“An agreement without consideration is void”. Do you agree? Justify your response on the basis on what you have learnt about this rule and its exceptions. Use suitable illustrations to substantiate your answer.
A legally binding contract needs consideration as it is an important element. So, a valid contract will not exist without consideration. By promise someone sacrifices or gives something and other people take something. This kind of giving or taking and sacrificing is called consideration by law. If one party promises without any consideration that is a gift.
Consideration is an essential element for the formation of a contract. It may consist of a promise to perform a desired act or a promise to refrain from doing an act that one is legally entitled to do. S2 (d) Contract Act 1950 defines consideration, 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.
It can also be defined as a detriment suffered in exchange for a benefit received, each party must promise to give or do something for the other. Consideration must exist in every contracts and it must have monetary value. There have been a number of case law definitions of consideration, for example Currie v Misa (1875): “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.”
S26 Contract Act 1950 states that, an agreement made without consideration is void, unless (a) 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 on account of natural love and affection between parties standing in a near relation to each other. Besides that, (b) or 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 promise, or something which the promisor was legally compellable to do.
Also, (c) or is a promise to pay 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. An agreement is a contract in any there cases. Illustrations for S26 Contract Act 1950, (a) A promises, for no consideration, to give to B RM1, 000.
This is a void agreement. (b) A, for natural love and affection, promises to give his son, B, RM1,000. A puts his promise to B into writing and registers it under a law for the time being in force for the registration of such documents, this is a contract. (c) A finds B’s purse and gives it to him. B promises to give A RM 50. This is a contract. (d) A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract. (e) A owes B RM1, 000, but the debt is barred by limitation. A signs a written promise to pay B RM500 on account of the debt. This is a contract. (f) A agrees to sell a horse worth RM1, 000 for RM 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 RM1, 000 for RM 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. In conclusion, I agree with the statement “an agreement without consideration is void”. If an agreement without consideration is valid, it is unfair to everyone who is protected by the law. Therefore, according to S26 Contract Act 1950, an agreement made without consideration is void, unless it is in writing and registered; or is a promise to compensate for something done; or is a promise to pay a debt barred by limitation law.
Khalid was interested in buying Siti’s painting which she had names “Hawa”. Khalid met Siti and told her that he will pay her RM5,000 for “Hawa”. Siti said she will think about it. 2 weeks later Siti told Khalid that she will sell him the painting for RM7,000. Khalid said that the price was too high and he did not want the painting. One week later, Khalid received bonus from his employer. He immediately contacted Siti and told her that he will pay the RM7,000 for “Hawa”. Siti refused to give Khalid the painting, saying the price had now gone up to RM10,000. Explain to Siti whether she is bound by any contract to sell the painting to Khalid for RM7,000? Make references to relevant case laws and legislation.
Whether Siti is bound by any contract to sell the painting to Khalid for RM7,000? Identify and Application of Law: The Contract Act 1950 is the law governing the making of a contract. S2 (g) Contract Act 1950 states that an agreement not enforceable by law is said to be void and S2 (h) Contract Act 1950 states an agreement enforceable by law is a contract. Therefore, to determine whether there Siti is bound by any contract to sell the painting to Khalid for RM7,000? Firstly, S2 (b) Contract Act 1950, when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise.
S2 (c) Contract Act 1950, the person making the proposal is called the “promisor” and the person accepting the proposal is called the “promisee”. In this case here, Khalid can be said to be an offerer and if Siti accepted the offer, she would become the offeree. Khalid offered to Siti to pay her RM5,000 for buying the painting “Hawa”. Siti said she will think about it but she did not accept the offer. In S6 (c) Contract Act 1950, by failure of the acceptor to fulfill a condition precedent to acceptance; or counter offer, the proposal is revoked. Hyde v Wrench (1840), D made an offer to sell his house for 1000 pound.
P purposely accepted at 950 pound but when D refused, P accepted the original offer of 1000 pound. Here, the counter offer terminated the original offer. There was nothing to accept. After two weeks, Siti made a counter offer to Khalid that she will sell him the painting “Hawa” for RM7,000. Then Khalid immediately said price was too high, he did not want the painting “Hawa”. Besides that, This counter offer also terminated the original offer which was Khalid offered Siti to buy the painting “Hawa” for RM5,000. So there was no any contract between Siti and Khalid. One week later, Khalid received bonus from his employer.
He immediately contacted Siti and told her that he will pay RM7,000 for the painting “Hawa”. In here, Khalid made an offer to Siti again. However, Siti refused to give Khalid the painting for RM7,000. She told Khalid that the price of “Hawa” had now gone up to RM10,000. Siti did not accept Khalid’s offer and she inform Khalid that the price of “Hawa” had gone up to RM10,000. Therefore, there was no any contract between Siti and Khalid in this case. If Khalid really wanted to buy the painting “Hawa” for RM7,000, he should not refuse Siti immediately at the moment. He should just tell Siti that he would think about it.
If he told Siti that he would think about it but not refused it, then there was a contract between Siti and Khalid. In conclusion, Siti is not bound by any contract to sell the painting “Hawa” to Khalid for RM7,000. S 3 Contract Act 1950 states the communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting, or revoking, by which he intends to communicate the proposal, acceptance, or revocation, or which has the effect of communication it.
The general rule of S3 Contract Act 1950 is the acceptance must be communicated. In this case, when Siti made a counter offer to Khalid to sell the painting “Hawa” for RM7,000, Khalid did not accept the offer, but he refused it due to the price was too high. So the offer of selling the painting “Hawa” for RM7,000 was terminated, the offer was no longer exist. Therefore, Siti is not bound by any contract to sell the painting “Hawa” to Khalid for RM7,000.
List of References
The Lawyers & Jurists (2010) Insuffiency of consideration is immaterial, but an agreement without consideration is void- illustrate and explain. [online] Available at: http://www.lawyersnjurists.com/resource/articles-and-assignment/insuffiency-consideration-immaterial-agreement-consideration-void-%E2%80%93-illustrate-explain/ [Accessed: 25th Aug 2012]. Laws of Malaysia. (2009) Contract Act 1950. Kuala Lumpur: The Commissioner of Law Revision, Malaysia, p.12~13.