Law And Policy

This post consists of summary of following Case Laws
1. Raghunath Prasad Sahu v. Sarju Prasad Sahu [AIR 1924 PC 60]-Click here to View
2. Lloyds Bank v. Bundy [(1975) 1 QB 326]
3. Derry v. Peek [(1889) 14 AC 337]
4. Bisset v. Wilkinson [1927] AC 177
5. Gustavus Couturier v. Robert Hastie [(1856) 5 HL Cas 673]
6. Raffles v. Wichelhaus [(1864) 2 H&C 906]

1. Raghunath Prasad Sahu v. Sarju Prasad Sahu [AIR 1924 PC 60]

This Privy Council case examined the concept of undue influence under Section 16 of the Indian Contract Act, 1872. The appellant, Raghunath Prasad, an elderly and dependent man, executed a deed transferring substantial property to his nephew, Sarju Prasad. He later challenged the transaction, alleging that it was obtained through undue influence due to the nephew’s dominance over him.
The Privy Council held that where the relationship between the parties is such that one can dominate the will of the other, and the transaction appears unconscionable, the burden lies on the dominant party to prove the absence of undue influence. Since the nephew failed to show that the transaction was made freely and with independent advice, the court declared it voidable.

Principle: When a transaction appears unconscionable and involves a fiduciary or dependent relationship, the law presumes undue influence unless rebutted by the stronger party. The case reinforced the doctrine that equity intervenes to protect weaker parties against unfair advantage or abuse of trust.

2. Lloyds Bank v. Bundy [(1975) 1 QB 326]

This English Court of Appeal case expanded the doctrine of undue influence and inequality of bargaining power. Mr. Bundy, an elderly farmer, mortgaged his farmhouse to Lloyds Bank to secure his son’s business debts. He relied completely on the bank’s advice and received no independent legal counsel. When the son’s business failed, the bank sought to enforce the mortgage, and Bundy claimed the agreement was unfairly obtained.
Lord Denning M.R. held that although no single recognized ground of undue influence applied, the court could intervene where there existed a significant imbalance in bargaining power combined with manifest disadvantage. The bank had a conflict of interest, and Bundy had trusted it implicitly. The mortgage was therefore set aside.

Principle: The case established the broad doctrine that contracts can be voidable for inequality of bargaining power where one party exploits the vulnerability or trust of another. It marked a move toward a general equitable principle protecting weaker parties in contractual dealings.

3. Derry v. Peek [(1889) 14 AC 337]

This House of Lords decision remains a cornerstone of the law of fraud and deceit. The directors of a tramway company issued a prospectus stating they had authority to use steam power, believing Parliament would approve it. Investors relied on this statement, but consent was later refused, and the company failed.
The plaintiff shareholders sued for deceit. The court held that fraud requires proof of dishonesty, not mere negligence. A false statement made honestly and in good faith, even if unreasonable, does not constitute fraud. Lord Herschell defined fraud as a statement made (1) knowingly false, (2) without belief in its truth, or (3) recklessly without caring whether it is true or false.

Principle: Fraud requires intent to deceive; mere carelessness or over-confidence does not amount to fraud. The decision drew a clear distinction between fraudulent and negligent misrepresentation, later leading to the creation of statutory remedies for negligent misstatements under the Misrepresentation Act 1967 (U.K.).

4. Bisset v. Wilkinson [1927 AC 177]

This case defined the distinction between fact and opinion in misrepresentation. The vendor (Bisset) sold farmland in New Zealand to Wilkinson, stating it could support “about 2,000 sheep.” Both parties knew the land had never been used for sheep farming. When the purchaser later found it unsuitable and sued for misrepresentation, the Privy Council held that the statement was merely an expression of opinion, not a factual representation.
Since both parties had equal knowledge of the circumstances and the vendor had no special expertise, there was no deceit or misrepresentation.

Principle: A statement of opinion is not actionable as misrepresentation unless the person giving the opinion possesses superior knowledge and the other relies on that expertise. The case remains fundamental for determining when opinions may amount to misstatements of fact, shaping modern misrepresentation doctrine in contract law.

5. Gustavus Couturier v. Robert Hastie [(1856) 5 HL Cas 673]

This early House of Lords decision concerns mistake and contract formation. The seller and buyer agreed on the sale of a cargo of corn “believed to be in transit.” Unknown to both, the corn had already perished before the contract. When the buyer refused to pay, the seller sued for breach.
The court held the contract void because both parties contracted under a common mistake of fact, the subject-matter no longer existed. There was no consensus ad idem, and therefore no enforceable contract.

Principle: If both parties enter an agreement under a fundamental mistake about the existence of the subject matter, the contract is void ab initio. The case established the rule later codified in Section 20 of the Indian Contract Act, 1872 (agreement void where both parties are under mistake as to matter of fact).

6. Raffles v. Wichelhaus [(1864) 2 H & C 906]

This case illustrates the doctrine of mutual mistake or latent ambiguity. The parties contracted for the sale of cotton to arrive “ex Peerless from Bombay.” Unknown to them, two ships named Peerless sailed from Bombay at different times. The seller referred to the December ship, while the buyer intended the October ship. When the cotton arrived later, the buyer refused delivery, arguing no binding contract existed.
The court agreed, holding that there was no consensus ad idem, the minds of the parties never met regarding an essential term (the identity of the ship).

Principle: Where a contract’s terms are ambiguous and each party reasonably refers to a different subject matter, the agreement is void for lack of genuine consent. Raffles v. Wichelhaus remains the classic English authority on mutual mistake, forming the basis for Section 20 of the Indian Contract Act concerning mistake as to a matter of fact.