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Mercantile Laws-I

Notes 3. Consideration need not be adequate. How much consideration or payment must there be
for a contract to be valid, is always the lookout of the promisor. Courts do not see whether a
person making the promise has recovered full return for the promise. Thus, if A promises to
sell his pen worth ` 80 for ` 20 only the inadequacy of the price in itself shall not render the
contract void. But where A pleads coercion, undue influence or fraud, then the inadequacy

of consideration will also be a piece of evidence to be looked into.
4. Consideration must be real and competent. A consideration for a contract must be real and
not illusory. Also, the consideration must be competent, i.e., it must be something to which
law attaches some value.

Example:
(i) A promises to discover treasure by magic. The agreement is void, being illusory.

(ii) A received summons to appear as a witness at a trial. B, a party to the suit, promises
to pay A ` 1000 in addition to A’s expenses. The promise of B is not enforceable as A was
under a legal duty to appear and give evidence. The agreement is void as it is without
competent consideration.
(iii) A promises to pay an existing debt punctually if B, the creditor, gives him discount. B
agrees to give discount. The promise to give discount is without consideration and cannot
be enforced.
5. Consideration must be legal. Illegal consideration renders a contract void.

6. A consideration may be present, past or future. A consideration which moves simultaneously
with the promise is called present (or executed) consideration. ‘Cash Sales’ provides an
excellent example of the present consideration. Where the consideration is to move at a
future date it is called future or executory consideration. It takes the form of a promise to
be performed in the future.

Example: A, a shopkeeper, promises B, a household lady, to deliver certain items of
grocery after three days. B promises to pay for it on delivery.
A past consideration is something wholly done, forborne or suffered before the making of
the contract.

Example: A saves B’s life. B promises to pay A ` 10,000 out of gratitude. The consideration
for B’s promise is a past consideration, something done before making of the promise.

3.4 Unlawful Consideration and Object [Ss.23-24]

There are certain cases in which the consideration and the object of an agreement are unlawful,
thereby making it unenforceable. Section 23 defines an illegal agreement as one the consideration

or object of which (i) is forbidden by law; or (ii) defeats the provisions of any law; or (iii) is
fraudulent; or (iv) involves or implies injury to the person or property of another; or (v) the court
regards it as immoral or opposed to public policy.
(i) Where it is forbidden by law. A loan granted to the guardian of a minor to enable him to
celebrate the minor’s marriage in contravention of the Child Marriage Restraint Act is illegal
and cannot be recovered (Srinivas v. Raja Ram Mohan (1951) 2. M.L.J. 264). A promises to
drop a prosecution which he has instituted against B for robbery and B promises to restore
the value of the things taken. The agreement is void as its object is unlawful.
(ii) Where it is of such a nature that if permitted it would defeat the provisions of any law.

A let a flat to B at a rent of ` 12,000 a month. With a view to reduce the municipal tax, A

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