BUSINESS LAW

Law of Contract
Chapter 4.2 - Consideration
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Objective
• To understand the significance and importance of
consideration
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Course Content
• Consideration
• Past consideration
• Exception under s26 Contracts Act 1950
• Natural love and affection
• Accord and satisfaction
• Consideration need not move from the promisee
• Consideration need not be adequate
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Consideration
 There have been a number of case law definitions of
consideration, for example Currie v Misa (1875):
“A valuable consideration in the sense of the law may consist
either in some right, interest, profit or benefit accruing to one
party, or some forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.”
 Consideration can also be defined as a detriment suffered in
exchange for a benefit received.
 This means that each party must promise to give or do
something for the other.
 Using the language of purchase and sale, it could be said that
one party must know that he has bought the other party’s
promises either by performing some act of his own or by offering
a promise of his own.
 Must exist in every contracts and it must have monetary value
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Consideration
• Defined by s2(d) Contracts Act 1950:
“When, at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or does or abstains
from doing, or promises to do or to abstain
from doing, something, such act or abstinence
or promise is called a consideration for the
promise”
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Consideration
• There are 3 types of consideration based on the
definition in s2(d) Contracts Act 1950:
• … has done or abstained from doing… – Past
• … does or abstains from doing… - Executed
• … promises to do or to abstain from doing… - Executory
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TYPES OF CONSIDERATION

CONSIDERATION MAY BE:

EXECUTORY PROMISES OBLIGATIONS TO BE PERFORMED

EXCHANGED LATER

ONE/BOTH PARTIES HAVE PERFORMED

EXECUTED
THEIR OBLIGATIONS

PAST ACT HAS TAKEN PROMISES

PLACE EXCHANGED
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Consideration
• EXECUTED CONSIDERATION is a performed, or
executed, act in return for a promise. It is an act done
at the time, e.g. payment there and then.
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Consideration
• EXECUTORY CONSIDERATION is a promise given
for a promise, not a performed act. It is a promise to
do in the future, e.g. a promise to pay in the future.
• If, for example, a customer orders goods which a
shopkeeper undertakes to obtain from the
manufacturer, the shopkeeper promises to supply the
goods and the customer promises to accept and pay
for them. It would be breach of contract if either
withdrew without the consent of the other.
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Consideration
• Anything which has already been done before a promise
in return is given is PAST CONSIDERATION which, as a
general rule, is sufficient to make the promise binding
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Past Consideration
 The definition of the word “consideration” in s2(d)
Contracts Act 1950 appears extensive enough to cover
the aforementioned rule
 It provides that if the act was done at the desire of the
promisor, then such an act would constitute
consideration
 The phrase “has done or abstained from doing” implies
that even if the act done was prior to the promise, such
an act would constitute consideration
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Past Consideration
• Though s2(d) CA 1950 may not cover all cases of past
consideration, one of the exceptions to the general rule of
consideration, as provided in s26 CA 1950, appears to
cover most of other such cases
• S26(b) CA 1950 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
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Past Consideration
• Illustration (c) of s26 lends further support to the view that
past consideration in the circumstances provided
constitutes a valid consideration. It provides: -

A finds B’s purse and gives it to him. B promises to give A $50.

This is a contract.
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Exception under s26 Contracts Act

1950
• According to s26 Contracts Act 1950, an agreement made
without consideration is void, unless: -
a) It is in writing and registered
b) Or is a promise to compensate for something done
c) Or is a promise to pay a debt barred by limitation law
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S26(a) Contracts Act 1950

• S26(a) Contracts Act 1950 states:
“An agreement made without consideration is void unless
it is expressed in writing and registered under the law (if
any) for the time being in force for the registration of such
documents, and is made on account of natural love and
affection between parties standing in a near relation to
each other”
• In other words, an agreement made on account of natural
love and affection would be held to be binding in Malaysia
if the requirements of s26(a) Contracts Act 1950 are
expressed: -
• It is expressed in writing;
• It is registered (if applicable); and
• The parties stand in a near relation to each other
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S26(a) Contracts Act 1950

• The meaning of the words ‘near relation’ varies
from one social group to another as it depends
on customs and practices of such groups
• Under s26(a) Contracts Act 1950, it is a valid
consideration provided the condition of ‘near
relation’ between the parties is also met
• Unfortunately, ‘near relation’ is not defined in
the Act
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S26(a) Contracts Act 1950

• In Re Tan Soh Sim [1951] MLJ 21, an attempt was made
to define ‘near relation’. The Court, in its judgment, said
that ‘relationship’ and ‘near’ must be applied and
interpreted in each case according to the mores of the
group to which the parties belong and with regard to the
circumstances of the family concerned
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S26(c) Contracts Act 1950

• According to s26(c) Contracts Act 1950, if a debt is
statute/time barred and the debtor promises in writing
and he signs the document stating that he will return the
money on a particular date, then this is a new contract
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Consideration need not move from the

Promisee
• Under the Contracts Act 1950 a party to an
agreement can enforce the promise even if he
himself has given no consideration as long as
somebody has done so
• S2(d) Contracts Act 1950 reads “…when…the
promisee or any other person has done…something,
such act…is called a consideration for the promise.”
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Consideration Need not be

Adequate
• Under Malaysian law, the consideration need not be
adequate
• Explanation 2 to s26 Contracts Act 1950 provides
that an agreement is not void merely because the
consideration is inadequate
• Illustration (f) to s26 Contracts Act 1950 shows the
application of the rule: -
“A agrees to sell a horse worth $1000 for $10…The
agreement is a contract notwithstanding the
inadequacy for the consideration.”
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Consideration Need not be Adequate

 The issue of adequacy of consideration was dealt with
by the Federal Court in Phang Swee Kim v Beh I Hock
(1964)
 Here, R agreed to transfer to A a parcel of land on
payment of $500 when the land was subdivided although
the land was worth much more. R later refused to
honour the promise contending that the promise was
unenforceable. The trial judge held that the agreement
was void due to inadequacy of consideration. The
Federal Court reversed the decision and applied
Explanation 2 and Illustration (f) of s26
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Consideration Need not be

Adequate
• Consideration NEED NOT BE ADEQUATE (that is, equal
in value to the consideration received in return). There is
no remedy at law for someone who simply makes a poor
bargain.
Q&A