Business Law

Question: Discuss about the Business Law ? Answer : Introduction From the onset it is prudent to underscore the fact that for a contract to be valid there must be a consideration. Consideration must be of value in the eyes in the eyes of the law. For consideration to be valuable there must be a legal benefit or a legal detriment. What amounts to a valuable consideration appears to be flexibly encapsulated in the prominent maxim; consideration needs not to be adequate but sufficient. There has been a raging debate on whether performing a preexisting legal duty amounts to any benefit and the prevailing argument is that it may incur a factual benefit on the promisor and a factual detriment to the promissee. Thus the critical is whether the preexisting legal duty will amount to sufficient consideration. This paper will critically examine the doctrine of consideration in relation to sufficient consideration rule. It also seeks to answer the question on what amounts to a sufficient consideration. The main contention in this paper is that even though con sideration should be attached to value which is regarded as a benefit or a detriment, it need not to be adequate. Sufficient Consideration The rule that consideration must be sufficient and not adequate implies that there must be something of value that is exchanged between the parties. Provided that value has been attached to consideration the court will not pay attention to its adequacy.[1] A valuable consideration in the strict sense of the law entails an interest, detriment, loss, forbearance, benefit of a party to the contract.[2] This implies that even a nominal consideration will be sufficient for the formation of a contract. In Chappell v Nestl[3] the court held that the provision of chocolate bar wrappers was sufficient consideration because they increased sales and thus were of value. The fundamental question is thus how the court determines that consideration is of value and thus can be considered to be sufficient. It has been argued that mere giving up a right that one does not have is not valuable consideration. In White vs. Bluet[4] a son was given money by his father following a promise that he will not complain about the distribution of his father estate in his will. The issue before the court was whether the promise not to complain was a valuable consideration. The court ruled that the son had no right to complain and that such a right is not a valuable consideration in the strict legal sense. On the other hand, what amounts to sufficient consideration may be determined by the parties to the contract at the time of making and concluding the contract. It is upon the parties to the contract to determine when making the agreement what will be adequate consideration but in the eyes of the law the court will not pay attention to adequacy of consideration but onl y sufficiency. It bears noting that although the consideration must incorporate a bargaining process, the bargain should not necessarily be a good bargain.[5] It is imperative to note that for consideration to be sufficient both benefit and detriment occur to the parties although there is not mandatory requirement that they should be both present.[6] Consideration must be sufficient in the eyes of the laws and this implies that the court has the discretion within its jurisdiction to determine the consideration given is sufficient or not.[7] Although the law provides that there must be consideration for any legal contractual relationship it is worth noting that the consideration should not be in equal and exact value to the benefit of loss that has been suffered. If the consideration has value in the legal sense the court will not bother to examine or try to find out the exact value or quantity. Essentially, this implies that if a car is worth $10000 and it sold at $100, the sale price will be regarded as sufficient consideration in the legal sense although it is quite glaring that it is inadequate. In the case of Thomas vs. Thomas[8] the executors of an estate agreed that the widow will pay an annual rent of $1 and maintain the house as long as she remained a widow of the deceased. The issue before the court was whether there was sufficient consideration. The court held that the payment of $ 1 as rent was sufficient consideration. A consideration that is normal normally shows that the promisor has taken his promise to b e a serious undertaking which can be legally enforced. It is also worth noting that a consideration that was given in the past can not be relied on through a promises hat is given in the present. In other words the general rule is that past consideration is not sufficient consideration or good consideration.[9] The promise always comes first then the consideration follows. In the case of ReMcArdle[10] the plaintiff had undertaken to conduct some renovations in her husbands house. She successful completed the renovations and asked the siblings in law to contribute towards the renovations she had made. The siblings promised to make the contributions but later they did not honor the promise. It was held that the promises had been made after a consideration had already been provided and therefore there was no sufficient consideration in that case. In addition the consideration that had been provided was part of her duty to do so as the wife of the deceased. Another finding was made in Roscola v. Thomas[11] where the claimant bought a horse from the defendant and after the transaction had been completed the defendant told the claimant that horse was sound and free from vice. The claimant realized that the horse was not actually sound as was promised. The court held that the consideration had already been provided and the promise was made after consideration has been made therefore a consideration made in the past cannot be sufficient. However, past consideration will only be sufficient consideration if the promisor and the promissee had an initial agreement that the promissee will supply him the goods. In Lampleigh v Braithwait[12] the defendant was guilty for the crime of murder but he needed pardon from the king. He therefore requested the plaintiff to obtain the pardon from the king for him. The plaintiff successfully obtained the pardon and the defendant promised to pay him for that. It was held that consideration had been provided f ollowing the request of the promisor and therefore it was sufficient consideration. The defendant was therefore liable to pay for the promise. If the goods are actually delivered and the promisor makes a promise to pay, the past consideration will be deemed as sufficient consideration. The Privy Council in Pao On v Lau Yiu Long[13] held that past consideration can be sufficient consideration if it is capable of being remunerated and if the partied had an earlier agreement that consideration will be provided first followed by the promise. Lord Scarman remarked that a sufficient consideration implies that it must be real, tangible and it must be attached to some value. The general rule is that a consideration that is illusory is not a sufficient consideration. Illusory considerations are given in the following circumstances, where one is given a promise to do that which is his contractual obligation.[14] In Stilk v. Myrick[15] the defendant promised to pay the plaintiff during a voyage. While they were sailing two of the crew men left the ship and the defendant promised to pay the plaintiff the salaries of the two crewmen who had left. When the ship arrived at the port the defendant refused to pay the plaintiff the amount that was promised. It was held that the doing that which one has an existing contractual obligation to perform does not amount to sufficient consideration. On the other hand performance of an existing legal duty does not also amount to a sufficient consideration in the eyes of the law and it is also regarded as an illusory consideration.[16] In Collins v. Godfroy[17] the plaintiff had been summoned by the court to come be a witnes s in a case that the defendant was part of. The plaintiff never adduced any evidence but the court required that he be available in court through out the session. When the trial had concluded the defendant gave the plaintiff an invoice that indicated that he was being paid for being a witness. Later the defendant refused to pay and the plaintiff sued. The court held that the plaintiff had a legal obligation to perform the act and therefore the consideration provided was not sufficient consideration. If a person undertakes act that is not permitted by law then the act is not a sufficient consideration to a promise. This position was held in Nerot v. Wallace and Others[18] where commissioners who were conducting a bankruptcy process were promised that they will be paid for not investigating a person who was supposed to be adjudged bankrupt. It was held that the act was an illegal act and therefore it could not be a sufficient consideration that has value in the strict legal sense. The performance of an existing legal duty can be a sufficient consideration if there is a practical benefit to of the promise. In Ward v. Byham[19] where a mother promised the father that she will look after the child well and ensure that he is happy and the father will have to contribute towards the maintenance of the child. It was held that the mothers act of taking care of the child although it is her duty to do so amounted to a sufficient consideration. Lord denning held that a promise to do that which one is legally meant to do can be sufficient consideration for a new promise. It has been argued the ratio decidendi of the case by lord denning is ambiguous and has not given a clear definition if the sufficient consideration in the facts of the case. However, the decisions appear to have been made in the interest of justice. The practical benefit rule was applied by in Williams v Roffey Bros Nicholls (contractor)[20] where the court held that the promise to make extra payment on an already existing duty was a sufficient consideration because there was a practical benefit following the new promise. In Musumeci v Winadell Pty Ltd.[21] the court held that a promise that has been made to reduce the usual rent charged and the consideration that was given by the tenant was sufficient consideration that had value in the legal sense. It has also been held that a promise that has been made to do an act that is vague and uncertain is not enforceable because the uncertain act does not amount to a sufficient consideration. This position was affirmed in White v. Bluett[22] where the court held that the consideration was vague and uncertain and it could not amount to a sufficient consideration. Conclusion It can be conceded that the doctrine of sufficient consideration has a wide application in various contract formations and the making of promises. It is also a plausible conclusion that consideration must neither be of commercial value nor make any economical sense.[23] It can be observed from the illustrations made above that the court has been careful to ensure that it enforces the wishes and express agreement of the parties. This is based on the fact that court has not paid attention to equivalence in value of the considerations that have ben exchanged by the parties. The court has accepted that no matter how trivial consideration may be it is regarded as sufficient consideration in the legal sense if it is valuable. Consideration must not be of a high value which implies that it must not be adequate. It can be concluded that the rule that consideration must be sufficient and not adequate has acted as a preventive mechanism to prevent the promisor from not going back on his promis e to claim for an adequate consideration. References Chappell Co Ltd v Nestle Co Ltd [1959] UKHL 1 Collins v Godefrey (1831) 1 B Ad 950 Eastwood v Kenyon (1840), 11 AdE 438 Ewan McKendrick, Contract Law: Text, Cases and Materials, (Oxford University Press, 2005) John Carter, and David Harland, Cases and materials on contract law in Australia ,(Butterworths 1998 Joseph Chitty, Chitty on Contracts, (Sweet Maxwell 2004) Lampleigh v Braithwaite [1615] EWHC KB J17 Musumeci v Winadell Pty Ltd. (1994) 34 NSWLR 723 Pao on v Lau Yiu Long [1979] 3 All ER 65 Patrick Atiyah, Essays on Contract, (Oxford University Press, 1990) Poole, J (2006) Textbook on Contract Law, Oxford University Press Re McArdle (1951) Ch 669 Robert Upex, and Bennett Geoffery, "Davies On Contract. (Sweet Maxwell London,2004) Roscorla v. Thomas (1842) 3 QB 234 Stilk v Myrick [1809] EWHC KB J58 Thomas v Thomas (1842) 2 QB 851 Ward v Byham [1956] 1 WLR 496 White v Bluett (1853) 23 LJ Ex 36 Williams v Roffey Bros Nicholls (Contractors) Ltd [1989] EWCA Civ 5 [1] Upex Robert., and Bennett Geoffery "Davies On Contract. (Sweet Maxwell London,2004) [2] Currie v Misa (1875) LR 10 Ex 153 [3] [1959] UKHL 1 [4] (1853) 23 LJ Ex 36 [5] McKendrick Ewan, Contract Law: Text, Cases and Materials, (Oxford University Press, 2005) [6] Ibid n4 [7] Ibid n4 [8] (1842) 2 QB 851 [9] Eastwood v Kenyon (1840), 11 AdE 438 [10] (1951) Ch 669 [11] (1842) 3 QB 234 [12] [1615] EWHC KB J17 If a person undertakes act that is not permitted by law then the act is not a sufficient consideration to a promise. This position was held in Nerot v. Wallace and Others[18] where commissioneReferencesrs who were [13] [1979] 3 All ER 65 [14] Carter John, and Harland, David. Cases and materials on contract law in Australia ,(Butterworths 1998) [15] [1809] EWHC KB J58 [16] Chitty Joseph, Chitty on Contracts, (Sweet Maxwell 2004) [17] (1831) 1 B Ad 950 [18] 462 U.S. 296 (1983) [19] [1956] 1 WLR 496 [20] [1989] EWCA Civ 5 [21] (1994) 34 NSWLR 723 [22] (1853) 23 LJ Ex 36 [23] Atiyah, Patrick. Essays on Contract, (Oxford University Press, 1990)