a) Roberto offers his house worth RM 500,000 for RM 100 to his employee, Jack. This is a bilateral contract, which means both the parties know their identity and make promises to one another. This is mutual exchange of promises. The contract can be made in the form of writing and orally by performing it. The contract between Jack and Roberto will be valid if the agreement fulfill the elements of contract. The elements of contract are proposal or offer, acceptance, consideration, intention to create legal relations, capacity, certainty, consent and legality.
In the case above, Roberto sells his house worth RM 500,000 to Jack for RM 100. This can be one of the elements of contract which is consideration. Consideration is one of the main elements that must be presented in an agreement without which the agreement is void according to Section 26. Section 26 provides that an agreement made without consideration is void. According to the case above, it is classified under adequacy of consideration. Consideration need not be adequate but must be of some value. Adequacy of consideration is a matter of parties within the agreement to make a decision. It’s enough if the consideration has some worth within the eyes of law.
Roberto sells his house worth RM 500,000 for only RM 100 to Jack. This agreement is a contract notwithstanding the inadequacy of the consideration. It was explained in Explanation 2 of Section 26 -An agreement to which the consent of promisor is freely given is not void merely because consideration is inadequate; but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given. The amount of RM 100 would seem unfair to Roberto but the court will not assess whether or not the promisor has received adequate consideration as long as both parties enter into the bargain freely.
Based on Phang Swee Kim V Beh I Hock, if Roberto orally agreed to sell his house for just RM 100 although his house is worth RM 500,000 and later he refused to fulfill the promise, contending that the consideration was inadequate. The court will held that inadequacy of consideration was immaterial and gives judgments favourable to Jack. Therefore, the contract made between Roberto and Jack is valid due to consideration as provided by Section 26 – Illustration (f) and Section 26 of Contract Act 1950.