Consideration acts as an important ingredient
In any contract, consideration act as an important ingredient in an agreement. According to section 26 of the Contracts Act, as a general rule an agreement without consideration is void. Section 2(d) of the law state that the word ‘consideration’ is defined ‘When, at the desire of the promisor, the promisee or any other person has done or abstained 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.’(Business Law,2010)
Moreover, in Section 2(a),(b) and (c) of the contracts (Malay States) Ordinance 1950 defines a ‘proposal’, a ‘promise’, a ‘promisor’ and a ‘promisee’. Section 2(d) of the said Ordinance constitutes what may be called the key to the doctrine of ‘consideration’. It stipulates that if at the desire of the promisor, the promise or any other person, has done or abstained from doing or promises to do or abstains from doing something and such act or abstinence or promise is called a consideration for the promise.(Business Law,2010)
In addition, the Supreme Court in South East Asia Insurance Bhd.v.Nasir Ibrahim state that consideration is the promisee has taken some kind or burden or detriment.
2.0Body of Content
2.1 Consideration vs Moral obligation
According to section 26 of the Contracts Act, an agreement without consideration is void. However consideration is totally different from moral obligation. The case that can prove this point is Guthrie Waugh Bhd. v . Malaippan Muthucumaru which is the High Court held that there was no consideration in that case. The Court held that the deed was executed by the defendant neither for any past consideration, nor in respect of any forbearance to sue him for supplies made to the estates, nor in consideration of any promise to supply him goods on credit in the future. In this situation, the defendant can say that it is a moral obligation instead of consideration. Therefore, this case had show that consideration must be differentiated from moral obligation. (Business Law,2010)
2.2 Good Consideration
What is a good consideration? Actually a good consideration is important in making a contract and will require several points to support a good consideration. In Wong Hon Leong David v. Noorazman bin Adnan case, it shows that the appellant promise the respondent that he would assist him in order to obtain the approval for the requisition to do development and subdivide some land into a housing estate by getting payment of RM268888 for that service. The Court of Appeal held that it is a good consideration although it is an executor consideration and also held that it is an exchange of mutual promises. There was a binding agreement between both of them and at last the respondent was successfully claims for the fee.
2.2.1 Consideration need not be adequate
First of all, consideration need not be adequate which is stated in Malaysian Law. Explanation 2 to Section 26 of the Contracts Act provides that an agreement is not void merely because the consideration is inadequate. The issue of adequacy of consideration was held with the Federal Court in Phang Swee Kim v. Beh I Hock (1964) M.L.J.383. In this case, the widow of the deceased husband extracted grant of letter of administration in obtaining the possession of the land. In 1963, the land was divided into two lots and the respondent notified the appellant to ask for vacant possession of the land and the income account. At last, the respondent instituted an action against her claiming while the appellant counter claimed for a declaration that she had entitled to the said land. There was adequate consideration which there being no evidence of fraud or duress. This is because the respondent agreed to transfer the land to the appellant with the payment of $500 when the land is subdivided. The appellant was therefore entitled to the declaration sought by her.
2.2.2 Past consideration
Moreover, past consideration is a good consideration. In English Law, it does not recognize past consideration. However, there is one exceptions to this rule is laid down in the English case of Lampleigh v. Brathwait where it was held that an act originally done at the request of the promisor, a promise is made subsequent to the doing of that act, was deemed binding since the act constituted consideration. One case that can support this point is Kepong Prospecting Ltd. In this case, under Clause 1 of the 1995 agreement established a legally sufficient consideration moving from Schmidt. Earlier services to the company’s formation could not be said as consideration as they could rendered to a non-existent company that the company could control itself to pay for the services claimed to have been rendered before its incorporation. However this inclusion of that ineffective element did not prevent the other two elements.
2.2.3 natural love and affection is valid consideration
Furthermore, natural love and affection is valid consideration. Although English law does not recognize natural love and affection as valid consideration, but Contract Act in Malaysia recognize it as valid consideration as long as certain prerequisites are complied with. These can be prove in Section 26(a) which provides that “an agreement made without consideration is void unless it is expressed in writing and registered under the law (if any) for the time being in force for the registration of such documents, and is made on account of natural love and affection between parties standing in a near relation to each other". In other words, an agreement that can be accounted as natural love and affection is held if the following requirements are present if it is expressed in writing; it is registered ( if applicable) and the parties stand in near relation to each other.
2.2.4 Consideration can move from other person
Finally, a good consideration can also move from any other person. Under Contracts Act, a party to an agreement can enforce the promise even if he himself has given no consideration as long as somebody has done so. According to Section 2(d) Contract Act 1950 provides that"when the promise or any other person has done something, such act is called a consideration for the promise. This principal had been applied in Venkata Chinnaya v. Verikatara Ma’ya(1881). This case states that a sister promises to pay an annuity of Rs653 to her brothers who won’t provide back any things to his sister as a consideration. On the same day, their mother had given the sister some land and as her promise to her brother she must pay the annuity to her brother but she failed to do it. After that, the brother sues his sister because the sister failed to pay for the annuity and the court held that she was liable to pay the annuity because there was consideration for the promise even though it did not move from her brother.
2.3 Promised performance of Existing Duty
Promised performance of existing duty cannot be constitutes as consideration. If the person who is on duty get a promise from another person, the promise that provides to him what he was required by public law to do in any event in return for a promise, it is not a consideration and therefore promise performance of existing duty is not a good consideration. In the case of Collins v. Godfery, Godfery promised to Collins that he will pay Collins as a consideration for his giving evidence. It was held that Collins could not enforce the promise as he was under a statutory duty to give evidence in any event. So if there is public duty, then the promise provided does not constitute as a consideration.(Marise Business Law,2010)
On the other hand, promising to perform a pre-existing duty owed to ones contracting party also is not a good consideration. This can be shown in the case of Stilk v. Myrick. Stilk is a seaman and he agreed with Myrick to sail its boat to the Baltic Sea with the pay of $5 per month. During the voyage, two men give up their job as a seaman. Myrick promised that he will increase Stilk’s wages if Stilk agreed to honor his contract in light of the desertions. Stilk agreed this offer and return to his job position. But after that, Myrick subsequently refuse to pay extra wages as Myrick promise Stilk before. It was held that Myrick’s promised was not enforceable as consideration that Stilk has provided for. This is because the performance of a duty he already owed to Myrick under contract was not a good consideration for Myrick’s promise to increase his wages. Therefore existing duty to a contracting partly is not considered as consideration.
As conclusion, a contract can be defined as ‘an agreement enforceable by law’. A contract can be made by having the six basic elements which is the offer, acceptance, intention to create legal relationship, consideration, certainty and capacity. This shows that consideration is one of the basic elements to support a contract to be enforceable. Consideration is different with moral obligation because moral obligation most probably is happening in family. Besides that, existing duty performance also cannot be considered as a good consideration because a person in duty got the responsibility to help other people. In addition, various other aspects of consideration such as not adequate, past consideration, natural love and move from other person has created a move from the orthodox view in this business world.
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What are the general principles in the formation of a contract? What are the various forms of remedies available for a breach of contract? Give examples with cases.
1.1 What is a Contract
A contract can be defined as ‘an agreement enforceable by law’. A contract can also be explained as an agreement which is legally binding between two parties which include the individuals, businesses, organizations or government agencies in doing transaction, or to refrain from doing something and exchange of a particular thing with another thing is valuable. “There are several types of contracts which can be in written form either in formal or informal form or is in verbal form."(freeadvice,2010)
The breach of contract can be happened when one side fail to fulfill his or her promise to another side. In this situation, there will be several remedies to solve this problem in order to make sure that another side will not be having too much of losses in this breach of contract. “The terms of contract which are who, when, what, where, and how of the agreement which define the binding promises of each party to the contract."(freeadvice,2010)
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A contract is defined in Section 2(h) of the Contracts Act, 1950 as ‘an agreement enforceable by law’. A contract will require several essential elements which are use to constitute a contract.
2.1 Elements of a Contract
First of all, offer is one of the elements that constitute a contract. An offer or proposal is necessary for the formation of an agreement. According to Section 2(a) of Contract Act, it states that ‘when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal’. In Coelho v. The Public Services Commission, the applicant is a Health Inspector under the Town Board who is applied for the post of Assistant Passport Officer in the Federation of Malaya Government Oversea Missions advertised in the Malay Mail dated in 19th February 1957. In this case, the court held that the Malay Mail advertisement actually is an invitation to qualified persons to apply resulting the application as an offer. The information conveyed to the applicant was an unqualified acceptance to join the overseas mission and the person also understand it.(Business Law,2010)
In Section 2(b) Contracts Act states that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to have been accepted. A proposal after be accepted is consider as a promise. Section 9 of the said Act provides that the acceptance that made in words is known as expressed while the acceptance made other than in word is known to be implied. Acceptance must be absolute and unqualified so that there is complete consensus. In the case of Lau Brothers Co. v. China Pacific Navigation Co. Ltd, negotiations for the delivery of logs were conducted through a series of telegrams and letters. Whilst still in the negotiating stage, the defendant withdrew. The court held that the parties were still in the stage of negotiation and there was no any agreement was formed. Therefore, the defendant was justified as withdrawing.
2.1.3 Intention to Create Legal Relations
The Contract Act does not agree on the intention to create legal relations as one of the element in a valid contract. For example when a person is sharing a transport with his friend to work is not usually have the intention to create a legal relation. But if the person who is sharing the car is agree to pay you for the running cost of the car every month, it shows an intention to create a legal relations. However, case law clearly shows that it is necessary in contract. Contracts without any intention to create legal relations are the contracts represent family arrangement such as Choo Tiong Hin Ors. v. Choo Hock Swee case and in the case of Yap Eng Thong Anor v. Faber Union Ltd where concession were made in the course of business negotiation. In domestic arrangement there is a presumption against the existence of an intention to create legal relations even as in commercial arrangements the rebuttable presumption is that legal relationships are intended such as Esso Petroleum Co. Ltd v. Customs Excise Commissioner. This is actually up to the courts to determine the intentions of the parties from the language and context which they used.
The word ‘consideration’ is defined in Section 2(d) of the said Act as follows when at the desire of the promisor, the promise 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. As a general rule, an agreement without consideration is void. In Wong Hon Leong David v. Noorazman bin Adnan where the appellant promise the respondent that he would assist him in order to obtain the approval for the requisition to do development and subdivide some land into a housing estate by getting payment of RM268888 for that service. The Court of Appeal held that it is a good consideration although it is an executor consideration and also held that it is an exchange of mutual promises. There was a binding agreement between both of them and at last the respondent was successfully claims for the fee. Consideration need not move from the promisee. In Malaysia, a party to an agreement can enforce the promise even if he had given no consideration so long as somebody has done so.
An agreement cannot be vague and must be certain. An agreement which is uncertain or is not capable to make certain is void. For example, if Bernard is promise to sell his car to David and the price is decide by his father later. This kind of contract is void because the price is uncertain. In Karuppan Chetty v. Suah Thian, the parties agreed upon the granting of a lease at Rm 35.00 per month ‘for as long as he like’. The court held that this contract is uncertain and is void.
Not all people can free to make a contract. The parties entering into a contract should also be match the conditions of contract. Section 11 of the Contracts Act read that every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. In Age of Majority Act 1971, it states that the age of majority is eighteen years old. The Privy Council held that an infant cannot make any valid contracts. For example in Tan Hee Juan v. The Boon Keat case, the court held that the transfer of land executed by an infant were void. However, there are still some exemptions for this rule that is contracts of necessaries such as foods and cloths, contracts of scholarship and contracts of insurance.
2.2 Types of remedies
There are several types of remedies available for breach of contracts. One of the remedies is damages. Damages are granted to a party as compensation for the damage, loss or injury he has suffered through a breach of contract which is stated in Section 74, Contract Act. In order to recover substantial damages, the innocent party must show that he has suffered actual loss if there is no actual loss he will only be entitled to nominal
damages in recognition of the fact that he has a valid cause of action.(Goldamithibs,2010) In Wearne Brothers (M) Ltd. v. Jackson(1996) case, the clause of the agreement gave a genuine pre-estimate of the damages for depreciation contemplated by the parties at the time when they entered into the contract and as the damages fixed by the parties did not appear to be unreasonable or disproportionate to the nature and extent of the depreciation, the court would award such damages. In making an award of damages, the court has two major considerations which is remoteness for what consequences of the breach is the defendant legally responsible and the measure of damages where the principles upon which the loss or damage is evaluated or quantified in monetary terms.(Goldsmithibs,2010)
2.2.2 Specific Performance
The Specific Relief Act, 1950 (Revised 1974) provides for the remedy of specific performance. Specific performance is a discretionary remedy. Under the Specific Relief Act, specific performance may be granted in respect of land transactions where monetary compensation is inadequate or in respect of executor contracts and where actual damage cannot be ascertained. Specific performance is not available in the following circumstances:
- Damages provide an adequate remedy.
- Where the order could cause undue hardship.
- Where the contract is of such a nature that constant supervision by the court
would be required, eg, Ryan v Mutual Tontine Association.
- Where an order of specific performance would be possible against one party
to the contract, but not the other.
-Where the party seeking the order has acted unfairly or unconscionably. He
is barred by the maxim ‘He who comes to Equity must come with clean
- Where the order is not sought promptly the claimant will be barred by the
maxims ‘Delay defeats the Equities’ and ‘Equity assists the vigilant but not the
In Venkatachalom Chettiar v. Arunasalam Chettiar case the court held that a bargain that turned out worse than expected cannot constitute hardship. Indeed, it is to be noted that the discretion to refuse specific performance is said not to be ‘an arbitrary or discretion but one to be governed as far as possible by fixed rules and principles.
An injunction which is an equitable remedy may be interlocutory, or mandatory. It may even be prohibited or restraining in nature. An interlocutory injunction is used to maintain the status quo of the subject-matter in a pending suit whilst a mandatory injunction is a court order requiring something to be done. In the case of Neoh Siew Eng Anor v. Too Chee Kwang, an injunction was granted requiring the landlord to keep the water supply open for his tenants. A prohibitory injunction stops something from being done. For example in Broome (Selangor) Rubber Plantations v. R.H. Whitley case, an injunction was granted restraining an employee from entering into employment as a manager or assistant of any plantation in the States of Selangor and Negeri Sembilan other than the estate of his employers until the expiry of the contract of his service.
In conclusion, contract is as an agreement which is legally binding between two parties which include the individuals, businesses, organizations or government agencies in doing transaction, or to refrain from doing something and exchange of a particular thing with another thing is valuable. A contract will require several elements in constitute it such as offer, acceptance, intention to create legal relationship, consideration, certainty and capacity.
The breach of contract can be happened when one side fail to fulfill his or her promise to another side. The breach of contract can be solves by remedies such as damages, specific performance and injunction. These remedies are needed because it can help the appellant to get his compensation so that he can able minimize his losses in this breach of contract case.