CONSIDERATION

INTRODUCTION
 Definition
 Requirements, Types
 Exceptions to consideration:
 s.26
 S.64
 Promissory estoppel
 Certain Common law positions
 Pre-existing public duty
 Pre-existing contractual duty
 Pre-existing contractual duty to third party
 Misc:
 Privity
of Contract
 Adequacy of Consideration

Consideration 2
DEFINITION
 What is consideration?
 Currie v Misa (1875) LR 10Ex 153
 “Avaluable consideration in the sense of the law
may consist either in some right, interest, profit
or benefit accruing to one party, or some
forebearance, detriment, loss or responsibility
given, suffered or undertaken by the other.”
 In short?
I get, you get

Consideration 3
 s.2(d)

When, at the desire of the promisor, the

promisee or any other person has done or
abstained from doing, or does or abstain
from doing, or promises to do or to abstain
from doing, something, such act or
abstinence or promise is called consideration
for the promise.

Consideration 4
 s.2(d)

When, at the desire of the promisor,1 the

promisee or any other person2 has done or
abstained3 from doing, or does or abstain
from doing, or promises to do or to abstain
from doing, something, such act or
abstinence or promise is called consideration
for the promise.

Consideration 5
1. DESIRE OF THE PROMISOR
 The act / abstinence must be at the desire of
the promisor
 If it was never initiated / desire of promisor
 Then it is not consideration

Consideration 6
2. PROMISEE OR ANY OTHER PERSON
 Thus, consideration need not be from the
promisee only
 Kepong Prospecting Ltd v Schmidt
 Mr Tan applied to State Government for a
prospecting permit for iron ore. Assisted by Mr.
Schmidt. 1954 Contract: between Mr Tan and
Kepong i.e. Kepong would prospect and work the
land in the mining permit and take over Tan’s
obligation to pay Schmidt 1% of the selling price of
all ore sold from the land.
 Consideration: provided for (essentially) by
Schmidt but contract between Mr. Tan and Kepong
Prospecting
Consideration 7
Note: Privity of Contract

 Third party to the contract cannot sue

 1954 Contract:
 Contract between Mr. Tan and Kepong Prospecting.
Consideration essentially provided by Schmidt.
 Court ruled: Contract valid
BUT
Schmidt cannot sue because he is the third party to
the contract
 Note:
 Under common law, third party that receives
benefit may have the right to bring an action
 Contracts (Rights of Third Party Acts) 1999

Consideration 8
3. DONE / ABSTAINED
 It may be an act or an abstinence from doing
something
 What about forbearance to sue?
 i.e.agreeing not to exercise a legal right
 The right to sue is something of value
 This is not the same as being forbidden to sue
 S.29 CA …
Every agreement, by which any party thereto is
restricted absolutely from enforcing his rights under
or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits
the time within which he may thus enforce his
rights,is void to that extent.
Consideration 9
4. HAS DONE/DOES/GOING TO
DO
 has done or abstained from doing
 past
 does or abstain from doing,
 present
 promises to do or to abstain from doing,
something,
 Future
 ‘Past’ consideration, executed consideration,
executory consideration

Consideration 10
 Executory consideration
 One party makes a promise in return for a promise
 Eg: Seller promises to deliver goods in return for buyers
promise to pay

 Executed consideration
 One party makes a promise in return for the performance
of an act
 Eg: A promises to pay once B completes the act. Once B
completes the act, the consideration has been executed
(Carlil)

In both situations, the agreement (promise) was made

before any act was done
 If the promise is made after the act was done, then it
is known as Past consideration
Consideration 11
PAST CONSIDERATION
MEANING
 When a person makes a promise to pay after
the act has been completed
 Person A has completed the act
 THEN Person B says “Since you’ve done [__], I’ll
pay you”
 Key: when was the promise made?
 before act or after?
 Be careful – position in Malaysia and under
common law is different.

Consideration 13
COMMON LAW
 Past consideration is not good consideration

ReMcArdle
Plaintiff paid for the repairs of the house. She
was then promised by the others to be paid
£488.

Court of Appeal:
As the repairs had been carried out before the
agreement to pay had been made, it was past
consideration and therefore not good
consideration
Consideration 14
 Exception:

Lampleigh v Braithwait

D committed murder. Asked P to obtain for

him a royal pardon, which P managed to do.
D then promised to pay him £100.

Held
Consideration was good as the act carried
out at D’s request.

Consideration 15
MALAYSIA
S.2(d)

When, at the desire of the promisor, the

promisee ... has done … something … such
act is called consideration for the promise

 Reflects the common law position in

Lampleigh v Braithwait

Consideration 16
GBH CERAMICS SDN BHD V HOW IT
@ LOW AIK & ORS [1989] 2 CLJ 427
P was claiming for payment from D for the goods
delivered to Heng Lee Enterprise. D argued that
the consideration given by P was void for past
consideration since D’s guarantee to pay was made
after P had been supplying the goods over a period
of time.

High Court … from the letter of guarantee, it was

clear that P’s act of delivery was done at D’s
request. Consideration 17
 SEA INSURANCE BHD V NASIR
IBRAHIM
Gunn Chit Tuan SCJ:

“The detriment undertaken by the promise … is a past

performance and should be sufficient consideration
where there is a promise in consideration of some act
previously done by the promisee at the request of the
promisor …

In other words, consideration itself accommodates past

consideration so long as the ‘desire’ requirement is
specified…”
Consideration 18
So, note:

 Never say that ‘past consideration is not

good consideration’
 This is NOT the position in Malaysia
 It doesn’t matter if it’s “past” or not – the
point is, was it at the desire of the promisor?
 If yes, then it IS valid consideration as per
s.2(d)
 If it isn’t, then there is NO consideration
 But
 There can still be a contract
 S.26

Consideration 19
EXCEPTIONS
INTRODUCTION
 A contract requires offer, acceptance,
consideration and intention
 However, there are exceptions when
consideration is not required to form a
contract
 As per:
 S.26 Contracts Act 1950
 S.64: part-payment
 Promissory estoppel: common law
 In addition, will also look at certain common
law positions regarding pre-existing obligations

Consideration 21
S.26
INTRODUCTION
An agreement made without consideration is
void, unless –
a. It is in writing and registered;
b. Or is a promise to compensate for something
done;
c. r is a promise to pay a debt barred by limitation
law
In any of these cases, such an agreement is a
contract

 In short, s.26(a) – (c) are exceptions to when

consideration is needed to form a contract
Consideration 23
S.26(A): IT IS IN WRITING AND REGISTERED

expressed in writing, and registered under

the law (if any) … and is made on account of
natural love and affection between parties
standing in a near relation to each other

Thus, four requirements:

1. Expressed in writing
2. Registered under the law (if any)
3. Natural love and affection
4. Standing in near relation to each other

Consideration 24
 Re Tan Soh Sim

 Tan Soh Sim – married Chan (W2: Tan Boey Kee)

 Adopted 4 children (2 boys, 2 girls)
 Has 3 sisters (Tan), 2 ½brothers & 5 ½sisters
(Khoo)
 Thus, 3 “full” sisters, and 7 “half” brothers and
sisters

Consideration 25
 Khoo Kim
Tan Ah Thai Sng Gaik See
Huat

Tan Tan Soh 3

Boey Chan Sim (1st) 2 5
Girls
Kee Boys Girls

adopted

2
2 Boys Girls

Consideration 26
 Tan Soh Sim did not have a will
 Oral declaration : whole of her property to
adopted children and substantial provision for
W2 (Tan Boey Kee)
 Tan sisters (3) and Khoo siblings (7) signed:

“We, the undersigned relatives of Tan Soh Sim do

hereby renounce all claims of whatsoever nature to
the assets of Tan Soh Sim should she die intestate.
This renunciation of our claim is in favour of (the four
adopted Chans and Boey Kee, the other widow) in
manner following …”

Consideration 27
 Note: Without will, the ten brothers and sisters would
be legally entitled to share on an intestacy
 Thus, what had been signed meant they renounced
everything in order to give the whole estate to
parties who had no legal claim to any share
 Issue: was it a contract?
 Was it due to ‘natural love and affection between the
parties standing in near relation to each other’ ?

Consideration 28
 The words “relationship” and “near”
 must be applied and interpreted in each case
according to the mores of the group to which the
parties belong, and
 with regard to the circumstances of the family
concerned
 “natural love and affection”
 Full effect must be given to the word “natural”
 i.e. not only “reasonable to be expected” but
“reasonably to be expected having regard to the
normal emotional feelings of human beings”
 If either the feelings or relation are lacking,
this section does not apply

Consideration 29
 Chinese custom:
 Founded on patriarchal families and clan
 Dominant motive for adoption of a son is to
ensure family ancestor worship
 Whole system is based on the notion that the
family, not the individual, is the unit of
consideration
A person is either a member of the family or
outside it – once you marry into the family, not
expected to leave it
 Remarriage of widows tolerated only on clear
understanding that they forfeited all rights to
maintenance (deceased husband’s family has no
ties)

Consideration 30
 In short:
 Sons inherit, daughters do not
 Sisters-in-law: brother’s wife – wife’s sister: ‘outside’
 Remarriage of Tan Soh Sim’s mother after death of
father : ‘outside’

So …
 Tan Soh Sim’s sisters and half-siblings: ‘outside’
the family
 Relatedto the children of Chan (whether natural or
adopted) only in a special and limited way which is
not near
 Tan Boey Kee
 Asa secondary wife: same as related to the principal
wife’s sister
Consideration 31
In conclusion
 Rejected as they are not nearly related
 Also, no evidence that there existed any
natural love and affection between the
parties of the alleged agreement
 Signed by the Tan sisters and all seven Khoo ½
siblings
 Evidence showed all the signatories had affection
for Tan but it is not enough to show that an
agreement was made in deference to the wishes
of a third person who was not a party to it

Consideration 32
S.26(B): A PROMISE TO COMPENSATE
FOR SOMETHING DONE
 A promise to compensate, wholly or in part,
a person who has already voluntarily done
something for the promisor, or something
which the promisor was legally compelled to
do

 There are two situations in this i.e. did

something which was:
 voluntary
 something promisor was under a legal obligation
to do

Consideration 33
 Ordinary everyday meaning of ‘voluntary’
 JM Wotherspoon & Co Ltd v Henry Agency House
 P had done something at the suggestion of the
defendant firm. Was this ‘voluntarily’?

 That which the promisor is legally compelled

to do

Consideration 34
 S.2(D) VS S.26(B)
If A makes a promise (promisor) to pay after B
has completed an act, then ask –
 Did B do the act at A’s desire?
 If yes, then it is legal consideration as per s.2(d)
and a contract exist
 If no: not valid consideration
 Was it done voluntarily? OR Was it an act that the
promisor is legally obliged to do?
 If yes, then it is an exception under s.26(b) that allows
a contract to be formed even though there is no
consideration
 If no, then it does not fall under the exception under
s.26 and there is NO contract
Consideration 35
S.26(C): PROMISE TO PAY A DEBT BARRED
BY LIMITATION
 It is a promise, made in writing and signed by
the person to be charged therewith … 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

 This is not the same as s.64: part-payment

Consideration 36
PART-PAYMENT
S.64
 Every promisee may dispense with or remit,
wholly or in part, the performance of the
promise made to him, or may extend the
time for such performance, or may accept
instead of it any satisfaction which he thinks
fit

 Thus …
 Can dispense wholly or in part
 May extend time to perform
 May accept anything in exchange

Consideration 38
 Kerpa Singh v Bariam Singh

Query: Had the judgement debt been satisfied by the

tender of a third party (the son) of a cheque for a
smaller amount than the sum due as payment in full.
The cheque had been accepted and cashed by the
creditor.

“…you have agreed to receive $4000 from my father

being payment in full settlement of his share in the …
civil suit … amounting to $8,650 … I now enclose a
receipt for $4000 paid by cheque at your firm in Kota
Bahru … I pray you will accept the payment and agree
to allow to discharge my father ... from any further
liability. If you don’t agree … please return me my
money”
Consideration 39
Held ..

 Very clear that a third party made an offer

subject to conditions i.e. that creditor could
either
 Return the money, or
 Retain the cheque and discharge the debtor’s
liabilities
 Conduct in cashing the cheque and retaining
the money can only be an agreement to
discharge debtor from any liability
 Has no consideration, but it falls under s.64

Consideration 40
Take note:

Common law position of Pinnel’s case

 Payment of a lesser sum cannot satisfy a larger
sum
 Even though the parties have agreed to it
 Requires ‘something extra’ as justification for
paying a lesser sum

 Not applicable in Malaysia due to s.64

Consideration 41
PROMISSORY ESTOPPEL
INTRODUCTION
 A promise which has no consideration
 Note:
 Itdoesn’t create a contract, but it is a doctrine
that allows the promise to be upheld
 Common law concept that is accepted in
Malaysia
 Began with:
 Hughes v Metropolitan Railway Co
 Central London Property Trust Ltd v High Trees
House Ltd

Consideration 43
 Hughes v Metropolitan Rly Co

P gave D (tenant) six month notice in

October to carry out repairs to the house. If
not, the tenancy would be terminated. In
November, P carried out negotiations with D
with a view to sell the house to D.
Negotiations ended in December. Repairs had
not been carried out so landlord brought an
action to evict tenant when the 6 months
was up.

Consideration 44
Held …

If parties who have entered into definite and

distinct terms involving certain legal results …
afterwards by their own act or with their own
consent enter upon a course of negotiations
which has the effect of leading one of the
parties to suppose that the strict rights arising
under the contract will not be enforced or will
be kept in suspense, or held in abeyance, the
person who otherwise might have enforced those
rights will not be allowed to enforce them where
it would be inequitable having regard to the
dealings which have thus taken place between
the parties.
Consideration 45
If parties who have entered into definite and distinct terms
involving certain legal results
 There is a contract between the parties

… afterwards by their own act or with their own consent enter

upon a course of negotiations
 Then, negotiations/statements made

which has the effect of leading one of the parties to suppose

that the strict rights arising under the contract will not be
enforced or will be kept in suspense, or held in abeyance,
 Which made one party to rely on the statement made, and
 Changed his position because of the statement made

the person who otherwise might have enforced those rights will
not be allowed to enforce them where it would be inequitable
having regard to the dealings which have thus taken place
between the parties.
 The other party cannot then deny the statement

Consideration 46
 High Trees Case

In Sept 1939, P leased a block of flats to D for

£2500 per year. In January 1940, P agreed in
writing to reduce it to £1250 as the war
conditions caused many vacancies in the flats.
No express time limit given and D paid reduced
rent. In 1945, flats full again and P claimed full
rent – for the future and restrospectively.

1. Was there an existing contract?

2. Was a statement made that is different from
the contract?
3. Was that statement relied on?

Consideration 47
 MALAYSIAN POSITION
Boustead Trading (1985) Sdn Bhd v Arab-
Malaysian Merchant Bank Bhd [1995]

1. Estoppel is only as a shield, but not a sword

2. He who relied on the statement was
influenced by it
 Only needs to prove influence, not that it was the
sole factor which influenced him
 Also, it does not need to be to his detriment
 “his conduct was so influenced by the
encouragement or representation … that it would be
unconscionable for the representor thereafter to
enforce his strict legal rights.

Consideration 48
 In short:

 There is an existing contract between the two

parties
 One makes a statement, the other relies on it
 Changes his position because of it
 Does not have to be to his detriment
 Thus, the statement cannot be denied

Consideration 49
COMMON LAW CONCEPTS
INTRODUCTION
 There are three situations:
 Pre-existing public duty
 Pre-existing contractual obligations
 Pre-existing contractual obligations to third
parties
 Are there considerations in these situations
so as to create a contract?

Consideration 51
1. PRE-EXISTING PUBLIC DUTY
 There is no consideration (thus, no contract)
when a person who is merely performing his
public duty
 Neither party received any benefit/suffered
any detriment for it

Collins v Godefroy

P received a subpoena to appear as a witness

and to give evidence for D. D had promised
to pay him a sum of money for appearing as a
witness.
Consideration 52
 However,
 Ifthe promisee does more than what is required
to do as part of his pre-existing public duty
 There is consideration

Glasbrook Bros Ltd v Glamorgan County Council

A national coal strike, lasting 3 months, made it

unsafe for the workers from working. Police were
asked for help. Police: patrol and send in police
whenever needed. Request: police garrison of
100 (later reduced to 70). They were told that
this is ‘special duty’ and a promise to pay was
signed.

Consideration 53
2. PRE-EXISTING CONTRACTUAL DUTY
 No consideration
 Stilk v Myrick
 Ship voyage: London – Baltic – back. Two seamen
deserted, and it was agreed that their pay would
be shared among the remaining seamen to work
the ship back to London.
 “There is no consideration for the ulterior pay
promised to the mariners who remained with the
ship. Before they sailed … had undertaken to do
all that they could under the emergencies of the
voyage … voyage should be completed”

Consideration 54
 Williams v Roffey Bros & Nicholls
(Contractors) Ltd
 Different view from Stilk v Myrick
 D, building contractors, subcontracted the
refurbishment of some flats to P. P unable to
complete in time. D agreed to pay P an
additional £575 per flat on its timely
completion.
 There is consideration:
 Where one party obtained a benefit as D able to avoid
paying penalty fees to main employer

Consideration 55
 Hartley v Posonby (1857)

 Similar situation to Stilk v Myrick

 However, here, the shortage of the labour
was so great that the further prosecution of
the voyage exceptionally hazardous
 Thus, there is consideration

Consideration 56
3. PRE-EXISTING CONTRACTUAL
DUTY TO THIRD PARTY
 There is good consideration
 Promisor obtains the benefit of a direct
obligation
 Shadwell v Shadwell
 Uncle promised to pay his nephew a certain sum
if he married Ellen Nicholl – which the nephew,
at that time, was already engaged to.
 The marriage primarily affects the parties
thereto; but in “a secondary degree it may be an
object of interest to a near relative, and in that
sense” a benefit to him

Consideration 57
“SUFFICIENCY” OF
CONSIDERATION
 All contracts require consideration
 As long as there is consideration, its
adequacy is not questioned
 Tan Chiw Thoo v Tee Kim Kuay [1997] 2 MLJ
221, FC
 In law, ‘sufficiency’ of consideration is different
from ‘adequacy’ of consideration
 ‘sufficiency’ is synonymous with ‘validity’ in
regard to consideration

Consideration 58
 Just because consideration may be inadequate
does not mean it is insufficient
 S.26 illustration (f):
 A agrees to sell a horse worth $1,000 for $10. A’s consent to
the agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration.
However
 An inadequate consideration may be taken into
account as the contract not being entered into
with free will
 S.26 Explanation 2
 S.26 illustration (g):
 A agrees to sell a horse worth $1,000 for $10. A denies that
consent to the consent to the agreement was freely given.
The inadequacy of the consideration is a fact which the court
should take into account in considering whether or not A’s
consent was freely given.

Consideration 59
END