Tutorial Contract I - LAW436 PDF

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TUTO CONTRACT GROUP 6 3.

Tok Wan who is frustrated with his grandchildren, decided to sell the family bungalow to Mr

Cheah at a ridiculously low price. His grandchildren want to know if the sale can be challenged. Advise both parties. Whether it is valid for Tok Wan to sell his family bungalow at a ridiculously low price and whether his grandchildren can challenge his decision to sell the bungalow. Section 2(d) of the Contracts Act 1950 provides that, “when at the desire of the promisor, or promise or any other person has done or abstained from doing or promises to do or to abstain from doing something, such act, abstinence or promise is called a consideration for the promise.” This section stipulates that a consideration is something that is given in return for the promise made by the promisor. In other words, the promisee must give something in return for the promise made by the promisor that consists of price. A consideration need not be adequate but must be sufficient according to Explanation 2 to Section 26 of the Contracts Act 1950 that stated, “an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.” This means even though the consideration is not adequate, the contract is still valid and binding. It is not necessary that there must be full return for the promise as long as there is something in return rather than nothing, then the consideration is valid. In accordance to illustration (f) to Section 26 of the Contracts Act 1950 where A agrees to sell a horse worth RM1000 for RM10. The agreement is a contract even though the consideration is inadequate because as long as the consideration has some economic value in terms of money, then it is sufficient and valid. Based on a decided case of Phang Swee Kim v Beh I Hock [1964] MLJ 383, the respondent alleged that the appellant had trespassed on his land. He instituted an action claiming for possession. The appellant counterclaimed for a declaration that she was entitled to the said land. The appellant argued that there was an oral agreement between her and the respondent in which the respondent agreed to transfer the land to her for the payment of RM500. The court held that, the inadequacy of the consideration was immaterial and the agreement between them is valid. This pursuant to the general rule of consideration under Section 26 of the Contracts Act 1950 that provides, an agreement without valid consideration is void under this section unless it comes under one of its exceptions.

Therefore, in this case, Tok Wan’s decision to sell the family bungalow to Mr. Cheah at a ridiculously low price is valid because according to Section 2(d) of the Contracts Act 1950, there must be something that is given in return for the promise made by the promisor. Tok Wan promised to sell the bungalow and in return Mr. Cheah pay with money for the bungalow. Moreover, even though the price of the bungalow is ridiculously low the consideration still sufficient and valid in accordance to Explanation 2 to Section 26 of the Contracts Act 1950 that stated, “an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.” This means as long as the consideration consists of economic value, it is valid. Thus, the agreement between Tok Wan and Mr. Cheah is also valid as consideration need not be adequate but must be sufficient. Referring to Phang Swee Kim v Beh I Hock [1964] MLJ 383 case, where the respondent agreed to transfer the land to appellant for the payment of RM500 seems illogical, the court held that the inadequacy of the consideration was immaterial and the agreement between them is valid. Therefore, the sale of the bungalow at a ridiculously low price is also insignificant and the agreement between Tok Wan and Mr. Cheah is valid and binding. This makes Tok Wan’s grandson cannot challenge the sale because the contract of the sale is valid by law. In conclusion, it is valid for Tok Wan to sell his family bungalow at a ridiculously low price and his grandchildren cannot challenge his decision to sell the bungalow because the agreement of sale is valid and binding by law of contract....