Tuesday, June 24, 2008

CONTRACT

CONSIDERATION

· An agreement without consideration is not a contract
· Under common law, a contract is binding because there is consideration; view the contract as an exchange of promises
· Consideration is the price we pay for the promise, nobody made promise freely
· Example 1: A promise B, to give RM1000 for washing his car, A not bind to his promise unless B has given his consideration
· Example 2: A set an agreement with B agreed to sale a house for RM300,000. Both parties are bind i.e. contract by their promise
- A want to sell house to B
- B want to give RM300000 to A for a house

What make A bound?
· A promised is bound by B consideration.
· B has promise to give RM300000 to A because A promise to give away his house
· A & B are bound by their promises, therefore, a contract exists
· However, A promise is not binding if it is not supported by consideration
· A contract of both parties are bound by consideration
· Consideration is the center of a contract
· Only when there is consideration, the contract becomes binding

Bare promise
· Promise that is not binding because there is no consideration (nudum pactum)


Principle of consideration
1) Consideration may not be adequate but it must be sufficient

Q: How to distinguish between adequate and sufficient?
A: Adequate means it relative to quantitative aspect
Sufficient means it related to qualitative aspect

Example: Ali own a house value RM100,000. Ali willing to sell a house to Babu for RM1000. This is a valid contract because RM1000 is sufficient for the seller

· Even-though, there is no fraud, misinterpretation or duress we may view that the amount paid for the house is not adequate.
· However, under Malaysian law when the consideration is went far (not adequate) below the actual values of exchange, this would alert court to investigate whether the other party consent has been free
· If the court is satisfied the consent is voluntary or free then the contract would be ahead, despite the inadequacy of the consent

Case:
Ghappel Co. Ltd v Nestle Co. Ltd

2) Consideration must be real and off-value
3) Mere performance of assisting duty is no consideration unless what has been done was over and above that required by the duty (above the demand of the duty).

Case:
Hartley v Ponsonby
· Remaining crew member is seriously unhanded
· All the crew member share the workload
· There was consideration because very serious unhanded

Example:
One night while two policeman on patrol, there is a girl who come home late and was afraid. She asked one of the policeman to accompany her home. When arrived at the girl house the girl promise to give RM50 to the policeman the next day because of his kindness. The action of the policeman is considered as consideration because over and above the demand of his duty

Glasbrook Brothers v Glamorgan Country Council
- The fireman is called to put out a fire (performance of his duty)
- Because the house in havoc condition the owner of the house ask the fireman to guard his house and promise to pay them for their service (over and above duty demand)
- So, the fireman can ask for the money because the consideration occurs

Ward v Byham
- A man and a women live together and they have child out of a back lock
- Later both had quarrel and the man left the women
- The man promise to pay child support allowance every month to the women if the women promise to look after the child well and the child always happy
- After several months, the man stop pay the allowance
- The women bring the case to court and order the man kept the promise
- Under English law, if a man and a women have a child out of back lock, it is the duty of the mother to look after the child
- There is no consideration because there is the duty of the mother to look after the child
- However on the day of the trial, the child look very happy and thus the court rule that even it is the duty of the mother to look after the child, but it is not her duty to make the child happy (the consideration is to make the child happy), so the man has to pay for the child support allowance.


4) Past consideration is not consideration
· Situation where consideration may not present (exceptional situation) are mention in Sec 26 contain three (3) exceptional situation where consideration may not be present the agreement still a contract

· Section 26 (a)
- a promise in writing register under the relevant law if any make between two parties in near relation to one another and for reason of natural love and affection, then the promise is binding (confined to family arrangement)
i) a promise made in writing
ii) between 2 person standing in near relation
iii) make on an account of natural love and affection
iv) register under the relevant law
- Near relation is blood relation and according to the personal law
- Under the Chinese culture law, foster children will have blood relation with the foster father side and not the foster mother side
- Example:
Husband promise to his wife to give her a house. The promise made in writing.
3 years later the wife reminded her husband about it, but the husband ignores the statement.

- In this case, consideration does not exist, exception of consideration also not valid

· Section 26 (b)
- a promise to compensate someone who has voluntary done something for the benefit of the promisor or someone who has voluntary done something which was the duty of the promisor to do so (duty –impose by law as well as moral duty and contractual duty)
- Example 1:
- A park his car at one place and discover that his car is given a good wash and polish by B without A desire
- Therefore, past consideration exist and B cannot claim under section 26 (d) because A is not bound to it.
- However B can claim from A under the exemption principles, Section 26 (b) because a promise made by A to compensate B who has voluntary done something (wash A car) that benefit A
- Example 2:
- A goes outstation for 3 weeks and ask B to look after his house
- B promise to do so
- On 2nd week, he saw a letter from income tax department and the letter notify he has 7 days to pay the tax of RM50,000 of he will be arrested
B paid the amount on behalf of A and told A about it when A return for oversea
- A promise to pay the money back to B but later refuse to do so.
- B can claim under Sec 26 (b) because B had done something that benefited A, which was the duty of the promiser (A) to do, pay taxes.


· Section 26 (c)
- stated if a promise is made to pay statute bad debt, then this is valid contract
- Under the common law a debt under the “statute barred debt” mean that the statute or limitation a person may only recover its debt between 6 years.
- After 6 years cannot recover the debt anymore and the debt becomes statute barred debt
- For land is 12 years
- Example:
- A gives loan to B eight years ago amount RM300k
- After 7 years only, A found out that B owing him RM300k and sent notice for B to settle the debt
- B is not bound to this request but if B promises to pay back then B is bind by contract [bound under Section 26(c)].
- 6 years from the time it discover from the accident

1 comment:

  1. Salam. I like the law inputs that you uploaded. It simplifies the subject matter making it easier for non law readers to digest. Am looking forward to more law topics. Tahniah.

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