CONSIDERAION

Meaning - Consideration means something in return of which the promise has been
made. Consideration means something which is some value in the eyes of law. It may
be some benefit, interest and profit from one person to another person.

For Example – Mr. X promise to purchase the watch of Mr. Y for Rs.200. Here is the
consideration of Mr. X is Rs. 200 and Mr. Y is watch.

According to Pollock - consideration is the price for which the promise of the other is
bought and the promise thus given for value is enforceable.

Section 2 (d) when at the desire of the promisor, the promise or any other person has
done or abstained from doing or promised to do or to abstain from doing, something
such act or promise is known as consideration.

Legal Requirements regarding Consideration

1. Consideration must move at the desire of the promisor- In order to constitute

legal consideration the act forming the consideration must be done at the desire of
the promisor.
2. Consideration must move from the promise- The second essential of valid
consideration is it must move from the promisee. It may be move from the promisee
or any other person.
3. It may be past, present and future- Section 2 (d) when at the desire of the
promisor, the promise or any other person has done or abstained from doing or
promised to do or to abstain from doing, something such act or promise is known as
consideration.
a) When consideration by a party for a present promise was given in the past
before the date of the promise is past consideration. Insurance is the example of
past consideration.
 b) When consideration is give at the time of promise is present consideration.
Present sales are the example of present consideration.
c) When consideration by a party for a present promise was given in the future the
date of the promise is future consideration.
4. It must be real and not false – consideration must be real, competent and some
values in the eyes of law. There is no consideration on following cases – false
promise fraudulent physical pressure.
5. Consideration must not be illegal it must have some value in the eyes of law.

Validity of agreement without consideration –

1. Promise out of natural love and affection

2. Promise of Gift
3. Promise of Donation
4. Compensation of past voluntary services

Types of consideration

1. Executed consideration – A consideration is said to be executed when it is already

done. It is in response to a promise. Executed consideration is something which is
actually done.
2. Executory consideration - A consideration is said to be Executory when a promise
to do something in future. Executory consideration is something which is promise to
do in future.
3. Unlawful consideration – consideration must be unlawful in following
a. It is forbidden by law
b. It is fraudulent
c. Defeat the provisions of law
d. Injury to other person or property
4. Past consideration – something already completed before the promise is made this
is not valid consideration in the eyes of law.
 CAPACITY TO CONTRACT
Every person who (a) has attained the age of majority (b) is of sound mind (c) is not
disqualified by law is competent to contract. The section which declares is incompetent
to contract.

1. Minor – according to section 3 a person who is under 18 years of age is a minor.

According every person who completed the age of 18 years becomes a major. But
minors of whose person or property or both a guardian is appointed by a court.
a) All the agreement by minor is void; it must no value in the eyes of law.
b) Minor can be beneficiary.
2. Unsound mind – a person is said to be sound mind for the purpose of making a contract if
at the time when he makes it he is capable of understanding it and forming of rational
judgement so its affect upon its interest. A person is unsound mind in following cases.
a) Idiocy – it is god given and permanent with no intervals of saneness. The mental
powers of an idiot are completely absent because of lack if development of the brain.
b) Lunacy - it is disease of the brain. A lunatic loses the use of his reason due to some
mental disease.
c) Drunkenness – it produces temporary incapacity, till the drunkard is under the effect
of intoxication, it suspend the time and in potential of mind.
3. Persons disqualified by law – besides minors and persons of unsound mind who are
disqualified from contracting under the provisions of some laws.
a) Alien Enemies – an alien living in India can enter into a contracts with citizen of
India during peace time only, and restrictions imposed by the government in that
respect.
b) Convict – a convict is one who is found guilty and is imprisoned. During the period of
imprisonment a convict is incompetent.
c) Corporations – corporation is an artificial person which is created by law. It cannot
enter in to contracts outside the powers conferred upon it by its memorandum of
association or by the provisions of special act.
d) Insolvent – an insolvent is competent to enter into certain types of contracts. He
can incur debts purchase property and cannot sell his property.
 FREE CONSENT
Consent – according to section 13 two or more persons are said to have considered when
they agree upon the same thing in the same sense. Where there is no consent all the
agreements are void. It is not enforceable by law.
Definition of Free Consent – according to section 14 when the consent is said to be
free when it is not caused by

Coercion Undue Influence Fraud Misrepresentation Mistake

1. Coercion – coercion is the committing, or threatening to commit. Any act forbidden by

the Indian penal court or the unlawful detaining or threatening to detail any property of
any person with the intention of causing any force. For example Mr. A threatens to
kill Mr. B if he does not sell his house to A. B agreed to sell his house under the force
of coercion.
2. Undue Influence – a contract is said to be induced by undue influence where
a. The relationship between the parties are such that one of the parties is in a position
to dominate the will or the other
b. He uses the position or unfair advantage over the other.

Relations are like

i. Father and son

ii. Teacher and student
iii. Doctor and patient
3. Fraud – the term fraud means a false representation of fact which is made intently or
non disclosure of material fact with intention to deceive the other party. It means a
wrong representation is made willfully with the intention to deceive the other party.
4. Misrepresentation – misrepresentation means a false representation of fact which is
made innocently or non disclosure of material fact without any intention to deceive the
other party. There must be false representation and it must be made without the
knowledge of its falsehood, such as the person making it must honestly believe it to be
true.
5. Mistake – mistakes can be defined as an erroneous belief concerning something. It
may be two types
Mistake of Law it may be two types
Mistake of Indian Law – the contract is not void because everyone knows the law of
his country.
Mistake of Foreign Law - the contract is void because it is treated as a mistake of fact
because both the parties are under a mistake. It cannot expect the law of another
country.
Mistake of fact it may be two types
Bilateral mistake is that where both the parties are involved in mistake. It must relate
with some fact not opinion or judgement.
Unilateral mistake is that where one party is involved in mistake. It must relate with
some fact not opinion or judgement.
DISCHARGE OF CONTRACT
Discharge of contract means termination of contractual relationship between the
parties. A contract is said to be discharged when it ceases to operate, i.e. when the
rights and obligations of contract created by it come to an end.
A contract may be discharge in following cases –
1. By performance – it takes place when the parties to the contract fulfill their
obligations arising under the contract within the time and the manner prescribed.
a. Actual performance means when each parties has done what he had agreed to
do under the agreement.
b. Attempted performance means when the promisor offers to perform his
obligations but the promisee refuses to accept the performance.
2. By mutual agreement – such a contract is created by mutual agreement it can also
be discharge in following cases-
a. Novation means the parties to a contract may substitute a new contract for the
old. In novation the old contract is discharged and substitute new contract may
arise. It can take place by mutual agreement between the parties. Example – Mr.
 A owes Rs.10000 from B which can be paid after three months. After three
months Mr. A gives Rs. 5000 and remaining Rs. 5000 after 15 days. Here is a
new contract between the parties of Rs. 5000.
b. Alteration means change in one or more material terms of the contract. If a
material alteration is written is done by mutual consent the original contract is
discharged by the alteration of new contract. For example change in the rate of
interest or the amount of money to be paid.
c. Rescission means a contract may be discharge before the date of performance by
agreement between the parties to the effect it shall no longer bind them. Such an
agreement is rescission or cancellation of the contract. For example X promises to
Y sell and deliver 100 bales of cotton on 1 st January at the godown of Y. Y
promises to pay the amount on 1 st march. X does not supply the goods Y rescind
the contract.
3. Discharge by lapse of time means a contract should be performed within a
specified time period which is prescribed in the limitation act 1963. If it is not
performed and no action will be taken the contract may be discharge.
4. Discharge by operation of law – a contract may be discharge by operation of law.
a. By death means the contract may be discharge on death of the promisor.
b. By insolvent means when the promisor is discharged from all liabilities.
c. By material alteration means if any party makes any alteration without
the consent of other party the contract may be discharge
5. By breach of contract- a contract is said to be broken if a party renounces his
liability under express and implied.
a. Actual breach actual breach means the contract which occurring in
present time of performance whether it may be express or implied
b. Anticipatory breach means the contract is breach which occurring before
the time of performance whether it may be express or implied.
 CONTRACT OF INDEMNITY AND GUARANTEE

Meaning of Indemnity - A contract by which one party promises to save the other from
loss caused to him by the conduct of the promisor himself or by the conduct of any other
person is known as contract of indemnity. It is really part of contingent contract. This is
entered into the object of protecting the promisee against anticipated loss.

In contract of indemnity there are two types of parties – Indemnifier is the person who
promises to make good the loss and the person whose loss is to be made good is known as
indemnified.

For example – Mr. A contracts with the government to return in India from abroad after
completing his studies and serve the government for a fixed period. Mr. A fails to return
in India. This is a contract of indemnity and he is bound to reimburse the government.

Essential characteristics of Indemnity -

1. All the essential elements of valid contract.

2. There must be two parties indemnifier and indemnified.
3. To recover all the damages and cost
4. The promisee must have suffered a loss.
Meaning of Guarantee – a contract of guarantee is a contract to perform a promise or
discharge the liability of a third person in case of his default.

In contract of Guarantee there are three parties – Principal Debtor is the person in
respect whose default the guarantee. Creditor is the person to whom the guarantee is
given. Surety is the person who gives the guarantee.

For example – X and his friend Y entered into a shop and X says to Z supply the goods
which is required by Y and if he does not pay you. I will pay the amount. This is contract
of guarantee.

Essential features of Guarantee -

1. A contract of guarantee is a triple agreement between the principal debtor, creditor

and surety. Contract between principal debtor and creditor, principal debtor and
surety and creditor and surety.
2. All the essential elements of valid contract.
3. There must be consent of three parties. Principal debtor, creditor and surety.
4. There must be an existing liability or a promise whose performance is guaranteed.
DIFFERENCE BETWEEN INDEMNITY AND GUARANTEE

S.No Basis Indemnity Guarantee

1 Parties Two parties Indemnifier and Three parties Principal
Indemnified Debtor, surety and creditor.
2 Liability Primary Secondary
3 Contract One contract between Three contract between
Indemnifier and Indemnified Principal Debtor, surety
and creditor
4 Object Object is to reimbursement Object is the surety of
of loss. creditor.
5 Request It need not any request. It need a request

BAILMENT
The word bailment has been derived from French word bailor which means to deliver.
Bailment means delivery of property or goods in trust to another for special purpose and
for a limited period. According to Section 148 “ Bailment is the delivery of goods by
one person to another person for some specific purpose that they shall when the
purpose is accomplished be returned or disposed to the directions of the person
delivering them.

In bailment there must be two parties – the person who delivered the goods is known as
bailor and the person to whom they are delivered is known as bailee.

For example – Mr. A hand over a piece of cloth to tailor for making a shirt. Here Mr. A is
the bailor and tailor is the bailee.

Essential elements of bailment

1. Agreement – there must be an agreement between bailor and bailee. The agreement
may be express and implied.
2. Delivery of goods – the contract of bailment requires the delivery of goods from one
person to another person. It involves only the change of possession and not the change
of ownership.
3. Movable goods – in bailment the goods must be movable and tangible in nature.
Hence bailment of immovable property like building and land cannot be made.
4. Specific purpose - in bailment the goods are delivered to the bailee for some specific
purpose when the purpose is accomplished the goods will be returned. It includes like
repair of goods, stitching of clothes etc.
5. Essential elements of valid contract
6. Return of specific goods – the goods in bailment must be returned to the bailor after
the accomplishment of specific purpose.
7. It involves only the change of possession and not the change of ownership. When the
purpose is completed the goods shall be return.

Types of Bailment –
1. Gratuitous bailment - Gratuitous bailment is that in which neither the bailor nor
bailee is entitled to any remuneration. It is bailment without any charges or reward or
consideration. For example lending of scooter to a friend.
2. Non Gratuitous bailment - Non Gratuitous bailment is that in which either the
bailor or bailee is entitled to get remuneration. For example repair of scooter.

Duties of Bailor –

1. To disclose known faults - It is the first duty of the bailor to disclose known faults
about the goods bailed to bailee. If he does not make such disclosure he is responsible
for any damage caused to the bailee directly for such faults.
2. To bear extraordinary expenses - The bailee is bound to bear ordinary and
reasonable expenses of the bailment and extraordinary expenses the bailor is
responsible.
3. Receive back the goods - It is the duty of the bailor to receive back the goods when
the bailee returns them after the expiry of the term of the bailment or when the
purpose of the bailment has been accomplished.

Duties of Bailee-

1. To take reasonable care of goods - Every bailee has a duty to take a reasonable care
of the goods as much care of the goods bailed to him. In spite bailee’s care goods lost
or damaged bailee shall not be liable.
2. Not to mix goods with his own goods - Bailee must keep bailor goods separate from
his own goods it should not mix without the consent of bailor.
3. To return the goods - The basic duty of the bailee to return the goods according to
the bailor direction the goods bailed to him. If bailee fails to return the goods at proper
time his liability for loss or damage to good.
4. To return any accretion - Accretion means increase or growth. Such an increase or
growth of profits may take place in connection with the goods as a natural process
when they are in bailee’s possession.
Rights of bailor

1. Right to claim damages for loss caused to the goods by the intelligence of bailee.
2. Right to claim compensation for loss caused by unauthorized use of goods.
3. Right to claim compensation for loss caused by mixing the goods.
4. The bailor has a right to terminate the contract of bailment if the bailee does any act
with regard to the goods.

Rights of bailee –

1. Right to claim damages for loss arising from undisclosed faults.

2. Right to claim compensation for expenses incurred for the safe custody o goods if
the bailor has wrongfully refused to take delivery.
3. Right to claim reimbursement for extraordinary expenses incurred in bailment
4. Right to deliver the goods in good faith to the bailor without title or without
incurring any liability.

Pledge

The bailment of goods as security for payment of a debt or performance of promise is

known as pledge. For example – Mr. A borrows Rs. 1000 from Mr. B and keeps his
watch as security for payment of a debt. It is pledge.

In this there must have two parties

Pawnor is the person who delivers the goods as security for payment of debt or
performance of promise. Pawnee is the person to whom the goods are delivered as
security for payment of a debt or performance.

Essentials features
1. Agreement – same as bailment
2. Two parties – Pawnor and Pawnee
3. Security for payment of a debt.
 4. Transfer of possession is essential
5. The pledge can be made only of moveable goods.

Duties of Pawnor
1. It is the duty of pledgor to comply with the terms of pledge and repay the debt in
the fixed date or perform to promise.
2. If the Pawnee has incurred extraordinary expenses for the preservation of pledged
goods then it is the duty of Pawnor to pay such expenses to the pawnee.

Duties of Pawnee-
1. The Pawnee must not use the goods pledged by the Pawnor. If the pawnee uses
such goods he may be held liable for damages for any loss caused to the goods
2. It is the duty of the Pawnee to return the goods to the Pawnor when the amount of
debt has been paid by the Pawnor.

S.No Basis Bailment Pledge

1 Section Section 148 Section 172
2 Meaning “Bailment is the delivery of goods The bailment of goods as
by one person to another person security for payment of a
for some specific purpose that debt or performance of
they shall when the purpose is promise is known as pledge.
accomplished be returned
3 Purpose Bailment is for a purpose of any Pledge is the bailment for
kind. some specific purpose.
4 Right to use Bailee can use the goods as per Pawnee cannot use the goods
terms of bailment.