CONSIDERATION

1. Introduction
﹡ Consideration is a necessary ingredient for a valid contract.

﹡ Section 10(1) of the Contracts Act 1950 provides that all agreements are
contracts if they are made, inter alia, for a lawful consideration and with a
lawful object.‘

﹡ Section 26 provides that an agreement made without consideration is void.

﹡ Section 2(e) provides that "every promise and every set of promises,
forming the consideration for each other, is an agreement".

2
﹡ Section 2(d) which defines consideration as follows:

“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.”

3
 Consideration …
Section 2(d) of the Act defines:
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

a. mohaimin ayus 4
• In Macon Works and Trading Sdn Bhd v P hang Hon Chin & Anor [1976] 2
MLJ 177, Hashim Yeop A Sani J stated:

“The classic statement about what is consideration is that contained in

Currie v Misa (1875) LR 10 Ex 153 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."
An alternative approach is to define consideration in terms of
purchase and sale, the consideration being the price of the promise.”

5
Currie v Misa …
- Offeree -
-Right, -forbearance,
-Interest, -detriment,
-Profit, or -loss or
-Benefit -responsibility

… accruing to … given or
the one party suffered or
(offeree) undertaken by
the other
- Offeror - (offeror)
a. mohaimin ayus 6
2. Executed and Executed Consideration
﹡ In the case of executory consideration, one party makes a promise in return
for a promise from the other, for example, a seller's promise to deliver goods
in return for a buyer's promise to pay. At the time of the agreement, neither
promise has been fulfilled. In Murugesu's case, the Federal Court stated
that the agreement in the said case "must be seen to be a case of
executory consideration".

﹡ In the case of executed consideration, one party makes a promise in return

for the performance of an act. The case of Carlill v Carbolic Smoke Ball Co
[1892] 2 QB 484; [189311 QB 256, CA; is an example of executed
consideration where the defendants advertised the promise of a reward for
an act of any person(s) to use their smoke balls in a certain manner for 2
weeks but still failed to cure the person(s).

8
• In Wong Hon Leong David v Noorazman Adnan [1995] 3 MLJ 283, CA. the
Court of Appeal referred to both executory and executed consideration.
Gopal Sri Ram JCA stated:

“Now, it is well settled that consideration may be executory or

executed. If A agrees to mow B's lawn for RM10 and B 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 A and B. This is borne out by the words
of s 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. …

9
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 to
support an agreement, consideration must always be executed.
Executory consideration suffices. Of course, A’s right to sue for the RM10
may not arise until he has performed his part of the bargain or has been
prevented by B from performing it.”

10
• In this case, the appellant was one of the directors of Wealth Sdn Bhd
which owned three lots of agricultural land in Kajang. The company
applied to the land administrator for conversion and subdivision of the
land in order to develop the land into a housing estate. To expedite the
matter, the appellant agreed to pay the respondent a fee of RM268,888 for
his assistance to obtain a letter of support from the Menteri Besar of
Selangor.
• The applications for conversion and subdivision were approved but the
appellant refused to pay the respondent on the ground that there was no
consideration for the alleged agreement and that the respondent did
nothing to earn his fee.
﹡ The Court of Appeal held that there is a promise in exchange for a promise
and this is good consideration.

11
• In Baharuddin bin Abas v Yaacob bin Sulaiman & Anor [1999] 6 CLJ 569,
the High Court held that there was valid consideration in the joint-venture
agreement between the plaintiff and the defendant. Chin Fook Yen J stated:

“The nature of the joint-venture agreements here was of a kind of

partnership agreement ... Plaintiff had contributed his land as part of the
consideration and the defendants as developers were to contribute
expertise and working cost as consideration in return ... it was stipulated
that both the defendants would advance 35% each of the working cost of
the project. These agreements must be seen to be a case of executory
consideration…”

12
• The concept of executory and executed consideration is related to unilateral
and bilateral contracts.

• In a unilateral contract, the outstanding obligation is on one side only.

• A bilateral contract is one where the outstanding obligations remain on both

sides and the consideration is still executory, both parties having made
mutual or reciprocal promises to each other.

13
3. Past Consideration
• Anson draws a distinction between executed consideration and past
consideration:

○ Executed consideration must be distinguished from past consideration

which is a mere sentiment of gratitude or honour prompting a return for
benefits received and is no consideration at all.

○ In the case of executed consideration, both the promise and the act
which constitutes the consideration are integral and co-related parts of
the same transaction.

15
• In the case of past consideration, however, the promise is subsequent to
the act and independent of it; they are not in substance part of the same
transaction.

• Thus if A saves B from drowning and B later promises A a reward, A's action
cannot be relied on as consideration for B's promise for it is past in point of
time.

﹡ Past consideration arises in situations whereby consideration is given not

contemporaneously, but after the promisor's promise.

16
Position in Common Law
• Past consideration is not good consideration.
• The case of Re Mc Ardle [1951] Ch 669, concerned a house which was the
joint property of several siblings in which they lived together. The plaintiff,
the wife of one of the brothers, paid for repairs to the house. After that,
the siblings agreed with the plaintiff that, in consideration for the repairs,
they would pay her £488.
• Subsequently, the plaintiff sued for the payment of the £488, the
defendants in the suit being the siblings other than her husband.
• The issue was whether there was consideration for this agreement to pay
her £488.
• The Court of Appeal held that, as the repairs had been carried out before
the agreement to pay had been made, it was past consideration and
therefore not good consideration.
17
• Exception to the rule:
There is an exception to the rule that past consideration is not good
consideration. If an act is done at the request of the promisor, although the
promisor 's promise is given only after the act had been done, the act still
constitutes good consideration.

• In Lampleigh v Braithwait (1615) Hob 105 the defendant had committed

murder. He requested the plaintiff to obtain for him a Royal pardon. In
order to obtain a pardon for the defendant, the plaintiff exerted himself
‘riding and journeying to and from London and Newmarket’ at his own
expense. The plaintiff succeeded in obtaining the pardon. The defendant
later promised to pay him £100 for his trouble, but failed to do so. The
plaintiff sued in assumpsit and succeeded on the ground that his services
had been rendered at the previous request.
• The Court held that the consideration was good because the act had been
carried out at the defendant's request.
18
Position in Malaysia
• In Guthrie Waugh Bhd v Malaiappan Muthuchumaru [1972] 1 MLJ 35,
Sharma J stated:

“The words 'has done or abstained from doing or does or abstains from
doing or promises to do or to abstain from doing' in clause (d) of section
2 of the Contracts (Malay States) Ordinance 1950 indicate the wide
ambit of the definition of 'consideration.' Past consideration, unlike in
England, is quite valid in that part of our country where the Contracts
Ordinance is applicable .”

19
Sharma J said at p 39 says:

“… to constitute good consideration … there must be an act, abstinence

or promise on the part of the promisee or some other person at the
desire of the promisor. The claim can only be good if the promisee acts,
abstains or promises to do something in pursuance of the promise… The
Contracts (Malay States) Ordinance 1950 clearly recognizes past
consideration (see ss 26(b) and 2(d). The words in cl 2(d) of s 2 ‘has done
or abstained from doing’ sufficiently indicate this.”

20
• Section 2(d) of the Contracts Act has in effect incorporated the common
law exception that consideration may be past if the act was at the request
of the promisor (although the section uses the word "at the desire").
• In Hongkong and Shanghai Banking Corporation v Syarikat United Leong
Enterprise Sdn Bhd & Anor [1993] 2 MLJ 449, where a guarantee in
respect of a loan that had already been disbursed and where no further
money was advanced or intended to be advanced thereafter, such
guarantee can only be enforceable against the guarantor if the loan was
disbursed or given ‘at the desire’ of the guarantor promisor.
• The second defendant contended that since no further money was
advanced by the plaintiff to the first defendant at the date or after the
signing of the guarantee, the guarantee was actually to secure past
advances and thus was past consideration and unenforceable.

21
• The High Court rejected the second defendant's contention. Ian HC Chin JC,
at p.463, stated:

“… past consideration can still be good consideration even if the benefit

was not given at the time of the execution of the guarantee in a one-off
transaction provided the benefit that was given before the execution of
the guarantee was given 'at the desire' of the guarantor…”

22
• The courts' approach in adopting a broad view in construing documents on
the issue of past consideration can be seen in SEA Insurance Bhd v Nasir
Ibrahim [1992] 2 MLJ 355; [1993] 1 SCR 89, SC, where Gunn Chit Tuan SCJ,
at p. 362-363, stated:

“The detriment undertaken by the promisee ... is a past performance

and should be sufficient consideration where there is a promise in
consideration of some act previously done by the promisee at the
request of the promisor. In deciding whether consideration is past, the
court should not take a strictly chronological view. If the consideration
and the promise are substantially one transaction, as in this case, it
should not matter in what order they are given. In other words,
consideration itself accommodates past consideration so long as the
'desire' requirement is specified, that is the guarantee was given at the
request of the indemnifier.”

23
• In GBH Ceramics Sdn Bhd v How It @ Low Aik & Ors [1989] 2 CLJ 427, the
defendant guaranteed the payment of all monies and obligations of one
Heng Lee Enterprise due and owing to the plaintiff under a contract for
goods sold and delivered. The defendant contended that the consideration
given by the plaintiff was void for past consideration because the goods
supplied by the plaintiff were sold and delivered over a period of time
before the guarantee was executed subsequently.
• The High Court held that, from the letter of guarantee, it was clear that the
plaintiff's act was done at the defendant's request.

24
• In Lau Ngiik Ping & Anor v Bank Pertanian Malaysia [992] 3 CLJ 1437 " the
borrowers applied for a loan from the defendants, to be secured by a
charge over land belonging to the plaintiffs. The loan money was released
by the defendants one day after the signing of the loan agreement which
took place on October 27, 1978. However, the memorandum of charge was
executed only on November 27, 1978. The plaintiffs contended that the
monies were released without any security, and thus the consideration was
past consideration.
• The Court of Appeal held that the issue could not be looked at in isolation
only because the execution of the loan agreement, the release of the loan
and the execution of the charge instrument took place on different dates.
• The Court observed that the three events were inter-related and they were
linked to one another. This letter of authorisation indicated that it was at
the desire of the plaintiffs that the defendants agreed to grant the loan to
the borrowers. This constituted good consideration under s 2(d) of the
Contracts Act.
25
4. Act of Forbearance
• Consideration may be constituted by an act or an abstinence from doing
something.
• A party may confer something of value to another (provide a benefit) or may
forbear from exercising a legal right (suffer a detriment). Both have value in
the eyes of the law and provide good consideration for a contract.
• In Guthrie Waugh Bhd v Malaiappan Muthuchumaru [1972]1 MLJ 35, a case
involved the payment of goods supplied through a deed of arrangement.
Although Sharma J's decision was reversed upon appeal to the Federal Court,
[1972] 2 MLJ 62, FC. the statements of law on consideration have not been
questioned and are often referred to.
• Sharma J stated:
“It thus follows that to constitute good consideration under the Contracts
(Malay States) Ordinance there must be an act, abstinence or promise on the
part of the promisee or some other person at the desire of the promisor. The
claim can be good only if the promise acts, abstains or promises to do
something in pursuance of the promise…”
27
• A forbearance to exercise a legal right is good consideration.
• Forbearance may be express or may be implied from the circumstances.
• Forbearance involves the forgoing of the exercise of a legal right.
• Forbearance can be inferred from surrounding circumstances where, for
example, the plaintiff in consideration of the promise to execute a
registered sale deed desists from suing the defendant, there is sufficient
consideration for the agreement executed by the defendant.
• Section 2 (d) make it clear that the act of forbearance or promise is
consideration provided it is done at the desire of the promisor.

28
 Forbearance as a valid consideration was decided by the Supreme Court in
Osman bin Abdul Ghani & Ors v United Asian Bank Bhd [1987]1 MLJ 27, SC.
 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.
 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 Court's
decision.

29
 Hashim Yeop Sani SCJ stated:
“In my view it is implicit in all these communications that forbearance was
requested 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…”

30
5. Mutual Promise
 Consideration may also contain mutual promises, i.e., a promise made by one
party in return for a promise made by the other. In K. Murugesu v Nadarajah
[1980] 2 MU 82, FC, 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. Chang Min Tat FJ stated:
“The answer to the appellant's contention lies in illustration (a) to section
24 of the Contracts Act, 1950 (Revised, Act 136)... This particular illustration
is in these words:
(a) A agrees to sell his house to B for $10,000. Here, B's promise to pay
the sum of $10,000 is the consideration for A's promise to sell the
house, and A's promise to sell the house is the consideration for B's
promise to pay the $10,000. These are lawful considerations.”

32
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 a case each promise is the consideration for the other.

"A promise made without a consideration is void. But where there is a

promise against a promise, one promise is consideration of the other
because each may have his action against the other for nonperformance"
per Holt C.J. in Harrison v Cage (1698) 12 Mod 214. The rule that
consideration can consist of mutual promises is now too well established
to be questioned.”

33
 The principle on mutual promises constituting consideration decided in K
Murugesu's case was followed in Mahmud bin Adam & Ors v Mat bin Ismail
& Anor [1984] 1 CLJ 99.

 In this case, the first and second defendants who intended to build houses on
32 lots of land registered in their names gave two power of attorneys to the
plaintiffs for the purpose of developing the lots. The power of attorneys
allowed the plaintiffs to, inter alia, obtain loans in respect of the
development. The plaintiffs obtained a loan of RM50,000 and used it for the
housing project. The plaintiffs subsequently brought an action for repayment
of the said sum claiming an oral agreement with the defendants that the
defendants undertook to repay the housing loan in return of the plaintiffs
undertaking to relinquish their interest in the project to a third party, one
Jaafar bin Razak.

34
 The High Court held that the plaintiffs had on a balance of probabilities
proved that the defendants had given the oral undertaking.
 In this case, the Court held that the mutual promises between the parties
amounted to consideration.

• The concept of mutual promises is incorporated in the Contracts Act in s

2(f) on reciprocal promises which provides that "promises which form the
consideration or part of the consideration for each other are called
reciprocal promises".
• Sections 52-55 provide for the performance of reciprocal promises.

35
6. Consideration from promisee or any other
person
• Under the common law, consideration must move from the promisee. In
Tweddle v Atkinson [1861] 1 B & S 393 after the wedding of H and D, both
their fathers, X and Y entered into an agreement that they will pay H a
certain sum of money. After the death of X and Y, H took an action against
the respective estate for the money. The action failed.
• The Court held that H cannot enforce the agreement as he did not provide
any consideration. The agreement was between X and Y who provided the
consideration.
• In Malaysia, the position is different from the common law as s 2(d) of the
Contracts Act provides that "when, at the desire of the promisor, the
promisee or any other person has done ....".
• Thus, consideration may flow from the promisee or a third party. This
position has been affirmed by case law.

37
• In Kepong Prospecting Ltd & Ors v Schmidt [1968] 1 MLJ 170 FC (Appeal
from Malaysia) one Mr Tan had applied to the state government for a
prospecting permit for iron ore. He was assisted by the respondent,
Schmidt, who was a consulting engineer. The appellant was later
incorporated with the intention to take over the benefit of Tan's
prospecting permit, with Tan and Schmidt among its first directors. There
were two agreements involved. The first agreement in 1954 was between
the appellant and Tan whereby the appellant company should prospect
and work the land in the mining permit and the company should take over
Tan's obligation to pay Schmidt 1% of the selling price of all ore sold from
such land. The second agreement in 1955 was between the appellant and
Schmidt whereby the appellant company agreed to pay Schmidt 1% of the
selling price of all ore sold from the land comprised in the 1954
agreement. Schmidt was later dismissed as a director and he commenced
proceedings for all monies payable to him under both agreements.
38
• The Privy Council agreed with the Federal Court that in respect of the
1955 agreement, Schmidt's services to the appellant established "a
legally sufficient consideration moving from Schmidt" so as to render
the agreement valid. Schmidt services, however, can be considered only
after the time the company was formed since no services can be given
to a non-existent company.

• In relation to the 1954 agreement, it should be noted that although

the agreement was between Tan and the appellant, under s 2(d) of the
Contracts Act, consideration may be given by "the promisee or any
other person".

39
 Lord Wilberforce referred to this section as follows:
“It is true that section 2(d) of the Contracts (Malay States) Ordinance
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 …”

 However, the Privy Council also held that as Schmidt was not a party to
this 1954 agreement, Schmidt cannot enforce the agreement.
 (This issue will be dealt with below on privity of contract.)

40
7. Sufficiency but not adequacy of consideration
• All agreements, to be enforceable as contracts must have consideration.
• However, as long as there is consideration, the law does not question
the adequacy of the consideration: "consideration must be sufficient but
need not be adequate".
• In Tan Chiw Thoo v Tee Kim Kuay [1997] 2 MLJ 221, FC, the Federal Court
distinguished between "sufficiency" and "adequacy" of consideration:
“… 'sufficiency' of consideration is different, in law, from the 'adequacy'
of consideration, though any dictionary may show both words bear the
same meaning. In law, the courts will often enquire into the
'sufficiency' but not the 'adequacy' of consideration, 'sufficiency' in law
is synonymous with 'validity' in regard to consideration…” at 232.

42
• A common law case to illustrate that consideration must be sufficient but need
not be adequate is Chappell and Co Ltd v Nestle Co Ltd. [1960] AC 87, HL. In
this case, the respondents were manufacturers of chocolate. To promote the
sales of their chocolate, they published advertisements offering to supply any
one of six gramophone records in return for a postal order for 1s. 6d. and
three wrappers from their 6d. bars of milk chocolate.
• One of these records was a reproduction of a dance tune belonging to the
appellants. The appellants maintained that the manufacture and sale of this
record was an infringement of their copyright. With respect to this matter, a
related issue arose whether the wrappers were part of the consideration
together with the price of 1s. 6d.
• In this case, the House of Lords held that the respondents had infringed the
appellants' copyright. In relation to the wrappers, the Court held that they
were part of the consideration for the chocolates although they were of little
value and were immediately discarded when received
43
• Lord Reid stated:
“It seems to me clear that the main intention of the offer was to induce
people interested in this kind of music to buy (or perhaps get others to
buy) chocolate which otherwise would not have been bought ... The
requirement that wrappers should be sent was of great importance to
the Nestle Company: there would have been no point in their simply
offering records for is. 6d. each. It seems to me quite unrealistic to
divorce the buying of the chocolate from the supplying-of the records. It
is a perfectly good contract if a person accepts an offer to supply goods
if he (a) does something of value to the supplier and (b) pays money:
the consideration is both (a) and (b). There may have been cases where
the acquisition of the wrappers conferred no direct benefit on the
Nestle Company, but there must have been many cases where it did ...
And even where there was no direct benefit from the acquisition of the
wrappers there may have been an indirect benefit by way of
advertisement …” at 108.
44
“The purchaser of records had to send three wrappers for each record, so
he had first to acquire them. The acquisition of wrappers by him was, at
least in many cases, of direct benefit to the Nestle Company, and
requiredexpenditure by the acquirer which he might not otherwise have
incurred. To my mind the acquiring and delivering of the wrappers was
certainly part of the consideration in these cases . .” at 109

45
• In Malaysia, Explanation 2 of s 26 of the Contracts Act provides as follows:
“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.”
• Illustrations (f) and (g) provide for some examples as follows:
(f) A agrees to sell a horse worth $1,000 for $10. A's consent to the
agreement was freely given. The agreement is a contract notwithstanding
the inadequacy of the consideration.
(g) A agrees to sell a horse worth $1,000 for $10. A denies that consent to
the agreement was freely given.
The inadequacy of the consideration is a fact which the court should take
into account in considering whether or not A's consent was freely given.
• Thus, inadequacy of consideration does not affect the validity of the contract
but only raises the issue whether consent was freely given .
46
• In Phang Swee Kim v Beh I Hock [1964] MLJ 383, FC. the Federal Court
referred to Explanation 2 and Illustration (f) of s 26 of the Contracts Act and
held that the inadequacy of consideration was not an issue in the transfer
of land in this case as there was no evidence of duress or fraud.
• In Vyramuttu v State of Pahang (1923) 4 FMSLR 277 the Court held that a
purchase for gross-under value at an auction sale, per se, without evidence
of fraud, was no ground for setting aside the sale.
• Similarly, in Sandrifarm Sdn Bhd v Pegawai Pemegang Harta Malaysia,
[2000] 2 MLJ 535, CA. the Court of Appeal in reversing the trial judge's
decision held that the actual sale price of the property (about one half of
the assessed value) is irrelevant in the absence of fraud and
misrepresentation. The courts have also made clear that it will not interfere
into the fairness or adequacy of the bargain as long as there is
consideration.
47
 In TAC Construction & Trading v Bennes Engineering Bhd [1999] 2 CLJ 117,
Abdul Malik Ishak J stated:
“The law does not require the court to be concerned whether adequate
value has been given ... and the law too is not concerned whether the
agreement is harsh or one-sided ... That would be the general rule and in
the absence of some other factors, the court would enforce a promise
so long as some value for it has been given if what is given in exchange
for the promise has value in the eyes of the law, the court will not
embark on questioning whether the value is adequate and will not
interfere with the fairness of the bargain made by the parties. But one
thing is certain, the consideration provided must be sufficient and must
be capable of expression in economic terms.” at 143.

48
 Similarly, in Thong Guan Co(Pte) Ltd v Lam Kong Co Ltd (No 2) [1998] 3 CLJ
964, the High Court held that:
“Consideration is said to be a detriment to the promisee and likewise it
may be a benefit to the promisor ... Consideration is also defined as the
price requested by the promisor, in exchange for which the promisor's
promise was bought… It is a correct statement of the law to say that if
what is given in exchange for the promise has value in the eyes of the
law, the court will not question whether that value is adequate and will
not interfere with the fairness of the bargain made by the parties. This
was exactly what transpired in the present case. The sum of S$52,000, in
the eyes of the law, was an adequate consideration which should be
given effect to…” at 979-980.

49
• However, although consideration need not be adequate, it must be real,
as can be seen in two common law cases.
• In White v Bluett (1853) 23 Q Ex 36 the defendant gave his father a
promissory note. When the executors of the father's estate (the plaintiffs)
brought an action against the defendant based on the promissory note, it
was submitted that the defendant's father had promised not to bring any
action against the defendant in consideration of the defendant's promise
not to complain frequently that his father showed favouritism towards his
brother. The Court held that the promise to not complain was not
sufficient consideration.

50
• The above case can be contrasted with Ward v Byham [1956] 2 All ER 318,
CA, where the plaintiff and defendant had an illegitimate child. It was
agreed that the plaintiff would take care of the child for seven months, after
which the child is to decide which parent she will stay with.
• The defendant agreed to pay the plaintiff £1 a week to take care of the
child provided the child was well cared for and was happy.
• When the plaintiff claimed for the maintenance of £1 weekly, the defendant
resisted the claim on the ground that there was no consideration for the
promise as the plaintiff had a legal duty to take care of her own child.
• The Court of Appeal held that there was consideration from the
plaintiff to take care of the child and to ensure that she was happy and
the child was given the freedom to decide where to reside.

51
 .
8. Agreements without consideration under
the Contracts Act 1950
﹡ Section 26 of the Contracts Act provides that an agreement made without
consideration is void, unless it falls within any of the exceptions below:
(a) it is made on account natural love and affection;
○ It is expressed in writing and registered under the law (if any) for the
time in being in force for the registration of such documents, and is
made on account of natural love and affection between parties standing
in near relation to each other;
(b) 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
(c) it 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 authorised 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.
53
Natural love and affection: s 26(a)
• In Queck Poh Guan (as administrator of the estate of Sit Kim Boo,
deceased) v Quick Awang [1998] 3 MLJ 388 the High Court considered this
exception as follows:
“s 26(a) provides one of the exceptional cases in which consideration
is dispensed with. It allows any agreement expressed in writing and
registered under the law for the time being in force (if any) for the
registration for such document and is made on account of natural love
and affection between the parties standing in a near relation to each
other.
In the instant case, it is not disputed that the parties stand in a near
relation to each other; the deceased (the transferor) being the mother
of the defendant (the transferee) ... whether or not there exists any
element of love and affection can be gathered from the evidence
adduced by both parties and the surrounding circumstances.“ at 391
54
• The Court held that the transfer of the land was a gift from the deceased
mother to the defendant on account of natural love and affection. The
defendant had assumed greater responsibility towards the care and well
being of the deceased as compared to the other children.

• In Kwan Teck Meng & Ors v Liew Sam Lee [1963]1 MLJ 333, a father
executed a memorandum of transfer whereby he transferred the whole of
his title and interest in certain land to four of his sons, his daughter-in-law,
and a trustee for his youngest son.
The High Court found as a fact that the transfer was in consideration of love
and affection and therefore by way of a gift. Where the relations are beyond
the immediate family relationships, the issue of what is meant by "near
relation" becomes important.

55
• In Re Tan Soh Sim; Chan Lain Keong & Ors v Tan Saw Keow & Ors
[1951] 1 MLJ 21, CA, Taylor J stated:

“It is impossible to define relationship or "nearness" without either

extending or restricting the legislation which would be beyond the
province of the Court. If the word "near" were omitted, then the
most distant cousin would be an eligible relation and the clause
would be unmanageable. The words "relationship" and "near" must
be applied and interpreted in each case according to the mores of
the group to which the parties belong and with regard to the
circumstances of the family concerned ..” at 24.

56
• The Court of Appeal held that from the contemplation of Chinese family
custom, the three Tan sisters and the seven Khoo half-brothers and sisters
of Tan Soh Sim were related to the children of Chan, whether natural or
adopted, only in a special and limited way which was not near. In any
event, there was no evidence of the existence of any natural love and
affection between the parties to the alleged agreement.  

• The evidence tended to show that all the signatories had affection for Tan
Soh Sim, but that was not enough. The affection must be between the
parties to the agreement.

57
Promise to compensate person who voluntarily did something: s 26(b)
• The court considered the meaning of "voluntarily done“ in JM
Wotherspoon & Co Ltd v Henry Agency House [1962] MLJ 86.
• Suffian J stated:

“… in this case the plaintiff had done what he did at the suggestion of
the defendant firm without any agreement by the defendant firm to
pay any remuneration. Was such act done "voluntarily"? … giving the
word "voluntarily" its ordinary every day meaning, I am of the opinion
that the act done by the plaintiff for the defendant firm at the latter's
suggestion had not been done voluntarily and therefore the promise
made without consideration by the defendant firm to compensate the
plaintiff is not a contract.. “ at 88.
58
• In Leong Huat Sawmill (Pte) Ltd v Lee Man See [1985]1 MLJ 47, FC. the Federal
Court held that:
“Section 26(b) of the Contracts Act refers to a promise to compensate a
person who has already voluntarily done something for a promisor, or
something which the promisor was legally compellable to do. The logging
work done by the respondent was not voluntary nor can the work of
extracting timber be described as something which the appellants were
legally compellable to do. In our view the promise to pay the extra $1/- per
ton cannot come under the purview of section 26(b).” at 49-50.

59
• In both cases, the plaintiffs' claims failed, in the former on the ground that
the work was done at the suggestion of the defendant. In order for an act to
be done voluntarily, it must be done at the person’s own initiative. The
plaintiff failed in the second case as the payment was dependent on two
conditions, that is, it will only be paid at the end of the contract and
provided the works were satisfactory. Since the promise to pay was subject
to two conditions, it cannot be said to be voluntary.

60
Contracts Act 1950
• 26. An agreement made without consideration is void, unless—
• (a)…
• (b)…
• (c) 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.
Limitation Act 1953 (Revised 1981)
“Limitation of actions of contract and tort and certain other actions
6. (1) Save as hereinafter provided the following actions shall not be
brought after the expiration of six years from the date on which the cause
of action accrued, that is to say--
(a) actions founded on a contract or on tort; …”
61
Promise to pay debt barred by limitation: s 26(c)
• In Sri Kapaleeswarar Temple v T Tirunavukarasu AIR 1975 Mad 164.
the Court referred to s 25(3) of the Indian Contract Act (in pari
materia with s 26(c) of the Contracts Act) and held as follows:

“The reason for the Legislature having enacted a provision as

Section 25(3) of the Indian Contract Act is not far off to see. It is, no
doubt, true that the Limitation Act provides a certain period during
which alone a creditor is entitled to institute action against the
debtor for recovery of the debt and if the creditor fails to institute
the action within the time allowed to him by law, the debtor gets a
vested right and is afforded opportunity to resist the action of the
plaintiff on the ground that the claim is barred by limitation.

62
However, it is equally open to the debtor to renounce or waive the right
conferred on him by the Law of Limitation and bind or obligate himself
afresh to discharge the debt incurred by him irrespective of the fact the
debt had become barred by limitation on the date he gives the fresh
undertaking to the creditor to pay off the debt. The principle is now
well known that a person may renounce a benefit of law made for his
protection. … there are a catena of decisions and plethora of authority
for holding that though a debt might have become time-barred on the
date a debtor entered into a fresh obligation with the creditor to
pay the liability, the said obligation, if it satisfies the conditions laid
down in Section 25(3) of the Indian Contract Act, will amount to a
fresh contract in the eye of law and can certainly be made the basis of
an action for recovering the amount promised and acknowledged
therein by the debtor.” at 166 & 167.

63
Scholarship agreement
• Another situation where a contract is valid even if there is no
consideration is a scholarship agreement.
• This has been introduced via s 4(c) of the Contracts (Amendment) Act
1976 which provides:
“Notwithstanding anything to the contrary contained in the
principal Act, no scholarship agreement shall be invalidated on the
ground that -
(c) such agreement lacks consideration.”
• In University of Malaya v Lee Ming Chong [1986] 2 MLJ 148 the High
Court held that the scholarship agreement entered into by the defendant
with the University was validated by s4 of the Contracts (Amendment)
Act notwithstanding any possible lack of consideration.

64
• In University of Malaya v Lee Ming Chong [1986] 2 MLJ 148, HC, ss 4
and 5 of the Contracts (Amendments) Act 1976 were applied to enforce
an agreement purportedly made without consideration, which
otherwise would be void.
• A government scholarship agreement, or an approved educational
institution’s scholarship agreement, would not be void even if it lacked
consideration.
• Where such scholarship agreement is breached, the government or the
approved educational institution is entitled to the whole amount of the
agreed liquidated damages. If no such sum is mentioned, it is entitled to
the whole amount expended by it under the agreement.

65
 8.
Agreements without consideration under
Common Law
• There are three situations where the performance or promise to perform
an existing duty raises the issue whether there is consideration:
(i) public duty; (ii) contractual duty with the other party; and (iii)
contractual duty with a third party.
• First in relation to the performance of a public duty, there is no valid
consideration unless its performance exceeds what is normally expected of
that public duty since the promisee has to perform the duty imposed on
him by law.
• Secondly, the performance of a pre-existing contractual duty is also not a
good consideration since the promisee is merely performing what he has
originally contracted to do. However, the decision in Williams v Roffey
Brothers [1990] 1 All ER 512 CA that there is still good consideration if it
confers a practical benefit to the promisor has attracted much academic
discussion on this issue.
• Thirdly, the performance of an existing duty to third party constitutes good
consideration as there is direct benefit obtained. 67
Pre-existing public duty

• In Collins v Godefroy [1831] B & Ad 950; 109 ER 1040, the plaintiff

received a subpoena to appear as a witness and to give evidence for the
defendant in a court case. Defendant had promised to pay him a sum of
money for appearing as a witness. The issue was whether the plaintiff's
act in becoming a witness constituted sufficient consideration. The Court
held that it did not, as the plaintiff, like any other person is under a
public duty when he receives a subpoena to appear in court to give
evidence. The plaintiff had suffered no detriment as he had only done
what he was required to do as a public duty and was bound to give
evidence. The defendant had obtained no benefit as the plaintiff's
evidence was what the defendant was entitled to under the law.

68
• However, if the promisee does more than what he is required to do as part
of his pre-existing public duty, this will constitute consideration.
• Glasbrook Bros Ltd v Glamorgan County Council [1925] AC 270 a national
coal strike which lasted three months from April 1 -July 4, 1921 made it
unsafe for the "safety men" (i.e. men employed to attend to the pumping
which was necessary to prevent the mines from flooding) from working.
• The appellants, owners of a group of collieries requested the police station
for assistance. The police was willing to patrol the area and to send in the
police force when needed. The appellants, however, insisted on a police
garrison of 100, which was later reduced to 70 men. The appellants were
told that this would be considered "special duty" and a requisition was
signed containing a promise to pay by the appellants.
• After the dispute at the collieries came to an end, the appellants refused to
pay pleading absence of consideration as the police were only carrying
out their public duty. The House of Lords held that the police had done
more than what was required and there was consideration. 69
• Viscount Finlay stated:

“If in the judgment of the police authorities, formed reasonably and

in good faith, the garrison was necessary for the protection of life
and property, then they were not entitled to make a charge for it,
for that would be to exact a payment for the performance of a duty
which they clearly owed to the Appellants and their servants; but if
they thought the garrison a superfluity and only acceded to Mr.
James' request with a view to meeting his wishes, then in my
opinion they were entitled to treat the garrison duty as special duty
and to charge for it.” at 281

70
• In Ward v Byham [1956] 2 All ER 318 at 319, CA, in a claim by the plaintiff (the
mother) for the agreed fee to take care of their child, the father pleaded absence
of consideration as in looking after the child, the plaintiff was only performing her
legal duty.

• The Court of Appeal held that there was consideration and that the plaintiff had
exceeded her statutory duty to maintain the child. Denning LJ stated:
“I approach the case, therefore, on the footing that in looking after the child,
the mother is only doing what she is legally bound to do. Even so, I think that
there was sufficient consideration to support the promise. I have always thought
that a promise to perform an existing duty, or the performance of it, should be
regarded as good consideration, because it is a benefit to the person to whom it
is given. Take this very case. It is as much a benefit for the father to have the
child looked after by the mother as by a neighbour. If he gets the benefit for
which he stipulated, he ought to honour his promise; and he ought not to avoid
it by saying that the mother was herself under a duty to maintain the child.”

71
Pre-existing contractual duty
• Stilk v Myrick (1809) 2 Camp 317; 170 ER 1168 represents the orthodox rule that
performance of a pre-existing contractual duty is no consideration. In this case, a
seaman agreed with the master of a ship to work the ship on a voyage from
London to the Baltic and back. When two of the seamen deserted and the master
was unable to find replacements, the master agreed that the deserters' wages be
shared among the remaining seamen including the plaintiff if they would work the
ship back to London. When they returned to London, the master refused to pay the
additional sum.
• The Court refused the plaintiff's claim on the ground that the plaintiff had already
undertaken, under the original agreement, to work the ship back to London, and
the master's subsequent promise was void for lack of consideration. Lord
Ellenborough stated:
“Here, I say, the agreement is void for want of consideration. There was no
consideration for the ulterior pay promised to the mariners who remained with
the ship. Before they sailed from London they had undertaken to do all that
they could under all the emergencies of the voyage. They had sold all their
services till the voyage should be completed.” 170 ER 1168 at 1169. 72
• The decision in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990]
1 All ER 512 CA is important as it has taken a different view from the
position in Stilk v Myrick above. In this case, the defendants, building
contractors, had subcontracted the refurbishment of some flats to the
plaintiff. The plaintiff was not able to complete in time due to financial
problems arising partly from the low pricing and the poor supervision of its
workers. Concerned about its own liability to the main employer, the
defendants agreed to pay an additional £575 per flat on the timely
completion of the flats. When the plaintiff claimed for the additional sum,
the defendants argued that there was no consideration since it was
performance of work as originally agreed relying on Stilk v Myrick.

73
• The Court of Appeal, while not disputing the decision in Stilk v Myrick, held that
where one party agrees to make payment in excess of the contract price in order
to ensure that the contract is fulfilled on time, and the payment is made without
economic duress or fraud, and the promisor obtains a benefit, consideration
exists. In this case, the defendants obtained a benefit as they were able to avoid
paying compensation under the penalty clause to the owners of the flats.
Glidewell Q stated:
“… the present state of the law on this subject can be expressed in the following
proposition: (i) if A has entered into a contract with B to do work for, or to supply
goods or services to, B in return for payment by B and (ii) at some stage before A
has completely performed his obligations under the contract B has reason to
doubt whether A will, or will be able to, complete his side of the bargain and (iii)
B thereupon promises A an additional payment in return for A's promise to
perform his contractual obligations on time and (iv) as a result of giving his
promise B obtains in practice a benefit, or obviates a disbenefit, and (v) B's
promise is not given as a result of economic duress or fraud on the part of A, then
(vi) the benefit to B is capable of being consideration for B's promise, so that the
promise will be legally binding.” at 521-522.
74
• The decision in Williams v Roffey Bros has been a subject of much
academic review.
• The Court of Appeal in Re Selectmove Ltd [1995] 2 All ER 531, CA, also
took a different view from Williams v Roffrey Bros on the issue of
practical benefit amounting to fresh consideration on the ground that
this position is inconsistent with the House of Lords decision in Foakes v
Beer (1884) 9 App Cas 605, HL, Peter Gibson LJ stated that this matter
should be reviewed by the House of Lords or more appropriately, by
Parliament after consideration by the Law Commission.

75
Pre-existing contractual duty to third party
• A promisee may enter into an agreement with a promisor to perform an
existing obligation already undertaken by him with a third party. The
issue arises whether there is consideration since the promisee is already
under a pre-existing contractual duty to a third party. The courts have
held that there is still good consideration as the promisor obtains the
benefit of a direct obligation which he can enforce.
• In Shadwell v Shadwell (1860) 9 CBNS 159; 142 ER 62 an uncle
promised to pay his nephew a certain sum if he married one Ellen
Nicholl. The nephew, at the time of the promise, was already engaged to
marry Ellen Nicholl. The issue was whether the eventual marriage of the
nephew to Ellen Nicholl was sufficient consideration for his uncle's
promise. The Court held that it was sufficient consideration as the
marriage was a benefit to the uncle.

76
 Erie CJ stated:

“ … do these facts shew a benefit derived from the plaintiff to the

uncle, at his request? In answering again in the affirmative, I am at
liberty to consider the relation in which the parties stood and the
interest in the settlement of his nephew which the uncle declares. The
marriage primarily affects the parties thereto; but in "a secondary
degree it may be an object of interest to a near relative, and in that
sense" a benefit to. This benefit is also derived from the plaintiff at the
uncle's request.” 142 ER 62 at 68.

77
• In Scotson v Pegg (1861) 6 H & N 295 the defendant alleged absence of
consideration, as the plaintiff had already entered into a contract with a
third party to carry the coals on the ship and deliver the coal to the third
party or to the order of the third party. The defendant further alleged
that before making the promise to the plaintiff, he had bought the coals
from the third party, who thereupon ordered the plaintiff to deliver the
same to the defendant. The plaintiff was thus already obliged under its
contract with the third party to deliver the coals to the defendant, and
therefore there was no consideration from the plaintiff.

78
“Here the defendant, who was a stranger to the original contract,
induced the plaintiffs to part with the cargo, which they might not
otherwise have been willing to do, and the delivery of it to the
defendant was a benefit to him. I accede to the proposition that if a
person contracts with another to do a certain thing, he cannot make
the performance of it a consideration for a new promise to the same
individual. But there is no authority for the proposition that where
there has been a promise to one person to do a certain thing, it is not
possible to make a valid promise to another to do the same thing.
Therefore, deciding this matter on principle, it is plain to my mind that
the delivery of the coals to the defendant was a good consideration for
his promise, although the plaintiffs had made a previous contract to
deliver them to the order of other persons.” at 300-301.

79
• In The New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd (The
Eurymedon) [1974] 1 All ER 1015, PC (Appeal from New Zealand) the
plaintiff offered to the defendant that if the defendant unloaded the
plaintiff's goods from a ship (which the defendant was already bound to
do by a contract with a third party), the plaintiff would treat the defendant
as exempt from liability for damage to the goods.

• The Privy Council held that the defendant's act of unloading the ship was
good consideration.

80
10. Pinnel’s Rule
PINNEL'S RULE and SECTION 64 of the CONTRACTS ACT 1950
• At common law, payment of a lesser sum cannot satisfy a larger sum. Thus,
part payment of a sum due cannot be construed as a complete satisfaction of
the debt even though both parties may have agreed to this, except where new
or additional consideration is given. This is because the part payment is only
what the promisor is obliged under the contract to do, and it cannot become
consideration for an agreement to dispense with the balance of the debt.
• In Pinnel's Case (1602) 77 ER 237, Pinnel brought an action against Cole for the
recovery of a debt owed by Cole. In his defence, Cole pleaded that he had repaid
Pinnei part of the sum and that Pinnel had accepted it in satisfaction for the
whole debt. The Court held as follows:
“… payment of a lesser sum on the day in satisfaction of a greater, cannot
be any satisfaction for the whole, ... but the gift of a horse, hawk or robe,
etc. might be more beneficial to the plaintiff than the money in respect of
some circumstance, or otherwise the plaintiff would not have accepted it in
satisfaction…” at 237
82
• The rule in Pinnel's Case has been taken as authority that a smaller sum
cannot satisfy a larger sum unless the payment is made on an earlier date
than was due, it is ayab1e at a different place, or it is made in a different
mode. These different forms constitute the consideration for the promise to
dispense the larger debt.
• Pinnel's rule was applied in Foakes v Beer (1884) 9 App Cas 605 HL. In this
case, Dr Foakes owed Mrs Beer £2,000. Beer had taken out a judgment
against him. Beer agreed that if Foakes paid £500 in cash and the rest in
instalments, she would not enforce the judgment debt. Foakes paid the sum
as agreed but Beer later claimed the interest on the judgment debt. In his
defence, Foakes relied on his agreement with Beer that the debt would be
discharged if he paid £500 in cash and the rest in instalments.
• The House of Lords applied Pinnel's rule and Beer was given judgment for
the interest amounting to £360.
83
• There are Malaysian cases that have applied the English rule of accord and
satisfaction. In Tiun Eng un v Wong Sie Kong [1975] 2 MLJ 34 the plaintiff
had originally brought an action against the defendant to recover a certain
sum. Subsequently, the parties signed an agreement whereby the plaintiff
agreed to accept certain--goods and articles from the defendant and
"agreed to withdraw the whole matter from the court case".
• The High Court held that there was accord and satisfaction as the plaintiff
had accepted something different in nature, that is, the goods and articles.
• BTH Lee J stated as follows:
“ … a debt may be discharged by the acceptance of something different in
nature from part payment of the debt, such as 'a horse, a canary, or a
tomtit', for then there is accord and satisfaction.” at 36.

84
• In Amusu Properties Sdn Bhd v Muruchadayah s/o AMS Pillay [1989]1 MLJ
451 the High Court held that:
• “A contracting party in respect of his obligation towards another is released
from such obligation if there is accord and satisfaction between the two
parties. 'An accord and satisfaction', according to ... Lord Justice Scrutton, in
British Russian Gazette & Trade Outlook Ltd v Associated Newspapers Ltd
[1933] 2 KB 616 at p 643, 'is the purchase of a release from an obligation,
whether arising under contract or tort, by means of any valuable
consideration, not being the actual performance of the obligation itself. The
accord is the agreement by which the agreement is discharged. The
satisfaction is the consideration which makes the agreement operative.“ the
valuable consideration referred to in the above passage refers to some
substituted obligation in place of the original obligation. Without
satisfaction, that is, the substituted obligation, mere accord would not bar
an action based on the original obligation. The simplest form of such
substituted obligation is usually the payment of money, in satisfaction of
the original obligation.” at 453.
85
• In Jagat Singh v Arthur Heng [1963] 1 MLJ 399, the High Court considered
whether the cheque given by the defendant's employers for $714 in
satisfaction of all the plaintiff's claims against the defendant for a larger
sum was a complete satisfaction of all such claims. The Court held that the
defendant was entitled to succeed:
“The House of Lords' decision in Foakes v Beer (1884) 9 App Gas 605 is clear
authority for the proposition that payment by a debtor of a smaller sum in
satisfaction of a larger amount is not a good discharge of a debt. On the other
hand it was held by the Court of Appeal in Bidder v Bridges (1887) 37 Ch D 406,
that though the payment of a smaller sum cannot be a good consideration for
accord and satisfaction of a claim for a larger one, yet if there is anything which
can be a new consideration and a new benefit to the person entitled to the larger
sum, that would support accord and satisfaction. A cheque given by a third party
for a smaller sum in satisfaction of a claim for a larger sum was held to be a
complete satisfaction of the debt. ... The facts of the present case clearly come
within that principle. Here there was a cheque given by a third party in full
settlement of the total indebtedness of the defendant. “ at 400
86
• Unlike the English doctrine in the Pinnel’s case, under s 64 of the Contracts
Act, a party can fully dispense of a debt.
• Section 64 of the Contracts Act provides as follows:
“Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for
such performance, or may accept instead of it any satisfaction which he
thinks fit.”
• Under s 64 of the Contracts Act, the promisee may do the following:
• “dispense whether fully or partially the promised performance, extend
time to perform or accept anything to satisfy the promised
performance. Illustration (a) shows a dispensation from performance of
an act (painting a picture), Illustration (b) shows a whole debt being
discharged by the payment of a smaller sum, while Illustration (c)
shows a discharge through the payment of a smaller sum by a third
party. Illustration (d) shows a composition of debt with creditors.”
87
• The different position in s 64 from the English position was
acknowledged by the Federal Court in Kerpa Singh v Bariam Singh
[1966] 1 MLJ 38, FC as follows:
“… this section [section 64] materially alters the English doctrine of
accord and satisfaction, as to the right of a party to take advantage
of a release made for his benefit.”

 The Supreme Court in Associated Pan Malaysia Cement Sdn Bhd v

Syarikat Teknikal & Kejuruteraan Sdn Bhd [1990] 3 MLJ 287, SC stated
that:
“Our law on waiver in s 64 of the Contracts Act 1950, is similar to the
Indian law on the general principles of waiver under which it is open to
the promisee to dispense with or remit wholly or in part the performance
of the promise made to him or he can accept any promise as he thinks fit.
Under our law neither consideration nor an agreement will be necessary.”
at 295-296 88
 In Chunna Mal Ram Nath v Moo! Chand Bhagat AIR 1928 PC 99 the Privy
Council held that in order to constitute a dispensation under s 63 of the
Indian Contract Act (in pari materia with s 64 of the Malaysian Contracts
Act), neither consideration nor an agreement is necessary, provided it is
clear that the promisee had dispensed with the performance of the
promisor by a voluntary conscious act which must be an affirmative act on
his part.
 This principle was applied in Pan Ah Ba & Anor v Nanyang Construction
Sdn Bhd. [1969] 2 MLJ 181 FC. In this case, in relation to a sale and
purchase of land, the deceased paid the respondent $10,000 as a deposit.
Later the appellants, as administrators of the deceased sued for the return
of the deposit under s 64 of the Contracts Act.
 The Federal Court held that the respondent company, by a letter dispensed
the deceased from performing her part of the contract and therefore the
estate was entitled to the return of the deposit.
89
• Azmi LP quoted s 64(1) of the Contracts (Malay States) Ordinance 1950 and
stated:
“ … in my view, by the words in the letter of 20th August, 1964, namely
'Will you kindly call at our solicitor's office ... to sign the agreement
within 7 days without any further delay, should you fail to comply with
this notice we shall resell the above property to other purchasers on our
waiting list", the defendant company had dispensed with the
performance of the agreement by the deceased ... when the deceased
had failed to sign the agreement as requested by the letter of 20th
August, 1964, the company had dispensed her from performing her part
of the contract with the result that the contract was rescinded and that
the estate of the deceased is entitled to the return of the deposit…” at
183
90
11. Promissory Estoppel
• The doctrine of promissory estoppel has been applied by Malaysian courts.
In Sim Siok Eng v Government of Malaysia [1978] 1 MLJ 15, FC, the
appellant was assigned to construct a building but he failed to complete it
on time. The respondent had promised to supply the appellant with
construction materials which were difficult to obtain. The respondent had
stopped supplying these materials without notice to the appellant.
The Federal Court held that the respondent's promise to supply the
construction materials was a variation of the original contract. The
appellant had relied on the promise and had changed his position in
reliance of it. Therefore, the original contract was suspended and if the
respondent wanted the original contractual position to resume, he should
give notice to the appellant.

92
• In Bank Negara Indonesia v Philip Hoalim [1973] 2 MLJ 3 PC (Appeal from
Singapore). the appellants sued for possession of the front room on the
third floor of a building owned by the appellants. This room was occupied
by the respondent as a tenant of the appellants. The appellants claimed
that the tenancy was a monthly tenancy and had been validly determined
by a notice to quit. The respondent did not dispute the service of a notice
to quit, but contended, inter alia, that the appellants were estopped from
claiming possession of the premises against him. The respondent had
previously occupied the first floor of the building.
• Subsequently, he had moved to the third floor upon the request of the
appellants, who had promised him that they would not ask him to leave the
premises as long as he was practising his profession as an advocate and
solicitor there.

93
• The Privy Council held that this entitled the respondent to the benefit of an
estoppel which would prevent the appellants from availing themselves of their legal
right to remove him so long as he carried on his profession there, and that the
estoppel was unaffected by the notice to quit.
• Promissory estoppel was also successfully argued in Tenaga Nasional Bhd v
Perwaja Steel Sdn Bhd. [1995] 4 MLJ 673. In this case, the plaintiff supplied
electricity to the defendant's steel mill and informed that a 20% discount applied to
all electricity bills from February 1, 1987. Thereafter, the plaintiff sent monthly
electricity bills and credit notes for the 20% discount to the defendant. The plaintiff
also represented, reconfirmed and reassured the defendant that the 20% credit
notes issued from February 1988 to December 31, 1989 were valid, accurate,
binding and irrevocable. The plaintiff applied to claim back the 20% discount for the
said period.
• The High Court held that the plaintiff was estopped from enforcing its claim as the
defendant was induced by the documents it received from, the plaintiff to make
monthly payments in full and final settlement of the electricity charges. Further, the
defendant had relied on the electricity charges to ascertain the price of steel billets
it produced and which were already sold. 94
• An important case on estoppel in Malaysia is Boustead Trading (1985) Sdn
Bhd v Arab-Malaysian Merchant Bank Bhd. [1995] 3 MLJ 331, FC, which
followed the Australian case of Waltons Stores (Interstate) Ltd v Maher. In
this case, the appellant bought goods from Chemitrade Sdn Bhd
(Chemitrade). Chemitrade entered into a factoring agreement with the
respondent whereby the debts owed by the appellant to Chemitrade were
assigned to the respondent. Chemitrade gave to the respondent copies of
the invoices in respect of the sale and delivery of goods to the appellant.
The respondent then stamped the invoices with the endorsement that any
objection must be made within 14 days of receipt and sent the invoices to
the appellant. The appellant did not complain within the said period nor
challenge the respondent's imposition of the endorsement. After several
payments on the invoices, the appellant refused to make payment on 20
invoices. The respondent argued that since the appellant did not protest
about the validity of the endorsement, it was entitled to assume that the
appellant had accepted it.
95
• The Federal Court applied estoppel and held that as the appellant,
Chemitrade and the respondent had proceeded upon the assumption that
the factoring agreement was a valid assignment, it would be unjust and
unconscionable to allow the appellant to challenge the document now. The
Court further held that a reasonable person in the respondent's position
would be entitled to assume that the appellant had agreed to the
endorsement by remaining silent and making payment on the invoices.
• This case is significant as the Federal Court clarified and restated two
elements of the doctrine of estoppel, the first as to the effect which the
representation had upon the mind of the person relying on the estoppel
and the second, whether the person must have acted to his detriment.

96
• Gopal Sri Ram JCA stated:

“The traditional view ... is that a litigant who invokes the doctrine must
prove that he was induced by the conduct of his opponent to act in a
particular way ... we are of the opinion that this requirement is not an
integral part of the doctrine. All that the representee ... need to do is to
place sufficient material before a court from which an inference may
fairly be drawn that he was influenced by his opponent's actings. Further,
it is not necessary that the conduct relied upon was the sole factor which
influenced the representee. It is sufficient that "his conduct was so
influenced by the encouragement or representation ... that it would be
unconscionable for the representor thereafter to enforce his strict legal
rights" (per Robert Goff in Amalgamated Investment [1982] 1 QB 84 ….

97
… “We take this opportunity to declare that the detriment element does
not form part of the doctrine of estoppel. In other words, it is not an
essential ingredient requiring proof before the doctrine may be invoked.
All that need be shown is that in the particular circumstances of a case, it
would be unjust to permit the representor or encourager to insist upon
his strict legal rights.” at 348

98
Thanks!

99