CONSIDERATION

Definition
• Section 2 (d): when at the desire of the promisor, the promise 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, such act or abstinence or promise is called a
consideration for the promise.

• It refers to what one party to an agreement is giving or promising in exchange for

what is being given or promised from the other side.

• Consideration is something which has a value in the eyes of law and it becomes the
basis of the contract. It is a ‘price’ which is paid by one party in return to a promise /
act done by another party.

• This price may be an act or abstinence or a promise to perform a future act or

abstinence.

CURRIE v MISA

Lush J stated that ‘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’.

Categories of consideration
• There are 3 categories of considerations: Executory, executed and past consideration.

a) Executory consideration

 It is when one promise is made in return for another promise.

 Section 24 Illustration (a) : A agrees to sell his house to B for

RM10,000. Here, B’s promise to pay the sum of RM10,000 is the
consideration for B’s promise to pay RM10,000. These are lawful
consideration.

K.MURUGESU v NADARAJAH

The appellant agreed to sell and the respondent agreed to buy a house from the
appellant. The agreement was written on a piece of paper. Later, the appellant
refused to perform the contract and argued that there was no consideration in
the agreement and the contract was void.
 Held: The agreement must be seen to be a case of executor consideration. A
promise is made by one party in return for a promise made by the other. In
such as case, each promise is the consideration for the other.

b) Executed consideration

 A consideration is executed when a promise is made in return to the

performance of an act.

c) Past consideration

 This is where one promise is made subsequent to an in return for an act

that has already been performed. The promise is made on account of a
past consideration.

 Section 2(d) : …has done or abstained from doing…

 The phrase has done or abstained from doing suggest that an act prior
to the promise would be sufficient to constitute consideration, even
though it is clearly past, provided it is done ‘at the desire of promisor’.

LAMPLEIGH v BRATHWAITE

B was sentenced to death for murder. B requested L to do all he can to get a

pardon for him from the king in London. L exerted himself running up and
down between London and New Market at his own expenses and finally got a
pardon for B. B promise L 100pounds for that but subsequently failed to pay.
L sued B. B argued that there was no consideration from L when B made the
promise to pay 100pound.

Held: There was a past consideration from L. L was entitled for 100pound as
his service was done at the previous request of B. The previous request and the
subsequent promise were to be treated as part of same transaction. Therefore
there was contract between them.

 Past consideration is the consideration which has been done or

completed before the contract is made.

KEPONG PROSPECTING LTD v A.E.SCHMIDT & MARJORIE

SCHMIDT

S a consulting engineer had assisted Mr. X in obtaining a prospecting permit

for mining iron ore in Johor. S also helped in the formation of company _
 Kepong Prospecting Ltd. S was appointed as Managing Director of the
company. After the company was formed, a contract was entered into between
S and the company under which the company promised to pay S 1% of the
value of all ore sold from the mining land. This promise was ‘in consideration
of the services given by S and on behalf of the company before its formation,
after incorporation and for future services…’ However the company failed to
pay S and he claimed the amount. The issue was whether there was valid
consideration even though those services were clearly past.

Held: The service given by S before the promise was made were sufficient to
constitute valid consideration even though the service were past.

Necessity of consideration
• General rule: A agreement without consideration is void.

• Section 26 : An agreement made without consideration is void unless..’

a) Contract made on account of natural love and affection

 Section 26 (a) :

 Section 26 Illustration (b):

 The validity of this contract is dependent upon the following

conditions:-

i. It is expressed in writing which maybe in any reasonable form

ii. It must be registered if any law required it

iii. It is made on the account of natural love and affection between

parties standing in near relation to each other.

 Therefore under Section 26 (a) the natural love and affection is valid
consideration provided near relationship to each other.

 Near relation is not defined in the act. Therefore it depending on the

social groups and customs.

RE TAN SOH SIM

The deceased Tan Soh Sim (TSS) in her last illness had expressed a wish that
her estate should be divided among her 2 adopted sons and 2 adopted
daughters. The legal next-of-kin of TSS, 3 sisters & 7 half sisters and brothers,
 respecting his wish, made a contract renouncing all their rights in favour of the
4 adopted children.

The issue was whether the contract was made on account of natural love and
affection and whether the legal next-of-kin of TSS are in near relation to their
adopted nephews and nieces.

Held: Chinese adopted children are related to the adoptive parents and
brothers. However they are not nearly related to the family of their adoptive
mother. Therefore, the legal next-of-kin of TSS were not in near relation to the
4 adopted children of TSS. Thus there was no valid of natural love and
affection between them and the contract was invalid.

b) Contract to compensate a past voluntary act or an act which the promisor was
legally compellable to do.

 Section 26 (b) :

 There are two situations under Section 26 (b)

i. Contract to compensate a past voluntary act

ii. Contract to compensate an act which the promisor is legally

compellable to do so.

 For contract to compensate a past voluntary act, there are two

conditions to be fulfilled:

i. It is a promise to compensate the promise; wholly or partly

ii. The promise has voluntary done something for the promisor.

 Illustration (c) Section 26:

 The word voluntarily is not defined in the Contracts Acts but in such
decided case of:

JM WOTHERSPOON & CO LTD v HENRY AGENCY HOUSE

There were promises of compensation made by the D to the P in respect of

past act. However these promises were not supported by consideration. So,
those promises could only be legally enforceable if it is a promise to
compensate a person who has already voluntarily done something for the
promisor. This is in accordance with Section 26 (b).

Held: Voluntarily means the acts performed or done by one’s own free will
impulse or choice and not constrained, prompted or suggested by another. In
 this case, the P had acted on the suggestion of the D. So the P’s action could
not be said to have been done voluntarily. Therefore, the promise made by D
to compensate the P was not an enforceable contract within the exception of
Section 26 (b).

 For a contract to compensate an act which the promisor is legally

compellable to do, there are three conditions to be fulfilled:-

i. The promise has voluntarily done an act

ii. The act is one which the promisor was legally compellable to
do

iii. An agreement to compensate wholly or in part the promise for

the act

 Illustration (d) to Section 26

c) Contract to pay statute-barred debt

 Section 26 (c) : it is a promise, made in writing and signed by the

person to be charged therewith, or by his agent generally or specially
authorized in that behalf, to pay wholly or in part a debt of which the
creditor might have enforced payment but for the law for the limitation
of suits.

 A statute barred debt refers to a debt which cannot be recovered

through legal action because of lapse of time fixed by law. Under the
Limitation Act 1953, the time limit for a person to start a legal action
in contract to enforce his right is within 6 years. After 6 years the
action is statute-barred and no claim can be made against the debtor.

 However if the debtor makes new agreement, promise to pay debt, this
new agreement become a valid contract under Section 26(c).

 There are two conditions of this exception:

i. The debtor made a fresh promise to pay statute-barred debt

ii. The promise in writing and sign by promisor or authorised

agent.

 Illustration (e) Section 26 : A owes B $1,000, 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.
Consideration need not be adequate
 If the promisor gets whatever he asks for, in return to his promise – he is said to have
received sufficient consideration and bound by contract.

 Sufficient consideration is not important to form a valid contract.

 Explanation 2 Section 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.

 Illustration (f) Section 26 : A agrees to sell a horse worth $1,000 for $10. A's consent
to the agreement was freely given. The agreement is a contract notwithstanding the
inadequacy of the consideration.

 Illustration (g) Section 26 : A agrees to sell a horse worth $1,000 for $10. A denies
that consent to the agreement was freely given. The inadequacy of the consideration is
a fact which the court should take into account in considering whether or not A's
consent was freely given.

PHANG SWEE KIM v BEH I HOCK

The respondent agreed to transfer to the appellant a parcel of land on payment of $500
although the land was worth much more. The respondent later refused to perform the
contract claiming that the promise was unenforceable because of the inadequacy of
consideration.

Held: By virtue of Explanation 2 Section 26 the inadequacy of consideration is not

important and the contract was valid.

 The legal view is that the parties to a contract are capable of appreciating their own
interests.

 It is only when the issue of consent not being freely given is raised that the fact of
adequacy of consideration would be taken into account by court.

BOULTON v MADDEN

The court held that the adequacy of consideration is for the parties to consider at the
time of making agreement, not for the court when it sought to be enforced.

Consideration need not come from the promise

 Under English common law, consideration must move from the promise but under
Contract Act and local law it different.
  A party to an agreement can enforce the contract even though he has given no
consideration so long as someone else has done so.

VENKATA CHINNAYA v VERIKATARAMAYA

A sister agreed to pay annuity of Rs 653 to her brothers who provided no

consideration for the promise. However on the same day, their mother had given the
sisters some land stipulating that she must pay the annuity to her brothers. When the
sister subsequently failed to fulfil her promise to pay the annuity, her brothers sue her
on the promise. The sister claimed that there was no contract between her and her
brothers since her brothers did not give any consideration for her promise to pay the
annuity.

Held: She was liable on the promise on the ground that there was a valid
consideration for the promise even though it did nit move from the brothers.

Waiver of performance
 General rule: English law of contract stated that a waiver of right that is not supported
by consideration is void.

PINNEL’S CASE

P brought an action in debt on a bond against Cole for payment of $8 10s on the 11 th
November 1600. Cole pleaded that, at the instance of P, Cole had paid him the sum of
45 2s on the 1st October and P had accepted this amount in full satisfaction of the debt.

Held: The payment lesser amount in satisfaction of greater amount had no satisfaction
of whole debt.

 However in Malaysia, the exception provided under Section 64 : Every promisee 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.

 This provision laid down the rules of waiver of performance. Under this provision,
waiver of performance without any consideration is valid.

 Method of waiver of performance:

i. Payment of a smaller sum in discharge of a larger sum

 Illustration (b) Section 64 : A owes B $5,000. A pays to B, and B

accepts, in satisfaction of the whole debt, $2,000 paid at the time and
place at which the $5,000 were payable. The whole debt is discharged.
 ii. Part payment by a third party in discharge of a debt

 Illustration (c) Section 64 : A owes B $5,000. C pays to B $1,000 and

B accepts them, in satisfaction of his claim on A. This payment is a
discharge of the whole claim.

HIRACHAND PUNAMCHAND v TEMPLE

It was held that where a third party enters into agreement with a
creditor by which the creditor accepts payment of a lesser sum than the
debt, in full satisfaction of the debtor’s obligation, the creditor cannot
sue the debtor in difference.

KERPA SINGH v BARIAM SINGH

B owed K $8869. B’s son wrote a letter to K offering $4000 in full

satisfaction of his father’s debt. B’s son endorsed a cheque for the
amount stipulating that if K refused to accept his offer, K must return
the cheque. K’s legal advisor cashed the cheque and retained the
money. They then proceed to secure the balance of the debt.

Held: The acceptance of the cheque from the debtor’s son in full
satisfaction precluded them from claiming the balance.

iii. If a person accepts an agreed sum in satisfaction of an unascertained debt, that

debt is discharged

 Illustration (d) Section 64: A owes B under a contract, a sum of

money, the amount of which has not been ascertained. A, without
ascertaining the amount, gives to B, and B, in satisfaction thereof,
accepts the sum of $2,000. This is a discharge of the whole debt,
whatever may be its amount.

iv. Composition with creditors for the payment of a smaller sum

 This happen where there are more than one creditors

 The debtor can make an arrangement with all creditors in which each
creditor agrees to accept a stated sum or percentage of his debt in full
satisfaction of the debt.

 Illustration (e) Section 64: A owes B $2,000, and is also indebted to

other creditors. A makes an arrangement with his creditors, including
B, to pay them a composition of fifty cents in the dollar upon their
respective demands. Payment to B of $1,000 is a discharge of B's
demand.