SUBJECT CODE/ NAME : WLAW1111-BM2
ASSIGNMENT : Business law group assignment
PROGRAMME TITLE : DBM – DIPLOMA IN BUSINESS MANAGEMENT
LECTURER : Mr. Christopher Johnson
Group Member-
NAME: Ms. Wong Sin Yee ID: J17025385
NAME: Mr. Jeremy Dhinesh ID: J17025324
NAME: Mr. Danny Anthony ID: J17025528
Introduction
There are certain requirements for the existence of a valid contract, which are, there must be an offer, an acceptance, intention to create legal relations, the terms must be certain, and consideration must present. As Lush LJ propounded in the English case of Currie v Misa (1875), consideration exists where some right, interest, profit or benefit accrues or will accrue to the promisor as a direct result of some forbearance, detriment, loss, or responsibility that has been given, suffered or undertaken by the promisee. Consideration can either be executory or executed, but it cannot be past consideration. It may be referred to a “bargained-for-exchange” or something of legal value. There are multiple definitions of consideration from the date of its existence to the present day. Inter alia, Sir Frederic Pollock’s definition (in Pollock’s Principles of Contract 13th edn 1950) of it being “an act or forbearance of one party, or the promise thereof” and Lord Dunedin’s definition is Dunlop v Pneumatic Tyre (1915), that it is the “price for which the promise of the other is bought.”
Principles of Consideration
The principles of Consideration are, inter alia, “consideration must be sufficient but need not be adequate”, “part payment” and “past consideration is not good consideration”
Consideration must be sufficient but need not be adequate
Once something of value can be shown, the court makes no inquiry into whether the thing offered is a genuine equivalent of the promise, as the court only wishes to see that the consideration has value. To be sufficient in law, the consideration must be real, tangible and valuable (i.e. it must have actual value).
Referring to the case TAC Construction & Trading v. Bennes Engineering Bhd, the court held that the law is not concerned about the adequacy of the consideration so long as the consideration is given a value. In the case of Thomas v Thomas, the widow to whom the house was promised had in turn promised to pay 1 pound per annum as ground rent, and to maintain the property in good and tenantable repair. This return promise was found to be of actual value, hence sufficient.
Section 26 Explanation 2 of Contract Act 1950 clearly explained that an inadequate consideration is valid provided that the promisor agrees to it. For an example, we may look at illustration (f) to section 26, A agrees to sell a horse worth $1000 for $10. The inadequate of consideration does not make the contract void so long as the promisor given his free consent to it.
In Phang Swee Kim v Beb I Hock, the appellant alleged that there was a sale and purchase of the land to her for $500. The court referred to explanation 2 and held that the inadequate $500 consideration did not render the contract void.
There are however circumstances where consideration may be insufficient. For instance, if there is an existing obligation (i.e. a public duty imposed by law) as in the case of Collins v Godefroy, where Collins was summoned to court as an expert witness in a case involving Godefroy. After the hearing, Godefroy promised Collins a sum of money which he never paid. It was held that the money could not be retrieved as he was already legally obliged to attend the trial.
In addition, a sufficient consideration must has some economic value. In De La Bere v Pearson, the appellants, publisher of financial newspaper published an investment column and at the same time invite the readers to write in for advices. The respondent wrote in and asked for the name of the stockbroker. The appellant in reply gave the name of the stockbroker, who is an undischarged bankrupt. The said stockbroker then misappropriated the respondent’s money. The question arise whether the financial advices given by the appellant forming part of the consideration. The court held that the financial column published was intended to promote the sales of the newspaper and therefore benefited the appellant. There was a sufficient and valid consideration.
In Chappel v Nestle, Nestle ran a promotion to sell the records at 1 shilling 6d and three chocolate bar wrappers instead of the normal price of 6 shillings 8d. The concern was whether the chocolate bar wrappers can form part of the consideration given that it is impossible to ascertain the value. Putting aside the notice requirement under section 8 of the Copyright Act 1956, the court in this case held that the wrappers still formed part of the consideration as the objective of Nestle was to increase their sales in selling the chocolate bars and therefore the wrappers provided for an economic value.
Part Payment
Another example would be if there is already a promise to pay part of a debt. In such circumstances, the person who owes the debt tries to show consideration by performing only part of what he is already contractually bound to do.
Under English law, Sir E Coke established a rule in the case of Pimmel, that payment of a lesser sum in satisfaction of a greater cannot be any satisfaction for the whole, but payment of a lesser is acceptable if additional consideration is given, such as a gift. This was applied in Foakes v Beer, where the parties agreed on how the debt would be paid, in which Beer agreed not the take additional action. However, after Foakes paid off the debt, Beer sued him for the additional amount. The House of Lords held that this amount was recoverable, relying on the rule in Pinnel’s case. The harshness of this rule eventually led to the development of the promissory estoppel.
Malaysia however taken a different approach from English law. Section 64 of the Contract Act 1950 provides for waiver of right under the contract. Waiver of performance can be carried out in the following methods:-
Part payment of debt by the promisee or third party
Extension of time for the performance of the contract
Waiver not supported by consideration
Illustration (b) and (c) to Section 64 provides the example for part payment of debt by the promisee or third party.
In Kerpa Singh v Bariam Singh, the son of the debtor offered a lesser amount to settle the debt by endorsing a cheque to the creditor. The son at the same time informed the creditor that if he refused to accept his offer then he must return the cheque. The legal advisor of the creditor cashed the cheque and retained the money. The court held that the creditor cannot claim for the balance of the debt as he has chosen to accept the cheque offered.
Similarly, in Hirachand Punamchand v Temple, the father paid a lesser amount to the creditor for the son’s debt and the creditor has accepted as a full settlement. The court held that the creditor cannot later sue for the balance of the debt as the part payment was a valid consideration.
Past consideration is not good consideration
Where it is alleged that a contract exists on the basis of an act followed by a promise, the courts will not enforce such a promise, as this promise is described as “past”.
In Roscorla v Thomas, the plaintiff and defendant engaged in negotiations about the purchase of a horse from the defendant. After the agreement was reached, the defendant assured the plaintiff that the house was “sound and free from vice”. Although the horse failed to match that description, the warranty given was after the making of the contract and therefore could not be the consideration to support the promise to buy it as it was not given in exchange for that promise. Another case which illustrates this principle is Re McArdle, where work completed was executed before the promise was made, so that the word was not given in exchange for the promise and amounted to past consideration.
There is however a device which can be used to sidestep the past consideration rule in cases in which it can be said that there was an understanding that goods or services were to be paid for, but no express agreement had been reached as to the amount payable before the time for performance. In the case of Pao On v Lau Yiu Long, Lord Scarman provided conditions for the operation of this exception, where his Lordship held that the act must have been done at the promisor’s request and the parties must have understood that the Act was to be remunerated either by a payment of the conferment of some other benefit. This benefit must have been legally enforceable had it been promised in advance.