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IAI Actuarial Core Principles · Business Management · Sources of Indian law and valid contracts

Meera Textiles in Surat agrees in writing to sell a consignment of cloth to Rohan Traders for Rs 4,00,000. Rohan's only promise is to pay that price on delivery. Rohan later argues the contract lacks consideration because the cloth is worth more than Rs 4,00,000. Under the Indian Contract Act, 1872, what is the position?

The contract is valid. Indian contract law requires that there be consideration, something of value in the eyes of law, but not that it be adequate or equal to the value of the goods. A freely agreed price below market value remains good consideration.

  1. AThe contract fails because consideration must be equal in value to the goods sold
  2. BThe contract fails because consideration must be paid in advance to be valid
  3. CThe contract is valid because consideration need only have some value in the eyes of law and need not be adequateCorrect
  4. DThe contract is voidable at Meera's option because the price is below market value
  5. The contract is valid only if a court first confirms the price is fair

Explanation

Indian law requires consideration but not that it be adequate. Rs 4,00,000 is a real price agreed freely, so it counts. Option A confuses adequacy with existence; a court does not weigh the bargain unless consent was defective.

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