An empty promise is not binding, unless it is sealed. Describe the types of Consideration, with the appropriate examples.
(20 marks, 2018 Q3)
Three types of considerations, the past, present and future consideration. However, there is also another interpretation of the consideration:
- Executory Consideration and Executed Consideration.
Executed Consideration therefore includes past and present Considerations, whereby Executory Consideration is about future Consideration.
Really, executed Consideration and executory Consideration can occur at the same time - where half is executed and the other half is not. For example, when I have just delivered the goods, and you will take 30 days to pay. Thus, to one side, it is executed - the consideration of goods is delivered. To the other side, it is still executory, because the money is not paid yet. Therefore, the terminology would be 'executed' for present consideration because the goods are delivered.
1. Past consideration. When something is done or suffered before the date of the agreement, at the desire of the promisor, it is called ‘past consideration.’ It must be noted that past consideration is good consideration only if it is given by the promisee, ‘at the desire of the promisor.
Under English law, past consideration is no consideration. In India sec 25(2) adequately covers a past voluntary service. In Malaysia, Past Consideration is good consideration (Section 26 (b) CA 50) because we follow Indian Contracts Act.
Example: when you found someone's wallet which was lost and found. The owner wants to compensate you but did not have the money with him. He promised to give you RM200 for the effort of finding his wallet (with IC and important cards inside). This is a contract, although there was past consideration (you already found the wallet).
Another example is Ali was swimming and got into trouble. You took off your cloth and dived into to save him. Later Ali promised to give you RM2,000 for saving his life. The act of rescue him was wholly performed before the promise was made. The consideration (rescue) has passed when a promise (agreement to give RM2,000) was made.
Under this Section, the requirement is that the act is done at the desire of the promisor (Ali, or one who lost wallet), not by the promisee (receiver).
A case for past consideration is good consideration is by:
Kepong Prospecting Ltd v Schmidt (1968). Refer here for further reading.
2. Present consideration. Consideration which moves simultaneously with the promise, is called ‘present consideration’ or ‘executed consideration’.
For example, A sells and delivers a book to B, upon B’s promise to pay for it at a future date. The consideration waiting from A is present or executed consideration since A has done his act of delivering the book simultaneously. with the promise of B.
It should, however, be noted that it is said to be ‘present consideration’ when at the time of the agreement it is executed on one side and executory on the other. If both parties have done their part under the contract, e.g., where A sells a book to B and B pays its price immediately, it is a case of executed contract (where nothing remains to be done) and not of executed or present consideration.
3. Future consideration. When the consideration on both sides is to move at a future date, it is called ‘future consideration’ or ‘executory consideration’. It consists of an exchange of promises and each promise is a consideration for the other.
For example, X promises to sell and deliver 10 bags of wheat to Y for RM 6,500 after a week, upon Y’s promise to pay the agreed price at the time of delivery. The promise of X is supported by promise of Y and the consideration is executory on both ides.
It is to be observed that in an ‘executed consideration’, the liability ‘is outstanding against only one side whereas in an ‘executory consideration’ it is outstanding on both ends.
In Tenancy Contracts, it can be executory consideration when the landlord and tenant agreed to renting the property in a future date. This means the booking fee is collected with most of the remaining sums (like security deposits and advance rental) not paid. However, the property is also not handed over as vacant possession to the tenant until a future date.
For example, tenant paid a booking fee (a few hundreds) on 15th of September, 2018 and subsequently will pay security deposits on 30th September, 2018 before the starts of tenancy on 1st October, 2018. The consideration (the property and part of the deposits) are not yet executed to the tenant until 1st October, 2018. Thus, in the future date as executory (future) Consideration. The Tenancy Agreement only commence from 1st of October, 2018, and not 15th of September, 2018.