Essential Elements of a Contract
Discuss about the Foundations of Business Law for Guthrie Waugh Bhd V Malaippan Muthucumaru.
It is evident that, from the very beginning, the provisions of the Contract Act 1950 govern the functioning of the law of contract of Malaysia. In this regard, mention can be made about the law of England which can be efficiently applied in cases where the legislative bodies do not have appropriate provisions for the purpose of dealing with the present situation. A contract can be defined as an agreement taking place between two or more parties in regard to matters which are recognized by the law. In this regard, the parties are at the obligation to provide an undertaking in regard to which the promise will be performed by them under the specified contract. It is worth mentioning that, in order to make a valid contract, the essential elements must be present. In this regard, it is noteworthy to mention here that, the essential elements of forming a valid contract can be categorized as offer, consideration, acceptance, capacity and intention. Therefore, it is worthwhile to mention here that, if any one of the elements then such contract cannot be considered to be legally binding upon the parties involved. In this regard, the paper intends to emphasize upon the formation of a valid contract by primarily focusing upon the element of consideration. The intention of the paper is to provide in-depth knowledge regarding the fact that why consideration forms an important part of contract and without its presence why a contract is not equally recognized by the law. Lastly, the paper is commissioned to examine the three basic rules of consideration.
According to the provisions of Section 2(d) of the Contract Act 1950, a valid consideration takes place when there is a promise on the part of the promisor to the promisee or to any third party in regard to the payment of a certain amount of sum wholly or partly. It is worth noting that, if there is no consideration, then the nature of the consideration is such that, it cannot be considered to be valid. According to the provisions of Section 26 of the Contract Act 1950, a contract is considered to be void without the presence of a valid consideration. In the case of Guthrie Waugh Bhd V Malaippan Muthucumaru (1972), it was observed that there was no valid consideration in regard to the deed agreement. Therefore, it was held by the court that as the deed was executed by the defendant without relying upon any past or future consideration, thee shall be no cause of action. In this context, it can be stated that for a contract to be valid, there must be a valid consideration which can take place with the help of reasonable bargain or promise.
The Importance of Consideration in a Valid Contract
In case of Dunlop v Selfridge (1915), the definition of consideration was rightly emphasized. The court defined the term consideration as an interest, profit or benefit gained by one of the party to the contract from the other party. In this regard, the court also emphasized on the part that, consideration under the law of contract is something which causes benefit to one party and on the other hand detriment or loss to the other party. It is important to emphasize upon the three kinds of consideration applicable under the Malaysian law of contract that are past consideration, executor consideration and executed consideration. It is worthwhile to refer here that; a past consideration is a good consideration which was held in the case of Kepong Prospecting Ltd & Ors v Schmidt (1968). In this case it was held by the Court that, the services rendered previously in the process of the formation of the company cannot be regarded as a valid consideration. The Court was of the opinion that, a past consideration takes place when there is a promise on the part of an individual regarding the payment of a sum after the completion of the offer. However, in the case of Kepong Prospecting Ltd & Ors v Schmidt (1968), it was observed that Schmidt being a construction engineer efficiently supported a company for the purpose of receiving a mining permit in order to involve in the formation of the company. however, after the incorporation of the company, there existed a prior agreement between Schmidt and the company that he shall be entitled to 1% of the total share of ore for the services he provided.
Executor consideration can be defined as the consideration that has been provided by the parties to the contract by way of promise. However, the nature of the contract must be such that it can only be performed by the party who has provided the future consideration. In such process, the law will held the consideration as enforceable, even when the contract has not come to an end. Similarly, in K Murugesu v Nadarajah, the case involved was in regard to tenancy. It was observed that the house belonged to Y and X was his tenant. In such process, an agreement was made by Y to sell the house to X for an amount of RM 26000 within a stipulated period of three months from the day in which such agreement to sale was formulated. There was refusal on the part of Y regarding the sale of house by claiming that the consideration was not valid as it was not supported by any payment on the part of the purchaser. However, the Court held that, the nature of the promise was such that it was regarded to be a valid consideration.
Rules of Consideration
The concept of executed consideration can be explained with the help of the case Wong Hon Leong v Noorazman Adnan. It was observed in this case that, the consideration was executed by the defendant when the plaintiff formed an application for the conversion of land. After the successful approval of the application, the plaintiff refused to pay any amount to the defendant. In this regard, the Court held that, the nature of the consideration can be held to be valid.
From the above mentioned facts, it can be stated that the term consideration is a value that is provided by one party to the other party (Knapp, Crystal. and Prince 2016). Therefore, when there is no consideration in an agreement, it will be considered to be void. Hence, it is regarded as one of the major primary rules of consideration. There are a few exceptions when the matter is related to the rule of consideration. The exceptions have been provided under the provisions of 26(a) to 26(c). It has an agreement that is based on natural love and fondness. The purpose is to provide compensation for the voluntary acts that were committed previously. If compensation is provided to an individual who had carried out those actions where the promisor was held liable to commit it legally and an agreement for the payment of statute escaped debt. Hence, the conclusion is that even if the consideration is needed by all the agreements, which is valid at law, there will still be a few agreements that are not required for consideration to be valid legally. Thus, there exists a few constituents that are needed for an agreement that is formed with affection and adore as per the sections of 26(s) of the CA 1950. According to the above mentioned section, the agreement must be in a written format. Secondly, this agreement should be registered and near relation should exist between the parties forming. In the matter of Jalinan Sdn Bhd v TIPCO Asphalt Company Ltd, it was noticed that the concept of near relations were discussed where the near relation was not determined between the adoptive mother and the children who were adopted (Taylor and Taylor 2017).
There is another rule of consideration that explains and defines that the role of a consideration should be produced by the parties for the purpose of determining a valid contract that can be enforced by law. This rule states that there is no extent where the parties have produced a consideration where it was significant for forming the contract. However, there was no relevance, which was provided for complying the consideration as per the market value of the promise. It is not the duty of the Court to make a decision based on the fact whether the
Exceptions to The Rule of Consideration
consideration is adequate or not after it has been provided to the promise and the promissory for a good bargain. It is therefore, the job of the Court to check out whether the consideration is properly presented for sufficing the creation of a valid contract (Poole, Devenney and Shaw-Mellors 2017). The purpose of the rule was to incorporate it into the CA 1950 with the help of section 26(f). This mentioned provision illuminates the situation with the help of an example. For instance, if an agreement has been formed by X for selling the car to Y for a price of RM100. This amount was worth RM1000 and free consent, which X had given. The purpose of it was to consider the sale that would be treated to be a valid one despite of the high degree of discrepancy for the value of the market. Pembinaan LCL Sdn Bhd v SK Styrofoam Sdn Bhd 3AMR124 [2007] have discussed the provisions that have been mentioned above. It was observed in this case that there was a contract, which was entered by the parties as the purpose of it was to sell a house that had a value of $100,000 for a price of $1000. It was considered to be a valid contract. Therefore, in this particular case, the rule stated by the Court explained that there the parties had a duty of considering the adequacy of consideration during the time the Courts were not formed but the contracts were. However, in the case of CMS Energy Sdn Bhd v Poscon Corp [2008], The rule involved was observed. The case stated that the contract which was entered into by the parties focused on transferring the land as a valid consideration despite the amount being low as compared to the value of the market (McKendrick 2014).
Lastly, the rule of consideration stated that in the process of consideration, the promise can be provided by either the third party or the promisee. These sections were hence produced in the section of 2(d) of the CA, 1950. Thereafter, it was stated that the consideration can be moved by any other person or the promisee. Damansara Realty Berhad v Bungsar Hill Holdings Sdn Bhd 2011 had therefore applied this particular rule. The case discussed the relation of a sister who had a made a promise to produce a particular amount of money to a brother. The sister had failed to produce the money. Therefore, the Court stated that there was a breach of contract. This is due to the consideration, which provided a valid consideration even though it was transferred from a third party. Thus, there are a few particular rules that are linked to the consideration that was provided by the English Law. Among the rules, one rule stated that a consideration that already has a contractual duty is not generally treated to be a valid consideration. The second rule state that a consideration that is already a public duty and is not a valid consideration. Additionally, the part payment of debt will not be treated to be a valid consideration at law.
Conclusion
It can be concluded stating that the consideration is defined as some kind of benefit, profit and right a party to the contract formed by another party obtains that. The promisor or any other individual as the third party or the promisee has carried out the activities that is treated to be a consideration for a contract. Thereafter, the legislation provided that a contract will not be enforceable unless it is supported by a valid consideration. However, there are few exceptions in relation to consideration as it has been mentioned above. The different values of consideration produce the fact that consideration will not be able to go through these particular circumstances. Therefore, it does not have to be accurate and hence it can be sufficient for the creation if the valid contract can be transferred to any other promise.
References:
Cases
CMS Energy Sdn Bhd v Poscon Corp [2008]
Damansara Realty Berhad v Bungsar Hill Holdings Sdn Bhd 2011
Dunlop v Selfridge (1915).
Dunlop v Selfridge (1915).
Guthrie Waugh Bhd V Malaippan Muthucumaru (1972).
K Murugesu v Nadarajah.
Kepong Prospecting Ltd & Ors v Schmidt (1968).
Pembinaan LCL Sdn Bhd v SK Styrofoam Sdn Bhd 3AMR124 [2007]
Wong Hon Leong v Noorazman Adnan.
Guthrie Waugh Bhd V Malaippan Muthucumaru (1972).
Journals
Knapp, C.L., Crystal, N.M. and Prince, H.G., 2016. Problems in Contract Law: cases and materials. Wolters Kluwer Law & Business.
McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).
O’Sullivan, J. and Hilliard, J., 2016. The law of contract. Oxford University Press.
Poole, J., Devenney, J. and Shaw-Mellors, A., 2017. Contract law concentrate: law revision and study guide. Oxford University Press.
Taylor, D. and Taylor, R., 2017. Contract Law Directions. oxford university press.
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