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Law of Contract

Law of Contract

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Published by: Lew Chianshiun on Mar 07, 2011
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What is a contract ? S.2(h) :A contract is an agreement enforceable by law. There are 8 elements to be fulfilled in order to make a valid and binding contract :1- Proposal (offer) and acceptance 2- Consideration 3- Intention to create legal relations 4- Certainty 5- Legal capacity 6- Free consent 7- Legality of the objects 8- Required formalities


S2(a) : Proposal is made 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 such act or abstinence. S2(b) : when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Eg:You propose to Siti a book and siti accepted your proposal. The proposal has now become a ¶promise;. The person who made the proposal is known as ´promisorµ.The person who accepted the proposal is known as ´promiseeµ.




y y y

Proposal can be made either to : 1) Particular person 2) General public Case : Carlill v. Carbolic Smoke Ball Co.(1893) If a party accepting a proposal is not aware about proposal, then there is no contract. Case : R v Clarke (1927)




An advertisement y Case : Coelho v The Public services Commission (1964) y y 4.INVITATION TO TREAT 1.Price list . y Case : pharmaceutical society of Great Britain v.An auctioneer invitation for bids y Case : Payne v. Boots Cash Chemist Ltd (1953) y 2.Display of goods with price tags in a self-service supermarket. cave (1789) y 3.

If the proposal prescribes a manner in which it is to be accepted and the acceptance is not made in such manner. he accepts the acceptance Exception (when acceptance need not be communicated to the proposer in order to create a binding contract. y y y y . Acceptance may be expressed in some usual and reasonable manner. insist that his proposal shall be accepted in the prescribed manner. unless proposal prescribed a manner in which it is to be accepted. but if he fails to do so.) Case : Carlill v. and not other wise.Communication of Acceptance y General Rule : s7(b) : acceptance of proposal must be communicated to the propose in order to create a binding contract. within a reasonable time after the acceptance is communicated to him. the proposer may. Carbolic Smoke Ball Co.

Miles Far East Corporation (1955) Ignatius v Bell (1913) y y y y y y . when the letter is posted. when the letter is received by Siti Case : Entores Ltd v. when it comes to the knowledge of the proposer E. so as to be out of the power of the acceptor. and b) as against the acceptor. In the situation.Acceptance Through Post y y y S 4(2) : The communication of an acceptance is complete :a) as against the proposer. As against you. when it is put in a course of transmission to him.g :You accepts Siti·s proposal by a letter sent by post. the communication of the acceptance is complete : As against Siti·s.

Victoria Hotel Co. S 6 : 4 ways :y Revocation The person who made the proposal communicates the revocation to the other party (a) Case : Byrne v. v.Revocation of Offer y y S 5(1) : A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards. Montefiore (1866) If the acceptor fails to full fill a condition precedents to acceptance (c) By the death or mental disorder of the proposer (d) . Tienhoven (1880) When there is a lapse of time or lapse of reasonable time (b) Case : Ramsgate v.

y .g :You propose by letter sent by post to sell your house to Siti. 5(2) : ¶ an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor. E. Siti accepts the proposal by letter sent by post. but not afterwards. but not afterwardsµ.Revocation of Acceptance y S. Siti may revoke her acceptance at any time before or at the moment when the letter communicating it reaches you.

1. They are .Agreement to compensate for an Act the promisor was Legally Compellable To Do .s26(b) 4.An agreement on account of natural love and affection ² s26(a) 2.Agreement to compensate for Past Voluntary Act ² s26(b) 3.µ General rule under S 26 : an agreement without consideration is void There are 4 exceptions to this rule. or promises to do or to abstain from doing something. Under the exceptions. such act or abstinence or promise is called a consideration of the promise. or does or abstain from doing. absence of consideration will not make the agreement void.Agreement to pay Statute Barred Debt ² S26(c) y y y y y y . the promisee or any other person has done or abstained from doing.CONSIDERATION y S2(d) : ´When at the desire of the promisor.

it must be made according to this conditions:1. Re Tan Soh Sim (1951) y .Agreement on Account of Natural Love and Affection-S26(a) Affectiony y y y In order for an agreement to be valid under this exception. Case .The agreement must be in writing 2-The agreement must be registered (if applicable) 3-It must be made because of natural love and affection between parties standing in near relation to each other.

the promisee can sue him for breach of promise.M.Agreement to Compensate for a past voluntary Act-S26(b) Acty Under this exception. In the event that the promisor did not do what he has promised. When this happens. the promisor promised to give the promisee something because the promisee has done somehing voluntarily before the promise was made. the promise made by the promisor is valid although there was consideration on the promisee·s part. Ltd v Henry Agency House (1962) y y .Wotherspoon & Co. Case : J.

The promisee has voluntarily done an act . you can take action against them for breach of promise. and The agreement must be to compensate the promisee either wholly or partly.The act act that was done by the promisee was actually an act that the promisor himself was legally bound to do. y y y y .g :You had look after your neighbour·s infant son while he was away on a holiday.When they came back.An Agreement to Compensate for an Act the Promisor was Legally Compellable To Do² S26(b) Do² y In order to use this exceptions. for what the promisee had done. In this situation. E. there are 3 conditions to fulfill: . if they failed to give you the compensation. they promised to compensate you for the expenses that you have incurred.

An Agreement To Pay A Statute Barred Debt ² S26(c) y It means a debt which cannot be recovered by the Creditor through legal action because there is a lapse of time which has been determined by the law.The promise is made in writing and signed by the person to be charged or his authorised agent acting on his behalf. This is provided by the Limitation Ordinance 1953. according to S26(c). 2. y y y y . Nevertheless. For contract matters. a creditor can do so if it falls under these 2 conditions: 1. either wholly or in part of the debt. you can take matter to the court within 6 years from the time the cause of action arise. after the lapse of 6 years.There is a promise made by the debtor to pay the statute barred debt. although a debt cannot be recovered if it is statute barred.

26 Explanation 2 : an agreement is not void merely because the consideration is inadequate.000 for $10«The agreement is a contract notwithstanding the inadequacy of the consideration.Adequacy of Consideration y S. Beh I Hock (1964) y y . Section 26 Illustration (f) : ´A agrees to sell a horse worth $1. Case : Phang Swee kim v.

Balfour (1919) Case : Merit v. v. Merit (1970) y y y y y . there must be intention between the parties that they want to enter into a legal relationship between them. For agreement to be a contract.Business/commercial Agreement ² Low Kar Yitt & Ors. Mohd Isa & Anor (1963) 2.INTENTION TO CREATE LEGAL RELATION y An agreement does not always means contract.Domestic/Social/Family Agreement Case : Balfour v. There are 2 types of relationship: 1.

(b) A agrees to sell to b one hundred tons of oil of a specific description. are voidµ.CERTAINTY y S. Suah Thian (1916) y y y y .30 ² ´Agreement. or capable of being made certain. Case : Karuppan Chetty v. the meaning of which is not certain. known as an article of commerce. (c) A who is a dealer in coconut oil only.µ The nature of A·s trade affords an indication of the meaning of the words and A has entered into a contract for the sale of one hundred tons of coconut oil.There is no uncertainty here to make the agreement void. There is nothing whatever to show what kind of oil was intended. (a) A agrees to sell to B ´ a hundred tons of oilµ. agrees to sell to B ¶one hundred tons of oil. The agreement is void for uncertainty.

µ ‡ Age of Majority? ‡ The age of majority is 18 years provided by the Age of Majority Act 1971.Necessaries ‡ 2. and is not disqualified from contracting by any law to which he is subject. for a lawful consideration and with a lawful object and are not hereby expressly declared voidµ.Scholarship ‡ . Who are competent to contract? ‡ S.LEGAL CAPACITY ‡ S10(1) ² ´ All agreements are contract if they are made by the free consent of parties competent to contract. ‡ Although only those who are 18 years and above can enter into a contract. there are 2 situations when minors are bound by the contract they have entered into: These are: 1.11 : ´Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind.

or anyone whom he is legally bound to support. the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable personµ. Case : Government of Malaysia v Gucharan Singh(1971) y y y y . shelter. clothing. education. What are necessaries? Necessaries include food. medical services. is supplied by another person with necessaries suited to his condition in life.Necessaries y If a minor enters into a contract of necessaries. he would be bound by the contract that he made. incapable of entering into a contract. According to S69 : ´ If a person.

Scholarship y S 4(a) Contract (Amendment) Act 1976: ´ Notwithstanding anything to the contrary contained in the principal act. or (c) such agreement lacks consideration. no scholarship agreement shall be invalidated on the ground that (a) the scholar entering into such agreement is not of the age of majority (b) such agreement shall be is contrary to any provisions of any law in force relating to money lenders. y y y .

22 and 23 y y y y y y . when it is not caused by : a) coercion. for a lawful consideration and with a lawful object.FREE CONSENT y S.µ S.10(1) : ´ All agreement are contract if they are made by the free consent of parties competent to contract. and are not hereby expressly declared to be void. as defined in S17 d) misrepresentation.14 : ´ Consent is said to be free. as defined in S 18 e) mistake. as defined in S15 b) undue influence. subject to S 21. as defined in S16 c) fraud.

unless : a) it is forbidden by a law b) it is of such a nature. if permitted. or opposed to public policy y y y y y y . A contract which contain an unlawful object is void.LEGALITY OF THE OBJECTS y The objects or consideration of a contract must be that which is permitted by the law. S24 : ´ The consideration or object of an agreement is lawful. that. If the object is not permitted. it is said to be unlawful. it would defeat any law c) it is fraudulent d) it involves or implies injury to the person or property of another or e) the court regards it as immoral.

Orally Writing Both orally and in writing Sometimes. therefore the agreement has to be in writing so that it would be a valid contract. If this is the provision.REQUIRED FORMALITIES y A Contract can be made either . certain law would require that the agreement be made in writing. .

E.DISCHARGE OF CONTRACT y y y y y There are 4 ways in which a contract can be discharged : 1.By performance 2.You are to give Ali a book and in return Ali has to give you RM 100. General Rule : Parties to the contract must perform their obligations according to the time and place that they have agreed in the contract. y y y y . a contract is said to be discharged when the parties to the contract has performed what they have agreed to do in the contract.By consent or Agreement between parties 3.g : you enter into a contract with Ali.Breach Discharge by Performance Under this way.Frustration 4.

‡ ‡ ‡ .This agreement can be made during the contract or after the contract has been made. the performance of the promise made to him. S 63 : If the parties to a contract agree to substitute a new contract for it. S 64 : every promisee may dispense with or remit. or to rescind or alter it.g. or may accept instead of it any satisfaction which he thinks fit. E. : You entered into a contract with Siti.Discharge By Agreement ‡ Under this way. If the profit is less. wholly or in part. a contract can be discharged if the parties to the contract agrees/consent that the contract will be discharged. or may extend the time for such performance. then the contract is said to be discharged by agreement. the original contract need not be performed. In the contract both of you agreed that the contract will be put to an end if the profit of your business is less than RM 1 million a year.

Discharge By frustration y Under this way. It can either be at the time the contract was made or when the contract has been made that the obligation became impossible to perform. S 57(1) : an agreement to do an act impossible in itself is void S 57(2) : a contract to do an act which. becomes void when the act becomes impossible or unlawful. unlawful. becomes impossible. Case :Taylor v. a contract is terminated if the things that the parties agreed to do is impossible to perform. after the contract is made. Caldwell (1863) Krell v Henry (1903) y y y y . or by reason of some event which the promisor could not prevent.

but must refund to B the $1000 paid in advance. Effect of Void Contract (SAK 22 S 66 : Obligation of person who has received advantage under void agreement. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing. Illustration : A contracts to sing for B at a concert for $1000 which are paid in advance.. A is too ill to sing. y When a contract is discharge by frustration. or to make compensation for it. When an agreement is discovered to be void. any person who has received any advantage under the agreement or contract is bound to restore it. or when a contract becomes void. y y y y y . or contract that becomes void. to the person from whom he received it. the contract is automatically void.Cont«.

or disabled himself from performing .repudiate the contract y y y y . his acquiescence in its continuance. a contract can be put to an end if a party to the contract did not do what they have promised to do in the contract.to continue with the contract and claim damages 2.Discharge By Breach y Under this way. the promisee may put an end to the contract. The party who is not in breach of the contract has 2 options: 1. his promise in its entirety. unless he has signified by words or conduct. S 40 : When a party to a contract has refused to perform.

B must pay A the five nights on which she had sing y y . Illusration : A. and B. to the person from whom it was received. the manager of a theatre. On the sixth night A willfully absents herself from the theatre. if he has received any benefit there under from another party to such contract. so far as may be. a singer. to sing at his theatre for 2 nights in every week during the next 2 months. in consequence. restore the benefit .Consequences of Rescission of Voidable Contract y S 65 : When a person at whose option a contract is voidable rescinds itl. the other party there to need not perform any promise therein contained in which he is promisor.The party rescinding a voidable contract shall. and B engages to pay her $100 for each nights performance. rescinds the contract. contract with B.

the injured party may claim one or more of these remedies: 1. when there is a breach of contract.Damages 2. according to the ususal course of things resulting from the breach. 74 ² 76 Contracts Act 1950. the injured party is entitled to : 1.Specific Performance 3.Injunction DAMAGES Reference to S.Damages arising naturally. and y y y y . Baxendale (1854).REMEDIES FOR BREACH OF CONTRACT y y y y When there is a breach of contract. Under the rule of Hadley v.

If he claims Special damages for any loss sustained. y 2. Case : Tam Cheow Toh v Associated Metal Smelters Ltd (1972) y y .Cont«.Such compensation is not to be given for any remote and indirect loss or damage sustained as a result of the breach. but 3. he must show that they are such that the other party knew at the time of making the contract that the special loss is likely to result from the breach.

Exemplary consists of a sum awarded which is for greater than the actual pecuniary loss suffered by the plaintiff Pecuniary compensation intended to put the plaintiff in the position he would have enjoyed had the contract been performed .Cont«« y Types of Damages y Substantial Nominal consists of a small token award where the plaintiff has proved a breach of a contractual right but suffered no actual loss.

2. wholly or partly of a trust.When the act agreed to be performed is such that its non-performance would not afford adequate relief. y y y y y y . It is given at the discretion of the court Governed by the Specific Relief Act 1950 S 11(1) : Specific Performance may be granted by the Court in the following situations : 1.when there exists no standard for ascertaining the actual damage caused by the nonperformance of the act agreed to be done.When the act agreed to be done is in the performance. 3.SPECIFIC PERFORMANCE y This is when the court directs the party to the contract to do exactly what he has promised in the terms of contract.

y 1. A holds certain stock in trust for B. wholly or partly of a trust. a picture by a dead painter and two rare China vases.Cont«. 2-When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done. and B agrees to sell.where the act agreed to be performed is such that its non-performance would not afford adequate relief. Albrecht (1941) Section 20 ² the circumstances whereby specific performance will not be granted Illustration: y y Illustration : y y y y . 3.Where the act agreed to be done is in the performance. A wrongfully disposes of the stock. for there is no standard for ascertaining the actual damage which would be caused by to nonperformance. Case : Duncuft v. A may compel B specifically to perform this contract. The law creates an obligation on A to restore the same quantity of stock to B and B may enforce specific performance. A agrees to buy.

They may be granted at any period of a suit.Temporary/interlocutory /interim 2.INJUNCTION y y y Two types of injunction : 1. the defendant is thereby perpetually enjoined from the assertion of a right. which would be contrary to the rights of the plaintiff. or from the commission of an act. y y y . 2-A perpetual injunction can only be grantedb y the decree made at the hearing and upon the merits of the suit. 1.Perpetual/permanent S 51 Specific Relief Act.Temporary injunction are such as are to continue until a specified time. and are regulated by the law relating to civil procedure. or until the further order of the court.

the court granted a perpetual injunction by ordering the defendant who was a landlord of the plaintiff to keep all communication pipes in proper repair and to comply with all regulations of the waterworks Department so that water supply to the premises rented by the plaintiff would not be disconnected.Cont«. y y y . Case : Neoh Siew Eng & Anor v. Too Chee Kwong (1963) In this case. y A perpetual injunction can only be granted after a full trial and upon the merits of a case and the defendant is permanently prohibited from doing the act or ascertaining a right for which the injunction was granted. S 54 (f) : an injunction cannot be granted to prevent the breach of a contract the performance of which would not be specifically enforced.

Illustration :. where a contract comprises an affirmative agreement to do a certain act. y y Injunction to perform negative agreement S 55: notwithstanding S 54(f). Case : Pertama Nite Club Sdn Bhd v Roman Tam (1981) y y y . coupled with a negative agreement. but he is entitled to an injunction restraining A from singing at any other place of public entertainment.Cont«.A contracts with B to sing for 12 months at B·s theater and not to sing in public elsewhere. B cannot obtain specific performance of the contract to sing. not to do a certain act. express or implied. the circumstances that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement. Provided that the applicant has not failed to perform the contract so far as it is binding on him.

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