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Definition of

Consideration

The word Consideration is defined under


[Sec-2(d)]
When, at the desire of the Promisor

the promisee or any other person on


his / her behalf
- has done or abstained from doing
[Past] or
- does or abstains from doing
[Present] or
- promises to do or abstain from
doing [Future]
something
- such - act or

Analysis of the Definition of Consideration.


Consideration must move
- at the desire of the Promisor; [non-gratuitous]
- from the promisee, or on his/her behalf
any other person.
[Stranger to
contract]

It may be - past,
- present or
- future.
It may consist of an
- act,
- abstinence or
- promise.

Strangers to Contract

A stranger may be
a stranger to the
contract, or
a stranger to the Consideration.
1. Stranger to Contract: A agrees with B for a
sum of Rs.1 lac, to do some service to C.
C is stranger to the Contract. The parties
to the contract are only A and B.
A person who is not a party to the
contract is the stranger. Such a party
neither makes nor accepts an offer.
However,
his name was referred in the contract.

Strangers to Consideration

2. Stranger to Consideration: A promises to give


Rs. 1 Lac to C - in consideration of B doing
some services for A. The parties to the contract
are only A and B.
C is stranger to the Consideration.
Consideration is furnished by B on behalf of C.
C has not furnished any consideration for
the promise made to him by A. The
consideration on behalf of Promisee, i.e. C
has been supplied by a third party B.
Rules:
. Stranger to Contract cannot sue on a Contract.
. Stranger to Consideration may sue on the
Contract.

Doctrine of Privity of contract.


This Doctrine has its roots in the Latin maxim
Vinculum Juris i.e. Legal bond (or) legal tie.
Privity of contract refers to the relationship
subsisting between parties who are under
contractual obligations to each other.
The Rule: - Only Parties to a contract may sue or
be sued on the contract. None else.
Eg: A and B together are legally bound or tiedup in a Contract. If a legal consequence to
follow - only A may sue B or B may sue
A. None else.

IOW, the consequences that follow from the


Doctrine of Privity of Contract are two fold:
1) A person who is not a party to the contract
(stranger) can not sue upon it;
2) A contract cannot (i) confer rights or
(ii) impose obligations arising
under it on any person other than the
parties to it.
Hence a Stranger to a contract cannot sue
upon it, though - (i) the contract is for his
benefit or
(ii) he has provided the
consideration.
This is the essence of the Doctrine of Privity of
Contract.

Case Law
Dunlop made tyres. It did not want them
sold cheaply but to
maintain a standard resale price.
It agreed with its dealers not to sell them
below its recommended retail price.
It also bargained for dealers to get the
same undertaking from their retailers.
If retailers did sell below the list price,
they would have to pay 5 a tyre in
liquidated damages to Dunlop.
In this case M/s. Dew & Co was a dealer
and M/s. Selfridge a retailer under him.

Case Law (Contd..)


When Selfridge sold the tyres at
below the agreed price, Dunlop
sued to enforce the contract by
injunction and claimed damages .
M/s. Selfridge argued M/s Dunlop
could not enforce the burden of a
contract between itself and M/s.
Dew.
M/s Dunlop was a stranger to the a
contract between M/s. Selfridge and
M/s. Dew & Co.

Case Law (Contd..)

At trial, the judge found in favour of M/s


Dunlop.
In appeal the damages and injunction
were reversed, saying that M/s Selfridge
was not a principal or an agent and thus
was not bound.
The issue put to the court was whether
M/s Dunlop could get damages from
M/s Selfridge without a contractual
relationship.

Case Law (Contd..)


Judgment[edit]
Viscount Haldane based his argument on three
fundamental principles in law.
1. The doctrine of privity requires that only a
party to a contract can sue.
2. The doctrine of consideration requires a
person with whom a contract was not made
is only able to enforce it
- if there is consideration from the promisee
to the promisor.
3. The doctrine of agency requires that the
principal not named in the contract can only
be sued if the promisor was contracted as an
agent.

Case Law (Contd..)


In application to the facts, Justice Haldane
1. could not find any consideration
between M/s Dunlop and M/s Selfridge;
2. nor could he find any indication of an
agency relationship between M/s Dew
and M/s Selfridge.
3. Dunlop was a third party to a contract
between Selfridge and Dew.
Consequently at the end, M/s Dunlop
failed
on the Principle of
Privity of Contract to sue M/s Selfridge
or to be sued by M/s Selfridge.

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