This document provides an overview of legal aspects related to consideration and free consent in contracts. It discusses: 1) The definition of consideration under Indian law and examples of valid and invalid consideration. Consideration must be something of value that both parties agree to for a contract to be enforceable. 2) The conditions for free consent - consent is not free if obtained through coercion, undue influence, fraud, or misrepresentation. Consent must be given voluntarily without pressure or deception. 3) The differences between misrepresentation and fraud, where fraud requires intent to deceive and misrepresentation does not necessarily. 4) Types of mistakes - bilateral mistakes void a contract, while unilateral mistakes typically do not.

1. LEGAL ASPECTS OF BUSINESS
(LAB)
Dr Parul V Gupta
PhD (Law), LL.M., PGDBM
Dr. Parul Gupta
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Post Graduate Programme in
Management (PGPM)

2. SESSION 3
Legal Insights to Consideration
And
 Legal Aspects of Free Consent
Dr. Parul Gupta
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3. 4. Legal Insights of
Consideration
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Consideration (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
from doing' something, such act or abstinence
or promise is called a consideration for the
promise."
Parties to the contract must do something for
each other – consideration at both the ends
A agrees to sell his house to B for
Rs. 80, 000/-

4. 4. Legal Insights of Consideration
 A & B entered into a contract where A had to
provide for all requirements to B to run a market
and the profits were to be shared between them.
Upon X`s request B made the market 24 hours
market for a consideration from X. Afterwards B
claimed additional remuneration from A for
rendering additional work.
 A pays today Rs. 1, 000 to a shopkeeper for goods
which are promised to be supplied the next day.
 A agrees to sell his wrist watch worth Rs. 10,000
only for Rs. 100 in which A's consent to the
agreement was given freely. Is the agreement
enforceable?
Dr. Parul Gupta
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5. 4. Legal Insights of Consideration
 There is a Contract between X and Z
according to which Z has to steal the property
of Y for a Consideration of Rs. 1, 000 from X.
 X promise to Y for the construction of a
particular road against the payment of Rs.
1,00,000/- to X, which has already been
planned for construction by the competent
authorities (PWD).
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6. 4. Legal Aspects of Valid
Consideration
Case 3.1: D v P
Discussion Point
Was there a valid consideration to
enforce the contract between B & C?
Dr. Parul Gupta
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7. 4. Legal Aspects of Valid Consideration
Judgment & Explanation
It was held that B had already obtained
consideration from A in the form of abstinence.
Therefore it was decided that B had to perform C`s
marriage as agreed in the contract.
Take Away Point
In India consideration may move from
promisee or any other person unless
otherwise agreed
Dr. Parul Gupta
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8. 4. Legal Rules for a Valid Consideration
 Consideration should be passed at the
request of offeror
 Consideration may be Past, Present or
Future
 Consideration need not be adequate
 Consideration must be lawful
 Consideration must be real
 Consideration may move from promisee or
any other person
Dr. Parul Gupta
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9. 5. Legal Aspects of Free Consent
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Free Consent (Sec. 14)
Consent is said to be free when it is not
caused by -
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section
16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in
section 18, or
(5) mistake, subject to the provisions of
section 20,21, and 22.

10. 5. Legal Aspects of Free Consent
Coercion (Section 15)
“is the committing or threatening to unlawful
any act forbidden by the Indian Penal Code,
or unlawful detaining or threatening to
detain, any property to the prejudice of any
person whatever with the intention of
causing any person to enter in to an
agreement. ”
Dr. Parul Gupta
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11. 5. Legal Aspects of Free Consent
Case 1: X threatens to kill Y if he does not sell his
house for Rs. 5,00,000 to X. Y sells his house to X
and receives the payments.
Case 2: A gave a loan to B and B promised to the A
that he will return the loan within the three
months. B failed to return the loan and after
repetitive requests B did not return the loan of the
A. A threatens to the B that he will go to the court
of law to recover the loan.
 Case 3: A threatens to shoot himself if B does not
agree to sell his property to A at a stated price.
Effect of Coercion – Voidable Contract
Dr. Parul Gupta
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12. 5. Legal Aspects of Free Consent
2. Undue Influence (Sec. 16) – Will comes
prior to consent
A contract is said to be induced by undue influence
where;
i. One of the parties is in a position to dominate to the
will of the other and
ii. He uses the position to obtain an unfair advantage
over the other.
Effect– Voidable Contract
The burden to prove that the contract was not
induced by undue influence, lies on the party
who was in a position to dominate the will of the
other.
Dr. Parul Gupta
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13. Exception - Standard Form
Contract (SFC)
 Standard contracts are contracts which are drafted
by one party and signed by another party without
any modification or change.
 These contracts are criticized for killing the
bargaining power of the weaker party and open up
wide opportunity for exploitation.
 In the case of commercial contracts courts have
repeatedly held that contracts even if entered into
the standard format, are meant to be performed
and not to be avoided.
Dr. Parul Gupta
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14. 5. Legal Aspects of Free Consent
3. Misrepresentation (Sec I8 )
“Representation is a statement or assertion, made by one
party to the other, before or at the time of the contract,
regarding some fact relating to the contract.
Misrepresentation arises when the representation made is
inaccurate but the inaccuracy is not due to any desire to
defraud the other party.”
 Unwarranted Assertion
 Breach of Duty
 Innocent Mistake
Case: X sells his horse to Y, the horse is unsound but X himself
does not know about this fact. He tells Y that the horse is
sound. There is misrepresentation.
Effect– Voidable Contract / No Damages
Dr. Parul Gupta
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15. 5. Legal Aspects of Free Consent
Fraud (Sec. 17)
“The term “fraud” includes all acts committed
by a person with an intention to deceive
another person. “To deceive” means to
induce a man to believe that a thing is true
which is false. ”
Case: A farmer agrees to supply 200 kg tomato that will be
produced by him out of his field, after three month. After the
passage of two months, the farmer neither implanted seeds,
nor did cultivation.
Effect– Voidable Contract/ Suit for damages also
Dr. Parul Gupta
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16. 5. Legal Aspects of Free Consent
Difference between Misrepresentation and
Fraud
Case 3.2: D Company v Pe
Discussion Point
Will Mr. Pe succeed in an action for deceit on
the ground of misrepresentation?
Dr. Parul Gupta
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17. Difference between Misrepresentation
and Fraud
Judgment & Explanation
It was held that there is an essential difference between
the case where the defendant honestly believes in the
truth of a statement although he is careless, and where
he is careless with no such honest belief. Fraud is
established in the cases where it is proved that a false
statement is made knowingly or without belief in its
truth or recklessly, careless as to whether the statement
to be true or false.
Take Away Points
There may be careless statement but such
statements will not constitute fraud.
Dr. Parul Gupta
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18. 5. Legal Aspects of Free Consent
5. Mistake
‘”Mistake is the erroneous belief either of law or fact
by one or other parties or both the parties.”
(1) Bilateral mistake or (2) Unilateral mistake
Case 1: R agrees to buy from S 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.
Effect of Bilateral Mistake– Void Contract
Effect of Unilateral Mistake – Valid Contract
Dr. Parul Gupta
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19. NEXT SESSION
SESSION 4
 Tenders and Its’ Types
 Swiss Challenge Method of Tendering,
 Standard Form Contracts,
 Letter of Intent &
 Memorandum of Understanding
Dr. Parul Gupta
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20. Dr. Parul Gupta
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