MADAM NORAZLA ABDUL WAHAB

CONSIDERATION
By the end of this chapter, the student
should be able to:
- Define consideration;
- Identify when consideration is
present;
- Explain and apply the legal principles
relating to consideration;
- Explain the distinction between
executory, executed and past consideration;

Section 26 of CA 1950:
Agreement made without
consideration is VOID.

- Section 2(d) of CA 1950:

Consideration is the price or something which
one party pays to buy the promise or the act of
the other.
It can take the form of money, physical objects,
services, promised actions, or even abstinence
from a future action.

Promisee must give something in return for the

promise made by the promisor).
-

For example:
A offers to sell his house to B at the amount of
RM 250K. B agreed to buy the said house and
pay RM 250K.
As consideration is to pass the ownership to the
B.
Bs consideration is to pay RM 250K.

If A signs a contract with B such that A will

paint B's house for $500, A's consideration is
the service of painting B's house, and B's
consideration is $500 paid to A.

1.

Executory :

One promise is made in return for another

promise/ other partys promise.

example:
C promises to deliver to D a bicycle and D
promises to pay RM100 for the said bicycle.

1.

Executory :

Illustration (a) of the S. 24.

A agrees to sell his house to B for RM 10,000.
Thus, Bs promise to pay RM10,000 is the
consideration for As promise to sell the house;
and As promise to sell the house is the
consideration of Bs promise to pay RM 10,000.

K. Murugesu v Nadarajah [1980] 2 MLJ 82

The Appellant agreed to sell a house to the
Respondent at $ 26,000 only. Later on the A
refused to sell and alleged that there is no
consideration.
Court held:
There is an executory consideration where a
promise made by ones party in return for a
promise made by the other.
Consideration: price

2. Executed
where an act is done/ promise made in return
for the performance of an act. (reward
situation).
example,:
Laila lost her wallet. She offers a reward of
RM100 for anyone who found her wallet and
returns her wallet. Majnun found her wallet
and returns it to her. She paid the reward of
RM100 to him.

2. Executed
contract arises upon the execution of the
consideration.
example,:
Laila lost her wallet. She offers a reward of
RM100 for anyone who found her wallet and
returns her wallet (promise). Majnun found her
wallet and returns it to her (performance of the
act- Majnuns consideration is executed to
Lailas promise- binding contract). She paid the
reward of RM100 to him. (act/ promise)

Carlil v Carbolic Smoke Ball Co. [1893] 1 QB

256
The companys offer= promise.
Carlil bought, used the smoke ball and still
suffered from influenza= performance of the
act- Carlils consideration is executed to the
companys promise- It creates a binding
contract).
Held:
The company need to executed the promise ; to
pay reward to Carlil. (act/ promise

3. Past consideration
where a promise is made subsequent to and
in return for an act that has already been
performed.
act done prior to the promise
Consideration which has been done
/completed before the promise made. .

3. Past consideration
S. 26 (b) of CA

S. 2(d) of CA
has done or abstained from doing..

3. Past consideration
Illustration (c) of section 26:
- A find Bs purse and gives it to him. B
promises to give A RM 50. This is a contract.

B MUST give A RM 50.

Lampeigh v Braithwait (1615) 80 ER 225

B was sentenced to death for murder. Then he
requested L (a lawyer) to do all he can as to
enable him to get pardon from the King OF
London.
L then do everything that he can by using his own
expenses and finally B successfully got the
pardon.
B then promised to give L a 100 pound. But
subsequently he failed to pay and L sued B for
that.
B then argued that there was no consideration
from L when B made a promise to pay money
to L.

Lampeigh v Braithwait (1615) 80 ER 225

B was sentenced to death for murder. Then
he requested L (a lawyer) to do all he
can as to enable him to get pardon from
the King OF London.
L then do everything that he can by using
his own expenses and finally B
successfully got the pardon.
(performance of the act- Consideration
which has been done /completed before
the promise made)

Lampeigh v Braithwait (1615) 80 ER 225

B then promised to give L a 100 pound. But
subsequently he failed to pay and L sued
B for that.(promise)
B then argued that there was no
consideration from L when B made a
promise to pay money to L.

Lampeigh v Braithwait (1615) 80 ER 225

Court held:
There was past consideration from L.
He entitled for 100 pound for the service
that he done before the promise was
made.

Kepong prospecting ltd v A.E Schmidt (1968) 1

MLJ 1970
Schmidt is a consulting engineer. He is assisting
Mr. X in obtaining a prospecting permit for
mining an iron in Johore. He also helped in a
formation of a company; Kepong Prospective
Ltd. Subsequently, he was appointed as a
Managing Director of the same.
After the company was formed, there was a
contract between the company and Schmidt
whereby the company will pay 1% of the value
of the oil ore sold from the mining land.

Kepong prospecting ltd v A.E Schmidt (1968) 1

MLJ 1970
The clause stated that in consideration of the
services given by S for or on behalf of the
company before its formation, after
incorporation and future services.
However, the Company failed to pay to S. and S
claimed for that.

Kepong prospecting ltd v A.E Schmidt

(1968) 1 MLJ 1970
The issue is: whether there is a valid
consideration from S fro the promise of
the Company?
The Court held:
The service given by S before the promise
was made is considered as a valid
consideration even though the services
were already past/ done.

Section 26 of CA 1950
an agreement
made without consideration is void'.

- But
there are several exceptions:
Section: 26 (a) - (c) of CA 1950

S26(a) of CA:
an agreement made on account of natural love
and affection between parties standing in near
relation to each other and it is in writing and
registered.

Illustration (b) of Section 26 of CA:

A, for natural love and affection , promise
to give his son, B, RM1,000. A puts his
promise to B into writing and registers it under a
law in force for registration of the said
documents.

Not defined under the Act.

Usually, members of immediate family.
Eg: Farther & son/daughter, mother &
son/daughter .

But depending on customs of social groups.

For e.g. : Chinese adopted children are related
to their adoptive parents and brothers.
However, they were not related to the
family of the adoptive mother.

Re Tan Soh Sim, had three sisters. Their

mother was firstly married to Khoo Kim Huat
and has seven children. The Tans and
Khoos children maintained their family
relations one another. Tan Soh Sim then
married and adopted four children. Her
husband also married a second wife ;Tan
Boey Kee.

When Tan Soh Sim was on her deathbed too

ill, she makes a will. All the Khoo and Tans
children signed a document drawn up by a
solicitor renouncing all claims to Tans estate
in favour of the four adopted children and
Tan Boey Kee. Tan Boey Key told them that
this was the testamentary intention of Tan
Soh Sim. Tan Soh Sim then died.

Issues:
whether the document signed was valid
according under section 26(a) of CA 1950?
Whether the legal next of kin of TSS are
NEAR RELATION with their adopted nephew
and nieces?

Court held:
The Khoos and Tans children are related to
the four adopted children of Tan Soh Sim
only in a special limited way, which is not
near.
Chinese adopted children are related to their
adoptive parents and brothers. However, they
were not related to the family of the adoptive
mother.

S26(b) of CA:
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;

A is driving in his car on a sunny Sunday

afternoon, and he sees smoke coming from a
vehicle on the side of the road ahead. A
pulls over, sees B injured in the vehicle, and
pulls B out of the car as to safe him. B then
has full recovery, and the next day, says to
A, "because you saved me, I will pay you
$5,000 per year until you die." B paid A
$5,000 each of those years. Then, 5 years
later, B dies of cancer and the executor of
B's estate refuses to pay A any more money.

Facts: Schmidt, an engineer, had assisted an

individual in obtaining a prospecting permit for

mining iron ore in Johore. He also helped in the
subsequent formation of the company and was
appointed as Managing Director. After the
company was formed, an agreement was
entered between them under which the
company undertook to pay him one per cent of
the value of all ore sold from the mining land.
This was in consideration of the services
rendered by the engineer for and on behalf of
the company prior to its formation, after its
formation and for future services.

Court held:
there was a valid consideration and Schmidt was
entitled to the amount owed to him by the
company.

Performed or done of one's free will,

impulse or choice, not constrained or
suggested by another

Facts:
- A dispute arose between a Malaysian and
English
company
resulting
from
an
arrangements. Both had acted as agents for
various products.
- The arrangement is that the Malaysian company
would find the buyer and inform the English
firm who would find the seller. When a sale had
been arranged , the Malaysian firm would
receive a commission.

Facts:
- In this particular dispute, the Malaysian
company had arranged a buyer for such
confectionary and the English firm found a
seller.
- The D (Malaysian firm) wrote a letter to the P
(English company)
agreeing that if X Co
defaulted in payment, it will pay the price of
the goods.
- Later, X Co went bankrupt and defaulted in
payment. The D refused to pay and the P sued
for damages

Issue: Whether the P was a person who had

already voluntarily done something for D?

Court Held:
- There were promises of compensation made by
the defendant firm to the plaintiff in respect of
consignment , but these promises were not
supported by consideration.
- The P had acted on the suggestion of the D =
could not be said to have been done voluntarily.
Thus, the promise to compensate was not
enforceable.
-

A supports Bs infant son. B

Promises to pay As expenses in so
doing. This is a contract.
A pays the fine imposed on B by the
court. B promises to compensate
him. That promise is binding.

Illustration (d) of S. 26:

Section 26 (c) of CA:

an agreement to pay a statute-barred
debt.

a promise, made in writing and

signed by a debtor /his authorised
agent.

A statute-barred debt refers to a

debt which cannot be recovered
through legal action because of a
lapse of time fixed by law.

Limitation for action in contract under

Limitation Ordinance 1953:
6 years.
Eg: 6 years is given for action arising
from a breach of contract. After the
allocated time expires, the
aggrieved party can no longer sue.

Illustration (e) to s. 26
A owes B RM 1,000, BUT the debt is barred by
limitation. A signed a written promise to pay B
RM 500. This is a contract.

what is the amount of

consideration that is sufficient
for each promise?

Explanation 2 of Section 26:

Agreement is not void merely because the
consideration is not adequate. It
might be void if the parties to the
contract can show that the consent
given was caused by coercion.

Illustration (f) of CA?

A agrees to sell a horse worth RM 1,000 for
RM 10. As consent to the agreement was
freely given. The agreement is a
contract notwithstanding the inadequacy
of the consideration.

Facts:
There was an oral agreement made
between A and R in which R agreed to
transfer the land to A on payment of
$500. upon payment of $500, A possessed
the land.
Later, R claimed that the A had trespassed
on his land and he brought an action
claiming for possession of the land from A.

Court Held:
Consent given by R was freely given. It was
not caused by coercion or undue
influence.
The inadequacy of consideration is
immaterial and the court gave judgment
in favour of the A.

Section 2(d) of CA 1950

....promisee or any other person...

Eg: A, B and C are parties to an agreement in

which C promises to pay A RM1000 if B will
repair C's house. B repairs C's house and C
does not pay A anything.
Although A has not given any consideration for C's
promise (he not repair that house), he may
sue C on the promise because consideration
has moved from even from the third party.

COMMON LAW OF ENGLAND:

Consideration must move from promisee.
MALAYSIAN LAW:

Party to an agreement CAN enforce a promise

eventhough he has given NO consideration,
as long as has been done by someone.
S. 2 (d) .....consideration can move from the
promisee or any other person...

Facts:
A sister agreed to pay an annuity of Rs653 to
her brothers (who provided no
consideration), if their mother transfer some
land to her.
When their mother had given the sister some
land, the sister failed to fulfill her promise.
Her brothers sued the sister.

Court Held:
She was liable on the promise on the
ground that there was valid
consideration for the promise
eventhough it did not move from the
brothers.

General rule (English Contract Law):

Waiver of a right that is not supported

by consideration is VOID.
Payment of the SMALLER sum IS NOT A
satisfaction/discharge of an obligation
to pay the large sum.

EXAMPLE
A owes B a debt of RM 200. Then, B
accept RM 100 being the payment made
by A in full satisfaction of debt.
B IS NOT BOUND by his performance of
waiving .
He may subsequently sue A for the
balance of the debt.

EXAMPLE
Pinnel owes Cole 8 pounds 10s at
11/11/1600. Then he paid 5 pounds 2s
only and has been accepted in full
satisfaction by Pinnel.

Court

Payment of the lesser sum in satisfaction

of a greater sum is not satisfaction on
the whole.
Cole needs to pay the balance.

Malaysian Law:
Section 64 of CA 1950,
Every promise 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.

Illustration S. 64:
a) Where the promisee forbids the promisor from
performing his act.
b) Payment of smaller sum in satisfaction of larger sum
c) Payment by third party in discharge of a debt
d) Where the amount owing under a contract is
unascertained and a person accepts an agreed sum in
satisfaction, the debt is discharged.
e) A composition with creditors for the payment of a
smaller sum, an arrangement whereby each creditor
agrees to accept a stated sum of his debt in full
satisfaction.

Court laid down principle:

When promisee / creditor agrees to accept the

smaller sum in satisfaction of a large sum, he
IS BOUND to such waiver of promise.
He CANNOT LONGER CLAIM for the balance of
the whole debt even though he receives NO
CONSIDERATION for such waiver.

Facts:
Bariam Singh (Debtor) owed Kerpa Singh
(Creditor) $8869.64. The debtors son wrote a
letter to Kerpa that Kerpa Singhs offering $4000
in full satisfaction of his fathers debt and
endorsed a cheque for the amount and
stipulating that should Kerpa Singh refuse to
accept his proposal, he must return the cheque.
Kerpa Singh having cashed the cheque and
retained the money and secure the balance of
the debt by issuing a bankruptcy notice on the
Bariam Singh..

Facts:

Kerpa Singh having cashed the cheque and

retained the money and secure the balance of
the debt by issuing a bankruptcy notice on the
Bariam Singh..

Court held:

The acceptance of the cheque in full satisfaction precluded

them from claiming the balance.
The act of promisee/creditor by acceting the smaller sum of
cheque WILL WAIVE the performance of promise that
made to him.

Note: This Notes and Copyright therein is the property of Madam

Norazla Abdul Wahab and is prepared for the benefit of her
students enrolled in the MGM 3351 course for their individual
study. Any other use or reproduction by any person WITHOUT
CONSENT IS PROHIBITED.
66