BUSINESS LAW

Law of Contract
Revision 4 - Consideration
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Consideration
• Defined by s2(d) Contracts Act 1950:
“When, at the desire of the promisor, the
promisee or any other person has done or
abstained from doing, or does or abstains
from doing, or promises to do or to abstain
from doing, something, such act or abstinence
or promise is called a consideration for the
promise”
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Consideration
• There are 3 types of consideration based on the
definition in s2(d) Contracts Act 1950:
• … has done or abstained from doing… – Past
• … does or abstains from doing… - Executed
• … promises to do or to abstain from doing… - Executory
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TYPES OF CONSIDERATION

CONSIDERATION MAY BE:

EXECUTORY PROMISES OBLIGATIONS TO BE PERFORMED

EXCHANGED LATER

ONE/BOTH PARTIES HAVE PERFORMED

EXECUTED
THEIR OBLIGATIONS

PAST ACT HAS TAKEN PROMISES

PLACE EXCHANGED
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Past Consideration

S2(d) CA 1950 S26(b) CA 1950

Illustration (c) to s26 CA 1950

… at the DESIRE of the S26(b) CA 1950 … it is a

promisor … has done or promise to compensate a
abstained from doing person who has ALREADY
VOLUNTARILY DONE
something for the promisor

It is restricted only to
Illustration (c) to s26 CA
cases where there has 1950 “A finds B’s purse and
been a PRIOR REQUEST gives it to him. B promises
by the promisor to give A $50. This is a
contract”
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S26(a) Contracts Act 1950

• If no consideration is given, then there will only be a
contract if:
• Writing
• Registered (if necessary/required)
• Love and affection between 2 people of near relation

ReTan Soh Sim – look at the family & the situation they are in
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S26(c) Contracts Act 1950

• According to s26(c) Contracts Act 1950, if a debt is
statute/time barred and the debtor promises in writing
and he signs the document stating that he will return the
money on a particular date, then this is a new contract

• NOTE:
• Under the Limitation Act 1953, any legal action must be brought
within 6 years from the date of the breach
• If NOT, time/statute barred from bringing an action
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Consideration need not move from the

Promisee
• Under the Contracts Act 1950 a party to an agreement
can enforce the promise even if he himself has given no
consideration as long as somebody has done so
• S2(d) Contracts Act 1950 reads “…when…the promisee
or any other person has done…something, such act…is
called a consideration for the promise.”
Sold car to Ahmad & told him
that the payment for the car
should be made to Sam
Ali Ahmad
If Ahmad does not pay
Sam, then Sam can sue
Ahmad for payment
under s2(d)

Sam
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Consideration need not move from the Promisee

• Even though the contract is between A and B, the contract

can be performed by C

Sold car
Ali Ahmad

Money

Ahmad’s father
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Consideration Need not be

Adequate
• Under Malaysian law, the consideration need NOT
BE adequate BUT must be SUFFICIENT
• Explanation 2 to s26 Contracts Act 1950 provides
that an agreement is not void merely because the
consideration is inadequate
• Illustration (f) to s26 Contracts Act 1950 shows the
application of the rule: -
“A agrees to sell a horse worth $1000 for $10…The
agreement is a contract notwithstanding the
inadequacy for the consideration.”
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Consideration Need not be Adequate

 The issue of adequacy of consideration was dealt with
by the Federal Court in Phang Swee Kim v Beh I Hock
(1964)
 Here, R agreed to transfer to A a parcel of land on
payment of $500 when the land was subdivided although
the land was worth much more. R later refused to
honour the promise contending that the promise was
unenforceable. The trial judge held that the agreement
was void due to inadequacy of consideration. The
Federal Court reversed the decision and applied
Explanation 2 and Illustration (f) of s26
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Consideration Need not be

Adequate
• Consideration NEED NOT BE ADEQUATE (that is, equal
in value to the consideration received in return). There is
no remedy at law for someone who simply makes a poor
bargain.
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