THE LAW ON CONSIDERATION- Q&A

Sample Questions

1) What do you understand by the "term consideration" in relation to the law of contract? Explain this doctrine including the exceptions to the general rule. You are required to illustrate your answers with the relevant case law.
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2) Agreements without consideration are totally void in Malaysia. Explain this proposition analyzing your presentation with the relevant case law.

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3) With reference to the Contracts Act 1950, define [explain] consideration and explain the exceptions to the rule that contracts without consideration are void.
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Consideration usually refers to money. In the business world, consideration is paid where services are rendered, or goods sold or bought, or where there is a conveyance of property. Therefore in the commercial world, contracts without consideration are void. However there are exceptions to this rule.

Consideration is defines in Sect.2 (d) of the Contracts Act 1950 as follows:-

“Where at the desire of the promisor, the promise or any other person has done or abstained from doing or promises to do or abstains from doing, something, such act or abstinence or promise is called consideration of the promise.”

Basically consideration is the price paid by one party to the other party for goods supplied or services rendered.

Sect.26- states that contracts made without consideration are void. But there are some exceptions to this rule .

NATURAL LOVE AND AFFECTION IS VALID CONSIDERATION

In Malaysia, natural love and affection is recognized as valid consideration. This is found under Sect 26(a) CA 1955 (English Law does not recognize this). However the agreement must be

a) it is expressed in writing
b) it is registered
c) the parties stand in near relation to each other.

Since social norms and cultures differ from one group to another, the Courts will decide in what situations “near relations” will apply. In the case of Re Tan Soh Sim [1951] 1 MLJ 21 it was held by the CA that Chinese adopted children could not be regarded as being ‘in near relation’ to the uncles and aunts of the adoptive mother.

Past Consideration is good consideration.

26(b) A promise to compensate wholly or in part who has voluntarily done something for the promisor, or something which the promisor was legally compellable to do. In Malysia past consideration is good consideration. Sect 2(d) "... has done or abstained from doing...' clearly emphasizes this aspect of the law.

Kepong Prospecting v Schmidt

Schmidt, a consulting engineer has assisted in obtaining a permit for iron ore in the State of Johore. He also helped in the subsequent formation of the Company, Kepong Prospecting Ltd. After the Company was formed, an agreement was entered into between them under which the Company undertook to pay him one percent of the value of all iron ore sold from the mining land. This was in consideration of the services rendered after incorporation but before the agreement.

Held: The Court held that this was sufficient in law to constitute valid consideration even though they were clearly past.Therefore Schmidt was entitled to be paid for his services even though it was clearly past.

Statute Barred Debts

26(c) A promise to pay wholly or in part a statute barred debt, provided that it is made in writing and signed by the person to be charged therewith or by his duly authorized agent.

Under the Limitation Act 1953, an action to recover a civil debt must be done within 6 years from the date on which the action accrued, otherwise it will be time barred. In law this is known as statute barred. In all Civil suits there is a limitation period . Only in Criminal proceedings there is no time limit.

Consideration may be executed or executory "... promises or abstains from doing."

K. Murugesu v Nadarajah

The appellant agrred to sell a house to the respondent and the agreement was written on a scrap of paper. It read in part as follows,

".... I agree to sell my house ............to Mr. Nadarajah, the present tenant of the house

for RM26,000 within 3 months from the date. Signed....

Held: Chang Ming Tat speaking on behalf of the Federal Court, considered s24 illustration (a), stated- "The agreement must be seen as a case of executory consideration.A promise made by one party in return for a promise made by the other, in such a case each promise in consideration for the other."

Executed Consideration

A good example of an executed consideration can be seen oin the case of Carlill v Carbilic Smoke Ball Co Limited. (1893) 1 QB 256.

In this case the offer made by the Company in the advertisement remained open until Mrs Carlill bought the smoke balls , and it remained executory, used it and contracted influenza. This act of performance was the consideration and it remained executory until the performance was completed.

Note:-

As an executed contract comprises clear promises made by both parties, such a contract is usually refererd to as a bilateral contract. In the case of an executory contract , as only one party has made a promise which is binding on him, and as the other party has made no such promise (until the act is performed) such a contract is referred to as a unilateral contract.