LAW OF CONTRACT

ALIZAH ALI
UITM JOHOR

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Element no 3: CONSIDERATION

1. Definition of consideration
2. Categories of Consideration
3. Necessary of Consideration
4. Exception to Consideration
5. Rules governing consideration

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1. DEFINITION

• Section 2 (d) of the Contracts Act defines :

“when, at the desire of the promisor, the promisee or any other
person has done or abstained from doing …or does…or promises…
something, such act …is called a consideration”

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CURRIE v MISA (1875)

Held : A valuable consideration, in the sense of the law, may

consists of some rights interests, profits or benefits accruing
to the one party; or some forbearances, detriments, losses or
responsibilities given, suffered or undertaken by the other.

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2. CATEGORIES OF CONSIDERATION

Executory Executed
consideration consideration

Past
Consideration

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1. Executory Consideration

promise = action

K. Murugesu V Nadarajah

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2) Executed Consideration

Promise Action

 General offer
 Carlill v Carbolic Smoke Ball

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3) Past Consideration

Action Promise

s.2 (d) : “…has done or abstained from doing…”

 provided that it is done “at the desire of the promisor”.

 Lampleigh V Brathwait
 Kepong Prospecting Ltd vs A.E Schmidt

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Jangan stress

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4. NECESSITY OF CONSIDERATION

• General rule :  section 26.

“an agreement made without consideration is void...”

illustration: A promise for no consideration, give B

RM1000. This is a void agreement

X CSD X CONTRACT

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Exception of section 26- Contract still valid
eventhough without consideration
• Contract to
• Contract Made • Contract to Compensate • Contract to
For an act,
on Account of Compensate Pay a Statute-
Which the
Natural Love a Past Barred Debt
promisor Was
and Affection Voluntary Act
Legally
section section 26 Compellable section
(b-1st limb) To Do
26(a) 26 (c)
section 26
(b-2nd limb)

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1) section 26 (a): Contract Made on Account of
Natural Love and Affection

• “An agreement …without consideration is

void, unless it is expressed in writing and
section 26 (a) : registered…, and is made on ccount of natural
love and affection between parties standing
in a near relation to each other..”

• A, for natural love & affection, promises to

Illustration give his son, B, $1000. A put his promise to B
into writing and registers it…This is a contract

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condition
The contract is binding on condition:

i) It is expressed in writing,
ii) It must be registered
iii) It is made on account of natural love and affection between parties
standing in near relation to each other.

• Case : Re Tan Soh Sim

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2) section 26 (b-1st limb): Contract to
compensate a Past Voluntary Act
• “An agreement made without
Section 26 consideration is void, unless …it is a
(b) [1st promise to compensate, … a person
Limb] : who has already voluntarily done
something for the promisor..”
• A find B’s purse and gives it to him. B
Illustration promises to give A $50. This is a
contract
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2 conditions :

The promisee has

It is a promise to
voluntarily done
compensate the
something for the
promisee
promisor

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3) section 26 (b-2nd limb): Contract to Compensate For an
Act,Which the promisor Was Legally compellable To Do

• “An agreement made without

consideration is void, unless …it is a
Section 26 (b) promise to compensate, …a person who
[2nd Limb] : has already voluntarily done something …
which the promisor was legally
compellable to do…”
• A support B’s infant son. B promises to pay
Illustration
A’s expenses in so doing. This is a contract.

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3 conditions :

The promisee has

It is a promise to
voluntarily done
compensate the
something for the
promisee
promisor

The act done is one

which the promisor
was legally
compellable to do
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4) section 26 (c): Contract to Pay a Statute-
Barred Debt
• “An agreement made without consideration is
void, unless… it is a promise, … in writing and
Section 26 (c) signed…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 owes B $1000, but the debt is barred by
Illustration limitation. A signs a written promise to pay B
$500 on account of the debt. This is a contract.

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4) section 26 (c): Contract to Pay a Statute-
Barred Debt
•‘statute-barred debt’  a debt, which cannot be recovered
through legal action because of lapse of time fixed by law
i.e. 6 years

Limitation Ordinance 1953

However, if the debtor makes a new agreement, to pay the debt;

this new agreement becomes a valid contract under section 26 (c) ,

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2 conditions

the debtor made a the promise is in

fresh promise to writing and signed
pay the statute- by the debtor or his
barred debt. authorised agent.

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 4. RULES GOVERNING
CONSIDERATION
Adequacy of
Consideration Need Not
Consideration is not
Come From The
important
Promisee
to form a valid contract

Waiver of Performance

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 Adequacy of Consideration is not important to
form a valid contract

Explanation 2 to section 26
• “An agreement to which the consent of
the promisor is freely given is not void
merely because the consideration is
inadequate...”
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 Adequacy of Consideration is not important to
form a valid contract

Illustration
A agrees to sell a horse worth $1000 for $10. A’s consent to the
agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration”

Case:  Phang Swee Kim vs Beh I Hock

 Bolton vs Madden

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 Consideration Need Not
Come From The Promisee
 section 2 (d) :

“…promisee or any other person…”

 Venkata Chinnaya Vs. Verikataramaya

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 Waiver of Performance

i- English Law

The general rule: ‘payment of a smaller sum is not a

satisfaction (discharge) of an obligation to pay a larger sum ’

Pinnel’s case – debt £8 10s Pay £5 2s

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 Waiver of Performance

waiver of performance by
the creditor is not binding ‘something value’ is
on him until and unless the considered as a
debtor give something value consideration for such
as a consideration. By then, waiver
the whole debt is discharged

E.g : debt $ 10  pay $8 + a

banana
: a banana = $2

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 Waiver of Performance

• Hence, under English law :

 Waiver of performance with consideration is binding
Owed $ 10, pay $5 + banana  √ consideration

 Waiver of performance without consideration is void.

Owed $ 10, pay $5 ONLY X consideration

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 Waiver of Performance

ii- Malaysian Law

In contrast, the Pinnel’s case has NO application in Malaysia.

section 64 :
“Every promisee may dispense with or remit, wholly or in part,
the performance of the promise made to him…”
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 Waiver of Performance

illustration Pan Ah Ba
• A promises to paint a • Deposit RM 10K
picture for B. B
afterwards forbids him
to do so. A is no longer
bound to perform the
promise

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 Methods of Waiver of Performance
When a person accepts an agreed sum in
satisfaction of an unascertained debt
• Illustrations (d),
• 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 of thereof,
accepts the sum of $2000. this is a
discharged of the whole debt
whatever may be its amount
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Composition with creditors for the
payment
of a smaller sum.
• Illustrations (e),
• A owes B $2000 and is also indebted to
other creditors. A makes an
arrangement with his creditors,
including B to pay them a composition
of fifty sen in the ringgit upon their
respective demands. Payment to B of
$1000 is a discharge of B’s demand
Thank you

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