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The Law of Contract

The principal statute in Malaysia governing the Law of Contract is the Contracts Act
1950.

Definition of a Contract
A contract in the legal sense refers to an agreement between two or more
parties, which is legally binding in the eyes of the law, with the
consequence that if one party breaches, the other would have a right of
action in a court of law for breach.

Elements Essential for a Valid Contract

A valid contract satisfies the requirements of the law and is enforceable in a court of
law if one of the parties breaches the terms. The essential elements include:

1. Offer
2. Acceptance
3. Intention
4. Consideration
5. Capacity
6. Legality
7. Free Consent
8. Form

Types of Contracts That May Not Satisfy Legal

Requirements
A contract that does not satisfy the relevant tests may be:

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Void: A void contract has no legal effect, and the parties are not bound by it. For
example, a contract to rob a bank is illegal and hence void. S2(g) states that an
agreement not enforceable by law is a void contract.
Voidable: Voidable contracts are valid when made but may be avoided or set
aside by one of the parties. Factors such as coercion or undue influence can
make a contract voidable. If no action is taken to avoid the contract, it remains
valid.
Unenforceable: A contract is deemed unenforceable when it is not in the
correct form as required by statutory law. While valid, neither party can compel
the other to perform if they refuse. This often occurs when required evidence,
such as written evidence for a land contract, is unavailable.

Offer / Proposal

Definition
Section 2(a) of the Contracts Act 1950 defines an offer:

“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."

Making an Offer
An offer can be made in several ways. The offeror may attach any conditions they
want to the offer, and the offeree can choose whether or not to accept those terms.

The person who makes the offer is known as the offeror.

The person who accepts the offer is known as the offeree or the acceptor.

Case Example: Carlill v Carbolic Smoke Ball

Facts: The defendants advertised the Carbolic Smoke Ball, claiming it could prevent
the "flu." They offered to pay £100 to anyone who used the smoke ball as directed
but still caught the "flu." To show sincerity, they deposited £1,000 in the bank. Mrs.
Carlill bought and used the smoke ball properly but still caught the "flu." The
defendants refused to pay, claiming there was no contract.

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Held: The court held that the advertisement was an offer to the world at large, and
anyone could accept by fulfilling the conditions. There was no need to communicate
acceptance, as it took place by merely performing the act (by conduct). Mrs. Carlill
was able to claim the £100.

Offer vs. Invitation to Treat

An offer is a definite promise to be bound on specific terms. An invitation to treat is
an invitation to the other party to enter into negotiations. It is a step prior to entering
into a contract where one party seeks to ascertain whether the other is willing to
enter into a contractual relationship.

Examples of Invitation to Treat

Display of goods in a shop window
Mail-order catalogues
Certain newspaper advertisements
Auction sales

Case Examples
Pharmaceutical Society of Great Britain v Boots Cash Chemists: The court
held that the offer to buy was made when the customer picks the bottle of
drugs from the shelf, and there would be no sale until it was approved or
accepted by the registered pharmacist.

Fisher v Bell: The display of a flick knife in a shop window was only an
invitation to treat.

Advertisements
Whether advertisements amount to offers depends on whether they are bilateral or
unilateral.

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Advertisements of bilateral contracts: These are generally considered

invitations to treat because they may lead to further bargaining.
Advertisements of unilateral contracts: These can be considered offers, such
as those promising rewards for the recovery of lost property or information
leading to the capture of a criminal.

The Offer Must Not Be Vague

The terms of the offer must be precise and certain.

Case Examples:

White v Bluett: A father's promise to release his son from a debt if the son
stopped complaining was too vague to be an enforceable contract.
Gunthing v Lynn: An offer to pay an additional amount if the horse proved
"lucky" was too vague.

An apparent "vague offer" can be made certain by reference to a previous course of

dealing, as seen in Hillas v Arcose.

Communication of the Offer

The offer must be communicated to the offeree and has no value unless this is done.
Communication takes place when the offeree has actual knowledge of the offer.

Section 4(1) CA 1950:

The communication of the proposal is complete when it comes to the

knowledge of the person to whom it is made.

Case Example:

Taylor v Laird: Since Taylor had not communicated his offer to work, Laird had
no opportunity to accept or reject the offer. Therefore, there could be no
contract.

Termination of an Offer
An offer can be terminated in several ways:

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1. Acceptance

2. Rejection by the offeree: The offer automatically ends and cannot be accepted
later.

3. Counteroffer: A counteroffer rejects the original offer, which cannot be

subsequently accepted.

Case: Hyde v Wrench

Facts: The defendant offered the plaintiff a farm for £1,000. The
plaintiff made a counteroffer of £950. The defendant rejected the
counteroffer. The plaintiff then tried to accept the first offer.
Held: The counteroffer had operated as a rejection of the original
offer, and thus there is no contract.

A mere request for further information does not amount to a counteroffer.

4. Revocation: Withdrawal of the offer before acceptance. Revocation must be

communicated to the offeree to be effective.

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Section 5(1) CA 1950: A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but
not afterward.

Section 6 provides that a proposal may be revoked in the following ways:

By the communication of notice of revocation by the proposer to the

other party. The proposer is required to communicate the revocation
before acceptance takes place.

Case: Byrne v Van Tienhoven

Facts: Van Tienhoven posted an offer from Cardiff to Byrne in

New York on Oct 1st. On Oct 8th, Van Tienhoven posted a
revocation of his offer. On Oct 11th, Byrne sent a telegram
accepting the offer of Oct 1st. On Oct 15th, Byrne sent a letter
confirming the acceptance. On Oct 20th, Byrne received the
revocation dated Oct 8th.
Held: A contract existed. Van Tienhoven’s revocation was
invalid because it did not reach Byrne until after the
acceptance had been made. The contract had been made on
Oct 11th, when Byrne sent his telegram of acceptance.

The rule that an offer can be revoked at any time before acceptance
applies even though the offeror has stated that he will keep the offer
open for a stated time as in the case of Routledge v Grant. In this
case Grant offered to buy Routledge’s horse and gave him 6 weeks
to decide whether or not to accept. Before the 6 weeks had elapsed,
Grant withdrew his offer. It was held that in the absence of
Routledge already having accepted, Grant was entitled to revoke his
offer even though the time limit has not expired.

5. Lapse of Time:

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If the offer is stated to remain open for a definite time, it lapses at the end
of that time. If no time is stated, the offer lapses at the end of a
reasonable time. S6(b) CA 1950. Failure to accept within a reasonable
time implies rejection by the offeree. What is a reasonable time depends
on the type of goods or services on offer.

Case: Ramsgate Victoria Hotel v Montefiore

Facts: In June, the defendant offered to buy shares from the plaintiff.
In November, the plaintiff allotted the shares to the defendant who
refused them stating that his offer had lapsed.
Held: Acceptance had not been made within a reasonable time, and
the offer had lapsed.

6. Death:

If an offer is for personal services, for example, and the offeror dies before
acceptance, the offer automatically ends. If, however, the offer does not
depend on the offeror personally, the offeror’s death will not end the offer,
although if the offeree knows of the death, he or she will not be able to
accept the offer. The death of the offeree ends the offer.

7. Non-Occurrence of an Express or Implied Condition:

Sometimes, an offer is made subject to a condition. If that condition is not

satisfied, the offer cannot be accepted. S6(c) CA 1950.
Financings Ltd v Stimson.

Acceptance

Definition
Unconditional consent to all the terms of the offer.

Key Aspects of Acceptance

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1. Absolute and Unqualified:

Section 7(a) CA 1950: The acceptance must be an agreement to all the

terms of the offer. Otherwise, it will amount to a counteroffer.

2. Mode of Communication:

Acceptance can be made orally, in written form, or by conduct.

If no method of acceptance is prescribed, a reasonable mode of
communication must be used.
If the method of acceptance is stated in the proposal, the offeree must
follow the mode of communication indicated by the offeror.
Section 7(b) CA 1950: The proposer must insist that acceptance be made
in the manner prescribed and not otherwise within a reasonable time after
the acceptance has been communicated. If he fails to do so, it shall be
deemed that he accepts the acceptance.
In the case of Unilateral contracts, acceptance by conduct is possible (no
communication of acceptance is required – Carlill v Carbolic Smoke Ball.)

3. Acceptance "Subject to Contract":

A conditional assent to a proposal does not constitute acceptance.

A man who, though content with the general details of a proposed
transaction, feels that he requires expert guidance before committing
himself to a binding obligation may request a clause "subject to contract."
The result is that neither party is subject to an obligation until a formal
document has been prepared and signed (NOT BINDING YET).
The transaction has no legal effect and may be disregarded by either
party.

4. Silence:

Silence can never amount to acceptance. Section 2(b) CA 1950 requires

the person to whom the proposal is made to signify his assent thereto to a
proposal.

5. Communication to the Proposer:

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Acceptance does not take place until it has been communicated. The
proposer must have actual knowledge of the acceptance.

Section 4 CA 1950 states that the communication of the acceptance is

complete:

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.
As against the acceptor, when it comes to the knowledge of the
proposer.

Case: Entores v Miles Far East Corporation

The contract takes place in England, when the company in England

has actual knowledge of the acceptance.

Exception – Postal Rule:

Section 4(2)(a) CA 1950 – An exception to the general rule where

the parties have contemplated the use of the post as a means of
communication.

If the acceptance is made by letter or telegram, the acceptance takes

place when the letter correctly addressed and stamped is placed in
the letter box and the telegram handed to the post office. The
acceptance is valid even if the letter is delayed or destroyed, and the
proposer may not know of the acceptance. Nevertheless, a valid
contract exists.

Case: Ignatius v Bell

Acceptance takes place on the 16th of August when the letter

was posted. A contract came into existence on the 16th of
August.
This rule will bring about considerable problems for the
proposer. Therefore, in order to protect himself, it is essential
for him to expressly stipulate that “acceptance must be by
giving notice to the proposer."

6. Revocation of Acceptance:

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Section 5(2) CA 1950 provides that an acceptance may be revoked at any

time before the communication of the acceptance is complete as against
the acceptor, but not afterwards.

Section 4(3) CA 1950 states the communication of revocation of

acceptance is complete:

As against the person who makes it (acceptor), when it is put into a

course of transmission to the person to whom it is made (proposer),
so as to be out of the power of the person who makes it; and person
to whom it is made (proposer), when it comes to his knowledge.

Once the acceptor B puts his revocation into a course of transmission, he

cannot withdraw his revocation because it is binding on him. The
revocation cannot be recalled. However, the communication of revocation
is not binding on the proposer until it comes to his knowledge. Thus, if the
proposer receives the letter of acceptance on Tuesday and the letter if
revocation of acceptance on Wednesday, the letter revoking the
acceptance is ineffective.

Consideration

Definition
Consideration is defined in Section 2 (d) CA 1950:

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 promise
to do or to abstain from doing, something, such act or abstinence or
promise is called a consideration of the promise.

In simpler terms, it is "the price for which the promise of the other is bought."

Case Example: Osman Bin Abdul Ghani & Ors v United

Asian Bank Bhd
Every simple contract must contain consideration from both parties to the contract.
By S26 CA1950, “An agreement without consideration is void”.

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Types of Consideration

The image presents a flowchart illustrating the distinction between two types of
contracts: executory and executed. An executory contract represents "a promise to
be performed in the future," while an executed contract is one "where one party to
the contract has already performed their part of the contract."

1. Past Consideration

Past consideration is when a promise is made after and in return for an act that
has already been performed. The words “has done or abstained from doing” in
Section 2 (d) suggest that an act prior to the promise would be sufficient to
constitute consideration even though it is clearly past, provided it is done “at
the desire of the promisor”.

Case: Kepong Prospecting Ltd & S.K. Jayatheesan & Ors v A.E. Schmidt
& Marjorie

Facts: Schmidt, a consulting engineer, had assisted another in

obtaining a prospecting permit for mining iron ore in the State of
Johore. He also helped in the subsequent formation of the company,
Kepong Prospecting Ltd, and was appointed Managing Director.
After the company was formed, an agreement was entered into
between them under which the company undertook to pay one
percent of the value of all iron ore sold from the mining land. This
was in consideration of the services rendered by the consulting
engineer for and on behalf of the company prior to its formation.
Held: The court held that this was sufficient in law to constitute a
valid consideration even though they were clearly past. Therefore,
Schmidt was entitled to the amount.

Exceptions to the General Rule

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The general rule that an argument without consideration is void. However, there are
certain exceptions to this general as provided in S26. These are as follows:

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1. S26 (a) – An agreement on account of natural love and affection

The validity of this agreement depends on the following conditions:

1. It must be expressed in writing

2. It must be registered where a law exists requiring such registration
3. It is made on account of natural love and affection between parties
standing in near relation to each other

Generally, members of the immediate family will ordinarily constitute near

relation. However, what constitutes near relation can vary with each social
group depending on its customs and social organization

In Re Tan Soh Sim, it was held by the Court of Appeal that Chinese adopted
children could not be regarded as being in “near relation” to the uncles and
aunts of their adoptive mother.

2. Section 26 (b) – An agreement to compensate for a past voluntary act

2 limbs to this exception

1. It is a promise to compensate either wholly or in part the other

person (promisee)
2. The promisee has voluntarily done something for the promisor. The
act that has been performed by the promisee prior to the agreement
must have been performed voluntarily.

S26 (b) – An agreement to compensate for an act the promisor was

legally compellable to do

Conditions for this exception to apply:

1. The promisee has voluntarily done an act

2. The act is one which the promisor was legally compellable to do
3. An agreement to compensate, wholly or in part, the promisee for the
act.

Example, X pays a fine imposed by the court on Y who promises to

compensate him. That promise is binding under this provision.

3. S26 (c) – An agreement to pay a Statute Barred debt

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A statute barred debt refers to a debt which cannot be recovered through legal
action because of a lapse of time fixed by law. The time limit for an action in
contract under the Limitation Ordinance 1953 applicable to Peninsular
Malaysia, is 6 years from the cause of action arises. This is usually calculated
from the moment of the breach of the contract.

Conditions for the exception to apply under S26(c) CA1950

1. The debtor made a fresh promise to pay the statute barred debt.
2. The promise is in writing and signed by the person to be charged or
his authorized agent on his behalf.

Consideration Must Be Real

Consideration must have value in the eyes of the law. Adequacy of consideration is a
matter for the parties to decide, not for the courts. Therefore, if the promisor gets
what he asked for in exchange for his promise, he has received sufficient
consideration (though it may not be adequate) and is bound in law to fulfill the
obligation. It is immaterial that his promise is far more valuable than the price asked
for. The courts will not interfere with a bargain provided it was freely made. It is only
when the issue of consent not being freely given is raised that the fact of adequacy of
consideration would be taken into account by the court.

In Thomas v Thomas, the promise to pay £1 per annum rent was clearly
“sufficient” to support the promise of a right to live in a house.

If the consideration does not have any value at law, it does not amount to valuable
consideration. It will not have value if, for eg. the act or promise is already legally due
under a duty owed at law or if the person is already contractually bound to do the
act. Eg. if a person performs something which is already demanded of him by being a
citizen (eg. helping to arrest a criminal) he cannot then claim that this is valuable
consideration for a contract.

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(i) Case: COLLINS V GODEFROY

Facts: The plaintiff attended court to give evidence for the defendant. He
later sued the defendant on the defendant’s promise that he would pay
the plaintiff for his loss of time.
Held: His action failed because he was already bound by law to attend the
trial.
(ii) Case: GLASBROOK BROTHERS LTD V GLAMORGAN COUNTY COUNCIL
Facts: The plaintiff were mine owners and fearing violence at the time of
strike asked for police protection at the mine. The police said that extra
protection was not necessary and so Glasbrook agreed to pay an extra
sum to the police, if they would provide the protection which Glasbrook
required. The police did so and no violence happened. The plaintiff then
refused to pay the police stating that they were under a public duty to
provide police protection.
Held: The police are under a public duty to provide reasonable protection.
If they supply more than necessary, as they had in this case, then they
have supplied fresh consideration and are entitled to the money.
(iii) Case: STILK v MYRICK
Facts: The plaintiff was a sailor in a crew of 11 members. During the
voyage 2 sailors deserted

Consideration Rules & Case Examples

Existing Contractual Duty

Stilk v Myrick
The captain promised the remaining sailors that if they worked the ship home,
he would divide the deserting sailors’ wages among them.
The plaintiff asked for his share upon returning to London.
The court held that the plaintiff failed because he was only doing what was
required under his contract of employment.

Hartley v Ponsonby

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A ship had a crew of 36, but many deserted, leaving only 19, with 5 able-
bodied seamen.
The captain promised an extra £40 to the plaintiff if the ship was worked to
Bombay.
The court decided the crew was entitled to the additional money because they
had done more than they previously agreed to do.
The number of deserters made the return of the ship unusually hazardous.

Williams v Roffey Bros

Roffey Bros contracted to refurnish a block of flats and subcontracted carpentry
work to Williams for £20,000.
Williams faced financial difficulties and might not complete the work on time,
potentially subjecting Roffey Bros to a penalty clause.
Roffey Bros offered to pay Williams an additional £575 for each completed flat.
Williams continued working but stopped when Roffey Bros didn't pay, and sued
for the additional payment.

The Court of Appeal held that Roffey Bros had enjoyed practical benefits:

Work completed on time

Avoidance of penalty payments
No bother or expense of finding someone else

These benefits provided consideration for the promise of extra money, and Williams
was entitled to recover it.

Consideration from a Third Party

Venkata Chinnaya v Verikatara’ Ma’ya

A sister agreed to pay an annuity of Rs 653 to her brothers, who provided no
consideration.
Their mother gave the sister land, stipulating she must pay the annuity to her
brothers.
The sister failed to pay, and her brothers sued.
The court ruled she was liable because there was valid consideration, even
though it didn't move from the brothers.

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Tweddle v Atkinson
A couple married, and a contract was made between the couple’s fathers that
each would pay the husband certain sums of money.
After the fathers' deaths, the husband sued the father-in-law’s executors for
the money owed.
He did not succeed because:
He was not a party to the contract.
He had not supplied consideration.

Accord and Satisfaction

Accord: The agreement by which an obligation is discharged.

Satisfaction: The consideration that makes the agreement operative.

A waiver of a right not supported by consideration is void.

If A lends B RM 1000 and then asks B to return RM900 in full settlement, that waiver
is not binding on A. A may later claim the balance because the promise to forgo the
balance is not supported by consideration.

Pinnel’s Case
Payment of a smaller sum is not satisfaction of a legal obligation to pay a larger sum.

Section 64 (Malaysia)
In Malaysia, this rule does not apply due to S64:

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.

The creditor may do away with the debt or promise completely without receiving
anything in return, provided there is acceptance by the creditor.

Illustration (b)

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Deals with payment of a smaller sum in discharge of a larger sum:

A owes B RM 5000.
A pays B, and B accepts, RM2000 at the time and place at which the RM5000
was payable, in satisfaction of the whole debt.
The whole debt is discharged.

Illustration (c)
Part payment by a third party:

A owes B RM5000.
C (third party) pays B RM1000, and B accepts it in satisfaction of his claim on A.
This payment discharges the whole claim.

Kerpa Singh v Bariam Singh

Bariam Singh owed Kerpa Singh RM8,869.94 under a judgement debt.
The debtor’s son offered RM4000 in full satisfaction and endorsed a cheque,
stating that if Kerpa Singh refused, he must return the cheque.
Kerpa Singh’s legal advisors cashed the cheque and retained the money, then
issued a bankruptcy notice to recover the balance.
The Federal Court held that accepting the cheque indicated compliance with the
condition, preventing them from claiming the balance.

Illustration (d)
Unascertained sums:

A owes B an unascertained sum of money under a contract.

A gives B RM2000, and B accepts it in satisfaction.
This discharges the whole debt, whatever its amount.

Illustration (e)
Composition agreements:

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A owes B RM 2000 and is indebted to other creditors.

A arranges with his creditors, including B, to pay them a composition of fifty
sens in the ringgit upon their demands.
Payment to B of RM1000 discharges B’s demand.

Intention to Create Legal Relations

An agreement alone does not create a binding legal contract. There must be evidence
that the parties intended it to be legally enforceable.

Even with offer, acceptance, and consideration, a legally binding contract may not
exist if there was no intention to create legal relations.

If John asks Betty to dinner, there is an offer, acceptance, and consideration, but no
intention to enter a legally binding agreement. Thus, if Betty doesn't show up, John
cannot sue her for breach of contract.

Intention to create legal relations: Parties to a contract must have

intended that their contract will be subject to legal consequences in the
event of a breach by either party.

Legal Principles
Two main presumptions:

In a business contract, there is an intention to create legal relations.

In a domestic contract, there is no intention to create such a legal relation.

Commercial Business Agreements

General Rule: There is an intention to create legal relations.

Exception: The use of a “subject to contract” clause. The agreement is not

binding until the execution of a full and final agreement in a formal written
instrument.

Low Kar Yit Ors v Mohd Isa & Anor

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The defendant gave an option to the plaintiff’s agent to buy land "subject to a
formal contract."
The agent exercised the option, but the defendant failed to sign the agreement.
The court held that the “subject to contract” clause indicated that the parties
did not intend to enter a legal relationship yet.
The expression is not intractable and depends on intention.

Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor
The Privy Council rejected a “subject to contract” argument regarding a booking
pro forma.
The parties agreed to the price of a house to be built, and the purchaser paid a
deposit.
The developer later tried to increase the price.
The court held that the pro forma was binding, and the developer could not
argue that it did not create an obligation to purchase and sell the property.

Social, Domestic and Family Arrangements

There is a presumption that parties to an agreement concerning a family, domestic, or
social matter will not intend to be legally bound.

Examples of domestic agreements:

Husband and wife

Parent and child
Members of household

Husband and Wife

The law presumes no intention for agreements to have legal consequences. The
courts will therefore not enforce them.

Balfour v Balfour

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The husband, a civil servant in Ceylon, promised to pay his wife £30 per month
as maintenance while she remained in England for health reasons.
He failed to honor the promise, and the wife sued.
The court held that this was a domestic agreement with no intention that it be
legally enforceable.

However, agreements between husband and wife relating to property matters may
indicate an intention to create legal relations.

Merrit v Merrit
A husband separated from his wife agreed to transfer the matrimonial home to
her name alone if she paid off the outstanding mortgage.
When the husband failed to transfer the home, the wife sued.
The court held that the husband’s promise was legally binding.

Parent and Child

The presumption is that agreements are not binding, indicating no contractual intent.

Jones v Padavatton
Mrs. Jones offered her daughter, Mrs. Padavatton, a monthly allowance if she
gave up her job in America, moved to England, and studied for the Bar.
Mrs. Padavatton did so, but did not succeed in the examinations.
Mrs. Jones bought a house in London and allowed her daughter to live there,
receiving rent from other tenants instead of the allowance.
Three years later, Mrs. Jones sought possession of the house, and the daughter
counterclaimed for breach of the agreement to pay the monthly allowance.
The court held that there was no contractual intent between the parties.

Relatives / Members of a Household

The courts must examine all circumstances, and there may be circumstances that
lead a court to hold that legal relations are intended.

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The presumption can be rebutted if one party has altered his position to his detriment
in reliance on the promise of the other, or if the family relationship has been
destroyed by disagreements.

Parker v Clark
Mr. & Mrs. Clark, an elderly couple, invited Mr. & Mrs. Parker, a middle-aged
couple (Mrs. Parker being Mrs. Clark’s niece), to live with them.
Mr. Clark wrote to Mr. Parker, suggesting they come to live with them,
promising the house would be left to Mrs. Parker, her sister, and daughter when
Mr. Clark died.
The Clarks understood the Parkers would have to sell their cottage in Sussex.
Mr. Parker accepted the offer, and the cottage was sold. The Parkers moved in
with the Clarks.
Disputes broke out, and Mr. Clark asked the Parkers to leave, which they did.
The Parkers claimed damages for breach of contract and were successful. The
Clarks’ defence of no intention to create legal relations failed.

Factors indicating an intention to be legally bound:

The sale of the Parkers’ cottage indicated their reliance on the arrangements.
Mr. Clark’s alteration of his will indicated that he regarded the agreement to be
binding.

Capacity to Contract
S11 of the Contracts Act 1950 states that only a person who is of sound mind and
the age of majority is competent to contract. Further, he must not be disqualified from
contracting by any law to which he is subject. The Age of Majority 1971 provides that
the age of majority for purposes of contractual capacity is 18 years.

Minors

Tan Hee Juan v The Boon Keat

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The plaintiff, a minor, had executed a transfer of land in favor of the defendant.
He sought to have the transfer set aside.
The High Court held that the transfer was void and ordered the restoration of
the property to the minor.
All contracts entered into by a minor are void.
The contractual incapacity of a minor is regarded as a protection for the minor
against the consequences of its own actions and presumed lack of judgement in
such matters.

Exceptions
The Age of Majority 1971 creates certain exceptions to the rule that all contracts
entered into by minors are void.

The capacity of any person to act in matters relating to marriage.

Rajeswary & Anor v Balakrishnan & Others

The 1st plaintiff, a minor, and the 1st defendant, who were Hindus, entered into
a marriage agreement.
They underwent a customary betrothal ceremony (engagement/ promise to
wed).
The 1st defendant repudiated the marriage contract.
The plaintiff sued for damages for breach of promise of marriage.
The 1st defendant pleaded that the contract was void because the 1st plaintiff
was a minor and lacked the capacity to contract.
Minors have been held capable of entering into marriage contracts and are
liable for breach of such a contract.
Under common law, a minor is liable on contracts for “necessaries”. Examples of
necessaries would include food, clothing and medical supplies.

Nash v Inman

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Inman, a minor studying at University, ordered and received 11 fancy waistcoats

from a tailor and then refused to pay for them.
The tailor sued for the agreed purchase price.
The court held that this type of garment was necessary to maintain the minor in
the standard of living to which he was accustomed.
However, on proof that these waistcoats were surplus to his actual needs at the
time of sale and delivery and therefore the contract was not binding on the
minor.
The legal interpretation is wider than bare essentials of life and includes goods
and services reasonably necessary to the minor’s actual requirement such as
food, shelter, clothing, medical services and even education, but they must be
tested against the particular minor’s station in life.
What constitutes “necessaries” may vary considerably according to the position
of the particular individual. The test of necessaries therefore would necessarily
depend on the nature of the goods and services supplied, the minor’s actual
needs and his station in life.

With regards to “necessaries” the following points arising from S69 CA 1950 must
be noted:

The minor will only be liable for goods, which are necessaries if they have
actually been delivered to him. While the contract is executory he is not bound
by the agreement.
The minor’s liability includes necessaries supplied to anyone whom he is legally
bound to support such as his wife or child.
The supplier of necessaries may claim only a reasonable price, which may not
be the same as the contract price.
The minor is not personally liable. He is obliged to pay only if he has the
property to do so, as for example, if he owns a car.
Further, even when a minor has induced a person to contract with him or her by
means of a false misrepresentation that he or she is of full age, such a minor is
not estopped from pleading minority in avoidance of the contract.

Scholarships: S4 (a) Contracts (Amendment) Act 1976 provides that no

scholarship agreements shall be invalidated on the ground that the
scholar entering into such agreements is not of the age of majority.

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Scholarship agreements: defined as any contract or agreement between

an appropriate authority and any person, with respect to any scholarship,
award, loan, sponsorship or appointment to a course of study, the
provision of leave with or without pay or any other facility for the purpose
of education or learning.

Appropriate authority: includes the Federal Government or State

Government, a statutory authority or an educational institution such as a
University.

Government of Malaysia v Gurcharan Singh

The Government sued the first defendant as the promisor and the second and
third defendants as sureties for breach of contract.
The claim was for RM 11500 alleged to be the sum actually spent by the
Government in educating the first defendant.
At the time of the contract, the first defendant was a minor.
The court held that since education was “necessaries” the first defendant was
liable for the repayment of a reasonable sum spent on him.

Contracts of Insurance: The Insurance Act 1963 (revised 1972) provides

that a minor above the age of 10 may enter into a contract of insurance.
However, if he is below 16, the consent of his parent or guardian is
necessary.

Contracts of service (apprenticeship): Under the Children & Young

Persons (Employment) Act 1966 minors are permitted to enter into
contracts of service, otherwise than as employers.

Capacity of Persons of Unsound Minds

A person suffering from mental disability, either permanently or temporarily, at the
time of the contract obviously lacks the capacity.

S12(1) CA 1950 provides:

A person is said to be of sound mind for the purpose of making a contract

if, at the time when he makes it, he is capable of understanding it and of
forming a rational judgment as to its effect upon his interests.

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S12 (2) &(3) CA 1950 provides that a person usually suffering from mental disorder
may make a contract during those periods when he is sound. Conversely, a person
who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.

S12 CA 1950 covers contracts entered into by a mentally disordered person as well
as those of a person incapacitated through sickness, alcohol or other drugs.

In order to avoid a fair contract on the ground of insanity, the mental incapacity, must
be known to the other party. A defendant must plead and prove both his insanity and
the knowledge of the plaintiff.

Therefore, the person with unsound mind must be able to prove that he was not of
sound mind at the time of contracting. In such a case the contract may be avoided.
The burden of proof is with the person of unsound mind. If the party cannot
discharge the burden, the contract would be binding on that party.

Terms of a Contract
Having established that the parties have made a valid contract, it is then necessary to
decide what are the parties’ rights and obligations under this contract. To do this, the
courts will have to look at the terms of the contract.

Terms maybe either:

EXPRESS
actually stated in the contract, whether orally or in writing
IMPLIED
terms not actually agreed by the parties but brought into the contract by
Act of Parliament or by the court itself

Terms confer both rights and restrictions on one or both parties to the contract. we
must distinguish between representatives and terms before we can consider the
effect of a term.

This is because non- compliance of a term will lead to a breach of contract whereas
non – compliance of a representation is generally not enforceable.

TERM: is part of a contract

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REPRESENTATION: is a statement or action which induces the other

party to make the contract

Express terms are those parts of the contract which contain the parties agreed
obligations.

Example
Simon agrees to sell a car to Brian for RM1000, delivery to take place on 1 June. It is
agreed that the car will be fitted with four new tyres and will have a current Ministry
for Transport Certificate.

The express terms of this contract are:

1. Simon will deliver the car to Brian

2. Delivery will take place on 1st June
3. The car will have four new tyres
4. The car will have a current Ministry of Transport Certificate
5. Brian will pay Simon RM1,000

If the contract is in writing, then there is generally no difficulty in discovering which

are the express terms.

If the contract is unwritten, then the express terms can only be discovered by oral
evidence.

Implied Terms
These are terms which although not expressly stated to be terms of the contract by
the parties making the contract will be implied to be in the contract by some other
body, the other body generally being custom, or statute law or the court.

Even though the parties may be unaware of these implied terms, they are
nevertheless bound by them as if they had actually agreed to them.

Terms Implied by Statute

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There are certain Acts of Parliament which make provisions for terms to be implied
into certain contracts. One example of this is the Marine Insurance Act. The most
famous Act of Parliament which implies terms into many contracts at the present
time is the Sale of Goods Act 1957 (Sections 14 -17). Eg. S15 of the Act states
where there is a contract for the sale of goods by description, there is an implied
condition that the goods will correspond with the description. S16 of the Act states
that goods must have merchantable quality and S17 states that where there a
contract for the sale of goods by sample, there is an implied condition that the goods
will correspond with the sample.)

Terms Implied by Court

The courts sometimes feel that the parties to a contract might, through neglect or
forgetfulness have omitted certain terms which should obviously be in the contract.
In such a case the court has power to imply the term into the contract in order to give
the contract what is known as “business efficacy”.

Terms Implied by Custom

The parties may enter into a contract subject to customs of their trade.

Hutton v Warren
The defendant landlord gave the claimant, a tenant farmer, notice to quit the
farm.
He insisted that the tenant should continue to farm the land during the period
of notice.
The tenant asked for ‘a fair allowance” for seeds and labor from which he
received no benefit because he was to leave the farm.
By custom he was bound to farm the land until the end of the tenancy, but he
was also entitled to a fair allowance for seeds and labor incurred.

Classification of Terms
Whether a term is express or implied, the court has to consider its importance in
relation to the contract as a whole.

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Contract Conditions and Warranties

In contract law, not all terms are created equal. Some terms, if breached, have a more
serious impact than others. Here's the breakdown:

Conditions
Go to the root of the contract.
Are fundamental; a breach ends the contract.

Warranties
Are subsidiary to the main purpose of the contract.
Breach of warranty leaves the contract intact.

Here is a helpful diagram to conceptualize your remedies for breaches of condition vs

warranty:

In the event of a breach, this diagram illustrates the different remedies available. A
breach of condition allows for repudiation, rescission, and damages, while a breach
of warranty typically only allows for an action for damages.

Classification of Terms
Parties may classify terms, but the court has the final say and may interpret the term
based on the parties' intentions.

Example: Time of Delivery

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Consider a scenario where Rob is supposed to deliver goods to Tom by July 1st, but
doesn't deliver until July 10th.

If Tom emphasized the importance of the delivery date, it may be a condition.

Tom can refuse the goods.
If time was not critical, it's a warranty. Tom must accept the goods and can
claim compensation for the delay.

Case Example: Poussard v Spiers & Pond

An actress was unable to perform at the beginning of an operetta due to illness,
breaching a condition. The producers were entitled to treat the contract as
discharged.

However, if the innocent party continues with the contract despite the breach, they
affirm it, and it's treated as a breach of warranty, with remedy in damages only.

Case Example: Bettini v Gye

An opera singer arrived late for rehearsals, breaching a warranty. The employers
were entitled to damages but not to treat the contract as repudiated.

Innominate Terms
If a term can't be classified as a condition or warranty, it's treated as innominate.

The court will wait and see the effect of the breach.
Severe consequences allow repudiation; trivial ones, damages only.

Exclusion Clauses (Exemption Clauses)

Purpose
Exclusion clauses seek to exempt or restrict one party's liability.

Validity

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Courts generally dislike such clauses, and their validity is subject to common law and
statute.

This diagram highlights the role that common law plays in the determination of the
validity of exclusion clauses:

Incorporation
It must be shown that both parties intended to be bound by them and incorporated
as a term of the contract.

Signed Contracts
Parties signing a contract are bound by its terms, whether read or not.

Case: L’ Estrange v Graucob: Signing the agreement means agreeing to all

terms, even if unread.

The image below shows a signed contract, reminding us that signing it binds you to
all of its terms:

Unsigned Contracts

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(a) Document must be an integral part of a contract which could be expected to

contain terms. (b) The objective test must be applied. Would a reasonable man
assume the document to be a contractual document?

If yes, the EC is effective. Thompson v LMS Railway.

If no, the document merely acknowledges payment. The EC is ineffective.

Case: Chapelton v Barry UDC: Ticket conditions were not binding as the
ticket was seen as a receipt.

This diagram organizes unsigned contracts into tickets, order forms and receipts, as
well as notices:

Unsigned contracts

Timing of Communication
(a) Must be communicated before or at the time of the contract.

Case: Olley v Marlborough: Hotel's exclusion clause in the room was invalid as
the contract was made at reception.

(b) Reasonable steps must be taken to bring the clause to the notice of the other
party.

Construction
The clause must be properly worded to cover the specific loss or damage.

(a) Contra Proferentem Rule

The EC must be clearly worded. If the EC is ambiguous it is ineffective.

Case: Houghton v Trafalgar Insurance: "Load" was ambiguous and didn't clearly
refer to passengers.

(b) The Main Purpose Rule

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The EC must not defeat the main purpose of the contract.

Case: Glynn v Margetson & Co: Deviation clause couldn't justify a route that
ruined the cargo of oranges.

(c) Oral Representation

A later verbal warranty overrides the EC.

Case: Mendelssohn v Normand Ltd: Attendant's promise to lock the car

superseded the exclusion clause.

(d) Misrepresentation
The EC is invalid if there's fraud or misrepresentation.

Case: Curtis v Chemical Cleaning Co: Misleading explanation of the clause

limited its effect.

Discharge of Contract
Discharge of contract brings liabilities to an end. The aggrieved party may have
recourse in the court.

Ways of Discharge
(a) By Performance (b) By Agreement (c) By Breach (d) By Frustration

Discharge by Performance
Parties must perform promises per the contract.
Performance must be exact and precise (S38 of CA 1950).
Performance must occur at the fixed time; otherwise, it's a breach.
If no time is fixed, performance must be within a reasonable time.

Discharge by Agreement

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Parties can agree to terminate the contract (S63 and S64 of the Contracts Act
1950).

The agreement may be at the time of making the contract or subsequently.

S63: Parties can substitute, rescind, or alter the contract.

S64: Deals with remission of performance.

Payment of a lesser sum can be accepted.

Payment by a third party can discharge the debt.

Discharge by Breach
Failure to perform obligations leads to breach (S40 CA 1950).
Anticipatory breach allows the innocent party to treat the contract as
discharged and claim damages.
The innocent party can wait until the performance date but risks a frustrating
event occurring.

Discharge by Frustration
S57 CA 1950: Impossibility of performance.

Agreement to do an impossible act is void.

Subsequent impossibility also voids the contract.

Frustration occurs when an event radically alters the position of parties.

The doctrine doesn't apply if the frustrating event is due to the fault of either
party.

Situations Constituting Frustration

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Destruction of the subject matter.

Taylor v Caldwell: Hall destroyed by fire.

Must be total destruction.

Defeat of the contract's purpose.

Krell v Henry: Room hired for coronation procession.

Herne Bay Steamboat v Hutton: Only one purpose frustrated.

Death or personal incapacity.

Condor v Barron Knights: Drummer's illness.

Changes in the law.

Lee Kin v Chuan Suan Eng: New law prescribing annual renewals.

Limitations on Frustration
(a) Self-induced frustration. (b) Parties provide for the frustrating event. (c) More
burdensome obligations are not enough for frustration.

Ramli Bin Zakaria & Ors v Government of Malaysia: Building contract issues
not frustration.

Effects of Frustration
The contract ends, and neither party is liable.
S15(2) of the Civil Law Act 1956: Money paid is recoverable.
S15(3) of the Civil Law Act 1956: Recovery of a just sum for obtained benefits.

Remedies

Introduction
When a party fails to perform, the other party has a right of legal action.

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Remedies Available
(a) Rescission (b) Damages (c) Specific Performance (d) Injunction

Rescission of the Contract

On breach of a condition, the injured party can end the contract (S40 Contract
Act 1950).

S65 CA1950: Rescinding party must restore benefits received.

Hsu Seng v Choi Soi Fua: Party is entitled to compensation for damages.

Damages
Compensation for loss suffered due to the breach.

Damages must not be remote.

Hadley v Baxendale: Loss of profits due to delayed delivery was not a

natural consequence.

Section 74 (1):

Damages arising naturally from the breach.

Special damages must be known at the time of the contract.
Teoh Kee Keong v Tambun Mining Co Ltd: S74 CA 1950 is a statutory
enactment of Hadley v Baxendale.

The purpose of damages is to compensate, not to enable profit.

Nominal damages are a small cash payment as a token of honor to the

rights of the plaintiff.

The injured party must mitigate their losses.

The victim of a breach of contract is obliged to do all that he can to

mitigate or minimize his loss and if he fails to do so he will not be able to
recover damages for his failure.
BRACE V

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Mitigating Losses
A person discharged from their employment must minimize losses by accepting
reasonable new job offers. The burden of proof is on the defendant to prove the
plaintiff failed to mitigate losses, not on the plaintiff to prove they did.

Case Study: Kabatasan Timber Extraction Co v Chong Fah

Sing
Facts: Appellants contracted to supply timber to the respondent at a sawmill
site but delivered it 500 feet away. The plaintiff refused delivery and sought
damages after sourcing timber elsewhere.

Held: The respondent had a duty to mitigate damages. Buying logs from
elsewhere was unreasonable since the delivered logs were a short distance
from the sawmill, requiring only additional hauling expense. Reasonably
avoidable losses are generally not recoverable.

Assessing Loss
Courts aren't deterred from awarding damages just because the loss is hard to
quantify. They're prepared to award damages based on an estimated loss.

Case Study: Jarvis v Swan’s Tours Ltd

Facts: J booked a winter sports holiday based on the defendant’s brochure, but
the advertised facilities weren’t available, causing disappointment.

Held: J could recover damages for mental distress and inconvenience, such as
frustration, annoyance, and disappointment. Difficulties in pricing such matters
wouldn't prevent the court from making an award.

Liquidated Damages, Unliquidated Damages &

Penalties

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Parties usually don't consider breaches when making a contract, leaving the measure
of damages to the court after the event. These are unliquidated damages.

Sometimes parties anticipate a breach and include a compensation sum in the

contract. If the parties genuinely estimated their loss, courts will award this sum,
regardless of whether the actual loss is greater or smaller. This is known as
liquidated damages.

Case Study: Cellulose Acetate Silk Co Ltd v Widnes

Facts: W agreed to build a plant for C by a certain date. The contract stipulated
W would pay £20 a week for every extra week taken. C was 30 weeks late, and
S claimed £5,850 in actual losses.

Held: The amount agreed in the contract was a genuine attempt to pre-
estimate the loss.

Sometimes a figure included isn't a genuine pre-estimate but far exceeds any
contemplated loss. The court will recognize this as a penalty, designed to prevent
breach. The court will ignore the figure and award unliquidated damages instead.

Case Study: Dunlop Pneumatic Tyre Co Ltd v New Garage

& Motor Co Ltd
Facts: The applicant, a motor tire manufacturer, supplied goods to the
respondents under a contract that the respondents would not sell the tires at
less than the list price, and if they did so they would pay the appellants £5.

Held: This sum was liquidated damages, not a penalty.

Case Study: Ford Motor Co Ltd v Armstrong

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Facts: A was a retailer who sold F’s cars. In an agreement with F, A undertook:

Not to sell any of F’s cars or spares below list price.

Not to sell F’s cars to other dealers in the motor trade.
Not to exhibit any car supplied by F without F’s permission.

For any breach, A agreed to pay F £250. The defendant broke the agreement.

Held: The Court of Appeal held that the payment's size suggested it wasn't a
genuine pre-estimate of loss, and the £250 was a penalty.

Specific Performance
Specific Performance is a court order requiring the breaching party to
perform their part of the contract exactly as promised.

In Malaysia, this remedy is provided under the Specific Relief Act 1950. It's usually
available when damages won't provide adequate relief, such as when the contract's
subject matter is unique and unobtainable elsewhere.

Section 11 of the Specific Relief Act allows specific performance for land transaction
agreements, presuming that breach of a contract to transfer immovable property
can't be adequately relieved by monetary compensation. (Zaibunsa Binte Syed
Ahmad v Loh Koon Moy & Anor) Specific performance may also be granted where
actual damages can't be ascertained.

Circumstances for Refusal of Specific Performance

Contract for which monetary compensation is adequate.
Contract with minute or numerous details.
Contract with terms the court can't find with reasonable certainty.
Delay in bringing action.
Contracts for personal service.
When it will cause hardship to the defendant or give the plaintiff an unfair
advantage.

Injunction
An injunction is a court order restraining a person from a specific act in
the future. This is a preventive relief.

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An injunction is a discretionary remedy, not obtainable as of right. In Malaysia, this

remedy is obtained per the Specific Relief Act 1950.

Types of Injunctions

Type Description

Continues until a specified time or further court order. Sometimes called

Temporary an interlocutory or interim injunction. Granted pending the outcome of a
full court hearing.
Granted by the court at the end of the hearing and upon the merits of the
Perpetual suit. The defendant is permanently restrained from asserting a right or
act contrary to the plaintiff's rights.

Quantum Meruit ‍
Quantum Meruit means "as much as he has earned" and only arises in
cases of part performance.

This is a remedy allowing the plaintiff to obtain a reasonable sum for work already
performed, when the contract doesn't provide an amount or has been discharged by
the defendant's conduct. (Craven Ellis v Canons Ltd)

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