MADAM NORAZLA ABDUL WAHAB CONSIDERATION MADAM NORAZLA ABDUL WAHAB

By the end of this chapter, the student should be able to: CONSIDERATION By the end of this chapter, the student should be able to: - Define consideration; - Identify when consideration is present; - Explain and apply the legal principles relating to consideration; - Explain the distinction between executory, executed and past consideration;

Agreement made without consideration is VOID. INTRODUCTION Section 26 of CA 1950: Agreement made without consideration is VOID.

Definition - Section 2(d) of CA 1950: “ 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). -

CONT… For example: A offers to sell his house to B at the amount of RM 250K. B agreed to buy the said house and pay RM 250K. A’s consideration is to pass the ownership to the B. B’s consideration is to pay RM 250K.

Example If A signs a contract with B such that A will paint B's house for $500, A's consideration is the service of painting B's house, and B's consideration is $500 paid to A.

Types of Consideration Executory : One promise is made in return for another promise/ other party’s promise. example: C promises to deliver to D a bicycle and D promises to pay RM100 for the said bicycle.

Types of Consideration Executory : Illustration (a) of the S. 24. A agrees to sell his house to B for RM 10,000. Thus, B’s promise to pay RM10,000 is the consideration for A’s promise to sell the house; and A’s promise to sell the house is the consideration of B’s promise to pay RM 10,000.

K. Murugesu v Nadarajah [1980] 2 MLJ 82 The Appellant agreed to sell a house to the Respondent at $ 26,000 only. Later on the A refused to sell and alleged that there is no consideration. Court held: There is an executory consideration where a promise made by one’s party in return for a promise made by the other. Consideration: price

Types of Consideration 2. Executed where an act is done/ promise made in return for the performance of an act. (reward situation). example,: 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.

Types of Consideration 2. Executed contract arises upon the execution of the consideration. example,: Laila lost her wallet. She offers a reward of RM100 for anyone who found her wallet and returns her wallet (promise). Majnun found her wallet and returns it to her (performance of the act- Majnun’s consideration is executed to Laila’s promise- binding contract). She paid the reward of RM100 to him. (act/ promise)

Carlil v Carbolic Smoke Ball Co Carlil v Carbolic Smoke Ball Co. [1893] 1 QB 256 The company’s offer= promise. Carlil bought, used the smoke ball and still suffered from influenza= performance of the act- Carlil’s consideration is executed to the company’s promise- It creates a binding contract). Held: The company need to executed the promise ; to pay reward to Carlil. (act/ promise

Types of Consideration 3. Past consideration where a promise is made subsequent to and in return for an act that has already been performed. act done prior to the promise Consideration which has been done /completed before the promise made. .

Types of Consideration 3. Past consideration S. 26 (b) of CA S. 2(d) of CA “……has done or abstained from doing…..”

Types of Consideration 3. Past consideration 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. B MUST give A RM 50.

Lampeigh v Braithwait (1615) 80 ER 225 B was sentenced to death for murder. Then he requested L (a lawyer) to do all he can as to enable him to get pardon from the King OF London. L then do everything that he can by using his own expenses and finally B successfully got the pardon. B then promised to give L a 100 pound. But subsequently he failed to pay and L sued B for that. B then argued that “ there was no consideration from L when B made a promise to pay money to L.

Lampeigh v Braithwait (1615) 80 ER 225 B was sentenced to death for murder. Then he requested L (a lawyer) to do all he can as to enable him to get pardon from the King OF London. L then do everything that he can by using his own expenses and finally B successfully got the pardon. (performance of the act- Consideration which has been done /completed before the promise made)

Lampeigh v Braithwait (1615) 80 ER 225 B then promised to give L a 100 pound. But subsequently he failed to pay and L sued B for that.(promise) B then argued that “ there was no consideration from L when B made a promise to pay money to L.

Lampeigh v Braithwait (1615) 80 ER 225 Court held: There was past consideration from L. He entitled for 100 pound for the service that he done before the promise was made.

Kepong prospecting ltd v A Kepong prospecting ltd v A.E Schmidt (1968) 1 MLJ 1970 Schmidt is a consulting engineer. He is assisting Mr. X in obtaining a prospecting permit for mining an iron in Johore. He also helped in a formation of a company; Kepong Prospective Ltd. Subsequently, he was appointed as a Managing Director of the same. After the company was formed, there was a contract between the company and Schmidt whereby the company will pay 1% of the value of the oil ore sold from the mining land.

Kepong prospecting ltd v A Kepong prospecting ltd v A.E Schmidt (1968) 1 MLJ 1970 The clause stated that “… in consideration of the services given by S for or on behalf of the company before its formation, after incorporation and future services”. However, the Company failed to pay to S. and S claimed for that.

Kepong prospecting ltd v A Kepong prospecting ltd v A.E Schmidt (1968) 1 MLJ 1970 The issue is: whether there is a valid consideration from S fro the promise of the Company? The Court held: The service given by S before the promise was made is considered as a valid consideration even though the services were already past/ done.

Without Consideration??? Section 26 of CA 1950 an ‘agreement made without consideration is void'. But there are several exceptions: Section: 26 (a) - (c) of CA 1950

EXCEPTIONs TO GENERAL RULE agreement without consideration or consideration which is past = valid

(a) Contract based on natural love & affection S26(a) of CA: an agreement made on account of natural love and affection between parties standing in near relation to each other and it is in writing and registered.

Cont… Illustration (b) of Section 26 of CA: A, for natural love and affection , promise to give his son, B, RM1,000. A puts his promise to B into writing and registers it under a law in force for registration of the said documents.

Not defined under the Act. Near relation??? Not defined under the Act. Usually, members of immediate family. Eg: Farther & son/daughter, mother & son/daughter . But depending on customs of social groups. For e.g. : Chinese adopted children are related to their adoptive parents and brothers. However, they were not related to the family of the adoptive mother.

Re Tan Soh Sim [1951] mlj 21 Re Tan Soh Sim, had three sisters. Their mother was firstly married to Khoo Kim Huat and has seven children. The Tans’ and Khoos’ children maintained their family relations one another. Tan Soh Sim then married and adopted four children. Her husband also married a second wife ;Tan Boey Kee.

Re Tan Soh Sim When Tan Soh Sim was on her deathbed too ill, she makes a will. All the Khoo and Tan’s children signed a document drawn up by a solicitor renouncing all claims to Tan’s estate in favour of the four adopted children and Tan Boey Kee. Tan Boey Key told them that this was the testamentary intention of Tan Soh Sim. Tan Soh Sim then died.

Re Tan Soh Sim Issues: whether the document signed was valid according under section 26(a) of CA 1950? Whether the legal next of kin of TSS are NEAR RELATION with their adopted nephew and nieces?

Re Tan Soh Sim Court held: The Khoo’s and Tan’s children are related to the four adopted children of Tan Soh Sim only in a special limited way, which is not near. Chinese adopted children are related to their adoptive parents and brothers. However, they were not related to the family of the adoptive mother.

B. compensate A PAST VOLUNTARY ACT/ ACT WHICH THE PROMISOR WAS LEGALLY COMPELLABLE TO do S26(b) of CA: “…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 compellable to do; ”

Example: A is driving in his car on a sunny Sunday afternoon, and he sees smoke coming from a vehicle on the side of the road ahead. A pulls over, sees B injured in the vehicle, and pulls B out of the car as to safe him. B then has full recovery, and the next day, says to A, "because you saved me, I will pay you $5,000 per year until you die." B paid A $5,000 each of those years. Then, 5 years later, B dies of cancer and the executor of B's estate refuses to pay A any more money.

Kepong Prospecting Ltd. & S. K. Jegathesan i & Ors. v. A. E Kepong Prospecting Ltd. & S.K. Jegathesan i & Ors. v. A.E. Schmidt & Marjorie Schmidt [1968] 1 mlj 170 Facts: Schmidt, an engineer, had assisted an individual in obtaining a prospecting permit for mining iron ore in Johore. He also helped in the subsequent formation of the company and was appointed as Managing Director. After the company was formed, an agreement was entered between them under which the company undertook to pay him one per cent of the value of all ore sold from the mining land. This was in consideration of the services rendered by the engineer for and on behalf of the company prior to its formation, after its formation and for future services.

Kepong Prospecting Ltd. & S. K. Jegathesan i & Ors. v. A. E Kepong Prospecting Ltd. & S.K. Jegathesan i & Ors. v. A.E. Schmidt & Marjorie Schmidt [1968] 1 mlj 170 Court held: there was a valid consideration and Schmidt was entitled to the amount owed to him by the company.

Voluntarily Performed or done of one's free will, impulse or choice, not constrained or suggested by another

J.M. Wotherspoon & Co Ltd v Henry Agency House [1962] mlj 86 Facts: A dispute arose between a Malaysian and English company resulting from an arrangements. Both had acted as agents for various products. The arrangement is that the Malaysian company would find the buyer and inform the English firm who would find the seller. When a sale had been arranged , the Malaysian firm would receive a commission.

J.M. Wotherspoon & Co Ltd v Henry Agency House [1962] mlj 86 Facts: In this particular dispute, the Malaysian company had arranged a buyer for such confectionary and the English firm found a seller. The D (Malaysian firm) wrote a letter to the P (English company) agreeing that if X Co defaulted in payment, it will pay the price of the goods. Later, X Co went bankrupt and defaulted in payment. The D refused to pay and the P sued for damages

J.M. Wotherspoon & Co Ltd v Henry Agency House [1962] mlj 86 Issue: Whether the P was a person who had already voluntarily done something for D? Court Held: There were promises of compensation made by the defendant firm to the plaintiff in respect of consignment , but these promises were not supported by consideration. The P had acted on the suggestion of the D = could not be said to have been done voluntarily. Thus, the promise to compensate was not enforceable.

Legally compellable to do Illustration (d) of S. 26: A supports B’s infant son. B Promises to pay A’s expenses in so doing. This is a contract. A pays the fine imposed on B by the court. B promises to compensate him. That promise is binding.

c. promise to pay debt barred by limitation law Section 26 (c) of CA: an agreement to pay a statute-barred debt. a promise, made in writing and signed by a debtor /his authorised agent.

c. promise to pay debt barred by limitation law A statute-barred debt refers to a debt which cannot be recovered through legal action because of a lapse of time fixed by law.

c. promise to pay debt barred by limitation law Limitation for action in contract under Limitation Ordinance 1953: 6 years. Eg: 6 years is given for action arising from a breach of contract. After the allocated time expires, the aggrieved party can no longer sue.

promise to pay debt barred by limitation law Illustration (e) to s. 26 A owes B RM 1,000, BUT the debt is barred by limitation. A signed a written promise to pay B RM 500. This is a contract.

Rules on Consideration

1. Inadequacy of consideration what is the amount of consideration that is sufficient for each promise?

1. Inadequacy of consideration Explanation 2 of Section 26: Agreement is not void merely because the consideration is not adequate. It might be void if the parties to the contract can show that the consent given was caused by coercion.

1. Inadequacy of consideration Illustration (f) of CA? A agrees to sell a horse worth RM 1,000 for RM 10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

Phang Swee Kim v Beh I Hock [1964] mlj 383 Facts: 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 brought an action claiming for possession of the land from A.

Phang Swee Kim v Beh I Hock [1964] mlj 383 Court 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.

2. May come from the third party Section 2(d) of CA 1950 “....promisee or any other person...”

2. May come from the third party Eg: A, B and C are parties to an agreement in which C promises to pay A RM1000 if B will repair C's house. B repairs C's house and C does not pay A anything. Although A has not given any consideration for C's promise (he not repair that house), he may sue C on the promise because consideration has moved from even from the third party.

2. May come from the third party COMMON LAW OF ENGLAND: Consideration must move from promisee. MALAYSIAN LAW: Party to an agreement CAN enforce a promise eventhough he has given NO consideration, as long as has been done by someone. S. 2 (d) .....consideration can move from the promisee or any other person...”

Venkata Chinnaya v Verikatara'ma’ya (1881) ILR 4 Mad 137 Facts: A sister agreed to pay an annuity of Rs653 to her brothers (who provided no consideration), if their mother transfer some land to her. When their mother had given the sister some land, the sister failed to fulfill her promise. Her brothers sued the sister.

Venkata Chinnaya v Verikatara'mara'ya (1881) ILR 4 Mad 137 Court Held: She was liable on the promise on the ground that there was valid consideration for the promise eventhough it did not move from the brothers.

3. Waiver of Performance General rule (English Contract Law): Waiver of a right that is not supported by consideration is VOID. Payment of the SMALLER sum IS NOT A satisfaction/discharge of an obligation to pay the large sum.

3. Waiver of Performance EXAMPLE A owes B a debt of RM 200. Then, B accept RM 100 being the payment made by A in full satisfaction of debt. B IS NOT BOUND by his performance of waiving . He may subsequently sue A for the balance of the debt.

PINNEL’S CASE (1602) 77 ER 237 EXAMPLE Pinnel owes Cole 8 pounds 10s at 11/11/1600. Then he paid 5 pounds 2s only and has been accepted in full satisfaction by Pinnel.

Cole needs to pay the balance. PINNEL’S CASE (1602) 77 ER 237 Court Payment of the lesser sum in satisfaction of a greater sum is not satisfaction on the whole. Cole needs to pay the balance.

3. Waiver of Performance Malaysian Law: Section 64 of CA 1950, “Every promise 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.”

How??? Illustration S. 64: a) Where the promisee forbids the promisor from performing his act. b) Payment of smaller sum in satisfaction of larger sum c) Payment by third party in discharge of a debt d) Where the amount owing under a contract is unascertained and a person accepts an agreed sum in satisfaction, the debt is discharged. e) A composition with creditors for the payment of a smaller sum, an arrangement whereby each creditor agrees to accept a stated sum of his debt in full satisfaction.

PAN AH BA & ANOR V NANYANG CONSTRUCTION SDN BHD [1969] 2 MLJ 181 Court laid down principle: When promisee / creditor agrees to accept the smaller sum in satisfaction of a large sum, he IS BOUND to such waiver of promise. He CANNOT LONGER CLAIM for the balance of the whole debt even though he receives NO CONSIDERATION for such waiver.

Kerpa Singh v Bariam Singh [1966] 1 MLJ 38 Facts: Bariam Singh (Debtor) owed Kerpa Singh (Creditor) $8869.64. The debtor’s son wrote a letter to Kerpa that Kerpa Singh’s offering $4000 in full satisfaction of his father’s debt and endorsed a cheque for the amount and stipulating that should Kerpa Singh refuse to accept his proposal, he must return the cheque. Kerpa Singh having cashed the cheque and retained the money and secure the balance of the debt by issuing a bankruptcy notice on the Bariam Singh..

Kerpa Singh v Bariam Singh [1966] 1 MLJ 38 Facts: Kerpa Singh having cashed the cheque and retained the money and secure the balance of the debt by issuing a bankruptcy notice on the Bariam Singh..

Kerpa Singh v Bariam Singh [1966] 1 MLJ 38 Court held: The acceptance of the cheque in full satisfaction precluded them from claiming the balance. The act of promisee/creditor by acceting the smaller sum of cheque WILL WAIVE the performance of promise that made to him.

Note: This Notes and Copyright therein is the property of Madam Norazla Abdul Wahab and is prepared for the benefit of her students enrolled in the MGM 3351 course for their individual study. Any other use or reproduction by any person WITHOUT CONSENT IS PROHIBITED.