LAW 277

LAW OF CONTRACT (1)

1
 CONTRACT LAW
 What is “Contract?”
 Parties to Contract
 Elements of Contract
 Offer
 Acceptance
 Consideration
 Intention to Create Legal Relation
 Legal Capacity
 Certainty
2
 WHAT IS ‘CONTRACT’?
 The Oxford Concise Dictionary defines
contract as “a written or spoken agreement
between two or more parties, intended to be
enforceable by law”
 S.2(h) of the Contracts Act 1950 provides
that : “Contract is an agreement
enforceable by law”

3
 What Is ‘Contract’ctd…
Not all agreements are
Based on contracts although all
S. 2(h) contracts are
agreements.

 S. 10 – “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”
4
 What Is ‘Contract’? ctd…

CONTRACT

THERE MUST THE AGREEMENT MUST

BE AN AGREEMENT BE ENFORCEABLE
BY LAW

There must be an offer

and a complete Examples of
acceptance; contracts not
A offered and B enforceable by law;
accepted the offer. contract for killing
someone, contract
for theft and others

5
 PARTIES TO A CONTRACT
Offeror
Has the power
either to
accept or to
reject the offer

Makes an offer
to the offerree

Offeree
6
Eg: Johan offer to sell his iPhone 4s to Sherry at the price of RM 1000
with the hope that Sherry will accept it.
 Person who made the offer/proposal is known as
promisor/proposer/offeror : __________
 The person who accepted the proposal is known as
Promisee/acceptor :___________

Every section must be referred to Contract Act 1950. As for the cases, you should
be able to identify the parties involved in the case.
EG: CARLILL V CARBOLIC SMOKE BALL CO.
 PLAINTIFF: party who sues (_____________)
 DEFENDANT: party who being sued (____________)

PLAINTIFF
v DEFENDANT

7
 ELEMENTS OF A VALID
CONTRACT

(a) Offer
(b) Acceptance
(c) Consideration
(d) Intention to create legal relation
(e) Certainty
(f) Capacity

8
 OFFER/PROPOSAL
 “When one person signifies to another his
willingness to do or to abstain from doing
anything, with a view to obtaining the assent of
that other to the act or abstinence, he is said to
make a proposal.” [S. 2(a) of the Contracts Act ]

 Eg : When Sara offer to buy Joni’s hand phone for

RM500, with the hope that Joni will accept the
offer, Sara is making an offer.
9
 OFFER ctd…

 In other words, under the Contracts Act 1950

and English Law, a proposal or offer is
something which is capable of being
converted into an agreement by its
acceptance.

10
OFFER ctd…
Requirement for Valid Offer :-
• Offer must be clear and certain
• S. 30 – offer which is not clear and certain is
1. void

• Offer must be communicated

• S. 4(1) - the communication of proposal is
complete when it comes to the knowledge of
2. the person to whom it is made

11
 OFFER ctd…
Offer/Proposal can be made either to:
(a) a particular person (Bilateral Offer ):
Made to a specific person or group of persons.
Eg- Chan offer to sell his car, a Toyota Vios, to Teong for
RM40,000

(b) general public (Unilateral Offer):

Not made to any specific person rather it is made to the
world at large.
Eg- Sam advertised in the Star that he will give RM500 to
anyone who finds his pet, Garfield.

12
 OFFER ctd…
 A proposal is said to have been communicated
only if the party who accepts it knew about the
proposal. If a party accepting a proposal is not
aware about the proposal, then there is no
contract.
 If Harry found Sam’s lost Garfied and returns it to
him, unaware of the fact that Sam had advertised
in the newspaper that reward will be given to
those who found his cat.
In this situation, Harry cannot claim
for the reward because there is no
contract between Sam and Harry.
13
 OFFER ctd…
CASE
CARLILL v CARBOLIC SMOKE BALL CO.
[1983] 1 QB 525
 The defendant company advertised in the newspaper
that they would offer £100 to anyone who took medicine
as prescribed by the defendant for a fixed period and
still succumbed to influenza after finishing the
prescribed doses. The plaintiff used the medicine for a
fixed period as prescribed, but still contracted
influenza. The plaintiff then sued the defendant for the
money.
 Court : the plaintiff was entitled to the £100 as

she had accepted the offer made to the world at large.

14
 OFFER ctd…
CASE

R v CLARKE

 The Australian Gov. offered a reward for the

information leading to the arrest and conviction
of a criminal. One of the criminals, Clarke, gave
information which leads to the arrest of Y. Clarke
was later acquitted and claimed for the reward
 Court : he was not entitled for the reward because
he was not aware of the reward when he gave the
information to the government.

15
 OFFER ctd…

COUNTER
PROPOSAL/ What is
OFFER is not an COUNTER
ACCEPTANCE OFFER?

16
 COUNTER OFFER/PROPOSAL
 Counter Offer is a situation whereby after a
proposal has been made, suddenly either one of
the party make a new proposal or change a vital
terms of the contract. Eg- change of price.
 Any changes made on the original proposal is
known as counter offer/ proposal.
 It is treated as REJECTION of the
original proposal.

17
Counter Offer…ctd

Effect:-
o Original offer/proposal is
destroyed and it can no longer be
accepted
o The party making the counter
offer/proposal is known as
proposer and the other party (if
he accepts the counter
offer/proposal) becomes the
acceptor.

18
Counter Offer…ctd
HYDE v WRENCH

6 June - D offered 8 June – P replied that

to sell his farm to P he was willing to buy
for £1000 the farm for £950

Court : No D refused to sell

contract was the farm for £950.
made between
them because
P made a 29 June - P wrote
counter-offer again, willing to buy
the farm for £1000
19
OFFER ctd…

It is very important to
differentiate an OFFER
from a mere
INVITATION
TO TREAT

What is
INVITATION
TO TREAT?

20
 INVITATION TO TREAT
 Invitation to treat is not an offer. It is just an
invitation to make an offer/to invite someone to
make an offer.
 Person making an ITT does not intend to be
bound by a person to whom the statement is
addressed to and as soon as it is accepted.
 It is a sort of preliminary negotiation to buy
something.

21
Invitation To Treat…ctd
 Examples of ITT:
 Goods displayed in the shop with price tag.
 Advertisement in the newspaper.
 Auction sale.
 Tenders

 *Note – Advertisement of reward is an

Offer and not an Invitation To Treat. Eg-
Carlill v Carbolic Smokeball Co.*

22
 Display Of Goods
CASE

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V.

BOOTS CASH CHEMIST
 Fact: The defendant was prosecuted for selling
drugs (poison) without the presence of a qualified
pharmacist. The customer selected the drug and
put in the basket and has not paid yet to the
cashier.
 Held: Display of goods on the shelf is merely an
invitation to treat and not an offer.
23
 Display Of Goods ctd…
CASE

FISHER v BELL
 Fact: The defendant displayed flick knives in
his shop windows. He was then convicted of a
criminal offence of offering such knives for
sale.
 Held: Display of any goods with a price tag on
it in a shop window was not an offer but rather
it was an invitation to treat.

24
Display Of Goods ctd…

Display of goods

Customer put in
the basket
IT IS NOT
AN OFFER

Not paid yet

25
 Advertisements in the
Newspaper

Referring to Oxford
Advanced Learner’s
Dictionary,
advertisement here
means a notice, picture
or film telling people
about a product, job or
service.

26
Advertisements ctd…
CASE

COELHO V THE PUBLIC SERVICES

COMMUNICATION
 D advertised a job vacancy in the newspaper. P
applied for the job and he was employed by D. After a
while, D wanted to terminate his post on the ground
that P was on a probation and D has right to
terminate the post.
 Court : advertisement is an ITT. When P applied, he
is making a proposal. When he was employed, D was
accepting the proposal. Thus a valid contract exist
between them. D cannot simply terminate P’s post.
27
Advertisements ctd…
CASE

MAJUMDER V. ATTORNEY-GENERAL OF SARAWAK

 The Federal Court of Malaysia held that an

advertisement in the newspaper for the post
of a doctor was an invitation to treat.

28
 Auction Sale
 A call for bids by the auctioneer is merely an
invitation to threat. When someone places his
bid he is regarded as making an offer and the
auctioneer is free to accept or reject the bid.
 A sale by public auction is complete when the
auctioneer announces its completion by the
fall of the hammer.

29
Auction Sale ctd…

OFFER;
places a bid
INVITATION
TO TREAT

ACCEPTANCE;
COMPLETION; accepts the bid
Fell of hammer

AGREEMENT AN OFFER

30
Auction Sale ctd…
CASE
PAYNE v CAVE HARRIS V NIKERSON
Auction sale include office
 Held: Court furniture. During auction, there
held that the were no furniture. P sued D for
auctioneer’s breach of contract
request for bids Held : auction sale is ITT.
is an invitation proposal only exist when the
to treat and customer bids. Contract only
each bid is an exist when the auctioneer
offer. accepts the price bids by the
customer.
31
 Tenders
 When tenders are invited from the public for
the highest price for the tendered items/
services or lowest price to supply the required
items/ services it is regarded as mere
invitation to treat.
 In Spencer v Harding, the Court held that
tenders are mere invitation to treat like
auction sale.

32
 ACCEPTANCE

“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.”
[Section 2 (b) of the Contract Act]

33
ACCEPTANCE ctd…

 According to Oxford Dictionary of Law,

acceptance means agreements to the terms of
an offer that, provided certain other
requirements are fulfilled, converts the offer
into a legally binding contract.

34
 Requirement for Valid Acceptance

1) Must be Absolute and Unqualified - S.7(a)

2) Accepted within reasonable time - Sect.6(b)
If fixed date is given – must be accepted
before the date lapses
3) It must be communicated
4) Silence does not constitute a valid acceptance.
It requires a positive act of acceptance - S.2(b)

35
 Acceptance Must Be Absolute and
Unqualified

“In order to convert a proposal into a promise

the acceptance must be absolute and
unqualified.”
[Section 7(a)]

36
Acceptance Must Be Absolute and
Unqualified – ctd…
 According to Oxford Advanced Learner’s
Dictionary, absolute means definite and
without any doubt or confusion, while
unqualified means having the right
knowledge.

37
Acceptance Must Be Absolute and
Unqualified - ctd…
CASE

HYDE v WRENCH
 Facts: The defendant on 6 June offered to sell his
farm to the plaintiff for £1000 and on 8 June the
plaintiff replied that he was willing to buy the
farm for £950. The defendant refused to sell the
farm for £950. Then on 29 June the plaintiff was
willing to buy the farm for £1000.
 Held: No contract was made between them
because the plaintiff made a counter-offer.
38
Communication of Acceptance
 “The communication of acceptance is
complete
(a)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; and
(b)as against the acceptor, when it comes to
the knowledge of the proposer.”
[Section 4(2), Contracts Act 1950]

39
Communication of Acceptance
ctd…
In cases of telephone
communication, the
acceptance is deemed to
have been completed at the
time and place it is heard by
the offeror

In cases of acceptance
through post, the
acceptance is complete
upon posting and not
upon receiving.

40
Instantaneous Communication
• For an acceptance communicated through telephone,
answering machine, fax, email and sms, section 4(2)(b)
applies, whereby acceptance is complete as against the
proposer when the acceptance comes to the knowledge of
the proposer.
• Hence, if the acceptor is using the method of accepting as
above, the acceptance is complete only if the proposer is
aware of such situation.
• If the acceptor is using the telephone, he must make sure
that he talks to the proposer. If he is using answering
machine, proposer has to listen to the massage. If he is
using fax, email or sms, the proposer must have read the
massage.

41
Acceptance Through Post
 Proposer is bound when the acceptor posts the
letter even though the proposer has no knowledge
of the acceptance or even the letter is delayed or
disappeared in the course of transit. This is
because that once the letter posted, the acceptor
has no longer control over the letter.
 This rule is known as postal rule. Under common
law, the rule is that acceptance is complete once
the letter is put in the letter box. It is place where
the contract is made.

42
Acceptance Through Post
Ignatius v Bell
 Communication by post is the method
agreed by the parties. Acceptance had been
made by post. However there was a delay in
the course of transmission.
 Court : acceptance was complete. Contract
exist between the parties.

43
Silent is Not Acceptance
 Silence does not constitute an acceptance.
 Reason – S. 3 - acceptance must be
communicated to the offeror.
 S. 2(b) - acceptance requires a positive act of
acceptance.
 Sec 7(b) - “….. the acceptance must be expressed
in some usual and reasonable manner, unless the
proposal prescribes the manner in which it is to
be accepted.
 If there is a “mode of acceptance prescribed by
the offeror” it must be followed by the offeree in
order to make a valid acceptance.

44
 Silence is not Acceptance…ctd
FELTHOUSE v BINDLEY
He wrote a letter to John
Felthouse wanted to buy and said“ If I hear no more
his nephew’s horse about it, I consider the horse
is mine”

Felthouse sued
John did not reply but
Bindley claiming
told Bindley (the
that there was a
auctioneer) not to sell
contract btwn
the horse (as John
him & his nephew
intend to reserve the
By accident, horse for his uncle)
Bindley did sell
the horse

45
Silent is Not Acceptance

FELTHOUSE V. BINDLEY (1862)

Court : There was no contract between

Felthouse and his nephew because the
nephew had never signified to Felthouse
his acceptance of the offer before the
auction sale took place. Silence does not
constitute acceptance.

46
Exception to Communication of Acceptance

Gen. Rule : Acceptance need

EXCEPTION
Acceptance must NOT be
be communicated communicated

 The exceptions are:

1. When the offeror dispense with/waive the need
of communication (unilateral contract)
2. General offer/offer made to public at large
3. Reciprocal promises
4. Acceptance through Postal Rule
47
Exception to Communication of Acceptance

1. When the offeror dispense with/waive the

need of communication (unilateral contract)
CONDITION  offeror prescribes the
specific mode of acceptance
 offeree follow the prescribed
mode of acceptance

 Case : Carlill v Carbolic Smoke Ball Co

48
Exception to Communication of Acceptance

2. General offer
 The offer is made to the public at large
 Performance of the condition of the offer is
sufficient to constituted an acceptance
 Case : Carlill vs Carbolic Smoke Ball Co

49
Exception to Communication of Acceptance

3. Reciprocal promises = system barter

 S. 2(f) of CA 1950 – definition of reciprocal
promise
“promises which form the consideration…for each
other are called reciprocal promises”
 S. 8 of CA 1950 – exception to communication

“…the acceptance of any consideration for a

reciprocal promise…is an acceptance of the
proposal”

50
Exception to Communication of Acceptance

4. Acceptance through Postal Rule

When the offeree has to respond the acceptance
via letter, there is no need for an oral
communication of acceptance

 Case : Ignatius v Bell

51
 Revocation of Offer and
Acceptance
 “A proposal may be revoked at any time before
the communication of its acceptance is
complete as against the proposer, but not
afterwards.”
 “An acceptance may be revoked at any time
before the communication of the acceptance
is complete as against the acceptor, but not
afterwards.”
[Section 5, Contracts Act 1950]

52
Revocation…ctd
S.6 (c ) failure of
the acceptor to S. 6(d) death
fulfill a condition or mental
precedent to the
acceptance disorder

s.6 (b) lapse of

time or lapse of
Revocation
reasonable time of Proposal

S. 6(a) notice of
revocation by
the proposer to
the other party

53
 Communication of Revocation
 “The communication of a revocation is
complete
(a) as against the person who makes it, when it is
put in a course of transmission to person to
whom it is made, so as to be out of the power
of the person who makes it; and
(b)as against the person to whom it is made,
when it comes to his knowledge.”
[Section 4(3), Contracts Act 1950]

54
 Revocation ctd…
CASE
BYRNE v VAN TIENHOVEN
 Fact: On 1 October, the defendant offered by
letter goods for sale to the Plaintiff. On 11 October
the plaintiff received the letter and accepted by
telegraph immediately. On 8 October, the
defendant wrote to the plaintiff revoking the offer
and the revocation letter was received by the
plaintiff on 20 October.
Held: There has been a binding contract on 11
October and revocation was not effective.
55
Revocation ctd…
1st October
8th October
The Def offered goods
The Def revoked the offer
to the plaintiff

11th October
The plaintiff received the 20th October
letter and accepted The plaintiff received
by telegraph the revocation letter

On 11th October, the binding

contract was created
and therefore the revocation
was not effective

56
 INTENTION TO CREATE LEGAL
RELATIONS
 Mere existence of an agreement does not in itself
create a binding legal contract.
 The parties in the contract should have intention
to create legal relations. If there is no intention to
create legal relation between the parties, no valid
and binding contract could be made.
 The court may ascertain the intention of the
parties to create legal relation from the language
and context of the agreement and conduct of the
parties.

57
Intention to Create Legal Relations ctd…
 2 presumptions used by court to determine intention:-
1) In family/domestic arrangements/agreements

 It is implied that there is no intention to create

legal relations.
 Agreement made everyday in social and family life is
presumed not to have intention to create legal
relation.

In Balfour v Balfour the court held that in an

arrangement made between members of the family in the
course of family life, the law will ordinarily imply from the
circumstances of the case that the parties did not intend
their agreement to have legal consequences.
58
Intention to Create Legal Relations ctd…
CASE

BALFOUR v BALFOUR
 The defendant promised to give his wife, the
plaintiff £30 per month as maintenance.
 Held: The Court of Appeal held that this
promise was not enforceable because the
parties did not intend to create legal relation.

59
Intention to Create Legal Relations ctd…
CASE

MERRIT v MERRIT
 There was a document signed by the husband
that in consideration of the wife paying all
charges in connection with the matrimonial
home until the mortgage repayments had been
completed, the husband would agree to transfer
the property to her sole ownership.
 The Court held that the agreement was
enforceable since the parties intended the
agreement to be legally binding.

60
Intention to Create Legal Relations ctd…

2) In business or commercial agreements/

arrangements
general rule – under agreement made in
business transaction, it is always presume that
the parties have the intention to create legal
relation, unless proved otherwise.
› Exception – if parties include a clause in the
business agreement to the effect that “ no legal
relations was intended”

61
Intention to Create Legal Relations ctd…

ROSE AND FRANK CO.V CROMPTON BROS.

 It involved 2 companies in Britain and US. They
agreed to enter into contract. However, the
contract is subject to a clause that the contract is
not governed by any law either Britain or US law.
Court held : that there was no contract between
them because they have no intention to have a
contract which is recognized by law.

62
 CONSIDERATION
“When, at the desire of the promisor, the promisee or
any other person has done or abstained from doing,
or does or abstain from doing, or promises to do or to
abstain from doing something, such act or abstinence
or promise called a consideration for the promise.”
[Section 2(d) of Contracts Act 1950]

“all agreements are contract if they are made with

free consent of parties competent to contract for a
lawful consideration …”
S. 10(1) of Contracts Act 1950

63
 Consideration ctd…
 Consideration can be considered as bargain, the price
which one party pays to buy the promise or act of the
other
 Consideration must be moved from both sides. From the
promisor to the promisee and from the promisee to the
promisor.

 OSMAN B ABDUL GHANI & ORS V UNITED ASIA

BANK BHD
The respondent i.e. the bank promise not to sue if the
appellant pay for the debt. Court held that if the appellant
pay for the debt, the respondent cannot sue the appellant.
The consideration is a valid consideration.

64
 Consideration ctd…

 Literally means – something that is given in

return for something
 Eg –
RM 6.OO for a plate of Nasi Ayam Penyet

OR

Datin Suzi promise to pay Hana RM100 if

Hana agrees to clean her house. If Hana
cleans the house, Datin Suzi is bound to
pay RM100.

65
 Consideration ctd…
TYPES OF
CONSIDERATION

EXECUTORY EXECUTED PAST

66
 Executory Consideration
 Executory Consideration: It is a consideration where
the parties exchange promises to perform acts in the
future. ie- a promise in return of a promise
 Eg- Ali promise Hasan to assist him to prepare the
drawing for the new housing project. Hasan agree to pay
RM1,000 in return for Ali’s assistance.

 WONG HON LEONG V NOORAZMAN

The respondent promised the appellant to help him in
conversion and subdivision of the appellant’s land. The
appellant promised to pay him. These mutual promises
were held as valid consideration.

67
 Executed Consideration

 Executed consideration is where one party

promises to do something in return of an act
of the other party.
 Example: Jagdis promises to give RM100 to
Mala if she returns Jagdis’ lost camera. Mala
returned the camera with a hope to receive
RM100.

68
 Past Consideration
 It is where one party has voluntarily
performed an act and the other party later
promises to reward for the voluntary act.
 In past consideration the voluntary act is done
first and the promise is made later. This
voluntary act is called past consideration.

69
 Past Consideration ctd…

 In Malaysia past consideration is recognised

by section 2(d) of the Contracts Act. This
section implies that if any act was done at the
desire of the promisor, then such an act (past
consideration) would constitute a valid
consideration although the act was done prior
to the promise made.

70
 Past Consideration ctd…

 Example: A’s little son was drowning at the

lake and B rescued the son. Later A promised
to pay B RM1,000 as B saved his son’s life.
Here, A’s rescue work was past consideration
and was a good consideration.

71
 Past Consideration ctd…
 It should be noted that past consideration is
not recognised in the UK.

In Roscorla v Thompson,
the court decided that the
promise made by the defendant
was unenforceable since the
consideration provided by the
plaintiff was already past when
the promise was made.

72
 Past Consideration ctd…
CASE

KEPONG PROSPECTING LTD v SCHMIDT

 Fact: Tan applied for permit for iron ore. Schmidt

had assisted him in his application. The
application was granted and Tan promised to
Schmidt to pay 1% of the selling price of the iron
ore.
 Held: The action of assisting Tan to get permit for
iron ore is past consideration and a good
consideration.
73
Consideration ctd…

HOW ABOUT
“WITHOUT
CONSIDERATION”?

IS THE CONTRACT
VALID IF THERE IS NO
CONSIDERATION?

74
 Without Consideration
“An agreement without consideration is void..”
[S. 26,Contract Act 1950]
Exception:-
a) Agreement made based on natural love and affection
(S. 26(a))
b) Agreement to pay compensation for a past voluntary
act (S.26(b) – limb 1) and an agreement to pay
compensation to a person who did an act which the
promisor was legally compellable to do (S.26(b) limb
2)
c) Agreement to pay a statute barred debt (S.26(c))

75
 S. 26(a)-Natural Love & Affection
 Contracts Act 1950 in Malaysia recognizes natural love and
affection as valid consideration if the requirements stated
in Section 26(a) are satisfied.
 S. 26(a) an agreement without consideration based on love
and affection is valid if :-
 it is expressed in writing;
 registered (if required under the law);
 is made on account of natural love and affection between
parties **standing in a near relation to each other.

**What it means by standing in near relation varies from one

social group to another as it depends on customs and practices
of such groups.
76
Natural Love & Affection ctd…
 Illustration(b) of Section 26 : A, for natural love and
affection, promises to give his son, B, RM1,000. A
puts his promise to B in writing and registers it under
a law for the time being in force for the registration of
such documents. This is a contract.”

RE TAN SOH SIM (1951)

 A woman (TSS) who was dying intended to give away
all her property to her adopted children. She was too
ill to make a Will. Her siblings signed a document
drawn up by a solicitor renouncing all claims to Tan’s
estate in favour of the four adopted children and Tan
Boey Kee (the husband’s 2nd wife).
77
Natural Love & Affection ctd…
RE TAN SOH SIM … ctd
 TSS died without having recovered
consciousness. The question arose in the
distribution of Tan’s estate whether the
instrument signed was valid.
 Court : Chinese adopted children are related to the
adoptive parents and brothers, however they are
not ‘nearly related’ to the family of their adoptive
mother. Hence, uncles and aunties do not stand
in near relation to their nephews and nieces. In
this case, there was no natural love and affection
between the signatories and donees.
78
Natural Love & Affection ctd…

But then, English

Law does not
recognize natural
love and affection
as valid
consideration.

79
S.26(b)-Past Voluntary Act
a) Agreement to pay compensation for a past voluntary act
(S.26(b) limb 1)
b) Agreement to pay compensation to a person who did an
act which the promisor was legally compellable to do
(S.26(b) limb 2)

 Limb 1 – illustrations (c) – A finds B’s purse and gives it to

him. B promises to give A RM50. This is contract.
 Limb 2 – illustrations (d) – A supports B’s infant son. B
promises to pay A’s expenses in so doing. This is contract.
 If the promisor fails to comply with the promise
made, the promisee is entitle to take an action the
promisor.
80
S.26(c)-Agreement To Pay a Statute
Barred Debt
 Statute bared debt is a debt which cannot be recovered
under the law due to lapse of time fixed by law. In order
for the agreement to be valid, a few requirement should
be fulfilled.
i. Debtor made fresh promise to pay statute barred debt
ii. Promise must be in writing and signed by the person to
be charged/ authorized agent .

 For contract matter, the action must be brought to the

court within 6 years from the time of the cause of action
arise.

81
 Rules of Consideration

a) Adequacy of Consideration
b) Part payment may discharge an obligation
c) Consideration may come from a third
party

82
Adequacy of Consideration
“An agreement is not void merely because the
consideration is inadequate.”
[Explanation 2 of section 26]

 Consideration must be sufficient but need not be

adequate.
 Example Illustration (f ) under Section 26 CA 1950 :
“ A agrees to sell a horse worth RM1,000 for RM10.
A’s consent to the agreement was freely given. The
agreement is a contract notwithstanding the
inadequacy of the consideration”


83
Adequacy of Consideration ctd…
CASE

PHANG SWEE KIM V. BEH HOCK

 Fact: The appellant’s husband bought a piece of
land from the Respondent for RM500 although
the land worth more than that. Later, the
respondent refused to honour the promise saying
that the promise is not enforceable by law
 Held: The sale agreement was valid although the
sum of $500 for consideration was not adequate.

84
Part payment may discharge an obligation
 General rule under English Law – payment of a smaller
sum is not a satisfaction of an obligation to pay a larger
sum.
 Sec.64 CA provides if a party pays a small sum in full
satisfaction of a larger sum, it will discharge the larger
sum regardless of who makes the payment of the
smaller sum, it will discharge the larger sum.

 Illustrations (b)
“A owes B RM5,000. A pays to B, and B accepts, in
satisfaction of the whole debt, RM2,000 paid at the time
and place at which the RM5,000 were payable. The
whole debt is discharged.”

85
Part payment may discharge obligation ctd...

CASE

KERPA SINGH V BARIAM SINGH

The defendant owed the plaintiff RM8869.94, the
defendant’s son offered RM4000 in full satisfaction
of his father’s debt. The plaintiff’s legal advisor
cashed and retained the money. Later on the
plaintiff claimed for the balance.
Court : the plaintiff is stopped from claiming the
balance because he has accepted the smaller sum in
full satisfaction of the larger sum.
86
Consideration May Come from a
Third Party
 Consideration can be given by the promisee or
the third party
 S.2(d) – “… the promisee or any other person...”

87
 Purpose and Consideration should be
Legal and Enforceable by Law
 The purpose or consideration of the contract
should be legal. If the purpose of the contract
is illegal, then the contract would be invalid
and would not be enforceable by law.
 Example: Selling of dangerous drugs, narcotic
drugs, heroine etc.

88
 CERTAINTY
 “Agreements, the meaning of which is not
certain, or capable of being made certain, are
void.”
[Section 30, Contracts Act]

 Example: A agrees to sell to B 50 crates of toys,

but the kind and type of the toys are not
specifically mentioned. Here the contract is
uncertain and therefore void.

89
 CERTAINTY ctd…
CASE

KARUPPAN CHETTY v SUAH THIAN

 Fact: The parties agreed for a lease at RM
35.00 per month for as long as the leasee likes.
 Held: The contract is void since the term “as
long as the leasee likes” is uncertain.

90
 CAPACITY TO MAKE A
CONTRACT
 S. 10(1) of Contracts Act – “all agreements are
contract if they are made with free consent of
parties competent to contract …”

 Section 11 of Contracts Act - “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.”
91
Capacity (Age of Majority) ctd…
CASE

MOHORI BIBEE V. DHARMODAS GHOSE

 An infant entered into a contract to get a loan

from the appellant. Later the infant commenced
an action through his mother for a declaration
that the contract was void for lack of capacity.
 Held : an infant could not make any valid
contract. Hence, the contract is void.

92
Capacity (Age of Majority) ctd…
 Section 2 - Age of Majority Act 1971, the age
of majority is 18 years and above. The
person is called a major .
 Those who is below 18 years old is a minor.
 The General rule: contracts made by
minors are void
 Reason for this is to prevent the minors against
any consequences of its own action.

93
Capacity (Age of Majority) ctd…
CASE

TAN HEE JUAN V THE BOON KEAT

 It involved a transfer of land. The plaintiff who

was a minor executed transfer of land in favour of
the defendant. Then the plaintiff by his friend
applied to court an order setting aside the
transfer for incidental relief.
 Held : transfers of land executed by an infant
were void. Hence, cannot be enforceable by the
law.
94
 Capacity (Age of Majority) ctd…

 Exceptions to the general rule:-

a) Contracts relating to marriage, divorce,
dower and adoption
b) Contracts for necessaries
c) Contracts of scholarship
d) Contracts of insurance
e) Contract of service or apprenticeship

95
 Contracts relating to marriage etc
 Under Age of Majority Act 1971 - the capacity of any
person to act in the matters involving marriage, divorce,
dower and adoption is not affected by the provision of Age
of Majority Act 1971.

RAJESWARY & ANOR V BALAKRISHNAN

a promise of marriage entered into by minor. The agreement
entered into with provision for dowry and penalty for breach.
Then the promise to marry is repudiated. The plaintiff sued for
breach of promise to marry. The defendant pleaded that since
the plaintiff is a minor then the agreement is void. Court held
that the marriage contract entered into by the minors was
valid. Since one of the parties breach of the contract, the other
party has right to sue.

96
 Contract for Necessaries
 “Necessaries” are things which are essential to
the existence and reasonable comfort of the
infant, e.g. food, books and clothes.
 Therefore, luxurious articles such as gold
chains are excluded from necessaries.

97
Contracts for Necessaries ctd…
 Based on S.69 – contract with a minor is a valid
contract provided that :
i. The necessities must have been supplied to a
minor.
ii. The minor’s liability includes necessities supplied
to anyone whom he is legally bound to support
such as wife or child.
iii. The supplier of necessities may claim only a
reasonable price which may not be the same as the
contract price.
iv. Minor may only pay if he has the property to do so.

98
Contracts for Necessaries ctd…
CASE

GOVERNMENT OF MALAYSIA V. GURCHARAN SINGH

 Fact: Government spent RM 11,500 for the
defendant for his education purpose when he was
a minor student. So, a contract was made with the
defendant. Later the defendant refused to pay
back the money.
 Held: The court held that the money given for
education came under necessaries and therefore
the defendant was bound to pay back.
99
Contracts for Necessaries ctd…

CASE

 Nash v. Inman
 Fact: Defendant ordered clothes from Plaintiff
including 11 fancy coats. Evidence given by the
Defendant’s father showed that the Defendant
already had adequate supply of clothes suitable
and necessary for his condition in life.
 Held : the clothes ordered were not necessary.
Therefore, plaintiff’s action failed.

100
 Contract for Scholarship

Section 4 of the Contracts

(Amendment) Act 1976.
Any appropriate authority may make
an agreement with a minor student to
provide scholarship or other facilities.

Therefore, no scholarship agreement

should be invalidated on the ground
that the person entering the contract
is a minor

101
Contract for Insurance

In Malaysia a minor over the age of 10

can enter into insurance contract
with the insurance company under
the Insurance Act 1963 (Revised
1972). However, if the minor is below
sixteen years old, the written consent
from his/her parents or guardians
must be obtained.
This is based on the presumption
that it is in a minor’s best interest to
insure himself or his property against
contingencies.

102
 Contract of service or apprenticeship
Children and Young Persons (Employment)
Act 1966 enable a minor to enter into a contract
of service @ apprenticeship @ internship –
allowing them to do light work, involve in public
entertainment other than as an employer.

S. 13 - “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.”
103
Contract of service or apprenticeship
Children and Young Persons (Employment) (Amendment)
Act 2010
 Child = person who has not completed his 15th year of age
 Young person = person who has not completed his 18th
year of age

DOYLE v WHITE CITY STADIUM

 D, a professional boxer and a minor entered into the
contract with WCS. It was agreed that if D was
disqualified from tournament, he lost all the money. D
argued that he was a minor & not bound by the contract.
 Held: The contract was binding against D because it was
for training and for his benefit.
104
Capacity (State of Mind) ctd …
 Person suffering from mental disability, either
permanently or temporarily at the time of contract
is considered as having lack of capacity.
 S. 12 (1) - “ A person is said to be of sound mind for
the purpose of making a contract if at the time of
making a contract, he is capable of understanding
it and forming a rational judgment as to its effect
upon his interest”.
 The person who is unsound mind/incapacity refers
to person who is mentally disorder and also those
who is incapacitated through sickness, alcohol or
drug.
105
Capacity (State of Mind) ctd …
 S. 12(2) a person who usually suffers from mental
disorder may make a contract during those periods
when he is sound. A person who is mentally disorder
can make a contract at a time when he is sound.
 S. 12(3) a person who is usually of sound mind but
occasionally of unsound mind, may not make a
contract when he is unsound mind. A person who is
sound cannot make a contract when he is not sound.
E.g.: drunk, sick, or under influence of drug.
 Effect of contract: the Malaysian law is silent on the
effect of the contract. However the English law
treated the contract as voidable.
106
107