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CMA Foundation · Fundamentals of Business Laws and Business Communication · Void and Voidable Agreements, No Consideration No Contract

Kiran sells a scooter worth Rs. 40,000 to Deepa for Rs. 4,000, and Kiran's consent was freely given. How does the Indian Contract Act, 1872 treat this agreement?

The agreement is a valid contract. Explanation 2 to Section 25 says that an agreement made with free consent is not void merely because the consideration is inadequate. The Court may consider inadequacy only when deciding whether consent was freely given.

  1. AVoid because the consideration is grossly inadequate
  2. BVoidable at Deepa's option because of the inadequacy
  3. CA contract, since inadequacy of consideration alone does not make an agreement voidCorrect
  4. DIllegal because the price is below market value

Explanation

Explanation 2 to Section 25 says an agreement to which the promisor's consent is freely given is not void merely because the consideration is inadequate. Inadequacy may only be considered by the Court in deciding whether consent was freely given. Since Kiran's consent was free, the agreement is a contract. It is not void, voidable or illegal on that ground alone.

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