Consideration Notes PDF

CONSIDERATION NOTES Consideration Notes Definition Currie v Misa (1875): "A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to one party, or som...

CONSIDERATION NOTES Consideration Notes Definition Currie v Misa (1875): "A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other." Section 2(d), Contracts Act 1950: "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 consideration for the promise." Four Elements of Consideration 1. At the Desire of the Promisor The act or abstinence must be at the desire of the promisor. If it is not initiated or desired by the promisor, it does not constitute consideration. Example: CONSIDERATION NOTES 1  If a person volunteers to do an act without the promisor's request, it is not valid consideration. 2. Promisee or Any Other Person Consideration does not have to come from the promisee only; it can come from a third party. Case: Kepong Prospecting Ltd v Schmidt: Mr. Tan applied for a prospecting permit, assisted by Mr. Schmidt. The 1954 contract was between Mr. Tan and Kepong, where Kepong was obligated to pay Schmidt 1% of the selling price of all ore. Court held: The contract was valid, and consideration was provided by Schmidt. Privity of Contract: Despite providing consideration, Schmidt could not sue because he was not a party to the contract. Notes: Under common law, a third party benefiting from a contract may sue under the Contracts (Rights of Third Parties) Act 1999. 3. Done or Abstained from Doing (Act or Abstinence) Consideration may involve doing an act or abstaining from doing something. Forbearance to Sue: Agreeing not to exercise a legal right (e.g., the right to sue) can constitute valid consideration. Section 29, Contracts Act 1950: If an agreement prevents a person from ever enforcing their legal rights, such as suing someone in court to recover a debt or claim, that agreement is invalid under the law. Example: If a creditor agrees not to sue a debtor in exchange for a payment plan, this forbearance is valid consideration. CONSIDERATION NOTES 2  4. Has Done, Does, or Promises to Do (Past, Present, Future Consideration) Consideration can be categorized as: 1. Past Consideration: An act done before the promise is made. 2. Executed Consideration: When an act is performed in return for a promise. 3. Executory Consideration: A promise made in return for a promise to act in the future. Types of Consideration 1. Executed Consideration One party performs an act in exchange for a promise. Case: Carlill v Carbolic Smoke Ball Co: Mrs. Carlill performed the condition stipulated in the offer, constituting executed consideration. 2. Executory Consideration Both parties exchange promises for future performance. Example: A seller promises to deliver goods in return for the buyer's promise to pay. 3. Past Consideration Acts done before a promise is made. Example: Person A has completed the act, then person B says “since you have done […..], i will pay you” key: when was the promise made? : Before or after? Common Law Position: Past consideration is not good consideration. Invalid as consideration unless requested by the promisor. Case: Re McArdle: Plantiff paid for the repairs of the house. After the house has been repaired, she was promised by the others to be paid CONSIDERATION NOTES 3  certain amounts. Thus, A promise to pay for past repairs was invalid because the repairs had been carried out. Exception to past consideration: Past Consideration is Valid When Requested by the Promisor: Case: Lampleigh v Braithwait: the defendant had committed murder. he requested the plantiff to obtain for him a royal pardon. the plantiff succeded in obtaining the pardon. After this, the defendant promised to pay the plaintiff. The court held that the consideration was good because the act had been carried out at the defendant’s request. Malaysian Position of past consideration (Section 2(d)): Valid consideration as per section 2(d) as long as the act or abstinence was done at the desire of the promisor. Key Factor: Whether or not the act was done at the desire of the promisor is the deciding factor in Malaysian law. Cases: GBH CERAMICS SDN BHD V HOW IT @ LOW AIK: In this case, the defendant argued that their promise to pay the plaintiff for goods supplied to Heng Lee Enterprise was invalid because the goods had been delivered before the guarantee, making it "past consideration." However, the High Court, after reviewing the letter of guarantee, held that the plaintiff's act of delivering the goods was done at the defendant's request. Therefore, the court rejected the defendant's argument and affirmed that the plaintiff had provided valid consideration. SEA INSURANCE V NASIR IBRAHIM: Gunn Chit Tuan SCJ ruled that past performance can be valid consideration if it was done at the desire or request of the promisor. In simple terms, past actions qualify as valid consideration under the law, as long as they were carried out based on a clear request or desire from the promisor. CONSIDERATION NOTES 4  However, there are exceptions when consideration is not required to form a contrats As per: 1. Section 26 of CA 1950 2. Section 64 of CA 1950 3. Promissory estoppel (common law) AGREEMENTS WITHOUT CONSIDERATION UNDER THE CONTRACTS ACT 1. According to section 26 of Contracts Acts 1950- An agreement made without consideration is void, unless - a. it is in writing and registered; b. OR is a promise to compenasate for something done; c. OR is a promise to pay a debt barred by limitation law Thus, in any of these cases, such an agreement is a contract. FURTHER EXPLANATION IN REGARDS OF SECTION 26 Section 26 (A): It is in writing and registered Four requirements under clause (a) of section 26: Expressed in writing, means the agreement must be written down clearly. it cannot be verbal promise Registered if any, means if the law requires this type of agreement to be officially registered, it must be done Natural love and affection, means the agreement must be based on genuine emotional bonds like between family members or close relations. CONSIDERATION NOTES 5  Close relationship, means the people involved must have close connection, such as parent-child, siblings, or spouses. KEY CASE: Re Tan Soh Sim Tan Soh Sim, a widow, made an oral declaration on her deathbed to give her property to her four adopted children and provide for her husband’s second wife, Boey Kee. However, her siblings and half-siblings, who were the legal heirs under customary law, signed a document renouncing their claims to the property in favor of the adopted children and Boey Kee. The court held that there was no evidence of natural love and affection between the siblings and the adopted children or Boey Kee. Since the agreement did not meet the requirements of Section 26(a), it was deemed invalid. As a result, the property passed to the siblings and half-siblings under customary inheritance laws. Clause (b) of Section 26 : It is a promise to compensate for something done; If someone has already voluntarily done something for the promisor, or completed something the promisor was legally required to do, a promise to compensate them (fully or partially) is valid under Section 26(b). There are two situations where this applies: 1. Voluntary Acts: The act was done voluntarily, without being requested by the promisor. Case: JM Wotherspoon & Co Ltd v Henry Agency House: The plaintiff supplied goods to Malaysian buyers, but the buyers failed to pay. The defendant (a Malaysian firm) was not directly involved in the initial supply of goods but later promised to pay the plaintiff for the unpaid amount. The defendant's promise was made because they suggested or encouraged the plaintiff to supply the goods in the first place. The court ruled that the plaintiff’s act of supplying goods was not voluntary, as it was done based on the defendant's suggestion. Since the act wasn’t voluntary, it didn’t satisfy Section 26(b), and the defendant’s promise to compensate was found to be invalid. CONSIDERATION NOTES 6  2. Acts the Promisor was Legally Obligated to Do: If the act was something the promisor was legally compelled to do, a subsequent promise to compensate is valid under Section 26(b). Section 2(d) vs Section 26(b): What’s The Difference? Section 2(d): The act must be done at the desire of the promisor for it to qualify as valid consideration. If the promisor requested the act, then the consideration is valid, and a contract exists. Section 26(b): If the act was not done at the promisor's desire, ask: 1. Was it done voluntarily? OR 2. Was it an act the promisor was legally obligated to do? If Yes to either: The promise to compensate is valid under Section 26(b), and the agreement is enforceable even without consideration. If No: The promise does not meet the criteria of Section 26(b), and the agreement is invalid. Clause (c) of section 26: Promise to Pay a Debt Barred by Limitation it allows for the enforcement of promises to pay debts that have exceeded the legal time limit for taking legal action if: This promise is written down The promise is signed by the person who owes the debt. 2. Section 64 CA 1950—PART PAYMENT What it means: Under Section 64, if someone is owed a promise (the promisee), they have the right to: 1. Waive the performance of a promise/Cancel the promise fully or partially CONSIDERATION NOTES 7  2. Extend extra time for the promise to be completed. 3. Accept something else instead of the original promise (e.g., a smaller payment or goods). Case Example: Kerpa Singh v Bariam Singh What happened: A man owed RM8,650. His son sent the creditor a cheque for RM4,000 and said, “If you accept this cheque, it’s full payment for the debt. If you don’t agree, return the money.” The creditor cashed the cheque instead of returning it. Court Decision: By cashing the cheque, the creditor agreed to accept RM4,000 as full payment and waive/cancel the remaining debt. Even though the amount was smaller than the original debt, the agreement was valid under Section 64. In Malaysia, unlike common law, payment of a smaller sum can satisfy a larger debt without needing "something extra," provided the creditor agrees. Promissory Estoppel Promissory estoppel prevents a party from enforcing their strict legal rights if they have made a promise that the other party has relied upon. It does not create a contract but ensures fairness in upholding promises. CONSIDERATION NOTES 8  In Malaysia, promissory estoppel is used as a defensive tool (shield) to prevent unfair enforcement of rights, not as a basis to claim new rights (sword). Key Cases: Hughes v Metropolitan Railway Co: Negotiations suspended strict rights. High Trees Case: Binding promises are enforceable if relied upon, but limits may apply. Boustead Trading v Arab-Malaysian Merchant Bank: Promissory estoppel in Malaysia focuses on preventing unconscionable enforcement of legal rights. COMMON LAW POSITION (agreements without consideration) 1. Pre-Existing Public Duty General Rule: Performing an existing public duty does not count as valid consideration because there is no additional benefit or detriment. Case: Collins v Godefroy Facts: Godefroy subpoenaed Collins to attend court and promised to pay him one guinea per day. Collins attended court but wasn’t called to give evidence. Godefroy refused to pay. Held: The court ruled the agreement invalid because Collins was already under a legal duty to attend court, so no additional consideration was provided. Exception: If a person exceeds their public duty, it can constitute valid consideration. Case: Glasbrook Bros Ltd v Glamorgan County Council Facts: During a strike, a colliery manager requested extra police protection beyond the usual service and agreed to pay for it. He later refused to pay, arguing the police were obligated to protect him. CONSIDERATION NOTES 9  Held: The police exceeded their normal duties by stationing officers on- site, providing valid consideration. The promise to pay was enforceable. 2. Pre-Existing Contractual Duty General Rule: Performing an existing contractual duty does not constitute consideration. Case: Stilk v Myrick Facts: Two sailors deserted their ship. The captain promised extra wages to the remaining crew for completing the voyage. Upon return, the captain refused to pay. Held: The court ruled the promise unenforceable because the sailors were already contractually obligated to complete the voyage. There was no new consideration. Exception: If the party does more than what their contract requires, the promise can be enforceable. 3. Pre-Existing Contractual Duty to a Third Party General Rule: Performing a duty owed to a third party can count as valid consideration if it benefits the promisor. Case: Shadwell v Shadwell Facts: A nephew’s uncle promised to pay him £150 annually if he married his fiancée. The nephew married but the uncle later stopped payments. The nephew sued the uncle’s estate. Held: The court ruled the marriage was valid consideration, even though it was a pre-existing obligation under the marriage contract. The uncle benefited from the marriage as it aligned with his interests. The promise was enforceable. CONSIDERATION NOTES 10