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DR.

RAM MANOHAR LOHIYA NATIONAL


LAW UNIVERSITY, LUCKNOW
2017-2018

LAW OF CONTRACT
TITLE OF THE PROJECT:
Whether Consideration Should Be Adequate for a
Promise?

SUBMITTED TO: SUBMITTED BY:


Dr. Visalakshi Vegesna AMAR SINGH
Associate Professor (Law) Enrolment No. 170101022
Dr. Ram Manohar Lohiya National Section ‘A’
Law University, Lucknow B.A.L.L.B. (Hons.) SEMESTER II
ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me
during the writing of this case analysis.

Words are inadequate in offering my deep sense of gratitude to my Professor for


her precious guidance.

With her enthusiasm, her inspiration and her great efforts to explain things
clearly and simply, she helped throughout my analysis of work with lots of
encouragement, sound advice, and good innovation.

I would also like to thank the librarians of Dr. Madhu Limaye Library who
extended their assistance to me by helping me out consult the relevant books.

I know that despite my best efforts some discrepancies might have crept in
which I believe my humble Professor would forgive.

Thanking You

AMAR SINGH
Table of Contents
Introduction ................................................................................................................................ 4

Consideration need not be adequate .......................................................................................... 5

Parties should decide adequacy ............................................................................................... 11

Nominal Consideration and Inadequate Consideration ........................................................... 13

Analysis and Conclusion.......................................................................................................... 15

Bibliography ............................................................................................................................ 17
Introduction
Consideration is one of the elementary requirement for forming a contract between the
two parties. It has been explicitly written in the Indian Contract Act. For an agreement to be
considered as contract, a lawful consideration is mandatory1. An agreement made without
consideration is void2, and hence not enforceable by law. In England also “promises without
consideration are not enforced, because they are gratuitous.”
Consideration has been defined in numerous ways. Section 2(d) of the Indian Contracts
Act defines consideration as any kind of act or abstinence which is done or undertaken to be
done at the desire of the promisor. But the most commonly accepted definition is that which
was attempted by Lush J. in Currie v. Misa: “A valuable consideration in the sense of law,
may consist either in some right, interest, profit, or benefit accruing to the one party, or some
forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other3.”
In common life, many promises are made which are regarded as morally binding two
parties, but they may not be legally binding the two parties. In order to distinguish between
those promises which are enforceable by law and those which are not, consideration is required.
The purpose of doctrine of consideration is to put some legal limits on the enforceability of
agreements even when they are intended to be legally binding and are not vitiated by some
factor such as mistake, misrepresentation, duress or illegality.4
However, any worthless act done at the desire of the promisor will not amount to
consideration. It must be “of some value in the eye of law,” that is, it must be capable of
estimation in terms of economic or monetary value. In India also it has been laid down by
Subba Rao J. of Supreme Court in case of Chidambara v. P.S. Renga that consideration “shall
be ‘something’ which not only the parties regard but the law can regard as having some value 5.
But, the question arises whether consideration having some value in the eye of law
should be adequate for a promise.

1
s. 10, Indian Contracts Act, 1872.
2
s. 25, Indian Contracts Act, 1872.
3
Avtar Singh, Contract and Specific Relief 85 (12 ed. 2017).
4
Joseph Chitty & H. G Beale, Chitty on contracts 399 (32 ed. 2015).
5
Avtar Singh, Contract and Specific Relief 109 (12 ed. 2017).
Consideration need not be adequate
‘Adequate consideration’ generally is one ‘which is a fair and equivalent in value for
benefit obtained.’ It is under all circumstances ‘honest reasonable, and free from suspicion,’
whether or not strictly ‘adequate’ or ‘full’.6 The consideration for a promise need not be
adequate as long as it is sufficient. It means that there is no need for the consideration to be
economically equivalent to the promise made, as long as it is regarded to have some value in
the eyes of law and is made at the desire of promisor.

There is a difference between ‘sufficient’ and ‘adequate’ consideration. Sufficient


consideration implies that the courts will not enforce a promise unless something having value
in the eyes of law is given in return for the promise. While adequate consideration implies
whether adequate economic value has been given in return for the promise or whether the
agreement is harsh or one-sided. Mere sentiment cannot constitute consideration, and
consideration cannot involve a promise to give up a right which is not possessed7.

As illustrated in illustration (f) of section 25 of Indian Contracts Act, the agreement is


a contract as an adequate consideration is provided by the promise to the promisor which is
desired by the promisor. The promisor had given his free consent to sell the horse worth Rs.
1000 for Rs. 10. Although, economically the contract seems to be unfair, but it is valid since
the consideration is adequate and has some value in the eyes of law.

Small amount of money as adequate consideration

In Thomas v. Thomas8, before his death, Mr Thomas expressed his wish for his wife to
have the house they lived in for the rest of her life. However, this wish was not written into
his will. After he died, his executors, ‘in consideration of such promise’, agreed with Mrs
Thomas that she would pay a peppercorn rent of £1 per year in return for being allowed to live
in the house. They later tied to dispossess her. It was argued that there was no contract because
Mrs Thomas, the promise, provided inadequate consideration as the rent was nothing like a
commercial rent for the property.

6
R. L Meena, Textbook on law of contract 34 (2008).
7
Jill Poole, Textbook on contract law 122 (11 ed. 2012).
8
Thomas v. Thomas (1842) 2 QB 851.
The executors statement did not create a contract as it only expressed their motive for
entering into the agreement. However, the £1 rent was recognized as good consideration.
Patteson J., “Motive is not the same thing as consideration. Consideration means something
which is of some value in the eye of the law, moving from the plaintiff”.

Without consideration the transaction was merely a voluntary gift. However, by


agreeing to pay rent in return for being allowed to stay in the property, Mrs Thomas had
provided consideration, even though it was not economically adequate or anything like a
commercial rent for the building. Therefore, the contract was enforceable.

In Devji Shivji v. Karsandas Ramji,9 a deed of assignment executed by the plaintiff in


favour of defendant with regard to transfer of transfer of goodwill and the whole of assets of
business. It was alleged by the plaintiff that the assignment deed was benami or farzi and the
consideration of Rs. 1000 was mentioned in the deed for income tax purposes.

The court rejected the contention of the plaintiff. It was held that the fact that a low
consideration of Rs. 1000 was fixed cannot be regarded as a circumstance supporting the
case of farzi set by the plaintiff. The defendant made a straightforward statement that he
refused to accept the gift of the goodwill or the assets, unless some consideration was
mentioned, and therefore Rs. 1000/- was fixed as the consideration.

A small consideration may support an extensive promise, and mere undervalue cannot
exclude a man from the category of a purchase for valuable consideration without motive. In
this case, such a low consideration was requested by the plaintiff out of love and affection. The
consideration was considered to be adequate as it was agreed upon by both the parties.

In Mountford v. Scott10, the defendant signed an agreement in consideration of £1


granting to the plaintiff a six month’s option to purchase his house for £10,000. Later, the
defendant wrote a letter to plaintiff to withdraw his offer to sell. The plaintiff exercised their
option while the defendant denied that the agreement was binding and refused to complete. The
plaintiff claimed for specific performance. The defendant alleged that £1 was a sum which law
would not recognize as valuable consideration.

It was held that £1 amounts to an adequate and valuable consideration in the eyes of
law. Although, the consideration was too small, it was adequate. There is no basis for saying

9
Devji Shivji v. Karsandas Ramji AIR 1954 Pat 280.
10
Mountford v. Scott 1975 2 WLR 114.
that the consideration was inadequate or for any other specific performance should not be
ordered. Consideration must be of some economic value, no matter how small. The Court of
Appeal held that this option agreement was enforceable against defendant and that it was
irrelevant that the consideration provided by plaintiff could be described as token payment. As
per Cairns LJ, ‘mass of English authority to the effect that anything of value, however small
the value, is sufficient to support a contract at law’.11

Objects having trifling value as adequate consideration

The consideration will be regarded sufficient, no matter how trivial or insignificant the
act is. If a party gets what he has demanded for and if it is of some value, which may be too
small or great, it will be considered as adequate consideration and the courts will not settle
what should be appropriate consideration for a promise. If the promised consideration can be
estimated at a money value, no matter how trivial, there is a valuable consideration, and the
Court will not enquire into its adequacy. The courts will not make bargains for the parties and,
if a person gets what has been contracted for, they will not inquire whether it was an equivalent
to the promise which was given in return.12

In Chappel & Co Ltd v. Nestle Co Ltd13 the appellant owned the copyright in a popular
song. Nestle, a chocolate manufacturer, offered to supply records containing the song to anyone
who spent in 1s 6d plus three chocolate wrappers of their 6d bars of chocolate. The appellant
argued that he received insufficient royalties on the sale of the record. The House of Lords had
to decide whether wrappers formed part of consideration.

The majority held that the chocolate wrappers formed adequate consideration. Nestle’s
interest in the sale of records was in order to promote the sale of their chocolate. Nestle
benefited from the extra sales of chocolate and publicity that the offer generated, so the
requirement to send in chocolate wrappers was a valuable part of bargain for Nestle. A
contracting party can agree for whatever consideration he chooses. It may be of little or no
benefit to him. As in this case, the chocolate wrappers were of no use and thrown away, but it
accounted for an adequate consideration. The fact that the wrappers were of no intrinsic value
to the company was held irrelevant.

11
Laurence Koffman & Elizabeth J Macdonald, The law of contract 68 (7 ed. 2010).
12
Jack Beatson, Anson's law of contract 104 (30 ed. 2016).
13
Chappel & Co Ltd v. Nestle Co Ltd 1960 AC 87.
Atiyah has argued that this case does not fit within the ‘benefit/detriment’ analysis
because it would be ‘ridiculous to assert that the sending or the receipt of the wrappers
necessarily involved an actual detriment to the sender or a benefit to the defendants.’ He argues
that the receipt of the wrappers was not a benefit but was the motive which inspired the promise
and that therefore this was a case in which a court would have enforced a promise despite the
lack of benefit to the promise. Treitel has replied by asserting that Atiyah has failed to take
account of the principle that the courts will not investigate the adequacy of consideration and
that, once it is realised that consideration need only be of some value, ‘there is no doctrinal
difficulty in holding that a piece of paper or some act or forbearance of very small value can
constitute consideration.14
The Peppercorn Theory states that something as insignificant as a little peppercorn can
be sufficient consideration when given in exchange for a promise. As stated by Lord
Somervell15, “A contracting party can stipulate for what consideration he chooses. A
peppercorn does not cease to be good consideration if it is established that the promisee does
not like pepper and will throw away the corn.”

In Well Barn Farming Ltd v. Backhouse16, there was a dispute over an alleged tenancy
of 1.10 acres known as Pump House Copse adjoining 51 acres of land subject to a written
agreement in 1980 between Well Barn’s predecessors and defendant. At the time of the oral
agreement related to the 1.10 acres the owner had shooting rights over Fullers Firs owned by
D. The agreement in 1991 gave defendant the right to occupy Pump House Copse in return for
permitting the owner to cut back bushes and other growth on Fullers Firs to improve the
shooting.

It was held that there was sufficient consideration despite the temporary nature of the
arrangement. Although the arrangement was considered at the time to be of slight importance,
the consent to do works on Fullers Firs affected the legal relations under the shooting lease.
The promise to cut back undergrowth was regarded as consideration for the grant of a
contractual license to occupy land.

In Palmer v. East & North Herefordshire NHD Trust17, the defendant had raised
concerns with plaintiff, a consultant surgeon that he had been operating outside his area of

14
Ewan McKendrick, Contract law 89 (6 ed. 2014).
15
Chappel & Co Ltd v. Nestle Co Ltd, 1960 AC 87,114.
16
Well Barn Farming Ltd v. Backhouse [2005] EWHC 1520.
17
In Palmer v. East & North Herefordshire NHD Trust [2006] EWHC 1997.
expertise. Both the parties agreed that plaintiff would undergo an assessment by NCAS,
plaintiff would temporary change his workplace and the trust would forego any disciplinary
proceedings against him. Later, the trust decided to withdraw from the assessment process
stating that a clinical placement had not been found for him and a formal disciplinary
proceedings will be commenced against him. The plaintiff applied for an injunction for breach
of contract while the trust argued there had been no consideration.

It was held by the court that there was an adequate and sufficient consideration. The
plaintiff’s agreement to submit to a temporary change of workplace, undergo a period of
assessed practice in a different hospital and to take part in an assessment of his professional
competence constituted adequate consideration. The plaintiff agreed to do so at the request of
the trust which amounts to adequate consideration for his employer’s promise not to take
disciplinary proceedings against him.

In De La Bere v. Pearson18, the defendants who were newspaper proprietors, advertised


in their newspaper that their city editor would answer enquiries from readers of papers desiring
financial advice. The plaintiff, in response wrote to them asking for a safe investment and also
for a name of “good stockbroker”. The editor recommended a name, who as he well knew was
an outside broker. The outside broker was an undischarged bankrupt which was unknown to
editor, who might, however, easily have ascertained his financial position if he had made
enquiries. The plaintiff, in reliance of the recommendation, sent sums for investment and they
were immediately misappropriated. It was argued whether there was a sufficient consideration
or not for the offer of the advice.

It was held that there was a sufficient consideration. As the promisee, that is newspaper
editors could derive benefit from such promise, it amounts to adequate consideration. The
contract was concluded as soon as the reader had sent in his inquiry, the general offer being
not merely an invitation, but the proposal of a contract. Moreover, the trouble of sending an
inquiry is a sufficient consideration on the part of the reader.

Vaughan William said: “The questions and answers were, if the defendant chose, to
be inserted in their paper as published; such publication might obviously have a tendency to
increase the sale of the defendants’ paper. I think that this offer, when accepted, resulted in a
contract for good consideration”.

18
De La Bere v. Pearson (1908) 1 KB 280, 287.
Reason for such rule

The reason for this rule is that courts of law will not make bargain for parties, who,
while entering into a contract, must look after themselves. As Pollock observes, the attitude of
English positive law and English school of jurisprudence is characteristic. Parties, in the
exercise of their free will, are left to make their own bargains. In the words of Hobbes “The
value of all things contracted for is measured by the appetite of the contractors, and therefore
the just value is that which they contended to give.”19

The adequacy of consideration is not to be questioned. If the parties have bargained for
a particular consideration, then it can usually be assumed that they achieved what they wanted
from the exchange. Where a party appears to have made a particularly bad bargain there may
be some other factor present which may vitiate the agreement, such as duress or fraud, but in
the absence of any vitiating factor, the courts will not generally intervene in order to ensure a
fair bargain has been struck. Law of contract is not the most suitable means for ensuring
fairness20. Hence, any acts or omissions of even very small value can be consideration for a
promise. At times, even the most trifling benefit or detriment has been considered by the courts
as sufficient.

In cases of charitable subscriptions, where the promise or act of charity induces the
promise of the subscriber to subscribe for a charity. There is a gratuitous promise by the
subscriber, induced by the motives of generosity, duty, hope of salvation to make a gift to the
charitable institutions. A theory is that work done, money spent or liability incurred in
furtherance of the project, in reliance on subscriber’s promise, furnishes adequate
consideration.21

Hence, the law does not insists that the consideration should be full or equivalent to
economic value of what is being received in exchange. It is because the law of contracts is not
concerned whether the parties are getting a good deal. It would inappropriate if only those
contracts were considered enforceable in which the court believed that full market value of
performance had been charged.22

19
C. G Weeramantry, The law of contracts 251 (1999).
20
Laurence Koffman & Elizabeth J Macdonald, The law of contract 66 (7 ed. 2010).
21
Contracts: Charitable Subscriptions: Adequacy of Consideration and Definiteness of Promise, 27 Michigan
Law Review 88 (1928), http://www.jstor.org/stable/1278687 (last visited Mar 21, 2018).
22
Janet A O'Sullivan & Jonathan Hilliard, The law of contract 97 (5ed. 2006).
Parties should decide adequacy
Under the doctrine of consideration, a promise not enforceable unless it has received
some value in the eye of law. But as a general rule, the courts do not interfere with the matter
whether adequate consideration was given, or whether the agreement is one-sided or too harsh
for one party. If a party gets too much or too little amount as consideration, the parties have to
decide whether it is sufficient to constitute as consideration or not according to their own
convenience.
The courts can hardly assume the job of settling what should be the appropriate
consideration for a promise. It is entirely for the parties to decide. If a party gets what he has
contracted for and if it is of some value, which may be great or small, the courts will not enquire
whether it was equivalent to promise which he gave in return.23
In Vijaya Minerals Ltd v. Bikash Chandra Deb24, the plaintiff instituted a suit for
specific performance of an agreement. The agreement provided the price at which ores were to
be sold by the defendant to plaintiff and also records in clause 6(a) that plaintiff has already
paid an advance amount to defendant. However, after receiving the agreed sum, defendant
refused to sell and deliver the ore. The defendant contended that the consideration is so low
that the courts should presume that defendant was unduly prevailed upon by the plaintiff and
that the agreement is vitiated by fraud.
It was held that the courts cannot render a contract nugatory on the ground of
inadequacy of consideration in absence of undue influence or duress. The Courts do not
entertain the plea of inadequacy of consideration as a ground for refusal to perform the
obligations under a contract. Moreover, both the parties had agreed for the amount of
consideration. Hence, the consideration was adequate and the agreement was valid.
In Bolton v. Madden25, the plaintiff and the defendant were both subscribers to a charity,
the objects of which were elected by the subscribers who had votes proportioned in number of
the amount they had subscribed. They expressly agreed that if the plaintiff would give twenty-
eight votes for an object of the charity whom the defendant favoured, the defendant would at
the next election give twenty-eight votes for such object of charity as the plaintiff should then
favour. The plaintiff performed his part of this agreement, and voted for the candidate favoured

23
Avtar Singh, Contract and Specific Relief 109 (12 ed. 2017).
24
Vijaya Minerals Ltd v. Bikash Chandra Deb AIR 1996 Cal 67.
25
Bolton v. Madden 1873 LR 9 QB 55, 57.
by the defendant; but the defendant made default, and did not furnish any votes for the
candidate favoured by the plaintiff at the next election.
There was a doubt raised whether the consideration was adequate to make that promise
enforceable at law. It was held that there was a legal and adequate consideration for defendant’s
promise, and the agreement was not void. The plaintiff gave vote for the candidate favoured
by the defendant at the request of the defendant, hence it formed an adequate consideration for
the promise.
Blackburn J. stated that “The adequacy of the consideration is for the parties to
consider at the time of making the agreement, not for the court when it is sought to be
enforced”.
The courts should not be considered insensitive to the problems raised by unequal or
unfair agreements. The court cannot hold a promise invalid just because of the fact adequate
value for consideration has not been given. Courts can only interfere if there is a fraud or
misrepresentation for forming the consideration. The general rule is that the courts will enforce
a promise so long as some value has been given for consideration.
In Sudhakar Sahu v. Achutananda Patel26, the suit lands belonged to the deceased
husband of defendant 7. After death of her husband and son, she sold the land to the plaintiff
by two registered sale deeds. The plaintiff got the possession of the land, but defendants 1 to 6
trespassed thereupon. Defendant 2 alone contested the suit on the basis that the two deeds were
collusive and without consideration.
It was held that the law is well settled that defendant 2 cannot question the adequacy of
the consideration. Defendant 2 failed to prove that he derived any interest from the rightful
owner, defendant No. 7. And hence cannot question the non-passing of consideration under the
sale deeds.
Hence, it is well established that the passing of consideration cannot be challenged
except by parties to the transaction or by those who claim through those parties. Only the parties
to the contract can decide on the question of adequacy. Third parties cannot decide or challenge
the existence of adequacy of consideration.
Similarly, in Desigovda v. Karnataka Industrial Area Development Board27,
landholders who entered into accepted compensation for acquisition of land, under agreements

26
Sudhakar Sahu v. Achutananda Patel AIR 1967 Ori 89.
27
Desigovda v. Karnataka Industrial Area Development Board AIR 1996 Kant 197.
entered voluntarily, could not question this amount later when the civil court granted
compensation at much higher rate in respect of similar lands.28

Nominal Consideration and Inadequate Consideration


Not all promises should be enforced. Social promises or gratuities, for example, are not
and should not be given legal redress. To have redress there must be a legal obligation. This
obligation is often said to arise from the consideration.29 The rule that consideration need not
be adequate makes it possible to evade the doctrine of consideration in the sense that a
gratuitous promise can be made binding by giving a nominal consideration. A nominal
consideration is a consideration offered by one party to an agreement which has very little or
no value, in relation to the consideration by the other party to an agreement.

Since the law does not treats normal gift promises as enforceable, a small amount can
be provided by parties as consideration for promise to make the gratuitous promise as legally
enforceable. Thus A, desiring to be bound to give B ₹ 10,000, requests B to promise to give ₹1
or a peppercorn in exchange to A as consideration. B’s promise is an element, extrinsic to a
normal gift promise, introduced by the parties in an effort to render the transaction
enforceable.30
Nominal consideration must be distinguished from inadequate consideration. Nominal
consideration is one placed deliberately by the parties in order to make a gratuitous promise
binding. Inadequate consideration is one which is substantially less than the performance
promised. The Act does not make any distinction between the two, and any nominal
consideration is sufficient in the eye of law for supporting a contract.
While inadequate consideration may be taken into consideration by the court in
determining whether consent to a contract was freely given or not, nominal consideration is
one likely to be expressed with due deliberation and thought. The language of the document
may not be indicative of the true intention as the documents of this kind are often deliberately
drafted to conceal the true nature of the transaction.31 Although, the parties are free to contract

28
Frederick Pollock, Dinshah Fardunji Mulla & R. G Padia, Indian contract & specific relief acts 99 (13 ed.
2007).
29
Edmund Polubinski Jr., The Peppercorn theory and the Restatement of Contracts, 10 William & Mary Law
Review 201-202 (2018), http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=2867&context=wmlr (last
visited Mar 19, 2018).
30
Joseph Chitty & H. G Beale, Chitty on contracts 413 (32 ed. 2015).
31
Frederick Pollock, Dinshah Fardunji Mulla & R. G Padia, Indian contract & specific relief acts 100 (13 ed.
2007).
for nominal consideration, prejudice caused thereby to third parties is undesirable and may be
dealt with other laws dealing with fraudulent transactions.
Williston points out one exception to the legal sufficiency of inadequate consideration,
namely where the consideration is of the same nature as the thing promised, as in an exchange
of money for a promise to pay money. Thus a consideration of one dollar will not support a
promise to pay at the same time and place a larger sum, for there cannot in such a case ne a
presumption of equivalence between the consideration and the promise.32

It must be noted that although inadequacy of consideration does not by itself entitle a
party to avoid a contract, it may in certain cases provide some evidence of fraud where it is so
gross as, in Lord Eldon’s words, “to shock the conscience and amount in itself to conclusive
evidence of fraud.” Further, inadequacy may be a ground for refusing specific performance
where it appears that the parties did not bargain with equal knowledge of the facts.

If the consideration is inadequate, according to Explanation 2 under section 25, an


agreement to which consent of the promisor is freely given is not void merely because the
consideration is inadequate. However, inadequacy of the consideration may be taken into
account by the Court in determining the question whether the consent of the parties was freely
given.

As the common law courts will not examine into the adequacy of consideration, so
equity will not refuse to enforce a contract because the consideration is inadequate, provided
the parties when entering into the agreement stood on an even footing, and the element of fraud
was absent.33

The central promise, that it is for the parties to determine what they value and how
much they value it, fits closely with the free-market policy underlying efficiency theories of
contract law. As Posner said: “Courts have no comparative advantage in determining at what
price goods should be sold. On the contrary, in all but very exceptional cases, negotiation
between buyer and seller is the more reliable method of determining a price at which exchange
is mutually beneficial.”34

32
C. G Weeramantry, The law of contracts 251 (1999).
33
Inadequacy of Consideration as a Bar to Specific Performance, 15 Harvard Law Review 741 (1902),
http://www.jstor.org/stable/1323758 (last visited Mar 21, 2018).
34
Mindy Chen-Wishart, Contract law 131 (3 ed. 2010).
Analysis and Conclusion
Consideration is an indispensable element for a promise to be legally enforceable. An
act done at the desire of promisor having value in the eyes of law will be regarded as sufficient
consideration. There is variety of opinion as to what will constitute as adequate consideration.
Various precedents and jurists support that consideration need not be adequate as long as the
parties to the contract have agreed and bargained as per their convenience.

The courts will not interfere on the matter of adequacy of consideration, it is for the
parties to decide. If a party gets too much or too little, it is upon their discretion whether to
regard it as adequate or not while forming the contract. The courts are not concerned whether
the parties are getting a good deal or not as it would inappropriate if only those contracts were
considered enforceable in which the court believed that full market value of performance had
been charged.

The rule that consideration need not be adequate makes it possible to evade the doctrine
of consideration up to some extent and it can be used to make a gratuitous promise binding
which is generally not binding. A nominal consideration can be given in exchange of a
gratuitous promise to make it binding upon the parties.

However, a consideration so small that it negates any notion of bargain will be treated
as an absurdity unable to support consideration. A mere pretense of bargain will not constitute
consideration, there should be a true bargain. It has been held that a nominal consideration
could not be used to support a promise for a larger sum. It was obviously felt that a court could
inquire into adequacy of consideration if the promise and the consideration were in the same
medium. Also, a recited but never paid consideration would not support a promise.

Although a lot has been discussed in judgement and by jurists on the adequacy of
consideration, there is still ambiguity in determining the exact definition of adequate
consideration. The courts are not consistent in their application of rule as the rule has to be
applied according to the facts and circumstances of individual case.
Peppercorn Theory was established which stated that peppercorn do not cease to be
good consideration if it is established that the promisee does not like pepper and will throw
away the corn. The very reason for such a principle is that the courts will not interfere if a fair
bargain is struck by the two parties. However, this principle has been misused to escape the
doctrine of consideration. A nominal consideration is provided in many cases just to make a
gratuitous gift binding. It defeats the purpose of the principle as there is no actual bargain by
the parties. There is just a pretense of bargain, not actual bargain. This loophole created can be
used by the parties to hide the actual value of a transaction which could be used with bad motive
such as tax evasions. The courts should reject such false bargains as these contracts are just
shams.

As defined under s.2(d), consideration can be furnished by third person other than the
parties to contract at the desire of promisor, but it has also been held that third party to the
contract cannot question the adequacy. This can pose a dilemma in case where a third party
furnishes some consideration which is too harsh for him, but he would not be able to challenge
its adequacy based upon this rule. The courts should protect the interest of third party in such
cases.

The rule that the parties should decide adequacy has created a lot of ambiguity. Rs. 1
can be treated as adequate consideration for contract to purchase a pen as well as car if the
parties decide so. Hence there is no standards for determining whether consideration is
adequate or not. In case of disputes, it becomes too much difficult for court to follow a
particular rule. It is well established that the courts do not decide on the matter of adequacy of
consideration. However, one the reason for this rule can be considered that the courts are not
capable of determining what should be adequate for a promise as there are no standards created
for the same.
Bibliography
Books

 Avtar Singh, Contract and Specific Relief (12 ed. 2017).


 C. G Weeramantry, The law of contracts (1999).
 Ewan McKendrick, Contract law (6 ed. 2014).
 Frederick Pollock, Dinshah Fardunji Mulla & R. G Padia, Indian contract & specific
relief acts (13 ed. 2007).
 Jack Beatson, Anson's law of contract (30 ed. 2016).
 Janet A O'Sullivan & Jonathan Hilliard, The law of contract (5ed. 2006).
 Jill Poole, Textbook on contract law (11 ed. 2012).
 Joseph Chitty & H. G Beale, Chitty on contracts (32 ed. 2015).
 Laurence Koffman & Elizabeth J Macdonald, The law of contract 66 (7 ed. 2010).
 Mindy Chen-Wishart, Contract law (3 ed. 2010).
 R. L Meena, Textbook on law of contract (2008).

Articles

 Contracts: Charitable Subscriptions: Adequacy of Consideration and Definiteness of


Promise, 27 Michigan Law Review 88 (1928), http://www.jstor.org/stable/1278687 (last
visited Mar 21, 2018).
 Edmund Polubinski Jr., The Peppercorn theory and the Restatement of Contracts, 10
William & Mary Law Review 201-202 (2018),
http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=2867&context=wmlr (last
visited Mar 19, 2018).
 Inadequacy of Consideration as a Bar to Specific Performance, 15 Harvard Law Review
741 (1902), http://www.jstor.org/stable/1323758 (last visited Mar 21, 2018).