INTRODUCTION ‡ The law of contract is the basic law that governs and relates to most aspects of human life. It governs human daily activities in almost all aspects, which may vary from simple contracts entered by individuals in order to get daily supplies to contracts of marriage, etc. Contracts provide the means for individuals and businesses to sell or transfer property, services and other rights. ‡ The common law of contracts developed in England around the thirteenth century. Malaysian contract law evolved from the English common law. In Malaysia, the Contracts Act 1950 governs the law of contract. However, the Contracts Act 1950 ´ « is modelled on the Indian Contracts Act 1872µ, per Lord Brightman in Ooi Boon Leong & Ors. v. Citibank NA [1984] 1 MLJ 222.

DEFINITION ‡ Basically a contract is a promise or set of promises which the law will enforce. Section 2(h) of the Contracts Act, 1950 provides that an agreement enforceable by law is a contract. ‡ This definition has two elements. First there must be agreement. ‡ Section 2(e) of the Contracts Act provides that ´every promise and every set of promises, forming the consideration for each other, is an agreementµ. A promise is formed when a proposal is accepted

Offer + Acceptance = Agreement

DEFINITION ‡ A promise is formed when a proposal is accepted. Therefore, there is an agreement if A·s offers to B to sell his books for RM350 is accepted by B. ‡ Secondly, the agreement must be enforceable by law. This implies that not all agreements are contracts although all contracts must be based on agreement. Any agreements, which are not enforceable by law, are not considered as valid contracts. ‡ Therefore, if A promises B RM5,000 for murdering C, to which B has agreed, the agreement is void and not enforceable by law.

PARTIES TO CONTRACT ‡ Every contract must involve at least two parties that is the person who proposes the contract, who is known as the offeror, and the parties to whom the proposal is made, who is known as the offeree.
Makes offer to B

‡ Hence, if A makes an offer to sell his books for RM350 to B, A is the offeror, being the person who proposes a contract; and B is the offeree, being the person to whom the proposal is made.

offeree

offeror

30) .ELEMENTS OF CONTRACT Agreement Intention to create legal relations Formalities Consideration & Lawful Object Capacity & Free Consent Offer Acceptance Certainty of Terms (s.

his conduct indicates that he is making an offer. ‡ It can be made either orally or in writing or implied by the conduct of the person making the offer.OFFER ‡ Offer or proposal is an expression of willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to the act or abstinence (s. When a person takes an item from the shop-shelf. . brings it to the cashier and gives his money to pay for the items· price. ‡ An offer is made orally when a person uses verbal communication in making his proposal. When he puts such proposal in written form (including by sending such offer through e-mail) then he is making offer in writing. 2(a) of the Contracts Act. 1950).

Types of Offer 1. ie. Carbolic Smoke Ball. the offer that is made to a specific person or group of persons 2. then there is effective offer and this can be accepted when the offeree performs the act in question. . (Hence advertisement is not an offer) ‡ However. the offer that is made to the world at large ‡ Generally an offer cannot be made to the world at large. Bilateral Offer. ie. if the offer is conditional. Unilateral Offer Carlill v.

Invitation to Treat 2.OFFER Offer must be distinguished from: 1. Mere answer to a request for Information .

Cave) . Crittenden ) (Mazumder v. Display of Goods in shops (Pharmaceutical Society of GB v.Invitation to Treat 1. Boots) (Fisher v. Auctions (Payne v. Bell) 2. AG of Sarawak) c/f Carlill v. Carbolic S.B.) 3. Advertisements (Partridge v.

Facey where the appellant sent a telegram to the respondent asking the price of Bumper Hall Pen to which the respondent replied ´Lowest cash price for Bumper Hall Pen $900. stating that ´we agree to buy Bumper Hall Pen for $900 asked by youµ because the respondent·s telegram was merely a supply of information and not an offer. .Answer to a Request for Information Hence in Harvey v.µ It was held that the respondent was not bound by the subsequent telegram from the appellant.

There is no acceptance hence there can·t be any contract (Tinn v. not knowing about this letter has sent an e-mail. Hoffman) . neither party knowing of the other·s offer when he makes his own.Cross Offer There is no contract when A sends a letter to B offering to sell his handphone for RM500 and B. asking if A would sell his handphone for RM500 to him. Cross-offers are actually two offers.

provided the revocation is communicated to the offeree Revocation may be communicated by a reliable third party Dickinson v. Dodds 2. where the court held that further enquiry of an offer is not rejection of the offer 3.Termination of Offer 1. McLean. Revocation may be done anytime before the offeree accepts the offer. Lapse of Time 4. Rejection either express or implied. ie by attempting to modify the terms of offer Hyde v. Wrench c/f Stevenson v. Failure to meet conditions . Lost of capacity 5.

The P. The D.Stevenson v. had already sold the iron to a third party. Mclean The D offered to sell to the P 3. . in the mean time. Held: The court found in favour of the P as the original offer was still open. or if not.µ the D did not reply.800 tons of iron ´«40s nett cash per ton. accepted the offer to sell at 40s cash.µ The P telegraphed the D ´Please wire whether you would accept 40 for delivery over two months. on the same day. the longest time you would give.

does not indicate the original offer is not acceptable.Stevenson v. . it is a situation where the offeree is merely postponing his decision until more information is received to clarify certain points. Mclean A request for further and better information. Rather. unlike counter offer.

acceptance must be communicated to the offeror. be expressed in some usual and reasonable manner. acceptance must be absolute and unqualified. unless the proposal prescribes the manner in which it is to be accepted. ‡ Section 7 of the Contracts Act. b. c. made in the manner specified or indicated by the offeror. 1950 requires the following conditions to be met: a. .ACCEPTANCE ‡ Acceptance is a final and unqualified assent to the terms of the offer.

Bindley) Exceptions: 1. The offeree assumed the duty to do positive act to reject the offer. 2.Types of Acceptance Types of Acceptance: 1. Unilateral contract. where the offeror has waived the need of communication of acceptance. 3. Acceptance in writing Silence is not acceptance (Felthouse v. . Oral Acceptance 3. Previous course of dealing. By Conduct 2.

Hyde v. Acceptance must be absolute and unqualified. When there are conditions stated in the offer as to how the acceptance shall be communicated.Conditions of Acceptance 1. Wrench 2. Acceptance must be communicated to the offeror. if the parties are still negotiating. 3. these shall be complied with. . Any attempt to modify the contents of an offer will operate as implied rejection to the offer. the agreement is not yet formed.

Case: Hyde v. Then on 29 June the plaintiff was willing to buy the farm for £1000. Wrench ‡ Facts: The defendant on 6 June offered to sell his farm to the plaintiff for £1000 and on 8 June the plaintiff replied that he was willing to buy the farm for £950. The defendant refused to sell the farm for £950. ‡ Held: No contract was made between them because the plaintiff made a counter-offer .

By Instantaneous Modes of Communication (there must be actual communication.Communication of Acceptance 1. Postal Acceptance Rule (Ignatius v. 4(1)) ( Entores v. Internet Communication (whether Instantaneous or postal?) . S. See illustration b to s. 4) 3. Miles Far East Corporation) 2. Bell) (Communication is presumed by properly sending the letter.

the meaning of which is not certain. are void· ‡An agreement between A and B to sell ¶a hundred tons of oil· without any indication as to the kind of oil was intended is void for uncertainty.CERTAINTY OF TERMS ‡ It is very important that the terms of an agreement must be certain because section 30 of the Contracts Act provides that any ¶agreements. or capable of being made certain. However if there is any indication that specifies the kind of oil. then the agreement is valid. ( Karuppan Chetty v. ‡A lease term ´ as long as the leasee likesµ is void as it is vague. Suah Thian) .

‡ In Currie v. Misa. at the desire of the promisor. the word consideration is defined as ¶some right. detriment. or some forbearance.· .CONSIDERATION ‡ Section 2 (d) defines consideration as the act of the promisee or his abstinence from doing either in past or present or even his promise to act or to abstain from doing something. interest. profit or benefit accruing to one party. suffered or undertaken by other. loss or responsibility given.

the other party gives promise to do something in future 3. Exception --> if done with request. Thomas. the other party performs an act (Carlill v. understood to be rewarded and it·s legal) . Carbollic SM) 2. Executory: in return for a promise.Types of Consideration 1. Past: promise given in returned for an act done (this type of consideration is not generally considered as a good consideration Roscorla v. Executed: in return for promise.

Schmidt) ‡ However. the principle has been modified. 1950 recognises past consideration where there has been a desire expressed first by the promisor (Kepong Prospecting Ltd. without consideration is void unless it is a promise to compensate« a person which has already voluntarily done something for the promisor. S. 2(d) of the Contracts Act. an exception to the general doctrine of consideration is provided in s. past consideration consideration is a good . or something which the promisor was legally compellable to do. 26(2) provides: ´An agreement made. However in Malaysia. in Malaysia. 26 and s.µ ‡ Hence.Past Consideration ‡ The above is the principle as enunciated by the common law of England. & Others v.

and where there is part payment of a debt. 24 and 25 ‡ Consideration must move from the promisee in order for the promise to promisee to enforce the contract (Tweddle v. . Two of those include the situation where there is a performance of an existing obligation. Nestle) .this principle is not applicable in Malaysia since section 2(d) that defines that word ¶consideration· expressly allows the consideration to be given by the promisee or any other person ‡ Consideration must be sufficient but need not be adequate (Chapple v.There are situations where consideration may be considered as insufficient. Atkinson) .Conditions of Consideration ‡ Consideration must be lawful: ss.

2. The performance of public duty imposed by law.Performance of Existing Obligation ‡ Performance of existing obligation can essentially be divided into two categories: 1. The performance of an existing contractual obligation owed to the defendant. ‡ The two categories are not considered as sufficient consideration .

or may extend the time for such performance.µ . wholly or in part. part payment of debt is sufficient when the payment is made by a third party: Hirachand Punamchand v.Part Payment of Debt ‡ Generally. of may accept instead of it any satisfaction which he thinks fit. it is made in a different form. Temple ‡ In Malaysia. English law regards part payment of debt is not a sufficient consideration unless if. this principle is governed by section 64 of the Contracts Act that provides: ´every promisee may dispense with or remit. or at a different place or time: Pinnels· case ‡ Similarly. the performance of the promise made to him. at the creditor·s request.

a promise to compensate a past voluntary act or to compensate a person who had done something which the promisor was legally compellable to do. These exceptions include 1. a promise to pay a debt bared by limitation law.Necessity for Consideration ‡ ‡ Section 26 provides that an agreement made without consideration is void. or 3. an agreement in writing and registered (when applicable) made on account of natural love and affection between parties standing in a near relation to each other. 2. There are exceptions to this. .

the agreement is void: s. if permitted. 25. (d) it involves or implies injury to the person or property of another. it would defeat any law. or (e) the court regards it as immoral.LAWFUL OBJECT ‡ Section 24 of the Contracts Act provides that the object or an agreement is lawful unless: (a) it is forbidden by a law. ‡ The object of an agreement must be lawful because if any part of the object is unlawful. (c) it is fraudulent. . (b) it is of such nature that. or opposed to public policy.

There is this presumption in domestic and social arrangements (Balfour v. Merrit) ‡ In cases involving commercial dealings. the mere fact that an agreement is supported by the consideration raises a presumption that the parties intended the agreement to be legally binding . Balfour) ‡ The above presumption may be rebutted if contrary conclusion is reached by the court after examining the words used and surrounding circumstances (Merrit v.INTENTION TO CREATE LEGAL RELATIONS ‡ Some agreements are not intended to be legally enforceable.

it is necessary to ask the following questions and adopt this approach: 1. * If the answer is ¶no·. Vernon·s Pools Ltd) . ** However if there·s any evidence to show the contrary. then the presumption shall stand. 3. Is there any evidence to rebut the above presumption? 4. it is presumed that the parties intended to bind one another legally. ** However if it is commercial agreement. there is no intention to create legal relations. (See the case of Jones v. Is the agreement social/domestic or commercial in nature? 2. the presumption is rebutted and the result shall be contrary to the presumption. * If it is domestic/social arrangements the presumption is.INTENTION TO CREATE LEGAL RELATIONS ‡ In order to determine whether there is any intention to create legal relations.

1965 & the doctrine of ultra vires Must be at least 18 (the Age of majority Act 1971) Minors· contract is void (s. 4 of the Contracts (Amendment) Act 1976 .CAPACITY Natural Persons Age Sanity Ss 11 & 12 Corporations Subject to the provision of Companies Act. 69 of the Contract Act as applied in Government of Malaysia v. Gurcharan Singh & ors. See s. 11 of the Contract Act) ‡ Exception is provided in s.

Exceptions a) Contracts for necessaries b) Contracts of Scholarship c) Contracts of Insurance ‡ Contracts for Necessaries: Under section 69 of the Contracts Act 1950 (Malaysia) a person may supply to a mentally disordered person or a minor necessaries suited to their condition in life and that person is entitled to be reimbursed from the property of such incapable persons. .Case: Mohori Bibee v. . Dharmodas Ghose ‡ Fact: Privy Council held that an infant could not make any valid contracts.

Gurcharan Singh Fact: Government spent RM 11. So.Case: Government of Malaysia v.500 for the defendant for his education purpose when he was a minor student. a contract was made with the defendant. Later the defendant refused to pay back the money. Held: The court held that the money given for education came under necessaries and therefore the defendant was bound to pay back. .

undue influence.· ‡ Consent is said to be freely given if it is not caused by coercion. misrepresentation. and mistake: s. 14 .FREE CONSENT ‡ Section 13 of the Contracts Act provide that ¶two or more persons are said to consent when they agree upon the same thing in the same sense. fraud.

or a promise made without any intention of performing it. of that which is not true by one who does not believe it to be true.Coercion. or the unlawful detaining or threatening to detain. Fraud & Misrepresentation ‡ Section 15 defines ¶coercion· as the committing.( Kesarmal v. or any other act fitted to deceive. whit the intention of causing any person to enter into an agreement. (Kheng Chwee Lian v. or any such act or omission as the law specially declares to be fraudulent³committed by a party to a contract«with intent to induce him to enter into the contract. Wong Tak Thong) . or threatening to commit any act forbidden by the Penal Code. Valiappa Chettiar) ‡ Section 17 defines ¶fraud· so as to include any suggestion. as to a fact. any property. or the active concealment of a fact by one having knowledge of belief of the fact. to the prejudice of any person whatever.

or to the prejudice of anyone claiming under him. the contract is voidable: s. or causing. gives an advantage to the person committing it. a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement. or misrepresentation.Coercion. . whose consent has been impaired either by coercion or fraud or misrepresentation. but not at the option of the other or others: s. without an intent to deceive. in a manner not warranted by the information of the person making it. Therefore the person. or anyone claiming under him. by misleading another to his prejudice. or any breach of duty which. of that which is not true. Voidable contract has been defined as an agreement enforceable by law at the option of one or more of the parties thereto. fraud. 19(1). has the right to choose either to terminate the agreement or otherwise. however innocently. though he believes it to be true. Fraud & Misrepresentation ‡ Section 18 of the Contracts Act defines ¶misrepresentation· so as to include the positive assertion. ‡ When consent to an agreement is caused by coercion. 2(i).

illness or mental of bodily distress: s. 16(2)(b). In Allcard v. or he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age. . namely actual undue influence and presumed undue influence.Undue Influence ‡ Section 16 of the Contracts Act provides that a contract is said to be induced by ¶undue influence· where the relationship 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. the Court of Appeal stated that the doctrine of undue influence may be divided into two classes. ‡ Cases law suggest that ¶undue influence· can be categorised into two categories. There is the presumption that a person is in position to dominate the will of another if he holds a real or apparent authority over the other or he stands in a fiduciary relation to the other (section 16(2)(a)). Skinner (1887) 36 Ch D 145. (section 16(1).

Undue Influence ‡ For cases falling within the class of actual undue influence. the claimant has to prove that the wrongdoer exerted undue influence on the complainant to enter into the transaction. the burden will be shifted to the wrongdoer to rebut the presumption of undue influence. The contract may be set aside absolutely or if the complainant has received any benefit thereunder. He only has to show that there was a relationship of trust and confidence between the complainant and the wrongdoer and it can be presumed from such relationship that the wrongdoer had abused this to procure the complainant to enter into unconscionable contract. the claimant does not have to prove that actual undue influence was exerted in relation to the transaction he entered into. 20. ‡ However in cases involving parties with relationship where undue influence may be presumed. Once this is done. then it may be set aside upon such terms and conditions as the court may think just: s. . such contract is voidable at the option of the party whose consent was so caused. ‡ When a contract has been entered into as a result of undue influence.

this will have the same consequence as mistake of fact. the contract is void if there is common mistake. . then the contract does not. ‡ However if a contract caused by mistake of fact of only one party. ‡ A contract does not become voidable on the basis of mistake of law: s. become voidable: s.Mistake ‡ Section 21 of the Contracts Act provides that an agreement is void where both parties are under mistake as to matter of fact. 22. by itself. that is to say. 23. ‡ If the mistake is of foreign law. but the contract is valid if the mistake is unilateral. which is not in force in Malaysia.

Hence unless the formalities are observed. transfer of land or any interest therein must be made in writing (as required by the Statute of Frauds. . 1967 requires that a hire-purchase agreement must be made in writing and must be signed (ss. a hire-purchase agreement is not legally enforceable by the owner. 4A & 4B). ‡ Similarly. The Hire-Purchase Act. ‡ Hence in Sabah & Serawak.FORMALITIES ‡ Section 10(2) provides that the provisions of the Contract Act will not affect any formalities requirement that may be required by other statutes.

.Condition .Warranty Condition: A condition is a stipulation essential to the main purpose of the contract and the breach of which entitles the injured party to repudiate the contract.Terms of the Contract ‡ There are two terms: .

600 degree F. . Held: The stipulation was a condition. 600 degree F.Warranty: a warranty is a stipulation collateral to the main purpose of the contract. The defendant supplied the furnace with lower than 2. Tham Chew Toh Fact: The defendant had agreed to sell a metal melting furnace to the plaintiff and the plaintiff stipulated that the temperature should not be lower than 2. the breach of which gives rise to a claim for damages but not a right to repudiate the contract. Case: Associated Metal Smelters Ltd. v.

‡ Exclusion clauses are normally held valid and operative by the court unless there is no fundamental breach of obligation in the contract.Exclusion Clauses ‡ Standard contracts include exclusion clauses. train and air travel companies. . ‡ Exclusion clauses exclude the liabilities of a contracting party. ‡ Bus. banking and insurance companies usually include exclusion clauses in their contract with the customers.

By-law 91(1) of the Port Sweetenham Authority By-laws 1965 excluded the liability of the Port authority for any loss or damage of the goods. . Wu and Company Fact: Ninety-three cases of pharmaceutical goods were unloaded at Port Klang and kept in the custody of the Port Authority. Sixty-four cases of pharmaceutical goods were stolen due to the negligence of the Port Authority. Held: The exclusion clause was invalid as it excluded the fundamental obligation of the port authority.W. T.Case: Port Swettenham Authority v.

Discharge of contracts ‡ 3 ways in which a contract may be discharged: a) Discharge by performance b) Discharge by frustration c) Discharge by breach of contract .

Discharge by performance ‡ If the parties perform their respective promises in accordance with the terms of the agreement. . then it is said that the contract has been discharged by performance.

Discharge by frustration ‡ A contract is frustrated if the contract legally or physically becomes impossible to perform for subsequent change of circumstances. .

Here A has breached the contract. ‡ Example: A agrees to sell his apartment to B for RM120.000 but after some days A refuses to sell the apartment. .Discharge by Breach of contract ‡ If one of the parties in a contract refuses to perform his promise it is said that the contract has been discharged by breach.

They are as follows: a) Damages b) Specific Performance c) Injunction d) Quantum Meruit .Remedies for Breach of Contracts ‡ There are four remedies for breach of contract.

. Tham Chew Toh ‡ Fact: The defendants had agreed to sell the furnace to the plaintiff and had given an undertaking that the melting furnace would have temperature not lower than 2. ‡ Case: Associated Metal Smelters Ltd. v.600 degrees F.Damages ‡ If one of the parties breaks the contract made between them. then the party affected by the breach may claim damages from the party who has breached the contract.

the plaintiff could treat the condition as warranty and could claim damages. . Therefore.The furnace supplied by the defendants did not in fact reach the required temperature. Held: The court held that the defendant has breached the condition in the contract.

later A refused to fulfil the contract.000. Here if B sues A for specific performance the court may order A to fulfil the contract. . ‡ Example: A promised to sell his house to B and B promised to buy it for RM 100. However.Specific Performance ‡ In specific performance. the court orders the party which breaks the contract to perform his promise.

.) Ltd. The court may refuse to grant specific performance if the injured party may get damages and that damages can provide an adequate remedy. Lucky Park (Pty. Case: Yeo Long Seng v. Held: the court refused to grant specific performance because the damages could provide adequate remedies..Specific performance is a discretionary remedy.

However. .Injunction ‡ If one of the parties breaches the contract then the other party may apply for interlocutory injunction to maintain status quo of the subject-matter in a pending suit. ‡ Example: A has made a contract to sell his land to B. Here the court can grant interlocutory injunction requiring A not to transfer the ownership of the land to C. after few days A made another contract with C to sell the same land.

In Neoh Siew Eng case the court granted an injunction requiring the landlord to keep the water supply open for his tenants.Injunction may be mandatory or prohibitory in nature. .

Cloburn (1831) ‡ Fact: P agreed with C to write a volume on ancient armour for a periodical called The Juvenile Library for 100 pounds. In particular he may claim payment for what he has done under the contract. the injured party may have a claim other than that for damages.Quantum Merit ‡ In the event of a breach of contract. ‡ Case: Planche v. .

and P sued. Held: The court held that the defendant had repudiated the contract and P was entitled to treat it as discharged and recover on a quantum meruit for the work he had already done.After P had written part of his work the defendant C abandoned the periodical. The Contract could not. therefore. . be completely performed.

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