Business Law: Consideration, Section 26, and Exceptions in Malaysia

This report delves into the critical element of consideration within the framework of Malaysian contract law, as governed by the Malaysian Contract Act 1950. It meticulously examines the definition and significance of consideration, emphasizing its role in the formation of valid and enforceable contracts. The report provides an in-depth analysis of Section 26 of the Act, which outlines the general rule that agreements without consideration are void, while also exploring the exceptions to this rule. These exceptions include contracts made out of natural love and affection and other scenarios where consideration may not be essential for a contract's validity. Furthermore, the report supports its analysis with relevant Malaysian case laws, such as Guthrie Waugh Bhd vs. Malaippan Muthucumaru and Venkata Chinnaya vs Verikatara Maaya, to illustrate the practical application of these legal principles. The discussion covers the essential components of consideration, its impact on contract enforceability, and the nuances of its application in various contexts, offering a comprehensive understanding of consideration in Malaysian contract law.

Running head: BUSINESS LAW
CONSIDERATION OF CONTRACT UNDER MALAYSIAN LAW
Name of the Student
Name of the University
Authors Note

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Introduction
A contract has great importance in our daily life. It is important for a contract to perform
legally. In the case of Malaysia, the Malaysian Contract Act, 1950 governs the contract law.
Numerous authors are of the view that the terms and conditions of every contractual agreement
must be legal and fair because in case of violation of a contract it is not possible for a court to
interpret vague terms. For making a contract, certain essential elements are important and it is
not possible to make a valid and lawful contract without these elements (Razak et al., 2019). This
paper mainly focuses on the discussion of one of the essential elements of a contract, such as
consideration. Consideration plays a valid role in the case of making a valid contract. While
discussing the same, it also sheds light on the exceptions to this general rule of contract law and
section 26 of the Malaysian Contract Act, 1950 with appropriate Malaysian case laws.
Discussion
Among the six essential components of the contract, consideration is the fourth
component which is elaborated under the Malaysian Contract Act, 1950. It is regarded as to be
the most vital component under the law of contract. As per the provisions of Section 26 of the
aforementioned Act, a contractual agreement without sufficient consideration is said to be void.
Consideration is something worth promising or a promisor that is typically money or property
that exchanges the pledge with the promisor as a part of the performance. For making a contract
legitimately enforceable, it needs to be something that gives up the commitment or something
that supports the commitment. According to Rohagi (2018), as it is a benefit, therefore the parties
to a contract try to negotiate consideration and only for this reason people want to enter into a
contract. Acts that are unlawful or unethical in contravention of existing public policies cannot

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be eligible for enforceable contracts even after having sufficient consideration, such as contract
based on lotteries, horse races, dog shows, and various types of gambling.
It has been stated by the Malaysian Contract law that to prepare a valid and lawful
contract all essential components must be present in a contractual agreement. Without these
essential components, a contract becomes a void or partly valid contract. However, it is possible
to make a partly valid contract to a valid contract by adding the missing components (Saxena,
2018).
Many authors are of the view that among these essential components, consideration is the
most vital component because without this component it is not possible to earn profit by the
parties. To find out the importance of consideration, it is discussed elaborately (Baluch et al.,
2017).
Payment or cash is considered to be the fundamental element of the Contract Law and the
primary objective of payment is to make a profit which generally divided between the parties. As
per the law of contract, consideration must be clearly settled by either the contractual parties or
must be clearly implied by the terms of the contract. For this reason, consideration is considered
to be the heart of an agreement and without this component, the primary goal of an agreement of
a contract cannot be achieved (Mahmod et al., 2017).
Some other scholars state that consideration is of value and the standard or guarantee o0f
performance is shared by the other party. In case of a contract, consideration is replied for a
different consideration. For ‘failure of consideration’ a contract may become ineffective.
Consideration is essential for those contracts which are made without a deed. A contract is
different from a contract of gift. According to Cheong (2012), consideration is the advantage or

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detriment of the Promising Party as any right, interest, revenue or benefit accruing to one party,
or any kind of forbearance, detriment, loss or liability given, incurred, or claimed by the other
party.
However, the idea of consideration has been extensively described under the provisions
of section 26 of the Malaysian Contract Act of 1950 which particularizes that the general rule of
law is that an agreement is regarded as to be null and void without consideration. Besides, as per
section 2(d) of the above-mentioned Act explains that, when at the desire of the promisor, the
promisee or any other person has executed or abstained from executing, or executes or abstains
from executing, or commits to execute or to abstain from executing something, such action or
abstinence or promise is known as a consideration for the promise (Ming, Ab Halim & Yusoff,
2019).
In the revolutionary case of Guthrie Waugh Bhd vs. Malaippan Muthucumaru [1972]
MLJ 35 it had been stated by the court that if the consideration or in other words, the
disbursement has not been made a contract cannot be said completely. Other than that, the
payment must be given in full according to the preliminary promise. If at the phase of
consideration, any breach has been observed by any of the parties relating to the terms and
situations of the contract, then it will be the right of the other party to claim compensations for
the breach of the agreement.
There exist some elements for regulating the law of consideration under the Malaysian
Contract law. The Contract law of Malaysia states that for concluding a contract it is not
necessary to pay consideration at market value. Moreover, it must be paid suitably as per the

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promise. For this reason, it is constantly said that consideration needs to be suitable but not
adequate (Mohamed, 2016).
Sometimes, it has been said that if a party to a contract performs an act knowledgeably
before the promise was made, the consideration for that promise is considered to be the past
consideration (Andrews, 2015). Malaysian law recognizes this type of consideration which is
also regarded to be legitimate under the provisions of section 2(d) and 26 of the Malaysian
Contract Act of 1950. In the famous case of South East Asia Insurance Bhd vs. Nasir Ibrahim
(1992) 2MLJ 355 the Supreme Court stated that the primary condition of consideration is that
for this component of Contract law the promisee needs to take some burden.
However, it has also been elaborated by the provisions of section 2(d) of the
aforementioned Act that consideration is such a thing which is not transferred from the side of
the promisee. This standard is considerably applicable in the renowned case of Venkata
Chinnaya vs Verikatara Maaya (1881)1 LR 4. In this particular case, a certain amount had been
decided to pay by a sister to her brothers as annuity but did not take the guarantee into account.
Nonetheless, on the same day, some land had been provided to the sister by their mother
instructing that she must pay the said annuity to her brothers. Afterward, the sister did not pay
the annuity on time and was sued by her brothers. The court ruled that the annuity must be paid
by the sister as she is responsible to pay it. The pledge of the consideration was well regarded,
although it did not transfer from her brothers.
Under the Malaysian Contract Act of 1950, a smaller amount of payment does not meet
the obligation to pay a greater sum. There are several common law cases, where it had been

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stated by the court that an acceptance to receive part payments would be enforceable. However,
this rule also has some exceptions, such as:
 Part-payment made by a third party;
 Promissory estoppel; and
 Composition arrangement (Talaat, 2019).
Regarding consideration, the Malaysian Contract law recognizes the notion of love and
affection. According to the provisions of section 26(b) of the Contract Act of 1950, a contractual
agreement without enough consideration is null and invalid unless it is prompted in a written
format that the contract is created under love and affection. A similar view has been detected in
the landmark case of Chan Lam Keong & Ors vs. Tan Saw Keow & Ors (1951) MLJ 21. In this
case, it had been ruled by the court that even a contract where sufficient consideration is not
present is binding if it is made out of love and affection.
Conclusion
Therefore, from the above discussion, it can be concluded that section 26 plays a vital role
under the Malaysian Contract Act, 1950. This section elaborates that a contractual agreement is
said to be void without sufficient consideration. To make a contract lawfully enforceable,
consideration needs to be something that gives up the commitment or something that supports
the commitment. A contract cannot be said a complete contract unless the consideration has been
given. Consideration is considered to be the most essential component of a contract. It has been
regarded as to be the heart of a contract. There are numerous court decisions in which it has been
stated that a consideration needs to be satisfactory and not adequate. Consideration is something
which is not transferred from the side of the promisee. Apart from that, there are certain contracts

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which are said to be valid even without having sufficient consideration. In this type of contract, it
must be mentioned that the contract is prepared out of love and affection.

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