Slides Business Law (Kuantan - 25.11.2017)

EXECUTIVE MASTERS
IN BUSINESS
MANAGEMENT
BUSINESS LAW
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TOPIC 1 :
LAW OF CONTRACT - ESSENTIALS
OF A VALID CONTRACT
1.1. A contract : an agreement made
between 2 or more parties, which the law
will enforce.
1.2.
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1.3. LAW OF CONTRACT - PROPOSAL
 Section 2(a) of Contracts Act 1950:
“When one person signifies to another his willingness to do or to abstain from
doing anything, with a view of obtaining the assent of that other to the act or
abstinence, he is said to make a proposal”.
 A proposal can be made to an individual, to a class of persons, a firm, a

company or to the public at large.
Case: Carlill v. Carbolic Smokeball Co (1893) IQB 256, CA.

Facts: In this case, the defendant issued an advertisement in which they
offered to pay £100 to any person who succumbed to influenza after having
used one of their smoke balls in a specific manner and for a specified period.
The plaintiff, Mrs. Carlill bought and used the smoke balls as prescribed and
caught influenza. She sued the defendant for the promised reward of £100.
The defendant argued that the contract was made with the entire world, that is
with everybody, and that a person cannot contract with everybody.
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1.3. LAW OF CONTRACT -
PROPOSAL
 Held: an offer (proposal) could be made to the entire
world because the contract will only be made with
that limited portion of the public who came forward
and performed the condition on the faith of the
advertisement.
 When is the communication of the proposal (offer)

complete?
Section 4(1) of the Contracts Act provides that the
communication of an offer is complete when it comes to
the knowledge of the person to whom it is made.
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 Revocation or termination of offer:
a) When a proposal is rejected and the rejection is accompanied by new terms which are not
contained in the original proposal, then it is considered as the rejection of the original proposal
accompanied by a counter offer.
b) Lapse of time – normally, proposals are expressly stated to last for a period of time. If no time is
stated in the proposal, then the proposal lapses after a reasonable time: Sect. 6(b) of the Contracts
Act 1950.

c) Failure of the acceptor to fulfill a condition precedent. This is provided under Sect.6(c) of the
Contracts Act 1950.
Case: Aberfoyle Plantations Ltd. v Khaw Bian Cheng (1960) MLJ 47 PC .
 The parties agreed to sell and buy a plantation, part of which contain 7 leases that had already
expired. The vendor was unable to fulfill the condition precedent to the agreement and therefore
the agreement became null and void.

d) Death or mental disorder of the party : Section 6(d) of the Contracts Act 1950.
e) Notice of revocation.
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PROPOSAL
 Is an invitation to treat an offer?
1. Advertisement in newspaper for certain posts.

In the case of Majumder v Attorney General of Sarawak (1967) 1
MLJ 101, the Federal Court held that an advertisement in the newspaper for
the post of a doctor was not an offer but merely an invitation to treat.

2. An auctioneer inviting bids offers an invitation to treat when a bidder makes
a bid.
Case: Payne v. Cave (1789) 3 Term Rep 148; 100 ER 502
 The defendant made the highest bid and withdrew it before the fall of the
hammer.
 The court held that the bid itself constituted the proposal or the offer which
the auctioneer was free to accept by the fall of the hammer or to reject it.
Since the bid was withdrawn before the fall of the hammer there was no
contract between the parties.
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3. The display of goods in a shop by a shopkeeper is an invitation to
treat.
Case: Fisher v. Bell [1961] 1 QB 394 CA)
 The defendant was charged with offering for sale a flick-knife in his
shop-window which was against the law.
 The Court of Appeal held that:
“It is perfectly clear that according to the ordinary law of contract the
display of an article with a price on it in a shop window is merely an
invitation to treat. It is in no sense an offer for sale the acceptance of
which constitutes a contract.”
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PROPOSAL
4. When a customer puts goods in basket, he or she makes an

offer:
 Case: Pharmaceutical Society of Great Britain v Boots Cash

Chemist Ltd. [1952] 2 All ER 45, CA)
 The issue in this case was whether there was a sale when a
customer selected items he wished to buy and placed
them in his basket.
 Payment was to be made at the exit where a cashier was
stationed.
 HELD: The display was only an invitation to treat. A

proposal to buy was made when the customer put the
articles in the basket. Therefore, the contract would only be
made at the cashier’s desk.
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PROPOSAL
5. Supply of information is an invitation to treat. It is considered to be in the
process of negotiation and not a definite offer to sell.
Case: Harvey v. Facey [1893] AC 552, PC)
The appellant telegraphed to the respondent asking: “Will you sell us Bumper
Hall Pen? Telegraph lowest cash price.”
 The respondent replied by telegram, “Lowest price for Bumper Hall Pen is
£900.
The appellant telegraphed again, stating, “ We agree to buy Bumper Hall Pen
for £900 asked by you. Please send us your title deed in order that we may get
early possession.” However, the respondent did not reply.
Bumper Hall Pen was actually a plot of land.
The appellant claimed that the exchange of telegrams constitutes a valid offer
and acceptance.
The Privy Council held that the respondent’s reply was not an offer but a
supply of information as to the minimum price. There was no contract between
the parties.
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ACCEPTANCE
 Section 2(b) of the Contracts Act 1950 states that:
“………when a 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…”
Counter-Offer
 The acceptance must be made in exactly the same terms as the proposal.
 There should not be any modification of the proposal. If an offer is modified, the
modification will become a counter- offer and not an acceptance.
Case : Hyde v Wrench (1940) 3 Bench 334
June 6 : Defendant offered to sell his farm to the plaintiff for £1,000
June 8 : Plaintiff made a counter offer of £950 but defendant refused to sell.
June 27 : Plaintiff wrote again offering to pay £1,000. The defendant refused
and the plaintiff sued for specific performance.
Held: By making the counter-offer, the plaintiff had rejected the original offer.
It was held that there was no valid binding contract between the parties.
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ACCEPTANCE
 DOES SILENCE AMOUNT TO ACCEPTANCE?

Silence does not necessarily indicate that there is acceptance.
Case: Felthouse v. Bindley (1826) 11 CB (NS) 869; 142 ER 1037

 The plaintiff had discussed with his nephew, John, on the purchase
of a horse belonging to John, and wrote to him, offering to buy his
horse and added,” If I hear no more from you, I consider your horse
is mine at £30 15s”. However, John did not reply.
 Six weeks later, John, whilst selling his farming stock, he told the
auctioneer to keep the horse out of the sale as he planned to
reserve the horse for his uncle. But, the auctioneer sold it by
mistake. The plaintiff then sued the auctioneer.
 Held: There was no acceptance of the plaintiff’s proposal by John.
Therefore, the plaintiff had no right to impose upon his nephew a
sale of his horse by silence.
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ACCEPTANCE
 COMMUNICATION OF ACCEPTANCE
 Section 3 of the Contracts Act 1950 provides that acceptance must be made in the
manner prescribed by the offer.
 Section 7(b) of the Contracts Act 1950 states that when the acceptor deviates from
the prescribed manner, the offeror must not keep silent. If he does so and fails to
insist upon the prescribed manner, he is considered as having accepted the
modified manner.
 When does an acceptance become effective?

 It becomes effective when it has been communicated.
 When is communication of an acceptance complete?
(i) It is complete as against the proposer, when it is put in a course of transmission
to him, so as to be out of the power of the acceptor. [Sect. 4(2)(a) of the Contracts
Act 1950].
(ii) as against the acceptor, when it comes to the knowledge of the proposer. [Sect.
4(2)(b) of the Contracts Act 1950].
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ACCEPTANCE BY POST
By referring to Sect 4(2)(a) of the Contracts Act 1950, communication
of acceptance is complete as against the proposer when the letter of
acceptance is posted. Whatever situation happens afterwards is not
under control of the acceptor whether it is lost or late arrival to the
proposer.
Household Fire Insurance Co. v Grant, the defendant proposed to buy

the Plaintiff’s shares . After that the plaintiff had issued and allotted
several units of shares to the defendant and sent them by post. But it
was lost and never arrived. Then the plaintiff ( company ) had been
wound up. The liquidator had demanded the balance of the unpaid
shares from the defendant. But the defendant contended that he is not
required to pay because he did not receive any acceptance from the
plaintiff towards his proposal.
Held: Contract was completed at the time the allotment of shares was
posted to the defendant.
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ACCEPTANCE
 CAN AN ACCEPTANCE BE REVOKED?
 If the communication of acceptance is not complete as against the

proposer, the proposal may be revoked. [Section 5(1) of the
Contracts Act 1950].
 If the communication of acceptance is not complete as against the

acceptor, the acceptance may be revoked. [Section 5(2) of the
Contracts Act 1950].
 BUT, if an acceptance is complete, it cannot be revoked anymore

since an agreement has already been formed.
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CONSIDERATION
 Section 26 of the Contracts Act 1950 states that an agreement without
consideration is void.
 Section 2(d) of the Contracts Act 1950 lays down the definition of
‘consideration’:
“…….where at the desire of the Promisor, or Promisee or any other
person has done or abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.”
 TYPES OF CONSIDERATION
1. Executed Consideration
2. Executory Consideration
3. Past Consideration
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1.5. LAW OF CONTRACT -CONSIDERATION
 1. Executed Consideration
 Consideration which consists of doing an act is said to be executed.
 In the Indian case of SK Das Union of India v. Charman Lal Loona , Dass J
stated that:
“An executed consideration consists of an act for a promise. It is the act which
forms the consideration. No contract is formed unless and until the act is
performed.”
 2. Executory Consideration
 Consideration which consists of a promise is said to be executory.
 At the time the promises were made, nothing has yet been done to fulfill the
mutual promises on which the bargain is struck.
 The whole transaction remains in futuro, i.e. a promise for a promise in the
future.
 In the case of K Murugesu v Nadarajah [1980] 2 MLJ 82, FC, the respondent
was the tenant of the appellant. The respondent had pestered the appellant to
sell to him the house he was leaving in.
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CONSIDERATION
The appellant finally wrote on a piece of paper an agreement to sell to the
respondent the said house for $26,000 within three months from the date of the
agreement. Later the appellant refused to sell. As a result, the respondent sued the
appellant for specific performance of the said agreement. The appellant argued
that there was no consideration for the offer to sell; therefore the agreement was
void for being without consideration.
HELD: The agreement must be seen to be a case of executory consideration.
A promise is made by one party in return for a promise made by the other. In
such a case each promise is the consideration for the other.
 3. Past Consideration
 It consists of something wholly performed before the promise was made.
 It was made or given not in response to the promise.
 The promise is subsequent to the act and independent of it.
 Is past consideration good consideration ?
-It is a good consideration as long as the promise had done or abstained from
doing something in accordance with the promisor’s desire and not necessarily in
pursuance of a promise to be made by the promisor: Kepong Prospecting Ltd v
Schmidt & Ors.) Interface Global Education (M) Sdn Bhd 17
CONSIDERATION
 Can a consideration move from a person who is not the promisee ?
 Consideration may move from a person who is not the promisee.

Case: Venkata Chinnaye v. Verikata Ma’ya (1881) 1 cr. 137
-A sister agreed to pay an annuity of Rs653 to her brothers who
provided no consideration for the promise. However, on the same
day, their mother had given the sister some land, stipulating that
she must pay the annuity to her brothers. The sister subsequently
failed to pay the annuity and was sued by her brothers.
-HELD: She was liable to pay the annuity. A party to an
agreement can enforce the promise, even if he himself has
given no consideration, as long as somebody has done so.
There was good consideration for the promise even though it
moved from her mother and not her brothers.

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CONSIDERATION
 Must a consideration be adequate ?
 Consideration needs not be adequate.

 Explanation 2 to Section 26 of the Contracts Act 1950 states that an
agreement is not void merely because the consideration is not adequate.

 E.g. : Illustration (f) to Section 26 provides that:
‘A’ agrees to sell a horse worth RM1,000 for RM10. The
agreement is a contract notwithstanding the inadequacy of
the consideration.
 Case: Bolton v. Madden (1873) LR 9 QB 55
Held : “The adequacy of the consideration is for the parties to consider at
the time of making the agreement, not for the court when it is sought to be
enforced.”
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CONSIDERATION
 Can natural love and affection be a valid consideration
?
 Natural love and affection may be a valid consideration

if:
i. it is expressed in writing;
ii.it is registered (if applicable); and
iii.the parties stand in near relation to each other (for
example: parent and child, husband and wife, brother
and sister).
-[Section 26(a) of the Contracts Act 1950]
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1.6. LAW OF CONTRACT –INTENTION
TO CREATE LEGAL RELATIONS
 The Contracts Act is silent as to the requirements of intention to create legal
relations. But, decided cases or case laws clearly lays out the necessity of
this requirement.
 In COMMERCIAL AGREEMENTS, there is a presumption that the parties do

intend to make a legally binding contract.
Case: Carlill v Carbolic Smokeball Co [1893] 1QB 256, CA
 The defendant had claimed extravagantly in an advertisement about the efficacy
of their smokeball in preventing influenza. They supported this claim with a
promise to pay £100 to anybody who used it and yet caught influenza within a
given period. They stated that in order to ‘show their sincerity’, they had deposited
£100 with their bankers.
The plaintiff bought the smokeball and caught influenza. But, the defendant
contended that the advertisement was a ‘mere puff’ and was not intended to create
legal relations.
The Court of Appeal rejected the defendant’s contention. The fact that the
deposit was in the bank was strong evidence that the defendant had contemplated
legal liability when they issued their advertisement.
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 However, there is an inference that NO intention to create legal relations existed in the
following cases:
A. where the agreements merely represent family, social and other domestic
arrangements:
 Family Arrangement : Agreement between parent and child
Case: Jones v. Padavatton [1969] 1 WLR 328, CA,
Mrs. Padavatton was working as a secretary in the USA. Her mother, Mrs. Jones offered to
pay for her daughter’s expenses if she agreed to return to England to study for the Bar. Mrs.
Padavatton accepted.
 Later on, Mrs. Jones offered to provide a house for her daughter but, some of the rooms in
the house were to be let to tenants. However, Mrs. Padavatton became unco-operative
towards her mother. As a result, Mrs Jones claimed possession of the said house. Mrs.
Padavatton argued that her mother had agreed to give her the house and as such, was
contractually bound to the said arrangement.
HELD: Mrs Jones was entitled to possession of the said house. The original agreement
was motivated by her desire to see her daughter succeed at the Bar. They were originally on
good terms and they had no intention to enter into a stiff contractual agreement.
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 Family Arrangement : Agreement between husband and wife
Case : Balfour v Balfour [1919] 2 KB 571, CA
 The defendant was a civil servant stationed in Ceylon (Sri Lanka). He
came to England with his wife.
Later he returned to Ceylon but his wife stayed back in England on
doctor’s advice. Before sailing to Sri Lanka, the husband promised her £30
a month until he returned.
Later, he wrote to her saying that it would be better if they remained
apart and the wife obtained a decree nisi.
 The wife sued him on the promise to pay her £30 per month.
 She succeeded in the first instance but the Court of Appeal allowed the
husband’s appeal.
 HELD: There was no contract as the parties did not
intend that the agreement should be attended by legal
consequences.
Interface Global Education (M) Sdn Bhd 23

1.6. LAW OF CONTRACT –INTENTION TO
CREATE LEGAL RELATIONS
 Social Arrangements
Case:Coward v. Motor Insurers’ Bureau [1963] 1 QB 259, CA
 Mr. Coward was taken to work on the pillion of Mr. Cole’s motorcycle, in return for which
service he paid a weekly sum. An accident occurred due to Cole’s negligence and both were
killed.
 In an action by Mr. Coward’s widow, the issue or question arose (in an insurance context),
as to whether Mr. Coward was a person carried ‘for hire or reward’.
 HELD: The Court of Appeal decided that he was not a person carried ‘for hire or reward’
because neither he nor Mr. Cole intended to enter into a legal contract.
BUT,
This test was rejected by the House of Lords in the case of Albert v Motor Insurers’
Bureau [1972] AC 301, HL, whereby it was held that the test to be applied on the
interpretation of the phrase ‘for hire or reward’ is :
“whether there is a systematic carrying of passengers which went beyond the bounds of
social kindness that is, whether the carrying had become predominantly ‘business’
arrangement.”
The House of Lords held that in that event, it was immaterial whether the parties intended
to create legal relations
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 Other Domestic Arrangements
Case : Simpkins v. Pays [1955] 1 WLR 975
The plaintiff had been living for over four years with the defendant (an elderly woman)
and her granddaughter, almost as a member of the family, but actually as a lodger. All
three of them had devised a separate answer for a fashion competition in the Sunday
Empire News and the plaintiff had filled in the coupon incorporating the separate
answers.
She made the coupon out in the defendant’s name. Entry fees and postage were
equally shared. One entry won a prize of £750, which was paid to the defendant who
refused to share it. The plaintiff sued the defendant for £250, i.e. for her share of the
prize money. The defendant argued that she was under no obligation to pay the plaintiff
£250 because the arrangement was similar to a family matter which was not intended
to give rise to legal rights.
 Sellers J held:
“It may well be there are many family associations…..which would not establish a
contract…….but I do not find so here. I think there was here a mutuality of arrangement
between the parties. It was not very formal, but certainly in effect it was agreed that
every week the forecast should go in the name of the defendant, and that if there was
success, no matter who won, all should share equally.”
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1.7. LAW OF CONTRACT –
UNCERTAINTY OF TERMS
 The terms in a contract must be certain and definite and are not capable of being
made certain. Otherwise, the contract is invalid and cannot be enforced.
 Section 30 of the Contracts Act 1950 states that:

“Agreements, the meaning of which is not certain, or capable of being made
certain, are void.”
 Illustration (a) to Section 30 of the Contracts Act 1950 provides that:

‘A agrees to sell to B "a hundred tons of oil". There is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainty.’
 Case : KARUPPAN CHETTY v. SUAH THIAN

HELD : The contract was void for uncertainty because the parties agreed to a
lease of $35 per month “for as long as he likes”.
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1.8. LAW OF CONTRACT – CAPACITY TO
CONTRACT
 In order to form a valid and binding contract, the parties to the
contract must have the capacity and are competent to enter into the
contract.
 Section 10(1) of the Contracts Act 1950 states that:
“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.”
 According to Section 11, the following persons are considered to
be competent to enter into a contract:-
i. majority
ii. Sound mind person
iii. not declared bankrupts
 Whereas the following persons are not competent to enter into a
valid contract, they are minors, insane person and undischarged
bankrupts. 27
1.8. LAW OF CONTRACT – CAPACITY
TO CONTRACT
 Effect of contracts made by minors
 General rule in Malaysia : Contracts made by infants

are void.
 In the case of Mohori Bibee v. Dhurmodas Ghose
(1903) 30 Cal 539, 30 1A 114, it was held that
Section 10 and Section 11 of the Indian Contracts
Act 1950, (which is in pari materia to Section 10 and
11 of the Malaysian Contracts Act 1950) is to render
all such agreements void.
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TO CONTRACT
 Exception to the general rule:
1. Contracts of insurance
 The Insurance Act 1963 (revised 1972) : An infant over the age
of 10 years may enter into a contract of insurance.
 But, if he or she is below the age of 16 years, he or she can only
enter into a contract of insurance with the written consent of his or
her parents or guardian.
2. Contracts for necessaries
 Necessaries : things which are essential or necessary to the existence
and reasonable comfort of the infant, such as food and clothes. Luxurious
articles do not fall within category of necessaries.
 Education was held to be included under necessaries in the case of
Government of Malaysia v. Gurcharan Singh & Ors. [1971] 1 MLJ 211.
TO CONTRACT
3. Contracts of scholarship
 Contracts (Amendment) Act 1976 : A scholarship
agreement entered into by an infant is valid when the
scholarship, award, bursary, loan or sponsorship is granted
by Federal or State Government, a statutory authority or an
educational institution such as university.
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1.9. LAW OF CONTRACT – CORPORATIONS
There are two types of corporations:
1. Statutory corporations:
 are established Acts of Parliament or Enactments of State Assembly.
 have the same contractual capacity and may act in the same manner as an individual of full
capacity.
 contractual capacity is limited by Statute under which the corporations were created.
 any contract made by the statutory corporation which is beyond the powers conferred by the
Statute is ultra vires and void.
2. Registered corporations (companies):

 are incorporated and registered under the Companies Act 1965.
 each corporation is an artificial legal person with capacity to enter into a contract.
 its contractual capacity is within the limits of the ‘objects clause’ set out in the Memorandum
of Association and Articles of Association of the company. The ‘objects clause’ contains the
objectives of the company, i.e. the purpose of which the company is incorporated.
 any contract made outside the limits of the ‘objects clause’ are considered to be beyond its
capacity and considered as ‘ultra vires’ , but according to the Companies Act 1965 any ultra
vires contract is not void.
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TOPIC 2 : LAW OF CONTRACT –
UNLAWFUL AND VOID CONTRACTS
 Section 2(g) of the Contracts Act 1950 : a void agreement is
an agreement not enforceable by law.
 If the consideration of the agreement or the object of the
agreement is unlawful, the agreement is void and will not be
enforced by the court.
 Illustration(f) of the Contracts Act 1950 is an example where
the consideration of the agreement is considered unlawful:
“A promises to obtain for B an employment in the public
service, and B promises to pay $1,000 to A. The agreement is
void, as the consideration for it is unlawful.”
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TOPIC 2 : LAW OF CONTRACT –
UNLAWFUL AND VOID CONTRACTS
 As for agreements where the object is unlawful, an example could be seen
in the case of Aroomoogum Chitty v. Lim Ah Hang (1894) 2 SSLR 80.
The plaintiff lent money to the defendant for the purpose of
working a brothel. The object of the contract was immoral.
When the plaintiff sued for payment the court held that the
plaintiff could not recover his money as no action will arise
from a wrong done (ex turpi causa non oritur actio).
 Contracts which are immoral or opposed to public policy can also be

declared void and unenforceable by the court. This however, varies
according to the facts of each case.
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TOPIC 3 : EMPLOYMENT LAW
3.1. INTRODUCTION TO EMPLOYMENT LAW
 Employment Law is the law which regulates the operation of
the labour market in general and the employment relationship
between employers and employees in particular. E.g. hiring
process, suspension from work, maternity rights, lay-off etc.
 The obligations and rights of an employment contract are
covered by the Employment law.
 When an offer for employment is made by an employer to an
employee, the law governing the relationship between an
employee and an employer comes into the picture. For the
purposes of our discussion, main emphasis is given to the
Employment Act 1955.
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3.2 : HIRING
 In Peninsular Malaysia, only employees as defined in the
Employment Act 1955 are protected under the Act. In Sabah,
an employee is defined in the Labour Ordinance (Sabah Cap.
67) and in Sarawak, the Labour Ordinance (Cap. 76).
 Employee under the Employment Act 1955 means :

i. any person whose wages does not exceed RM1,500 per
month under a contract of service with an employer.
* “Wages” here excludes commission, subsistence allowance
and overtime payments.
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3.2. HIRING
ii. any person who, irrespective of the wages earned in a
month, has entered into a contract of service with an
employer in pursuance of which :
he is engaged in manual labour including such labour
as an artisan or apprentice;
he is engaged in the operation of mechanically
propelled vehicle operated for the transport of
passengers or goods or for reward or for commercial
purposes.
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3.2. HIRING
he supervises and oversees other employees
engaged in manual labour in and throughout the
performance or their work.
he is engaged in any capacity in any vessel

registered in Malaysia subject to certain
conditions pertaining to the Merchant Shipping
Ordinance 1952.
he is engaged as a domestic servant.
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3.2. HIRING
 But, an amendment has been made to the
Employment Act. With effect from 1st August
1998 employees earning more than RM1,500 but
not more than RM5,000 per month may seek
redress in Labour Court. However, these persons
may only raise disputes in terms of wages or
other payments in cash as they are under their
individual contract of service or collective
agreement.
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3.2. HIRING
 Employers are not permitted to employ women to
carry out industrial and agricultural work between
10:00 p.m. to 5:00 a.m. without exemption from
the Director General of Labour Department
[Section 34(1) of the Employment Act];
 No female employee shall be employed in any

underground working (Section 35 of the
Employment Act).
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3.2. HIRING
 As a matter of policy, the Malaysian government
allows the employment of foreign workers from
specific source countries by employers in certain
sectors of the economy.
 For e.g. : only nationals from Indonesia,

Phillipines (male), Cambodia, Kazakhstan, Laos,
Myanmar, Nepal, Thailand, Turkmenistan,
Uzbekistan, Pakistan, Vietnam and Sri Lanka
are allowed to work in the construction sector
under the said policy.
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3.2. HIRING
 A foreign company is only permitted to employ
expatriate personnel in areas where there is a lack
of trained locals i.e. Malaysians, to do the job
under certain requirements.
 A manufacturing company with foreign paid-up

capital of US$2 million and above will be
automatically allowed up to 10 expatriate posts,
including 5 key posts.
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3.2. HIRING
capital of more than RM200,000 but less than
US$2 million will be automatically allowed up to
five expatriate posts, including 1 key post.

capital of less than RM200,000 will be considered
for both expatriate posts and key posts, based on
current guidelines.
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3.3. FIRING
 Where a contract of service is considered broken,
an employer can dismiss an employee.
 A contract of service is considered to have been

broken by an employee when the employee has
been absent from work for more than 2
consecutive working days without prior leave from
the employer or without informing or attempting
to inform the employer at the earliest opportunity
during such absence with reasonable excuse
[Section 15(2) of the Employment Act 1955].
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3.3. FIRING
 An employer may terminate the contract of
service where the employee is found guilty of
misconduct, misdemeanor or negligence after
due inquiry has been made.
 On the other hand, an employee has the right to

terminate the contract of service, where an
employer breaches the contract, i.e. fails to pay
wages within seven days after the wages period
[Section 15(1) of the Employment Act].
44
3.3. FIRING
 An employee may resign by giving notice of
resignation or termination to the employer to
terminate the contract of service.
 An employer may also dismiss an employee by

giving notice of termination to such employee.
 In both situations, the length of notice shall be

the same pursuant to the contract of service.
45
3.3. FIRING
 Where the period of notice of termination is not
specified in the contract of service, the notice
period shall be as follows:
less than 2 years of service - minimum 4 weeks
2 years or more but less than 5 years of service

- minimum 6 weeks
5 years of service or more - minimum 8 weeks
46
3.4. EMPLOYEES PROVIDENT FUND
 Employees Provident Fund is a compulsory
savings scheme in Malaysia.
 Aim : to provide a measure of security for old age

retirement to its members. It also provides
supplementary benefits to members to utilize
part of their savings for house ownership and
other withdrawal schemes.
47
 All employees who are Malaysian citizens and

permanent residents of Malaysia must be registered
as a member of the Employees Provident Fund.
 Employees Provident Fund Act 1991 is the statute

governing the Employees Provident Fund in
Malaysia.
48
 Prior to 1st August 1998, expatriates and foreign
workers were not required to contribute to the
EPF although they may elect to do so.
 But, with effect from 1st August 1998, all foreign

workers and expatriates earning less than
RM2,500 per month are also required to
contribute to EPF with the exception of certain
categories.
49
Under this Act, it is compulsory for all employers and employees
to contribute towards this Fund. Those who are exempted from
making the compulsory contribution are:
 employees or workers holding Employment Pass or expatriates
holding Visit Pass (Temporary Employment) whose monthly
wages is not less than RM2,500
 Thai workers who enter Malaysia with a Territorial Pass
 Seamen
 Domestic servants
 Self-employed persons
 Out-workers (persons who do cleaning, alteration or repair works)
 Persons detained in custody, in prison, Henry Gurney School and
mental hospital
 Pensioners
50
 Employers must register their employees with the
EPF within 7 days of employment under law.
 Section 41(2) of the EPF Act 1991 :

An employer who contravenes the above shall be
found guilty of an offence and shall be liable, on
conviction to imprisonment for a term not
exceeding 3 years or fine not exceeding RM10,000
or to both. The EPF contribution by employer and
employee shall commence on the first month of
salary payment pursuant to section 45(2) of the
EPF Act 1991.
51
3.5. SOCIAL SECURITY ORGANISATION
 The Social Security Organization is an organization
set up to administer, enforce and implement the
Employees' Social Security Act, 1969 and the
Employees' Social Security (General) Regulations
1971.
 The Social Security Organization provides social

security protection by social insurance including
medical and cash benefits, provision of artificial
aids and rehabilitation to employees to reduce the
sufferings and to provide financial guarantees and
protection to the family.
52
 An employee employed under a contract of service
or apprenticeship and earning a monthly wages of
RM3,000 and below must compulsorily register
and contribute to SOCSO regardless of the
employment status whether it is permanent,
temporary or casual in nature. An employee must
also be registered with the SOCSO irrespective of
the age.
 SOCSO only covers Malaysian workers and

permanent residents. Foreign workers are
protected under the Workmen’s Compensation Act
1952. Interface Global Education (M) Sdn Bhd 53
 SOCSO does not cover the following categories of persons :
i. A person whose wages exceed RM3,000 a month and who has
never been covered before.
ii. Government employees.
iii. Domestic servants employed to work in a private dwelling
house which include cooks, gardeners, house servants,
watchmen, washer woman and drivers.
iv. Employees who have attained the retirement age (in respect of
the Invalidity Pension Scheme) but if they continue to work they
should be covered under the Employment Injuries Scheme.
v. Self-employed persons.
vi. Foreign workers.
vii. Members of the armed forces; police under the Workmen’s
Compensation Act 1952.
54
 SOCSO operates under the ‘once in, always in’
principle.
 Once an employee registers with SOCSO, and has

become liable to contribute, he continues to do so
even if his salary has exceeded RM3,000 per
month, so long as the employee works in an
establishment covered by the Employees’ Social
Security Act.
55
3.6. DISPUTE
 A dispute being referred to as trade dispute under
Section 2 of the Industrial Relations Act 1967 means
any disagreement between the employer and
workman or employee which is connected with the
employment or non-employment or the conditions of
work of such workman or employee leading to
industrial action.
 The Industrial Relations Act 1967 governs the

relationship between employers and workmen or
employees and their trade unions and generally
deals with trade disputes.
56
3.6. DISPUTE
 This Act emphasizes on direct negotiation
between employers and workmen or employees
and their trade unions :
-to settle their differences
-to regulate their collective relationship
-to settle any dispute arising there from through

their own effort and through mutually agreed
procedures with minimal government
intervention. 57
3.6. DISPUTE
 Under the Industrial Relations Act 1967, the legitimate rights of
employers and workmen or employees and their trade unions are
protected.
 This Act also provides the procedure relating to submissions of
claims for recognition and scope and representation of trade
union and collective bargaining.
 Where direct negotiation between employers, workmen or
employees and their trade unions fails, this Act provides for
speedy and just settlement of trade disputes by conciliation or
arbitration.
 This Act further provides the power to the Ministry of Human
Resources to intervene and to refer at any stage any trade
dispute to the Industrial Court for arbitration.
58
3.6. DISPUTE
 After a trade dispute has been referred to the Industrial Court
and is covered by a collective agreement or by an award of the
Industrial Court, employees or workmen are not allowed to
declare strike or lockout.
 Collective agreement : an agreement in writing concluded
between an employer or a trade union of employers on one
hand and a trade union of workmen or employees on the
other, relating to terms and conditions between the two
parties.
 Award : an award made by the Industrial Court in respect of
any trade dispute or matter referred to it or any decision or
order made by it under the Industrial Relations Act 1967.
59
3.6. DISPUTE
 An award of the tribunal is final and legally
binding on the parties to the dispute.
 Unless approved by the Ministry of Human

Resources, collective agreement cannot contain
better terms of employment than those stipulated
under the Employment Act 1955.
60
3.6. DISPUTE
 This Act also makes it an offence for any person
to give financial aid in direct furtherance or
support of any illegal strike or lockout. Such
offences are seizable in nature and no bail shall
be granted.
 Peaceful and orderly picketing in furtherance of a

trade dispute is permitted under Part IX of the
Industrial Relations Act.
61
TOPIC 4 : COMPANY LAW
4.1. INTRODUCTION TO COMPANY LAW
 The main legislation governing companies in

Malaysia is the Companies Act 1965.
 A company is a corporate body or corporation as

it is formed pursuant to the Companies Act 1965.
62
4.1. INTRODUCTION TO
COMPANY LAW
 A corporation is basically an artificial legal person
that exists independently of the individuals who,
at any given time, are the members of the
corporate body. This principle was laid down in
the case of Salomon v. A.Salomon & Co. Ltd.
[1897] AC 22.
63
4.2. THE VEIL OF
INCORPORATION
 A company and its members are separate persons. This
principle is commonly known as the veil of incorporation.
 In the case of Lee v. Lee’s Air Farming Ltd [1960] 3 All

ER 420, the owner and sole working director of a company
engaged in the business of aerial crop spraying was killed in
an accident while piloting the aircraft in the course of
employment. It was held that he was also the company’s
employee and as such could enforce rights against it. This
was due to the fact he and the company was held to be
separate persons.
64
4.3. LIFTING THE VEIL OF
INCORPORATION
 There are certain exceptions to the principle of veil of
incorporation, i.e. where the principle of corporate veil above is
lifted:
a. Judicial exceptions
i. Use of company to evade legal obligations
Case : Jones v Lipman [1962] 1 WLR 832 (High Court,
England)
- L agreed to sell a house to J but, changed his mind for some
reasons. He set up a company called A Ltd so as to avoid
having to transfer the said house to J. A Ltd was actually
wholly owned and controlled by L. J sought an order of specific
performance. The defence raised was that A Ltd was not a
party against whom specific performance could be ordered.
65
INCORPORATION
 Held: A Ltd was a ‘creature of L, a device and a

sham, a mask which holds before his face in an
attempt to avoid the eyes of equity’. Both L and
the company were ordered to specifically perform
the contract to sell the house.
66
INCORPORATION
ii. Other instances – such as to do justice when there is fraud
Case : Aspatra Sdn Bhd & 21 Ors. v. Bank Bumiputra
Malaysia Bhd & Anor [1988]1MLJ97
The Supreme Court held that the corporate veil was properly
lifted when it was proven that fraud was committed by
Lorrain Osman when as director and chairman of the two
companies concerned, he had made secret profits and was
the alter ego of Aspatra. Thus, the court held that it was
necessary to identify all assets owned by Lorrain within the
jurisdiction as well.
67
INCORPORATION
iii In certain circumstances, the courts have recognized the
commercial entity that a holding company and its
subsidiaries are often a single enterprise.
Case : D.H.N. Food Distributors Ltd. v. Tower Hamlets

London Borough Council [1976] 3 All ER 462
- The ownership of a lease and of the business which used the

premises divided between two companies of the same group
were treated as if owned by the same person.
68
INCORPORATION
b. Statutory Exceptions
The statutory exceptions to the principle of corporate veil are,
among others:
i. Number of members below two
- If the number of members of a company (other than a company
whose issued shares are wholly held by a holding company) is
reduced below two and it carries on business for more than six
months while the number is so reduced, a person who is a
member of the company during the time that it so carries on
business after those six months and is aware of it, is personally
liable for all the debts of the company contracted after those six
months and may be sued therefore. The company and the
member shall also be guilty of an offence against the Companies
Act (Section 36 of the Companies Act 1965).
69
INCORPORATION
ii. Responsibility for fraudulent trading
 Section 304(1) of the Companies Act 1965 : If in the course of
the winding up of a company or in any proceedings against a
company it appears to the court (when hearing the application
of the liquidator or any creditor) that any business of the
company has been carried on with intent to defraud creditors of
the company or creditors of any other person or for any
fraudulent purpose, the court may hold any persons who were
knowingly parties to the fraud personally responsible for all or
any of the debts or other liabilities of the company as the court
directs.
70
4.4. COMPANY’S POWER OF BORROWING
 Normally, the Memorandum and Articles of
Association of a company include in their objects
clause an express power to borrow.
 **Note : Companies are required to have a
Memorandum of Association (MOA) and Articles of
Association (AA). The MOA lays down the objects
with which the company was formed. It is essential
as it gives information to those who do business with
the company. On the other hand, AA refers to a set
of regulations for management of the company. AA
may adopt all or any of the regulations provided in
Table A of the Fourth Schedule, Companies Act
1965. Interface Global Education (M) Sdn Bhd 71
4.4. COMPANY’S POWER OF BORROWING
 But, the company’s power of borrowing could still be
unenforceable against the company itself if the directors or
other representatives of the company borrowed on its behalf
without the authorization to do so and the lenders are aware
of the same.
 If the directors exceed their borrowing powers and the
company ratifies the same by way of resolution in general
meeting, the company may be prevented from denying that
the directors had authority.
72
4.5. COMPANY’S POWER OF PROVIDING
SECURITY
A company has the power of providing security
in the form of debenture.
Debenture : A loan agreement which may or

may not incorporate a fixed and floating charge
or a fixed charge or a floating charge.
Debenture is defined in Section 4 of the

Companies Act 1965:
“Debenture includes debenture stock, bonds, notes and
any other securities of a corporation whether constituting
a charge on the assets of the corporation or not.”
SECURITY
 A fixed charge :
may be created over assets of the company
including land and machinery.
attaches to the property in question from

the moment of creation.
gives the holder of the charge an immediate

security over the property in priority to
subsequent claimants once the charge is
registered.

SECURITY
 A floating charge :
is a charge on a class of assets present and future.

For instance, if it applies to stock in trade or book
debts, it comprises whatever assets of that class the
company may own at time of crystallization.
does not attach to the property until the charge
crystallizes. As such, the company is free to deal with
as well as dispose off the assets subject to the said
charge.
does not give the holder priority over subsequent
claimants.
SECURITY
 Section 108 of the Companies Act 1965 :
“Where a charge is created by a company, there shall
be lodged with the Registrar for registration within thirty
days after a charge a statement of the prescribed
particulars, that is Form 34; and if this section is not
complied with in relation to the charge, the charge shall,
so far as any security on the company’s property or
undertaking is thereby conferred, be void against the
liquidator and any creditor of the company”.
 All charges, be it fixed or floating charge, must be
registered with the Registry of Companies. Failure to do
so will result in the charge being rendered void.
4.6. LIQUIDATION
 A company is created by the law. As such, it is also dissolved
through the process of law. A company could be dissolved in
the following ways:
i. by voluntary liquidation – the members of the company may
pass a resolution to wind up or through winding up by the
creditors.
ii. compulsory liquidation – by court order.
iii. by the Registrar of Companies striking off the register
summarily a company which appears to be defunct : Section
308 of the Companies Act 1965.
iv. the court, in approving a scheme of arrangement, may order
the immediate dissolution of a company : Section 178 of the
Companies Act 1965.

TOPIC 5 : SALE OF GOODS
SCOPE OF SALE OF GOODS ACT
 The main legislation governing the sale of goods in Malaysia : Sale of

Goods Act 1957.
 Section 1 of the said Act states that the Act shall have effect within the
Malay States only.
 Section 2 defines ‘Malay States’ as the States of Johor, Kedah,
Kelantan, Negeri Sembilan, Pahang, Perak, Perlis, Selangor and
Terengganu.
 As for Penang, Malacca, Sabah and Sarawak, the main legislation
applicable regarding sale of goods is the English Sale of Goods Act
1893.
78
5.2. INTERPRETATION
 Section 2 of the Sale of Goods Act 1957 defines
‘goods’ as :
‘ every kind of movable property other than actionable
claims (i.e. suing another person for a debt or for any
other reason) and money; and includes stock and
shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be severed
before sale or under the contract of sale’.
 Land does not fall within the definition of ‘goods’ under
the Sale of Goods Act.
 Section 6 : Goods referred to above may either be
existing goods or future goods.
5.3. THE CONTRACT OF SALE
 Section 4(1) of the Sale of Goods Act defines a
contract of sale of goods as a contract whereby the
seller transfers or agrees to transfer the property in goods
to the buyer for a price.
 Thus, a sale occurs when the ownership or property in

goods passes to the buyer.
80
5.4. FORMATION OF THE
CONTRACT
 Section 5(1) of the Sale of Goods Act :
A contract of sale is made by an offer to buy or sell goods at a price and
by the acceptance of such an offer.
 Section 5(1) further indicates that the contract may provide for
immediate delivery of goods or the immediate payment of the price or
both. As a matter of fact, delivery or payment may be even be made by
way of installments. Price here refers to the money consideration for the
sale of goods.
 Section 5(2) of the Sale of Goods Act : A contract of sale may be

made in writing or by word of mouth, or partly in writing and partly by
word of mouth, or may be implied from the conduct of the parties.

5.5. TERMS OF THE CONTRACT
A stipulation in a contract of sale with reference to goods
which are the subject thereof may be a condition or a
warranty.
 CONDITION
Section 12(2) of the Sale of Goods Act :
A condition is a stipulation essential to the main purpose
of the contract, the breach of which gives rise to a right to
treat the contract as repudiated.
82
 Generally, a breach of condition entitles the innocent party to
repudiate the contract.
 However, an innocent party cannot repudiate the contract but can only
claim damages where:
i. the buyer chooses to treat the breach of condition as a breach of
warranty and claims damages only;
ii. the buyer waives the condition;
iii. the contract of sale is not severable and the buyer has accepted the
goods or part thereof, the breach of any condition must be accepted as a
breach of warranty unless otherwise provided in the contract; and
iv. the contract is for specific goods the property in which has passed to
the buyer, the breach of any condition must be accepted as a breach of
warranty unless otherwise provided in the contract.
83
 Warranty
Section 12(3) of the Sale of Goods Act :
A warranty is a stipulation collateral to the main purpose

of the contract, the breach of which gives rise to a claim
for damages but not to a right to reject the goods and
treat the contract as repudiated.
84
 Implied Terms
-The Sale of Goods Act implies a number of stipulations in each contract for
the sale of goods. But, these implied terms are applicable only when the
parties to the contract of sale have not modified or excluded them. Section
14 to 17 of the Sale of Goods Act lay down these implied terms:
 Implied condition as to title.

 Implied warranty that buyer shall have quiet possession of the goods.
 Implied warranty that the goods are unencumbered.
 Implied condition that in a sale of goods by description, the goods must
correspond with the description.
 Implied condition that goods must be reasonably fit for purposes for
which the buyer wants them.
 Implied condition that goods must be of merchantable quality.
 In a contract for the sale of goods by sample, the

implied conditions are:
the bulk shall correspond with the sample in quality;

the buyer shall have a reasonable opportunity of
comparing the bulk with the sample before
acceptance;
the goods are free from the defect rendering them
non-merchantable which would not be apparent on
reasonable examination of the sample.
86
5.6. TRANSFER OF PROPERTY IN THE
GOODS
In the case of a contract for the sale of specific goods,
the property in them is transferred to the buyer at such
time as the parties to the contract intend it to be
transferred.
 There are a few things to be considered in order to

determine the intention of the parties:
i. the terms of the contract
ii.the conduct of the parties, and the circumstances of the
case
87
5.6. TRANSFER OF PROPERTY IN
THE GOODS
 Section 18 of the Sale of Goods Act :

In the case of a contract for the sale of
unascertained goods, the property in the
goods can only be transferred to the buyer
after the goods are ascertained.
88
5.7. RISK
Before property passes to the buyer, the goods
remain at the seller’s risk.
BUT,
When property passes to the buyer, the goods are
at the buyer’s risk irrespective of whether the goods
have been actually delivered to the buyer or not.
89
5.8. TRANSFER OF TITLE
 Section 27 of the Sale of Goods Act:
If goods are bought from a person who is not the owner,
and who does not sell them under his authority, the buyer
does not acquire any title.
 This rule is known as ‘Nemo dat quod non habet’
rule(which means, no one can give a better title than he
has himself) and it serves to protect the right of the
owner.
90
 Case: Ng Ngat Siang v. Arab-Malaysian Finance Bhd & Anor
[1988] 3 MLJ 319
 The plaintiff bought a car from the second defendant, the

registered owner of the car.
 The second defendant had to pay off MUI Finance from whom
he had earlier obtained a hire- purchase facility in order to
effectuate the transfer of ownership of the car into the
plaintiff’s name. For this purpose, the second defendant
retained the registration card.
 Upon obtaining the cancellation of endorsement of MUI’s
ownership, the second defendant sold the car to B whose
purchase was financed by the first defendant.
 The first defendant endorsed its ownership claim on the
registration card.
 The plaintiff applied to the court to determine as to whether he
or the first defendant had a better title to the car.
 HELD: After a full payment was made by the second defendant
to MUI Finance and MUI Finance had relinquished all rights to
ownership over the car, the plaintiff had acquired ownership to
the car and the second defendant’s further dealings on the car
with the first defendant are therefore illegal. To that end, the
first defendant acquired no title or interest over the car when
they purchased it and their only remedy, if any, is against the
second defendant personally for the return of the purchase
price but as against the plaintiff they cannot claim any right of
ownership over the car.
92
5.9. PERFORMANCE OF THE
CONTRACT
Section 31 of the Sale of Goods Act 1957 :
It is the duty of the seller to the deliver the goods
whereas it is the duty of the buyer to accept and to
pay for them in accordance with the terms of the
contract of sale.
 Section 32 of the Sale of Goods Act :
Unless otherwise agreed, delivery of the goods and
payment of the price are concurrent conditions.
This means that the seller shall be ready and
willing to pay the price in exchange for possession
of the goods.
5.9. PERFORMANCE OF THE
CONTRACT
 Section 31 of the Sale of Goods Act 1957 :
It is the duty of the seller to deliver the goods whereas it is the
duty of the buyer to accept and to pay for them in accordance
with the terms of the contract of sale.
 Section 32 of the Sale of Goods Act :
Unless otherwise agreed, delivery of the goods and payment of
the price are concurrent conditions.
This means that the seller shall be ready and willing to give
possession of the goods to the buyer in exchange for the price
and the buyer shall be ready and willing to pay the price in
exchange for possession of the goods.
94
5.9. PERFORMANCE OF
THE CONTRACT
Section 57 of the Sale of Goods Act 1957 :
If the seller wrongfully neglects or refuses to deliver the
goods to the buyer, the buyer may sue the seller for
damages for non-delivery.
 Section 41(2) of the Sale of Goods Act 1957 implies that:

As for the buyer, where goods which he has not previously
examined are delivered to him, he is not deemed to have
accepted them unless and until he has a reasonable
opportunity of examining them to determine whether they
conform to the contract, unless if both parties (i.e. the
seller and the buyer agree not to do so).
95
5.10. REMEDIES FOR
BREACH OF CONTRACT
1)Rights of the unpaid seller against the goods

Unpaid seller : A seller to whom the whole of the price
has not been paid or tendered; or when a bill of
exchange or other negotiable instrument has been
received as conditional payment, and the condition on
which it was received has not been fulfilled due to the
fact that the instrument has been dishonoured etc.

5.10. REMEDIES FOR
BREACH OF CONTRACT
 Rights of an unpaid seller against the goods are:
i. a lien on the goods for the price, where he is in possession of the
goods [Section 46(1)(a) of the Sale of Goods Act]
ii. a right of stopping the goods in transit in the case of the buyer’s
insolvency, where he has parted with the possession of the goods
[Section 46(1)(b) of the Sale of Goods Act]
iii. a right of resale, subject however to Section 54 [Section 46(1)(c) of
the Sale of Goods Act.
iv. a right of withholding delivery, where the property in goods has not
passed to the buyer [Section 46(2) of the Sale of Goods Act].
97
5.10. REMEDIES FOR
BREACH OF CONTRACT
2. Rights of the seller to sue for breach of contract
 The seller can sue the buyer for breach of contract if:
i. it is contracted that the price be paid on a certain date
regardless of delivery and the buyer wrongfully neglects
or refuses to pay such price even though the property in
the goods has not passed and the goods have not been
appropriated to the contract [Section 55(2) of the Sale
of Goods Act]
ii. the property in the goods has passed to the buyer and
the buyer wrongfully neglects or refuses to pay for the
goods; [Section 55(2) of the Sale of Goods Act].
5.10. REMEDIES FOR
BREACH OF CONTRACT
3.Right of the buyer to bring an action for non-delivery
 Section 57 of the Sale of Goods Act:
If the seller wrongfully neglects or refuses to deliver

the goods to the buyer, the buyer may sue the seller
for damages for non-delivery.
99
5.10. REMEDIES FOR
BREACH OF CONTRACT
4. Rights of the buyer to bring an action for specific
performance
The buyer may bring an action for specific performance of
contract by way of delivery of specific or ascertained
goods.
Normally, specific performance is ordered by courts only

when the goods are of special or peculiar kind such as
valuable paintings, priceless antique etc.
5.10. REMEDIES FOR BREACH OF
CONTRACT
 Case: Behnke v. Bede Shipping Co. Ltd. [1927] 1 K.B.
649
HELD: A ship was a specific chattel in respect of which

an order for specific performance could be made.
Here, the court took into account of the fact that the
ship in question was of peculiar and practically unique
value to the buyer, that the buyer wanted the ship for
immediate use.
101
5.10. REMEDIES FOR BREACH OF
CONTRACT
5)Remedies available to buyer for breach of warranty
 If the seller commits a breach of warranty or where the

buyer opts or is compelled to treat a breach of condition
by the seller as a breach of warranty, the buyer cannot
reject the goods.
 BUT, the buyer may set up against the seller the
breach of warranty in diminution or extinction of the
price or sue the seller for damages for breach of
warranty.
102
TOPIC 6 : LAW OF PARTNERSHIP
6.1. MEANING, NATURE & FORMATION

OF PARTNERSHIP
 The main law governing partnership in Malaysia
is the Partnership Act 1961.
 Section 3(1) of the Partnership Act 1961:

“Partnership is the relation which subsists
between persons carrying on business in
common with a view of profit”.
103
6.1. MEANING, NATURE &
FORMATION OF PARTNERSHIP
 Parties to the partnership must be more than
one, and shall not exceed 20.
Case : Tan Teck Hee v Cheng Tien Peng
[1915] 2 FMSLR 161
HELD : No partnership which has a membership
exceeding 20 can maintain an action as such
formation was forbidden by law and therefore
parties were not entitled to enforce any claim.
104
 The business must be carried on in common.
Case : Choi Siew Cheong v. Lucky Height

Development (1995)
Held : There was no relation of partnership in this
case because the intention of the parties was that
of separate businesses.
105
6.1. MEANING, NATURE & FORMATION OF
PARTNERSHIP
 The partnership must be formed with a view

of profit.
Case : Gulazam v. Noorzaman and Sobath,

the parties agreed among themselves to form a
partnership of buying and selling cattle and
agreed to share the profits.
HELD: All essential elements including ‘with a
view of profit’ were present to constitute a
partnership.

 Partnership can be formed with or without a
written agreement.
 General rule : Anyone with a ‘sui generis’, i.e.

legal capacity is able to enter into a
partnership.
107
6.2. EXISTENCE OF PARTNERSHIP
Section 4 of the Partnership Act 1961 :

Partnership may either exist or not.
 Section 4(a) :
Co-tenancy such as that of two persons hiring a
shop in common, or co-ownership such as
owning a truck in common does not in itself give
rise to a partnership.

108
6.3. DURATION OF
PARTNERSHIP
 Where the duration of the partnership is fixed:
If the duration has expired but the partnership is
continued without any new agreement, the rights
and duties of the partners remain the same.
BUT,
 If there is no fixed duration of the partnership,

the partnership can be terminated at any time by
any partners.

6.4. TYPES OF PARTNERS
 General partner : A partner in the fullest sense.

 Active partner : A partner who actively
participates in the management of the business
 Dormant partner : A partner who does not
actively participate in management of the
business and may not be known to the outside
world.
 Quasi-partner : A person who is liable for debts
of the partnership and not a partner but causing
people to believe he is a partner.

6.5. RELATIONS OF PARTNERS TO
OUTSIDERS
Partners are agents of the partnership firm.
Therefore, any act or omission committed by

one partner binds the rest of the partners if it is
carried out within the ordinary scope of the
firm’s business [Section 7 of the Partnership
Act].
111
OUTSIDERS
Case: Chan King Yue v Lee & Wong [1962] MLJ 379
-The plaintiff’s husband borrowed RM35,000 from her as a loan from her to
the firm in which he was a partner. He gave her a receipt in the name of the
partnership.
-The money was paid into the partnership account and immediately there
after the firm utilized the money to pay off some of its debts. The plaintiff
then initiated a suit to recover the loan.
-The other partner of the firm contended that the plaintiff ’s husband was not
authorized by the firm to borrow the money.
- Held : The borrowing was an ‘act necessary for the carrying on of the business ’ of
the partnership and as such bound the co-partner. The fact that the loan had
been utilized for the payment of debts of the partnership, meant that the lender
was entitled in equity to stand in the same position as if the money had
originally been borrowed by the other partner.
112
OUTSIDERS
 However, a partner who has no authority to act
on behalf of his co-partners will not bind the firm
in the following circumstances, i.e. where the
outsider who deals with him knows his lack of
authority and where the outsider does not
believe the partner to be a member of the firm.
113
6.6. INCOMING & RETIRING
PARTNERS
 Section 19(1) of the Partnership Act 1961 :
A new partner who has just been admitted into a firm is not
liable for the debts incurred prior to his admission. However,
if the new partner agrees to be liable for the existing debts of
the partnership at the time of his admission, he would be
liable (Section 19(3).
 Section 19(2) of the Partnership Act 1961:

A partner who has retired from a partnership is not liable to
any debts which are made after the date of his retirement.
This depends however on Section 16 and Section 38 of the
Partnership Act.

6.6. INCOMING & RETIRING PARTNERS
Section 16 requires that the person who has

retired from a partnership must ensure that
there is no other representation made by words
or conduct of himself or other partners to the
effect that he is still a partner of the firm.
Section 38(1) provides that after retirement, a

partner is still liable to persons who deal with
the firm after a change in its constitution unless
he has given notice to such persons that he is no
longer a partner.
115
6.6. INCOMING & RETIRING
PARTNERS
 Case: Re Siew Inn Steamship Co (1934)
A retired partner had inserted notice of his
retirement in several issues of newspapers to
which certain old customers were proved to be
regular subscribers. After his retirement, these
same old customers lent money to the firm. One
of the lenders later sued the retired partner,
denying having actually seen notice of his
retirement in the papers. It was held that the
retired partner was liable. Actual notice was
necessary as far as the old customers were
concerned. Interface Global Education (M) Sdn Bhd 116
6.7. PARTNERSHIP PROPERTY
Section 22(1) of the Partnership Act 1961:

“All property and rights and interests in property
originally brought into the partnership stock or
acquired, whether by purchase or otherwise on
account of the firm or for the purposes and in the
course of the partnership business,… and must be
held and applied by the partners exclusively for the
purposes of the partnership and in accordance with
the partnership agreement.”
117
6.7. PARTNERSHIP PROPERTY
 A common problem arises as to whether the property
belongs to the firm or the individual partners.
Case: Davis v. Davis [1894] 1 Ch 393
It was held that the mere fact that the firm’s business was
conducted on property insured by one partner did not make
it part of the partnership property.
 But, if the property is purchased out of the partnership
assets, the said property is deemed to constitute part of the
partnership property, unless the contrary intention is
established (Section 23 of the Partnership Act 1961).

6.8. RELATION OF PARTNERS TO
ONE ANOTHER
 The partnership agreement determines the relations of
partners to one another.
 What does the partnership agreement normally provide?
○ rights & duties of the partners.
○ the partnership’s capital

○ the conduct & management of the firm
○ the profit-sharing arrangement of the partnership.
 If the relations between the partners is not provided or

mentioned in the partnership agreement, Section 26 of the
Partnership Act shall apply in this case.
119
6.9. DISSOLUTION OF PARTNERSHIP
 A partnership may be dissolved through several ways:
1. By notice or expiration:
i. If the duration of the partnership has been specified in the
partnership agreement, the partnership is terminated on the
expiry of that period –Sect 34(1)(a);
ii. If the partnership was entered into for an undefined time,

by any partner giving notice to the other partners of his
intention to end the partnership- Sect. 34(1)(c).
120
2.By death or bankruptcy (unless otherwise
agreed by the partners) : Sect. 35(1) of the
Partnership Act 1961.
3. By court order –Sect. 37 of the Partnership

Act, i.e. in the following cases:
i. insanity of a partner – Sect. 37(a)
ii.permanent incapacity of any partner to perform
his duties – Sect.37(b)
iii.conduct calculated to prejudicially affect the
carrying on of the business- Sect.37(c)
 By charging on shares – Sect.35(2)
A partnership may, at the option of other
partners, be dissolved if any partners suffers his
share of the partnership property to be charged
for his separate debt.
 By supervening illegality – Section 36
Section 36 of the Partnership Act provides that:
“A partnership is in every case dissolved by the
happening of any event which makes it unlawful
for the business of the firm to be carried on or for
the members of the firm to carry it on in
partnership.”
6.10. NOTICE OF
DISSOLUTION
 Once a partnership is dissolved, notice of dissolution must be
given to all customers of the partnership.
 In the absence of the notice of dissolution, the customers are
entitled to treat the partnership as still existing.
 For old customers and clients of the partnership, a preferable
mode is by a circular letter. This was held in the case of Re
Siew Inn Steamship Co.
 However, for a recent customer of the partnership, one
advertisement in a gazette is not per se sufficient. This was
held in the case of Re Hodgson, Bechkett v Ramsdale
(1885) 31 Ch.
123
6.11. CONTINUATION OF AUTHORITY
OF PARTNER
 Section 40 of the Partnership Act 1961 states

that:
“Every partner in a firm is liable jointly with the
other partners for all debts and obligations of the
firm incurred while he is a partner, and after his
death his estate is also severally liable in a due
course of administration for such debts and
obligations so far as they remain unsatisfied, ….”

6.11. CONTINUATION OF AUTHORITY
OF PARTNER
 The authority and rights of the partners continue
for the purpose of completing the winding-up
process.
BUT,
 Where the dissolution is either by death or
bankruptcy of a member, such authority and
rights in winding-up the business fall upon the
surviving or the solvent partners alone (Section
16 of the Partnership Act 1961).
125
6.12. SETTLEMENT OF ACCOUNT
AFTER DISSOLUTION
 Section 41 of the Partnership Act :
Once a partnership is dissolved, every partner is
entitled to have the property of the partnership
applied in payment of the debts and liabilities of
the firm, and also to have surplus assets to be
distributed among the partners after payment of
the debts.

TOPIC 7 : LAW OF AGENCY

7.1. CREATION OF AGENCY
 Normally, an agency is created by the agreement
of both the principal and the agent.
 No specific formality in order to form a contract of
agency.
 Consideration is not necessary in order to form a
contract of agency (Section 138 of the
Contracts Act).

7.2. KINDS OF AGENCY
1. By express appointment
 The agent is appointed either orally or in writing
(Section 140 of the Contracts Act).
2. By implied appointment
 It may occur in 3 situations:
i. Implied by the Partnership Act 1961
- Section 7 of the Partnership Act states that:
“Every partner is an agent of the firm and his other
partners for the purpose of the business of the
partnership……”
 The firm or other partners are liable to whatever contracts
which had been entered into by any of the partners.
129
ii. Implied from the circumstances of the case
The creation of agency may be implied by

referring to the words, conduct or the regular
conduct of the business between the parties.
It appears to third parties that certain person is
having authority to act on behalf of another
person (Section 140 of the Contracts Act
1950).
130
iii. Implied from the relationship of husband
and wife.
 It is implied that the wife has authority to pledge

the husband’s credit in a contract, on condition
that the contracts are for necessaries and suited
to their condition and style of living. In other
words, the wife is an agent of the husband.
131
 BUT, the husband can rebut this implied authority by proving
that:
 he expressly forbade his wife from pledging his credit;
 he expressly warned the tradesman not to supply his wife
with goods or credit;
 his wife was sufficiently provided with goods of the kind in
question; or
 his wife was given enough allowance for buying goods
without having to pledge her husband’s credit; or
 the contract was unreasonable, taking into consideration her
husband’s income at that time.

3. By ratification
 Agency by ratification may arise in two
situations:
 i. When an agent who was appointed by the
principal, has exceeded his given authority; or
 ii. When a person, who has no authority to act
for the principal, has acted as if he has the
authority to act on behalf of the principal.
 Ratification : certification or acceptance by the

principal for an act done without authority or
exceeding the authority given.
133
 The principal has a choice either to reject or to
accept the contract which has been made on
behalf of him.
 If he accepts and affirms the contract, this means
that he ratifies the contract and there exists an
agency relationship between the principal and the
agent (Section 149 of Contracts Act 1950). The
principal is bound to the said contract.
 But, if the principal does not accept such contract,
then no agency relationship exists and the
principal would not be liable upon such contracts.

4. By necessity or emergency
 It may occur in two situations:
 i. When a wife is deserted and has no means of
support.
- A wife can pledge her husband’s credit for
necessaries suited to the income and life
condition of her husband.
-But, she cannot become an agent by necessity if
her husband has provided her with sufficient
allowance.
135
 ii. When a person is entrusted with another person’s property,
and it becomes necessary for him due to the emergency
situation, to do something in order to preserve and to protect
that property although he has no authority to do so.
Case: Great Northern Railway v Swaffield
The plaintiff, a railway company, had been entrusted to deliver
a horse of the defendant to a destination. However, when it
reached the destination, nobody came to take the horse. The
plaintiff had to look after the horse and took several actions in
order to preserve the safety of the horse. The plaintiff then
claimed from the defendant the extra expenses incurred in
preserving the interest of the defendant. However, the
defendant refused to pay on the ground that the plaintiff was
not authorized to do so.
 HELD: The plaintiff was an agent by necessity and therefore
entitled to the claim.
5. By estoppel
i. When the principal himself induces a third
party to believe that a person has an authority to
act for him, as if that person is his agent, he is
estopped by law from denying that agent’s
authority (Section 190 of the Contracts Act
1950).
 In other words, the principal cannot avoid the

liability upon the contract being made by that
particular agent.
ii. When the principal does not inform the third
party that his agent has no authority or the
agent’s authority has been terminated, but the
agent continues acting on behalf of the principal,
then the principal is estopped by law from again
denying the agent’s authority.
 In this case, the principal would be liable for the

contract made by such agent regardless as to
whether the agent had acted with or without the
principal’s knowledge.

 Case: Freeman & Lockyear v. Buckhurst
Park Properties Ltd.
There were four directors in a company. One of
them, A, contracted on behalf of the company
with T, (a third party) without any authority.
The other directors knew about the contract
but did not inform T that A actually had no
authority to act on behalf of the company.
HELD: The company is estopped from denying
that A is the company’s agent and from
denying that A had the authority to act on
behalf of the company.
 Agency by estoppels happen only if the principal himself,
through his own words or conduct, induced the third party to
believe that a certain person is having the authority to act
on behalf of the principal. It does not happen if the third
party was induced by the agent only.
Case: Armagas v. Mundogas, The Ocean Frost

HELD: Agency by estoppels does not exist if the agent
himself represents to the third party that he is the agent
of the principal, and not from the words or the conduct of the
principal.


7.3. DUTIES OF PRINCIPAL & AGENT
1. Duties of Principal Towards Agent
a)To pay the commission or other agreed
remuneration
 Section 172 of the Contracts Act requires that a
principal is under the duty to pay the
remuneration or commission of the agent upon
completion of all contractual duties of the agent.
 The amount of remuneration depends on the
contract of agency.
 If there was no amount of commission fixed under
the contract of agency, reasonable remuneration
would be paid.
141
 But, if the agent is guilty of misconduct, he loses
his right to remuneration. This is provided under
Section 173 of the Contracts Act 1950.
Case: Andrew v. Ramsay
HELD: The principal is not bound to pay the
agent’s commission due to the fact that the
agent had received secret profit or a bribe when
performing his duties as an agent.

b)Not to willfully prevent or hinder the agent from
earning his commission
 The principal is under a duty not to prevent the agent from
earning his commission. Why? Earning commission is the
agent’s right.
 E.g. : where the principal is said to have willfully preventing
the agent from earning his commission:
- The principal refused to accept the contract made by the
agent.
- The principal appointed another agent to carry on the same
duty, to deprive the original agent from earning his
commission.

c)To indemnify & reimburse the agent for
lawful acts done in the exercise of his
duties (Section 175 of the Contract Act)
 If the agent incurs some liabilities or losses in
the exercise of his duties, the principal is under
a duty to indemnify or reimburse the agent.
Case: Hichens. Harrison, Woolston & Co. v
Jackson & Sons
HELD: The agent is entitled to damages for
anything incurred in the performance of his
duties and to be reimbursed for whatever the
agent had advanced or lost.
Duties of Agent Towards Principal

a)To obey the principal’s instruction
 An agent must obey the instructions of the
principal. If he or she fails to obey the same, there
will be a breach of contract of agency and the
agent is thus liable for any loss sustained by the
principal (section 164 of the Contracts Act 1950).
145
 Case: Turpin v Bilton
- The agent has been instructed by the principal
to get the insurance for his vessel. However, the
agent failed to do so. The vessel vanished and as
a result the principal had to bear some loss.
HELD: The agent is liable for breach of duty, due
to his failure to obey the principal’s instruction.
The agent is liable to pay compensation for the
loss.
 But, the agent does not have to obey instructions
of the principal that are against the law.

b) If there is no instruction, the agent must act
according to the customs that prevail in doing
business of the same kind : Section 164 of the
Contracts Act 1950

c) The agent must exercise care and diligence
and use all skills he possesses in carrying out
his work: Section 165 of the Contracts Act 1950.
 If the agent is employed for his professional
service, he must use all his skills and expertise as
usually required from a same professional man.
147
 Case: Keppel v. Wheeler
The defendant, i.e. the agent, was employed to
sell the plaintiff’s (i.e. the principal’s) house. An
offer was received and accepted by the plaintiff
‘subject to contract’. A few days later, a higher
offer for the same house was made by another
party but this offer was not communicated by
the defendant to the plaintiff. Then, a written
contract between the plaintiff and the first
offeror was duly signed.
HELD: The agent was liable to the principal for
the differential sum between the two offers.
d)To render proper accounts when required
 It is the duty of the agent to account for all
monies and property accepted on behalf of the
principal. It is provided in Section 166 of the
Contracts Act 1965. The principal’s property
should not be mixed up with the agent’s own
property.
 Case: Turpin v Bilton
- HELD: An agent who has been entrusted with
the principal’s money or property is bound to
keep the money or property separately from his
own property.
e)To communicate with the principal during
emergency or difficulty
 Section 167 of the Contracts Act 1950 requires an
agent to use all reasonable diligence to
communicate with and to obtain instructions from
his principal in cases of emergency or difficulty.
 But, if it is impossible, the agent may use his own

discretion to safeguard the interest of the
principal ( Section 142 of the Contracts Act).

f)To act in good faith and no conflict of interest
 The agent must act solely for the benefit of his principal, not
for his own benefit. Therefore, an agent cannot become a
party to the transaction with the principal.
Case: Armstrong v. Jackson
- An agent has been instructed to buy shares for the principal.
The agent sold his own shares to the principal without
informing the principal in advance.
HELD: The agent has not acted in good faith. The agent
cannot become a party to the transaction with the principal.
151
g)The agent cannot make secret profit
 Secret profit here refers to secret commission or
any financial advantage which is above and beyond
the commission agreed under the agency contract.
 Section 169 provides that if an agent without the
knowledge of his principal deals in the business of

agency on his own account, then the principal is
entitled to claim any benefits from the agent that
resulted from such transaction.
 But, if the principal knows of the profit gained by
the agent, and the principal consents to it, it is no
longer secret.
h)The agent must pay his principal all sums received on his
behalf
 The agent must pay all sums received on behalf of the principal
to the principal, as provided in Section 171 of the Contracts Act
1950.
 However, this is subject to Section 170 of the Contracts Act
1950 where the agent is entitled to deduct any sum from the
principal’s money for the payment of the followings:
i. any sum owed to the agent in respect of advance made or
expenses incurred by the agent in conducting the business.
ii. any commission or remuneration payable to the agent.

153
The agent also has the right to

retain his principal’s property in
his possession until his
remuneration is paid. This right is
known as the ‘right of lien’
(Section 174 of the Contracts
Act 1950).

7.4. THE AUTHORITY OF THE AGENT
An agent’s authority may be actual or
apparent.
Actual authority refers to authority expressly

given by the principal to the agent either orally
or in writing or implied from the express
authority given, from the circumstances of the
case, custom or usage of trade as well as the
conduct of the parties.
155
7.4. THE AUTHORITY OF THE AGENT
 Apparent authority is that which is not expressly
given by the principal but which the law regards the
agent as possessing even though the principal has
not consented to his exercising such authority.
Case: The Firm of T.A.R. CT. v. The Firm of SV.

K.R. [1955] MLJ 2
-HELD: An agent who had authority to part with the
firm’s money had, in the circumstances of the case, a
necessary implied authority to receive payment for the
firm.

7.5. TERMINATION OF AGENCY
A. Termination by the act of the parties
 When both parties agree that the agency shall
be terminated, the agency is terminated.
If the agency is for a fixed period of time, the
agent cannot terminate the agency before the
expiry of that period without just cause. If not,
he will be liable to the principal for damages for
any loss caused by the premature termination
of the agency (Section 158 of the Contracts
Act 1950).
157
But, if the agency is for an

indefinite duration, the agent can
terminate the agency by giving
reasonable notice of termination
to the principal (Section 159 of
the Contracts Act 1950).

B. Termination by operation of law
An agency may be terminated by operation of
law under the following circumstances:
i) upon expiry of the period fixed in the
contract of agency, or
ii) upon the death of the principal or the agent.
an agency terminated by the death of the
principal is effective only when the agent has
notice of the principal’s death (Illustration C
to Section 161 of the Contracts Act).
 when the principal or agent becomes insane.
159
 when the principal or agent is made a bankrupt.
 when the contract of agency has been
performed, i.e. when an agency is created for a
single specific transaction and the transaction is
completed (Section 154 of the Contracts Act).
 upon the happening of an event which renders
the agency unlawful.
Case: Stevenson v. Aktiengesellschaft Fur
Cartonnagen Industrie [1918] AC329
HELD : The agency was terminated when an
outbreak of war made the principal an enemy
alien.

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EXECUTIVE MASTERS

 A proposal can be made to an individual, to a class of persons, a firm, a

Case: Carlill v. Carbolic Smokeball Co (1893) IQB 256, CA.

 When is the communication of the proposal (offer)

1. Advertisement in newspaper for certain posts.

4. When a customer puts goods in basket, he or she makes an

 Case: Pharmaceutical Society of Great Britain v Boots Cash

 HELD: The display was only an invitation to treat. A

Case: Felthouse v. Bindley (1826) 11 CB (NS) 869; 142 ER 1037

 When does an acceptance become effective?

Household Fire Insurance Co. v Grant, the defendant proposed to buy

 If the communication of acceptance is not complete as against the

 If the communication of acceptance is not complete as against the

 BUT, if an acceptance is complete, it cannot be revoked anymore

 Consideration may move from a person who is not the promisee.

 Consideration needs not be adequate.

 Natural love and affection may be a valid consideration

 In COMMERCIAL AGREEMENTS, there is a presumption that the parties do

 Section 30 of the Contracts Act 1950 states that:

 Illustration (a) to Section 30 of the Contracts Act 1950 provides that:

 Case : KARUPPAN CHETTY v. SUAH THIAN

 General rule in Malaysia : Contracts made by infants

2. Registered corporations (companies):

 Contracts which are immoral or opposed to public policy can also be

 Employee under the Employment Act 1955 means :

he is engaged in any capacity in any vessel

he is engaged as a domestic servant.

 No female employee shall be employed in any

 For e.g. : only nationals from Indonesia,

 A manufacturing company with foreign paid-up

 A manufacturing company with foreign paid-up

 A contract of service is considered to have been

 On the other hand, an employee has the right to

 An employer may also dismiss an employee by

 In both situations, the length of notice shall be

less than 2 years of service - minimum 4 weeks

2 years or more but less than 5 years of service

5 years of service or more - minimum 8 weeks

 Aim : to provide a measure of security for old age

 All employees who are Malaysian citizens and

 Employees Provident Fund Act 1991 is the statute

 But, with effect from 1st August 1998, all foreign

 Section 41(2) of the EPF Act 1991 :

 The Social Security Organization provides social

 SOCSO only covers Malaysian workers and

 Once an employee registers with SOCSO, and has

 The Industrial Relations Act 1967 governs the

-to settle their differences

-to regulate their collective relationship

-to settle any dispute arising there from through

 Unless approved by the Ministry of Human

 Peaceful and orderly picketing in furtherance of a

 The main legislation governing companies in

 A company is a corporate body or corporation as

 In the case of Lee v. Lee’s Air Farming Ltd [1960] 3 All

 Held: A Ltd was a ‘creature of L, a device and a

Case : D.H.N. Food Distributors Ltd. v. Tower Hamlets

- The ownership of a lease and of the business which used the

Debenture : A loan agreement which may or

Debenture is defined in Section 4 of the

attaches to the property in question from

gives the holder of the charge an immediate