CONSIDERATION & INTENTION

TO CREATE LEGAL RELATIONS


TOPIC 2

1
 CONSIDERATION

 A promise or an agreement to do something MUST be
supported by consideration.

 General rule: An agreement without consideration is

VOID – s. 26

 Illustration (a):
 A promises, for no consideration, to give B RM1,000.
This is a void agreement.

2
 DEFINITION

 Consideration means the price paid for the purchase of a
promise.
 It can be considered as what each party gives in return
for what it gains from the other party.
 Section 2(d) – ‘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’.
3
 Cont.

 The definition of consideration can be found in Currie v.
Misa (1875) LR 10 Ex 153, Lush J said:
 “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”.
 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
(1915)
 The court consider consideration as a promise made for a
promise.
4
 Cont.

 Consideration is also viewed as a sort of a bargain, a
quid pro quo – something done in return or in exchange
for something.

 South East Asia Insurance Bhd. v. Nasir Ibrahim

[1992] 2 MLJ 355, Gunn Chit Tuan SCJ stated:
 ‘… the essence of consideration is that the promisee has
taken upon himself some kind of burden or detriment.’

5
 CLASSIFICATION OF
CONSIDERATION


CONSIDERATION

Executory Executed Past

consideration consideration consideration
6
 i. Executory Consideration

 Where a promise is made in return for a promise i.e. a
mutual exchange of promises to perform act in future –
bilateral contract.

 Illustration (a), s. 24:

 A promises to sell his house to B for RM 10,000. B’s
promise to pay RM 10,000 is the consideration for A’s
promise to sell the house, and A’s promise to sell the
house is the consideration for B’s promise to pay RM
10,000.

 S. 2(e): Every promise and set of promises, forming the

consideration for each other, is an agreement. 7
 Wong Hon Leong David v. Noorazman
bin Adnan [1995] 3 MLJ 283

 R promised that he would assist in obtaining the
approval for the application for conversion and sub-
division of the land from the land administrator. In return,
the App. promised to pay the R of RM268,888 for that
service.

 Held: That consideration, namely the exchange of

mutual promises, although executory, was a good
consideration. Thus there was a binding agreement
between the parties.

8
 Ahmad Zaini bin Japar v. TL Offshore
Sdn Bhd [2002] 7 MLJ 604

 P and D entered into an oral agreement wherein D
agreed to pay to P, 1% of the contract value, subject to a
limit of RM12m, as a consideration for securing the
contract with Petronas Carigali. P succeeded in securing
a contract valued at RM2.1 billion for D. D only paid
RM700,000 to P for the services rendered.

 Held: P had kept to his promise by securing the Petronas

contract for D and D must keep its promise to pay
RM12m to P for the services rendered. P was entitled in
law to the balance sum. 9
 ii. Executed consideration

 Where a promise is made in return for the performance
of an act – unilateral contract

 There is only the promise of the promisor. The promisee

makes no promise but performs an act.

 E.g.: X lost his panda. He promises to pay a reward

of RM1200 to anyone who finds his panda and
returns it safely to him. Y finds the panda. He has
knowledge of the reward. Y is entitled to the reward.
Y’s act of finding the panda and returning it to X is
the consideration for X’s promise to pay RM1200. 10
 Cont.

 Carlill v. Carbolic Smoke Ball Co. Ltd. (1893)

 R v. Clarke

11
 iii. Past consideration

 Where a promise is made subsequent to and in return
for an act that has already been performed.

 The promise is made on account of a past consideration.

The act is done prior to the promise.

 s. 2(d): ‘… the promisee or any other person has done

or abstained from doing,…’
 S. 26, Illustration (c):
 A finds B’s purse and gives it to him. B promises to give
A RM 50. This is a contract. 12
 Kepong Prospecting Ltd. & S.K.
Jagatheesan & Ors. v. A.E. Schmidt &
Marjorie Schmidt [1968] 1 MLJ 170,

 Schmidt assisted the company in obtaining a prospecting
permit for mining ore and also helped in the formation of
a company. After the company formed, the company
promised Schmidt to pay him 1% of the sale of iron ore.

 Held: The services rendered by Schmidt were clearly

past consideration, they were sufficient to constitute a
valid consideration for the promise of the company to pay
him.

13
 Past consideration is good consideration


 English law does not recognize past consideration. However, in
Malaysia, past consideration is accepted as good consideration.

 S. 26(b): It is a valid contract even though there is no

consideration, if it is a promise by a promisor to compensate the
promisee:
i. For something the promisee had already done for the
promisor; or

ii. For something which the promisor was legally compelled to

do, 14
Cont.

 Illustration (c):
 A finds B’s purse and give it to him. B promises to
give A RM50. This is a valid contract.

 Illustration (d):
 A supports B’s infant son. B promises to pay A’s
expenses in so doing. This is a contract.

 A pays B’s parking summons. B promises to

reimburse A. The promise is binding.
15
 
Rules pertaining to
consideration

16
 Natural love and affection is a valid
consideration – s. 26(a)

 Natural love and affection can be a valid consideration if
the following conditions are complied with:
i. It is expressed in writing;
ii. It is registered (if applicable); and
iii. The parties stand in a near relation to each other.

 Illustration (b):
A, for natural love and affection, promises to give his
son, B, RM1,000. A puts his promise into writing and
registers it under a law for the time being in force for the
registration of such documents. This is a contract. 17
 Cont.

 The nearness of the relation depends on the type or
group of people to which the parties belong and the
circumstances of the family concerned.

 Re Tan Soh Sim [1951] MLJ 21

 A woman on her deathbed expressed her intention to
leave all her properties to her adopted children.
 Held: No near relationship between an adopted children
and the family of his adoptive mother. Thus, the promise
made to give the shares to the adopted children, being
unsupported by consideration, was VOID.
18
 Tang Meng Hock v. Tang Ming Seng
[2010] 1 MLJ 33

 D and P entered into a written agreement to give P for
love and affection the sum of RM60,000 in cash, an
apartment unit and a piece of land. In consideration, P
agreed not to make any further claim against D or against
the estate of their deceased father. D had given P the
cash and the apartment as agreed but then refused to
give him the land.

 Held: The contract is clear and unambiguous, the parties

were bound by what they had agreed to, and neither
party could unilaterally revoke or go against it. 19
 Adequacy of consideration

 Consideration need not be adequate, but it must be
sufficient i.e. it need some legal value though the value is
not substantial.

 Mere inadequacy of consideration is not sufficient to set

aside a contract, if the consent was given freely.

 Explanation 2 of s. 26:
 An agreement is not void merely because the
consideration is inadequate. But the inadequacy of the
consideration may be taken into account in determining
whether the consent of the promisor was freely given. 20
 Cont.


 Illustration (f) of s. 26:
 A agrees to sell a horse worth RM 1,000 for RM 10. A’s
consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy
of the consideration.

 Phang Swee Kim v Beh I Hock [1964] MLJ 383

 The R agreed to transfer the land to App. for $500 when
the land was subdivided although the land was worth
much more. The App later refused to transfer.
 Held: The agreement was valid even though the
consideration was inadequate and App entitled to the
land. 21
 Thomas v. Thomas (1842) 2 QB 851


 On her husband’s death, his executor, D, agreed to allow
P to occupy the house on payment of £ 1 per year. D
then refused to convey the house to P saying that there
was no consideration for his promise.

 Held: P’s promise to pay £1 per year was consideration

and that was enough to make the agreement
enforceable.

22
 White v Bluett (1853)

 B had given his father a promissory note for money lent
to him. His father’s executor sued B for the debt owed.
He pleaded that his father had promised that if he
stopped complaining about how the father’s property was
distributed among children, he would be discharged from
liability on the note.

 Held: B had no right to complain. The father might

distribute his property as he liked and B’s abstaining from
doing what he had no right to do cannot amount
consideration. 23
 Consideration need not move from
the promisee

 Consideration may be furnished or supplied by a third
party for the promise of the promisor.

 It need not move from the promisee and also it need not
move to the promisor.

 S. 2(d) provides that consideration may move from the

‘…promisee or any other person…’.

 The parties are at liberty to make whatever bargain they

prefer.
24
 Venkata Chinnaya v. Verikatara Ma’ya
[1881] 1 LR 4

 A sister agreed to pay an annuity of Rs 653 to her
brothers who provided no consideration for the promise.
But on the same day their mother had given her some
land, stipulating that she must pay the annuity. The
sister failed to pay the annuity and was sued by the
brothers.

 Held: She was liable to pay the annuity. There was good
consideration for the promise even though it did not
move from her brothers.
25
 Part payment

 Under English law, payment of a smaller sum is not a
satisfaction of an obligation to pay a large sum and it is
not a sufficient consideration.

 However, the rule does not apply in Malaysia.

 S. 64: ‘Every promisee 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.’
26
 Cont.

 Illustration (b) of s. 64:


 A owes B $5000. A pays to B, and B accepts, in
satisfaction of the whole debt, $2000 paid at the time
and place at which the $5000 were payable. The
whole debt is discharged.

 Where part payment made by a third party is accepted

in the discharge of the debt, it validly discharges the
whole debt.

 Illustration (c):
 A owes B $5,000. C pays to B $1,000 and B accepts
them, in satisfaction of his claim on A. This payment
is a discharge of the whole claim. 27
 Kerpa Singh v. Bariam Singh
[1966] 1 MLJ 38.

 Debtor took a loan from creditor. Debtor’s son offered
to pay half of the loan as a full satisfaction of his
father’s debt, via cheque. The son stated that if his
offer is not accepted, the money should be returned to
him. After cashing the cheque, creditor demanded for
the balance.

 Held: As creditor has accepted the tender by cashing

the cheque and retaining the money, he must be taken
to have agreed to discharge debtor from any further
liability.

28
 Lack of Consideration - Scholarship
Contract

 S. 4(c) Contract (Amendment) Act 1976:
 No scholarship agreement shall be invalidated on the
grounds that it lacks consideration.

 University Malaya v Lee Ming Chong (1986)

 D was given scholarship to study in Canada on the
condition that he must work for the University for 2 and
half years. Upon return, he left the university.

 Held: There was sufficient consideration as the university

had paid the D’s fees. Even if there was no
consideration, the agreement still valid due to s. 4(c). 29
 Unlawful Consideration or Object


 Every agreement of which the object or consideration
is unlawful is void – s. 24 CA. The court would not
lend its aid or assistance to a cause of action
founded on an immoral or unlawful acts.

Illustration (f):
A promises to obtain for B an employment in the
public service, and B promises to pay RM1,000 to A.
The agreement is void as the consideration for it is
unlawful.
30
 MerongSdn Bhd & Anor. v. Dato’ Shazryl Eskay
bin Abdullah [2015] 5 MLJ Mahawangsa 619

● P (Respondent) were suing for their fees for securing contracts in
favour of D by using their influences. The Federal Court held that the
consideration was illegal and thus void. It is contrary to Malaysian
public policy that a person be hired for valuable consideration, to use
his position or influence to secure a contract from the Government.
The sale of influence causes corruption and undermines public
confidence in the government. Such an agreement is contrary to
public policy and is therefore void and unenforceable.
 On the facts, the letter of undertaking whereby P was to be paid
RM20 million for his services to procure a government contract was
contrary to public policy The consideration was unlawful and
therefore void and unenforceable – s. 24 CA
31
 Intention to Create Legal
Relation

 It is an essential element of a contract that parties to a contract
must have intended legal consequences to result from their
agreement.

 This is a common law requirement. The Contracts Act is silent

on this element.

 2 presumptions have been developed:

i. Business or commercial agreements – Agreement is
intended to be legally enforceable unless specify otherwise.

ii. Social, domestic or family agreements – Agreement is not

intended to be legally enforceable. 32
 i. Business or Commercial
Agreements

 The presumption is that the parties do have the intention
to be legally bound and it is open for the party to bring
evidence to rebut.

 Parties may incorporate clauses in the agreement to

negative an intention to be legally bound by the
agreement.

 By including a ‘subject to contract’ clause, the parties

express an intention not to be bound by the agreement
until a formal contract had been drawn up, agreed upon
and executed by the parties and until such time there is33
no binding agreement.
 ii. Social, Domestic and Family
Agreements

 There is the presumption that parties to such agreements
have not intended legal consequences to flow from them.

 Balfour v. Balfour [1919] 2 KB 571.

 The defendant husband had promised to pay his wife
₤30 a month when he was working abroad. He defaulted
and the wife sued him for breach of contract.

 Held: There was no enforceable contract because in this

sort of situation it must be assumed that the parties did
not intend to create legal relations.
34
 Contrast with the case of Merritt v. Merrit [1970] 2 All
ER 760, as the presumption was successfully rebutted by
the wife.

 Held: The agreement, which was made when the parties
were living separately, wherein the husband had
promised to pay the wife ₤40 per month and to transfer
ownership of his half-share of the matrimonial house to
her solely once the mortgage was completely paid off by
her, was enforceable.

 There was evidence to show that the parties had

intended to be legally bound by the agreement.

 Tang Meng Hock v. Tang Ming Seng [2010] 1 MLJ 33

35