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CONSIDERATION

CONSIDERATION. CONSIDERATION By the end of this chapter, the student should be able to: - Define consideration; - Identify when consideration is present; - Explain and apply the legal principles relating to consideration;

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CONSIDERATION

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  1. CONSIDERATION

  2. CONSIDERATION By the end of this chapter, the student should be able to: - Define consideration; - Identify when consideration is present; - Explain and apply the legal principles relating to consideration; - Explain the distinction between executory, executed and past consideration;

  3. INTRODUCTION • Section 26 of CA 1950: Agreement made without consideration is VOID.

  4. Definition - Section 2(d) of CA 1950: “ Consideration is the price or something which one party pays to buy the promise or the act of the other. It can take the form of money, physical objects, services, promised actions, or even abstinence from a future action. • Promiseemust give something in return for the promise made by the promisor). -

  5. CONT… For example: A offers to sell his house to B at the amount of RM 250K. B agreed to buy the said house and pay RM 250K. A’s consideration is to pass the ownership to the B. B’s consideration is to pay RM 250K.

  6. Example • If A signs a contract with B such that A will paint B's house for $500, A's consideration is the service of painting B's house, and B's consideration is $500 paid to A.

  7. Types of Consideration • Executory : One promise is made in return for another promise/ other party’s promise. example: C promises to deliver to D a bicycle and D promises to pay RM100 for the said bicycle.

  8. Types of Consideration • Executory : Illustration (a) of the S. 24. A agrees to sell his house to B for RM 10,000. Thus, B’s promise to pay RM10,000 is the consideration for A’s promise to sell the house; and A’s promise to sell the house is the consideration of B’s promise to pay RM 10,000.

  9. K. Murugesu v Nadarajah [1980] 2 MLJ 82 The Appellant agreed to sell a house to the Respondent at $ 26,000 only. Later on the A refused to sell and alleged that there is no consideration. Court held: There is an executory consideration where a promise made by one’s party in return for a promise made by the other. Consideration: price

  10. Types of Consideration 2. Executed where an act is done/ promise made in return for the performance of an act. (reward situation). example,: Laila lost her wallet. She offers a reward of RM100 for anyone who found her wallet and returns her wallet. Majnun found her wallet and returns it to her. She paid the reward of RM100 to him.

  11. Types of Consideration 2. Executed contract arises upon the execution of the consideration. example,: Laila lost her wallet. She offers a reward of RM100 for anyone who found her wallet and returns her wallet (promise). Majnun found her wallet and returns it to her (performance of the act- Majnun’s consideration is executed to Laila’s promise- binding contract). She paid the reward of RM100 to him. (act/ promise)

  12. Carlil v Carbolic Smoke Ball Co. [1893] 1 QB 256 The company’s offer= promise. Carlil bought, used the smoke ball and still suffered from influenza= performance of the act- Carlil’s consideration is executed to the company’s promise- It creates a binding contract). Held: The company need to executed the promise ; to pay reward to Carlil. (act/ promise

  13. Types of Consideration 3. Past consideration where a promise is made subsequent to and in return for an act that has already been performed. • act done prior to the promise • Consideration which has been done /completed before the promise made. .

  14. Types of Consideration 3. Past consideration • S. 26 (b) of CA • S. 2(d) of CA “……has done or abstained from doing…..”

  15. Types of Consideration 3. Past consideration • Illustration (c) of section 26: - A find B’s purse and gives it to him. B promises to give A RM 50. This is a contract. B MUST give A RM 50.

  16. Lampeigh v Braithwait (1615) 80 ER 225 B was sentenced to death for murder. Then he requested L (a lawyer) to do all he can as to enable him to get pardon from the King OF London. L then do everything that he can by using his own expenses and finally B successfully got the pardon. B then promised to give L a 100 pound. But subsequently he failed to pay and L sued B for that. B then argued that “ there was no consideration from L when B made a promise to pay money to L.

  17. Lampeigh v Braithwait (1615) 80 ER 225 B was sentenced to death for murder. Then he requested L (a lawyer) to do all he can as to enable him to get pardon from the King OF London. L then do everything that he can by using his own expenses and finally B successfully got the pardon. (performance of the act-Consideration which has been done /completed before the promise made)

  18. Lampeigh v Braithwait (1615) 80 ER 225 B then promised to give L a 100 pound. But subsequently he failed to pay and L sued B for that.(promise) B then argued that “ there was no consideration from L when B made a promise to pay money to L.

  19. Lampeigh v Braithwait (1615) 80 ER 225 Court held: There was past consideration from L. He entitled for 100 pound for the service that he done before the promise was made.

  20. Kepong prospecting ltd v A.E Schmidt (1968) 1 MLJ 1970 Schmidt is a consulting engineer. He is assisting Mr. X in obtaining a prospecting permit for mining an iron in Johore. He also helped in a formation of a company; Kepong Prospective Ltd. Subsequently, he was appointed as a Managing Director of the same. After the company was formed, there was a contract between the company and Schmidt whereby the company will pay 1% of the value of the oil ore sold from the mining land.

  21. Kepong prospecting ltd v A.E Schmidt (1968) 1 MLJ 1970 The clause stated that “… in consideration of the services given by S for or on behalf of the company before its formation, after incorporation and future services”. However, the Company failed to pay to S. and S claimed for that.

  22. Kepong prospecting ltd v A.E Schmidt (1968) 1 MLJ 1970 The issue is: whether there is a valid consideration from S fro the promise of the Company? The Court held: The service given by S before the promise was made is considered as a valid consideration even though the services were already past/ done.

  23. Without Consideration??? Section 26 of CA 1950 an ‘agreement made without consideration is void'. • But • there are several exceptions: Section: 26 (a) - (c) of CA 1950

  24. EXCEPTIONs TO GENERAL RULEagreement without consideration or consideration which is past = valid

  25. (a) Contract based on natural love & affection S26(a) of CA: an agreement made on account of natural love and affection between parties standing in near relation to each other and it is in writing and registered.

  26. Cont… Illustration (b) of Section 26 of CA: A, for natural love and affection , promise to give his son, B, RM1,000. A puts his promise to B into writing and registers it under a law in force for registration of the said documents.

  27. Near relation??? • Not defined under the Act. • Usually, members of immediate family. Eg: Farther & son/daughter, mother & son/daughter . • But depending on customs of social groups. For e.g. : Chinese adopted children are related to their adoptive parents and brothers. However, they were not related to the family of the adoptive mother.

  28. Re Tan SohSim [1951] mlj 21 Re Tan Soh Sim, had three sisters. Their mother was firstly married to Khoo Kim Huat and has seven children. The Tans’ and Khoos’ children maintained their family relations one another. Tan Soh Sim then married and adopted four children. Her husband also married a second wife ;Tan Boey Kee.

  29. Re Tan Soh Sim • When Tan Soh Sim was on her deathbed too ill, she makes a will. All the Khoo and Tan’s children signed a document drawn up by a solicitor renouncing all claims to Tan’s estate in favour of the four adopted children and Tan Boey Kee. Tan Boey Key told them that this was the testamentary intention of Tan Soh Sim. Tan Soh Sim then died.

  30. Re Tan Soh Sim Issues: • whether the document signed was valid according under section 26(a) of CA 1950? • Whether the legal next of kin of TSS are NEAR RELATION with their adopted nephew and nieces?

  31. Re Tan Soh Sim Court held: • The Khoo’s and Tan’s children are related to the four adopted children of Tan Soh Sim only in a special limited way, which is not near. • Chinese adopted children are related to their adoptive parents and brothers. However, they were not related to the family of the adoptive mother.

  32. B. compensate A PAST VOLUNTARY ACT/ ACT WHICH THE PROMISOR WAS LEGALLY COMPELLABLE TO do S26(b) of CA: “…promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor , or something which the promisor was legally compellable to do; ”

  33. Example: • A is driving in his car on a sunny Sunday afternoon, and he sees smoke coming from a vehicle on the side of the road ahead. A pulls over, sees B injured in the vehicle, and pulls B out of the car as to safe him. B then has full recovery, and the next day, says to A, "because you saved me, I will pay you $5,000 per year until you die." B paid A $5,000 each of those years. Then, 5 years later, B dies of cancer and the executor of B's estate refuses to pay A any more money.

  34. Kepong Prospecting Ltd. & S.K. Jegathesani& Ors. v. A.E. Schmidt & Marjorie Schmidt [1968] 1 mlj 170 Facts:Schmidt, an engineer, had assisted an individual in obtaining a prospecting permit for mining iron ore in Johore. He also helped in the subsequent formation of the company and was appointed as Managing Director. After the company was formed, an agreement was entered between them under which the company undertook to pay him one per cent of the value of all ore sold from the mining land. This was in consideration of the services rendered by the engineer for and on behalf of the company prior to its formation, after its formation and for future services.

  35. Kepong Prospecting Ltd. & S.K. Jegathesani & Ors. v. A.E. Schmidt & Marjorie Schmidt [1968] 1 mlj 170 Court held: there was a valid consideration and Schmidt was entitled to the amount owed to him by the company.

  36. Voluntarily • Performed or done of one's free will, impulse or choice, not constrained or suggested by another

  37. J.M. Wotherspoon & Co Ltd v Henry Agency House [1962] mlj 86 Facts: • A dispute arose between a Malaysian and English company resulting from an arrangements. Both had acted as agents for various products. • The arrangement is that the Malaysian company would find the buyer and inform the English firm who would find the seller. When a sale had been arranged , the Malaysian firm would receive a commission.

  38. J.M. Wotherspoon & Co Ltd v Henry Agency House [1962] mlj 86 Facts: • In this particular dispute, the Malaysian company had arranged a buyer for such confectionary and the English firm found a seller. • The D (Malaysian firm) wrote a letter to the P (English company) agreeing that if X Co defaulted in payment, it will pay the price of the goods. • Later, X Co went bankrupt and defaulted in payment. The D refused to pay and the P sued for damages

  39. J.M. Wotherspoon & Co Ltd v Henry Agency House [1962] mlj 86 • Issue: Whether the P was a person who had already voluntarily done something for D? • Court Held: • There were promises of compensation made by the defendant firm to the plaintiff in respect of consignment , but these promises were not supported by consideration. • The P had acted on the suggestion of the D = could not be said to have been done voluntarily. Thus, the promise to compensate was not enforceable.

  40. Legally compellable to do • Illustration (d) of S. 26: • A supports B’s infant son. B Promises to pay A’s expenses in so doing. This is a contract. • A pays the fine imposed on B by the court. B promises to compensate him. That promise is binding.

  41. c. promise to pay debt barred by limitation law • Section 26 (c) of CA: an agreement to pay a statute-barred debt. a promise, made in writing and signed by a debtor /his authorised agent.

  42. c. promise to pay debt barred by limitation law A statute-barred debt refers to a debt which cannot be recovered through legal action because of a lapse of time fixed by law.

  43. c. promise to pay debt barred by limitation law • Limitation for action in contract under Limitation Ordinance 1953: 6 years. Eg: 6 years is given for action arising from a breach of contract. After the allocated time expires, the aggrieved party can no longer sue.

  44. promise to pay debt barred by limitation law Illustration (e) to s. 26 A owes B RM 1,000, BUT the debt is barred by limitation. A signed a written promise to pay B RM 500. This is a contract.

  45. Rules on Consideration

  46. 1. Inadequacy of consideration • what is the amount of consideration that is sufficient for each promise?

  47. 1. Inadequacy of consideration • Explanation 2 of Section 26: Agreement is not void merely because the consideration is not adequate. It might be void if the parties to the contract can show that the consent given was caused by coercion.

  48. 1. Inadequacy of consideration • Illustration (f) of CA? A agrees to sell a horse worth RM 1,000 for RM 10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

  49. PhangSwee Kim v Beh I Hock [1964] mlj 383 • Facts: There was an oral agreement made between A and R in which R agreed to transfer the land to A on payment of $500. upon payment of $500, A possessed the land. Later, R claimed that the A had trespassed on his land and he brought an action claiming for possession of the land from A.

  50. PhangSwee Kim v Beh I Hock [1964] mlj 383 • Court Held: Consent given by R was freely given. It was not caused by coercion or undue influence. The inadequacy of consideration is immaterial and the court gave judgment in favour of the A.

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