BBBL2033 Business Law (For TARUC Students Use Only)

BL1

Tutorial 4: Consideration

Suggested Answers:

Consideration need not be adequate but must be of some value.

1. The managing director of Syarikat Kaya Raya Sdn. Bhd. approached Alex, a
senior employee of the company and told him he can buy one of the companys car
worth RM50,000 in the market for just RM1,000 as recognition for his long service
with the company. Advise Alex as to whether the company can sell to him the car at
the price mentioned.

a. The issue here is whether RM1,000 as consideration for the price of the car that is
worth more constitutes a valid contract.

b. One of the principle of contract law is that consideration need not be adequate but it
must be of some value. Adequacy of consideration is a matter for the parties in the
agreement to decide. The courts will not interfere where consent is given freely.

c. Section 26 explanation 2 states that an agreement to which the consent of the

promisor is freely given is not void merely because 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.

d. This is supported by illustration (f) which gave an example that if A agreed to sell a
horse worth RM1000.00 for RM10. As consent to the agreement was freely given.
The agreement is a contract notwithstanding the inadequacy of the consideration.

e. In Phang Swee Kim V Beh I Hock, the respondent agreed to transfer to the appellant
a parcel of land on payment of RM500 when the land was worth much more. The
respondent later refused to honour the promise, contending that the promise was
unenforceable. The Federal Court applied section 26 explanation 2 and illustration (f)
of CA 1950 and held that it was a valid contract despite the inadequacy of the
consideration.

f. Therefore if the company Syarikat Kaya Raya Sdn. Bhd. agreed to sell the car for just
RM1,000, despite inadequacy of the consideration but the consent was freely given,
the contract is valid.

Gilbert Sim, LLB (Hons), CLP.

BBBL2033 Business Law (For TARUC Students Use Only)

Consideration need not move from the promisee.

2. Alex promised Benny, his younger brother, that he will provide financial support
for his education by paying for his school fees and monthly living expenses. Alexs
elder brother, upon being told of Alexs promise to Benny transferred 20% of his
shares in his company to Alex on condition that Alex must continue to support
Benny financially till he finished his studies. Alex has since failed to fulfill his
promise for the last six months. Advise alex.

a. The issue here is whether there is a contract between Alex and Benny when
consideration is provide by Alexs elder brother instead of Benny.

b. Section 2(d) CA 1950 state that at the desire of the promisor, the promisee or any
other person has done something, such act or promise is a consideration for the
promise.

c. In Venkata Chinnaya v Verikatara Maya where the sister agreed to pay the brothers
education and the mother provided the consideration. It was held that there was a
valid contract between the sister and the brother, and the brother being the promisee
need not provide consideration as long as another person (the mother) can provide the
consideration.

d. This means the elder brother being the any other person can provide the
consideration instead of the promisee Benny, as this complies with section 2(d)
CA1950. Benny is advised that he has a valid contract with Alex.

e. Alexs failure to fulfil his promise would be a breach of contract.

Past consideration is good consideration.

3. Jane lost her pet cat. She places posters of her lost cat around the neighbourhood
asking them to help find her cat. Aileen, who lives on the next road found the cat and
returned it to Jane. Jane then promised to give Aileen a reward of RM500 for having
found the cat. To date Jane has not paid Aileen. Advise Aileen if she could pursue the
reward from Jane.

Would your answer be different if Jane had lost her cat, she had not place any
posters asking the neighbours to help. Aileen found the cat and returned it to her.
Jane now promises Aileen a reward of RM500.

a. The issue here is whether Janes promise to pay Aileen the RM500 reward constitutes
a contract.

b. Under Malaysian contract law past consideration is good consideration.

c. The definition of consideration in section 2(d) CA 1950 state that at the desire of the
promisor, the promisee has done something, such act or promise is a consideration
for the promise.

Gilbert Sim, LLB (Hons), CLP.

BBBL2033 Business Law (For TARUC Students Use Only)

d. The requirement of past consideration is that the act must have been carried out at the
desire of the promisor. By Jane placing posters asking the neighbourhood to find her
cat, this amount to a request i.e. a desire to find her cat. Therefore, Aileens act of
finding the lost cat and returning it to Jane was at the request or desire of the
promissor.

e. The phrase has done something in section 2 (d) indicates and recognises a
consideration that is past.
After Aileen found the cat and returned it to Jane, Jane then promised a reward of
RM500 to Aileen. This promise made after the performance of the act by Aileen
amounts to past consideration and is therefore good consideration.

f. Therefore Aileen has a contract with Jane.

Would your answer be different....

Application of section 26 (b) Contracts Act 1950:

a. When Aileen found the cat and returned to Jane, this was a voluntary act. It was done
not at Janes request i.e. not at the desire of the promisor.

b. Section 26(b) CA states that a promise to compensate for something that the person
has voluntarily done is a valid contract.

c. Therefore Janes promise of RM500 to Aileens voluntary act of finding the cat
constitutes a contract enforceable under section 26(b) Contracts Act 1950. Aileen can
sue Jane for breach of contract.

4. Mary wrote and signed on a piece of paper promising to transfer all her
jewellery to her only and most precious daughter Tina. In return, Tina just thanked
her mother. Appraise the above as to whether the arrangement is legally enforceable.

Application of s26(a):
a. The issue here is whether a gift out of natural love and affection can constitute good
consideration where no consideration was provided by the benefitting party.

b. Section 26(a) provides that an agreement without consideration is void unless

i. it is in writing
ii. registered under the law (if required)
iii. made on account of natural love and affection
iv. between parties standing in near relations to each other.

c. Section 26 illustration (b) provides that A, for natural love and affection, promises to
give his son, B, RM1000. A puts his promise to B in writing and registers it under a
law for the time being in force for the registration of such documents. This is a
contract.

Gilbert Sim, LLB (Hons), CLP.

BBBL2033 Business Law (For TARUC Students Use Only)

d. Next is the issue of standing in near relations. In RE Tan Soh Sim (1951), the
principal issue was whether an agreement made on account of natural love and
affection for three sisters and seven half-sisters and brothers stood in near relationship
to their adopted nephews and nieces. The court held that adopted children did not fall
under the category of near relation to each other.

e. Tina is not adopted but is Marys only daughter and thus qualifies this test.

f. Today under Civil Law Act 1956, section 7 (11) - illegitimate child and adopted child
are considered near relations.

g. In conclusion, the above scenario meets the requirements of s26(a) because Tina is
Marys daughter and thus stands in near relations to each other. Next, Mary by putting
her promise in writing constitutes a valid contract without Tina having to provide any
consideration. The above arrangement is a valid contract enforceable under s26 CA
1950.

Part payment as full satisfaction of larger sum.

5. Ali owes Baba RM5000.00. Ali negotiated with Baba to accept RM3000 as full
settlement. Baba agreed and Ali paid the agreed amount. Baba has now changed
his mind and demanded the balance RM2000 from Ali.
Appraise the above situation as to whether Baba can proceed to claim for the
balance RM2000.

The issue here is whether part payment can amount to waiver of performance or
payment of a lesser sum can amount to full satisfaction of a larger sum owed.

a. Under English law in Pinnels case, the principle is that payment of a lesser sum
is not satisfaction of the legal obligation to pay the larger sum.

b. Thus, under common law, Baba can still proceed to asked Ali to pay the balance
amount still owing.

c. The principle in Pinnels case has no application in Malaysia today. So Baba

cannot rely on this principle of law because of s64 CA 1950.

d. S 64 CA 1950 provides that every promisee may dispense with or remit wholly
or in apart the performance and may accept instead of it (it here means the full
amount) any satisfaction (here it means any amount) which the promisee thinks
fit.

e. Baba had earlier agreed to the amount of RM3000 as full settlement, so he

cannot ask from Ali the balance amount of RM2000 because Ali can rely on s64
to prevent Baba from asking the balance RM2000.

f. The case of Kerpa Singh v Bariam Singh and illustration (c) of S64 would
support Alis case.

Gilbert Sim, LLB (Hons), CLP.