Post Graduate Programme in Management

(PGPM)
1

Legal Aspects of Business

(LAB)

Prof. Parul V Gupta

PhD (Faculty of Law-JMI, New Delhi), LL.M., PGDBM

Dr. Parul Gupta

 SESSION 3
2

 Legal Insights to Consideration

And
 Legal Aspects of Free Consent

Reminder
QUIZ TEST One
Session 1-3
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 Legal Insights to Consideration
3

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."

A agrees to sell his house to B for

Rs. 80, 000/-
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 Legal Insights to 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?
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 Legal Insights to 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).

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 Legal Aspects of Valid
Consideration
6

Case: D v P

Discussion Point
Was there a valid consideration to
enforce the contract between B &
C?
Take Away Point
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 Legal Rules for a Valid Consideration
7

 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

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 Legal Aspects of Free Consent
8

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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 Legal Aspects of Free Consent
9

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. ”

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 Legal Aspects of Free Consent
10

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
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 Legal Aspects of Free Consent
11
2. Undue Influence (Sec. 16)
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
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 Legal Aspects of Free Consent
12

Cases where the undue influence is

presumed
i. Where one party holds a real or apparent
authority over the other or where he stands in a
fiduciary, relationship to the other.
ii. Where a party makes a contract with a person
whose ‘mental capacity is temporarily or
permanently affected by reason of age, illness or
mental or bodily distress.
Case: P being in debt to Q, a money lender of his
village, contracts a fresh loan on terms which
appear to be unconscionable.
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 Legal Aspects of Free Consent
13

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
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 Legal Aspects of Free Consent
14

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
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 Legal Aspects of Free Consent
15

Difference between Misrepresentation

and Fraud

Case: D Company v Pe
Discussion Point
Will Mr. Pe succeed in an action for deceit on
the ground of misrepresentation?
Take Away Points
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 Legal Aspects of Free Consent
16

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: X and Y make a contract grounded on the
erroneous belief that a particular debt is barred
by the Indian Law of Limitation.
Case 2: 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 not Voidable
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 NEXT SESSION
17

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

Quiz One – Session 1 to 3

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 18

Dr. Parul Gupta