Damodaram Sanjivayya National Law University: Mugdha Tomar Iind Semester Sec - B 201263

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Damodaram Sanjivayya National Law University

A Case Study On Bell v Lever Brothers

Mugdha Tomar IInd Semester Sec - B 201263

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Contents Introduction - What is a Contract ?.................... 3 Essentials For a Valid Contract……………….. 3 Agreement…………………………………….. 3 What Agreements are Contracts ?...................... 4 Consent – Definition of “Consent” [S.13]…… 4-5  Free Consent – Defintion of “Free Consent”[S.14].. 5  “Free Consent”defined………………………............. 5- 6  Mistake – Definition of “Mistake”…………………… 6- 7  Section 21 of Indian Contract Act,1872……………… 7  Effect of Mistake as to Law……………….…………. 7  Section 22 of Indian Contract Act, 1872…………….. 7  Kinds of Mistake [S.20]……………………………… 8-10  Bell v Lever Bros Ltd  Facts of the Case…………………………………….. 11  Issues Involved in the Case…………………………. 11  Proceedings & Judgement…………………………… 11-12  Other Cases Where Bell v Lever Brothers Have Been Referred to……………………………………………………... 12-13  Conclusion……………………………………………. 14  Bibliography………………………………………….. 15     

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Introduction What is a Contract ? The term “contract” is defined in Section 2(h) of the Indian Contract Act,1872,as follows: An agreement enforceable by law is a contract; Thus for the formation of a contract there must be – (1) An agreement,and (2) The agreement should be enforceable by law 1

Essentials For a Valid Contract  An agreement between the two parties. An agreement is the result of a proposal or an    

offer by one party followed by its acceptance by the other. Agreement should be between the parties who are competent to contract. There should be a lawful consideration and lawful object in respect of that agreement. There should be free consent of the parties, when they enter into the agreement. The agreement must not be one, which has been expressly declared to be void.

Agreement “Agreement is defined as “every promise and every set of promises forming the consideration for each other”.And a promise is defined as an accepted proposal.Section 2(b) says: “ A proposal,when accepted,becomes a promise.”This is another way of saying that an agreement is an accepted proposal.The process of definition thus comes down in the following manner: A contract is an agreement; an agreement is a promise and a promise is an

1Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 3

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accepted proposal.Thus every agreement, in its ultimate analysis, is the result of a proposal from one side and its acceptance by the other.2

What agreements are contracts ? All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.Consideration can be defined as when at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing,something such act or abstinence or promise is called a consideration for the promise.

Nothing herein shall contained shall effect any law in force in [India] and not hereby expressly repealed, by ehich any contract is required to be made in writing or in the presence of witnesses,or any law relating to the registration of documents. Thus every contract is an agreement, but every agreement is not a contract.An agreement becomes a contract when the following conditions are satisfied:

1. 2. 3. 4.

There is some consideration for it.[S.2(d) and S.25] The parties are competent to contract.[Ss 11 and 12] Their consent is free [Ss.13-22] Their object is lawful.[Ss. 23-30]3

2 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 3

3 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 4

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Consent Definition of “Consent”[S.13] Section 13 of the Indian Contract Act,1872 defines Consent as follows; Two or more persons are said to consent when they agree upon the same thing in the same sense. An agreement upon the same thing in the same sense is known as true consent or consensus ad idem,and is at the root of every contract. This seems to have been picked up fro apassage in the judgement of Lord HANNEN in the famous case of Smith v Hughes.4 “It is essential to the creation of a contract that both parties should agree to the same thing in the same sense.Thus if two persons enter into an apparent contract conserning a particular person or ship,and it turns out that each of them,misled by a similarity of name,had a different person or ship in mind,no contract would exist between them.5

Free Consent Definition of Free Consent [S.14] According to Section 10 of the Indian Contract Act,1872 free consent is an essential requirement of a contract.Section 14 of the Indian Contract Act,1872 defines “free consent”.

“Free

Consent” defined – Consent is said to be free when it is not caused by :

(1) Coercion,as defined in Section 15, 4 (1871) LR 6 QB 597,609: 40 LJ QB 221: 25 LT 329 5 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 227

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Coercion is the commiting,or threatening to commit,any act forbidden by the Indian Penal Code(45 of 1860), or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intension of causing any person to enter into an agreement6 (2) Undue influence, as defined in Section 16, A contract is said to be induced by”undue influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair unfair advantage over the other.7 (3) Fraud, as defined in Section 17, “Fraud” means and includes any of the following acts committed by a party to a contract,or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract :

The suggestion, as a fact, of that which is not true by one who does not believe it to be

   

true; The active concealment of a fact by one having knowledge or belief of the fact; A promise made without any intention of performing it; Any other act fitted to deceive; Any such act or omission as the law specially declares to be fraudulent.8

(4) Misrepresentation, as defined in Section 18, or “Misrepresentation”, means and includes – (1) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true,though he belives it to be true; (2) Any breach of duty which,without an intent to decive,gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice of anyone claming under him; 6 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 177

77 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 180

8 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 212

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(3) Causing,however innocently, a partly to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.9

(5) Mistake, subject to the provisions of Sections 20,21,22

Mistake Definition of “Mistake” There the mistake does not defeat consent, but only misleads the parties,Section 20 shall apply.This section provides: Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement,the agreement is void.

Example – A, agrees to buy from b a certain horse.It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact.The agreement is void

Section 20 will come into play: (1) (2) (3)

When both the parties to an agreement are mistaken, Their mistake is as to a matter of fact,and The fact about which they are mistaken is essential to the agreement.10

Section 21 of Indian Contract Act,1872 –

9Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 200 10 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 227 -228

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Effect of mistake as to law – A contract is not voidable because it was caused by a mistake as to any law in force in India;but a mistake as to a law not in force in India has the same effect as a mistake of fact.

Example – A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian law of limitation;the contract is not voidable.11

Section 22 of Indian Contract Act,1872 – A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.12

Kinds of Mistake [S.20] Mistake as to Person Important Case Jaggan Nath v. Secy of State of India(1886)13 A person, called S, a brother of the plaintiff, represented himself as plaintiff, and thereby induced a Government agent to contract with him. The court, finding that the Government’s agent was deceived by the conduct of the plaintiff and his brother as to the person with whom he was dealing, held that there was no valid 11 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 228 12 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 228

13 (1886) 21 Punj Rec No.21

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contract.The defendant’s agent intended to contract only with S’s brother and not with S and S knew this.14

Mistake as to Title or Rights: Important Case Cooper v.Phibbs(1867) In that case an uncle had told his nephew, not intending to misrepresent anything but being in fact in error, that he (the uncle) was entitled to a fishery, and the nephew, after the uncle’s death, acting in the belief of the truth of what the uncle had told him, entered into an agreement to rent the fishery from the uncle’s daughter, whereas it actually belonged to the nephew himself.The House of Lords hed that the mistake was such as not only to make the agreement voidable, but also liable to be set aside on such terms as the court thought to be fit to impose.

Different Subject Matter in Mind: Important Case Raffles v. Wichelhaus15

The defendant bought of the plaintiff a quantity of Surat Cotton “to arrive ex Peerless from Bombay”.Two ships with the name Peerless sailed from Bombay, one in October, which the defendant had in mind and the other in December which the plaintiff had in mind.The court

14 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 229

1515 (1864) 2 H & C 906: 159 ER 375: 133 RR 853

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said: “the defendant meant one Peerless and the Plaintiff another.That being so,there was no consensus ad idem and therefore no binding contract.”16

Non – existence of Subject Matter – Important Case Couturier v. Hastie(1852)17 The defendant was employed to sell the plaintiff’s cargo which was on voyage.After the defendant had sold the cargo to a third person, it was discovered that the cargo, having been damaged by bad weather, had been sold at an intermediate port. The buyer repudiated the contract and the defendant,being a del credere agent18 was sued for the price.19

Mistake as to nature of Promise – Important Case Raja Singh v. Chaichoo Singh(1940)20 The plaintiff appointed the defendant to look after his cultivation and his affairs, as he had become too old to manage them himself.The defendant asked him to grant him a lease of his 16 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 238

17 (1856) 5 HL Cas 673 : 25 LJ Ex 253: 10 ER 1065 18 The expression means an agent who undertakes to be liable if the third person with whom he contracts on behalf of his principal fails to perform the contract. 19 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg - 236

20 AIR 1940 Pat 201

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land.The plaintiff agreed to it and placed his thumb – impression upon a deed which was in fact a gift of the land.The court held the deed to be void ab intio.21

Mistake as to Price – Important Case BankuBehariSahu v.KrishtoGobindo(1930)22

Mistake as to Substance – Important Case Sheikh Bros Ltd v. Ochener(1957)23 The appellant – company, the lessor of a forest in Kenya,granted a licence to the respondent to cut, process and manufacture all sisal growing in the forest.The respondent to cut, process and manufacture and deliver to the appellant 50 tons of sisal fibre per month.But it turned iut that the leaf potential of the sisal area was not sufficient to permit the manufacture of the stipulated quantity and the respondent was sued for the breach. The agreement was helf to be void.Their Lordships, relying upon the statements from the landmark case of Bell v Lever Bros,came to the conclusion that “having regard to the nature of the contract, which was a kind of joint adventure, it was the very basis of the contract that the sisal area should be capable of producing an average of 50 tons a month throughout the term of licence, and the mistake was as to a matter of fact essential to the agreement”.24 21 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 245 22 (1930) 30 Cal 433 23 1957 AC 136 (PC) 24Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 239

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Mistake as to Quality – Definition of Quality: Black’s Law Dictionary defines quality as 1. The particular character or properties of a person,thing or act,after essential for a particular result <she has leadership>
Bell v Lever Brothers, 1932 AC 161:(1931) ALL ER Rep 1

Facts of the Case Lever Brothers appointed one Bell as a managing director for five years on annual salary of 8,000 pounds to manage one of their subsidiaries in Africa.Much before the expiry of this term his services had to be dispensed with on account of the merger of the subsidiary with a third company.Bell agreed to retire on a compensation of 30,000 pounds.After this sum was paid, it was discovered that during his term of service,Bell had made secret profits and was, therefore,guilty of breach of duty which entitled the company to dismiss him without compensation.The company,therefore, claimed the return of the money on the ground inter alia that it was paid under a mutual mistake of fact.25

Issues Involved in the Case 25 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 241

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There were two issues involved in this case – Firstly, whether there was such a mistake which had made the contract void and Secondly, could Lever Brothers avoid the contract on the ground that Bell had committed fraud by not disclosing his acts of the misconduct while accepting compensation of 30,000 pounds from Lever Brothers.26

Proceedings and Judgement The House of Lords held by a majority “that the mutual mistake related not to the subject matter, but to the quality of the service contract”. As regards the question of fraud due to nondisclosure of misconduct by Bell, it was held that Bell had no such duty of disclosure and mere silence as to facts in this case did not amount to fraud, and the contract was not voidable either on that ground.As regards the contention that the sum 30,000 pounds had been paid to Bell by mistake and therefore the agreement to pay this amount was void.As regards the contention that the contract was voidable on the ground of fraud due to non –disclosure of the fact of his own misconduct by bell, the same was rejected, as there was held to be no duty of disclosure of such facts in the present case.27

The plaintiffs contended that they agreed to pay compensation on the assumption that the service contract was one which could not be terminated without compensation, whereas the true fact was that the defendant could have been dismissed without compensation.Referring to this, Lord ATKIN said: “I have come to the conclusion that it would be wrong to decide that an agreement to terminate a definite specified contract is void if it turns out that the agreement had already been broken and could have been terminated otherwise.The contract of release is the identical contract in both cases, and the party paying for release gets exactly what he bargains for.It seems immaterial that he could have got the same result in another way, or that if he had known the true facts he would not have entered into the bargain.” 26 Bhangia R.K,Contract – I ,Faridabad :Allahabad Law Agency(2009), Pg - 187

27 Bhangia R.K,Contract – I ,Faridabad :Allahabad Law Agency(2009) Pg 187,188

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The mistake was mutual as the jury found out that at the time of negotiating the compensation agreement the defendant had not in mind his breaches of duty.28

Other Cases Where Bell v. Lever Brothers Ltd

Have Been

Referred To English Case Great Peace Shipping Ltd v Toavliris Salvage International Ltd. [2002] 4 ALL ER 689 (CA) In this case two vessels were hired to reach for a stricken vessel to save the life of its crew.It was believed at the time of contract that the two vessels were in close proximity to each other, located at a distance of 35 miles.Unknown to both the parties, the two vessels were at a distance of 410 miles and it would have taken 39 hours for the rescue vessels to reach the stricken vessel.The defendants looked for other vessels which they got cancelled the contract. The Court of Appeal applied the case of Bell v Lever Brothers Ltd here It was held to be a breach of the contract.The defence of mistake failed.The court said that the mistake as to the diatance between the two vessels had not rendered the services that the distant vessel was able to provide something essentially different from those which t he parties had agreed. The vessel would have arrived in time to provide several days of escort service.The fact that the vessels were further apart than both the parties had appreciated did not mean that it was impossible to perform the contractual venture.29

Indian Case Seikh Bros Ltd v Ochener

1957 AC 136(PC) 28 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 241 ,242

29 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 242

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In this case the appellant – company, the lessor of a forest in Kenya, granted a licence to the respondent to cut,process and manufacture all sisal growing in the forest. The respondent, in return, undertook to manufacture and deliver and them to the appellant 50

tons of sisal fibre per month. But it turned out that the leaf potential of the sisal area was not sufficient to permit the manufacture of the stipulated quantity and the respondent was sued for the breach. The agreement was held to be void. Their Lordships, relying upon the statements in Bell v Lever Bros Ltd, came to the conclusion that “ having regard to the nature of the contract, which was a kind of joint adventure, it was the very basis of the contract, that the sisal area should be capable of producing an average of 50 tons a month throughout the term of the licence, and the mistake was to a matter of fact essential to the agreement.30

Conclusion Thus the case Bell v Lever Brothers Ltd (1932) as seen is a landmark case as it has been referred/cited in many judgements be it Indian or English cases.This shows the prominence and the importance of the case and the judgement thus given.I solely agree with the judgement given in the case that mere silence on the part of Bell did not amount to Fraud and he did not owe any duty to disclose this fact and also I agree that during the time of negotiating the compensation agreement the defendant that is Bell did not had in his mind breaches of duty.Thus I agree with the judgement and Bell was so liable not to par back the money to Leve Brothers as Fraud was not his intention at during the course of the contract.

30 Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10th ed,(2008),Pg – 239

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Bibliography 1. Singh Avatar, Contract and Specific Relief, Lucknow: Eastern Book Company.10 th ed, (2008) 2. Bhangia R.K,Contract – I ,Faridabad :Allahabad Law Agency(2009) 3. Anson, Anson’s Law of Contract, New York : Oxford University Press,(200) 4. www.westlawindia.in