Commercial Law Consideration

What is consideration? It distinguishes a CONTRACT from GIFT. Usually it is the main reason for the promise. Section 2(d) CA defines consideration as ‘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’

Why consideration important? Without it, agreement is void. Section 26 CA – ‘An agreement made without consideration is void’

How to make sure that ‘consideration’ exist? Look whether the elements of consideration are fulfilled. Elements: 1. Consideration need not be adequate 2. Consideration may move from the promisee or any other person 3. Past consideration is a good consideration 4. Part payment may discharge an obligation

1. Consideration need not be adequate Section 26 explanation 2 – ‘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’ Case: Bolten v Madden (1873) LR 9 QB 55 – the court stated that the adequacy of the consideration is for the parties to consider at the time of making the arrangement and not for the court to decide.

1. Consideration need not be adequate General Rule: Consideration must be sufficient Effect: The law is not concern with the fairness of the bargain UNLESS it can be proven that the contract was entered without the free consent of the parties. Case: Phang Swee Kim v Beh I Hock (1964) MLJ 383 – the court held that a transfer of land for RM500 is valid as there was no evidence of fraud or duress.

1. Consideration need not be adequate Can a person buy a house for RM1? YES – if it is agreed between the parties with free consent. What is ‘free consent’? The answer is in Section 14 CA.

2. Consideration may move from the promisee or any other person Section 2(d) CA defines consideration as ‘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’

3. Past consideration is good consideration What is past consideration? It consist of consideration wholly performed before the promise was made (before conclusion of offer and acceptance) It was made not in response to a promise. The promise is after the act of consideration and independent of it.

Example: Abu is drowning Example: Abu is drowning. Ali who was passing by heard Abu’s cries for help. Ali dived into the river and saved Abu from drowning. Abu promised to give RM1000 to Ali. The act of saving Abu was performed wholly before the promise was made. The promise is done after the act. Authority: Section 2(d) Case: Kepong Prospecting Ltd v Schmidt [1968] 1 MLJ 170

4. Part payment may discharge and obligation General Rule: Payment of a smaller sum is a satisfaction of an obligation to pay a larger sum. Authority: Section 64 CA and illustration (b) of section 64 CA

Case: Kerpa Singh v Bariam Singh [1966] 1 MLJ 38 In this case the debtor’s son offered to give a cheque of RM4000 as payment in full in order to discharge his father from a debt of RM8650. It was held that the creditor had accepted the tender by cashing the cheque and retaining the money, he must be taken to have agreed to discharge the debtor from any further liability.

General Rule Revisit: An agreement made without consideration is void, unless— it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law