Introduction:
Section 2(h) of the Indian Contracts Act mentions that any agreement which is enforceable by law is a contract.[1] In addition to this Section 10 of the Indian Contracts Act mentions the requirements of a contract, existence of some consideration, competency of parties, free consent and the object pertaining to the contract should be lawful.[2] One of the key elements of an agreement to be a contract is the existence of some sort of consideration. This element has been specified in Section 2(d) and 25 of the Indian Contracts Act of 1872. Section 25 of the Indian Contracts Act states that any contract without consideration is void and not enforceable.[3] Section 2(d) specifies the definition of consideration.[4] Consideration is any act done or not done under the desire of the promisor by the promisee. It requires an act or abstinence, the desire of the promisor and execution of the promise.
Meaning of Adequacy of Consideration
The value of the consideration does not have to be adequate. This means that the worth of consideration cannot be a valid condition for the aspect of enforceability. Adding on to this, adequacy of consideration means that the value of consideration justifies the facts of the circumstances and necessities of the agreement. The court is not bothered by the value of the consideration after establishing the fact that the parties involved in the contract have given their consent for the same. It is not a matter of question for the court after the contract has been made and the promises have been executed.[5] The judiciary believes that this matter is entirely in the hands of the parties and their involvement should not be there. The contract would be of binding nature if there is some sort of consideration present irrespective of the value it holds. The matter of adequacy of consideration comes into the picture during the formation of the agreement and not when it is sought for enforcement. An example to explain this further, if A with his consent comes into a contract with B for selling his original LV bag worth 10,00,000/- for 10,000/- Considering that both the parties came into a contract by giving their free consent to it, the court will consider this as a binding contract and will not take into account the value of the consideration.
This question is only taken into account when the court is trying to establish the free consent of the promisor. To explain this further, taking the previous example, the court will try to understand the consent of the promisor, in this case, A. If the court manages to establish this fact then irrespective of the value the court will hold the contract binding. In addition to this inadequacy of contract may point to various factors like fraud, mistake and such like this. Another very interesting aspect of the inadequacy of consideration is the unconscious state of the party involved. Court only in such matters will consider the inadequacy of consideration and will not hold the contract binding. A contract requires the presence of some sort of consideration and not some value of consideration and therefore all contracts that are done under the free will of the promisor will be binding irrespective of the value.
Laws related to Adequacy of Consideration
Section 25 suggests that an agreement done under the free will are not void merely because the consideration is not adequate.[6] Further on section 25 (f) illustrates that if A agrees to sell his horse worth 1000 for Rs 10. If there is free consent then the agreement is valid and enforceable irrespective of the inadequacy of consideration[7]. Section 25 further emphasises free will and states certain exceptions to the presence of consideration.
The Case of Surya Narain Upadhyaya v/s Ram Roop Pandey and Others
The facts of the case are that a suit was filed for specific performance of the agreement that took place on 25/01/1969. The consideration decided was Rs 12,000/- and Rs 3000/- was paid as earnest money. The contract was supposed to be executed one and a half years thereafter. The respondent instead of making the sales of the deeds in the favour of the appellant started disposing of the properties as gift deeds to respondent 2 and 3 and they further disposed of the properties to respondent 8 and others. The appellant filed a suit against all the respondents under specific performance. It was held that considering the long lapse of time the trial court held that the appellant will pay the full amount of the consideration within the period of 2 months. Once the deposit is done the appellant will be entitled to have the sale deed executed in the period of 3 months. If after this the respondents refuse to have the sale deed then this shall be done under the trial court. It was passed that the appellant has to pay the consideration in addition to the court fee.
Adequacy of Consideration Concerning this Case
The consideration decided in the agreement was Rs 12000/- According to section 2(d) of the Indian Contracts Act of 1872, consideration can be any act or abstinence of an act done by the promisor under the desire of the promisee.[8] The payment of 12000/- satisfies the conditions laid in section 2(d) as the consideration is of the desire of the promisee and it is the act done by the promisor in exchange for a promise made by the promisee. In addition to this because the contract was done under the free will of the parties and the promisor, in this case, the appellant, was in the capacity to do so[9]. Therefore the question of inadequacy of consideration does not come into being. Section 25 clearly states that if there exists free will and the parties have consented to the contract then the question of the adequacy of consideration will not come.[10] It may surface during the agreement and it is up to the parties. In this case, the parties showed no discomfort with the consideration during the making of the agreement. Once the contract has been made willingly and with consent then the question of inadequacy of the consideration holds no ground and such a contract irrespective of the inadequacy of the consideration will be binding and valid. Therefore the trial court decided for the appellant to pay the full consideration in return for the sale deed. As the contract is binding over all parties, then consideration should be paid and the promise in exchange for it has to be executed by the respondents.
Case Laws related to Adequacy of Consideration
One of the best English cases on this is the case of De La Bere v Pearson Ltd.[11] The facts of this case are that the defendants who are newspaper proprietors offered to answer inquiries for financial advice from their readers. To this, the plaintiff asking for a safe investment and a good stockbroker to this the defendants gave a name that turned to be bankrupt. Following this, the plaintiff had invested money which was immediately misappropriated. The issue of this case was whether the consideration was sufficient for the offer. It was held that because this had to increase the sale of the defendant therefore once accepted the contract was made and the consideration was acceptable.
Adding to this a similar case of Devji Shivji v Karsandas Ramji [12]where it was held that the transfer of goodwill and the whole of assets of business even though for just Rs 1000 was upheld. Considering the consent of the parties and the free will of the promisor.
In addition to this Blackburn J said in the case of Bolton v Madden[13] that the contract is binding if the consideration is in the exchange of a benefit of the defendant or to the trouble or prejudice of the plaintiff and therefore the question of whether the consideration is adequate should be taken into account during the agreement and not in court. Any contract done with consent and willingly will be binding irrespective of the value of the consideration.
Conclusion
It has been observed that throughout the cases the judgements have been based on the consent of the parties to enter into the contract. Once that is established the question for adequacy of consideration has not been entertained by the court. The court understands how this is a matter of concern for the parties and if there is free will the court will not have a say in that. In cases when the court decides that the consideration is not adequate then the contract does not become void but rather becomes unenforceable and raises questions on the bargaining power of the parties. This means that the promise made by the promisor in exchange for the act is what is held against the promisor. Even though the act does not mention the difference between nominal consideration and inadequate consideration, the court through the cases has made sure that the difference stands strong one such case is that of Midland Bank trust vs Green. The laws related to these are very specific and do not hold the chance of loopholes but establishing the inadequacy of consideration can be a complex task for the court.
In conclusion, Section 2 (d) states the requirements for an act to be considered as a legal consideration[14]. Section 25 states the requirement of a legal consideration for a contract to be valid and mentions the exceptions for the same[15]. Section 25 also mentions the element of the adequacy of consideration and specifies that it is not an aspect that decides the validity of the contract except in the conditions of absence of free will. The previous judgements point out a clear implementation of these sections and it has been seen that irrespective of anything the contract has been held valid if it fulfils the conditions mentioned in Section 10 of the Indian Contracts Act of 1872.[16]
References:
[1]S. 2(h), The Indian Contract Act, 1872.
[2]S. 10 The Indian Contract Act, 1872.
[3]S. 25, The Indian Contract Act, 1872.
[4]S. 2(d), The Indian Contract Act, 1872.
[5]Avtar Singh Contracts& Specific Relief (12 ed. 2017)
[6]S. 25, The Indian Contract Act, 1872.
[7]S. 25(f), The Indian Contract Act, 1872.
[8]S. 2(d), The Indian Contract Act, 1872.
[9]Id.
[10]S. 25, The Indian Contract Act, 1872.
[11](1908) 1 KB 280 (CA)
[12]DevjiShivji v Karsandas Ramji, AIR 1954 Pat 280
[13]Bolton v Madden, 1873 LR 9 QB 55,57
[14]S. 2(d), The Indian Contract Act, 1872.
[15]S. 25, The Indian Contract Act, 1872.
[16]S. 10, The Indian Contract Act, 1872.
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