Malaysian Contract Law: Is Past Consideration Good Consideration?

For a contract to make sense or be worthwhile, all parties to the contract must receive some sort of benefit from it. In legal sense, this is called Consideration. Consideration is an essential element in every contract and/or agreement. Consideration refers to the benefit that each party receives or expects to receive from the contract.

A) What is Past Consideration?

Unlike normal situations where consideration is given at the same time, past considerations would be present in situations where consideration is given not contemporaneously, but after the promisor’s promise. This looks like doing an act which was prior to a promisor’s promise.

English Position

Under common law, only executory and executed considerations are recognised. The whole concept of past consideration would generally be rejected by English courts. In Re McArdle [1951] 1 All ER 905, the Court of Appeal held that repairs carried out before there was an agreement to pay meant that such act is past consideration and hence could not be regarded as good consideration.

Be that as it may, there is an exception to this. If an act is done at the request of the promisor, such act will be treated as good consideration although the promisor’s promise is given only after the act has been done.

The English case of Lamleigh v Braithwait (1615) Hobart 105 portrays the exception quite well. Here, the defendant had committed murder and then had requested the plaintiff to obtain a royal pardon on his behalf.

Subsequent to obtaining such pardon, the defendant then promised to pay the plaintiff 100 pounds. The court held that consideration was good because the act was done at the defendant’s request.

Malaysian Position

The Malaysian Contracts Act 1950 takes a different position from the English common law.

The main provision which sets out the definition of consideration would be Section 2 (d) which states,

“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;”

In Guthrie Waugh Bhd v Malaiappan Muthuchumaru [1972] 1 MLJ 35, the court had to determine whether the deed of arrangement (Contract) was void and of no legal effect against the defendant. In relation to whether Malaysia recognizes past consideration, it was stated that,

“The Contracts (Malay States) Ordinance 1950 clearly recognises past consideration.”

Hence, the wordings of section 2 (d) seems to imply that all three forms of consideration are allowed, including past consideration where the promisee has already “done or abstained from doing something.”

In Raja of Venkatagiri v Sri Krishnayya Rao Bahadur AIR 1948 PC 150 Sir Madhavan Nair, delivering the judgment of the Privy Council said,

“When the respondent denies liability, it is not because there is no consideration, but rather because it is past consideration which, was not something at the ‘desire’ of the promisor. Hence, the respondent argues that he himself does not fall within Section 2 (d), Contract Act. Due to this, the result concluded by the court is that it cannot be held that the advances of money were made at the ‘desire’ of the respondent (promisor) within the meaning of Section 2 (d).”

Additionally, the court also explained, that in order to invoke the aid of that provision it must be shown that there was a promise by the respondent to ‘compensate’ the appellant or his father for something which had been already done by them ‘voluntarily’ for him. It thus follows that to constitute good consideration under the Contracts (Malay States) Ordinance occurs only if the promisee acts, abstains or promises to do something in pursuance of the promise.

In Lau Ngik Ping & Anor v Bank Pertanian Malaysia [1992] 3 CLJ 1437, the case concerned borrowers whom had applied for a loan from the defendants, to be secured by a charge over land belonging to the plaintiffs. The loan in question was released by the defendants one day after the signing of the loan agreement. However, the crux of the dispute lied in the fact that the memorandum of charge was excuted only a month later. This is when the Plaintiffs contended that the loan was released without any security and argued that it was past consideration.

The Court of Appeal in this particular case, viewed the facts holistically and found that these three events (Signing, Release and Memorandum) were inter-related. Furthermore, the court was also notified of the existence of a letter of authorization which suggests that the Plaintiff desired for the defendants to grant the loan to the borrowers. This led the court to decide that there was consideration from both sides.