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CMA Foundation · Fundamentals of Business Laws and Business Communication · Consideration and Legality of Object

Meera agrees to sell her old scooter, worth about Rs 40,000, to her neighbour Karan for Rs 5,000. She gives free consent and is a competent person. Karan later argues that the agreement is void because the price is much lower than the scooter's value. Which statement is correct?

The agreement is not void merely because the price is low. Section 10 requires free consent, competent parties, lawful consideration and a lawful object. Inadequacy of consideration alone is not a ground of invalidity, so if Meera consented freely the contract stands.

  1. AThe agreement is void because the consideration is grossly inadequate
  2. BThe agreement is not void merely because the consideration is inadequate, provided consent was free and the consideration is lawfulCorrect
  3. CThe agreement is voidable at Karan's option because the price is low
  4. DThe agreement is valid only if the price is at least half of the market value

Explanation

Under Section 10, an agreement is a contract if made by free consent of competent parties for a lawful consideration and with a lawful object. Inadequacy of consideration is not a ground in itself for voiding it. Meera consented freely, so the low price does not make the agreement void; a fixed percentage-of-value rule does not exist in the Act.

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