- Section 2(d) of Contracts Act 1950
Anson in his book ‘Anson’s Law of Contract’ has explained the issue on past consideration. Anson stated that “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. 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." In Malaysia, both executed consideration and past consideration are good consideration.
In Common law, past consideration is not good consideration.
Re McArdle [1951] Ch 669.
In this case, a house was the joint property of a few siblings living together. The plaintiff, the wife of one of the brothers paid for repairs to the house. Then, the siblings agreed to pay her 488 pounds as the consideration for the repairs. Later, the plaintiff sued for such payment, the defendants in the suit other than her husband. The issue was whether such consideration exists.
The Court 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.
The rule of past consideration is not good consideration has an exception. If an act is done at the promisor’s request, although the promisor’s promise was given only after the act has been carried out, the act is good consideration.
Lampleigh v Braithwait (1615) Hob 105
the defendant committed murder and requested the plaintiff to obtain a royal pardon for him, the latter successfully doing so. Later, the defendant promised the plaintiff payment of 100 pounds.
The court held that the consideration was good because the act had been carried out at the defendant’s request.
Guthrie Waugh Bhd v Malaiappan Muthucumaru [1972] 1 MLJ 35
Sharma J: “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.”
Hongkong and Shanghai Banking Corporation v Syarikat United Leong Enterprise Sdn Bhd & Anor [1993] 2 MLJ 449
In this case, the second defendant argued that since no further money was advanced to the first defendant by the plaintiff at the date or after the signing of the guarantee, the guarantee was actually to secure past advances and thus was past consideration and not enforceable. The second defendant’s contention was rejected.
Ian HC Chin JC: “… 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…”
SEA Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355; [1993] 1 SCR 89
Gunn Chit Tuan SCJ: “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.”
GBH Ceramic Sdn Bhd v How It @ Low Aik & Ors [1989] 2 CLJ 427
In this case, 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’s contention was that 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 execution of the guarantee.
The Court held that, from the letter of guarantee, it was clear that the plaintiff’s act was done at the defendant’s request.
Lau Ngiik Ping & Anor v Bank Pertanian Malaysia [1992] 3 CLJ 1437
the borrowers applied for loan from the defendants, to be secured by a charge over land owned by plaintiffs. The loan money was released by the defendants a day after the signing of the agreement. However, the memorandum of charge was executed only one month after. The plaintiffs contended that the release of monies was without security, and thus 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. 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.
Aseambankers Malaysia Berhad & Ors v. Gula Perak Berhad & Anor [2010] 1 LNS 1409
In this case, the plaintiffs are lenders and provided facilities to the 1st defendant and the 2nd defendant is the guarantor. The defendants argued that there is no consideration for the supplementary agreement.
The court held that “...it is well settled in Malaysian context even past consideration is good consideration though the position may not be the same at common law.”
Zainal Abidin Ahmad v Kenari Air (M) Sdn Bhd & Ors [2011] 1 LNS 144
In this case, the 3rd defendant alleged that the Letter of Guarantee was void due to past consideration. The court cited the case of Hongkong and Shanghai Banking Corporation v. Syarikat United Leong Enterprise Sdn Bhd & Anor [1993] 3 CLJ 419 where the headnote reads: “...Past consideration could still be good consideration...provided the benefit that was given before the execution of the guarantee was given 'at the desire' of the guarantor.”
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