Chapter 3 Consideration 1 PDF

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Chapter 3 ConsiderationIntroductionOne of the compulsory elements for a valid contract to be formed is consideration. According to Section 10(1) of Contracts Act 1950 defines contracts as agreements that are made inter alia for a lawful consideration and with a lawful object. An agreement made witho...

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Chapter 3 Consideration Introduction One of the compulsory elements for a valid contract to be formed is consideration. According to Section 10(1) of Contracts Act 1950 defines contracts as agreements that are made inter alia for a lawful consideration and with a lawful object. An agreement made without consideration is invalid as stated in Section 26 of the Contracts Act. Section 2(e) of Contracts Act 1950 states that an agreement is formed on the basis of consideration through promises for each other. The consideration of Section 2(d) of Contracts Act 1950 defines consideration as actions that are done or avoided to be done or promise to done or promise to avoided to be done by the promise at the desire of the promisor is known as consideration for the promise. In Macon Works and Trading Sdn Bhd v P hang Hon Chin & Anor, the court cited the case of Currie v Misa that provided the definition for consideration whereby consideration is done by receiving benefits, right, interest, profit from another party or it could be said that the other party in the contract refrains themselves from some legal rights or bears certain detriment, loss or responsibility. The court also declared an alternative explanation for consideration whereby consideration in a purchase and sale contract shall be the price given for the object to be purchased. Content 1 – Executed and Executory Consideration In executory consideration, the promise made is yet to be done when the agreement is made. For instance, a seller’s promise to deliver goods in return for a buyer’s promise to pay. In executed consideration, the promise is made in return for the performance of an act. In Carlill v Carbolic Smoke Ball Co, the facts of the case presented a situation of executed consideration whereby the defendant makes a promise through advertisement to reward the buyers who caught influenza after using their smoke balls. In Wong Hon Leong David v Noorazman Adnan, the court stated that the consideration can be in either executory or executed. In this case, the respondent promises to aid the appellant to obtain a letter of support from the Menteri Besar in Selangor for the purpose of obtaining conversion and subdivision of the land owned by the appellant form the land administrator. The appellant initially promised to pay a sum of money but later refused to pay the respondent when the application is successful. The appellant argued that the respondent did not contribute in the success of his application and there was no

consideration for the agreement. The court held that the is a promise made in exchange for promise, thus it is executory and it is a good consideration. In Baharuddin bin Abas v Yaacob bin Sulaiman & Anor, the court states that consideration formed in joint venture agreements that are partnership agreements in nature are to be seen as executory consideration. The concept of executory and executed consideration is related to the types of the contract, either unilateral or bilateral. The difference between an unilateral contract and a bilateral contract is that the outstanding obligation is only on one side only for unilateral contract but on both sides for bilateral contract whereby both parties having made mutual or reciprocal promises to each other. Content 2 – Past Consideration Executed consideration is said to be dissimilar from past consideration as past consideration it not really considered as consideration but an attitude performed to show gratitude and honour for receiving certain benefits. For executed consideration the promise and act made is part of the same transaction but for past consideration the promise is made after the occurrence of certain events and is not part of the same transaction. The example illustration is hat if A saves B from drowning and B later promises A a reward, A’s action cannot be relied on as consideration for B’s promise for it is past in point of time. Past consideration only occurs after the consideration is given after the promisor’s made his promise. In common law, past consideration is regarded as not a good consideration. In Re Mc Ardle , the defendants were the in-laws of the plaintiff who stayed together in a house. The plaintiff paid to repair the house and the defendants promised to pay for the repairment fees after the repairment was made. The plaintiff sued for the payment. The issue arose was whether there was consideration for this agreement to pay for the repairment fee. The court held that since the agreement was being made after the repairment was done, the consideration is considered as past consideration and thus not good consideration. However, there is an exception towards this rule whereby past consideration is considered as good consideration provided that the act made by the promisee is made at the request of the promisor even the promise is only made after the act had been executed. In Lampleigh v Braithwait, the court held the consideration in the agreement made by the plaintiff and the defendant was good consideration even it was a past consideration, the defendant only made his promise to pay the plaintiff after the act was done by the plaintiff as he acts done by the plaintiff was done upon the request of the defendant.

A different approach was made for recognizing past consideration. In Guthrie Waugh Bhd v Malaiappan Muthuchumaru, the court stated that Section 2(d) of the Contracts Act 1950 has included past consideration as a valid consideration if the act was done by the request of the promisor. Section 2(d) of Contracts Act 1950 has included the words “at the desire”. In Hongkong and Shanghai Banking Corporation v Syarikat United Leong Enterprise Sdn Bhd & Anor, the court stated that past consideration is good consideration even if the benefits were not given on the time the guarantee was executed in a one-off transaction provided that the benefit that was given before the execution was given at the desire of the gurantor. In SEA Insurance Bhd v Nasir Ibrahim, the respondent promised to indemnify the appellant made a guarantee towards a third party on the desire of the respondent who later executed a contract of indemnity with the appellant. The court stated that a consideration that comes after an act made by one party for the desire of another party is considered as good consideration by virtue of Section 2(d) of the Contracts Act 1950. The fact that the order of the consideration made was after the actions being done was irrelevant as long as the actions done are at the desire of the promisor. In GBH Ceramics Sdn Bhd v How It @ Low Aik & Ors, the defendant executed a letter of guarantee with the plaintiff, promised to pay the plaintiff for goods sold and delivered to a third party. The defendant contended that since the consideration given by the plaintiff was void as the goods supplied and delivered over a period of time before the guarantee was executed subsequently. The court held that the plaintiff’s act was done at the desire of the defendant’s thus a it is a valid consideration. In Lau Ngiik Ping & Anor v Bank Pertanian Malaysia, the defendants agreed to make a loan towards a bunch of borrowers. The loan given was secured by a charge over a land belonging to the plaintiff. The signing of memorandum of charge only took place after the loan agreement was being executed. The plaintiffs argued that security made for the loan agreement was a past consideration. The court held that the defendants agreed to loan the borrowers at the desire of the plaintiffs after scrutinizing the letter of authorization. Thus, the even the security made was a past consideration however it is constituted as good consideration by virtue of Section 2(d) of the Contracts Act 1950. Content 3- Act of Forbearance...