CONSIDERATION

• One of the pillars in the Law of Contracts

• Consideration may consist of things like, rights, profits, or perhaps some loss undertaken
by another party
• Consideration MUST be valuable in the eyes of the law
• “An act of forbearance of one party”
• Forbearance — “You breached your contract, but if you do this, I won’t take you to
court.”
• This “forbearance” is a form of valuable consideration
• Executory Consideration: Can be for something in the future
• EXAMPLE: I will buy you the iPhone X on 3 November 2017. However, if I buy you
the iPhone X, then you must buy me 10 cups of coffee on 10 November 2017

• Can be for something that is happening now. But usually, in law, consideration is NOT
for things in the past.
• MUST be something that the law will recognize as constituting consideration.
• It does NOT necessarily have to be adequate. I can agree to buy your house for
$400,000 and give you a $10 deposit. Sure, this $10 deposit is NOT adequate, but it
might be sufficient in constituting consideration.
• The essential ingredient is that the act, or promise, of one party is bought or bargained
for by the act, or promise, of the other party. Each party to the contract exchanges
something of value
• In plain language, if one of the parties is not giving anything up, then there is
no consideration for the other party’s act

Thomas v Thomas (KB, 1842)

• FACTS: John Thomas, shortly before dying, orally expressed a desire for his wife to
have either (a) the house used as their residence and its contents, or (b) £100 in addition
to the other provisions made for her in his Will. After his death the executors of his
estate (Samuel Thomas, his brother, and Benjamin Thomas) entered into an agreement
with Eleanor (his wife) “in consideration of John's desires” whereby Eleanor would
take possession of the house and in return maintain the house and pay £1 per year for
“ground rent.” The respondent remained in the house for some time. However, after the
death of Samuel, the appellant refused to complete the conveyance, claiming that
consideration was lacking.
• RATIO: (1) Any consideration under a contract, MUST move from the promisee to
the promiser; (2) The law always looks for something quantifiable as consideration; (3)
Consideration MUST be sufficient but it does NOT have to be adequate.
• ALL contracts require consideration. But remember, consideration can be
VERY SMALL. It’s about being sufficient even if it is not adequate.

Eastwood v Kenyon

• RATIO: Past consideration is NOT valid

 B v Arkon

• FACTS: Son shoplifted at Zeller’s. Company wrote to Mother and said they
had the right to go to court. But they were willing to settle outside of court if the
Mother paid them a sum. The Mother complied and paid.
• ISSUE: Could the Mother get her money back once she realized that Zeller’s
didn’t really have grounds to take the Mother to court for what her Son did.
• HELD: Contract is legally binding if a person promises NOT to take you to
court and you pay them money for that promise. This act is called forbearance and
it is a good form of consideration as long as it is reasonable and made in good
faith.

CAPACITY

Section 11 of The Contract Act, 1872: “Every person is competent to contract who is of the
age of majority according to the law to which he is subject, and who is of sound mind, and
is not disqualified from contracting by any law to which he is subject”

• In order for a contract to be fully enforceable under the law, the parties to the contract
MUST have the capacity to enter the
contract
• Often, there are situations where one or both of the parties might lack the capacity to
enter into the contract
• This issue of incapacity might make the contract void or it might make the
contract violable on the application of the party who lacks capacity
• The result of this point depends on the reason for the incapacity

• REASONS AS TO WHY PARTIES MAY BE INCAPACITATED:

1. MINORITY (INFANT STATUS)

• Section 3 of The Majority Act, 1875 stipulates that a person is of legal age when
he/
she becomes eighteen (18) years
old

Mohori Bibi v Dharmodas Ghose

• HELD: An agreement by a minor is absolutely void. A minor’s
mental faculty is not yet fully developed and he/she cannot be seen to
be making sound judgment about his/her interests.

Doyle v White City

Stadium
• HELD: If a contract is made for the benefit of the minor, then the
contract is binding on the minor
• As in, if he is to receive money from his father (or something
similar)
 2. UNSOUND MIND

• Section 12 of The Contract Act, 1872: “A person is said to be of sound mind for
the purpose of making a contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect upon his
interests.”

• Who is of unsound mind?

1. A patient in an asylum
2. A sane human being who is delirious from medication or fever, or a
person who is drunk
• It cannot be said that this person makes rational judgments

• TEST OF SOUND MIND:

1. Does the person have the capacity to understand the business concerned?
2. Does the person have the ability to form a rational judgment as to its
effect on his/her own interest?

CONSENT

• Section 13 of The Contract Act, 1872: “Two or more persons are said to consent
when they agree upon the same thing in the same sense”
• There is NO consent if it is brought about my duress, undue influence,
unconscionability, or coercion

DURESS

• Factors to consider in duress:

1. Coercion of a person’s will; and

2. Illegitimacy/illegality of conduct by one of the parties

• A contract is voidable at common law if it is made as a result of an

unlawful/wrongful threat that coerces another person’s will and vitiates their
consent
1. VOIDABLE: A contract is said to have been formed, but it can be brought to
an end at the innocent party’s request
2. As a result of Point 1, the contract might be put aside because the innocent
party is viewed as having not consented at all to entering into the contract

Gordon v Roebuck (ONCA, 1992)

• RATIO:
1. Even if economic duress is found, there will be NO legal consequence if the
duress is justified
 • In simpler terms — creditors may exert lawful/legitimate pressure to
induce payment that is lawfully owed to them
2. It’s for the court to determine if the lawful threat has “crossed over the line.”
• Generally, duress, or any remedies, won’t be granted if it is found that
both parties were represented by lawyers.

• TEST FOR DURESS:

1. Did the plaintiff protest vigorously;
2. Did the plaintiff have independent legal advice;
3. Did the plaintiff try to get out of the contract afterwards;
4. Did the plaintiff have any reasonable alternatives available;
• If reasonable alternative available, then a claim for duress will not succeed
5. Was the pressure justified

UNDUE INFLUENCE

1. This is where the will of a party was dominated rather than coerced. Although
the party consented, the consent is NOT sufficient to sustain the notion that the
contract was entered into freely.
• UNDUE INFLUENCE: Is there sufficient consent?
• DURESS: Is there consent?
2. Contract would become
voidable
3. In commercial transactions, we use the term undue influence. In non-
commercial transactions, we use the term unconscionability
Geffen v Goodman (SCC, 1991)

• FACTS: Tzina Goodman was a “manic depressive and immature” woman. Her
mother, knowing that she would require financial assistance after her death, wrote
her will to provide a life estate to Tzina, and that upon Tzina's death the estate
would be divided among all of her grandchildren.
• When her mother died, it was discovered that she had written a new will in 1975,
which left the estate entirely and directly to Tzina
• Her brothers, worried that she might not take care of the estate in a way that
would provide for her given her condition (and upset that their children had now
been cut out of the will) suggested they seek counsel.
• She, then, went to see a lawyer, recommended by her brothers, and the
lawyer suggested they set up a Trust with her brothers as Trustees. That is
what Tzina did.
• After Tzina's death, her Son was not happy with the Trust and tried to have it
set it aside, arguing that his Mother (Tzina) was unduly influenced by either the
brothers or the lawyer.
• Tzina's will left the entire estate to her children, in conflict with the
trust.
• HELD: There was sufficient evidence (very little contact with the brothers, independent
 legal advice provided to Tzina) adduced to show that there was no undue influence
• RATIO: For there to be undue influence, there must be dominance,
manipulation, and abuse of power
• These relationships are commonly doctor/patient and lawyer/client. But, there
can be undue influence in EVERY type of relationship. As in, it does not always
have to be doctor/patient or lawyer/client.
• If it is a fiduciary relationship, undue influence in presumed

UNCONSCIONABILITY

• These are non-commercial (personal) relationships

• We look for:
1. Exploitation of a person
2. Unfair bargain
3. Relationships of strong vulnerability
• As in, where there is an extreme imbalance in bargaining power between parties,
which results in an unfair contract
• Such a contract would become voidable
• GENERAL VIEW OF THE LAW: No person should be allowed to take advantage of
the
severe physical or emotional weaknesses of another person

Lloyds Bank v Bundy (EWCA, 1975)

• FACTS: Herbert Bundy owned a house and that was the extent of his estate (as
in, this was all the property he owned). His son operated a business that did not do
very well. Thus, he asked his father to give him collateral (lien on house) for
taking out loans from Lloyds Bank. The father signed the original collateral for a
small amount of money after considering it overnight and talking to his lawyer.
• Later on, the son needed more collateral, and the only way that Bundy could
provide it was by using the house as collateral — by taking out a second
mortgage.
• When the lawyers from the Lloyds Bank came over with his son, they
explained that this was the only thing that he could do to help his son, and
Bundy signed the document (Bundy did not consult a lawyer this time).
• Five months later, Lloyds Bank foreclosed on the son's assets, and as he
was bankrupt, they seized the house. Bundy refused to leave the house, and
the bank sued to have him evicted.
• HELD: Usually, a customer who signs a bank charge cannot get out of it.
However, there is an exception to this rule when the parties have not met on equal
terms. When one party is very strong in bargaining power and the other is very
weak, it is a matter of fairness that the stronger party should not be able to push the
weaker one to the wall.
• There are 5 categories of unconscionability:
1. Duress of Goods: The owner is in a weak position because he is in urgent
need of goods, and the stronger pay demands more than is justly due;
2. Unconscionable Transaction: A man is in need of special care and
protection; yet, a stronger party exploits his weakness and his property is
 taken for grossly under value;
3. Undue Influence: (i) The stronger party is guilty of fraud to gain the
advantage of the weaker party; OR (ii) the stronger party has taken
advantage of their relationship of the weaker party to gain an advantage
for himself
4. Undue Pressure: The stronger party forces the weaker party to enter
into an unfair agreement by threatening them; and
5. Salvage Agreements: When a ship is sinking and requires
assistance, the rescuers cannot take advantage of the sinking ship’s
urgent position by demanding ridiculously high fees

• All of the enumerated categories share the scenario of inequality of bargaining

power. The law relieves a party who, without independent legal advice, enters
into a contract upon terms that are unfair, or transfers property for a
consideration grossly inadequate when his bargaining power is seriously
impaired by the reason of his
own
desires
• RATIO: A contract is voidable for unconscionability if, (1) the terms were very
unfair, or the consideration was grossly inadequate; (2) bargaining power was
impaired by necessity, ignorance, or infirmity; (3) undue pressure or undue
influence was used (not necessarily consciously); and (4) there was an absence of
independent legal advice

COERCION

• Section 15 of The Contract Act, 1872: “Coercion is the committing, or threatening to

commit, any act forbidden by the Penal Code 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.”
• Contracts brought about my coercion will be voidable

Ranganayakamma v Alwarsetti

• FACTS: A 13-year old girl was made to agree to adopt a boy by her husband’s
relative who prevented the removal of the dead body of her husband until she
consented to the adoption
• HELD: The agreement was not binding
MISREPRESENTATION

• DEFINITION: A false statement of fact that has the effect of inducing someone
into a contract
1. The law scrutinizes representations made during negotiations (i.e. pre-
contract) that induce a contract and become a term of the contract
2. Not all representations actually end up being a term of the contract. Any
remedy will vary depending on whether the representation became a term of the
contract or just an inducement to enter the contract.
3. We must distinguish between (a) representation (which has legal consequences),
and (b) an opinion (which has no legal consequences). There are 3 kinds of
misrepresentations under the law:
(i) FRAUDULENT — A defendant makes a statement they know is false or
they are reckless with the truth. They intend for the plaintiff to act on such a
statement.
• FOR EXAMPLE: A party advertises a used car as having “new breaks, new
tires, and a new engine.” In actuality, everything is 5 years old. A buyer relies
on the representation that the car has new parts and buys the car, but she
wouldn’t have paid the price she had if she knew the parts were actually five
years old. In this scenario, the seller misrepresented the condition of the car.
(ii) NEGLIGENT — Defendant has special knowledge and makes a statement
without reasonable care and the statement is relied upon to the detriment of the
plaintiff.
• As in, the person making the representation does not lie (say something
that one KNOWS to be false), but says something when that person has no
reasonable reasons for believing it to be true
• FOR EXAMPLE: A real estate broker tries to sell a house to a buyer, who
stresses his need for peace and quiet. The broker promises that the house is very
quiet. In reality, the house next door is undergoing a very noisy reconstruction.
Although the broker did not know this, her promise that the house was quiet was
made without her having any reason to believe that, that was the case. She
simply assumed it.
This would be a negligent misrepresentation (had she known about the
construction and lied about it, however, that would be a much more serious
fraudulent misrepresentation).
(iii) INNOCENT — Defendant makes a statement they honestly believe is true,
but that statement is false. This is actually much more like an opinion.

Smith v Land & House Property Co (EWCA, 1884)

• HELD: An opinion becomes a factual representation in negotiations when the

information upon which it is based is known ONLY to one side and if it turns out
to be a misrepresentation then the contract may be rescinded.
Bank of British Columbia v Wren Developments (BCSC, 1973)

• HELD: (1) Failure to disclose material facts can be construed as a material

misrepresentation in equity and a contract induced by this silence (failure to
disclose) may be rescinded; (2) The general position of common law is that
 silence does NOT constitute a misrepresentation.

FRAUD

• Fraud occurs when one party in a contract presents information to another that is
incorrect, deceitful, or meant to confuse the other party.
• FOR EXAMPLE: If an individual claims that a contract is for the sale of a car,
when in fact, the terms of the contract specify that it is for the sale of boat.
• 2 types of Fraud:
1. FRAUD IN INDUCEMENT: This is where the fraud exists regarding the entire
contract. The person is deceived into signing due to the fraudulent circumstances
• FOR EXAMPLE: Suppose that the defendant stated, “I am a licensed Real
Estate Agent. Please sign this contract.” In reality, the defendant is not a
licensed Agent. The plaintiff signs the contract because they believe that the
defendant is a professional. This would be considered fraud in the inducement.
The plaintiff was “induced” to sign the contract because he relied on the facts
surrounding the contract.
2. FRAUD IN THE FACTUM: This is where the fraud exists as to a certain
fact or description contained within the contract.
• FOR EXAMPLE: Suppose that the defendant had stated, “Please sign this
contract for the sale of 30 toys.” In reality, the contract is for the sale of 50 toys.
The plaintiff proceeds to sign it because they believe they will only be paying
for 30 items. This would likely be considered fraud in the factum. The fraud has
to do wit the material subject matter of the contract.

CONTRACTS UBERRIMAE FIDEI

Contracts where the law imposes on the parties a duty of making a full disclosure of all
material facts
• As in, if one of the parties has any information concerning the subject matter of
the transaction, which is likely to affect the willingness of the other party to enter
into the transaction, he/she is bound to disclose the information

London Assurance Co v Mansel

• RATIO: The person being insured by a company MUST disclose to the insurer
all material facts concerning the risk to be undertaken. If the insured does not
disclose the material facts, then the contract can be voided
 LEGALITY OF OBJECT AND CONSIDERATION

DEFINITION

• An agreement will not be enforced by the court if its object or the consideration is
unlawful
• The object and consideration must both be lawful

UNLAWFUL
AGREEMENTS

1. AN ACT OR AN UNDERTAKING IS FORBIDDEN BY LAW WHEN IT

IS PUNISHABLE BY THE CRIMINAL LAW OF THE COUNTRY OR
WHERE IT IS PROHIBITED BY SPECIAL LEGISLATION OR
REGULATIONS MADE BY A COMPETENT AUTHORITY

2. IF THE OBJECT OR THE CONSIDERATION OF AN AGREEMENT IS OF

SUCH A NATURE THAT IT WOULD INDIRECTLY LEAD TO A VIOLATION
OF THE LAW, THE AGREEMENT IS VOID

Napier v National Business Agency Ltd

• FACTS: The plaintiff entered into a contract of service with the defendant by
which it was agreed that the plaintiff should be paid the sum of £13 per week as
salary,
and a further £6 per week for “expenses.” In reality, he was less than the £6
per week for his expenses.
• HELD: This provision was merely a device to defraud the Income Tax
Authority by the defendant (National Business Agency Ltd). Two provisions of
the contract cannot be severed and the whole contract was void

3. AN AGREEMENT WHOSE OBJECT IS TO DEFRAUD OTHERS IS VOID

• EXAMPLE: John, Oliver, and Jack enter into an agreement for the division
among them of profits that would be acquired by them through Ponzi Scheme. The
agreement is void

4. IF THE OBJECT OF AN AGREEMENT IS TO INJURE THE

PERSON OR PROPERTY OF ANOTHER, IT IS VOID

Ram Sarup v Bansi

• RATIO: An agreement by which a debtor promised to do manual labor
for the creditor SO LONG AS the debt was not repaid in full is void
 5. AN AGREEMENT WHOSE OBJECT IS IMMORAL, OR
WHERE THE CONSIDERATION IS IMMORAL, IS VOID

Pearce v Brooks
• Pearce let a cab on hire to Brooks, who is a prostitute. Pearce knew that
the cab would be used for immoral purposes. The agreement is void.

• EXAMPLE: If a family member agrees to sell their daughter/niece into

prostitution, the agreement is void

6. AN AGREEMENT WHICH IS INJURIOUS TO THE PUBLIC OR IS

AGAINST THE INTERESTS OF THE SOCIETY IS SAID TO BE OPPOSED TO
PUBLIC POLICY.

• “Public policy” is not capable of being defined with sufficient precision

• Janson v Drieftein Consolidated Mines — “Public policy is always an unsafe and
treacherous ground for legal decision”

AGREEMENTS AGAINST PUBLIC POLICY

1. TRADING WITH THE ENEMY

• It is a legal principle that an agreement between citizens of two countries at

war with each other is void

2. AGREEMENTS INTERFERING WITH THE COURSE OF JUSTICE

• Agreements for stifling or hushing up prosecutions are bad. When an offense

has been committed, the guilty person must be prosecuted and any agreement
which seeks to prevent the prosecution of such a person is opposed to public
policy and is void.

(i) Maintenance

• When an officious person encourages a lawsuit by, for example,

paying for someone else’s lawyer. This must be accompanied by
champerty.

(ii) Champerty

• While the officious persons paid for the litigant’s lawyer, that same person
agreed to pay for the lawyer ONLY IF the litigant paid the person a portion of
the recovery.

• An agreement of champerty is void in law because it is against public

policy to promote litigation
3. AGREEMENTS TENDING TO INJURE THE PUBLIC SERVICES ARE
VOID AS BEING AGAINST PUBLIC POLICY

• EXAMPLE: Promising someone a job in the Military, Civil Servant, or the Police for
a sum of money is a void agreement

4. IF A PERSON ENTERS INTO AN AGREEMENT WHERE HE WILL

HAVE TO FOLLOW A COURSE OF ACTION, WHICH IS AGAINST HIS
PUBLIC OR PROFESSIONAL DUTY, THE AGREEMENT IS AGAINST
PUBLIC POLICY

Neville v Dominion of Canada News Co

• RATIO: (1) An agreement for the purchase of property by a public officer where
such purchase is prohibited by law; (2) An agreement by a newspaper proprietor not
to comment on the conduct of a particular person

5. AGREEMENTS UNDULY RESTRAINING PERSONAL LIBERTY HAVE

BEEN HELD TO BE VOID AS BEING AGAINST PUBLIC POLICY

• EXAMPLE: An agreement by a debtor to do manual work for the creditor SO

LONG AS the debt was not paid in full

Horwood v Millar’s Timber Co

• RATIO: An agreement whereby the debtor promised to a moneylender that he
will not change his residence or his employment or agree to a reduction of his
salary without the consent of the moneylender is void

6. AGREEMENTS WHICH INTERFERE WITH THE PERFORMANCE OF

MARITAL DUTIES IS VOID

Roshan v Mohamad
• RATIO: An agreement to lend money to a woman in consideration of her
getting a divorce and marrying the lender is void

Tikyat v Monohar
• RATIO: An agreement that the husband will always stay at the mother-in-
law’s house and that the wife would never leave her parental house is void

7. AN AGREEMENT TO PAY BROKERAGE TO A PERSON FOR

NEGOTIATING A MARRIAGE IS VOID BECAUSE IT IS AGAINST PUBLIC
POLICY

• The principle underlying this rule is that marriages should take place according to
the free choice of parties and such choice should not be interfered with by third
parties acting as brokers
VOID AGREEMENTS

1. EVERY AGREEMENT BY WHICH ANYONE IS RESTRAINED FROM

EXERCISING A LAWFUL PROFESSION, TRADE, OR BUSINESS OF ANY
KIND, IS TO THAT EXTENT VOID

Nordenfelt v Maxim Nordenfelt Gun Co

• RATIO: Contracts which impose unreasonable restraints upon the
exercise of business, trade, or profession are void; while those which
impose reasonable restraints are valid
• Unreasonable: If employment letter says you can’t work anywhere ever
again
• Reasonable: If employment letter says that you can work at other places,
SO
LONG AS your other work does not interfere with your ability to
perform
optimally here at work

• Negative stipulations in service contracts:

• EXAMPLE: If a doctor is employed at a hospital, one of his
conditions of
employment may be that he cannot do private practice. This is a negative
stipulation and it is valid

2. AN AGREEMENT, WHICH PROHIBITS A PERSON FROM TAKING

JUDICIAL ACTION, IN RESPECT OF ANY RIGHT ARISING FROM A
CONTRACT IS VOID

• An agreement which wholly or partially prohibits any party from enforcing his
rights under any contract is void
• An agreement which curtails the period of limitation prescribed by the law of
limitation are void (because their object is to defeat the provision of law)

EXCEPTIONS:

(i) An agreement by which parties to a contract refer future disputes to

arbitration is valid and binding. As in, this takes the proceeding away from
court and takes it into being arbitrated by a neutral third party
(ii) Even if the contract never said that both parties would go to arbitration to
resolve a dispute, but since the arising of a dispute, one party suggests that they
arbitrate the matter — if the other party agrees, it can be arbitrated.

3. AGREEMENTS WHOSE MEANING IS NOT CERTAIN IS VOID (AN

AGREEMENT CANNOT BE ENFORCED UNLESS THE OBLIGATIONS
CREATED BY THE CONTRACT ARE CLEARLY UNDERSTOOD BY ALL THE
INVOLVED PARTIES)
 • EXAMPLE: A person agrees to sell to another “one hundred tons of oil.” This
would be a void agreement because there is no certainty as to what kind of oil
would be sold
• EXAMPLE: A person agrees to sell “all of the grain in his granary in Chittagong”
to another person. There is certainty as to the amount of grain being sold. Thus, this
would be a valid agreement

• Agreeing to Agree:

• An agreement to enter into an agreement in the future is void for uncertainty

unless all the terms of the proposed future agreement are agreed expressly or
implication
• Loftus v Roberts
• FACTS: An actress was engaged for a provincial tour. The agreement also
provided that if the play was brought to London, she would be engaged at a
salary “to be mutually agreed upon.”
• HELD: There was no contract

4. AN AGREEMENT TO DO AN IMPOSSIBLE ACT IS VOID

• EXAMPLE: If someone agrees to discover treasure by magic, it is a void transaction