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CONSIDERATION, Phang Swee Kim v Beh I Hock [1964] MLJ 383, Pan Ah Ba v…
CONSIDERATION
DEFINITION
Section 2 (d) CA 1950 Involves some act which a promise or any other person has done, or does or promise to do or has abstained, abstains or promises to abstain from doing at the requested of the promisor
Generul rule in S.26 CA: Agreement made without consideration is void
The definition given by Sir Frederick Pollock, approved by Lord Dunedin in Dunlop v Selfridge Ltd [1915] AC 847, is as follows: "An act or forebearance 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."
Currie v Misa (1875) “ a valuable consideration, in the sense of law, may consist in some right, interest, profit, or benefit accruing to the party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other
South East Asia Insurance Bhd v Nasir Ibrahim [1992] “ The essence of consideration is that the promisee has taken upon himself some kind of burden or detriment…”
TYPES
EXECUTORY CONSIDERATION
A promise for a promise
Eg.: Illustration (a), S.24 CA
CASES
K Murugasu v Nadarajah [1980]
R : tenant of A -pestered A to sell the house to him. A finally wrote on a piece of paper an agreement to sell to R the said house for RM 26K within 3 months from the date of agreement. Later, A refused to sell and R sued for SP
Court: executory consideration.
EXECUTED CONSIDERATION
A promise for an act
PAST CONSIDERATION
A promise subsequent to and in return for an act that has already been performed.
Not an act made or given in return for a promise
ADEQUACY
Explanation 2, S. 26 CA: consideration need not be adequate.
Consideration must only be sufficient = recognised as an acceptable form of consideration by the law.
The law is not concerned with the fairness of the bargain
PAYMENT OF A LESSER SUM
ENGLISH LAW
not a satisfaction of an obligation to pay a larger amount
MALAYSIAN LAW
S.64 CA: the promisee may dispense with or remit, wholly or partly of the performance of the contract
Eg.: Illustration S.64
The creditor may discharge debtor’s obligation under a contract of debt for a smaller amount of money from the original debt.
EFFECT OF NO CONSIDERATION
S.26 CA: Types of agreement which are valid though no consideration
a) agreement made on account of natural love and affection
English law does not recognize this S.26 (a) of CA allow this but with the requirements:
a) it is expressed in writing
b) it is registered (if applicable)
c) the parties stand in near relation with
each other
Eg.: Illustration (b), s.26 CA
case
Re Tan Soh Sim (1951)
FACT
The deceased (Tan) in her last illness had expressed a wish that her estate should be divided amongst the two adopted sons and two adopted daughters. The legal next-of-kin, respecting the wish, drew up an agreement renouncing all rights in favour of the four adopted children who where their nephews and nieces.
Held: the questions as to ‘relationship’ and ‘near’ must be applied and interpreted in each case according to the mores of the group to which the party belong and with regard to the circumtances of the family concerned
Thus, Chinese adoptive children are related to the adoptive parents and brothers but they are not nearly related to the family of the adoptive mother
Hence, uncles and aunties do not stand in near relation to their nephews and nieces.
So, there was no natural love and affection between the signatories and donees.
ISSUE
Whether an agreement was made on account of natural love and affection between the three sisters and seven half sisters and brothers stood in near relationship to their adopted nephews and nieces?
b) a promise to compensate for something done
AN ACT VOLUNTARILY DONE
case
JM Wotherspoon Co Ltd v Henry Agency House [1962]
Therefore, the promise made without consideration by the D to compensate the P was not a contract
Held : since the P had acted on the suggestion of the D, it followed that the P’s act was not voluntarily done within the meaning of Section 26(b).
Stilk v Myrick (1809) 170 ER 1168
The captain of a ship promised his crew that, if they shared between them the work of two seamen who had deserted, the wages of the deserter would be shared out between them.‘
Held : the promise was not binding because the crew give no consideration, they were already contractually bound to do any extra work to complete the voyage.
Hartley v Ponsonby (1857)
The ship left England with a crew of 36.
At Port Phillip, many of the crew deserted and only 5 were able seamen.
The captain promised extra wages to work the ship to Bombay and later refused to pay.
Held : the promise was binding. The ship was so shorthanded that the voyage become dangerous and the seamen were no longer bound to serve under the original contract. They were free to enter into a new contract.
It must not be for something which the promisor is already bound to do it/ performing of an existing contractual duty owed to the promisor
AN ACT LEGALLY COMPELLABLE TO DO
The promisee has done the act voluntarily
• The act is one which the promisor was legally compellable to do
• An agreement to compensate the promisee for the act, wholly or
But, if the promisor agrees to do or had done more than is required by law, the consideration will be sufficient.
In other words, when a person has done something beyond the scope of his existing public duty, the act is considered as sufficient consideration.
CASES
Collins v Godefroy (1831) 109 ER 1040
The P was subpeonaed to attend court to give evidence for the D. the D promised P 6 guineas to attend the court. The P attended but D refused to pay
Held : the P could not recover the sum as he was under a legal and public duty to attend the court. .
Glassbrook Brothers v Glamorgan County Council [1925] AC 270
A police were under duty to protect a coal mine during a strike. They were asked by a manager of a coal mine to provide a stronger guard than the police would otherwise had done. A rate was agreed for the provision of this service.
Held : the undertaking to provide more protection than what the police thought necessary was something over and above their duties and therefore it is a good consideration for the promise of the reward.
c) a promise to pay a debt barred by limitation law
A debt that cannot be recovered through litigation because lapse of time fixed by law
Limitation Act 1953 : 6 years
Eg.: Illustration (e), S. 26 CA
CASE
Sri Kapaleeswarar Temple v Tirunavukarasu
court referred to s 25(3) of Indian Contract Act (in pari materia with s 26(c) of CA)
H: the principle is now well known that a person may renounce a benefit of law made for his protection
PRIVITY OF CONTRACT
Consideration Need Not Move from
Offeree
Section 2 (d) the consideration need not necessarily come from the promisee, it may come from another person
Phang Swee Kim v Beh I Hock [1964] MLJ 383
Facts: R alleged that A had trespassed on his land and he instituted an action claiming for possession of the land and also for an account of all income received by A from the land. A counter claimed for a declaration that she was entitled to the said land.
A contended that there was an oral agreement made between her and R in which R agreed to transfer the land to her on payment of RM500.
Trial Court: agreement was void for inadequacy of consideration
Fed. Court: Inadequacy of consideration was immaterial. The agreement was valid as long as there is a consideration though it is inadequate. A transfer of land for RM500 is valid as there was no evidence of fraud or duress.
Pan Ah Ba v Nanyang Construction Sdn Bhd [1969]
The deceased entered into an agreement with R for the purchase of land and premises in KL and paid 10000 as deposit. She agreed to enter into a formal agreement on the sale, failing which the R would forfeit the deposit. The agreement also gave the R right to rescind the contract at any time without giving any reason and return the deposit.
When she failed to sign the formal agreement R instead of forfeiting the deposit, wrote a letter stating if she failed to sign they will sell to other purchasers.
The deceased then wrote to R requesting R to sell the property to other purchaser and return her deposit of RM10000. R then informed her unless she sign the agreement, they will forfeit the deposit.
Held : R in their letter had dispensed the deceased from performing her part of the contract and therefore R have to return the deposit to the deceased.
Foakes v Beer [1884]
it is established that payment of a lesser sum cannot be a valid satisfaction of the whole debt unless there is some fresh consideration given in return for the creditor accepting the lesser sum, for example, by paying a lesser sum at an earlier date.
Mrs. Beer had obtained judgment against Dr. Foakes for £2,000/ Dr. Foakes paid £500/- at once and the balance by instalments on the understanding that Mrs. Beer would not take any proceedings on the judgment. Having settled the whole amount, Mrs. Beer claimed the judgment interest. Dr. Foakes refused to pay.
HL:- Judgment in favour of Mrs. Beer for the amount of the interest.
Scruttons Ltd v Midland Silicones Ltd
goods purchased by the respondent were damaged by the negligence of the appellants, who were stedores
The appellants sought to take advantage of certain provisions in the bill of the lading made between the sellers of the goods and carrier, which would limit their liability to $500 (E179) per package in the event of loss, damage or delay
HOL Held: they could not do so as they were strangers to the contract
Wong Hong Leong David v Noor Azman
bin Adnan [1995]
Held : the exchange of mutual promises, though it is executory consideration, was good consideration
Therefore, there was
a binding agreement between them and the Respondent’s claim for the fees succeeded.
Lampleigh b Brathwaite (1615)
an act originally done at the request of the promisor, a promise made subsequent to the doing of that act, was deemed binding since the act constituted consideration
S.2 (d) CA; “…has done or abstained from doing…”
Kepong Prospecting Ltd & Anor v Schmidt [1968]
fact: T agreed with Schmidt in writing, that in consideration for Schmidt’s assistance to obtain a permit and start mining operations, T would pay Schmidt 1% of the price that all ore from the land was sold at. A year later, KP (the plaintiff) agreed to work the land and undertake T’s agreement to Schmidt. The agreement that KP and Schmidt signed stated it was supplementary to the original agreement between KP and T. These terms were later terminated by a consent order which stated that J would take over the company and provide the company an indemnity from the payment owed to Schmidt. Schmidt claimed for the money that was agreed upon and KP claimed that they had been indemnified by J. The trial judge dismissed Schmidt’s claim and the Federal Court later reversed the decision and ordered KP to pay S. KP appealed the decision.
H: The court dismissed Schmidt’s claim to be able to enforce the original agreement between T and KP as he was not a party to that agreement. However, Schmidt was deemed to have given consideration under Malaysian law for the agreement between himself and KP. Therefore Schmidt could sue for the sum that was owed on the agreement between himself and KP.
Pinnel’s case (1602) 77 ER 237
“the gift of a horse, hawk or robe…in satisfaction is good. For it might be intended thata horse, hawk or robe …might be more beneficial…than the money.”
Adopted again in with variation
Venkata Chinnaya v Verikatara Ma’ya (1881) I.L.R 4 Mad 137
Facts: A sister agreed to pay an annuity of $653 to her brothers who provided no consideration for the promise. But on the same day their mother had given the sister some land, stipulating that she must pay the annuity to her brothers. The sister subsequently failed to pay the annuity and was sued by her brothers.
Held: she was liable to pay the annuity as there was a good consideration though it does not come from her brothers
Kerpa Singh v Bariam Singh [1966]
Facts: A obtained judgment against R for the sum of RM8650. R’s son offered to pay RM4000 as payment of full debt and if A did not agree, he should returned the money back to R.
A cashed the cheque but later demanded the balance.
Held: as A had agreed to the amount offered by R’s son, it is considered as the discharge of the full liability of R.
R v Clarke (1927)
Facts: the Australian government promised to give reward of $1,000 for any information given in view of the murder of 2 policemen.
Bolton v Madden (1873)
Held: the adequacy of the consideration is for the parties to consider at the time of making the arrangement and not for the court to determine when it is sought to be enforced