PPT on meaning of 'consideration' under Indian Contract Act

1. 1
Consideration
Definition
Section 2(d) of the Indian Contract Act 1872:

2. 2
Section 2(d)
• “When at the desire of the promisor
the promisee or any other person has
done or abstained from doing, or
does or abstains from doing, or
promises to do or to abstain form
doing something, such act or
abstinence or promise is called a
consideration for the promise”.

3. 3
Consideration
• At the desire of the promisor
• Promisee or any other person
• Past, present or future
• Such act, abstinence or promise is
called consideration

4. 4
At the desire of the promisor
Durga Prasad V. Baldeo 1880
• Facts: The plaintiff on the order of the collector
of a town, built at his own expense, certain shops
in a bazar. The shops came to be occupied by the
defendants who, in consideration of the plaintiff
having expended money, in the construction,
promised to pay him on commission on articles sold
through their agency in the bazar. The plaintiffs
action to recover the commission was rejected.
• The act was the result not of the promise but of
the collector’s order.

5. 5
Promisee or any other
person
• As long as there is a consideration
for a promise, it is immaterial who
has furnished it. It may move from
the promisee, or,if the promisor has
no objection, from any other person

6. 6
Privity of Contract and
Privity of Consideration
English Law
In the law of England certain principles are
fundamental. One is that only a person who
is a party to a contract can sue on it. A
second principle is that if a person with
whom a contract not under seal has been
made is to be able to enforce it,
consideration must have been given by him.

7. 7
English Law
• 1. Consideration must move from the promisee and
the promisee only. If it be furnished by any other
person, the promisee becomes a stranger to the
consideration and, therefore, can not enforce the
promise.
• 2. A contract can not be enforced by a person
who is not a party to it even though it is made for
his benefit. He is stranger to the contract and
can claim no rights under it.

8. 8
Tweddle v.Atkinson
30 LJ QB218 1861
The court of Queens Bench refused to allow a
beneficiary who is not a party to a contract to
enforce the contract.
Fact: The plaintiff who was to be married to the
daughter of one G and in consideration of this
intended marriage G and the plaintiffs father
entered into a written agreement by which it was
agreed that each would pay the plaintiff a sum of
the money. G failed to do so and the plaintiff
sued his executors. Whiteman judge considered it
to be an established principle “ that no stranger
to the consideration can take advantage of a
contract, although made for his benefit”.

9. 9
Tweddle v.Atkinson
30 LJ QB218 1861
Judgment
Thus, although the sole object of the contract was to secure a
benefit to the plaintiff, he was not allowed to sue as the
contract was made with his father and not with him.
The case laid the foundation of what subsequently came to be
known as the doctrine of “ privity of contract”.
This principle was affirmed by the House of Lords in Dunlop
Pneumatic Tyre Co. V. Selfridge & Co.

10. 10
Dunlop pneumatic tyre Co.,
Plaintiff V. Selfridge & Co.,
Defendant, 1915
• Facts: Plaintiffs sold certain goods to one Dew &
Co. and secured an agreement from them not to
sell the goods below the list price and that if they
sold the goods to another trader they would
obtain from him a similar undertaking to maintain
the price list. Dew & Co. sold the motor tyres to
the defendants who agreed not to sell the tyres
to any private customer at less than the list
prices. The plaintiff sued the defendant for
breach of this contract.

11. 11
Dunlop pneumatic tyre Co.,
Plaintiff V. Selfridge & Co.,
Defendant, 1915
• Judgment: It was held by Lord
Viscount HALDANE that assuming
that the plaintiffs were undisclosed
principals no consideration moved
from them to the defendants and
that the contract was unenforceable
by them

12. 12
Sec 25. An agreement
without consideration is
void unless
Clause (i) It is in writing and registered.
It is expressed in writing and registered
under the law for the time being in force
for registration of [documents], and is
made on account of natural love and
affection between parties standing in a
near relation to each other;

13. 13
Sec 25. An agreement
without consideration is
void unless
• Clause(ii) or is a promise to
compensate, wholly or in part, a
person who has already voluntarily
done something for the promisor, or
something which which the promisor
was legally compellable to do ;

14. 14
Sec 25. An agreement
without consideration is
void unless
• Clause (iii) or is a promise to pay a debt
barred by limitation-
It is a promise, made in writing and signed by
the person to be charged therewith, or by
his agent generally or specially authorised
in that behalf, to pay wholly or in part a
debt of which the creditor might have
enforced payment but for the law for the
limitation of the suits

15. 15
Explanations
• 1. Nothing in section 25 shall affect the validity,
as between the donor and donee, of any gift
actually made
• 2. An agreement to which the consent of the
promisor is freely given is not void merely because
the consideration is inadequate ; but the
inadequacy of the consideration may be taken into
account by the court in determining the question
whether the consent to the promisor was freely
given.

16. 16
Free Consent
Coercion

17. 17
Definition
• According to sec. 10 free consent is
an essential requirement of a
contract. Sec. 14 defines “free
consent”.

18. 18
Vitiating factors and
their effect
Where consent to an agreement is caused by
coercion, undue influence, fraud or
misrepresentation, the agreement is a
contract voidable at the option of the
party whose consent was so caused.
Where consent is caused by mistake, the
agreement is void.

19. 19
Coercion
Sec 15.
“Coercion” is the committing, or threatening to
commit, any act forbidden by the Indian Penal
Code (XLV of 1860), or the unlawful detaining, or
threatening to detain any property, to the
prejudice of any person whatever, with the
intention of causing any person to enter into an
agreement.
Explanation- It is immaterial whether the Indian
Penal Code (XLV 1860), is or is not in force in the
place where the coercion is employed.

20. 20
Techniques of causing
coercion
Consent is said to be caused by coercion
when it is obtained by pressure exerted
by either of the following techniques:
(1) Committing or threatening to commit any
act forbidden by the Indian Penal Code;
or
(2) Unlawfully detaining or threatening to
detain any property.

21. 21
Coercion Duress or Menace
1. Indian Law
2. Definition is wide
3. It includes the unlawful
detention of property also.
Coercion may be committed by
any person, not necessarily a
party to the contract. It need
not be directed against the
contracting party. It may be
directed against any person,
even if he is a stranger.
1. English Law
2. Definition is Narrow
3. It consist in actual or
threatened violence or
imprisonment of the contracting
party or his wife, parent or child
by the other party or by any one
acting with his knowledge and
for his advantage

22. 22
Free Consent
Undue influence

23. 23
Undue Influence
Sec. 16 of the Indian Contract Act
1872 defines Undue Influence.

24. 24
Undue influence
• A party to a transaction, though
consenting to it, may not give a free
consent because he is exposed to such
influence from the other party as to
deprive him of the free use of his
judgment. In such a case, the transaction
will be set aside. If property has passed,
equity will order restitution, and, if
necessary, follow the property into the
hands of third parties.

25. 25
More than mere influence must be
proved, so as to render influence as
‘undue’ in the language of law.
In Lingo Bhimrao Naik V. Dattatraya
Shripad Jamadagni, the diffrence
between legitimate persuation and
undue influence has been described:

26. 26
Legitimate persuasion Undue influence
1. Persuasion, appeal to the
affections or ties of
kindred, to a gratitude of
sentiment for past
services, or pity for
future destitution or the
like are all legitimate and
may be fairly passed on a
promisor.
1. Pressure of whatever
character, whether acting on
the fear or the hopes, if so
exerted as to overpower the
volition without convincing the
judgment, is a species of
restraint under which no valid
contract or transaction can be
made

27. 27
Legitimate persuasion Undue influence
2. A party may be led but
not driven and his will
must be the offspring of
his own volition and not
someone else’s.
2. Importunity or threats such
as the promisor has not the
courage to resist, moral command
asserted and yielded for the sake
of peace and quiet, or of escaping
from distress of mind or social
discomfort, these if carried to a
degree in which the free play of
the promisor’s judgment,
discretion or wish is overborne,
will constitute undue influence,
though no force is either used or
threatened.

28. 28
Doctrine of Inequality of
Bargaining Power
There are cases under the English law, where equity
intervened not because the terms were harsh or
oppressive, but because it refused to allow one
party to take advantage of the others weakness
or need. The pressure in these cases was not of
undue influence or personal pressure, but arose
because the other party took advantage of its
economic power and necessity of the vendor or
the borrower which has been termed as pressure
resulting from an inequality of bargaining position.
This doctrine has been applied as an independent
principle.

29. 29
Lloyds Bank Ltd V Bundy
[1974] 3 All ER 797
A further guarantee and a charge were given by the
father to a bank on the advice of the bank
manager in regard to the debt of his son. The
father was held to have complete faith and did
not get outside advice. The court of appeal held
that a special relationship of confidence existed
between the bank and the father and the last
guarantee and charge were liable to be set aside
for undue influence. Lord denning considered
them voidable on the large ground of inequality of
bargaiening powers. He stated:

30. 30
“There are cases in our books in which the
courts will set aside a contract, or a
transfer of property, where the parties
have not met on equal terms- when one is
so strong in the bargaining power and the
other so week that, as a matter of common
fairness, it is not right that the strong
should be allowed to push the weak to the
wall”

31. 31
Central inland water transport
corporation Ltd. V Brojonath
Ganguly AIR 1986 SC 1571
The Supreme Court considered the the
question whether relief could be
granted for an unconscionable
bargain, and under which head should
it fall.

32. 32
Free Consent
Fraud

33. 33
Fraud
Sec 17 of the Indian Contract Act
1872 defines fraud.

34. 34
Ingredients of fraud
Analysis of Sec 17(1) shows the following
ingredients:
(i) there should be a suggestion as to a fact ;
(ii) the fact suggested should not be true;
(iii) the suggestion should have been made by a
person who does not believe it to be true; and
(iv) the suggestion should be made with intent either
to deceive or to induce the other party to enter
into the contract.

35. 35
Representation
A representation is a statement of fact, past or
present; it is distinct from a statement of opinion,
though in certain circumstances a statement of
opinion may be regarded as a statement of fact.
In order to enable the representee to avoid the
contract, the fraudulent misrepresentation has to
be material, i.e., such that a reasonable man would
have been influenced by it in deciding whether or
not to enter into the contract.

36. 36
Ambiguous Statement
Where the representor makes an ambiguous
statement, the person to whom it is made
must prove that he understood that
statement in the sense that it was in fact
false. The representor will be guilty of
fraud if he intended the statement to be
understood in that sense, and not if he
honestly believes it to be true, but the
person relying on it understands it in a
different sense.

37. 37
Active Concealment of Facts
It is a fraud where a party to the
contract knows or believes a fact to
be true, but conceals it actively from
the other party with a view to induce
that person to enter into a contract.
This clause must be read with the
explanation, under which mere silence
does not amount to fraud.

38. 38
Mere non discloser of some immaterial facts would
not per se give a right to rescission, unless it is
further found that the consent has been secured
by practicing some deception.
Where a seller sold a property already sold by him
to a third person, his conduct amounted to active
concealment and fraud, and the could recover the
price despite the agreement that the seller could
not be responsible for defect in title.

39. 39
Mere Silence is no fraud
When Silence is fraud
Duty to Speak ( Contracts Uberrima
fidei)
Law of Caveat Emptor
Law of Caveat Vendetta

40. 40
Damages for fraud
The principles applicable in assessing
damages for fraudulent misrepresentation
have been stated by Lord Browne
Wilkinson in
Smith New Court Securities Ltd. V
Scrimgeour Vickers ( Asset Management )
Ltd. [1996] 4 All ER 769 (HL)

41. 41
Free Consent
Misrepresentation

42. 42
Misrepresentation
Sec. 18 of the Indian Contract Act 1872
defines Misrepresentation.
When a person making a false statement
believes the statement to be true and
does not intend to mislead the other party
to the contract, it is known as
“Misrepresentation”.

43. 43
Breach of legal duty
For example, section 57, Indian Easement Act, 1882
lays down that the grantor of a license is bound to
disclose to the licensee any defect, which is likely
to be dangerous to the person or property of the
licensee, of which the grantor is aware but the
licensee is not. Omission to make such a
disclosure, if it is without any intention to
deceive, would amount to misrepresentation.
If one party, acting innocently, causes another party
to make a mistake as to the substance of the
thing which is the subject of the agreement,
there is said to be misrepresentation.

44. 44
Negligent Misrepresenttaion
• Negligent misrepresentation is one made carelessly or
without reasonable grounds for believing it to be true; but
it can not be so regarded unless the representor owed a
duty to the representee to be careful. There can be liability
in negligence in respect of an innocent though careless
misstatement which causes financial loss, but where there
is specific disclaimer of responsibility there is no liability.
The responsibility exists even where there is no fiduciary
relationship between the parties.
• In Derry V Peek (1889) 14 A.C 337, it was held that the
negligent misstatement was one made carelessly or without
reasonable grounds for believing it to be true; but it could
not be so regarded unless the representor owed a duty to
the representee to be careful.

45. 45
In a later case Nocton V Ashburton (1914-15) All ER
45, a solicitor was sued by his client for giving
wrong advice whereby he was induced to release a
part of the security and thereby the security
became insufficient and it was also alleged that
the advice was given to benefit himself ( the
solicitor) and that the solicitor knew that the
security will become insufficient.
The House of Lords held that the mortgagee was
entitled to relief for the breach of duty by the
solicitor towards his clients, as the fiduciary
relationship required a duty to take care.

46. 46
In Hedley Byrne & Co. Ltd v Heller & Partner Ltd,
(1963) 2 All ER 575.
Advice given in the course of social relationships
would not be a ground of liability, they also made
it clear that any special relationship will suffice.
In case of professional relationship, even where
there is no contract between the parties it would
give rise to a duty of care whenever the
representor knew that the representee was likely
to act on the representation.