Topic

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Contract Law

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LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. 2. 3. 4. Demonstrate an understanding of the need for contracts; Analyse the elements of a valid contract; Demonstrate an understanding of the procedures and remedies available to resolve contractual disputes; and Demonstrate an understanding of common law cases.

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INTRODUCTION

What is a contract? In the world of business, contracts are made every day. Therefore, it is important to understand the amounts in a contract and the valid elements to form a contract. In this topic, we will look at the important elements of a contract. We will start with the elements to form a contract. A contract is a legal agreement between two or more parties or a legal obligation arising from an agreement. It has also been defined as a promise or a set of promises made by one party to another party. If a contract is breached by one party, the other party can resort to a legal remedy. In Malaysia, contract law is governed by the Contracts Act 1950 (Act 136) (Revised 1974). By the application of the Civil Law Act 1956, English law applies. However, in the case of Song Bok Yoong v Ho Kim Poui [1968] 1 MLJ 56, it was held that if there was a conflict of provisions between the two acts above, the Contracts Act (CA) 1950 would prevail. The provisions under the Civil Law Act 1956 states that if there has been any development in English law after 7 April 1956, it will not be applicable to the

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courts of the states of Peninsular Malaysia except for Penang and Malacca. However, in Penang, Malacca, Sabah and Sarawak, these changes will hold persuasive authority. Web resource: http://www.expertlaw.com/library/business/contract_law.html

3.1

BASIC ELEMENTS TO FORM A CONTRACT

The basic elements to form a contract are as shown in Figure 3.1 below:

Figure 3.1: Basic elements to form a contract

3.1.1

Agreement (Offer and Acceptance)

In this subsection, we will discuss in detail about agreements which consist of offer and acceptance. (a) Offer (i) Section 2(a) CA 1950 defines an offer to be "when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal." In other words, an offer is an indication to be legally bound under definite and prescribed terms. For an offer to be valid there must be: x x An offerer An offeree the person making the offer; and the person accepting the offer.

(ii)

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(iii) If these two are absent, then the agreement is void ab initio (no effect from the beginning). See the case of Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169. (iv) An offer must be communicated. S4(1) CA 1950 states that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. S3 CA 1950 states that a proposal can be expressed or implied. (v) An offer must be contrasted with an Invitation to Treat. An invitation to treat is an invitation to make an offer. This takes place before an offer is made. There are a few categories that have been identified by courts.

(vi) An Invitation to Treat can be demonstrated through advertisements, display of goods, tenders and auctions. Examples of cases for Invitation to Treat are listed below: x Advertisements Case: Majunder v Attorney General of Sarawak [1967] 1 MLJ 101. Held: An advertisement in the newspaper of a vacancy for the position of a doctor was an invitation to treat. Contrast with: Case: Carlill v Carbolic Smokeball [1893] 1 QB 296. Held: An advertisement to the world at large (i.e. open to the world to accept, also known as an unilateral contract) was an offer. x Display of goods Case: Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953] 1 QB 401. Held: Drugs displayed on the shelf which was unsupervised by a registered pharmacist was an invitation to treat. Tenders Case: Harvela Investments v Royal Trust Co. of Canada [1985] 2 All ER 966. Held: Goods advertised for a tender is an invitation to treat because the owners of the goods request for offers to purchase the goods. Lord Templeman stated: "To constitute a fixed bidding sale all that was necessary was that the vendors should invite confidential offers and should undertake to accept the highest offer. Such was the form of the invitation. It follows that the invitation upon its true construction created a fixed bidding sale and that Sir Leonard

x

Therefore. Held: The defendant who replied the plaintiff's enquiry for information amounted to supply of information and not an offer as the defendantÊs statement was an indication of the minimum price that the defendant would have wanted. the subsequent telegram by the plaintiff did not amount to an acceptance.000 pound sterling. when it is put into a course of transmission to the person to whom it is made. and (b) as against the person to whom it is made." S6(a) states: "A proposal is revoked by the communication of notice of revocation by the proposer (offeror) to the other party.TOPIC 3 CONTRACT LAW W 55 was not entitled to submit and the vendors were not entitled to accept a referential bid. This effectively terminated the original offer of 1. Held: The defendant who had offered to sell his farm for 1. The auctioneer's call for bids amounted to an invitation to treat. Held: The defendant had withdrawn his bid before the fall of the hammer." S4(3) states: "The communication of a revocation is complete: (a) as against the person who makes it. when it comes to his knowledge. so as to be out of the power of the person who makes it. S5(1) states: "A proposal may be revoked at any time before the communication of the acceptance is complete as against the acceptor (offeree)." x . Revocation S5 and S6 of CA 1950 are the provisions relating to revocation. He was allowed to withdraw at any time because acceptance occurs by the auctioneer knocking the hammer three times.000 pound sterling was rejected by the plaintiff who counter offered 950 pound sterling. (viii) Termination of an offer x Rejection and Counter Offer Case: Hyde v Wrench (1840) 49 ER 132. (vii) Offer must be contrasted with Supply for Information Case: Harvey v Facey (1893). Today this rule in England has been codified under S 57(2) Sale of Goods Act 1979. but not afterwards." x Auction Sales Case: Payne v Cave (1789).

the telegram that was sent on 11 October was a valid acceptance. Held: Defendant's revocation which was posted on 8 October was only effective when it arrived on 20 October. without communication of the acceptance. by the lapse of reasonable time. Held: The death of the offerer terminated the offer. becomes a promise. x Failure of Condition Precedent S6(c) states that an offer comes to an end by the failure of the offeree to fulfil a condition precedent to his acceptance. when accepted. and As against the acceptor. when it comes to the knowledge of the proposer. (Telegrams and letters adopt the postal rule). the proposal is said to be accepted. if the fact of his death or mental disorder comes to the knowledge of the offeree before acceptance. Held: The notification of the acceptance was too late as there was a lapse of five months between the offer and acceptance. when it is put in a courses of transmission to him. Therefore.56 X TOPIC 3 CONTRACT LAW Case: Byrne & Co v Van Tienhoven (1880) 5 CPD 354. Case: Fong v Cili (1968) 11 FLR 495." x x S7 states: "In order to convert a proposal into a promise the acceptance must be: . a proposal. Case: Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Exch 109. (b) Acceptance (i) S2(b) states: "When the person to whom the proposal is made signified his assent thereto. x Lapse of Time S6(b) states: An offer (proposal) comes to an end by the lapse of time prescribed." S4(2) states: "The communication of an acceptance is complete: x As against the proposer. Therefore. Death or Mental Disorder S6(d) states that an offer comes to an end by the death or mental disorder of the offerer. so as to be out of the power of the acceptor. keeping the offer open for five months would have been unreasonable.

" Therefore. It can be communicated in two main ways which are by post." x x x (iii) Postal Rule Acceptance is effective the moment it is posted or telegrammed. within a reasonable time after acceptance is communicated to him. There was no agreement. it must be communicated and it must be done within a reasonable time. and Expressed in some usual and reasonable manner. if he fails to do so. Held: The offeror stated that if he heard no more from the prospective offeree. Held: Withdrawal during negotiations which was done through a series of telegrams and letters was justified. under S7(b). but. insist that his proposal shall be accepted in the prescribed manner. unless the proposal prescribes the manner in which it is to be accepted. he would infer that it would be an acceptance. the offeree must ensure that the letter or telegram is properly addressed with the correct amount stamps and legible address. he accepts the acceptance. and not otherwise. Communication Case: Felthouse and Bindly (1862) 11 CBNS 689. the proposer may. (ii) Factors taken into consideration for a valid acceptance: x Acceptance must be in Reliance of an Offer Case: R v Clarke (1927) 40 CLR 227. However. Acceptance must be communicated by words or conduct. If the proposal prescribes a manner in which it is to be accepted. This was a rule that was developed in the 1800s in England for business efficacy purposes. Silence by the person to whom the offer was directed to is not acceptance. . for there to be a valid acceptance. Held: Clarke's acceptance was not valid because he did not have an offer in mind at the time he supposedly accepted the offer. Absolute and Unqualified Case: Lau Brothers & Co v China Pacific Navigations Co Ltd [1965] 1 MLJ 1.TOPIC 3 CONTRACT LAW W 57 x x Absolute and unqualified. also known as the "postal rule". and "instantaneous communications. This is a general law which is not present under CA 1950. Offeror Prescribing the Manner of Acceptance This is where the offeror will state the method of acceptance by the offeree. and the acceptance is not made in that manner.

The offeror here wanted notice of the acceptance. If the offeree had done everything possible to ensure that his message is communicated to the offeror. fax) and it would be reasonable to expect that communication will occur when the message has been received (by the fax machine). The point to note in the judgement is that if acceptance is done during business hours. but not afterwards. the communication rule will apply i. the receipt rule. received.e. Case: Holwell Securities Ltd v Hughes [1974] 1 WLR 155. then it is reasonable for the offeree to expect that the offeror will be monitoring (for example. Held: Posting of letter was not valid acceptance. The key word here is "receives. Case: Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH GmbH [1983] 2 AC 34. (iv) Instantaneous Communications Contract is only valid when the offeror receives the final acceptance. Held: Post was in contemplation of both parties. Held: A telexed acceptance is only valid if it was actually accepted i." . However. (v) instantaneous Revocation or Retraction of Acceptance S5(2) states: "An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor. the postal rule will not apply.e. despite the use of an instantaneous method of communication. Held: Actual communication would be instantaneous." Case: Entores Ltd v Miles Far East Corp [1955] 2 QB 327. [ 1955] 2 All ER 493. and acceptance was complete upon posting.58 X TOPIC 3 CONTRACT LAW Case: Ignatius v Bell [1913] 2 FMSLR 115. Also note that for Internet contracting. there are English cases that suggest if the offeror indicates that the "acceptance must be notice in writing" even with the posting of the letter. then the acceptance should take effect when it is reasonable to expect that it has been communicated to the offeror.

Case: Choo Tiong Hin & Ors v Choo Hock Swee [1959] MLJ 67. to sell his house to B. which is to show their sincerity in the claim that any who uses the smokeball in the prescribed manner and still caught influenza will be rewarded 100 pound sterling. However. Case: Carlill v Carbolic Smokeball Co [1893] 1 QB 256. Case: Meritt v Meritt [1970] 2 All ER 760. Held: The company placing 1. This presumption may be rebutted by looking at the intentions and circumstances of the case. The above illustration gives the offeree the option to change his mind even after accepting. B accepts the proposal by a letter sent by post. by a letter sent by post. the revocation will reach the offeror faster than the letter. However. Held: Presumptions do not apply where parties are separated or contemplating divorce. . was held to be an intention to create legal relations and not an advertising gimmick. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A. x Domestic Agreements The presumption is that there is no intention to create legal relations." (vi) Intention to Create Legal Relations There is no provision under the CA 1950.TOPIC 3 CONTRACT LAW W 59 The illustration is given under this act: A proposes. Accordingly. x Commercial Agreements The presumption is that there is an intention to create legal relations. In this way. it was a contract in this case. case law exists in this area.000 pounds sterling in the bank account. but not afterwards. This is based on the reason that intention to create legal relations should not be a hurdle if a party is seeking to enforce a commercial contract. This is based on a policy reason in that the courts are unwilling to interfere with domestic disputes as far as possible. provided the offeror stated that the acceptance by letter should be "by notice in writing. he must ensure if he has accepted by post. that the "postal rule" has not applied or he must make sure that the revocation must be made using a speedier method.

" Case: Yap Eng Thong & Anor v Faber Union Ltd [1973] 1 MLJ 191. Web resource: http://www.60 X TOPIC 3 CONTRACT LAW This presumption may be rebutted if there are "express words to the contrary denying that there is an intention to create legal relations.html .australiancontractlaw.com/law/formationagreement. Held: "Subject to contract" clause in the agreement was held that there was no valid contract.

the offeree must ensure that the letter or telegram is properly _________ with the correct amount stamps and legible address. of Canada [1985] 2 All ER 966. Match the tables below correctly. However. He was allowed to withdraw at any time because acceptance occurs by the auctioneer knocking the hammer three times. Held: The defendant had withdrawn his bid before the fall of the hammer. Case: Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953] 1 QB 401. Held: Drugs displayed on the shelf which was unsupervised by a registered pharmacist was an invitation to treat. Contract is only valid when the offeror ________ the final acceptance. (a) For an offer to be valid there must be: (i) (ii) (b) An _______ An _______ the person making the offer. Fill in the blanks with the correct answers. Auction Sales Tenders . Display of goods Held: Goods advertised for a tender is an invitation to treat because the owners of the goods request for offers to purchase the goods. Today this rule in England has been codified under S 57(2) Sale of Goods Act 1979. the person accepting the offer. Case: Harvela Investments v Royal Trust Co. (c) 2. Case: Payne v Cave (1789). Acceptance is effective the moment it is ______ or ________.TOPIC 3 CONTRACT LAW W 61 SELF-CHECK 3. The auctioneer's call for bids amounted to an invitation to treat.1 1.

" S2(d) CA 1950 states: "When. (a) Rules for Consideration (i) Consideration Need Not be Adequate Section 26. explanation 2 states that an agreement is not void merely because consideration is inadequate. part payment of a debt. Executed means an act done in exchange for a promise.62 X TOPIC 3 CONTRACT LAW 3. we are going to discuss more about consideration. Case: Wong Hon Leong David v Noorazman bin Adnan [1995] 3 MLJ 283. Case: Phang Swee Kim v Beh I Hock [1964] MLJ 383. Held: Exchange of mutual promises (executory) was good consideration. Consideration may be executory or executed.2 Consideration S26 CA 1950 states the definition of consideration: "That an agreement without consideration is void." The agreement is a contract notwithstanding the inadequacy of the consideration. Next. Illustration (f) under s 26 states: "A agrees to sell a horse worth $1000 for RM10«. the promise or any other person has done or abstained from doing. Executory means a promise in exchange for a promise.. . something. at the desire of the promisor. or promises to do or to abstain from doing.1. consideration may be sufficient." Consideration may also be defined as a price for which a promise is bought. such act or abstinence or promise is called a consideration for the promise. or does or abstains from doing. consideration need not move from the promisee and promissory Estoppel. such as rules of consideration. Therefore.

It should not matter if the consideration and the promise are substantially one transaction. (ii) Consideration May be Past S2(d) states that when at the desire of the promisor. wholly or in part. B promises to give A RM50. This is in absence of fraud or duress. S26 (b) states that an agreement made without consideration is void unless it is a promise to compensate. x When the act was done. The company's sales and public relations increased due to this promotion. Held: The chocolate wrappers which were sent back to the company for a promotional gimmick formed part of the consideration. or something which the promisor was legally compellable to. when can past consideration be classified as a good consideration? x When the act was done at the request of the promisor. Held: The essence of consideration is where the promise has taken upon itself some kind of burden or detriment. something. the promise or any other person has done or abstained from doing. Case: South East Asia Insurance Bhd v Nasir [1992] 2 MLJ 355. such act or abstinence or promise is called a consideration for the promise. or promises to do or to abstain from doing. it was understood that there was an advance promise of a remuneration by way of a payment or conferment of some benefit. Therefore. a person who has already voluntarily done something for the promisor. or does or abstains from doing. Case: Chapell & Co Ltd v Nestle Co Ltd [1960] AC 87. This is a contract. Illustration c in s26 states: A finds BÊs purse and gives it to him.TOPIC 3 CONTRACT LAW W 63 Held: The transfer of land by respondent to the plaintiff on payment of $500 when the land was sub-divided was an adequate consideration. x When the act was done for a subsequent promise. The chronological order should not matter. It was valuable to the company because it was sent for promoted Nestle products. . [1959] 2 All ER 701.

A agrees to forbear as requested. C promises to guarantee the payment in consideration of AÊs promise to deliver the goods. it is binding if it is expressed in writing. if he does so. A agrees to do so. This is a sufficient consideration for C's promise. B afterwards. and promises that. . (iv) Natural Love and Affection is Good Consideration In Malaysia. as well as future advances depended on the intention of the parties. provided C will guarantee the payment of the price of the goods. x Past consideration may be a good consideration for contract of guarantees in light of Section 2(d) and Section 26. this can be decided for the language used in the guarantee. C will pay for them in default of payment by B. for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. provided certain conditions are complied with. agrees to pay for them in default of B." Illustrations: x B requests A to sell and deliver to him goods on credit. The agreement is void. natural love is good consideration. However. x A sells and delivers goods to B. and is made on account of natural love and affection between parties standing in a near relation to each other.64 X TOPIC 3 CONTRACT LAW (iii) Consideration for Guarantees Section 80: "Anything done or any promise made. Past advances are good consideration provided if it was given at the request or desire (this is by way of inference from evidence gathered) guarantors. This is a sufficient consideration for C's promise. B agrees to pay in default of B. without consideration. Held: Whether the guarantee covered past advances. which should be read together with Section 80. S26(a) states: An agreement made without consideration is void unless it is expressed in writing and registered under the law (if any) for the time being in force for the registration of such documents. x A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year. it is registered (if any) and the parties are in a near relation with each other. there are cases which suggest otherwise. In other words. Case: Sabah Bank Bhd v Ho Juan Hua & Anor [1993] 3 MLJ 113.

A makes an arrangement with his creditors. without ascertaining the amount. B forbids him to do so. (b) Part Payment of a Debt is a Good Consideration In Malaysia. or may accept instead of it any satisfaction which he thinks fit.000 and B accepts it in satisfaction of his claim on A. C pays to B RM1. A.000 paid at the time and place at which the RM5. hawk.TOPIC 3 CONTRACT LAW W 65 Case: Tan Soh Sim.. The whole debt is discharged. accepts the sum of RM2. Payment to B of RM1.000.. Chan Law Keong & Ors v Tan Saw Keow & Ors. A is no longer bound to perform the promise. For it shall be intended that a horse. A owes B RM5.000. even though the "other form" may be less of a value. the courts held that there can be an exception which includes: "[T]he gift of a horse. to pay them a composition of fifty sen to the ringgit for their respective demands.000 is a discharge of BÊs demand. (v) This is unlike the law in England where the general rule is that payment of a lesser sum is not a satisfaction of the whole amount. part payment of a debt is a good consideration. A owes B RM2. a sum of money. the amount of which has not been ascertained. under a contract. or may extend the time for such performance. for performance of the promise made to him. including B. whatever may be its amount.000. or robe«. the court stated that payment of a lesser sum can discharge a full debt if it was given in other ways than money. The fact that the person accepted it shows that he is satisfied with it." In other words. This is reflected under Section 64 of CA 1950 which states: "Every promise may dispense with or remit. Although in the case of Pinnel [1602] 77 ER 237. Held: The test for "near relation" depends on the social group because the customs and practices of each group are different. gives to B.might be more beneficial«. hawk or robe««. and B in satisfaction thereof.000 was payable. A pays B and B accepts." Illustrations : (i) (ii) A promises to paint a picture for B. This payment is a discharge of the whole claim. wholly or in part. (iii) A owes B RM5. RM2. (iv) A owes B.in satisfaction is good. .than the money. This is a discharge of the whole debt.000 and is also indebted to other creditors. Afterwards. in satisfaction of the whole debt..

(ii) (iii) May operate to prevent a litigant from denying a validity of an otherwise invalid trust. This doctrine. (iv) May prevent the denial of the validity of an option in a lease declared by statute to be invalid for want of registration. (viii) It is not confined to representation of fact. For example. The doctrines are operative in the following circumstances: (i) It is a „flexible principle by which justice is done according to the circumstances of the case‰. . and this party relies on the representation to his detriment. Estoppel arises when one person makes a representation (by word or conduct) to the other party. (v) May prevent a litigant from asserting that there is no contract. A piece of land given to her by her mother to ensure that she paid the brother annuity was held to be a valid consideration even though their mother was not a party to the promise. estoppel may be used as shield not as a sword. has a few limitations. some of the limitations applicable in England are not applicable in Australia. these limitations vary from one jurisdiction to another. (d) Promissory Estoppel This is an equitable principle and there is no need for consideration if promissory estoppel is invoked. May be applied to enlarge or reduce rights and obligations under a contract. (vi) May create binding obligations where none existed before. it is a doctrine of "wide utility" and the „circumstances in which the doctrine may operate are endless‰. However.is called a consideration for the promise." Case: Venkata Chinnaya v Verikatara Ma'ya [1881] 1 LR 4.66 X TOPIC 3 CONTRACT LAW (c) Consideration Need Not Move from the Promisee Section 2(d) of CA 1950 states: "««when ««.something. it also extends to representation of law. (vii) Is not limited by maxim.the promisee or any other person has done «. it may be used as a sword and a shield. Held: A sister was liable to pay annuity even though the brother had not given consideration for the promise. evolved from England. such act «.

1. Malaysian Case: Federal Court case of Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331 FC. ." Age of Majority Act 1971 states that the age of majority in Malaysia is 18. all that is required is sufficient material for the court to draw a fair inference that the person claiming estoppel was influenced by his opponent in actions.lectlaw. Australian Case: Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. the encouragement could take the form of silence. Held: An infant cannot make any valid contract.3 Capacity S11 CA 1950 states: "Every person is competent to contract who is of the age of majority according to the law to which he is subject. The contract will be void. (x) Does not need the element of "inducement" for its operation. see: x x x English Case: Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130. all that is required is proof that it would be unjust to permit the representor or encourager to insist upon his strict legal rights. (xii) Does not require the element of "detriment" for its operation. For further reading. (xi) Does not require the conduct relied upon to be the sole influencing factor. And who is of sound of mind.TOPIC 3 CONTRACT LAW W 67 (ix) Operates even if there is no active encouragement by the party seeking to be estopped.com/def/c098. Case: Mohori Bibee v Dharmodas Chose [1903] 1 LR 30 Cal 539 (P.C). and is not disqualified from contracting by any law to which he is subject.htm 3. Web resource: http://www.

bursary. This is by virtue of the Contracts (Amendments) Act 1976. is supplied by another person with necessaries suited to his condition in life. (b) Contracts of Scholarship Case: Government of Malaysia v Gurcharan Singh & Ors [1971] 1 MLJ 211. loan or sponsorship is granted by the government. Held: A scholarship agreement entered into by an infant is valid when the scholarship. HC.68 X TOPIC 3 CONTRACT LAW S69 CA 1950 states : "If a person incapable of entering into a contract. or anyone whom he is legally bound to support. with necessaries suitable for his condition in life. Held: The contract was not a contract for necessaries even though the tailor had supplied the minor clothes. or an educational institution. including 11 fancy clothes which were suitable according to the minor's station in life. a mentally disordered person. a mentally disordered person. (b) There are exceptions to the rule. . However." Illustrations: (a) A supplies B. A is entitled to be reimbursed from BÊs property. A is entitled to be reimbursed from BÊs property. award. because he had sufficient clothing. An infant's contract can be a valid contract if it falls in the following circumstances: (a) Contract for Necessaries Malaysian Contracts Act does not define necessary. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person. A supplies the wife and children of B." Case: Nash v Inman (1908). with necessaries suitable to their condition in life. S3 of Sale of Goods Act 1979 defines it as "suitable to the condition in life of the minor and their actual requirements at the time of sale. a statutory authority. Therefore. Therefore.

if he is below 16. Contract being a nullity under the Contracts Act. Therefore. it is a representation.TOPIC 3 CONTRACT LAW W 69 (c) Contract of Insurance An infant over the age of 10 may enter into a contract of insurance. These tests are: (i) Was the statement very important to the contract. It is not easy to identify a statement. cannot be given life by holding that the minor is estoppel from raising his minority as a defence. Case: Natesan v Thanalecthumi & Anor [1952] MLJ 1 HC. This is by virtue of the Insurance Act 1963 (Revised 1972). However. It can be either a representation or a term.4 (a) Contents of Contract Contract Terms and Mere Representations Parties are normally bound to perform what they have contracted to do. Was there a time gap between the making of the statement and the making of the contract? If yes. a minor cannot be sued even by trying to invoke the defence of estoppel. 3. (ii) . that if it was not included. The general principle for fraud is that a minor can be sued under torts. These pre-contractual statements are known as representation. the courts have come up with four tests to distinguish one from the other. the promise would not have entered into the contract? If yes. However. then it is a term. A term is made before or at the time of the contract which form part of the contract. it is important to establish the promises to be included in the contract. under contract. It is important because some statements made may not form part of the contract even though these statements had induced the other party to enter into a contract. Minor contracts are an exception with regards to marriage contracts and employment contracts. However. A statement that forms part of a contract is known as a term. Attempts for relief against the minor may be made under the Contracts Act and the Specific Relief Act 1950. the written consent of his parents or guardian is needed.1.

(iv) Was the statement made by the party who had special knowledge or skill? If yes. the innocent party may only sue for damages if the breach does not deprive the party of the whole contract. Held: Diplock LJ "«. It goes to the root of the contract. then it is a term. The innocent party may repudiate the contract. Held: The failure of an opera singer to appear on the opening night was a breach of condition. Whether it is a condition or warranty depends on the facts of the case and the intention of both parties. Terms can be classified into three types. This is because he did not miss the opening night. It is important to determine what type of term it is. (iii) Innominate Term Whether it is an innominate term depends on the consequence of the breach. The reason for this is because the remedies available for its breach would be different. Held: The failure of a musician to appear during rehearsals and arriving three days before the opening night was held to be a breach of warranty. if the breach deprives the party of the whole benefit of the contract. However.to look at the events which occurred as a result of the breach at the time at which the charterers purported to rescind the (ii) . then it is a term. the innocent party has the right to either repudiate the contract or sue for damages. as the opening night was very important to the whole running of the opera. (b) Terms Terms are contained in a contract. as follows: (i) Conditions This term is very important to the contract. It does not go to the root of the contract. Case: Bettini v Gye (1876). the innocent party has the right to only sue for damages.70 X TOPIC 3 CONTRACT LAW (iii) Was the statement made orally and then subsequently reduced to writing? If yes. Case: Poussard v Spiers and Pond (1876). If breached. Terms may be expressed or implied. If breached. Case: Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. Warranty A warranty is not as important or vital to the overall contract.

these agreements must be read together with the prevailing customs and trade usages. a complex question of law and facts. (ii) Previous Dealings Parties who have been dealing with each other for a long time may feel that it is unnecessary to incorporate certain details into the contract. however. Case: Sababumi ( Sandakan) Sdn Bhd v Datuk Yap Pak Leong [1998] 3 MLJ 151.. the term will be implied into the contract to give business efficacy. (iii) Business Efficacy To give life to the contract due to the presumed intentions of the parties. the contract will not work. reasonable and not contrary to the law and it must be something more than trade usages: Chitty on Contracts (27th ed). These terms are incorporated on the presumption that the parties did not incorporate into their contract all the terms which they intended to be bound. the court may imply terms into the contract. the desired result of the business in question. Therefore. ( the attainment of) «.TOPIC 3 CONTRACT LAW W 71 charter party. Held: Peh Chin Swee FCJ opined that "business efficacy" simply means «. and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charter party that the charterers should obtain from the further performance of their own contractual undertakings. It must be certain. (v) Statutory Provision Terms can be implied by statutes. One such example is the Sale of Goods Act 1957 (Revised 1989) (SOGA)." (c) Implied Terms Terms implied may arise by: (i) Customs and or Trade Usages These must be consistent with the term of the contract. This is because these are known to them through their past dealings." (iv) Courts To give full effect to the intention of the parties to a contract. It is. . The courts are willing to add a term on the grounds that without it.

" (b) Case: Poussard v Spiers and Pond (1876). Executed means a promise in exchange for a promise. Held: Diplock LJ "«. as the opening night was very important to the whole running of the opera.to look at the events which occurred as a result of the breach at the time at which the charterers purported to rescind the charter party. SELF-CHECK 3. This is due to SS5(2) of CLA 1956. Held: The failure of an opera singer to appear on the opening night was a breach of condition. It does not go to the root of the contract. Terms may be expressed or implied. (a) Consideration may be executory or executed. (b) (c) (d) 2. It is important to determine what type of term it is.2 1. State whether the following statements are correct or wrong. If breached. Describe the types of terms for the following cases. Parties who have been dealing with each other for a long time may feel that it is necessary to incorporate certain details into the contract.72 X TOPIC 3 CONTRACT LAW SOGA is applicable in Peninsular Malaysia. The reason for this is because the remedies available for its breach would be different. Terms are contained in a contract. . In East Malaysia. the innocent party has the right to only sue for damages. the Sale of Goods Act from the United Kingdom continues to be applicable. (a) Case: Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. however. A warranty is not as important or vital to the overall contract. and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charter party that the charterers should obtain from the further performance of their own contractual undertakings. Executory means an act done in exchange for a promise.

An implied warranty that the goods shall be free from any charge or encumbrances in favour of any third party not declared or known to the buyer before or at the time when the contract is made. he will have a right to sell the goods at the time when the property is to pass« An implied warranty that the buyer shall enjoy quiet possession of the goods. 3. This means that the buyer's title will not be interfered with or be subject to anyone else's rights. The (b) and (c) implies into the contract warranties of quiet possession and freedom from encumbrances. as the garage which sold him the car did not own it. Held: The buyer of a car did not receive ownership." Case: Rowland v Divall (1923).2. he has a right to sell the goods. in the case of a sale. except in so far as such are known by or disclosed to the buyer before the contract is made. even though the car was used for four months. unless the circumstances of the contract are such as to show a different intention. and that in the case of an agreement to sell.2 3. . that.1 1. S12(1) was breached (equivalent to S14 in Malaysia) and the full purchase price was recovered.1 SALES OF GOODS ACT (SOGA) S14 SOGA S14 SOGA: In a contract of sale. there is: (a) An implied condition on the part of the seller. Have you ever done any contract in your life? Describe the content of the contract from one of them.TOPIC 3 CONTRACT LAW W 73 ACTIVITY 3. he does not have the "right to sell. What will happen if you breach the contract in (1)? 2. If the seller cannot transfer ownership. (a) implies a condition into the contract that the seller has a "right to sell" to the goods. (b) (c) In other words.

Held: The goods sold did not comply with the description because the previous contract between the parties for sale of flour bore a well-known trademark. it is not sufficient that the bulk of the goods corresponds with sample if the goods do not also correspond with the description.2 S15 SOGA ‰Where there is a contract for the sale of goods by description. and the goods are of a description which it is in the course of the seller's business to supply (either he is the manufacturer. producer or not) there is an implied condition that the goods shall be of merchantable quality: provided that if the buyer has examined the goods. producer or not) there is an implied condition that the goods shall be reasonably fit for such purposes. except as follows: (a) Where the buyer. Where the goods are bought by description from a seller who deals in goods of that description (either he is the manufacturer. 3." Case: Nagurdas Purshotumdas & Co v Mitsui Bussan Kaisha. (b) . 3. Held: There was a breach of sale by sample as well as by description. there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale. and if the sale is by sample as well as by description. so as to show that the buyer relies on the seller's skill or judgement. there shall be no implied condition as regards defects which such examination ought to have revealed. Case: Lau Yaw Seng v Cooperation Ceramica DÊ Imola [1991] 1 MLJ 393. HC. Held: There was evidence that there had been a sale of the van by the dealer to the customer before the hire-purchase agreement. expressly or by implication makes known to the seller the particular purpose for which the goods are required. because the quality of goods shipped did not correspond with the quality that was displayed as samples at a fair where the plaintiff made the order.2. The appellant had breached S14(b).2. there is an implied condition that the goods shall correspond with the description. whereas the new flour ordered did not bear the same well-known trademark.74 X TOPIC 3 CONTRACT LAW Case: Heng Long Motor Trading Co v Osman bin Abdullah [1994] 2 MLJ 456.3 S16 SOGA States: Subject to the provisions of this Act and of any other law for the time being in force.

In the case of a contract for sale by sample. if the buyer informs that he wants the goods for a particular purpose and then relies on the sellerÊs skill and judgement. and (b) (iii) That the goods shall be free from any defect rendering them unmerchantible which would not be apparent on reasonable examination of the sample. Whereas. Case: Reveex International S. . Other cases: Case: Sunrise Bhd & Anor v L & M Agencies Sdn Bhd [1999] 3 MLJ 544.2. Quality of goods refers to the state or condition. Case: Cammel Laird & Co v Manganese Bronz Etc Co [1934]. Held: Goods were not of merchantable quality because these were not reasonably fit for the purpose for which they were intended. an express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith. However. In other words.4 (a) S17 SOGA A contract of sale is a contract for sale by sample where there is a term in the contract expressed or implied to that effect. Held: There was a breach of an implied condition since the buyer had informed the seller of the purpose for which he required the goods and relied on the seller's skill and judgement. In other words. 3. the goods must correspond with the sample. then there is an inference that the goods will be fit for the purpose the buyer has requested for. That the buyer shall have a reasonable opportunity to compare the bulk with the sample.A v Maclaine Watson Trading (M) Sdn Bhd [1991] 2 CLJ 1388. what this section means is that goods must be reasonably fit for purposes for which the buyer wants them and goods must be of merchantable quality.TOPIC 3 CONTRACT LAW W 75 An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. there is an implied condition: (i) (ii) That the bulk shall correspond with the sample in quality.

that is. it is based on reasonableness. i. while it may be clear in a simple case who those parties are. then the party is bound by it unless the party can plead the defence of non est factum i. The courts are very strict in interpreting these clauses and usually give it a narrow interpretation. if the exemption clauses have been obtained through duress or undue influence. contracts with unincorporated associations. For this kind of clause to be valid. persons who are not parties to it. irrevocable credits. It does not matter if the person is not able to read or write as long as sufficient notice has been given. There must be reasonable notice. As for personal injury. 3. 3. in the case of multilateral contracts. and mortgage surveys and valuations. there is the Unfair Contracts Terms Act 1977. contracts made on the basis of the memorandum and articles of a company. the doctrine of privity was accepted by the courts. it may not be so obvious where there are several contracts. For example. the defect was not one which was apparent upon such examination. Held: Although the shopkeeper had made reasonable examination. In the United Kingdom. it must be brought to the notice of the party against whom it is to be used. collective agreements. However. If a party signs the contract with the exemption clauses in it. The exclusion of liability can be very wide to even include death and personal injury. the act of signing is not my deed. or both. This means that the terms must contain clear reference to the clauses. or several parties.76 X TOPIC 3 CONTRACT LAW Case: Godley v Perry [1960] 1 WLR 9. It is clearly stated in one of the sections that exclusion of liability of death is invalid. to curb these abuses.2.e. Therefore.3 PRIVITY OF CONTRACT The doctrine of privity of contract is that. in the mid-nineteenth century. The parties to a contract are those persons who reach an agreement and. in common law a contract cannot confer rights or impose obligations on strangers to it. The privity of . collateral contracts.e. it must be of a large print. Despite some earlier doubts. as a general rule. albeit by a minority of cases. then the exemption clauses are not valid. though those doubts seem to have been resurrected in more recent times. the shopkeeper had an action against the wholesaler because he bought the catapult from a wholesaler by sample and tested it by pulling back the elastic.5 Exemption Clauses Exemption clauses are terms of a contract which excludes liability.

or the occurrence or non-occurrence of some event. 3. Silence may not be used to distort a positive representation. fraud or misrepresentation. fraud. mistake. There must therefore be a statement of some kind. The best-known uberrima fides contracts are those of insurance. be void or voidable or unenforceable. the agreement is a contract voidable at the option of the party whose consent was so caused.4 VITIATING FACTORS Even when a contract has apparently been properly made. S10 Contracts Act 1950 states: "All agreements are contracts if they are made by the free consent of parties.4. 3. If a party makes any representation on a particular matter. and the consequences of any such occurrence. for various reasons. and its terms are clear.1 Misrepresentation Common law defines a misrepresentation as an untrue statement of fact which induces a party to enter a contract but which is not itself part of the contract. where the insured party is required to disclose all material facts whether or not he is asked about them. although a representation need not always be verbal. Here.TOPIC 3 CONTRACT LAW W 77 contract rule used to be regarded as intimately connected with the doctrine of consideration and the rule that consideration must move from the promisee. it may also be implied. subject to these three qualifications: (a) Where the contract requires uberrima fides (utmost good faith). There are situations where the parties have reached agreement but the question arises whether the existence or non-existence of some fact. Mere silence cannot constitute misrepresentation even when it is obvious that the other party is mistaken as to the facts. undue influence. misrepresentation. we consider the reasons why such a thing might happen. it must be full and frank. it may." S14 states: "Consent is said to be free when it is not caused by one of more of the following: which are coercion. the party is bound to disclose all material facts." S19(1) states when consent to an agreement is caused by coercion. destroys the basis upon which that agreement was reached so that the agreement is discharged or in some other way vitiated. (b) (c) .

Negligent. Please see these sections for explanations and illustrations. the following distinction must be borne in mind: if a mistake operates at all in contract.78 X TOPIC 3 CONTRACT LAW (d) There are three types of misrepresentation which are: (i) (ii) Fraudulent. on ordinary offer and acceptance principles. S22 and S23.g. it prevents any agreement coming into existence. and (iii) Innocent. or as to the subject matter or terms of the contract. where fraudulent is known as fraud and innocent as just misrepresentation. misrepresentation is governed under the Contracts Act 1950." However. A common mistake. In this circumstance.4. though different writers use different names and different classifications. In Malaysia. That situation is sometimes described as a "mistake. A mistake nullifies consent where the parties reach agreement. nullify consent. A mistake negates consent where. in some cases. the effect of the mistake may differ according to whether the mistake renders the contract impossible to perform. occurs when both parties make the same mistake (e. 3.2 Mistake Various mistakes may occur in the negotiations leading to the formation of a contract and they are not all treated the same. as to the existence. We distinguish three kinds of mistakes. and a unilateral mistake occurs when just one party is mistaken as to the identity or intention of the other. A mutual mistake occurs when each party is mistaken as to the intentions of the other in respect of the contract. . in utilising that description. This may be because of a mistake as to the person with whom one is contracting. ownership or nature of the subjectmatter of the contract). The Contracts Act in Malaysia discusses mistake under S21. Please see S17 of the Contracts Act for fraud and S18 for misrepresentation. it operates so as to negate or. we shall say. Negligence is not covered under the Act. or as to the nature of a document being signed. but that agreement may be nullified because it was made under a fundamental mistaken assumption.

the burden of proving that the contract was not induced by undue influence shall lie upon the persons in a position to dominate the will of the others. and although physical violence is the most obvious form of duress. Illustration: A. Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age.TOPIC 3 CONTRACT LAW W 79 3. duress is an illegal threat applied to induce a party to enter a contract. It is immaterial whether the Penal Code is in force in the place where the coercion is employed. to be unconscionable. . Undue influence is defined under S16 which states: (a) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. Nothing in the subsection shall affect section 111 of the Evidence Act 1950. although his act is not an offence by the law of England. A afterwards sues B for breach of contract in Taiping. a person is deemed to be in a position to dominate the will of another: (i) (ii) Where he holds a real or apparent authority over the other. In particular and without prejudice to the generality of the foregoing principles. with the intention of causing any person to enter into an agreement. any property. or the unlawful detaining or threatening to detain. (b) (c) Where a person who is in a position to dominate the will of another. causes B to enter into an agreement by an act amounting to criminal intimidation under the Penal Code. and although section 506 of the Penal Code was not in force at the time when or place where the act was done. Duress is not defined under the contract act. on the face of it or on the evidence adduced. a threat to property or profits is in principle also sufficient. A has employed coercion. and makes the contract voidable: the threatened illegality may be either criminal or tortious. or where he stands in fiduciary relation to the other. Please see the illustrations under this section for further understanding. illness or mental or bodily distress. or threatening to commit any act forbidden by the Penal Code. enters into a contact with him and the transaction appears. Under common law.4. to the prejudice of any person whatever. Duress and Undue Influence Coercion is defined under S15 of the Contracts Act which states: It is the committing.3 Coercion. on board an English ship on the high seas.

then it is wholly illegal and void. an event in relation to the matter stipulated in head (a) above renders performance impossible or only possible in a very different way from that contemplated.4. Neither party can generally assert any right or remedy under such a contract the money paid cannot be recovered. (b) A contract may provide or imply that performance is due from each party at a certain time. however.80 X TOPIC 3 CONTRACT LAW 3. which in turn precedes the employer's duty to pay wages. the employer's obligation to provide safe working conditions comes before the employee's duty to do the work. of course. and the court will veto any attempt at enforcement even though the defendant may be just as guilty as the plaintiff. 3. and one party (unknown to the other) executes it for an illegal purpose or in an illegal way. The guilty party loses any legal rights and remedies he might have sought under the contract. but with an executory contract there may be room for manoeuvre. The doctrine of frustration operates to excuse from further performance where: (a) It appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist. or only possible in a very different way from that originally contemplated. and Before breach. . one party has already performed his obligations and it only remains for the other to reciprocate. Even a guilty party may not always be wholly without remedies. the remedies of the innocent party are preserved.4 Illegality Where a contract is illegal from the beginning because it requires one party to do an illegal act. or where both parties intend that it shall be performed in an illegal way or for an illegal purpose. for example. for example. In a contract of employment. Where a contract is prima facie lawful. In the case of an executed contract. but the innocent party is protected in respect of anything he does before learning of the illegality. or that some particular person will continue to be available. or that some future event which forms the basis of the contract will take place.5 DISCHARGE OF CONTRACT Contracts are often silent on the position of the parties in the event that something happens subsequent to the formation of a contract which renders its performance literally impossible. See sections 25-30 of the Contracts Act 1950.

TOPIC 3 CONTRACT LAW W 81 Where a party fails to perform his obligations. whether the party at fault is legally liable for it (which is not the same thing). the remedies open to the other depend in part on the seriousness of the breach. That the contract has been frustrated. as discussed below. (d) (e) See sections 38-68 of the Contracts Act 1950. and the rules in contract are a little different from those in tort. for example: (a) (b) (c) That the contract has been discharged or varied by agreement between the parties. and how much compensation is payable. An action for damages .2 Explain the following terms using your own words. he may offer one of a number of excuses which will prevent his being in breach of contract. or That there is an express contractual provision allowing non-performance. as when an employee is temporarily too sick to attend work. Where one party is in breach of his contractual obligations. Illegality.6.6 3. (a) (b) (c) Misrepresentation. the court must decide whether the breach actually caused the loss. html ACTIVITY 3.1 REMEDIES Damages Where an innocent party has suffered financial loss following another's breach of contract. 3. or That he has exercised his right to terminate the contract in view of the other party's prior or anticipated breach. Web resource: http://law.jrank. He may claim. Mistake. That the contract has become impossible to perform in circumstances falling short of frustration.org/pages/5695/Contracts-Discharge-Contracts. Causation is largely a matter of fact.

Reliance damages restore P to the position he would have been in had the contract never been made. This is the basis on which damages are normally calculated. prima facie. but where the breach is serious the innocent party may prefer to abandon the contract altogether. the court must then consider an appropriate measure of damages.82 X TOPIC 3 CONTRACT LAW is possible in almost every case. In particular. a valid and enforceable term of the contract. (a) Quantum of Damages Once D's liability for P's losses has been established. and (iii) Restitution damages compel D to restore any benefits he may have received from P. (b) Mitigation of Damages Where D is in breach of contract. he is unlikely to be awarded damages in respect of additional loss resulting from his failure to mitigate. See sections 69-75 of the Contracts Act. however. . and although this is not a positive duty. Three possible measures are applicable: (i) (ii) Expectation damages put P in the position he would have been had the contract been completed. they are treated as a penalty and the court has an equitable jurisdiction to reduce them if it thinks it desirable. if a seller fails to deliver goods as promised. as already discussed. and in some cases an order for specific performance. There is also the possibility of rescission in some cases of mistake or misrepresentation. and such a provision is. and if a purchaser refuses to accept delivery. the vendor should try to sell it to someone else at the market price. the purchaser should try to obtain similar goods at a reasonable price elsewhere. Where they are clearly in excess of the actual loss. Insofar as such payments represent a genuine estimate at the date of the contract of the loss likely to be suffered by the innocent party. they are treated as liquidated damages and will be enforced irrespective of the actual loss suffered. (c) Penalty Clauses A contract may provide for payments in the event of a breach. the law expects P to take reasonable steps to mitigate any loss resulting from the breach.

6. a decree of specific performance will not be granted to a minor. and the parties are restored to their original positions. or Rescission would unfairly damage an innocent third party. it is available only where restitutio in integrum is possible and the parties can be restored to their original positions. may affirm or rescind the contract. even though he could have been awarded damages instead. as is appropriate in matters of equity. Since the effect of rescission is to nullify the contract. Restitutio in integrum is impossible. An alternative to specific performance in some cases may be an ordinary injunction. And again. and the exercise of discretion is governed by a principle of mutuality which operates in several ways. Specific performance is discretionary. also an equitable remedy and therefore. though what is "too much" will depend on the circumstances. however. the courts have held it to be equitable to give the same relief to the seller.2 Rescission If a contract is rescinded. Too much time has elapsed. 3.3 Specific Performance/Specific Relief There are a limited number of cases in which a breach of contract cannot adequately be compensated by purely monetary damages. The courts interpret this fairly widely. since such a decree could not be enforced against him if the roles were reversed. It is in such cases that the equitable decree of specific performance comes into play. The right to rescind for misrepresentation is lost if: (a) (b) (c) (d) The representee has affirmed the contract. whereby the offending party is ordered (on pain of imprisonment) to fulfil his part of the bargain. For example.6. It may be prohibitory (to enforce a contract not to sell beer brewed by any other firm. explicitly or by his conduct. . discretionary. like all equitable remedies.TOPIC 3 CONTRACT LAW W 83 3. but this decision once made is irrevocable. since the buyer of land can claim specific performance. for example) or mandatory (to knock down a wall built in breach of a restrictive covenant). but the court will consider what is reasonable in the circumstances. A party discovering a relevant mistake. and are prepared to make consequential orders as necessary. or the victim of a misrepresentation. then it is as if it had never existed.

business or profession in such manner or with such persons as he may choose. since "equity will not assist a volunteer. 3.84 X TOPIC 3 CONTRACT LAW Neither an order for specific performance nor an injunction will normally be granted where damages would be an adequate remedy. the buyer has the right to reject the goods and terminate the contract if the goods supplied are not up to standard. Acceptance is deemed to take place when: (a) (b) (c) The buyer intimates to the seller that he has accepted the goods. however. nor for the delivery of goods bought.6 Restraint of Trade A contract is "in restraint of trade" if one party restricts his future liberty to carry on his trade. 21 and 23 of the Specific Relief Act 1950 for specific performance and sections 50 and 53 of the same act for injunction. unless they are unique objects of special value. If he accepts the goods. 20. and such a contract may be void under some circumstances.4 Rectification Where it can be shown clearly that a document such as a will or a contract does not reflect the true intentions of the parties (or where one party to a contract took unfair advantage of a mistake made by the other) the court has power to rectify the document to make it show the true position. nor in employment contracts or other contracts for personal services (though an injunction may be granted forbidding similar performance for a competitor).6.6. unless the buyer has had a reasonable opportunity to examine the goods or (if the contract is for sale by sample) to compare the bulk with the sample. The goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller. or After a lapse of reasonable time.5 Right to Reject In contracts for the sale or supply of goods. nor where P gave no consideration for a contract under seal. the buyer retains the goods without intimating to the seller that he has rejected them. Deemed acceptance does not occur. 3.6. the right to reject is lost and the buyer is limited to damages. The most . however. 3." See sections 4.

and such a provision is. (a) A contract may provide for payments in the event of a breach. it is not sufficient that the bulk of the goods corresponds with sample if the goods do not also correspond with the description. and where the seller of a business undertakes not to compete with the buyer. The statement below refers to? "Where there is a contract for the sale of goods by description. Insofar as such payments represent a genuine estimate at the date of the contract of the loss likely to be suffered by the innocent party. the law expects P to take reasonable steps to ___________ any loss resulting from the breach. Fill in the blanks. (b) . he is unlikely to be awarded damages in respect of additional loss resulting from his failure to mitigate. and if the sale is by sample as well as by description. a valid and enforceable term of the contract. and although this is not a positive duty. In particular. the vendor should try to sell it to someone else at the market price. Where they are clearly in excess of the actual loss.TOPIC 3 CONTRACT LAW W 85 common example of such contracts occur where a skilled employee undertakes not to set up his own business in competition with his former employers. SELF-CHECK 3. they are treated as a ________ and the court has an __________ jurisdiction to reduce them if it thinks it desirable. Where D is in breach of contract. the purchaser should try to obtain similar goods at a reasonable price elsewhere. they are treated as ________ damages and will be enforced irrespective of the actual loss suffered. This is the basis on which damages are normally __________." 2. and if a purchaser __________ to accept delivery.3 1. as already discussed. there is an implied condition that the goods shall correspond with the description. if a seller fails to deliver goods as promised. prima facie. however.

The basic components that must always be in a valid contract offer. The knowledge gained from this topic could be used to properly analyse situations and circumstances of a personal and professional nature. consideration (money) and intention to enter legal relations. With the aid of real-life cases. what are their duties. Agreement Capacity Consideration Content of contract Contract Discharge of Contract Privity Remedies SOGA Vitiating . acceptance. The issues discussed range from how many people are needed to form a contract.86 X TOPIC 3 CONTRACT LAW After completing this topic you have learned: The fundamental facts that anyone should know about the Law of Contract and the principals that make a contract valid. we have thoroughly examined the rights and obligations that contracts create and which the law will enforce. what they must avoid in order to not be liable in law to when they can decide not to continue with a contract.

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