CONSIDERATION

An agreement without a valid consideration is void unless they belong to one

of those categories of agreement listed in the same section as being exempted
from the rule.

Section 2(d) Contact Act 1950

When, at the desire of the promisor, the promisee or any other person has
done or abstained from doing, or does or abstains from doing, or promises to
do so or to abstain from doing something, such act or abstinence or promise is
called consideration of the promise

Consideration may be viewed as a sort of bargain, or price which one party

pays to buy the promise or act of the other. When the promisor promises to do
or to abstain from doing something, the promisee must pay a price for it. This
price to be paid may be an act or abstinence or a price to perform a future act
or abstinence.

Example

A lost his cat and offered a reward of RM 1000/- to anyone who finds it and
returns it to A. B finds the cat and returns it to A. Here B pays the price for A
promise by performing the act which by Sec 2(d) is the consideration of the
promise.

TYPES OF CONSIDERATION

Consideration can be classified as: 1. Executory

2. Executed

3. Past

1. Executory Consideration

It is when one promise is made in return for another or a promise in return of

promise.

Example: -

M promised to sell his mobile phone to K for RM550/- and K promised to pay
the price upon delivery by M. Here, the promise to sell is in return to promise
to buy.

See Murugesu v Nadarajah [1980] 2 MLJ 82

M agreed to sell his house to N. An agreement was written on a scrap paper

and says as follows: -

I agree to sell my house No. (address) held under. to Mr. N, the present
tenant of the house at $26,000/- within three months from the date.

M later refused to sell the house and a specific performance was ordered at the
trial and the appellant took the matter to Federal Court. The appeal was
dismissed, gave effect to Illustration of Section 24. Chang Min Tat F.J held:

The agreement must be seen to be a case of Executory consideration. A

promisee is made by one party in return for a promise made by the other; in
such a case each promise is the consideration for the other

Example

A agrees to sell his car for RM20,000/- to B. B promise to pay the sum of RM
20,000/- in consideration for As promise to sell the car, and As promise to sell
the car is the consideration for Bs promise to pay the RM20,000/-. These are
lawful considerations.

2. Executed Consideration

It is when a promise is made in return for the performance of an act.

Example

M lost his pen and offered RM 200/- to anyone who finds and returns the
documents to him. K found Ms pen in response to the offer and returns them
to M. By returning the pen, K has given consideration to Ms promise to pay.
Should M refuse to pay, K may take an legal action against him.

3. Past Consideration

Where a promise is made subsequent to and in return for an act that has
already been performed, the promise is made on account of a past
consideration.

Example

If K finds and returns Ms pen and in gratitude, M promise to pay K RM200/- the
promise is made in return for a prior act.

Under English law the general rule is that past consideration is insufficient to
support a contract

Section 2(d) by the words has done or abstained from doing

suggests 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

Kepong Prospecting Ltd & S.K Jagatheesan & Ors v A.E Schmidt & Marjorie
Schmidt [1968] 1 MLJ 170.

S a consultant engineer has assisted another in obtaining a prospecting permit

for mining iron ore, he helped in the subsequent formation of Kepong
Prospecting Ltd and was appointed as its MD. 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 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.

Were the services rendered after the incorporation but before the agreement
sufficient consideration? This was clearly past consideration. The Privy Council
ruled that it did constitute a valid consideration so that Schmidt was entitled to
his claim on the amount.

EXCEPTIONS TO GENERAL RULE

Section 26 Contract Act 1950:

An agreement made without consideration is void unless:-

a. it is in writing and registered Section 26 (a) (love and affection)

it must be expressed in writing and registered under the law (if any) for the
time being in force for the registration of such documents and is made on

account of natural love and affection between parties standing in near relation
to each other.

** under English law natural love and affection are not recognized as a valid
consideration as was decided in Brett v JS & his Wife(1600) 79 ER 9 & 7

see. Re Tan Soh Sim & Ors v Tan Saw Keow [1951] MLJ 21

A woman on her deathbed expressed her intention to leave all her properties
to her four adopted children. The court held that the claims of the adopted
children were not effective as it was contrary to Section 26(a) i.e. it was not in
writing and there was no natural love and affection between parties standing
in near relation to each other

b. or is a promise to compensate for something done Section 26 (b)

It is a promise to compensate wholly or in part a person who has already

voluntarily done something for the promised or something which the provision
was legally compellable to do

There are three limbs to the exception

i. it is a promise to compensate either wholly or in part the other person

ii. the promisee has voluntarily done something for the promisor. The act must
be performed voluntarily. Voluntarily was defined in the case of J.M.
Wotherspoon & Co Ltd v Henry Agency House [1962] MLJ
iii. An agreement to compensate for an act the promisor was legally
compellable to do.

The necessary ingredients are :a. promisee has voluntarily done an act
b. the act is one which the promisor was legally compellable to do

c. an agreement to compensate, wholly or in part, the promisee for the act

Example.

A supports Bs infant son. B promises to pay As expenses in so doing. This is a

contract.

** if X pays a fine imposed by the court on Y who promises to compensate him,

that promise is binding under this provision

c. or is a promise to pay debt barred by limitation law. Section 26 (c)

A statute barred debt refers to a debt, which cannot be recovered through

legal action because of a lapse of time fixed by the law.
Section 26(c) 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/her behalf

Example

A owes B RM1000/-, but the debt is barred by limitation. A signs a written

promise to pay B 500 on account of the debt. This is a contract

ADEQUACY OF CONSIDERATION

Does it matter that M sells his house worth RM1million for RM5/- to N. Is the
amount of RM5/- sufficient consideration? Legally, it appears that the
adequacy of consideration is immaterial.

An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate, but the adequacy of the
consideration may be taken into account by the court in determining the
question whether the consent of the promisor was freely given.

Illustration (f)
A agrees to sell his horse worth RM1000/- for RM10/-. As consent to the
agreement was freely given. The agreement is a contract notwithstanding the
inadequacy of the consideration.

See. Phang Swee Kim v Beh I Hock [1964] MLJ 383

Sale of a land for $500/- when it was worth more than that. Seller refused to
honour promise citing that the price was inadequate for a consideration.
The trail court judge held that the agreement was void due to inadequacy of
consideration. However upon appeal to the Federal Court, the decision of the
Trail judge was reversed and applied explanation 2 and illustration (f) of
Section 26.

See Kedari bin Ranu v Atmarambhat (1965 67) 3 BCHR 11.18,19

Thomas v Thomas (1842) 2 QB 851[1]

CONSIDERATION NEED NOT MOVE FROM THE PROMISEE

In English Law consideration must move from the promisee i.e. the person who
receives the promise must himself give something in return. In Malaysia a
party to an agreement can enforce a promise even though he has given no
consideration, so long as somebody else has done so Section 2(d).

Example
Assume that there are 3 parties to an agreement. A,B, & C. C promises to pay
A RM1000/- if B will repair Cs car. B repairs Cs car and C does not pay A

anything. Although A has given no consideration for Cs promise he may

institute legal proceeding against C

WAIVER OF PERFORMANCE

The general rule in English law is that waiver of a right that is not supported by
consideration void.

Example
A owes B RM1000/- which is due, B asks A to return RM100/- in full settlement.
The waiver is not binding on B who may later change his mind and claim the
balance owing, because the promise to forgo the balance is not supported by
consideration.

A person who does no more than what he is already legally obliged to perform
or under a public duty to perform cannot hold the other party to his promise.
Payment of a smaller sum is not a satisfaction of a legal obligation to pay a
larger sum. Pinnels case (1602) 77 ER 237

See Section 64 Contract Act 1950:-

Every promise may dispense with or remit, wholly or in part, the performance
of the promise made to him, or may extend the time for such performance, or
may accept instead of it any satisfaction which he thinks fit.

Illustration (b)

A owes B $5000/-. A pays to B $200/-, and B accepts in satisfaction of the

whole debt, $2000/- paid at the time and place at which the $5000/- were
payable. The whole debt is discharged.

See. Kerpa Singh v Bariam Singh [1966] 1 MLJ 38

BS owed $8,869.94 under a judgment debt. BSs son wrote to KS offering

$4000/- in full settlement of his fathers debt and endorsed a cheque for the
amount. He stipulated that should KS refuse to accept, he must return the
cheque. KSs legal advisers, having cashed the cheque and retain the money
proceeded to secure the balance of the debt by issuing bankruptcy notice on
the debtor. The Federal Court ruled that the acceptance of the cheque from the
debtors son in full satisfaction precluded them from claiming the balance.

see PEMBINAAN PURCON V ENTERTAINMENT VILLAGE (M) SDN BHD [2004] 1

MLJ 545

[1] A rental of $1.00 is a good consideration even though it is obviously

inadequate.