Norliza Abdul Hamid

Faculty of Law
UiTM Shah Alam.

November 2016

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= A legally enforceable agreement

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 Employment
 Sale of goods
 Insurance
 Services : banking, medical treatment, building
contracts
 Scholarship

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 Legislation/ Statute / Act of Parliament
 Contracts Act 1950 (CA 1950)

 Case law – Malaysian and English cases

 Example : Hyde v Wrench (1840)

 Others
 Federal & State Constitutions

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 Elements of a Contract
 Voidable Contracts
 Terms of Contract
 Discharge of Contracts

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 1. ELEMENTS

CONTRACT =

Proposal +
Acceptance +
Consideration +
Intention to Create Legal Relations +
Capacity +
Legality +
Certainty
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 ELEMENT (i) :
PROPOSAL / OFFER (Tawaran)
 Section 2(1) Contracts Act 1950: 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

 ie, a definite promise to be legally bound

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 Preston Corp v Edward Leong (1982)

 Tawaran adalah “satu tanda kesediaan pembuat tawaran untuk

menjalin satu kontrak yang sah dan mengikat di sisi undang-
undang..”

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 A proposal must be communicated

 Communication can be made expressly or impliedly

 Section 4(1) Contracts Act 1950: effective when it comes to
the knowledge of the other party (offeree).

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 Contrasts with an “invitation to treat”

 Goods on display on shelves or shop

windows are not proposals.
 Boots Case (1953)

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 Advertisements

 Coelho v the Public Services Commission (1964) – job

advertisement in the Malay Mail.

 Carlill v Carbolic Smokeball Co Ltd (1893) – advert in

newspaper for smokeball to prevent influenza + moneyback
guarantee + money in bank.
 = a proposal which was made to the world at large.

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 OFFER + ACCEPTANCE = AGREEMENT

ii. ACCEPTANCE (Penerimaan)

 s.2 (b) when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted: a proposal, when
accepted, becomes a promise.

 s.9 :by words or conduct

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 Acceptance must be absolute and
unqualified - s.7(a) CA 1950
 negotiations – Lau Bros v China Pacific Navigation Co Ltd
(1965)

 counter offer – Hyde v Wrench (1840)

 Facts : D offered £1000, P replied £950. D refused. P then
wrote to accept original offer.
 Held: No agreement.

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 Methods of acceptance : how to accept?
 In “some usual and reasonable manner” (s.7)
 unless offer states specific method of acceptance, eg in
writing / phone call.

 Must be within time limit set in offer or within reasonable

time (s.7)

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 SILENCE IS NOT ACCEPTANCE
 Felthouse v Bindley (1862)
 Facts : “If I hear no more about him, I consider the horse mine at £30
15s.”
 Held : No valid acceptance, no agreement.

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 Effective when communicated –
Postal Rule
 s.4(2)a : communication complete when it is put in a course
of transmission to proposer, so as to be out of power of
acceptor

 binds proposer when letter posted.

 binds acceptor : when it comes to knowledge of proposer

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 Revocation of Offer & Acceptance

 s.5: Offer can be revoked or withdrawn at any time before

communication of acceptance

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 METHODS OF REVOCATION

i) Communicating notice of revocation to offeree

ii) Lapse of time for acceptance/ reasonable time
iii) Failure of offeree to fulfill condition of acceptance
iv) Death/mental disorder of offeror – if offeree
knows before he accepts.

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 Note:
 Offeror can still withdraw offer even if he has promised to keep
offer open for a specific period of time.

 Routledge v Grant (1828)

 Facts: D gave 6 weeks for P to decide. 3 weeks later, he withdrew
his offer. P tried to accept within the 6 weeks.
 Held: No contract since D withdrew his offer. D was free to
withdraw at anytime before acceptance.

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 iii. INTENTION TO CREATE LEGAL RELATIONS
(Niat)
 refers to intention of parties to create a legally binding &
enforceable agreement (ie, a contract)

 Presumptions
i. Family arrangements : Balfour v Balfour (1919)
ii. Commercial arrangements
iii. Exceptions

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 iv. CONSIDERATION (Balasan)
 s.26 : An agreement is VOID if there is no consideration
 Definition : s.2 (d) : when, at the desire of the promisor, the
promisee or any other person has done or abstained from doing,
or does or abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or promise is
called a consideration for the promise

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 Who provides consideration?

 Venkata Chinnaya v Verikatara Ma’ya (1881)

 Consideration from a party to the contract or any third party
= good consideration.

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 Consideration need NOT be adequate
 Section 26 Illustration (f) : A agrees to sell a horse worth
RM1,000 for RM10. A's consent to the agreement was freely
given. The agreement is a contract notwithstanding the
inadequacy of the consideration.

 Phang Swee Kim v Beh I Hock (1964)

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 Past consideration (Balasan lampau)
 A promise to compensate a person who has already
voluntarily done something for the promisor, or something
which the promisor was legally compellable to do.
 S.26 Illustration (d) : A supports B's infant son. B promises to
pay A's expenses in so doing. This is a contract.
 Kepong Prospecting Ltd v Schmidt (1968)

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 Natural love and affection
(kasihsayang semulajadi)
 It is in writing and registered (if applicable) and is made on
account of natural love and affection between parties standing in
a near relation to each other.

 S.26 Illustration (b)

 A, for natural love and affection, promises to give his son, B,
RM1, 000. A puts his promise to B into writing and registers it
under a law for the time being in force for the registration of
such documents. This is a contract.

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 Part payment
 Kerpa Singh v Bariam Singh (1966)
 Facts: A owed B $8650. Later A’s son offered to pay $4000 as
payment in full to discharge the debt. Son
said that if B didn’t agree, B should return the cheque. B cashed
the cheque and later, claimed the balance of $4650.
 Held: B had accepted the offer by cashing the cheque. By cashing
the cheque, he indicated that he agreed to accept the lesser sum.
Therefore, B couldn’t claim the balance.

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 v. CAPACITY (Keupayaan)

 s.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, and is
not disqualified from contracting by any
law to which he is subject.

 Age of Majority Act 1971 : 18 years

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 Exceptions

 Contracts for NECESSARIES – suitable

to his condition in life (status)
 Contracts for SCHOLARSHIP
 Contracts for INSURANCE – with
written parental consent.

= valid contracts

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 vi. LEGALITY
 Where consideration / object of agreement is unlawful,
then the agreement is void and unenforceable –
section 24

 Examples:
i. forbidden by law
ii. involves injury to person / property of another
iii. immoral purposes

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vii. CERTAINTY of Contract Terms
Terms must be certain and not vague.

Karrupan Chetty v Suah Thian (1916)

 Facts: Lease at $35 per month “for as long as
he likes”
 Held: Void for uncertainty.

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 2. VOIDABLE CONTRACTS
 s.13 : Two or more persons are said to consent when
they agree upon the same thing in the same sense.

 s.14 : FREE CONSENT = when not given by coercion,

undue influence, fraud, misrepresentation, or mistake.

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 Effects of VOIDABLE contract
 Valid at the time contract was entered into.
 Until it is avoided by the ‘innocent’ party.
 If so, contract becomes void.

 Question : What if ‘innocent’ party did nothing?

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 i. COERCION (duress)
 s.15 : committing, or threatening to commit any act
forbidden by the Penal Code, or the unlawful detaining or
threatening to detain, any property, to the prejudice of any
person whatever, with the intention of causing any person to
enter into an agreement.

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 ii. 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.

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 Example
 where a contract is made with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or
mental or bodily distress.
 Illustration (b) : A, a man enfeebled by disease or age, is induced,
by B's influence over him as his medical attendant, to agree to pay
B an unreasonable sum for his professional services. B employs
undue influence.

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 iii. MISREPRESENTATION
 Section 18
 A person makes a statement which is not true, though he
believes it to be true.
or
 If he knows it is not true / does not believe it to be true –
fraud.

 ie, making a false statement of fact.

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 iv. MISTAKE (Khilaf)
 Section 21: both parties are under mistake as to matter of fact.
 Section 22 : mistake as to law
 Section 23 : mistake of one party as to matter of fact

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 Mistake as to fact by BOTH parties
 Section 21
 Where both the parties to an agreement are under a mistake
as to a matter of fact essential to the agreement, the
agreement is void.

 Illustration (b) : A agrees to buy from B a certain horse. It

turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact. The agreement is
void.

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 Mistake as to the law

 Section 22
 A contract is not voidable because it was caused by a mistake
as to any law in force in Malaysia – ie. may be valid
 Illustration : A and B make a contract grounded on the
erroneous belief that a particular debt is barred by limitation:
the contract is not voidable.

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 Mistake of one party as to facts
 Section 23
 not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact.
 Effect: Contract may still be valid.

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 3. TERMS OF CONTRACT
 ie, contents of contract

 Issue:

 Terms versus Representations

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 Express terms

 as agreed between the parties

 orally or in writing.

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 Implied terms
 Implied by the Sale of Goods Act 1957
 Section 15: goods must fit description
 Section 16: merchantable quality
 Section 16: fitness for purpose
 Section 17: correspond to sample

 By Consumer Protection Act 1999

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 Eg - Sale by description – s.15 SOGA 1957
 Where goods are bought based on description, there is an
implied condition that the goods shall correspond with
the description.

 S may describe the goods in words and even pictures relating to

size, colour, materials used, price etc. In fact, most contracts of
sale are sales by description.
 A buyer would rely on the description given when goods are
ordered through catalogues or brochures.
 Likewise when goods are purchased online where the buyer relies
on what he sees or reads on the website.

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 Case : Beale v Taylor (1967)

 A car was advertised as a “Herald Convertible, white, 1961...” The buyer

actually saw the car before agreeing to buy. Later, he discovered that the
rear half was part of a 1961 Herald Convertible, but the front half was a
part of an earlier model.

 Despite having seen the car, the court held that there was a breach and
granted damages to the buyer since the buyer relied on the description
given by the seller.

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 4. DISCHARGE

 = to end / terminate the contract.

4 ways

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
i. Performance
ii. Agreement
iii. Breach
iv. Frustration

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I. BY PERFORMANCE

 Section 38(1) : The parties to a contract must either

perform, or offer to perform, their respective

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promises,...

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 WHO MUST PERFORM? – SECTION 41

 If promisor promised to personally perform, then

it must be performed by him.

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 Illustration : A promises to paint B’s picture, then
must be personal performance.

 Otherwise, promisor may employ a “competent

person” to perform.
 Illustration : A promises to pay B a sum of money.
A may pay personally or by another.

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 II. BY AGREEMENT

 Agreement to discharge or terminate the contract

 Both parties agree to end the contract although it

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has not been performed.
 Effect : contract comes to an end.

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III. BY BREACH

 When one party fails to perform

 s.40 : when a party to a contract has refused to

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perform / disabled himself from performing his
promise in its entirety, the promisee may put an
end to the contract
 unless he has signified, by words or conduct, his
acquiescence in its continuance.

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ILLUSTRATION

 A, a singer, enters into a contract with B, the

manager of a theatre, to sing at his theatre two nights

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in every week during the next two months, and B
engages to pay her RM100 for each night's
performance. On the sixth night A wilfully absents
herself from the theatre. B is at liberty to put an end
to the contract.

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 EFFECT

 A breach of contract
 The other party may take legal action for breach

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of contract.

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 REMEDIES – FOR BREACH
 DAMAGES – compensation for loss and damage.
 SPECIFIC PERFORMANCE – a court order to

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compel a party to perform his duties under
contract.
 INJUNCTION – a court order to prevent
someone from doing something.

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IV. BY FRUSTRATION
 when there is a change in circumstances which
renders contract legally / physically impossible to
perform.

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 Effect : contract becomes frustrated.
 Effect : VOID and UNENFORCEABLE.

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 2 CATEGORIES

 Impossibility of performance at the time contract

is made.

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 Impossibility after contract was made.

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SECTION 57(1) CONTRACTS ACT 1950

 An agreement to do an act impossible in itself is

void.

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 ie. impossible to perform at the time of contract.

 (a) A agrees with B to discover treasure by magic.

The agreement is void.

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CONTRACT TO DO AN ACT WHICH
AFTERWARDS BECOMES IMPOSSIBLE OR
UNLAWFUL.

 Section 57 (2) A contract to do an act which, after

the contract is made, becomes impossible, or by

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reason of some event which the promisor could
not prevent, unlawful, becomes void when the
act becomes impossible or unlawful.

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EXAMPLE : DESTRUCTION OF SUBJECT
MATTER

 Taylor v Caldwell (1863)

 Facts : After contract was entered into, music

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hall (subject matter of contract) burnt down
before date of concert.
 Held : Contract frustrated.

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EXAMPLE : PERFORMANCE BECOMES
UNLAWFUL

 Berney v Tronoh Mines Ltd (1949)

 Facts : a contract of employment was discharged

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when Japan occupied Malaya during WW2.

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EXAMPLE OF SUPERVENING EVENT
WHICH DEFEATS THE WHOLE
PURPOSE OF CONTRACT
 Krell v Henry (1903)

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 Facts : A room was hired for sole purpose of
watching the coronation procession of King
Edward VII. However, the coronation was
cancelled when the King fell ill.
 Held : The purpose of hiring room no longer
existed.

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 EFFECT OF FRUSTRATION
 Contract becomes void.
 Section 66 : Any person who has received any benefit /
advantage, is bound to restore it, or to compensate for
it to the person whom he received it from.

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 Illustration (d) : A contracts to sing for B at a concert
for RM1,000, which are paid in advance. A is too ill to
sing. 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, but must refund to B the RM1,000
paid in advance.

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 HOWEVER:
 One party may not sue the other, because
contract is not breached.
 The frustrating event was not due to anybody's

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fault.

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 ADDITIONAL POINTS
 A contract may be governed by other law and/or in addition
to the Contracts Act 1950
 Examples :
 Sale of goods – Sale of Goods Act 1957
 Consumer goods & services : Consumer Protection Act 1999
 Partnership : Partnership Act 1961
 Hire purchase : Hire Purchase Act 1967

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 Malaysian Court Structure

64 22 September 2016
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 Palace of Justice, Putrajaya

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65 22 September 2016
 The End – Thank You.

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