Adequacy of consideration

Consideration from both parties is needed in order to form a contract which is valid and

binding to the parties involved. However, it is not essential for the consideration to be

adequate for the contract to be valid and binding.

Consideration must be sufficient, where something that is put forward for the exchange

between parties is perceived to be legal of constituting consideration, but it need not be

adequate. The term consideration need not be adequate means that the courts are not

interested in whether the consideration between the parties involved in a contract match in

value (MacMillan & Stone, 2012). As long as the promisor gets what he asks for in return for

his promise, the contract is valid and binding because the promisor received sufficient

consideration (Alsagoff, 2015).

In Sandrifarm Sdn Bhd v Pegawai Pemegang Harta Malaysia, a contract is made between the

respondent-vendor and the appellant-purchaser. The respondent agreed to sell his land for RM

1.9 million and 10% deposit was paid by the appellant. After the agreement between both

parties, the respondent had the land valued by the government valuer who valued the land at

almost double the price offered, which is at RM 3.765 million. The respondent refused to

proceed with the sale which was agreed and the appellant sued for specific performance. The

argument of the respondent is that free consent was not given by his party as the

consideration for the agreement is grossly inadequate.

The High Court held that the inadequacy of the consideration may be taken into account in

determining the question whether, the respondent had given his consent upon entering into

the agreement with the appellant.

The appellant appealed the decision made by the court. The Court of Appeal held that

misrepresentation or fraud by the appellant purchaser was not an issue as no evidence was

found on it. Thus eliminate the question of whether the consent of the respondent was freely

given. The agreement was valid and binding.

The New Zealand Court of Appeal made a remark about the adequacy of consideration in

Melmerley Investments Ltd v McGarry by stating that a Court is concerned only with the

presence of consideration and does not make an assessment of the comparative value of the

acts or promises of the parties towards one another. The remark made by the court clearly

states that the adequacy of consideration is not vital in consideration. A contract is considered

to be valid and binding to the parties involved if there is a consideration in the contract,

where it need not be adequate.

Reference

Books

Ahmad S. A. Alsagoff,. (2015). Principles of the law of contract in Malaysia (4th ed.).

LexisNexis Malaysia Sdn Bhd.

MacMillan, C. & Stone, R. (2012). Elements of the Law of the Contract (1st ed.). University

of London.

Cases

Sandrifarm Sdn Bhd v Pegawai Pemegang Harta Malaysia [2000] 2 MLJ 535, CA

Melmerley Investments Ltd v McGarry CA141/01,