Contracts Must Be Supported by Consideration - Essay Example

Contract Law For an agreement to constitute a contract it must be supported by consideration. All simple contracts must be supported by consideration for them to be enforceable. 1 First and foremost, David Don and Sharon are entitled to Shs.20000, 20,000 and 15,000 respectively because they have fulfilled their obligations of performance. Under contract law, something must be given for the promise that has a legal value resulting either of a benefit to the promises or a detriment to the promise. And the something i.e. detriment or benefit must be bargained for in exchange for the promise. Bare promise is not binding. Consideration is the glue that cements contracts is present to enforce the contract/agreement. From the above discussion therefore, I would first advice the trio that they are entitled to the agreed prices as consideration. This is because consideration is a “tit for tat” or quid pro quo situation an agreement cannot be enforced in ‘something for nothing’ situation. It is the reason for the promise. In the case of CURRIE VS MISA, it has been defined as ‘some right, interest, profit or benefit according to one party or some forbearance detriment, loss or responsibility given, suffered or undertaken by the other. David has provided the necessary software for the new system. He has taken responsibility and legally he is entitled consideration. Ron and Sharon have also provided the hardware and written the manual respectively they have also taken responsibility forbearance and they are entitled to consideration. If David is entitled to the extra payment of £5000 Amber has made an offer to pay David £20,000 after supplying the computer software. David accepted the offer and by commencing to fulfil his obligations, David has simply accepted to be bound by the terms of the contract. The terms of the contract are that David would be paid £20,000 and finish the contract by 30/05/04. Therefore there exists one of the essentials of a valid contract i.e. consensus and ideam a part from offer and acceptance. This principle refers to a ‘meeting of the minds’. It must be shown that both parties understand the subject matters of the contract before agreeing (assenting). None of the parties i.e. between David and Amber can deny knowledge to the terms of the contract. However, an offer terminates if a counter offer is made to them. This is a reply to an offer whose effects is to vary the terms of the original offer. A counter offer extinguishes the original offer and the person to whom it was originally made cannot move it. However, it can result in a contract if its terms are accepted by the original offers. In Hydes vs. Wernch, Wrench (w) offered in writing to sell his firm to Hydes (H) for £1000. It made a counter offer of £950. W refused to accept ‘H’ sued for specifics performance (an order to perform). It was held that there was no contract & specific performance couldn’t be granted. The reply of ‘H’ stating that he wanted to purchase the firm at £950 was a counter offer extinguished the original offer of £1000. What David has in fact made is a counter offer asking an extra £5000 amounts to a counter offer that extinguishes the earlier offer of £20,000. I would therefore advice David that he has made a new offer of which Amber can either accept or reject. In this particular case, Amber agreed to David’s new offer that a further £5000 be paid on top of the agreed £20,000. If Amber could’ve refused to pay the £5000 then David could have had two options:- a. Accept the original £20,000 b. Repudiate the contract but ask for quantum meruit- This is a common law remedy it means as much earned. Where the plaintiff sues to recover an unliquidated damages or by way of payment for services rendered is said to claim on quantum meruit. Now that Amber had agreed to the new terms, he’s bound to pay David £25,000, £5000 being the extra-price agreed. 2 I would therefore advice David to sue Amber for the balance. On the event that David does not recover the £5000 from Amber he can receive the same from Zax limited through assignment. This is an exception to the rule that a contract does not confer rights on a stranger nor does it impose obligations on a stranger. It is a fundamental principle that no person can or be sued on a contract unless he is a no person can sue or be sued on a contract unless he is a party to it. The law knows nothing of third party’s reflect arising by way of contract. This was held in the case of Dunlop pneumatic Tyre co. vs. Selfridge. In this case, the plaintiff entered into an agreement with x who were dealers in tyres manufactured by the plaintiff. They agreed that x was not to sell the tyres below Dunlop’s list prices. He also entered into a further agreement that as Dunlop’s agent, they were to secure similar contracts with any other party who dealt with Dunlop’s tyres. X entered into such an agreement with Selfridge. Selfridge later breached this agreement and Dunlop sued him for breach of contract. It was held that the action must fail as Dunlop was a stranger to the contract between z and Selfridge. But under assignment where A is under a contractual obligation to B and B assigns his contractual rights to C it may be possible for C to sue A on his promise to B. I can therefore, urges David to recover the £5000 from Zax Ltd in the event of Amber not honouring the same. 3 Ron Vs Amber Amber has thought it wise to increase the payments of Ron by £5000. This new promise to pay Ron an extra £5000 has come at a time after the contract has already been made. This amounts to past consideration which is not enforceable. Past consideration occurs then some past act occurred before the promise. In Roscoola vs. Thomas, the plaintiff bought a house from the dependants. After the sale, the defendant assured the plaintiff that the horse was free from any vice. But the horse proved vicious. An action was brought by the plaintiff. It was held that the fresh promise that the horse was free from a vice had not been supported by a new consideration hence it was unenforceable. In this case, if the buyer could’ve parted with a few coins now that the horse was freeze from any vice, then he would’ve successfully sued the seller, but he didn’t provide anything for the promise. A similar verdict was held in REMCARDLE CASE where the tenants of a house voluntarily repaired their house. Afterwards the landlord promised them £500 for the work done. It was held that the promise was bases on past consideration hence unenforceable. 4 In Ron’s case however, even though the new promise to pay £5000 came after the contract had already been sealed, Ron provided consideration for it by finishing the work earlier than expected. The situation could’ve different if the contractual terms remained the same. Had Ron completed his work on 30 august then he could not have been entitled the extra £5000 since this could be past consideration. However, Ron has forbeared to execute his task at an earlier date and this amounts to his fresh consideration. Additionally, one of the rules of past consideration i.e. where past consideration is sufficient consideration is where the past consideration entails tasks done at the express or on legally involved request of the promissory. Whether Ron will have a right to the extra £5000 will depend on whether this was on Amber’s request. In Lampleigh vs. Braithwait, B who was under death sentence requested L to obtain pardon from the king for him. L did as requested. Subsequently, B decided to pay £100 to L, a promise that he never fulfilled. He defended himself by alleging that his promise to pay the £100 amounted to past consideration which is unenforceable. It was held that since the plaintiff performed services at the express request of the defendant, a subsequent promise to pay would be binding on him. Compared to the case in Re-Mareadle where the defendant has requested the tenants to repair & service the house, it is quite different from Braitwait’s case. In this case the defendant had requested for the services to be done. Back to Ron’s case now. In this case, Ron did not voluntarily execute his job. This was a request made by Amber. And the promise was not made after the contract had been made but during the contract. Therefore, Amber cannot deny liability to pay the £5000. I would therefore advice him, based on the above facts to sue Amber for the balance. And like David, if Ron cannot recover ntarily 00000000000000000000000000000000000000000000000000000000000000000000000000000000000000 000000000000000000000000000000000000000000000000000000000the balance from Amber then he can through assignment recover it from Zax limited. The law allows a person to sue another even though he was not privy to the contract as long as that other person under contractual obligation to another person that the plaintiff is now contracting with. Ron can also use the doctrine of equitable estoppel to sue Amber. Under this doctrine, if a person makes a statement or a representation intending that the person the facts are directed to acts on them then that person acts according to the representation and suffers loss/detriment or offers his position; if any legal proceedings arise between the two parties, the person who made the statement is estopped from denying the truth of the statement after it has been acted on and the other party has suffered loss. In the case of central London property trust vs. High trees house Ltd the plaintiff leased a block of flats to high trees house at an annual rent of £2500. Owing to the war conditions, the lessees were contemplating terminating the lease. The plaintiff offered to accept a reduced rent of £1250 per annum. The resulting agreement was not supported with any fresh consideration which operated from 1939-1945. In 1945 all the flats were fully let and the plaintiff claimed the full rent for the last five years and for the future. The plaintiff based their claims on the fact that the agreement to accept the reduced rent was void since it was without consideration. The court of appeal held that the plaintiffs promise to accept a reduced rent was binding and the action failed. 5 Relating to Ron vs. Amber, Ron can sue Amber for the balance of £5000 based on the following strengths:- a. There was a free existing contract between Ron and Amber. b. Amber made the promise to pay £5000 voluntarily. He was not intimidated or forced into making the promise. c. Amber intended to create legal relations between himself and Ron. d. Amber intended Ron to act upon the promise. e. He (Ron) acted upon the promise. He never executed his tasks earlier by coincidence. It is because a promise to receive extra earnings had been made and it is that promise that he had relied on. f. He (Ron) must however prove that an acting upon the promise he suffered lose/detriment. He altered his position i.e. he was led to act differently from what he would otherwise have done. Sharon Vs Amber The promise to pay Sharon an extra £5000 is not past consideration. Amber had requested Sharon to her job earlier in order for him (Amber) to pay her the extra money. She did not execute her tasks earlier voluntarily (see Remareadle’s case). Like in the case of Lampleigh vs. Braithwait, Sharon performed services under the request of Amber. Therefore amber cannot later claim that this was past consideration which cannot be enforceable. Summarily Sharon can also apply the doctrine of equitable estoppels against amber by showing that;- 6 a. There was a free existing contract between her and amber. b. Amber promise was voluntary c. Legal relations were intended to be created by Amber d. Amber intended Sharon to act on the promise e. Sharon acted on the promise and suffered loss/detriment. Then Amber will be estopped from denying that he didn’t imagine that Sharon could rely on her statements. Consequently, Sharon can through assignment recover the £5000 from Zax Ltd in case Amber defaults do make good the payment. Ambers promise to pay Sharon an extra £5000 legally discharged the two from their old contractual terms to new fresh contractual terms. A party to a contract may effect a variation of a contract by modifying or altering the terms by mutual agreement. If they do so, they are discharged from the contract under the old terms. They will only be bound by the new terms. Sharon has a right to bring an action for the price this is a common law remedy where one party is in breach of the contract. The innocent party is entitled to bring on action from the price to be paid for the contract. 7 In conclusion therefore, David, Ron and Sharon are legally entitled to the extra £5000 promised to them by Amber. They can apply the various alternative principles discussed above to win their suits. References Bohnet, I., S. Huck and B. S. Frey (1999). More Order With Less Law: On Contract Enforcement and Crowding. Mimeo. Kennedy School of Law. Harvard University. Brickley, J. A (1999); Incentive Conflicts and Contractual Restraints: Evidence from Franchising, Journal of Law and Economics, Vol. 42, No. 2 (Oct., 1999), pp. 745-774 Emerson R. W, (2003), Business Law, 5th Edn, Sydney, Educational Publisher Fehr, E., S. Gächter and G. Kirchsteiger (1997). Reciprocity as Contract Enforcement Device. Econometrica 65: 833-860. Jertz, A, Miller L. R, (2004), Fundamentals of Business Law, 3rd Edn, Sydney, Macmillan Publisher Hussain, A, (1993), General Principles and Commercial Law, 1st Edn, Nairobi, East Africa Educational Publishers Fehr, E., S. Gächter and G. Kirchsteiger (1997). Reciprocity as Contract Enforcement Device. Econometrica 65: 833-860. Gneezy, U. and A. Rustichini (1999). 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