Section 10 of the Indian Contract Act says that an agreement in order to be enforceable by law must have a valid and lawful consideration, among other things. Consideration is one of the crucial prerequisites for the validity of a contract. But what must be the amount of such consideration? In this regard, the law states that the amount of consideration need not be adequate but it must have some value in the eyes of law.
In this blog, we have thrown light on the adequacy of consideration.
What is meant by Consideration in a contract?
The contract law states that an agreement must be always supported by consideration. Consideration implies something in return. It is also defined as the sum paid by one party to acquire the promise of the other. However, this price does not always have to be monetary. For example, A offers to sell his book to B for Rs. 200. In this case, the consideration for A is Rs. 200, while the consideration for B is the book.
What should be the form of consideration?
The consideration can take the form of an act (doing something) or forbearance (not doing something), or a promise to do something or not to do something. Also, it can be related to the past, present, or future. However, it must be real, that is, the consideration must have some value in the eyes of the law. It can’t be illusory or illegal.
Should the consideration be adequate?
Although it is one of the important necessities to constitute a valid contract, the consideration need not be adequate. For example, A sells his car worth Rs. 500,000 to B for Rs. 100,000 only. Even though the amount of consideration may not seem to be adequate, it is a valid promise provided the consent of A is free.
According to Section 25 of the Indian Contract Act, 1872, the parties are allowed to enter into any contract they want with their free consent. The consideration does not have to be adequate. Moreover, the Courts will not address the question of adequacy or inadequacy of consideration. [Vijaya Minerals Pvt. Ltd. Vs. Bikash Chandra Deb, AIR 1996 Cal. 67]
Sufficiency of consideration
The consideration has to be sufficient but the adequacy of the consideration is immaterial.
This means that the law requires the parties to have entered into a contract in which each side has supplied something of value that the Courts can recognize. The Courts are often unconcerned with whether this is the entire market value or whether or not the contract is a fair bargain. That is up to the parties to negotiate for themselves.
The phrase “sufficiency” refers to anything of worth that the Courts can see that makes the contract enforceable, whereas “adequacy” may refer to the entire/full value of something. As a result, the law requires that consideration should be of sufficient value, but not necessarily of the entire or adequate market value.
Relevant case laws
Thomas v Thomas (1842) 2 QB 851; 114 ER 330
It is well established that the Courts will not inquire into the adequacy of consideration: only its sufficiency will be considered. Natural love and affection cannot be considered adequate or sufficient, in and of itself, because they have no economic value.
Thus, in the case of Thomas v Thomas (1842), the claimant’s husband expressed a wish that after his death, the claimant should have the use of the house for the rest of her life. This was not written by way of a will though. After his death, the executors agreed to allow his wife to occupy the house, firstly because of her husband’s wishes and, secondly, on payment of £1 per annum by her.
Here, the Courts decided that the desire of the deceased husband for his wife to live in the house was not part of the consideration but that the paying of £1 per annum by her was. Thus, the contract was enforceable even though the rent was nowhere like a commercial rent for the property. And without such consideration, the transaction was only a voluntary gift.
White v Bluett (1853) LJ Ex 36
Similarly, in the case of White v Bluett (1853), a son’s promise not to complain about his father’s plans and the manner in which he spread his estate among the family members does not satisfy the requirement of consideration. The Court held that the son’s stopping to complain about his father could not amount to consideration in return for the father’s promise not to sue him on a promissory note.
One can take the help of family lawyers in case of such issues.
Takeaway: Consideration need not be adequate
The presence of consideration in any contract is a must. Regarding this, the rule is that the consideration of a contract must be sufficient but it need not be adequate. The Courts do not go into the adequacy of consideration or otherwise.
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