CONTRACT

Contract Act 1950 Section 2

 An agreement enforceable by law is a contract and the one that is
not enforceable is void

WHAT IS
CONTRACT? Dictionary
 An agreement, a covenant, a contract to undertake work or supply
goods…

Contract 2
 Sir William Anson

 The law of contract is that branch of the law that determines the
circumstances in which a promise shall be legally binding on the
WHAT IS persons making it

CONTRACT?
 A legally binding agreement between two or more persons by
which rights are acquired by one or more to acts or forbearance on
the parts of others

Contract 3
 The main Acts dealing with contracts are:

 Contracts Act 1950

 Specific Relief Act 1950
WHAT IS
CONTRACT? The special Acts dealing with particular contract:
 Sale of Goods Act 1957
 Hire Purchase Act 1967

Contract 4
  Before an agreement becomes a contract, certain other elements
BASIC must also be satisfied

ELEMENTS IN
 A mere agreement is not sufficient
CONTRACT

Contract 5
 1. Offer
Agreement
2. Acceptance
3. Consideration
4. Intention to create legal relations
5. Certainty
BASIC 6. Legal capacity
ELEMENTS IN 7. Free consent – Make the contract void or voidable
CONTRACT
In certain situations:
 Required formalities. E.g. Under the Stamp Act 1949, all
commercial contracts must be stamped to be admissible as
evidence in court

Contract 6
 Definition of offer – Section 2(a) of 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”
OFFER
 The person making the proposal is called offeror
 The person accepting the proposal is called offeree

Contract 7
 Rules pertaining to an offer
1. The offer must be communicated to the offeree. A person
other than the offeree cannot accept the offer unless
authorized
2. An offer and acceptance must correspond
OFFER 3. An offer must be distinguished from an option
4. An offer may be revoked at will before acceptance
5. An offer must be distinguished from preliminary negotiations
6. An offer must be distinguished from invitation to treat

Contract 8
 An offer can be :

1. Bilateral offer
The offer must
be 2. Unilateral Offer
communicated

Contract 9
 Bilateral offer
 Made to specific person

The offer must A bilateral contract

be  Each of the parties to the contract makes a promise to the other
communicated party
 E.g. Andy promised to pay Belle RM200,000 in exchange for
Belle’s promise to deliver her car to Andy

Contract 10
 Unilateral offer
 To a group of people E.g. “all first year university students”

A unilateral contract
The offer must  Only one party to the contract makes a promise
be  Andy promised to pay a reward to anyone who finds his dog. Belle
is not obliged to find Andy's dog, but Andy is obliged to pay the
communicated reward to Belle if Belle finds his dog
 The finding of the dog is a condition precedent to Andy’s
obligation to pay

Contract 11
Carlill v
Carbolic
Smoke Ball
Company
(1892)

Contract 12
  Offer to the world at large

Carlill v
Carbolic
Smoke Ball
Company
(1892)

Contract 13
  The defendant, Carbolic Smoke Ball Co. promised in an
advertisement to pay £100 to any person who contracted flu after
Carlill v using smoke ball three times daily for two weeks

Carbolic  The advertisement stated as evidence of the company’s sincerity,

Smoke Ball it had deposited £1,000 with Alliance Bank
Company
 The plaintiff, Mrs Carlill used the smoke ball and contracted flu and
(1892) relied on the advertisement. She claimed the £100

Contract 14
 Issues:
Carlill v
Carbolic  Did Carbolic Smoke Ball Co contracted with everyone in the world?

Smoke Ball  A contract requires notification of acceptance – Did Mrs Carlill

notify Carbolic of the acceptance of the offer?
Company  Did Mrs Carlill provide consideration in exchange for the £100
(1892) pounds reward?

Contract 15
 Defendant’s argument:

Carlill v  There was no binding contract – the words of the advertisement

Carbolic did not amount to a promise. A contract requires communication
of intention to accept the offer or performance of some overt act
Smoke Ball
Company The advertisement was too vague to make a contract:
(1892)  there was no limit as to time. A person might claim they
contracted flu 10 years after using the remedy
 no means of checking the use of the smoke ball by consumers

Contract 16
 Plaintiff’s argument:
Carlill v
Carbolic  The advertisement was an offer. Mrs Carlill was under an
obligation to fulfill because it was published. So, it would be read
Smoke Ball and acted upon & it was not an empty boast
Company
 The promise was not vague and there was consideration
(1892)

Contract 17
 Held:

 The advertisement was not a mere puff. It was intended to be part

Carlill v of binding offer. E.g. deposit of £1,000 with the Bank
Carbolic
Smoke Ball  Promise is binding even though not made to anyone in particular
(a unilateral offer)
Company  I.e. “offers to anybody who performs the conditions named in the
(1892) advertisement, and anybody who does perform the condition,
accepts the offer”

Contract 18
  Mrs Carlill accepted the offer when she purchased and used the
smoke ball in the prescribed manner, for a specified time and then,
Carlill v contracted flu

Carbolic  The advertisement is not so vague that it cannot be construed as a

Smoke Ball promise – the words can be reasonably construed
Company
 Notification of the acceptance need not precede (come before)
(1892) the performance – “this offer is a continuing offer”

Contract 19
  E.g. when there is an offer to the world at large, acceptance is
Carlill v legally valid when the offeree communicates to the offeror, notice
of performance of the specified conditions. This means
Carbolic acceptance is invalid when notification of the performance of the
specified conditions does not occur
Smoke Ball
Company  An inference should be drawn from the transaction itself that if
(1892) she performs the condition, there is no need for notification

Contract 20
 Was there a consideration?

Yes. For two reasons:

Carlill v
Carbolic  Carbolic Smoke Ball Co received a benefit i.e. in the sales directly
Smoke Ball beneficial to them by advertising the smoke ball

Company
 The direct inconvenience (detriment) to the person who used the
(1892) smoke ball 3 times a day for 2 weeks according to the directions at
the request of Carbolic. The performance of the specified
conditions constitutes consideration for the promise

Contract 21
  In unilateral contracts, communication of acceptance is not
expected or necessary

 If there is an offer to the world at large, and that offer does not
The offer must expressly or impliedly require notification of performance,
be performance of the specified condition in the offer will constitute
acceptance of the offer and consideration for the promise
communicated
 For bilateral contracts, advertisements are a mere invitation to
treat i.e. attempts to receive offers

Contract 22
  There must be a meeting of the minds
The offer and
acceptance  The offeree must be accepting the offer on the same terms

must
 No contract if there is a mutual mistake as to the other’s intention
correspond

Contract 23
 Raffles v Wichelhaus (1864)
 a contract was made to buy certain cargo on board a ship called
‘Peerless’ sailing out of Bombay
The offer and
acceptance  Unknown to both parties, there were 2 ships by that name sailing
from Bombay although on different dates
must
correspond  The plaintiff intended to buy cargo from one ship, while the
defendant intended to sell the cargo from the other ship. No
meeting of minds

Contract 24
  An option is also known as an option contract

The offer must  It is a legal advice whereby the offeror commits to keep his offer
open for a specific time in return for a price (consideration)
be
distinguished  The transaction is supported by a consideration, hence the
from an option agreement to keep open the offer for the specified period is itself
a contract

Contract 25
 Example:

 Andy makes an offer to Belle to sell his car for RM50,000

The offer must

 The offer is valid for 14 days, provided Belle agrees to pay RM500
be to Andy. Belle paid RM500
distinguished
from an option  On the 10th day, Andy sells the car to Coco for RM60,000 and
informs Belle of the sale

 This is a breach of an option contract. Belle would have a cause of

action against Andy

Contract 26
 Example:

 Andy makes an offer to Belle to sell his car for RM50,000

An offer may
 The offer is valid for 14 days, for Belle to decide on the offer
be revoked at
will before  On the 10th day, Andy withdrew the offer and informs Belle
acceptance
 Andy is entitled to withdraw his offer at any time before it is
accepted

Contract 27
  An offer must be distinguished from a mere supply of information

An offer must
Example:
be
Belle: “Will you sell your car to me? What’s your lowest price?”
distinguished Andy: “Lowest price is RM50,000”
from
preliminary Belle: “I agree to buy at RM50,000 asked by you”
negotiations Andy refused to sell it to Belle

Contract 28
  There was no contract between Andy and Belle
An offer must
be  Andy was only providing information to Belle as requested

distinguished
 Belle “agreeing to buy" is not an acceptance to “Andy’s offer to
from sell”. But it is an offer to buy the car from Andy
preliminary
negotiations  This offer is not accepted by Andy

Contract 29
  An offer is capable of being accepted by the offeree

An offer must  An invitation to treat is an invitation to make an offer, negotiate or

be deal. Hence, no legal consequences

distinguished
 Goods on display are not offers. They are invitation to treat
from invitation
to treat  The customer is the offeror making an offer to buy

Contract 30
 Example:

 Andy wants to buy an item displayed in the shop

An offer must
be  Andy makes an offer to purchase. He becomes the offeror

distinguished
 The sales person becomes the offeree, who has the option of
from invitation accepting or rejecting Andy’s offer
to treat
 The displayed item is not an offer by the shop to sell, hence
cannot be “accepted” by Andy

Contract 31
 Example:
An offer must
be  Advertisement for sale in a newspaper and product catalogue sent
out are invitation to treat and not an offer
distinguished
from invitation  What about TARUC advertisement in a newspaper for students to
to treat apply for Diploma and Degree programmes?

Contract 32
Advertisement

Contract 33
Advertisement

Contract 34
Advertisement

Contract 35
Contract 36
Contract 37
  A tender is a call for persons / organizations to put in offers to do
An offer must something or supply goods / services
be
 It is an invitation to treat and not an offer
distinguished
from invitation  A declaration of intention to deal
to treat

Contract 38
 An offer does not last forever. It may come to an end by:

1. Acceptance
TERMINATION 2. Rejection
OF OFFER 3. Counter-offer
4. Revocation

Contract 39
  An offer terminates once the offer is accepted (quite obvious, isn’t
it?)

Acceptance
 How about offer made to more than one offeree?

Contract 40
 Example:

 Andy offer to sell his car to Belle and Coco. If Belle accepts first
before Coco, is there an offer open to Coco?
Acceptance  Belle has the right to the car since she accepts first. Andy should
make it clear in the offer, there would be a contract only if the car
is still available
 Andy may notify Coco to revoke the offer

Contract 41
  An offer terminates once the offer is rejected

 Once rejected, the offer cannot be revived

 A person can make a fresh offer or repeat his offer

Rejection
Example:
 Andy offer to sell his car to Belle. Belle says she does not want to
buy the car

 The offer was rejected

Contract 42
  An offer terminates when the offeree making a counter-offer

Example:
 Andy offer to sell his car to Belle for RM50,000. Belle says yes
however, she tells Andy she will only pay RM40,000

Counter-offer  Belle’s reply for RM40,000 is a counter-offer and this destroys the
initial offer by Andy for RM50,000. It is not an acceptance to
Andy’s offer

 Andy now becomes the offeree and may accept or reject the
counter-offer by Belle at RM40,000

Contract 43
 Section 5 of Contract Act 1950

Revocation  An offer terminates when it is revoked at any time before the

communication of its acceptance is complete

Contract 44
Revocation

Contract 45
 Section 6 on specific circumstances in which an offer is revoked:

Section 6(a) - By notice

 Communication of notice of revocation by the offeror to the other
Revocation party

Section 6(b) - By lapse of time

 Lapse of prescribed time. If no time is prescribed, by lapse of
reasonable time without communication

Contract 46
 Section 6 on specific circumstances in which an offer is revoked:

Section 6(c) – By failure of condition precedent

 Failure of the offeree to fulfill a condition precedent to acceptance
Revocation
Section 6(d) – By death of mental disorder
 Death or mental disorder of the proposer, if this fact comes to
offeree knowledge before acceptance

Contract 47
 An acceptance must be:

 Absolute & unqualified

ACCEPTANCE
 Reliance on an offer

Contract 48
  Acceptance in a different terms is not an acceptance

 Any modification or variation of the offer does not constitute an

Absolute & acceptance but amounts to a counter-offer by the offeree
Unqualified
 E.g. Andy offer to sell his car for RM50,000 cash. Belle says she will
buy the car for RM50,000 in 3 installments. Andy’s offer at
RM50,000 is not accepted by Belle

Contract 49
  Acceptance must relate to the offer

 If the offeree has no prior knowledge of the offer, there is no way

he/she can “accept” by merely doing what is required by the offer

Reliance on an
 An offer cannot be accepted retrospectively by offeree who is
offer unaware of the existence of the offer

 E.g. Belle returns the missing dog to Andy, not knowing about the
reward notice. Belle then reads the notice of reward for missing
dog

Contract 50
 Problems arises:

 Parties are still negotiating

ACCEPTANCE  Acceptance is qualified by phrases “subject to contract” or

“subject to a formal contract being drawn up”

 This is not conclusive. Hence, all facts and circumstances of the

case will be considered further

Contract 51
 Rules pertaining to an acceptance:

1. Acceptance must be manifest

ACCEPTANCE 2. Offeror stipulating that silence will amount to acceptance
3. Offeror prescribing manner of acceptance
4. Offeror waiving right to communicate of acceptance
5. Acceptance must be communicated by offeree

Contract 52
  Acceptance must be indicated by either words or conduct or
combination of both
Acceptance
must be  Section 2 – an offer is said to be accepted when the offeree
manifest “signifies his assent”

Contract 53
  Offeror cannot impose terms or stipulate that silence will amount
to acceptance
Offeror  This is to avoid self serving contract

stipulating that
Exception:
silence will
amount to  Depending on facts, the offeree makes it clear that his silence
acceptance should be taken as an indication of acceptance unless he notifies
the offeror to the contrary within a reasonable time

Contract 54
  Section 7(b) – An acceptance must be expressed in a usual and
Offeror reasonable manner
prescribing
manner of  If the offeror insists on a specific manner of acceptance, the
offeree must comply
acceptance

Contract 55
  General rule is acceptance must be actually communicated to the
Offeror offeror by the offeree or his authorized agent

waiving right  Section 2(b) - Acceptance must be signified by the offeree

to
communicate  Depends on facts of the case, court may hold that communication
of acceptance of acceptance is waived: Carlill v Carbolic Smoke Ball Co

Contract 56
 Communication of an acceptance is complete:

 when the offeree puts the acceptance in the course of

transmission to the offeror and is out of the power of the offeree

REVOCATION
 when communication of the acceptance comes to the knowledge
OF of the offeror
ACCEPTANCE
The offeror can only revoke an offer:
 before communication of the acceptance is complete against the
offeree, but not afterwards

Contract 57
 Example:

 Andy offers to sell his car to Belle for RM50,000 by sending a letter
of offer to Belle by post. Belle accepts the offer by sending a letter
of acceptance by post to Andy
REVOCATION
OF  Andy may revoke his offer at any time before Belle posts her letter
ACCEPTANCE of acceptance, but not afterwards

 Alternatively, Belle may revoke her acceptance at any time before

her letter of acceptance reaches Andy, but not afterwards

Contract 58
 Section 2(d) of Contract Act 1950

 When, at the desire of the promisor, the promisee or any other

CONSIDERATI person has done or abstained from doing, or does or abstains from
ON doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration for the
promise

Contract 59
  It may be viewed as the “price” which one party pays to buy the
promise or the act of the other party

 An agreement made without consideration is void

CONSIDERATI
ON Example:
 Andy promised to give RM1,000 to Belle without consideration is a
void agreement

Contract 60
 Consideration may be classified into:

 Executory
CONSIDERATI
ON  Executed

 Past

Contract 61
 Executory consideration
 A consideration which is yet to be given or performed

Executory &
Executed Executed consideration
 A consideration which has been completed by a party at the time
consideration of the contract
 Both considerations are mutual and in exchange for the other’s
promise

Contract 62
 Example:
 Andy offered to sell his car to Belle for RM50,000. Belle accepted

Executory &  By mutual agreement, Andy delivered the car to Belle the next day
and Belle to pay RM50,000 Andy a week later
Executed
consideration  Andy has nothing more to do. His consideration was executed
 Belle is yet to pay RM50,000 to Andy. Her consideration is
executory. Meaning still not yet performed

Contract 63
  A promise is given in return for an act which was performed before
the formation of the contract and independently of it

 One party voluntarily performs an act and the other party then
makes a promise

Past
Example:
consideration
 Andy saved Belle from drowning. Subsequently, Belle promised
Andy a reward of RM50,000 for saving her life

 Belle’s consideration is past consideration

Contract 64
  Past consideration is generally not a good consideration under
English common law

However, in Malaysia, past consideration is a good consideration

if :
Past
consideration  Done at the desire of the promisor - Section 2(d) of Contracts
Act 1950
 Voluntarily done
 In business situations

Contract 65
  Andy asked Belle to look after his son while he is out to work,
which Belle agreed

 After Andy returned from work that night, he promised to pay

Done at the Belle RM50 i.e. Belle already performed the task

desire of the
 Belle’s act in looking after Andy’s son is a good consideration for
promisor Andy’s promise

 Past act is sufficient consideration for a subsequent promise

Contract 66
  The act must have been done voluntarily

 Belle found Andy’s wallet on the street. Using the contact number
found in the wallet, Belle returned it to Andy
Voluntarily
done  Feeling grateful, Andy promised to give RM50 to Belle

 The consideration and agreement is valid

Contract 67
  If something is done in a business context and it is clearly
In Business understood by both sides that it will be paid for, then past
consideration will be valid
situations

Contract 68
  Consideration must be sufficient in the eyes of the law, but it need
not be adequate

 An agreement is not void merely because the consideration is

ADEQUACY inadequate
OF
CONSIDERATI Example:

ON  Andy agrees to sell a racing horse worth RM10,000 for RM1,000

 The consideration is sufficient and agreement can be a contract

Contract 69
 Section 2(d) of Contracts Act
 Consideration may be provided by the offeree or any other person
 This is a clear departure from English law
CONSIDERATI
ON NEED Example:
NOT MOVE  Andy entered into agreement with Coco to pay her RM100 to get
his car serviced. Coco did not provide consideration to the promise
FROM THE
 Belle serviced Andy’s car, knowing that Andy must pay RM100 to
PROMISEE Coco. Belle completed the work but Andy did not pay Coco RM100
 Coco sued Andy for the payment. Andy was liable to pay Coco
because there was a good consideration from Belle (i.e. the work)
even though it did not move from Coco

Contract 70
 Coco
Coco asked Belle to service Andy’s car. Andy is
obliged to pay Coco RM100 once Belle serviced his
car

Belle
CONTRACT RM100

Andy promised to Coco, to pay Belle RM100, to get his car serviced
Andy
Contract 71
 Coco
Belle cannot enforce Andy’s promise to pay
Coco RM100 because Belle is not a party to the
Andy’s promise made to Coco

Belle
CONTRACT
RM100
Privy of Contract

Andy promised to Coco, to pay Belle RM100, to get his car serviced

Andy
Contract 72
INTENTION  The law requires evidence that the parties to an agreement have
the intention to create legal relations
TO CREATE
LEGAL  This can be express or implied from circumstances
RELATIONS

Contract 73
INTENTION 1. Commercial agreements
TO CREATE
LEGAL 2. Domestic/social agreements

RELATIONS

Contract 74
INTENTION
TO CREATE
LEGAL
RELATIONS

Contract 75
  The essential terms of the bargain have been agreed upon

 Must not be vague or incapable of being made certain

 Not to be expressly left to be settled by future agreement of the

CERTAINTY parties

 The language used in the agreement shall not be obscure and

incapable of any precise or definite meaning. Otherwise, the
agreement is void

Contract 76
  Both parties must have legal capacity to enter a contract

LEGAL  They must be of sound mind at the time the agreement was made

CAPACITY
 Not disqualified from contracting by any other law i.e. bankrupts

Contract 77
 Persons who do not have capacity to contract:

 Persons of mental capacity

 Intoxicated persons
 Minors
LEGAL
CAPACITY Section 2 of Age of Majority Act 1971
 “…. the minority of all males and females shall cease and
determine within Malaysia at the age of eighteen years and every
such male and female attaining that age shall be of the age of
majority”

Contract 78
 Exceptions to the rule:

 A minor is competent to enter into a contract:

 Contract for necessities provided, it suited for minor’s condition in

LEGAL life
CAPACITY
 Scholarships contracts

 Insurance contracts

Contract 79
LEGAL
CAPACITY

Contract 80
  The general rule is that a contract can be made orally or in writing
or a combination of both, unless otherwise required under specific
statutes

Example
REQUIRED  Hire-Purchase Act 1967 requires Hire Purchase agreements to be
FORMALITIES in writing and signed by the hirer

 National Land Code 1965 requires dealings to be in writing in

special forms, witnessed and registered in order to be effective

Contract 81
 Divided into two:

 Express terms

TERMS OF  Implied terms

CONTRACT
Sometimes, both

Contract 82
  Terms that have been specifically mentioned and agreed upon by
both parties at the time of making that contract

 Express terms are spelt out in writing or have been declared orally
Express terms by the parties

 Oral terms usually has lesser evidential value and frequently used
in small industry

Contract 83
 They are:
 Implied terms by Act e.g. Sale of Goods Act 1957 (will be dealt
with later)
 Implied terms by the courts

Implied terms  Parties have not expressly declared the terms

 It has to be deduced from the facts and circumstances of
particular case or from conduct of the parties
 It is often because the contract does not make any commercial
sense without that term

Contract 84
 What are they?
 Terms of contract has different importance and effect

CONDITIONS
& Divided into two:
WARRANTIES  Conditions
 Warranties

Contract 85
  A condition is a fundamental statement of fact/promise, which
forms an essential term of the contract

It is a contractual term, the breach of which gives the injured party:

Conditions
 the right to terminate the contract, or

 continue the contract but claim damages

Contract 86
 Example:

 A builder was contracted to build using specified material but he

substitutes with his own type of materials

Conditions  This could be a fundamental breach of contract that the contract

can be terminated

 But the contract can continue if the owner agreed to the

compensation offered by the builder

Contract 87
  A warranty is a less essential term which refers to the subject
matter of the contract

 It is a subsidiary obligation to the main purpose of the contract

Warranties  A breach of warranty does not give rise to the right to terminate
the contract but only a claim for damages

 A warranty is less important term, hence the breach of which can

be compensated sufficiently by the payment of money

Contract 88
 Example:

 A manufacturer gives a promise that his product of a certain

quality
Warranties
 The manufacturer is legally obligated to live up to its promise if
the product turns out to have a minor defect that’s covered by the
warranty

Contract 89
 A person who is not a party to the contract:

 has no right to sue on the contract

 may not enforce a contract even though it was made for his
PRIVITY OF benefit
CONTRACT
 Andy agrees to pay Belle RM100 if Belle mow Coco’s lawn. Only
Andy and Belle can enforce or sue on the contract. Coco is a
stranger to the contract. If Belle breach the contract (not mowing
Coco’s lawn), Coco cannot sue Belle for the job undone

Contract 90
 Exception:

 In novation agreement - It is used to transfer the rights and

obligations of one party under a contract to another party, whilst
the other contracting party remains the same. The new party is
said to “step into the shoes” of the departing party
PRIVITY OF
CONTRACT  In a tripartite agreement - Original parties agree to rescind the
contract in consideration of a new contract being entered into on
the same terms between one of the original parties and a third
party

Contract 91
  Section 10 - All agreements are contracts if they are made by free
consent of parties

FREE  Meaning, although all other elements of formation of contract are

CONSENT present, rendering the contract valid, if genuine consent is not
obtained, there is no agreement and no contract between the
parties

Contract 92
 Section 14 - consent is said to be free when it is not caused by one of
more of the following:

 Coercion
 Undue influence
FREE  Fraud

CONSENT  Misrepresentation
 Mistake

 If there is one or more of these elements, the element may vitiate

or invalidate an otherwise, a good contract

Contract 93
 Undue
Coercion
Influence

FREE Misrepresentation Fraud

CONSENT

Mistake

Contract 94
 Section 15

Coercion  Coercion means one person compelling another to do some act

against his/her will by use of actual or threatened physical
violence, psychological pressure, threats or economic duress

Contract 95
 Section 16

 Undue influence is when one dominant party uses his position to

Undue obtain unfair advantage over the other party
influence
 May also occur when there is a relationship between parties

Contract 96
 Section 17

 Fraud is where one party intends to deceive the other by

suggesting an untrue fact

Fraud  It is a false statement made by a person, who at the time of

making it, does not honestly believe it to be true

 The basis of fraud is the false statement or false representation

made knowingly

Contract 97
 Section 18

 Misrepresentation is a false or inaccurate statement which has the

effect of leading another person to make a contract

Misrepresentat  The person has no intention to mislead and has no knowledge of

ion the falsity of the statement

 The person honestly believes the statement to be true

Contract 98
 Section 21

 Mistake is when both parties are labouring under the mistake of

Mistake fact and the mistake is essential to the agreement

 If the mistake is fundamental, the contract is void

Contract 99
 Void contracts

 A void contract is when it requires one party to perform an act that

is impossible or illegal

 Means the contract is not valid or legally binding or “a nullity from

VOID & the beginning”
VOIDABLE
CONTRACTS  The parties would be in the same position as they would have
been as if the contract had never been made

 If the contract relates to a property, no title would pass and money

paid could be recovered

Contract 100
 Voidable contracts

 A voidable contract on the other hand, is a valid contract and can

VOID & be enforced
VOIDABLE
CONTRACTS  Usually only one party is bound to the contract terms in a voidable
contract

Contract 101
 Section 2(g) of Contracts Act 1950
 An agreement not enforceable by law is said to be void

VOID What agreement is not enforceable by law, and hence void?

CONTRACTS  When the consideration or object of an agreement is unlawful

Contract 102
 Section 24
The consideration or object of an agreement is lawful, unless

 it is forbidden by a law
VOID  it is of such a nature that, if permitted, it would defeat any law
CONTRACTS  it is fraudulent
 it involves or implies injury to the person or property of another
 the court regards it as immoral, or opposed to public policy

Contract 103
 Sections 21 - 23

VOID  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
CONTRACTS

Contract 104
 Further categories will make void contract:

Section 25
 an agreement is void if the consideration for one or more objects
is in part unlawful

VOID Section 26

CONTRACTS  an agreement made without consideration is void

Section 27
 an agreement in restraint of marriage of a person other than a
minor is void

Contract 105
 Section 28
 an agreement in restraint of trade, profession or business is void
except in certain limited circumstances

Section 29
VOID  an agreement in restraint of legal proceedings is void except
contracts to refer a dispute to arbitration and certain written
CONTRACTS agreements relating to award of scholarships by the Government

Section 30
 Agreements that are uncertain are void

Contract 106
 Section 2(i) of the Contracts Act:

 An agreement, which is enforceable by law, at the option of one or

more of the parties, but not at the option of the other or others, is
VOIDABLE a voidable contract

CONTRACTS
 The term “voidable” enacted in this subsection and applied to
contract refers to an agreement, which the innocent parties can
choose whether or not to let the contract stand

Contract 107
  The agreement is valid and binding until the party entitled to
avoid it opts to do so

 Consequently, rights and duties may arise under a voidable

contract
VOIDABLE
CONTRACTS  Hence, third parties acting in good faith and without knowledge of
any vitiating (reduce effect) circumstances, can acquire rights
stemming from a voidable contract, provided the contract has not
been earlier avoided

Contract 108
  Section 19(1) Contracts Act declares the voidability of agreements
without free consent in the following manner:

 When consent to an agreement is caused by coercion, fraud or

misrepresentation, the agreement is a contract voidable at the
option of the party whose consent was so caused
VOIDABLE
CONTRACTS  Example: Belle buys a house from Andy despite she discovers that
the floor finish is actually not according to the specification
(Possible misrepresentation). The contract is only voidable at the
option of Belle

Contract 109
  Section 19(2) of the Contracts Act:

 A party to a contract, whose consent was caused by fraud or

VOIDABLE misrepresentation, may if he thinks fit, insist that the contract
shall be performed, and that he shall be put in the position in
CONTRACTS which he would have been if the representations made had been
true

 Example: Belle may insists Andy to change it at his cost

Contract 110
 Section 20 of the Contracts Act:

 when “consent to an agreement is caused by undue influence, the

agreement is a contract voidable at the option of the party whose
VOIDABLE consent was so caused.”

CONTRACTS
 Thus, under the Contracts Act, coercion, fraud, misrepresentation
and undue influence will render an agreement voidable at the
option of the party whose consent was so caused

Contract 111
 Undue
Coercion
Influence

FREE Misrepresentation Fraud

CONSENT

Mistake

Contract 112
  Contractual liability is a responsibility taken by any party under
contract, according to the conditions of the contract

CONTRACTU
 E.g. The materials, goods and workmanship must be to the
AL LIABILITY standards described in the building contract and to the reasonable
satisfaction of the architect

Contract 113
 Section 38 (1)
 The parties to a contract must perform their promises, unless the
performance is dispensed with or excused under this Act, or of any
other law
PERFORMAN
CE OF Section 38(2)

CONTRACT  Promises bind the representatives of the promisor in case of the

death of the promisor before performance, unless a contrary
intention appears from the contract

Contract 114
 Example:

PERFORMAN  Andy promised to deliver goods to Belle on a certain day for a

CE OF payment of RM1,000. Andy died before the delivery day

CONTRACT  Andy’s representatives are bound to deliver the goods to Belle

Contract 115
 Oxford English Dictionary
 the word discharge means relieve of residual liability
DISCHARGE
OF Law Dictionary
 release from an obligations or freeing of parties from their mutual
CONTRACT obligations by performance, express agreement, breach or under
the doctrine of frustration

Contract 116
 A contract may be discharged by any one of the following ways:

 By performance

DISCHARGE  By agreement
OF
CONTRACT  By breach of contract

 By frustration

Contract 117
 Section 38(1)

 Parties to the contract must perform their promises in accordance

to the contract, unless the performance is dispensed with or
excused under the law

By Section 51
performance  provides that the performance of any promise may be made in any
manner prescribed by the parties

 Must be exact and precise, unless the parties have agreed

otherwise

Contract 118
 Section 40

 If a party has refused to perform or disabled himself from

performing his promise in its entirety, the other party may put an
end to the contract; unless he has agreed by words or conduct in
By its continuance
performance
 If time is made out to be an essence in a contract, the promisor
must carry out his obligations within the specified period

Contract 119
  When a contract consists of reciprocal promises to be
simultaneously performed, no promisor need to perform his
promise unless the promisee is ready and willing to perform his
reciprocal promise

By  Example: Andy and Belle enter a contract that Andy shall deliver
goods to Belle and Belle shall pay on delivery
performance
 Here, Andy need not deliver the goods unless Belle is ready and
willing to pay for the goods on delivery. Belle need not pay for the
goods unless Andy is ready and willing to deliver them on payment

Contract 120
  A contract is formed based on an agreement. Hence, it can also be
discharged through an agreement provided there is a mutual
consent

 Section 63(b) - the contracts need not be performed as result of

novation (substitution of a new contract in place of an old one),
By agreement rescission (cancelling or ending a law) and alteration of contract:

 If the parties to a contract agree to substitute a new contract for it,

or to rescind (no longer valid) or alter it, the original contract need
not be performed

Contract 121
 Example:

 Belle owes money to Andy under a contract. Subsequently, it is

agreed between Belle, Andy and Coco that Andy shall (start from
particular time) accept Coco as his debtor (person who owes
money), instead of Belle
By agreement
 The old debt of Belle to Andy is at an end

 The new debt from Coco to Andy has been contracted

Contract 122
 Section 40(a)

 When a party to a contract has refused to perform or disabled

himself from performing his promise, the other (innocent) party
may put an end to the contract.
By breach of
contract A breach of contract may occur when there is:

 Refusal to perform – repudiation of contract

 Disability to perform (due to reasons within his control)

Contract 123
 Breach of contract occurred when:

 any party failed to performed their obligations/duty in the

contract

By breach of  a party announcing to the other party that they are no longer
contract interests carrying out their obligations prior to the time for
performance (anticipatory breach)

 delay in the performance where time is of the essence in the

contract

Contract 124
  The innocent party may treat the contract as ended and claim for
damages

 If the innocent party has rendered services or had supplied goods,

By breach of he may recover a reasonable sum for such services or goods
rendered
contract
 If the innocent party has paid money under the contract, he may
be entitled to recover the sum paid

Contract 125
  A contract is frustrated when there is a change in the
circumstances which renders a contract legally or physically
impossible of performance

 Frustration is not to be confused with initial impossibility, which

By frustration may render the contract void ab initio (from the beginning)

 The contract will become void from the time of the frustrating
event

Contract 126
 Generally, frustration may applies in these circumstances:

 Destruction of subject matter

 Supervening events
By frustration  Change in the law rendering performance impossible
 Death or personal incapacity
 War

Contract 127
  An agreement to hold a concert at a specific music hall for 4 days.
However, before the date, the hall was destroyed by fire
Destruction of
subject matter  Contract was discharged as the hall was essential to the
performance of the contract

Contract 128
Destruction of
subject matter

Contract 129
  an unforeseen supervening event outside the control of the
contracting parties has significantly changed the obligations of
the parties from their original intentions

 neither party caused the supervening event

Supervening
events  neither party contemplated the supervening event, so there was
no provision in the contract for it

 the new circumstances would make it unjust to hold the parties to

their original contract

Contract 130
 Section 57 (2) of Contracts Act 1950
 A contract to do an act which, becomes void when the act
Change in the becomes impossible or unlawful after the contract is made

law rendering
Example:
performance  Andy had a license to import a product for manufacturing coffee
impossible powder. Before the arrival of the cargo, the sale of such imported
goods was banned. The contract may be void

Contract 131
  Generally, death of contracting party have no effect on the
contract. Exception: if personal considerations are at the
foundation of the contract
Death or
personal  Physically incapacity means the person may be physically
incapacity incapacitated by illness or imprisonment or call up for military
service

Contract 132
 Remedy is the method where an injured party enforces a right or
corrects a loss

Possible remedies:
 Damages
REMEDIES
 Rescission
 Specific performance
 Injunction

Contract 133
 Section 74, 75 & 76 of Contracts Act 1950

Damages  A remedy providing money compensation for a civil wrong with

the aim to restore the injured party to the position he would have
enjoyed had the contract been performed as agreed

Contract 134
 General rules:
 The innocent party is entitled to damages arising naturally

 The innocent party need to prove there is a breach of contract and

the type of loss he has suffered
Damages
 If the innocent party claim 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 is likely to result
from the breach and must not be too remote

Contract 135
  Compensatory/ordinary damages – natural damages caused by
breach of contract

 Exemplary (Punitive) Damages – awarded as punishment and to

set public example
Types of
Damages  Liquidated Damages – monetary compensation which the amount
is agreed upon during the formation of a contract

 Nominal Damages – small cash compensation payable to the

plaintiff who has suffered no quantifiable monetary loss

Contract 136
  A rescission is a cancellation of a contract

 It is terminated from the beginning, as though the contract never

existed

Rescission  Meaning, any benefit received as part of the contract, i.e. money,
must be returned

 Can occur as a result of misrepresentation or fraud, lack of legal

capacity etc.

Contract 137
 Example

 You contracted to sell and the buyer agreed to buy a piece of land
that you thought you owned. It turns out that you did not have
title to the property
Rescission  Remedy: to rescind the contract and refund the deposit money

 Another example: insurance policy

Contract 138
  It is an equitable & special remedy used by the court when no
other remedy (such as money) will adequately compensate the
innocent party

Specific  It is a discretionary remedy by the court only for rare or unique

product
performance
 A court order may direct that the contract shall be performed
specifically according to its terms

Contract 139
  Section 11(1) of the Specific Relief Act 1950 provides that specific
performance may be granted by the court in the following
circumstance:

Specific  When there is no standard for ascertaining the actual damage

caused by the non-performance of the act agreed to be done
performance
 Where the pecuniary (monetary) performance is an inadequate
relief

Contract 140
 Example:

 Andy agreed to buy and Belle agreed to sell, a picture by a dead

painter and two rare China vases

 Belle changed her mind decided to keep the items

Specific
performance  Andy may compel Belle specifically to perform this contract as
there is no standard for ascertaining the actual damage which
would be caused by its non-performance

 The court may compel Belle to sell to Andy

Contract 141
 A court order instructing a defendant not to commit some act

3 types of injunctions:

 Prohibitory
Injunction
 Mandatory

 Interlocutory

Contract 142
  Taiwan based, La Kaffa International Co. Ltd terminated its
Malaysian master franchisee arrangement with Loob Holding Sdn
Bhd
Chatime v
Tealive  After the split, Loob Holding set out to rebrand its 161 Chatime
outlets to “Tealive”

Contract 143
  La Kaffa applied Prohibitory Injunction

 It is a court order to a person not to do something

Prohibitory
Injunction  La Kaffa wanted Loob to stop from operating Tealive or any other
business similar to Chatime

Contract 144
  La Kaffa also applied Mandatory Injunction

 It is a court order to compel someone to do something which he

Mandatory ordinarily has no obligation to do so

Injunction
 Loob has to return all confidential information (trade secrets) and
documents related to Chatime back to La Kaffa

Contract 145
  La Kaffa applied for Interlocutory injunction

Interlocutory
 This is granted at the discretion of the court to preserve the status
Injunction quo pending the resolution of a legal action

Contract 146
  La Kaffa go to court as Loob is not permitted to engage in “any
commercial activities that are identical or similar” to those done in
the franchised stores
Interlocutory
Injunction  La Kaffa apply for an interlocutory injunction to restrain Loob
Holding from furthering its alleged unlawful acts which is set to be
heard by the court

Contract 147
  Loob Holding has obtained a stay of execution of an injunction
against it, from the Federal Court

 The Federal Court granted the stay order to temporarily stop the
What happen injunction granted earlier by the Court of Appeal to La Kaffa

then?
 La Kaffa “We are not restraining Tealive from running a business.
The company can run Tealive but we are saying do not copy our
menu,” he added

Contract 148
  30 August 2018 newspaper report - Loob Holding and La Kaffa
have agreed to amicably settle all disputes

What happen
 A joint press statement said both parties have agreed, in a
then? settlement agreement executed yesterday, to withdraw all
proceedings in Malaysian courts and arbitration in Singapore

Contract 149
  Special types of contract is also known as “standard form” of
contract. It is a template with standardized and non-negotiated
provisions

Special types  The contract may be general in nature or cater to the needs of
particular industries i.e construction industry
of contract
 Contracting parties has greater efficiency as the specific terms are
laid out every time a service is rendered or a product is sold

Contract 150
  Standard contract usually provide blank spaces where details like
name of contracting parties, amount, duration of agreement etc.
Special types
of contract  This type of contract will save time and money and reduce
conflicts or further complications

Contract 151
  Pertubuhan Akitek Malaysia (PAM) standard forms of building
contract are extensively used in the private sector commercial,
institutional, housing and other building projects

Special types  About 90% of the building contracts in the private sector using
PAM form
of contract
 It is a benchmark for the Malaysian Standard Form of Building
Contract

Contract 152