Contract: Consideration
Definition
S. 2(d) of CA 1950: "when, at the desire of the promisor, the promisee or any other person has
done or abstained from doing, does or abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or promise is called consideration for the
promise"
Key Points:
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 or to abstain from doing something
Currie v Misa: "A valuable consideration, in the sense of the law, may consist in some right,
interests, profits or benefits accruing to the one party; or some forbearance, detriment, loss or
responsibility given, suffered or undertaken by the other."
Types of Consideration
Executory: A promise made in return for another promise.
Executed: A promise made in return for the performance of an act.
Past Consideration: A promise made subsequent to and in return for an act that has already
been performed.
Examples
Executory: A agrees to sell his motorcycle for RM3000 to B. B promises to pay the sum of
RM3000 in consideration for A's promise to sell the motorcycle, and A's promise to sell the
motorcycle is the consideration for B's promise to pay the RM3000. These are lawful
considerations.
Executed: X lost his hand phone and offered RM 100 to anyone who finds and returns it to
him. Y found X's hand phone in response to the offer and returns it to X. By returning the hand
phone, Y has given consideration to X's promise to pay.
Past Consideration: A requests B to help him in moving the goods to A's new home. After
completing the moving of the goods, A promises to pay RM300 to B in return of the help
received from B.
Cases
Executory: K Murugesu v. Nadarajah
Agreement to sell house for $26,000 within 3 months.
Held: Valid contract under executory consideration.
Past Consideration (England): Re McArdle
Improvements to house completed before promise to pay.
Held: Past consideration, promise unenforceable.
Past Consideration (Malaysia): Kepong Prospecting Ltd & S.K Jagatheesan & Ors v A.E
Schmidt & Marjorie Schmidt
Schmidt assisted in obtaining a prospecting permit and formation of company.
Agreement to pay 1% of value of ore sold.
Held: Valid consideration for services rendered prior to agreement.
General Rule & Exceptions
General Rule: S. 26 of CA 1950: "An agreement without consideration is void..."
Illustration (a): A promises for no consideration to give to B RM1000. This is a void
agreement.
Exceptions (Section 26 (a) - (c) of CA 1950):
1. An agreement on account of natural love and affection
2. An agreement to compensate a past voluntary act
3. An agreement to compensate for an act which the promisor was legally compellable to do
4. A promise to pay statute-barred debt
Exceptions Explained
1. Natural Love and Affection - S. 26(a) CA 1950
Conditions:
1. Expressed in writing
2. Registered (if required by law)
3. Made on account of natural love & affection between parties in near relation.
Near relation is not defined in the Act - court considers personal law.
Case: Re Tan Soh Sim
1. Compensate a Past Voluntary Act - S. 26(b) CA 1950
Conditions:
1. Promise to compensate the promisee
Deceased wished estate divided among adopted children. Legal next-of-kin renounced
rights.
Held: Next-of-kin not in near relation to adopted children; contract invalid.
2. Promisee has voluntarily done something for the promisor
"Voluntarily" means done by one's own free will, impulse or choice (J.M. Wotherspoon & Co.
Ltd v. Henry Agency House)
Case: JM Wotherspoon & Co Ltd v Henry Agency House
Promises of compensation made by Def. to the Ptf. in respect of past act.
Held: Ptf's action could not be said to have been done voluntarily because the Ptf had
acted on the suggestion of the Def. So, the promise made by Def to compensate the Ptf
was not an enforceable contract within the exception of Section 26(b).
Illustration (c): A finds B's purse and gives it to him. B promises to give A RM50. This is a
contract.
1. Compensate for Legally Compellable Act - S. 26(b) CA 1950
Conditions:
1. Promise to compensate the promisee
2. Promisee has voluntarily done the act
3. Act is one which the promisor was legally compellable to do.
Illustration (d): A supports B's infant son. B promises to pay A's expenses. This is a contract.
1. Promise to Pay a Statute-Barred Debt - S. 26(c) CA 1950
Statute-barred debt: Debt unrecoverable due to lapse of time (Limitation Act 1953 - 6 years).
Conditions:
1. Debtor makes a fresh promise to pay
2. Promise is in writing and signed by the promisor (debtor) or authorised agent.
Illustration (e): A owes B RM1,000, but the debt is barred by limitation. A signs a written
promise to pay B RM500 on account of the debt. This is a contract.
Rules Governing Consideration
1. Adequacy of consideration (Consideration must be sufficient but need not be adequate).
2. Consideration may move from promisee or any other person.
3. Waiver of performance (Part payment may discharge obligation).
Rules Explained
1. Adequacy of Consideration
Explanation 2 to S. 26: "An agreement to which the consent of the promisor is freely given is
not void merely because the consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the court in determining the question whether the
consent of the promisor was freely given."
Illustrations:
(f) A agrees to sell a horse worth RM1,000 for RM10. A's consent is freely given. Valid
contract.
(g) Same as (f), but A denies free consent. Inadequacy is a factor for the court.
Cases:
1. Consideration May Move From Promisee or Any Other Person
English Law: Consideration must move from the promisee.
Phang Swee Kim v. Beh I Hock: Land transferred for \$500, worth much more. Held:
Inadequacy not important, contract valid.
Thomas v. Thomas: £1 annual rent and maintaining the house was good consideration.
Bolton v. Madden: Adequacy is for the parties to consider, not the court.
Malaysian Law: Consideration may move from a person who is not a promisee (Sec. 2(d)).
Case: Venkata Chinnaya v. Verikatara Ma'ya: Sister agreed to pay annuity to brothers; mother
provided land. Held: Liable on promise, consideration valid even though it moved from
mother.
1. Waiver of Performance
English Law: Payment of a smaller sum is not satisfaction of a larger sum (Pinnel's Case).
Malaysian Law: Payment of a smaller sum is satisfaction of a larger sum (Sec. 64 CA 1950).
Promisee may dispense with or remit performance.
Illustration (b): A owes B RM5,000. A pays RM2,000, and B accepts in satisfaction. The whole
debt is discharged.
Case: Pan Ah Ba & Anor v. Nanyang Construction Sdn Bhd: Creditor agrees to accept smaller
sum. Bound by waiver, cannot claim balance.
Case: Kerpa Singh v Bariam Singh: Son offered RM4000 in full settlement of father's debt.
Creditor cashed cheque. Held: Acceptance of cheque precluded claiming balance.
Methods of Waiver (Sec. 64 CA 1950)
1. Payment of a smaller sum in discharge of a larger sum.
Illustration (b)
1. Part payment by a 3rd Party in discharge of a debt.
Kerpa Singh v Bariam Singh
1. If a person accepts an agreed sum in satisfaction of unascertained debt, the debt is
discharged.
Illustration (d)
1. Composition with creditors for the payment of a smaller sum.
Illustration (e)
