Monday, February 15, 2016

Lalman v Gauri Dutt: Legend and Reality

(The following guest post is contributed by Shivprasad Swaminathan, who is Associate Professor at the Jindal Global Law School)

“As has often happened, in the law the case [becomes] more important not for what the judges said but for what the legal profession came to believe the case stood for.
P. Atiyah, Rise and Fall of the Freedom of Contract p. 414
The Stuff of Legends
There are several canonical cases which have over the years hardened into axioms. So sure are we about the propositions we have been taught they advance, that few of us ever feel the need to check if that is indeed what they stand for. A good example is Tweddle v Atkinson, which we associate with the axiom that a stranger to the contract cannot sue upon it. It should then come to the unquestioning among us as a surprise that the subject of Atiyah’s grouse in the epigraph is indeed Tweddle v Atkinson. Atiyah alerts us to how the legend of Tweddle v Atkinson is completely at dissonance with its reality. Tweddle v Atkinson advanced the proposition that consideration must move from the plaintiff to enable him to sue upon the contract. As Vernon Palmer reminds us, in 1861 when Tweddle v Atkinson was decided, the privity of contract rule was still some time away from blipping the radar  (V. Palmer, Paths to Privity 160-165). Something similar seems to have happened with Couturier v Hastie (illustration (a) to Sec. 20 of the Indian Contract Act) widely perceived as the fons et origo of the doctrine of mistake but in reality had nothing to do with it (D. Ibbetson, Historical Introduction to the Law of Obligations at p 228). As Ibbetson argues, the law treatise seems to have played a crucial role in creating a legend of these cases which did not match the reality. Sometimes, the law treatise writers wanted the case to stand for a theory they were vigorously advancing and as a result the case was twisted to make a procrustean fit with the theory. In other cases, the result could be attributed to nothing more than an error on the part of text book writers: such as is the case with Lalman v Gauri Datt.

Lalman v Gauri Datt
Figuring prominently in the canon of cases every student who has gone through a course on Indian contract law must know is Lalman v Gauri Datt (1913) 40 ALJ 489. An internet search for Lalman v Gauri Datt throws up a great number of results all confirming one proposition—that a person without the knowledge of the offer cannot accept it. Standard textbooks on contract law confirm this understanding of the case.

Obviously therefore an offer cannot be accepted unless and until it has been brought to the knowledge of the person to whom it is made. This principle enabled the Allahabad High Court in Lalman v Gauri Datt to deal with a matter involving a very crucial question on this point.
Defendant’s nephew absconded from home. He sent his servant in search of the boy. When the servant had left, the defendant by handbills offered to pay Rs.501 to anybody discovering the boy. The servant came to know of this offer only when he had already traced the missing child. He, however, brought an action to recover the reward. But his action failed. (Avtar Singh, Contract and Specific Relief 10th ed. p.10)
This is confirmed by other standard text books as well.

The plaintiff did not know the handbills when he found the boy. It was held that the plaintiff was not entitled to the reward. It has been held that contractual obligations do not arise if services are offered which in fact fulfill the terms of the offer, but are performed in ignorance of the fact that the offer exists.  (Pollock and Mulla, The Indian Contract Act, 1872 14th ed p.51)
The Reality

Lalman Shukla was Gauri Datt’s munib or clerk at Kanpur (then Cawnpore). When Datt’s nephew went missing, Lalman was dispatched to Haridwar to look for the nephew. After Lalman left for Haridwar, Datt announced a reward of Rs.501 for anyone who found his nephew.  Lalman traced the nephew to Rishikesh and brought him back to Kanpur. Later he filed a suit for his reward. Datt, the defendant, resisted the suit by arguing that the plaintiff could not accept an offer he was not aware of. Lalman countered this with the claim that even though the reward was announced after he left, the handbills of the advertisement had been sent to him in Haridwar. He also claimed that a subsequent promise to pay the reward was made to him by the defendant. The trial court dismissed the suit on the basis that: (i) that the offer of reward was announced after the plaintiff had left; and (ii) there was no subsequent promise to pay the reward. In revision, the Allahabad High Court, affirmed (ii) but rejected (i).  That should have been enough to reverse the trial court’s decision and hold for the plaintiff but the High Court held for the defendant on an entirely different point, namely, that of consideration.

Banerji J held that the plaintiff being an employee of the defendant was already under a pre-existing legal obligation to look for the nephew when required by the plaintiff. Although, it was not in the ordinary scope of duties as a munib, “when he agreed to go to Haridwar in search of the boy he undertook that particular duty and there was an obligation on him to search for and trace out the boy”[p.493]. Accordingly, the Court held:

Being under that obligation which he had incurred before the reward in question was offered, he cannot, in my opinion, claim the reward. There was already a subsisting obligation and therefore the performance of the act cannot be regarded as consideration for the defendant’s promise. [p 493]
The court applied the pre-existing duty rule found instantiated in cases such as Stilk v Myrick (1809) 2 Camp 317 (this case was not, however, referred to by the court) to hold that the promise to pay was without consideration and hence would not amount to an enforceable contract. The doctrinal basis for this rule is that the promisee who is under a pre-existing duty suffers no fresh detriment, nor does the promisor derive any fresh benefit—benefit and detriment being the hall marks of consideration at English law. This point—that the pre-existing duty rule was dispositive of the case—has not got the attention it deserves, and as we shall note in the following section, raises far reaching questions about the definition of consideration under s. 2 (d) of the Indian Contract Act, 1872.

On the point of acceptance—the issue on which Lalman v Gauri Datt has come to be the locus classicus—the court, in fact, held in favour of the plaintiff. The court reversed the finding of the trial court that the alleged acceptance was in ignorance of the offer as it found that the handbills had been sent to the plaintiff in Haridwar. The court also added that plaintiff, in the case of a public offer such as this is entitled to an “inference” that the acceptance was valid [p.493], which is to say, with knowledge of the offer. In other words, the court had no difficulty in finding that there was a valid offer and acceptance, and hence agreement, in the case. Banerji J did observe obiter that an acceptance without the knowledge of an offer is not valid [p. 492], but that was not a vice that the acceptance in this case suffered from. Thus, while no one can cavil with the proposition that there can be no acceptance without knowledge of the offer—albeit found obiter in this case—it would be plainly wrong to suppose that this was the reason the plaintiff’s action failed in the case.

The Outstanding Question

What is striking about the judgment in Lalman v Gauri Datt is that not once does s 2(d) of the Indian Contract Act find mention and the court proceeds to hold that the agreement in the case trips up on the consideration hurdle, on the assumption that the definition of consideration in s 2(d) is the same as the English definition replete with elements of benefit and detriment. To be sure, even at the time the case was decided, there was considerable support for the proposition that s 2(d) does nothing more than restate the English definition of consideration, in the form of the commentaries of Pollock and Mulla (Indian Contract Act, 1872 2nd ed. 1909 p. 14, 25) and Whitley Stokes (Anglo Indian Codes 1888 p. 497).  And there was also authority in the form of the Bombay High Court’s judgment in Ramchandra Chintaman v Kalu Raju (1878) 2 ILR Bom 362 which held that a promise to do something the promisee is already under a pre-existing duty to do does not amount to consideration. But the question that did not then receive the attention it deserved—and arguably never did thereafter either—was whether a pre-existing duty rule could ever be pressed out of out of s 2(d) which contained no reference to benefit or detriment. If any act or abstinence or promise at the desire of the promisor is consideration, it should hardly matter whether such act also amounts to a benefit or detriment, let alone an additional or fresh benefit or detriment. A hundred years on, we find that benefit and detriment has been interpolated into the definition of consideration with the approval of the Supreme Court of India in Chidambaraiyer v Renga Iyer [1965] AIR SC 193 and standard text books take it as axiomatic. The English common law may after a long struggle have liberated itself somewhat from the shackles of ‘benefit’ and ‘detriment’ in William v Roffey Bros [1991] 1 QB 1, but we in India continue to endorse the old definition of consideration, replete with elements of benefit and detriment, which is manifestly without any basis qua interpretation of s 2(d). Disputing this received wisdom here would take us far afield and thus must await another occasion. It should suffice for now to adumbrate the issue and alert us to the fact that the foundations of the case law on consideration in India might be a lot less sure than we may have been led to believe. Lalman v Gauri Datt ought to serve as a reminder of those shaky foundations.


Badri said...

An extremely good post. Two key takeaways- one, that the cases, like the passing the message game, are totally misunderstood due to passage of time; two, the mindboggling refusal to rely on the Indian Contract Act while deciding a contract-related case and the over-relience on English precedents and law.

Pl. keep coming up with such nice ones. Rarely do we find such incisive writing on Indian Contract law.

vswami said...

The longstanding and persistently voiced conviction of a widely renowned towering legal legend is worth recalling ; for , that had the same message to convey and advocated for,backed-up by lifelong experience and expertise, for an awakening among the legal fraternity:
Only excellence in lawyers can ensure and bring about the avowed -for -ideal outcome of excellence in law (< case law); and
it is a tragedy- no gainsaying- that, most inconclusive litigation of vexing kind are lawyer-stimulated.
(Source: Book (s) on N A Palkhivala’s published speeches)