THE LAW OF CONTRACT
(PART II)
 Terms of Contract
(Conditions & Warranties)
 Void & Voidable / Illegal
Contract
 Disharge by Frustration,
Performance & Breach
TERMS OF A CONTRACT
• A term is basically a statement which creates
contractual obligations between the parties.
•
Any breach of the terms may result in the
injured party being able to sue for damages.
• Terms may be expressed or implied.
 Express terms - those terms expressly stated
in the contracts (whether written or oral).
 Implied terms - terms that the parties or
courts may read ‘into’ the contract
• Terms may be implied by : Custom and usage - pertaining to a particular type of
transactions;
E.g. Trade custom would be assumed by the judge
to have included in the contract.
 Statutory provisions;
 The Courts - based on the intention of the parties.
• Terms may be classified as:
1. CONDITIONS
These are important terms of the contract.
A breach of the conditions is fundamental. The
innocent party is entitled to terminate the contract
and claim for damages.
E.g. the ship is “expected ready to lead” by a
certain date / no dangerous or unlawful goods are
to be shipped.
2. WARRANTIES
 A term considered by the parties to be of lesser
importance to the main purpose or intention of
contract.
 In the event of any breach, the innocent party must
still perform their part of the contract. He is not
entitled to terminate the contract.
 However, he has the right to sue for damages for
any loss that he may suffer as a result of that
breach.
• It is important for parties to correctly identify which terms
are to be conditions and which are to be warranties in
order to establish the remedy available in case of breach
of terms in the contract.
• Even though it is mentioned in the contract as a term or
condition, the court will still have to determine the exact
intention of the parties.
• 3. INNOMINATE TERMS
(innominate = not having a name)
 These terms may be fitted into the category of either
conditions or warranties.
 A breach of these terms could give rise to a fundamental
breach in one situation, and in different situation, could
give rise to minor breach.
 Solution: Instead of classifying the terms as conditions or
warranties, the innominate term approach looks to:
The effect of breach, and
The loss incurred the innocent party.
 Would be a condition – if the breach would deprive the
innocent party of substantially the whole benefit of the
contract.
 Would be a warranty – if the problem is capable of
solution by the payment of damages.
 Terms relating to a vessel’s description are usually
treated as innominate terms.
 A term as to seaworthiness
 A term as to speed and consumption
 A term as to ship’s carrying capacity
 Landmark case: The Hong Kong Fir Shipping
Company v Kawasaki Kisen Kaisha [1962] 2 QB 26
 The problem was a main engine broke down
 The charterer withdrew from the charter due the
unseaworthiness of the ship which needs
considerable time for repairs.
 Held: Delays caused by the machinery repairs
does not prevent the ship from completing her
time charter commitment.
VOIDABLE CONTRACTS
• An agreement which is voidable at the option of the other
party to the contract whose consent was not obtained
freely, but caused by coercion, undue influence, fraud,
misrepresentation or mistake.
• All agreements are contract only if they are made by the
free consent of the parties. (Section 10)
• Consent is said to be free when it is not caused by one or
more of the following:
 Coercion (s.15) – the threatening of an act forbidden by
the Penal Code & the unlawful detention of any
property.
 Undue influence (s. 16) – a person is in a position to
dominate others and obtain an unfair advantage using
that position.
 Fraud(s17)- acts that are committed with intent to
deceive another party or to induce him to enter into a
contract.
 Misrepresentation (s18)- false statement made by one
party to the other party in which the maker of the
statement believes that what he said is true.
 Mistake (s21) mistake of fact. E.g. subject matter of
contract is not in existence.
• When consent to an agreement is caused by coercion,
fraud, or misrepresentation, the agreement is a contract
voidable at the option of the party whose consent was so
caused. [Section 19(1) ]
VOID OR ILLEGAL CONTRACTS
• A void contract is an agreement that is not enforceable
by law (Section 2(g)
• An agreement which is unlawful is void. (Section 24)
• Agreements are void if any part of their considerations
and objects are unlawful.(Section 25)
• When an agreement is discovered to be void, the person
who received any advantage under such agreement or
contract is bound to restore it to the other party or pay
adequate compensation for the same –(section 66 )
• E.g. A promise to commit a crime in return for a money
payment—is void. Neither party to a void “contract” may
enforce it.
• Manang Lim Native Sdn Bhd v Manang Selaman
(1986) 1 MLJ 379
 Held: that an agreement made in contravention of a
statute (Sarawak Land Code) was entered into for an
illegal consideration and was therefore a void
agreement within the meaning of section 2(g) of the
Contract Act 1950.
DIFFERENCE BETWEEN VOID AND
VOIDABLE CONTRACT
VOID CONTRACT
VOIDABLE CONTRACT
Cannot be enforced
May be enforced at the option of the
‘innocent party’
DISCHARGE BY FRUSTRATION,
PERFORMANCE & BREACH
• Discharge of a contract relates to the circumstances in
which the contract is brought to an end.
• When a contract is discharged, the contracting parties
are free from carrying out or performing their obligations
under the contract
• A contract may be discharged by any of the following
ways: by Frustration
 by Performance
 by Breach
DISCHARGE BY FRUSTRATION
• Two supervening events that frustrate a contract:
 an event that makes the contract impossible of
performance,
 the event of supervening illegality. (Section 57(2)).
• Frustration should be subsequent to the formation of the
contract.
• It should be some event which the promisor could not
prevent.
• The contract may be discharged by subsequent
impossibility in any of the following ways: Destruction of subject matter;
 Objects of contract defeated;
 Death or personal incapacity;
 Supervening illegality.
•
Conditions for frustration
 An unforeseen event outside the control of the
contracting parties has significantly or radically
changed the obligations of the parties from their
original intention;
 Neither party caused the supervening event;
 Neither party contemplated the supervening event, so
there was no provision in the contract for it; and
 The new circumstances would make it unjust or unfair
to hold the parties to their original contract.
• The effect of a frustration: s 66
The contract comes to an end automatically. Parties are
released from any future obligations but any obligations
that arise for the period that the contract is valid
must be fulfilled
DISCHARGE BY PERFORMANCE
• A contract becomes discharged through performance where
both parties have fully performed their contractual obligations.
• Performance of a contract must be exact and precise and
should be in accordance with what the parties had promised.
• Section 38 of the Contract Act provides that parties to a
contract must either perform or offer to perform their
respective promises, unless such performance has been
dispensed with any law.
• Section 51 – that the performance of any promise may be
made in the manner, or at any time, as agreed by the parties.
DISCHARGE BY BREACH
• When a party fails to perform their obligations as agreed,
they are in breach of contract. A breach can occur in
some ways including:
 Failure to comply with a term of the contract;
 By a party announcing to the other party that they no
longer interested in carrying out their obligations prior
to the time of performance (anticipatory breach); and
 Delay in the performance where time is of the
essence in the contract.
• A refusal to perform may occur before the time for
performance is due (anticipatory breach), or during the time of
performance itself.
Effect of Breach
• The innocent party is entitled to treat the contract as ended
from the time of the terminating event and may be able to
recover damages.
• The innocent party must restore whatever benefits which he
may have received from the other party (section 65)
• If the innocent party has rendered services or supplied goods,
he may recover a reasonable sum for such services or goods
rendered. If the innocent party has paid money under the
contract, he may be entitled to recover the sum paid.
DISCHARGED BY AGREEMENT
BETWEEN PARTIES (Section 63 and 64)
• A contract can be terminated by mutual agreement
between the contracting parties. All parties must
consented to end the contract.
REMEDIES
1. Damages (s.74)–
 is granted to an injured party as a monetary
compensation for the damage, loss or injury he has
suffered through a breach of contract.
 May be liquidated (the amount to be recovered is
prescribed in the contract) or unliquidated damages.
E.g. for unliquidated damages – demurage.
 Purpose: is to enable the innocent party to receive
monetary compensation from the party responsible
for the breach of contract.
 See Illustrations in s. 74
2. Specific performance
 a discretionary remedy granted by the Court.
 It’s a direction by the Court to carry out certain
obligations under the contract.
 It’s generally not used in a breach of contract actions
unless damages proved to be inadequate.
 Is provided under Specific Relief Act 1950
3. Injunction
 a court order restraining a party from breaking their
contract or from committing a wrongful act.
References
• Lee, M. P. (1990). General principles of Malaysian law.
Fajar Bakti.
• Alsagoff, A. S., & Alsagoff, A. S. (1996). Principles of the
Law of Contract in Malaysia. LexisNexis
• THANK YOU