LAW 299:

BUSINESS LAW
(CONSIDERATIO
N)
MAIN SOURCE OF REFERENCE :
BUSINESS LAW MANUAL WRITTEN BY MADAM ZURAMAZNUM SAINAN
SMART AND EASY GUIDE LAW E-BOOK ,WRITTEN BY MADAM FARIHANA ABDUL
RAZAK
SLIDES PREPARED BY: ZULHAZMI YUSOF
 Consideration’ is defined in section 2(d) Contracts Act 1950 - the promisee must give
something in return for the promise made by the promisor.
 EX: you pay RM1 (money, your consideration) in exchange of nasi lemak (seller, his
consideration)
 University of Malaya v. Lee Ming Chong –Scholarship in exchange for 5 years service by D at
the university
 Macon Works & Trading Sdn Bhd v. Phang Hon Chin-agreement without consideration is void
unless it comes under one of the exceptions in section 26 of the Contracts Act 1950.
1) NATURAL LOVE AND AFFECTION-
SECTION 26(A) OF THE CONTRACTS ACT
1950
 it is expressed in writing;
 • it is registered (if applicable); and
 • the parties stand in a near relation to each other
 llustration (b) to Section 26 of the Contracts Act 1950 provide an example: A, for natural love
and affection, promises to give his son, B, RM 1000-there is contract
 Re Tan Soh Sim- Held: There was no “near relation” between adoptive children & the legal
next of kin of Tan Soh Sim & there was no consideration between the deceased and her 4
adoptive children.
 Why? Under Chinese Customary Law adoptive child= no “near relation” with the deceased,
hence unable to inherit the inheritance.
 https://www.youtube.com/watch?v=3ZGjlIDG7Q0
 Chua Eng Wei & Anor v. Liow Eng Keong & Anor- held The words ‘near relatives’ refer to
those who are closely related such as one’s parents, brothers or sisters. On the facts, the
plaintiffs and defendants did not stand in a near relation to each other
2)PROMISE TO COMPENSATE
PAST VOLUNTARY ACT
 Section 26(b) of the Contracts Act 1950 - 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
 Illustration (c) to Section 26 of the Contracts Act 1950 provides an example: A finds B’s purse
and gives to him. B promises to give A RM 50. This is a contract.
 JM Wotherspoon Co Ltd v. Henry Agency House –. The court held that under Section 26(b),
an agreement made without consideration becomes a binding contract if it is a promise to
compensate wholly or in part, a person who has voluntarily done something for the promisor.
 However in this situation P FOLLOW INSTRUCTION FROM D- ACT DONE NOT
VOLUNTARY, cannot claim under this section.
3)PROMISE TO PAY A DEBT
BARRED BY LIMITATION LAW
 For your information, we have an Act that we called Limitation Act 1953 (LA).
 Pursuant to section 6(1)(a) of the Limitation Act 1953 (Limitation Act), actions in contract and
tort shall not be brought after the expiration of six years from the date on which the cause of
action accrued.
 So under LA, if u want to take an action against someone under contract law, u must take
within 6 years after upon discovery of damages
 However under s.26(c) of CA it stated that if a person willing to pay the debt to creditor (in
writing and signed it), that will become valid and binding= need to pay.
 So what this supposed to mean? We look at the illustration:
 llustration (e) to section 26 of the Contracts Act 1950 - : A owes B RM 1000, but the debt is
barred by limitation. A sign a written promise to pay B RM 500 on account of the debt.
Therefore, this is a contract
 AmBank (M) Bhd v Abdul Aziz Hassan & Ors [2010] 3 MLJ 784- S.6(1) of LA is absolute
bar, even court will abide by it. Only the parliament can change the time period stated in LA
TYPES OF CONSIDERATION:
1. EXECUTORY
CONSIDERATION
 Executory consideration consists of a promise to do or to abstain from doing something. (A
promise in exchange for another promise)
 Illustration a, s.24 of CA-A agrees to sell his house to B for RM10,000. Here, 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 considerations
 K Murugesu v. Nadarajah- court held - the agreement was a case of executory
consideration. The court held that where there was a promise against a promise.
 In K Murugesu v. Nadarajah , the respondent was the tenant of the appellant. He pestered the
appellant to sell the house to him.
 The appellant finally wrote on a piece of paper an agreement to sell to the respondent the said
house for $26,000 within three months from the date of the agreement. Later the appellant
refused to sell, and the respondent sued for specific performance.
 The appellant contended that there was no consideration for the offer to sell and the agreement
was void for want of consideration. The former Federal court held that the agreement was a
case of executory consideration.
 The court held that where there was a promise against a promise, one promise was
consideration for the other because each may have his action against the other for non-
performance. It is now a well-established rule that consideration can consist of mutual
promises.
2. EXECUTED
CONSIDERATION
 Executed consideration consists of doing an act. one party makes a promise in exchange for
an act or actions to be performed by another party. The consideration is considered
executed when this performance happens.
 For example: Ali offers RM 5000.00 to anyone who shall return his lost cat. Brian’s return of
the lost cat, in accordance with the offer, constitutes the required consideration. Brian has
therefore executed the consideration. However, Ali has still to perform his part of
consideration by paying Brian the RM 5000.00
 In short any party perform his contractual obligation/ promise= executed consideration
 * case that can be referred Carlil v Carbolic Smoke Ball (refer my previous note)
3. PAST CONSIDERATION
 Past consideration consists of something wholly performed before the making of the promise.
-Section 26(b) of the Contracts Act 1950 provide that past consideration is good consideration
if the act was voluntarily done.
 Lampleigh v Braithwaite (1615) Hob 105
 The defendant, Braithwaite, killed a man. He asked the plaintiff, Lampleigh to secure him a
pardon from the king. The plaintiff spent many days doing this, riding and journeying at his
own cost across the country to where the King was and back again. Afterwards, the defendant
promised to pay the plaintiff £100 in gratitude. He later failed to pay the money. The plaintiff
sued.
 The court found in favour of the plaintiff. The promise was indeed given after the plaintiff had
acted. However, the plaintiff had acted upon a request made by the defendant. The court
considered that the original request by the defendant contained an implied promise to pay the
plaintiff for his efforts.
 In short:  A does something for B at their request and afterward B promises to pay A for their
trouble, then that promise is good consideration
 https://www.lawteacher.net/cases/lampleigh-v-braithwaite.php
 Kepong Prospecting Ltd & Ors v. Schmidt-refer to
 Held: Service provided by Schmidt before promise made by the company to him is a valid
consideration (past consideration)
RULES OF CONSIDERATION
1. CONSIDERATION MUST BE SUFFICIENT BUT
NEED NOT BE ADEQUATE
 Explanation 2 to Section 26 of the Contracts Act 1950 - “an agreement to which the consent
of the promisor is freely given is not void merely because the consideration is inadequate;
but the inadequacy may be taken into account by the court in determining the question
whether the consent of the promisor was freely given.”
 In short – consideration even inadequate is valid consideration as long as its freely given (no
coercion/deceit and etc)
 Phang Swee Kim v. Beh I Hock- the respondent agreed to transfer to the appellant a parcel of
land on payment of $500 when the land was subdivided although the land was worth much
more. The respondent later refused to honour the promise.Held: consideration even inadequate
is valid consideration as long as its freely given – court refer to Explanation 2 and Illustration
(f) of Section 26. “A agrees to sell a horse worth RM1, 000 for RM 10. A’s consent to the
agreement was freely given. The agreement is a contract notwithstanding the inadequacy of
the consideration”
 2. PAST CONSIDERATION IS A GOOD CONSIDERATION- as long as it been done based on
the instruction of promisor.
 Lampleigh v. Brathwaite & Kepong Prospecting Ltd & Ors v. Schmidt
 3.Natural love and affection are valid consideration-
 Contracts Act 1950 in Malaysia recognizes natural love and affection as valid consideration if
certain pre-requisite is complied with. Thus, an agreement made because of natural love and
affection would be held to be binding in Malaysia if the requirements of Section 26(a) of the
Contracts Act 1950 :
 • it is expressed in writing;
 • it is registered (if applicable); and
 • the parties stand in a near relation to each other.
 4. PART PAYMENT MADE BY THE THIRD PARTy-An acceptance by a third party of
a smaller sum of the payment in full satisfaction will be binding on the creditor on
condition that the debtor is discharged from the obligation to pay the full debt.
 Ex: Aziz owed RM1000 from Liza, Aziz cant pay the debt and asked his brother to pay to
Liza. His brother only willing to pay RM500 in settlement for total debt. If Liza accepted it,
she cannot claim for the rest of the debt from Aziz (another balance of RM 500)
 In Hirachand Punamchand v Temple, a father paid a smaller sum to the creditor on son’s
debt that he accepted as full settlement, later the creditor sued for remainders. The Court held
that the part payment was valid consideration, and the claim would be a fraud to the father.
 5. Consideration need not move from the promisee, Section 2(d) of the Contracts Act
1950 “a party to an agreement can enforce the promise even if he himself has given no
consideration if somebody has done so.”- Refer to Venkata Chinnaya v. Verikatara Ma’ya.
 In short consideration can be given by 3rd party, ex: A give ,money to B to buy a car for his
son , C. = Consideration can come from 3rd party
 LAWFUL CONSIDERATION- According to Section 24 of the Contracts Act 1950, the
consideration or object of an agreement is lawful unless: i. It is forbidden by a law, …”
 Every agreement of which the object or consideration is unlawful is void. The general rule
under the Contracts Act 1950 is that the courts will not enforce an illegal contract.
 However, Section 66 of the Contracts Act 1950 lays down that when an agreement is
discovered to be void or when a contract becomes void, the person who received any
advantage under such an agreement or contract is bound to restore it to the other party
or to pay adequate compensation for the same.
 In short any agreement that is illegal (for example agreement to commit crime like murder,
impersonafication and etc)
 Lawful consideration According to Section 24 of the Contracts Act 1950, the consideration or
object of an agreement is lawful unless:
 i.It is forbidden by a law,
 ii. It is of such a nature that, if permitted, it would defeat any law,
 iii. It is fraudulent,
 iv. It involves or implies injury to the person or property of another, or
 v. The court regards it as immoral or opposed to public policy.
 Any person who receive advantage from it must return/restore any benefit that he/she had
received before upon discovery of the illegality of the agreement.
Thank you