TUTORIAL 3 – Consideration

Q1. Consideration may be classified as ‘executory’, ‘executed’ or ‘past’. With the use of
supporting cases and relevant provisions from the Contracts Act, distinguish
between the 3 types.

Executory consideration

This is when a promise is made in return for a promise, i.e. there is a mutual exchange of
promises. This usually applies to bilateral contracts where a promise is made in return for a
promise.

An example is seen in Section 24 Illustration (a) Contracts Act 1950, regarding a sale and
purchase of a house. Lawful considerations are given wherein the seller’s promise to sell the
house is the consideration for the buyer’s promise to pay the purchase price. Other cases in
support: K Murugesu, Wong Hon Leong David and Ahmad Zaini. In all these cases, the
exchange of mutual promises, although executor, was a good consideration. Thus there was a
binding agreement between the parties.

Executed consideration

This is where a promise is made in return for an act to be performed. This usually applies in
a unilateral contract, where there is only the promise of the promisor, while the promisee
makes no promise. Instead, he performs an act.

An example is seen in Carlill v Carbolic Smoke Ball, wherein the customer’s act of buying
and using the inhalant and then getting influenza was sufficient consideration for the vendor
company’s promise to pay the compensation of £100. Other examples involve promise to
reward for information given - R v Clarke or promise to transfer house upon the promise
completing the mortgage repayment – Errington.

Past consideration

This is where a promise is made subsequent to and in return for an act that has already been
performed. The act is done prior to the promise. A past act or refrain is recognised as a valid
consideration under S. 2(d) ‘… the promisee or any other person has done or abstained from
doing,…’

S. 26 Illustration (c) also provides an example: A finds B’s purse and gives it to him. B
promises to give A RM 50. This is a contract.

In Kepong Prosecting, it was held that an agreement by a Company to pay its consultant,was
legally binding on the Co, even though the consultant’s services were clearly past. The
services rendered after the Company was incorporated were sufficient to amount to a valid
consideration for the Co’s subsequent promise to pay him. However, for services performed
prior to incorporation, these were not a valid consideration as the Co was not legally in
existence.

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Q2. “An agreement without consideration is void”. Do you agree? Describe the
exceptions to the general rule that an agreement without consideration is void.
(10 marks)

Consideration is defined in s. 2(d): ‘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.....”

Consideration is the ‘price’ for which the promise of the promisor is purchased by the
promisee. The ‘price’ may be in the form of performance of an act, or an abstinence from
doing something or a promise to do something in the future by the promisee.

The general rule on consideration is that ‘an agreement made without consideration is void’ –
Section 26 Contracts Act 1950.

However, this statement is not entirely true because it only represents the general rule. There
are a few exceptions, and in any of these situations, an agreement will be VALID even if no
consideration is given.

Exceptions:

S.26(a):

Under this section, an agreement is valid if it is in writing and made on account of natural
love and affection between parties standing in near relation to each other. It must be
registered if there is a law that requires so.

Close relationship depends on culture and family circumstances. In Re Tan Soh Sim, such
argument failed because the claimants were unable to prove “near relations” since the
relationships were that of adoptive uncles/aunts and adoptive nephews/nieces on the mother’s
side. Pursuant to the Chinese tradition, the parties were not standing in near relations to each
other. In comparison, in Tang Meng Hock, biological brothers of the same father would be
considered standing in near relations.

S. 26(b):

Here, an agreement to compensate for a past voluntary act would be valid. “Voluntarily”
means doing an act with one’s own free will, without being constrained, prompted or
suggested by another person – J.M.Wotherspoon

S. 26(b):

Another limb of Section 26(b) also upholds an agreement to compensate a person who did an
act which the promisor was legally compellable to do. This is provided in Illustration (d): A
supports B’s infant son. B’s promise to pay A’s expenses is a contract.

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S.26(c):

An agreement to pay statute barred debt would also be valid under this section. Generally, a
contractual debt is barred by s. 6(1)(a) of the Limitation Act 1953 if six years have passed
from the date of accrual of action.

For an agreement to be valid under this section, these requirements must be fulfilled:
a. The debtor made a fresh promise to pay the statute barred debt;
b. The promise is in writing;
c. It is signed by the debtor

This agreement creates an independent cause of action without the creditor giving any
consideration. Nevertheless, the promisor will only be liable according to the terms and
conditions of his fresh promise.

Illustration (e): A owes B RM1000 but the debt is barred by limitation. When A signs a
written promise to pay B RM500, this is a contract that B may sue upon.

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Q3. Eve loves her daughter, Jill, very much and is worried that Jill has no property in
her name. She therefore decides to transfer the family house to Jill as a gift, on Jill’s
next birthday. However, Eve’s son, Frank tells Eve, that since Jill will not pay
anything for the house, the proposed contract to transfer the house cannot be done.
Advise Eve. (5 marks)

The issue is on whether Eve’s proposed transfer of house to Jill would be invalid because
there is no consideration for the transfer.

Under Section 26 Contracts Act 1950 (CA 1950), an agreement without consideration is void.
There are however exceptions to this rule.

Under S.26(a), an agreement on account of natural love and affection would be binding. Such
agreement must be:
1. made on account of natural love and affection
2. made between parties standing in near relation to each other
3. registered where a law requires registration; and
4. expressed in writing.

Following Re Tan Soh Sim, natural love and affection is a valid consideration provided the
parties stand in “near relations” to each other.

On the facts, Eve’s proposed transfer is clearly on account of natural love and affection. This
involves the relationship between mother and daughter. Thus, to distinguish Re Tan Soh
Sim, both Eve and Jill stand in ‘near relation’ to each other. In comparison, in Tang Meng
Hock, biological brothers of the same father would be considered standing in near relation.

As such, if Eve’s desire is further expressed in writing, Jill would be able to bring her
situation within S.26(a).

In conclusion, Eve is advised her proposed transfer of house to Jill would be valid even if
there is no consideration given by Jill.

A problem would arise for Jill if the transfer of house is not made by Eve after her
promise/agreement. In Balfour v Balfour, it was held that in case of a domestic or family
agreement, the parties are presumed not to have an intention to create legal relations (ITCLR)

Jill would have to rebut the presumption in order to enforce the agreement, following the
principle in Merritt v Merritt.

It is submitted that Jill would be able to do so since the facts are clear that Eve had the
intention to transfer the house to her.

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Q4. Grandma Sim, an elderly widow, wished to transfer her bungalow house to her
stepson, Ah Huat. Grandma Sim signed an agreement to transfer the house to Ah
Huat, but before the house could be transferred, she passed away. Grandma Sim’s
brother, Kiam Siap, became her personal representative. Kiam Siap informed Ah
Huat that since he (Ah Huat) did not give any consideration, whether monetary or
services, the agreement was not legally-binding and Kiam Siap refused to transfer
the house to Ah Huat’s name. Ah Huat wishes to know whether he can compel
Kiam Siap to make the transfer.

The issue is whether the agreement to transfer the house is void on the grounds that there is
no consideration for the transfer.

Under Section 26 Contracts Act 1950, an agreement without consideration is void. One
exception to this rule is found in S.26(a), which provides that an agreement on account of
natural love and affection would be binding. The requirements to be fulfilled are:
1. It is made on account of natural love and affection
2. It is made between parties standing in near relation to each other.
3. It must be registered where a law requires registration and
4. It must be expressed in writing;

The parties must stand in near relations to each other - Re Tan Soh Sim.

On the facts, Grandma Sim had wanted to give her bungalow house to Ah Huat her stepson as
a gift, on account of love and affection.

On the requirement of ‘near relation’, the relationship is between a stepmother and a stepson.
Applying Re Tan Soh Sim, Grandma Sim and Ah Huat are not parties standing in “near
relations” to each other. Thus, Ah Huat is unlikely to be able to bring his situation under
S.26(a).

In conclusion, the agreement to transfer the house is void because there is no consideration
for the transfer.

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Q5. Due to hardship in life, Hoper left his family to seek a better life elsewhere. His two
sons were neglected during his three months absence. Charity, Hoper’s neighbour,
sympathized with the situation and voluntarily helped to pay for the expenses and
education of the two boys. After Hoper had returned, he promised to pay all
expenses incurred by Charity. Charity has not received any payment from him.
Advise Charity.

The issue is whether Charity’s past voluntary acts in paying for Hopper’s children is
sufficient consideration to support H’s subsequent promise to compensate Charity.

Under S.2(d) Contracts Act 1950, consideration includes an act or abstinence, a price that has
to be paid for the enforcement for a promise. Consideration can also be past.

Under Section 26, an agreement without consideration is void unless it falls under the
exceptions stated in (a), (b) & (c).

In this case it fell under the exception in S. 26(b), an agreement to compensate for a past act
done for the promisor which he or she was legally compellable to do. The requirements are:
i. The promisee has voluntarily done an act.
ii. The promisor was legally compellable to do that act.
iii. The promisor promises to compensate, wholly or in part, for the promisee’s act.

Illustration (d) of S.26 provides: A supports B’s infant son. B promises to pay A’s expenses
in so doing. This is a contract.

On the facts, Charity has voluntarily looked after Hoper’s children when he was away. This is
a past act.
Hoper was legally compellable as a father to look after his own children, but he was away.
Subsequently, he promised to compensate Charity for her act of looking after his children.
This case falls under S.26 (b) and Illustration (d).

In conclusion, Charity is advised that:

i. She would succeed in her claim for the money promised by Hoper, even though it was a
past act.
ii. Hoper would not be able to raise the defence that there was no consideration moving from
Charity to support his promise to compensate her.

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Q6. Carmen writes to her friend Duke, ‘I offer you my Mercedes 320 for only RM
20,000. When Duke receives the letter he immediately calls Carmen and accepts
the offer. The next day, when Carmen sees Duke, she refuses to sell the car to him.
She says, ‘My Mercedes is actually worth RM 150,000.
Advise Duke.
(5 marks)

The issue is whether the agreement between Carmen (C) and Duke (D) for the sale of her
Mercedes is valid notwithstanding the adequacy of consideration for the car.

Consideration is defined in Section 2(d) Contracts Act 1950 as something done by a promisee
or any other person, at the desire of the promisor. The act is a consideration of the promise.

Under Explanation 2 to S.26 CA, where a promisor’s consent to an agreement is freely given,
the agreement would not be void merely because the consideration is inadequate. The
inadequacy of consideration will only be taken into account when there is an issue of whether
the promisor’s consent was given freely.

Illustration (f) of S.26 provides an example: A horse worth RM1,000/- is sold for RM10. If
the seller’s consent to the agreement is freely given, the agreement is a contract
notwithstanding the inadequacy of the consideration. A supporting case is Phang Swee Kim v
Beh I Hock.

On the facts, Carmen had, with her own free consent, sold her car worth RM150,000/- to
Duke. It is not open for Carmen to claim now that the consideration of RM20,000/- is
inadequate or that it does not commensurate with the market value of the car.

In conclusion, Duke is advised that there was a valid sale of Mercedes supported by sufficient
consideration. He needs not pay any further sum to Carmen.

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Q7. In June 2014, Mis Kin borrowed RM 10,000 form Kah Yah. In July 2014, Kah
Yah seeing Mis Kin in a pitiful state of affairs, told Mis Kin that he only needs to
pay Kah Yah RM 1,000 as settlement of the debt. Mis Kin paid Kah Yah the RM
1,000 in August 2014. Now in September 2014, Kah Yah is demanding payment of
the balance amount of RM 9,000.
Advise Mis Kin.
(5 marks)

The issue in this question is on whether Kah Yah (KY), having accepted a smaller sum of
RM1,000/-, has waived the performance of Mis Kin (MK)’s promise to repay him the whole
debt of RM10,000/-.

Under S.64 Contracts Act 1950, a waiver of performance does discharge the contract. A
promisee may dispense with, wholly or in part, the performance of the promise made to him.
He may extend the time for the payment or may even accept instead of the debt any
satisfaction which he thinks fit.

In Kerpa Singh v Bariam Singh, it was held that since the creditor’s lawyers had accepted the
cheque from the debtor’s son in full satisfaction of the debt, the creditor was prevented from
claiming the balance.

On the facts, it appeared that in August 2014, KY had dispensed with the performance of
MK’s promise to repay him. He had accepted MK’s payment of RM1,000/- in full settlement
of the amount MK owed. It would seem thus that under Section 64, KY would not be able to
claim back the balance amount of RM9,000/-, since it has been discharged.

In conclusion, since MK had made a part-payment which KY accepted as a discharge of the

whole debt, the part-payment had validly discharged the balance unpaid.

MK is advised he needs not pay KY the remaining RM9000/-.

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Q8. In December 2000, Simon borrowed RM 10,000 from Paula. Simon promised to
repay the loan within a month. However, Simon didn’t repay the loan and Paula
went overseas for further studies. She returned to Malaysia last month (May 2011)
and demanded repayment of the loan from Simon. He refuses to pay. Advise Paula
whether she could recover the loan from Simon.

The issue is whether Paula would be able to recover the debt owed by Simon in May 2011,
after the expiry of 11 years, which is statute-barred at the moment.

The Limitation Act 1953, s. 6(1)(a) provides that for contracts, the limitation period is 6
years from the date the cause of action arose.

After the expiry of 6 years the debt becomes barred by this statute. It is irrecoverable.

On the facts, Simon had agreed to repay the sum borrowed within 1 month i.e. January 2001.
When Simon did not repay the loan, this is the date of the breach of contract.
Paula’s cause of action commenced from this date. Her right to sue and recover this debt
would have been barred as from January 2007, 6 years after that.

In conclusion, Paula is advised that she cannot recover the debt of RM10,000/- from Simon
as the action would be time-barred on January 2007.

Would it make any difference to your answer if, when Paula demanded
repayment, Simon told her that he would repay the loan the very next day but
never kept his word?

Here, the answer would still be the same.

The promise made by Simon to repay the statute-barred debt is a promise unsupported by
consideration. The promise cannot be enforced unless the conditions in s. 26(c) Contracts
Act 1950 are satisfied:

i. Simon must have made a fresh promise to Paula to repay the statute-barred debt
ii. The promise must be made in writing
iii. It is signed by Simon.

The promise gives the creditor an independent cause of action even though creditor gives no
consideration. Debtor shall be liable according to terms of this fresh promise. The original
debt is not revived

On the facts, the 2nd and 3rd conditions were not met.

In conclusion, Paula is advised that she will not be able to enforce Simon’s promise made.
The debt had become time-barred.

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Q9. Payment of a lesser amount of a debt or waiver of performance of a promise may
discharge the parties from their contractual obligation. Is this a correct statement of
the law?

Waiver of performance or a promise does discharge the parties from their contractual
obligations.

Section 64 Contracts Act 1950 provides: A promisee may dispense with, wholly or in part,
the performance of the promise made to him. He may extend the time for the payment or may
even accept instead of the debt any satisfaction which he thinks fit

Under Illustration (b), payment of lesser sum does discharge the full sum.
E.g: A owes B RM5000. A pays RM4000 only, which B accepts in satisfaction of the whole
debt. The whole debt is discharged.

Under Illustration (c), payment of lesser sum by a 3rd party does discharge the full sum.
E.g: A owes B RM3000. C pays RM2000 and B accepts it in satisfaction of his claim on A.
The whole debt is discharged. Kerpa Singh v. Bariam Singh [1966]

Meanwhile, Illustration (d) provides that where the amount owed is unascertained and
creditor accepts an agreed sum in satisfaction, the debt is discharged.
E.g.: A owes B, a sum of money. The amount is not certain. A without ascertaining the
amount gives to B, RM2000/- which B accepts. This is a discharge of the whole debt.

Illustration (e) provides for a situation where the debtor and creditor enter into a composition
arrangement.
E.g: A owes RM2000 to B. He also owes money to C, D, E and F. A makes an arrangement
with B and the other creditors, to pay them a composition of 50 cents in the ringgit. Payment
of RM1000 is a discharge of B’s debt.

In conclusion, payment of lesser amount of debt or waiver of a right of performance will

discharge the whole debt.

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