BAEB 301 : BASIC LAW FOR E-BUSINESS

CHAPTER 4: CONTRACT DEFECTS &

DISCHARGE AND REMEDIES OF CONTRACT
Chapter 4: Contract Defects & Discharge And Remedies of Contract
Topic Outlines

4.1 Voidable Contracts

4.1.1 Contract Defects Causing a Contract to be Voidable

4.1.2 The Effects of a Voidable Contract

4.2 Void Contracts

4.2.1 Contract Defects Causing a Contract to be Void

4.3 Discharge of Contract by Performance

4.3.1 Types of Performance

4.3.2 Remedy Where There is Substantial Performance
(Minor Breach)
4.3.3 Remedy Where There is Incomplete Performance
(Serious Breach)
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Chapter 4: Contract Defects & Discharge And Remedies of Contract
Topic Outlines

4.4 Discharge of Contract by Breach

4.4.1 Legal Remedy Following A Breach of Contract

4.5 Damages As A Remedy for Breach of Contract

4.6 Equitable Remedies Following a Breach of Contract

4.6.1 Types of Equitable Remedies

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Chapter 4: Contract Defects & Discharge And Remedies of Contract
Learning Outcomes

At the end of this chapter, students should be able to:

 Understand the rules concerning enforceability of conventional contracts
affected by defects such misrepresentation, mistake, duress and undue
influence and illegality
 Understand the rules concerning the discharge of conventional contracts by
performance, by agreement of the contracting parties, by impossibility of
events and by breach and apply to online contracts.
 Understanding the rules concerning remedies, common law and equitable,
following a breach of contract and apply such conventional rules to an
online contract.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.1 Voidable Contracts

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.1 Voidable Contracts

4.1.1 Contract Defects Causing a Contract to be Voidable

1. Duress
2. undue influence
3. Innocent misrepresentation - a
false statement of facts which
the speaker sincerely believes is
true but turns out to be wrong.
Keeping silent where there is a
duty to disclose facts to correct
one’s misunderstanding of the
facts, may be misrepresentation.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.1 Voidable Contracts

4.1.1 Contract Defects Causing a Contract to be Voidable

4. fraud
5. Coercion – criminal acts or
threats against any property or
person or unlawful detention
or threats to detain any
property or person.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.1 Voidable Contracts

4.1.2 The Effects of Voidable Contracts

1. S. 19 (2) – The innocent party can

insist on the contract being
performed and that he shall be put
in the position in which he would
have been if the representation had
been true.
2. S. 65 – the innocent party, if he
chooses to rescind the contract,
must restore any benefit to the
other party if he has received such
benefit.
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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.2 Void Contract

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.2 Void Contracts

4.2.1 Contract Defects Causing a Contract to be Void

1. Both parties made a common mistake of a

fact essential to the agreement by both
parties. See. S.21
2. Both parties made a mutual mistake as to
the subject matter of the contract. E.g Siti
thought she was buying Bala’s hotel in
Melaka whereas Bala thought he was
selling his hotel in Seremban.
3. The contract is with a minor/mentally
unsound person.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.2 Void Contract

4.2.1 Contract Defects causing a Contract to be Void

4. The contract terms are vague and

uncertain/imprecise.
5. The contract terms are vague and
uncertain/imprecise.
6. Both parties made a common mistake as
to the existence of the subject matter of
the contract. E.g. Ali and Alia entered
into an agreement to buy Ali’s grand
piano. Unknown to both of them the
grand piano was already sold to another.
7. The contract is without consideration
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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.2 Void Contract

4.2.1 Contract Defects causing a Contract to be Void

8. The contract is discharged due to an

impossibility.
9. One contracting party makes a mistake
as to the identity of the other
contracting party, whose identity is an
essential term of the contract

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.3 Discharge of Contract By Performance

1. A contract is discharged by
performance when both
contracting parties have carried
out what they are supposed to
do under the contract.
2. As a general rule, performance
must be strictly in
accordance with the terms of
the contract unless the parties
have agreed otherwise.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.3 Discharge of Contract By Performance

3. It is a Breach of contract – if a
contracting party fails to
perform an absolute duty owed
under a contract.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.3 Discharge of Contract By Performance

4.3.1 Types of Performance

Complete

There are three levels of

Substantial
performance of a
contract:
Inferior
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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.3 Discharge of Contract By Performance

4.3.1 Legal Consequence Following Each Type of Performance

Type of Performance Legal Consequence

Complete The contract is discharged.

Performance
Substantial The non-breaching party may recover damages caused
Performance (minor by the breach.
breach)
Inferior Performance The non-breaching party may either:
(serious breach) (1) Rescind the contract and recover restitution, or
(2) Affirm the contract and recover damages.
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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.3 Discharge of Contract by Performance

4.3.2 Remedy Where There Has Been Substantial Performance (Minor Breach)

CONTRACT

Contracting Party A Party A Breaches the Contract Contracting Party B

(Breaching Party) (Substantial Performance) (Non-breaching Party)

Party B may:
1. Recover damages

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.3 Discharge of Contract by Performance

4.3.3 Remedy Where there is Incomplete Performance (Serious Breach)

CONTRACT

Contracting Party A Party A Breaches the Contract Contracting Party B

(Breaching Party) (Incomplete Performance) (Non-breaching Party)

Party B may:
1. Recover damages
or
2. Rescind the contract
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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.4 Discharge of Contract by Breach

1. Breach of contract simply

means one contracting party
simply refuses to perform the
contract.
2. Breach of contract can occur
at the time for performance
of the contract (ACTUAL
BREACH) or at a future time
before the date is due for
performance of the contract.
(ANTICIPATORY BREACH)

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.4 Discharge of Contract By Breach

4.4.1 Legal Remedy Following a Breach of Contract

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.5 Damages as A Remedy For Breach of Contract

1. Damages: S. 74 of the Contracts

Act 1950 provides for the right to
compensation. It reads as follows:
‘A person who rightly rescinds a
contract is entitled to
compensation for any damage
which he has sustained through
the non-fulfillment of the contract.’
2. Damages are awarded to
compensate the Innocent party for
losses which he can prove.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.5 Damages as A Remedy For Breach of Contract

3. Damages are awarded to

compensate the innocent party
for losses which are not too
remote.
4. Losses are not too remote if
they are natural losses and
special losses which were
known by the defaulting party to
result if he breached the
contract.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.5 Damages as A Remedy For Breach of Contract

5. Damages are awarded to

compensate the innocent party
for losses which he could not
avoid despite having taken
reasonable steps to reduce the
losses suffered by him to the
breach of contract.

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.6 Equitable Remedies Following A Breach

1. Equitable remedies are available if

there has been a breach of contract
that cannot be adequately
compensated by an award of
damages.
2. There are two types of equitable
remedies:
(i) Specific Performance
(ii) Injunction

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Chapter 4: Contract Defects & Discharge And Remedies of Contract

4.6 Equitable Remedies Following A Breach

4.6.1 Types of Equitable Remedies

Type of Equitable Remedy Description

Specific Performance Court orders the breaching party to perform the

acts promised in the contract.
The subject matter of the contract must be
unique.

Injunction Court order that prohibits a party from

breaching the contract.
Available in contract actions only in limited
circumstances
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