3. Is past consideration valid?

Discuss with reference to the case of Kepong prospecting Ltd & SK Jagatheesan & Ors v AE Schmidt & Marjorie Schmidt [1968]. Section 2(h) of the Contracts Act 1950 defines a contract as an agreement which is either enforced by the law or recognized by law as affecting the legal rights or duties of the parties (Nasreen, 2007). An agreement is the basis of a contract. However, there are agreements that may be lacking in certain elements. These are not counted as valid contracts. Basically, all contracts are agreement, but not all agreements are contracts (Tunku Intan, 2002). Consideration is one of the essential elements to form a valid contract. Section 26 of the Contracts Act 1950 provides that an agreement without consideration is void. Section 2(d) of the Contracts Act 1950 defines that, consideration is an act or abstinence or promise by the promisee or any other person, as required by the promisor in return for his promise (Zuramaznum, 2008). Consideration is something which has value in the eyes of law and it becomes the basis of the contract. Consideration must come from both parties. Section 2(d) of the contracts Act 1950 provides that consideration is an act or abstinence or promise that has done or abstained, or does or abstains, or promises to do or to abstain by the promisee. By referring to the law, we can say that consideration may be done before the promise, during the promise or after the promise as long as it is at the desire of the promisor. The phrase ³has done or abstained from doing´ suggests that an act prior to the promise would be sufficient to constitute consideration, even though it is clearly past, provided it is done at the desire of the promisor (Nasreen, 2007). Past consideration is the consideration, which has been done or completed before the promise is made (Zuramaznum, 2008). Therefore, past consideration is valid and any agreement involving past consideration is considered as a valid contract the promisor is bound to the promise made. There are some cases which involve past consideration. We can see clearly how past consideration works by referring to the case of Kepong prospecting Ltd & SK Jagatheesan & Ors v AE Schmidt & Marjorie Schmidt [1968]. In this case, Schmidt, a consulting engineer, had assisted Mr. X in obtaining a prospectus permit for mining iron ore in the state of Johore. Schmidt also helped in the formation of a company; Kepong Prospecting Ltd. Schmidt was appointed as the Managing Director of the company. After the company was formed, a contract was entered into between Schmidt and the company under which the company promised to pay Schmidt 1% of the value of all ore sold from the mining land. This promise was in consideration of the services given by Schmidt for

even though it is clearly past. This case shows that past consideration is actually valid. If the company refuses to pay.and on behalf of the company before its formation. but it is considered as consideration. . Therefore. an act prior to the promise would be sufficient to constitute consideration. By referring to the case of Schmidt. after incorporation and for future services. However. there will be breach of contract and legal action can be taken. Such consideration is called past consideration. Schmidt claimed on the amount promised. It was held that the services given by Schmidt before the promise was made were sufficient to constitute a valid consideration even though those services were clearly past. even though the service provided by Schmidt was in the past before the formation of the company. According to the Section 2(d) of the Contracts Act 1950. the company later failed to pay Schmidt. there is valid contract between them as there is consideration from both parties and the company is responsible to pay the amount promised. The issue was whether there was a valid consideration from Schmidt for the promise of the company. provided it is done at the desire of the promisor.

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