LAW OF CONTRACT

BFT502/503 DR. HIRWAN JASBIR BIN JAAFAR

CONTRACT LAW
 INTRO
CONTRACT LAW = FOUNDATION OF ALL COMMERCIAL ACTIVITIES

• Contract are constantly being entered into by:

i. individuals with other individuals
ii. Individuals with business
iii. business with other business
iv. to sell something
v. to transfer property
vi. to provide and receive services
vii. other rights and obligations created
 CONTRACT
• An agreement enforceable by law.
• The word Contract in a legal sense refers to an agreement between
two or more parties that is legally binding between them.
 CONTRACT
• Interpretation Contract Act 1950
Sec. 2. In this Act the following words and expressions are used in the
following senses, unless a contrary intention appears from the context:
• (g) an agreement not enforceable by law is said to be void;
• (h) an agreement enforceable by law is a contract;
 CONTRACT

UNILATERA
BILATERAL
L

Calil v. Carbolic
Smokeball
 CARLIL VS. CARBOLIC SMOKE
BALL CO. [1893] 1 QB 256
The Defendants advertised that they would offer a sum of money to anyone
who would offer still succumb to influenza after using a certain product
according to the instructions for a fixed period. The Plaintiff duly used the
product advertised but, nevertheless, became ill. The Plaintiff , upon refusal
of the Defendants to honors their promise, proceed to sue them.

The Court Of Appeal held that the Plaintiff had accepted the offer of the
company made to the world at large and is, therefore, entitled to the money.
ELEMENTS OF
CONTRACT
 OFFER &
ACCEPTANCE

CERTAINTY CONSIDERATI
ON

CONTRACT
LAW

INTENTION TO
FREEDOM CREATE LEGAL
RELATION

CAPACITY
 DEFINITION Sec 2(c)

COMPULSORY TO START CONTRACT Affin Credit(Malaysia) Sdn Bhd v Yap Yuen Fu

OFFER COMMUNICATION Sec. 4(1)

Sec. 5(1)
TERMINATION Have to terminate before second
parties accept orfer & Sec. 6 ,

i. Advertisment
ii. Display Of Goods
INVITATION TO TREAT iii. Booking Form
iv. Tender
Auction
 OFFER

Section 2(c)
“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”
 CONTRACT WITHOUT OFFER

Case Affin Credit(Malaysia) Sdn Bhd v Yap Yuen Fu

Federal Court Judge state contract is VOID
 COMMUNICATION OFFER

• Section 4. (1)
The communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made.
 TERMINATION OFFER

• Section 5. (1)

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not
afterwards.

Section 6. A proposal is revoked—

(a) by the communication of notice of revocation by the proposer to the other party;
(b) by the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance;
(c) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(d) by the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to the knowledge of the
acceptor before acceptance.
 Invitation to treat

Advertisement
Auction

Booking Display Of Tenders

Form Good
 ACCEPTANCE

Acceptance must be
Definition Revocation
absolute

Before communication
Signifies his assent Must be absolute
complete
Sec. 2(b) Sec. 7
Sec. 5(2)

Case Lau Brother & How Its Made

Co. v China Pacific
navigation co. ltd Sec. 6A
 ACCEPTANCE

When the person to whom the proposal is made signifies his

assent thereto, the proposal is said to be accepted.

Sec. 2(b) Contract Act 1950 say that:

“ 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;”
 ACCEPTANCE

When it’s comes into existence after the offeree unconditionally

accepts the offer. A proposal when accepted, become a promise.

Sec. 9. Contract Act 1950

So far as the proposal or acceptance of any promise is made in
words, the promise is said to be express. So far as the proposal or
acceptance is made otherwise than in words, the promise is said
to be implied.
 ACCEPTANCE
When 1 party introduces variations/conditions to the terms of the latest proposal, there is no
acceptance. Such variations/conditions amount to a counter proposal/offer. No agreement.

Acceptance must be absolute

Sec. 7. In order to convert a proposal into a promise the acceptance must—
(a)be absolute and unqualified;
(b)be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be
accepted, and the acceptance is not made in that manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his proposal shall
be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts
the acceptance.
 CASE LAU BROTHER & CO. V CHINA PACIFIC
NAVIGATION CO. LTD [1965] 1 MLJ 1

• In this case, negotiations for the delivery of logs were conducted through
a series of telegrams and letters. While still in the negotiating stage, the
Defendant withdrew.
The court held that the parties were still in a state of negotiation and no
agreement was formed.
 ELEMENTS OF ACCEPTANCE

CASE : HYDE V. WRENCH [1840] 3 Beav. 344 ER 132

The Def. offered to sell his estate to the Pl. on 6 Jun for 1000 pound. On 8 June, in reply, the

Pl. made a counter proposal to purchase at 950 pound. When the Def. refused to accept this

offer on 27 June, the Pl. wrote again that he was prepared to pay the original sum

demanded.

The Court held that no contracted existed between them. The Pl. had rejected the original

proposal on 8 June so that he was no longer capable of accepting it later.

 REVOCATION OF ACCEPTANCE

• 1. Section 5(2) An acceptance may be revoked at any time before the

communication of the acceptance is complete as against the acceptor, but not
afterwards.
• Ali proposes, by a letter sent by post, to sell his house to Basir. Basir accepts the
proposal by a letter sent by post. Basir may revoke his acceptance at any time
before or at the moment when the letter communicating it reaches Ali, but not
afterwards.
 REVOCATION OF ACCEPTANCE
Revocation how made
Sec. 6. A proposal is revoked—
(a) by the communication of notice of revocation by the proposer to the other party;
(b) by the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed,
by the lapse of a reasonable time, without communication of the acceptance;
(c) by the failure of the acceptor to fulfil a condition precedent to acceptance; or
(d) by the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to
the knowledge of the acceptor before acceptance.
 • Consideration is what distinguishes a bargain or contract form gift.
• Sec. 2(d) - when, at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or to abstain from
Definition doing, something, such act or abstinence or promise is called a consideration for the promise;

• Section 26, the general rule in a contract is that an agreement without consideration is void.
• An agreement made without consideration is void,
General • Guthrie Waugh Bhd v Malaippan Muthucumaru
Rule

• Consideration Need Not Be Adequate

• Something of value in the eyes of the law (need not be of market value).
Element
CONSIDERATION NEED NOT BE ADEQUATE
 SOMETHING OF VALUE IN THE EYES OF THE LAW
(NEED NOT BE OF MARKET VALUE).

Illustration (f) Sec. 26.

Ali agrees to sell a horse worth RM1,000 for RM10 o Kamal. Ali’s consent
to the agreement was freely given. The agreement is a contract
notwithstanding the inadequacy of the consideration.
 Types of
Consideration

Past Executed Executory

Consideration Consideration Consideration
KEPONG PROSPECTING LTD & ORS V SCHMIDT
[1968] 1 MLJ 170
 NATURAL LOVE AND AFFECTION

• Agreement made on account of natural love and affection would be held to be binding in
Malaysia but not in England.

• Section 26(a) An agreement made without consideration is void, unless—

it is in writing and registered
(a) it is expressed in writing and registered under the law (if any) for the time being in force
for the registration of such documents, and is made on account of natural love and affection
between parties standing in a near relation to each other;
TAN SOH SIM, CHAN LAW KEONG & ORS V TAN SAW
KEOW & ORS [1951] MLJ 21
All contract is an agreement and not all agreement is contract.
1.Intention is the most important element which will change an agreement to contract.
2.Although the Contract Act is silent on the intention to create legal relations as one of
the requirements of a valid contract, case law clearly dictates the necessity of this
requirement.
3.Both parties must intend that the agreement is to be binding on them (i.e. they have
agreed to bear the duties under the contract).

Objective test : reasonable man’s test

COURT PRESUMPTION

1. No legal intention

i. Family Agreement (Domestic)

ii. Case Balfour v. Balfour

2. Legal Intention

i. All Commercial arrangement

5
In principle, every person is qualified to contract.
CAPACITY
COMPETENT TO ENTER A CONTRACT

Who is of
sound mind

The age of Qualified

majority by any law
Sec.
11
Capacity as to Age

According to the Age of Majority Act 1971,

for every individual person, the age of
majority is 18 years old.
 MOHORI BIBEE V DHARMODAS GHOSE

The Appellant in this case loan a sum of money to the respondent, who
is a minor, secured on a house which was leased to the appellant. The
minor through his mother applied for a court declaration that the lease
was void because the minor had no capacity to contract.
The Court held that a Contract with the minor was void and he could
not sue or be sued on any contract
 CAPACITY

1. Case Tah Hee Juan v. Teh Boon Keat

Case; Tranfer Land by a minor….Hereford J. said the
contract is void.
 EXCEPTION

Contract By A
Minor Under Age An Act allowed Contract For
Of Majority Act under any law. Necessary
1971
 AGE OF MAJORITY ACT
1. Marriage, Divorce, dowries and child adoption. Rajeshwary Anor v
Balakrishnan Ors.
2. Religion an religious practices and ceremonies of the
races in Malaysia .
3. Case Rajeswary v. Balakrishnan
Court held that when defendant broke his promise of
marriage with plaintiff, the defendant was according to
their religious practice, in breach of his contract of
marriage, even plaintiff was a minor.
 AN ACT UNDER ANY LAW

1. Election Act– 21 years old.

2. The Employment Act 1955
– 14 years old
3. Contract (Amendment) Act 1976 – Scholarship
4. Insurance Act 1996 – 10 years old(with consent )
 NECESSARIES

1. There is a few exception for this element which has been given by Contract Act 1971.

2. Section 69
“ If a person, incapable of entering into a contract, or any one whom he is legally bound
to support, is supplied by another person with necessaries suited to his condition in life,
the person who has furnished such supplies is entitled to be reimbursed from the
property of such incapable person”
 NECESSARY FOR MINOR
1. Contract Act 1971 did not defined the service that necessary for minor’s life.
2. Common Law give us the necessary thing for minor’s life;
2.1. Cloth
2.2. Medical Treatment
2.3. House
2.4. Food
2.5. Education
2.6. Professional Training
2.7. Scholarship
2.8. Insurance
 CASE

Scarborough v Sturzaker (1905) 1 TAS LR 117

Fact: Sturzaker is a minor, periodically rode his bike to work for a distance of
about 15km. He bought a new bike and traded in his old one as part payment
before the delivery of the new one, He then attempted to avoid the contract.
Court Held; The bike was a class of goods that could be classified as a
necessary.
GOVERNMENT OF MALAYSIA V GUCHARAN
SING & ORS.

• Education was held to be included under

necessaries.
 Mental Capacity

A contract is formed pursuant to consensus of minds on a matter.

What is the significance of soundness of mind? What is unsound mind?

Unsoundness of mind which causes incapacity to contract covers usual

unsoundness of mind and occasional unsoundness of mind.
 MENTAL CAPACITY

Sound of mind can make a contract if

at the time when he makes it, he is
capable of understanding it and of
forming a rational judgment as to its
effect upon his interest

Sec.
12
Person who is usually of sound
Unsound mind, but occasionally of mind, but occasionally of
sound mind, may make a contract unsound mind, may not make a
when he is of sound mind. contract when he is of unsound
mind

English Law
• Not void contract but voidable
• Che Som Bt. Yip & Ors v. Maha Pte
Ltd & Ors (1980)
LAW EFFECT
Contract Voidable
• Asia Commercial Finance (M) Bhd. v
Yap Bee Lee & Ors. (1991)
• That is he was of unsound mind and
the fact of the unsoundness of his
mind was known to the other party
at the time of entering into the
contract.
Contract Void
• Sim Kon Sang Peter v Datin Shim Tok
Keng (1994)
• Sec. 11 is related to the case of minor and
the case of sound of mind. the decision in
the case of Tan Hee Juan v Teh Boon Keat
& Anor regardless of age, also applies to
the cases of sound of mind.
FREEDOM
 Coercion – Sec.
15

Mistake, subject
Undue Influence
to section 21,22
– Sec. 16
& 23.
FREEDOM
OF
CONTRACT
SEC. 14

Misrepresentation
Fraud – Sec. 17
– Sec. 18
 Coercion

Physical Economic

Committed on a person’s body by the

commission of an offence under the Penal
Inequality Of Bargaining
Code, or threatening to commit such acts
Power
with the intention of causing any person to
enter into an agreement.
Sec. 19
A contract made under coercion is a valid contract, but voidable contract .
 UNDUE INFLUENCE

• Sec. 16 (1) – Influence is a situation where one of the parties is in position to dominate the will of the other.
• Sec. 16 (2) – In particular and without prejudice to the generality of the foregoing principle, a person is deemed
to be in a position to dominate the will of another—
• (a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the
other; or
• (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by
reason of age, illness, or mental or bodily distress.
• 20. When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the
option of the party whose consent was so caused.
 FRAUD
Section 17
(a) – (d)

The suggestion, as to Active concealment of

A promise made Any act as the law
fact, which is not true, a fact by a person who Any other act intended
without any intention of specially declares to be
by a person who does has knowledge of the to deceive
performing it. fraudulent.
not believe it to be true fact
 A statement which is not true, though
belived to be true by the representor.
A breach of dut

MISREPRESENTATI
ON
Sec. 18

A breach of duty by a party

which gives him an advantage Causing a party to a
over the other party contract to make a mistake
 Condition Of Misrepresentation

The representation The representation The representation

The representation
is a statement of is addressed to the induces the
must be untrue
fact person deceived contract
MISREP VS FRAUD

Sec. 21 - Where both the parties to an
agreement are under a mistake as to a
matter of fact essential to the agreement,
the agreement is void.
• (a) A agrees to sell B a specific cargo of
goods supposed to be on its way from
England to Kelang. It turns out that,
before the day of the bargain, the ship
conveying the cargo had been cast away
and the goods lost. Neither party was
aware of the facts. The agreement is
void.
Sec. 22 - A contract is not voidable
because it was caused by a mistake as to Sec. 23 - A contract is not voidable
any law in force in Malaysia; but a merely because it was caused by one
mistake as to a law not in force in of the parties to it being under a mistake
Malaysia has the same effect as a as to a matter of fact.
mistake of fact.
• A and B make a contract grounded on
the erroneous belief that a particular
debt is barred by limitation: the contract
is not voidable.
CERTAINTY OF CONTRACT
 CERTAINTY

EVERY TERM OF AN AGREEMENT MUST BE CERTAIN OR CAPABLE OF BEING ASCERTAINED. WHERE THE TERMS OF AN AGREEMENT ARE NOT CERTAIN, THE CONTRACT MAY BE VOID .

A agrees to sell to B “a hundred tons of

Any Agreements which is not certain
oil”. There is nothing whatever to
or capable of being made certain, are
show what kind of oil was intended.
void under sec. 30
The agreement is void for uncertainty.
DISCHARGHE OF CONTRACT
 DISCHARGE OF CONTRACT
1. Discharge of contract is an example way for the parties to separated from the agreement.

2. There are four ways to discharge;

DISCHARGE
OF CONTRACT

PERFORMANC
BREACH AGREEMENT FRUSTRATION
E
 PERFORMANCE
Performance Of a contract must be exact and precise and should be in
accordance with what the parties had promised.

 CONTRACT ACT Sec. 38(1) The parties to a contract must either perform, or offer to
perform, their respective promises, unless the performance is dispensed with or excused
under this Act, or of any other law.
 If Hasnah promise to deliver goods to Khairi on 1st January 2015 on payment of
RM5,000.00, Hasnah is bound to deliver the goods to Khairi on that day and
Khairi is bound to pay the RM5,000.00.
 AGREEMENT

1. When there is a new agreement between parties.

2. The new agreement abolish the old agreement.

 BREACH

1. Whera a party fails to perform their obligations as agreed, they are in breach of contract.

2. No performance by the contracted time, place and conditions.

3. A party express its intention not to perform.

4. A party acts in such a way as to sow its intention not to perform.

5. Failure to comply with a term of the contract.

 FRUSTRATION

 Sec. 57(1) – any agreement impossible to proceed is void.

 Sec. 57(2) - A contract to do an act which, after the contract is made, becomes impossible, or by reason of
some event which the promisor could not prevent, unlawful, becomes void
when the act becomes impossible
or unlawful.
 FRUSTRATION

 Sec. 57(3) – Where one person has promised to do something which he knew, or, with reasonable
diligence, might have known, and which the promisee did not know, to be impossible or unlawful, the
promisor must make compensation to the promisee for any loss which the promisee sustains through the
non-performance of the
promise.
 CUTTER V. POWELL
[1795] 101 ER 573

Powell agreed to pay Cutter 30 guineas if he would sail as second mate in a vessel from Jamaica to Liverpool. This was a
higher rate than normal for such a voyage. He died at sea before the completion of the voyage. Cutter’s widow attempted to
recover a proportion of the agreed sum of 30 guineas.
The court held that as Cutter had promised to serve as second mate for the whole of the voyage but had not done so, the
widow failed in her claim. The contract was not divisible as the payment was supposed to be full
payment upon completion of the whole voyage.
Since Cutter did not perform his promise, there
was no right for the widow to any part of the
salary.
1. Without fault of either party.
- A contractual obligation has become incapable of being performed because
circumstances in which performance is called for would render it a thing radically
different from that which was undertaken..” per Lord Radcliffe in Davis
Contractors v Fareham UDC [1956] ACC 696

i. Failure to obtain a license,

ii. natural disasters,
iii. court order.
2. Extraneous change of circumstances which makes performance impossible
Effect: Both parties need not perform – contract discharge

3. Subject matter destroyed

- Taylor v Caldwell (1863) 3 B & S 826 – Hall destroyed
by fire – contract discharged.
 FRUSTRATION

4. Expected event does not occur : Coronation cases :

KrVell v Henry [1903] 2 KB 740: King George VI sicked – rented premises not served its
purpose – contract discharged.

5. Person to perform dies or falls ill: Robison v Davison (1871) LR Ex 269: performer
sicked on performance day – contract discharged.

6. Change in law making it impossible to perform: Baily v Dee Crespigny (1869) LR 4 QBB
180: no blockade clause turns impossible because of change of law – contract discharged
 FRUSTRATION

7. Change in law makes performance illegal.

- Czarniko Ltd v Rolimpex [1979] AC 351: export of goods impossible
because of change in law – discharged

8. Performance become radically different.

- Wong Lai Ying v Chinachem [1980] HKLR 1: landslide stopped
construction work for 3.5 years – discharged.
 FRUSTRATION

9. Government intervention involving a contract basis - Kes Metropolitan Water

Board v. Dick, Ker & Co.
Ministry of war has ordered the construction of a water
tank stopped.

10. War
- Berney v. Tronoh Mines
contract entered into before the war
 EFFECTS OF FRUSTRATION

• The effect of a frustrating event is to discharge a contract immediately, but only to the
future.

• The contract is not void ab initio, but only void from the time of the frustrating event.
REMEDIES
 REMEDIES

REMEDIES
DAMAGES
EKUITY

Unliquidated Specific
damages Performance

Liquidated Injunction
 DAMAGES

 Section 74 of Contract Act 1950 ,an innocent party may claim damages from
the party in breach in respect of all breaches of contract.

 The damages may be nominal or substantial.

 Nominal damages are awarded where the innocent party has suffered no loss
as a result of the other's breach.
 Section 75 of Contract Act 1950
When a contract has been broken, if a sum is named in the contract as the
amount to be paid in case of such breach, or if the contract contains any other
stipulation by way of penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been caused thereby, to
receive from the party who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may be, the
penalty stipulated for.
 DAMAGES

 Substantial damages are awarded as monetary compensation for loss suffered as a result of the
other party's breach.

 For an innocent party to obtain substantial damages he must show that he has suffered loss as
a result of the breach (remoteness) and the amount of his loss (measure). It is up to the party
in breach to argue that the innocent party has failed to mitigate his loss.
This is an equitable remedy granted
at the court's discretion
 BROWN V. HILTON HOTELS CORP

The hotel failed to honour Pl. confirmed reservations. Pl. were unabled to find other accormmodations
and so were forced to fly home. The Pl sought and received damages for breach of contract.
 SPECIFIC PERFORMANCE

• Specific performance is a discretionary remedy granted by the court, and it is

under the Specific Relief Act 1950.

• It is a decree by the court to compel a party to perform his contractual obligations.

• It is usually only ordered where damages are not an adequate remedy.

 SPECIFIC PERFORMANCE

 It is a general rule that specific performance will not be ordered if the contract requires performance
or constant supervision over a period of time and the obligations in the contract are not clearly
defined.

 Specific performance is often ordered in relation to building contracts because the contract deals
with results rather than the carrying on of an activity over a period of
time and it usually defines the work
to be completed with certainty
 INJUNCTION

 Injunction is classified under Part III of the Specific Relief Act 1950 as ‘Preventive Relief’.

 It is an equitable remedy and therefore only granted at the discretion of the court.

 It is awarded in circumstances where damages would not be an adequate remedy to compensate the claimant because the
claimant needs to restrain the defendant from starting or continuing a breach of a negative contractual undertaking
(prohibitory injunction) or needs to compel performance of a
positive contractual obligation (mandatory
injunction).
 INJUNCTION

 In exercising its discretion the court will consider the same factors as above
for specific performance and will use the balance of convenience test
(weighing the benefit to the injured party and the detriment to the other party).
 An injunction will not be granted if its effect would be to compel a party to do
something which he could not have been ordered to do by a decree of specific
performance.