LAW OF CONTRACTLAW OF CONTRACTWhat is a contract ?

S.2(h) : A contract is an agreement enforceable by law.

There are 8 elements to be fulfilled in order to make a valid and binding contract :-1- Proposal (offer) and acceptance2- Consideration3- Intention to create legal relations4- Certainty5- Legal capacity6- Free consent7- Legality of the objects8- Required formalities

PROPOSAL AND ACEEPTANCEPROPOSAL AND ACEEPTANCE

S2(a) : Proposal is made 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 such act or abstinence.

S2(b) : when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.

Eg: You propose to Siti a book and siti accepted your proposal.

The proposal has now become a ‘promise;. The person who made the proposal is known as “promisor”. The person who accepted the proposal is known as “promisee”.

COMMUNICATION OF PROPOSALCOMMUNICATION OF PROPOSAL Proposal can be made either to : 1) Particular person 2) General public

Case : Carlill v. Carbolic Smoke Ball Co.(1893)

If a party accepting a proposal is not aware about proposal, then there is no contract.

Case : R v Clarke (1927)

INVITATION TO TREATINVITATION TO TREAT

1- Display of goods with price tags in a self-service supermarket.

Case : pharmaceutical society of Great Britain v. Boots Cash Chemist Ltd (1953)

2- An auctioneer invitation for bidsCase : Payne v. cave (1789)

3- An advertisementCase : Coelho v The Public services Commission

(1964)

4- Price list

Communication of AcceptanceCommunication of Acceptance General Rule : s7(b) : acceptance of proposal must be

communicated to the propose in order to create a binding contract.

Acceptance may be expressed in some usual and reasonable manner, unless proposal prescribed a manner in which it is to be accepted.

If the proposal prescribes a manner in which it is to be accepted and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not other wise; but if he fails to do so, he accepts the acceptance

Exception (when acceptance need not be communicated to the proposer in order to create a binding contract.)

Case : Carlill v. Carbolic Smoke Ball Co.

Acceptance Through PostAcceptance Through Post

S 4(2) : The communication of an acceptance is complete :- a) as against the proposer, when it is put in a course of

transmission to him, so as to be out of the power of the acceptor; and

b) as against the acceptor, when it comes to the knowledge of the proposer

E.g : You accepts Siti’s proposal by a letter sent by post. In the situation, the communication of the acceptance is

complete : As against Siti’s, when the letter is posted; As against you, when the letter is received by Siti

Case : Entores Ltd v. Miles Far East Corporation (1955) Ignatius v Bell (1913)

Revocation of OfferRevocation of Offer S 5(1) : A proposal may be revoked at any time before the

communication of its acceptance is complete as against the proposer but not afterwards.

S 6 : 4 ways :- Revocation

When there is a lapse of time

or lapse of reasonable

time(b)

Case : Ramsgate v. Victoria Hotel

Co. v. Montefiore

(1866)

If the acceptor fails to full fill a condition

precedents to acceptance

(c)

By the death or mental disorder of

the proposer(d)

The person who made

the proposal communicat

es the revocation

to the other party(a)

Case : Byrne v. Tienhoven

(1880)

Revocation of AcceptanceRevocation of Acceptance

S. 5(2) : ‘ an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards”.

E.g : You propose by letter sent by post to sell your house to Siti. Siti accepts the proposal by letter sent by post. Siti may revoke her acceptance at any time before or at the moment when the letter communicating it reaches you, but not afterwards.

CONSIDERATIONCONSIDERATION S2(d) : “When at the desire of the promisor, the promisee or any

other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration of the promise.”

General rule under S 26 : an agreement without consideration is void

There are 4 exceptions to this rule. Under the exceptions, absence of consideration will not make the agreement void. They are ;-

1- An agreement on account of natural love and affection – s26(a) 2- Agreement to compensate for Past Voluntary Act – s26(b) 3- Agreement to compensate for an Act the promisor was Legally

Compellable To Do - s26(b) 4- Agreement to pay Statute Barred Debt – S26(c)

Agreement on Account of Natural Love and Agreement on Account of Natural Love and Affection-S26(a)Affection-S26(a) In order for an agreement to be valid under this exception,

it must be made according to this conditions:- 1- The agreement must be in writing 2-The agreement must be registered (if applicable) 3-It must be made because of natural love and affection

between parties standing in near relation to each other.

Case ; Re Tan Soh Sim (1951)

Agreement to Compensate for a past voluntary Act-Agreement to Compensate for a past voluntary Act-S26(b)S26(b) Under this exception, the promisor promised to give the

promisee something because the promisee has done somehing voluntarily before the promise was made.

When this happens, the promise made by the promisor is valid although there was consideration on the promisee’s part. In the event that the promisor did not do what he has promised, the promisee can sue him for breach of promise.

Case : J.M.Wotherspoon & Co. Ltd v Henry Agency House (1962)

An Agreement to Compensate for an Act the An Agreement to Compensate for an Act the Promisor was Legally Compellable To Do– S26(b)Promisor was Legally Compellable To Do– S26(b) In order to use this exceptions, there are 3 conditions to

fulfill:

- The promisee has voluntarily done an act - The act act that was done by the promisee was actually an

act that the promisor himself was legally bound to do; and The agreement must be to compensate the promisee either

wholly or partly, for what the promisee had done.

E.g : You had look after your neighbour’s infant son while he was away on a holiday. When they came back, they promised to compensate you for the expenses that you have incurred. In this situation, if they failed to give you the compensation, you can take action against them for breach of promise.

An Agreement To Pay A Statute Barred Debt – An Agreement To Pay A Statute Barred Debt – S26(c)S26(c) It means a debt which cannot be recovered by the Creditor

through legal action because there is a lapse of time which has been determined by the law.

For contract matters, you can take matter to the court within 6 years from the time the cause of action arise. This is provided by the Limitation Ordinance 1953.

Nevertheless, according to S26(c), although a debt cannot be recovered if it is statute barred, a creditor can do so if it falls under these 2 conditions:

1- There is a promise made by the debtor to pay the statute barred debt, after the lapse of 6 years, either wholly or in part of the debt.

2- The promise is made in writing and signed by the person to be charged or his authorised agent acting on his behalf.

Adequacy of ConsiderationAdequacy of Consideration S.26 Explanation 2 : an agreement is not void merely

because the consideration is inadequate.

Section 26 Illustration (f) : “A agrees to sell a horse worth $1,000 for $10…The agreement is a contract notwithstanding the inadequacy of the consideration.

Case : Phang Swee kim v. Beh I Hock (1964)

INTENTION TO CREATE LEGAL RELATIONINTENTION TO CREATE LEGAL RELATION

An agreement does not always means contract. For agreement to be a contract, there must be intention between the parties that they want to enter into a legal relationship between them.

There are 2 types of relationship: 1- Business/commercial Agreement – Low Kar Yitt & Ors. v.

Mohd Isa & Anor (1963)

2- Domestic/Social/Family Agreement Case : Balfour v. Balfour (1919) Case : Merit v. Merit (1970)

CERTAINTYCERTAINTY S.30 – “Agreement, the meaning of which is not certain, or

capable of being made certain, are void”.

(a) A agrees to sell to B “ a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.

(b) A agrees to sell to b one hundred tons of oil of a specific description, known as an article of commerce. There is no uncertainty here to make the agreement void.

(c) A who is a dealer in coconut oil only, agrees to sell to B ‘one hundred tons of oil.” The nature of A’s trade affords an indication of the meaning of the words and A has entered into a contract for the sale of one hundred tons of coconut oil.

Case : Karuppan Chetty v. Suah Thian (1916)

LEGAL CAPACITYLEGAL CAPACITY• S10(1) – “ All agreements are contract if they are made by the free

consent of parties competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly declared void”.

• Who are competent to contract?• S.11 : “Every person is competent to contract who is of the age of

majority according to the law to which he is subject and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.”

• Age of Majority?• The age of majority is 18 years provided by the Age of Majority Act

1971.

• Although only those who are 18 years and above can enter into a contract, there are 2 situations when minors are bound by the contract they have entered into: These are: 1- Necessaries

• 2- Scholarship

NecessariesNecessaries If a minor enters into a contract of necessaries, he would be

bound by the contract that he made.

What are necessaries? Necessaries include food, shelter, clothing, medical

services, education.

According to S69 : “ 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”.

Case : Government of Malaysia v Gucharan Singh(1971)

ScholarshipScholarship

S 4(a) Contract (Amendment) Act 1976: “ Notwithstanding anything to the contrary contained in the principal act, no scholarship agreement shall be invalidated on the ground that

(a) the scholar entering into such agreement is not of the age of majority

(b) such agreement shall be is contrary to any provisions of any law in force relating to money lenders, or

(c) such agreement lacks consideration.

FREE CONSENTFREE CONSENT

S.10(1) : “ All agreement are contract if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”

S.14 : “ Consent is said to be free, when it is not caused by :

a) coercion, as defined in S15 b) undue influence, as defined in S16 c) fraud, as defined in S17 d) misrepresentation, as defined in S 18 e) mistake, subject to S 21, 22 and 23

LEGALITY OF THE OBJECTSLEGALITY OF THE OBJECTS

The objects or consideration of a contract must be that which is permitted by the law. If the object is not permitted, it is said to be unlawful. A contract which contain an unlawful object is void.

S24 : “ The consideration or object of an agreement is lawful, unless :

a) it is forbidden by a law b) it is of such a nature, that, if permitted, it would

defeat any law c) it is fraudulent d) it involves or implies injury to the person or property

of another or e) the court regards it as immoral, or opposed to public

policy

REQUIRED FORMALITIESREQUIRED FORMALITIES A Contract can be made either ;

◦ Orally◦ Writing◦ Both orally and in writing

◦ Sometimes, certain law would require that the agreement be made in writing. If this is the provision, therefore the agreement has to be in writing so that it would be a valid contract.

DISCHARGE OF CONTRACTDISCHARGE OF CONTRACT There are 4 ways in which a contract can be discharged : 1- By performance 2- By consent or Agreement between parties 3- Frustration 4- Breach

Discharge by Performance

Under this way, a contract is said to be discharged when the parties to the contract has performed what they have agreed to do in the contract.

E.g : you enter into a contract with Ali. You are to give Ali a book and in return Ali has to give you RM 100.

General Rule : Parties to the contract must perform their obligations according to the time and place that they have agreed in the contract.

Discharge By AgreementDischarge By Agreement

• Under this way, a contract can be discharged if the parties to the contract agrees/consent that the contract will be discharged. This agreement can be made during the contract or after the contract has been made.

• E.g. : You entered into a contract with Siti. In the contract both of you agreed that the contract will be put to an end if the profit of your business is less than RM 1 million a year. If the profit is less, then the contract is said to be discharged by agreement.

• S 63 : 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.

• S 64 : 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.

Discharge By frustrationDischarge By frustration

Under this way, a contract is terminated if the things that the parties agreed to do is impossible to perform. It can either be at the time the contract was made or when the contract has been made that the obligation became impossible to perform.

S 57(1) : an agreement to do an act impossible in itself is void

S 57(2) : 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.

Case : Taylor v. Caldwell (1863) Krell v Henry (1903)

Cont…..Cont….. When a contract is discharge by frustration, the contract is

automatically void.

Effect of Void Contract (SAK 22 S 66 : Obligation of person who has received advantage under

void agreement, or contract that becomes void. When an agreement is discovered to be void, or when a contract

becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.

Illustration : A contracts to sing for B at a concert for $1000 which are paid in

advance. A is too ill to sing. A is not bound to make compensation to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the $1000 paid in advance.

Discharge By BreachDischarge By Breach

Under this way, a contract can be put to an end if a party to the contract did not do what they have promised to do in the contract.

S 40 : 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.

The party who is not in breach of the contract has 2 options:

1- to continue with the contract and claim damages 2- repudiate the contract

Consequences of Rescission of Voidable ContractConsequences of Rescission of Voidable Contract

S 65 : When a person at whose option a contract is voidable rescinds itl, the other party there to need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he has received any benefit there under from another party to such contract, restore the benefit , so far as may be, to the person from whom it was received.

Illusration : A, a singer, contract with B, the manager of a theatre, to

sing at his theatre for 2 nights in every week during the next 2 months, and B engages to pay her $100 for each nights performance. On the sixth night A willfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A the five nights on which she had sing

REMEDIES FOR BREACH OF CONTRACTREMEDIES FOR BREACH OF CONTRACT

When there is a breach of contract, the injured party may claim one or more of these remedies:

1- Damages 2- Specific Performance 3- Injunction

DAMAGES Reference to S. 74 – 76 Contracts Act 1950.

Under the rule of Hadley v. Baxendale (1854), when there is a breach of contract, the injured party is entitled to :

1- Damages arising naturally, according to the ususal course of things resulting from the breach, and

Cont….Cont….

2- If he claims Special damages for any loss sustained, he must show that they are such that the other party knew at the time of making the contract that the special loss is likely to result from the breach; but

3- Such compensation is not to be given for any remote and indirect loss or damage sustained as a result of the breach.

Case : Tam Cheow Toh v Associated Metal Smelters Ltd (1972)

Cont……Cont……

Types of Damages

Substantial Nominal ExemplaryPecuniary

compensation intended to

put the plaintiff in the

position he would have enjoyed had the contract

been performed

consists of a small token

award where the plaintiff

has proved a breach of a contractual

right but suffered no actual loss.

consists of a sum awarded which is for greater than the actual

pecuniary loss suffered by the plaintiff

SPECIFIC PERFORMANCESPECIFIC PERFORMANCE This is when the court directs the party to the contract to do exactly what he has

promised in the terms of contract.

It is given at the discretion of the court Governed by the Specific Relief Act 1950

S 11(1) : Specific Performance may be granted by the Court in the following situations :

1- When the act agreed to be done is in the performance, wholly or partly of a trust.

2- when there exists no standard for ascertaining the actual damage caused by the nonperformance of the act agreed to be done.

3- When the act agreed to be performed is such that its non-performance would not afford adequate relief.

Cont…. 1- Where the act agreed to be done is in the performance, wholly or

partly of a trust;

Illustration: A holds certain stock in trust for B. A wrongfully disposes of the stock.

The law creates an obligation on A to restore the same quantity of stock to B and B may enforce specific performance.

2-When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done;

Illustration : A agrees to buy, and B agrees to sell, a picture by a dead painter and

two rare China vases. A may compel B specifically to perform this contract, for there is no standard for ascertaining the actual damage which would be caused by to non-performance.

3- where the act agreed to be performed is such that its non-performance would not afford adequate relief.

Case : Duncuft v. Albrecht (1941) Section 20 – the circumstances whereby specific performance will not

be granted

INJUNCTIONINJUNCTION

Two types of injunction : 1- Temporary/interlocutory /interim 2- Perpetual/permanent

S 51 Specific Relief Act. 1- Temporary injunction are such as are to continue until a

specified time, or until the further order of the court. They may be granted at any period of a suit, and are regulated by the law relating to civil procedure.

2-A perpetual injunction can only be grantedb y the decree made at the hearing and upon the merits of the suit; the defendant is thereby perpetually enjoined from the assertion of a right, or from the commission of an act, which would be contrary to the rights of the plaintiff.

Cont….Cont….

A perpetual injunction can only be granted after a full trial and upon the merits of a case and the defendant is permanently prohibited from doing the act or ascertaining a right for which the injunction was granted.

Case : Neoh Siew Eng & Anor v. Too Chee Kwong (1963) In this case, the court granted a perpetual injunction by

ordering the defendant who was a landlord of the plaintiff to keep all communication pipes in proper repair and to comply with all regulations of the waterworks Department so that water supply to the premises rented by the plaintiff would not be disconnected.

S 54 (f) : an injunction cannot be granted to prevent the breach of a contract the performance of which would not be specifically enforced.

Cont….Cont…. Injunction to perform negative agreement S 55: notwithstanding S 54(f), where a contract comprises an

affirmative agreement to do a certain act, coupled with a negative agreement, express or implied, not to do a certain act, the circumstances that the court is unable to compel specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement.

Provided that the applicant has not failed to perform the contract so far as it is binding on him.

Illustration :- A contracts with B to sing for 12 months at B’s theater and not to sing in public elsewhere. B cannot obtain specific performance of the contract to sing, but he is entitled to an injunction restraining A from singing at any other place of public entertainment.

Case : Pertama Nite Club Sdn Bhd v Roman Tam (1981)