Past Consideration free essay sample

Consideration is also known as element of exchange. To be a contract, the transaction must be supported by consideration. According to general rule, s. 26 of CA state that an agreement made without consideration is void. We can define consideration as the price paid for benefit received or is an exchange of promises. It means that something with monetary value, voluntarily exchanged for an act, benefit, forbearance, interest, promise, right, or goods or services. For example, the promisee has to give something in return for the promise of the promisor in order to convert a bare promise made in his favour into a binding contract. According to Lord Dunedin in Dunlop v Selfridge (1915), consideration is â€Å"an act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable†. Thus, consideration may be viewed as a sort of bargain, or price which one party pays to buy the promise or act of the other. We will write a custom essay sample on Past Consideration or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page When the promisor promises to do or to abstain from doing something, the promisee must pay a price for it. There are three types of consideration and one of the considerations is the past consideration. 1.2 Past Consideration Pass consideration is one type of the consideration. If one part voluntarily performs an act before the promise was made or the other party then makes a promise, the consideration for the promise is said to be in the past. For example, A finds and returns B’s digital camera and in gratitude, B promises to reward him with RM 200. B had made a promise here in return for A prior act which is return his digital camera. The return of the camera was an act in the past done independently of B’s promise and will be pass consideration. 2.0 Content 2.1 Past Consideration under Common Law There are two different views toward this past consideration. Under Common Law of England the general rule, the view of past consideration is that it is not a good consideration and is not recognized by English Law. It is insufficient to support a contract. The past consideration is valid if something is done in the business context and it was understood that both parties that it would be paid off. We can refer to the examples cases of 2.1 (a) Re McArdle (1951) and 2.1 (b) Roscorla V Thomas (1842). 2.1 (a) Re McArdle (1951) After the death of the mother, five children inherited the house. Some home improvements had been paid by one of the daughters in law. Later, the other four of the children signed a document that they promised to pay her the money for the work done, in consideration of carrying out improvements to the property. However, the others then refused to pay to her and the Court of Appeal held that the promise was unenforceable because all the work that had done before the promise made was just a past consideration. 2.1 (b) Roscorla V Thomas (1842) Roscorla purchased a horse from Thomas. After Roscorla had purchased the horse, Thomas then promised that the horse was in a good condition and it is not vicious. However, Roscorla then just realized the horse was actually vicious. At last, the decision is that the promise of Thomas was not binding because the promise was made after the sale had been completed and the buyer had given nothing in return for it. It was a past consideration, so the buyer could not rely on the prior sale to support the new promise. This is the two cases which can support that the past consideration is not a good consideration in the English Law. 2.1.1 Exceptions However, not all the past consideration is not a good consideration under the English Law, but still, there are also exceptions that past consideration is a good consideration under English Law the general rule. The circumstances of the exceptions is that at the promisor’s request to provide goods and services previously, then promise made after the provision of goods will be binding. We can refer to the case 2.1.1 (a) Lampleigh v Braithwait (1615). There is also another cases we can refer to it which are 2.1.1 (b) Pao On v Lau Yiu Long (1979). 2.1.1 (a) Lampleigh v Braithwait (1615) Braithwait killed someone and asked Lampleigh to obtain for him a royal pardon. Lampleigh did so and in exchange, Braithwait promised to pay him  £100 for his efforts. Braithwait never paid to Lampleigh and so broke this promise and Lampleigh sued him. The court held that Lampleigh succeeded in this action because it appears to be unspoken understanding that the service would be paid for and so was not past. 2.1.1 (b) Pao On v Lau Yiu Long (1979) Pao On agreed to sell shares to Fu Chip which was controlled by Long, in consideration for certain shares. To protect the share value, Pao On and Fu Chip agreed that Pao On would retain 60% of the acquired shares until April 1974. However, in April 1973, Pao On refused to proceed with the contract unless Long agreed to indemnify him against the value of the retained shares falling below a set level. Long agreed, but only to ensure public confidence in company. The sale proceeded an Pao On sought to enforce the indemnity. This cases was held that there was consideration. This case had present all three element which are the act done was done at the promisor’s request, the parties understood that the act would be remunerated in some way, and it would be legally enforceable if the promise had been given in advance of the act. 2.2 Past Consideration under Malaysian Contract Act On the view from Malaysian Law which is the Malaysian Contract Act, past consideration is a good consideration and is valid consideration. It is something which wholly performed before the promise was made. According to s. 2 (d) of CA, 1950, the words â€Å"has done or abstained from doing† had implied that an act prior to the promise is sufficient to constitute consideration even though it is clearly past provided it is done at the desire of the promisor. This is illustrated in the case of 2.2 (a) Kepong Prospecting Ltd Ors v Schmidt (1968). 2.2 (a) Kepong Prospecting Ltd Ors v Schmidt (1968) Schmidt is a consultant engineer who has assisted another in obtaining a prospecting permit for mining iron ore in state of Johore. He helped in the subsequent formation of Kepong Prospecting Ltd and was appointed as its Managing Director. After the company was formed, they entered into an agreement whereby the company undertook to pay 1% of the value of all ore sold from the mining land. This was being in consideration of the services rendered by the consulting engineer for and on behalf of the company prior to its formation, after incorporation and for future services. Thus, were the services rendered after the incorporation but before the agreement were sufficient consideration? The court held that is was clearly past consideration and it did constitute a valid consideration so that Schmidt was entitled to his claim on the amount. The services prior to the company’s information could not amount to consideration as they could not be rendered to a non-existent company, nor could the company bind itself to pay for services claimed to have been rendered before its incorporation. 2.2.1 An Agreement to Compensate for Something Voluntarily Done Based on s. 26 (b) of CA, 1950 there are two limbs to this exception. First, it is promise to compensate either wholly or in part the other person (promise). Another is the promisee has voluntarily done something for the promisor. Thus, the prior is that no matter the act has been performed by the promisee, the agreement must have been performed voluntarily. 2.2.2 An Agreement to Compensate Something which Promisor was Legally Compellable to Do According to s.26 (b) of CA 1950, the necessary ingredients are that the promisee has voluntarily done an act. Beside, the act is one which the promisor was legally compellable to do. It is also an agreement to compensate, wholly or in part the promise for the act. 2.2.3 A Promise to Pay a Statute-Barred Debt s. 26 (c) of CA 1950 states that a statute barred debt refers to a debt, which are not recoverable through legal action due to a lapse of time fixed by the law. The time limit is 6years from the time of cause if action arises. It was under the Limitation Act 1953. s. 26 (c) of CA 1950 creates an exception to this rule but subject to several conditions: 1. The debtor made a fresh promise to pay the statute barred debt 2. The promise is in writing and signed by the person to be charged or his authorized agent in his or her behalf 3.0 Conclusion In conclusion, we can know that there is difference between the past consideration under Common Law of England and Malaysian Contracts Act, 1950. Although there is different view of past consideration from two different laws, but there are still exceptions for both law. To decide whether the past consideration is a good or bad consideration, the most important still is to depend on the cases. Past consideration is sometime good to prevent fraud. 1.0 Issues There are two issues in this case. The first issue in this case is whether Lorraine has the right to cancel or repudiate the contract. Another issue is that whether Lorraine can claim or ask for the damages from the company. 2.0 Sources of Law In order to know whether the repudiation of contract and claiming damages from company can be succeed, we need to understand the legal principles or the legal position of Lorraine now. This is essential because the decision is held using these legal principles. 2.1 Terms of Contract There is no provision in the Contract Act 1950 dealing explicitly with the term of a contract. It does not have provision to clarify whether all the terms of contract must be express or whether they can be implied into a contract. Thus, the courts in Malaysia have adopted common law rules on these matters. The terms of a contract are its contents. The contents of a contract are known as terms or clauses. Generally, an agreement will consist of various terms and the rights and obligations of parties to a contract are determined by the terms of that contract. These terms of contract can be express or implied. 2.1.1 Implied Terms Implied terms are those terms which have not been discussed or mentioned by either party will nonetheless be included in the contract. The contract doesn’t make commercial sense without that term. However, the court will imply into the contract when they appears to be consistent with the intention of the parties. 2.1.2 Express Terms Express terms are those terms that have been specifically mentioned and agreed by both parties at the time the contract is made. For examples, concern price, quantity, quality, size, colour or delivery date. They can either agree wholly by oral or writing or may be found in a combination of them. 2.1.2.1 Conditions Terms and Warranties Terms Express terms and Implied Terms had been divided into two categories which are Conditions and Warranties. It does not draw any distinction between the two for the CA 1950, but still the Malaysian courts have drawn the distinction between them by following the common law. 2.1.2.1.1 Conditions Terms A condition is the major term which is indeed essential to the main purpose of the contract. If the promisor broke or breach of condition in any respect, it will entitle the injured party to repudiate the contract and claim damages. However slight it is, it gave the other party a right to be quit of his future obligations and to sue for damages. The injured party may also choose to go on with the contract, despite the breach, and recover damages instead. The example cases that we had are 2.1.2.1.1 (a) Poussard v Spiers (1876). 2.1.2.1.1 (a) Poussard v Spiers (1876) Madame Poussard was engaged to appear in an operetta which was to be produced at Spiers theatre and entered into a contract for three months. Unfortunately, the plaintiff fell ill and missed the opening night and three performances. The producers were forced to engage a substitute. A week later Poussard recovered and offered to take her place, but the defendants refused to take her back for the remaining performance and she sued him. The court held that Poussard was in breach of condition and Spiers were entitled to repudiate the contract. She missed the most important performance on the opening night. The obligation to perform from the first night was a condition of the contract. Thus, Spiers entitled to repudiate Poussard’s contract. 2.1.2.1.1.1 Rescission The contract is revoked and parties are returned to their original positions as if there was no contract between them. It revert the contract to the day it had not been signed as if the contract had not been made. Alternatively, the party suffering from a breach of condition may treat it as a breach of warranty and claim damages only. We can refer to the example cases 2.1.2.1.1.1 (a) Tham Cheow Toh v Associated Metal Smelters (1972). 2.1.2.1.1.1 (a) Tham Cheow Toh v Associated Metal Smelters (1972) The appellant agreed to sell a metal melting furnace to the respondents and undertook that the melting furnace shall have a temperature of higher than 2,600 °F. However, the specification was not satisfied which was not higher than the desire temperature, the respondents brought an action alleging breach of condition of the contract. The court held that the appellant’s failure to supply a furnace according to the specifications was a breach of condition of the contract. Thus, the respondent has the right to cancel the contract and also claim damages if any, or to treat it as a breach of warranty and claim damages only. 2.1.2.1.2 Warranties Terms Compare conditions, warranties is less essential than it. It does not go to the root of the contract and is collateral to the main purpose of the contract. If there is breach of warranty, the injured party not entitled to cancel the contract, but only have the right to claim for damages. 2.1.2.1.2 (a) Bettini v Gye (1876) Bettini, an opera singer was engaged by Gye to sing in a series of concerts. He also undertook to be in London at least six days to attend the rehearsal sessions. At last, due to temporary illness, he arrived three days late. He gave no advance notice and Gye therefore cancel the contract. It was held that the failure to attend the rehearsals by the plaintiff could only affect a small part of this period. It was not a very important term of the contract and is not conditions. The defendant could claim compensation for a breach of warranty but he could not terminate contract with Bettini. 3.0 The Law to the Fact Situation Refer to the cases, the oven that Lorraine bought did not reach the requisite temperature that she wants, which means does not satisfied her specifications. Before Lorraine purchasing the oven, she had already made know expressly to Warren that the oven should reach temperature at least 2,000 ºF. When Lorraine told Warren expressly, this action of Lorraine had proven that although there is not written in contract, but there is an oral form of agreement between them. (Ref 2.1.2). Besides, for an oven, the temperature is important and is the conditions for it. When Lorraine told Warren that the temperature should at least 2,000 ºF, the condition terms is appear here. (Ref 2.1.2.1.1). The temperature of an oven can’t amount as warranty term (Ref 2.1.2.1.2) because as mentioned just now, the temperature to an oven is essential, so that is the condition, not a warranty term. 4.0 Conclusion In conclusion, Lorraine has the right to repudiate the contract and also claim the damages from Warren because the condition terms is exist when Lorraine expressly made know to Warren about the requisite of the temperature. Lorraine can succeed in 2her action base on the Express Term and Conditions Term.