ASSIGNMENT BUSINESS LAW

Question 1

“ A consideration must be adequate” Do you agree with the statement? Discuss

your answer by quoting the relevant decided cases to support your answer.

Introduction

In contract law consideration is concerned with the bargain of the contract. A contract is

based on an exchange of promises. Each party to a contract must be both a promisor and

a promisee. They must each receive a benefit and each suffers a detriment. This benefit or

detriment is referred to as consideration.

 

Consideration must be something of value in the eyes of the law - (Thomas v

Thomas) (1842) 2 QB 851.This excludes promises of love and affection, gaming and betting

etc. A one sided promise which is not supported by consideration is a gift. The law does not

enforce gifts unless they are made by deed.

 

 

Whilst the common law strictly adheres to the requirement of consideration (although in

some instances the courts seem to go to some lengths to invent consideration eg Ward v

Byham [1956] 1 WLR 496,Williams v Roffey Bros [1990] 2 WLR 1153) equity will, in some

instances, uphold promises which are not supported by consideration through the doctrine of

promissory estoppel .

 

 Consideration must be sufficient but need not be adequate:

There is no requirement that the consideration must be market value, providing something of value is given eg £1 given in exchange for a house would be valid. The courts are not concerned with whether the parties have made a good or bad bargain.

Disscussion

For consideration to be good consideration, it must be of some value, even if it is minimal

value. There is no requirement that the consideration be commensurate in economic terms to

the original promise. Nominal consideration will suffice as good consideration for a contract,

Courts will not measure the adequacy of the consideration as it is up to the parties to decide

the subjective worth of each promise.

Chappell & Co Ltd v. Nestle Co Ltd  [1960] AC 87, Lord Somervell, ‘A contracting

party can stipulate for what consideration he chooses. A peppercorn does not cease to

be good consideration if it is established that the promisor does not like pepper and

will throw away the corn.’

How does consideration become acknowledged by the courts?

Consideration, in some way, must be acknowledged, and the legal term for this is ‘sufficient’,

therefore the consideration must be sufficient and is usually of monetary value. Another legal

term used here is ‘adequate’, this means fair price. However, the consideration does not need

to be adequate, but needs to be sufficient to form a contract. An example of this occurred in

the case of Thomas v Thomas (1842), where the decision was made that a woman was

allowed to reside in a property for £1 a year.

Consideration must be given at the time of agreement, but it does not include previous acts.

For example, in the case of Re McArdle (1951), previous work was not seen as consideration

in that particular contract for a future arrangement. However, if there is an agreement

between parties that previous work is to be included, then that consideration would be seen as

valid, this was apparent in Lampleigh v Braithwaite (1615) an in Re Casey’s Patents (1892).

Consideration in a contract must not be illegal, in the case of Foster v Driscoll (1929), this is

where goods were smuggled into the USA, and therefore the consideration became illegal.

Consideration should not be a duty which exists currently. For instance, in the case of Collins

v Godefroy (1831), a lawyer who attended court as a witness, could not also agree to appear

in court. Another case is Stilk v Myrick (1809), this is where sailors had a duty to sail the

ship short-handed, therefore, when they promised the captain they would do this, this was not

a consideration because it was their duty to do this anyway.

Question 2

State whether the parties below are required by the law of contracts to fullfill their legal

obligations in the following situation and explain your answer.

a) fauziah wrote a proposal to sell his new plasma 40 inches televisison to Sherry for

RM1500, When sherry received the letter, she wrote back saying that she agrees to

that proposal and will pay off the purchase price within one week from the date of this

letter. Two days later, Sherry’s husband had deposited the said purchase price into

Fauziah’s account. However Fauziah then refused to transfer the ownership of the

Plasma television on the reason that she only had proposed to sell the said television

to Sherry and not her husband.

Sherry has a right of the buyer to bring an action for non delivery.

Under Section 57 of the Sale of Goods Act

Damages for non-delivery

Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer

may sue the seller for damages for non-delivery.

Buyer's Remedies Against Seller For Breach of Contract

A buyer also has certain remedies against the seller who commits a breach. These are:

1. Suit for Damages for Non-Delivery- When the seller wrongfully neglects or refuses to

deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.

This is in addition to the buyer's right to recover the price, if already paid, in case of non-

delivery.

2. Suit for price- Where the buyer has paid the price and the goods are not delivered to him,

he can recover the amount paid.

3. Suit for specific performance- When the goods are specific or ascertained, a buyer may

sue the seller for specific performance of the contract and compel him to deliver the same

goods. The court orders for specific performance only when the goods are specific or

ascertained and an order for damages would not be an adequate remedy. Specific

performance is generally allowed where the goods are of special significance or value e.g. a

rare paining, a unique piece of jewellery, etc.

4. Suit for Breach of Warranty- Where there is a breach of warranty by the seller, or where

the buyer elects or is compelled to treat the breach of condition as breach of warranty, the

buyer cannot reject the goods. The buyer may, (a) set up the breach of warranty in extinction

or diminution of the price payable by him, or (b) sue the seller for damages for breach of

warranty.

5. Suit for Damages for Repudiation of contract before Due date-Where the seller

repudiates the contract before the date of delivery, the buyer may adopt any of the following

two courses of action --

A. He may treat the contract as rescinded and sue the seller for damages. This is also

known as 'damages for anticipatory breach'. The damages will be assessed according

to the prices prevailing on the date of breach.

B. He may treat the contract as subsisting and wait till the date of delivery. The contract

remains open at the risk and for the benefit of both the parties. If the seller

subsequently chooses to perform there shall be no damages otherwise he shall be

liable to damages assessed according to the prices on the day stipulated for delivery.

6. Suit for interest- The buyer may recover such interest or special damages, as may be

recoverable bylaw. He may also recover the money paid where the consideration for the

payment of it has failed.

In the absence of a contract to the contrary, the court may award interest, to the buyer, in a

suit by him for the refund of the price in a case of a breach on the part of the seller, at such

rate as it thinks fit on the amount of the price from the date on which the payment was made.

b) Alia placed the following advertisement in the notice board of Seven to seven stores:

“Missing a dark and grey colour Persian Cat. The cat is wearing a silver necklace

with a heart shape pendant with a written name Kitty. Anyone who finds the cat may

return the cat immediately. Do contact Miss Alia at telephone 013343900 and

rewards will be given for those who returns the cat”

Last week, Tam while jogging at a park near his housing area, found a Persian cat.

But he decided to keep the cat at his home. Yesterday morning, Tam went to seven to

seven stores to buy a newspaper. Then he came across the advertisement by Alia and

it had reminded him that the details of the cat specified by Alia are the same as the cat

that he found last week. Immediately Tam contacted Alia to inform her that cat was

safe with him. Then Tam returned the cat to Alia, but when Tam enquire as to the

rewards as promised, Alia argued that her advertisement was only as an invitation to

treat therefore she has no obligation to pay the rewards to Tam. Tam came to you to

seek for your legal advice.

Tam already returned the cat that he found to Alia and he should get his reward

Refer to WILLIAMS V CARWARDINE [1833] EWHC KB J44

Introduction

The essential feature of an offer is that the person making it must (actually or

objectively) intend to be bound without further negotiation, by a simple acceptance of

his terms. Thus there is no offer where the owner of a house, in response to an enquiry

from a person who wishes to buy it, states the price at which he might be prepared to

sell; nor even where the owner wishes to sell and invites offer at or about a specified

price. In the latter case he is said to make an "invitation to treat", and he is not bound

to accept the highest or nay other offer. In border - line cases it is obviously hard to

determine with what intention the statement was made: but the difficulty is mitigated

in two days. First, it is enough to show that the statement was reasonably understood

by the person to whom it was addressed as indicating an intention to be bound; and

secondly, the character of certain frequently-recurring types of statements is settled by

rules of law, at any rate in the absence of clear evidence of contrary intention.

Thus it is generally accepted in England that a display of price-marked goods in a

shop-window, or on the shelves of a self - service shop, is merely an invitation to

treat. The offer in such a case comes from the customer. An indication of the price at

which petrol is to be sold at a filling station is, similarly, only an invitation to treat.

Likewise, advertisements in newspapers or in tradesmen's circulars are commonly

held not to amount to offers. These rules may apply even though the person making

the statement calls it an offer: a shop's "special offer" may well be nothing more than

an invitation to treat. But it should not be supposed that all displays and

advertisements are only invitations to treat. For example, it has been said that a notice

displayed at the entrance to an automatic car-park was an offer, presumably because

no further act of acceptance on the part of the proprietor was contemplated after the

customer drove in. For the same reason, advertisements of rewards for the return of

(for example) lost property are commonly held to be offers. Similarly, in Carlill v

Carbolic Smoke Ball Co the manufacturers of carbolic smoke balls promised to pay

£100 to any person who caught influenza after using the appliance as directed; and

they added that they had deposited £1000 with a name bank "shewing our sincerity in

the matter". It was held that the advertisement wan an offer.

Refference

In the theory of invitation to treat, invitation to treat can be defined as inviting the

public to make an offer. Invitation to treat is not an offer because it (offeree) is asking

public (offeror) to make an offer. Invitation of treats can be categorized in 3 types

which are display of good, advertisement and auctions. We just focus on

advertisement since the statements deal with advertisement of Yamaha Piano.

Advertisement can be unilateral offer which the definition is nearly similiarity with

invitation to treat, offer made to the world or public. To differentiate it, we can refer

to the case law Carlill V Carbolic Smoke Ball co [3] .Carbolic Smoke Ball co Ltd

advertised that they would offer 100 pound for anyone got influenza after using their

product. The plaintiff used their product but nevertheless contracted influenza. The

plaintiff sued them for 100 pound. Court of Appeal said that Plaintiff was entitled to

the 100 pound as she had accepted the offer from the Carbolic Smoke Ball co Ltd

which made to the world at large and deals with unilateral offer. Example case law 2

is the Partridge v Crittenden [4] states that the appellant placed an advertisement in a

magazine in order to sell cocks and hens for 25 shilling each. He was charged with

offering for selling a wild bird, contrary to statute, but the High Court said he must be

acquitted. The advertisement was an invitation to treat and not an offer since there are

limited stock and the advertiser could not reasonably intend to be bound to sell to all

those who might accept.

From both case, we can conclude that whether an advertisement is an offer or an

invitation to treats is depends on the intention of the parties. Applied both case law

concept to the statement 1, we are clearly know that it is invitation to treat since

Steven advertised his Yamaha Piano in the New Focus Paper with stated price

RM15,000 and asking public to make an offer to him by contacting his number 016

123456.

Advertisements

The general rule is that advertisements are invitations to treat not offers. It is

important to note that generally, an offer should be made to a particular person or

class of persons.

PARTRIDGE V CRITTENDEN [1968] 2 ALL ER 421

FACTS:

The defendant placed an advertisement in a periodical, Classified

Advertisements section stating: Bramblefinch cocks, Bramblefinch hens 25s each.

ISSUE:

Was the defendant offering for sale a wild bird contrary to the Protection of Birds Act

1954?

HELD:

The court found that the advertisement was an invitation to treat not an offer.

Therefore, the defendant was acquitted.

It is reasoned that if an advertisement was considered an offer then anyone responding

and asking for the items would be accepting. This would mean the seller would be

bound and could cause difficulties if, for example, the stock had run out.

Cases are determined on the objective intention behind the advertisement. The courts

will consider whether: the wording is sufficiently clear to be an offer, the advertiser

intended to be bound and there are issues of limited supply.

Rewards

Rewards are an interesting aspect of advertising and tend to be treated differently by

the courts.

For information

Advertisements of rewards for information have generally been treated as offers not

invitations to treat.

WILLIAMS V CARWARDINE [1833] EWHC KB J44

FACTS:

The defendant placed advertisements stating that: .. whosoever would give such

information as might lead to a discovery of the murder of the said Walter Carwardine,

should, on conviction, receive a reward of £20....

The plaintiff gave information but was refused the reward.

ISSUE:

Was the defendant obliged to pay the reward advertised?

HELD:

The advertisement was sufficiently precise, with no negotiation required so

constituted an offer. The supply of information was an acceptance and the money

should be paid.

For consumers

Rewards advertised to encourage consumers also raise the question of whether they

should be considered offers or invitations to treat.

LEFKOWITZ V GREAT MINNEAPOLIS SURPLUS STORES (1957)

FACTS:

An American case which is not binding English courts, however the reasoning is

interesting.

The defendant placed the following advertisement in a newspaper: Saturday 9 A.M.

Sharp 3 Brand New Fur Coats Worth to $100.00. First Come First Served $1 Each.

The plaintiff was the person to come into the store but the owner refused to sell to

him.

ISSUE:

Was the defendant's advertisement an offer?

HELD:

The court decided that the wording was sufficiently precise and there would be no

issues of limited supply, as only three coats were advertised as available. Therefore,

the advertisement was found to be an offer not an invitation to treat. The plaintiff had

accepted the offer by being the first person to come into the store, as specified.

CARLILL V CARBOLIC SMOKE BALL CO. [1893] 1 QB 256

FACTS:

The defendant placed an advertisement stating: £100 reward will be paid by the

Carbolic Smoke Ball Company to any person who contracts the influenza after having

used the ball three times daily for two weeks according to the printed directions

supplied with each ball... £1000 is deposited with the Alliance Bank, showing our

sincerity in the matter....

The plaintiff made a claim for the reward but it was refused. The defendant argued

that the advertisement: was mere puff, had not been addressed to specific persons and

that the plaintiff had not communicated notice of her acceptance.

ISSUE:

Had the plaintiff accepted the offer?

HELD:

The court dismissed the defendant's pleas.

It found that the advertisement was not mere puff as the defendant had explicitly

stated money had been set aside to make such payments. A reasonable person reading

the advertisement would take it to be a serious offer which amounted to a binding

obligation. Although, an offer must usually be addressed to specific person or class of

persons, the advertisement was being made to anyone who met the criteria set out and

this was sufficient. Furthermore, the court held that the wording of the advertisement

meant the plaintiff did not have to communicate acceptance, as clearly the defendant

did not expect every customer to contact them on purchasing the item, rather only

those who used the product as directed and then caught influenza.

Therefore, the case established that advertisements can constitute an offer to the

public at large and can be worded to waive the need to communicate acceptance prior

to a claim.

Question 3

Hani, a seventeen year old girl, wants to know as whether she can enter into

commercial contracts. Advise her as to what types of contracts she may enter into

legally.

You will need a co-signer since you are under age.

A co-signer is one who will accept responsibility for the contract in the event that the

signer (you) becomes unable to maintian the contract.

Minors Have No Capacity to Contract

Minors (those under the age of 18, in most states) lack the capacity to make a

contract. So a minor who signs a contract can either honor the deal or void the

contract. There are a few exceptions, however. For example, in most states, a minor

cannot void a contract for necessities like food, clothing, and lodging. Also, a minor

can void a contract for lack of capacity only while still under the age of majority. In

most states, if a minor turns 18 and hasn't done anything to void the contract, then the

contract can no longer be voided.

There are actually, exceptions’ to the above said general rule. The following contracts

are not void if they are entered into by a minor.

Contract of insurance

A contract for life or disability insurance made by a person between the ages of 16

and 18 years for his benefit, or for the benefit of his father, mother, husband, wife,

child, brother or sister, or for the surrender of the insurance, or for the discharge of

money payable or benefit accruing thereunder, shall be good and of the same force

and effect as though the minor had attained his majority at the time of making the

contract. This section shall not have the effect of making a promissory note or other

evidence of indebtedness given by a minor in payment of premium or premiums on

contracts for insurance valid, either in the hands of the original owner or a subsequent

purchaser thereof.

Contract of scholarship

One of the elements constituting a valid contract is that the parties entering the

contract are those who have the competency to contract. This is based on section 10

(1) of the Contract Act 1950 which states: “All agreements are contracted if they are

made by the free consent of parties competent to contact, for a lawful consideration

and with a lawful object, and are not hereby expressly declared to be void.” 

Under section 69 of Contract Act 1950, it is said that “if a person, incapable of

entering into a contract, or anyone whom he is legally bound to support, is supplied

by another person with necessaries suited to his condition in life, the person who has

furnished such supplies is entitled to be reimbursed from the property of such

incapable person.”  Under necessaries a minor can enter valid contract if only it is the

basic need of the minor and suitable of his station in life or lifestyle.

Contract of Scholarship between a minor and the government or non governmental

organizations is also valid under section 4 (a) Contracts (Amendment) Act 1976 -

“the scholar entering into such agreement is not of the age of majority”.

Similarly, a minor may enter into a contract of marriage or divorcement as provided

by section 4 (a) Age Majority Act 1971: “Nothing in this Act shall affect the

capacity of any person to act in the following matters, namely, marriage, divorce,

dower and adoption”.

Question 4

Is an invitation to treat an offer? Support your answer with cases whenever necessary.

According to Un Convention on contracts for the International Sale of Goods applies,

explanation for the rights and liabilities of the parties that involved

Contract is an agreement of a two parties especially once it is written its enforced law. An

agreement refers to a "meeting of the minds". There is no magic language necessary to

inform an agreement. However, there is an offer must be made by a person to another and so

acceptance. In other words, the sides (parties) of a contract must agree given basic terms in

order to avoid any misunderstandings which come up after making contract. There are few

factors for the existence of a contract. One of the basics is an offer and an acceptance of that

offer.

An offer

An offer can basically be illustrated as a clear statement of the terms on which a party (the

offeror) is prepared to make a business with other party (the offeree). In other words making

(by offeror) an offer is promising to do or not to do something which is depending on

acceptance by other person (by offeree). An offer is perfomered by an offeror to an offeree.

In contract, offer can be bilateral or unilateral; bilateral offer - means two sides' promise to

each other, therefore contract made by agreement with respect of two sides (offeror and

offeree) in other words, type of contract which requires agreement and performance from

both sides (parties) to the contract. One party promises to do A and the other party promises

to do B. Unsimilarly, unilateral contract occurs when only one side (party) makes an offer to

another party and the other party might accept by action instead of by offering something

back. For example, (bilateral offer situation) if somebody offers £20 to a person who will

bring him a hotdog, a unilateral contract is formed when a person performs the condition and

supplies him with a hotdog. http://uk.answers.yahoo.com

To ensure that made offer is legal, it must include all 3 points shown below:

1. Stated terms must be shown clearly

2. Intention to make a business

3. Communication of that intention

Once an offer is made by the party, it might:

Lapse;

Rejected;

A counter-offer may be made, which automatically rejects the offer preceding it.

These events are important in the context of contract disputes as it is the order of events that

determines the extent of any contractual relationship between the parties in the

circumstances.

An invitation to treat.

The essential feature of an offer is that the person making it must (actually or objectively)

intend to be bound without further negotiation, by a simple acceptance of his terms. Thus

there is no offer where the owner of a house, in response to an enquiry from a person who

wishes to buy it, states the price at which he might be prepared to sell; nor even where the

owner wishes to sell and invites offer at or about a specified price. In the latter case he is said

to make an "invitation to treat", and he is not bound to accept the highest or nay other offer.

In border - line cases it is obviously hard to determine with what intention the statement was

made: but the difficulty is mitigated in two days. First, it is enough to show that the statement

was reasonably understood by the person to whom it was addressed as indicating an intention

to be bound; and secondly, the character of certain frequently-recurring types of statements is

settled by rules of law, at any rate in the absence of clear evidence of contrary intention.

Thus it is generally accepted in England that a display of price-marked goods in a shop-

window, or on the shelves of a self - service shop, is merely an invitation to treat. The offer in

such a case comes from the customer. An indication of the price at which petrol is to be sold

at a filling station is, similarly, only an invitation to treat. Likewise, advertisements in

newspapers or in tradesmen's circulars are commonly held not to amount to offers. These

rules may apply even though the person making the statement calls it an offer: a shop's

"special offer" may well be nothing more than an invitation to treat. But it should not be

supposed that all displays and advertisements are only invitations to treat. For example, it has

been said that a notice displayed at the entrance to an automatic car-park was an offer,

presumably because no further act of acceptance on the part of the proprietor was

contemplated after the customer drove in. For the same reason, advertisements of rewards for

the return of (for example) lost property are commonly held to be offers. Similarly, in Carlill

v Carbolic Smoke Ball Co the manufacturers of carbolic smoke balls promised to pay £100 to

any person who caught influenza after using the appliance as directed; and they added that

they had deposited £1000 with a name bank "shewing our sincerity in the matter". It was held

that the advertisement wan an offer.

Cases

Facts of Pharmaceutical

Society of Great Britain v.

Boots Cash Chemist Ltd

(1953)

The defendants were charged under the

Pharmacy and Poison Act 1933(UK) which

provided that it was unlawful to sell Cain

poisons unless such sale was supervised by a

regisrtered pharmacist.

Held for of Pharmaceutical

Society of Great Britain v.

Boots Cash Chemist Ltd

(1953)

The court ruled that the display was only an

invitation to treat. A proposal to buy was made

when the customer placed the articles in the

basket. Hence the contract of sale would only be

made at the cashier's desk

Question 5

Disscuss the legal rights of unpaid seller against the buyer.

The unpaid seller, in addition to his rights against the goods as discussed above, has the

following three rights of action against the buyer personally: 

1. Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the sale

price is payable ‘on a day certain’, although the property in goods has not passed; and the

buyer wrongfully neglects or refuses to pay the price according to the terms of the contract,

the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where

the goods have not been delivered, the seller would file a suit for price normally when the

goods have been manufactured to some special order and thus are unsaleable otherwise. 

2. Suit for damages for non-acceptance (Sec. 56). Where the buyer wrongfully neglects or

refuses to accept and pay for the goods, the seller may sue him for damages for non-

acceptance. The seller’s remedy in this case is a suit for damages rather than an action for the

full price of the goods. 

The damages are calculated in accordance with the rules contained in Section 73 of the Indian

Contract Act, that is, the measure of damages is the estimated loss arising directly and

naturally from the buyer’s breach of contract. Where the goods have a ready market the

principle applicable is that the seller may recover from the buyer damages equal to the

difference between the contract price and the market price on the data of the breach of the

contract. Thus, if the difference between the contract price and market price is nil, the seller

can get only nominal damages ( Charter vs Sullivan). But where the goods do not have any

ready market, the measure of damages will depend upon the facts of each case. 

For example, in Thompson Ltd. Vs Robinson the damages were assessed on the basis of

profits lost. In that case, T Ltd., who were car dealers, contracted to supply a motorcar to R.R

refused to accept delivery. It was found as a fact that the supply of cars exceeded the demand

at the time of breach and hence in a sense there was no market price on the date of breach.

Held, T Ltd., were entitled to damages for the loss of their bargain viz., the profit they would

have made, as they had sold one car less than they otherwise would have sold. To take

another illustration, if the goods have been manufactured to some special order and they are

unsaleable and have been manufactured to some special order and they are unsaleable and

have no value at all for other buyers, then the seller may even be allowed the full price of the

goods as damages. 

1. Suit for special damages and interest (Sec.61) This Section entitles the seller to sue the

buyer for ‘special damages’ also for such loss “which the parties knew, when they made the

contract, to be likely to result from the breach of it.” In fact the Section is only declaratory of

the principle regarding ‘special damages’ laid down in Section 73 of the Indian Contract Act.

The Section also recognizes unpaid seller’s right to get interest at a reasonable rate on the

total unpaid price of the goods sold, from the time it was due until it is actually paid. (Telu

Ram Jain vs Aggarwal & Sons). 

(a) Suit for Damages for Non-delivery [Section 57] Where the seller wrongfully neglects or

refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-

delivery. 

(b) Suit for Specific Performance [Section 58] In any suit for breach of contract to deliver

specific or ascertained goods, the court may direct that the contract shall be performed

specifically. 

(c) Suit for Breach of Warranty [Section 59] Where there is a breach of warranty by the

seller, or where the buyer elects or is compelled to treat any breach of a condition on the part

of the seller as a breach of warranty, the buyer is not by reason only of such breach of

warranty entitled to reject the goods, but he may – 

(i) Set up against the seller the breach of warranty in diminution or extinction of the price; or

(ii) Sue the seller for damages for breach of warranty. 

Note: The fact that a buyer has set up a breach of warranty in diminution or extinction of the

price does not prevent him from suing for the same breach of warranty if he suffered further

damage. [Section 59(2)] 

Example: X sold a second hand Radio to Y who spent Rs 100 on the repair of this Radio.

This Radio was seized by the police as it was a stolen one. Y filed a suit against X for

recovery of damages for breach of warranty of quite possession including the cost of repairs.

It was held that Y was entitled to recover the same. [Mason v. Burmingham] 

(d) Right to Treat the Contract as Rescinded or Operative in Case of Repudiation of Contract

by Seller before due Date [Section 60] Where seller repudiates the contract before the date of

delivery, the buyer may either treat the contract as subsisting and wait till the date of delivery,

or he may treat the contract as rescinded and sue for damages for the breach. 

(e) Suit for Interest [Section 61(2)] In case of breach of the contract on the part of the seller,

the buyer may sue the seller for interest from the date on which the payment was made.

Question 6

Discuss the kinds of contract of agency

Law of Agency

The law of agency is governed by Part X of the Contracts Act 1950. An agent is defined as a person

employed to do any act for another or represent another in dealings with third person[1]. The person

for whom such act is done, or who is so represented, is called the “principal”

In other words, agency is the relationship which subsists between the principal and the agent, who has

been authorized to act for him or represent him in dealings with others

e.g. Azzizul appoints Samdan to sign the agreement on his behalf, here Azzizul is called the principal

and Samdan is his agent.

Thus in agency there are in effect two contracts:-

i. the first made between the principal and the agent from which the agent derives his authority to act

for and on behalf of the principal; and

ii. the second, made between the principal and the third party through the work of the agent.

A. Who can be come an agent/principal?

Section 136 CA - Any person who is eighteen years old and above and who is of sound mind may be

a principal. As between the principal and third persons, any person may be come an agent, but persons

of unsound mind and who are below 18 years of age are not liable towards their principal for acts

done by them as agents[2]

eg. if A employs B (a minor) to buy some goods from C on his behalf and C supplies the goods, A

cannot allege that he is not liable to pay for the goods just because B is not at the age of majority. A is

still liable to pay C for the goods.

B. CREATION OF AGENCY

Like any other contracts, a contract of agency can be expressed or implied for the circumstances and

the conduct of the parties. In other words, the authority of an agent may be expressed (given by words

spoken or written) or implied (inferred from things spoken or written or from the ordinary course of

dealings.)

eg. X lives in Ipoh and owns a shop in Kuantan. The shop is managed by Y who normally orders

goods from Z in X’s name for the purpose of the shop and Y then pays for the goods out of X’s fund

with X’s knowledge.

Section 138 CA provides that no consideration is necessary to create an agency.

By express appointment by the principal

By implied appointment by the principal

by ratification by the principal

by necessity i.e. operation of law

by the doctrine of estoppel

KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd [1996] 1 MLJ 233

The Court of Appeal held that the law does not require that an agency or sub agency agreement must

be in writing.

Further more, Part X of the Contracts Act 1950, which contains the relevant provisions on agency

does not contain any requirement that the appointment of an agent or sub agent has to be in writing or

be evidence in writing.

1. BY EXPRESS APPOINTMENT

Express appointment may be in written or oral form. An example of an express appointment made in

writing is a Power of Attorney. Even a letter written or words spoken may be effective in appointing

an agent.

2. BY IMPLIED AGREEMENT

The Law can infer the creation of an agency by implication when a person by his words or conduct

holds out another person as having authority to act for him.[3]

e.g. If he allows another person to order goods on his behalf and habitually pays for them, an agency

may be implied. In such terms he will be bound by the contracts as if he has expressly authorised

them.

Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290

The appellant and Yong (a minor), were registered as partners. At a meeting with a representative of

the respondent company, the appellant held himself out to be Yong’s partner. Goods were supplied to

Yong but were not paid for. The respondent company obtained judgement against the appellant and

Yong. The appellant appeal to FC which held that since the appellant had held Yong out of his agent

who had the authority to do things on his behalf, the appellant was liable for Yong’s act.

By virtue of Section 7 of the Partnership Act 1961, partners are each other’s agents when contracting

in the course of the partnership business.

BY RATIFICATION

Agency by ratification can arise in any one of the following situations:-

i. An agent who was duly appointed has exceeded his authority or

ii. A person who has no authority to act for the principal has acted as if he has the authority.

Section 149 CA 1950 –

Where acts are done by one person on behalf of another but without his knowledge or authority, he

may elect to ratify or to disown the acts. If he ratifies them, the same effect will follow as if they had

been performed by his authority.

When the principal accepts and confirms such a contract, the acceptance is called ratification.

ratification may be expressed or implied[4]

Ratification is retrospective i.e. it dates back to the time when the original contract was made by the

agent and not from the date of the principal’s ratification.

e.g. On 2 January 1996, A appointed B as his agent to buy a car not exceeding RM100,000/-. On 5

January B went to GRG Motors and ordered a car costing RM135,000/-, telling GRG Motor’s

salesman that he was buying the car on A’s behalf. On 12 January, GRG Motors deliver the car to A.

If A confirms and adopts the contract on 12 January, then B is said to be an agent through ratification.

A can also rejects the contract since B had exceeded his authority.

Contract can be ratified under the following circumstances:-

The act must be authorised

The agent must, at the time of the contract, expressly act as an agent for the principal[5]i.e. he must

not allow the third party to think that he is the principal.

Keighley Maxted & Co v Durant

An agent, R was authorised by the appellants to buy wheat at a certain price. The agent exceeded his

authority and bought at a higher price in his own name but intending it for Keighley. Keighley agreed

to take the wheat at that price but failed to take delivery. The court held that Keighley was liable to

the Durant since R at the time of the contract did not profess to act as an agent.

SRM Meyappa Chettiar v Lim Lian Koo [1954] 20 MLJ 246

PC, the attorney of SC, entered into an agreement with the respondent under which the PC handed

over to the respondent a piece of land belonging to his principal in consideration of RM 7,000/- and

agreed ‘ upon the return of normal conditions, the vendor shall obtain a special power of attorney

from the said SC now in India and execute the true and lawful transfer of the said land at the

purchaser’s own expenses’. He further agreed that if he was unable to obtain the necessary power

from his principal the RM7,000/- will be return to the respondent. At the trial, the learned judge held

that the agreement had been satisfied by SC and therefore dismissed a claim for recovery of

possession of the land. The Court of Appeal held that the terms of the agreement showed that PC was

acting in his personal capacity and therefore the principal of ratification could not apply to the

agreement

The principal only applies where the agent has professed to contract for his principal who afterwards

ratifies.

The doctrine is thus stated by Tindal C.J in Wilson v Tumman [1843] 6 M&C 242 at page 242

The act done for another, by a person, not assuming to act for himself, but for such other person,

tough without any precedent authority whatever, becomes the act of the principal, if subsequently

ratified by him, is the known and well established rule of law. In that case the principal is bound by

the act, whether it be for his detriment or his advantage, and whether it to be founded on a tort or on a

contract, to the same effects as by, and with all the consequences which follow from the same act

done by his previous authority.

The agent must have a principal, who is in actual existence or capable of being ascertained, when a

contract is made. No one can ratify a contract if he is not a party competent to a contract at the date of

the contract.

Kelner v Baxter [1866] LRE 2 CP 174

A contract to buy a hotel made by an agent on behalf of the company which is about to be formed,

could not be ratified by the company since it did not exist at the time. The agent therefore held for the

contract unless the third party agreed to release him.

The principal must have contractual capacity at the time when the contract is being made and at the

time of ratification.

The principal must at the time of ratification, have full knowledge of all material facts, unless it can

be shown that he intended to ratify the contract whatever the facts may be and assume responsibility

from them[6]

The principal must ratify the whole act or contract

The ratification must not injure the third party, i.e. it must not subject the third party to damages or

terminated his right or interest[7]

BY NECESSITY

An agency by necessity may be created if the following three conditions are met:-

1. It is impossible for the agent to get the principal’s instruction[8]

2. The agent’s action is necessary, in the circumstances, in order to prevent loss to the principal with

respect to the interest committed to his charge e.g. when an agent sells perishable goods belonging to

his principal to prevent from rotting.

3. The agent of necessity must have acted in good faith.

In an emergency an agent has authority to do all such acts for the purpose of protecting his principal

from loss as would be done by a person of ordinary prudence, his own case, under similar

circumstances[9]

BY ESTOPPEL

A person cannot be bound by a contract made on his behalf without his authority. However, if he by

his words and conduct allows a third party to believe that the particular person is his agent even when

he is not, and the third party relies on it to the detriment of the third party, he will be estopped or

precluded from denying the existence of that person’s authority to act on his behalf.

C. Agency in Relation to Banking

The law of agency is relevant to bankers because the relation between a banker and a customer is

based on agency. Furthermore, bank employees are agents of the bank.

D. Bank as Agent of Customers

The relationship between a banker and his customers are generally that of a debtor and a creditor or

vice versa.

Foley v Hill [1848] 9 ER 1002

When a banker receives money from his customers as deposit, the banker is a debtor and his

customers are creditors. On the other hand, where a banker advances money as a loan or other credit,

or extends banking facilities to his customer, the bank is the creditor and the customer is the debtor.

When a customer hires a safe deposit box in which he keeps his valuables, the bank is the customers

agent.

E. Bank Employees as Agent for the Bank

Within a bank, employees of the bank are agents for the bank. Thus employees who are so authorised

may act on behalf of the bank. The bank, as employer, is vicariously liable for the torts committed by

its employees in the course of business.

F. Duties of Principal and Agent

The rights and duties of the principal and agent depend on the express or implied terms of the contract

of agency. Where there is no such contract of agency, the rights and duties of an agent to his principal

and vice versa are laid down in Section 164 – 176 of the Contracts Act 1950

a) Section 164 – Agent’s duty in conducting principal’s business

b) Section 165 – Skills and diligence required from the agent

c) Section 166 - Agent’s account

d) Section 167 – Agent’s duty to communicate with the principal

e) Section 168 – Right of principal when agent deals, on his own account, in business of agency

without the principal

f) Section 169 – Principal’s right to benefit gained by agent dealing on his own account in business of

agency

g) Section 170 – Agent’s right to retainer out of sums received on principals account

h) Section 171 – Agent’s duty to pay sums received for the principal

Mahesan v Malaysian Government Officers Co Operative Housing Society Ltd [1978] 1 MLJ 149

The appellant who was a director and secretary of the respondent co operative society bought land at

the price of RM 944,000 on behalf of the respondent. The appellant knew that the vendor had earlier

paid RM 456,000 for it but did not inform the respondent accordingly. It turned out that the appellant

had received RM 122,000 as a bribe or secret profit from the vendor.

held: The respondent could recover either the bribe or the amount of the actual loss suffered by it as a

result of entering into the contract.

i.Section 172 – When agent’s remuneration becomes due.

j.Section 173 – Agent not entitled to remuneration for business misconduct.

k. Section 174 - Agents’ lien on principal’s property.

l. Section 175 – Agent to be indemnified against consequences of lawful acts.

m. Section 176 – Agent to be indemnified against consequences of acts done in good faith.

G. DUTY OF PRINCIPAL TO AGENT

The duties of principal to agent is provided under section 175 – 178

Section 175 – agent to be indemnified against consequences of lawful acts

Section 176 - agent to be indemnified against consequences of acts done in good faith

Section 177 – non liability of employer of agent to do criminal act

Section 178 – compensation to agent for injury caused by principal’s negligent.

H. THE AUTHORITY OF AN AGENT

An agent’s authority may be actual or apparent. Actual authority is authorised expressly given by the

principal (orally or written) or implied from the express authority given, from the circumstances of the

case, custom or usage of trade, and the conduct of parties.

I. TERMINATION OF AGENCY

Section 154 – 163 of Contract Act 1950 deal with the manner which an agent may be terminated.

J. TERMINATION BY THE ACT OF THIRD PARTY.

When both parties agree that the agency shall terminate, the agency is terminated. The principal may

revoke the authority of the agent at any time before it has been exercised to bind the principal.

When the agency is for an indefinite period of time, the agent can terminate the agency by giving

reasonable notice of termination to the principal - Section 159.

Question 7

Answer the following briefly

i. What is the main legislation governing partnership in Malaysia

The main law governing partnership in Malaysia is the Partnership Act 1961.

Meaning and Nature of Partnership

Partnership[1] is defined by Section 3(1) of the Partnership Act 1961 as ‘ the

relation, which subsists between persons carrying on a business in common with a

view of profit’[2]. No person may be a partner with himself. There must be at

least two or more persons to form a partnership. Section 3(2) excludes from

statutory definition of partnership.

The relation between members of any company association which is:-

a) registered as a company under Companies Act, 1965 or as a co-operative

society under any written law relating to co-operative societies or

b) formed or incorporated by or in pursuance of-

i) any other law having effect in Malaysia or any part thereof; or

ii) letters, patent, Royal Charter or Act of the Parliament of the United Kingdom.

Clubs and societies as well as mutual benefit organizations and building societies

cannot be considered as partnership. It was held in Soh Hood Beng v Khoo Chye

Neo (1897) 4 SSLR 115 that Chinese loan association does not fall under the

ambit of partnership. By virtue of Section 47(2) of the Act there cannot be an

association of more than twenty persons formed or carrying on business in

partnership. As that contravenes Section 14 (3) of the Companies Act 1965, unless

it is a partnership of professionals, eg doctors, solicitors or dentists.

ii. Once a partner retires from a partnership he automatically ceases to be liable for

all the partnership debts before and after his retirement. Is this statement is

correct? Why?

Retiring Partners

When a partner retires from the firm, he remains liable for the partnership debts

incurred before his retirement. This is clearly stated in Section 19(2), which says

that ‘a partner who retires from the firm, he remains liable for the partnership

debts incurred or obligations incurred before retirement’.

However a ‘retiring partner may be discharged from any existing liabilities by an

agreement to that effect between himself and the members of the firm as newly

constituted and the creditors, and this agreement may be either express or inferred

as a fact from the course of dealing between the creditors and the firm as newly

constituted.

Where the debts incurred after a partner’s retirement, he is still liable to persons

who deal with the firm after a change in its constitution unless he has given

express notice to such persons that he is no longer a partner.

In Phillips Singapore Private ltd v Han Jong Kwang & Anor [1989] 2 MLJ 323, it

was held that the mere fact of registration of retirement in the Registry of Business

will not give notice to a third party of that party.