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

Suresh agrees to sell his scooter worth Rs. 40,000 to Tarun for Rs. 5,000. Suresh's consent was freely given. Which statement is correct under the Indian Contract Act, 1872?

The agreement is a contract. Explanation 2 to Section 25 provides that where the promisor's consent is freely given, an agreement is not void merely because the consideration is inadequate. Inadequacy is relevant only as evidence on whether consent was actually free.

  1. AThe agreement is void because the consideration is inadequate
  2. BThe agreement is voidable at Suresh's option because of inadequacy
  3. CThe agreement is a contract, as inadequacy of consideration alone does not make it voidCorrect
  4. DThe agreement is valid only if registered

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 be considered by the court only in deciding whether consent was free. Since consent here was free, the agreement stands as a contract.

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