Definition and forms of
consideration
Comparison between concept of
TOPIC 4: consideration under Contract Act
1950 and Common Law
CONSIDERATION
Agreement without consideration
and its exception – under English
law and Malaysian Contract Act
1950
1 Sufficiency of consideration
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2 DEFINITION AND FORMS OF
CONSIDERATION
Section 2(d) Contract Act 1950 defined consideration as -
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 or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the
promise;
Under section 26 of the Act, the general rule in a contract is that an
agreement without consideration is void.
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3
The mere fact of agreement alone does not make a contract. Both parties
to the contract must provide consideration if they wish to sue on the
contract. This means that each side must promise to give or do
something for the other.
If one party, A (the promisor) promises to clean the house of another, B
(the promisee), A's promise will only be enforceable by B as a contract
if B has provided consideration. The consideration from B might
normally take the form of a payment of money but could consist of
some other service to which A might agree.
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Lush J in Currie v Misa referred to consideration as consisting of a
detriment to the promisee or a benefit to the promisor.
“…some right, interest, profit or benefit accruing to one party, or
some forebearance, detriment, loss or responsibility given, suffered or
undertaken by the other…”
Example of consideration:
Sarah purchased a house from Eco World Sdn Bhd for a price of RM
450,000.00.
Consideration for Sarah: House
Consideration for Eco World Sdn Bhd: RM 450,000.00
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5 TYPES/FORMS OF CONSIDERATION
(i) EXECUTORY CONSIDERATION
Consideration is called "executory" where there is an exchange of
promises to perform acts in the future.
For example: A bilateral contract for the supply of goods whereby A
promises to deliver goods to B at a future date and B promises to pay
on delivery. If A does not deliver them, this is a breach of contract and
B can sue. If A delivers the goods, his consideration then becomes
executed.
At the time of the agreement, neither romise has been fulfilled.
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(ii) EXECUTED CONSIDERATION
One party makes a promise in return for the performance of an act.
For example in a unilateral contract as in the case of Carlill v
Carbolic Smoke Ball – the defendant advertised the promise of a
reward for persons to use their smoke ball in a certain manner. When
Mrs Carlill performed the conditions as set out in the advertisement,
there is an executed consideration from Mrs Carlill. In this case, only
the defendant’s promise has yet to be fulfilled.
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(iii) PAST CONSIDERATION
If one party voluntarily performs an act, and the other party then makes
a promise, the consideration for the promise is said to be in the past.
For example, A gives B a lift home in his car. On arrival B promises to
give A RM20 for the petrol. This promise is made for a past
consideration, i.e. giving B a lift, is past.
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8 What is the difference between Executed Consideration and Past
Consideration?
Executed consideration Past consideration
Both the promise and the act which The promise is subsequent to the act
constitutes the consideration are and independence of it; they are not
integral and co-related parts of the in substance part of the same
same transaction. transaction.
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9 DIFFERENCES BETWEEN ENGLISH LAW
AND CONTRACTS ACT
Refer to M/S Word
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10 AGREEMENT WITHOUT
CONSIDERATION – under English law
(i) Performance of public duty
General rule: Exception:
If someone is under a public duty to If someone exceeds their public duty,
do a particular task, then agreeing to then this may be valid consideration.
do that task is not sufficient Glassbrooke Bros v Glamorgan
consideration for a contract. County Council
Collins v Godefroy – public duty
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Collins v Godefroy
11
The claimant, Collins, had been subpoenaed to attend court as a witness in
separate court case involving the defendant, Godefrey. Godefrey had sued
his attorney for malpractice and Collins was required by the court to attend
as an expert witness. In fact Collins never gave evidence but was required
to be on standby for six days in case he was called. After the trial Collins
gave Godefrey an invoice to cover his time spent at court and demanded
payment by the next day. Without giving him the full day to pay, Collins
commenced an action to enforce payment.
Held:
Collins was under a public duty to attend court due to the subpoena. Where
there exists an existing public duty this can not be used as consideration for
a new promise. Godefrey was not required to pay him.
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12 Glassbrooke Bros v Glamorgan County Council
The defendant owners of a colliery asked the police to provide protection
during a miner's strike. The police provided the protection as requested and
provided the man power as directed by the defendants although they
disputed the level of protection required to keep the peace. At the end of the
strike the police submitted an invoice to cover the extra costs of providing
the protection. The defendants refused to pay arguing that the police were
under an existing public duty to provide protection and keep the peace.Held
In providing additional officers to that required, the police had gone beyond
their existing duty. They were therefore entitled to payment.
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13 AGREEMENT WITHOUT CONSIDERATION
– under English law
(ii) performance of pre-existing contractual duty
The performance of a pre-existing contractual duty is also not a
good consideration since the promise is merely performing what he
has originally contracted to do.
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14
Stilk v Myrick
The claimant was a seaman on a voyage from London to the Baltic
and back. He was to be paid £5 per month. During the voyage two
of the 12 crew deserted. The captain promised the remaining crew
members that if they worked the ship undermanned as it was back to
London he would divide the wages due to the deserters between
them. The claimant agreed. The captain never made the extra
payment promised.
Held: The claimant was under an existing duty to work the ship
back to London and undertook to submit to all the emergencies that
entailed. Therefore he had not provided any consideration for the
promise for extra money. Consequently he was entitled to nothing.
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15 AGREEMENT WITHOUT
CONSIDERATION - under Contract Act
1950
Section 26 of the CA provides that an agreement made without
consideration is void, unless it falls within any of the exceptions below:
S.26(a) – it is made S. 26(b) – it is a S.26(c) – it is a
on account of promise to promise to pay a
natural love and compensate for debt barred by
affection something done limitation law
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16 a) Natural love and affection
Section 26(a) CA:
An agreement made without consideration is void, unless -
(a) it is expressed in writing and registered under the law … and is made on
account of natural love and affection between parties standing in a near
relation to each other;
Illustration (b) section 26 CA -
A, for natural love and affection, promises to give his son, B, RM1, 000. A
puts his promise to B into writing and registers it under a law for the time
being in force for the registration of such documents. This is a contract.
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Conditions under Section 26 (a) CA
1. It is expressed in writing which may be in any reasonable form;
2. It must be registered where a law exists requiring such registration; and
3. It is made on account of natural love and affection between parties
standing in near relation to each other.
Condition of “Near relation” between the parties must also be met. Personal
law with respect to family matters are still applicable to various ethnic groups
so what constitutes near relation vary with each group depending on
customes and social organization.
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Queck Poh Guan v Quick Awang [1998] 3 MLJ 388
18
The Court held that the transfer of the land was a gift from the deceased
mother to the defendant on account of natural love and affection.
Where the relations are beyond immediate family relationships, the issue
of what is meant by ‘near relation’ becomes important, as decided in the
following case:
Re Tan Soh Sim [1951]1 MLJ 21
In this case, the Court of Appeal took into account Chinese family customs
and held that adopted sons were related to his adopted mother only in a
limited way, which is not near. Therefore, the agreement for distribution of
asset between them is void for lack of consideration.
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b) An agreement to compensate for a past
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voluntary act
Section 26(b) CA
An agreement made without consideration is void, unless -
… (b) it is a promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor, or something which the
promisor was legally compellable to do.
Illustration (d) section 26 CA:
(d) A supports B’s infant son. B promises to pay A’s expenses in so doing.
This is a contract.
EXAMPLE - Edward paid fine imposed by the court on Jennifer who
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JM Wotherspoon & Co v Henry Agency House
The Court held that the plaintiff’s claim failed on the ground that the work
was done at the suggestion of the defendant. In order for an act to be done
voluntarily, it must be done at the person’s initiative.
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c) An agreement to pay a statute-barred debt
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Section 26 (c) CA -
An agreement made without consideration is void, unless -
… (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.
Illustration e -
(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.
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22 A statute-barred debt refers to a debt which cannot be recovered through
legal action because of lapse of time/ has passed the time limit fixed by
the law.
The time limit for an action in contract under the Limitation Act is 6 years
from the moment of the breach of contract.
Therefore, if the following situation occurred…
1. The debtor made a fresh promise to pay the statute-barred debt.
Example; “ I know I still owe you RM 10,000 which I borrowed 8 years
ago. I shall pay within 3 months”
2. The promise is in writing and signed by the parties to be charged or his
authorized agent in that behalf.
… the promise is binding eventhough there is no consideration.
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23 SUFFICIENCY OF CONSIDERATION
To be enforceable as contracts, all agreements must have
consideration.
However, as long as there is consideration, the law does not
question the adequacy of the consideration.
It means, consideration must be sufficient, but need not be adequate.
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24 If X promises to sell his house worth RM 56,000.00 for RM 20,000.00 is the
amount of RM 20,000.00 sufficient consideration for the promise?
The sum of money obviously not sufficient but the court will not access
whether a promisor has received adequate consideration.
The adequacy of consideration is immaterial.
Explanation 2 of section 26 Contracts Act reads -
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.
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Illustration (f) and (g) to section 26-
(f) A agrees to sell a horse worth RM1,000 for RM10. A’s consent to the
agreement was freely given. The agreement is a contract notwithstanding
the inadequacy of the consideration.
(g) A agrees to sell a horse worth RM1,000 for RM10. 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.
The legal view is that parties are capable of appreciating their own
interest.
In the absence of fraud, misrepresentation and other factors, a person may
do as he please with regard to the value he places on his property.
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26 Phang Swee Kim v Beh I Hock
In 1944, in consideration of RM20,000 in Japanese currency, the respondent
transferred half-share of his land to the appellant’s husband, now deceased. The
transfer was not registered but the deceased obtained possession of the land, and in
1946, he died intestate. The appellant extracted grant of letters of administration in
1951 and she (the deceased’s wife) continued to be in possession.
In 1963, the land was sub-divided into two lots and the respondent became the
sole proprietor of the lot occupied by the appellant. Subsequently, the appellant
was accused of trespassing and action was instituted by the respondent to claim
relief. The appellant counter-claimed for a declaration that she was entitled to the
said kand.
Held: there was adequacy of consideration (being no evidence of fraud or duress)
because the respondent agreed to transfer the land to the appellant on payment of
$500 when the land was subdivided. The appellant was entitled to the declaration
sought by her.
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