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LXEB 1112 : Law of Contract

INTRODUCTION
According to Sir Frederick Pollock, a contract can be defined as:
A promise or set of promises which the law will enforce.
A contract intends to formalize an agreement between two or more parties, in
relation to a particular subject. Contracts can cover an extremely broad range of
matters, including the sale of goods or real property, and the terms of employment or of
an independent contractor relationship 1. Since the law of contracts is at the heart of
most business dealings, it is the vital areas of legal concern and can engage variations
on situation and complexities.
Terms in a contract set out legal duties of each party under that agreement. They
can be either in express or implied terms. The terms of a contract may be wholly oral,
wholly written, partly oral and partly written.
If contract is put down in writing, the statement is regarded as the term of
contract and any prior oral statement will usually be regarded as a representation as
they are not included in the contract, on the assumption that they are less important. 2
Besides, the existence of signature in the contract will regularly make it complicated for
the signatory to successfully argue that the statements made do not represent the
intention of the parties.3
1 Legal Dictionary, Thefreedictionay.com
2 Emily M. Weitzenbeck. (2012). Norwegian Research Center for Computers & Law.
University of Oslo.
3 Ibid
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This was established in the case of L Estrange v F Graucob Ltd4 where the court
held that he plaintiff was bound by her signature in the agreement even though she
claimed that she does not read the term carefully. It means here that so long as the
party signed the contract, total lack of awareness on the part of the plaintiff is irrelevant.
There comes the existence of parol evidence rule to support the above statement
made that any extrinsic evidences cannot be brought into the court unless the document
itself. Essentially, the rule aims to protect the original contents of the written contract
which will contribute to maintaining certainty and stability; particularly in business
dealings.5 The parol evidence rule is found under common law and in Malaysia is
provided in Section 91 and 92 of the Evidence Act 1950. 6
The general rule of Section 91 of the parol evidence rule is to prohibit any kind of
oral evidences where the terms of the contract have been put into writing. 7 It means,
when there is written contract, any other evidences which are not stated in the
document are not acceptable to be brought into the court if there are breach of terms of
contract.
On the other hand, Section 92 of Evidence Act 1950 provides that when the the
terms have been prove as in Section 91, any oral agreement or statement shall not be
4 [1934] 2 KB 394.
5 Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia at page
158.
6 Act 56
7Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia at page 159.
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admitted.8 Nevertheless, there are certain exceptions to the parol evidence rule in
Section 92 which have reduced the usefulness of the rule. The main issue here is to
which extent the oral evidences can invoke the parol evidence rule?
Besides the exceptions provided in parol evidence rule, there is collateral
contract, a device which has been used, to admit pre- contractual statements which had
not been incorporated into the written agreement. 9 Collateral contract is a separate oral
promise, exists side by side of the written contract which induces the parties to enter
into contract.10 Two general situations in which the courts may acknowledge the
existence of a collateral contract are:
a) Where a party has been able to show that it would have refused to enter into
if it did not receive assurance on a particular point; and
b) Where there was a promise not to enforce a particular term in the main
contract.11

8 Visu Sinadhurai. (2003). Law of Contract. (3 rd ed.). Butterworths (Canada)


Limitedat page 190.
9 See Haji Mohamed Akram b Shair Mohd, Concept of Collateral Contract and s 92
Evidence Act 1950 [1984] 1 MLJ clxix. See generally Power-Smith, Vincent, Collateral
Warranties and the Construction Industry [1991] MLJ
xvii.

10 Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia at page
162
11 Krishnan Arjunan and Abdul Majid Nabi Baksh. (2008). Contract Law in Malaysia. Malayan
Law Journal Sdn. Bhd at page 196.

LXEB 1112 : Law of Contract

The device of collateral contract does not offend the extrinsic evidence rule
because the oral promise is not imported into the main agreement as it comes
separately.

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It must be noted that collateral contract exist on the basis of the written

contract itself. Thus, if the collateral contract contradicts with the written term in the
main contract, then the collateral contract overrides the inconsistent written term.

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However, it cannot destroy the written one as it originally comes into existing because of
the written contract.14
PAROL EVIDENCE RULE
When a contract is reduced to writing, neither party can submit extrinsic evidence
to the contractual document alleging terms agreed upon but not contained in the
document. This is called as parol evidence rule. 15 It means, when two parties have
made a contract and have expressed it in a writing to which they have both assented as
the complete and accurate integration of that contract, evidence, whether parol or
otherwise, of antecedent understanding and negotiations will not be admitted for the
purpose of varying or contradicting the writing.16
12 Syed Ahmad S A Alsagoff. (1998). Principles of the law of Contract in Malaysia. (2 nd ed.).
Malayan Law journal
Sdn. Bhd at page 179.

13 Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia at


page163.
14 Ibid, at page164.
15 Emily M. Weitzenbeck. (2012). Norwegian Research Center for Computers & Law.
University of Oslo.
16 Arthur L. Corbin. (1944). The parol evidence Rule, 53. Yale Law Journal.
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However, under common law, there are several exceptions to the rule. For
instance, the intention that agreement is only partially written. It means here, if written
document was not intended to set out all the terms agreed between the parties, extrinsic
evidence of the other term is admissible. Secondly, extrinsic evidence is also
permissible to clarify uncertainty in express term.17

In Malaysia, the parol evidence rule is provided under Section 91 and Section 92
of the Evidence Act 1950.18 Under these sections, when the terms of the contract have
been reduced to writing, no other extrinsic evidence is admissible.

The general rule of Section 91 was clearly explained by P.B. Gajendragadkar J in


Bai Hira devi v Official Assignee, Bombay 19 when he stated as follows:
the normal rule is that the contents of a document must be proved by primary evidence which is
the document itself in original. Section 91 is based on what is sometimes described as the best
evidence rule. The best evidence about the contents of a document is the document itself and it
is the production of the document that is required by section 91 in proof of its content. In a sense,
the rule enunciated by section 91 can be said to be an exclusive rule in as much as it excludes

17 Emily M. Weitzenbeck, 2012. Norwegian Research Center for Computers & Law.
University of Oslo.
18 Act 56
19 AIR 1958 SC 448 at p 450.
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the admission of oral evidence for proving the contents of the document except in cases where
secondary evidence is allowed to be led under the relevant provisions of the Evidence Act.

Thus, it can be deduced that Section 91 try to protect the original contents of the
contract in a sense that the best evidence about the contents of a document is the
document itself. Admission of oral evidence is not necessary as the document itself will
speak through its contents.20

On the other hand, Section 92 of this act stated as follows:


When the terms of any such contracthave been proved according to Section 91, no evidence of
any oral agreement or statement shall be admitted as between the parties to any such instrument
or their representatives in interest or the purpose of contradicting, varying, adding to or
subtracting from its term.21

Based on the above statement, it is clear that Section 92 excludes the admission
of oral evidence for the purpose of contradicting, varying, adding to, or subtracting from
the terms of a written agreement. Nevertheless there are exceptions provided under this
section. For example, any fact which can nullify a document such as fraud, intimidation,
illegality, want of due execution, want of capacity in any contracting party, want or failure

20 Datuk Tan leng Teck v Sarjana Sdn Bhd & Ors [1997] 4 MLJ 239, 341 per
Augustine Paul JC (as he then was).
21 See Section 92 Evidence Act 1950.
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of consideration and mistake in law and fact may be proved; see proviso (a) to Section
92. Besides, proviso (b) allows the access of parol evidence of the existence of any
separate oral agreement as to any matter on which the document is silent. 22
It can be seen here that exceptions provided under Section 92 actually reduce
the effectiveness of parol evidence rule. However, this rule cannot be abolished
because this is the only way to maintain the originality of the documents except few
circumstances that allow such evidences to be proved.
There are two important Federal Court decisions that have given different
interpretations to Section 92 as to when parol evidence may be admissible. 23 In Tindok
Besar Estate Sdn Bhd v Tinjar Co,24 the appellant was a contractor for extraction of
timber for a company. He later decided not to carry on with the work. An agreement was
made between the appellant and the respondent where the respondent undertook the
work of extracting timber. There was a dispute as to this agreement. Though the parties
had entered into a written agreement, the respondents attempted to introduce other
terms which they alleged had not been incorporated into the written agreement.
In this case, the Federal Court judge disagreed with the approach made by the
trial judge where the trial judge used the case of Coalfields of Burma Ltd v HH

22 For other exceptions, see the rest of provisos to Section 92.


23 Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia at page
160.
24 [1979] 2 MLJ 229.
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Johnson25 to be relied too without distinguished the facts that there was no written
contract in that case whereas, in the instant case there was a written agreement. The
Federal Court judge pointed out the exceptions provided in Section 92 Evidence Act
1950 to be examined carefully. However, at the same time, the Federal Court Judge
also pointed out the risk of allowing oral evidence in case where there is written
agreement, relying on the cases of Foo Tock Lim v Piong Liew26 and Siah v Tengku
Nong:27
it would be open to any party to a litigation concerning an agreement to say that the agreement
which is the subject matter of the dispute did not contain all the terms thereof and to seek to
introduce such terms or even terms which might not even have been within the contemplation of
the other party. No agreement would then be safe from being re-written by one party in a court of
law.28

Thus, after considering all the facts, Chang Min Tat FJ made a statement that the
correct view seems to be that Section 91 and 92 applies when the terms of the
agreement (not necessarily all the terms) have been reduced in writing. In such a case,
proof of the terms shall be by document itself or by secondary evidence.

29

The court

25 AIR 1925 Rang 128.


26 [1963] MLJ 67.
27 [1964] MLJ 63.
28 Above note 51, at page 223.
29 S. Santhana Dass. ( 2005). General principle of Contract Law in Malaysia. Akitiara
Corporation Sdn Bhd at page
102.

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then considered in detailed whether the evidence brought in this case fall under the
provisos to Section 92, which then the court held that it was not.
From this Tindok Besars case, we can see the court action on dealing with the
matters contradict to parol evidence rule. The court have to examine these two sections
in very detail and careful before came to the decision. From this case; it is very difficult
for the party to contract to prove the existence of evidences that are not in writing. The
oral evidences must fall under the exceptions provided if and only if the party wants to
succeed, which is actually very hard to be established.
The later decision made by the Federal Court contrasted the decided case above
in Tan Chong & Sons Motor Co Sdn Bhd v Alan Mcknight. 30 In this case, the respondent,
an Australian national, wanted to buy a car to get the benefit of exemption from duty in
Malaysia, if the car complied with the Australian design regulations. He signed a buyers
order which contained a condition that no guarantee or warranty of any kind whatsoever
was given by the company. The respondent maintained that he only agreed to buy the
car on the representation of the appellants salesman that the car conformed to the
Australian design regulations. The car which was subsequently delivered to the
respondent did not comply with the regulations, and the respondent was successful in
recovering his losses, including loss of the fiscal advantage of importing it duty-free into
Australia.

30 [1979] 2 MLJ 229, FC.


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The issue rose whether the representations of the appellant were admissible
under Section 92 Evidence Act. The court held that proviso (b) and (c) Section 92
applied.31
These two cases seem to be different based on their decisions. However, what is
matter now is that it is only when the original document has been tendered and admitted
to prove its terms or contents under Section 91, that section 92 comes into play to
exclude evidence of any oral agreement or statement for the purpose of contradicting,
varying, adding or subtracting from its terms unless it comes within the exceptions
contained in the provisos or illustrations.

32

There was another example of case which showed a strict application of parol
evidence rule. In Ng Ee v PP,33 the prosecution had to prove the seating capacity of a
vehicle. The seating capacity was required by law to be recorded in the license. The
license was not tendered in court but instead a police constable gave oral evidence to
the effect that the bus could carry 16 passengers. The court held that under Section
91, no evidence may be given in proof of the terms of such matter except the document.
For example, the license or secondary evidence of its content when secondary
evidence is admissible.

31 Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia at page
161.
32 S. Santhana Dass. ( 2005). General principle of Contract Law in Malaysia. Akitiara
Corporation Sdn Bhd at page 106.

33 [1941] MLJ 180


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It means, this section only excludes oral evidence as to the terms of the contract
not to the existence of the contract. Oral evidence can be admitted to prove the
existence of the contract or where there is a plea denying the contract, oral evidence
can be admitted in support of it.34

COLLATERAL CONTRACT.
It is evident both on principle and on authority, said Lord Moulton in 1913.
Collateral contract is a written or oral agreement associated as a second, or side
contract made between the original parties, or between a third party and an original
party.35This typically occurs before or at the same time the first or main contract is
made. This collateral contract is independent and separate from the primary contract.
If there is a negotiating statement and if it is made with the reason of inducing the
other party to act on it, and it actually induces him to act on it by entering into the
contract, that is prima facie ground for inferring that the representations was projected
as a guarantee. That representation becomes part of collateral contract. 36 This is best
described by Lord Denning M.R. in Dick Bentley Productions Ltd v Harold Smith
34 Ng Kong Yue and Anor v R. [1962] MLJ 67,69; United Malayan banking Corp. Bhd v Tan
Lian Keng and Ors [1990]
1 MLJ 281 HC; Ng Kong Yue & Anor v R [1962] MLJ 67 HC;
Tyagaraja Mudaliar & Anor v Vadathanni [1936] MLJ 62
PC.

35 Blacks Law Dictionary. thelawdictionary.org.


36 Krishnan Arjunan. (2008). Contract Law in Malaysia. Malayan Law Journal Sdn
Bhd.
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(Motors) Ltd37, where the statements made to induce the party to act on it and actually
induces him to act on it as being collateral.
In Kah Seng Construction Sdn Bhd v Selsin Development Sdn Bhd,38Low Hop
Bing J stated that a collateral contract comes into existence prior to or at the time of the
conclusion of the main contract. The consideration for the collateral contract is the
making of the main contract. This case cited above are strong authority for the
propositions that collateral contract is a separate pre-contract statement on the basis of
which the parties entered into a contract. 39
Under the common law, there are test laid down by the High Court in Australia in
the case of JJ savage & Sons Pty ltd v Blakney40 to determine whether the statement
made at the time when the contract was entered constitute a collateral contract. It was
held that three elements must be present:
a) The statement was intended to be relied on:
b) There was reliance by the party alleging the existence of the contract; and
c) There was an intention on the part of the maker of the statement to guarantee
its truth.

37 [1965] 2 All ER 65, 67: Approved by the FC in Tan Swee Hoe Co Ltd v Ali Hussein
Bros. [1980] 2 MLJ 16.
38 [1997] 1 CLJ Supp.488.
39 Krishnan Arjunan and Abdul Majid Nabi Baksh. (2008). Contract Law in Malaysia. Malayan
Law Journal Sdn. Bhd at page 121.

40 (1970) 119 CLR 435 HC.


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The question arose whether this test is applicable in Malaysia? This was best
described in Kluang Wood products Sdn Bhd & Anor v Hong Leong Finance Berhad
and Anor41 where the trial judge held that all the three elements discussed above must
be established to prove the existence of collateral contract.
The notion of a collateral contract has long been a part of the Malaysia law of
contract as illustrated by the Federal Court decision in Tan Swee Hoe Co Ltd v Ali
Hussain Bros.42 The leading authority in Malaysia is the judgment of Raja Azlan Shah
CJ in this case.

The appellant had orally agreed to allow the respondent to occupy certain
premises for so long as they wished on payment of RM14,000 as tea money.
Subsequently, the parties entered into two agreements. Both agreements made
provisions for increase in rental. No mention was, however, made of the earlier oral
assurance in either of these two agreements. Dispute subsequently arose between the
parties, and the appellant served on the respondent a notice to quit the premises. Raja
Azlan Shah CJ stated that an oral promise, given at the time of contracting which
induces a party to enter into a contract overrides any inconsistent written agreement.
The device of collateral contract does not offend the extrinsic evidence rule because the
oral promise is not imported into the main agreement. Instead it constitutes a separate

41 [1991] 1 MLJ 193, FC.


42 [1980] 2 MLJ 16, FC.
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contract which exists side by side with the main agreement. Reference was made by
the Chief Justice to Chitty on Contracts, 24th edition, para 674:
In our view there is a growing body of authority that supports the proposition that a collateral
agreement can exist side by side with the main agreement that it contradicts.

The Chief Justice also relied upon the English decisions such as J Evans & Sons v
Andrea Merzario,43and Heilbut Symons & Co v Buckleton 44 which also stated that the
collateral contract constitute a separate contract that exists side by side with main
agreement.

However, it must be taken into account that a collateral contract cannot destroy
the main written contract as it can only exist on the basis of the main agreement. In
Industrial Distribution Sdn Bhd v Golden Sands Construction Sdn Bhd,45 Visu
Sinnadurai J reiterated the principle earlier stated by Raja Azlan Shah CJ in Tan Swee
Hoe Co Ltd where the collateral contract exist aside the main contract.
It has to be noted that collateral contract only exit if there is a written agreement
made by parties to contract. It may overrides the main agreement, but not to the extent
that may destroy the main contract.
43 [1976] 2 All ER 930.
44 [1913] AC 30.
45 [1993] 3 MLJ 433, HC.
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In the other hand, in order to show that oral agreement will prevail over written
agreement when it contradicts, it was best illustrated y the Privy Council in Kandasami v
Mustafa46 where the court held that there was in existence a collateral agreement under
which the parties had agreed that the written agreement would have no legal effect. 47
In a nutshell, laws applicable in Malaysia are not absurd or too rigid to be relied
on. When a person promise to someone, he must by hook or by crook be responsible
for what he said in order for justice to be upheld.

CONCLUSION
The existence of parol evidence rule in Malaysia under Section 91 and 92 of the
Evidence Act 1950 is fundamentally, to protect the original contents of the written
contract which will contribute to maintaining certainty and stability; particularly in
business dealings.
Generally, evidence may not be admissible to vary or contradict a written
agreement. However, the position is as was stated by Raja Azlan Shah (who was then
CJ) in Tan Sween Hoe & Co Ltd v Ali Husain, as follows:
46 [1983] 2 MLJ 85.
47 Visu Sinadhurai. (2003). Law of Contract. (3 rd ed.). Butterworths (Canada)
LimitedPress at page 196.
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Although it is trite law that parol evidence is not admissible to add, to vary or contradict a written
agreement, a technical way of overcoming the rule is by invoking the doctrine of collateral
contract warranty. There is a growing body of authority which supports the proposition that a
collateral agreement can exist side by side with the main agreement which it contradicts.

As numerous problems arising in Malaysia especially on the business matters to prove


the existence of extrinsic evidences aside from the written contract, it would be more
appropriate to be more careful when dealing with contractual matters. Put down
everything that might subject to the contract or inducing the parties to act on it in writing
form. It will be easier to prove printed materials than proving something which is orally
agreed upon by the parties. It must be remembered that judge is also a human being
and they can make a mistake too. So, if we can take precautions steps when entered
into contracts by predicting all the consequences if there is a breach, it might be easy to
prove the evidences.

BIBLIOGRAPHY
1. Arthur L. Corbin. (1944). The parol evidence Rule, 53. Yale Law Journal.
2. Bai Hira devi v Official Assignee, Bombay AIR 1958 SC 448
3. Blacks Law Dictionary. thelawdictionary.org.
4. Cheong, M. F. ( 2010). Contact Law in Malaysia. Sweet & Maxwell Asia
5. Coalfields of Burma Ltd v HH Johnson AIR 1925 Rang 128.

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6. Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65, 67
7. Emily M. Weitzenbeck. (2012). Norwegian Research Center for Computers &
Law. University of Oslo.
8. Foo Tock Lim v Piong Liew [1963] MLJ 67.
9. Heilbut Symons & Co v Buckleton [1913] AC 30.
10. Industrial Distribution Sdn Bhd v Golden Sands Construction Sdn Bhd [1993] 3
MLJ 433, HC.
11. J Evans & Sons v Andrea Merzario[1976] 2 All ER 930.
12. JJ Savage & Sons Pty ltd v Blakney (1970) 119 CLR 435 HC.
13. Kah Seng Construction Sdn Bhd v Selsin Development Sdn Bhd, [1997] 1 CLJ.
14. Kandasami v Mustafa [1983] 2 MLJ 85.
15. Kluang Wood products Sdn Bhd & Anor v Hong Leong Finance Berhad and Anor
[1991] 1 MLJ 193, FC.
16. Krishnan Arjunan and Abdul Majid Nabi Baksh. (2008). Contract Law in Malaysia.
Malayan Law Journal Sdn. Bhd.
17. L Estrange v F Graucob Ltd[1934] 2 KB 394.
18. Ng Ee v PP [1941] MLJ 180.
19. Ng Kong Yue and Anor v R. [1962] MLJ 67.
20. Siah v Tengku Nong [1964] MLJ 63.

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21. Syed Ahmad S A Alsagoff. (1998). Principles of the law of Contract in Malaysia.
(2nd ed.). Malayan Law Journal Sdn Bhd.
22. Tan Chong & Sons Motor Co Sdn Bhd v Alan Mcknight. [1979] 2 MLJ 229, FC.
23. Tan leng Teck v Sarjana Sdn Bhd & Ors [1997] 4 MLJ 239.
24. Tindok Besar Estate Sdn Bhd v Tinjar Co [1979] 2 MLJ 229.
25. Tyagaraja Mudaliar & Anor v Vadathanni [1936] MLJ 62.
26. United Malayan banking Corp. Bhd v Tan Lian Keng and Ors [1990] 1 MLJ 281
HC.
27. Visu Sinadhurai. (2003). Law of Contract. (3rd ed.). Butterworths (Canada)
Limited.
28. S. Santhana Dass. ( 2005). General principle of Contract Law in Malaysia.
Akitiara Corporation Sdn Bhd.

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