“Insufficiency of consideration is immaterial, but a valid contract must be supported by lawful and real consideration”. Comment.

Insufficiency of Consideration vs. Lawful and Real Consideration

1. Insufficiency of Consideration:

Definition: Insufficiency of consideration refers to a situation where the consideration exchanged in a contract is not of equal value. In other words, one party may be providing more or less than the other party in terms of value.

Immateriality of Insufficiency of Consideration:

• Under the law, insufficiency of consideration is generally immaterial. Courts do not inquire into the adequacy of consideration as long as there is some consideration, no matter how small or seemingly insignificant.
• The principle behind this is that parties to a contract are free to agree on the terms and consideration of their contract, and the courts will not interfere unless there are other issues such as fraud, duress, or incapacity.

Example: A agrees to sell his car to B for $1. Although the car is worth much more, the consideration of $1 is sufficient to make the contract valid.

2. Lawful and Real Consideration:

Definition: Lawful and real consideration refers to consideration that is lawful, meaning it is not illegal or against public policy, and real, meaning it has some value in the eyes of the law.

Requirements for Lawful and Real Consideration:

• Consideration must be lawful: It must not involve anything illegal or against public policy.
• Consideration must be real: It must have some value in the eyes of the law. It does not need to be adequate, but it must be real and not illusory.

Example: A promises to pay B $100 if B promises to paint A's house. B's promise to paint the house is real consideration, and A's promise to pay $100 is lawful consideration.

Commentary:

1. Balance Between Insufficiency and Lawfulness:

• While insufficiency of consideration is immaterial, there must still be some consideration exchanged for a contract to be valid. The consideration must also be lawful and real.
• This means that even if the consideration exchanged is minimal, it must still have some legal value and not be illegal or against public policy.

2. Importance of Consideration:

• Consideration is a fundamental element of a contract as it distinguishes a binding agreement from a mere promise.
• It ensures that parties have bargained for something of value and helps prevent gratuitous promises from being enforced.

3. Judicial Interpretation:

• Courts have generally upheld the principle that insufficiency of consideration is immaterial as long as there is some consideration, but they may intervene if the consideration is so grossly inadequate that it indicates fraud, duress, or incapacity.

Conclusion:

In conclusion, while insufficiency of consideration is generally immaterial, a valid contract must still be supported by lawful and real consideration. This means that consideration must be lawful, not illegal or against public policy, and real, having some value in the eyes of the law. The principle of consideration ensures that contracts are based on mutual exchange and are not mere gratuitous promises.