LAW - OF - CONTRACT Malaysia

DCQ2162 PRINCIPLE OF LAW
LAW OF CONTRACT
2.1 Understand the basic principle of Law of Contract.
2.1.1 Explain contracts according to Contract Act 1950
2.1.2 Explain the essentials of valid and enforceable contract:
a. Agreement (offer/proposal/acceptance)
b. Consideration
c. Intention
d. Capacity
e. Free consent
f. Lawful object
g. Certainty of term
h. Required formality
2.1.3 Explain the causes of void contract, voidable contract and unenforceable
contract:
a. Coercion
b. Undue influence
c. Fraud
d. Misrepresentation
e. Mistake
2.1.4 Explain the unlawful agreement
a. Agreement forbidden by laws
b. Agreement that would defeat the provision of any law
c. Agreement those are fraudulent
d. Agreement that involve injury to the person or property of another
2.1.5 Explain related method of discharge of contract:
a. By performance
b. By agreement
c. By impossibility
d. By Breach
2.1.6 Explain the remedy for breach of contract:
a. Damages
b. Injunction
By NUR QIAM FARHANA ADNAN Page 1

c. Quantum Meruit
d. Specific Performance
2.2 Apply the knowlegde of Law of Contract to the related issues in construction
project.
2.2.1 Relate the issue in construction project to the Principle Law of Contract.

A contract is defined as ‘an agreement enforceable by law’ or ‘agreement which is

legally binding between the parties an agreement which binds the parties concerned.
To have an agreement, there must be an offer and an acceptance of that offer.
In Malaysia, according to the legislation in Malaysia, contract has been defined as

what has been stipulated in the “Contract Act, 1950 (Act 136) (Revised 1974)”. But
when there is no provision made or covered under the Contracts Act, or if a particular
subject has been covered by the Contract Act but there are no provisions relating to
the subject, in the other words is the subject is not exhaustive, English Law are applied
by virtue of the “Civil Law Act”. If the Contract Act has any provision which differ from
English Law, the provision of the Contract Act shall prevail .
To have a contract, certain essential elements must be present. These will be discuss
in the following chapters. The contract must not of course be affected by
circumstances which render the contracts unenforceable, voidable
( ie, capable of being set aside ), void or illegal
The basic elements constituting a contract are agreement (offer, acceptance of the
offer), intention to create legal relations, considerations, certainty, and capacity.
Offer
Offer or proposal is necessary for the formation of the contract. Section 2(a) of the
Contracts Acts describes that :
‘when a person signifies to the other his willingness to do or to abstain from

doing anything, with a view to obtaining the assent of that other to the Act
or Abstince, he is said to make a proposal’.
The first limb of Section 2(c) of the Contracts Act describes the person who is making
the proposal as ‘Promisor’.
Under the Contracts Act and English Law, a proposal or offer is something which is
capable of being converted into an agreement by the acceptance of the offer. A
proposal must be a definite promise to be bound provided certain specified terms are
accepted. The promisor must have declared his readiness to undertake an obligation
upon certain terms, leaving the option of its acceptance or refusal to the offer.
The ‘Communication of the proposal’ is complete when it comes to the knowledge of

the person to whom it is made ( Section 4(1), Contracts Act). This means that the
proposal is effective once it is communicated to the offeree by the offeror. The
communication of the offer or a proposal is deemed to have been made by any act
of the party proposing by which it is intended to communicate the proposal or which
has the effect of communicating it (Section 3, Contracts Act ). A proposal that is made
of words ( spoken, oral ) is said to be expressed. A proposal made other than in words
( such as, by conduct ), is said to be implied ( Section 9, Contracts Act ).

An offer is different from ‘option’ and ‘advertisement’. An option is merely an

Undertaking to keep the offer open for a certain period of time while an advertisement
is an attempt to induce or express your offer to interested parties.
An offer to some definite class can only be accepted by that person. An offer to the
world at large can be accepted by anyone. This can be illustrated by the famous case
of Carlill v Carbolic Smoke Ball and Co. The facts are as follows :
Carbolic Smoke Ball Co. Ltd. advertised that they would offer $1,000 to anyone who
still succumbed to influenza after using a certain remedy for a fixed period. The plaintiff
duly used it but nevertheless, contracted influenza. The plaintiff then sued for the
money. The Court of Appeal held that the plaintiff was entitled to the $1,000 as she
had accepted the offer made to the world at large.
Whether an advertisement is an offer or an invitation to treat depends on the intention

to treat depends on the intention of the parties in each case. The courts have held
that advertisements of bilateral contracts are not offers whereas advertisements of
unilateral contracts are construed to be offers.
When an auctioneer invites bids, he is merely making an invitation to treat, and when
bidder makes a bid, he is making an offer. Similarly, a display goods in a shop is an
invitation to treat
Acceptance Of Offer
Agreement comes into existence when an offer is accepted. The acceptance must
be made while the offer is still in force, i.e, before it has lapsed, been revoked or
rejected, acceptance is thus only possible if the offer is still in force. Once the
acceptance is completed, the offer becomes irrevocable.
Section 2 (b) Contracts Act provides that when the person to whom the proposal is
made signifies his assent thereto, the proposal is said to have been accepted. A
proposal, when accepted, becomes a promise. The person who is accepting the
proposal is the ‘promisee’.
Section 9 of the said Act provides that so far as the acceptance of any promise is
made in words, the acceptance is said to be expressed. If the acceptance is made
other than in words, the acceptance is said to be implied.
For a proposal to be converted into a promise, the acceptance of that proposal must
be absolute and unqualified. If the parties are still negotiating, an agreement is not yet
formed ( Lau Brothers @ Co. v. China Pacific Navigation Co.Ltd ). In this case,
negotiations for delivery of logs were conducted through a series of telegrams and
letters. Whilst still in the negotiating stage, the defendants withdrew. Was there a
binding contract between the two parties? The court held that the parties were still in

a state of negotiating and no agreement was formed. Therefore, the defendants were
justified in withdrawing.
A counter offer operates as a rejection of the original offer. Where an offeree makes
a counter –offer , the original offer is deemed to have been rejected and cannot
subsequently be accepted. In the case of Hyde v Wrench, the facts were as follows :
On 6 June Wrench offered to sell to Hyde a farm for $1,000. H made a counter-offer of
$950.On 6 June, W rejected the counter-offer .On 29 June H made a purported
acceptance of the offer of 6 June.
Held : the counter – offer operated as a rejection of the original offer. There was no
contract .
Besides the aforementioned requirement that acceptance must be unconditional, it

is also essential that acceptance must be made within reasonable time-see section
6(b).What amounts to reasonable time is a question of fact depending on the
circumstances of each case, e.g , the nature of the subject-matter or the method by
which the offer is communicated.
Section 7 (b) of the Contracts Act provides that acceptance must be expressed in
some usual and reasonable manner, unless the proposer prescribes the manner in
which it is to be accepted. However, the proposer cannot prescribe silence as a
manner of acceptance. Though the general rule is that the offeror does nothing he (
the offeree ) will be bound to a contract.
Acceptance may be made by performance of the conditions of a proposal, or the

acceptance of any consideration for a reciprocal promise which may be offered with
proposal-Section 8 of the Contracts Act and Carlill v. Carbolic Smoke Ball Co.Ltd.
Section 3 of the Contracts Act provides inter alia that the acceptance of proposals is
deemed to be made by any act or omission of the party accepting by which he
intends to communicate the acceptance or which has the effect of communicating
it.
The communication of an acceptance has two different rules-instantaneous contracts

and contracts by post. If the offeror prescribes a particular method of acceptance
and acceptor accepts in that way, there will be a contract. For example, A offers B
some iron, the acceptance to be made by telex. B accepts by air-mail letter. That
acceptance is ineffective because it did not comply with the terms of the offer. The
offeror may waive the requirement that acceptance be communicated, especially in
unilateral contracts. The offer of a reward is a unilateral contract. If the offer is one
which is to be accepted by being acted upon, no communication of the intention to
accept is necessary, unless communication is stated in the offer itself.
Acceptance in Instantaneous Contracts

Acceptance in Instantaneous Contracts means contracts made between persons

present or by telephone or telex. The contract is complete only when the acceptance
is received by the offeror and not when transmitted. Acceptance takes place when
it is actually brought to the notice of the offeror.
Acceptance by post
Where contracts are made by letter, telegram or cable, they are said to be made by
post. The rule is that an acceptance by post takes effect as soon as it is posted. If the
parties have agreed to an acceptance by posting, it is complete as soon as the letter
of acceptance is posted and properly addressed whether it reaches the offeror or not.
Intention To Create Legal Relations

An agreement is not a binding contract unless the parties intend to create legal
relations. If parties indicate that they do not wish their agreement to be binding on
them, the law would respect their intention.Although the Contracts Act is silent on the
intention to create legal relations as one of the requirements of a valid contract, case
law clearly dictates the necessity of this requirement. There are, however, cases where
no intention to enter into legal relations can be imputed, e.g cases where the
agreements merely represent family arrangements-Choo Tiong Hin Ors v Choo Hock
Swee and Phiong Khon v.Chonh Chai Fah, and in cases where concessions were
made in the course of business negotiations.
In domestic arrangements there is a presumption against the existence of an intention

to create legal relations whilst in commercial arrangements the rebuttable
presumption is that legal relationships are intended-Esso Petroleum Co.Ltd v.Customs
@ Exercise Commisioner. Generally, it is up to the courts to ascertain the intentions of
the parties from the language used and the context in which they are used.
Consideration
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.
Considerations Need Not be Adequate

Under Malaysian law, consideration need not be adequate. Explanation 2 to Section
26 of the Contracts Act provides that an agreement is not void merely because the
consideration is inadequate. Ilustration ( Section 26 shows the application of the rule
‘A agrees to sell a horse worth $1,000 for $10…The agreement is a contract
notwithstanding the inadequacy of the consideration. The issue of adequacy of
consideration was dealt with by the federal Court in Phang Swee Kim v. Beh I Hock.
Provisions Of Considerations

It can be implied from Section 2(d) of the Contracts Act that consideration may move
from a person who is not the promisee. It may move from ‘the promisee or any other
person’.
Past Consideration is Good Consideration

As a general rule, English law does not recognize past consideration. However, one
of the exceptions to this rule is laid down in the English case of Lampleigh v. Brathwait
where it was held that an act originally done at the request of the promisor, a promise
made subsequent to the doing of the act, was deemed binding since the act
constituted consideration.
Natural Love and Affection is Valid Consideration

English law does not recognize natural love and affection as valid consideration. On
the other hand, the Contracts Act in Malaysia recognizes natural love and affection
as valid consideration if certain prerequisites are complied with. These are contained
in Section 26 (a) which reads :
An agreement made without considerations is void unless it is expressed in writing and

registered under law (if any) for the time being in force for the registration of such
documents, and is made on account of natural love and affection between parties
standing in a near relation to each other.
Accord and Satisfaction-Part Payment May Discharge an Obligation

Payment of a smaller sum is not a Satisfaction of an obligation to pay a larger sum.
However, the court in Pinnel’s Case noted certain exceptions to the general rule which
include :
The gift of a horse ,hawk, or robe…in satisfaction is good. For it shall be intended that
a horse, hawk, or robe…..might be more beneficial….than the money…..
The general rule established in Pinnel’s Case, however, does not apply in Malaysia.
Considerations Need not Move from the Promisee

Under the Contracts Act, a party to an agreement can enforce the promise even if
he himself has given no consideration as long as somebody has done so.
Certainty
The terms of an agreement cannot be vague but must be certain. An agreement
which is uncertain or is not capable of being made certain is Void. For example, if Ali
agrees to sell to Mary a hundred crates of toys without specifying what kind they are,
such an agreement is void on the grounds of uncertainty. Similarly if Ali agrees to sell
to Mary his house for RM300,000 or 400,000, such an agreement is also void.
On the hand, if Ali is the dealer in plastic toy soldiers only and he agrees to sell ‘a
hundred crates of toys ‘, the type of toys dealt with by Ali indicates the meaning of

the word ‘Toys’. Similarly, if Ali agrees to sell to Mary his house at a price to be fixed by
his wife, there is no uncertainty as the price is capable of being made certain.
In Karuppan Chetty v. Suah Thian, the requirement of certainty was not met when the
parties agreed upon the granting of a lease at 35.00 per month for as long as he likes.
Capacity
The parties entering into a contract should also be competent to contract, i.e, they
must have the legal capacity to do so. In Malaysia , the age of majority is eighteen
years-Age of majority Act 1971. In Mohori Bibee V. Dharmodas Ghose, the privy
Council had held that an infant cannot make any valid contracts. The general rule in
Malaysia is that contracts made by infants are void. However, there are some
exceptions to this rule. These are the following :
i) Contracts for Necessaries

ii) Contracts Of Scholarship
iii) Contracts Of Insurance
There are a few categories of persons who do not have legal power to enter into any
contract they are minors ,corporations, mentally disordered persons and drunkards.
Minors
Incapacity is imposed by law upon a minor not as a punishment, but to protect him
from the consequences of his inexperience; A minor is a person below the age 21 years
old.
Corporations
A corporation or a company is an illegal person. It is distinct from the individual persons
who are shareholders of the corporation. It has a legal existence separate and distinct
from the shareholders.
Mentally disordered and drunken persons

If a person, at the time of contracting, is suffering from a mental disability and is
incapable of understanding the nature of the contract, the contract is voidable at his
instance if he can prove that his disability was known to the other party.
According to section 2(g) of the Contracts Act, ”an agreement not enforceable by
law is said to be void. This appears simple but actually it can be seen that this provisions
merges all the common law categories which are mentioned later in the same Act.
Traditionally, a contract which cannot be enforced is classified as void, voidable or un
unenforceable.

When agreement is void, it is null so that no rights of any kind can pass or be created
under it. Instances of void contracts that have already been considered earlier are
those without consideration or those too vague to be enforced. In addition, several
statutes render certain types of contracts void.
A voidable contract is an agreement which is valid unless and until it is set aside by
one of the parties concerned. Hence rights and duties may arise under it and third
parties may also acquire rights under such agreements unless they have been
avoided earlier . Circumstances that will render a contract voidable under the
Contracts Act are coercion, fraud, misrepresentation and undue influence.
An unenforceable contract is one which is valid but which cannot be enforced by

legal action because it does not comply with certain statutory requirements. An
example of an unenforceable contract is a hire –purchase agreement that is not in
writing. This is specially provided for in the Hire-Purchase Act 1967.
Voidable Contract
Section 10 of the Contracts Act,1950 provides inter alia that all agreements are
contracts if they are made by the freely consenting parties. By virtue of Section 14,
consent is said to be free when it is not caused by one or more of the following :
i) Coercion
ii) Undue influence
iii) Fraud
iv) Misrepresentation
v) Mistake
Section 19 (1) provides that when consent to an agreement is caused by coercion, fraud
or misrepresentation, the agreement is voidable at the option of the party whose consent
was so caused.
Coercion
The word ‘coercion, is defined in Section 15 of the Contracts Act as follows;

Undue Influence
The doctrine of Undue influence is a development of equity to cover cases of
particular relations and is sometimes used as a comprehensive phrase to include cases
of coercion, domination or pressure within or without those special relations.
The doctrine as embodied in Section 16 of the Contracts Act is in substance based on

English principles. Section 16 reads :
16.(1) A contract is said to be induced by ‘undue influence’ where the relations

subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other .
16 (2). In particular and without prejudice to the generality of the foregoing principle,
a person is deemed to be in a position to dominate the will of another :
a) where he holds a real or apparent authority over the other, or where he stands
in fiduciary relation to the other ; or
b) where he makes a contract with a person whose mental capacity is temporarily
or permanently affected by reason of age, illness, or mental or bodily distress.
3 (a ) where a person who is in a position to dominate the will of another, enters

into a contract with him, and the transaction appears, on the face of it or on the
evidence adduced, to be unconscionable, the burden of proving that the
contract was not induced by undue influence shall lie upon the person in a position
to dominate the will of the other .
3 (b) Nothing in this subsection shall affect Section 111 of the Evidence Act 1950.
In Raghunath Prasad v. Sarje Prasad it was held that three matters are to be dealt with
under section 16 (3) :
(i) The relations between the parties to each other must be such that one is in a
position
to dominate the will of the other

(ii) The issue whether the contract has been induced by undue influence ,
(iii) The burden of providing that the contract was not induced by undue influence
lies
upon the person who was in a position to dominate the will of the other.
In situations where it is apparent that a confidential relationship exists between the

parties, the law raises a presumption that undue influence has been exercised and
the onus of proof is upon the donor to show that the transaction is ‘righteous and
proper’-Salwath Haneem v.Hadjee A bdullah.
In order to rebut the presumption of undue influence the court must be satisfied upon
the evidence that the donor was acting independently of any influence from the
donee and with the full appreciation of what he was doing-Inche Noriah v. shaik Allie
bi Omar. One way of establishing this is to prove that independent legal advice had
been given to the donor.
The effect of undue influence is to render the contract voidable at the option of the
innocent party. He can recover his losses under Section 66 of the Contracts Act which
requires a person who has received any disadvantage under the contract, before it
becomes void, to restore it or to make compensation for it to the party from whom it
was received.
Fraud
Fraud is defined in Section 17 of the Contracts Act to include certain acts which are
committed with intent to induce another party to enter into a contract. Section 17
then lays down five different acts which may constitutes fraud. As a general rule, it
may be stated that whatever a person causes another to act on a false
representation which the maker himself does not believe to be true he is said to have
committed a fraud.
Fraud includes any of the following acts committed by a party to a contract, or with
his connivance, or by his agent, with intent to deceive another party or to induce him
to enter into a contract.
a) Suggestion, as to the fact of that which is not true by one who does not believe
it to be true
b) the active concealment of a fact by one having knowledge of believe of the
fact ;
c) a promise made without any intention of performing it.
d) any other act fitted to deceive and
e) any such act or omission as the law specially declares to be fraudulent.
Explanation –Mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such that, regard

being had to them, it is the duty of the person keeping silence to speak, or unless his
silence is, in itself, equivalent to speech.
The general rule is that mere silence or non-disclosure may constitute fraud. The
explanation to Section 17 provides that the circumstances may be such that ‘it is the
duty of the person keeping silence to speak.
Misrepresentation
Section 18 of the Contracts Act defines the word ‘misrepresentation’. It reads as follows
:
Misrepresentation includes ;
a) the positive assertion, in a manner not warranted by the information of person
making it, of that which is not true, though he believes it to be true;
b) any breach of duty which, without an intent do deceive, gives an advantage
to the person committing it, or anyone claiming under him. And
c) causing, however innocently a party to an agreement to make a mistake as to
the substance of the thing which is the subject of agreement.
The basic difference between misrepresentation and fraud is that in fraud the person
making the representation does not himself believe in its truth whereas, in case of
misrepresentation, he my believe the representation to be true.
As in the case of fraud, silence in certain situations where there is a duty imposed to
disclose, may amount to a misrepresentation ( Section 18(b)).
Mistake
Section 21 of the Contracts Act which provides for cases where there mistake of facts
reads,
Where both parties to an agreement are under a mistake as to a matter of fact

essential to the agreement, the agreement is void.
Explanation-An erroneous opinion as to the subject matter of fact.

The basis rendering agreements void under Section 21 is that there has been no free
consent between the parties. For a mistake, to be operative Under Section 21,it must
be a mistake essential to the agreement.
Section 22 provides for the cases where there is mistake as to law. It reads,
A contract is not voidable because it was caused by mistake as to any law in force in
Malaysia has the same effect as a mistake of fact.
Void Contracts

A void contract is an agreement not enforceable by law-Section 2(g) of the Contracts

Act. Section 24 of the said Act provides that the consideration or object of an
agreement is unlawful if it falls within any of the subsections of the section. The said
sections read :
a) it is forbidden by law
b) it is of such a nature that, if permitted, 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 or opposed to public
policy.
In each of the above cases, the consideration or object of an agreement is said to be

unlawful. Every agreement of which the object or consideration is unlawful is void.
UNLAWFUL AGREEMENTS
Some agreements are merely void but others can be void as well as unlawful. In the
latter group, the parties concerned are treated more strictly by the law. A court will
refuse to enforce it. The contract act does not appear to have provided specifically
for illegal contracts. They are classified as void contracts.
In Section 10 (1) of the Contracts Act, a contract must be made, inter alia, “ for a
lawful consideration and with a lawful object”. Usually the consideration or object of
an agreement is considered lawful unless :-
(i) It is forbidden by a law
(ii) It is of such a nature that it would defeat any law
(iii) It is fraudulent
(iv) It involves or implies injury to the person or property of another, or
(v) It is regarded by the court as immoral or opposed to public policy
Agreements Forbidden By Law

Law refers not only to the common law and equity but includes statutes. The
legislature, whether it be parliament or the state assembly, may enact laws forbidding
certain types of agreements and declaring that they be void. These laws may also
empower a body or person to enact subsidiary legislation forbidding a certain kind of
transaction.
Gaming agreements
An example of a contract forbidden by law is gaming or wagering contracts. Section
26 of the Civil Law Act 1956, sets out in identical terms, provisions of two English Acts,
Section 18 of the Gaming Act, 1845 and Section 1 of the Gaming Act 1982.
Section 31 of the Contracts Acts also provides for gaming or wagering contracts but is
suspended in its operation by the Civil Law Act. According to Section 26 of the latter
act,
(1) “all contracts or agreements, whether by parole or in writing, by way of gaming
or wagering shall be null and void.
(2) No action shall be brought or maintained in any court for recovering any sum of
money or valuable thing alleged to be won upon any wager or which has been
deposited in the hands of any person to abide by the event on which any wager
has been made
At the time of the contract, the event is uncertain. If the event turns out one way, one
party will lose but if it turns out the other, he will win. Neither of the parties has any other
interest in the contract other than the stake he will win or lose. It is to be noted that
unlike English Law, there is no distinction between wagering on games and other types
of gaming. In every case, the question of gaming has to be considered in the light of
the local statutes.
There are many cases on rubber and share market speculation which have been
litigated before the courts. In buying shares listed in stock exchange, a man usually
goes to a broker and directs him to buy and sell so much stock as he requires. In the
eyes of the purchaser, it may be gambling transaction because he has no intention of
taking the stock that he will sell again before settling day arrives. Where the broker
does not intend to deliver and he has entered into a secret understanding that he will
not do so, the contract is a wager. The parties settle the difference between the prices.
Since this type of contract is a wager, money owed by the client to the broker or vice
versa is not recoverable.
In a Singapore case decided on appeal upon a law similar to Malaysian legislation

Mizrahie V. Stanton Nelson & Co. Ltd. (1958) 24 M.L.J. 97, the court held that a series of
transactions between the respondents and the appellants constituted a wager. The
facts of the case were as follows :-
The respondents were rubber brokers. They claimed damages from the
appellant for breach of several contracts in writing for purchase and sale of

rubber. Alternatively, they also claimed the balance of expense incurred by

them or reasonable remuneration earned by them, in respect of services
rendered as the respondent’s brokers. The appellant raised the defence of
illegality which was based, inter alia, on the ground that the contracts were
void as gaming and wagering contract.
The court found that none of the contracts placed by the respondents on
behalf of the appellant were genuine contracts for the delivery of the rubber.
The respondents had agreed with the appellant that he would not be
required to take or give delivery of the rubber and that only differences should
be payable. The contracts were, therefore, made by way of gaming and
wagering. The respondents could not recover from the appellant money paid
under them to third parties or their commission on them.
Agreements That Would Defeat The Provision Of Any Law

An agreement that would defeat the object of any law, either statute or general, is
also void. For example, a contract to commit crime or a tort would be against the
general law. Where a particular contract is expressly forbidden by statute it is relatively
easier to determine its validity. But frequently the statute does not state that a certain
agreement is void. It merely forbids the agreement by implication, as for instance, by
imposing a penalty on a person who carries on a particular business without having
first obtained a licence. Thus, one has to determine the intention of the legislature,
whether the requirement of a licence renders all agreements made without it void or
leaves them valid. To decide, one has to look at the statute as a whole and consider
whether the imposition of a penalty is merely to deter persons from entering into such
contracts or for the purpose of revenue or whether it is intended that such a contract
shall be invalid. In Hee Cheng V. Krishnan (1955) M.L.J. 103,
The plaintiff claimed for specific performance or alternatively for damages for
a breach of contract entered into between him and the defendant. The
defendant had agreed to sell a house built upon a piece of land, in respect
of which, a temporary occupation licence was issued. This promise to transfer
was in contravention of Rule 41 of the Land Rules, 1930 which states that “no
licence for the temporary occupation of state land shall be transferable”.
It was held that the contract was an attempt to sell and purchase the
defendant’s rights under the temporary occupation licence. As such, it was
invalid, as being of such nature, that if permitted, it would defeat the provisions
of the law.
As a general guide, a distinction may be made between a statute which imposes
a penalty for revenue purposes and a statute for the protection of the public. In
general, a penalty imposed merely for revenue purposes does not imply a
prohibition while a statute whose object is the protection of the public implies a
prohibition.
Agreements That Are Fraudulent

An agreement whose consideration or object is fraudulent is also unlawful. This

category is different from fraudulent misrepresentation. In the latter, one party is
fraudulently induced by another to enter into a contract. The emphasis is fraudulent
object or consideration. An agreement for the division of gains acquired or to be
acquired by fraud is void because its object is unlawful.
Similarly, the consideration is unlawful if A promises to obtain for B a job in the public
service and B promises to pay him RM 1,000.00 in return. In the relationship between
principal and agent, there is fraud by concealment if A, the agent, agrees, for money,
without the knowledge of his principal, to obtain for B a lease of land belonging to his
principal.
Agreements That Involve Injury To The Person Or Property Of Another

If the consideration or object of an agreement involves or implies injury to the person
or property of another, it is also unlawful. The law applies to the person as well as
property of another. The object of an agreement will be unlawful if it is intended to
cause physical injury to A. by the same principle, if two parties agree to damage the
house of a third in return for a payment by the other, the agreement is unlawful. In
Syed Ahamed Bin Mohamed Alhabshee V. Puteh Binte Sabtu, the defendant agreed
to sell the plaintif property in which an infant had an interest. This dealing was to the
detriment of the infant and was thus struck down by the court under this principle.
Agreements That Are Immoral Or Opposed To Public Policy

If the consideration or object of an agreement is immoral, the contract is unlawful.
Thus, a promise by a father to give his daughter as a concubine is immoral. The same
is also true of contracts which indirectly promote immorality such as to lease a house
to promote prostitution. In the former Straits Settlements, money lent on promissory
note for the purpose of running a brothel was held not recoverable. An agreement
intended to bring about illicit sexual intercourse outside wedlock is also void. This
applies only to future cohabitation and not past cohabitation, since in the latter no
further immorality is contemplated.
The principle discussed so far relates to sexual immorality. English cases provide no
illustration of other kinds of immorality which invalidate contracts, although some
writers such as Pollock in “Principles of Contract” have suggested that the principle
may be wider. In Malaysia, this is probably true if we look at illustration (j) to section 24,
which gives the example of a solicitor, A, who promises to exercise his influence over
B, his client, in favour of C who promises to pay him RM1,000.00 for the task. The promise
is void because it is immoral.
Contracts are said to be against public policy when they tend to bring about a state
of affairs which is regarded by law as harmful to society. What is considered harmful
depends on the circumstances of the case, although the rules already established are
sometimes moulded to fit the new conditions of a changing world. What has been
traditionally classified as being against public policy in England such as agreements in

restraint of marriage, agreements in restraint of trade and agreements in restraint of

legal proceedings are specifically provided for in other sections of the act and not
under the general heading of “public policy”. From the illustration given in section 24
of the act, it appears that the local statute contemplates matters involving use of
influence to procure appointment to public offices and attempts to stifle criminal
proceedings. However, there are cases where other transactions have been included,
for example, marriage brokerage. Based on the above comments, the following sub-
classifications may be adopted in relation to agreements that offend public policy :
(i) Contracts prejudicing the public service

Agreements for the sale of public appointments, offices and honors are unlawful as
they contribute towards corruption in public life. For example, A who promises to
obtain for B an appointment in the public service in return for a payment by B
(ii) Contracts that impede the course of justice

The enforcement of criminal law is a matter of public interest. For example, A promising
to drop a prosecution for robbery against B if he agrees to restore the value of things
taken. This agreement is void.
(iii) Contracts against the interests of the state

Any agreement that may be detrimental to the state is unlawful. In times of war, an
agreement to trade with an enemy alien is unlawful as it will benefit the country at war
with Malaysia. Similarly, an agreement that may disturb or destroy the friendly relations
between Malaysia and another state is also void. For example, an agreement to
smuggle whisky into another country will fall under this principle.
(iv) Contracts prejudicial to the freedom and stability of marriage

An agreement that may threaten or weaken the stability of an existing marriage is also
invalid. An agreement between a husband and wife, while they are still living together,
providing for the terms of a future separation falls under this category.
When a contract is discharged, the contracting parties are free from further
obligations arising from it. A contract may be discharged by any one of the following
ways :-
(a) By performance
(b) By consent or agreement between parties
(c) By impossibility
(d) By breach
TYPE OF DISCHARGE METHOD

Discharge By Performance
This is the normal method of discharge. As a general rule, contractual obligations are
discharge only by complete and exact performance. When both parties have
performed their obligations, the contract is discharged, ie, the contract is at end. Thus,
in a contract to deliver 100 tons of rubber, this precise amount must be delivered for
the contract to be discharged by performance.
Section 38(1) – parties to a contract are bound by an obligation which they must either
perform, or offer to perform their respective promises, unless the performance is
disposed with or excused under this Act or any other law.
This rule requiring complete performance sometimes leads to unjust result. One result
of this strict rule is that a party who has only partially performed his obligations cannot
recover anything for the work he has done. In other words, partial performance does
not suffice nor does incorrect performance.
Cutter v Powell
P employed C as second mate of ship sailing from Jamaica to Liverpool at a

wage of 30
Guineas for the complete voyage. C died at sea when he had completed
about three-quarters of the voyage. C’s widow sued for a proportionate part
of the agreed sum.
Held: C was entitled to nothing unless he completed the voyage.
(a) Time and place for performance

As a general rule, a promisor must be prepared to perform his obligations at the time
and place at which he has undertaken to do. However, according to Section 49
Contract Act 1950, when a promise is to be performed on a certain day and the
promisor has not undertaken to perform it without application by the promisee, it is the
duty of the promisee to apply for performance at a proper place and within the hours
of business. If no time for performance is specified in the contract, the agreement must
be performed within a reasonable time. The question of “what is a reasonable time” is,
in each particular case, a question of fact to be decided by the court. The time for
the performance of a contract is not a vital matter unless it is the intention of the parties
that it should be the essence of the contract.
Where the intention is that time is the essence of the contract and the promisor fails to
perform it, the contract or so much of it as has not been performed, becomes voidable
at the option of the promisee. But, if the promisee accepts performance after the
agreed time, he cannot later claim compensation for any loss occasioned by the non-
performance of the promise at the time agreed, unless at the time of acceptance, he
gives notice to the promisor of his intention to make a claim for compensation.

Where it is not the intention of the parties that time should be the essence of the
contract, the contract does not become voidable by the failure to do the thing at or
before the specified time, but the promisee is entitled to compensation from the
promisor for any loss incurred by the failure.
If no place is mentioned for performance and the promise is to be performed without

application by the promisee, it is the duty of the promisor to ask the promisee where
he would like the contract to be performed.
(b) Order of performance of reciprocal promises

“when a contract consists of reciprocal promises to be simultaneously performed, no
promisor need perform his promise unless the promisee is ready and willing to perform
his reciprocal promise”. Contracts consist of reciprocal promises when one party
promises to do something in the future in consideration of a similar promise made by
the other party.
Where the order in which reciprocal promises are to be performed is expressly fixed
by the contract, they must be performed in that order. But where the order of
performance is not expressly fixed by the contract, they must be performed in the
order in which the nature of the transactions require. Where the performance of one
party depends on the prior performance of the other party, the latter cannot claim the
performance of the reciprocal promise if he himself fails to perform his part. In fact he
must make compensation to the other party for any loss sustained by the non-
performance of the contracts. The principles may be illustrated as follows :-
(a) X contracts with B to execute certain builder’s work for a fixed price, B supplying
the scaffolding and or timber, and the work cannot be executed. X need not
execute the work, and B is bound to make compensation to X for any loss caused
to him by the non-performance of the contract.
(b) X contracts with B to deliver to him, at a specified price, certain merchandise on

board a ship which cannot arrive for a month. B promises to pay for the
merchandise within a week from the date of the contract. B does not pay within
the week. X’s promise to deliver need not be performed, and B must make
compensation.
When a contract contains reciprocal promises, and one party to the contract prevents
the other from performing, the contract becomes voidable at the option of the party
so prevented. He is also entitled to compensation from the other party for any loss
which he may sustain as a consequence of the non-performance of the contract.
(c) Contingent Contracts

A contingent contract is a contract to do or abstain from doing something, if some
event, collateral to such contract, does or does not take place. For example, X
contracts to pay B RM 10,000.00 if B’s house is burnt. Examples of contingent contracts

are insurance contracts and guarantees. Section 32 to 37 of the Contracts Act deal
with the performance of contingent contracts.
Section 33 states that contracts contingent upon the happening of a future, uncertain
event cannot be legally enforced unless and until that event has happened. If the
event becomes impossible, such contracts become void.
If the contract is contingent on an event not happening, it can be enforced, “when
the happening of that event becomes impossible, and not before”.
Section 35 provides that if a contract is contingent upon how a person will act at an
unspecified time, “the event shall be considered to become impossible when such
person does anything which renders it impossible that he should so act within any
definite time, or otherwise than under further contingencies”.
Section 36(1), contracts contingent on the happening of an event within a fixed time
become void if, at the time of expiration of the time fixed, the event does not happen,
or if, before the time fixed, such an event becomes impossible.
Section 36(2) deals with the contracts contingent upon the non-happening of an event
within a fixed time. It may be enforced by law when the time fixed has expired. It
becomes certain that such an event will not occur.
Section 37 deals with contingent agreement to do or not do anything, if an impossible
event happens. The contract is void whether the impossibility of the event is known or
unknown to the parties to the agreement at the time when it was made.
(d) Tender Of Performance

Section 38(1) requires parties to a contract to perform or “offer to perform” their
respective promises. It may happen that a party, ready and willing to perform, offers
to perform his promise at the proper time and place but the offer is rejected. This
rejection frees the promisor from further liability but reserves his rights under the
contract. Certain conditions have to be satisfied before a tender can be valid.
a) The tender must be unconditional
b) It must be made at a proper time and place
c) It must be made under circumstances enabling the other party to ascertain
that the person is able and willing there and then to do all that he has promised
to do
d) If the tender is to deliver anything to the promisee, it must be made under
circumstances that the other party has a reasonable opportunity of seeing that
the thing offered is the thing which the promisor is bound by his promise to
deliver.
The illustration to Section 39 gives an example of condition (d) where A contracts to

deliver to B, at his warehouse, on 1st March 2005, 100 bales of cotton of a particular
quality. In order to constitute a valid tender, A must bring the cotton to B’s warehouse
on the appointed day under such circumstances that B may have a reasonable
opportunity of satisfying himself that the thing offered is cotton of the quality
contracted for, and that there are 100 bales.

In relation to condition (c), it is important to note that the promisee must be given a
reasonable opportunity of ascertaining that the promisor is able and willing there and
then to do the whole of what he has promises to do. The scope of this condition was
discussed by the Federation of Malaya court of appeal in Ally & Co. V. Chellamah
(1948) 14 M.L.J. 202. In this case, the landlord sued for possession of a building on the
grounds that rent had not been paid. The defence was that the rent had been
tendered.
(e) Devolution of Joint Rights and Liabilities

The rules relating to joint agreements are provided for in Sections 43 to 46. Question on
rights and liabilities may arise when A, B, and C jointly obtain a loan from X and jointly
promise to repay it.
The law applied in Malaysia with regards to joint liability is different from English law.
Under the latter, the liability is joint, so that all joint promisors must be sued jointly. In
Malaysia as in India, the liability is joint and several. This means that the promisee may
sue any one or all of the promisors. A promisor cannot claim the right of being sued
only along with his co-promisors.
Under Section 46, when a person has made a promise to several persons jointly, the
right to claim performance rest on all the promisees jointly so long as all of them are
alive. If one of the promisees dies, the right to claim performance rests with his legal
representative jointly with the other surviving promisee. If all the promisees die, the right
to claim performance rests with their legal representatives jointly. This rule may be
varied if a contrary intention appears in the contract.
(f) Performance by Third Party

If it is the intention of the parties that the contract should be performed by the promisor
himself, then it must be performed by himself personally. This is normal with regards to
contracts dependent on the personal skill of the promisor. For instance, if X promises
to paint a picture for B, X must perform this task personally.
In other cases, the promisor may employ a competent person to perform it although
he personally remains liable under the contract. Thus, where X promises to pay B a sum
of money, X may perform this promise personally or by causing it to be paid to B by
another, such as an agent. When the promisee accepts performance of the promise
from a third person, he cannot later enforce it against the promisor. He is bound by
such performance.
Discharge By Consent Or Agreement Between Parties

A contract which is created by agreement can be similarly terminated. The consent
of all parties to the contract is necessary. The consent may be implied or expressed.
An expressed consent may be given at the time of the contract or subsequently. For
instance, the parties may agree at the time of making the contract that on the
occurrence of an event, one or both parties will be discharged. Consent given

subsequent to the contract may be a waiver, release, novation, remission or rescission.

Section 63 and 64 provide for the discharge of contracts in this manner.
Section 63 deals with the effects of novation, rescission and alteration in the following
terms :-
If the parties to a contract agree to substitute a new contract for it, or to
rescind it or to alter it, the original contract need not be performed.
Section 64 deals with remission of performance as follows :-

Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for
such performance, or may accept instead of it any satisfaction which
he thinks fit.
(a) Novation
When parties to a contract agree to substitute a new contract from the original
contract, it is called novation. The consideration for the new agreement is the mutual
discharge of the old contract. Consent of all parties is necessary for novation.
(b) Alteration
Alteration occurs when one or more of the terms of the contract are changed. This
alteration is valid when it is made with the consent of all parties to the contract.
(c) Rescission
A contract may be rescinded by mutual agreement between the parties at any time
before it is discharged by performance. In a contract for the Sale of Goods, the buyer
and seller may rescind the agreement at any time before delivery of the goods or
payment of the price.
This is different from the right of a party to rescind a contract when the other party has
failed to perform his obligation. In this case, he has the right to receive compensation
for breach of contract. For instance, X promises to deliver certain goods to B on a
particular day and fails to do so. B may rescind the contract for breach without
prejudice to his right to compensation.
(d) Remission
A promisee may dispense with or remit either completely or partly the performance of
the promise made to him. He may also extend the time of performance or accept
instead, any other satisfaction in lieu of performance. This principle is applied in the
following circumstances :-
a) Payment of a lower sum in satisfaction of a larger amount is binding on the promise

if he accepts it. Thus, if A owes B RM5,000.00 and B accepts RM2,000.00 in

satisfaction of the whole debt at the time and place at which the RM5,000.00 were
payable, the whole debt is discharged.
b) Payment of a lower sum by a third party which is accepted by the promise is also
a good discharge of the original debt. Thus, if A owes B RM 5,000.00 and C, a third
party, pays to B RM1,000.00 in satisfaction of his claim against A and B accepts it,
the payment is a discharge of the whole claim.
c) If the promisee accepts payment in satisfaction of an unascertained sum, the

payment is a discharge of the amount.
Discharge By Impossibility Of Performance

The law relating to impossibility of performance is laid down in Section 56 of the
Contracts Act. This section deals with two types of impossibility :
a) impossibility of performance at the time a contract is made
b) impossibility after it has been made
(a) Impossibility Of Performance At The Time A Contract Is Made

It is stated that “an agreement to do an act impossible in itself is void”. Thus, a promise
to discover treasure by magic is obviously void ab initio, that is from the beginning.
Either both parties or only one party may be aware of the impossibility. If the promisor
alone knows of the impossibility or, with reasonable diligence might have known of it,
he is bound to compensate the promise for any loss sustained by the promise through
non-performance of the promise. For example, a promise by A to marry B when he is
already married to C and A’s personal law forbid him to practice polygamy. A must
make compensation to B for the loss caused to her by the non-performance of his
promise.
(b) Impossibility After It Has Been Made

It is also called supervening impossibility, that is, the contract becomes impossible to
perform or unlawful after it has been made. In English law, this principle is known as
“Doctrine of Frustration”.
A contract may be discharged by supervening impossibility in any of the following

ways :-
(i) Destruction of subject-matter
(ii) Objects of contract defeated
(iii) Death or personal incapacity
(iv) Supervening illegality
(i) Destruction Of Subject-Matter

The destruction of the physical object which is the subject matter of the contract can
lead to frustration.
Taylor V. Caldwell (1863) 3 B. & S. 826
A music hall was hired out by the defendant to the plaintiff for a series of concerts.
By NUR QIAMwas
The hall FARHANA ADNAN burnt down before the date of the first concert.
accidentally Page 23
The
plaintiff claimed damages in respect of money spent on advertisement but he
failed as the contract was frustrated by the destruction of the hall.
(ii) Objects of Contract Defeated

A contract may be frustrated if supervening events defeat the whole purpose or
object of the contract. There may be no physical destruction of property.
Krell V. Henry (1903) 2 K.B. 740, 748
Henry hired a room which overlooked the route of the coronation procession of
King Edward VII for the purpose of watching the procession. Owing to the King’s
illness, the procession was cancelled. It was held that Henry was excused from
paying rent for the room as the contract was frustrated. The existence of the
procession was the basis of the contract. Cancellation amounted to cessation of
a state of things going to the root of the contract and essential to its performance.
(iii) Death or Personal Incapacity

Death or personal incapacity also discharges the contract when the party has
undertaken a “personal” obligation. Here, the personal qualification of the party is the
basis of the contract. Thus, a contract to perform in a concert on a particular day may
be frustrated by the performer’s illness on that day.
(iv) Supervening illegality

A contract may be legal at the time it was made but subsequently, owing to a change
in the law, the performance may become unlawful. The contract is discharged by
supervening illegality. Thus, a contract for the sale of certain goods will be frustrated if,
after it had been made, a new law prohibits all transactions and dealings in such
goods. Similarly, a declaration of war against a country will frustrate a contract to ship
goods to that country. For instance, X may have contracted to take in cargo for B at
a foreign port. X’s government subsequently declares war against the country in which
the port is situated. This contract becomes void when the war is declared.
Consequences of Frustration
The effect of frustration is to terminate the contract automatically. Since the contract
is void, Section 66 of the Contracts Act applies. Any person who has received an
advantage under it must restore it, or make compensation for it to the person from
whom he received it.
Kung Swee Heng & Another V. Paritam Kaur (1948) 14 M.L.J. 170
On December
By NUR 5th, 1941
QIAM FARHANA the plaintiff paid $500.00 to the defendant as deposit
ADNAN for 24
Page
the purchase of a building. The war came and the transaction between the
parties could not be completed. Since the contract was frustrated, the plaintiff
 Section 15 (2) of the Civil Law Act provides that the money due but not paid before
frustration ceases to be payable. But if the money has actually been paid, it must
be restored. Thus, this section gives the court discretion to order payment not
exceeding the amount of expenses so incurred if “it considers it just to do so having
regard to all the circumstances of the case”.
 Section 15(3) of the Civil Law Act provides that if one party has obtained a valuable
benefit before the time of discharge, as a consequence of anything done by the
other party for the purpose of the performance of the contract, the latter party
may recover from the former such a sum as the court considers just. But the amount
must not exceed the value of the benefit enjoyed.
 Section 16 (4) of the Civil Law Act applies to severable contracts. Since the
contract is severable, the court will treat them as separate contracts.
For example :-
Suppose A agrees to decorate B’s house on the terms that RM500.00 to be paid
when the kitchen is renovated, a further RM400.00 when the sitting room painted
and a final RM600.00 when the curtains have been installed. After the kitchen has
been renovated and sitting room painted, the house is accidentally destroyed
by fire. Since the contract is severable, the court will treat them as separate
contracts. This means that A is entitled to payment for the first two items (kitchen
renovation and room painting) as they have not been frustrated. The principle
of frustration will apply to the third item (curtain installation).
Discharged By Breach Of Contract

Under normal circumstances, a contract must be performed strictly in accordance
with its terms. When the promisor has neither performed nor tendered performance of
the promise, there is a breach of contract by him. This entitles the other party to take
action against him. Breach of contract may occur in the following situations :-
a) At the time when the performance is due
b) During performance of the contract
c) Before the time for performance (anticipatory breach)

(a) At the Time When the Performance is Due

When performance is due and the person fails to carry out the promise, the other party
may hold him liable for breach.
If time is the essence of the contract, a breach occurs when a party fails to perform
within stipulated time. The contract becomes voidable at the option of the promise.
But, if the promisee accepts performance after it is due, he may not claim any
compensation for any loss suffered by the non-performance at the time agreed, unless
at the time of acceptance, he gives notice of his intention to claim compensation.
If time is not the essence of the contract, the contract does not become voidable by
the failure to perform within the specified time, but the promisee is entitled to
compensation from the promisor for any loss suffered as a result of his failure to perform.
(b) During Performance of the Contract

Sometimes a party is performing the promise but the other party insists that he is not
performing according to the terms of the contract. As such, a dispute arises as to
whether there is a breach entitling the parties to a discharge. It is settled law that if the
breach is trivial, the party not in breach is entitled to damages only, but if the breach
is a vital term, he is entitled to treat the contract as discharged.
Before the Time for Performance (Anticipatory Breach)

A contract may be repudiated even before the time of the performance arrives. This
is called Anticipatory Breach. It may occur when the promisor does some act which
makes the performance impossible or he expressly renounces the contract.
For example :-
A engages B to build a house for him. The work started in May. But in February, B
informs A that he will not build for him as agreed. A may sue B immediately for
breach of contract.
Section 40 of the Contract Act provides as follows :-

When a party to a contract has refused to perform, or disabled himself from
performing his promise in its entirety, the promise may put an end to the
contract, unless he has signified, by words or conduct, his acquiescence in its
continuance.
This section is also applicable to failure to perform at the time when it is due. The point
to note is that the innocent party has an option. He may accept repudiation and sue
for breach of contract, whether or not the time of performance is due, or he may
disregard it. When the promisee does not accept the repudiation as putting an end

to the contract, he may await the time when the contract is due for performance,
that is to say, he ignores the notice of repudiation.
In this case, he keeps the contract alive for the benefit of the other party as well as his
own. He remains subject to all his own obligations and liabilities under the contract,
notwithstanding his previous repudiation. The repudiating party may also avail himself
of any excuse for non-performance, such as frustration, which may have come into
existence before the time fixed for performance.
When there is a breach of contract, the injured party is entitled to one or more of the
following reliefs:
a) Rescission of contract
b) Damages
c) Specific performance
d) Injunction
e) Quantum Meruit
Damages

The law relating to damages arising from breach of contract is found in Sections 74 to
76 of the Contracts Act. A person who rightly rescinds a contract is entitled to
compensation for any damage which he has sustained through the non-fulfillment of
the contract. The measure of damage recoverable is set out in Section 74 which
substantially affirms the common law rule laid down in the English case Hadley v.
Baxendale. The principle enunciated in this section is that an injured party is entitled
to:
i. Damages arising naturally, that is, according to the usual course of things
resulting from the breach ; and
ii. If he claims special damages for any loss sustained, he must show that they are
such that the other party knew at the time of making the contract that the
special loss was likely to result from the breach ; but
iii. Such compensation is not to be given for any remote and indirect loss or
damage sustained as a result of the breach.
The case of Tham Cheow Toh v. Associated Metal Smelters Ltd. Is a good illustration of
the principle (ii) where special damages were awarded. The defendant appellant
had agreed to sell a metal melting furnace to the plaintiff (respondent) and had given
an undertaking that the melting furnace would have a temperature of not lower than
2,600 degrees Farenheit. This specification was not fulfilled. The respondent brought an
action alleging breach of condition of the contract and claimed damages, including
loss of profits. In its decision the Federal Court stated, inter alia, that the appellant
would not normally be liable for payment of damages for loss of profits unless there
was evidence that the special object of the furnace had been drawn to their attention
and they had contracted on the basis that delay in delivery would make them liable
to payment for loss of profits. In this particular instance, it was held that the appellant
knew about the requirement to deliver a furnace capable of producing a
temperature of 2,600 degree F and the urgency of the matter. Therefore they were
liable to pay for certain loss of profits sustained by the respondent.
Damages claimed may be classified into substantial, nominal and exemplary.

Substantial damages are pecuniary compensation intended to put the plaintiff in the
position he would have enjoyed had the contract been performed. Nominal
damages consist of a small token award where the plaintiff has proved a breach of a
contractual right but no actual loss has been suffered. Exemplary damages consist of
a sum awarded which is far greater than the pecuniary loss suffered by the plaintiff.
They are awarded only in exceptional circumstances such as breach of promise of
marriage and when a banker wrongfully dishonours a trader’s cheque.
Sometimes the parties may fix the damages that would be payable in case of breach
at the time of contracting. In English Law, the courts will have to consider whether it is
liquidated damages or a penalty. They will give effect to liquidated damages but
disregard a penalty. It is considered liquidated damages if the amount fixed is a
genuine pre-estimate of the probable loss in case of breach. If the amount fixed is

merely a threat on one of the parties to perform his part of the contract without any
regard to probable loss, it is a penalty. The differences between liquidated damages
and a penalty are not provided for in the Contracts Act. Section 75 merely provided
payment of ‘reasonable compensation not exceeding the amount so named or, as
the case may be, the penalty stipulated for”. The effect of fixing a sum is simply to
determine the upper limit of compensation.
An exception to this rule of “reasonable compensation” is made in Section 5 of the

Contracts (Amendment) Act, 1976. This concerns scholarship agreements made with
the government, statutory authorities or any approved educational institutions. In such
contracts where an amount is named, to be paid in case of breach, the scholar and
the surety will be liable jointly and severally to pay the whole sum whether or not actual
damage or loss has been caused. No deduction will also be made from the amount
named, on account of any partial period of service performed by the scholar, on
completion of his course of study. For example, X enters into a scholarship agreement
for a period of 7 years on completion of his study. After working for 6 years, X breaks
the contract. He will be liable to pay the whole amount notwithstanding the partial
service.
Specific Performance
Specific performance is a decree of the court directing that the contract shall be
performed specifically, that is, according to the term of the contract. This remedy is
provided for by the Specific Relief Act, 1959 (Revised 1974). It is given at the discretion
of the court in any of the following circumstances:
a) When the act agreed to be done is in the performance, wholly or partly, of a trust.
For example, A holds certain stock in trust for B. A wrongfully disposes of the stock.
The law creates an obligation on A to restore the stock. The law creates an
obligation on A to restore the same quantity of stock to B, an B may enforce
specific performance of this obligation.
b) When there exists no standard for ascertaining the actual damages caused by the
non-performance of the act agreed to be done.
For example, A agrees to buy and B agrees to sell a picture by a painter who has
since died, and two rare China vases. A may compel B specifically to perform this
contract since there is no standard for ascertaining the actual damage which
would be caused by its non-performance.
c) When the act agreed to be done is such that pecuniary compensation for its
performance would not afford adequate relief.
Two examples may be given.

i. A agrees to sell a particular house to B for RM50,000. B is entitled to a decree
directing A to convey the house to him provided he pays the purchase price

ii. A contracts to sell and B contracts to buy a certain number of railway shares of
a particular description. A refuses to complete the sale. B may compel A
specifically to perform this agreement. This is because the shares are limited in
number and not always to be had in the market and their possession carries
with it the status of a shareholder, which cannot otherwise be procured.
d) When it is probable that pecuniary compensation cannot be obtained for the non-
performance of the act agreed to be done.
For example, A transfers without endorsement but for valuable consideration a
promissory note to B. A becomes insolvent. C is appointed his assignee. B may
compel C to endorse the note for C has succeeded to A’s liabilities. In this case, a
decree for pecuniary compensation for not endorsing the note would be useless
as A is already insolvent.
In contracts for transfer of immovable property such as land, there is a rebut table
presumption that compensation in the form of money is inadequate. Hence in
immovable property, specific performance is usually an appropriate remedy.
However, the following contract cannot be specifically enforced:
a) A contract where damages or pecuniary compensation is adequate.

b) A contract dependent on the personal qualifications or service of the parties.
c) A contract which runs into such minute details or which would require the constant
supervision of the court such as a building contract.
d) A contract, the terms of which, the court cannot find with reasonable certainty.
e) A contract which is in its nature revocable such as a partnership agreement
revocable at any time by either party.
f) A contract made by trustees either in excess of their powers or in breach of their
trust.
For example, the directors of a company have power to sell the concern with the
sanction of a general meeting of the shareholders. They contract to sell it without
such sanction. This contract cannot be specifically enforced by the buyers.
g) A contract made by or on behalf of a corporation or public company created for

special purposes, or by the promoter of the company, which is in excess of their
powers.
For example, a company existing for the sole purpose of making and working
railways makes a contract for the purchase of a piece of land for the purpose of
erecting a cotton mill thereon. This sale cannot be specifically enforced although
damages may be awarded.
h) A contract, the performance of which, involves the performance of a continuous
duty extending over a period longer than three years from its date.
For example, A contracts to allow B to use part of a certain railway situated on B’s
land for a period of twenty-one years and to provide the necessary engine-power.
A also contracts to keep the whole railway in good repair. B may claim damages
for breach of contract but not specific performance.

i) A contract of which a material part of the subject-matter supposed by both parties

to exist, has, before it has been made, ceased to exist.
For example, A contracts to pay an annuity to B for the lives of C and D. It turns out
that at the date of the contract, unknown to A and B, C was already dead. The
contract cannot be specifically enforced.
The granting or withholding of the decree of specific performance is at the discretion

of the court. In certain circumstances such as those enumerated below the court may
exercise ….its discretion not to decree specific performance :
a) Where the circumstances under which the contract is made are such as to give
the plaintiff an unfair advantage over the defendant, though there may be no
fraud or misrepresentation on the plaintiff’s part.
For example, A contracts to sell and B contracts to buy certain land. To protect
the land from floods, it is necessary for its owner to maintain an expensive
embankment. B does not know of this problem and A conceals it from him. Specific
performance of the contract should be refused to A.
b) Where specific performance would cause some unforeseen hardship on the
defendant whereas its non-performance would involve no such hardship on the
plaintiff.
For example, A contracts with B to sell him certain land, and to make a road to it
from a certain railway station. It is found afterwards that A cannot make a road
without exposing himself to court action. Specific performance of the part the
contract relating to the road would be refused to B. However, he may be entitled
to specific performance to the rest of the contract such as sale of the land and
compensation for loss of the road.
Although the decree of specific performance is granted at the discretion of the court,
“the discretion of the court is not arbitrary but sound and reasonable, guided by
judicial principles and capable of correction by a court of appeal”.
Injunction
Where a contract contents a negative promise, the breach of that promise maybe
restrained by injunction which is a preventive relief. As in the case of specific
performance injunction is granted at the discretion of the court. Two examples maybe
taken from Section 42 of the Specific Relief Act, 1950 to illustrate the principle of
granting injunction.
Illustration (a)
A lets certain land to B and B contracts not to dig sand or gravel thereon. A may sue
for an injunction to restrain B from digging in violation of his contract.
Illustration (k)
A lets certain arable land to B for purposes of husbandry, but without any express
contract as to the mode of cultivation. Contrary to the mode of cultivation in the

district, B threatens to sow the land with seeds injurious thereto and requiring many
years to eradicate. A may sue for an injunction to restrain B from sowing the land in
contravention, of his implied contract, to use them in a husbandlike manner.
Where a contract comprises of an affirmative agreement to do a certain act together

with a negative agreement not to do a certain act, the inability of the court to compel
specific performance of the affirmative agreement does not preclude it from granting
an injunction to perform the negative agreement.
For example, A contracts with B to sing for twelve months at B’s theatre and not to sing
in public elsewhere. B cannot obtain specific performance of the contract to sing, but
he may be able to obtain an injunction restraining A from singing at any other place
of public entertainment.
Quantum Meruit
Actions on a quantum meruit may be either contractual or quasicontractual. It is
contractual if there is an existing contract and an action on a quantum meruit is used
to settle the details. Thus, if a contract for the sale of goods does not fix the price, the
seller is entitled to a reasonable price. It is quasicontractual in the following
circumstances: first, where a contract has been discharged by the conduct of the
defendant such as preventing the plaintiff completing an entire contract, the plaintiff
may claim a reasonable sum for any work he has actually done under the contract:
secondly where the plaintiff has done work or rendered services under a void
agreement (although at the time the parties may have believed it to be valid), the
plaintiff may claim a reasonable remuneration.
For example, in Craven-Ellis Vs. Canons Ltd., a managing director was appointed
under an agreement which was in fact void. He rendered services to the company. It
was held that although he could not recover any money from the contract, he could
recover a reasonable remuneration on a claim for a quantum meruit.
Relate the issue in construction project to the Principle Law of Contract.
SOURCES OF LAW

• JM Wootherspoon v Henry Agency House
DEFINITION OF CONTRACT
• Preston Corporation v. Edward Leong & Ors
OFFER
• Guthing v. Lynn
• Bushwall Properties Ltd. v. Vortex Properties
• Montreal Gas Co. v. Vasey
• Jaques v. Lloyds D. George & Partners
• Taylor v. Laird
• Gibbon v. Proctor
• Fitch v. Sneadaker
• Williams v. Carwardien
• Harvey v. Facey
• Tinn v. Hoffman
• Boulton v. Jones
• King’s Norton Metal v Eldridge, Merrett & Co
• Carlil v. Carbolic Smoke Ball Co
• Partridge v. Crittenden
• Coelho v. The Public Services Commission
• Preston Corpn. v. Edward Leong & Ors
• Harvela Investments v Royal Trust Co. of Canada
• Spencer v. Harding
• Timothy v. Simpson
• Fisher v. Bell
• Pharmaceutical Society of GB v Boots Cash Chemist
• Grainger & Sons v. Gough
ACCEPTANCE
• Brogden v. Metropolitan Railway
• Jones v. Daniel
• Hyde v. Wrench
• Western Electric v. Welsh Development Agency
• Stevenson Jaques & Co. v. McLean
• Butler Machine Tool Co. Ltd. v. Ex-cell-o Corporation
• Carlil v. Carbolic Smoke Ball Co
• Brogden v. Metropolitan Railway Co.
• Powell v. Lee
• Fraser v. Everett
• Macon Works & Trading v. Phang Hon Chin
• Elliason v. Henshaw
• Felthouse v. Bindley
• Weatherby v. Banham
• Lee Hooi Lian v. Kuay Guan Kai

• Voo Syun Mooi v. Yap Mooi Mooi

• Winn v. Bull
• Von Hatzfeldt-Wildenburg v. Alexander
• Chillimgworth v. Esche
• Low Kar Yit & Ors. v. Mohd Isa & Anor
• Esso Standard Malaya Bhd. v. Southern Cross Airways (M)
• Daiman Development v. Mathew Lui Chin Teck & Anor
• Lim Keng Siong & Anor v. Yeo Ah Tee
COMMUNICATION
• Gibbon v Proctor
• Fitch v Snedaker
• Tinn v Hoffman
• Powell v Lee
• Felthouse v Bindley
• Fraser v. Everett
• Ramsgate Victoria Hotel v. Montefiore
• Brogden v. Metropolitan Railway
• Carlil v. Carbolic Smoke Ball
• Adam v Lindsell
• Offord v Davies
• Payne v Cave
• Routledge v Grant
• Errington v Errrington
• Hyde v Wrench
• Western Electric v. Welsh Development Agency
• Dickson v Dodds
• Great Northern Railway v. Witham
• Coulthard v. Clementson
• Bradbury v. Morgan
• Byrne v. Tienhoven
• Dickinson v. Dodds
ESSENTIALS OF CONTRACT
Competency
• Mohori Bibee v. Dhurmodas Ghose
• Tan Hee Juan v. Teh Boon Keat
• Leha Bt. Jusoh v. Awang Johari bin Hashim
• Ryder v. Wombwell
• Nash v. Inman
• Govt/M’sia v Gurcharan Singh
• Arunasalam Chetty v. Aziz Khan
Consideration

• Bainbridge v. Firmstone
• Bolton v Madden
• Phang Swee Kim v Beh I Hock
• Pinnel’s case
• Foakes v Beer
• Koh v Koh
• Chappel & Co. v Nestle Co. Ltd
• Esso Petroleum v Customs & Exercise Commissioners
• Venkata Chinnaya v Verikatara Ma’ya
• Osman Abdul Ghani & Ors v UAB
• Kepong Prospecting Ltd. v Schmidt
• Currie v. Misa
• K. Murugesu v Nadarajah
• Carlil v Carbolic Smoke Ball
• Kepong Prospecting Ltd. v Schmidt
• Pao On v Lau Yin Long
• Re Toh Sim Chan Law Keong & Ors
• J.M. Wootherspoon & Co. v Henry Agency House
Intention
• Balfour v. Balfour
• Appleson v. Littlewood
• Balfour v. Balfour
• Merrit v. Merrit
• Parker v. Clark
• Simpkins v. Pay
Consensus ad idem
• Raffles v Wichelhaus
VOIDABLE CONTRACT
Coercion
• Barton v. Armstrong
• Mutual Finance Company v. John Wetton
• Kaufman v. Gerson
• Maskell v Horner
• Kesarmal s/o Letchumanan Das v. Valiappa Chettiar
• Chin Nam Bee Development v. Tai Kim Choo & Ors
• The Atlantic Baron
• The Atlantic Baron
• Universe Tankships of Monrovia v. International
• Pao On v. Lau Yiu Long

Fraud
• Darry v. Peek
• Lau Hee Teah v. Hargill Engineering
• Weber v. Brown
• Kheng Chwee Lian v. Wong Tak Thong
• Letchemy Arumugam v. Annamalay
• Datuk Jaginder Singh & Ors. v. Tara Rajaratnam
Misrepresentation
• Curtis v. Chemical Cleaning and Dyeing
• Hedley Byrne v. Heller & partners
• London general Omnibus v. Holloway
• Goh Chooi Leong v. Public Life Assurance
Undue Influence
• Allcard v. Skinner
• Saw Gaik Beow v. Cheong Yew Weng & Ors
• Public Finance Bhd v Lee Bee Rubber Factory
• Phillips v Hutchinson
• Bank of New South Wales v Rogers
• Taylor v Johnson
• Radcliffe v Price
• Westmelton (Vic) Pty Ltd v Archer
• Datuk Jaginder Singh & Ors. v. Tara Rajaratnam
• Allcard v Skinner
• Saw Gaik Beow v. Cheong Yew Weng & Ors.
• Yerkey v Jones
• Wheeler v Sargeant
• Chait Singh v. Budin Bin Abdullah
• Salwath Haneem v. Hadjee Abdullah
• Poosathurai v. Kannapaa Chettiar & Ors
• Malaysian French Bank V Abdullah Bin Mohd Yusof & Ors
• Southern Bank Bhd V Abdul Raof Bin Rakinan & Anor
• Caltex Oil Malaysia v PPMS Technologies & Ors
VOID CONTRACT
Competency
• Mohori Bibee v. Dhurmodas Ghose
• Tan Hee Juan v. Teh Boon K
• Leha Bt. Jusoh v. Awang Johari bin Hashim
• Ryder v. Wombwell
• Nash v. Inman
• Government of Malaysia v. Gurcharan Singh & Ors
• Arunasalam Chetty v. Aziz Khan

Mistake
• Raffles v. Wichelhaus
• Chop Ngoh Seng v. Esmail & Ahmad Bros
• Sheikh Bros. Ltd. v. Oschner
• Robin & Anor v. Goh Boon Choo
• Seck v. Wong & Lee
DISCHARGE OF CONTRACT
• Re Moore and Landauer
Performance
• Re Moore & Co. and Landauer & Co
• Arcos Ltd. v. E.A. Romaasen & Son
• Yeoh Kim Pong (Realty) Ltd. v. Ng Kim Pong
• Sim Chio Huat v. Wong Ted Fui
• Kuala Lumpur Finance Bhd v Yap Poh Khian
• Lee Chee Ming & Anor v Superview Development
• Kang Yoon Mook Xavier v Insun Development
• Re Moore and Landauer
• Cutter v Powell
• Arcos v Ronaasen
• Tolhurst v. Associated Portland Cement Manufacturers
• Bunge Corp v Tradax Export SA
• Hoenig v Isaacs
• Appleby v Myers
Agreement
• Pan Ah Ba & Anor v. Nanyang Construction
• Pinnel’s case
• Hirachand Punamchand v. Temple
• Kerpa Singh v. Bariam Singh
Frustration
• Davis Contractors v. Fareham UDC
• National Carriers v. Panalpina (Northern Ltd)
• Khoo Than Sui v. Chan Chiau Hee
• Ramli Zakaria v. Government of Malaysia
• Taylor v. Caldwell
• Berney v. Tronoh Mines
• V. Kandiah v. Fed. of Malaya
• Krell v. Henry
• DATO YAP PENG & ORS V PUBLIC BANK BHD & ORS
• Eastacres Development v. Fatimah
• Murugesan v. Krishnasamy
• Hargreaves Transport v. Lynch

• Yong Ung Tai v. Enting

• SCB v. KL Landmark
• Lee Seng Hock v. Fatimah
• Ho Weng Leong v. Ng Kee Chin
Breach
• Chim Kim & Anor v. Loh Boon Siew
• Choo Yin Loo v. Visuvalingam
• Ban Hong Joo Mine v. Chen & Yap
• Tan Hock Chan v. Kho Teck Seng
• Smith Construction v. Phit Kirivatna
• Sim Chio Huat v. Wong Ted Fui
• J.M. Hill & Sons v. London Borough of Camden
• Saphiaton v. Lim Siew Hui

LAW - OF - CONTRACT Malaysia

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

LAW - OF - CONTRACT Malaysia

Uploaded by

Copyright:

Available Formats

DCQ2162 PRINCIPLE OF LAW

By NUR QIAM FARHANA ADNAN Page 1

By NUR QIAM FARHANA ADNAN Page 2

A contract is defined as ‘an agreement enforceable by law’ or ‘agreement which is

In Malaysia, according to the legislation in Malaysia, contract has been defined as

‘when a person signifies to the other his willingness to do or to abstain from

The ‘Communication of the proposal’ is complete when it comes to the knowledge of

By NUR QIAM FARHANA ADNAN Page 3

An offer is different from ‘option’ and ‘advertisement’. An option is merely an

Whether an advertisement is an offer or an invitation to treat depends on the intention

By NUR QIAM FARHANA ADNAN Page 4

Besides the aforementioned requirement that acceptance must be unconditional, it

Acceptance may be made by performance of the conditions of a proposal, or the

The communication of an acceptance has two different rules-instantaneous contracts

Acceptance in Instantaneous Contracts

By NUR QIAM FARHANA ADNAN Page 5

Acceptance in Instantaneous Contracts means contracts made between persons

Intention To Create Legal Relations

In domestic arrangements there is a presumption against the existence of an intention

Considerations Need Not be Adequate

By NUR QIAM FARHANA ADNAN Page 6

Past Consideration is Good Consideration

Natural Love and Affection is Valid Consideration

An agreement made without considerations is void unless it is expressed in writing and

Accord and Satisfaction-Part Payment May Discharge an Obligation

Considerations Need not Move from the Promisee

By NUR QIAM FARHANA ADNAN Page 7

i) Contracts for Necessaries

Mentally disordered and drunken persons

By NUR QIAM FARHANA ADNAN Page 8

An unenforceable contract is one which is valid but which cannot be enforced by

By NUR QIAM FARHANA ADNAN Page 9

The doctrine as embodied in Section 16 of the Contracts Act is in substance based on

16.(1) A contract is said to be induced by ‘undue influence’ where the relations

3 (a ) where a person who is in a position to dominate the will of another, enters

By NUR QIAM FARHANA ADNAN Page 10

In situations where it is apparent that a confidential relationship exists between the

By NUR QIAM FARHANA ADNAN Page 11

Where both parties to an agreement are under a mistake as to a matter of fact

Explanation-An erroneous opinion as to the subject matter of fact.

By NUR QIAM FARHANA ADNAN Page 12

A void contract is an agreement not enforceable by law-Section 2(g) of the Contracts

b) it is of such a nature that, if permitted, it would defeat

d) it involves or implies injury to the person or property of

e) the court regards it as immoral or opposed to public

In each of the above cases, the consideration or object of an agreement is said to be

Agreements Forbidden By Law

By NUR QIAM FARHANA ADNAN Page 13

In a Singapore case decided on appeal upon a law similar to Malaysian legislation

By NUR QIAM FARHANA ADNAN Page 14

rubber. Alternatively, they also claimed the balance of expense incurred by

Agreements That Would Defeat The Provision Of Any Law

Agreements That Are Fraudulent

By NUR QIAM FARHANA ADNAN Page 15

An agreement whose consideration or object is fraudulent is also unlawful. This

Agreements That Involve Injury To The Person Or Property Of Another

Agreements That Are Immoral Or Opposed To Public Policy

By NUR QIAM FARHANA ADNAN Page 16

restraint of marriage, agreements in restraint of trade and agreements in restraint of

(i) Contracts prejudicing the public service

(ii) Contracts that impede the course of justice

(iii) Contracts against the interests of the state

(iv) Contracts prejudicial to the freedom and stability of marriage