaz Ali's case also the same view was taken that 'nobody can call himself as owner by purchase on the basis of agreement to sell and the power of attorney executed by the alleged vendor in favour of the prospective purchascr-cum-attorncy in the absence of Registered

200 Karachi All Pakistan Legal Decisions Vol. XLVI

Sale Deed. In Sh. Manzoor Ahmed's case Hon'blc Supreme Court of Pakistan held that "contract of sale of immovable property is a contract that sale of such property should lake place on terms settled between parties, but it would not by itself create any interest in or chargc on such property". In Amulya Gopal's case also the same view was taken that contract for sale of immovable property does not by itself create any interest in the property.

We arc of the view that, under the circumstanccs of the case, Section 53-A of the Transfer of Properly Act is attracted, which is as follows:—

"53-A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with rcasonablc.ccrlainty;

and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract;

and the transferee had performed or is willing lo perform his part of the contract;

then notwiilislanding that the contract, though required to be registered, has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in rcspcct of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract:

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."

Change of possession of suit property is, in fact, an act of part performance, which admittedly was done in this case, and this crcatcd a legal right in favour of the persons lo whom the property was transferred. Sincc rccord-of-rights has been mutated in favour of respondent there is nothing to doubt its authenticity.

•Mr. Virjee learned counsel for appellant, relying upon the provisions of Sections 54, 70, 70-A of the Cooperative Societies Act, 1925, challenged ihc maintainability of the suit. There is nothing on record to attract the provisions of Section 54 and 70-A lo this ease. Learned counsel laid emphasis on section 70, which speaks about notice. He argued that suit was filed without issuing notice to the appellant, as such, it was not maintainable. For this purpose, reliance is placed on the case reported in Farida v. Prince Apartments Cooperative Housing Socicty, 1984 CLC 2914 wherein it was held that notic£

1994 > Karachi k Gôl ic r £oqp, Rousing Karachi 201 Socicty Ltd. v. J a wad JBaig (Nazim Hussain Siddiqui, J)

u n d e r ScônlO.y^ against this, Mr.. Raja ;Haq Nawaz, learned counsel ,^ for X ^ .v^ê^joiidc^t ., submitted that. Registrar, Cooperative Societies,. Sindh and > the , appcllant-Socicty were sent notices on 23-9-1989 (i^nncxurojT') and bccause of the immediate threats of appellant the suit was filed. Also, it has been argued that filing of the plaint by itself was a notice. For this proposition rcliancc has been placcd on the ease reported in Sycd Azhar Imam Rizvi v. Mst. Salma Khatoon 1985 SCMR 24, wherein it was held in a rent matter that "the rcccipt of the copy of ejectmcnt application and knowledge gained thereby would constitute due noticc and it will have to be treated as substantial compliance of Section 13-A of the Ordinance". In the case in hand, the respondent has taken specific pica that, as per Anncxurc 'P' to the plaint, relevant notices were sent. This is a point of fact and at this stage it cannot be presumed that such notices were not sent. So this plea is also of no use.

Mr. Virjcc also argued that bye-laws of the Socicty have clearly provided that property of said Society can only be owned by a person, who is of Catholic Community and that no member could dispose of the property without prior consent of the Socicty. In support of this contention he cited Muhammad Raza and others v. Mst. Abbas Bandi Bibi AIR 1932 Privy Council 158 and Mahmud Ali Mujumdar v. Brikodar Nath and others AIR 1960 Assam 178. In Muhammad Raza's case it was held that, a condition by way of family arrangement, the property should not be alienated to stranger was not against the provisions of section 10 of the Transfer of Property Act. In Mahmud \ l i Mujumdar's case also the view was taken that agreement requiring parties to sell their land amongst themselves was not against the spirit of Section 10 of the Transfer of Property Act. On the strength of these cases, Mr. Virjcc strenuously argued that by virtue of bye-laws of the Socicty, the property could not be transferred to any non-Catholic. Under aforesaid q scction, where the property is transferred subject to a condition or limitation absolutely restraining the transferee or any person claiming under him parting with or disposing of his interest in the property, the condition or limitation is void. It is for the reason that a right of transfer of property is incidental to and inseparable from the beneficial ownership of property. There arc many Societies in Karachi where initially the properties were transferred to a particular class of persons and later on they (were) transferred to others. For example Dcfcncc Housing Socicty and P.E.C.H.S. Be that as it may, the respondent, as pointed out earlier, is already an owner of the property referred to as 'first property*. Therefore, it would not in any way affect the Socicty, if he got another property in said Socicty. The family arrangement or the agreement requiring the parties to' sell their lands amongst themselves cannot (be) compared with the affairs of a big housing socicty and nor the same could be counter-poised. The cases citcd by learned counsel for the appellant have no bearing on the merits of this case and arc distinguishable.

Mr. R.F. Virjcc also contended that lilnd belongs to the Socicty and

202 Karachi All Pakistan Legal Decisions V o l . X L V I

construction to its owners. According to him, in the case in hand the construction has already been demolished and presently except surrounding walls, there is no construction. He submitted that Hon'blc Supreme Court, under such circumstances, has, in Civil Appeal N6.806-K of 1990 The Karachi Catholic Co-operative Housing Socicty Ltd. v. Mrs. Daphne Mandonca and others ruled that raising of construction by non-Muslim in said Socicty was in violation of clause 2(a) of sub-lease. In this connection, he placed reliance upon the following observations of the Supreme Court, which arc in para. 9 of said Appeal:—

"We would not like to express our views on the merits of the ease as it may prejudice the parties. However, in our view, in the present case il cannot be denied that the appcllant-Socicty has, prima facic ease for an interim injunction as was found by the learned Civil Judge and even by the Additional District Judge and the High Court, and, therefore, we arc not inclined to agree with Mr. Rchmani that appellant socicty 'ias no prima facic case, as admittedly under above quotcd-clausc 2(a) of the sub-lease, respondents Nos.l to 3 could not have parted with the possession of the plot".

It is evident from said appeal that respondents Nos.4 and 5 of said appeal, despite objection of the Society, succeeded in getting plan of the construction of building sanctioned from the relevant authority. Therefore, the suit was filed, inter alia, for declaration that irrevocable general power of attorney was a subterfuge and was surreptitiously cxccutcd in favour of said respondents Nos.4 and 5. The facts of the case in hand arc distinguishable. In this case, the respondent is the owner of the suit property and his name has already been mutated in the record. The Socicty has filed a,counter-suit for declaration and injunction. Till declaration in that suit is granted, the respondent, for all practical purposes, is the owner of the suit property and as such, has a legal right to use it for his benefit according to law, . .

i It has also been urged by Mr. R.F. Virjcc that bye-laws of the Socicty arc contractual rights and those bye-laws cannot be questioned and the Socicty is competent to impose reasonable restrictions, while granting membership to its members. It is true that byc-laws arc generally in the nature of contractual rights but in the instant case, as appears from the record, the Socicty discriminated towards its members. When Mri' Tajuddm'Bhayani negotiated sale of the 'suit property' with oneMr.' Edward Wcllzd, all documents of sale in favour of Mst. Jaina'Bai an^ T a j u d d m ^ h a y a n j : V d ' ^ powers of attorney in favour of Haiidrir Ali and Tajuddin TBhaj^i , were ^^ t o the Socicty and said S o j ^ ^ b y ' i U l^ttcr ad^r^sscidl to f Mr. R.F. Virjcc, Advocatc for WeUzft m'$cflfi le of thS suit)' granted no objcctiop,. certificate to "Mr.,'Edward Wcllzo'to purchase the property from its Muslim owner Tajuddin Bhayani. Kdr. R.F. 'virjecftilso* on"8-5-19f$'4idvcrtiscd thisaran;.actiou, to ^ on behalf of

I1'1 i ii mt,..--si,, t ... . . j

Mr. Wcllzo and Tajuddin Bhayani. Thus, it is evident that, at an earlier stage, the Socicty had approved a transaction of sale between a Muslim and a Christian. Now byc-laws cannot be invoked against the respondent to show that he could not be owner of the suit property and the membership of the Socicty was confined to Catholic Community only.

Mr. Raja Haq Nawaz, learned counsel for the respondent submitted that, under the cir<;umstanccs, the principle of estoppel is attracted. In support of his contention, he cited Muhammad Hanif v. Hyderabad Municipality and others PLD 1966 Kar. 219 Krothapalli Satyanarayan v. Koganti Ramaiah and others AIR 1983 SC 452. In Muhammad HaniPs case it was held that principle of estoppel by conduct applies to corporation as well as to individual. In Krothapalli. Satyanarayan's ease the prayer of plaintiff for removal of encroachment after 9 years was declined.

Lord Chancellor on the Principle of Estoppel by Conduct observed as follows:—

"I am of opinion that generally speaking, if a parly having an inlcrcst to prevent an act being done has full notice of it being done, and acquiesces in it so as to induce a reasonable belief that he consents to its, and the position of others i\ altered by their giving crcdit to his sincerity, he has no more right to challenge the act to ihcir prejudice than he would have had if it had been done by his previous licensee."

In the case in hand, in view of the circumstances mentioned earlier, we hold that, prima facic, the principle of estoppel by conduct would apply.

Mr. Raja Haq Nawaz, learned counsel for the respondent also submitted that socicty in question is no more exclusive socicty for Christians and several Muslims arc also living there. Presently, there is no evidence in support of this contention, cxccpt the fact that respondent is the owner of property, which earlier has been referred to as 'first property'. Mr. Raja Haq Nawaz has pointed out that Section 17-B of the Sindh Co-operative Socicty Act has been amended, as per notification dated 24th May, 1989 of the Sindh Government Gazette, whereby, every purchaser subject to rules is to be admitted as a member of the society. For this reason also, the respondent cannot be prevented from being member of the Socicty.

The conclusion, therefore, would be that respondent has established a prima facic case and the balance of convenience is also in his favour. He will suffer irreparable loss if he is restrained from using his property. Accordingly, wc hold that learned Single Judge, under the circumstanccs of the case, has rightly granted interim injunction in favour of the respondent.

In consequence, the appeal is dismissed with no order as tor costs.

H

A.A./K-347/K Appeal dismissed

contract act pre-service

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