“Insufficiency of Consideration is Immaterial, but a Valid Contract Must be Supported by Lawful and Real Consideration.” Comment
Introduction
In contract law, consideration is one of the essential elements required to form a valid contract. It refers to something of value exchanged between the parties. The Indian Contract Act, 1872 emphasizes that although the consideration must be lawful and real, it need not be adequate. This principle protects the freedom of parties to enter into agreements based on their mutual understanding.
Meaning of Consideration
As per Section 2(d) of the Indian Contract Act, 1872:
“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, or does or abstains from doing something, such act or abstinence or promise is called a consideration for the promise.”
In simple words, consideration is the price paid for a promise. It could be in the form of money, goods, services, abstaining from doing something, etc.
Insufficiency of Consideration is Immaterial
Section 25 of the Indian Contract Act clearly states that “An agreement without consideration is void.” However, it also clarifies that the adequacy of consideration is not required, as long as the consideration exists and is lawful.
This means:
- Even a very small amount or value is sufficient to make a contract valid.
- The court will not question the fairness or adequacy of the consideration.
Example: A agrees to sell a watch worth ₹2,000 to B for ₹10. Though the amount is very small, the agreement is valid if both parties agree willingly and the consideration is lawful.
Why Insufficiency is Considered Immaterial
- Parties are free to decide the value of their exchange.
- The law does not interfere in commercial wisdom or fairness.
- What may seem inadequate to one may be acceptable to another.
Lawful and Real Consideration is a Must
Although the adequacy (amount or value) does not matter, the consideration must fulfill the following conditions:
1. It Must be Real and Not Illusory
There must be some actual or possible value. A fake or impossible consideration makes the contract void.
Example: A promises to give B ₹1,000 if B brings stars from the sky. This is not real consideration and hence, the agreement is void.
2. It Must be Lawful
The consideration should not be illegal, immoral, or against public policy.
Example: A promises to pay B ₹5,000 to steal someone’s car. This is illegal and the contract is void.
3. It Must Move at the Desire of the Promisor
The act or promise should be done at the promisor’s request, not voluntarily by the promisee.
4. It May Move from the Promisee or Any Other Person
In Indian law, consideration can be provided by the promisee or any third party.
5. It May be Past, Present, or Future
Unlike English law, Indian law recognizes past consideration as valid if it was given at the desire of the promisor.
Case Law: Chinnaya vs. Ramayya (1882)
In this case, an old lady gifted land to her daughter and directed her to pay an annual amount to a third person. The daughter agreed but later refused to pay. The court held that even though the third party did not provide any consideration, the agreement was valid because consideration moved from another person at the request of the promisor.
Conclusion
The statement rightly highlights a crucial concept in contract law. While it is not necessary for the consideration to be equal in value or adequate, it must exist and must be real and lawful. The court does not interfere in the value agreed by the parties but ensures that the consideration is not fraudulent, illegal, or illusory. This approach respects the freedom of contract and balances fairness with practicality.