Consideration Assignment

8/4/2019 Consideration Assignment

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Introduction to Consideration

The third element in the formation of contract besides offer and acceptance

considered in the last two chapters is consideration. The other two elements are intention

to create legal relations and capacity. The courts will not enforce a contract unless it issupported by consideration. The law enforces bargains to which both parties contribute

not gratuitous promises. If Ali promises Bala that he will give him Benz, this will not be

enforceable as a contract because Bala does not give anything in return for Alis promise.

It is merely a gratuitous promise.

In another example, Ali promises Bala RM 10 if he cuts the grass in Alis garden.

If Bala agrees and cuts the grass in the garden, Ali is contractually bound to pay Bala RM

10. The cutting of the grass in the garden is the consideration for Alis promise. It is alsothe benefit Ali gets in return for his promise. It is also the price that Bala pays for Alis

promise . Therefore Alis promise is enforceable because it has been bought for a price

required by him. The price given by Bala is called consideration.

A promise can also be a consideration. X promises to sell his car to Y for RM

40,000 and Y agree to pay the RM 40,000. Ys promise to pay RM 40,000 will constitute

consideration and will make the agreement enforceable.

Definition of Consideration

According to Section 2(d) of the Contracts Act 1950 gives the following

definition of consideration:

When at the desire of the promisor, the promisee or any other person has done or

abstained from doing, or does or obtains 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.

In short, the promisee must give something in return for the promise made by the

promise.


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In South East Asia Insurance Bhd v Nasir Ibrahim [1] , Gunn Chit Tuan SCJ,

delivering the judgment of the Supreme Court, stated that the essence of consideration is

that the promisee has taken upon himself some kind of burden or detriment. In Macon

Works & Trading Sdn Bhd v Phang Hon Chin, Hashim Yeop A Sani J relied on the

definition that:

A valuable consideration in the sense of the law may consist either in

some right, interest, profit or benefit accruing to one party, or some forbearance,

detriment, loss or responsibility given, suffered or undertaken by the other.

The court further stated that the alternative approach is to define consideration in

terms of purchase and sale, consideration being the price of the promise:

An act or forbearance of the 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 University of Malaya v Lee Ming Chong [2], the University Of Malaya

appointed the defendant to a scholarship offered by the Canadian government under the

Colombo Plan, to pursue a course of study in Canada for the degree of Master of

Business Administration and Accounting. The parties entered into a scholarship

agreement that provided for the defendant to serve the University for a period of not less

than five years and a breach of this term will render him liable to pay the University on

demand a sum of $5000. The defendant breached the term and contended that the

scholarship agreement was void as it was made without consideration.

Wan Hamzah SCJ held that it was clear that there was consideration on the part of

the University. The scholarship agreement stated the University agreed to appoint the

defendant to the scholarship. If the University had not appointed him to the scholarship,he would not be able to enjoy it.

[1] [1992] 2 MLJ 355

[2] [1976] 2 MLJ 177


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The fact that the University appointed him to the scholarship was the

consideration on it s part for Lees promise to serve it for five years after completing the

course, which he would not be able to take without the appointment by the University.

According to English Law, the general meaning of consideration is stated in 9(1)Halsbury Law of England, 4 th edition, Reissue, 1998, paragraph 728 as follows:

Meaning of consideration

Valuable consideration has been defined as some right, interest, profit, or

benefit accruing to the one party, or some forbearance, detriment, loss, or

responsibility given, suffered, or undertaken by the other at his request. It is not

necessary that the promise should benefit by the consideration. It is sufficient if

the promise does some act from which a third person benefits, and which he

would not have done but for the promise.

Thus, consideration for a promise may consist in either some benefit

conferred on the promise, or detriment suffered by the promisee, or both. On the

other hand, the benefit or detriment can only amount to consideration sufficient to

support a binding promise where it is casually linked to that promise.

Furthermore, consideration must be distinguished from both a motive and a

condition.

Consideration may be executed or executory, but it may not be past; it

need not be adequate, but it must be of some value; and it must move from the

promisee.

See also generally Chitty on Contracts, General Principles , 28 th edition, 1999,

chapter 3; Carter and Harland, Contract Law in Australia , 3rd edition, 1996, chapter 3;

Farnsworth, Contracts , 3rd edition, 1999, chapter 2; and Pollock and Mulla, Indian

Contract and Specific Relief Acts , 12 th edition, 2001, pages 63-135.

Section 2(d) of the Contracts Act defines consideration, whilst section 26 provides

that an agreement without consideration void, unless it falls within any of the three

exceptions therein provided. By section 4(c) of the Contracts (Amendment) Act 1976


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(Act A329), it is provided that a scholarship agreement shall not be invalidated on the

ground, inter alia, that such agreement lacks consideration: see discussion, below. In

Guthrie Waugh Bhd v Malaiappan Muthucumaru[3], Sharma J, in pointing out that there

were differences as to the scope of consideration under the Contracts Act and English

Law, said:

Section 2(d) of the said Ordinance [now Contracts Act] constitutes what

may be called the key to the doctrine of consideration under our law

On a similar vein, Lord Wilberforce in the Privy Council decision in Kepong

Prospecting Ltd & Ors v Schmidt [4] made the point that:

It is true that section 2(d) of the Contracts (Malay States) Ordinance [now

Act] gives a wider definition of consideration than that which applies in England,

particularly in that it enables consideration to move from another person than the

promisee [5]

In Kepong Prospecting, the Privy Council considered the issue as to whether the

English privity rules were also applicable in Malaysia because of the wider definition of

consideration under the Contracts Act compared to that obtaining under English Law.

This point is discussed in detail in the later part of this chapter.

The Federal Court in Guthrie Waugh Bhd v Malaippan Muthucumaru, whilst

reversing the decision of Sharma J in the High Court, agreed with the propositions of law

propounded by Sharma J in relation to the doctrine of consideration under Malaysian law.

In High Court, Sharma J considered in detail the relevant provisions of the Contracts Act

relating to consideration. On the scope of sections 2 and 26 of the Contracts Act, his

Lordship made the following comments:

[3] [1972] 1 MLJ 35, HC

[4] [1968] 1 MLJ 170; (1967) 2 PCC 465, PC.

[5] (1967) 2 PCC 465 at page 474


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In the States where the Contracts Ordinance [now Act] is applicable it is obvious

that a unilateral declaration is not enough to make a contract and that no question

of a contract under seal arises unless the matter is covered by section 26(a) of the

Contracts Ordinance [now Act]. Clause (g) of section 2 again enunciates that an

agreement not enforceable by law. In fact the word implies a valid contract and

unenforceable agreements cannot be contracts. If the agreement is enforceable it

becomes a contract but not so if it is unenforceable. The contractual obligation

and not merely moral, social or religious.

Furthermore, it was also observed by Sharma J in Guthrie Waugh Bhd, above that

in Malaysia, it is obvious that a unilateral declaration is not enough to male contract and

that no question of contract under seal arises, unless it fell wi thin one of the exceptions

in section 26. In the Federal Court, Gill FJ in agreeing with the principles stated by

Sharma J, said:

As regards consideration [Sharma J] held, in my opinion quite rightly, that-

(a) Further consideration consistent with the deed could be proved by

parole evidence,

(b) He was entitled to look at the whole of the correspondence which

preceded the contract to see what the promise was,

(c) An express agreement to give time is good consideration as

forbearance to sue,

(d) Even past consideration is good consideration in Malaysia,

(e) Where a debtor is released and a new debtor is accepted that

furnishes good consideration,

(f) Where a creditor entitled to sue, gives time to pay on defendants

request, that is enough forbearance to constitute consideration,(g) It was not necessary that there should be an arrangement for

forbearance for any definite time; it was enough if from surrounding

circumstances a request for forbearance could be implied.


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Consideration according to section 2(d) of the Contracts Act is;

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 of abstinence or promise iscalled consideration for the promise.

As for the exceptions under section 26 of the Contracts Act provides that an

agreement without consideration is void. Certain exceptions to this rule are

provided for under section 2 of the Contracts Act.

An agreement made without consideration is void, unless it is in writing and

registered; 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 an account

of natural love and affection between parties standing in a near relation to each

other. The second exception is it is a promise to compensate for something done; it

is a 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; or is a promise to pay a debt barred by limitation law; it is a

promise, made in writing and signed by the person to be charged therewith, or by

his agent generally or specially authorized in that behalf, to pay wholly or in part a

debt of which the creditor might have enforced payment but for the law for the

limitation of suits.

In any of these cases, such an agreement is a contract. The first explanation for

this is, nothing in this section shall affect the validity, as between the donor and done, of

any gift actually made. The second explanation is, an agreement to which the consent of

the promisor is freely given is not void merely because the consideration is inadequate;

but the inadequacy of the consideration may be taken into account by the court in

determining the question whether the consent of the promisor was freely given.

Examples of illustration are as following:


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(a) X promises, for no consideration, to give to Y $1,000. This is

void agreement.

(b) X, for natural love and affection promises to give his son, Y,

$1,000. X puts his promise to Y into writing and registers it under a law for

the time being in force for the registration of such documents. This is

contract.

(c) X finds Ys purse and gives it to him. Y promise to give Y

$50. This is a contract.

(d) X supports Ys infant son. Y promises to Xs expenses in

doing so. This is a contract.

In Macon Works & Trading Sdn Bhd v Phang Hon Chin [6], the defendants gavean open dated option to purchase their land and the plaintiffs exercised the option and

claimed that the option was not valid due to lack of consideration. Hashim Yeop A Sani

stated that an option is a right conferred by agreement to buy or not at will any property

within a certain time. The court found that although the option stated that the defendants

hereby acknowledge receipt of Dollar One ($1) only being consideration for this option

to purchase, both parties admitted that the said sum was never paid or received . The

court held that an agreement without consideration is void unless it comes under one of

the exceptions in section 26 of the Contracts Act 1950. Since none of the exceptions

applied in this case, the option was void for lack of consideration.

Therefore both parties to the contract must provide consideration. The promisor

does this by promising to perform the obligation contained in his proposal; the promise

provides his consideration by promising to do or actually doing what is requested in the

proposal. Where promises are made for consideration, the law will treat them as binding

and enforceable.

[6] [1976] 2 MLJ 177


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In Hong Leong Leasing Sdn Bhd v Tan Kim Cheong [7] , the plaintiff entered into

a master recourse agreement (MRA) with a dealer. The dealer entered into a hire

purchase agreement with the defendant and requested Hong Leong to provide the

defendant hire purchase facilities under the MRA for the said purchase. The dealer sent

the hire purchase agreement and delivery receipt duly signed by the defendant to them.

The machines were never in existence at the time of entering the agreement or at any

subsequent time. Hong Leong accepted the dealers request and paid to him the price of

the machines. As owner of the machines, Hong Leong entered into a hire purchase

agreement with the defendant. At the default of the 14 th installments payment, Hong

Leong issued to the defendant a notice to repossess the machines and terminated the hire

purchase agreement. The dealer company having been liquidated, Hong Leong claims the

sum due under the hire purchase agreement from the defendant.

Visu Sinnadurai J held that it is trite law that we here the subject matter of the

contract is non-existence, there is total failure of consideration and as such the contract is

void.

In Chia Foon Tau v Lim Pey Lin [8], the deceased entered into a partnership

agreement with the respondent and covenanted that as long as he was the senior partner,

the partnership need not pay rental for the use of the premises owned by the deceased.

Suriyadi J held that since no consideration flowed from the deceased as a member of the

partnership to the deceased as an individual, or from the respondent to the deceased, there

was no tenancy between the deceased and the partnership or the deceased and the

respondent. However, section 26 provides for certain exceptions where an agreement is

deemed valid even though it lacks consideration. The provisions of section 26 make it

obvious that certain of the principles relating to the doctrine of consideration in Malaysia

are in complete divergence from the law in England.

[7] [1994] 1 MLJ 177

[8] [1998] 7 MLJ 762


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REQUIREMENTS OF CONSIDERATION

The following part will examine the requirements of consideration: (i) act of

forbearance; (ii) mutual promises; (iii) executory and executed considerations; (iv)

past consideration; (v) consideration from promisee or any other person; and (vi)

sufficiency but not adequacy of consideration.

The first is the act of forbearance. An act of forbearance may constitute valid

consideration under the Contracts Act. To quote Sharma J again in Guthrie Waugh Bhd v

Malaiappan Muthucumaru [9]:

It thus follows that to constitute good consideration under the Contracts

(Malay States) Ordinance [now Act], there must be an act, abstinence or promise

on the part of the promisee or some other person at the desire of the promisor. Theclaim can be good only if the promisee acts, abstains or promises to do something

in pursuance of the promise.

A forbearance to exercise a legal right is good consideration. If at the

instance of the debtor the creditor forbears to sue, there is sufficiency of

consideration. Forbearance may be express or may be implied for the

circumstances. The forbearer should give up something of value the reality of

which should be measured by the state of his knowledge and not by the state of

the laws as it ultimately is found to be.

In Guthrie Waugh , the plaintiff, Guthrie Waugh Bhd, supplied goods to 22

different estates to the total value of over $123,000. The defendant assumed

responsibility for the payment of the said sum to Guthrie Waugh. Subsequently, in June

1970, the defendant entered into a deed of arrangement with Guthrie Waugh to pay the

said sum not later than June 1972 by monthly installments of $500 each. The first of such

installment was to be paid by the defendant in June 1970 and thereafter on the last day of each succeeding month until the whole sum was paid.

[9] [1972] 1 MLJ 35, HC at pages 39-40


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It was further provided that if the defendant defaulted in the payment of any one

of these installments, the whole of the said sum, or the balance thereof was to become

due and payable to Guthrie Waugh. The defendant failed to pay any of the installments

up to the date of the filing of the action. The main issue before the court was whether

there was any consideration for the deed of arrangement. Guthrie Waughs submission

was that the deed was supported by consideration in that Guthrie Waugh has supplied

good to the estate at the express request and recommendation of the defendant; it was

understood between the parties that the defendant would assume sole responsibility for

the said debts; and more importantly, by entering into the said deed, Guthrie Waugh

forbore to sue the estate or the defendant on the post dated cheques which the defendant

had issued in favor of Guthrie Waugh and thereby granted an extension of time which

Guthrie Waugh would otherwise have immediately enforced.

Sharma J in the High Court found in favor of the defendant. In reversing

the findings of the judge, the Federal Court held that Sharma J had completely

overlooked the unrebutted evidence of the plaintiffs [Guthrie Waugh]. The court found

that the deed was entered into the defe ndants own request as he did not want Guthrie

Waugh to sue him on the cheques. The Federal Court further found that though there was

no reference to the cheques in the deed, the evidence adduced clearly established this

fact. Gill FJ then held:

Evidence as to the circumstances under which the deed came to be

executed was rightly allowed to go in. Once that evidence was in and it was

unrebutted, consideration was proved up to the hilt. The deed was in respect of the

past debts of the defendant. How then can it possibly be said that the deed was not

for any past consideration? As regards forbearance to sue, there was ample

evidence from which it could be implied, and there were clear indications in the

evidence of an express request not to sue. With great respect to the learned judge,

the deed was not without consideration as understood in our law which he himself

had correctly stated earlier in his judgment. I agree that the fact that the deed is

under seal makes no difference whatsoever. That obviously was the reason why the

plaintiffs made no point about it. I regret to say that I find myself unable to agree


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with the learned judge when he says that all that the defendant can be said to have

undertaken was a moral obligation and no more.[10]

Ong CJ (Malaya) in deciding the appeal in favour of the appellants, (Guthrie

Waugh) did so on grounds that were different from those found in the judgment of Gill FJ:

[T]he estates were never the appellants [Guthrie Waugh] customers. They

were the respondents own and th ey settled accounts at all times with him. They

never held the respondents [defendant] out as their agentthe respondent paid for

the goods, of which he had taken delivery, with his own personal cheques, there

was not a scrap of evidence that he did so oth erwise than as the appellants

customer. The appellants indeed could not have sued any of the estates for any

quantity of the goods sold and delivered because there was no proof of delivery toanybody but the respondent.

His Lordship then went on to hold that:

Any deed or agreement executed or made in the ordinary course of

business between merchants and traders must be presumed as intended to be

legally binding.Once the evidence established that the respondent was a

customer of the appellants, what need was there to explore the law as the

consideration for a contract?

This case involved the payment of goods supplied through deed of arrangement.

Although Sharma Js decision was reversed upon appeal to the Federal Court, the

statement of law on consideration have not been questioned and are often referred to.

Forbearance as a valid consideration was decided by the Supreme Court in Osman

bin Abdul Ghani & Ors v United Asian Bank Bhd[11] . In this case, the respondent granted

to the company (where the appellants were directors) overdraft facilities. The appellants

executed guarantees in favour of the respondent. The issue was whether there was valid

consideration for the guarantees.

[10] [1972] 2 MLJ 62, FC, at page 67

[11] [1987] 1 MLJ 27, SC


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The High Court held that there was valid consideration for the guarantees given by

the appellants, as there was a request for forbearance to sue and there was forbearance in

fact. The Supreme Court upheld the High Courts decision. Hashim Yeop Sani SCJ stated:

In my view it is implicit in all these communications that forbearance wasrequested for. The Second Guarantee was executed between August 25, 1977 and

September 22, 1977 by the appellants. The Company executed the second

debenture on October 15, 1977. I do not think it can be any clearer that the Bank

responded to the new arrangement proposed by the Company

The law is as stated by Lopez LJ in Crears v Hunter (1887) 19 QBD 341:

The law appears to be that a promise to forbear is a good

consideration, but also that actual forbearance at the request, express or

implied, of the defendant would be a good consideration.

The second requirement is mutual promises. Consideration may also contain

mutual promises, that is, a promise made by one party in return for a promise made by the

other. In K Murugesu v Nadarajah[12] , the appellant agreed to sell a house to the

respondent for $26,000. The respondent obtained an order for specific performance. On

appeal, counsel for the appellant submitted that there was no consideration for the offer to

sell and that the agreement was therefore void. The Federal Court dismissed the appeal

where Chang Min Tat Fj stated:

The answer to the appellants contention lies in illustration (a) to section 24

of the Contracts Act, 1950 (Revised, Act 136This particular illustration is in

these words:

(a) A agrees to sell his house to B for $10,000. Here Bs promise to pay

the sum of $10,000 is the consideration for A;s promise to sell the house is the

consideration for Vs promise to pay the $10,000. Ther e are lawful

considerations.

[12] [1980] 2 MLJ 82, FC


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The agreement must be seen to be a case of executory consideration. A

promise is made by one party in return for a promise made by the other; in such

case each promise is the consideration for the other. A promise made without

consideration is void . But where there is consideration of the other because each

may have his action against the other for non- performance per Holt C.J. in

Harrisson v Cage (1698) 12 Mod 214. The rule that consideration can consist of

mutual promises is now too well established to be questioned.

The third requirement is executory or executed considerations. Executory

consideration consists of a promise to do or to abstain from doing something. If a

bookseller promises to su pply books in the future on credit to X in return Xs promise to

pay, there is a valid binding agreement between them. At the time they made their

promises, they have done nothing yet to fulfill the mutual promises on which they struck

their bargain. The whole transaction remains in the future, that is, a promise in return for a

promise in the future.

Gopal Sri Ram JCA in Wong Honn Leong David v Noorazman bin Adnan [13] spelt

out the distinction between executory and executed consideration in the following words:

Now, it is well settled that consideration may be executory or executed. If X

agrees to mow Ys lawn for RM10 and Y agrees to pay him RM 10 in exchange for

this service, there is, in the eyes of the law, a valid and binding agreement between

X and Y. This is borne out by the words of section 2(e) of the Contracts Act 1950

which declares: every promise and every set of promises, forming the

consideration for each other, is an agreement.The consideration in such a case is

said to be executory, namely, the exchange of the mutual promises. When the lawn

is mowed, the act promised has been done and the consideration is said to have

become executed. It is not and has never been the law of this country that tosupport an agreement, consideration must always be executed. Executory

consideration suffices. Of course, Xs right to sue for RM 10 may not arise until he

has performed his part of the bargain or has been prevented by Y from performing.

[13] [1995] 3 MLJ 283, CA


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The illustration we have given and the principle we have stated are so

elementary that they may be found in any standard work upon the subject. But we

have been compelled to do so because of the judges no te of the proceedings in the

court below has left us with the distinct impression that these elementary

propositions may have been misunderstood by the appellant and by the court.

The example given by Gopal Sri Ram JCA is am illustration of an executory

contract. A good instance of an executed contract can be seen in the case of Carlill v

Carbolic Smoke Ball Co Limited [14]. The offer made by the company in the

advertisement remained open until Mrs. Carlill bought the smoke balls, used it and

contracted influenza. This act of performance was the consideration and it remained

executory until the performance was completed. Similarly, in reward cases, if X promises

that X will reward of $100 to anyone who finds his lost dog, the consideration for the

person claiming the reward would be the act of searching for the dog and finding it.

As an executed contract comprises clear promises made by both parties, such a

contract is usually referred to as bilateral contract. In the case of an executory contract, as

only one party has made a promise which is binding on him and as the other party has

made no such promise (until the act is performed), such a contract is referred to as

unilateral contract.

The general rule under English law is that past consideration is no consideration.

This rule is stated in Ansons Law of Contract, 27 th edition, 1998, at page 93 as follows:

Past consideration is, in effect, no consideration at all; that is to say it confers no

benefit on the promisor, and involves no detriment to the promisee in return for the

promise. It is merely an act of forbearance in time past by which a person has

benefited without incurring any legal liability. If afterwards, whether from good

feeling or interested motives, the person who has benefited makes a promise to the

person whose act or forbearance led to the benefit, and that promise is made upon

no other consideration than the past benefit, it is gratuitous and cannot be enforced.

[14] [1893] 1 QB 256


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Anson also draws a distinction between executed consideration and past

consideration as follows:

Executed consideration must be distinguished from past

consideration which is a mere sentiment of gratitude or honour prompting a returnfor benefits received and, in other words, is no consideration at all. In the case of

executed consideration, both the promise and the act which constitutes the

consideration, however, the promises subsequent to the act and independent of it;

they are not in the substance past of the same transaction. Thus if X saves Y from

drowning, and Y later promises X a reward, Xs action cannot be relied on as

consideration for Ys promise for it is past in point of time.

In Kepong Prospecting Ltd v Schmidt, the Privy Council, in an appeal fromSelangor, held that the past consideration is good consideration. In 1953, Tan applied for a

prospecting permit for iron ore and Schmidt, a consulting engineer, assisted in the

negotiations. Upon the grant of the permit, Tan wrote to Schmidt promising to pay him

1% of the selling price of all ore that might be sold in payment for the work Schmidt had

done and might do in starting mining operations. Subsequently, Schmidt and Tan set up a

company called Kepong Prospecting Ltd.

In 1954, the company and Tan made an agreement whereby the company took

over Tans obligation to pay Schmidt 1% of all ore that might be produced and sold.

Schmidt continued to provide services to the company. In September 1955, the company

and Schmidt made an agreement wherein the company agreed to pay Schmidt 1% of all

ore that might be won from any land comprised in the 1954 agreement in consideration of

the services by the consulting engineer for and on behalf of the company (1) prior to its

formation, (2) after incorporation and (3) for future services. A dispute arose leading to

Schmidts dismissal as managing director of the company and he subsequently ceased tobe a director. He commenced the present proceedings claiming an account of all moneys

payable to him under the 1954 and 1955 agreements.

The company alleged that there was no consideration given by Schmidt for the

obligation undertaken by the company. The Privy Council agreed with the former Federal


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Court that there was sufficient consideration moving from Schmidt to the company. The

services rendered prior to the companys formation could not mount to consideration as a

non-existence company cannot receive services or bind itself to pay for service rendered

before its incorporation. However services rendered after incorporation, July 1954

onwards but before September 1955, the date of the agreement, validly amounted to

consideration for an agreement to pay under section 2(d) of the Contracts (Malay States)

Ordinance 1950.

In South East Asia Insurance Bhd v Nasir Ibrahim[15] , the respondent executed a

contract do indemnity in favour of the appellant. Te contract stated that in consideration

of your having at my request given a guarantee to Perdana Sdn BhdI, Nasir Ibrahim,

hereby undertake to indemnity and hold you harmless against all claims, damages, loss or

demands arising out of the said guarantee. The issue arose whether the indemnity

executed by the respondent was dated 9 August 1986, whereas the said indemnity was

dated 19 December 1986.

The Supreme Court hel d that the use of the words has done or abstained from

doing in section 2(d) shows that there was good consideration in the present case. The

appellant gave guarantee to Perdana Sdn Bhd at the request of the respondent and it is

sufficient consideration for the respondents promise to indemnity the appellant. Gunn

Chit Tuan SCJ (Abdu Hamid LP and Edgar Joseph Jr SCJ with him) stated that

consideration itself accommodates past consideration so long as it satisfies the desire

requirement.

In Wong Hon Leong David v Noorazman bin Adnan[16] , there was an exchange of

promises between the appellant and the respondent-the respondent promised that he will

assist in expediting and obtaining the Menteri Besars approval of the appellants

application for the conversion and subdivision of a piece of land belonging to theappellants company and in return, the appellant promised to pay the respondent fee.

[15] [1992] 2 MLJ 355

[16] [1995] 3 MLJ 283


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The Court of Appeal held that the respondent did exert himself in securing the

Menteri Besars support for the companys application leading to its approval. The

respondents actions came within section 2(d), which provides that when the promisee has

done something at the desire of the promisor, such act is a consideration for the promise.

Futher more ,under section 26(c) of the Act, past consideration is good

consideration if the act was voluntarily done. It does not require the act to be done at the

desire of the promisor.

The Act does not define the phrase voluntarily done. In JM Wotherspoon Co Ltd

v Henry Agency House, Suffian J gave a restricted meaning to the saud phrase.

In that case, the defendants firm in Kuala Lumpur ordered (for X Co) through the

plaintiffs confirming house in London, certain confectionary t hat the plaintiff obtained

from a Dutch firm in Holland. The plaintiff shipped and delivered the confectionary to X

Co. The plaintiff paid the price for the said confectionary to the Dutch company and

admitted doing it in the suggestion of the defendant firm. Later, X Co went bankrupt. The

defendant wrote a letter to the plaintiff agreeing that if X Co.defaulted payment, it will pay

the price of the confectionary. Later, the defendant refused to pay and the plaintiff sued to

recover damages. The question ar ose whether the defendants promise to compensate the

plaintiff contained in the said letter, without any consideration from the plaintiff, was a

contract under the Contracts (Malay States) Ordinance 1950.

To determine whether the plaintiffs act was done voluntarily, Suffian J referred to

the opinion of Whitley Stoke, who had a hand in the drafting of the Indian Contract Act

that the word voluntarily means otherwise than that at the desire of the promisor. The

Shorter Oxford Dictionary defines voluntar y acts as being acts performed or done of

ones own free will, impulse or choice; not constrained, prompted or suggested by

another. The court held that under section 26(b), an agreement made without

consideration becomes a binding contract if it is a promise to compensate, wholly or in

part, a person who has voluntarily done something for the promisor. An act do done at the

suggestion of another party is not done voluntarily. As the plaintiff in this case had acted


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on the suggestion of the defendant, it shows that the plaintiffs act was not voluntarily

done.

Section 24 of the Contracts Act provides that where the consideration is unlawful,

the agreement is void. Therefore, an agreement whereby X promises Y that X will pay Y$10,000, if Y will kill Z is an agreement which in unenforceable as the consideration is

unlawful. Similarly, it would appear that is X promise Y that X would pay $1,000 per year

if Y did not run a restaurant business to compete with Xs restaurant business, such an

agreement may be unenforceable as the consideration may tantamount to an agreement in

restrain of trade which is rendered unlawful under section 28 of the Contracts Act. It

should be noted that where the consideration is against the public policy, such a

consideration is also unlawful.

In Tan Chiw Thoo v Tee Kim Kuay [17], the Federal Court considered the

distinction between adequacy of consideration and sufficiency of consideration in a

compromise agreement (no reference was made to the provisions of the Contract Act in

this case). Peh Swee Chin FCJ observed as follows:

It must be remembered that sufficiency of consideration is different, in

law, from the adequacy of consideration, though any dictionary may show both

words to bear the same meaming. In law, the courts will often enquire into the

sufficiency but not the adequacy of consideration, sufficiency in law is

synonymous with validity in regards to consideration.

[17] [1997] 2 MLJ 221, FC


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PROMISORY ESTOPPEL

Though the term estoppel is commonly used, it is important to bear in mind that

there are various types of estoppels. The more common type is equitable or promissory

estoppel which is said to have been developed from the famous decision in Central London Property Trust Ltd v High Trees House Ltd[18] and also Hughes v Metropolitan

Railway[19]. Under the strict rights under the contract will not be allowed to resile from

that position, unless he has given reasonable notice of his intention to revert to the original

position. It should be noted that no consideration moves from the promisee in such a case.

It should also be emphasized that although it has been said generally that for the doctrine

to apply, there must be a pre-existing contractual relationship between the parties, the

doctrine is equally applicable where the relationship between the parties is non-contractual

in nature. In the case of Durham Fancy Goods Ltd v Michael Jackson (Fancy Goods)

Ltd[20] , it was said that the doctrine will apply to any legal relationship and is not limited

only to a contractual relationship. But see Treitel, 10 th edition, at pages 100-101. The

principles governing the doctrine of promissory estoppels are neatly stated in 9(1)

Halsburys Laws of England, 4 th edition, Reissue, 1998, paragraph 1030 as follows:

The High Trees principles usually arises where there is a contract between

A and B, and B subsequently grants to A a concession, not supported by

consideration, that he will not enforce a particular provision of their contract.

Whilst the principle is not confined to concessions in respect of pre-existing

contractual rights, it only applies where there is some contractual relationship

between the parties. Where there is the required pre-existing relationship between

the parties, it seems that the High Trees doctrine cannot be used as a cause of

action, but only by way of defense. Within that context, the doctrine requires an

unambiguous representation of intention by B and a reliance on that

representation by A in circumstances where it is inequitable for B to go back on

his concession. Even then, the effect of the concession is usually only temporary.

[18] [1947] KB 130

[19] (1884) 9 App Cas 604

[20] [1968] 2 QB 839


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Though it is generally said that the doctrine of equitable estoppels is only

applicable to cases where there is a variation of a pre-existing obligation of the promisor

and the promise, Lord Wilberforce in Bank Negara Indonesia v Philip Hoalim[21] , on

appeal from Malaysia, appears to suggest that this may not always be so. His Lordship in

delivering the judgment of the Privy Council observed:

Their Lordship do not overlook the point that the rights, which the

appellants had against the respondent, and whose enforcement is in question, were

not strictly pre -existing rights, but rights coming into existence upon the change

in the respondents situation induced by the appellants assurances, but in their

Lordships opinion the same equitable principle applies.

In Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Berhad[22] , Gopal Sri Ram JCA made the following observation:

The time has come for this court to recognize that the doctrine of estoppels

is a flexible principle by which justice is done according to the circumstances of

the case. It is a doctrine of wide utility and has been resorted to in varying fact

patterns to achieve justice. Indeed, the circumstances in which the doctrine may

operate are endless.

His Lordship then continued to provide a list of situations where the doctrine had

been applied:

Edgar Joseph Jr J (as he then was) in an illuminating judgment in Alfred

Templeton & Ors v Low Yat Holdings Sdn Bhd & Anor (1989) 202 at page 244 applied

the doctrine in a broad and liberal fashion to prevent a defendant from relying upon the

provision of the Limitation Act 1952.

[21] [1973] 2 MLJ 3; (1973) 3 PCC 27, PC.

[22] [1995] 3 MLJ 331, FC.


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The doctrine may be applied to enlarge or to reduce the rights or obligations of a

party under a contract: Sarat Chunder Dey v Gopal Chunder Laha LR 19 IA 203.

It has operated to prevent a litigant from denying the validity of an otherwise

invalid trust or the validity of an option in a lease declared by statute to be invalid forwant of registration.

It has been applied to prevent a litigant from asserting that there was no valid and

binding contract between him and his opponent and to create binding obligations where

none previously existed.

It may operate to bind parties as to the meaning or legal effect of a document or a

clause in a contract which they has represented or encouraged the other to believe as the

true legal effect or meaning.

Promissory estoppel is distinguished from other types of estoppels. Although the

principle in High Trees case is often applied in a wide variety of circumstances, it should

be distinguished from other types of estoppel: namely proprietary estoppels, estoppels by

convention, estoppels by representation and estoppels in pais.

Estoppel by convention is defined is Chitty on Contracts, General Priciples, 28 th

edition, at paragraph 3-100 as follows:

Estoppel by convention may arise where both parties to a transaction act

on assumed state or facts or law, their assumption being either shared by both or

acquiesced in by the other. The parties are then precluded from denying the truth

of that assumption, if it would be unjust or unconscionable to allow them (or one

of them) to go back on it.

The distinction between estoppels by convention and other forms of estoppels are

stated as follows:

Such an estoppels differs from estoppels by representation and from

promiss ory estoppels in that it does not depend on any clear and unequivocal

representation or promise: it can arise where the assumption was based on a


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Amalgamated Investment & Property Co Ltd v Texas Commerce International

Bank Ltd.[23] mistake spontaneously made by the party relying on it, and

acquiesced in by the other party. Estoppel by convention has also been said to

arise out of an express agreement by which the parties had compromised a dispute

claim, but where such a compromise is supported by consider ationit is binding

as a contract so that there is, it is submitted, no need to rely on estoppels by

convention in order to establish the facts in dispute.

The requirement and scope of estoppel by convention were discussed in the Court

of Appeal decision of

On the question as to whether estoppels by convention can create new rights, it is

pointed out both in Chitty and Treitel that:

Promissory estoppels does not create new cause of action where none

existed before, and we shall see that the same principl e applies to estoppels by

representation. Estoppel by convention resembles estoppels by representation in

that it can prevent a party from denying existing facts, and one would therefore

expect estoppels by convention to operate only where its effect was defensive in

substance. The question whether by convention is so limited was discussed in the

Amalgamated Investment & Property case where, however, it was not necessary

to decide the point.

In Legione v Hateley [24], the High Court of Australia examined the doctrine of

promissory estoppels by reference to three classes of estoppels which according to their

Lordship are recognized in common law: (a) estoppels of record, (b) estoppels of writing,

(c) estoppels in pais. Mason and Deane JJ placed the doctrine of promissory estoppels

within the third class:

[23] [1982] QB 84, CA.

[24] (1983) 57 ALJR 292; (1983) 152 CLR 406, HC.


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Estoppel in pais includes both common law estoppels which precludes a person

from denying an assumption which formed the conventional basis of a

relationship between himself and another or which he has adopted against another

by the assertion of a right based on it and estoppels by representation which was

of later development with origins in Chancery. It is commonly regarded as also

including the overlapping equitable doctrines of proprietary estoppels and

estoppels by acquiescence or encouragement.

In recent years, a distinction appears to have been made between promissory and

proprietary estoppels. Though both these concepts fall within the wider head of equitable

estoppels, the exact nature of their distinction has not been clearly established in any

case. It is, however, generally accepted that proprietary interest (usually in land) is

affected, whereas promissory estoppels is wider in its application. Professor sir Gunter

Treitel, who is an ardent supporter of the distinction between proprietary and promissory

estoppels, states the following distinction between the two:

The scope of proprietary estoppels is in two respects narrower than that of

promissory estoppel. First, proprietary estoppels is restricted to situations in

which one party acts under the belief that he has or will be granted an interest in

or over the property of another. A promissory estoppel may, on the other hand,

arise out of any promise that strict legal rights will not be enforced: there is no

need for those rights to relate to land or other property. Secondly, proprietary

estoppels requires the promisee to have acted to his detriment, while promissory

estoppels may operate even though the promisee merely performs a pre-existing

duty and so suffers no detriment in the sense of doing something that he was not

previously bound to do. This difference between the two doctrines follows from

the fact that promissory estoppel is only concerned with the variation of rights

arising out of a pre-existing legal relationship between promisor and

promisee.[25]

[25] Law of Contract, 10 TH edition, at pages 133-134. See also Chitty on Contracts,

General Principles, 28 th edition, paragraph 3-149.


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If such a distinction is maintainable, it also follows that promissory estoppels may

only apply in cases where there is a clear representation or promise whereas for

proprietary estoppels to apply, there is no necessity for a promise. Furthermore, whereas

promissory estoppel is essentially defensive in nature, proprietary estoppels can give rise

to a cause of action.

There is no distinction drawn between promissory and proprietary estoppels. As

the distinction between promissory and proprietary estoppels has not been fully

developed, it is not uncommon for the Malaysian courts to base their decisions on

promissory estoppel rather than on proprietary estoppels. More often they have simply

relied on equitable estoppel without furth er elaboration. In Paruvathy v Krishnan[26] ,

the Federal Court held that equitable estoppel could apply against a person who is not

necessarily the registered proprietor of the land. The court held that this equitable

principle may equally be applicable against holders of a temporary occupation license.

The Federal Court did not discuss the difference between promissory and proprietary

estoppel. In Chong Wooi Leong & Ors v Lebbey Sdn Bhd[27] , the Court of Appeal

considered the issue as to whether squatters of a piece of land could raise the issue of

equitable estoppel based on representations made by a number of politicians during

election time that they would be granted temporary occupation licenses of the said land.

In several decisions relating to the occupation of land, whether as a tenant or

licensee, the courts have held that where the evidence indicated that money had been

expended on the land by the occupier at the request or with the encouragement of the

landlord with the exception of being allowed to remain on the land, the courts allow that

expectation to be defeated. In such cases, it has been held that the principle of equitable

estoppel applied so as to prevent that expectation from being frustrated.

[26] [1983] 2 MLJ 121, FC.

[27] [1998] 2 MLJ 644, CA.


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Estoppel as a sword or shield on the Australian perspective is different compared

to Malaysian perspective. In Walton Stores (Interstate) Ltd v Maher[28] , the action was

brought by the landlord against the prospective tenant who had agreed that they would

lease the property from the landlord after it had been demolished and replaced by new

premises. A draft agreement for lease was prepared, and amendments to it were discussed

by the parties. When the landlord commenced construction of the new building the tenant

informed the landlord that it did not intend to lease the building any longer. The landlord

then commenced an action against the tenant claiming substantial damages. The High

Court in holding that promissory estoppels was applicable, held that the tenant was

stopped from denying that a concluded contract by way exchange did not exist between

the parties. The High Court in holding that a plaintiff may rely on estoppels, observed

that there was no reason as to why the doctrine of estoppels ought to be constricted:

The case dealt with promissory estoppels. However, as the decision of the High

Court illuminates this area of the law which otherwise is in doubt, the following

observations of the court is quoted in extenso. Mason CJ and Wilson J in a joint judgment

observed:

There has been for many years a reluctance to allow promissory

estoppels to become the vehicle for the positive enforcement of a

representation by a party that he would do something in the future.

Promissory estoppels, it has been said, is a defensive equity and the

traditional notion has been that estoppel could only be relied upon

defensively as a shield and not as a sword. High Trees [1947] KB 130

itself was an instance defensive use of promissory estoppels. But this does

not mean that a plaintiff cannot rely on an estoppel.

[28] (1988) 164 CLR 387, HC.


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Even according to traditional orthodoxy, a plaintiff may rely on an

estoppel if he has independent cause of action, where in the words of

Denning LJ, the estoppel may be part of a cause of action, but not a cause

of action in itself.

Sword or shield in Malaysian perspective can be seen in the case of Boustead

Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Berhad[29] , Gopal Sri Ram

JCA stated as follows on the issue:

Estoppel is not a cause of action. It may assist a plaintiff in

enforcing a cause of action by preventing a defendant from denying the

existence of some facts essential to establish the cause of action, or by

preventing a defendant from asserting the existence of some fact theexistence of which would destroy the cause of action.

[29] [ 1995] 3 MLJ 331, FC


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Documents

Consideration Assignment