Consideration

What is Consideration?

Consideration is an important element of a contract. It can be anything of value which each party must agree to exchange in order to make a contract valid. An agreement without a valid consideration is void unless thy belong to one of those categories of agreement listed in the same section as being exempted from the rule.

Example of Consideration

Hari signs a contract to buy a bungalow at Kampar from Samuel for RM 300,000. Hari's consideration is the RM 300,000 and Samuel's consideration is the bungalow.

            
Consideration within the meaning of Malaysian contract law

          Section 2(d) Contract 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 so or to abstain from doing something, such act or abstinence or promise is called consideration of the promise”

Types of Consideration 

1. Executory Consideration

• is an exchange of promises to perform acts in the future
• a bilateral contract for the supply of goods 

Example-

Party A promises to deliver good to party B in a date and party B promises to pay the amount on the delivery day. If party A does not deliver to them, this is a breach of contract and party B cansue party A. If party A delivers the goods his consideration then becomes executed. 

2. Executed Consideration

• if one party makes a promise in exchange for an act by the other party
• an unilateral contract 

Example-

Party A offer RM50 reward for the return of her lost handbag, if party B finds the bag and returns it, party B consideration is executed. 

3. Past Consideration 

• where a promise is made subsequent to and in return for an act that has already been performed, the promise is made on account of a past consideration.

Consideration need not move from the promisee 

In English Law consideration must move from the promisee. For example, the person who receives the promise must himself give something in return. In Malaysia a party to an agreement can enforce a promise even though he has given no consideration, so long as somebody else has done so – Section 2(d).

Example-

Assume that there are 3 parties to an agreement party A, B, and C. Party C promises to pay party A RM1000. If party B will repair party C’s car but party C does not pay anything to party A. Although party A has given no consideration for party C’s promise he may institute legal proceeding against party C.

   

Example of a real case in Malaysia regarding consideration-

Re Tan Soh Sim & Ors v Tan Saw Keow [1951] MLJ 21 

In this case, a woman on her deathbed expressed her intention to leave all her properties to her four adopted children. The court held that the claims of the adopted children were not effective as it was contrary to Section 26(a) - that it was not in writing, and there was no natural love and affection between parties standing in near relation to each other, since the four children were adopted and did not have natural relations (blood ties) to that woman.