Importance of Consideration in Contract Law

Running Head: BUSINESS LAW
Business Law
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1BUSINESS LAW
Introduction
The law of contract in Malaysia is governed through the provisions of Contract Act 1950.
However, at certain situations law of England is applicable where the legislation does not have
provisions to deal with the situation. McKendrick (2014) has defined contract as an agreement
between parties on matters which are permissible by law. An undertaking is provided by the
parties that they will perform the promise under the contract. There are various elements which
makes up a contract at law. As provided above these elements are contained in both the CA1950
as well as the provisions of common law. The main elements which are essential for forming a
valid contract in Malaysia are Offer, Acceptance, Consideration, Intention and Capacity. The
absence of any of the element form an agreement does not make it legally binding upon the
parties to the agreement. However in this paper emphasis is laid on one of the most important
element for the formation of a valid contract which is that of a consideration. The paper provides
a description in relation to the element of consideration and critically discusses why a
consideration is an important element of contract and without a consideration a contract is nudum
pactum and cannot be enforced by law. The paper also discusses the three basic rules of
consideration.
Body
As provided by the provisions of section 2(d) of the CA 1950 when upon the wish of the
promisor, any other person known as the promisee or a third party has also done an act or
omission such act or omission is known as a consideration for a contract. It is further provided by
the legislation that a contract would not be enforceable unless a valid consideration supports it.
According to O'Sullivan and Hilliard (2016) consideration is a valid bargain or promise which the

2BUSINESS LAW
parties provide to each other before they get into a contract. It is expected by both parties to
continue a bargain or a promise. It has been specifically stated via the provisions of section 26 of
the CA 1950 that without a valid consideration a contract is void. In the case of South East Asia
Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355 it had been stated by the judge that essence of
consideration is when some kind of burden or detriment has been taken by the promisee upon
himself (Arvind 2017). These principles had also been discussed by the court in the English case of
Williams v Roffey Bros [1990] 2 WLR 1153 (Davies 2016).
In the case of Curie v Misa the definition of consideration had been ruled by the judges.
The court defined consideration as some right, profit, interest or benefit which is gained by a
party to the contract via the other party. For instance a person X had agreed to sale his truck for a
price of RM 60000 and there has been an agreement on the party of Y to pay RM 60000 for the
truck. In this situation where all other elements of a contract are satisfied the contract will be
enforceable as X has made an agreement to hand over his car to Y when Y has made the
payment. There are three types of consideration which are present in Malaysia namely, executor
consideration, Executed consideration and Past consideration. When consideration is provided by
the parties through a promise it will be considered as a executor consideration (Chandler 2015).
The contract will only be performed by the person who provides promise as a consideration for
the future. Even where anything has not taken place when the contract is concluded the law will
still consider the promise to be enforceable and valid. In the case of K Murugesu v Nadarajah the
facts provided that X was Y’s Tenant. Y had made an agreement to sell a house to X for RM
26000 in three months form the day in which the agreement was made. However Y refused to
sell the house latter claiming that there is no valid consideration as there has been no payment