LAW OF CONTRACT
Topic 4.1 : Offer & Acceptance
2
LEARNING OUTCOMES
• To understand the significance and importance of offer
and acceptance
DEFINITION OF CONTRACT
SIMPLE DEFINITION:
AN AGREEMENT BETWEEN TWO OR
MORE PEOPLE WHICH IS LEGALLY
ENFORCEABLE BY ONE PARTY
AGAINST THE OTHER
4
Proposal
• An agreement between 2 or more parties is
constituted by a proposal and an
acceptance of it
• ‘Proposal’ bears the same meaning as
‘offer’ in English Law
• E.g : Harry wrote offering to sell his car, a
Proton to Krishna for RM30,000.
5
Proposal
 An offer or proposal is necessary for the
formation of an agreement
 S2(a) Contracts Act 1950 states that “when one
person signifies to another his willingness to do
or to abstain from doing anything, with a view to
obtaining the assent of that other to the act or
abstinence, he is said to make a proposal”
 Under the Contracts Act 1950 and English Law,
a proposal or offer is something which is
capable of being converted into an agreement
by its acceptance
6
• Preston Corporation Sdn Bhd v Edward Leong [1982] 2
MLJ 22, FC
• Salleh Abbas FJ stated that : “an offer is an intimation of
willingness by an offeror to enter into a legally binding
contract. Its terms must indicate that it is to become
binding on the offeror as soon as it has been accepted by
the offereee”.
7
FORMS OF PROPOSAL
VERBALLY/ ORALLY
IN WRITING
BY CONDUCT
8
• Contracts can be made orally. However, oral contracts are
difficult to prove. It would be wise to put it in writing.
9
• Syed Jaafar v Maju Mehar Singh Travel & Tours Sdn Bhd.
[1999] 4 MLJ 413
• The plaintiff venture in business of travel arrangement for
persons in Kelantan to perform the Umrah and Haj in Makkah.
The defendant was a travel agency in KL.
• Plaintiff enter into oral agreement with the defendant that the
defendant must pay RM200 for every passenger he brought to
the defendant. The defendant could not obtain the visas, all
the passenger had to return to Kelantan without performing
the Haj. Plaintiff claimed RM614,500 for air tickets and
RM27,810 for other cost. Defendant deny plaintiff claim.
• Held : There was oral agreement between P and D. D’s
contention that such contract should be reduced into writing
seems to defeat the core existence of oral contracts. P and D
did intended to create a binding contract.
10
Proposal
• Can be made to: • A specific individual
• A specific group of people
• Whole world
• Can be accepted by anyone provided he fulfils the condition
• If the condition is fulfilled, the offeror must fulfil his part of the agreement
(Carlill v Carbolic Smoke Ball)
11
Proposal
 A definite offer may be made to a class of persons or to the
world at large
◦ Carlill v Carbolic Smoke Ball Co. (1893)
The manufacturers of a patent medicine published an advertisement
by which they undertook to pay '£100 reward…to any person who
contracts…influenza…after having used the smoke ball three times
daily for two weeks'. The advertisement added that £1,000 had been
deposited at a bank 'showing our sincerity in this matter'. The
claimant read the advertisement, purchased the smoke ball and used
it as directed. She contracted influenza and claimed her £100
reward. The manufacturers argued a number of defences, including
the following:  The offer was so vague that it could not form the basis of a contract as no
time limit was specified.
 It was not an offer which could be accepted since it was offered to the
whole world.
Held: the court considered these two defences as follows:  The smoke ball must protect the user during the period of use. The offer
was not vague.
 An offer to the public can be accepted so as to form a contract.
12
Proposal

The terms must be clear and certain.
◦
◦
◦
The proposal must not be vague, indefinite or uncertain.
Section 30 of CA illustration (a)
Gunthing v Lynn (1831)
The defendant agreed to pay a further sum if it was "lucky".
Held: the offer was too vogue.
13
Invitation to Treat (ITT)
• An invitation to treat is an invitation to people to make
•
•
•
•
offers/proposals
ITT is a proposal to negotiate.
Sometimes, it may be difficult to ascertain whether it is an
offer/proposal or invitation to treat
The importance of the difference is that if an offer is
accepted it will give rise to a binding contract enforceable
through the courts (in most cases)
However, an invitation to treat is not an offer and the
person responding to such invitation will only be able to
enforce his offer if the other person accepts it
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• The distinction between offer and ITT can be seen in :
• Gibson v Manchester City Council [1979] 1 All ER 972
• The MCC wrote to Mr Gibson that the council ‘May be
prepared to sell the council house’ to him at $2,180and
invited him to make a ‘formal application’. The control of
council changed hands and the new council refused to
complete the sale.
• HOL held : The council’s letter was at most an ITT. The
word ‘may be prepared to sell’ cannot be converted into
legally enforceable contract. Mr Gibson’s letter was a
proposal and not an acceptance.
15
Examples of Invitation to Treat
• 1. Advertisements: • All advertisement, catalogues and brochures
are an invitation to treat (Majumder v Attorney
(1967) and Pattridge v Crittenden (1968))
unless the advertiser commits himself (Carlill v
Carbolic Smoke Ball)
• Even if the word 'offer' is used, the
advertisement is still an invitation to treat
• The circulation of a price list is also an
invitation to treat (Grainger v Gough (1896)).
16
PARTRIDGE v CRITTENDAN
FACTS:
•P ADVERTISED IN PAPER - Bramblefinch cocks &
hens ... 25s each
•AN OFFENCE TO SELL OR OFFER FOR SALE A
PROTECTED BIRD
•P CHARGED WITH "OFFERING FOR SALE"
17
ISSUE: WAS THERE AN OFFER
FOR SALE?
HELD:
ADVERTISEMENT MERELY AN
INVITATION TO TREAT
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Normal Advertisements
19
Advertisements Offering Rewards
20
Catalogues and Brochures
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Examples of Invitation to Treat
 2. Display of goods: ◦ Display goods in a selfservice shop (with a
price tag on it) is an
invitation to treat.
(Pharmaceutical Society
v Boots (1952))
◦ Display of goods in a
shop window is also an
invitation to treat (Fisher
v Bell (1961)).
22
DISPLAY OF GOODS
BOOTS’ CASE
FACTS:
•BOOTS HAD A SELF-SERVICE PHARMACY
•LAW PROHIBITED SALE OF PRESCRIBED
MEDICATION UNLESS UNDER "SUPERVISION OF A
PHARMACIST"
ISSUE: WHETHER GOODS ON DISPLAY AN OFFER?
HELD: DISPLAY OF GOODS ONLY AN INVITATION TO
TREAT - CUSTOMERS "OFFERED" TO BUY GOODS
WHEN TOOK GOODS TO COUNTER - CONTRACT
MADE WHEN THAT OFFER WAS ACCEPTED
23
DISPLAY OF GOODS
FISHER v BELL
FACTS: IT WAS AN OFFENCE TO SELL OR OFFER FOR SALE A FLICK
KNIFE. B PUT A FLICK KNIFE ON DISPLAY IN HIS SHOP WINDOW WITH
A PRICE TAG ATTACHED
HE WAS CHARGED WITH OFFERING FOR SALE
HELD: DISPLAY OF FLICK KNIFE MERELY AN INVITATION TO TREAT,
NOT AN OFFER
24
Examples of Invitation to Treat
•
3. Company prospectuses.
•
•
When a company wishes to raise capital by selling
shares to the public, it must issue a prospectus (an
invitation to treat).
Potential investors apply for shares (the offer) and the
directors then decide who to allot shares to (the
acceptance)
25
Examples of Invitation to Treat
◦
4. Invitation of tenders
◦
◦
◦
A tender is an estimate submitted in response to a
prior request
When a person tenders for a contract he is making an
offer to the person who has advertised a contract as
being available
5. Auction
◦
◦
◦
◦
At an auction sale the call for bids by an auctioneer is
an invitation to treat
The bids are offers
The auctioneer selects the highest bid and
acceptance is completed by the fall of the hammer
S10 Auction Sales Enactment (Chap 81 of the
Federated Malay State) states “a sale by public
auction shall be complete when the auctioneer
announces its completion by the fall of the
hammer”
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AUCTIONS
ADVERTISEMENT OF AN AUCTION IS A MERE
PROCLAMATION
THE CALL FOR THE BID – AN INVITATION TO
TREAT
THE BID – AN OFFER
THE FALL OF THE HAMMER - ACCEPTANCE
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TENDERS
A CALL FOR TENDERS IS
"AN INVITATION TO TREAT"
THE TENDER IS THE OFFER
THE AWARDING OF THE TENDER IS
THE ACCEPTANCE
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6. Supply of Information
• Merely giving information is not an offer
• Harvey v Facey (1893)
• P telegraphed D - "Will you sell us Bumber Hall Pen? Telegraph lowest cash
price." D replied, "Lowest cash price £900." P purported to accept the offer.
• Held: Price information is merely information. There was no offer to accept.
• Note: If the price is stated in the course of negotiation then the statement is
an offer.
• Bigg v Boyd Gibbons (1971)
• P offered to purchase a house for £20,000 which D rejected but added that
for a quick sale he would accept £26,000 and gave P a limited time to reply. P
accepted but D refused to sell.
• Held: D had made a valid offer.
29
OFFER MUST BE
COMMUNICATED TO
THE OFFEREE
30
Communication of Offer/Proposal
 The communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made (s4(1) Contracts Act 1950)
 This means that an offer or proposal is effective
once it is communicated to the offeree by the
offeror
 It is the same for by telephone, fax, face-to-face,
post
 The communication of an offer or a proposal is
deemed to have been made by an act or
omission of the party proposing by which he
intends to communicate the proposal or which
has the effect of communicating it (s3 Contracts
Act 1950)
31
Communication of Offer/Proposal
 A proposal made in words (oral or written) is
said to be expressed. If a proposal is made
other than in words (e.g. by conduct), it is
said to be implied (s9 Contracts Act 1950)
 An offer should be differentiated from an
option
 An option is merely an undertaking to keep
the offer open for a certain period of time
32
Knowledge of the proposal by the
promisee
• Whether it is necessary that the promise must have
knowledge of the proposal?
• If a reward is promised for information given or for doing a
certain act, can a person who supplied that info or
performed the act WITHOUT KNOWING the proposal,
claim the reward?
• R v Clarke – claimant who knew of the reward but had
forgotten it at the time he supplied the info, is in the same
position as a person who had known of the reward at all.
Clarke failed to get the reward.
33
Revocation of Offer
• S5(1) Contracts Act 1950 – an offer can be
revoked at anytime before the communication
of its acceptance is complete
34
OFFER MAY BE REVOKED AT
ANY TIME BEFORE
ACCEPTANCE
35
Revocation of Offer
Routledge v Grant (1828)
D offered to buy P's house stating that his offer is open for
only 6 weeks. Within 6 weeks he withdrew his offer.
Held: D could withdraw his offer before acceptance. D
was not obliged to keep the option opened for 6 weeks,
as there was no consideration.
36
Revocation of Offer
• According to s6 Contracts Act 1950 a proposal is
revoked: a)
b)
c)
d)
By the communication of notice of revocation
By the lapse of the time prescribed in the proposal
The offeree makes a counter-offer
Offeror dies/mental disorder
37
Revocation of Offer
• S6 (a) Contracts Act 1950 - by the
communication of notice of revocation
• The proposer may terminate or withdraw the
proposal by giving notice of revocation to the
other party before acceptance.
• Once effectively revoked, the proposal comes to
an end.
38
Revocation of Offer
• S6 (b) Contracts Act 1950 –
• By the lapse of the time prescribed in the proposal.
• All offers last for a specified time only.
• It then expires and cannot be accepted.
• Sometimes an offeror does not specify how long the offer will be kept open.
• If so, the courts will have to decide a reasonable length of time it should be kept
open.
Ramsgate Victoria Hotel v Montefiore (1866)
D offered to purchase shares but did not specify how long his offer would last. P
accepted after 5 months, by letter. D, meanwhile, refused to pay.
Held: D's offer was only for a reasonable period. 5 months was more than that.
Macon Works and Trading Sdn Bhd v Phang Hong Chin [1976] 2 MLJ 177,
When no time is fixed, a porpsoal would lapse after the expiration of a reasonable
time.
39
Revocation of Offer
• S6 (c) Contracts Act 1950
• The offeree makes a counter-offer.
• A counter-offer revokes the original offer.
• It will have the effect of terminating the original offer and substituting for the original offer,
the counter-offer.
• Thus, the original offeror whose offer has been terminated by the offeree's counter-offer
can accept or reject the offeree's counter-offer.
• Once a proposal is rejected, the proposal is terminated, It comes to an end and cannot be
accepted afterwards.
• Section 7 of CA 1950, in order to convert a proposal into a promise, the acceptance must
be absolute. Thus a counter proposal is also a rejection of the proposal.
Hyde v Wrench ((1840)
D made an offer to sell his house for £1000. P purposely accepted at £950 but when D
refused, P accepted the original offer of £1000.
Held: The counter-offer terminated the original offer. There was nothing to accept.
40
Revocation of Offer
• S6
(d) Contracts Act 1950
• Offeror dies/mental disorder
• If know – offer is terminated
• If do not know, offer still open
41
Acceptance
• S2(b) Contracts Act 1950 – “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”
• An acceptance is the final expression of
assent to the terms of a proposal.
42
Acceptance
 Conditions: ◦ Absolute and unconditional (s7(a) Contracts
Act 1950)
 An acceptance must be an unqualified acceptance of
the terms of the offer. If the terms of the offer are
varied or qualified the acceptance is not valid. It is in
fact a counter-offer.
Neale v Merret
The offer was to sell land at £280. P purportedly
accepted enclosing £80 and promising to pay the
rest by instalments of £50.
Held: It was implied that the term £280 meant cash
and not instalments. The 'acceptance' was not valid
because it was qualified.
43
RULES OF
ACCEPTANCE
MUST BE ABSOLUTE &
UNQUALIFIED
MUST BE IN THE EXACT TERMS OF
THE OFFER
44
Acceptance
• S7(b) Contracts Act 1950 provides that
acceptance must be expressed in some
usual and reasonable manner, unless the
offeror prescribes the manner in which it is to
be accepted
• If the offer stipulates the mode of
acceptance, then acceptance must take
place according to the method specified
45
MODE OF COMMUNICATION
IF PRESCRIBED
MUST BE STRICTLY COMPLIED
WITH
46
MODE OF COMMUNICATION
IF NOT PRESCRIBED
USUAL AND REASONABLE
MANNER
47
Acceptance
• Acceptance may be made by performance
of the condition of a proposal, or the
acceptance of any condition for a reciprocal
promise which may be offered with a
proposal (s8 Contracts Act 1950 and
Carlill’s case)
48
Acceptance
• All offers last for a specified time only. It then
expires and cannot be accepted
• Sometimes an offeror does not specify how long
the offer will be kept open. If so, the courts will
have to decide a reasonable length of time it
should be kept open (Ramsgate Victoria Hotel v
Montefiore (1866))
49
Communication of Acceptance
 The general rule is that acceptance must be
communicated, i.e. must reach the offeror (s3 Contracts
Act 1950)
 It can be communicated orally or in writing or by
conduct.
 An acceptance is ‘communicated’ when it is actually
brought to the notice of the proposer.
Dickinson v Dodds (1876)
The buyer made a purported acceptance by delivering a
letter of acceptance for an offer to sell a house. But the
seller was not at home.
Held: The acceptance was not valid because it had not
reached the offer.
50
Communication of Acceptance – The
general rule of instantaneous mode
 Instantaneous includes face to face communication, use
of telephones, telex and fax machines.
 Where the promise uses instantaneous mode, the
communication of acceptance is complete when it
comes to the knowledge of the proposer.
51
Communication of Acceptance – The
general rule of instantaneous mode
• In the business environment, where the mode of
communication is instantaneous (fax & telex),
communication reaches only when it appears on the
offeror's printer/machine during normal office hours.
• If the mode of communication is by telephone,
acceptance takes place once the offeror hears the
acceptance.
• If the offeror does not hear due to bad line etc, then there
is no acceptance.
52
INSTANTANEOUS COMMUNICATIONS
AGREEMENT ONLY
MADE WHEN THE
MESSAGE IS
RECEIVED
(EFFECTIVELY GENERAL RULE
THAT ACCEPTANCE MUST BE
COMMUNICATED APPLIES)
YES
53
ENTORES LTD. v MILES FAR EAST CORP.
FACTS: PLAINTIFF IN LONDON &
DEFENDANT IN AMSTERDAM MADE AN
AGREEMENT VIA TELEX
ISSUE: WHERE WAS THE CONTRACT
CONCLUDED?
HELD: CONTRACT WAS MADE WHERE THE
ACCEPTANCE WAS RECEIVED WHICH IS IN
LONDON
53
54
E-MAIL & SMS
PROBABLYACCEPTANCE IS NOT MADE
UNTIL THE OFFEROR OPENS THE EMAIL OR READS THE SMS
55
Communication of Acceptance
• As stated earlier, acceptance must be communicated (s3
Contracts Act 1950)
• There must be some act on the part of the offeree to
indicate his acceptance
• An acceptance must be made by some positive act. Mere
silence is not acceptance.
• In Fraser v. Everett (1889), Wood, Acting CJ, held that
there is no rule of law like the saying “Silence gives
consent”.
56
ACCEPTANCE MUST BE
COMMUNICATED
FELTHOUSE v BINDLEY
FACTS: P OFFERED TO BUY A HORSE FROM HIS NEPHEW AT A GIVEN
PRICE SAYING "IF I HEAR NO MORE ABOUT HIM I CONSIDER HIM
MINE AT THAT PRICE". HIS NEPHEW DID NOT REPLY
ISSUE: DID HIS NEPHEW’S SILENCE AMOUNT TO ACCEPTANCE?
HELD: NO, ACCEPTANCE MUST BE COMMUNICATED
57
The Exceptions to the general rule –
non-instantaneous mode
• There is exception to the rule that acceptance
must be communicated:
• Where the mode of communication specified is the post.
• A.k.a Postal Rule
• The postal rule of acceptance is stated in s4(2)(a)
Contracts Act 1950 and Illustration (b) to s4 Contracts
Act 1950
• According to the postal rule of acceptance, if both
parties have agreed to use post as a mode of
communication, then acceptance takes place the
moment the letter is posted provided the letter is be
properly stamped and correctly addressed
• Adams v Lindsell (1818)
D made an offer to sell goods requiring an answer 'in the course of
post'. P wrote back accepting the offer. The letter of acceptance was
lost and delayed. In the meantime, D sold the goods to someone else.
Held: The acceptance was made when P posted the letter in the post
box and not when it reached the offeror. There was a valid contract
58
59
AGREEMENT IS CONCLUDED WHEN THE
ACCEPTANCE IS POSTED
AND NOT WHEN IT IS RECEIVED
60
• Ignatius v Bell [1913] 2 FMSLR 115.
• The defendant gave option to plaintiff to purchase a piece
of land on or before 20 August 1912 by a notice in writing.
The Plaintiff post a letter on 16 August. The defendant
only receive it in 25 August. The plaintiff sued the
defendant for specific performance.
• Held : the acceptance was made on 16 August although
he did not receive the letter of acceptance.
61
Postal Rule of Revocation
• It can be revocation of offer or acceptance
• Revocation takes effect the moment the letter is received
and not when it is posted (s4(2)(b) Contracts Act 1950)
• Note:
• If by post:
• When the letter is posted, revocation is complete for the offeree
• When the letter reaches the offeror, the revocation is complete for the
offeror (s4(3) Contracts Act 1950)
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ACCEPTANCE MUST BE IN RELIANCE
ON THE OFFER
R v CLARKE
FACTS: REWARD FOR THE ARREST & CONVICTION OF MURDERER. C
ARRESTED FOR MURDER. TO SAVE HIMSELF GAVE INFORMATION
THAT LED TO THE ARREST OF Y
ISSUE: WAS C ENTITLED TO THE REWARD?
HELD: C GAVE INFORMATION TO CLEAR HIMSELF AND NOT IN
RELIANCE ON REWARD. ACCEPTANCE MUST BE IN RESPONSE TO THE
OFFER
62
63
COMMUNICATION OF ACCEPTANCE BY AGENT MUST BE
AUTHORISED
POWELL v LEE
FACTS: P had applied for a Headmaster’s post. The School
Board passed a resolution appointing P to the position but
did not notify him of the decision, though he was told
unofficially by a member of the Board. The Board later
appointed someone else as Headmaster.
ISSUE: WAS THERE AN EFFECTIVE ACCEPTANCE
OF P’S OFFER ?
HELD: NO CONTRACT. ACCEPTANCE CAN ONLY BE
COMMUNICATED BY AN AUTHORISED PERSON
64
Revocation of Acceptance
• An acceptance may be revoked at anytime before the
communication of acceptance is complete (s5(2)
Contracts Act 1950)
LAW OF CONTRACT
Topic 4.2 : Consideration
CONSIDERATION
Introduction
Definition of consideration
Types of consideration
General rule
Elements of consideration
Exception to general rule
Learning outcome
1.
Understand the meaning and concept of
consideration.
2.
Explain the elements of consideration.
3.
Explain the general rule and exception to the
general rule.
Introduction
• Consideration is what distinguishes between a contract
from a gift
• =
no consideration
• Consideration may be seen as the reason for the
promise/contract
Definition of consideration
• Consideration is what a promisee gives to a promisor
• Can be in terms of money, things, etc
Definition of consideration
 There have been a number of case law
definitions of consideration, for example Currie
v Misa (1875):
“A valuable consideration in the sense of the
law may consist either in some right, interest,
profit or benefit accruing to one party, or some
forbearance, detriment, loss or responsibility
given, suffered or undertaken by the other.”
 Consideration can also be defined as a
detriment suffered in exchange for a benefit
received.
 This means that each party must promise to
give or do something for the other.
71
• University of Malaya v Lee Ming Chong [1986] 2 MLJ 148
• The UM appointed the defendant to a scholarship offered by
the Canadian government to pursue her study in Canada.
The parties agreed to enter into scholarship agreement that
provided for the defendant to serve the university for a
period of not less than 5 years and a breach of term will
render him liable to pay the University RM5,000. The
defendant breached the term and contended that the
scholarship agreement was void as it was made without
consideration.
• Wan Hamzah SCJ held it was clear that there was
consideration on the part of the University. The scholarship
agreement stated that the University agreed to appoint the
defendant to the scholarship. If the university had not
appointed him, he would not be able to enjoy it.
Definition of Consideration
• S. 2 (d) of CA – “when, at the desire of the promisor,
the promisee or any other person has done or
abstained from doing, or does or abstains from
doing, or promises to do or to abstain from doing,
something, such act or abstinence or promise is called
a consideration for the promise”
73
Types of Consideration
• There are 3 types of consideration based on
the definition in s2(d) Contracts Act 1950:
• … has done or abstained from doing… – Past
• … does or abstains from doing… - Executed
• … promises to do or to abstain from doing… -
Executory
74
TYPES OF CONSIDERATION
CONSIDERATION MAY BE:
EXECUTORY
EXECUTED
PAST
PROMISES
EXCHANGED
OBLIGATIONS TO BE PERFORMED
LATER
ONE/BOTH PARTIES HAVE PERFORMED
THEIR OBLIGATIONS
ACT HAS TAKEN
PLACE
PROMISES
EXCHANGED
75
EXECUTED CONSIDERATION
• EXECUTED CONSIDERATION is a performed, or
executed, act in return for a promise.
• It is an act done at the time, e.g. payment there and
then.
• Executed consideration consists of doing an act
76
EXECUTORY CONSIDERATION
• EXECUTORY CONSIDERATION is a promise
given for a promise, not a performed act. It is a
promise to do in the future, e.g. a promise to pay
in the future.
• If, for example, a customer orders goods which a
shopkeeper undertakes to obtain from the
manufacturer, the shopkeeper promises to supply
the goods and the customer promises to accept
and pay for them. It would be breach of contract if
either withdrew without the consent of the other.
77
• Anything which has already been done before a promise
in return is given is PAST CONSIDERATION which, as a
general rule, is sufficient to make the promise binding
78
Past Consideration
 The definition of the word “consideration” in s2(d)
Contracts Act 1950 appears extensive enough to cover
the aforementioned rule
 It provides that if the act was done at the desire of the
promisor, then such an act would constitute
consideration
 The phrase “has done or abstained from doing” implies
that even if the act done was prior to the promise, such
an act would constitute consideration
79
Past Consideration
• Though s2(d) CA 1950 may not cover all cases of past
consideration, one of the exceptions to the general
rule of consideration, as provided in s26 CA 1950,
appears to cover most of other such cases
• S26(b) CA 1950 provides that an agreement made
without consideration is void unless it is a promise to
compensate a person who has already voluntarily
done something for the promisor
80
Past Consideration
• Illustration (c) of s26 lends further support to the view that
past consideration in the circumstances provided
constitutes a valid consideration. It provides: A finds B’s purse and gives it to him. B promises to give A $50. This
is a contract.
General Rule
• S.26 of CA – General rule in a contract is that an
agreement without consideration is VOID
• No consideration = no contract
Elements of the consideration
1. Consideration need not be adequate
•
Explanation 2 in S.26 : an agreement is not void
merely because the consideration is inadequate
•
Illustration (f) in s.26 : “A agrees to sell a horse
worth $1000 for $10…The agreement is a contract
notwithstanding the inadequacy for the
consideration.”
•
Bolton v Madden (1873) LR 9 QB 55, the adequacy
of the consideration is for the parties to consider at
the time of making the arrangement and not for the
court when it is sought to enforced.
83
Consideration Need not be Adequate
 The issue of adequacy of consideration was dealt with
by the Federal Court in Phang Swee Kim v Beh I Hock
(1964) MLJ 383
 Here, R agreed to transfer to A a parcel of land on
payment of $500 when the land was subdivided
although the land was worth much more. R later refused
to honour the promise contending that the promise was
unenforceable. The trial judge held that the agreement
was void due to inadequacy of consideration. The
Federal Court reversed the decision and applied
Explanation 2 and Illustration (f) of s26
84
Consideration Need not be Adequate
• Consideration NEED NOT BE ADEQUATE (that is, equal
in value to the consideration received in return). There is
no remedy at law for someone who simply makes a poor
bargain.
• Exception -- when it can be proven that the contract was
entered without the free consent of the parties
• Hence --- one can contract to buy a house for RM100 if
one could agree with such terms with the owner of the
house
2. Consideration may move from the promisee or any
other person
• i.e. consideration may be made by 3rd party
• Not same with English law where only promisee can give
consideration
87
Consideration need not move from the
Promisee
• Under the Contracts Act 1950 a party to an
agreement can enforce the promise even if he
himself has given no consideration as long as
somebody has done so
• S2(d) Contracts Act 1950 reads “…when…the
promisee or any other person has
done…something, such act…is called a
consideration for the promise.”
• Venkata Chinnaya v Verikatara Ma’ya (1881) LR 4-26
• Fact : Mother had given the sister some land and that she
must pay Rs 658 to her brother
• The sister failed to pay the annuity & sued by her brother
• Held : She was liable to pay the annuity . There was good
consideration for the promise even though it did not move
from her brother.
3. Past consideration is good consideration
• Something wholly performed before the promise was
made
• It was made / given not in response to the promise
• E.g – Encik Ali was swimming in a river and started to
drown away by water. Mr Tan who heard the cries for help
saved Ali from drowning. Ali then promise to pay to Tan
RM100 for saving him.
• Under English law past consideration is not a good
consideration
• But under Malaysian Law, it is.
• S.2(d) – “ has done or abstain from doing”
• Meaning even if the act is prior to the promise, such an
act would constitute consideration so long as it is done at
the desire of promisor – Kepong Prospecting Ltd v
Schmidt [1968] 1 MLJ 170
Exception to the general rule
• Agreement without consideration is void unless :
 S.26 (a) - An agreement made based on natural love and
affection between parties standing in a near relation to
each other
 Requirements of s.26(a)
i.
ii.
iii.
It is expressed in writing
It is registered (if applicable)
The parties stand in near relation to each other
92
S26(a) Contracts Act 1950
• The meaning of the words ‘near relation’ varies
from one social group to another as it depends
on customs and practices of such groups
• Under s26(a) Contracts Act 1950, it is a valid
consideration provided the condition of ‘near
relation’ between the parties is also met
• Unfortunately, ‘near relation’ is not defined in the
Act
93
S26(a) Contracts Act 1950
• In Re Tan Soh Sim [1951] MLJ 21, an attempt was made
to define ‘near relation’. The Court, in its judgment, said
that ‘relationship’ and ‘near’ must be applied and
interpreted in each case according to the mores of the
group to which the parties belong and with regard to the
circumstances of the family concerned
Borang 14A – Pindahmilik Tanah
95
S26(c) Contracts Act 1950
• According to s26(c) Contracts Act 1950, if a debt is
statute/time barred and the debtor promises in writing
and he signs the document stating that he will return the
money on a particular date, then this is a new contract
LAW OF CONTRACT
Topic 4.3 : Other elements contract
97
LEARNING OUTCOMES
• What are the other essential elements of a valid contract?
• What is intention to create legal relations?
• What is capacity to contract?
98
INTENTION TO CREATE LEGAL RELATIONS
*FAMILY & DOMESTIC
AGREEMENTS
*COMMERCIAL
AGREEMENTS
*ADVERTISEMENTS
Introduction
• Meaning – intention to create contractual relationship.
Intend the other party to be bound by obligations.
• English law – even if the elements of offer, acceptance
and consideration are present, the transaction might still
not be an enforceable agreement – if the parties did not
have the intention to be legally bound
• Contract Act – silent on this aspect
• Therefore we import English common law on this matter
100
INTENTION TO CREATE LEGAL
RELATIONS (ITCLR)
 It is either express or implied from
circumstances.
 Express – based on what both parties intended.
 Implied - based on legal presumption which
depends on type of agreement.
• It is difficult to ascertain the true intention of the parties to
a transaction.
• There are 2 presumptions which aid the court.
• It depend on whether the transaction falls under :
Social agreement
2. Business transaction
1.
102
INTENTION TO CREATE LEGAL
RELATIONS (ITCLR)
•
Social/domestic/family agreement:
•
•
No legal relations are contemplated, but such presumption
may be rebuttable.
Business agreement:
•
there's a presumption that the parties intend legal
consequences to follow unless the parties specify
otherwise.
103
FAMILY & DOMESTIC AGREEMENTS
THE REBUTTABLE
PRESUMPTION IS THAT
THESE AGREEMENTS ARE
NOT INTENDED TO BE
BINDING
104
DOMESTIC/FAMILY, SOCIAL
AGREEMENTS
• Presumption – no ITCLR
No contract
• Balfour v Balfour [1919] 2 KB 571
Facts: Husband came back from Ceylon to stay
with his wife. Then he promised to pay 30 pounds
per month when he is in Ceylon.He then went
again to Ceylon. Later he wrote to his wife to live
apart. The wife then obtained divorce decree
from court and ask for the promise.
Held : the wife’s claim cannot succeed because
there was no contract as there was no ITCLR
• Choo Tiong Hin & Ors v Choo Hock Swee [1959] MLJ 67
• The P and his wife (then poor), went to live in a house and
•
•
•
•
•
farm in Singapore in 1916.
They have 2 daughters, and 5 adopted sons
The family became rich and prosperous when their
business start expending
In 1955, P left the family after a family quarrels because
he married again after his first wife died.
He claim possession over the farm and family house and
damages for trespass, 2 lorries and many more.
The D claim that there was a contract that they were
entitled equally with the P to possess the farm and other
properties
• Held ; the agreements alleged by the D, even if proved,
were not intended to create legal relations, and were
therefore, not binding in law as contract.
• However, the presumption may not be invoked in certain
circumstances or may be rebutted.
• First – there is intention to create legal relations if the
transaction is entered into when the parties were not on
cordial terms.
108
DOMESTIC/FAMILY, SOCIAL
AGREEMENTS
 Presumption is rebuttable if circumstances of the
case show to the contrary.
 Merrit v Merrit [1970] 2 All ER 760
Fact :A married couple divorced. They made an
arrangement in writing about their house. The
husband promised to transfer his ½ share of the
house if the wife pay all charges in connection to the
house. The wife did pay & the husband refused to
transfer.
Held : by having such arrangement- there was
ITCLR-There was a contract.
• Second – the presumption may be rebutted where the
parties undertake a substantial commitment.
• Wakeling v Ripley [1951] 51 SR (NSW) 183
• The D, a bachelor, resided alone in Sydney. The Ps were his
•
•
•
•
•
sister and her husband, a Cambridge University lecturer.
In 1946, the D wrote to his sister to persuade her and her
husband to come to live with him. He promised that he would
leave them all his property upon his death and that he would
provide them home and living.
The P agreed. The husband resigned his lectureship, they sold
their house and came to live with D.
A year later, D sold his house and disinherited Ps.
D argue the agreement was purely social and not enforceable
Held : he failed. The voluminous correspondence and the
seriousness of the move for the Ps showed that the parties had
intended their agreements to be binding. It was a binding
contract.
111
COMMERCIAL AGREEMENTS
THE REBUTTABLE
PRESUMPTION IS THAT
THESE AGREEMENTS ARE
INTENDED TO BE BINDING
2. Business arrangements
• The presumption is – the parties do have the intention to
be legally bound
• Kwong Kum Sum Pte Ltd v Lian Soon Siew [1984] 1 MLJ
150
• The acceptance indicated on the offeror’s letter of offer
was held to be sufficient for an inference to be drawn that
both parties has reached agreement and intended to be
bound immediately.
113
COMMERCIAL/BUSINESS
AGREEMENTS - II
• If ‘subject to contract’ clauses are used – no ITCLR (Low
Kar Yit & Ors v Mohd Isa & Anor [1963] MLJ 165).
• Conclusion – it depends on parties intention and
surrounding circumstances (Daiman Development Sdn
Bhd v Mathew Lui Chin Teck & Anor [1981] 1 MLJ 56).
114
ADVERTISEMENTS
GENERALLY REGARDED AS "MERE
(SALES) PUFFS” THAT AREN’T
INTENDED TO CREATE LEGAL
RELATIONS BUT IN SOME
CIRCUMSTANCES MAY BE VIEWED
DIFFERENTLY
115
CARLILL v CARBOLIC SMOKE BALL CO.
FACTS: Defendants advertised that they would pay
£100 to anyone who caught the flu after using their
smoke ball for 2 weeks. Advertisement stated that
they had deposited £1000 in a bank ‘to show our
sincerity in the matter’.
ISSUE: Was the advertisement only a mere puff?
HELD: Deposit of a £1,000 at the bank was a clear
indication of an intention to pay claims (to contract)
116
CERTAINTY OF TERMS
• At common law,there are 2 types – language used is
vague; certain terms are vague.
• In Malaysia, these are covered by S.30.- Illustration (a),
(b), (c), (d), (e) & (f)
• If this element is absent, contract is void
• Case: Karuppan Chetty v SuahThian (1916) 1
F.M.S.L.R.300 – parties agreed to a lease for as long as
he likes.
CAPACITY
• Generally it is assumed that the parties to the transaction
have capacity to contract
• However, certain persons do not have capacity or have
only limited capacity to contract :
i.
Persons of mental incapacity
ii. Intoxicated persons
iii. Minors
118
CAPACITY OF PARTIES
•
One of the elements of valid contract – S.10(1)”All
agreement are contracts…parties competent
to contract…”
•
•
Meaning – party must be of age of majority, have
sound mind & not being disqualified by law to enter
into contract– S.11
If these elements are absent, contract is void – case:
Mohori Bibee v Dhurmodas Ghose (1903) I.L.R. 30
Cal. 539
119
MINORS
 S.2 of Age of Majority Act 1971- 18 year old
 Thus, minor is a person whose age is below 18
 General rule :Contracts entered by minors are
void – Tan Hee Juan v Teh Boon Keat [1934]
MLJ 96
Queries? What is the legal justification? What is
the effect?-to protect the minors against
consequences of their own actions as they are
presumed lack of judgment in their action.
 Hv, there are exceptions to the general rule.
120
EXCEPTIONS
1.Contract to marry entered by minors/ their parents on
their behalf– valid. Rajeswary & Anor v Balakrishnan
& Ors (1958) 3 MC 178
2.Contracts for necessaries – the minor is liable to
reimburse the supplier.
The basis of a minor’s liability for necessaries is
summed up in Nash v Inman.
121
MINORS
• Common law: minor is liable for contract for
necessaries as the contract is valid
• But in Malaysia,the minor is liable to compensate the
necessaries supplied to him under Sec 69 but the
contract is void as stated in the case of Government
of Malaysia v Gurcharan Singh & Ors [1971] 1 MLJ
211
122
NECESSARIES
• Necessaries is not defined in the Contracts Act
1950.Therefore, we have to refer to the definition provided
by English common law.
• According to the case : Gov. of M’sia v Gurcharan Singh –
it must be suited to minor’s condition in life.
• E.g. clothes, shelter, education, food and medical aid.
• ‘necessaries': must be construed broadly, depends on the
facts of the case, conditions and circumstances in which
supply was made and purpose which was served.
123
NECESSARIES
• What constitutes necessaries: may vary according to
the position of particular individual.
• Test of necessaries: depends on the nature of goods
or services supplied, minor's actually needs and his
station of life.
• E.g: clothes cd well be necessaries but if the minor is
already adequately stocked, they may be treated as
mere luxury.
• Education in this time and age, held to be necessaries
in Gurcharan Singh’s case
124
Sec 69- Reimbursement
 S.69 – minor is bound to pay for necessaries.
 Illustration (a) & (b)
 S.69 applicable if:
a. Necessaries must have been actually supplied;
b. Minor’s liability includes necessaries supplied to
anyone whom he is legally bound to support such as
his wife or child.
c. Supplier of necessaries can only claim reasonable
price and which may not be the same as the contract
price;
d. Minor is bound to pay only if he has the property
to do so.
125
Misrepresentation of age
• Query? If minor has misrepresented his
age, can he still avoid the contract by
pleading minority? YES
• Case: Natesan v Thanaletchumi &
Anor[1952] MLJ 1
Fraud by minors
• R Leslie Ltd v Sheill [1914] 3 KB 607 – the D, an infant ,
borrowed money from the P company by falsely
representing himself as an adult. The P claimed damages
for the tort of deceit.
• Held – the action failed as the P’s action was an attempt
to enforce an unenforceable contract
127
SCHOLARSHIP
3. Scholarship agreement with govt bodies - valid (s.4(a) Contracts
(Amendment) Act 1976)
 Scholarship agreement: any contract between appropriate authority and
any person, with respect to any scholarship, award,
bursary,loan,sponsorship or appointment to a course of study, the
provision of leave with or without pay or any other facility for the
purpose of education or learning.
128
SCHOLARSHIP
Appropriate authority’:includes Federal
Government or State Govt, a statutory authority
or educational institution.
• The amendment does not affect the general law
relating to contracts including scholarship
agreement between minors and private
organizations.
• ‘
Employment Contract
• S.13 of Children and Young Persons (Employment Act)
1966, - minor is competent to enter into a contract of
service
130
OTHER EXCEPTIONS
4. Several other legislation allows minors to
enter into valid agreements
•
•
Contract of insurance – minor between 10 and
16 must obtain parents/guardian/ consent –
Insurance Act 1963 (Revised 1972)
Contract of apprenticeship or service – valid.
S.13 Children and Young Persons (Employment)
Act 1966 any child (below the age of 14) or young
persons (a person between the ages of 14 and
16) is competent to enter into a contract of
service other than as an employee.
131
CAPACITY OF PERSONS OF
SOUND MIND
• S11:Every person is competent to
contract……who is of sound mind, and is not
disqualified from contracting by any law to
which he is subject.
• Sound mind – capable of understanding and
forming a rational judgment as to the
contract and its effect.-S12
• S12: covers mentally disordered person,
those incapacitated through sickness,
drugs/alcohol.
• Effect – Act doesn’t specify if such contract
are void or voidable.
•
132
CAPACITY OF PERSONS OF
SOUND MIND
• In the absence of an authoritative judicial
pronouncement, the law remains uncertain.
• Under common law: contract voidable at the option of
the person of unsound mind if the fact of mental
disorder or intoxication can be proved, provided the
other party knows of his condition.
• Imperial Loan Co v Stone [1892] 1 Q.B.
599.
133
Person not disqualified by law
• A bankrupt and wound up companies cannot enter into
certain types of contract for example: transfer of land
• Corporation and companies can only contract in
transaction within their powers given by the statutes under
which they are incorporated or licensed memorandum &
article of association.
134
FORMALITIES
• General rule – contract can be made orally/verbally,
in writing or by conduct- Diamond Peek Sdn Bhd v
D.R. Tweedie
• S.10(2) – unless any law requires a contract to be in
writing.
• E.g. S5 of Hire Purchase Act 1967, S.26(a) and
S.26(c) of Contracts Act 1950.
135
CONCLUSION
• The other essentials are equally important in determining
whether valid contract exists.
• Certain elements are required by CA 1950 and some are
required by common law.
136
Legality
• The object and consideration must be lawful
• We will be dealing in the next chapter
LAW OF CONTRACT
Topic 4.4 : Contents of a contract
138
LEARNING OUTCOMES
• Able to understand the significance and importance of
terms
• What are conditions and warranties?
• What are exemption clauses?
139
Introduction
• CA 1950 does not contain any provision which
deals specifically with the contents of a contract
• Contents of a contract are TERMS
• It spells out the rights and obligations of the
parties under the contract
• Terms of the contract :
Express terms
ii. Implied terms
i.
140
CONTENTS OF A CONTRACT
L-4-010
THE RIGHTS & OBLIGATIONS OF
THE PARTIES ARE
DETERMINED BY THE TERMS
OF THE CONTRACT
141
Express Terms
• A term is express if it has been specifically agreed upon
by parties to a contract, and it may be either oral or in
writing or of both
• Identification of express terms is relatively straightforward
• If no documents exist, it becomes necessary to look back
at the negotiations conducted by the parties and
determine which oral statements were intended by the
parties to operate as terms
142
Express Terms
• The express terms of a contract are those provisions
specifically agreed to by the parties
• They may relate to matters such as price, quantity, quality,
size, colour or delivery date
• These specifications may be agreed to wholly by word of
mouth, they may be set forth entirely in a written
document or they may be found in a combination of an
oral agreement and a writing
Express terms
• Terms, contents, provisions – specifically agreed to by the
parties
• E.g. – price, quantity, quality, colour or delivery date
Implied terms
• Terms, contents, provision – not specifically included in
the contract OR not even discussed in the negotiations
• It is a term that the court will ‘read’ or imply into the
contract
• The court will do so when the implied terms appears to be
consistent with the intention of the parties
• The court will imply terms into a contract for a number of
reasons :
Court are aware that many contracts are drafted in
haste with insufficient attention to detail
2. Public policy interest in upholding commercial contract
3. Common law principle
4. Statutory implied terms – S.7 Hire Purchase Act 1967
1.
146
Implied Terms

Examples of statutes which provide that
certain terms are to be implied into particular
contracts are: 


The Sale of Goods Act 1957
The Hire-Purchase Act 1967
National Land Code 1965
147
SOME IMPLIED STATUTORY TERMS
GOODS OF MERCHANTABLE
QUALITY
GOODS FIT
FOR PURPOSE
IMPLIED
TERMS IN
SOGA
SELLER
HAS TITLE
TO THE
GOODS
GOODS CORRESPOND TO THEIR
DESCRIPTION
Written Contract - Parol Evidence Rule
• Common law interpretation rules
• Where a contract has been reduced into writing, it is
presumed that the writing contain all the terms of contract
--- and the court will not admit extrinsic evidence that
would add or vary the contract
• The parties are confined within the ‘four corners of the
agreement’
Exceptions to Parol Evidence Rule
• Section 92 (a-f) of the Evidence Act 1950
• S. 92 (a) – invalidity; ( where the contract is vitiated by
fraud, duress, failure of consideration, mistake) – extrinsic
evidence may be adduces to support those allegations
• Siah v Tengku Nong [1964] MLJ 43 – fraud case.
Oral Contract – Partly Oral / Partly written
• In the course of negotiations, the parties will make all
sorts of statements designed to induce the contract or to
improve their bargaining position.
• These statements may be oral or in writing or both and
are known as ‘preliminary’ or ‘pre-contractual’ or
‘negotiating’ statements
• Depending on the underlying intention, a statement may
be :
A mere puff
2. A representation or a term
3. A part of a collateral contract
1.
Mere puffery
• Statement made with the intention of inducing a party to
enter into a contract – it was not seriously meant
• Such a statement is, in law, a puff (or, if more than one,
‘puffery’)
• The law has recognized that traders are entitled to a
certain amount of poetic license in trying to induce others
to enter into contractual relationships
• E.g. ; exaggeration, overstatements, involves subjective
assessment “this car seats are very comfortable”.
• But, if there is a specific statement of fact that has
objective verification e.g. “this car has only one owner” --the statement will usually be recognized as being more
than a mere puff
Representation or term?
• A statement that induces a party to enter into a contract
may be an enforceable term of the contract or simple be a
‘mere representation’ having no contractual effect.
• A statement becomes a term when it is incorporated into
the contract
• A term – a promise that is part of the contract
• A representation – a negotiating statement made to lure a
party to enter into a contract and does not become a part
of the contract.
• If the untrue statement is incorporated as terms – amount
to breach of contract – innocent party entitle to claim
remedies, damages
• If the untrue statement is not term – not part of contract –
innocent party cannot sue
• Test for distinguishing a representation and a term :
1.
Time lapse. If the statement was made at the beginning
of a long negotiation and was never repeated, it is more
likely to be a representation. But if the statement is
made or repeated just before the agreement is
concluded, it is probably a term
2.
Relative importance . The more important the
statement is to the overall agreement, the morel likely it
is to be regarded as a term
3.
Statement not induced when contract reduced into
writing. If a contract has been reduced into writing,
anything that has been left out is presumed to be a
mere representation
4.
Special knowledge or skills of parties. A statement
made by a person who is recognized to have some
special knowledge is morel likely to be a term. When
one party possesses such expertise, the consumer will
be relying on him to know about the goods.
Collateral contract
• A statement made in the course of contract negotiations
may not be treated as a term in the contract because it
was made prior or outside the contract or was excluded
because of the parol evidence rule.
• The courts under certain conditions been willing to
recognise the existence of 2 contracts – the main contract
(usually written) and the collateral contract (usually oral)
• 2 general situations where the court accept the collateral
contract :
i.
ii.
Where a party has been able to show that it would
have refused to enter into the contract if it did not
receive assurance on a particular point;
Where there was a promise not to enforce a particular
term in the main contract
• Tan Swee Hoe Co Ltd v Ali Hussain Bris [1980] 2 MLJ 16,
FC
• The Appellant orally agree to allow the Respondent to
occupy the premises for as long as they wished on
payment of 14,000 as tea money
• A dispute arose and they want the Respondent to vacate
the land
• Held : An oral promise, which induce a party to enter into
a contract, overrides any inconsistent written agreement.
CONDITION & WARRANTY
• Terms of a contract have been traditionally classified into
conditions and warranties
• Conditions – terms that are important
• Warranties – less important terms
• In Abdul Razak Abu Samah v Shah Alam Properties Sdn
Bhd [1999] 2 MLJ 500, Gopal Sri Ram JCA said :
• “ Stipulations that are essential are called ‘conditions’ ,
while those of a secondary nature are called ‘warranties’
162
Conditions and Warranties
• The definition can be found in the Sale of Good Act 1957
• Sect 12(2) “A condition is a stipulation essential to the
main purpose of the contract, the breach of which give
rises to a right to treat the contract as repudiated”
• S12 (3) SOGA - a warranty is a stipulation collateral to
the main purpose of the contract, the breach of which
give rise to a claim for damages but not a right to reject
the goods and treat the contract as repudiated
Legal effect of breach of condition
• As a result of breach of condition, an innocent party may
either :
i.
Rescind the contract;
ii. Rescind the contract and sue for damages; or
iii. Accept the breach, keep the contract on foot and sue
for damages
164
Legal effect of breach of warranty
• As a result of breach of warranty, an innocent party:
i.
ii.
Cannot rescind the contract
Can claim for damages
165
CONDITION
WARRANTY
VITAL TERM OF THE
CONTRACT
LESSER TERM OF
THE CONTRACT
BREACH CONTRACT MAY BE
REPUDIATED
BREACH - CONTRACT
MAY NOT BE
REPUDIATED
AND/OR SUE FOR
DAMAGES
ONLY SUE FOR
DAMAGES
The difference between condition and warranties
Condition
Warranties
Important
Less important
Where a breach take place – the
innocent party can discharge from
further obligations.
Where a breach take place – the
innocent party cannot discharge from
the contract
Can claim damages and rescind the
contract
Can claim damages only and cannot
rescind the contract.
• Poussard v Spiers and Pond (1876) 1 QBD 410
• Plaintiff (Miss Poussard) agreed to play in opera for
•
•
•
•
performance on 28th November.
She attended the rehearsal and fall sick. She cannot
perform on the opening night and also other subsequent
performance
The Defendant find a person to replace her.
After recovered, plaintiff offered to sing but refused by
Defendant. She sued
Held – Plaintiff's inability to perform was so important that it
go to the very root of the agreement sufficient to enable the
defendant to repudiate the contract
• Bettini v Gye (1876) 1 QBD 183
• The Plaintiff was an opera singer. He enter into contract
•
•
•
•
•
with the Defendant to sing for 3 months.
the contract require P to arrive at least 6 days before the
concert.
P fall sick and arrived 2 days before the concert.
D refuse to proceed with the contract
P sued for breach of contract claiming that the requirement
that the P to arrive 6 days before the concert was not a
condition.
Held – the requirement did not go to the root of the matter,
it is not a condition. Defendant cannot repudiate the
contract and but can still claim for damages
Condition or warranty?
• There are 3 test to determine whether it is condition or
warranty :
i.
ii.
Whether or not a term goes to the root of a contract?
The relative importance of the term to a party.
A party would not have entered into the contract unless assured of strict compliance with the term and the
party in breach was aware of this, it would be considered a condition
i.
Whether the consequences of breach are so serious?
This third test involves a consideration of all the relevant factors including the consequences of the breach



This test recognises that the pre-classification of a term as either a condition or warranty may, in certain
circumstances, be inappropriate.
For example, if a term is regarded as a condition, it will upon any breach give rise to a right to rescind
the contract regardless of the fact that the innocent party may have suffered little or no damage as a
result of the breach (Hong Kong Fir Shipping Co Ltd v Kawasake Kisen Kaisha Ltd)
Innominate terms was introduced other than condition and warranty only.
170
SOMETIMES IT’S NOT POSSIBLE TO DECIDE AT THE
BEGINNING OF A CONTRACT HOW IMPORTANT A
TERM IS - THAT MAY ONLY BE SEEN FROM THE
CONSEQUENCES OF THE BREACH OF THAT TERM
CONDITION
WARRANTY
INNOMINATE TERM
171
CONDITION
IF THERE IS A
MATERIAL BREACH REMEDIES THE SAME
AS FOR A CONDITION
WARRANTY
IF BREACH IS
IMMATERIALREMEDIES THE SAME
AS FOR A WARRANTY
INNOMINATE TERM
172
INNOMINATE TERM
HONG KONG FIR SHIPPING CO. LTD. v KAWASAKI
KISEN KAISHA LTD.
L-4-095
FACTS: P SHIPOWNERS CHARTERED A SHIP TO D
FOR 2 YEARS STATING IT WAS SEAWORTHY - IT
WASN’T & SPENT 20 OF FIRST 30 WEEKS UNDER
REPAIRS - D REPUDIATED CONTRACT
HELD: D NOT ENTITLED TO REPUDIATE CONTRACT
AS THE EFFECT OF THE BREACH WAS IMMATERIAL
Bannerman v White (1861) 142 ER 685
•
•
The Plaintiff’s undertaking that no sulphur has been
used was a preliminary stipulation.
It was a condition upon which the defendant had
contracted.
• The court will inquire whether the innocent party has been
deprived of the benefit it had expected to receive from the
contract.
• If the answer is ‘yes’ the breach will be treated as a
breach of condition
• If the answer is ‘no’ the term will be regarded as a
warranty
EXEMPTION CLAUSE
Introduction
• It is a term commonly found in contracts.
• It is any clause in contract or term in notice – restrict,
exclude or modify : liability/duty/ remedy – which would
o/wise arise from a legally recognized r/ship b2wn the
parties
• A.k.a exemption or exception clauses

Exemption clauses come in two forms: 

Exclusion (excluding) clauses
Limiting clauses
178
LIABILITIES
RIGHTS
EXEMPTION CLAUSES
CUT SOME OF
THE LIABILITIES
OUT OF THE
CONTRACT
Types of exclusion clause
EC exclude legal duties of contractual r/ship
2. EC limit/exclude of duties which may be breached
3. EC of procedural in manner & alter the normal b.o.p /
provide that one matter is treated as conclusive of
another / provide a time limit which a suit must be
brought
1.
--exclusion clause may completely exclude all liability or,
only set a monetary limit on liability known as limitation
clause--
Where can we found EC…
• Mostly found in standard form contracts
• It’s a contract whose content, once formulated, will be
used by a business form with all its customer, in every
bargain
dealing with the same product or services.
181
Standard Form Contracts
• The party seeking to impose the limitations
on liability is often in a superior position such
that it may be able to dictate the terms of the
agreement
• This is particularly evident in the use of
“standard form contracts”
182
Standard Form Contracts






Standard form contracts are documents drafted, usually with legal advice,
by the party in the superior bargaining position and contain the terms on
which it is prepared to deal
If the other party is not willing to deal on those terms, the stronger party will
not deal with it at all
Very often an entire industry adopts similar standard form contracts that
seek to exclude or limit various types of liability
Consumers in such instances are often either unaware that they are to bear
the risk limited or excluded by the exemption clauses or they are simply in
no position to object to such agreements
Malaysia has no specific legislation governing the use of exemption clauses
The result is that, generally, the courts apply the common law in dealing
with exemption clauses
Bilbo Baggins (Martin Freeman), trying to
decide if he’ll join the dwarves’ quest to
recover their kingdom and their gold, reads
the “standard” contract and discovers a
clause absolving the dwarves of liability in
case of incineration by dragon, in The
Hobbit: An Unexpected Journey.
How it works…
• Only 1 party determine the terms, the other party can take
it or leave it
• Weaker party merely adheres to the terms – contracts of
adhesion
• Due to 1 sided nature of standard from of contract –
tendency to insert unfair terms – most common unfair
term is the exclusion clause.
• EC can be incorporated into contract:
i. by signature in a written document
ii. incorporation by giving notice;
iii. through a course of dealing
185
Judicial Approaches to EC




The courts have tried to address some of the imbalances
that flow from the use of EC in situations of unequal
bargaining power
Rules of construction have been adopted requiring that
clauses seeking to exclude or limit liability be set forth in
clear and unequivocal terms
Further, the legal effect given to such clauses has
served to narrow the scope of their application
Thus, in examining EC, careful attention must be given
to: 

Whether the EC was effectively made part of the contract and
Construction
Judicial control of EC
• The Malaysian Court have applied common law principles
on:
i.
Incorporation of exclusion clauses
ii. Interpretation of exclusion clauses – Construction rules
187
SOME BASIC RULES ON EXCLUSION CLAUSES
MUST BE A TERM OF THE CONTRACT
RULE 1
EXCLUSION CLAUSES IN A
SIGNED DOCUMENT - BINDING
ON SIGNATORY
RULE 2
(DOCUMENT NEED NOT BE
COMPLETE RECORD OF THE
CONTRACT)
NOT APPLICABLE IF DOCUMENT
APPARENTLY NONCONTRACTUAL OR SIGNATURE
OBTAINED THROUGH FRAUD
OR MISREPRESENTATION
IRRELEVANT THAT THE
SIGNATORY HAS NOT READ
THE TERMS OF THE
DOCUMENT
Murray
188
Incorporation of EC into a Contract
L'Estrange v Graucob (1934)
The defendant sold to the claimant, a shopkeeper, a vending
machine under conditions which excluded the claimant's normal
rights under the Sale of Goods Act 1893. The claimant signed
the document without reading a clause which excluded the
normal conditions and warranties as to the machine's fitness.
The machine was defective.
Held: the exclusion clauses were binding on the claimant since
she had signed them. It was not material that the defendant had
given her no information of their terms nor called her attention to
them.
189
Incorporation of EC into a Contract

Exception to the rule that a signature binds




Exemption clause obtained through duress or
undue influence
Unreasonable restrictive exemption clauses
Misrepresentation about the scope of an
exemption clause
Non est factum
190
Misrepresentation about the scope
of an exemption clause

If the party relying on the exclusion clause
misleads the other as to the effect of the
clause, the exclusion clause is invalid
191
Misrepresentation about the scope
of an exemption clause
• Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB
805, CA
• The P sent her wedding dress to the D’s laundry. The
shop assistant give her a receipt & ask her to sign it. The
P inquire about the purpose of document and shop
assistant replied that its about EC of D’s liability for risk of
damage to beads and sequin.
• In fact, the document read that the D won’t be liable for all
risks. When dress returned, there was a stain on it. The P
brought action against D who rely on EC.
• Held – D cannot rely on EC because the shop assistant
misrepresented the exact scope of the clause.
192
Non est factum


Meant to protect the illiterate and the blind
Requirements: 


The individual signing was under some permanent or
temporary disability;
He took all reasonable precautions to ensure that he
was signing what he thought he was signing; and
There was a radical difference between what he
signed and what he thought he was signing
193
SOME BASIC RULES ON EXCLUSION CLAUSES
RULE 3
IF THE EXCLUSION CLAUSE IS IN AN
UNSIGNED DOCUMENT, IT IS NOT
EFFECTIVE UNLESS THE DOCUMENT
IS CONTRACTUAL OR SUFFICIENT
NOTICE OF THE CLAUSE HAS BEEN
GIVEN TO THE OTHER PARTY
VOUCHERS, RECEIPTS & TICKETS
HAVE GENERALLY BEEN REGARDED
AS NON-CONTRACTUAL
194
Incorporation of EC into a Contract
Incorporation by notice




The clause must be sufficiently communicated
This means that notice must be clearly printed
It also means that the document on which it is
stated must be one which an ordinary person
would read for an exclusion clauses
• To be effectively incorporated, the EC must be in a
document where contractual terms are expected and not
merely found in a receipt.
• In Chapelton v Barry Urban District Council, [1940] 1 All
ER 356, CA P obtained 2 chairs belonging to D, paid 4d
and take 2 tickets. On 1 side of the tickets was the
statement that the D council would not be liable for any
accident or damage arising from the hire of chair. The P
sat on the chair which give way, resulting in injury.
• Issue : Whether the D could rely on the EC printed on the
ticket?
• Held : The EC could not be relied by D as notice of it had
been given only after the contract had been entered into.
Further, the exclusion clause was found in a ticket which
was merely a receipt acknowledging the payment
received.
197
Incorporation by notice

Even if the document may be regarded as contractual,
the person seeking to rely on the exclusion clause must
show that reasonable steps have been taken to give
notice of the clause to the other contracting party.

What amounts to reasonably sufficient notice will vary
according to the nature of the clause.
Reasonably sufficient notice
• EC must be sufficiently brought to the notice of the other
party.
• This means that an ordinary and reasonable person
would have realised that there was an exclusion clause
written on the signboard/ticket.
Parker v South eastern Railway Co [1877]
2 CPD 416,CA
• P handed in a parcel value exceeding £10 at D railway co,
paid 2d & received ticket. On the face of the ticket were
the words “See Back” and on the back, was a condition
that the D x responsible for any package value above £10
. The parcel loss and P brought an action for its loss
• Held- the court applied the reasonable notice test and
held it is not sufficient that the person in question knows
that there was writing on the ticket, but that he must
know/be given rea. Notice that the ticket contains
conditions.
• Baggallay LJ stated that in the case of EC found in
unsigned documents, usually in a ticket, 3 questions are
relevant :
a) Did the person who received the ticket know that there
was writing in the ticket?
b) Did the person know that the ticket referred to terms?
c) Did the party relying on the terms do what was
reasonable to bring notice of the terms sought to be
incorporated, to the other party’s attention?
Handerson & Ors v Stevenson [18741880] All ER Rep 436, HL
• The HOL rejected an EC appearing on the back of a
ticket. There was nothing on the face of the ticket drawing
R’s attention to the condition nor was his attention
directed to a printed notice hanging up in the ticket office.
Thompson v London [1930] 1 KB 41, CA
• In this case, on its face, the ticket bore in plain, easily
legible type the words “For conditions see back. Day
Excursion”. On the back of the ticket, also in clear type,
were the words “Issued subject to conditions & regulation
of the co’s time-tables”. In the co’s time-table appeared
the words “ Excursion tickets and tickets issued….subject
to the condition that neither the holder nor any person
shall have any right of action against the co in respect of
injury, loss, damage, delay h/e caused.
• The P was unable to read. She was injured and bring
action against D for negligence.
• The court held that the D had taken reasonable steps to
bring the EC to the notice of P.
What would amount to sufficient notice?
• In Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd. [1989] QB 433, CA, the court held that
the more onerous and unusual a clause, the more it must
be shown that it had been fairly and reasonably brought to
the other party’s attention. This is commonly known as the
“red hand rule”
• The term was coined following Lord Denning MR’s
statement in Thornton v Shoe Lane Ltd. After referring to
exclusion clause that are “so wide and so destructive”,
Lord Denning continued: “In order to give sufficient notice,
it would need to be printed in red ink with a red hand
pointing to it – or something equally startling.”
206
SOME BASIC RULES ON EXCLUSION CLAUSES
RULE 4
NOTICE OF EXCLUSION CLAUSES
MUST BE GIVEN AT OR BEFORE
THE TIME THE CONTRACT IS
MADE (NOT AFTER)
L-4-220
• Notice of EC must be given before / at the time of the
contract
• It can be found in billboards e.g. before entrance of a car
park, or in documents e.g. tickets
• To be effective, notice must be sufficiently brought to the
notice of the other / other party must know about then
notice.
• An exclusion clause must be stated before the
acceptance. If it comes after then it is invalid.
Incorporation by notice
• For EC to be effective, the party must have sufficient
notice of the clause before / at the time the contract is
entered.
• Important to determine when a contract is formed
• In Thornton v Shoe Lane Parking Co Ltd [1971] 2 QB 163,
CA – contract of car park operated by automatic machines
Fact –
• P parked his car at D’s auto car park. Outside the car
park, there was traffic light which showed red & notice “at
owner’s risk”.
• As P drove in, light turn to green & ticket was pushed out
from a machine. P saw there was writing (“this ticket
issued subject to conditions displayed on premises”) on
the ticket, but din read.
• To find the conditions, the P would hv to walk round the
park.
• The conditions exempted the D from liability for damages
to car & customer, howsoever caused.
Issue –
When is the contract made? Can D be exempted?
Held –
• Offer made when machine ready to accept payment
• Acceptance occurred when customer put his money into
the slot
• Thus, the ticket and words printed on it were only given
after the contract was entered into
• The D cannot rely on those exemption because it was not
incorporated into the contract
• Lord Denning referred to tickets issued by an automatic
machine as follows :
• the terms of the offer are contained in the notice places on
or near the machine stating what is offered for the money.
The customer is bound by those terms a.l.a they are
sufficiently brought to the notice beforehand, but not
otherwise. He is not bound by the terms printed on the
ticket if they differ from the notice, because the ticket
comes too late. The contract has already been made…the
ticket is no more than a voucher or receipt for the money
that has been paid…
• In Olley V Marlborough Court Ltd [1949] 1 KB 532, CA,
the Ps paid for lodging at the D’s hotel. In the hotel room,
there was notice on the wall stating that the hotel would
not be liable for the theft or loss of any items in the room.
The wife’s fur coat was stolen. The D argued that the
notice in the room was incorporated into the contract.
• Held – the contract had been entered into before the Ps
entered the room in the hotel & as notice of the exclusion
clause was only given after the contract was entered into,
it was not incorporated into the contract
• Lord Denning stated :
• People who rely on contract to exempt from common law
liability must prove that contract strictly… the best way of
proving it is by written document.. Other way is by
handing him b4 or at the time of the contract a written
notice …making it clear to him that the contract is on
those terms.. A prominent public notice which is plain for
him to see or express oral stipulation would have the
same effect. But nothing short of one of these 3 ways will
suffice.
214
KNOWLEDGE OF EXCLUSION CLAUSES READILY
INFERRED IF PARTIES HAVE PREVIOUSLY DEALT WITH
EACH OTHER
RULE 5
215
Incorporation by previous
course of dealing


An exclusion clause can be incorporated
where the other person is a regular
customer and there is a consideration
course of dealing between the parties.
This principle has been accepted more
readily in commercial contracts than in
consumer transactions.
J Spurling Ltd v Bradshaw [1956] 1 WLR 461, CA
• The D bought 8 wooden casks of orange juice and sent
them to P warehousemen for storage. P sent receipt, on the
back of the receipt called “landing account” were “Contract
Conditions” which included a clause exempting the Ps from
liability from any loss or damage to goods entrusted to
them. On the same date, the P also sent an invoice to the D
which stated “all goods handled by us …warehoused at
owner’s risk”. When D collected the goods, they were not in
good condition. D claimed for their loss, P rely on EC.
• COA Held for P, having regard to the doc which had passed
between the parties which referred to “owner’s risk” and the
course of dealing between them
• Dennis LJ stated :
• the landing account & invoice were issued after the goods
had been received and could not therefore be part of
contract of bailment : but the D admitted that he had
received many landing account before… it seems to me
that by the course of business and conduct of the parties,
these conditions were part of the contract.
** terms in notices / tickets may be incorporated by
previous course of dealings even if the terms were not
referred to
 H/e there must be sufficient communication between the
parties to constitute previous course of dealings.
• In Hollier v Rambler Motors Ltd [1972] 1 All ER 399, CA , - 3
or 4 transactions over a period of 5 years were insufficient to
constitute a course of dealing.
 Besides sufficient dealings, there must also be consistency
in the dealings between the parties.
• In McCutcheon v David MacBrayne Ltd, there was a record
of previous dealings between the parties, but there was
inconsistency that the A’s agent was sometimes asked to
sign a risk note containing EC and sometimes not asked to
sign it. HOL held – EC could not be incorporated into the
contract.
219
Construction of Exemption
Clause

Where a clause is duly incorporated into a contract, the
court will proceed to examine the words used to see if
the clause covers the breach and loss which has actually
occurred. The main rules of interpretation used by courts
are as follows: 




Strict Interpretation
The contra proferentum rule
Repugnancy
The clause must be comprehensively drafted to cover the liability
Four Corners or Deviation Rule
220
Strict Interpretation


An exempted clause will be effective only if
it covers the kind of liability which has in fact
arisen
A clause, for example, which excludes
liability for a breach of warranty will not
provide protection against liability for a
breach of condition. (Baldry v Marshall)
THE AMBIGUITY (CONTRA PROFERENTUM) RULE
EXCLUSION CLAUSES ARE TO BE
INTERPRETED STRICTLY AGAINST THE
PARTY THAT HAS INSERTED THEM IN THE
CONTRACT AND IS NOW RELYING ON THEM
AGAINST THE OTHER PARTY
Hollier v Hambler Motors (1972)
A workshop had by previous course of dealings with the claimant
excluded liability for damage to vehicles by fire. However, it did not state if
this included both by accident or negligence.
Held: It did not include by negligence. Since the fire was caused by
negligence, the owner of the workshop was liable to the owner of the
damaged car.
22
222
Repugnancy

Under this rule, a court can strike out an
exclusion clause which is inconsistent with
or repugnant to the main purpose of the
contract. (J Evans & Sons (Portsmouth) Ltd.
v Andrea Merzarlo Ltd. )
223
The clause must be comprehensively
drafted to cover the liability
Photo Productions v Securicor (1980)
D supplied a security guard for P's factory.
Owing to the guard's negligence, P's factory
was destroyed by fire. D had included an
exclusion clause disclaiming liability for any
negligence by its staff.
Held: The clause was valid.
224
Third Parties Not Protected



According to the doctrine of privity of contract a
person who is not a party to a contract can neither
benefit from the contract nor be made liable under
it
So while a duly incorporated exclusion clauses
may protect a party to a contract it will not protect
his servants or agents
They are strangers to the contract & so cannot
take advantage of an exclusion clause (Scruttons
Ltd. v Midland Silicones Ltd.)
"FOUR CORNERS" OR "DEVIATION" RULE
EXCLUSION CLAUSES ONLY EXCLUDE LIABILITY FOR ACTS WITHIN
THE FOUR CORNERS OF THE CONTRACT
22
226
Exemption Clause





Can one exclude liability for loss or damage
negligently caused?
Exclusion clauses are only controlled in a limited
way by the Consumer Protection Act 1999 (CPA)
Under s 71 of CPA, a producer cannot exclude
liability for negligence caused wholly or partly by a
defective product
Thus, if a defective product causes a person death
or personal injury, the producer is liable regardless
of what the contract says
Unfortunately, the CPA only applies to consumer
contracts.
227
Exemption Clause

Admittedly, this area of law can be confusing



A supplier can limit or exclude liability more easily in a
non-consumer contract
While there is some control on exclusion clauses in
consumer contract, we must determine whether the
contract falls within the scope of the CPA.
To summarize, if we assume that an exclusion
clause is incorporated into a contract and written in a
clear and unambiguous manner.
LAW OF CONTRACT
Topic 4.5 : Consent of Parties, Unlawful
and Void Contracts
229
Learning Outcome
• When consent is said to be free?
• What is void, voidable and illegal contracts?
• What is fraud, misrepresentation, coercion, undue
influence and mistake?
• What are the legal effects?
230
Void & Voidable Contracts
• Valid contract – s2(h) CA : agreement enforceable by law
• English Law: void: agreement that is destitute of any legal
effect ab initio so that no rights/obligations are created at
all
• S2(g) CA 1950: agreement not enforceable by law is said
to be void
• S2(i) CA 1950 : Voidable contract – agreement
enforceable at one party’s option but not the other: • Can either rescind OR
• Affirm the contract & seek damages
231
Free Consent
• Free consent is the basis of a contractual relationship
• There must be a meeting of minds as to the nature and
scope of the contract, (a consensus ad idem)
• S10(1) CA 1950 : ‘agreements are contracts if they are
made by free consent of parties competent to contract …’
• Consent – parties agree upon the same thing in the same
sense – s13 CA 1950
• Consent must be free
232
Free Consent
• S14 CA 1950: if consent is caused by the
following, then there is no free consent: • Coercion,
• Undue influence,
• Fraud,
• Misrepresentation,
• Mistake.
Query? What is the effect? – may be void or
voidable
233
Representation
• Representation
• Statement of FACT & NOT OPINION
• Made BEFORE the contract is entered into
• Which INFLUENCES/INDUCES the other person to enter into a
contract
234
Misrepresentation
• Representation
• FALSE Statement of FACT & NOT OPINION
• Made BEFORE the contract is entered into
• Which INFLUENCES/INDUCES the other person to enter into a
contract
• There are 2 types of misrepresentation stated in
Contracts Act 1950
• Fraud (s17 CA 1950)
• Purposely/deliberately lied
• (Innocent) Misrepresentation (s18 CA 1950)
• Thought that whatever he is saying is the truth BUT
comes out as untrue
235
Fraud


Defined – s17 CA 1950 – various acts
committed by a party with intent to deceive
the other contracting party
The state of representor’s mind is an integral
part of fraud
236
Fraud

Five categories of actions which would constitute fraud: s17 CA
1950
(a)
(b)
(c)
(d)
(e)


False suggestion
‘active concealment of a fact by one having
knowledge of belief of the fact’ – Illustration c to
s19 CA 1950
Promise made without any intention of
performing it
Any other act fitted to deceive
Any such act or omission specially declares to
be faudulent
The person who claim that there is a fraud case must prove the
existence of fraud
In Datuk Jaginder Singh & Ors v Tara Rajaratnam, it was held that
the standard of proof of fraud in civil proceedings was the criminal
standard of proof beyond reasonable doubt
237
Misrepresentation
• Defined in s18 CA 1950
• ‘Misrepresentation’: normally refers to certain false
statement made by a representator and which induces the
other party to enter into a contract but the representor
does not intend to deceive
• Effect – voidable – s19 CA 1950– the injured party may
terminate or if he or she wishes to continue, can claim for
damages
• If he terminates, must restore any benefit received – s65
CA 1950
238
Fraud & Misrepresentation

Explanation to s19 CA 1950


Exception to s19 CA 1950


Misrepresentation whether fraudulent or innocent is irrelevant if it has
not induced the other party to enter into a contract
Even though the consent caused by misrepresentation, or by silence,
the contract is valid if the party whose consent was so caused had the
means of discovering the truth with ordinary diligence
Explanation s17 CA 9150

Silence does not amount to fraud unless there is a duty to speak

E.g.: Insurance contract


The nature of the contract - there is a legal duty on the insured to disclose
material facts that is likely to influence a prudent insurer and the failure to do so
may entitle the insurer to rescind the contract
With v O’Flanagan

If a statement made is the truth but later becomes untrue before the contract is
concluded, then the person who made the statement has a duty to update with
the latest information. If he does not, this may amount to misrepresentation
239
Coercion
•
Defined – s15 CA 1950
•
•
•
Coercion is the committing, or threatening to commit
any act forbidden by the Penal Code or the unlawful
detaining or threatening to detain, any property, to
prejudice of any person whatever, with the intention
of causing any person to enter the agreement
Effect – voidable (s19 CA 1950)
Repay money paid or return property under
coercion – s73 CA 1950
240
Undue Influence


Defined – s16 CA 1950
If proven, the contract is made voidable
(s20 CA 1950)

Two types:  (1) actual undue influence – s16(1) CA
1950

Must prove 3 ingredients: 


(a) one party is in a dominant position
(b) uses that dominant position
(c) to take unfair advantages
241
Undue Influence

(2) presumed undue influence – s16 (2) CA 1950

3 circumstances where presumption of
dominating the will of another




a. real/apparent authority over another;
b. fiduciary relationship;
c. contracting with a person whose mental capacity
affected by age, illness or mental/bodily distress
It is a rebuttable presumption
242
Mistake


Both parties make mistake as to essential fact, contract
is void – s21 CA 1950
Remedies:





(1) Repay money paid or return property delivered under
mistake – s73 CA 1950
(2) Restore any advantage received or compensate – s66 CA
1950
If it is a mistake of law in force in Malaysia, the contract
is valid but if it is a mistake of law not being in force in
Malaysia, the contract is void – s22 CA 1950
One party make mistake, contract still valid – s23 CA
1950
If due to misrepresentation of the other, s18(c) CA 1950
applies
243
Unlawful & Void Contracts
• Must be for lawful consideration and object – s10(1) CA
•
•
•
•
1950
Unlawful consideration/object – s24 CA 1950
Consideration for one/more objects is unlawful – s25 CA
1950
Agreement without consideration – s26 CA 1950
Restraint of marriage unless minor – s27 CA 1950
244
Unlawful & Void Contracts
• Restraint of trade, profession/business unless exceptions
apply – s28 CA 1950
• Restraint of legal proceedings unless exceptions apply –
s29 CA 1950
• Uncertain agreements – s30 CA 1950
• Agreement by wager unless exceptions apply – s31 CA
1950
245
Agreements Which Contravenes
the Law (Illegal Contracts)


The provision lists FIVE (5) categories of
agreements which contravene the law and
resulting in the contract being void.
Refer to s24 of the CA 1950
246
Agreements Which Contravenes
the Law (Illegal Contracts)

Consideration or Object of Agreement Forbidden by Law
(s24(a) CA 1950)
◦ This means that agreements agreed by the contracting parties
clearly contravenes with the provision of any laws.
◦ Such contravention will therefore result in the contract being void
because it is forbidden by law.
◦ In Govindji v. Soon Hin Huat (1982), an unlicensed purchaser
signed a contract to buy copra in contravention rules made under
the Federal Agricultural Marketing Authority Act 1965. It was held
that the contract was void because it was done in contravention of
the law.
247
Agreements Which Contravenes
the Law (Illegal Contracts)

Consideration or Object of an Agreement if
permitted would defeat any Law (s24(b) CA
1950)
◦ It refers to a contract which was signed but not
expressly contrary to any provisions of the law.
◦ The law on the other hand only forbids such
agreements or contract by implication, that is by
imposing fines or penalty for any contravention.
◦ Applied in Chung Khiaw Bank Ltd. V Hotel Rasa
Sayang Sdn. Bhd. & Anor [1990] 1 MLJ 365 – giving
financial assistance to buy shares
248
Agreements Which Contravenes
the Law (Illegal Contracts)

Consideration or Object of the Agreement is a
Fraud (s24(c) CA 1950)
◦ An agreement where its consideration or object is
fraudulent in nature, contravenes the law.
◦ For example an agreement to divide a share of money
obtained by deceit is void.
◦ Refer to Illustration (e) and (g) of section 24 for a clearer
picture.
249
Agreements Which Contravenes
the Law (Illegal Contracts)

Consideration or Object of the Agreement Implies or
Involves Injury To the Person or Property of another
(s24(d) CA 1950)
◦ Paragraph (d) applies to the person or property of another person.
◦ Applying this principle, if two parties agreed to destroy a third
party’s house for a sum of money which will be paid by another
person, this agreement is void in accordance with paragraph (d).
◦ In Syed Ahamed bin Mohamed Alhabshee v. Puteh binti Sabtu
(1922), the defendant agreed to sell a property to the plaintiff in
which an infant had an interest. This transaction is detrimental to
the child and therefore held void by the court
250
Agreements Which Contravenes
the Law (Illegal Contracts)


Consideration or Object of the Agreement
Presumed by Court as Immoral or Against Public
Policy (s24(e) CA 1950)
Divided into TWO(2) types of agreement: ◦ immoral agreement;
◦ agreement which are opposed to public policy.
251
Immoral agreement


In Pearce v. Brooks (1866), the plaintiff agreed to hire a coach to the
defendant, a prostitute, knowing that she shall use it for her trade.
The defendant failed to pay the hire charges and the plaintiff
claimed the sum due. The court held that the plaintiff failed in the
claim for the hire charges because the agreement was illegal as it
was immoral.
In Aroomogum Chitty v. Lim Ah Hang (1894), the plaintiff lent money
to the defendant for the purpose of running a brothel. The court held
that the plaintiff could not recover his money from the defendant
because the agreement made was illegal as it was immoral.
252
Agreement which are opposed to
public policy



Agreements for the sale of appointments, positions and
public awards are unlawful as as it contributes towards
corruption in public life (Parkinson v Royal College of
Ambulance – bribe)
Contract which interferes with the proper workings of
justice. Enforcement of criminal laws is considered to be
of public interest. Therefore, any legal action if brought
against criminal acts cannot be set aside through private
contracts. Refer to Illustration (h) of s24 CA 1950.
Contracts against the interest of the country
253
Restraint of Marriage

Contracts prejudicial to the freedom and stability of marriage. It is
also connected to s27 of CA 1950 which provides “Every agreement
in restraint of the marriage of any person, other than a minor during
his or her minority, is void”
◦ Any agreement which might weaken or affect the stability of an existing
marriage is void too.
◦ An agreement made between a husband and wife still in marriage to
specify conditions in the event of a future divorce is void.
◦ But such agreement is valid if the agreement was made at the time when
their marriage was in such an irrepairable state and they are already
separated
254
Contracts in Restraint of Trade
• General rule: agreement restraining lawful profession,
trade or business is void (not in toto) – s28 CA 1950
• Exception 1
• Person selling goodwill of business agree with buyer to refrain from
carrying on similar business within specified locality and
reasonable limits
• Exception 2
• Partners of dissolved partnership agree to refrain from carrying on
similar business within specified locality and reasonable limits
• Exception 3
• Partners will only carry on partnership business during its
continuance
255
Restraint of Legal Proceedings
• Void (not in toto) unless exceptions apply – s29 CA 1950
• Applied in Corporation Royal Excahnge v Teck Guan
(1912) 2 FMSLR 92 – claim within 3 months
• Exception 1 & 2
• Arbitration agreement
• Exception 3
• Exercise of governmental discretion for scholarship
256
Remedies (not for s28 & s29 CA 1950)
• General rule – no remedy since contract is unlawful and
void
• Based on the principle of ex turpi causa
• Restore any advantage or compensate – s66 CA 1950
• Provided party has no knowledge of illegality
257
Summary
• Sometimes absence of certain elements render a contract
voidable or void
• Important to determine the effect since the rights and
remedies may differ
• Important to ensure that agreements are not unlawful
LAW OF CONTRACT
Topic 4.6 : Discharge of Contract & Remedies
PERFORMANCE
BREACH
AGREEMENT
IMPOSSIBILITY /
FRUSTRATION
Discharge by consent or agreement
between parties
• A contract that is created by consent can be discharged
by consent
• For example
• The parties may agree at the time of making the contract that on
the occurrence of an event, the contract will be discharged
• Consent given subsequent to the contract may be a
waiver, release, novation, remission or rescission
• Sections 63 and 64 of the Contracts Act 1950 provide for
the discharge of contract by consent
Novation, Rescission and Alteration
• According to Section 63 of the Contracts Act 1950,
“if the parties to a contract agree to substitute a new
contract for it, or to rescind or alter it, the original
contract need not be performed”.
• Novation is the substitution or replacement of a new contract for an
earlier one
• The effect of novation is to release the obligation of the parties under
the earlier contract
• For example
• Illustration (a)
A owes money to B under a contract. It is agreed between A, B and C that
B shall henceforth accept C as his debtor, instead of A. The old debt of A to
B is at an end, and a new debt from C to B had been contracted
Illustration (a)
• A owes money to B under a contract. It is agreed between
A, B and C that B shall henceforth accept C as his debtor,
instead of A. The old debt of A to B is at an end, and a
new debt from C to B had been contracted
Novation, Rescission and Alteration
• The consideration for the new agreement is the mutual
discharge of the original contract and consent of all
parties is secured.
• For example:
• Illustration (c)
A owes B $1,000 under a contract. B owes C $1,000. B orders A to
credit C with $1,000 in his books, but C does not assent to the
agreement. B still owes C $1,000, and no new contract has been
entered into.
Novation, Rescission and Alteration
• An example of alteration of a contract, as follows:
• Illustration (b)
A owes B $10,000. A enters into arrangement with B, and gives B a
mortgage of his (A’s) estate for $5,000 in place of the debt of
$10,000. This is a new contract and extinguishes the original
contract.
Remission of Performance
• Section 64 of the Contracts Act 1950 provides that,
“every promisee may dispense with or remit, wholly or in
part, the performance of the promise made to him, or may
extend the time for such performance, or may accept
instead of it any satisfaction which he thinks fit.”
Remission of Performance
• Payment of a lesser sum in satisfaction of a larger sum.
For example:
• Illustration (b)
A owes B $5,000. A pays to B, and B accepts, in satisfaction of the
whole debt, $2,000 paid at the time and place at which the $5,000
were payable. The whole debt is discharged.
Discharge by Performance
• As a general rule, performance of a contract must be
exact and precise and should be in accordance with what
the parties had promised
• S38(1) CA 1950 provides that parties to a contract must
either perform or offer to perform their respective promise,
unless such performance has been dispensed with by any
law
Discharge by Performance
• Further, Section 38(2) of the Contracts Act 1950 provides
that,
“promises bind the representatives of the
promisors in case of the death of the promisors
before performance, unless a contrary intention
appears from the contract”
Discharge by Performance
• Illustration (a)
• A promises to deliver goods to B on a certain day on payment of
RM1,000. A dies before that day. A’s representatives are bound to
deliver the goods to B, and B is bound to pay the RM1,000 to A’s
representatives.
• Illustration (b)
• A promises to paint a picture for B by a certain day, at a certain
price. A dies before the day. The contract cannot be enforced either
by A’s representatives or by B.
Performance by Third Party
• Section 41 of the Contracts Act 1950 states,
• “if it is the intention of the parties that the contract should be
performed by the promisor himself, then it must be performed by
him personally”
• However, according to Section 42, “if a promisee accepts
performance of the promisee from a third party, he cannot
afterwards enforce it against the promisor”
Chin Swee Onn v Puchong Realty Sdn.
Bhd [1990] 1 MLJ 108
• It was held that since the appellant had agreed to accept
performance of the promise from the third party, he could
not under Section 42 of the Contracts Act 1950, enforce it
against the respondent.
Frustration
• A contract is frustrated where there is a change in the
circumstances which renders a contract legally or
physically impossible of performance
• S57(2) CA 1950 – a contract to do an act which, after the
contract is made, becomes impossible, or by reason of
some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible
or unlawful
Frustration
• Based on s57(2) CA 1950, it is clear that there are 2
instances of frustration, i.e. when a contract to do an act
becomes impossible or unlawful
• The frustration should be supervening and subsequent to
the formation of the contract
Frustration
• In H.A. Berney v Tronoh Mines Ltd. (1949), a contract
was held to be frustrated and discharged although
there was no breach nor default by either party
Frustration
•
The doctrine of frustration holds that where unforeseen
contingencies arise after the contract was made and
makes the performance of the contract impossible then
the parties are excused from further performance, e.g.,
•
The non-availability of the subject-matter
(Taylor v Caldwell (1863))
TAYLOR v CALDWELL
FACTS: D CONTRACTED TO LET P USE A MUSIC HALL FOR FOUR
CONCERTS - BEFORE THE FIRST CONCERT, THE HALL BURNT TO THE
GROUND - P SUED D FOR BREACH OF CONTRACT
HELD: D WAS NOT LIABLE - THE CONTRACT HAD BEEN FRUSTRATED
AS IT WAS IMPOSSIBLE TO PERFORM & D HAD NOT BEEN
RESPONSIBLE FOR THE FRUSTRATING EVENT (THE FIRE)
Frustration


Incapacity in a contract of personal performance
Condor v Barron Knights (1966)
C, a 16 year old contracted with BK, a pop group to be their drummer
& perform every night of the week. Owing to illness, he could only
perform 4 nights a week.
Held: His illness discharged the contract.
Government Intervention
Government intervention is a common cause of frustration.
Metropolitan Water Board v Dick, Kerr & Co. 1918
The defendants contracted in July 1914 to build a reservoir for the
claimants within 6 years, subject to a proviso that the time should be
extended if delays were caused by difficulties, impediments or
obstructions. In February 1916, the Minister of Munitions ordered the
defendants to cease work and sell all their plant.
Held: the proviso in the contract did not cover such a substantial
interference with the contract. The contract was discharged.
Frustration
•
Supervening illegality
In many cases of Government intervention, further
performance of the contract becomes illegal, e.g. owing to
outbreak of war (Avery v Bowden (1855)), is a common cause
of frustration.
Re Shipton, Anderson & Co and Harrison Bros & Co (1915)
The parties had contracted to buy & sell wheat stored in a
warehouse in Liverpool. Subsequently, the Government
requisitioned the goods under its wartime powers.
Held: it was no longer lawful for the seller to deliver the wheat.
The contract had been discharged by frustration.
Frustration
•
The non-occurrence of an event which was the main purpose of the
contract.
Krell v Henry (1903)
H hired a room to view the coronation parade of King Edward VII. However,
owing to the King's illness, the parade was cancelled. H refused to take up
the room.
Held: The viewing of the parade was the main purpose of hiring the room.
Since the parade did not take place, the contract is discharged. The contract
was frustrated.
Herne Bay Steamboat Co. v Hutton (1903)
H hired a boat so that he could bring visitors to view the naval parade & for a
day's cruise round the Fleet on the occasion of the coronation of the King.
Owing to the King's illness the naval parade was cancelled. H refused to take
the boat.
Held: Viewing the naval parade was not the main purpose of the hiring. The
contract was not discharged. Therefore H's contract still subsisted. HBS
could sue H for the breach of contract. The contract was not frustrated.
Frustration
•
Interruption which prevents performance in the form
intended by the parties.
Where an event prevents performance in the way it was
intended the parties are discharged from the contract.
Jackson v Union Marine Insurance Co (1874)
J, the charterers hired a ship to proceed immediately to load
cargo from San Francisco. The ship ran aground and had to be
sent for repairs after it was re-floated. J repudiated the contract
because of the delay. The hirers brought an action for cease of
contract.
Held: The interruptions had put an end to the contract in the
commercial sense. It was no longer possible to perform the
contract intended. The contract was discharged by frustration.
Frustration

Limits to Frustration
◦
◦
Where an alternative mode of performance is available.
If the contingency was foreseen or ought to have been
foreseen
Effect of Frustration
•
•
•
When a contract is discharged by frustration, the
contract does not become merely voidable but is
brought to an end forthwith and automatically (Hirji Mulji
v Cheong Yue Steamship Co. Ltd. (1962))
S57(2) CA 1950 states that such a contract becomes
void
Ss57(3) and 66 CA 1950 provide restitutionary
remedies
DISCHARGE BY BREACH
• Section 40 of the Contracts Act 1950 states,
• “when a party to a contract has refused to perform, or disabled
himself from performing, his promise in its entirety, the promisee
may put an end to the contract, unless he has signified, by words or
conduct, his acquiescence in its continuance”
Breach


A repudiatory breach occurs where a party
indicates, either by words or by conduct, that
he does not intend to honour his contractual
obligations, e.g. refusal to perform or failure
to perform an entire obligation.
An anticipatory breach occurs where a party
breaks a condition of the contract by
declaring in advance that he will not perform
it.
Breach

If anticipatory breach, the other party has 2 options: -
◦ Treat the contract as discharged forthwith. The innocent party
may accept the repudiation when it is made and sue for damages.
He need not wait until the date of performance.
Hochster v De La Tour (1853)
The defendant engaged the claimant as a courier, work begin on 1
June. On 11 may, the defendant repudiated this agreement. On
22 May, the claimant brought proceedings against the defendant.
Held: the claimant need not wait until the 1st of June.
◦ At his option may allow the contract to continue until there is an
actual breach. Where the injured party allows the contract to
continue, the party guilty of anticipatory breach may subsequently
change his mind and perform the contract after all. Alternatively,
the parties may be discharged from their obligations without
liability by some cause which occurs later, e.g. where the innocent
party elects to wait, they run the risk that the contract may be
discharged by frustration, and they thus lose the right to sue
(Avery v Bowden (1855))
DISCHARGE BY BREACH
• The party not in breach has the option either to continue
or repudiate the contract.
• If the party not in breach chooses to continue with the
contract, the obligation of both parties sustains and the
party not in breach could still claim for damages.
Remedies
• In cases of breach of contract, the party not in default may
•
•
•
•
•
claim one or more of the following remedies:
(a) Rescission of contract;
(b) Damages;
(c) Specific Performance;
(d) Injunction; and/or
(e) Quantum Meruit;
Rescission of Contract
• Under Section 40 of the Contracts Act 1950,
• “when a party to a contract has refused to perform, or disabled
himself from performing, his promise, the promisee may put an end
to the contract.......”
• It means that non-performance of a contract by any of the
party to the contract will entitle the other party to rescind
the contract.
Damages
• The claim for damages in cases of breach of contract is
provided under Sections 74 to 76 of the Contracts Act
1950.
(MONETARY)
DAMAGES
OBJECT OF DAMAGES:
•TO COMPENSATE INJURED PARTY FOR LOSS (NOT TO PUNISH PARTY
AT FAULT)
•TO PUT INJURED PARTY IN THE SAME POSITION AS IF THE BREACH
OF CONTRACT HAD NOT OCCURRED
DAMAGES
LIQUIDATED
SUM OF MONEY AGREED TO IN
THE CONTRACT
(s75 CA 1950)
UNLIQUIDATED
SUM OF MONEY ASSESSED BY
THE COURT AS COMPENSATION
(s74 CA 1950)
Liquidated Damages



Compensation of breach of contract where
penalty stipulated for is stated by s75 CA 1950.
The effect of this section is that P is only
allowed to recover a reasonable sum for the
breach of contract.
If a sum is stipulated in the contract, the
amount of damages recoverable by P cannot
exceed the sum stipulated in the contract
LIQUIDATED DAMAGES
A CLAUSE IN A CONTRACT PROVIDING FOR A SPECIFIED SUM TO BE
PAID AS DAMAGES IF ONE PARTY DEFAULTS WILL ONLY ENFORCED IF
IT’S A GENUINE & FAIR PRE-ESTIMATE OF LOSS
IF NOT, IT IS REGARDED AS A (VOID) PENALTY CLAUSE - THE COURT
WILL THEN ASSESS DAMAGES IN THE USUAL WAY
Unliquidated Damages

S74 CA 1950
NORMAL ,USUAL, OR
ORDINARY DAMAGES
FLOW NATURALLY OR IN THE
USUAL COURSE OF THINGS;
TEST IS OBJECTIVE KNOWLEDGE HERE IS IMPUTED
TO THE DEFENDANT
WOULD A REASONABLE
PERSON IN THE SAME
CIRCUMSTANCES HAVE KNOWN
THAT THE LOSS WAS LIABLE TO
RESULT?
EXTRAORDINARY
DAMAGES
MUST REASONABLY BE IN THE
CONTEMPLATION OF BOTH PARTIES
AT THE TIME OF CONTRACTING
TEST IS SUBJECTIVE KNOWLEDGE HERE IS THE
ACTUAL KNOWLEDGE
POSSESSED BY THE
DEFENDANT
DID THE DEFENDANT KNOW
OF SPECIAL CIRCUMSTANCES
MAKING THE LOSS LIABLE TO
RESULT?
Damages
• Damages arising naturally, that is, according to the usual
course of things resulting from the breach.
• Lee Hin v. Mohamed Abubakar [1958] MLJ 25
• Held: The loss which arises naturally resulting from the breach by
the defendant is the loss of plaintiff’s profit which is usually the
difference between the contract price and the market price.
Damages
• If the party is claiming special damages for loss, he must
show that the other party knew at the time of making the
contract that the special loss is likely to result from the
breach. This is explained in the case of:
• East Asiatic Co. Ltd v. Othman [1966] 2 MLJ 38
• The defendant agreed to buy the plaintiffs car for RM6,390. However, the
defendant committed breach and the plaintiff had to sell his car to another
company at a cheaper price, RM4,477.69. Plaintiff later claimed damages
amounting to RM1,912.31, being the difference between the selling price
that he could get from the defendant and the actual selling price that he
acquired from another company.
• Held: Plaintiff was entitled to that amount.
Damages
• The compensation given is not for any remote and indirect
loss or damage sustained as a result of the breach.
Damages
• Mitigation of loss
• It is also the duty of the party to take reasonable steps to mitigate
losses flowing from a breach.
• If the party has failed to mitigate losses, he cannot later recover
any loss flowing from his neglect.
• Refer to Explanation to s74 CA 1950
300
Liquidated Ascertain Damage (LAD)
• Late delivery of vacant possession
• For landed properties – 2 years from the date of signing
the SPA
• For non-landed properties – 3 years from the date of
signing the SPA
301
How to calculate the LAD?
• Late delivery of vacant possession (Schedule G)
a) Date of SPA signing – 14/3/1999
b) Completion Date – 13/3/2002
c) Actual delivery of vacant possession – 18/3/2003
d) Days of delay – 371 days
LAD =price of house X 10% X days of delay / 365 days
LAD = RM200,000 X 10% X 371 / 365 = RM20,328.76
302
HOW to calculate the LAD?
• Late delivery of common facilities
• Date of SPA signing – 14/3/1999
• Completion Date – 13/3/2002
• Actual delivery of vacant possession – 18/3/2003
• Days of delay – 371 days
• LAD =price of house X 10% X 20% X days of delay / 365
days
• LAD = RM200,000 X 10% X 20% X 371 / 365 =
RM4,065.75
303
BUT…..
• Developer will ALWAYS either :
1. Refuse / ignore to pay
2. Will ask for discount
304
SO….
• You can file a complaint at Tribunal for Homebuyers
claims
Specific Performance
• Specific performance is a discretionary remedy granted
by the court.
• It is a decree of the court directing that the contract shall
be performed specifically according to its terms.
• The remedy is granted under the Specific Relief Act 1950
Specific Performance
• Section 11(1) of the Specific Relief Act 1950 provides that,
specific performance may be granted by the court in the
following circumstances:
• When the act agreed to be done is in the performance, wholly or
partly, of a trust.
• When no standard exists to ascertain the actual damage caused by
the nonperformance of the act agreed to be done.
• An act agreed to be performed is such that its non-performance
would not afford adequate relief.
• When it is probable that pecuniary compensation cannot be
obtained for the non-performance of the act agreed to be done.
Specific Performance
• Further, Section 20(1)(a) of the Specific Relief Act 1950
clearly states that specific performance will not be granted
where monetary compensation is adequate.
Injunction
• Injunction as a remedy is classified under Part III of the
Specific Relief Act 1950 as “Preventive Relief”.
• It is granted at the discretion of the court and it can be
either “temporary” or “perpetual” (Section 50).
Quantum Meruit
• This remedy means that the claimant will be awarded as
much as he has earned or deserved.
• The remedy can be used contractually or quasicontractually.
• Any questions?
• See you next class