Consideration

The Contracts Act 1950 (Malaysia) s 26 provides that as a general rule an agreement without consideration is void. The word consideration is defined in section 2(d) of the Act as follows:

“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 abstain from doing something, such act or abstinence or promise is called a consideration for the promise.”

The doctrine of consideration has six main requirements which must be satisfied to make a promise enforceable. They are:

1. (a) The consideration must be given in exchange for a promise. This means an act of forbearance (or a promise of either) moving from A will not be consideration for a promise made by B unless it is demonstrated there was a relation of quid pro quo (something for something). See Australian Woollen Mills Pty Ltd v The Commonwealth [1954] 92 CLR 424.
2. (b) The consideration must move from the promisee.
3. (c) Past consideration may be good consideration. As a general rule, English law does not recognize past consideration. However one exception of this rule was laid down in Lampleigh v Bratwait [1615] 80 E.R. 255, where it was held that an act originally done at the request of the promisor, followed by a promise made subsequent to the doing of the act, was a binding promise since the act constituted consideration. The definition of the word ‘consideration’ in the Contracts Act 1950 (Malaysia) s 2(d) is extensive enough to cover the aforementioned rule. The phrase ‘has done or abstained from doing’ implies that even if the act was done prior to the promise, such an act would constitute consideration so long as it was done at the desire of the promisor. In other words, a claim may be founded on an act done prior to the promise. Such a claim would be valid so long as the promisee had done or abstained from doing something pursuant to the desire of the promisor and not necessarily in pursuance of a promise to be made by the promisor. See Kepong Prospecting Ltd v Schmidt [1968] 1 MLJ 170.
4. (d) The consideration must have some value. Provided that the promisor consented to exchange his promise for the alleged consideration given by the promisee (regardless whether it is trivial) the courts will not deny such consideration.
5. (e) Consideration cannot be illusory. A promisee’s performance (or promise of performance) of an existing legal duty is not valid consideration. (see Dunton v Dunton (1892) 18 VLR 114).
6. (f) Consideration need not be adequate. Explanation 2 in the Contracts Act 1950 (Malaysia) s 26 provides that an agreement is not void merely because it is inadequate. Illustration (f) to section 26 shows the application of the rule. (“A agrees to sell a horse worth RM1000 for RM10 … the agreement is a contract notwithstanding the inadequacy of the consideration) See Phang Swee Kim v Beh I Hock [1964] MLJ 383.

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