"Though consideration need not be adequate, it must be real. It must be something which is of some value in the eye of the law.” Briefly examine the statement.

Question: “Though consideration need not be adequate, it must be real. It must be something which is of some value in the eye of the law.” Briefly examine the statement. Give decided cases in support of your answer. [BJS 1984]

Find the answer to the mains question only on Legal Bites. [“Though consideration need not be adequate, it must be real. It must be something which is of some value in the eye of the law.” Briefly examine the statement. Give decided cases in support of your answer]

Answer

Consideration, as defined in Section 2(d) of the Indian Contract Act,1872 means some act, abstinence, or promise on the part of the promisee or any other person which has been done at the desire of the promisor. It doesn’t therefore; mean that even a worthless act will suffice to make a good consideration if it is only done at the promisor’s desire.

For example: ‘A’ promises to give his new Rolls-Royce car to ‘B’, provided ‘B’ will fetch it from the garage. The act of fetching the car cannot by any stretch of imagination be called a consideration for the promise. Yet it is the only act the promisor desired the promisee to do. Such an act no doubt satisfies the words of the definition, but it does not catch its spirit. It is for this reason that the English common law has always insisted that “consideration must be of some value in the eyes of the law”.

The case law of White v. Bluett [(1853) 23 LJ Ex 36] may be cited as an illustration in point. The defendant owed a sum of money under a promissory note to his father. The defendant perpetually, day and night, complained to his father that he had not been treated equally with other children in the distribution of his property.

Thereupon the father promised to discharge him from all liability in respect of the loan and the note, provided he would stop complaining, which the defendant accordingly did. The question was whether the defendant’s promise to cease his complaints was a sufficient consideration to sustain his father’s promise.

Pollock CB said: “It would be ridiculous to suppose that such promises could be binding. In reality, there was no consideration whatever.”

In India also it has been laid down by Subba Rao J. of The Supreme Court in a case Chidambara Iyer v. P.S. Renga Iyer, [AIR 1966 SC 193] said that consideration “shall be ‘something’ which not only the parties regard but the law can also regard as having some value”.

Similarly, it has been observed by the Madras High Court in Kulasekaraperumal v. Pathakutty Thalavanar, [AIR 1961 Mad 40]. Though the Indian Contract Act,1872 does not in terms provide that consideration must be good or valuable to sustain a contract it has always been understood that consideration means something which is of some value in the eyes of law. It must be real and not illusory, whether adequate or not… So long as the consideration is not unreal it is sufficient if it is of slight value only.

Value need not be adequate (adequacy of consideration)

It is not, however, necessary that consideration should be adequate to the promise. The courts can hardly assume the job of settling what should be the appropriate consideration for a promise. It is entirely for the parties. If a party gets what he has contracted for and if it is of some value, which may be great or small, the courts “will not enquire whether it was equivalent to the promise which he gave in return“.

The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced. This is the English rule and is applicable in India also, for Explanation 2 attached to Section 25 lays it down so clearly that “an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate”.

This is further fortified by illustration (f) which is as follows: ‘A’ agrees to sell a horse worth Rs 1000/- for Rs 10/-. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

However, the Act provides in Explanation 2 to Section 25 that “inadequacy of consideration may be taken into account by the court in determining the question whether the consent of promisor was freely given”.

Illustration (g) explains this: ‘A’ agrees to sell a horse worth Rs 1000/- for Rs 10. A denies that his consent to the agreement was freely given. The inadequacy of the consideration is a fact which the court should take into account in considering whether or not A’s consent was freely given.

For “once a court is satisfied that a person has entered into an agreement freely and with knowledge of its purport and effect”, the agreement will be valid notwithstanding the inadequacy of consideration.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X