Business Law

1. Consideration
Unit – 2

2. Meaning & definition
• It is used in legal term in the sense of “quid pro quo”
• Which means “something in return “
• Something is called consideration
• Sec 10 of Indian contract act states - lawful consideration is necessary for the
recognition of an agreement as a valid contract
• Sec23, 24, 25 lay stress on the nature of the lawful consideration .

3. Definition
• Sec 2 (d) defines consideration as follows “ when at desire of
promisor , the promise or any other person has done or adstained
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 “.

4. • Acc to blackstone - consideration is the recompense given by the
party contracting to the others
• Pollock – consideration is the price paid by the plaintiff for the
defendants promise.

5. Legal rules as to consideration or essentials
of valid consideration
• Consideration must move at the desire of the promisor
• It may be past , present & future
• It must be something which the promisor is not already bound to do
(time not a constraint)
• It must be real & not illusory (physical impossible , legal, uncertainty )
• Consideration may move from the promise or any other person
• It need not be adequate (something In return not necessary be in equal
value )
• It may be an act , abstinence or forbearance or a return promise
(additional promise is not added in future)
• It must not be illegal , immoral or opposed to public policy (sec 23 ,
unlawful , immoral )

6. Contract without consideration
• General rules is that an agreement made without consideration is
void (sec 25)
• 1. agreement made on account of natural love & affection
sec25(1)
• Agreement made without consideration is valid to
• It is expressed in writing , registered under the law, made on
account of love & affection , it is between parties standing in a
near relation to each other .

7. 2. Promise to compensate
• It is a promise to compensate wholly or partally
• The person who is to be compensated has already done something
voluntarily or has done something which the promisor was legally
bound to do

8. 3 promise to pay time barred debt sec 25 (3)
• If is in writing
• Signed by debtors or his agent
• Relates to debt which could not be enforced by creditors because
of limitations

9. 4 completed gifts sec 25
• Gift actually made by a donor and accepted by the done are valid
even without consideration
• Eg transfer of property by duly written and registered deed as gift
.

10. 5. Contract of an agency
• Contract made for creating relationship of agency
• Made between two parties does not require any consederation
• Comes under section 185
• A person makes an agreement and appoints him as his agent for
particular period of time , it is considered as valid agreement

11. Kinds of consideration
Executed
consideration
Unlawful
consideration
Past
consideration
Executory
consideration
Unreal or
illusory
consideration

12. Executed consideration
• Consideration said to be executed already done
• Past and present consideration is called executed consideration
• Eg one party has performed his part of promise other party has to
perform his part of promise
• Insurance , prepaid service

13. Executory consideration
• Promise to do something in future
• Mutual promise is amounted to consideration
• 3. unlawful consideration :
• Forbidden by law
• Fraudulent activities
• Immoral or opposed by public

14. Unreal or illusory consideration
• Unreal when it subsists merely in words
• Physically , legally impossible to perform
• Eg spiderman , invisible suit
• 5. Past consideration :
• Already completed before the promise is made , not valid
consideration in the eyes of law

15. Stranger to a contract / privity
• The general rule of law is that only parties to a contract may sue
or be sued on that contract
• Third parties cannot be sued or under such obligation to perform
or demand performance under a contract .
• Also known as privity contract

16. Privity contract
• Acc sec 2 (d) “ consideration for a contract can proceed from any
person and not necessarily the parties to the contract .. A promise
is enforcable if there is some consideration for it and it is quite
immaterial whether it moves from the promisee or any other
person .

17. Exceptions of privity rule
• Beneficiaries under trust
• Beneficiary of specific charge upon immovable property
• Insurance
• Family arrangement and marriage settlement
• Creation of charge
• Covenants running with the land
• Collateral contract
• Multilateral contract club member ship
• Acknowledgements
• Contract for the benefit of third party

18. Free consent
• Acc to sec 13 , 2 or more persons are said to have consented when
they agree upon the same thing in the same sense.
• When there is no consent at all , the agreement is void ab initio,
it is not enforceable at the option of either party

19. Definition
• Acc to sec 14 says that consent is said to be “free “ if it is not
obtained by:
• Coercion as defined as section 15
• Undue influence by sec 16
• Fraud sec 17
• Misrepresentation sec18
• Mistake sec 20, 21, 22

20. Effect of absence of free consent sec19
• When there is consent but it is not free (caused by coercion ,
undue influence , fraud), the contract is usually voidable at the
option of the party whose consent was so caused .
• Aircel was threatened to sell their company to maxis
communication malayasia

21. Coercion sec 15
• Coercion is the committing or threatening to commit any act of
forbidden by the Indian Penal Code , or the unlawful detaining , ot
threatening to detain any property , to the prejudice of any
person whtever with the intention of causing any force in the
place where the coercion is employed .

22. Effects of coercion (sec 19, 64, 72)
• Option of aggrieved party to a void the consent
• Obligation of aggrieved party to restore benefits
• Obligation to other party to repay or return

23. Undue influence sec 16 (1)
• A contract is said to be induced by undue influence where:
• The relation subsisting between the parties are such that one of
the parties is in a position to dominate the will of the other and
• He uses the position obtain an unfair advantage over the other .

24. • Acc to sec 16(2) a person is deemed to be in a position to
dominate the will of another
• He holds real or apparent authority
• Stands fiduciary relation to the others
• Makes contract with person whose mental capacity is temporarily
or permanently affected by reason of age , illness or mental or
bodily distress
• Eg old illiterate people

25. Fraud sec 17
• Act committed by the party to a contract , or his involvement or by his
agent with intenet to deceive another party there to or his agent , or to
induce him to enter into the contract .
• Suggesting the act is true when it is not true by one who does not
believe it to be true
• Active concealment of a fact by a person who has knowledge or belief of
the act
• 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

26. Misrepresentation sec 18
• False representation of fact made innocently or non disclosure of
a material fact without any intention to deceive the other party.
• Positive assertion fact which is not true , though he believes it to
be true
• Breach of duty without intention to deceive
• Causing innocently an agreement to a party to make a mistake
when a change is given

27. Mistake sec 20

28. Performance of contract
• Meaning
• Fulfillment of respective legal obligation created under contract

29. Types of performance contract
• Actual performance - party done what he agreed to do , and there is
nothing left for him to do
• Offer to performance or tender - it includes offer to performance
• Unconditional
• At proper time
• At proper place
• Reasonable opportunity
• For whole obligation
• To proper person
• Of exact amount & in legal tender

30. Who may perform a contract?
• Promisor himself – performed by himself , involves personal skills (eg x
promises to paints y ‘ s house, it must be performed by x himself)sec 40
• Agent – can employ competent person to performs it ,sec 40
• Representative - contract involves personal skills or is founded on
personal consideration comes to an end on the death of the promisor .
• 3rd party – when a promise accepts performance of the promise from
third party , he cannot afterwards enforce against the promisor .sec 41
• Joint promisor – when 2 or more person have made a joint promise ,
then unless a contrary intention appears form the contract all such
persons must jointly fulfil the promise . Sec 42 , if all peron die their
representatives mus fulfil it .

31. Who may demand performance?
• Promisee – the person who was given the promise , preson who can
demand performance of the promise
• Agent – can always take necessaty action to demand performance
or enforce the contract on behalf of the promise
• Legal representatives – in case of death of promisee before the
performance of an impersonal contract , the contract rights are
passed upon the legal successors .
• Third party – a stranger of contract cannot sue on a contract even
if he is beneficiary under it

32. Legality of object & consideration
• Object means - purpose or design

33. When consideration or object is unlawful
sec23
• If it is forbidden by law
• If it defeats the provision of any law
• If it is fraudulent
• If it involves injury of person & property of another
• If court regards it as immorale or opposed by public policy.

34. Unlawful & illegal agreement
• It’s a void agreement , not enforceable by law
• It is void ab initio –( the agreement should be declared void)
• It affect only the immediate party and collateral transaction
becomes illegality
• Eg L lends money rs 5000 to B to help him buy an prohibited
items from party c.
• Here the transaction is illegal , the agreement is void

35. • Every illegal agreement is unlawful , but every unlawful
agreement is not necessarily illegal.
• It is difficult to decide whether an act is illegal or unlawful
• Eg difference between smoking cigarettes & marijuana
• Effects of illegal agreement :
• 1. Ex turpi causa non oritur action – means no action arises from
base cause .
• Eg law discourages people from entering into illegal agreement .

36. • 2. in pari delicto , potior est conditio defendentis – means in case
of equal guilt , the defendant is in a better position than of a
plaintiff (a person who brings case against another person)
Effects of illegality :
1.Collateral transactions to an illegal agreement also becomes
illegal
2. No action can be taken (recovery of money , breach of illegal
agreement )
3. In case an agreement containing the promise , some part of
which is legal & some part is illegal

37. • If illegal cannot be separated from legal together they become
illegal
• If illegal cannot be separated form legal , the court will enforce
legal part 7 reject the illegal part.

38. Reciprocal promises sec57
• It is promise in exchange of a promise
• Both the parties – promisor & promise fulfills their exchanged
promises
• Alternative promise , one branch being illegal sec 58
• on part is illegal and another part is legal
• Shopkeeper take money form M with agreement of paying rs 2000
to deliver rice and alcohol , here rice is legal and alcohol is
illegal.

39. Agreement void, if consideration and objects
unlawful in a part sec24
• There are several objectives out of which even if single objective
is illegal.
• Importing of electronic gadgets , is legal same import box contains
elephant tusk it is illegal

40. Wagering agreement
• Wagering means bet
• Probability of loosing or winning a game
• Agreement between 2 persons betting money or money worth goods , payable
based on the winning or loosing of Game
• Essentials of wagering agreement :
1. There must be a promise to pay money
2. Promise is conditional on the event of happening
3. Event occurrence is uncertain
4. Both parties will have either loosing or winning situation
5. No party should have preoperatory interest in the event

41. Agreement opposed to public policy
• Agreement of trading with enemy – srilanka , Pakistan
• Agreement for stifling (money spent for covering up the crime
committed ) prosecution – eg kalaimagal college student death
parents were paid money for loss .
• Agreement in the nature of maintenance & champerty –
maintaining the law suit by one party on the other for personal
gains
• Agreement for the sale / transfer of public offices and titles
• Agreement creating interest against professional duty

42. • Agreement in restraint of parental rights
• Agreement restraint to personal liability
• Agreement tend to create monopoly
• Agreements interfering with course of justice
• Marriage brokerage contract

43. Void agreement
• Meaning - having no legal value ,
• Agreement means arrangement , promise or contract made with
somebody
• void agreement means agreement that has no legal value
• Acc sec 2 g – of Indian contract act an agreement not enforceable
by law is void

44. Types of void agreement
• Sec 11 – agreement with minor or unsound person
• Agreement made under bilateral mistake sec20
• consideration and object is unlawful sec 23
• Partly legal & illegal consideration or agreement sec 24
• Agreement made without consideration sec25

45. Expressively declared void agreement
• Agreement is restrained of marriage
• Agreement restrained of trade
• Agreement restrained of legal proceedings
• Uncertain proceedings
• Restitution

46. Quasi contract
• An obligation of one party to another imposed by law independently of an
agreement between the parties
• It is created by court between two parties who has no prior legal obligations to each
other
• Features :
• Imposed by law does not comes from agreement
• It is the duty of party not the promise of the party
• The right under it is always a right to money generally , though not always , to a
liquidated sum of money
• The right under it is available against specific person & not against the world
• A suit for its breach may be filed in the same way as in case of a complete contract

47. Types of quasi contract
• Supply of necessaries sec68 – eg A supplies B a lunatic with
necessaries suitable to his condition in life , A is entitled to be
reimbursed from Bs property.
• Right to recover money paid for another person sec69 – eg rent arrear
• Obligation of a person enjoying benefits of non gratuitous act sec70-
• Eg1 –A trade man leaves goods by mistake at B s house , B treates as his
own goods . Here he has to return it back
• Eg2 – saving house from fire compensation not needed but gratitude can
be shown

48. • Responsibility of the finder of goods sec 71
• Liability for money paid or thing delivered by mistake or under
coercion sec 72
• A person to whom money has been paid or anything delivered , by
mistake or under coercion must repay or return it to the person
who paid or anything delivered by mistake or under coercion
,must repay or return it to the person who paid it by mistake or
under coercion.

49. Difference between contract & quasi
contract
Basis of difference Contract Quasi contract
Purpose Results form will of the party Obligation resembling that created by a
contract
Essentials of
formation of valid
contract
Essential for formation of a valid contract is
present
It is absent
Agreement A contract is an agreement There is no agreement at all
Nature It is a full fledged contract and is binding Quasi contract resembles a contract , not
a full fledged contract .
Obligation Obligation is created by the consent of the
parties
Obligation is imposed by law

50. Quantum meruit
• Meaning – as much as merited or as much as earned
• Unless a person has performed his obligation in full , he cannot claim
performance from the other .
• 1When a contract is discovered to be unenforceable sec65 :
• When an agreement is discovered to be void or become void , any person
who has received any advantage under such agreement or contract is
bound to restore it , or to make compensation for it to the person from
whom he received it .
• Ram pays 3000 in consideration of Balajis promising to deliver his dog .
The dog is dead at the time of promise . The agreement is void , but
Balaji must repay ram the 3000 rs
• Eg fake certificate for govt jobs

51. 2.When one party abandons or refuses to
perform the contract.
• When there is breach of contract aggrieved party is entitled to
claim reasonable compensation for what he has done under the
contract.
• 3.when contract is divisible :
• 4.When an invisible contract is completely but badly
performed:
• When an invisible contract for a lumpsum is completely
performed but badly the person who has performed can the
lump some less deducted for bad work.
• Eg painting work , job work

52. When contract is divisible
• When contract is divisible & party not in default , has enjoyed the
benefit of the part performance , the part in default may sue on
quantum meruit
• 4. when a indivisible contract completely but badly performed :
• Eg interior decoration poorly done , half amount can be give for
compensation rest can be held .

53. Discharge of contract
• Meaning – termination of contract between parties
• It is discharged when it ceases to operate , when rights and
obligations created by it comes to an end .
•

54. Modes of discharge of contract
• By performance
• By mutual agreement
• By impossibility of performance
• By lapse of time
• By operation of law
• By breach of contract