CONSIDERATION

NURUL ASYIKEEN BINTI ABDUL JABAR

DEPARTMENT OF BUSINESS MANAGEMENT AND LAW
MSU

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A. Definition
 The contract can only be enforced when it is
supported with consideration.
 S.2(d) provides that,
“When at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or does or obtains
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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 This section provides that the promisee
must give something in return for the
promise by the promisor.
 A promise can also be consideration.
 It must be something which has ‘value’ in

the eyes of law.

 It is a ‘price’ which is paid by one party in

return for a promise/act done by the other

party.

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 Currie V. Misa

Under the common law consideration has

been defined to consist 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.

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B. Categories of Consideration
1. Executory Consideration
 It is a promise in return for a promise.
 Illustration (a) to S.24
A agrees to sell his house to B for
RM100K.
B’s promise to pay RM100K is the
consideration for A’s promise to sell the
house.
A’s promise to sell the house is the
consideration for B’s promise to pay the
RM100K. These are lawful considerations.

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 K Murugesu V. Nadarajah

Facts : The Respondent was a tenant of the

appellant. The appellant agreed to sell and
the respondent agreed to buy. The agreement
was written on a piece of paper. Later the
appellant refused to sell and the respondent
sued for specific performance.

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Held : The agreement must be seen to be a
case of executory consideration. A promise is
made by one party in return for a promise
made by the other, in such a case each
promise is the consideration for the other.

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2. Executed Consideration
 It’s consist of doing an act in return to a
promise.
 Example is that of an offer of a reward for
an act.
 If A offers RM5K to anyone who shall return
his lost golden ring, the return of the lost
golden ring by B in accordance with the
offer constitutes the required consideration.
The consideration has therefore, been
executed by B. However, A still has to
perform his part of the consideration by
paying B the RM5K

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 Carlil V. Carbolic Smoke Ball

In this case, once the PF fulfilled the

condition of the general offer of the DF, the
consideration is said to be executed, and
therefore its constitute a binding contract.

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3) Past Consideration

 It is consist of something wholly performed

before the promise was made.
 The act was made or given not in response to

the promise. And the promise is subsequent

to the act done.

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 A was driving and involved in an accident. B
who was passing by saved A. Later A
promises to give B RM1K for saving his life.
The act of B in saving A’s life was wholly
performed before the promise was made.
It was not an act done in return for the
promise. The promise of giving RM1K is
subsequent to the act done.
 S.26 illustration (c)

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 S.2(d) the phrase ‘…has done or abstained
from doing…’ suggest that an act done prior
to the promise constitutes a valid
consideration provided that it was done at the
desire of the promisor.

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 Lampleigh V. Brathwait

Facts : B was sentenced to death. B requested L

to do all he can to get a pardon for him. L
later got a pardon for B.
B then promised £100 to L for his act, but
subsequently failed to pay. L sued B. B
contended that there was no consideration
made by L for the promise he made.

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Held : There was a past consideration from L. L
was entitled to the said payment for his
service. The previous request and the
subsequent promise was treated as part of
the same transaction.

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Kepong Prospecting Ltd V. A.E Schmidt
Facts : Schmidt a consulting engineer had assisted
Mr.X in obtaining a prospecting permit for mining
iron ore in Johore. He also helped in the
subsequent formation of the company, Kepong
Prospecting Ltd and was appointed as a Managing
Director.
After the company was formed, they entered into
an agreement under which the company undertook
to pay him 1% of the value of all ore sold from the
mining land.
This was ‘in consideration for Schmidt’s services
for and on behalf of the company prior to its
formation, after incorporation and for future
service…’

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 The issue was whether services rendered
after incorporation but before the
agreement, were sufficient to constitute a
valid consideration even though they were
clearly past.
Held : The services given by Schmidt before
the promise was made were sufficient to
constitute a valid consideration even though
those services were clearly past.

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General Rule for Consideration
 S.26 provides that an agreement without
consideration is void.

 Illustration (a) to S.26 :

‘A promises, for no consideration, to give to B
RM1K. This is a void agreement’

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 Exceptions to General Rule
 There are 4 exceptions to the general rule as
provided under S.26

 Under these exceptions, the contract is valid

and binding even though there is no
consideration.

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Contract Made on Account of Natural love and
Affection.
 S.26 (a) provides that,
‘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 near relation to each other’

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 The validity of this type of agreement is
dependent on the following conditions :
1) It is must be expressed in writing
2) It must be registered (if applicable)
3) It is made on account of natural love and
affection between parties standing in
near relation.
 The requirement as regards to registration

appears unnecessary when there is no law

requires such registration.

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 However, the elements of ‘near relation’ must
exist in order for the contract to be valid.
Re Tan Soh Sim

Facts : When Tan Soh Sim was on her death-

bed, to ill to make her will, her sisters had
signed a document renouncing all claims to
Tan’s estate. It was made known to them that
Tan’s last wish was to divide her estate
among her 4 adopted children.

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The questions arose whether the contract
made by Tan’s sisters renouncing the estate
and divide the estate to Tan’s adopted
children was valid.

Held : According to Chinese custom, adopted

children are having near relation to their
foster parents but not to their foster parent’s
family. The judge further said that if either
the feelings or the relation are lacking, the
section does not apply. Therefore, the
document was not a valid contract.

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Contract to Compensate Past Voluntary
Act : 1st limb of S.26(b)
 S.26(b) 1st limb :
‘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…’

 There are 2 conditions to be fulfilled :

1) it is a promise to compensate the promisee
2) The act was done voluntarily by the promisee
to the promisor.

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 Illustration (c) to S.26 :
‘A finds B’s purse and gives it to him. B
promises to give A RM50. This is a contract.’

 The word ‘voluntarily’ has been interpreted in

the case of,

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 J.M. Wotherspoon & Co. Ltd V. Henry
Agency House

Facts : PF was an English firm and DF was a

Malaysian firm. Both had acted as agents for
various products. DF would find buyers and PF
would find the sellers. When a sale had been
arranged, the DF would received a commission.
A dispute arose when the buyer which the DF
had introduced failed to pay the seller and the
PF suffered loss due to that.
DF promises a compensation to the PF but they
didn’t fulfilled it. PF sued the DF.

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Issue : The issue was whether the PF was a
person who had already ‘voluntarily’ done
something for the DF which makes it comes
under the exception of S.26(b) 1st limb.
Held : ‘voluntarily’ means the acts performed
or done by one’s own free will, impulse or
choice and not constrained, prompted or
suggested by another

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 In this case, the PF had acted on the
suggestion of the DF so that its action could
not be said to have been done voluntarily.
Therefore, it makes the promise to
compensate done by the DF to the PF was not
an enforceable contract within the exception
of S.26(b).

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Contract to Compensate for an Act,
which the Promisor was Legally
Compellable To do : S.26(b) 2nd limb.

 S.26(b) provides that,

‘an agreement made without consideration is
void, unless…it is a promise to compensate…
a person who has already voluntarily done
something which the promisor was legally
compellable to do…’

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 There are 3 conditions to be fulfilled :
1) There is a promise to compensate the
promisee wholly or partly
2) The promisee had done the act voluntarily
3) The act done was one which the promisor
was legally compellable to do.

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 Illustration (d) to S.26
A supports B’s infant son. B promises to pay
A’s expenses in so doing. This is a contract.
 Examples :

Y had been imposed by the court to pay fine.

But X had voluntarily pays it on behalf of Y.
later, Y promised to compensate X.
That promise is binding under this provision.

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 Contract to Pay Statute Barred Debt :
S.26(c)
 S.26(c) provides that :
‘An agreement made without consideration is
void unless…it is a promise…in writing and
signed…to pay wholly or in part a debt of
which the creditor might have enforced
payment but for the law for the limitation of
suits.’

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 Illustration (e) to S.26:
‘A owes B RM1K but the debt is barred by
limitation. A signs a written promise to pay B
RM500 on account of the debt. This is a
contract.’
 Statute Barred Debt refers to a debt which

cannot be recovered through legal action

because of a lapse of time.

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 Conditions to be fulfilled under S.26(c) :
1) The debtor made a fresh promise to pay
the statute barred debt.
2) The promise must be in writing and signed
by the promisor (the debtor) or his
authorised agent.
 Example :

A said to B, I know I still owe you RM1K

which I borrowed 7 years ago. I shall pay
within 2 months.
The promise made by A must be made in
writing and signed.
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 The time limit for an action in contract under
the Limitation Ordinance 1953 applicable to
Peninsular Malaysia, is 6 years from the time
of the cause of action arises.
 Where more than 6 years have elapsed from

the cause of action, the action is ‘statute-

barred’ i.e. the aggrieved party cannot sue to
claim the debt from the debtor

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