TOPIC

TOPIC 2:
2: LAW
LAW OF
OF CONTRACT
CONTRACT
• The law of contract is governed by Contracts Act 1950.
• However, principles of English law suitable to our local circumstances will be applicable if the act is
silent on certain issues.
• Literally, contract means an agreement between two / more parties on certain matters permissible
under the law.
• All parties must then give an undertaking to perform the agreement.
• Section 2 (h) defined contract as ‘an agreement enforceable by
law.’
• In order to form a contract, we need more than one people to
agree on certain things and this agreement is binding on each and
everyone of them.
 The word Contract may be defined as an agreement enforceable by
law. Thus a contract is an agreement which is legally binding
between the parties. The legislation that governs contracts in
Malaysia is the Contract Act 1950.
 In instances where the provisions of the Contract Act differ from
English law , the former must prevail- Song Bok Yoong v Ho Kim
Poui (1968) 1 MLJ 56
•OFFER
•ACCEPTANCE
•CONSIDERATION
•INTENTION TO
CREATE LEGAL
RELATION
•CERTAINTY
•CAPACITY
•DEFINITION
•COMMUNICATION OF
OFFER
•TO WHOM AN OFFER CAN
BE MADE
•OFFER AND INVITATION TO
TREAT
•REVOCATION OF OFFER
•TERMINATION OF OFFER
• Section 2(a) of the Contract Act 1950 - When one person signifies to another his willingness to do /
abstain from doing anything, with a view to obtaining the assent of that other to the act / abstinence, he
is said to make a proposal.
 In a simple term, it means a person is making an offer when he conveyed his intention either to do
something / not to do something to the other person and let that other person decides whether to
accept / reject that offer.
 Section 2(b):when the person to whom the proposal is made, signifies his assent thereto, the proposal is
said to be accepted.
 Section 2(c):The person making the proposal is called the Promisor and The person accepting the
proposal is called the Promisee.
 A proposal must be definite promise to be bound. In the case of Affin Credit Malaysia v Yap Yuen Fui
(1984) 1 MLJ 169, where there was lack of offer and acceptance, the purported hire purchase agreement
was declared void ab initio or void from the beginning.
 The Communication of a proposal is complete when it comes to the knowledge of the person to whom it
is made- Section 4 (1) Contract Act 1950.
 A proposal may be made in words (oral or written). If a proposal is made other than in words (by way of
conduct) it is said to be implied.
•A wants to sell his book to B for RM100.
•What A is doing is he offers to sell his book to
B. A’s message to B is called ‘offer.’
•B has an option whether he wants the book
at RM100 or not.
•Promisor/Offeror – person making the offer.
•Promisee/Offeree – person accepting the
offer.
•In order for an offer to be a valid offer, it must
be communicated to the promisee – Section 3.
•Communication may be by instantaneous
means such as telephone, e-mail or face-to-face
communication.
•An offer may also be by words (express) or by
conduct (implied) – Section 9
•The law regards that communication will only be
complete if the message comes to the
knowledge of the promisee – Section 4(1)
•It means that the offer is valid once the
promisee has notice of the offer and if this offer
is accepted, the offer is binding on the promisor.
•The promisee must be aware of the offer in
order to form a valid agreement.
 Case 1: R v Clarke
•A reward was offered for any information given leading
to the arrest of the murderer.
•Clarke gave information that lead to the arrest of other
murderer.
•At the time of giving information, Clarke forgot about the
reward.
•Held: He is not entitled to the reward since he cannot be
said to have accepted the offer without knowing or
forgetting about it.
Case 2: Williams v Carwardine
•The facts is almost the same as R v Clarke, except
that P has knowledge of the offer.
•However, the actual reason for giving that
information was only to ease her conscience.
•Held: Motive is irrelevant, she was entitled to the
reward since at the time giving information, she knew
of the offer.
Case 3: Taylor v Laird
P resigned from being the captain of a ship owned by
the D during a voyage. P then assisted to sail the ship back
and claimed remuneration from Laird for the work done.

It was held that the P did not communicate his offer to

give his service to sail the ship back. Therefore, the D did not
know about the offer and did not have the opportunity either to
accept / reject the offer. Hence, D is not liable to pay the
remuneration to the P.
•An offer can be made to the following
categories:
a.To a particular person;
b.To the world at large.
To a particular person

• When an offer is made to a particular person,

only that person can accept the offer.
• Boulton v Jones – in this case the court decided
that there was no contract between Boulton
and Jones because the offer to buy goods was
made to the former owner. P had no right to
accept the offer which was not addressed to
him.
• The offer is made and anyone who can satisfy the
conditions stipulated by the promisor is eligible to
accept the offer.
• Case: Carlill v Carbolic Smoke Ball Co - In this case,
the D was advertising its product. They also offered a
sum of money to those who purchased and used the
smoke ball, but still suffered influenza. The COA held
that the act of purchasing the product is acceptance
because the act of offering a sum of money for those
who falls ill after using their product amount to an
offer made to the world at large.
•An offer should be contrasted with an invitation to
treat.
•Contracts Act 1950 is silent on the definition of
invitation to treat, therefore principles of English
law is applicable.
•Invitation to treat is not a definite offer but it is a
preliminary stage of negotiation between promisor
and promisee
•Invitation to treat is not an offer, it is a statement
inducing another person to come and negotiate or
to make an offer.
•Example of invitation to treat are advertisement,
auction, display of goods with price tag.
DISPLAY OF GOODS

Case 1: Pharmaceutical Society of GB v Boots Cash Chemist Ltd

Boots Cash Chemist (BCC) was charged with illegal offering or selling certain drug
without supervision of qualifies chemist. Goods in BCC were sold under self service
system. Customer selected their purchases from the shelves on which the goods
were displayed and took them to the cash counter where they paid for the price.
The issue before the court was where the contract concluded. Is it in the self-service
shop or at the cashier desk?
It was held that the display of good on shelves are only ITT.
Customer made an offer when he selected the goods and put it in the basket.
Acceptance will be made at the cash counter after the qualified pharmacist is
satisfied.
Therefore the contract is made at the cash counter, not in the shop.
 Case 2 : Fisher v Bell
 It was held that the display of several kinds of pen-knives in a glass shop
windows is not an offer but an invitation to the customers to make an offer to
buy. Whether the offer is accepted or not depends on the discretion of the
shop owner.
 In this case, the shopkeeper displayed in his shop flickknife and was charged for
offer to sell dangerous weapon contrary to Restrictions on Offensive Weapon
Act 1959. Held that it is just a display of goods and not an offer as of yet to sell
the item
• ADVERTISEMENT
• An advertisement on the other hand is an attempt to induce an offer
and depends on the intention of the parties whether it is an offer or
otherwise. As stated in the case of Coelho v the Public Services
Comission (1964)MLJ 12- The Applicant , a health inspector applied
for the post of Assistant Officer which was advertised in the Malay
Mail. It was held that the Malay Mail advertisemnet was an invitation
to qualified persons to apply and the resulting applications were only
then offers.

• In the case of Partridge v Crittenden, the facts of the case was that
Partridge advertised live wild birds for sale in a periodical bird
magazines. The advertisement appeared in the classified
advertisement section of the magazine. Partridge was charged with
offering live wild birds for sale. The issue was whether the
advertisement was an invitation to treat or an offer. It was held that
the advertisement was only an invitation to treat because nowhere
was there any indication of an expression of intention to be bound.
 AUCTION
 Another example where a circumstances might not be an offer is when matter
concerning auction. When an auctioneer invites bids, he is merely making an
invitation to treat and when a bidder makes a bid, he is making the offer. The
contract of sale is only made when the auctioneer announces its completion by
the fall of the hammer. See the case of Harrison v Nickerson (19873) LR 8 286
• Thus an offer must be distinguished from an invitation to treat. An invitation
to treat is normally not an offer but rather is an offer to consider offer.
Instances which generally is regarded as invitation to treat include:-
a.Auctions;
b.Advertisement of Tenders;
c. Catalogues
d.Price List and
e.Goods display in shop windows and shelves
• An offer may be revoked by the promisor at any time
before the communication of its acceptance is complete
as against the promisor – Section 5 (1).
• Communication of revocation of offer is complete and
binding on the promisor when it is put in the course of
transmission and binding on the promisee when it
comes to his knowledge.
• Case: Routledge v Grant
• Defendant offered to sell a house to the Plaintiff. The
acceptance was to be made within 6 weeks. The
question was whether the Defandant could revoke his
offer before the 6 weeks lapses.It was held that the
Defendant may revoke his offer at any time within that
6 week on condition that no acceptance had been made
by the P.
 An offer may be terminated by promisor under
the following situations:

•Revocation of offer by notice;

•Counter offer made by promisee;
•Failure to fulfill condition precedent fixed by the
promisor;
•Death of either promisor or promisee
• DEFINITION
• ACCEPTANCE MUST BE
ABSOLUTE AND UNQUALIFIED
• COMMUNICATION OF
ACCEPTANCE
• ACCEPTANCE MUST BE MADE IN
USUAL AND REASONABLE
MANNER
• SILENCE IN NOT AN
ACCEPTANCE
• TIME OF ACCEPTANCE
• REVOCATION OF ACCEPTANCE
•An act done by the promisee in replying to the offer
made by the promisor.
•Section 2 (b) Contracts Act 1950 defines
acceptance: When the person to whom the offer is
made signifies his assent thereto, the ofer is said to
be accepted and when accepted, becomes a
promise.
• In order to convert an offer into a valid agreement,
acceptance must be absolute and unqualified and be
expressed in the manner prescribed by the offer – Section 7
• If promisee intends to make acceptance, he must accept the
offer without attaching any condition to the acceptance.
• Effect if make conditional offer – it will modify the offer and
will not constitute a valid acceptance and this is known as
counter offer.
• Acceptance must be absolute and unqualified so that there is
complete consensus. If the parties are still negotiating , an
agreement is not yet formed as stated in the case of Lau
Brothers v China Pacific Navigation Co (1965) 1 MLJ 1
• If acceptance is not absolute or unconditional, that is, it does
not comply with the conditions, if any stated by the offeror, it
will amount to a counter offer.
• Case: Masters v Cameron (1954) 91 CLR 353
•A counter offer is treated as rejection to the
original offer made by the promisor and will
destroy the original offer.
•Case: Hyde v Wrench – in this case, the D
offered to sell his estate for £1000. P made a
counter offer to purchase at £950. The D
declined. After few days, the P reiterated that
he is willing to accept the original offer. It was
held that no acceptance had occurred since the
at the time of making counter offer, the P was
actually rejecting the original offer. The original
offer was destroyed
•Upon receipt of the
offer, the promisee
would have intended
to accept the offer but
it will not give rise to a
valid acceptance until
it is communicated to
the promisor.
•Acceptance can be
made orally, in
writing, or by way of
conduct
• The promisee must
accept the offer in some
usual and reasonable
manner of
communication.
• If the promisor
stipulates manner of
acceptance, promisee is
bound to comply with
the manner prescribed.
• If the promisor wants
the promisee to comply
with the manner of
acceptance, he should
insists and if he fails to
do so, the acceptance is
binding on him –
Section 7 (b)
•The promisor cannot put a condition that silence
will amount to acceptance by the promisee.
•Case: Felthouse v Bindley – P intended to
purchase a horse from his nephew. He wrote “if
I hear nothing from you, I consider the horse is
mine.” His nephew instructed the auctioneer to
keep the horse out of sale but by mistake, the
auctioneer sold the horse. The P sued the
auctioneer. Held: the nephew did not make an
acceptance because in law, promisor cannot
impose condition that silence amount to
acceptance
1. Promisor may waive the need to communicate
acceptance – e.g Carlill v Carbolic Smoke Ball.
2. The promisee is said to have accepted the offer
by performing conditions stipulated in the offer –
Section 8
•Case: Errington v Errington and Woods – The father
promised the son that if he paid off the mortgage
installments, he would transfer the house to him. The
son paid off the mortgage. When the father died, his
widow sought an eviction order from the court. Held:
The act of paying the installments amount to valid
acceptance.
3. The promisee can accept the consideration for
any reciprocal promise which may be offered with
the offer.
4. Acceptance through post where it is
considered as complete once the letter of
acceptance is posted – Section 4 (2) – In Entores Ltd
v Miles Far East Corporation, it was decided that
acceptance is complete as soon as the letter is put
in the course of transmission.
•Communication of acceptance must be made
within reasonable time.
•If delay or acceptance made out of time will
have effect that offer is revoked – Section 6 (b)
•Case: Macon Works & Trading Sdn Bhd v Phang
Hon Chin & Anor – failure to accept within
reasonable time implies rejection by promisee.
•Case: Ignatius v Bell - the D offered in writing to
the P to purchase his land before 20 August
1912. The P accepted the offer and posted the
letter on 16 August 1912 but the letter only
reached D on 25 August 1912. The Court held
that Section 4 of the Contracts Act is applicable.
The acceptance was complete as against the
promisor when it is put in the course of
transmission (when the P posted the letter on
16 August 1912).
•The promisee can revoke any acceptance at any
time before the communication of acceptance is
complete against him – Section 5 (2).
•Case: Dunmoore v Alexander, the letter of
acceptance and revocation which was sent by
express were received by promisor simultaneously.
Held that the acceptance had been effectively
withdrawn.
•Communication of a revocation of acceptance is
complete and binding on the promisee when it is
put into a course of transmission and binding on the
promisor when it comes to his knowledge – Section
4 (3)
•DEFINITION
•TYPES
•EXCEPTION TO THE
GENERAL RULE
•ADEQUACY OF
CONSIDERATION
•CONSIDERATION MAY
MOVE FROM PROMISEE OR
THIRD PARTY
•When at the desire of the promisor, the
promisee or any third party has done or
abstained from doing something, such
abstinence or promise is called consideration –
Section 2(d)
•A contract will not be enforceable if it is not
supported by consideration.
•Consideration literally means any bargain or
promise given by the parties upon entering into
a contract. Both parties are expected to
contribute a bargain or promise.
•A contract without consideration is void –
Section 26
•Case: South East Asia Insurance Bhd v Nasir
Ibrahim - the court held that the gist of
consideration is when the promisee has taken
upon himself some kind of burden or detriment.
•Under the English law, the case of Curie v Misa
defined consideration as to consist some right,
interest, profit, or benefit accruing from one
party to another.
•For example, A has agreed to sell his car to B for
RM50, 000 and B has agreed to pay RM50, 000
for the car. The contract is enforceable since A
has agreed to hand over his car to B upon
payment received from B.
 TYPES OF
CONSIDERATION

EXECUTORY EXECUTED PAST

CONSIDERATION CONSIDERATION CONSIDERATION
• When the parties provide consideration by way of
promise, it will become an executory consideration.
• The contract will only be performed by the party who
provides promise as consideration in the future. Even
though nothing has happened at the time of the
conclusion of contract but the law still regard the
contract as valid and enforceable.
• Case: K Murugesu v Nadarajah - the R was the tenant of
the A. The A has agreed to sell the house to the tenant
for RM26, 000.00 within three months from the date of
agreement. Later the A refused to sell the house and
claiming that the R has not provide any consideration
for the offer to sell therefore the agreement was void.
Held: The promise to pay is an executory consideration;
therefore the contract is still valid and enforceable.
• When consideration is doing of certain act, it is known
as executed consideration.
• Case: Wong Hon Leong v Noorazman Adnan - It was
decided by the Court of Appeal that the R’s had
executed his consideration when he assisted the A in
the application for the conversion of land. A had
entered into an agreement with the R, it was agreed
that he is to pay service fee for his assistance to
expedite the conversion and subdivision of his land. The
R wrote a letter to MB and eventually he managed to
get support for the approval of the A’s application for
the conversion of land. After the application was
approved, A refused to pay the fees. The court held that
by obtaining the support of MB, the R had done
something at the desire of the A, such an act is a valid
consideration.
• It is a past consideration when the promisee had carried
out his task and in return for an act already performed,
the promisor made an offer.
• For example, A saved B for drowning in a river, B’s
mother promised A to reward him RM1000. Here A’s
consideration is a past consideration.
• Case: Kepong Prospecting & SK Jegatheesan v AE
Schmidt & Marjorie Schmidt - In this case, Schmidt as
the consulting engineer helped the company in
obtaining mining permit and in the incorporation of the
company. After the company was formed, the company
had agreed to give Schmidt 1% of the value of ore sold
from the mining land. This is consideration of his service
before the formation of the company. The court held
that past consideration is a good consideration.
•There are exceptions to the general rule that an
agreement without a consideration is void –
Section 26 (a) to (c).
•These may be summarized as follows:
 An agreement made based on natural love
and affection;
 An agreement to compensate past voluntary
act;
 An agreement to compensate someone who
did an act that the promisor was legally
compellable to do;
 An agreement to pay statute barred debt.
• An agreement made based on natural love
and affection must satisfy Section 26 (a)
Contracts Act 1950:
a. It must be in writing;
b. It is registered;
c. The parties must be in near relation.
• Near relation was interpreted in the case of Re
Tan Soh Sim. In this case the court decided
that the adopted children were not parties
standing in a near relation with the family of
the adoptive mother.
• The parties must provide consideration in order to form
a valid and enforceable contract.
• As long as there is a consideration, it is sufficient to
constitute a valid contract. It is irrelevant whether the
consideration is according to the market value or not.
• The law will only monitored whether the promisor and
the promisee have negotiated freely, not whether both
parties have made good bargain.
• It is sufficient to have a consideration which have some
value but need not be adequate.
• This is clarified in the illustration of Section 26 (f); A
agrees to sell a house worth RM1000 for RM10. A’s
consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy
of the consideration.
•Case: Bolton v Madden – it was decided that the
contract to sell a house worth $100, 000 for
$1000 is valid. The court observed that adequacy
of the consideration is for the party to consider at
the point of entering the contract.
•The same principle was applied in the case of
Phang Swee Kim v Beh I Hock. In this case, the
parties entered into a contract to transfer a land
with the consideration of RM500.00. The Federal
Court decided that the contract is valid.
•Section 2 (d) provided that consideration may
move from the promisee or any other person.
•Case: Venkata Chinnaya v Verikatara Ma’ya.
This case was about a sister who promised to
pay certain amount of money to her brother.
Her brother did not provide anything as
consideration but their mother gave the sister
some land and insisted that she gave money to
her brother. She failed to do so. It was held that
there was a good consideration even though it
moved from third party.
•DOMESTIC OR SOCIAL
CONTRACT
•COMMERCIAL CONTRACT
• There is no provision
in the Contracts Act
1950 in relation to
intention.
• Usually intention is
inferred from the
circumstances
surrounding the
formation of the
contract.
• It can be divided
into two situations:
a. Domestic or social
contract;
b. Commercial contract
• In a domestic or social
contract, the parties
involve are family and it
is presumed by the law
that the arrangement is
not meant to be binding
on the parties.
• Case: Balfour v Balfour
- the husband promised
to give the wife 30
pounds as maintenance
while he was away in
Ceylon. The court
decided that this
promise is only social
contract and the parties
had not designed a
binding contract.
 However, this presumption can be
rebutted. As illustrated in the case
of Merrit v Merrit and the case of
Wakeling v Ripley- Elderly man
invited his sister and his husband
to live with him in Australia until
his death. He will provide them
with income and leave them his
property when he dies. Husband
gave up his job and moved to
Australia. Held: There was
something more than just family or
social arrangement. There is
consideration wherein the
husband gave up his job to move.
• In a commercial contract, it is presumed that the parties
intended to create a legal relation and enter into a valid
contract.
• Case: Carlill v Carbolic Smoke Ball - even though the P
purchased the smoke ball from the retailer, the court
held that the D being the manufacturer and has made
an offer to the world at large to reward anyone who has
accepted to purchase the smoke ball and yet still
suffered from influenza after using it, was liable to pay
the P since a valid contract was formed between the P
and the D.
• Case: Esso Petroleum Ltd v Customs and Excise
Commissioners - where ‘one coin given with every four
gallons of petrol’ was advertised by the company
constitute an intention to create a legal relation.
 A variety of contractual clause may
be employed to negative contractual
intention.
 This clause is one of the common
way that is used by lawyers to
express the intention that the oral or
informal agreement is not binding
until the execution of a full and final
agreement in a formal instrument is
made.
 Winn v. Bull (1877) 7 Ch D
29
 In this case there was a
written agreement between
the pf and the df for the
lease of a house subject to
the certain clause (subject to
contract clause), but later no
further formal contract was
entered into. Held: there
was no enforceable contract
 Low Kar Yit v. Mohd Isa
 Df gave an option to the pf to buy a parcel of land but ‘subject to a formal
contract’ that is to be made and agreed upon the parties later.
 Pf then, exercised the option but the df subsequently refused to sign the
agreement for sale. Pf later sued for the breach of contract.
 Held: there was no concluded contract between the parties. The exercise of
the option by the pf amounted to nothing more than an agreement to enter
into another agreement as there was no contract existed at that time.
 Although the ‘subject to contract’ clause could be used to negate the
intention of the parties to enter into a contract, but, it is still depends
to the circumstances of the case.
Case 1: Lim Keng Seong v. Yeo Ah Tee
 Respondent claimed that there was a complete contract arising from
a number of letters exchanged between them.
 However the appellant defended that the sale was ‘subject to a
formal contract’ and that the appellant have informed the resp’s
solicitors that they didn’t wish to proceed with the sale
 Held: based on the circumstances of the case, there was an intention
of the parties to form a contract.
 the number of letters exchanged between the parties showed that
there was intention to create legal relation between the parties even
though there was a ‘subject to contract’ clause.
• Every offer made by promisor must be definite before it
can become a valid offer.
• Definite means it must be specific and clear so that the
other party knows the subject matter of the offer.
• The requirement for certainty in an agreement is
mentioned in Section 30.
• Uncertainty may arise because the language used is too
vague or the subject matter of the offer is not precise.
• The law regard agreement which is not certain as void.
• Case: Karuppan Chetty v Suah Thian - a lease of $35 per
month for as long as the tenant like was lacking of
certainty and therefore the contract was void.
•Who is a competent
person?
•Effect of Contract entered
by non-competent person
•Exceptions to the rule of
capacity in contract
• Section 11 states three category of person who is considered
as competent in law to enter into a contract:
1. Any person who is of the age of majority;
 It is provided under Section 2 Age of Majority Act 1971 that
age of majority in Malaysia is 18 years old and above. Person
below the age of 18 is called a minor.
2. Any person who is sound mind;
 It is stated in Section 12 that if at the time of making the
contract, one is of sound mind, the contract is valid. If a
person is occasionally of unsound mind, he may make a
contract when he is of sound mind. Unsound mind includes a
drunken person.
3. Any person who is not disqualified from contracting by
law.
 Example of a person under this category is a bankrupt.
•Case: Mohori Bibee v Dharmodas Ghose - it
was decided by Privy Council that contracts
entered into by minor is void.
•There are few Malaysian cases that affirm the
decision.
•For example in Tan Hee Juan v Teh Boon Kiat
and the case of Sim Kon Sang Peter
(Administrator of the Estate of Chont Yu Tai,
Decd) v Datin Shim Tok Keng.
• It was also decided that a minor cannot sue and
be sued.
 EXCEPTIONS

CONTRACTS
OF
MARRIAGE SCHOLAR- APPRENTICE-
NECESSITY INSURANCE
CONTRACT SHIP SHIP
UNDER
SECTION 69
• If a person incapable of entering into contract is
supplied by another person with necessaries suited to
his condition of life, the person who has furnished such
supplies is entitled to be reimbursed from the property
of such incapable person – Section 69.
• Even though the contract is void but the person can be
reimbursed from his property.
• The word necessary is not defined in the Contracts Act
1950 and various cases suggested it includes food,
clothes and shelter.
• Case: Government of Malaysia v Gurcharan Singh - the
court held that necessaries must be construed broadly
and it is depending on the facts of each case. It was
decided in this case that education is a necessity.
Marriage Contract
•Case: Rajeswary v Balakrishnan - the court
decided that a minor can enter into a marriage
contract and the contract is valid.
•Section 4 (a) of the Age of Majority Act 1971
provides that nothing shall affect the capacity of
any person to act in a marriage, divorce, dower
and adoption.
Insurance Contract
•Insurance Act 1993 provides that contract of
insurance can be entered by minor but if below
16 years old, must get written consent from
parents or guardian.
Scholarship
•According to Section 4 (a) Contracts
(Amendment) Act 1976, scholarship agreement
entered into by scholar who is minor is valid.
•Section 2 of the same Act says that scholarship
agreement means any contract between
appropriate authority and any person.
•Appropriate authority is defined as Federal
Government, State Government, a statutory
authority or an approved educational
institution.
•That means a scholarship agreement with
private institution or organization is still void.
• The Children and Young
Persons (Employment)
Act 1966 states that a
child (below the age of
14 years old) and young
person (age between 14
– 16 years old) shall be
competent to enter into
a contract of service of
apprenticeship.
• It means a child or
young person can be
employed as an
apprentice.
 TERMS OF CONTRACT
 PRIVITY OF CONTRACT
 TYPES OF CONTRACT
 DISCHARGE OF CONTRACT
 REMEDIES
 LIMITATION
 Terms vs Representation
 Representation: A statement make by one person (representor) to another
person (representee) which does not form part of a contract but it will induce
the representee to enter into a contract. If it turns out to be incorrect the
innocent party may sue for misrepresentation.
 Term: is a promise that is part of the contract and a statement that is
incorporated into the contract. It refers to clauses, provisions or statement
that gives efficacy to the intention of the party. It is the expression of a
willingness by the parties to agree to abide by that obligation. The breach of
the terms means parties can sue for breach of contract.
 Tests to determine whether it is a representation or terms: depends on the
intention of the parties.
 
• There is no specific provision to deal with terms of contract.
• It can be classified into conditions and warranties.
• Condition is terms essential to the contract and breach of a
condition of a contract entitles the parties to terminate the
contract and claim damages.
 In other words, A condition is a major term which is vital to the
main purpose of the contract. A breach of condition will entitle the
injured party to repudiate the contract and claim damages. The
injured party may also choose to go on with the contract, despite
the breach, and recover damages instead.
 A party rescinding need not show that breach of a condition has
actually caused the loss (because it is considering as a major
breach).
 Case: Poussard v Spiers (1876) 1 QBD 410
 Poussard was engaged to appear in an operetta from the start of its London
run for three months. The plaintiff fell ill and the producers were forced to
engage a substitute. A week later Poussard recovered and offered to take her
place, but the defendants refused to take her back.
 The court held that the defendant's refusal was justified and that they were
not liable in damages. What chiefly influenced the court was that Poussard's
illness was a serious one of uncertain duration and the defendants could not
put off the opening night until she recovered. The obligation to perform from
the first night was a condition of the contract. Failure to carry out this term
entitled the producers to repudiate Poussard's contract.
 Case: Associated Metal Smelters Ltd v Tham Chieow Toh (1971) 1 MLJ 271,
the facts of the case is that the Plaintiff claimed damages for breach of
warranty of a metal melting furnace. The Defendant had agreed to sell the
furnace to the Plaintiff and had given an undertaking that the melting
furnace would have a temperature not lower than 2600F. The furnace
supplied by the defendants did not in fact reach the required temperature.
Court in favour of Plaintiff, and stated that it’s a breach of condition
 While warranties is terms collateral to contract, breach of which only
entitles the party to claim for damages.
 A warranty is a less important term: it does not go to the root of the
contract. A breach of warranty will only give the injured party the
right to claim damages only; he cannot repudiate the contract.
 Case: Bettini v Gye (1876) 1 QBD 183
 Bettini, an opera singer, was engaged by Gye to appear in a season of
concerts. He undertook to be in London at least six days before the
first concert for the purpose of rehearsals. He arrived three days late
because of a temporary illness. He gave no advance notice and Gye
refused to accept his services.
 It was held that the plaintiff had been engaged to perform for a 15-
week season and the failure to attend rehearsals could only affect a
small part of this period. The promise to appear for rehearsals was a
less important term of the contract. The defendant could claim
compensation for a breach of warranty but he could not repudiate
Bettini's contract
.
 Whether a particular term in a contract is a condition or a warranty depends on
the intention of the parties.
 The mere labelling of a term as a condition or a warranty is not conclusive. The
Courts will still have to determine the exact intention of the parties
Innominate terms- breach of which
is not clearly stated in a contract,
whether it is a condition or
warranty. If it is a serious breach,
then it will become condition.
However, if it is not a serious
breach, then it will become
warranty.
Case: Hong Kong Fir Shipping v.
Kawasaki Kisen Kaisha (1962) 2 QB
26
The defendant chartered a ship
from plaintiff for 2 years. The term
in a contract stated that the ship
would be 'in every way fitted for
ordinary cargo service' but in fact ,
the ship was in poor state and the
crews were incompetent to deal
with the old fashioned machinery.
 Consequently there was a breakdown and delay on the voyage from Liverpool
to Osaka . The ship was out of service for a 5 week period and then a further
15 week periods were needed for the ship to be fixed and repaired. The
defendants treated this as a breach of condition and ended the contract. The
claimants/plaintiffs brought an action for wrongful repudiation arguing the
term relating to seaworthiness was not a condition of the contract.
 Held: the plaintiffs successfully sued for wrongful termination. The court
introduced the innominate term approach. Rather than seeking to classify the
term itself as a condition or warranty, the court had to determine the
seriousness of the breach and whether the breach had substantially
deprived the innocent party of the whole benefit of the contract. In this case,
20 weeks out of a 2 years contract period did not substantially deprive the
defendants of whole benefit of contract and therefore they were not entitled
to repudiate the contract. The df only had right to sue for damages
 
 It is not unusual to find a party
trying to limit or exclude their
liability in certain situations by
including an exception, exemption
or exclusion clause in the contract.
 Such clauses are frequently found
in standard form contracts. In the
commerce world today, it is
normal for standard contracts to
be entered to.
 Provisions limiting liability have
been held valid.
 Case 1: Sze Hai Thiong bank v
Rambler Cycle (1959) MLJ 200
 Case 2: Malayan Thread Co v
Oyama Shipping Line (1973) 1 MLJ
121
 Case 3: Port Swentteham Authority
v T Wu and Co (1978) 2 MLJ 137
 EXEMPTION CLAUSES/ EXCLUSION CLAUSES
 Definition: Term in a contract that seeks to restrict the rights of the parties to
the contract.
 It is a term in a contract by which a party inserting them seeks to exclude or
limit all or some of his liability for the breach of the contract or for some tort.
 Example: a party in a sales of goods contract, seek to exclude all implied
warranties or in a service contract limit liability for negligence.
 Types of Exemption Clause/Exclusion Clause
 True exclusion clause- total exclusion to the liability or duty
 Eg: the company shall not be liable for any damage to or loss whatsovver and
howsoever arising of goods left with us for cleaning.
 Limitation clause- it limits the liability of the party to the breach of contract
/tort to a specified monetary sum.
 Eg: in the event of damage or loss of the articles left with us for cleaning, our
liability shall not exceed RM200.00 per article.
 Time limitation-depends to the period of time
Term Must be Incorporated.
When an EC or other term is
effectively made a part of a
contract, it is said to be
incorporated in the conract. The
incorporation of a term (including
EC) may be effected by several
ways:
1. Incorporation by signature:
If the plaintiff signs a document
having contractual effect containing
an exclusion clause, it will
automatically form part of the
contract, and he is bound by its
terms. This is so even if he has not
read the document and regardless
of whether he understands it or
not.
Case 1: L'Estrange v Graucob [1934] 2 KB 394.
Facts: Mrs L'Estrange purchased a cigarette vending machine from Mr
Graucob and signed a document entitled 'sales agreement' which contained a
clause excluding any implied conditions. It was accepted that she signed the
document without reading it. The machine broke down repeatedly and
L'Estrange sued for breach of the implied condition of fitness for purpose.
Issue: Was the term implied into the contract despite the fact that L'Estrange
had no knowledge of it?
Held: The exclusion clause formed part of the contract. It was immaterial that
L'Estrange had not read the clause. The fact that she signed it meant that she
was bound by it. She is deemed to have read and agreed to the terms of the
contract.
Once a document containing contractual terms is signed, it is irrelevant
whether the party in fact read the document or not. Thus the Plaintiff could
not deny the existence or effect of the clause restricting the terms of the
contract included in the document.
Case 2: Polygram Records Sdn. Bhd v. The Search & Anor (1994) 3 MLJ 127.
The Pfs, Polygram Records Sdn Bhd entered into two written agreements
with a rock group, ‘The Search’ (‘the group’). The Pfs claimed that in breach of
the contracts, the group recorded a new album under a new company, Go-
Search. In 1988, Polygram commenced proceedings against the group for
breach of contract. The dfs resisted the action on the group that the first of
the two contracts, though executed by them, was not binding on them since
they did not ‘agree to the terms’.
In this case the principle established in L’Estrange was adopted by the High
Court. There is no principle of law which states that where a party does not
fully understand certain terms of a contract, the contract may be vitiated. The
general principle of law is that a party who signs a written contract is bound by
the terms of the contract, except in the limited cases such as fraud, undue
influence or misrepresentation may be established. The rule is so strict that
even if a party to a contract has not read the contents of a contract, he is held
o be bound by its term.
(However in this case, the Pf’s claim was dismissed on other ground.)
 Exceptions:
 a) An exemption clause cannot protect a party from liability for his or her own
fraud
 S Pearson & Son Ltd V. Dublin Corp (1907) AC 351
 the dfs agents furnished the pf/contractor with drawings, plans and
specifications relating to the construction of certain sewer works. On the
basis of this information the of contracted to undertake this work. However,
some of the information which had been supplied to pf proved to be false
causing them to incur extra expenses. The pf nonetheless performed the
contract but sought damages for the extra costs they had incurred as a result
of the false information that had been supplied to them by the df’s agent.
However, the df sought to deny liability on the basis of a clause in the
contract stating that the pf must not rely on any representation made in the
plans or elsewhere but must verify and determine the facts for themselves.
 The court held that a party may not avoid liability for his own fraudulent
statements by inserting a clause in the contract that the other party shall not
rely upon them. While such a clause may apply to errors, inaccuracies and
mistakes, it cannot shield a party from the consequences of fraud committed
by him or his agent. The contract contemplated honesty on both sides and
protected only against honest mistakes. The pf succeeded in his claim.
 b) Exemption clause obtain through duress or undue influence
 c) Unreasonable restrictive exemption clauses
 2. Incorporation by notice:
 The exclusion clause may be contained in an unsigned document such as a
ticket or a notice. In such a case, reasonable and sufficient notice of the
existence of the exclusion clause should be given. For this requirement to be
satisfied:
 (i) The clause must be contained in a contractual document, ie one which the
reasonable person would assume to contain contractual terms, and not in a
document which merely acknowledges payment such as a receipt.
 Parker v SE Railway Co (1877) 2 CPD 416
 The plaintiff had deposited a bag at a railway cloakroom. He was given a
ticket in exchange. The front of the ticket, which contained a number and
date, also said ‘See back’. On the other side of the ticket were various clauses,
including one excluding liability for goods exceeding the value of £10. The
plaintiff's bag, worth £24.50, was lost.
 The jury found that the plaintiff had not read the ticket, nor was he under any
obligation to do so. On that basis, the judge had directed that judgment
should be given for the plaintiff. The defendant appealed.
 Held
 The Court of Appeal ordered a new trial, on the basis that the proper test was
whether the defendants had given reasonable notice of the conditions
contained on the ticket (which in this case it was not). The relevant principle
was stated by Mellish LJ in the following opinion:
 If the person receiving the ticket did not see or know that there was any
writing on the ticket, he is not bound by the conditions;
 If he knew there was writing, and knew or believed that the writing contained
conditions, then he is bound by the conditions;
 If he knew there was writing on the ticket, but did not know or believe that
the writing contained conditions, nevertheless he would be bound, if the
delivering of the ticket to him in such a manner that he could see there was
writing upon it, was reasonable notice that the writing contained conditions.
 (ii) the notice must be contemporaneous with the contract.
 The existence of the exclusion clause must be brought to the notice of the
other party before or at the time the contract is entered into.
 Olley v Marlborough Court [1949] 1 KB 532.
 The plaintiff booked in for a week's stay at the defendants' hotel. A stranger
gained access to her room and stole her mink coat. There was a notice on the
back of the bedroom door which stated that "the proprieters will not hold
themselves responsible for articles lost or stolen unless handed to the
manageress for safe custody." The Court of Appeal held that the notice was
not incorporated in the contract between the proprietors and the guest. The
contract was made in the hall of the hotel before the plaintiff entered her
bedroom and before she had an opportunity to see the notice.
 Thornton v. Shoe Lane Parking [1971] 1 All ER 686
 In this case the customer parked his car in a indoor car park owned by df and
received at the entrance a ticket from an automatic machine. He parked his
car and attended his appointment. While preparing to leave the car park, the
pf was involved in an accident. The pf sued the df. He df sought to avoid
liability on the ground that they were proected by EC found at the back of the
ticket. The court held that the customer is only bound to the EC if it is
sufficiently brought to his attention beforehand. However, in this case, the
ticket was to be issued when the car was driven to the entrance to the car
park . Here, the EC was not been brought before or at the time when the
contract is entered into. Therefore, he was not bound by the conditions
printed on the ticket.
 (iii) Reasonably sufficient notice of the clause must be given.
 Thompson v LMS Railway [1930] 1 KB 41
 The plaintiff who could not read gave her niece the money to buy an
excursion ticket. On the face of the ticket was printed "Excursion, For
Conditions see back"; and on the back, "Issued subject to the
conditions and regulations in the company's time-tables and notices
and excursion and other bills." The conditions provided that excursion
ticket holders should have no right of action against the company in
respect of any injury, however caused. The plaintiff stepped out of a
train before it reached the platform and was injured.
 The question was whether the defendants had taken reasonable
steps to bring the conditions to the notice of the plaintiff. Lord
Hanworth MR said that anyone/reasonable person who took the
ticket was conscious that there were some conditions and therefore it
was irrelevant that the plaintiff could not read.
 3. Incorporation by previous course of dealings:
 Even where there has been insufficient notice, an exclusion clause
may nevertheless be incorporated where there has been a previous
consistent course of dealing between the parties on the same terms.
Here, it must be a substantial number of transaction which
consistently provide for the same limitations on liability for such
terms to be implied.
 However, the parties or at any rate, the party against whom the EC is
invoked, must have been aware of the EC in the prior dealings for it
to be used against him. When one of the parties to a series of prior
contracts did not have specific knowledge of the actual conditions
under which he had been previously contracting those terms could
not be imported into a new contract on the basis of a prior course of
dealings.
 McCutcheon v MacBrayne [1964] 1 WLR 125.
 Exclusion clauses were contained in 27 paragraphs of small print
contained inside and outside a ferry booking office and in a 'risk note'
which passengers sometimes signed. The exclusion clauses were held
not to be incorporated. There was no course of conduct because
there was no consistency of dealing.
 Syed Ahmad SA Alsagof in his book, “Principles of
the Law of Contract in Malaysia” analyzed void
contract under illegality from three perspectives:-
a. unlawful consideration
b. unlawful objects; and
c. illegal contracts.
a. Unlawful consideration
 Unlawful consideration occurs when either of
the parties provides a consideration which is
against any existing law.
 Illustration (f) of Section 24 is an example of
unlawful consideration. A promises to obtain for
B an employment in the public service, and B
promises to pay $1000 to A. The agreement is
void, as the consideration is unlawful. In this
illustration, the $1000 is considered unlawful
since by giving A the money will give rise to
bribery which is an offence under the criminal
law of Malaysia.
b. Unlawful object
 In the case of Aroomogam Chitty v Lim Ah Heng, the D
borrowed money from the P to setup a brothel. The
purpose or object of the contract is therefore immoral.
The court decided by using the maxim ex turpi cause
non oritur action (no action will arise from a wrong
done). The contract was void.
c. Illegal contracts
 In Arumugam v Somasundram, a contract to hire a car
which is licensed for private use is considered as void
contract.
 In the case of Haji Hamid bin Arifin v Ahmad bin
Mahmud, it was decided that a contract in
contravention of Kedah Malay Reservation Enactment
when a Malay reserved land was sold to a Siamese was
void.
 The Contracts Act 1950 also declared the following
contract as void:
 Section 26 where an agreement was made without consideration
 Section 27 where an agreement in restraint of marriage of any person other than minor
during his or her minority
 Section 28 where an agreement by which anyone is restrained from exercising a lawful
profession, trade or business of any kind.
 Section 29 where any party is restricted absolutely from enforcing his rights under any
contract, by the usual legal proceedings in the ordinary tribunal.
 Section 30 where agreements, the meaning of which is not certain or capable being made
certain
 Section 31 where agreement by wager is void and no suit shall be brought recovering
anything alleged to be won on any wager, or entrusted to any person to abide the result of
any game or other uncertain event which any wager is made.
Effect of void contract
 The court will not enforce a void
contract based on the maxim of ex
turpi causa non oritur actio.
 Under Section 66, any person who
has received any advantage under
the contract is bound to restore or
make compensation for it to the
person whom he received it.