CONSIDERATION FOR A CONTRACT MEANING AND RULES FOR CONSIDERATION

Consideration- meaning Quid pro quo (something in return) Price for which other’s promise is bought A benefit to the promisor, a detriment to the promisee or both Why consideration? Gratuitous promises are often rashly made and no means to compel performance

Examples Reebok issues shares to licensed manufacturer of shoes for its business ITC issues ESOPs as part of employee benefits Government gives lease of land at concessional rate for development of a port

LEGAL RULES AS TO CONSIDERATION At the desire/request of the promisor [Voluntary saving of ones’ property, cannot demand anything in return] Can be from the promisee or any stranger (unlike English Law) May be an act / abstinence/forbearance or a return promise [Forbearance to sue, compromise of disputed claim, composition with creditors] May be past consideration [saving one’s property on request, promise later on to compensate], present or executed consideration [consideration along with promise- cash sale] or future or executory consideration [forward contract]

RULES AS TO CONSIDERATION (cont.) must be real not illusory: - Physical impossibility – promise to give life to a dead person - Legal impossibility – Servant promising to waive debt due to his master - Uncertain - a reasonable sum will be paid/as per industry norm!! - Illusory – A promise to pay something for some act which is already the contractual duty of the person concerned [crew members trying to desert a ship if higher sum is not paid]

RULES AS TO CONSIDERATION (cont.) Should not be illegal, immoral or opposed to public policy > unlawful consideration It need not be adequate- courts cannot repair bad bargains, but must be of some value in the eyes of law (need not be equal)- adequacy may be taken into account to judge whether consent was free or not

Questions on consideration: Discuss XIMB advises Govt of Odisha for development of Gopalpur port for which AEL pays consideration to XIMB. Can it be a valid contract? A cleans the garden of B for which C promises to pay the money. Can C back out? X Ltd pays insurance premium for assets of Y Ltd. Is the insurance valid?

Questions on consideration: Discuss A promises to give a share of Rs.2000 market value to B and later on backs out A saves the property of B from fire and asks for compensation A saves the property of B from fire and B promises A to compensate for his help

Contract without consideration is void Exceptions: - Love and affection : A written and registered agreement between near relatives - Compensation for voluntary services (A finds B’s money purse. B promises to pay A Rs.50) - Written and signed promise to pay time barred debt - Creation of agency - Completed gifts - Charitable subscriptions- if induced commitments are made, to the extent of liability incurred

STRANGER TO CONTRACT Parties to contract may sue or be sued – Doctrine of privity of contract (Mutuality of will) Consequences of doctrine of privity of contract:  A person, not a party to the contract can not sue even if he is the beneficiary under the contract or he has provided the consideration  No rights or obligations are cast on the stranger

Exceptions: stranger to contract A trust / charge – the beneficiary can enforce Marriage settlement, Partition or other family arrangements [sons agreeing to make equal investment for mother’s benefit, mother can sue; husband agreeing with father-in-law to compensate if he ill treats his wife, wife can sue] Contracts entered into by agent: Principal can enforce Assignment of a contract : The assignee of rights and benefits under a contract can enforce subject to equity between the original parties Covenants running with land

Qs 1. A promises a subscription of Rs.1000 to NDF, but does not pay. Is there any legal remedy? 2. You request Ram to tow your broken car and after that promise to give Rs.500 to him for the voluntary service. 3. The debtor writes a letter to the creditor promising to pay a time barred debt.

Qs You promise to your girlfriend that you would give her a diamond ring. She files a suit to claim it. Discuss Developer enters into a contract to share toll collected by him with Government A gifts a valuable to B. Later on A wants his gift back. But, B refuses to give it back. A buys a motorcycle from Express Highway & Co., a dealer of Ghost Rider, a motorcycle manufacturing company. The motorcycle turns out to be defective. A files a case against the company.

Cases Carlill v. Carbolic Smoke Ball Company: Inconvenience caused to Ms Carlill caused due to request of the other is consideration. (Product promotion schemes) Chappell & Co. ltd. v. Nestle Co. Ltd.: Nestle gave advertisement that in exchange for three wrappers of chocolates and an amount of money, a gramphone record will be given. Are chocolate wrappers consideration?

Cases Vijaya Minerals Pvt. Ltd. v. Bikash Chandra Deb: Long term supply of manganese ore by Vijaya Minerals with no price escalation clause. Wanted to avoid stating that contract price was only 16% of market price Bank of India v. O.O. Swaranakar: voluntary retirement scheme with a clause that once application is made cannot be withdrawn by the employees but management reserves the right to decide the case; many withdrew but service was retired; got reinstatement