Topic 2 Law of Contract

TOPIC 2:
LAW OF CONTRACT
RAFIDAH@MALISSA BINTI SALLEH (DATIN) Semester Mac 2020 - July 2020

What is the law that governs a
contract in Malaysia?
The legislation in Malaysia that

governs the law of contract is the
Contracts Act 1950 (Act 136)
(Revised 1974). INTRODUC
TION
However if there is a lacuna in the act
then English common law applies
(Civil Law Act 1956).
If there is a clash between the

provisions of the Contracts Act and
the English common law, then the
provisions of the Contracts Act
prevail
 An agreement between
two or more parties which
is legally binding.
 Section 2(h) of the

WHAT IS Contracts Act 1950
A states:
CONTRAC ‘an agreement
T? enforceable by law is a
contract’
It should be noted that all

contracts are agreements
but not all agreements are
contracts.

1. Offer/Proposal
2. Acceptance
3. Consideration
4. Intention to create legal
relations
THE
5. Certainty
ESSENTIAL
ELEMENTS 6. Capacity to contract
OF A 7. Legality of the objects
CONTRACT 8. Free consent
Note: If one or more of the

above-mentioned elements
is missing, the agreement is
not an enforceable contract.

1. OFFER/PROPOSAL

 An offer/proposal is defined in s.2(a)
Contracts Act 1950 as follows, ‘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
DEFINITI proposal’.
ON:  The person making the proposal is

called the promisor/proposer/offeror.
 The person/party accepting the

proposal is called the
promise/propose/offeree.
Semester Mac 2020 - July 2020 RAFIDAH@MALISSA BINTI SALLEH (DATIN)

 A proposal can be made either
expressly or impliedly.
MANNER  Section 9 of the Contracts Act

OF 1950 provides that a proposal
can be made expressly or
MAKING impliedly. Expressly means in
AN words (verbal or written) and
OFFER impliedly means other than
words ie by conduct.

1. To the Specific
/Particular Person
TO
WHOM IS
2. To the General
A Public
PROPOSA
L MADE?

1. TO THE SPECIFIC
/PARTICULAR PERSON
If En. Ali offers to sell

Offer made to a his boat to En. Bakar
specific person or for RM 15 000, it is a
party. Only that specific offer
person or party can because it is made to
accept. a specific party i.e.
En Bakar.

BOULTON V JONES (1875)
2 H&N 564
Facts:
The defendant has been dealing regularly with a supplier,
Mr. Brocklehurst. Unknown to him, Mr. Brocklehurst sold the
business to the plaintiff. Thus, when the defendant ordered
goods from the shop, he found that the plaintiff was now
the owner. The defendant refused to accept and pay for the
goods on the ground that he only intended to buy the
goods from Mr. Brocklehurst.
Held:
The court held that since the offer was made specifically to
Mr. Brocklehurst, the plaintiff cannot accept the offer.
2. To the General Public
Offer made to the general public or

to a certain group of the general
public.

CARLILL V CARBOLIC SMOKE
BALL CO. LTD.[1893] 1 QB 256
Facts:
Carbolic Smoke Ball Co. Ltd. advertised that they would pay a sum of
1,000 pounds to anyone who took their product for a certain duration
and succumbed to influenza. The Plaintiff Ms Carlill used the product
according to the instructions provided but succumbed to influenza.
The defendants refused to honour their promise.
Held:
The Court of Appeal held that the plaintiff had accepted the offer of
the company which had been made to the world at large and was
therefore entitled to the money.

CONDITIONS OF OFFER
1. The offer must be clear and unambiguous

 Offer is an indication of willingness to be bound by
certain terms, therefore, it must be clear, complete,
final and detailed to avoid doubt.
 If not clear, the offer is not valid.
 Guthing v Lynn [1831] 2B & AD 232

GUTHING V LYNN [1831]
2B & AD 232
Facts:
Lynn offered to buy a horse from Guthing on condition
that if the horse brings luck to him, he will pay another
$5 extra. A dispute arose and the issue is whether there
is a valid offer.
Held:
The offer was not final and complete and hence, it was
not valid.

2. The offer must be communicated .
 A party accepting a proposal must be aware of its
existence.
 The communication of the proposal is complete when

it comes to the knowledge of the person to whom it
is made (S.4(1) of the Contracts Act 1950).
 A party who casually returns a lost property to its

owner cannot legally claim a reward if he is unaware
of it at the time but subsequently discovers the
existence of an offer of rewards for its return.

R V CLARKE [1927] 4 CLR
227 (AUSTRALIA)
Facts:
The Australian Gov. offered a reward for the information
leading to the arrest and conviction of the criminal. One of
the criminal, Clarke gave info which leads to the arrest of
Y. Clarke was later acquitted n claimed for the reward.
Held:
He was not entitled for the reward because he was not
aware of the reward when he gave the information to the
government.

TAYLOR V LAIRD [1856] 25
LJ EX. 329
Facts:
The captain of a ship resigned from working in the ship. No
one left to navigate the ship. Thus he offered navigation
service (he need to be paid) but didn’t communicate it to
the owner of the ship.
Held:
The court held that no valid contract as there is no
knowledge on part of the offeree.

DIFFERENCE BETWEEN AN
OFFER AND AN INVITATION
TO TREAT
 The Contracts Act does not have a provision to cover
invitations to treat, so English Common law is
applicable.
 An invitation to treat is not an offer as it is a preliminary

communication between the parties. As such, it cannot
be accepted.

 One person invites another to make an offer to him
 A preliminary statement before offer is made
 No acceptance can be made
 A invites B to make an offer to him
 If B agrees, B will offer to A
 If A accepts the offer, he is the offeree
Contrast with Offer

 A offers to B (A is offeror)
 B accepts the offer (B is offeree)

EXAMPLES OF ITT
1. Display of goods in a self-service outlet
2. Advertisements
3. Supply of information
4. Tenders
5. Auctions

1. DISPLAY OF GOODS IN A
SELF-SERVICE OUTLET
 The shop displays goods on shelves as an invitation to
the public
 Customers select an item and bring it to the payment
counter
 The offer is made at the counter
 The cashier accepts the offer when he/she rings the sale
or writes the bill
 The agreement is concluded by payment to the cashier

THE EFFECT
 The customer is not bound to purchase anything until
acceptance is made at the payment counter
 The shop proprietor or cashier can choose whether to
accept the offer or not
 If the display is an offer, a customer is considered to have
accepted the offer when he brings the goods to the
payment counter
 Neither the customer nor the cashier can change their
mind

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V. BOOTS CASH CHEMIST LTD. [1953] 1 QB 401
Facts:
The defendants were charged under the Pharmacy and Poisons Act
1933 (U.K.) which provided that it was unlawful to sell certain poisons
unless such sale was supervised by a registered pharmacist. The
question that arose was when a sale occurred. It was a self-service
shop where customers could select articles they were interested in
purchasing and placed them in a wire basket. The items were then
taken to a cashier stationed at the exit. In cases involving drugs, a
pharmacist supervised the transaction and was authorised to prevent a
sale.
Held:
The Court ruled that the display of goods in the shop was not an offer.
It was an invitation to treat. The offer to buy was made when the
customer placed the items in the basket. The contract of sale was only
made at the cashier's desk. Therefore the shop owners had not made
an unlawful sale.
FISHER V BELL [1961] 1
QB 394
Facts:
A flick knife was displayed in a shop window. The
issue was whether the shopkeeper’s display of the
knife for sale was contrary to the Restriction of
Offensive Weapons Act 1959.
Held:
The display of the knife was merely an invitation to
treat and not an offer to sell.
2. ADVERTISEMENTS
 The advertiser invites the public to make an offer to
him
 Members of the public will make an offer when they
respond to the advertisement
 It is up to the advertiser whether to accept the offer or
not
 For example, job vacancy or sales promotion
 If the advertisement was an offer, the advertiser will
have no option to choose the best deal

PARTRIDGE V CRITTENDEN
[1968] 2 ALL ER 421
Facts:
It was an offence to offer for sale certain protected wild
birds. The defendant had advertised in a paper 'Quality
Bramblefinch cocks, Bramblefinch hens, 25s each'.
Held:
The High Court held that his advertisement was not an
offer but only an ITT. Customers who wished to buy the
birds will make the offer. The defendant will have a choice
whether to accept the offer or not

COELHO V THE PUBLIC SERVICES
COMMISSION [1964] MLJ 12
Facts:
The appellant applied for the post of Assistant Passport Officer advertised in the
Malay Mail newspaper. He was informed that he was accepted. After being
posted to the Immigration Office, he was informed that his appointment (on
probation basis) was terminated immediately by payment of one month salary in
lieu of notice. He applied to quash the decision.
Held:
The advertisement in the newspaper was an invitation to qualified persons to
apply for the post. The applications were offers. The information conveyed was an
unqualified acceptance.

EXCEPTIONS:
An advertisement can become an offer:
1. When the advertisement offers
reward to the other party
2. Where it contained conditions to
be fulfilled by the other party
3. For sale of goods by the
manufacturers

CARLILL V CARBOLIC SMOKE
BALL CO (1892) 2 QB 484
Facts:
The defendants made an advertisement where they offered to
pay £100 to anyone who still caught influenza after using one of
their smoke balls in a specified manner. The advertisement also
said that the defendant had deposited £1000 with the Alliance
Bank to show their sincerity in this matter. The plaintiff had
bought and used the smoke ball and subsequently got influenza.
She sued for the £100 but was refused by the defendant on the
ground that the ad was not an offer but an ITT.
Held:
The court held that the advertisement contained conditions
which were directed to the public. Thus, anyone who satisfied
those conditions are considered to have made an acceptance.
3. SUPPLY OF
INFORMATION
 Sometime a person may make statements without the
intention of making an offer
 Giving information or clarifying something
 A mere supply of information is not an offer and thus,
no acceptance can be made
 Whether such a statement is an offer or a supply of
information depends on the interpretation of facts in
each case

HARVEY V FACEY [1893] AC
552
Facts:
Harvey sent a Telegram to Facey which stated "Will you sell us
Bumper Hall Pen? Telegraph lowest cash price-answer paid;" Facey
replied by telegram by stating "Lowest price for Bumper Hall Pen
£900.“ Harvey then replied "We agree to buy Bumper Hall Pen for
the sum of nine hundred pounds asked by you. Please send us your
title deed in order that we may get early possession."
Held:
The Privy Council held that there was no contract concluded
between the parties. Facey had not directly answered the first
question as to whether they would sell and the lowest price stated
was merely responding to a request for information not an offer.
There was thus no evidence of an intention that the telegram sent
by Facey was to be an offer.
4. TENDER
 Notice inviting tenders are also invitation to treat
 A party who reads the notice makes the offer by
submitting his tender
 The party who had issued such notice may or may not
accept such tender.

SPENCER V HARDING
[1870] LR 5 CP 561
Facts:
The defendant made an announcement inviting tenders for
the sale of certain goods. The offer for tender made by the
plaintiff was the highest but the defendant did not accept
it.
Held:
The court held that the defendant had the right to reject
such offer as there was no valid contract. An
announcement inviting tender is only an invitation to treat.

5. AUCTIONS
 Where an auctioneer invites bids = invitation to treat.
 When bidder makes a bid = offer.
 With fall of the hammer, the sale is complete.
 A sale by auction is complete when the auctioneer

announces its completion by the fall of the hammer.
Until the fall of the hammer, any bidder may retract his
bid.

PAYNE V CAVE[1989] 3 TERM REP 148.
Facts:
The defendant made the highest bid at an auction sale.
However, before the fall of the auctioneer’s hammer,
he withdrew his bid.
Held:
Every bidding is nothing more than an offer on one side
which is not binding on either side till it is assented to.

REVOCATION OF OFFER
 Section 5 (1) – an offer can be revoked at any time

before acceptance is made
 Any acceptance after the offer has been
withdrawn is ineffective
 The offeror is not required to wait until the offeree
responds to his offer
 No requirement to give time for the offeree to
think about it
 Even if the offeror has given time to the offeree,
he may still revoke the offer before the time
expires
ROUTLEDGE V GRANT [1828]
130 ER 920
Facts:
The defendant offered to lease the plaintiff’s premises and
promised to give a definite answer within six weeks. After
three weeks the defendant withdrew his offer, and just
within the six weeks the plaintiff purported to accept it.
Held:
The judge said that the acceptance was too late. If one
party has six weeks to accept an offer, the other party also
has six weeks to put an end to it. The offeror is not bound
to wait until the six weeks is over to revoke the offer.

MANNERS OF REVOKING AN OFFER
 Notice of revocation [section

6(a)]
 Lapse of time [section 6(b)]
 Failure to fulfill condition
precedent to offer [section 6
(c)]
 Death or mental disorder of
offeror [section 6(d)]
1. NOTICE OF REVOCATION
 Withdrawal must normally be communicated to
the offeree, and does not take effect until such
communication is received
 The notice must reach the offeree before he
accepts the offer
 The notice must be made by the offeror himself
 The notice can be relayed by a third party if it
is from a reliable source

BYRNE V VAN TIENHOVEN
[1880] 5 CPD 344
Facts:
The defendant (D) offered to sell 1000 boxes of tinplates to the
plaintiff (P). The following events took place between D and P:
 1st Oct: D post letter of offer in Cardiff to the P in NY
 8th Oct: D posted a letter revoking the offer.
 11th: P received the letter of offer and sent acceptance by
telegram on the same day.
 15th Oct: P sent a letter of acceptance, verifying the
acceptance by telegram on the 11th Oct.
 20th Oct: P received the D’s letter of revocation which was
posted on the 8th Oct.
Held:
There was a contract between the parties. The revocation of
offer posted on 8th Oct was not effective until 20th Oct when P
received it. In the meantime, the P had already accepted the
offer on 11th
RAFIDAH@MALISSA Oct
BINTI when
SALLEH (DATIN) the telegram was sent. Semester Mac 2020 - July 2020
2. LAPSE OF TIME
 If the offeror has given a time frame for the
offer, the offeree must make his acceptance
within that period
 Once the time expires, the offer is
automatically revoked
 If no time is given, an offer may still become
automatically revoked by the lapse of a
reasonable time
 Reasonable time depends on the circumstances
of each case e.g. price, location of the goods

RAMSGATE VICTORIA HOTEL V
MONTEFIORE (1866) LR 1 EXCH
109
Facts:
The defendant made an offer in June to buy shares in the
plaintiff’s company, but heard nothing. The plaintiff made
an allocation of shares in November, and purported to
accept the defendant's offer, but the defendant refused to
go ahead.
Held:
The court said that although the offer had not been formally
withdrawn, it would expire after a reasonable time, and
given the fluctuating nature of the subject matter the time
interval had gone beyond what was reasonable.

3. FAILURE TO FULFILL CONDITION
PRECEDENT TO OFFER
 Sometime, the offeror may attach certain

conditions in the offer that must be satisfied
by the offeree before making acceptance
 Failure to satisfy those conditions will be a
ground to revoke the offer
 For instance, acceptance must be made with
deposit of 10% from the price of the goods
 Failure to fulfill the conditions will make the
offer automatically revoked

FINANCINGS LTD V STIMSON
[1962] 3 ALL ER 386
Facts:
The defendant offered to buy a car from the plaintiff
company. There was a condition that the contract was to
become binding only upon acceptance by plaintiff provided
that the car remains in the same good condition. However
before plaintiff accepted the offer, the car was stolen and
was subsequently recovered in a damaged condition.
Held:
The court held that the defendant’s offer was only able to
be accepted if the car remained in the same condition as it
was when the offer was made. Since this condition was not
fulfilled, the offer had lapsed/ revoked and therefore, there
was no binding contract.
DEATH OR MENTAL
DISORDER OF OFFEROR
 In the event the offeror dies or become mentally
unsound, the offer becomes automatically
revoked from the day he died or became
unsound
 However, notice of the death or insanity must
reach the offeree
 If the offeree accepted the offer before he
received notice of the death or insanity, then the
acceptance is still valid and binding

BRADBURY V MORGAN
[1862] 1 H&C 249
Facts:
JM Leigh (offeror) requested Bradbury & Co (plaintiff) to give
credit to HJ Leigh, his brother. JM Leigh guaranteed his
brother's account to the extent of £100. The plaintiff
thereafter credited HJ Leigh in the usual way of their
business. JM Leigh died but plaintiff, having no notice or
knowledge of his death, continued to supply HJ Leigh with
goods on credit. JM Leigh's executors (Morgan(defendant))
refused to pay, arguing that they were not liable as the debts
were contracted and incurred after the death of JM Leigh and
not in his lifetime.
Held:
The death of the offeror will not terminate the offer if the
acceptance has been made in ignorance of his death.
CONCLUSION
 An agreement begins with an offer
and will come into existence once
there is an acceptance
 The statement must be a valid
offer in order to be binding
 An offer may be revoked before it
is accepted

2. ACCEPTANCE

INTRODUCTION
 Section 2(b) of the Contracts Act 1950
defines acceptance as ‘when the person to
whom the proposal is made signifies his
assent thereto, the proposal is said to be
accepted: a proposal, when accepted,
becomes a promise’
 The offeree has the option whether to accept
the offer or not
 Section 2 (c) Contracts Act 1950 calls the
person making the proposal – “promisor”
and the person accepting the proposal –
“promisee”.
HOW TO MAKE AN
ACCEPTANCE?
 Section 9 of the Contracts Act 1950
 Expressly (by words)
 Impliedly (by conduct)

 Performing the conditions in the offer
e.g. Carlill v Carbolic Smoke Ball Co

 Giving the consideration required
e.g. paying the price of the goods

CONDITIONS FOR A VALID
ACCEPTANCE
1) Acceptance must be absolute and
unqualified
 Section 7(a) of the Contracts Act 1950
 Acceptance must fit or match the offer
 It must not change the terms in the offer
e.g. the price, the type of goods
 An acceptance that does not match the offer
becomes a qualified acceptance
 It is then known as a counter-offer

COUNTER - OFFER
 A counter-offer means that the offeree is
making a new offer to the offeror
 The offeror can either accept or reject
the new offer
 The original offer becomes automatically
revoked
 Hence, the offeree can no longer accept
the original offer unless the offeror
consents
HYDE V WRENCH (1840) 3
BEAV.
Facts:
334
The defendant offered to sell his estate to the plaintiff
for £1000. The plaintiff accepted to buy for £950 but
two days later made another acceptance for £1000.
The defendant did not reply but refused to proceed
with the sale. The plaintiff sued for breach of contract.
Held:
The court held that the plaintiff had made a counter-
offer when he accepted the offer for £950. It had
automatically revoked the defendant’s offer so that
he could disregard the plaintiff’s second acceptance.

ACCEPTANCE
2)Acceptance must be made in a
usual and reasonable manner
 Section 7(b) of the Contracts Act 1950
 The offeree must use whatever is the
usual way of communicating which is
reasonable in the circumstances
 e.g. by phone or by post

ACCEPTANCE
3) Acceptance must follow the manner
stated in the offer
 Section 7(b) of the Contracts Act 1950
 Whether the method of acceptance is
difficult or unreasonable does not matter
 The offeror may insist that acceptance
follow the manner prescribed
 Failure to comply signifies failure to accept
the offer section 6(c) Contracts Act 1950

ELIASON V HENSHAW
[1819] 4 WHEAT. 225, 4
L.ED. 556
Facts:
The Appellant offered to buy flour from the Respondent,
requesting that the acceptance to the offer should be sent to
the Appellant at Harper’s Ferry by the wagon which brought
the offer letter. The R sent the letter of acceptance by mail
thinking that it would reach the A more speedily.
Unfortunately, the letter arrived after the prescribed date. The
issue was whether there was a valid acceptance to constitute
a valid contract.
Held:
The A was entitled to reject the acceptance made by the R as
it did adhere to the prescribed mode of acceptance.
ACCEPTANCE
4) Acceptance must be made within the
time stipulated in the offer.
If no time is prescribed, acceptance must be
made within reasonable time.

FRASER V EVERETT
[1889] 4 KY 512
Facts:
There was a contract for sale and purchase of certain
shares whereby the acceptance was expected to be mailed
at about the end of March and would have arrived by 23rd
of April. However, it was mailed only in early April and
reached the D on 15th of May.
Held:
The shares were of fluctuating nature and hence, time is of
essence. The acceptance was not made within a
reasonable time.

5) Acceptance must be made by the offeree
himself or his authorised agent
6) Acceptance must be made while the offer still
exist
7) The offeree must know about the offer
8) Acceptance must be communicated

CAN SILENCE BE AN
ACCEPTANCE?
Felthouse v Bindley (1826) 29 LT 271
Facts:
The plaintiff wrote to his nephew offering to buy a
horse and added, “If I hear no more about him, I
consider the horse is mine at £30 15s.” The nephew
did not reply and the horse was later sold in an
auction.
Held: That there was no acceptance made and that

the plaintiff had no right to impose upon his nephew
a sale by silence.
COMMUNICATION OF
ACCEPTANCE
 There are two types of communication;
I. Instant or Immediate
communication
- the general rule
II. Communication by post or delayed

communication (the Postal Rule)
- exception to the general rule
INSTANT OR IMMEDIATE
CONTRACT
 Instant method of communication
e.g. face to face, telephone, fax
 The acceptance reaches the offeror
immediately without delay
 The contract happens as soon as the
offeror receive the acceptance
 There is no contract if the offeror did not
receive the acceptance

ENTORES LTD V MILES FAR
EAST CORPORATION (1955) 2
QB 327
Facts:
An offer was sent by telex from London. An acceptance was
then sent by telex from Amsterdam to London. Later on, the
plaintiff wishes to claim damages for breach of contract.
The issue arose as to where was the contract made, in
London or in Amsterdam?
Held:
That the contract was formed in London. The instantaneous
nature of telex meant that regular rules of acceptance by
post did not apply. The general principle that acceptance
takes place when communicated applies to all instantaneous
forms of communication.
Semester Mac 2020 - July 2020
RAFIDAH@MALISSA BINTI SALLEH (DATIN)
THE POSTAL RULE
 Where the contract was made by post or
telegraph
 There is delay in reaching the other party
 The offeror might not know that
acceptance has been made
 The parties must have contemplated the
use of post as means of communication
 The use of post for communication must
not be unreasonable

EFFECT OF SECTION 4(2)(A)
 Section 4(2)(a) provides that the
communication of acceptance is
complete ‘as against the proposer,
when it is put in a course of transmission
to him, so as to be out of the power of
the acceptor’
 This means that the offeree has posted

or telegraphed his acceptance i.e. by
putting it in the mailbox
EFFECT OF SECTION 4(2)(A)
 The offeror has not yet received the letter
 However, the offeror is bound by the
contract
 He cannot revoke his offer
 Even if the letter is lost, there is a binding
contract on the offeror
 The offeree is not yet bound by the
contract
 The offeree can still revoke his
acceptance
 Thus, contract legally exists and binds

EFFECT OF SECTION 4(2)(B)
 Section 4(2)(b) provides that the
communication of acceptance is complete
‘as against the acceptor, when it comes to
the knowledge of the proposer’.
 This means that the offeror has received
the letter of acceptance from the offeree
 Both parties are bound by the contract
 The offeree cannot revoke his acceptance

IGNATIUS V BELL (1913) 2
FMSLR 115
Facts:
The defendant gave an option to the plaintiff to
purchase a piece of land on the condition that the
option must be exercised on or before 20 August
1912 by a written notice. The plaintiff posted his
acceptance on 16 August and it reached the
defendant on 25 August.
Held:
The court held that since the parties had
contemplated the use of post for communication,
section 4 applies and a contract exists on 16
August when the acceptance was posted. Semester Mac 2020 - July 2020
ADAMS V LINDSELL (1818) 106
ER
Facts:
250
The defendant wrote to the plaintiff offering
to sell wool. The letter was misdirected and
reached the plaintiff later than usual. Upon
receiving the letter, the plaintiff promptly
posted his acceptance. Since the defendant
did not receive a reply for quite some time,
he sold the wool to someone else.
Held:
The court held that a contract existed from
the date the acceptance was posted
EXCEPTION TO THE POSTAL
RULE
 The offeror may put in a condition or statement to the
effect that he will not be bound by the acceptance until he
received the acceptance
Holwell Securities Ltd v Hughes (1974) 1 WLR 155

Facts:
The offeror stated that the acceptance must be in writing and
delivered to him. The offeree posted the letter but it was lost
in the post.
Held:
The court decided that the Postal Rule did not apply as the
offeror had expressly stipulated that he will only be bound by
actual receipt of the acceptance.
REVOCATION OF ACCEPTANCE
 S.5(2) states:
“ An acceptance may be revoked at any time
before the communication of the acceptance
is complete as against the acceptor, but not
afterwards.”
 Illustration to S.5:
➢ A proposes by a letter sent by post to sell his
house to B,
➢ B accepts the proposal by a letter sent by post,
➢ B may revoke his acceptance at any time
before or at the moment when the letter
communicating it reaches A, but not
afterwards.
DUNMORE V ALEXANDER [1830]
9 SHAW 190
 The letter of acceptance and the letter

of revoking the acceptance were
received by the offeror simultaneously.
 It was held that the acceptance had

been effectively revoked by the offeree.
Therefore there was no contract.

REVOCATION BY POST
 Section 4(3)(a) states that the
communication of a revocation is complete
‘as against the person who makes it, when
it is put into a course of transmission to the
person to whom it is made, so as to be out
of the power of the person who makes it’
 Section 4(3)(b) states that the

communication of a revocation is complete
‘as against the person to whom it is made,
when it comes to his knowledge.’
EFFECT OF SECTION 4 (3)
 The revocation is valid and binding on the
party who made the revocation
 It is not binding on the other party until
he had received knowledge of it
 Thus, the offeree may accept the offer
even after the offeror has posted his
revocation on condition he had not
received the letter of revocation from the
offeror
 The offeree cannot accept the offer after
he received the letter of revocation
BYRNE V VAN TIENHOVEN
(1880) LR 5 CPD 344
Facts:
The defendant posted a letter on 1 October offering to
sell to the plaintiff a quantity of tinplate, then posted
another letter on 8 October withdrawing the offer. The
first letter reached the plaintiff on 11 October and they
accepted the offer at once by telegram, following with a
confirmatory letter four days later.
Held:
The second letter purporting to withdraw the offer
arrived on 20 October, by which time the offer had been
accepted and it was too late for the defendant to
withdraw.
CONCLUSION
 There is no agreement if there is no
acceptance
 Acceptance must be communicated to
the offeror according to the conditions
stated in the offer
 Once there is offer and acceptance, an
agreement is deemed to exist
 Whether it is a contract or a mere
agreement will depend on whether other
elements have been fulfilled

3. CONSIDERATION

INTRODUCTION
• The courts will not enforce a contract unless it is
supported by consideration
• e.g. Sharif promised to pay RM 150 to Mahani if she

bakes a birthday cake for him
• Sharif’s consideration is RM 150 and Mahani’s

consideration is the act of baking the cake

DEFINITION OF
CONSIDERATION
• Section 2(d) of the Contracts Act 1950
states that, ‘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’.

WHAT IS CONSIDERATION?
 Section 2(d) defines consideration as
giving something in return for the promise
made by the other party
 It may be a promise or an act or an
omission
 In short, the parties must give something
in return for the promise made by the
other party
 An exchange of benefits

COMMON LAW DEFINITION
 Under common law, consideration
consists of some right, interest,
profit or benefit, accruing to one
party or some forbearance,
detriment, loss or responsibility
given, suffered or undertaken by the
other
 This was stated in Curie v Misa
(1875) LR 10 Exch 153
OTHER DEFINITION OF
CONSIDERATION
 “the essence of consideration is
that the promisee has taken upon
himself some kind of burden or
detriment”
 Per Gunn Chit Tuan SCJ in South

East Asia Insurance Bhd v Nasir
Ibrahim [1992] 2 MLJ 355

THE LEGAL REQUIREMENT
 Both parties must provide consideration
 The promisor does this by promising to
perform the obligation contained in the
offer
 The promisee does it by promising to do
or actually doing what is requested in
the offer
 Where promises are made for
consideration, the law will treat them as
binding and enforceable
UNIVERSITY OF MALAYA V LEE MING
CHONG [1986] 2 MLJ 148
Facts:
The university selected the defendant for a
scholarship offered by the Canadian government. In
return, the defendant was to serve the university for a
minimum of 5 years or pay RM 5000 on demand. The
defendant breached the agreement and argued that
the scholarship agreement was void as there was no
consideration.
Held:
The court held that the fact that the university
selected him for the scholarship was the consideration
for the plaintiff’s promise to serve it for 5 years.
TYPES OF CONSIDERATION
 There are 3 types of consideration;
 Executory consideration
 a promise in exchange for a promise
 K Murugesu v Nadarajah [1980] 2 MLJ
82
 Executed consideration
 an act in exchange for a promise
 e.g. X offers RM 100 to anyone who
found his lost dog

K. MURUGESU V NADARAJAH
[1980] 2 MLJ 82
Facts:
The Appellant agreed to sell and the respondent agreed to
buy a house from the A. The agreement was written on a
piece of paper. Later, the appellant refused to perform the
contract and argued that there was no consideration in
the agreement and therefore the contract is void.
Held:
The agreement must be seen to be a care of executor
consideration. A promise is made by one party in return
for a promise made by the other. In such a case, each
promise is the consideration for the other.

TYPES OF CONSIDERATION
 Past consideration
something wholly performed before the
promise was made
 the past act was not in response to the
promise
 the promise is made after the act was
done
e.g. promising to pay a person after he
saved you from drowning

PAST CONSIDERATION
 The general rule is that past
consideration is not good or valid
consideration (in English law)
 Thus, any promise made after the

act has been performed is not
binding and not enforceable on the
promisor
ROSCORLA V THOMAS
[1842] 3 QB 234
Facts:
P purchased a horse from D. D then promised the
horse was sound. The horse was in fact not sound
and P sued for breach of contract.
Held:
The court held that there was no consideration for the
promise that the horse was sound. The only
consideration that had been alleged was the contract
for the sale of the horse – this, however, had
preceded the defendant’s promise – it was not part of
the bargain – not given in exchange for the promise.
Consequently it was not good consideration.
RE MCARDLE [1951] 1 CH
669
Facts:
The plaintiff worked on improving and repairing a
bungalow, which had been left in trust to her husband
and his four siblings. After the work was carried out
the siblings signed a document stating that the
executors should pay the plaintiff £488 from the
proceeds of selling the house. This payment was not
made. The issue in this case is whether work carried
out prior to the promise can be valid consideration.
Held:
The promise was not binding as it was made after the
consideration had been performed. Past consideration
is no consideration.
THE EXCEPTION
 The legal position in Malaysia
 If the act or omission was done at the
desire of the promisor
 The wordings in Section 2(d)
 There must be a prior request by the
promisor

KEPONG PROSPECTING LTD V
SCHMIDT [1968] MLJ 170
Facts:
S a consultant engineer has assisted another in
obtaining a prospecting permit for mining iron
ore, he helped in the subsequent formation of
Kepong Prospecting Ltd and was appointed as its
MD. After the company was formed they entered
into an agreement whereby the company
undertook to pay 1% of the value of all ore sold
from the mining land.
Held:
It did constitute a valid consideration so that
Schmidt was entitled to his claim on the amount.
RULES ON CONSIDERATION
1. Consideration must have value
2. Consideration need not be adequate
3. Consideration must be sufficient
4. Consideration need not move from the
promisor – it may come from a third party
5. Consideration must not be vague
6. Consideration must not be illegal
7. Consideration must be something possible
to perform

1. CONSIDERATION MUST
HAVE VALUE
 An act or a promise to do something which one is
bound to do will not be a valid consideration.
Collins v Godefroy [1831] 1 B & Ad 950

Facts:
G promised to pay C if C would attend court and give
evidence for G. C had been served with a subpoena. C
sued for payment.
Held:
It was held that as C was under a legal duty to attend
court he had not provided consideration. His action
therefore failed.
HARTLEY V PONSONBY
[1857] 119 ER 1471
Facts:
When 19 out of 36 crews of ship deserted, the captain
promised to pay the remaining crew extra money to sail back,
but later refused to pay saying that they were only doing their
normal jobs. In this case, however, the ship was so seriously
undermanned that the rest of the journey had become
extremely hazardous.
Held:
It was held that sailing the ship back in such dangerous
conditions was over and above their normal duties. It
discharged the sailors from their existing contract and left them
free to enter into a new contract for the rest of the voyage.
They were therefore entitled to the money.

2. ADEQUACY OF
CONSIDERATION
 If the party gets what he asks for in
return for his promise, he has
received sufficient consideration
and is bound by the contract
 It is not material whether the
consideration matches the value of
the subject matter or not
 Hence, the sale of a car for RM
10.00 would be valid and binding
2. ADEQUACY OF
CONSIDERATION
 The court is not concerned with
the value of the consideration as
long as it was made by the free
will of the parties
 Therefore, a person who knowingly
and willingly agree to a contract
for lesser value cannot later on
refuse to perform the contract on
the ground that it was not a good
bargain
PHANG SWEE KIM V BEH I HOCK [1964]
MLJ 383
Facts:
The respondent alleged that the appellant had
trespassed on his land and instituted an action for
repossession of the land. The appellant counterclaimed
that she had bought the land from the respondent via
an oral agreement at the cost of RM 500.
Held:
The trial judge held that the sale was void as the price
was too low as compared with the real value of the land.
On appeal, the Federal Court stated that inadequacy of

consideration was immaterial as it was proven that both
the parties made the contract willingly. Semester Mac 2020 - July 2020
WHEN IS VALUE
IMPORTANT?
 However, where a party denies that his
consent was freely given, the court will
take into account the inadequacy or
imbalance in consideration to
determine whether the party’s consent
was freely given or not
 Where the party did not willingly enter

into the contract, an unreasonably low
price can be considered as invalid
consideration
3. SUFFICIENCY OF
CONSIDERATION
 As long as the consideration has
some economic value, it is sufficient
and valid
 Monetary value
 It does not matter that the value
cannot be precisely quantified

CHAPPEL & CO LTD V NESTLE CO
LTD [1960] AC 87
Facts:
The plaintiff owned the copyright in a dance tune
called ‘Rockin’ Shoes’. The defendant bought the
records at 4 pence each and as a publicity stunt,
sold the records to the public at the price of 18
pence each plus 3 Nestle milk chocolate bar
wrappers costing 6 pence each. Nestle was
willing to pay the plaintiff royalties at 6.25% of
the 18 pence. The plaintiff claimed that the 18
pence was only part of the consideration and
that the wrappers constituted the balance. The
issue was whether the wrappers have any
economic value?
CHAPPEL & CO LTD V NESTLE CO
LTD [1960] AC 87
Held:
The House of Lords decided that the
offer to sell the records included the
wrappers, the object of which is to
increase the sales of Nestle chocolate.
Thus, acquiring and delivering wrappers
to Nestle had economic value even
though the wrappers were thrown away.
Therefore, the wrappers were part of the
consideration
4. CONSIDERATION FROM
3RD PARTY
 This is not applicable under English law
 This provides a connection with an
outsider to the contract
 Therefore, when A makes a contract with
B, consideration can come from C.
 Section 2(d) clearly provides that by the
words, ‘the promisee or any other person
has done or abstained from doing….’

VENKATA CHINNAYA V
VERIKATARA’MA’YA’ (1881) 1 LR 4
Facts:
A agreed to pay annuity of Rs635 to her brothers
who gave nothing in return. On the same day, their
mother gave a piece of land to A on condition that
she pays the annuity to her brothers.
Held:
The court held that she was liable to make the
payment even though the consideration came from
her mother who was a 3rd party to the contract.
CONTRACT WITHOUT
CONSIDERATION
 Section 26 states that contract without
any consideration is void
 There are exceptions provided where
contract is still valid even though one
party has not given consideration. The
exceptions are as follows:
i. An agreement on account of natural love and affection.
[s.26(a)]
ii. An agreement to compensate for a past voluntary act.
[s.26(b)]
iii. An agreement to compensate for an act the promisor
was legally compellable to do. [s.26(b)]
iv. An agreement to pay a statute-barred debt. [s.26(c)]

1. NATURAL LOVE AND AFFECTION IS VALID
CONSIDERATION
 Natural love and affection is valid consideration if

certain prerequisites are complied with.
 Section 26(a) Contracts Act 1950

‘An agreement made without consideration is void,
unless it is expressed in writing and is registered
under the 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 near relation to each other’.

1. NATURAL LOVE AND
AFFECTION IS VALID
CONSIDERATION
 Such an agreement is binding provided:
(a) it is in writing
(b) it is registered ( if applicable )
(c) the parties stand in near relation to eachother

1. NATURAL LOVE AND
AFFECTION IS VALID
CONSIDERATION
 Who are ‘near relations’?
 The meaning of ‘near relations’ varies from one social

group to another as it depends on the customs and
practices of each group. Some evidence of the
relationship should be produced.

RE TAN SOH SIM (1951) 1 MLJ 21,CA.
 This case dealt with the adopted sons and

daughters of the adoptive mother. The Court
of Appeal held that in contemplation of
Chinese family custom, the adopted children
were related in a special and limited way
which was not near. There was no evidence of
the existence of natural love and affection
between the parties to the alleged agreement.

2. AN AGREEMENT TO COMPENSATE FOR A PAST
VOLUNTARY ACT
Past consideration is consideration that

consists of something wholly performed before
the promise is made. It is not made pursuant
to a promise but prior to it. However, it must
be at the desire of the promisor.
Section 2 (d) Contracts Act 1950 provides:

‘When, at the desire of the promisor, the
promisee or any other person has done or
abstained from doing,...’
2. AN AGREEMENT TO COMPENSATE
FOR A PAST VOLUNTARY ACT
 Section 26 (b) Contracts Act 1950
‘An agreement made without consideration is void
unless it is a promise to compensate, wholly or in
part, a person who has already voluntarily done
something for the promisor, or something which the
promisor was legally compelled to do.’
 The words in bold in Sections 2 and 26 clearly show

that past consideration is good consideration.

VOLUNTARY ACT
 Illustration (c) of Section 26 (b)

Contracts Act 1950
A finds B’s purse and gives it to him. B
promises to give A $50. This is a
contract.

VOLUNTARY ACT
 It should be noted that this Section

requires the act to be done voluntarily.
It is suggested that an act would not be
voluntary if it was done at the
suggestion, request or desire of the
promisor.

VOLUNTARY ACT
 In the example above, the act of finding the purse was

done in the past without the request or desire of the
promisor, A.
 In Illustration (d) Contracts Act 1950, B is under a legal

duty to maintain his infant son which duty is carried by
A. B subsequently promises to compensate A for the
services and support he has provided to his son.
Though it was done in the past before the promise
made by B to pay, it would still constitute good
consideration under Section 26 (b) Contracts Act 1950.

3. AN AGREEMENT TO COMPENSATE FOR AN ACT
THE PROMISOR WAS LEGALLY COMPELLABLE TO DO
 S.26(b) Contracts Act 1950

 ‘…a promise to compensate, wholly or in part, a
person who has already voluntarily done
something for the promisor, or something which
the promisor was legally compellable to do…’

 S.26 (b) Contracts Act 1950

 ‘…a promise to compensate, wholly or in part, a
person who has already voluntarily done
something for the promisor, or something which
the promisor was legally compellable to do…’

There are three conditions that need to be

met:
i. The promise has voluntarily done an act

ii. The act is one that the promisor was
legally compellable to do
iii. An agreement to compensate wholly or
in part, the promise for the act
 Illustration (d) of Section 26 (b)

Contracts Act 1950
 A supports B’s infant son. B promises

to pay A’s expenses in so doing. This is
a contract.
 In the example above, the act of

supporting the infant was done in the
past without the request or desire of
 In Illustration (d), B is under a legal duty to

maintain his infant son which duty is carried
by A. B subsequently promises to
compensate A for the services and support
he has provided to his son. Though it was
done in the past before the promise made by
B to pay, it would still constitute good
consideration under Section 26 (b)
Contracts Act 1950.
 It should be noted that this section

requires the act to be done voluntarily.
It is suggested that an act would not be
voluntary if it was done at the
suggestion, request or desire of the
promisor.

4. AN AGREEMENT TO PAY A STATUTE-BARRED DEBT
 s.26 (c) Contacts Act 1950
 ‘…a promise to pay a debt barred by limitation law.
 Ii is a promise, made in writing and signed by the

person to be charged therewith…to pay wholly or
in part a debt of which the creditor might have
enforced payment but for the law for the limitation
of suits.’

 There are two conditions to be met:
i. The debtor made a fresh promise to

pay the statute-barred debt
ii. The promise is in writing and signed by
the person to be charged or his
authorise agent
 Illustration (e) of Section 26(c)

Contracts Act 1950
 A owes B RM1,000, but the debt is
barred by limitation. A signs a written
promise to pay B RM500 on account of
the debt. This is a contract.

5. PART PAYMENT MAY
DISCHARGE AN
 OBLIGATION
Under English law (Pinnel’s case), it is a general
rule that, payment of a smaller sum is not a
satisfaction of a obligation to pay a large sum.
 However, the rule does not apply in Malaysia.
 S.64 of the Contracts Act provides that:

“Every promisee may dispense with or remit,
wholly or in part, the performance of the
promise made to him, or may accept instead of
it any satisfaction which he thinks fit.”
 Illustration C to S.64 provides:


“ A owes B RM5000. C pays to B RM1000 and
accepts them in satisfaction of his claim on A.
This payment is a discharge of the whole claim."
KERPA SINGH V. BARIAM
SINGH [1966] 1 M.L.J. 38
Facts:
The Defendant owed the Plaintiff $8,869.94. The
defendant’s son offered to pay $4000 as payment in full in
order to discharge his father from liability and that if the
appellant did not agree to the said settlement, the money
should be returned to him. The cheque was cashed and the
money retained by the appellant’s solicitor. Later on the
plaintiff claimed for the balance.
Held :
The acceptance of the cheque from the debtor’s son in full
satisfaction precluded them from claiming the balance.

SCHOLARSHIP
AGREEMENTS
Section 4(c) of the Contracts
(Amendment) Act 1976 states
that no scholarship agreement
shall be invalidated on the
ground that such agreement had
no consideration
University of Malaya v Lee Ming
Chong [1986] 2 MLJ 148
4. INTENTION TO
CREATE LEGAL
RELATION

INTRODUCTION
• An agreement by itself does not
create a binding contract
• Not everyone intends to take legal
action for breach of agreement
• The parties must intend that the
agreement is to be legally
enforceable
• This intention can be either express
(by words) or implied (by conduct)
THE REQUIREMENT
 Intention is a vital
requirement of a valid contract
 The Contracts Act 1950 is
silent on the question of
intention to create a legal
relation
 Hence, reference is made to
common law as well as
decided cases
THE RATIONALE
 Agreements are made almost daily
between people where the parties
usually do not contemplate going to
court if the promise was not
honoured/performed
 For instance, an agreement to go to
the cinema or a promise to buy a
bicycle if a child passes his exam
 The parties concerned would surely
not have thought that they would sue
the other party in court when the
promise was not carried out
HOW TO DETERMINE
INTENTION?
• To become a contract, there must be an
intention to be legally bound i.e.
intention to make a contract
• In order to determine intention, the
courts will look at the conduct of the
parties and the surrounding situation
• This include perusal of documents and
the conduct of the parties prior and
subsequent to the agreement
• For this purpose the courts have made
legal presumptions based on the types
of agreement entered into by the parties
TYPES OF
PRESUMPTIONS
• The courts make a presumption
on the parties’ intention based
on the type of agreement
• The courts have divided
agreements into two general
types namely;
• Commercial agreements
• Domestic, Social or Family
agreements
COMMERCIAL AGREEMENTS
 This is an agreement relating to
commercial matters such as trade,
services etc
 The motive is profit or to make money
 Therefore, any agreement to sell or buy
goods especially immovable goods, are
likely to be considered as a contract,
not an agreement

THE LEGAL PRESUMPTION
 The courts presume that the parties
intend to make a legally binding
contract
 There is no need for either parties to
prove intention in this case
 Nevertheless, if one party disagrees, he
must rebut the presumption
 The burden of proof falls on the party
who claims that there is no intention to
make a contract by bringing evidence
to court
REBUTTAL OF THE
PRESUMPTION
 Rebuttal means to disprove the
presumption
 Hence, the party who claims that there
is no contract must prove that there was
no intention to enter into a contract
 If he can successfully rebut the
presumption, the court will hold that the
agreement is not a contract despite the
agreement being one of a commercial
nature
LOW KAR YIT & ORS V MOHD ISA
& ANOR (1963) MLJ 165
Facts:
The defendant gave an option to the plaintiff’s agent to buy
a parcel of land subject to a formal contract to be drawn up
and agreed upon by the parties
Held:
The court held that the option was conditional upon and
subject to a formal contract to be drawn up and agreed
upon by the parties. Thus, exercising the option was only an
agreement to enter into an agreement which is not binding.
Therefore, there was no contract between them

KOH KIA HONG V GUO
ENTERPRISES PTE LTD (1990) 1 CLJ
919
Facts:
The plaintiff offered to buy the defendant’s
property and paid him a deposit of RM5,000.
they both signed a typewritten note prepared
by the plaintiff. The defendant also issued an
official receipt to the plaintiff.
The defendant claimed that there was no

contract between them as they had not
signed any formal agreement.
KOH KIA HONG V GUO
ENTERPRISES PTE LTD
Held:
The court decided that there was an intention to create
legal relation and thus, a binding contract existed on the
following grounds:
 The deposit paid by the plaintiff
 Both parties signed the note
 Issue of an official receipt by the defendant

SOCIAL, FAMILY AND
DOMESTIC AGREEMENTS
 This type of agreements consist of
agreements made between husband
and wife, family members or those that
relates to social matters
 Even though the parties are not related
to each other, the agreement would be
a social one if it does not involve
commercial matters
 It is up to the court’s interpretation
THE PRESUMPTION
 The parties do not intend to enter into
legal relation
 This means that the agreement is not
a contract but an ordinary agreement
 The parties need not prove that they
have no intention to make a contract
 Nevertheless, the party who disagree
has the opportunity to rebut the
presumption

DOMESTIC AGREEMENTS
 In Balfour v Balfour, the defendant was
a civil servant stationed in Ceylon. His
wife stayed back in England on
doctor’s advice. The defendant
promised to send £30 a month to the
wife until he returned. Later on, they
agreed to a divorce. The wife sued the
defendant for his failure to pay the
£30. The court held that the parties did
not intend to enter into a legal relation.

BALFOUR V BALFOUR
[1919] 2 KB 571
 The court stated that, “It is necessary to
remember that there are agreements
between parties which do not result in
contracts within the meaning of that term in
our law – and one of the most usual forms of
agreement which does not constitute a
contract appears to me to be the
arrangements which are made between
husband and wife – they are not contracts
because the parties did not intend that they
should be attended by legal consequences”.

MERRITT V MERRITT [1970]
2 ALL ER 760
 The husband left the matrimonial home
which was in the joint name of the couple.
The wife pressed the husband to make
arrangements for the future. They later met
and discussed the matter. The husband
promised to transfer the house to his wife if
she completed the mortgage payment on the
house. The wife insisted that he wrote it
down and signed it. The wife then paid the
mortgage but the husband refused to
transfer the house to her.
MERRITT V MERRITT [1970]
2 ALL ER 760
 The court decided that the principle in Balfour v Balfour
does not apply to a husband and wife who are not living in
amity.
 There court also took into consideration the fact that the
wife had requested the husband to write and signed a note
representing the promise

FAMILY AGREEMENTS
 In Jones v Padavatton [1969] 1 WLR 328, a mother offered to
provide expenses if her daughter would quit her job as
secretary in the USA and come to England to study for the
Bar. Later on, she also provided a house for her daughter.
When differences arose between them, the mother asked her
daughter to leave the house but she resisted on the ground
that her mother was contractually bound.
 The court held that the original agreement was motivated by
the mother’s desire for her daughter to succeed at the Bar. As
they were originally on good terms, there was no intention to
make a contract.

VAGUE TERMS
 In Phiong Khon v Chonh Chai Fah [1970] 2
MLJ 114, a Chinese woman set up home
with the appellant until her death. The
appellant alleged that her son, (the
respondent) had executed a document
transferring land to him. The respondent
denied this.
 The court found that the terms of the
agreement was so vague that it was
seriously doubted that there was any
intention to create a binding contract.
CONCLUSION
 In order to create a binding contract, the parties must
have the intention to make a contract
 The courts have established the two legal presumptions
as a way to reduce the difficulties associated with
determining the intention of the parties

5. CERTAINTY

INTRODUCTION
• The terms of a contract must be certain.
• An agreement which is uncertain or is not
capable of being made certain is void.
• The courts will not interfere by putting
into a contract terms which a party has
failed to reach.

Section 30 Contracts Act 1950:
 “Agreements, the meaning of which
is not certain, or capable of being
made certain, are void.”
At common law, there are two

aspects of uncertainty:
1. The language used may be too
vague
2. Failure to reach agreement on a
vital or fundamental term of an
agreement.
EXAMPLE:
 Illustration (a) Section 30 Contracts Act 1950
 If A agrees to sell B ‘a hundred tons of oil’,
 There is nothing whatever to show what kind of oil was intended
and thus, the agreement is void for uncertainty.
 Illustration (c) Section 30 Contracts Act 1950

 A, who is a dealer in coconut oil only, agrees to sell to B “one
hundred tons of oil”.
 The nature of A’s trade affords an indication of the meaning of
the words, and A has entered into a contract for the sale of one
hundred tons of coconut oil.
 The subject matter can be identified from the nature of A’s
business

EXAMPLE:
 Illustration (e) Section 30 Contracts Act 1950
 A agrees to sell to B ‘one thousand gantangs of rice at a price to be
fixed by C’.
 As the price is capable of being made certain, there is no
uncertainty here to make the agreement void.
 In the above agreement, if C refuses or is unable to fix the price,
the agreement will become void.
 Illustration (f) Section 30 Contracts Act 1950

 A agrees to sell his ‘white horse for dollars five hundred or dollars
one thousand’.
 Since there is nothing to indicate which of the two prices is to be
paid, the agreement is void.

KARUPPAN CHETTY V. SUAH THIAN [1916] 1
F.M.S.L.R. 300
Facts:
The contract was declared void for uncertainty because

the parties agreed to a lease of $35 per month ‘for as
long as he likes’.
Held:
The court held the contract to be void for uncertainty as there was no
way to determine when the contract would end.
6. CAPACITY

INTRODUCTION:
• The law places limitations upon the capacity of

certain persons to make a binding promise.
• The parties entering into a contract should be
competent to a contract.
• It means that they must have the legal capacity to
do so.
• Contract made by an incompetent person may
become unenforceable in court.

LAW:
• Section 10(1) of the Contracts Act 1950:
“All agreements are contracts if they are made by the free
consent of parties competent to contract, for a lawful
consideration and with a lawful object, and are not hereby
expressly declared to be void.”
• Section 11 of the Contracts Act 1950:

“Every person is competent to contract who is
of the age of majority according to the law to
which he is subject, and who is of sound mind,
and is not disqualified from contracting by any
law to which he is subject.”
Age of
Majorit
y
Section 11
Contracts Sound
Act 1950 Mind
Not
Disqualifie
d

AGE
 According to Sec. 2 of the Age of Majority
Act 1971, the age of majority is 18 years.
 A person under 18 is called a minor or an
infant.
 The general rule: “all contracts entered
into by a minor are void.”
 A minor is considered as unable to fully
understand or appreciate the effect of a
contract on his/her interests.
 Consequently, no legal action can be
taken on the minor or by the minor.
TAN HEE JUAN V TEH BOON
KIAT [1934] MLJ 96
Facts:
The plaintiff who was a minor, executed the transfer of land
in favour of the defendant which was witnessed and
registered. Later on, the plaintiff applied to the court for an
order to set aside the transfer of the land.
Held:
The court held that the transaction was void and ordered
restoration of the property back to the minor.

EXCEPTIONS TO THE
GENERAL RULE:
1. Under the Age of Majority Act 1971
2. Under the Contracts Act 1950
3. Under the Insurance Act 1963 (Revised 1972)
4. Under the Children and Young Person (Employment)

Act 1966

1. AGE OF MAJORITY ACT
1971
 Section 4(a)(b)&(c) of the Age of Majority Act 1971:
a) In matters relating to marriage, divorce, dower and

adoption;
b) The religion and religious rites and usages ;
c) Any other written law fixing the age of majority.

RAJESWARY V BALAKRISHNAN (1958) 3 MC 178
Facts:
A promise of marriage entered into by minor.
Then, the promise to marry is repudiated. The
plaintiff sued for breach of promise. The defendant
pleaded among others the incapacity to enter into
the contract to marry.
Held:
The age of majority for entering into a marriage
contract differed from other contracts entered into
by a minor and consequently such contracts were
not affected by the general rule.
2. CONTRACTS ACT 1950
(A) Necessaries / Necessities
 Necessaries are things which are essential to the existence

and reasonable comfort of the infant such as food, shelter,
clothing, education, medical services, transport etc.
 The common law regarded necessaries as binding only if it
benefits the minor.
 Section 69 of the Contracts Act 1950 allows a person who
has supplied necessaries to a minor to receive
reimbursement from the property of the minor.
 Consequently, he can sue the minor for payment of the
goods supplied.
 A minor who contracts for necessity cannot avoid the
contract on the ground that he is a minor.
NASH V INMAN (1908) 2 KB 1, CA.
Facts:
A tailor sued for the price of clothes which included 11
fancy waistcoats supplied to a Cambridge student.
Held:
The court held that the action must fail as there was
no evidence to indicate that the clothes were suitable
to the minor’s condition in life. Furthermore, the
minor’s parent had provided him with adequate
clothes.

GOVERNMENT OF MALAYSIA V.
GURCHARAN SINGH & ORS. [1971] 1
M.L.J. 211.
 His Lordship came to the conclusion that the word

‘necessaries’ must be construed broadly, and in so
interpreting, a court would have regard to the facts of the
case, the conditions and circumstances in which the
supply was made and the purpose which was served.
 In this case, education was regarded as ‘necessaries’.

(B) SCHOLARSHIP AGREEMENT
 Sec. 4(a) Contracts (Amendment) Act 1976 provides
that:
“No scholarship agreements shall be invalidated on
the ground that the scholar entering into such
agreement is not of the age of majority.”
What is scholarship agreement?

 Any contract or agreement between the appropriate
authority and any person, with respect to any
scholarship, award, bursary, loan, sponsorship or
appointment to a course of study, the provision of
leave with or without pay or ‘any other facility for
the purpose of education or learning.
3. Insurance Act 1963 (Revised
1972)
 Under the Insurance Act 1963 (revised 1972), a minor over
the age of 10 may enter into a contract of insurance.
 However, a minor under the age of 16 can only do so with

the written consent of the parents or guardian.
 This is based on the presumption that it is in a

minor’s best interest to insure himself or his
property against contingencies.

4. The Children and Young
Person (Employment) Act 1966
• Section 13 of the Children and Young

Person (Employment) Act 1966:
“Notwithstanding anything to the contrary contained
in the Contracts Act 1950 or the provisions of any
other written law, any child or young person shall be
competent to enter into a contract of service under
this Act otherwise than as an employer, and may sue
as plaintiff without his next friend or defend any
action without a guardian ad litem.”

DOYLE V WHITE CITY
STADIUM[1935] 1 KB 110
Facts:
Doyle, a professional boxer was a minor. He
entered into a contract with White City Stadium. It
was agreed that if Doyle was disqualified from a
tournament, he would lose all the money due to
him. Doyle contested the contract on the ground
that he was a minor and therefore not bound by it.
Held:
The contract was binding because it was for
training and was beneficial for the plaintiff.

DE FRANCESCO V BARNUM
(1890)
Facts:
45 CH D 430
The contract between Plaintiff and Defendant (a
minor) for apprentice dancer included such terms
that she could not marry, not receive any payment
and not dance for other person.
Held:
The terms were so harsh and unreasonable
therefore the contract cannot be enforce against
minor.

STATE OF MIND
 A meetings of mind and free consent is the

basis of a contract.
 Section 11 Contracts Act 1950: ‘Every person
is competent to contract ... who is of sound
mind ...’
 Sec. 12(1) of the Contracts Act 1950 provides
that:
“ A person is said to be of sound mind for
the purpose of making a contract if, at the
time when he makes it, he is capable of
understanding it and forming a rational
judgment as to its effect upon his interests.”
A person suffering from mental disability,
either permanently or temporarily, at the time
of the contract obviously lack the capacity.
(Refer: Sections 12(2) and (3) Contracts Act
1950)
 A person who is competent to enter into a

contract is a person who is of sound mind.
 An unsound mind person refers to person who

is mentally disorder as well as those of a
person incapacitated through sickness, alcohol
or other drugs.
SIM KON SANG PETER V DATIN SHIM TOK KENG
[1994] 2 MLJ 517
 It was held that since Section 11 of the Contracts Act 1950 covers cases
relating to age of majority and unsoundness of mind, contracts made
by an unsound person has the same effect as a minor.
 Therefore, a contract by unsound person is also VOID.

ENGLISH COMMON LAW:
The contract is VOIDABLE at the option of the person of
unsound mind if:
(a) the fact of mental disorder or intoxication can be proved

(b) and provided the other party knows of his condition.

NOT DISQUALIFIED
Besides being of age of majority and
mentally sound, there must be no legal

disqualification against him such as in the
case on enemy alien.
Other special disqualifications by personal
laws, such as insolvency, conviction etc.

7. LEGALITY

INTRODUCTION
• The court will not enforce an illegal contract.

• The object or consideration of a contract must be
that which is permitted by the law. If the object is
not permitted, it is said to be unlawful.
• If parties enter into an agreement where the
considerations or objects are unlawful, the
contract becomes void.

GENERAL RULE:
 The court will refuse its aid to a person
who found his or her cause of action
upon an immoral or illegal act
 Legal maxim: ex dolo malo non aritur
actio means “A right of action cannot
arise out of fraud”
 Section 2(g) Contracts Act 1950:
 “ An agreement not enforceable by
law is said to be void.”
 Section 10 Contracts Act 1950:
 ‘All agreements are contracts if ….for a lawful consideration and
with lawful object, and are not hereby expressly declared to be
void’
 Section 24 Contracts Act 1950:

 “The consideration or object of an agreement is lawful unless:
a) It is forbidden by a law
b) It is of such 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
e) The court regards it as immoral, or
opposed to public policy.
EXAMPLE:
 Unlawful consideration
 In Manang Lim Native Sdn Bhd v Manang Selaman
[1986] 1 MLJ 379, the court held that an
agreement to transfer Native Area Land in
Sarawak to a non-native is deemed to be for an
illegal consideration under section 8 of the
Sarawak Land Code.
 Unlawful object
 In Aroomoogum Chitty v Lim Ah Hang (1894) 2
SSLR 80, the plaintiff lent money to the defendant
for the purpose of running a brothel. The object
was immoral, thus, it became void for illegality.
The plaintiff could not recover his money back.

8. FREE CONSENT

INTRODUCTION:
• Free consent is the basis of a contractual

relationship.
• There must be a meeting of minds as to the
nature and scope of a contract, a consensus
ad idem(meeting of the mind).
• The parties must have the same thing in
mind.

LAW:
 Section 10 Contracts Act 1950
 “ all agreements are contracts if they
are made by the free consent of parties
competent to contract...”.

 “ two or more persons are said to
consent when they agree upon the
same thing in the same sense.”

SECTION 14 CONTRACTS ACT 1950
 Consent is said to be free when it is not caused by one or

more of the following:
1) Coercion
2) Undue influence
3) Fraud
4) Misrepresentation
5) Mistake

Ifa contract is entered into without free consent, the
contracts is either:
 Void, or voidable
 Void contract: Sec. 2(g) Contracts Act 1950 provides that,

“an agreement not enforceable by law is said to be void.”
 When the contract becomes void, there is no option to
proceed with the contract
Voidable contract: Sec. 2(i) Contracts Act 1950 provides

that,
“an agreement which is enforceable by law at the option of
one or more of parties, but not at the option of the other or
others, is a voidable contract.”
 Voidable contracts are valid contracts that can be made void at the
option of party who claimed that he has been forced to enter into the
contract without free consent.
COERCION
 “Coercion is the committing, threatening
to commit any act forbidden by the Penal
Code, or the lawful detaining or
threatening to detain, any property, to the
prejudice of any person whatever, with
the intention of causing any person to
enter into an agreement.”
 Example: causing grievous hurt, kidnapping, criminal

force and assault, rape, culpable homicide, murder,
extortion.
EFFECT OF THE CONTRACT: COERCION
Section 19(1) of the Contracts Act:
“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.”

KERSARMAL S/O LETCHMAN DAS V.
VALIAPPA CHETTIAR
[1954] 20 M.L.J. 119.
 Transfer executed under orders of the Sultan in the ominous
presence of two Japanese guards during the Japanese
occupation of Malaya was invalid.
 As consent was not freely given, the agreement was voidable
at the option of the party that gave the consent.

CHIN NAM BEE DEVELOPMENT SDN BHD V
TAT KIM CHOO & 4 ORS [1988] 2 MLJ 117
 Respondents purchased houses to be constructed by the

appellant. Each of the respondents had signed a contract to
purchase a house at $29500.
 However, the respondents were forced later to pay additional
$4000 under a threat by the appellant to cancel the
respondents booking for their houses.
 Held: The payment was not voluntary but had been made
under threat. Thus, there was coercion in the agreement of
paying the additional $4000 to the appellant.

OTHER CASES: COERCION
 Khanhaya Lal v. National Bank of India,Ltd. 1.L.R. [1913]
40 Cal. 598
 Pao On v. Lau Yin Long [1979] 3 All E.R. 65.
 Perlis Plantation Bhd v Mohammad Abdullah Ang [1988] 1
CLJ 670
 Mohd Fariq Subramaniam v Naza Motor Trading Sdn Bhd
[1997] 3 CLJ Supp 249
 Allied Granite Marble Industries Sdn. Bhd. v. Chin Foong
Holdings Sdn. Bhd. & Ors. [2000] 5 C.L.J. 71.

UNDUE INFLUENCE
 Section 16(1) Contracts Act 1950
 “A contract is said to be induced by undue
influence where the relations subsisting between
the parties are such one of the parties is in a
position to dominate the will of the other and
uses that position to obtain unfair advantage
over the other.”
 There are 2 elements:-
i. The domination of the will of the other

ii. Obtaining an unfair advantage over the other.

PRESUMPTION OF
DOMINANT INFLUENCE
 Section 16(2) Contracts Act 1950 provides that a person
is deemed to be in a position to dominate the will of
another –
1) where he holds a real or apparent authority over the

other
2) where he stands in a fiduciary relation to the other
3) the other person is temporarily or permanently affected
by age, illness, mental or bodily distressed

FIDUCIARY RELATION
 Certain relationships are deemed to be in a dominant
position:
1. solicitor and client
2. doctor/ medical advisor and patient
3. nurse and patient
4. spiritual/religious leader and disciple
 Actual existence of relationship involving trust and

confidence:
1. husband and wife
2. siblings
3. parent and child
EFFECT OF THE CONTRACT:
UNDUE INFLUENCE
 Section 20 of the Contracts Act 1950:
 “When consent to an agreement is caused by undue
influence, the agreement is a contract voidable at the option
of the party whose consent was so caused. Any such contract
may be set aside either absolutely or, if the party who was
entitled to avoid it has received any benefit thereunder, upon
such terms and conditions as to the court may seem just.”

SALWATH HANEEM V HADJEE
ABDULLAH [1894] 2 SSLR 57
 The Plaintiff’s husband made a conveyance of property
belonging to himself and the Plaintiff, to his brothers; B and
C.
 The Plaintiff initially agreed to the conveyance but after her
husband’s death, she brought an action seeking to set aside
the agreement on the ground of undue influence.
 Held: A confidential relationship existed between the Plaintiff
and B and C. Therefore the burden of proof was on B and C
to show that the Plaintiff fully understood the agreement and
had agreed to the conveyance freely and without being
subject to undue influence. Since both B and C failed to
discharge the burden, the contract of conveyance was set
aside.

INCHE NORIAH V SHAIKH ALLIE BIN OMAR [1929] AC
127
 An old Malay woman(appellant) who was illiterate executed a

gift of landed property in favour of her nephew, the
respondent. She was feeble and unable to leave the house,
hence relied entirely upon the nephew for everything including
food and clothes. She had no knowledge of her own affairs nor
the value of her properties.
 It was found that her relationship with the respondent was
sufficient to raise the presumption of undue influence. The
respondent proved that she had received advice from her own
solicitor before executing the deed.
 However, the solicitor was not aware that the gift constituted
her whole property and thus, did not inform her that it would
have been better to bestow the property upon him by a will.
 The rebuttal failed and the contract was set aside.

ROSLI DARUS V. MANSOR HJ. SAAD & ANOR. [2001] 4 C.L.J. 226
 Defendants were the plaintiff’s uncles. One of them had put

himself in loco parentis (individual assumes parental rights,
duties, and obligations) whilst the plaintiff was young and
orphaned, being the adopted son of the defendant’s late
sister. There was a transfer of land involved.
 Held: The doctrine of undue influence meant that when
there subsisted a relationship of trust and confidence
between the parties and ... one of them was in a position to
exert undue influence or dominion over the other and derive
some benefit from him, the onus was upon the dominant
party to prove good faith of the impugned transaction.

OTHER CASES: UNDUE
INFLUENCE
 Raghunath Prasad v. Sarju Prasad A.I.R. 1924 P.C. 60.
 Datuk Jagindar Singh & Ors. v. Tara Rajaratnam [1983] 2.
M.L.J. 196.
 Saw Gaik Beow v. Cheong Yew Weng & Ors. [1989] 3
M.L.J. 301.
 Che Som bte. Yip & Ors v. Maha Pte. Ltd. & Ors. [1989] 3
M.L.J. 468.
 Malaysian French Bank Bhd. v. Abdullah Bin Mohd Yusof &
Ors [1991] 12 M.L.J. 475.

FRAUD
“Fraud includes any of the following acts committed by a

party of a contract, or with his connivance, or by his agent,
with intent to deceive another party thereto or his agent, or
to induce him to enter into the contract:
(a) the suggestion, as to a 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 or
belief of the fact;
(c) a promise made without 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.

 Generally, it may be stated that whenever 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 fraud.
 Fraud also refers to deceitful acts intended to induce the
other party to enter into contract.
 There are five acts that may constitute fraud (Refer
Section 17 (a) – (e) Contracts Act 1950)

ELEMENTS OF FRAUD
1. There must be a false representation/ statement

2. The representee must have relied on the representation
 Merely making a false statement which is not relied on the

other party does not amount to fraud (Refer Explanation of
Sec. 19 Contracts Act 1950).

ISSUE ON SILENCE
 Mere silence or non-disclosure would not constitute fraud.

 Exception : For parties who have fiduciary relationship, it is
the duty of the person to disclose material facts. Otherwise,
it may constitute fraud.
 Illustrations:
a) A sells by auction to B, a horse which A knows to be unsound.
A says nothing to B about the horse’s unsoundness. This is not
fraud in A.
b) B is A’s daughter and has just come of age. Here, the relation
between the parties would make it A’s duty to tell B if the horse
is unsound.

EFFECT OF THE CONTRACT: FRAUD
 Section 19(1) of the Contracts Act:

caused.”

LETCHEMY ARUMUGAM V
ANNAMALAY [1982] 2 MLJ 198
 D had made a fraudulent misrepresentation to the P, an
illiterate Indian woman rubber- tapper, and induced her to
enter into a sale & purchase agreement.
 The D had fraudulently represented to the P that the
document she was required to sign was a loan that she had
taken and to free and the land from the charge. In fact, it was
a sale agreement of the land.
 Held: the agreement was voidable at the option of the P

KHENG CHWEE LIAN V WONG TAK
THONG [1983] 2MLJ 320, FC.
 The respondent had been persuaded to enter into a
second contract on the false representation that the
area of land to be transferred was of the same size as
the land which the respondent had agreed to buy under
a first agreement.
 Held: the respondent was right in repudiating an
agreement with the appellant on the ground that it was
induced by fraudulent representation within the
meaning of S.17(a) and (d)

OTHER CASES: FRAUD
 Saminathan v Pappa [1981] 1 MLJ 121
 Datuk Jaginder Singh v Tara Rajaratnam [1983] 2 MLJ 196
 Chu Choon Moi v Ngan Sew Tin [1986] 1 MLJ 34
 M Ratnavale v S Lourdenadin [1988] 1 MLJ 371
 Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd
[1998] 3 MLJ 724

MISREPRESENTATION
“Misrepresentation” includes –
(a) the positive assertion, in a manner not warranted by the
information of the 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 to deceive, gives
an advantage to the person committing it, or anyone claiming
under him, by misleading another to his prejudice, or to the
prejudice of 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
the agreement

WHAT IS THE DIFFERENCE BETWEEN
MISREPRESENTATION AND FRAUD?
 Fraud – the person making the representation does not

himself believe in its truth.
 Misrepresentation
 Misrepresentation refers to certain false statements made by
representor and which induces the other party to enter into a
contract. (Without intent to deceive)
 The person making the representation may believe it to be
true.

ELEMENTS OF MISREPRESENTATION
1. There must be a false representation, either through a positive
statement or some conduct
2. The representation must be one of fact, not a mere expression of
opinion
3. The statement was addressed to the party misled
4. The representation must induce the misled party to enter into the
contract.
 Mere silence does not amount to misrepresentation unless it

is the duty of the person keeping silence to speak.

EFFECT OF THE CONTRACT:
MISREPRESENTATION
 Section 19(1) of the Contracts Act:

caused.”

 Peek v Gurney [1873] LR 6 HL 377
 The plaintiff sued the directors of a
company for indemnity. The action failed
because it was found that the plaintiff was
not a represent (an intended party to the
representation) and accordingly
misrepresentation could not be a
protection.
 Bisset v Wilkinson [1927] AC 177

 Contract of sale a poultry farm is valid
even though the seller made a statement
that the farm can breed 2000 sheep is not
true. It is because it is an opinion. He
never breeds a sheep at the farm before
TAN CHYE CHEW V EASTERN
MINING METALS CO. LTD [1965] 1
MLJ 201
 Respondent entered into 2 contracts. The 1st contract was
with the 1st appellant, for the assignment of rights to
prospect certain mining land included in an approved
application for prospecting permit. The 2nd contract was
with the 2nd appellant; for the payment of commission for
the 2nd appellant’s part in bringing about the 1st contract.
 Respondent alleged that the 2nd appellant had shown to the
respondent’s geologist, some land which was later
discovered not to be included in the approved application.
Therefore there was a misrepresentation by the 2nd
appellant, which induced the respondent to enter into the
1st contract with the 1st appellant.

OTHER CASES:
MISREPRESENTATION
 Smith v Land & House Property Corp (1884) 28 Ch D 7
 Malayan Miners Co (M) Ltd v Lian Hock & Co [1966] 2 MLJ
273
 Esso Petroleum v Mardon [1976] QB 801
 Maria Chia Sook Lan v Bank of China [1976] 1 MLJ 245
 Museprime Properties v Adhill Properties [1990] 36 EG
114

MISTAKE
 Definition: A misunderstanding or erroneous belief about a
matter of fact or a matter of law.

 “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.”
 Mistake of fact made by BOTH PARTIES to an agreement

 Effect of the contract: VOID

CASES UNDER SECTION 21
Raffles v Wichelhaus (1864) EWHC Exch J19
Two parties agreed to a sale of a cargo of cotton
arriving in London by a ship called “The Peerless”,
sailing from Bombay. But unknown to both parties,
there were two ships of the same name both leaving
from Bombay at different times.
Held: they were both negotiating under a mistake
and had in mind different ships, therefore the
contract of sale was void.
Chan Yoke Lain v Pacific & Orient Insurance Co

Sdn Bhd [1997] 4 CLJ Supp 8
Held: A personal Accident Insurance contract was
void as the insurer was under mistake as to the
identity of the proposer since the signature in the
proposal
RAFIDAH@MALISSAform was
BINTI SALLEH (DATIN) not signed by the proposer.
Section 22 Contracts Act 1950
 “A contract is not voidable because it was
caused by a mistake as to any law in force in
Malaysia; but a mistake as to a law not in force
in Malaysia has the same effect as a mistake of
fact.”
 Mistake as to the law in force in Malaysia should

not make the contract voidable
 Effect of the contract: VALID
 But as mistake as to a law not in force in

Malaysia has the same effect as a mistake of
fact
 Effect of the contract: VOID

Section 23 Contracts Act 1950
 “A contract is not voidable merely because it was caused by one
of the parties to it being under a mistake as to a matter of fact.”
 Mistake of fact by ONE PARTY should

not make the contract voidable.
 Effect of the contract: VALID
 Subramaniam v Retnam [1966] 1 MLJ 172

 The defendant had signed a written agreement in the English
language even though he did not understand the language.
 Held: the defendant is bound by the contract.

TOPIC 2
LAW OF CONTRACT
DISCHARGE OF
CONTRACT

INTRODUCTION
A contract may be discharged
by four methods;
 Discharge by performance
 Discharge by agreement
 Discharge by breach
 Discharge by frustration
• The most ideal is by

performance of the contract
1. DISCHARGE BY
PERFORMANCE
• The parties have carried out their
obligation in the contract
• Section 38 – parties to a contract
must perform their respective
promises
• The contract comes to an end
• No party can sue the other

THE GENERAL RULE
• The parties must perform exactly all
the terms in the contract
• If there is even the slightest variation
from the terms of the contract, the
other party can claim that the contract
had not been performed
• Nevertheless, if the non-performance is
‘microscopic’, the court may be
prepared to consider it performed
BOLTON V MAHADEVA
[1972] 2 ALL ER 1322
• The plaintiff agreed to install central heating in
the defendant's house for the price of £560.
When the work was completed, the defendant
complained that it was defective and refused to
pay.
• The judge found that the flue was defective so
that it gave off fumes making the rooms
uncomfortable, and the system was inefficient in
that the amount of heat varied from one room to
another. The cost of rectifying these defects was
£174. The Court held that the plaintiff was not
entitled to recover payment as the contract had
not been
RAFIDAH@MALISSA satisfactorily
BINTI SALLEH (DATIN) performed. Semester Mac 2020 - July 2020
WHO HAS TO PERFORM THE
PROMISE?
• Section 41 – if the parties intend that
the promisor is the one who has to
perform the promise, he must do so
• Cannot delegate to someone else
• Unless the promisee agrees to accept
performance by a third party –
section 42
• The promisee cannot later claim that
the contract had not been performed
TIME FOR PERFORMANCE
 Section 47 provides that if no time was specified for
performance, it must be done within reasonable time
 Where the parties have specified time for
performance on a certain day, it must be done during
the usual hours of business at the place the promise
ought to be performed as stated in section 48
 Failure to do so will be a breach of contract

2. DISCHARGE BY
AGREEMENT
• Whatever has been created by agreement may be
extinguished by another agreement
• Thus, the parties may make an agreement to discharge
their contract without performance
• An agreement by the parties to an existing contract to
extinguish the rights and obligations that have been
created is itself a binding contract provided that it is
supported by consideration
• As a result, one party cannot sue the other for non-
performance of contract since they had both agreed
not to perform it

TYPES OF AGREEMENT
 ACCORD AND SATISFACTION
 An agreement to mutually release each
other from the obligations under the first or
original agreement
 RESCISSION AND SUBSTITUTION
 Rescission of the original contract and
substitution with a new contract
 VARIATION
 Modification or alteration of the terms of
the original agreement
 WAIVER
 One party voluntarily agrees not to insist
upon his right to strict performance of the
contract
3. DISCHARGE BY
BREACH
• A failure or refusal to perform the terms of a contract
constitutes a breach of the contract
• It may give the innocent party the option of treating
the contract as discharged – section 40
• The innocent party is not required to wait until the
other party has failed to perform the contract to sue
for damages
• He may immediately treat it as a breach of contract
and sue for damages even before the date fixed for
performance

ACCEPTANCE OF BREACH
 If one party failed or refused to perform any part of the
contract, the other party may choose to either accept
or reject the breach
 If he does not accept the breach, he may then end the
contract and take legal action
 If he accepts the breach i.e. he allows the party in
default to continue with the contract, he cannot end the
contract and sue for breach of contract
 He may still claim damages for losses suffered through
the non-performance – section 40

WHEN DOES A
BREACH OCCUR?
• The innocent party may treat the
contract as discharged by breach due to:
Anticipatory breach where one party may

show by express words or by implications from
his conduct at some time before performance
is due that he does not intend to observe his
obligations under the contract
• For example, Jeff told Kasim that he will not wash
Jeff’s car on Sunday
Actual breach where one party has in fact

broken his promise
4. FRUSTRATION OF CONTRACT
(IMPOSSIBILITY OF PERFORMANCE)
• Frustrationoccurs in situations where it is

established that due to subsequent changes in
circumstances, the contract has become impossible
to perform
• The contract has become deprived of its commercial
purpose by an event not due to the act or default of
either party
• Consequently, the parties are unable to perform the
contract even though they wished to do so
• Although neither party is at fault, the contract
cannot be performed

IMPOSSIBLE ACT
• Section 57(1) – “An agreement to
do an act impossible in itself is void”
• Performance is impossible from the
beginning
• Known to both parties
• An agreement to sell Mount
Kinabalu
• An agreement to bring a deceased
person back to life
CASE LAW:
The test for frustration:

Davies Contractors Ltd. v. Fareham U.D.C.[1956] 2 All
E.R. 145.
Lord Redcliff: ... frustration occurs when the law recognises

that , without default of either party, a contractual obligation
has become incapable of being performed because the
circumstances in which performance is called for would
render it a thing radically different from that which was
undertaken by the contract. Non haec in foedera veni. It
was not this that I promised to do.’

The principle in Davies case was referred to in:
Ramli bin Zakaria v. Government of Malaysia [1982] 2

M.L.J. 257.
• Abdul Hamid F.J. (as he then was) ... it would appear that
where after a contract has been entered into there is a
change of circumstances but the changed circumstances do
not render a fundamental or radical change in the obligation
originally undertaken to make the performance of the
contract something radically different from that originally
undertaken, the contract does not become impossible and it
is not discharged by frustration ...

SUBSEQUENT
IMPOSSIBILITY
• Section 57(2) states that a contract to do an act that
has later become impossible to perform is void
• According to section 57(3), when one person has
promised to do an act that he knew was impossible or
unlawful and it was not known to the other party, the
promisor must compensate the promisee for any
losses sustained through the non-performance
• Under section 66, any person who has received any
advantage under a void contract must restore it to the
other party or make compensation

CONDITIONS FOR
FRUSTRATION TO APPLY
• The mere increase in expense or loss of profit is not a
ground for frustration
• A party cannot rely on an event which was, or should
have been, foreseen by him but not by the other party
• The frustration was not induced by either parties
• The doctrine of frustration cannot override express
contractual provision for the frustrating event
• If the contract states that a party will be liable for that
event, he will be liable even though it is not his fault

GROUNDS FOR
FRUSTRATION
 Destruction of object essential to the
contract
 Personal incapacity
 Non-occurrence of a specified event
 Interference by the government
 Supervening illegality

DESTRUCTION OF
OBJECT ESSENTIAL TO
THE CONTRACT
Taylor v Caldwell (1863) 3 B&S
826
Caldwell agreed to let a music hall to Taylor
so that four concerts could be held there.
Before the date of the first concert, the hall
was destroyed by fire. Taylor claimed
damages for Caldwell's failure to make the
premises available.
The court held that the claim for breach of

contract must fail since it had become
impossible to fulfil. The contractual
obligation was dependent upon
RAFIDAH@MALISSA BINTI SALLEH (DATIN) the
PERSONAL INCAPACITY
• One of the parties became personally incapable of
performing the contract
• Death, mental incapacity, illness etc
• Contract of a personal nature
• Cannot be performed by someone else
• E.g. singing, painting a portrait, playing football
• If the contract is general in nature – anyone can perform
it – no frustration
• E.g. painting a house, washing a car, selling a book

NON-OCCURRENCE OF A SPECIFIED EVENT –
SUPERVENING EVENTS THAT DEFEAT THE
PURPOSE/OBJECT OF CONTRACT
Krell v Henry [1903] 2 KB 740

• Henry hired a room from Krell for two
days, to be used as a position from
which to view the coronation
procession of Edward VII, but the
contract itself made no reference to
that intended use. The King's illness
caused a postponement of the
procession.
• It was held that Henry was excused
from paying the rent for the room. The
holding of the procession on the dates
planned was regarded by both parties
INTERFERENCE BY THE
GOVERNMENT
• Any lawful act by the lawful government
• The parties cannot make any objection
• In Re Shipton, Anderson and
Harrison Brothers [1915] 3 KB 676,
the government requisitioned wheat for
the control of food during war times. It
was held that the seller was excused
from performing the contract as it was
now impossible to deliver the goods due
to the government's lawful requisition.

SUPERVENING ILLEGALITY
• Change of law or government policy
– what was once lawful has now
become unlawful
• E.g. legislation that makes the sale
of cigarettes unlawful in Malaysia
• Declaration of war – frustrating
contract with enemy aliens
• Unlawful to perform the contract

Circumstances where frustration is not
available:
 The parties had made specific provision in the contract for what
might otherwise have been a frustrating event.
 The situation should have been foreseen, but for some reason or
other was not.
 The frustrating event was self-induced by the party making the
plea.
 If there is hardship, inconvenience or added expense in
performance.


CONCLUSION
 Once a contract is made, it must be performed by the
parties concerned according to the terms and
conditions stated in the contract
 Performance may be legally excused is both parties
agree not to perform them or performance has
became impossible
 Failure to perform the contract will be regarded as a
breach of contract, which will in turn, give rights to
the innocent party to claim remedies in court from the
party in breach

TOPIC 2
LAW OF CONTRACT
REMEDIES

DEFINITION
 Where one party (defendant) refused or failed to
perform his obligation in the contract
 Remedies are what the plaintiff can ask from the court
as relief for the defendant’s breach of contract
 Only an innocent party can apply for remedies, thus the
defendant has no right to ask for remedies
 The plaintiff must show to the court that he was willing
to continue with the contract and that he did not affect
the defendant’s decision to breach the contract

PURPOSE OF REMEDIES
 To put the injured party financially as near as
possible, into the position he would have been in
had the promise been fulfilled
 To compensate the plaintiff for any losses suffered
by him due to the defendant’s breach
 To discourage or prevent the parties to a contract
from making a breach willfully
 To acknowledge or compensate the plaintiff’s
willingness to perform his part of the contract
 To prevent fraud
 To protect the interests of an innocent party
 As a way to enforce the contract

TYPES OF REMEDIES
 Rescission of contract
 Restitution
 Payment of damages
 Payment of Quantum Meruit
 Specific Performance
 Injunction

1. RESCISSION
 This allows an innocent party to
rescind (cancel) the contract
 The purpose is to put the parties
back to their original position before
the contract was made
 E.g. when contract has been
declared voidable
 It may be followed by restitution
2. RESTITUTION
 To restore the parties to their original position
 Return of money or property to its original
owner
 Unfair to allow the other party to keep the
money or property
 Especially where contract has been rescinded
 Plaintiff need not show that he has suffered
loss or damage

3. PAYMENT OF DAMAGES
 Provides the plaintiff with compensation for any
losses, damage or injuries suffered by the plaintiff
from the defendant’s breach
 It is not necessary to show that the plaintiff had
suffered any loss or injury from the breach of contract
 It is sufficient to prove that the other party has
breached the contract
 Acknowledgement of plaintiff as the innocent party

WHAT PLAINTIFF CAN CLAIM
 The plaintiff may claim payment of damages for any
act or omission for the purpose of the contract
 This includes those which may reasonably be
supposed to have been in the contemplation of both
parties at the time the contract was made
 Examples : expenses incurred by the plaintiff, loss of
profit, the difference in the price of goods in the
contract and the actual price when sold to a third
party etc.

WHAT PLAINTIFF CAN CLAIM
 Section 74 of the Contracts Act 1950 provides that a
party is entitled to receive compensation for any loss
or damage caused to him that arose naturally in the
usual course of things or those that are likely to result
from the breach
 Compensation will not be given for any remote and
indirect loss or damage sustained by the breach
 Losses that cannot be reasonably foreseen
 E.g. loss of earnings from future customers

TYPES OF DAMAGES
3 types of damages:
1. Nominal Damage
 A small sum of money will be paid to
the plaintiff in recognition of his right
in the contract
 The plaintiff did not suffer any injury or
losses, yet he is entitled to damages
as he was willing to perform his part
of the contract
 The sum can be as low as RM 50.00

2. Special Damage
 Damages are paid for whatever losses

he has suffered in relation to the
contract
 The aims to place him in the position
he would have been in if the contract
had been performed
 This is actual damage based on facts
which must be proven to the court
 E.g. cost of renting an apartment due
to the defendant’s failure to complete
building the plaintiff’s house in time

3. Exemplary/Punitive Damage
 A large amount is paid to the

plaintiff, usually larger than the real
damage suffered by the plaintiff
 This is to serve as a warning or
reminder to other persons of the
serious effect for breaching a
contract
 It shows the court’s contempt for the
defendant’s action
 Rarely given in contract – mostly for
defamation cases
CAUSATION OF DAMAGE
 The plaintiff must show that his loss was caused by
the breach of contract by the defendant
 A direct effect of the defendant’s failure to perform
the contract
 Cannot claim damages if it was caused by the
intervening act of a third party
 Unless the intervening act was reasonably
foreseeable
 E.g. 3rd party sued the plaintiff for breach of contract
that resulted from defendant’s act

THAM CHEOW TOH V
ASSOCIATED METAL SMELTERS
LTD [1972] 1 MLJ 171
 The defendant agreed to supply to the plaintiff a
metal melting furnace. The defendant gave an
undertaking that the furnace would have a
temperature of not less than 2,600F. The furnace
turned out to have less than that temperature.
 The court agreed that there was a breach of contract
and that any loss of profits suffered by the plaintiff
from the defect on the furnace can be recovered.

EAST ASIATIC CO LTD V
OTHMAN [1966] 2 MLJ 38
 The defendant ordered a car from the plaintiff but did
not agree to accept delivery of it. The plaintiff sued for
breach of contact and claimed RM 1,312.30 which was
the difference between the agreed retail price of RM
6,390.00 and RM 4,477.69 being the price for which the
car was sold to another person.
 The court decided that the defendant must pay the sum
asked by the plaintiff because he had breached the
contract.

MITIGATION OF LOSSES
 It is the duty of every plaintiff to mitigate
his loss, that is, to do his best not to
increase the amount of damage done
 The plaintiff must minimise the loss
resulting from the breach by taking all
reasonable steps available to him
 If he fails to do so, then he cannot recover
anything in respect of that extra loss
 If the plaintiff obtains any benefits as a
result of his mitigation, these must be
taken into account
4. PAYMENT OF QUANTUM
MERUIT
 Quantum meruit is used to determine the amount to be
paid for services when no contract exists
 Partial performance done under circumstances when
payment could be expected
 Quantum meruit may apply when a person hires
another to do work for him, and the contract is either
not completed or is otherwise rendered un-
performable.
 The person performing may sue for the value of the
improvements made or the services rendered to the
defendant

PAYMENT OF QUANTUM
MERUIT
 It takes into account the expenses incurred by the
party who had breached the contract but is subject to
a counter-claim of damages from the other party
 For instance, a contractor was hired to build a house
within one year but he only managed to complete 80%
of the house after the one year ended. Although the
contractor had breached the contract, he is still
entitled to recover the amount he has spend for the
80% which had been completed. Thus, the contractor
will get payment based on quantum meruit.

5. SPECIFIC PERFORMANCE
 This is a court order where the person who had breached

the contract is compelled to perform his part of the
contract
 It means that the defendant is forced to continue with the
contract even though he does not want to do so
 This order is rarely given by the court because the law
does not favour the idea of forcing people to do
something against their will
 Consequently, this order rests entirely on the court’s
discretion

WHEN CAN IT BE GRANTED?
 The court will only order specific
performance if :
i) the court is satisfied that payment of damages could
not adequately compensate the plaintiff for the loss he
suffered
ii) the plaintiff has suffered real or actual losses, not
merely that his rights has been breached by the other
party
iii) the subject matter of contract is unique or rare so
that it is essential for the contract to be completed

INADEQUATE DAMAGES
 If the plaintiff can show that
damages are inadequate, then the
court may grant his claim for specific
performance
 Damages will be inadequate in the
following circumstances:
(i) Where the plaintiff cannot get a
satisfactory substitute
(ii) Where the award of damages would be
unfair to the plaintiff
(iii) Where the quantum of damage is difficult
to assess
WHEN IT CAN BE GRANTED
Under Section 19 of the Specific
Relief Act specific performance
can be granted on certain
circumstances such as;
 for the sale of land or house
 for the sale of antiques or unique
paintings or other works of art.

WHEN IT WILL NOT BE
GRANTED
 Section 20 of the Specific Relief Act states where it
cannot be granted:
 if it requires the court’s supervision
 it must be applied immediately
otherwise delay will defeat the case
 if the terms of the contract is not
clear or it is ambiguous
 if fraud is involved (on the plaintiff’s
part)
 it will cause unreasonable
hardship/difficulty on the defendant

LUMLEY V WAGNER (1852)
42 ER 687
 The defendant agreed to sing at the
plaintiff’s theatre for three months and not
to sing elsewhere during this time without
the plaintiff's consent. She later accepted a
third party’s offer to sing for a larger
amount and refused to sing for the plaintiff.
 The plaintiff applied for specific performance
to compel the defendant to continue singing
in his theatre. The court stated that they
could not force the defendant to sing at the
plaintiff's theatre as it would cause
unreasonable hardship on her.
6. INJUNCTIONS
This type of remedy is

covered under section 50 to
54 of the Specific Relief Act
It is a court order for a
person
to do something (mandatory) or
not to do something (prohibitory)

TWO TYPES OF
INJUNCTION
 Perpetual injunction – this is issued after a
case has been heard and the court has
made a decision . The injunction remains
until it is terminated by the court.
 e.g. an injunction to keep/prevent an
abusive parent from coming near
his/her child.
 Interlocutory injunction – it is also called
temporary or interim injunction. It is given
during the trial before the court has made a
decision. The purpose is to maintain the
status quo (original position) of the parties
until the court makes a final decision

INTERLOCUTORY
INJUNCTION
 If two brothers are arguing about the ownership of a house
belonging to their late father. One brother (A) wants to live in
the house while the other (B) wants to demolish the house to
build a new house. Both go to court to settle the dispute,
however, B sends a crew to demolish the house without
waiting for the court’s decision.
 In this case, A should apply for an interlocutory injunction to
stop B from demolishing the house until the case is settled
so that if A wins the case, the house will still be there, if not
it will be useless for A to win when the house is already gone

NEOH SIEW ENG & ANOR V
TEO CHEE KWANG (1963) MLJ
272
 The plaintiffs were tenants of the defendants. A term
of the tenancy provided that the defendant would
supply water to the whole premises and pay RM 2.00
for the charges while the remaining bills will be paid
by the tenants. However, some time later, the water
supply stopped due to corrosion of the pipes but the
defendant did not repair them.
 The tenants applied for an injunction to order the
defendant to continue supplying the water. The court
granted it.

THE REQUIREMENT
 Before a person can get an injunction (whether
perpetual or interlocutory) he must disclose all
material facts relating to the case to the court, if not,
the injunction will be cancelled.
 An injunction will be terminated on two grounds;
 the facts upon which the injunction
was granted no longer exist
 on suppression (non-disclosure) of
material facts

SARI ARTISTS FILM SDN BHD V
MALAYSIAN FILM INDUSTRY SDN BHD
 An injunction had been granted to restrain the
defendant from distributing, screening or exhibiting
an Indonesian film within Malaysia. The injunction
was granted based on the information by the
plaintiff that there was a similar order made by the
court in Indonesia. However, the plaintiff did not
inform the court that the order made by the
Indonesian Court has been stayed (suspended). The
plaintiff also did not inform the court that the
defendant had denied distributing the said film in
Malaysia.
 The court held that the injunction would be
terminated because the plaintiff had suppressed
material facts from the court.
LUMLEY V WAGNER (1852)
42 ER 687
 The defendant contracted to sing for the plaintiff in his
theatre for three months and, at the same time, not to
sing elsewhere during this time without the plaintiff's
consent. A third party offered the defendant a larger sum
to sing for him.
 The court stated that they had no power to make the
defendant sing or encourage her to sing at the plaintiff's
theatre. However, the court could persuade her to do so
by preventing her singing elsewhere by imposing an
injunction to that effect.

WARNER BROS V NELSON
[1937] 1 KB 209
 There was a contract between an actress and a film
company where she will only work for that company .
Some time later, the actress refused to honour the
contract and the company decided to take legal
action.
 The court held that specific performance cannot be
given because it is not possible or justifiable to force
the actress to act for the company when she does not
want to do so. Instead the court gave an injunction to
restrain her from acting in other films except with the
company. The purpose of this was to enforce a
negative stipulation in the contract whereby if she
could not act in other films she would have to act in
the company’s films. The court considered that the
injunction caused no hardship to the actress because
if she could not act, she could still earn her income by
other means.
CONCLUSION
 In the event a person committed a breach of
contract, the innocent party is entitled to ask the
court for remedies
 The court will normally order the party in breach to
pay damages based on what the innocent party has
suffered
 It is up to the court whether to grant remedies other
than payment of damages

Topic 2 Law of Contract

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TOPIC 2:

RAFIDAH@MALISSA BINTI SALLEH (DATIN) Semester Mac 2020 - July 2020

The legislation in Malaysia that

If there is a clash between the

 Section 2(h) of the

It should be noted that all

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Note: If one or more of the

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RAFIDAH@MALISSA BINTI SALLEH (DATIN) Semester Mac 2020 - July 2020

ON:  The person making the proposal is

 The person/party accepting the

Semester Mac 2020 - July 2020 RAFIDAH@MALISSA BINTI SALLEH (DATIN)

MANNER  Section 9 of the Contracts Act

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If En. Ali offers to sell

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Offer made to the general public or

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1. The offer must be clear and unambiguous

 If not clear, the offer is not valid.

 Guthing v Lynn [1831] 2B & AD 232

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 The communication of the proposal is complete when

 A party who casually returns a lost property to its

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 An invitation to treat is not an offer as it is a preliminary

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Contrast with Offer

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 When bidder makes a bid = offer.

 With fall of the hammer, the sale is complete.

 A sale by auction is complete when the auctioneer

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RAFIDAH@MALISSA BINTI SALLEH (DATIN) Semester Mac 2020 - July 2020

 Section 5 (1) – an offer can be revoked at any time

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 Notice of revocation [section

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 Sometime, the offeror may attach certain

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 Section 8 of the Contracts Act 1950

e.g. Carlill v Carbolic Smoke Ball Co