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Consideration is considered as one of the important elements to form a valid contract. If this element is missing, a contract will be declared as a void contract.
Section 26 of the Contracts Act 1950 mentions: "An agreement made without consideration is void..."
What is 'CONSIDERATION'?
Section 2(d) of the 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 a consideration for the promise"
Dunlop Pneumatic Tyre Co. Ltd. vs Selfridge & Co. Ltd [1915] AC 847
"an act of forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable"
In forming a valid contract, the promisee must give something in return for the promise made by the promisor.
Both parties to a contract must provide consideration.
The promisor does this by promising to perform the obligation contained in his proposal.
The promisee provides his consideration by promising to do or actually doing what is requested in the proposal.
In forming a valid contract, the promisee must give something in return for the promise made by the promisor.
Both parties to a contract must provide consideration.
The promisor does this by promising to perform the obligation contained in his proposal.
The promisee provides his consideration by promising to do or actually doing what is requested in the proposal.
The courts will not enforce a contract unless it is supported by consideration.
For example:
Michael promises Janet that he will give her a bicycle. Janet does not give anything for the promise made by Michael.
If Michael fails to perform his promise, Janet cannot bring the case to the court because it will not be enforceable as a valid contract.
It is merely a gratuitous promise (nudum pactum).
TYPES OF CONSIDERATION
Based on the definition of consideration as stated in Section 2(d) of the Contracts Act 1950, it may be divided into three types:
Let us watch scenes from the late Tan Sri P. Ramlee's movies which explain the three types of consideration.
ADEQUACY OF CONSIDERATION
A Honda City car is sold for RM1,000.00
Is this transaction valid due to inadequacy of consideration?
Explanation 2 of Section 26 of the Contracts Act 1950 states:
"An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate..."
Based on the above, consideration must be sufficient but need not to be adequate. If the promisor gets what he asks for in return for his promise, he has received sufficient consideration and is bound by the promise.
It is immaterial that his promise is far more valuable than the price he asked for. So long as the consideration has some value, it is enough.
Bolton v Madden (1873) LR 9 QB 55
"The adequacy of the consideration is for the parties to consider at the time of making the agreement, not for the court when it is sought to be enforced"
Facts of the case:
The parties were members of a charity and both could vote on how the charity's funds were to be spent. They both agreed that in consideration of the claimant using his 28 votes to support the defendant's child, the defendant would use his 28 votes to support the claimant's child. The claimant did use his votes to support the defendant's child, but the defendant did not. The claimant sued, but the defendant argued that the claimant had not provided him with any consideration.
The court held that:
there was considerations because the claimant had given a benefit to a third party (the defendant’s child) – it does not matter that the defendant himself did not receive that benefit. Consideration can therefore be given to a third party at the promisor’s request
Based on the above facts, a promise to do an act which benefits the offeree or inconveniences the offeror is good consideration. The adequacy of the consideration is not relevant
Illustration (f) to Section 26 of the Contracts Act 1950:
A agrees to sell a horse worth RM1,000.00 for RM10.00. A's consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.
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