TUNKU ABDUL RAHMAN UNIVERSITY COLLEGE
BBBL 2074 BUSINESS & CORPORATE LAW
TUTORIAL 1: WEEK 1
Law of Contract
1. Conditions and warranties are the two main types of terms a contract can consist of.
Explain the differences between them.
Terms are contractually binding. In the event of a breach, the rights of the injured party would
depend on the type of term that has been breached.
For the purpose of breach of contract, the terms of a contract may be further categorized as:
a) Condition
A condition is a fundamental major term. It goes to the root of the contract and is the
main reason why the parties entered into the contract. A breach of a condition will
allow the innocent party to repudiate the contract and/or claim for damages, OR
continue with the contract but claim for damages.
b) Warranty
A warranty is not a major term but only a subsidiary obligation. A breach of
warranty will not affect the whole efficacy of the contract. Therefore, a breach of
warranty will allow the injured party to only claim for damages but not rescinding
the contract.
In Bettini v Gye (1876), the Plaintiff, an opera singer was engaged by the Defendant
to appear in a season of concerts. he undertook to be in London at least 6 days
before the first concert for the purpose of rehearsals but arrived 3 days late because
of a temporary illness. He gave no advance notice and the Defendant refused to
accept his services. The court held that the Plaintiff had been engaged to perform for
a 15-week season, the failure to attend rehearsals could only affect a small part of
this period. The promise to appear for rehearsals was a less important term of the
contract, as such it could be regarded as warranty. Hence, the Defendant could
claim compensation for a breach of warranty but he cannot repudiate the Plaintiff’s
contract.
c) Innominate Term
An innominate term is a contractual term that may turn out to be either a condition
(is integral to the contract) or a warranty (is incidental to the contract), depending
on its effect on the injured or innocent party. The type of remedy that would be
available depends on the circumstances and the effect of the breach.
2. Differentiate a void contract from a voidable contract.
Although all the elements of formation may be present, rendering the contract valid, in certain
circumstance if genuine consent is not obtained, then there can be no agreement and no
contract between the parties.
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Where genuine consent is not obtained, the contract could be regarded as a voidable contract or a
void contract.
Voidable contracts are contracts where all the elements of contract exist. Unlike a void contract,
a voidable contract is a valid contract. When consent is caused by coercion, fraud or
misrepresentation, the contract is voidable at the option of the innocent party: S.19, CA 1950.
When consent is caused by undue influence, the contract is voidable: s.20, CA 1950.
The innocent party may choose whether he wants to carry on with the agreement or terminate the
agreement. If he decides to terminate the contact, then the contract is void.
When a person at whose option a contract is voidable rescinds it, the other party thereto is released
from any further obligation. The party rescinding a voidable contract shall restore any benefits he
had received from the others: S.65 CA 1950.
An agreement not enforceable by law if said to be void: S.2(g) CA 1950. When both the parties to
an agreement are under a mistake to a matter of fact essential to the agreement, the agreement is
void: S.21, CA 1950. The remedy is found in s.66 of CA 1950 which provides any person who has
received any advantage is bound to restore it or to make compensation for it to the person from
whom he received it.
3. Section 14 of the Contracts Act 1950 states that consent is free when it is not caused by
vitiating factors. Discuss what the vitiating factors are and what the effects of
vitiating factors are.
1.1
Coercion
S. 15 CA 1950, coercion occurs where a party commits or threatens a criminal act or
unlawfully detains or threatens to detain an innocent party’s property with intention to
cause the innocent party to enter into a contract.
The Privy Council in Kanhaya Lal v National Bank of India, Ltd (1913) explained that
the definition of ‘coercion’ in section 15 above is limited to an unlawful act done ‘with
the intention of causing the person to enter into an agreement’. This means that the
definition of ‘coercion’ under section 15 applies solely to the consideration whether there
has been free consent to an agreement as to render it a contract under S.10 of CA 1950.
1.2
Undue Influence
Section 16(1) of CA 1950 provides that undue influence occurs when:
(a) there is a relationship between the parties and one party is in the position to
dominate the will of the other; and
(b) the dominant party uses that position to obtain an unfair advantage over the
other.
In other words, undue influence involves one person taking advantage of his position of
power over another to prevent the latter from exercising his independent judgment and in
so doing, the first person gains an unfair advantage for himself.
Section 16(2) CA 1950 states that a person is in a position to dominate the will of another
where:
(a) he holds a real or apparent authority over the other, or where he stands in a
fiduciary relation to the other; or
(b) 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.
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In some cases, the relationship between the parties is such as to create a presumption of
undue influence, eg parent-child, solicitor-client, doctor-patient, religious advisor –
disciple follower.
In Poosathurai v Kannappa Chettiar & Ors (1919), the Privy Council held that showing
mere influence is insufficient but the innocent party would need to show that the
dominating party had obtained an unfair advantage.
1.3
Fraud
Section 17 CA 1950 provides that fraud includes any of the following acts committed by
the party with the intent to deceive or to induce another party to enter into a contract:
(a)
suggesting a false fact which the party committing it does not believe it to be
true;
(b)
concealing a fact;
(c)
making a promise without intending to perform it;
(d)
committing any other act in order to deceive; and
(e)
committing any act or omissions as the law declares to be fraudulent.
Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud, unless the circumstances of the case are such that it is the duty of
the person keeping silence to speak, or unless his silence is, itself, equivalent to speech.
However, the contract is not voidable if the party had the means of discovering the truth
with ordinary diligence.
A fraud committed on a person which did not cause him to enter into a contract does not
render a contract voidable. The party alleging there is a fraud must have relied on the
fraud in order to bring an action.
1.4
Misrepresentation
Section 18 CA 1950 provides that ‘misrepresentation’ includes:
(a) any positive assertion which is not true even though the maker believes it to be
true;
(b) any breach of duty which, without an intent to deceive, gives and advantage to
the person committing it; and
(c) causing, however innocently, the other party to make a mistake as to the subject
of the agreement.
A claim for misrepresentation will only be valid if it is a misrepresentation of a statement
of fact. The requirements here are that in inducing a party to enter into contract:
(a) the misrepresentation must be material; and
(b) it must have been relied on.
Failure to volunteer information does not amount to a misrepresentation unless the maker
of the statement is under a duty to answer. When the maker of a statement only reveals
half truth, this could also amount to misrepresentation.
2.1
Mistake
→
→
→
A mistake occurs where there is no ‘meeting of the mind’.
When both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void: S.21 CA 1950.
S.22 CA 1950, a contact is not voidable because it was caused by a mistake as to
any law in force in Malaysia.
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The effects of the vitiating factors according to CA 1950 are:
 When consent is caused by coercion, fraud or misrepresentation, the
contract is voidable at the option of the innocent party: S.19, CA 1950
 When consent is caused by undue influence, the contract is voidable: s.20,
CA 1950.
 When both the parties to an agreement are under a mistake to a matter of
fact essential to the agreement, the agreement is void: S.21, CA 1950.
4. What are the ways in which a contract may be discharged?
A contract may come to an end either by:a)
performance (s.38)
- the contract has been completed by all parties according to the contract.
b) agreement between parties (s.63)
- both parties have agreed conclusively to end the contract.
c)
breach (s.40)
- where there is a refusal or disability to perform a fundamental term of the contract by
one party of the contract. This potentially leads to a claim for damages if there are any
losses or expenses incurred by the other party as a result of the breach.
d) frustration (s.57)
- where an event happens that is not the fault of any of the parties, making it impossible
and/or unfair to demand the completion of the contract. Circumstances that frustrate a
contract include destruction of subject matter, supervening events, death or personal
incapacity, war or injunction.
5. X Sdn. Bhd. and Mr. Y have entered into a contract. Advise Mr. Y as to the three
remedies available to him in the event X Sdn. Bhd. breaches the contract.
Remedies that are available for breach of contract would depend on the gravity of the effect
and impact of the breach. The types of remedies that are available are:
a) Recession of contract
- the contract is annulled and both sides are excused from further performance and
any money advanced is returned.
b) Damages
- an equitable quantum of money is paid to the plaintiff to compensate for any loss.
c) Specific performance
- a court order requiring performance exactly as specified in the contract. This
remedy is rare, except in real estate transactions and other unique property, as the
courts do not want to get involved with monitoring performance.
d) Injunction
- a court order directing one party to perform or to refrain from doing a certain act. It
is used especially in situations where a monetary award for damages would not
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satisfy a plaintiff’s claim or would not protect personal or property right from
irreparable harm.
6. Andy owned a well-established boutique in Ipoh. He is due to retire in six-months, so he
decided to sell the boutique. He was introduced to Ben through one of his friend. During
the meet up, Andy said to Ben “There is no any other boutique within 30 miles from
here”. When asked about the boutique’s performance, Andy said that “I believe the
annual level of profit is around RM800,000”. Ben asked his accountant, Chloe to verify
Andy’s stated level of profits. Chloe confirmed Andy’s statement, but in fact the boutique
only make around RM300,000 profit per year. Ben asked for a few weeks to think it over.
Andy later discovered that M&H, an international fashion store, is due to open a new
store next to his boutique. He did not inform Ben about this. Few days later, Ben
confirmed the purchase of the boutique with Andy. A buy-sell agreement was then entered
into between Andy and Ben. Ben later discovered the true level of profit of the boutique
as well as the opening of the international fashion store. Advise Ben.
First issue: Whether by saying “there is no any other boutique within 30 miles from here” is
misrepresentation?
At the time the statement is made, it is true, however, between the statement being made and the
agreement being entered into, Andy discovered that an international fashion store will be opened
next to his boutique.
Section 18 CA 1950 provides that ‘misrepresentation’ includes:
(a) any positive assertion which is not true even though the maker believes it to be
true;
(b) any breach of duty which, without an intent to deceive, gives and advantage to
the person committing it; and
(c) causing, however innocently, the other party to make a mistake as to the subject
of the agreement.
The general rule is that silence does not constitute misrepresentation, so non-disclosure will not
usually render a statement false. However, where a change of circumstances occurs as in Andy’s
case here, Andy will need to inform Ben of the change. If Andy does not do so, his silence will
amount to a misrepresentation.
A claim for misrepresentation will only be valid if it is a misrepresentation of a statement
of fact. The requirements here are that in inducing a party to enter into contract:
(a) the misrepresentation must be material; and
(b) it must have been relied on.
Whether inducement present is strongly depending on the facts of the case. Here, Ben seems to
have been strongly induce by the statement.
** student can discuss about voidable contract here and the remedies available.
Second issue: Whether statement “I believe the annual level of profit is around RM800,000” is
misrepresentation?
“believe” – opinion not statement of fact
Ben asked Chloe his accountant to verify, no reliance on the statement – so no element of
inducement
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** student may discuss Law of Negligence here – Chloe
Conclusion : Ben can rescind the contract (as it is voidable) S.19; Andy to restore the benefit
received S.65. Claim losses from Chloe (but only limited to actual losses not to be unjustly
enriched)
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