Consideration (PDF)

 Definition  Requirements, Types  Exceptions to consideration:  s.26  S.64  Promissory estoppel  Certain Common law positions  Pre-existing public duty  Pre-existing contractual duty  Pre-existing contractual duty to third party  Misc:  Privity...

 Definition  Requirements, Types  Exceptions to consideration:  s.26  S.64  Promissory estoppel  Certain Common law positions  Pre-existing public duty  Pre-existing contractual duty  Pre-existing contractual duty to third party  Misc:  Privity of Contract  Adequacy of Consideration Consideration 2  What is consideration?  Currie v Misa (1875) LR 10Ex 153  “A valuable consideration in the sense of the law may consist either in some right, interest, profit or benefit accruing to one party, or some forebearance, detriment, loss or responsibility given, suffered or undertaken by the other.”  In short?  I get, you get Consideration 3  s.2(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called consideration for the promise. Consideration 4  s.2(d) When, at the desire of the promisor, 1 the promisee or any other person 2 has done or abstained 3 from doing, or does or abstain from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called consideration for the promise. Consideration 5  The act / abstinence must be at the desire of the promisor  If it was never initiated / desire of promisor  Then it is not consideration Consideration 6  Thus,consideration need not be from the promisee only  Kepong Prospecting Ltd v Schmidt  Mr Tan applied to State Government for a prospecting permit for iron ore. Assisted by Mr. Schmidt. 1954 Contract: between Mr Tan and Kepong i.e. Kepong would prospect and work the land in the mining permit and take over Tan’s obligation to pay Schmidt 1% of the selling price of all ore sold from the land.  Consideration: provided for (essentially) by Schmidt but contract between Mr. Tan and Kepong Prospecting Consideration 7 Note: Privity of Contract  Thirdparty to the contract cannot sue  1954 Contract:  C o n t r a c t b e t w e e n M r. Ta n a n d K e p o n g Prospecting. Consideration essentially provided by Schmidt.  Court ruled: Contract valid BUT Schmidt cannot sue because he is the third party to the contract  Note:  Under common law, third party that receives benefit may have the right to bring an action  Contracts (Rights of Third Party Acts) 1999 Consideration 8  It may be an act or an abstinence from doing something  What about forbearance to sue?  i.e. agreeing not to exercise a legal right  The right to sue is something of value  This is not the same as being forbidden to sue  S.29 CA … Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights,is void to that extent. Consideration 9  has done or abstained from doing  past  does or abstain from doing,  present  promises to do or to abstain from doing, something,  Future  ‘Past’ consideration, executed consideration, executory consideration Consideration 10  Executory consideration  One party makes a promise in return for a promise  Eg: Seller promises to deliver goods in return for buyers promise to pay  Executed consideration  One party makes a promise in return for the performance of an act  Eg: A promises to pay once B completes the act. Once B completes the act, the consideration has been executed (Carlil) In both situations, the agreement (promise) was made before any act was done  If the promise is made after the act was done, then it is known as Past consideration Consideration 11  When a person makes a promise to pay after the act has been completed  Person A has completed the act  THEN Person B says “Since you’ve done [__], I’ll pay you”  Key: when was the promise made?  before act or after?  Becareful – position in Malaysia and under common law is different. Consideration 13  Past consideration is not good consideration ReMcArdle Plaintiff paid for the repairs of the house. She was then promised by the others to be paid £488. Court of Appeal: As the repairs had been carried out before the agreement to pay had been made, it was past consideration and therefore not good consideration Consideration 14  Exception: Lampleigh v Braithwait D committed murder. Asked P to obtain for him a royal pardon, which P managed to do. D then promised to pay him £100. Held Consideration was good as the act carried out at D’s request. Consideration 15  S.2(d) When, at the desire of the promisor, the promisee... has done … something … such act is called consideration for the promise  Re f l e c t s the common law position in Lampleigh v Braithwait Consideration 16 P was claiming for payment from D for the goods delivered to Heng Lee Enterprise. D argued that the consideration given by P was void for past consideration since D’s guarantee to pay was made after P had been supplying the goods over a period of time. High Court … from the letter of guarantee, it was clear that P’s act of delivery was done at D’s request. Consideration 17 Gunn Chit Tuan SCJ: “The detriment undertaken by the promise … is a past performance and should be sufficient consideration where there is a promise in consideration of some act previously done by the promisee at the request of the promisor … In other words, consideration itself accommodates past consideration so long as the ‘desire’ requirement is specified…” Consideration 18 So, note:  Never say that ‘past consideration is not good consideration’  This is NOT the position in Malaysia  It doesn’t matter if it’s “past” or not – the point is, was it at the desire of the promisor?  If yes, then it IS valid consideration as per s.2(d)  If it isn’t, then there is NO consideration  But  There can still be a contract  S.26 Consideration 19 A contract requires offer, acceptance, consideration and intention  H o w e v e r, t h e r e a r e e x c e p t i o n s w h e n consideration is not required to form a contract  As per:  S.26 Contracts Act 1950  S.64: part-payment  Promissory estoppel: common law  Inaddition, will also look at certain common law positions regarding pre-existing obligations Consideration 21  An agreement made without consideration is void, unless – a. It is in writing and registered; b. Or is a promise to compensate for something done; c. r is a promise to pay a debt barred by limitation law In any of these cases, such an agreement is a contract  Inshort, s.26(a) – (c) are exceptions to when consideration is needed to form a contract Consideration 23  expressed in writing, and registered under the law (if any) … and is made on account of natural love and affection between parties standing in a near relation to each other Thus, four requirements: 1. Expressed in writing 2. Registered under the law (if any) 3. Natural love and affection 4. Standing in near relation to each other Consideration 24  Re Tan Soh Sim  Tan Soh Sim – married Chan (W2: Tan Boey Kee)  Adopted 4 children (2 boys, 2 girls)  Has 3 sisters (Tan), 2 ½brothers & 5 ½sisters (Khoo)  Thus, 3 “full” sisters, and 7 “half” brothers and sisters Consideration 25  Khoo Kim Tan Ah Thai Sng Gaik See Huat Tan Tan Soh 3 Boey Chan Sim (1 ) st 2 5 Girls Kee Boys Girls adopted 2 2 Boys Girls Consideration 26  Tan Soh Sim did not have a will  Oral declaration : whole of her property to adopted children and substantial provision for W2 (Tan Boey Kee)  Tan sisters (3) and Khoo siblings (7) signed: “We, the undersigned relatives of Tan Soh Sim do hereby renounce all claims of whatsoever nature to the assets of Tan Soh Sim should she die intestate. This renunciation of our claim is in favour of (the four adopted Chans and Boey Kee, the other widow) in manner following …” Consideration 27  Note: Without will, the ten brothers and sisters would be legally entitled to share on an intestacy  Thus, what had been signed meant they renounced everything in order to give the whole estate to parties who had no legal claim to any share  Issue: was it a contract?  Was it due to ‘natural love and affection between the parties standing in near relation to each other’ ? Consideration 28  The words “relationship” and “near”  must be applied and interpreted in each case according to the mores of the group to which the parties belong, and  with regard to the circumstances of the family concerned  “natural love and affection”  Full effect must be given to the word “natural”  i.e. not only “reasonable to be expected” but “reasonably to be expected having regard to the normal emotional feelings of human beings”  Ifeither the feelings or relation are lacking, this section does not apply Consideration 29  Chinese custom:  Founded on patriarchal families and clan  Dominant motive for adoption of a son is to ensure family ancestor worship  Whole system is based on the notion that the f a m i l y, n o t t h e i n d i v i d u a l , i s t h e u n i t o f consideration  A person is either a member of the family or outside it – once you marry into the family, not expected to leave it  Remarriage of widows tolerated only on clear understanding that they forfeited all rights to maintenance (deceased husband’s family has no ties) Consideration 30  In short:  Sons inherit, daughters do not  Sisters-in-law: brother’s wife – wife’s sister: ‘outside’  Remarriage of Tan Soh Sim’s mother after death of father : ‘outside’ So …  Tan Soh Sim’s sisters and half-siblings: ‘outside’ the family  Related to the children of Chan (whether natural or adopted) only in a special and limited way which is not near  Tan Boey Kee  As a secondary wife: same as related to the principal wife’s sister Consideration 31 In conclusion  Rejected as they are not nearly related  Also, no evidence that there existed any natural love and affection between the parties of the alleged agreement  Signed by the Tan sisters and all seven Khoo ½ siblings  Evidence showed all the signatories had affection for Tan but it is not enough to show that an agreement was made in deference to the wishes of a third person who was not a party to it Consideration 32 A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compelled to do  There are two situations in this i.e. did something which was:  voluntary  something promisor was under a legal obligation to do Consideration 33  Ordinary everyday meaning of ‘voluntary’  JM Wotherspoon & Co Ltd v Henry Agency House  P had done something at the suggestion of the defendant firm. Was this ‘voluntarily’?  That which the promisor is legally compelled to do Consideration 34  If A makes a promise (promisor) to pay after B has completed an act, then ask –  Did B do the act at A’s desire?  If yes, then it is legal consideration as per s.2(d) and a contract exist  If no: not valid consideration  Was it done voluntarily? OR Was it an act that the promisor is legally obliged to do?  If yes, then it is an exception under s.26(b) that allows a contract to be formed even though there is no consideration  If no, then it does not fall under the exception under s.26 and there is NO contract Consideration 35  Itis a promise, made in writing and signed by the person to be charged therewith … to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits  This is not the same as s.64: part-payment Consideration 36  Everypromisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit  Thus …  Can dispense wholly or in part  May extend time to perform  May accept anything in exchange Consideration 38  Kerpa Singh v Bariam Singh Query: Had the judgement debt been satisfied by the tender of a third party (the son) of a cheque for a smaller amount than the sum due as payment in full. The cheque had been accepted and cashed by the creditor. “…you have agreed to receive $4000 from my father being payment in full settlement of his share in the … civil suit … amounting to $8,650 … I now enclose a receipt for $4000 paid by cheque at your firm in Kota Bahru … I pray you will accept the payment and agree to allow to discharge my father... from any further liability. If you don’t agree … please return me my money” Consideration 39 Held..  Veryclear that a third party made an offer subject to conditions i.e. that creditor could either  Return the money, or  Retain the cheque and discharge the debtor’s liabilities  Conduct in cashing the cheque and retaining the money can only be an agreement to discharge debtor from any liability  Has no consideration, but it falls under s.64 Consideration 40 Take note: Common law position of Pinnel’s case  Payment of a lesser sum cannot satisfy a larger sum  Even though the parties have agreed to it  Requires ‘something extra’ as justification for paying a lesser sum  Not applicable in Malaysia due to s.64 Consideration 41 A promise which has no consideration  Note:  It doesn’t create a contract, but it is a doctrine that allows the promise to be upheld  Common law concept that is accepted in Malaysia  Began with:  Hughes v Metropolitan Railway Co  Central London Property Trust Ltd v High Trees House Ltd Consideration 43  Hughes v Metropolitan Rly Co P gave D (tenant) six month notice in October to carry out repairs to the house. If not, the tenancy would be terminated. In November, P carried out negotiations with D with a view to sell the house to D. Negotiations ended in December. Repairs had not been carried out so landlord brought an action to evict tenant when the 6 months was up. Consideration 44 Held … If parties who have entered into definite and distinct terms involving certain legal results … afterwards by their own act or with their own consent enter upon a course of negotiations which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties. Consideration 45 If parties who have entered into definite and distinct terms involving certain legal results  There is a contract between the parties … afterwards by their own act or with their own consent enter upon a course of negotiations  Then, negotiations/statements made which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced or will be kept in suspense, or held in abeyance,  Which made one party to rely on the statement made, and  Changed his position because of the statement made the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.  The other party cannot then deny the statement Consideration 46  High Trees Case In Sept 1939, P leased a block of flats to D for £2500 per year. In January 1940, P agreed in writing to reduce it to £1250 as the war conditions caused many vacancies in the flats. No express time limit given and D paid reduced rent. In 1945, flats full again and P claimed full rent – for the future and restrospectively. 1. Was there an existing contract? 2. Was a statement made that is different from the contract? 3. Was that statement relied on? Consideration 47  Boustead Trading (1985) Sdn Bhd v Arab- Malaysian Merchant Bank Bhd 1. Estoppel is only as a shield, but not a sword 2. He who relied on the statement was influenced by it  Only needs to prove influence, not that it was the sole factor which influenced him  Also, it does not need to be to his detriment  “his conduct was so influenced by the encouragement or representation … that it would be unconscionable for the representor thereafter to enforce his strict legal rights. Consideration 48  In short:  There is an existing contract between the two parties  One makes a statement, the other relies on it  Changes his position because of it  Does not have to be to his detriment  Thus, the statement cannot be denied Consideration 49  There are three situations:  Pre-existing public duty  Pre-existing contractual obligations  Pre-existing contractual obligations to third parties  Are there considerations in these situations so as to create a contract? Consideration 51  There is no consideration (thus, no contract) when a person who is merely performing his public duty  Neither party received any benefit/suffered any detriment for it Collins v Godefroy P received a subpoena to appear as a witness and to give evidence for D. D had promised to pay him a sum of money for appearing as a witness. Consideration 52  However,  If the promisee does more than what is required to do as part of his pre-existing public duty  There is consideration Glasbrook Bros Ltd v Glamorgan County Council A national coal strike, lasting 3 months, made it unsafe for the workers from working. Police were asked for help. Police: patrol and send in police whenever needed. Request: police garrison of 100 (later reduced to 70). They were told that this is ‘special duty’ and a promise to pay was signed. Consideration 53  No consideration  Stilk v Myrick  Ship voyage: London – Baltic – back. Two seamen deserted, and it was agreed that their pay would be shared among the remaining seamen to work the ship back to London.  “There is no consideration for the ulterior pay promised to the mariners who remained with the ship. Before they sailed … had undertaken to do all that they could under the emergencies of the voyage … voyage should be completed” Consideration 54  Williams v Roffey Bros & Nicholls (Contractors) Ltd  Differentview from Stilk v Myrick  D, building contractors, subcontracted the refurbishment of some flats to P. P unable to complete in time. D agreed to pay P an additional £575 per flat on its timely completion.  There is consideration:  Where one party obtained a benefit as D able to avoid paying penalty fees to main employer Consideration 55  Hartley v Posonby (1857)  Similarsituation to Stilk v Myrick  However, here, the shortage of the labour was so great that the further prosecution of the voyage exceptionally hazardous  Thus, there is consideration Consideration 56  There is good consideration  Promisor obtains the benefit of a direct obligation  Shadwell v Shadwell  Uncle promised to pay his nephew a certain sum if he married Ellen Nicholl – which the nephew, at that time, was already engaged to.  The marriage primarily affects the parties thereto; but in “a secondary degree it may be an object of interest to a near relative, and in that sense” a benefit to him Consideration 57  Allcontracts require consideration  As long as there is consideration, its adequacy is not questioned  Tan Chiw Thoo v Tee Kim Kuay 2 MLJ 221, FC  In law, ‘sufficiency’ of consideration is different from ‘adequacy’ of consideration  ‘sufficiency’ is synonymous with ‘validity’ in regard to consideration Consideration 58  Just because consideration may be inadequate does not mean it is insufficient  S.26 illustration (f):  A agrees to sell a horse worth $1,000 for $10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration. However  An inadequate consideration may be taken into account as the contract not being entered into with free will  S.26 Explanation 2  S.26 illustration (g):  A agrees to sell a horse worth $1,000 for $10. A denies that consent to the consent to the agreement was freely given. The inadequacy of the consideration is a fact which the court should take into account in considering whether or not A’s consent was freely given. Consideration 59