Definition of Consideration

Definition of ConsiderationThe 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 - abstinence or - promise is called a - consideration for the promise. 1Analysis 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 ContractA stranger may be a stranger to the contract, or a stranger to the Consideration.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 ConsiderationStranger 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 tied-up 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:A person who is not a party to the contract (stranger) can not sue upon it;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 LawDunlop 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 could not find any consideration between M/s Dunlop and M/s Selfridge; nor could he find any indication of an agency relationship between M/s Dew and M/s Selfridge. 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.