A Brief Guide On Consideration
What is consideration?
In contrast, the word “consideration” connotes an act/ abstention by the promisee (the person who accepts a contract offer) in return for the same by the promisor (the person who offers the contract).
For example, the A offers B RM200. In return will repair A’s air conditioner. The consideration in the example would be the RM200 given by A and the service provided for by B.
What is the law on this topic?
1) Must consideration be of equal value?
The short answer is no.
The long answer is this: An agreement is not void merely because the consideration is not of equal value/ inadequate. The exception is when:
- The court has to determine whether a promisor freely accepted the inadequate consideration; and
- In situations where the consideration is so grossly inadequate and there is evidence of fraud or undue advantage taken by a party- in such a situation, the party is not allowed to enforce the contract.
2) Must consideration be a present consideration?
No, the law noted that as long as the consideration is done/ given at the request/ desire by the promisor, even if it’s in the past, the consideration is a valid consideration.
3) Can consideration come from a third party?
Yes, the law states that anyone can provide for a consideration, provided that the promisor agrees as such:
“…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.”
4) Is “natural love and affection” considered a valid consideration?
Yes. However, it is only considered a valid agreement if:
- It is expressed in writing;
- It is registered under the relevant laws; and
- The parties stand in near relation with each other.
So how does the court determine whether the parties stand in near relation with each other? In In Re Tan Soh Sim, Deceased; Chan Lam Keong And 4 Others v Tan Saw Keow And 3 Others, the court held that there must be an emotional feeling and relation between the parties, and both factors are dependent on the factual background in each family setting. For example:
- In Re Tan Soh Sim, the court had to determine the validity of a document purporting to give up their claims to the estate in favor of another person. Central to this issue was the fact that the person who benefited from the claim was an adopted son. The court held in the negative, stating that (in that time) the custom (in relation to customary Chinese law) did not recognize the status and rights of an adopted child.
- In Tang Meng Hock v Tang Ming Seng, two brothers were appointed as the executor of the late father’s will. They entered into a contract in which one brother (A) agreed to give another (B) cash, an apartment unit, and a piece of land in consideration that B agrees not to make any further claim against the estate. A renege on the promise, claims that the contract was void since it was based on natural love and affection and it was without consideration. The court disagreed, stating that since both of them were brothers and they are in near relation with one another, they clearly intended for the contract to be a valid contract premise on the concept of natural love and affection.
5) What happens if the contracting parties accept an alternate consideration from what was promised?
If one party accepts an alternate consideration (lesser sum or alternative act/ forbearance) other than that of the original consideration, the court will consider it as a valid satisfaction to the whole debt.
6) What happens if no consideration is given?
An agreement without consideration is void i.e. there is no valid contract.
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