LAW OF CONTRACT:
ELEMENTS OF CONTRACT
(CONSIDERATION)
Prepared by:
NURUL NASIHIN ARIFFIN
KPMBP
Definition
• Sec 2(d)
-Consideration is the price or something which one party
pays to buy the promise or the act of the other. It can take
the form of money, physical objects, services, promised
actions, or even abstinence from a future action.
- Promisee must give something in return for the
promise made by the promisor).
- For example, a person enters a shop and agrees to buy a
second-hand car for RM 10,000. A contract has been made.
The buyer’s consideration is the promise to pay RM 10,000.
The shop-owner’s consideration is its promise to pass
ownership of the car to the buyer.
- it can take the form of money, physical objects, services,
promised actions, or even abstinence from a future action.
Cont…
- case: Combe v Combe
P is D’s wife. They have separated. P then
called the D to get approval from D that he
will give her 100 pound yearly as alimony. D
approved and P voluntarily did not file formal
order. D fails to do as promise. P took action
against D for breach of Contract.
Held: P claims was rejected by court because
there is no consideration for D promise. An
agreement without consideration is void.
Cont…
- But, it is different with case:
Williams v Williams
P is D’s wife. P has left D. D then promise to
give alimony of 30 pound a week to P with a
condition that P will abstain herself from taking
any credits on D’s name. D fails to do as he has
promise. P sought action through court. D in
his defence says that the agreement is void for
lack of consideration.
held: there is valid contract. A promise not to
take credits on D’s name is a good
consideration.
Categories of consideration
• Executory
- where the parties exchange promises to perform acts
in the future.
- E.g: C promises to deliver to D a bicycle and D
promises to pay RM100 for the bicycle.
• Executed
where an act is done in return for the performance
of an act. (reward situation).
- E.g: Laila lost her wallet. She offers a reward of
RM100 for anyone who found her wallet and returns
her wallet. Majnun found her wallet and returns it to
her. She paid the reward of RM100 to him.
Cont…
• Past consideration
- where a promise is made subsequent to
and in return for an act that has already
been performed
- Illustration (c) of section 26:
- A find B’s purse and gives it to him. B
promises to give A RM 50. This is a contract.
Cont…
-
case: Kepong Prospecting Ltd & Ors v
Schmidt
Schmidt claimed payment as promised from a
company to reward his service as an advised
engineer before and after the company was
registered when his service is terminates. In
defense, the company claims that no consideration
is given for the promise.
held: Court rejected the defense. The service gave
by Schmidt before the agreement but after the
company registered is a valid consideration
under sec 2(d).
Voluntarily
•
•
Performed or done of one's free will,
impulse or choice, not constrained or
suggested by another'
Thus where Romeo saves Juliet's property
from destruction when she was away and
she promises to give Romeo something for
all his trouble
Rules of Consideration
1) Must be sufficient but need not be adequate
- Every consideration must have some value in
the face of law.
- However, the value need not be adequate,
i.e. need not be in the same value as the
other consideration.
Cont…
-
case: Phang Swee Kim v Beh I Hock
There was an oral agreement made between A and R
in which R agreed to transfer the land to A on
payment of $500. Upon payment of $500, A
possessed the land. Later, R claimed that the A had
trespassed on his land and he bought an action
claiming for possession of the land from A.
held: Consent given by R was freely given. It was not
caused by coercion or undue influence. The
inadequacy of consideration is immaterial and the
court gave judgment in favour of the A.
Cont…
2) Payment to compensate part of debt
- Under S.64: if A owes B RM5000. C pays to B RM 1000
and B accepts them, in satisfaction of his claim on A.
this payment is a discharge of the whole claim.
3) Not a moral obligation
- The meaning of this rule can be easily explain by
Eastwood v Kenyon
When Respondent’s promise to pay for the debt made by P
to raise Respondent’s wife while she was a child until
before he married her is not a consideration. It is a moral
obligation on P to raise his dependent well.
Cont…
4) Not a public obligation
- A person who is under duty to carry public
obligation cannot claim his act as consideration
to one’s promise.
- Case: Collins v Godefroy
P has been subpoenas to court to give statement
as D’s witness. D promises to give reward to P.
After attending court session, D refuses to pay as
he promised. P sued D for breach of contract.
held: court reject the P’s claim. It is everyone
duties to help court to uphold justice.
Cont…
- however, if the obligation is more than necessary to
public obligation, it can be a consideration to one’s
promise.
case: Glassbrook Brothers v Glamorgan City
Council
P requested D to give extra protection on his mines
when a group of workers strike. D refusal to pay
cost of 2200 pound. P made claims to court.
held: court decides that protection given by the
police is more than a necessary public obligation.
The protection is a valid consideration.
Cont…
5) Not a former obligation to the promisor
- A party that already has an obligation to the promisor
cannot claim that his action is a consideration to a new
promise made by the promisor.
case: Stilk v Myrick
a promise made by a ship captain to pay extra wages to
the crew when 2 of them passed away during the voyage.
held: it is not a valid consideration. The crews are under
obligation to perform in case of emergency to bring the
ship to safe destination.
- but, if suppose the former contract has ended and there
is a new contract, then the court will decide contradict as
to the above principle.
Cont…
6) Valid as to section 24 contract Act 1950
- Sec 24 list out 5 situations which if any of an
agreement falls under, the agreement is void.
- The reasons might be that the object of
agreement or the consideration of any
agreement is unlawful.
Exceptions to consideration
• In general rule, the law sets the rule without
valid consideration from both parties, an
agreement is void.
• However, there are exceptions:
1) Sec 26(a)
- allows promise made on account o natural
love and affection between parties standing in
near relation to each other to be enforceable
even it is lack of consideration.
- however, the promise may be enforceable
only if it is made in writing and registered
under the law, if any.
Cont…
- case: Kwan Teck Meng v Liew Sam Lee
D rented ground floor premise won by X. X
transfer the property to P. X then passed
away. Transfer of property is settled 2
months after X death. When asked by P to
vacant the premise, D refused and claimed
that P has no right since no consideration
given by P to X.
held: the transfer is valid since it fulfils sec
26(a)
Cont…
- Case: Re Tan Soh Sim
a Chinese woman raised few adopted children.
When she was very sick, her siblings signed an
agreement surrending all their rights on her
properties to her adopted children. After she
died,
a
question
arises,
whether
the
agreement is valid?
held: Court has adopted Chinese customs. The
customs sets that adopted children are
considered to be near relation with their adopted
mother and adopted sibling, but not with their
adopted mother siblings. Therefore the agreement
is void. It fails to fulfill sec 26(a).
Cont…
2) Sec 2(b)
- allows agreement without consideration to
be valid if it is a promise to compensate for
something done.
3) Sec 26(c)
- a promise to pay a debt barred by limitation
law 26(c)
- the promise is valid only if it is made in
writing and signed by the person to be
charged therewith or his agent.
Thank You For
Your Cooperation