Post Graduate Programme in

Management1
(PGPM)

LEGAL ASPECTS OF BUSINESS

(LAB)

Dr Parul V Gupta
PhD (Law), LL.M., PGDBM

Dr. Parul Gupta

 SESSION 3
2

⚫ Legal Insights to Consideration

And
⚫ Legal Aspects of Free Consent

Dr. Parul Gupta

 4. Legal Insights of
3
Consideration
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/-
parulvishalgupta@yahoo.co.in
 4. Legal Insights of Consideration
4
⚫ 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
 4. Legal Insights of Consideration
5

⚫ 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).

Dr. Parul Gupta

 4. Legal Aspects of Valid
Consideration
6

Case 3.1: D v P
Discussion Point
Was there a valid consideration to
enforce the contract between B & C?

Dr. Parul Gupta

 4. Legal Aspects of Valid Consideration
7

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

 4. Legal Rules for a Valid Consideration
8

⚫ 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

 5. Legal Aspects of Free Consent
9

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.
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 5. Legal Aspects of Free Consent
10

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

 5. Legal Aspects of Free Consent
11

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
 5. Legal Aspects of Free Consent
12
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

 Exception - Standard Form
13
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
 5. Legal Aspects of Free Consent
14

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
 5. Legal Aspects of Free Consent
15

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
 5. Legal Aspects of Free Consent
16

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

 Difference between Misrepresentation
and Fraud
17

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
 5. Legal Aspects of Free Consent
18

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
 NEXT SESSION
19

SESSION 4
⚫ Tenders and Its’ Types
⚫ Swiss Challenge Method of Tendering,
⚫ Standard Form Contracts,
⚫ Letter of Intent &
⚫ Memorandum of Understanding

Dr. Parul Gupta

 20

Dr. Parul Gupta