Consideration Exercise PDF

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The first issue here is whether the said land transfer was valid as there is no consideration.Consideration is defined under section 2 of the Contracts Act 1950 and in the case of Currie v Misa, a valuable consideration, in the sense of law, may consist either in some right, interest, profit or bene...

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The first issue here is whether the said land transfer was valid as there is no consideration. Consideration is defined under section 2 of the Contracts Act 1950 and in the case of Currie v Misa, a valuable consideration, in the sense of law, may consist either in some right, interest, profit or benefit accruing to the other party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other. A contract must be supported with consideration because a contract is only legally binding if it is made in return for another promise or an act. However, under section 26 of the Contracts Act 1950 there are exceptions. Section 26(a), allows any agreement e x p r e s s e di nwr i t i nga n dr e gi s t e r e du n d e rt h el a w( i fa n y )f o rt h et i meb e i n gi n f o r c ef o rt h er e g i s t r a t i o no fs u c hdo c u me n t s ,a n di sma d eo na c c o un to fn a t u r a ll o v ea n d a ffe c t i o nb e t we e npa r t i e ss t a n d i n gi nane a rr e l a t i o nt oe a c ho t he r . In the case of Queck Poh Guan v Quick Awang, it is not disputed that the parties stand in a near relation to each other; the deceased (the transferor) being the mother to the defendant (the transferee), whether or not there exists any element of love and affection can be gathered from the evidence adduced by both parties and the surrounding circumstances. The court held that the transfer of the land was a gift from the deceased mother to the defendant on account of natural love and affection. In the

case of Re Tan Soh Sim; Chan Lam Keong & Ors v Tan Saw Keow & Ors, a woman on her deathbed expressed her intention to leave all her properties to her four adopted children. The court held that the claims of the adopted children were not effective as it was contrary to Section 26(a) i.e. it was not in writing and there was no natural love and affection between parties to the alleged agreement. In this case, the transfer of land of Leela’s father to her was valid by virtue of section 26(a) of the Contracts Act 1950 as long as it was written and registered as well as done on the account of natural love and affection. To conclude the transfer of land was valid without consideration as it was done on account of natural love and affection and that it was written and registered. The second issue is whether Dr. Susila’s promise is enforceable as it had happened in the past. Ap r o mi s et oc o mp e n s a t ef o rs o me t h i n gd o n ei sd e fine du n d e rSe c t i o n2 6( b )wh i c hs t a t e s t h a ta na gr e e me nti sma d ewi t h o u tc o n s i d e r a t i o ni sno tv oi d whe ni ti sap r o mi s et o c o mp e ns a t e ,wh o l l yo ri np a r t ,ap e r s onwh oh a sa l r e a d yv o l u n t a r i l ydo n es o me t h i n gf o rt he p r o mi s o r ,o rs o me t h i n gwh i c ht h ep r o mi s o rwa sl e g a l l yc o mpe l l a b l et od o .Pa s tc on s i de r a t i o n o nt h eo t he rh a n di same r es e n t i me n to fgr a t i t u d eo rho n o u rp r o mp t i n gar e t u r nf o rb e n e fit s r e c e i v e d .Pa s tc o n s i d e r a t i o n sa r i s e si ns i t u a t i o n swh e r e b yc o n s i d e r a t i oni sg i v e na f t e rt h e p r o mi s o r ’ sp r o mi s e .Ho we v e ri fa na c ti sd o n ea tt h er e q ue s to ft h ep r o mi s o r ,t h ea c ts t i l l c o n s t i t u t e sg o o dc on s i d e r a t i o n .Un d e rt h ec ommo nl a w,p a s tc o n s i d e r a t i o ni sn o tgo o d . Ho we v e r ,u n de rs e c t i o n2( d)o ft h eCo n t r a c t sAc t1 9 5 0i nd i c a t e st h a tp a s tc on s i d e r a t i o ni s v a l i di nMa l a y s i a . The case of Re McArdle concerned a house which was joint property of several siblings in which they lived together. The plaintiff, the wife of one of the brothers, paid for the repairs of the house. After that, the siblings agreed with the plaintiff that, in consideration for the repairs, they would pay her $488. Subsequently, the plaintiff sued for the payment of $488, the defendants in the suit being the siblings other than her husband. The

issue was whether there was consideration for this agreement to pay her $488. The court of appeal held that, as the repairs had been carried out before the agreement to pay had been made, it was past consideration and therefore not good consideration. However in Malaysia, the position under Contracts Act is different. In Guthrie Waugh Bhd v Malaiappan, the court held that past consideration is valid. This is supported in cases involving bank guarantees where the guarantees are executed after the loan documents or after money under the loan facility has been disbursed as in Hongkong and Shanghai Banking Corporation v Syarikat United Leong Enterprise Sdn Bhd & Anor, and Lau Ngiik Ping & Anor v Bank Pertanian

Malaysia

consideration. In

this

case,

there

was

past

consideration as Dr. Susila’s promise to pay RM500 is subsequent to Leela’s act of returning her bag and independent of it. Assuming

it

happened in Malaysia, by virtue of u n d e rs e c t i on2( d )oft h eCo n t r a c t sAc t1 9 5 0 i n d i c a t e st hea c tb e i n gp a s tc o n s i d e r a t i oni sv a l i di nMa l a y s i a . To conclude, Dr. Susila’s promise is enforceable and Leela had a claim against Dr. Susila.

Pi n n e l ’ sRu l es t a t e st h a tp a y me n to fas ma l l e rs u mc a n n o ts a t i s f yal a r g e rs u m.Th e r e f o r e ,p a r t p a y me n to fas u md uec a n n o tb ec o n s t r u e da sac o mp l e t es a t i s f a c t i ono ft h ed e b te v e nt h o u g h b o t hp a r t i e sma yha v ea g r e e do nt h i s .Th e s ed i ffe r e n tf o r msc o ns t i t ut et hec o n s i d e r a t i o nf o r t h ep r o mi s et od i s p e n s et h el a r ge rd e b t .Pi nn e l ’ sr u l ewa sa p p l i e di nFo a k e svBe e r .I nt h i s c a s e ,DrFo a k e so we dMr sBe e r£ 2, 00 0 .Be e rh a dt a k e no utaj u dg e me n ta g a i n s th i m.I nh i s d e f e n s e ,Fo a k e sr e l i e donh i sa g r e e me n twi t hBe e rt h a tt h ed e b two ul db ed i s c h a r g e di fpa i d £ 5 00i nc a s ha n dt h er e s ti ni n s t a l me n t s .Th eHo us eo fLo r d sa p pl i e dPi nn e l ’ sRu l ea n dBe e r wa sg i v e nj u d g e me n tf o rt h ei n t e r e s ta mo un t i n gt o£36 0 .I nMa l a y s i a ,Pi n n e l ’ sRu l ei sa p p l i e d i nTi u nEn gJ i nvWo n gSi eKo n g ,wh e r et h epl a i n t i ffh a do r i gi n a l l ybr o u g h ta na c t i o na g a i n s t

t h ed e f e n d a ntt or e c o v e rac e r t a i ns u m.La t e r ,b o t hpa r t i e ss i gn e da na gr e e me n twh e r e b yt h e p l a i n t i ffa g r e e dt oa c c e ptc e r t a i ng o o d sa n da r t i c l e sf r o mt h ed e f e n d a n ta n da g r e e dt o wi t h d r a wt h ewh o l ema t t e rf r o mt h ec o ur tc a s e .Th eHi g hCo u r the l dt h a tt h e r ewa sa c c o r d a n ds a t i s f a c t i o na st h ep l a i nt i ffh a da c c e p t e ds o me t hi n gd i ffe r e nti nn a t u r e ,t h a ti s ,t h eg o o d s a n da r t i c l e s . Ont heo t h e rh a n d ,u nd e rs6 4o ft h eCo n t r a c tAc t ,ap a r t yc a nf u l l yd i s p e n s eo fad e bt . Se c t i o n6 4o ft h eCo n t r a c t sAc t1 9 5 0s t a t e s : Ev e r yp r o mi s ema ydi s p e n s ewi t ho rr e mi t ,wh o l l yori np a r t ,t h ep e r f o r ma n c e o ft h ep r o mi s ema d et oh i m,orma ye x t e n dt h et i mef ors u c hp e r f o r ma n c e ,o r ma ya c c e p ti n s t e a do fi ta n ys a t i s f a c t i o nwh i c hh et hi n ksfit . Thep os i t i o ni ns6 4o ft h eCo n t r a c t sAc t ,wa sa c kn o wl e d g e db yt h eFe d e r a lCo ur ti nKe r p a Si n g h v Ba r i a m Si n g h .Th er e s p on d e nto we d$ 8, 8 6 9 . 9 4u nd e ra j u d g me ntd e b t .Th e r e s p o n d e n t ’ ss o nwr o t et oKSo ffe r i n g$ 4 0 0 0 / -i nf u l ls e t t l e me n to fh i sf a t h e r ’ sd e b ta n d e n d o r s e dac h e q u ef o rt h ea mo un t .Hes t i p ul a t e dt h a ts h ou l dt h ea p p e l l a n tr e f u s et oa c c e p t ,h e mu s tr e t u r nt h ec h e q ue .Th ea p p e l l a n t ’ sl e g a la d v i s e r s ,h a v i n gc a s h e dt h ec h e q u ea n dr e t a i n t h emo ne yp r o c e e d e dt os e c u r et h eb a l a n c eo ft h ed e btb yi s s u i n gb a nkr u p t c yn o t i c eo nt h e d e b t o r .Th eFe d e r a lCo u r tr u l e dt h a tt hea c c e p t a n c eo ft h ec he q u ef r o mt her e s p o n d e n t ’ ss o n i nf u l ls a t i s f a c t i o np r e c l u d e dt h ea p p e l l a n tf r om c l a i mi n gt h eb a l a n c e .Th i spr i n c i p l ei sa l s o s u p p o r t e di nAs s oc i a t e dPa nMa l a y s i aCe me n tSd nBhdvSy a r i k a tTe k n i k a l& Ke j u r u t e r a a n Sd nBh d ,wh e r et h ec o u r the l dt ha tu n d e rs6 4n e i t he rc o n s i d e r a t i o nno ra gr e e me n ti s n e c e s s a r y ,r e p r e s e n t i n gad e p a r t u r ef r o m En g l i s hLa w.

Thei s s u eh e r ei swh e t h e rMa l i kwa se n t i t l e dt oc l a i mt h ep r o mi s ef r o m Ah ma df o rp a s t c o n s i d e r a t i o n .

Pa s tc o n s i d e r a t i o na r i s e si ns i t u a t i on swh e r e b yc o ns i d e r a t i o ni sg i v e na f t e rt h ep r o mi s o r ’ s p r o mi s e .Und e rt heEn g l i s hl a w,p a s tc o n s i d e r a t i o ni sn o tg o o dc o n s i d e r a t i o n.Ho we v e r ,i n Ma l a y s i a ,p a s tc o n s i de r a t i o ni sg o o dc on s i d e r a t i onu n d e rs e c t i o n2( d )o ft heCon t r a c t sAc t 1 9 50wh i c hs t a t e s :wh e n,a tt h ed e s i r eoft h ep r o mi s o r ,t h epr o mi s e eora n yo t h e rp e r s o nha s d o neo ra b s t a i n e df r o md o i n g ,o rd o e so ra b s t a i n sf r o md o i n g ,o rpr o mi s e st od oo rt oa b s t a i n f r o md oi n g ,s o me t h i n g ,s u c ha c to ra b s t i n e n c eo rp r omi s ei sc a l l e dac o n s i d e r a t i o nf ort h e p r o mi s e .Th es e c t i o ni mpl i e st h a te v e ni ft hea c ti sp r i o rt ot h ep r o mi s e ,s u c ha na c two u l d c o n s t i t u t eg o o dc o n s i d e r a t i o ns ol o n ga si ti sd o n ea tt h ed e s i r eo ft h epr o mi s o r .

I nt hi sc a s e ,t h ep r o mi s et oh i r eMa l i ka sat r a i n i n ge x e c u t i v ei sp a s tc o n s i d e r a t i o nf o rt h ea c t o fMa l i ks a v i n gAh ma df r o md r o wn i n g .I nMa l a y s i a ,pa s tc o ns i de r a t i oni sg o odc o n s i d e r a t i o n u n de rs e c t i o n2( d )oft heCo nt r a c t sAc t1 9 5 0.Th i si sf u r t he rs u p po r t e db yt h ec a s e so f Gu t h r i eWa u g h Bh d v Ma l a i a pp a n Mu t h u c h u ma r u ,Ho n g k o n ga n d Sh a n g ha iBa n ki n g Co r p o r a t i o nvSy a r i k a tUn i t e dLe o n gEnt e r p r i s eSd nBh d& An o r ,a n dLa uNg i i kPi n g& An o rvBa n kPe r t a n i a nMa l a y s i a .

Toc o n c l ud e , Ah ma dh a st of u l filh i sp r o mi s ea n dMa l i kc a nc l a i ma g a i n s tAh ma d .

The first issue here is whether Felix has right to claim from Tirai Emas Sdn Bhd.

Past consideration arises in situations whereby consideration is given after the promisor’s promise. Under the English law, past consideration is not good consideration. However, in Malaysia, past consideration is good consideration under section 2 (d) of the Contracts Act 1950 which states: “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.” The section implies that even if the act is prior to the promise, such an act would constitute good consideration so long as it is done at the desire of the promisor.

In this case, the promise to pay 4 % of the total profits from the contract as payment for Felix’s past services is past consideration. The promise is subsequent to Felix’s act and independent of it. In Malaysia, past consideration is good consideration under section 2 (d) of the Contracts Act 1950. This is further supported by the cases of Guthrie Waugh Bhd v Malaiappan Muthuchumaru , Hongkong and Shanghai Banking Corporation v Syarikat United Leong Enterprise Sdn Bhd & Anor, and Lau Ngiik Ping & Anor v Bank Pertanian Malaysia. Thus, the promise constitute good consideration under s 2(d) of the Contracts Act. One’s advice to Felix, is, therefore, that he has rights to claim from Tirai Emas Sdn Bhd. The second issue here is whether the agreement to purchase the factory is valid. As long as there is consideration, the law does not question the adequacy of the consideration. This is by virtue of explanation 2 of section 26 of the Contracts Act 1950 and Illustration (f) of s 26. Explanation 2 of section 26 of the Contracts Act 1950 states that “An agreement to which the consent of the promisor is freely given 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 the question whether the consent of the promisor was freely given.” Illustration (f) provides example as follows: (f) A agrees to sell a horse worth RM1,000 for RM10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

Thus, inadequacy of consideration does not affect the validity of the contract but only raises the issue whether consent was freely given. In this case, the purchase price of the factory was RM450,000, which was way below the market price of RM1.2 million. In this situation, the agreement is valid even though the consideration may seem not adequate. The principle in consideration is that consideration need not be adequate. This is stated in the explanation 2 to section 26 of the Contracts Act 1950 and further supported by the case of Phang Swee Kim v Beh I Hock. In this case, the Federal Court referred to Explanation 2 and Illustration (f) of s 26 of the Contracts Act and held that the inadequacy of consideration was not an issue in the transfer of land in this case as there was no evidence of duress or fraud. This principle is also illustrated in the case of Vyramuttu v State of Pahang, where the Court held that a purchase for gross-under value at an auction sale, per se, without evidence of fraud was no ground for setting aside the sale. This is further followed in the case of Sandrifarm v Pegawai Pemegang Harta Malaysia where the Court of Appeal held that the actual sale price of the property (about one half of the assessed value) is irrelevant in the absence of fraud and misrepresentation. Therefore, as an advice to Felix, is he does not have to worry as the agreement to purchase the factory is valid....