Topic 5 : Consideration

Defintion :
Consideration is defined under S2 (d)

• The promise must give something in return for the promise made by the promisor.
That something can be money, good or services.
• Consideration is something of value given for a promise in order to make it enforceable
as a contract.
First definition : revolves on the idea of consideration in terms of ‘benefit’ accruing the
promisor and ‘detriment’ suffered by the promisee.
Case : South East Asia Insurance Bhd v Nasir Ibrahim
- Stated that ‘the essence of consideration is that the promise has taken upon himself
some kind of burden or detriment (a loss or expense)’.
Second definition : consideration in terms of purchase and sale, the consideration being
reffered to as the ‘price’ of the promise.
Case : University of Malaya v Lee Ming Chong
- The University of Malaya appointed the dff (Lee Ming Chong) to a scholarship funded
by the Canadian government under the Colombo Plan.
- Lee agreed to serve the university for at least 5 years after completing his studies. If
he breached the agreement, he would have to pay the university $5000 as
compensation.
- Lee argued that the scholarship agreement was void because the university did not
provide any consideration.
- The court ruled that there was consideration from the university. The scholarship
appointment itself was the university’s concideration because it was a benefit to Lee
and a detriment to the university.

Types of consideration :
1. Executory Consideration
• Consists a promise to do or to abstain from doing something in the future.
• E.g. A promised to was B’s car on this weekend if B promised to give him Rm100. There
is a binding agreement between them.
Case : K Murugesu v Nadarajah
- Nadarajah (respondent) was a tenant who persistently requested Murugesu
(appellant) to sell him a house. Murugesu eventually agreed, writing a promise on
paper to sell the house for $26,000 within three months.
 - Later, Murugesu refused to sell, and Nadarajah sued for specific performance.
Murugesu claimed the agreement was void because there was no consideration.
- The court held this was a case of executory consideration, where promises were
exchanged.
- Each party promise was the consideration for the other :
o Murugesu’s promise to sell the house was consideration for Nadarajah’s
promise to psy $26,000
o Nadarajah’s promise to pay was consideration for Murugesu’s promise to sell.

2. Executed Consideration
• Where one party promises to do something in return for the act of another rather than
for the mere promise of future performance of an act.
• The performance of the act is required before there is any liability on the promise.
• E.g. Ali offers a reward for the return of his lost cat. (Ali is actually buying the act of the
finder and he will not be liable until the cat is found and returned to him. If someone
had returned the cat to him, Ali should perform his promise to give the reward.
• The act of ‘someone’ returning the cat to Ali is the executed consideration. His
consideration on Ali’s promise is already executed now, only the promise on the part
of Ali is not yet be fulfilled.
Case : Carlill v Carbolic Smoke Ball Co Ltd
- the dff issued advertisement, offered to pay 100pound to any person who
contracted with influenza after using their product. Mrs Carlill used and still
contracted with influenza. Sued the dff for the money.

- coa held that the advertisement was a promise by the dff and mrs Carlill had
executed the consideration required.

3. Past Consideration
• The act which one party to a contract puts forward as consideration was performed
before any promise of reward was made by the other.
• Something wholly performed before the promise was made.
• Generally, past consideration is not a good consideration. However, if it is done at the
promisor request, then it is a good consideration.
• S2(d) : this reflects that past consideration is recognized under s 2(d) but it must be
done at the desire/request of the promisor.
• E.g Aiman was swimming in the river and got into difficulty. Then, Baim, who was
passing by, saw Aiman in difficulty, took off his coat and dived into the river and saved
Aiman from drowning. Later, Aiman promised to give Baim RM500 for saving his life.
• The act of Baim was wholly performed before the promise of Aiman was made. If
Aiman requested help, it is valid.
Case : Kepong Prospecting Ltd v Schmidt
- In 1953, Tan applied for a prospecting permit for iron ore, with Schmidt, a consulting
engineer, assisting in the process.
- Upon receiving the permit, Tan promised to pay 1% of the selling price of all mined,
 actknowledging both past and future services.
- In 1954, they formed Kepong Prospecting Ltd, and Schmidt continued providing his
services.
- In 1955, a formal agreement was made for Schmidt to receive 1% of the ore’s sales.
- Schmidt was later dismissed as managing director and removed as a director of the
company. He then sued the company to claim the payments promised under the 1955
agreement.
- The company argued that there was no valid consideration (i.e., Schmidt didn't provide
new services to justify the payment).
- The Privy Council ruled that there was sufficient consideration because:
o Schmidt had provided services from 1954 to 1955, which were recognized as
consideration for the 1955 agreement.
o Past consideration is valid if done at the promisor's request and acknowledged
in the subsequent agreement. Thus, Schmidt was entitled to the payments
promised by the company.

An agreement without consideration is void

• S26 provides that an agreement made without consideration is void unless it comes
under one of its exceptions.
• A void agreement is an agreement not enforceable by law.
• An agreement enforceable by law is a contract.
Case : Macon Works & Trading Sdn Bhd v Phang Hon Chin

- Macon Works & Trading gave Phang Hon Chin an option to purchase their land for a
sum of $1. Both parties acknowledged the receipt of the $1 as consideration for the
option.
- The High Court found that the $1 was never paid or received.
- According to s26, an agreement made without consideration is void unless it falls
under certain exceptions.
- Since no valid consideration was given, the option was declared void.

Exception to the general rule

1. Natural love and affection - s26(a)
• S26(a) provides one of the exceptional cases where the law dispensed with the need for
consideration in contract.
• It makes the transfer of property by way of gift or an agreement, out of love and
affection between the partiesstanding in near relation to each other, a binding and
enforceable contract despite lack of consideration.
• It must be expressed in writing and registered under the law
Case : In Re Tan Soh Sim

- Tan Soh Sim (the deceased) had complex family relations. She was the daughter of
Khoo Kim Huat and later married Chan.
- Tan and her husband, Chan, adopted four children as they had no biological children.
 - Chan also married a second wife, Tan Boey Kee.
- Tan Soh Sim's biological family (the Khoos and Tans) maintained friendly relations with
the adopted children and Tan Boey Kee.
- On her deathbed, Tan Soh Sim was too ill to wrte a will. A document was signed by her
extended family (the Khoos, Tans, and adopted children) renouncing any claim to Tan
Soh Sim’s estate in favor of the adopted children and Tan Boey Kee.
- After her death, the legal question arose : Was this agreement valid under s26(a),
which requires the parties to be in a “near relation” to each other and have “natural
love and affection”?
- the court interpret “near relation” according to Chinese family customs, emphasizing
the family unit over individual relationships.
- Under Chinese customs :
1. Parents and children
2. Brothers and sisters
3. Parents and daughter-in-law
4. The wife of a brother
- However, the adopted children and the biological half siblings of Tan Soh Sim (the
Khoos and Tans) were not deemed “near relations” under these customs.
- Since the adopted children and Tan Boey Kee were not “near” to the Khoos and Tans,
the agreement was ruled invalid.
- Court held that the document was not legally binding because the parties involved
were not closely related enough as per section 26(a) and Chinese customs.

2. A promise to compensate for an act voluntarily done s26(b)

• Where a promise is made to compensate the promisee for
o A past act voluntarily done by the promisee
o The promisor was legally compellable to do
• The promise is enforceable despite the lack of consideration.
• E.g. A finds B’s purse and gives it to him. B promises to give A RM50. This is a contract.

Case : leong huat sawmill (pte) ltd v lee man see

- App engaged the resp to extract timber from the forest in Terengganu.
- Resp alleged that he had completed felling the timber but app had failed to pay his
services. He successfully claimed damages for breach of contract. But the trial judge
refused the claim for additional wages he paid to his workers.
- FC rejected the resp reliance on s26(b) for additional wages because the logging work
done by the resp was part of his obligation under a contract with the app thus not
voluntary done.

3. Promise to pay a debt barred by limitation law

 • S26(c) provides that a promise to pay a debt barred by law is valid eventho there was
no consideration, provided that the promise is in writing and signed by the promisee
or his agent, who is generally or specially authorised in that behalf.

Adequacy of consideration

• If the promisor gets what he asks for in return for his promise, he has received
sufficient consideration. It is immaterial that his promise is far more valuable than the
price he asked for.
• Need to be adequate, as long as the consideration has some value in the eyes of law.
• S26 provides that an agreement to which the consent of the promisor is freely given is
not void merely because the consideration is inadequate but the inadequacy may be
taken into account by the court in determining the question whether the consent of
the promisor was freely given.
• However, inadequacy can be taken into account to determine whether consent is given
freely.
Case : Phang Swee Kim v Beh I Hock
- Phang Swee Kim (pff) entered into an agreement to buy a piece of land from a third
party.
- However, the land was encumbered by a caveat placed by Beh I Hock (defendant), who
claimed he had an interest in the land because of a prior agreement with the original
owner.
- Phang Swee Kim sued to have the caveat removed, arguing that Beh I Hock had no
enforceable claim against the land as he was not a party to the contract between her
and the original owner.
- The court held that Beh I Hock had no enforceable claim under the doctrine of privity
of contract. Since he was not a party to the contract between Phang Swee Kim and the
original landowner, he had no standing to assert rights over the land based on that
contract.
Sufficiency of consideration

• So long as the consideration has some value in the eyes of the law, e.g. economic value,
the consideration is deemed to be valid.
• As long as it is sufficient but need to be adequate.
Case : Chappell & Co Ltd v Nestle Co Ltd

- Promotion by nestle : if persons sent in 3 chocolate bar wrappers and a postal code for
1 shilling 6d, they would be sent a record. Notice given by Nestle stating the ordinary
selling rpice was the 1 shilling 6d and 3 chocolate bar wrappers.
- Court held that the wrappers that being included besides the amount of money did
form the valid consideration. It was intended to increase sales thus provided value
eventho the wrappers were simply to be thrown away.
 Insufficiency of consideration

• There are certain acts or promises that the law deemed to be of no value and are
insufficient consideration.

1. Moral Obligation
• A moral obligation does not amount to a consideration
Case : Eastwood v Kenyon

- The plaintiff was the guardian of a young woman and he had incurred expenses in the
improvement of her property.
- He did his property and in order to do so, was compelled to borrow money.
- Later, the young woman got married and her husband promised to pay the debt.
- The pff sued the husband upon breach of the promise
- Court held that the moral obligation of the husband to fulfil such a promise was
insufficient to be good consideration. The act done by the guardian in looking after the
young woman was past consideration.

2. Performance of existing public duty

• There are performing a duty already imposed upon him for other reason.
• They normally repeating an existing obligation, the courst deem that the pff has not
given anything to the bargain and thus has not provided sufficient consideration.
• Therefore, the promisor must promise or do something over and above the existing
obligations or duty to constitute consideration. Otherwise, it is insufficient.

Case : collins v godefroy

- The pff was subpoena to attend before ct to give evidences.
- The dff promised to give him something in return if he attend to the ct.
- The pff attended, but the dff refused to pay
- Pff could not recover cause it was existing public duty to the pff to attend to the ct
and the promise made by the consideration was a promise without consideration.

However in the case of, Glassbook brothers v Glamorgan county council

- There was a strike at the pff’s mine.
- Pff requested the police to place a stationary guard and the police thought it was
sufficient but the pff asked for more guards for 2,200 pound as agreed then.
- Suddenly the pff refused to pay on the ground that there was not a valid
consideration.
- Court held that undertaking to provide more protection is something over and above
the duties. Therefore it was a good consideration.
 3. Performance of an existing contractual duty owed to the promisor
• Not a good consideration
Case : stilk v Myrick
- 2 crew of the ship had deserted and caused the ship delayed due to lack of man
power.
- The captain had made a promised to the rest of the crew extra wages if they manage
to ensure the ship home shorthanded. Later the captain refused to pay
- Court held that the crews were not entitles for the extra wages because they were
already bound by the contract to meet the normal emergencies during their voyage.
Not more than their contractual duties.

4. Performances of an existing duty imposed by a contract with a third party

• The performance of such a duty appears to constitute a valid and good
consideration.
Case : Shadwell v Shadwell
- The pff was engaged to marry one girl. His uncle promised to give him 150 pound for
his life time and until the annual fees as a barrister amounts to 600 pounds
- When the uncle died, the executors refused to pay certain installment on the ground
that there was no consideration and the pff was already bound to marry the girl
before the uncle made the promise.
- COA held that there was a good consideration on the ground that the uncle also
received some benefits and the pff would suffered some detriments because he
might relied upon the promise and he may not able to change his financial liabilities.

Payment of Smaller Sum

• S64 provides that payment of a lesser sum does discharge the full sum.
• Where the amount owed is unascertained and creditors accepts an ascertained
amount, the debt is discharged.

Promisee may dispense with or remit performance of promise s.64

• Illustration (b) A owes B rm5000. A pays to B, and B accepts, in satisfaction of the
whole debt, rm2000 paid at the time and place at which the rm5000 were payable.
The whole debt is discharged.
Case : assoc. pan Malaysia cement sdn bhd v sy teknikal & kejuruteraab sdn bhd
- S64 of our CA 1950 represents a departure from the common law in England.
- It is open to a promise to dispense with or remit wholly in part the performance of
the promise made to him or he can accept any promise which he thinks fit.
English Law

• The general rule under English Law Is that payment of a smaller sum is not satisfaction
of the obligation to pay a larger sum.
Case : Pinnel v Cole
- Cole owed Pinnel 10 pound which was due on November. Pinnel asked him to pay the
lesser sum of 5 pound and promised not to sue for the balance. Cole paid. But then
then, Pinnel sued for the balance.
- Court held that a payment of a lesser sum cannot be any satisfaction for the whole
sum.
Exception to the Pinnel’s rule

• Payment of a smaller sum before due date at the creditor’s request is valid
consideration.
• Payment of a smaller sum at the place from the agreed place at the creditor’s request
is valid consideration.
• Payment of a smaller sum accompanied, at the creditor’s request by delivery of the
chattel is a valid consideration.

Payment of smaller sum by third party

• Payment of lesser sum by third party is a good consideration.

• E.g. A owes B RM5,000. C pays to B RM1,000 and B accepts them, in satisfaction of his
claim on A. this payment is a discharge of the whole claim.
Case : Kerpa Singh v Bariam Singh
- Bariam owed Kerpa $8,869.94 under a judgement debt. Bariam’s son wrote a letter to
K offering $4,000 in full satisfaction of his father’s debt and endorsed a cheque stating
that if K refused, he must return the cheque. K’s lawyer cashed the cheque and
retained the money. Later, claimed the balance.
- Court held that acceptance of the cheque prevented them from claiming the balance.

Composition with a creditors

• A composition is an agreement by all creditors of the debtor that they will accept a
proportion of what they are owed in full settlement of their claims.
• E.g. A owes B RM2,000 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 RM1,000 is a discharged
of B’s demand.
Consideration may move from the promise or any other reason
- S2(d) : it may move from a party who is not necessarily a promise. It may move from
‘the promise or any other person’
- So , it may move from the third party.