CONSIDERATION

LAW102A
PART A
  As a general rule, an agreement without consideration is void –
section 26, Contracts Act.
INTRODUCTION  Definition of ‘consideration’ – see section 2(d), Contracts Act.
 Types of consideration
 Executory consideration
 Executed consideration
 Past consideration
  Consideration is defined in s.2 (d) which provides that when, at the
promisor’s desire, 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.
Definition  Dunlop Pneumatic Tyre Co Ltd v Selfridge Co Ltd – defined
consideration as ‘an act or forbearance of one party, or the
promise thereof, is the price for which the promise of the other is
bought, and the promise thus given for value is enforceable’.
  Both parties to the contract must provide consideration. Section 26
provides that an agreement without consideration is void.
 However, s.4 (c) of the Contracts (Amendment) Act 1976 provides
that notwithstanding anything to the contrary contained in the
Contracts Act, no scholarship agreement shall be invalidated on the
grounds that it lacks consideration.
 This was emphasized in the case of University Malaya v Lee Ming
Chong (FC) (1986) where it was held that no scholarship agreement
Definition shall be invalidated for lack of consideration.
 In this case, Lee was given a scholarship by University Malaya to
further his studies in Canada on condition that he must work for the
University for 2 ½ years.
 Upon his return, Lee left the University and argued that since there
was no consideration as University Malaya had paid the fees.
 Even if there was no consideration, s.4 (c) of the Contracts
(Amendment) Act 1976 provides that a scholarship agreement is not
void by absence of consideration.
  CONSIDERATION NEED NOT BE ADEQUATE;
 UNILATERAL DECLARATION INSUFFICIENT TO MAKE
CONTRACT;
 CONSIDERATION MAY MOVE FROM THIRD PARTY;
The rules  PAST CONSIDERATION;
regarding  NATURAL LOVE AND AFFECTION;
consideration  PAYMENT OF LESSER SUM IS SATISFACTION OF OBLIGATION
TO PAY LARGER SUM;
 COMPOSITION AGREEMENT
  an agreement is not void merely because the consideration is
inadequate – Explanation 2, section 26
Consideration  for the application of the rule – see Illustration (f) section 26

Need Not be  adequacy of consideration – see Chappell & Co Ltd v Nestlé Co.
Ltd, Phang Swee Kim v Beh I Hock
Adequate
  Explanation 2 to s.26 provides that an agreement is not void
merely because the consideration is inadequate; but the
inadequacy of the consideration may be taken into account by the
court in determining whether the consent of the promisor was
Consideration freely given.

Need Not be  An example is given in Illus (f) where A agrees to sell a horse worth
RM1,000/- for RM10/-. A’s consent to the agreement was freely
Adequate given. The agreement is a contract notwithstanding the
inadequacy of the consideration.
Case
  S.27 (a) of the Specified Relief Act 1950 provides that if the
consideration is so grossly inadequate and there is evidence of
fraud or of undue advantage taken by the plaintiff, then the
plaintiff will not be allowed to enforce the contract.
 In Phang Swee Kim v Beh I Hock (SC) (1964), the trial judge had
held the contract void due to inadequate consideration.
S.27 (a) of the  On appeal, the Supreme Court held that as long as there was some
Specified consideration, the inadequacy was immaterial.
Relief Act 1950  The Court said that merely inadequacy of consideration was not
sufficient ground to set aside the contract unless the inadequacy
was too great that it amounted to duress or fraud.
 There should be evidence of duress or fraud to make the contract
void.
UNILATERAL
DECLARATION  Where no consideration is given by the promisee, the promisor
merely owes a moral obligation to perform the contract:
INSUFFICIENT
TO  Guthrie Waugh Bhd v Malaippan Muthucumaru (1972).
MAKE
CONTRACT
  S.2 (d) provides that consideration may be provided by “the
CONSIDERATION promisee or any other person” i.e. it may move form a third party.
MAY MOVE FROM  This is different from the English Law in Currie v Misa (1875) where
THIRD PARTY consideration must move from the promisee only.
  a party to an agreement can enforce the promise even if he
CONSIDERATION himself has no given no consideration as long as somebody else
has done so – section 2(d)
MAY MOVE FROM
THIRD PARTY  see Venkata Chinnaya v Verikatara Ma’ya
Q &A