CONSIDERATION

LAW OF
CONTRACT 1
 What does each party get out of the
CONSIDERATION
contract? “What’s in it for me?”
• A agrees to sell his house to B for RM 800,000.

For A’s promise, the consideration is the

price of the house i.e. RM 800,000.

For B’s promise, the consideration is A’s

house.

• Thus, consideration in contract law is the

benefit each party receives from the deal
negotiated in the contract.
 Macon Works and Trading Sdn Bhd v. Phang Hon Chin
[1976] 2 MLJ 177

• Hashim Yeop A Sani J referred to the definition given in

Currie v Misa (1875) LR 10 Exch 153 whereby Lush J
defined it as "some right, interest, profit or benefit
accruing to one party, or some forbearance, detriment,
loss or responsibility given, suffered or undertaken by the
other”.
 Section 2(d) Contracts Act 1950

When, at the desire of the promisor, the

promisee or any other person, has done
or abstained from doing something, or
does or abstain from doing, or promises
to do or to abstain from doing,
something, such act or abstinence or
promise is called consideration for the
promise. Section 26
An agreement without consideration is void.
TYPES OF CONSIDERATION

1. Executory Consideration

• One party makes a promise in exchange for another party’s promise.

• i.e. A consideration promised in return of a promise. E.g. bilateral contract.

Murugesu v Nadarajah [1980] 2 MLJ 82

App agreed to sell his house to Res. An agreement was written on a scrap paper.
App later refused to sell the house, and a specific performance was ordered.
Appellant appealed against the order. Appeal unsuccessful.

The court applied the example provided in Section 24’s illustration. The judge, Chang
Min Tat F.J, held, “The agreement must be seen to be a case of executory
consideration. A promise is made by one party in return for a promise made by the
other. In such a case, each promise is the consideration for the other”.
TYPES OF CONSIDERATION

2. Executed Consideration

• Consideration ‘already done’. E.g. Unilateral contract.

• i.e. A promise made in exchange of performance or completion of an act.

One party has already

performed her part of the
promise, while the other party
must perform his part of the
promise.

It is the act which forms the

consideration.
TYPES OF CONSIDERATION

3. Past Consideration

• A past consideration is something that is wholly done by the promisee

even before making the agreement i.e. Prior to promisor’s promise.
• A promise one makes in return for a previously completed or performed
action.

Hermione found Harry’s black cat and returned the

cat to Harry. Harry, in gratitude, promised to pay
her RM 500. As such, the promise is made in return
of the prior act.
 THE UK POSITION

PAST CONSIDERATION IS NOT

GOOD CONSIDERATION

Re McArdle [1951] Ch MLJ 669

• The Plaintiff paid for the repairs and improvement of the house (father left the
house to the siblings) amounting to £488. After the repairs had been carried
out, plaintiff got all five of her siblings to sign a document in which they
promised to repay out of their father’s estate.
• As the repairs had been carried out before the agreement to pay had been
made, it was past consideration and therefore not good consideration.
Plaintiff had already performed the works before she asked for payment. Her
consideration was in the past.
 MALAYSIAN POSITION

PAST CONSIDERATION IS GOOD CONSIDERATION

Section 2(d) Contracts Act 1950

• When, at the desire of the promisor, the promisee or any other person, has
done or abstained from doing something…
• Past consideration - When a person makes a promise to pay after the act
has been completed.
• When was the promise made? Before the act or after the act?
 Kepong Prospecting Ltd v AE Schmidt [1968] 1 MLJ 170

The Defendant Schmidt had assisted another

(Tan Chew Seah) in obtaining a prospecting
permit for iron ore from the Johor Govt. Permit
granted to Tan C.S. and Tan promised Schmidt:-

After Kepong Prospecting Ltd was

incorporated, the company
undertook to pay the 1% selling
price.
“This being ‘in consideration of the services rendered by Schmidt for and on behalf of
the company prior to its formation, after incorporation and for future service”...

• The Appellant argued that services "prior to its formation" cannot amount to
consideration as no services can be rendered to a non-existent company.
• The Respondent argued that services rendered after incorporation but before the
date of the agreement, can under the law of Malaysia, validly amount to
consideration for an agreement to pay, since section 2(d) of the Contracts Act
expressly provides for this. The Respondent was deemed to have given
consideration for the agreement between himself and the Appellant.
• Therefore, the Respondent Schmidt could sue for the sum that was owed on the
agreement between himself and the Appellant, Kepong Prospecting Ltd.
 Section 26 Contracts Act 1950
An agreement without consideration is void.
i.e. No consideration, no contract.

Macon Works & Trading v Phang Hon Chin

Defendant gave Plaintiff option to purchase

land. Option stated “ .. hereby acknowledges
receipt of $1 only, being consideration for this
option”. Both parties admitted that the sum
was never paid.

Court: An agreement without consideration is

void unless one of the exceptions to S.26 CA
applies.
EXCEPTIONS TO SECTION 26 CONTRACTS ACT 1950

• A contract is enforceable even though there is no consideration:

1. Sec. 26(a) Natural Love and Affection

• An agreement without consideration is valid

only if the following requirements are complied with:

(i) The agreement is made by a written document.

(ii) The document is to be registered (if any).
(iii) The parties to the agreement stand in a near relation to each other.

E.g. Maya, out of natural love and affection, promises to give her son Milo, RM1,000.
Maya puts this promise to Milo in writing and registered it. This is a contract.
Queck Poh Guan (Administrator of Estate of Sit
Kim Boo v Quick Awang [1998] 3 MLJ 388

It was alleged that six days before the

deceased's death, the defendant caused the
deceased to execute the transfer of ⅓ portion
in the land to him. In this case, it is not disputed
that the parties stand in a near relation to each
other; the deceased (the transferor) being the
mother of the defendant (the transferee).
Whether or not there exists any element of love
and affection it can be gathered from the
evidence adduced by both parties and the
surrounding circumstances. In the case of a
parent and child, there is no doubt a strong
presumption that love and affection exist and
any slight evidence of them will suffice.
 Re Tan Soh Sim v Tan San Keow [1951] MLJ 21

A woman on her deathbed expressed her intention to leave all her properties
to her four adopted children. Court of Appeal: The claims of the adopted
children were not effective as it was contrary to Section 26(a) i.e. it was not in
writing and there was no natural love and affection between parties standing
in near relation to each other.

On the facts of the case, the court held that a Chinese adopted son was
related to the family of his adoptive father but a son (whether natural or
adopted) was not nearly related within the scope of the CA 1950, to the family
of the adoptive mother.
EXCEPTIONS TO SECTION 26 CONTRACTS ACT 1950

• A contract is enforceable even though there is no consideration:

2. Sec. 26(b) Voluntary Compensation

• It is a promise to compensate wholly or in part a person (promise)

who has already voluntarily done something for the promisor or done
something which the promisor was legally compellable to do.

E.g. A is legally required to provide financial support to B’s child, and C

voluntarily provides such support on A’s behalf, A may promise to compensate
C for his efforts. This promise would be considered legally enforceable, as A
was legally required to provide the support that C provided voluntarily.
 J.M. Wotherspoon & Co Ltd v Henry Agency House
[1962] MLJ

Both Plaintiff and Defendant were agents for multiple of goods. Plaintiff sued the
Defendant for claim of loss due to non-received of payment from buyers.

The High Court found out that there is a promise made by the Defendant to
Plaintiff to pay for the losses but was not supported by consideration which is
essential for contract formation. The issue - whether the preliminary act by Plaintiff
which is the supply of goods was done voluntarily. This is due to Section 26(b) of
the CA1950.

• The promise by Defendant and payment of damages is unenforceable under

the exception of Section 26(b) as the Plaintiff’s action in supply of the goods
was not done voluntarily but due to the demand from the Defendant. Void.
EXCEPTIONS TO SECTION 26 CONTRACTS ACT 1950

• A contract is enforceable even though there is no consideration:

3. Sec. 26(c) A promise to pay debt barred by limitation law

• A statute barred debt refers to a debt, which

cannot be recovered through legal action
because of a lapse of time fixed by the law.
E.g. A owes B RM1000/-, 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.

(i) The debtor made a fresh promise to pay the statute barred debt.
(ii) The promise is in writing and signed by the person to be charged
or his authorized agent in his/her behalf -End-