Contract Law

Consideration
Guided by- Prof. Eqbal Husain

Submitted by Heba Rahman

It is my imperative duty to thank the following people for the successful

completion of my Contract law project,
- Professor Eqbal Husain for the clarity he brings into teaching
thus enabling us to have a better understanding of his subject. I
also feel obliged to thank him for providing us with such wonderful
topics to choose from.
-

FEED UR FRIENDS NAME, My resourceful classmate, who I

ran into in the library, thus un-expectedly starting and successfully
completing a rough handwritten draft of this project within the
next 6 days. Though it is possible for our language to seem similar,
it has to be noted that given some of our group members
insistence on not depending on one single book led to all of us
giving in equal contribution to the completion of this project.

- The very cooperative and friendly staff members in the Central

and Law Library who were instrumental in our finding the
necessary books without wasting much time. It has to be noted that
their contribution is essential as our University is yet to get a fully
functional centralized database for its libraries.

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Contents
1. Free
Consent
4
2. Coercion
.5
3. Features
of
Coercion
..5
4. Act
forbidden
by
IPC
..6
5. Unlawful
detention
of
Property.6
6. Duress
and
Difference
between
Coercion
&
Duress8
7. Case
laws
9
8. Undue
Influence
.10
9. Effects
of
Undue
Influence
.11
10.
Essentials
of
Undue
Influence.....1
1
11.
Fraud
..15
12.
False
Statements
of
Facts
16
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13.
Active
Concealment
.16
14.
Mere
Silence
is
no
fraud
..17
15.
Exception
.18
16.
Elements
of
fraud
..24
17.
Misrepresentation
25
18.
Difference
between
Fraud
and
Misrepresentation26
19.
Elements
of
Misrepresentation
..34
20.
Exceptions
..34
21.
Mistake
.34

Introduction to Contract Law

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What is Law?
Law means a set of rules which governs our behaviours and relating in
a civilized society. So there is no need of Law in a uncivilized society.
Why Should One Know Law?
One should know the law to which he is subject because ignorance of
law is no excuse.
Meaning: A contract is an agreement made between two (or) more
parties which the law will enforce.
Definition: According to section 2(h) of the Indian contract act, 1872.
An agreement enforceable by law is a contract.
According to SALMOND, a contract is An agreement creating and
defining obligations between the parties.

Introduction to Consideration
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Meaning:
Consideration is a quid pro quo i,e something in return it may be

some benefit right, interest, loss or profit that may accrue to one party or,
some forbearance, detriment, loss or responsibility suffered on undertaken by the other
party1

According to Sir Frederick Pollock, consideration is the price for which the promise of the
other is bought and the promise thus given for value is enforceable.
Consideration is a technical term used in the sense of quid-pro-quo (i.e.., something in return).
When a party to an agreement promises to do something, he must get something in return. This
something is defined as consideration.
Definition [Sec 2(d)]:- when at the desire of the Promisor, the promise or any other person.
a. has done or abstained from doing , or [Past consideration]
b. does or abstains from doing, or [Present consideration]
c. promises to do or abstain from doing something [Future consideration ] such act or
abstinence or promise is called a consideration for the promise.
Example
a. P aggress to sell his car to Q for Rs.50,000 Here Qs Promise to pay Rs50,000 is the
consideration for Ps promise and Ps promise to sell the car is the consideration for Qs
promise to pay Rs.50,000.
b. A promises his debtor B not to file a suit against him for one year on As agreeing to
pay him Rs.10, 000 more. Here the abstinence of A is the consideration for Bs Promise
to pay.
Consideration is needed for the formation and variation of a contract. There are three forms of
consideration:

1 Currie v. Mussa: Lush J - A valuable consideration in the eyes of the law may consist either in some
right, interest, profit or benefit to one party, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken by the other .
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Executory consideration: Consideration is called executor where there is an exchange of

promises to perform acts in the future. For example, a bilateral contract for the sale of goods
wherein A promises to deliver goods to B at a future date and B promises to pay on delivery.
Executed consideration: This arises in unilateral contracts where the act of acceptance is also
the consideration. If one party makes a promise in exchange for an act by the other party, when
that act is completed, it is executed consideration. However, this label is also used to describe the
situation where, in a bilateral contract, one party has performed as per his promise in the above
example it would be when A delivers the good to B.
Past consideration: Consideration that comes before the promise. If one party voluntarily
performs an act and the other party then makes a promise, the consideration for the promise is
said to be in the past. Past consideration is not a valid form of consideration.
It must move at the desire of the promisor:

In order to constitute a legal consideration, the act (or) abstinence forming the

consideration for the promise must move at the desire (or) request of the promisor.
If it is done at the instance of a third party (or) without the desire of the promisor, it will
not be a valid contract.

It must not be illegal, immoral (or) not opposed to public policy:

The consideration given for an agreement must not be unlawful, illegal, immoral and not

opposed to public policy.

Where it is unlawful, the court will not allow an action on the agreement.

It need not be adequate:

Consideration need not be any particular value.

It need not be approximately equal value with the promise for which it is exchanged. But

it must be something which the law would regard as having some value.
In other words consideration, as already explained, it means something in return. This
means something in return need not be necessarily be an equal in value to something
given.

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Consideration must be sufficient (of economic value) but need not be adequate.2

Past consideration is not good consideration.3

Exception: Doctrine of implied assumpsit.4

Consideration must move (come) from the promise.5
Note there is no equivalent requirement that consideration must move to the promisor.6
Consideration must not be something the promisee is already bound to do:

Legal Duty.7

Exception: Performance exceeds legal duty.8

Contractual Duty.9

Exception 1: Performance exceeds contractual duty.10

2 Chappell v Nestle & White v Bluett

3 ReMcArdle
4 Lampeigh v Braitwait & Pau On v Lau Long
5 Tweedle v Atkinson
6 Bolton v Madden
7 Collins v Godefroy
8 Glasbrook Ltd v Glamorgan CC
9 Stilk v Myrick
10 Hartley v Ponsonby
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Exception 2: Practical benefit.11

The concept of practical benefit does not extend to contracts of debt.12

But consideration can be something the promisee is bound to do for a third party.13

Consideration must not be part payment of a debt.14

Exception: Pinnels Case

Consideration must not be forbearance to sue for an invalid claim.15

Consideration exists when the variation or discharge is capable of benefiting either
party.16

Legal Rules for valid consideration

1. Consideration must move at the desire of the promisor. D constructed a market at the instance
of District collector. Occupants of shops promised to pay D a commission on articles sold
through their shops. Held, there was no consideration because money was not spent by
Plaintiff at the request of the Defendants, but at instance of a third person viz. the Collector
and, thus the contract was void.17

11 Williams v Roffey
12 Re: Selectmove
13 Scottson v Pegg
14 Foakes v Beer
15 Wade v Simeons & Cook v Wright
16 WJ Alan v El Nasr
17 Durga Prasad v. Baldeo
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2. Consideration may move from the promisee or any other person who is not a party to the
contract.18
A owed Rs.20,000 to B. A persuaded C to sign a Pro Note in favour of B. C promised B that
he would pay the amount. On faith of promise by C, B credited the amount to As account.
Held, the discharge of As account was consideration for Cs promise.19
3. Consideration may be past, present, Future:
Under English law, Past consideration is no consideration.
Present consideration :- cash sale
Future or executory consideration: - A Promises to B to deliver him 100 bags of
sugar at a future date. B promise to pay first on delivery.
4. Consideration should be real and not illusory. Illusory consideration renders the transaction
void consideration is not valid if it is.
I.
Physically impossible
II.
Legally not permissible
III.
Uncertain
IV. illusory (fulfillment of a pre-existing obligation)
5. Must be legal:Consideration must not be unlawful, immoral or opposed to public policy.
6. Consideration need not be adequate. A contract is not void merely became of the fact that the
consideration is inadequate. The law simply requires that contract should be supported by
consideration. So long as consideration exists and it is of some value, courts are not required
to consider its adequacy.
Example:
A agreed to sell a watch worth Rs.500 for Rs.20, As consent to the agreement was freely given.
The consideration, though inadequate. Will not affect the validity of the contract. However, the
inadequacy of the consideration can be considered in order to know whether the consent of the
promisor was free or not. [Section 25 Explanation II]
18 [Chinnayas Vs Ramayya]
19 National Bank of Upper India v. Bansidhar
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7. The performance of an act what one is legally bound to perform is not consideration for the
contract means something other than the promisors existing obligation
A contract not supported by consideration is void.
Ex. Nudo Pacto non oritur action, i,e, an agreement without consideration is void.
Exceptions to the Rule No consideration. No contract.
1. Written and registered agreements arising out of love and affection:- [25 (1)]
Expressed in writing and registered under law for the time being in force for

registration of document
Natural love and affection
Between parties standing in a near relation to each other

Example: - An elder brother, on account of natural love and affection, promised to pay the debts
of his younger brother. Agreement was put to writing and registered. Held, agreement was valid.
Exception: - Rajlukhy Dabee v. Bhootnath Mukharjee
Example: A Hindu husband by a registered document, after referring to quarrels and
disagreements between himself and his wife, promised to pay his wife a sum of money for her
maintenance and separate residence. Held that the promise was unenforceable since natural love
and affection was missing.

2. Promise to compensate [25(2)]

Promise to compensate wholly or in part
Who has already voluntarily done something for the promisor
Something which the promisor was legally compellable to do.
Example:- A finds Bs purse and give to him. B Promise to give A Rs.500. This is a valid
contract.

3. Promise to pay a time barred debt. [Sec 25(3)]

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A debt barred by limitation con not recovered. Hence, a promise to pay such a debt is

without any consideration.

Can be enforced only when in writing and sighed by Debtor or his authorized agent.

Example: A owes B Rs.10, 000 but the debt is barred by Limitation Act. A signs a written
promise to pay B Rs.8, 000 on account of debt. This is a valid contract.
4. Completed gift- gift do not require any consideration.
5. Agency (185)According to the Indian contract Act. No consideration is necessary to create
an agency.
6. Bailment (148) - consideration is not necessary to effect a valid bailment of goods. It is
Called Gratuitous Bailment.
7. Remission (63).
8. Charity- If a person promises to contribute to charity and on this faith the promises
undertakes a liability to the extent not exceeding the promised subscription, the contract shall
be valid.

Cases

Abdul Aziz v. Masum Ali20

Facts: The secretary of a mosque committee filed a suit to enforce a promise which the promisor
had made to subscribe Rs.500/- for rebuilding a mosque.
Judgment: The promise was not enforceable because there was no consideration in the sense of
benefit, as the person who promised gained nothing in return for the promise made, and the
secretary of the committee to whom the promise was made, suffered no detriment (liability) as
nothing had been done to carry out the repairs. Hence the suit was dismissed.

20 (1914)
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Durga Prasad v. Baldeo21

Facts: B spent some money on the improvement of a market at the desire of the collector of the
district. In consideration of this D who was using the market promised to pay some money to
B.
Judgment: The agreement was void being without consideration.

Chinnaya v. Ramayya22

Facts: An old lady, by a dead of gift, made over certain property to her daughter D, under the
directions that she should pay her aunt, P (sister of old lady), a certain sum of money annually.
The same day D entered into an agreement with P to pay her the agreed amount later D
refused to pay the amount on the plea that no consideration had moved from P to D.
Judgment: P was entitled to maintain suit as consideration had moved from the old lady, sister
of P, to the daughter, D.

Venkatswamy v. Rangaswamy23

Facts: By a registered agreement, V, on account of nature, loves and affection for his brother,
R, promises to discharge debt to B. If V does not discharge the debt.
Judgment: R may discharge it and then sue V to recover the amount. Therefore it is a valid
agreement.

Kedernath v. Ghouri Mohammed24

21 (1880)
22 (1882).
23 (1903)
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Facts: G had agreed to subscribe Rs.100/- towards the construction of a town hall at Howrah.
The secretary, K, on the faith of the promise, called fro plans and entrusted the work to
contractors and undertook the liability to pay them.
Judgment: The amount could be recovered, as the promise resulted in a sufficient detriment to
the secretary. However, be enforceable only to the extent of the liability incurred by the secretary.
In this case, the promise, even though it was gratuitous, became, enforceable because on the faith
of promise the secretary had incurred a detriment

Tweddle v. Atkinson.25

The plaintiff was to be married to the daughter of one G and in consideration of this intended
marriage G and the plaintiffs father entered in to a written agreement by which it was agreed
that each would pay the Plaintiff a sum of money. G failed to do so and the plaintiff sued his
executors. Whitman J considered it to be an established principle that a person cannot take
advantage of a contract, which is stranger to the contract.

Ramchandra Chintaman v. Kalu Raju.26

There was a promise to pay to the Vakil an additional sum if the suit was successful.
Held: The promise was void for want of consideration. The Vakil was under a pre- existing
contractual obligation to render the best of his services under the original contract.

A Hindu husband, after referring to quarrels and disagreement between him and his wife
executed a registered document in favour of his wife agreeing to pay her maintenance.
But no consideration moved from the wife. Held, the agreement was void for want of
consideration.27

24 (1886).
25 (1861) 123 ER 762
26 (1877)
27 (Rajlukhy vs. Bhoothnath)
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Debi Radha Rani vs. Ram Dass.28

D is ready to sue her husband for maintenance allowance. On husbands agreeing to pay her a
monthly allowance by way of maintenance, she forbears to sue.
Held: The wifes forbearance to sue amount to consideration for the husbands agreement for
payment of maintenance allowance.

Dunlop Pneumatic Tyres Co. Ltd. Vs. Selfridge & Co. Ltd.,29

S bought tyres from the Dunlop Rubber Co. & sold them to D, a sub-dealer, who agreed with S
not to sell these tyres below Dunlops list price and to pay the Dunlop Co. 5 as damages on
every tyre D undersold, D sold two tyres at less than the list price and thereupon the Dunlop Co.
Sued him for the breach.
Held: The Dunlop Co. Could not maintain the suit as it was stranger to the contract.

Roscorla v Thomas (1842)

D promised claimant that horse bought by claimant was sound and free from vice. Held: promise
made AFTER sale had been completed there was no consideration

28 (1941)
29 (1915)
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