CONSIDERATION

Definition, Types of consideration,

Agreements without Consideration
What is consideration?
 Contracts are either formal or simple. Only simple
contracts require consideration to be present, i.e.
'something of value given or received in return for a
promise'. It is the benefit received.
 A formal contract does not require consideration. A
formal contract (also known as a contract under seal
or a deed) is one in which the following formal
requirements have been satisfied:
 It is in writing.
 It is signed by the parties.
 It has been witnessed.
 It contains a statement that it is a 'deed' and it is
'sealed'.
 It has been delivered to the other party.
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Parties involved in consideration
 see section 2 ( c) of Contracts Act 1950
PROMISOR - person making the promise
PROMISEE - person receiving the promise

 Consideration is the price paid for the

promisor's promise and may be something the
promisee gives the promisor, or the carrying
out of some act or not doing something that
the promisee had a legal right to do.

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What agreements are contracts?

 Contracts Act 1950, s.10. (1)

 All agreements are contracts if they are made
by the free consent of parties competent to
contract, for a lawful consideration and with a
lawful object, and are not hereby expressly
declared to be void.
 General rule: From the above we can surmise
that agreements without lawful considerations
are NOT contracts.
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Concept of consideration – basic
element of contract
 Consideration is broadly defined as something of
legal value.
 A contract must be supported by ‘consideration,’ to
be enforceable. In order to have a valid contract it is
important to have the element of consideration.
 The definition of consideration is the thing of value
given in exchange for a promise.
 The role of consideration is to determine that
promises are enforced only where the parties have
exchanged something of value in the eye of the law.
 Except under certain circumstances, promises made
without consideration are not legally enforceable

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Section 2 (d) of the Contract Act 1950
 Consideration is defined as “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.”
 Has done or abstained from doing – past consideration
 Does or abstains from doing – executed consideration
 Promises to do or abstain from doing – executory
consideration

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Meaning of consideration
 In Currie v Misa (1875) LR 10Ex 153,
consideration was defined as ‘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.’

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Three types of consideration
 Past consideration arise when a promise is made in
return for an act that has already been performed.
 The consideration is executed when a promise is
made in return for the performance of an act
 The consideration is said to be executory when one
promise is made in return for another that is ‘a
promise in return for a promise.’ T
 the phrase stated under section 2 (d) that is ‘has done
or abstained from doing’ in section 2 (d) covers the
past consideration

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Past consideration
 The English law do not recognized past
consideration and stated that ‘past
consideration is no consideration’.
 This differs from the Malaysian Contract law
which recognized past consideration as a
good consideration. See decision in
Malaysian case of Kepong Prospecting Ltd
and S.K Jagatheesan and others v A.E
Schmidt and Majorie Schmidt

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Kepong Prospecting Ltd & Ors v
Schmidt & anor.
 Facts: Schmidt, a consulting engineer, had assisted another in
obtaining a prospecting permit for mining iron ore in Johor. He
also helped in the subsequent formation of the company,
Kepong Prospecting Ltd. and was appointed Managing Director.
Following the formation of the company, an agreement was
entered into between them under which the company undertook
to pay him one per cent of the value of all ore sold from the
mining land. This was ‘in consideration of the services rendered
by the consulting engineer for and on behalf of the company
prior to its formation, after incorporation and for future
services…’
 Issues to be decided: whether services rendered after
incorporation, but before the agreement, were sufficient to
constitute a valid consideration even though they were past
acts. The Privy council held that it validly amounted to
consideration, so Schmidt was entitled to the amount claimed.

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Agreement Without Consideration
 According to the general rule, an agreement without
consideration is void. It is considered as not binding
as stated in section 26 of the Contract Act 1950.
 There are several exceptions to this rule as stated in
section 26 of the Act which may be summarized as
follows:
a) An agreement made on account of natural love and
affection between parties standing in near relation.
b) An agreement to compensate for a past voluntary act.
c) An agreement to compensate a person who did an act
which the promisor was legally compellable to do.
d) An agreement to pay a statute-barred debt.

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An agreement made on account of natural love and
affection between parties standing in near relation.
 Only members of a family who are considered near relations to
each other may enter this type of agreement. The words ‘near
relation’ is subjective and vary from each social group depending
on its customs and practices.
 In local case of Tan Soh Sim, Chan Law keong & others v Tan
Saw Keow & others (1951) 17 MLJ 21, the deceased, Tan Soh
Sim, was married but having no issue, adopted four children.
When Tan Soh Sim was on her death-bed, too ill to make a will,
her brothers and sisters signed a document drawn up by a solicitor
renouncing all claims to Tan’s estate in favour of the four adopted
children. This was the testamentary intentions of Tan Soh Sim.
The question in the distribution of Tan’s estate is whether the
instrument signed was valid. The court held that natural love and
affection and nearness were lacking and the document was not a
contract.

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An agreement to compensate for a past
voluntary act:
 In order to fall under this exception, the
following requirements must be fulfilled:
 It must be a promise to compensate either
wholly or in part the other person (promisee).
 The promise must have voluntarily done
something for the promisor.
 The promisee must have done the act for the
promisor voluntarily and not at the request of
the promisor.

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An agreement to compensate for a past
voluntary act:
 The case of J.M Wotherspoon & Co. Ltd v
Henry Agency House (1962) 28 MLJ 86
 concerned a dispute between a Malaysian
and English firm. They are agents for various
products. The former would find buyer and
inform the latter who would find the sellers.
Malaysian firm would receive a commission
when the sales were arranged.

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An agreement to compensate for an act the
promisor was legally compellable to do
 In order to apply the exception under section
26(b) of the Act, there must be:
 a promise to compensate the other party for
an act which he has done or
 the act done is one which the promisor was
legally compellable to do e.g. pay income tax,
pay road tax, pay for summons for road traffic
violations etc.

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An agreement to pay a statute-barred debt.

 A debt which cannot be recovered through

legal action because of the lapse of time is
known as a statute-barred debt.
 The Limitation Ordinance, 1953 laid down the
time limit for an action in contract which is
applicable to Peninsular Malaysia is 6 years
from the time the cause of action accrued.
 The cause of action is considered ‘statute-
barred’ that is the aggrieved party cannot sue
if more than 6 years have elapsed.

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An agreement to pay a statute-barred debt

 There is an exception under section 26(c) of the Act

which states that:
 The debtor must have made a fresh promise to pay the
statute-barred debt.
 The promise must be in writing and signed by the
person to be charged or his authorized agent in that
behalf.
 The promisor may not be sued for the original
contract but may be sued on the fresh promise and
promisor will only be liable according to the terms
and conditions of the fresh promise.

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Consideration need not be adequate
 The adequacy of consideration will not be
an issue if consent for agreement is freely
given: see Explanation 2 in section 26
 An agreement to which the consent of the
promisor is freely given is not void merely
because the consideration is inadequate; but
the inadequacy of the consideration may be
taken into account by the court in determining
the question whether the consent of the
promisor was freely given.

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Adequacy of Consideration:
 If the promisor has received
sufficient consideration, he is
bound by the contract even if
his promise is far more
valuable than the price he
asked for.
 It is immaterial whether he
has made a good bargain
and the court only concerned
whether he has made a
bargain.
 It is enough, as long as the
consideration has some
value in the eyes of law.
 Therefore consideration
need not be adequate but
must be sufficient
 The value of consideration
provided by the party does
not have to match what it
being given in exchange.
Hence, consideration must
be ‘sufficient’ and must be of
economic value.
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Adequacy of Consideration:
 In the case of Phang Swee Kim v Beh I Hock (1964)
MLJ 383, FC, the respondent claimed that the
appellant had trespassed on his land. He took an
action against the appellant claiming for possession
and also for an account of all income received by him
from the land. According to the appellant there was
an oral agreement made between her and the
respondent in which the respondent agreed to
transfer the land to her on payment of RM500. It was
held that the inadequacy of the consideration was
immaterial.

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Rule relating to consideration not
applicable to gifts
 see Explanation 1 in section 26
 Nothing in this section shall affect the validity,
as between the donor and donee, of any gift
actually made.

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Unlawful consideration and objects
 What considerations and objects are lawful, and
what not, section 24: The consideration or object of
an agreement is lawful, unless—
 (a) it is forbidden by a law;
 (b) it is of such a nature that, if permitted, it would
defeat any law;
 (c) it is fraudulent;
 (d) it involves or implies injury to the person or property
of another; or (e) the court regards it as immoral, or
opposed to public policy.
 In each of the above cases, the consideration or
object of an agreement is said to be unlawful.
Every agreement of which the object or
consideration is unlawful is void.
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What if part of consideration/object is
unlawful?
 Agreements void if considerations and
objects unlawful in part – section 25:
 If any part of a single consideration for one or
more objects, or any one or any part of any
one of several considerations for a single
object, is unlawful, the agreement is void.

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Rules relating to consideration
 Consideration is essential in
all simple contracts
 Consideration must be lawful
– see ss.24 and 25;
 Consideration need not be
adequate if there is free
consent – see explanation 2
in section 26; Consideration
must have some value, but
this need not be adequate as
this is something only the
parties to the contract can
decide (Chappell & Co. Ltd
v. Nestle Co. Ltd [1960]).
 Consideration cannot consist
of act(s) that are impossible
to do –see sections 57(1)
where ‘An agreement to do
an act impossible in itself is
void’ and section 57(2)
where ‘A contract to do an
act which, after the contract
is made, becomes
impossible, or by reason of
some event which the
promisor could not prevent,
unlawful, becomes void
when the act becomes
impossible or unlawful.
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Rules relating to consideration
 Consideration must be
present (executed) or future
(executory), and
past (Kepong Prospecting
Ltd & Ors v Scmidt & Anor )
where the act was done at
the request of the promisor
in the way of business, and
where it was assumed that
payment would be made
(Lampleigh v.
Braithwait (1615)).
 Consideration must move
from the promisee, though it
need not move to the
promisor (Dunlop
Pneumatic Tyre Co. Ltd v.
Selfridge & Co. Ltd [1915]).
Where there are joint
promisees and only one has
given consideration, the
other can still enforce the
promise (Coulls v. Bagot's
Executor and Trustee Co.
Ltd (1967)). See also
definition in section 2(d) of
the Contracts Act 1950.
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Rules relating to consideration
 Terms relating to consideration must be
clear/certain – see section 30. If meaning of
terms are not certain or capable of being
made certain, agreement is void.
 Consideration must be lawful – sections 24
and 25 as well as section 10 of the Contracts
Act 1950.

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