Consideration is the price for which the promise of a party is brought. Example A agrees to sell his factory to B for RM450,000. Here, for A’s promise, the consideration is the price of his factory i.e RM450,000 and for B’s promise, the consideration is A’s factory.
No Consideration, No Contract? Why Is That?
A promise without consideration is a gratuitous undertaking and cannot create a legal obligation.
There are exceptional cases where a contract is enforceable even though there is no consideration. They are as follows :
- Natural love and affection.
- Voluntary compensation.
- A promise to pay debt barred by limitation law.
Types Of Consideration In Contract Which You Need To Know!
Three (3) types of consideration :
- Executory consideration : It is when one promise is made in return for another or a promise in return of promise.
- Executed consideration : Consideration which is already actually done. It is done in response to some promise by the promise.
- 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.
How To Know Whether The Consideration Is Adequate? Adequacy of consideration.
A court will not question the fairness of the bargain if legally sufficient.
- Law does not protect a person for entering into an unwise contract.
- Consideration must be sufficient but need not be adequate.
Does it matter that M sells his house worth RM1million for RM5/- to N. Is the amount of RM5/- sufficient consideration?
Legally, it appears that the adequacy of consideration is immaterial.
Did You Know? In Malaysian Law, You Can Enforce A Promise Even If You Didn’t Give Anything In Return! 😲💼Consideration need not move from the promise.
In English Law consideration must move from the promise i.e 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. A,B, & C. C promise to pay A RM1000/- if B will repair C’s car. B repairs C’s car and C does not pay A anything. Although A has given no consideration for C’s promise he may institute legal proceeding against C.
In English law, a waiver not supported by consideration is void. But did you know Malaysian law takes a different stance? 🌟⚖️Waiver of performance.
The general rule in English law is that waiver of a right that is not supported by consideration void.
Example :
A owes B RM1000/- which is due, B asks A to return RM100/- in full settlement. The waiver is not binding on B who may later change his mind and claim the balance owing, because the promise to forgot the balance is not supported by consideration,
Section 64 Contract Act 1950:-
“Every promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may accept instead of it any satisfaction which he thinks fit.
Comprehensive Legal Advise On Contracts Just For You!
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