Adequacy of Consideration

•A Court will not question the fairness

of the bargain if legally sufficient.
- Law does not protect a person for
entering into an unwise contract.
- Consideration must be sufficient but
need not be adequate
• Does it matter that M sells his house worth
RM1million for RM5/- to N. Is the amount of
RM5/- sufficient consideration? Legally, it
appears that the adequacy of consideration is
immaterial.

2
• Illustration (f)
A agrees to sell his horse worth RM1000/-
for RM10/-. 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

Sale of a land for $500/- when it was worth more

than that. Seller refused to honour promise citing
that the price was inadequate for a consideration.
The trial court judge held that the agreement was
void due to inadequacy of consideration.
• However upon appeal to the Federal Court, the
decision of the trial judge was reversed and applied
explanation 2 and illustration (f) of Section 26.
•Chappell & Co Ltd v Nestle Co Ltd [1960]
•Nestle offered a record to customers who
sent a certain number of chocolate bar
wrappers.
•Although the wrappers were simply thrown
away, it was sufficient consideration to
support the agreement.
Waiver of performance
• The general rule in English law is that waiver
of a right that is not supported by consideration
void.

Example
• A owes B RM1000/- which is due, B asks A to
return RM100/- in full settlement.
• The waiver is not binding on B who may later
change his mind and claim the balance owing,
because the promise to forgo the balance is not
• A person who does no more than what he is
already legally obliged to perform or under a
public duty to perform cannot hold the other
party to his promise.
• Payment of a smaller sum is not a satisfaction
of a legal obligation to pay a larger sum. –
Pinnel’s case (1602) 77 ER 237
• In Pinnel's Case (1602), Cole owed Pinnel £8-
10s-0d (£8.50) which was due on 11 November.
• At Pinnel's request, Cole payed £5-2s-2d (£5.11)
on 1 October, which Pinnel accepted in full
settlement of the debt.
• Pinnel sued Cole for the amount owed. It was
held that part-payment in itself was not
consideration.
 • However, the agreement to accept part-payment
would be binding if the debtor, at the creditor's
request, provided some fresh consideration.
• Foakes v Beer

20XX presentation title 10

• Common law position of Pinnel’s case
• Payment of a lesser sum cannot satisfy a
larger sum
• Even though the parties have agreed to it
• Not applicable in Malaysia due to s.64

Consideration 11
• Section 64 Contract Act 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.
• Thus …
• Can dispense wholly or in part
• May extend time to perform
• May accept anything in exchange
• Kerpa Singh v Bariam Singh [1966] 1 MLJ 38

BS owed $8,869.94 under a judgment debt. BS’s

son wrote to KS offering $4000/- in full settlement
of his father’s debt and endorsed a cheque for the
amount. He stipulated that should KS refuse to
accept, he must return the cheque.
 Query: “…you have agreed to receive $4000 from my
father being payment in full settlement of his share in the
… civil suit … amounting to $8,650 … I now enclose a
receipt for $4000 paid by cheque at your firm in Kota
Bahru … I pray you will accept the payment and agree to
allow to discharge my father ... from any further liability.
If you don’t agree … please return me my money”

20XX presentation title 14

 •KS’s legal advisers, having cashed the
cheque and retain the money proceeded to
secure the balance of the debt by issuing
bankruptcy notice on the debtor.
•The Federal Court ruled that the acceptance
of the cheque from the debtor’s son in full
satisfaction precluded them from claiming
the balance.
20XX presentation title 15
• Associated Pan Malaysia Cement Sdn Bhd v Syarikat Teknikal &
Kejuruteraan Sdn Bhd [1990] 3 MLJ 287 :
Gunn Chit Tuan SCJ - s 64 of our Contracts Act 1950 … represents a
departure from the common law in England. Our law on waiver in s 64 …,
is similar to the Indian law on the general principles of waiver under which
it is open to a promisee to dispense with or remit wholly or in part the
performance of the promise made to him or he can accept any promise
which he thinks fit. Under our law neither consideration nor an agreement
will be necessary
• Seal Incorporated Bhd v Norsechem Resins Sdn Bhd
COA – Respondent is prevented from claiming the
balance of RM535,781 and the interest thereon after
having accepted and cashed the cheque for a lesser
but agreed amount as ‘full and final payment of a
larger judgment sum’ without any protest.

• PEMBINAAN PURCON V ENTERTAINMENT

VILLAGE (M) SDN BHD [2004] 1 MLJ 545
Promissory Estoppel
• Promissory estoppel prevents a party to a contract from
acting in a certain way because the first party promised
not to act in that way, and the other party to the contract
relied on that promise and acted upon it.
• Provides a means of making a promise binding, in
certain circumstances, in the absence of consideration.
• The doctrine was established in the case of Hughes v.
Metropolitan Railway Co. (1877)
• A promise which has no consideration
• Note:
• It doesn’t create a contract, but it is a doctrine
that allows the promise to be upheld
• Common law concept that is accepted in Malaysia
• Began with:
• Hughes v Metropolitan Railway Co
• Central London Property Trust Ltd v High
Trees House Ltd

Consideration 19
How does the doctrine operate?
• The doctrine operates where there has been a
representation by one party (the promisor) that he/she
does not intend to enforce his/her strict legal rights, made
with the intention that the other party (the promisee) will
rely on the representation, and the other party does in fact
rely upon the representation without providing
consideration. The party making the representation will be
estopped from enforcing his/her strict legal rights, in so far
as it is inequitable to do so.
 Hughes v Metropolitan Rly Co

P gave D (tenant) six month notice in October to carry out

repairs to the house. If not, the tenancy would be terminated.
In November, P carried out negotiations with D with a view to
sell the house to D. Negotiations ended in December. Repairs
had not been carried out so landlord brought an action to evict
tenant when the 6 months was up.

Consideration 21
Held …

If parties who have entered into definite and distinct terms involving
certain legal results … afterwards by their own act or with their own
consent enter upon a course of negotiations which has the effect of
leading one of the parties to suppose that the strict rights arising under
the contract will not be enforced or will be kept in suspense, or held in
abeyance, the person who otherwise might have enforced those rights
will not be allowed to enforce them where it would be inequitable having
regard to the dealings which have thus taken place between the parties.

Consideration 22
If parties who have entered into definite and distinct
terms involving certain legal results
• There is a contract between the parties

… afterwards by their own act or with their own

consent enter upon a course of negotiations
• Then, negotiations/statements made

Consideration 23
 which has the effect of leading one of the parties to suppose that
the strict rights arising under the contract will not be enforced or
will be kept in suspense, or held in abeyance,
• Which made one party to rely on the statement made, and
• Changed his position because of the statement made

the person who otherwise might have enforced those rights will
not be allowed to enforce them where it would be inequitable
having regard to the dealings which have thus taken place
between the parties.
• The other party cannot then deny the statement

20XX presentation title 24

 Central London Property Trust Ltd v High Trees House Ltd [1947]
KB 130.
In Sept 1939, P leased a block of flats to D for £2500 per year. In
January 1940, P agreed in writing to reduce it to £1250 as the war
conditions caused many vacancies in the flats. No express time limit
given and D paid reduced rent. In 1945, flats full again and P claimed
full rent – for the future and restrospectively.

1. Was there an existing contract?

2. Was a statement made that is different from the contract?
3. Was that statement relied on?

Consideration 25
 Malaysian position
Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd
[1995]

1. Estoppel is only as a shield, but not a sword

2. He who relied on the statement was influenced by it
• Only needs to prove influence, not that it was the sole factor which
influenced him
• Also, it does not need to be to his detriment
• “his conduct was so influenced by the encouragement or
representation … that it would be unconscionable for the representor
thereafter to enforce his strict legal rights.
Consideration 26
• In short:

• There is an existing contract between the

two parties
• One makes a statement, the other relies
on it
• Changes his position because of it
• Does not have to be to his detriment
• Thus, the statement cannot be denied

Consideration 27
•Requirements of promissory estoppel:

1)
the promisor must give clear and unambiguous statement that he does
not intend to enforce his legal rights. The promise may be express or
implied.
2)
promisee must have acted on that promise made by the promisor.
Thus, for a plea of promissory estoppel to succeed, there must be a
change in circumstances of the promisee (not necessarily to his
detriment).
 • 3) it would be inequitable for the promisor to
renege on his promise and claim his strict legal
rights after the promisee had relied on it.
• 4) it cannot not be enforce against the promissor.
Thus it can be used only as a defence and thus
cannot be used as a sword

20XX presentation title 29

Estoppel may be used as a shield but not a sword

• The doctrine can only be used where there is

preexisting contractual relationship (or other
relationship creating legal rights), for which
consideration will have been required.
• It cannot be used where one party promises to do more
than what contract requires or to pay more than
required.
• Combe v Combe [1951] 2 K.B. 215 (CA)
Fact: A husband, upon divorce promised his wife
$100 a year as a permanent allowance. In reliance
upon this promise, the wife forbore to apply to the
courts for maintenance.
The husband failed to make the payments, the wife
sued him on the promise, on the basis of promissory
estoppel.
• COA: There was no consideration for the
promise as the wife’s forbearance had not been
requested and was not in return for the promise
made to her, nor could the wife rely on PE
which did not give rise to a cause of action.
•A plaintiff may rely on estoppel if he has an independent cause of action.
Estoppel may be part of a cause of action but not cause of action in itself

Case: Hong Leong Leasing Sdn Bhd v. Tan Kim Cheong [1994] 1 MLJ
177
Fact: Def bought some machines from a dealer who requested the pl to
provide hire purchase facilities to the def. Dealer forwarded the hire purchase
agreement and delivery receipt to the def. Def signed. Machines did not in
fact exist.
• The pl claimed that it was entitled for the arrears
under the HP agreement, the def is estopped from
denying that the machines do not exist especially by
signing the delivery receipt and the payment of
some installments.
• High Ct: The mere fact that the def has signed the
delivery receipt, with no intention on his part to
make any representation to the pl, and with no
evidence that the pl had acted upon the
representation, was not sufficient to raise an
estoppel against the def.
 Read also:
• Cheng Hang Guan v. Perumahan Farlim (Penang) Sdn Bhd [1993] 3 MLJ
352
• Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank
[1995] 3 MLJ 331
Scope of the Doctrine
• Does PE extinguishes or merely suspends the estopped
party’s rights?
• It suspends but does not fully extinguish the existing
obligation. The promisor, may, on giving reasonable
notice resume the right which has been waived and revert
to the original terms of the contract.
• Q: What amounts to reasonable notice?
• Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd.(1955)
The appellants (app) were the owners of certain patents, who licensed
the respondents (resp) to deal in the protected products subject to the
payment of certain royalties.
The resp were to pay compensation if the amount sold exceeded a certain
quota.
In 1939, when war broke out, the app agreed to suspend their rights to
compensation. In 1945, after the war, the app claimed to have revoled
its suspension and to be entitled to compensation from 1 st June 1945.
• The claim failed on the ground that the agreement
was premature as no adequate notice had been given
to the resp. In 1950, the app brought the present
action claiming compensation from 1 January 1947
at which date the resp was fully aware that the app
was determined to revert to the original agreement.
• HOL: The app had effectively revoked its promise to
suspend its legal right, and that it was entitled to the
compensation claimed.
Is detriment an element in estoppel?
• Detriment – damage, loss, harm
• Hong Leong Leasing Sdn Bhd v Tan Kim Cheong [1994] 1 MLJ 177
High Court: In order to successfully raise an estoppel, one has to prove that
he has acted on the other’s representation to his detriment.
• Boustead Trading Sdn Bhd v Arab Malaysian Merchant Bank Bhd
[1995] 3 MLJ 331
Federal Ct: The detriment element does not form part of the doctrine of
estoppel.
• Read also:
- Sim Siok Eng v Government of Malaysia [1978] 1 MLJ 15
- Bank Negara Indonesia v Philip Hoalim [1973] 2 MLJ 3