Chapter 4: Consideration, ITCLR & Privity

1. What is consideration and which section of the Contract Act states an agreement without
consideration is void?
Consideration is one of the fundamental elements that must be present in an agreement
without which the agreement is void, and this is stated in:
Section 26 – that ‘an agreement made without consideration is void’.
2. Briefly explain the 3 categories of consideration.
a) Executory consideration
- Executory consideration is when one promise is made in return for another promise in the
future. There is an exchange of promise to do an act between 2 parties.
b) Executed consideration
- Executed consideration is when one party (offeror) makes a promise in return for the
performance of an act by the other party. When that act is performed by the offeree, the
consideration is executed. Then it is the offeror’s to perform his promise.
c) Past Consideration
- Past consideration consists of something performed before the making of promise the past
act was done or omitted not in response to the promise. It was an independent promise
where the promise was made subsequent to the act or omission.
3. Briefly state THREE (3) situations where a contract can be valid without consideration.
Section 26(a) provides that an agreement made on account of natural love and affection is valid
if it has the following:
a) Agreement on account of natural love and affection – S26(a)
- It is expressed in writing and registered (if applicable), and
- There must be natural love and affection between parties standing in near relations to
each other.
b) A promise made to compensate someone for an act voluntarily done – S26(b)
- Section 26(b) which provides that a promise to compensate for something done, wholly or
in part, to a person who had already voluntarily done that something for the promisor is a
valid contract.
c) A promise to pay a debt barred by law – S26(c)
- Section 26(c) provides that a promise to pay a debt barred by law is valid even tough there
was no consideration. Such promise much be in writing and signed by promise or his
agent., who is authorized in behalf.
4. What is the meaning of “Consideration need not be adequate but must be of some value”?
It is immaterial that the promisor gets more valuable than the price he asked for. Adequacy of
consideration is matter for the parties in the agreement to decide. It is sufficient if the
consideration has some value in the eyes of law.
5. Does part payment/ pay lessor is good consideration?
CA 1950
YES! Section 64 provides that a creditor may accept a lesser sum paid by the debtor in
satisfaction of the whole debt.
‘Every promise may dispense with or remit, wholly or in part, the performance of the promise
made to him, or many extend the time for such performance, or may accept instead of it any
satisfaction which he thinks fits.’
6. Can consideration be provided by other persons instead of the promisee?
Consideration may move from the promise or any other person.
English law
Under English law – consideration must move from the promisee i.e. the person who receives
must himself give something in return.
Contract Act
This is contrast with our Contracts Act – where Section 2(d) states that consideration may move
from the promise or ‘any other person’, as follow:
‘when, at the desire of the promisor, the promisee or any other person has done or abstained
from doing such act or abstinence or promise is called a consideration for the promise’
In short, consideration may be given by any other person even though he is not the promisee.
This is contrast with our Contracts Act
7. Papa Bear promise to give his son, BoyBoy for RM1000. Papa Bear put his promise to BoyBoy
into writing and signed on a piece of paper. Can the agreement be made valid even there is no
any consideration from BoyBoy?
ISSUE:
- The issue here is whether the agreement is valid even there is no consideration provided
from BoyBoy.
LAW:
- Section 26 provides exceptions where an agreement can be made without the need pf
consideration.
- Section 26(a) provides that an agreement made on account of natural love and affection
is valid if it has the following:
 It is express in writing and registered (if applicable), and
 There must be natural love and affection between parties standing in near relations
to each other.
APPLY:
- The promise was made in writing by Papa Bear since he wrote and signed it on a piece of
paper. Papa Bear has showed his natural love and affection to BoyBoy as they are
standing in near relation as father and son.
CONCLUSION:
- The agreement made by Papa Bear is valid.
Would It be different If BoyBoy is Papa Bear’s adopted son?
ISSUE:
- The issue here is whether the agreement is valid if BoyBoy is Papa Bear’s adopted son.
LAW:
- In RE Tan Soh Sim (1951), the principle issue was whether an agreement made on
account of natural love and affection for three sister 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 (NOTE: today adopted children is part of the family – see s7(11) Civil Law
1956)
- Section 7(11) Civil Law Act 1956 – ‘in…. any relationship referred to in this subsection any
illegitimate person or any person who has been adopted, or whose adoption has been
 registered, in accordance with any written law shall be treated as being or as having been
the legitimate offspring of his mother and reputed father or, as the case may be, of his
adopters.
APPLY:
- Based on court decision in Re Tan Soh Sim case, BoyBoy (adopted son) does not falls
within the meaning ‘near relation’ and any agreement made without consideration at
that time will be void. However, such rule has been overturned by virtue of s7(11) CLA
where adopted children is considered part of the family now.
CONCLUSION:
- Therefore, BoyBoy may still be able to claim the money based on S7(11) CLA if he is Papa
Bear’s adopted son.
8. Briefly explain the two (2) legal presumptions of intention to create legal relations in respect
of commercial and non-commercial agreements.
Commercial/ Business agreements:
In commercial agreement, there is a presumption that the parties do intend to make a legally
binding contract.
However, this rule can be rebutted if the transaction is “subject to contract”.
Non-commercial/ Domestic, Family and Social agreements:
There is a presumption that there is no intention to create legal relations where the parties are
involved in an agreement concerning family, domestic or social matters unless it can be proven
otherwise.
- Agreement between husband and wife
 Generally, the law presumes that an agreement made between husband and wife is not
intended to create legal relations.
Balfour v Balfour – not a contract because the parties did not intend that the agreement
should be attended by legal consequences.
In contrast,
Meritt v Meritt – there was intention to create legal relations and the agreement I was
enforceable.
- Agreement between family & friends
Choo Tiong Hin & Ors v Choo Hock Swee – there was an intention to create legal relations.
In contrast,
Simpkins v Pays – there was an intention to create legal relation.
9. Joyce bought a new car from Bram Motors in her name and gave it to Ben for his use. The car
was found to be faulty with many mechanical defects. They intend to commence legal action
against Bram Motors but not sure who should be the party to sue Bram Motors. Discuss.
ISSUE:
- The issue here is whether who has a right to bring an action against Bram Motors.
LAW:
- The doctrine of privity of contract means a non-party cannot bring an action on the
contract. The law has laid down the principle that only those who are parties to the
contract or privy to the contract can sue or be sued on it.
- A person who is not a party a to a contract may not enforce the contract even though it
was made for his benefit.
APPLY:
- In this case, the contract is between the company Bram Motors and Joyce. Ben is not a
party to the contract to purchase of the car. Therefore, Ben cannot take an action in
contrast against Bram Motors because he is not privity. i.e. a party is the contract
between Bram Motors and Joyce.
CONCLUSION:
- In this case, only Joyce can sue Bram Motors. She is the party to the contract with Bram
Motors. Bram cannot sue because he is a non-party.