CONSIDERATION

Learning outcomes:

When the students complete this topic they should be able to:

 Explain what is consideration?

 Explain the situation where the courts may recognized a contract without a consideration.
 Explain the basic difference between English law and Malaysian law on consideration.

Introduction

It refers to anything that has monitory value or economic value that moves from the person to whom
the promise is made to the person to who made the offer. The legal definition of it is provided in Section
2(d) as “ When at the desire of the promisor, the promisee or any other person has done or abstained
for doing, or does or abstains for doing, or promises to do or abstain from doing , something such act or
abstinence or promise is called a consideration for the promise”. Section 26 say no consideration no
contract.

Consideration can be executory or executed:

- Executory, this is where both or one parties still has something to do. Normally applies for
contracts that goes on for a certain period.
- Executed, this, normally refers to contracts that are one off. It is normally concluded on the
sport.

The most important Section that need to be considered here is Section 26.According to this Section a
Contract without consideration will be considered as Void unless it falls under the specific exemptions
that is provided in the Act itself.

To have a better understanding of Consideration it will be helpful to refer to the common law rules on
Consideration before we consider the provision in the Contract Act.

According to Common law rules, for a consideration to be valid it must be satisfy the following
requirements:
  Consideration must move from the person to whom the offer is made.
 Although consideration must move from the person to whom the offer is made it need not
move to the person who made the offer.
- Case to refer : Thomas v Thomas.
 Consideration must be sufficient need not be adequate.
- Case to refer : White v Bluett- Father & Son.
Chappel v Nestle -
Midland Bank v Green - Husband & Wife
Tanner v Tanner – Love, Affection or Sex.
 Past consideration is no good consideration unless it was done on the request of the promisor.
- Case to refer : Roscola v Thomas
: Pou On v Lau you
: Eastwood v Kenyon.

General rule under Section 26: An agreement without consideration is void. This clearly says that if there
no consideration the contract will not be recognized. Interestingly the same section also provide a
number of exemptions.

Following are the exemptions recognized in the Contract Act:

 Section 26(a) – Natural love and affection. According to this sub-section if a contract is based on
love and affection, that agreement can be valid even without consideration. At the same time
the following condition must be satisfied.
a) It is expressed in writing.
b) It is registered (if required).
c) The parties stand in a near relation to each other.

 Section 26(b) - This section provides that an agreement made without consideration is void
unless it is a promise to compensate a person who has already voluntarily done something for
the promisor. This subsection in fact makes past consideration become a valid consideration in
Malaysian contact.
Eastwood v Kenyon ----

The required conditions for this exception to apply are as follows:

a) The promise has voluntarily done an act

b) The act is one which the promisor was legally compellable to do.
c) An agreement to compensate, wholly or in part, the promisee for the act

 Section 26(c) - This subsection covers an agreement to pay a Statute-Barred debt. A statute
barred debt which cannot be recovered through legal action because of lapse of time fixed by
law. Once the time limit expires the lender will not be able to sue borrower to get back the
money. This is where section 26(c).This section says if there was a fresh promise made to repay
even without consideration the lender will be given chance to sue the borrower to get back the
money.
 In order for the exception to apply the following condition must be satisfied:

a) The debtor made a fresh promise to pay.

b) The promise was made in writing and signed by the person to be charged or his authorized
agent.

Adequacy of Consideration:

The law in Malaysian regarding adequacy consideration is very similar to the law in UK. This is very
clearly explained in section 26. According to one of explanations in Section 26 an agreement to which
the consent of the promise is freely given is not void merely because the consideration is inadequate.

In other words as long as the consent provide is free it does matter if the consideration is inadequate,
the law will still recognized such consideration. A simple example, I can decide to sell my expensive car
for just few ringgit and it will be recognized as valid as long as I do with free consent.

Example of cases: Phang Swee Kim v Beh I Hock.

If A wants to sue B, A must establish that there is a contract between A & B as defined in 2(h). Since
there is no requirement that contract must be in writing A must prove the following basic requirements
of a contract.

1) Offer 2(a)
2) Acceptance 2(b)
3) Consideration 2(d) Section 26
4) Intention to create legal relationship. Belfour v Belfour
5) Legal Capacity Section 10.
6) Free consent Section 10, 13.14…….