LAW OF CONTRACT

LESSON OUTLINE
 INTRODUCTION  ELEMENTS OF A CONTRACT:

  


 

1. Offer 2. Acceptance 3. Intention to create legal relations 4. Consideration 5. Certainty 6. Capacity PRIVITY OF CONTRACT CONTENTS OF A CONTRACT FACTORS VITIATING A CONTRACT VOID AND ILLEGAL CONTRACT DISCHARGE OF CONTRACT REMEDIES

INTRODUCTION
 Contract defined by Sec. 2(b) - ‘an agreement

enforceable by law’  Specific Legislation - Contract Act 1950 - but English law still applicable by virtue of Civil Law Act.
 Function of contract:  to secure the expectation created by a promise of future performance or expectation will be paid for its breach.  facilitate forward planning of the transaction in terms of cost and value, responsibilities of parties and preparation for contingencies.

Carbolic Smoke Ball .effective when it comes to the knowledge of the offeree.  Lack of offer and acceptance .offer or proposal .  R v.offer made to the rest of the world but the contract is made with that limited portion of the public who come forward and perform the condition .when a person signify his willingness to do or abstain from doing anything.communication of proposal regarding capture of convict  Offer can be made to a particular person or to the general public  Carlill v. 4 (1) -offer must be communicated .2 (a) .  Must be a definite promise to be bound .provided that certain specific terms are accepted. Clarke .ELEMENTS OF CONTRACT 1.  Proposal or offer .contract void ab initio  Sec. OFFER  Sec.something which is capable of being converted into an agreement by its acceptance.

 To be an offer. Crittenden . Manchester City Council – sale of council house to tenants  Partridge v. then it is not offer but is an invitation to treat  Examples of ITT:  Advertisements in the paper for the post of a doctor .ITT  Auctioneer inviting a bid – ITT (but a bidder making a bid is an offer)  Catalogue advertising goods for sale  Goods on display in a shop  Cases:  Boots Cash Chemist Ltd – sale of poison under pharmacist supervision  Gibson v. the offeror must not merely feeling his way towards an agreement – if that is the case.

ACCEPTANCE  Sec.2.2 (b) . accept £950  Stevenson v McLean .request for additional information is not counter proposal .offer £1000.when the person to whom the proposal is made signify his assent thereto.  Acceptance can be expressed or implied (inferred from conduct)  Acceptance must be accepted on exactly the same terms as the proposal without any variation or modification – it must be absolute and unqualified  Any modification / variation to the offer is a counter proposal and is equivalent to rejection  Hyde v Wrench .

proposer dispense with it . Bindley  Exception : .acceptance in form of performance  Acceptance must be within reasonable time .6(b)  Acceptance may also be revoked at any time before the communication of the acceptance is complete against the acceptor .Sec. Acceptance must be communicated with some positive action – silence cannot be imposed as acceptance – Felthouse v.

an exception to the general rule that acceptance must be communicated – a.k. when the letter is posted as against B. when the letter is received by A  CASE :.Acceptance through post .communication of acceptance is completea. when it comes to the knowledge of the proposer  Illustration to the section: B accept A’s proposal by a letter sent by post The communication of the communication is complete: as against A. Sec.4 . when it is put in a course of transmission to him.a. The Postal Rule  Sec. so as to be out of the power of the acceptor b. Lindsell . As against the proposer.Adams v. As against the acceptor.4 .

Stahlund Stahl For communication through e-mail – the main issue that needs to be addressed is whether acceptance through e-mail constitutes instantaneous communication or delayed communication. fax and telephone. then the postal rule will apply that is acceptance is deemed complete once the acceptor click the SEND button with his mouse. If it is non-instantaneous. the same principle as • • • that of instantaneous communication applies i. phone and e-mail • For acceptance through telex. it must be communicated to the offeror to be valid • See Entores Ltd v. This is looking at the nature of the e-mail itself where any message send will be channeled to a service provider before it reaches the intended recipient – similar to that of using postal service .e. Miles Far East Corp • Also case of Brinkibon v.•Acceptance through telex.

Montefiore  By failure of acceptor to fulfill a condition precedent to acceptance  By death or mental disorder of the proposer if such fact comes to the knowledge of the acceptor before acceptance – Bradbury v.A proposal may be withdrawn under four circumstances  By communication of notice of revocation by the proposer to the other party  By lapse of time (prescribed or reasonable) – Ramsgate Victoria Hotel v.Termination of Offer  Revocation must also be communicated – Byrne v. 6 . Morgan .  Sec. Van Tienhoven  Revocation of proposal possible if acceptance is not complete.

the presumption is that there is intention to create legal relations . Intention is particularly relevant when it comes to cases where legal contracts are not normally made like in domestic arrangements – Balfour v. Sometimes can be imputed from the nature of the agreement. INTENTION TO CREATE LEGAL RELATION  Not provided by Contract Act but by case laws  Mere agreement is not enough to contemplate the existence of a legal     contract. for e.3. Balfour However in a commercial agreements.g :  acceptance to a dinner  acceptance to an offer to play a game of soccer  acceptance of an offer to pay for half of the petrol cost Thus parties to a transaction may state that they do not intend to enter into any binding obligation.

Beh Hock  Consideration need not move from the promisee . Schmidt  Part payment from the full amount is valid consideration  Exception to the rule that agreement without compensation is void . Verikataramaya .agreement without consideration is void  Sec.Kepong Prospecting Ltd. agreement to compensate for past voluntary act c. 2 (d) defined consideration as .26 . agreement to compensate act the promisor legally compelled to do d. .consideration provided by mother  Past consideration is good consideration . agreement made on account of natural love and affection b.4. such act or abstinence is called a consideration for the promise’. the promisee….Phang Swee Kim v.or promises to do or abstain form doing something.Section 26: a.‘when at the desire of the promisor. CONSIDERATION  Sec. V.do or abstain from doing something….Venkata Chinnaya v. agreement to pay a statute barred debt.as a general rule .  Consideration need not be adequate .

Suah Thian . or capable of being made certain.5. 30 .  If uncertain or incapable of being made certain .two aspects of uncertainty:  due to language used  failure to reach agreement on fundamental term of the agreement  In Contract Act .  Case:  .void.00 per month as long as he likes’ .‘lease at $35. are void’. the meaning of which is not certain.uncertainty provided by Sec.  Intentions of the parties will be frustrated because of uncertainty and the court will usually not interfere  At common law .Karuppan Chetty v. CERTAINTY  The terms of an agreement cannot be vague but must be certain.‘agreements.

e.Sec 12(1) . Gurcharan Singh  insurance  Sound mind . If at the time of making the contract….6. i.. have the legal     capacity to do so. .‘Every person is competent to contract who is of the age of majority according to the law to which he is subject. 11 . and who is of sound mind.Age of Majority Act 1971 Exception:  contract for necessaries .capable of understanding it and forming rational judgment as to its effect upon his interest. Age of majority.Nash v.‘….18 years .Tan Hee Juan Sec. Inman  scholarship Govt.’  Includes incapacity due to sickness. Where one or more of the parties to a contract lack the capacity . alcohol or drugs . of Malaysia v. and is not disqualified from contracting by any law to which he is subject’.contract invalid / void. CAPACITY  Parties to a contract should be competent to contract.

sub contractor  However.payment of debt on behalf of another  Dunlop Pneumatic Tyre v. Easton . or bound by it.  Contract cannot confer rights on third party  Price v.g. Selfridge.to whom does the obligation extend? What are the limits of the contractual agreement.  The general rule under common law .PRIVITY OF CONTRACT  After a valid contract has been formed .no one but the parties to a contract can be entitled to it. . a claim can still lie in tort.  Contract cannot impose liability on third party  e.contractor . relationship between building owner .

Implied terms .implied a term based on trade usage regarding ownership of film positives used to print books  Must satisfy .CONTENTS OF A CONTRACT 1. 2. Express terms . EXPRESS AND IMPLIED TERMS  Contents made up of terms . in writing or both.has been specifically agreed upon by the parties orally.term that is read into the contract by the court.notoriety.  Express terms are straightforward and can be identified just by looking at the contract document.  Form an integral part of the contract though not expressly provided .  Preston Corporation . certainty and reasonableness  . Custom and usage pertaining to a particular transaction.expressed or implied 1.necessary to give business efficacy to the contract Terms may be implied by : 1.

Purchase Act 1967 3. The courts . National Land Code 1965 3. “ oh.implied a term that must have been in the mind of the parties – to get license to cut the timber  the officious bystander test i. based by the intention of the parties  Cases:  Yong Ung Kai v. Hire .2. of course!”. Sales of Goods Act 1957 2.e. Statutory Provision  Statutes that imply terms into a contract: 1. Enting . .

given by Sales of Goods Act 1957  Sec 12 (2) SOGA .depends on the intention of the parties .condition .‘ a stipulation collateral to the main purpose of the contract.the court will help to determine.’  Whether a term is a condition or warranty .‘a stipulation essential to the main purpose of the contract. the breach of which gives rise to claim for damages but not a right to reject the goods or repudiate the contract. Spiers and Pond  Bettini v. Gye .  Example cases:  Poussard v. CONDITIONS AND WARRANTIES  Another classification of terms  Definition of both terms .warranty .  Sec 12 (3) SOGA .2. the breach of which gives rise to a right to treat the contract as repudiated’.

3. In case of serious / fundamental breach .will be interpreted to the disadvantage of the party who will benefit from clause.need clear and unambiguous words to exclude liability. Common in standard contract . In case of disputes. In case of negligence . If the clause is ambiguous .exemption clause will not cover the parties who made the clause. There are also some statutes which modify the effect of the exemption clause to provide more protection to consumers.court will interpret .exemption clause cannot give benefit to third party nor make another party liable .the operation of which depends on the construction of the contract. Also . EXEMPTION CLAUSE  Defined as ‘ a term of a contract that attempts either to modify the principal        obligation(s) arising out of the contract or to limit / exclude the liability of a party which would otherwise arise as a result of a breach by that party…’.contra proferentum.

Misrepresentation .Sec 15 2. Undue influence . but not the others….Sec 17 4.  Sec 14 .Sec 16 3.Sec 21.Sec 2 (i) ‘an agreement which is enforceable by law at the option of one or more parties.’ .  Voidable contract . 22 and 23  Void .agreements are contracts if they are made by the free consent of the parties. Fraud .consent is free when not caused by one or more of the following: 1. Mistake .FACTORS VITIATING CONTRACTS  Sec 10 of Contract Act .Sec 18 5. Coercion .agreement that lacks any legal effect from the beginning - void ab initio.

Valiappa Chettiar . or the unlawful detaining of any person / property with the intention of causing any person to enter into an agreement’.  Chin Nam Bee Development – payment of extra $4000 under threats to cancel booking of houses .transfer made under Sultan’s order in the presence of Japanese officers during the occupation considered voidable. COERCION  Coercion defined as ‘ committing or threatening to commit any act forbidden by the Penal Code.1.  Kesarmal v.

: religious leader –follower.2.g. UNDUE INFLUENCE  Exist when ‘ the relations subsisting between the parties are such that one of the parties is in the position to dominate the will of the other and uses that position to obtain an unfair advantage over the other’.  Inche Noriah v. Williamson  Polygram Records Sdn Bhd v.  Therefore the elements of undue influence:  Position to dominate  Use that position to obtain unfair advantage  Position to dominate exist when:  Has real or apparent authority over the other – e. Skinner  Tate v. Shaikh Allie  Burden of proving no undue influence .: parent-child  Morley v.on the person in position to dominate .g. The Search & Anor  Made contract with a mentally incapacitated person by reason of age. illness or distress. solicitor-client  Allcard v. Loughnan  Stand in fiduciary relation to the other –e.

without belief in its truth or reckless whether it true or false Generally – silence does not constitute fraud .3.Horsfall v. Thomas . under certain circumstances silence or non -disclosure may constitute fraud –  Takes into account the relationship btw parties and where silence is equivalent to speech Duty to exercise ordinary diligence applies to fraud by silence only – not other cases of fraud  Weber v. FRAUD  Sec 17 – Five acts that would constitute fraud:  Suggestion of fact that is not true  Active concealment of fact .the misled party has the duty to exercise ordinary diligence However.that is made knowingly.inserting metal plug in a     cannon is active concealment  Promise made without intent to perform it  Other act fitted to deceive  Any acts the law declares to be fraudulent There must be an intention to deceive . Brown .number of rubber trees .

The representation is one of fact . not opinion .Keates v Lord Cardogan 2.may himself believe it true.Attwood v Small .Sec 19 .Peek v Gurney 4. There must be false representation .silence may amount to misrepresentation. Basic difference between misrepresentation and fraud is that in fraud the person making the representation does not himself believe in its truth .but for misrepresentation . MISREPRESENTATION  Misrepresentation refer to certain false statement of existing or past fact     made by a person before or at the time of making the contract which induces a party to enter into a contract. Like fraud . The statement must induce the contract .Bisset v Wilkinson 3. To be actionable: 1.when there is a duty to disclose . The statement was addressed to the party misled .misled party has duty to exercise due diligence  Tan Chye Chew v Eastern Mining Metals – contract not voidable despite the misrepresentation as the party has means of discovering the truth with ordinary diligence.4. However under the Contract Act .

MISTAKE  Sec.annuity for a dead person  Identity of the subject matter  Falck v. .mistake as to the law . 21 of the Contract Act .‘where both the parties under the agreement are under a mistake as to a matter of fact essential to the agreement.contract is valid  Mistake of fact made by both parties can be as to : Existence of the subject matter  Strickland v.like mistake of fact.shares in a mail company . Williams .  Sec 23 .for lack of free consent. Turner.mistake as to one party (unilateral) . Panama Royal Mail.contract not voidable due to mistake of law in force in Malaysia.  Sec 22 .identity of charter parties  Quality of the subject matter  Kennedy v. the agreement is void’ . but if the law not in force in Malaysia . .5.

of such nature as to defeat the law -Tan Bing Hock – attempts to assign logging rights c.immoral / against public policy . .Syed Ahamed Alhabshee v Puteh e.e.Pearce v Brooks – hire of vehicles for prostitution .VOID AND ILLEGAL CONTRACT  Sec 2 (g) .Contract which is not enforceable by law.Hee Cheng v Krishnan – attempts to transfer TOL land b.: a.forbidden by law .  Sec 24 –Contract with unlawful consideration / object is void i.fraudulent -Palaniappa Chettiar d-involves / implies injury to person / property.

 Sec 26 . . consideration unlawful  Sec 25 .agreement by way of wager.  Sec 27 . Teck Guan  Sec 30 . There are also Sec 25 to Sec 31 which provides for other instances that renders a contract void in law.  Sec 28 .any part of a single consideration / any part of several  Chung Khiaw Bank Ltd.agreement in restraint of trade  Wrigglesworth v.agreement made without consideration. Anthony Wilson – restrained from practicing as lawyer within five miles from KB for two years  Sec 29 .agreement to restraint legal proceeding  Corporation Royal Exchange v.agreement in restraint of marriage.agreement void for uncertainty.  Sec 31 .

 General rule under CA . 28 and 29 .not void in toto severable. Chu Chin Chua – money deposited with a company carrying unlicensed business is recoverable . Udoh – paid $1500 as deposit for lease of padi land which was illegal  Yeep Mooi v.ex turpi causa non oritur actio no action will arise from a wrong done.  Contracts under sec 27.  Sec 66 .doctrine of unjust enrichment  Ahmad b.Right of restitution .Consequence Of Void And Illegal Contract.

By impossibility (frustration) 4. By performance.BY PERFORMANCE. By consent or agreement between the parties 3.Sec 41 Letchumi Ammal – terms of contract that requires personal performance must be done by promissor  Haji Nik Ishak v. 1.parties to a contract must either perform or offer to perform their respective promises unless such performance has been dispensed with by any law. Nik Zainab – if a promisee accepts performance from a third party.  Performance must be strictly in accordance with terms of the contract.DISCHARGE OF CONTRACT  Contract is discharged when it is terminated in one of these ways: 1.  When time is of the essence . 2.Sec 56  Performance by third party . By breach.  Sec 38 (1) . cannot afterwards enforce it against promisor  .

g. the performance of the promise made to him. Waiver.  E.if the parties to a contract agree to substitute a new contract for it.  Express consent may be given at time of contract or subsequent to that. or may accept instead of it any satisfaction which he thinks fit. . BY CONSENT OR AGREEMENT  Contract created by consent can be extinguished by consent either express or implied.  Sec 63 . discharged at the occurrence of an event.  Sec 64 . or to rescind or alter it.every promisee may dispense with or remit. or may extend the time for such performance.2. release. novation or rescission. wholly or in part. the original contract need not be performed.

.an agreement to do an act impossible in itself is void. becomes void when the act becomes impossible or unlawful. or by reason of some event which the promisor could not prevent.court will examine the circumstances surrounding the frustration including whether it is self induced or not. BY IMPOSSIBILITY / FRUSTRATION  Two categories of impossibility of contract  When impossibility is at the time of making the contract .3.  In applying the rule .  A contract is frustrated when there is a change in the circumstances which renders a contract legally or physically impossible of performance – not merely difficult or more onerous  Sec 57(2) .a contract to do an act which after the contract is made becomes impossible.

. Supervening illegality .Lee Kin v. Death or personal incapacity especially in regards of personal obligation.automatically end the contract  Sec 66 CA provides for restitutionary remedy. A contract may be discharged in any of the following circumstances:  Destruction of the subject matter .Taylor v.Henry v.not partial due to Sec 12 of SRA    Supervening event defeat the whole purpose / object of the contract . Caldwellthere must be total destruction . Chan Suan Eng. Krell.  Effect of frustration .

if he has received any benefit there under from another party to such contract.4. The party rescinding a voidable contract shall. BY BREACH  Sec 40 . the promisee to the contract. by words or conduct. his promise in its entirety.‘when a person at whose option a contract is voidable rescinds it.  Sec 65 .‘When a party to a contract has refused to perform. restore the benefit.’  Cases :  Choo Yin Loo v. the other thereto need not perform any promise therein contained in which he is promisor.’  Party not in breach has the option of continuing with the contract and claim damages or repudiate the contract. so far as may be. Chen & Yap . V. unless he has signified. Visuvalingam  Ban Hong Joo Mine Ltd. his acquiescence in its continuance. to the person from whom it was received. or disabled himself from performing.

1.but damage can’t be too remote or indirect.DAMAGES  Damages are granted to a party as compensation for the damage.  Damages can be classified as substantial. . nominal or exemplary . . Injunction. Damages.Specific Relief Act 1. . . loss or injury done / suffered through breach of contract . Specific Performance.REMEDIES  There are several remedies provided by the law to give relief to the party not in default in a breach of contract.Sec 40 2. 40 2.Sec 74 to 76 3. Rescission of Contract.The Specific Relief Act 1950 4.RESCISSION  As dealt with in the previous part under sec.

to be likely to result from the breach’. the party who suffers is entitled to receive….  Illustrations to sec74 also indicate that the aggrieved party may recover damages  for other expenses incurred as a result of the breach. if a sum is named in the contract as the amount to be paid in case of such breach…or any other stipulation by way of penalty…the party complaining of the breach is entitled to receive…reasonable compensation not exceeding the sum named or the penalty stipulated for.  for the difference btw the price of goods as contracted for and the actual price the goods were sold for as result of the breach.compensation for any loss or damage….‘when a contract has been broken. when they made the contract.  for loss of profits arising out of the breach.to determine the upper limit of compensation..’  The effect of fixing the sum . party seeking damages is also under the duty to mitigate the loss .  Nevertheless. . Sec 74 .which naturally arose in the usual course of things.Kabatasan Timber Extraction Co..or which the parties knew.‘When a contract has been broken.  Sec 75 .

3.  contract made by trustee in excess / breach of their power  contract made on behalf of public or private corporation in excess of its power.  contract dependant on personal qualification.  contract the involves performance of continuous duty extending over a period longer than three years from its date.which is       discretionary by nature. Sec 12 . Sec 20 .circumstances where no SP can be enforced:  where money is adequate relief.  contract revocable by nature. Sec 11 in trust cases and where no adequate relief.  contract with uncertain terms.  contract that will need supervision of the court.court has power to award damages in lieu of SP Sec 21 .  contract which a material part of the subject matter has ceased to exist even before the contract is made .court has discretion to refuse specific performance if cause undue hardship to the defendant. SPECIFIC RELIEF  The Specific Relief Act provides for the remedy of specific performance .  contract with minute details. It a decree of the courts directing the contract to be performed according to its terms.presumption in cases of transfer of land Sec 18 .

That’s All Folks! .

Sign up to vote on this title
UsefulNot useful