Law of Contract in Malaysia - 19.10.2015

LAW OF CONTRACT in
MALAYSIA - An Overview
Norliza Abdul Hamid

Faculty of Law
UiTM Shah Alam.
19 October 2015
norliza abdul hamid / 2015
A legally enforceable agreement

Valid contract
SOURCES OF LAW
Legislation / Statute / Act of
Parliament
Contracts Act 1950 (CA 1950)
Case law Malaysian and English cases

Example : Hyde v Wrench (1840)
Others
Federal & State Constitutions
LECTURE COVERAGE
Elements of a Contract
Voidable Contracts
Terms of Contract
Discharge of Contracts
1. ELEMENTS
Proposal / Offer
Acceptance
Consideration
Intention to Create Legal Relations
Capacity
Legality
Certainty
ELEMENT (i) :
PROPOSAL / OFFER (Tawaran)
Section 2(1) Contracts Act 1950: 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
ie,
a definite promise to be legally bound
Preston Corp v Edward Leong (1982)

Tawaran adalah satu tanda kesediaan pembuat tawaran untuk
menjalin satu kontrak yang sah dan mengikat di sisi undangundang..

6
A proposal must be communicated

Communication can be made expressly or impliedly
Section 4(1) Contracts Act 1950: effective when it comes to
the knowledge of the other party (offeree).
Contrasts with an invitation to treat

Goods on display on shelves or shop
windows are not proposals.

Boots Case (1953)
Advertisements
Coelho v the Public Services Commission (1964) job
advertisement in the Malay Mail.
Carlill v Carbolic Smokeball Co Ltd (1893) advert in
newspaper for smokeball to prevent influenza + moneyback

guarantee + money in bank.
= a proposal which was made to the world at large.
OFFER + ACCEPTANCE = AGREEMENT
ii. ACCEPTANCE (Penerimaan)

s.2 (b) when the 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.
s.9 :by words or conduct
10
Acceptance must be absolute and

unqualified - s.7(a) CA 1950
negotiations Lau Bros v China Pacific Navigation Co Ltd
(1965)
counter offer Hyde v Wrench (1840)
Facts : D offered 1000, P replied 950. D refused. P then
wrote to accept original offer.

Held: No agreement.
11
Methods of acceptance
In some usual and reasonable manner (s.7)
unless offer states specific method of acceptance, eg in
writing / phone call.

Must be within time limit set in offer or within reasonable
time (s.7)
12
SILENCE IS NOT ACCEPTANCE

Felthouse v Bindley (1862)
Facts : If I hear no more about him, I consider the horse mine at 30
15s.
Held : No valid acceptance, no agreement.
13
Effective when communicated

Postal Rule
s.4(2)a : communication complete when it is put in a course
of transmission to proposer, so as to be out of power of

acceptor
binds proposer when letter posted.

binds acceptor : when it comes to knowledge of proposer
14
Revocation of Offer & Acceptance

s.5: Offer can be revoked or withdrawn at any time before
communication of acceptance
15
METHODS OF REVOCATION
i) Communicating notice of revocation to offeree

ii) Lapse of time for acceptance/ reasonable time
iii) Failure of offeree to fulfill condition of acceptance
iv) Death/mental disorder of offeror if offeree
knows before he accepts.
16
Note:
Offeror can still withdraw offer even if he has promised to keep
offer open for a specific period of time.
Routledge v Grant (1828)

Facts: D gave 6 weeks for P to decide. 3 weeks later, he withdrew
his offer. P tried to accept within the 6 weeks.
Held: No contract since D withdrew his offer. D was free to
withdraw at anytime before acceptance.
17norliza abdul hamid / 2015
iii. INTENTION TO CREATE LEGAL RELATIONS

(Niat)
refers to intention of parties to create a legally binding &
enforceable agreement (ie, a contract)

Presumptions
i. Family arrangements : Balfour v Balfour (1919)

ii. Commercial arrangements
iii. Exceptions
18
iv. CONSIDERATION (Balasan)

s.26 : An agreement is VOID if there is no consideration
Definition : s.2 (d) : 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
19
Who provides consideration?

Venkata Chinnaya v Verikatara Maya (1881)
Consideration from a party to the contract or any third party
= good consideration.
20
Consideration need NOT be adequate

Section 26 Illustration (f) : A agrees to sell a horse worth
RM1,000 for RM10. A's consent to the agreement was freely

given. The agreement is a contract notwithstanding the
inadequacy of the consideration.
Phang Swee Kim v Beh I Hock (1964)
21
Past consideration (Balasan lampau)

A promise to compensate a person who has already
voluntarily done something for the promisor, or something

which the promisor was legally compellable to do.
S.26 Illustration (d) : A supports B's infant son. B promises to
pay A's expenses in so doing. This is a contract.
Kepong Prospecting Ltd v Schmidt (1968)
22
Natural love and affection

(kasihsayang semulajadi)
It is in writing and registered (if applicable) and is made on
account of natural love and affection between parties standing in

a near relation to each other.
S.26 Illustration (b)
A, for natural love and affection, promises to give his son, B,
RM1, 000. A puts his promise to B into writing and registers it

under a law for the time being in force for the registration of
such documents. This is a contract.
23
Part payment
Kerpa Singh v Bariam Singh (1966)
Facts: A owed B $8650. Later As son offered to pay $4000 as
payment in full to discharge the debt. Said if B didnt agree, to

return the cheque. B cashed the cheque.
Held: B had accepted the offer by cashing the cheque. Therefore,
B couldnt claim the balance of $4650.
24
v. CAPACITY (Keupayaan
Keupayaan))
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 Act 1971 : 18 years

25
Exceptions
Contracts for NECESSARIES suitable to
his condition in life (status)
Contracts for SCHOLARSHIP
Contracts for INSURANCE with written
parental consent.
26
vi. LEGALITY
Where consideration / object of agreement is unlawful,
then the agreement is void and unenforceable section 24

Examples:
i. forbidden by law
ii. involves injury to person / property of another
iii. immoral purposes
27
vii. CERTAINTY of Contract

Terms must be certain and not vague.
Karrupan Chetty v Suah Thian (1916)
Facts: Lease at $35 per month for as long as
he likes
Held: Void for uncertainty.
28
2. VOIDABLE CONTRACTS
s.13 : Two or more persons are said to consent when
they agree upon the same thing in the same sense.

s.14 : FREE CONSENT = when not given by coercion,
undue influence, fraud, misrepresentation, or mistake.
29
Effects of voidable contract

Valid at the time contract was entered into.
Until it is avoided by the innocent party.
If so, contract becomes void.
Question : What if innocent party did nothing?
30
i. COERCION (duress)
s.15 : committing, or threatening to commit any act
forbidden by the Penal Code, or the unlawful detaining or

threatening to detain, any property, to the prejudice of any
person whatever, with the intention of causing any person to
enter into an agreement.
31
ii. UNDUE INFLUENCE

where the relations subsisting between the parties are such
that one of the parties is in a position to dominate the will of

the other and uses that position to obtain an unfair advantage
over the other.
32
Example
where a contract is made with a person whose mental capacity is
temporarily or permanently affected by reason of age, illness, or

mental or bodily distress.
Illustration (b) : A, a man enfeebled by disease or age, is induced,
by B's influence over him as his medical attendant, to agree to pay
B an unreasonable sum for his professional services. B employs
undue influence.
33
iii. MISREPRESENTATION
Section 18
A person makes a statement which is not true, though he
believes it to be true.
or
If he knows it is not true / does not believe it to be true
fraud.
ie, making a false statement of fact.
34
iv. MISTAKE (Khilaf)

Section 21: both parties are under mistake as to matter of fact.
Section 22 : mistake as to law

Section 23 : mistake of one party as to matter of fact
35
Mistake as to fact by both parties

Section 21
Where both the parties to an agreement are under a mistake
as to a matter of fact essential to the agreement, the

agreement is void.
Illustration (b) : A agrees to buy from B a certain horse. It
turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact. The agreement is
void.
36
Mistake as to the law

Section 22
A contract is not voidable because it was caused by a mistake
as to any law in force in Malaysia ie. may be valid

Illustration : A and B make a contract grounded on the
erroneous belief that a particular debt is barred by limitation:
the contract is not voidable.
37
Mistake of one party as to facts

Section 23
not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact.

Effect: Contract may still be valid.
38
3. TERMS OF CONTRACT
ie, contents of contract
Express terms
as agreed between the parties
orally or in writing.
39
Implied terms
Implied by the Sale
of Goods Act 1957
Section 15: goods must fit description

Section 16: merchantable quality
Section 16: fitness for purpose
Section 17: correspond to sample

By Consumer Protection Act 1999
40
Eg - Sale by description s.15 SOGA 1957

Where goods are bought based on description, there is an
implied condition that the goods shall correspond with

the description.
S may describe the goods in words and even pictures relating to
size, colour, materials used, price etc. In fact, most contracts of

sale are sales by description.
A buyer would rely on the description given when goods are
ordered through catalogues or brochures. Likewise when goods
are purchased online where the buyer relies on what he sees or
reads on the website.
41
Case : Beale v Taylor (1967)

A car was advertised as a Herald Convertible, white, 1961... The buyer
actually saw the car before agreeing to buy. Later, he discovered that the
rear half was part of a 1961 Herald Convertible, but the front half was a
part of an earlier model.
Despite having seen the car, the court held that there was a breach and
granted damages to the buyer since the buyer relied on the description
given by the seller.
42
4. DISCHARGE
ie, to end / terminate the contract.
4 ways
i.
ii.
iii.
iv.
Performance
Agreement
Breach
Frustration
43
I.
BY PERFORMANCE
Section 38(1) : The parties to a contract must either

perform, or offer to perform, their respective
promises,...
44
WHO MUST PERFORM? SECTION 41

If promisor promised to personally perform, then
it must be performed by him.
Illustration : A promises to paint Bs picture, then
must be personal performance.
Otherwise, promisor may employ a competent

person to perform.
Illustration : A promises to pay B a sum of money.
A may pay personally or by another.
45
II.
BY AGREEMENT
Agreement to discharge or terminate the contract

Both parties agree to end the contract although it
has not been performed.
Effect : contract comes to an end.
46
III.
BY BREACH
When one party fails to perform

s.40 : when a party to a contract has refused to
perform / 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.
47
ILLUSTRATION
A, a singer, enters into a contract with B, the

manager of a theatre, to sing at his theatre two nights
in every week during the next two months, and B
engages to pay her RM100 for each night's
performance. On the sixth night A wilfully absents
herself from the theatre. B is at liberty to put an end
to the contract.
48
EFFECT
A breach of contract
The other party may take legal action for breach
of contract.
49
REMEDIES FOR BREACH

DAMAGES compensation for loss and damage.
SPECIFIC PERFORMANCE a court order to
compel a party to perform his duties under
contract.
INJUNCTION a court order to prevent
someone from doing something.
50
IV.
BY FRUSTRATION
Effect : contract becomes frustrated.

Effect : VOID and UNENFORCEABLE.
when there is a change in circumstances which

renders contract legally / physically impossible to
perform.
51
2 CATEGORIES
Impossibility after contract was made.
Impossibility of performance at the time contract

is made.
52
SECTION 57(1) CONTRACTS ACT 1950

An agreement to do an act impossible in itself is
void.
ie. impossible to perform at the time of contract.
(a) A agrees with B to discover treasure by magic.
The agreement is void.
53
CONTRACT TO DO AN ACT WHICH

AFTERWARDS BECOMES IMPOSSIBLE OR
UNLAWFUL.
Section 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.
54
EXAMPLE : DESTRUCTION OF
SUBJECT MATTER
Taylor v Caldwell (1863)
Facts : After contract was entered into, music
hall (subject matter of contract) burnt down
before date of concert.
Held : Contract frustrated.
55
EXAMPLE : PERFORMANCE
BECOMES UNLAWFUL
Berney v Tronoh Mines Ltd (1949)
Facts : a contract of employment was discharged
when Japan occupied Malaya during WW2.
56
EXAMPLE OF SUPERVENING
EVENT WHICH DEFEATS THE
WHOLE PURPOSE OF CONTRACT
Krell v Henry (1903)

Facts : A room was hired for sole purpose of
watching the coronation procession of King
Edward VII. However, the coronation was
cancelled when the King fell ill.
Held : The purpose of hiring room no longer
existed.
57
EFFECT OF FRUSTRATION
Contract becomes void.
Section 66 : Any person who has received any benefit /
advantage, is bound to restore it, or to compensate for
it to the person whom he received it from.
Illustration (d) : A contracts to sing for B at a concert

for RM1,000, 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 RM1,000
paid in advance.
58
HOWEVER:
One party may not sue the other, because
contract is not breached.
The frustrating event was not due to anybody's
fault.
59
The End Thank You.
60

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LAW OF CONTRACT in

Norliza Abdul Hamid

A legally enforceable agreement

norliza abdul hamid / 2015

Case law Malaysian and English cases

norliza abdul hamid / 2015

norliza abdul hamid / 2015

another his willingness to do or to abstain from doing anything,

a definite promise to be legally bound

Preston Corp v Edward Leong (1982)

menjalin satu kontrak yang sah dan mengikat di sisi undangundang..

A proposal must be communicated

the knowledge of the other party (offeree).

norliza abdul hamid / 2015

Contrasts with an invitation to treat

windows are not proposals.

norliza abdul hamid / 2015

newspaper for smokeball to prevent influenza + moneyback

norliza abdul hamid / 2015

OFFER + ACCEPTANCE = AGREEMENT

ii. ACCEPTANCE (Penerimaan)

assent thereto, the proposal is said to be accepted: a proposal, when

norliza abdul hamid / 2015

Acceptance must be absolute and

wrote to accept original offer.

norliza abdul hamid / 2015

writing / phone call.

norliza abdul hamid / 2015

SILENCE IS NOT ACCEPTANCE

norliza abdul hamid / 2015

Effective when communicated

of transmission to proposer, so as to be out of power of

binds proposer when letter posted.

norliza abdul hamid / 2015

Revocation of Offer & Acceptance

norliza abdul hamid / 2015

i) Communicating notice of revocation to offeree

norliza abdul hamid / 2015

offer open for a specific period of time.

Routledge v Grant (1828)

17norliza abdul hamid / 2015

iii. INTENTION TO CREATE LEGAL RELATIONS

enforceable agreement (ie, a contract)

i. Family arrangements : Balfour v Balfour (1919)

norliza abdul hamid / 2015

iv. CONSIDERATION (Balasan)

promisee or any other person has done or abstained from doing,

norliza abdul hamid / 2015

Who provides consideration?

norliza abdul hamid / 2015

Consideration need NOT be adequate

RM1,000 for RM10. A's consent to the agreement was freely

norliza abdul hamid / 2015

Past consideration (Balasan lampau)

voluntarily done something for the promisor, or something

norliza abdul hamid / 2015

Natural love and affection

account of natural love and affection between parties standing in

S.26 Illustration (b)

A, for natural love and affection, promises to give his son, B,

RM1, 000. A puts his promise to B into writing and registers it

norliza abdul hamid / 2015

payment in full to discharge the debt. Said if B didnt agree, to