3rd Element of Contract: 1

CONSIDERATION

Prepared by Mohd Syahril Ibrahim & Dr. Anie Farahida Omar

UiTM Cawangan Negeri Sembilan
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The 3rd Element of Contract:

CONSIDERATION
1. Introduction To Consideration

2. Definition

3. Types Of Consideration

4. Some Rules Regarding Consideration

5. Gen. Rule Under Sec. 26 & Its Exceptions

BY: MOHD SYAHRIL IBRAHIM, UITM SEREMBAN

Edited by: Anie Farahida Omar
 ESSENTIAL ELEMENTS 3

OF A CONTRACT

4. Intention to
1. Proposal/Offer Create Legal
The main Relations
elements
of a
2. Acceptance valid contract are:: 5. Certainty
6. Formalities

3. Consideration 8. Free Consent 7. Legal Capacity

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OBJECTIVES

At the end of this lesson the students should

be able to:

▪Understand the definition of consideration

▪ List the types of consideration

▪ List the agreements that are excluded from

having consideration
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Who are the parties?

Offeror Offeree
Promisor Promisee
Proposer Acceptor

(A person who (A person who

makes an offer) accepts such offer)
 Introduction 6

▪Agreement alone does not make a contract

▪ Both parties need to provide consideration

▪ Each side must promise to give or do something for the other

▪ Eg. A (the promisor) promises to mow the lawn of B (the promisee), A's
promise will only be enforceable by B as a contract if B has provided
consideration - normally in the form of a payment of money but could
consist of some other service to which A might agree - promise of a money
payment or service in the future is just as sufficient a consideration.

▪ The promisee (B) has to give something in return for the promise of the
promisor in order to have a binding contract
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Definition of Consideration

Sec 2 (d):
▪Consideration is the price of which one party to
buy the promise or act of the other.
▪
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 Types Of Consideration 9

1. EXECUTORY CONSIDERATION
▪ Promise for a promise.

▪ An exchange of promises to perform acts in the

future.

▪ Eg : A agrees to sell his house to B for RM10,000.

B’s promise to pay the sum of RM10,000 is the
consideration for A’s promise to sell the house and A’s
promise to sell the house is the consideration for B’s
promise to pay the RM10,000. These are lawful
consideration.
 Wong Hon Leong David v Noorazman bin
10

Adnan (1995)
▪ Appellant promised to pay respondent RM268,888 in
return for the respondent’s application to convert and
subdivide certain land to be developed into a housing
estate. Later, appellant refused to pay.

▪ The court held that the exchange of mutual promise

was good consideration, t4, there was a binding
agreement between them and the respondent’s claim for
the fee succeeded.
 2. EXECUTED CONSIDERATION 11

▪ Promise for an act.

▪ Promisee does an act in return for

the promisor’s promise.

▪ Eg. A offers RM50 reward for the return of her

lost handbag, if B finds the bag and returns it,
B's consideration is executed; B made the
consideration / coming from B
 3. PAST CONSIDERATION 12

**Read - Exception 2 & 3 under Sec 26 (b)

PAST CONSIDERATION IS A GOOD CONSIDERATION IN
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MALAYSIA

Because:
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Kepong Prospecting v A.E Schmidt (1968)

o Schmidt, a consulting engineer, has assisted another in obtaining
a prospecting permit for mining iron ore in the state of Johor.
After the company was formed, an agreement was entered into
between them under which the company agree to pay him 1% of
the value of ore sold from the mining land.

o This was consideration of the services rendered by him for the

company prior to its formation.

o = Past consideration = valid consideration

PAST CONSIDERATION IS NOT A GOOD
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CONSIDERATION IN UK
 4 Rules Regarding Consideration 16

i. Must Be Sufficient But Need Not Be Adequate

▪Sufficient means it is freely given without fraud,

misrepresentation and any other vitiating factors.

▪ As long as the consent to the agreement is freely given, it is

enough.

Thomas v Thomas (1842)

▪ Rent payment of 1 pound made by the plaintiff to defendant
was a valuable consideration even though it was not adequate.
 ii. Must Come From Promisee or Other Person 17

Venkata Chinnaya v Verikatara’ma’ya (1881)

A sister agreed to pay an annuity of Rs653 to her brothers who
provided no consideration for the promise. On the same day, their
mother had given the sister some land stipulating that she must pay
the annuity to her brothers.

▪ When the sister subsequently failed to fulfilled the promise,

her brother sued her. It was held that she was liable on the
promise on the ground that there was a valid consideration for
the promise even though it did not move from the brothers.
 iii. Has Some Value 18

Collin v Godefroy (1931)

▪ A promise had been made to pay a witness,

who was under an order to attend court. The
court held that the promise was
unenforceable because there was no
consideration for it. The duty to attend was
a duty imposed by law.
 iv. Consideration Must Not Be Illegal And Vague19

Scammell & Nephew v. Ouston

o Df ordered a motor van from the Pf “on the understanding

that the balance of the purchase price can be had on hire
purchase terms over a period of two years”.

o It was held that the offer was so vague that it had no

definite meaning. Further negotiations would be required b4
agreement could be reached.

oConsideration must be possible of performance.

Facts
Ouston agreed to purchase a new motor van from Scammell but stipulated that the purchase
20
price should be set up on a hire-purchase basis over a period of two years, with some of the
figure being part-paid by a van that Ouston already owned. Before the hire purchase terms
had been agreed, Scammell refused to proceed with the sale and as a result of this, Ouston
brought a claim for breaching the contract for the supply of the vehicle. Scammell claimed
that the hire-purchase agreement had not been implemented and therefore neither party was
bound and the agreement was void on the basis of uncertainty. The trial judge awarded
Ouston damages as it was believed that the contract had been wrongly repudiated. Scammell
appealed to the Court of Appeal who dismissed his action. Scammell re-appealed the
decision of the trial judge to the House of Lords.

Issue
The court was required to establish whether the parties had agreed and constructed a
contract. Specifically the court was required to consider the phrase ‘on hire purchase terms’
and whether this could satisfy the law and bind the parties. Scammell argued that the term
was too vague to be binding. Ouston argued that there was clearly contractual intention and
this was enough to constitute the agreement between the parties.

Held
The court found that the clause regarding the hire-purchase terms was so vague that there
could not be a precise meaning derived from it. As a result of this finding, there was no
enforceable contract between the parties and the appeal was dismissed.
 General Rule And Its Exceptions
▪Gen rule = Sec 26
▪Agreement made without consideration is
void
▪ Exceptions Sec 26(a) – (c) i.e. even
without Consideration, contract is still
valid (not void)
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EXCEPTIONS
Section 26 of the CA provides for these situations:
1. An agreement made on account of natural love and
affection between parties standing in near relation to
each other.

2. An agreement to compensate for a past voluntary act.

3. An agreement to compensate a person who did an act,

which the promisor was legally compellable to do.

4. An agreement to pay statute-barred debt.

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Exception 1 under Sec 26 (a)

▪ Made on account of natural love and affection
between parties standing in near relation to each
other.

▪ Conditions:
o Expressed in writing (form)
o Must be registered if required by any law
o Near relation=immediate family members
 Re Tan Soh Sim (1951) 24

▪ The deceased (TSS) in her last illness had expresses a wish

that her estate to be divided amongst 2 adopted sons and 2
adopted daughters. The legal next-of-kin drew up an
agreement renouncing all rights in favor of the 4 adopted
children.

Ct held that there was no

natural love and affection
between uncles and unties to their
nephews and nieces. They do not
stand in near relation.
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Exception 2 under Sec 26 (b)

▪Promise to compensate person already

done/voluntarily done something (an agreement to
compensate for a past voluntary act)
▪Requirements: Illustration (c)
oPromisee did the act voluntarily
Eg : A finds B’s purse and gives it to him. B
promises (promisor) to pay A’s expenses = valid
contract.

**Read – Past Consideration

 J.M Wotherspoon v Henry Agency House (1962) 26

Question (Issue) as to whether Pf was a person who had

already “voluntarily” done something for the defendant
depends on the Pf’s action. Pf had acted on the
suggestion of Df so that its action could not be said to
have been done voluntarily. T4, the promise made by Df’
was not an enforceable contract.
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Exception 3 under Sec 26 (b)

▪ Agreement to compensate a person who

did an act, which the promisor was legally
compellable to do - S.26 (b)
▪ The necessary ingredients for this subsection
are as follows:
o The promisee has voluntarily done an act;
o The act is one, which the promisor is legally
compellable to do; and
o It is an agreement to compensate wholly or in
part, the promisee for the act.
**Read – Past Consideration
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▪An e.g. is given under Illustration (d) of

Section 26:

o‘A supports B’s infant son. B promises to pay

A’s expenses for doing so. This is a contract.’

oThe same would apply if A pays the fine

imposed on B by the court. And B promises to
compensate him. That promise is binding
under this subsection.
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Exception 4 under Sec 26 (c)

▪Promise to pay debt barred by limitation law (6 Years
from the time of cause of action – Sec 6 of the
Limitation Act 1953)

▪ Requirement: Must be made in writing & signed

▪ Eg : A owes B RM 1000 but the debt is barred by

limitation law. A signs a fresh promise to pay the debt =
valid contract even without consideration coming from B
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