SUGGESTED ANSWER MALAYSIAN BUSINESS LAW JUNE 2004

SECTION A 1. Necessaries is not defined in the Contracts Act 1950 and one has to refer to case law to determine what constitutes necessaries. In Government of Malaysia v Gurcharan Singh & Ors the court came to the conclusion that the word necessaries must be construed broadly and in so interpreting, a court would have regard to the facts of the case, the conditions and the circumstances in which the goods were supplied. The legal definition is thus wider that bare essentials of life and includes goods and services reasonably necessary to the minors actual requirements such as food, shelter, clothing, medical services. However, these must be tested against the minors station in life. Thus what may constitute necessaries may vary according to the position of the minor. The test is to look at the nature of the goods or services supplied, the minors actual needs and his station in life. 2. A bill of exchange is defined in section 3(1) of the Bills of Exchange Act 1949 as an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum in money, to the order of a specified person, or to bearer. A bill of exchange thus has the following characteristics: There are three parties involved the drawer, drawee and payee; The order to pay is unconditional; The bill is addressed to one person who can be identified with reasonable certainty; The bill must be in writing and signed by the drawer or his agent; The bill must order payment of a sum which is certain in money and not in services The bill is payable on demand on sight or presentation; The bill is payable to the order of a specified person or bearer.

3. The reasons why parties may still prefer to refer their disputes in a court of law include the following: Judgments by the court are enforceable through the resources of the State; Witness can be compelled to attend without special application to the court; The courts can order disclosure of documents; The courts can order the consolidation of actions, such as third party proceedings or joinder of parties, other multi-party disputes or class actions thus saving time and costs; A defendant can be compelled to enter an appearance or defence under a court order;
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When an authoritative decision is required on a matter of public interest, a judgment, unlike an arbitrators award, may be preferred.

4. A cooling-off period is defined under section 2 of the Direct Sales Act 1993 as the period of ten working days commencing on the day after the date of the making of a direct sale contract. A purchaser is protected under section 26 of the Act which provides that he can rescind or withdraw from the contract at any time before the expiry of the cooling-off period without being liable for breach of contract. The purchaser merely has to serve a notice of rescission (Form AJL-3) by either delivering it in person to the vendor or by registered post addressed to the vendor. Where the notice is posted, it is deemed to have been served on the expiry of 3 days from the date it is posted section 26(3). 5. The employees listed in the First Schedule of the Employment Act 1955 include: Any person, irrespective of his occupation, who has entered into a contract of service and his monthly wages do not exceed RM1,500.00; Any person who, irrespective of the amount of his monthly wages, who has entered into a contract of service of which i. He is engaged in manual labour including such labour as an artisan or apprentice; ii. He is engaged in the operation or maintenance of any mechanically propelled vehicle used for the transport of passengers or goods or for reward or for commercial purposes; iii. He supervises or overseas other employees engaged in manual labour employed by the same employer; iv. He is engaged as a domestic servant.

6. In Helby v Matthews (1895) the House of Lords ruled that a hire-purchase agreement was not an agreement to buy under the Sale of Goods Act 1893 (UK). Thus in a hirepurchase agreement, the hirer does not have title to the goods. The owner lets goods out on hire (ie a contract of bailment) AND agrees that the hirer may either return the goods and terminate the contract or he may exercise his option to purchase the goods on the completion of payments. This fundamental principle is enacted under section 2(1) of the Hire-Purchase Act 1967 which states that a hire-purchase agreement includes a letting of goods with an option to purchase. It further goes on to exclude transactions where the property in the goods passes at the time the agreement or upon or before delivery of the goods, thereby indicating that a hire-purchase agreement is not an agreement for the sale of goods. 7. Illustration (f) of Section 26 of the Contracts Act 1950 illustrates the concept that consideration need not be adequate with the following example: A agrees to sell a horse worth $1,000 for $10. As consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.
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Explanation 2 of Section 26 states that an agreement is valid even though the consideration is inadequate provided the consent of the promissory is freely given. Thus in Phang Swee Kim v Beh I Hock (1964) the Federal Court applied Explanation 2 and Illustration (f) of section 26 and held that the agreement to transfer the land was valid despite the fact that the consideration was inadequate. In addition there was no evidence of suppression of the value of the property, misrepesentation, or fraud. 8. Section 3 of the Copyright Act 1987 defines live performance to include performances of works eligible for copyright such as dramatic, musical or literary works, and others such as improvised dramatic, musical or literary works, dances, circus act, variety act, puppet shows or performance in relation to expressions of folklore given live by one or more persons in Malaysia. The performance must be given live by one or more persons in Malaysia but whether it was given in the presence of an audience is not material. Certain activities are excluded from the definition of live performance such as any reading, recital or delivery of any item of news or information, any performance of a sporting activity or a participation in a live performance by a member of an audience. 9. Riba is an Arabic word which literally means increase, growth or to rise. From the Syariah or Islamic point of view, riba technically refers to the premium or interest that must be paid by the borrowed to the lender along with the principal amount as a condition for the loan. However, Muslims are prohibited from dealing with riba. This is particularly so in Islamic banking and such banks are not allowed to conduct any banking business with an element of riba or interest. 10. It is important to determine when property, that is, title or ownership, passes in a sale of goods because section 26 of the Sale of Goods Act 1957 provides that risk prima facie passes with property. In other words, when property in the goods has passed from the seller to the buyer, the buyer will have to bear all losses, damages or destruction to the goods, irrespective whether delivery has been made or not. In addition, when property has passed, title has passed as well. Thus by determining whether property has passed from the seller to the buyer, one is also determining whether the buyer has the right to pass title to another person. Finally, the passing of property is important because the right to sue a third party for damages to, or loss of the goods, may depend on who has the property.

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SECTION B 1 (a) An offer once communicated, remains open unless it has been withdrawn or revoked. Under normal circumstances, there is no obligation for the proposer to keep his proposal open indefinitely. He may revoke it at any time so long as it has not been accepted by the offeree. Under section 5(1) of the Contracts Act 1950, a proposal may be revoked at any time before the communication of the acceptance is complete as against the proposer but not afterwards. Section 6 further provides that a proposal is revoked by the communication of notice of revocation by the proposer to the other party. In this case, although Jimmy promised to keep the offer open until 29.1.2004, he is under no obligation to do so. When Chris purported to accept the offer by sending a telegram on 25.1.2004, he was aware of the fact that Stan had already purchased the computer, indicating that the offer has already been accepted. It is thus essential to determine whether Chris can still accept the offer even though he is aware of the fact that offer has been revoked. Section 6 states that a proposal is revoked by the communication of notice of revocation by the proposer. In this case, Jimmy did not communicate the revocation. It was his friend, Stan, who had communicated that he had purchased the computer to Chris. In the case of Dickinson v Dobbs (1876) the English court held that communication of revocation need not be made by the proposer personally so long as the offeree becomes aware that the proposer has withdrawn the proposal or changed his mind. This case however, seems to be at variance with the specific wording of section 6 which states that the proposal may be revoked by the communication of notice of revocation by the proposer (which may include his agent acting on his behalf). It is thus submitted that based on section 6, revocation of the offer must be made by Jimmy or his agent. Is Stan Jimmys agent? If he is, then the revocation of the offer has been communicated to Chris and there is no binding contract between Jimmy and Chris. On the other hand, if Stan is not Jimmys agent, Chris can argue that the offer has not been revoked and his acceptance will be effective to constitute a binding contract between him and Jimmy. (b) Where there is a breach of contract, the party not in default may claim one or more of the following remedies: Rescission of contract; Damages Specific performance; Injunction or Quantum meruit.

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Specific performance is a decree of the court directing that the contract shall be performed specifically, that is, according to its terms. This remedy however, is entirely given at the discretion of the court guided by the provisions of the Specific Relief Act 1950. Under section 20 of the Specific Relief Act 1950, specific performance is not given if damages are adequate or where the contract would require supervision of the court, such as building contracts. On the basis of section 20, Amy is advised that she will not be able to force Excel Sdn Bhd to complete the building of her home as this would entail the courts supervision. She is advised to claim for damages (which would be adequate to compensate her) on the basis of section 74 of the Contracts Act 1950. Section 74(1) states that an injured party is entitled to damages arising naturally from the usual course of things resulting from the breach. As such the extra cost incurred by Amy to employ another contractor to complete the work, would be a natural consequence of Excel Sdn Bhds failure to complete the building.

(a)

Section 1(2) of the Hire-Purchase Act 1967(hereinafter referred to as the Act) states that the Act shall apply in respect only of hire-purchase agreements relating to the goods specified in the First Schedule. The goods in the First Schedule include: All consumer goods which are defined in section 2 to mean goods purchased for personal, family or household purposes; Motor vehicles namely invalid carriages; motor cycles; motor cars including taxi cabs, and hire cars; goods vehicles where the maximum permissible laden weight does not exceed 1540 kilogram; and buses including stage buses.

(b)

Prior to the formation of a hire-purchase agreement, an intending hirer must be given a written statement in accordance with the form set out in Part 1 of the Second Schedule. This is expressly provided by section 4. This Second Schedule notice sets out the financial obligations of the intending hirer such as the number of instalments to be paid including the amount of each instalment. This is to ensure that the intending hirer is aware of his financial obligations before making a commitment to be bound by the hire-purchase agreement. The intending hirer is under no obligation to enter into any hirepurchase agreement and is not required to provide any consideration for the preparation or service of this notice. If this notice is not given to the hirer, the subsequent hire-purchase agreement entered into by the hirer will be null and void.

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(c)

Section 7(2) and (3) states that the implied terms of merchantable quality and fitness for purpose can be excluded in respect of second-hand goods provided the agreement contains a statement to the effect That the goods are second-hand; and That all conditions and warranties of quality and fitness are expressly negatived and the owner proves that the hirer has acknowledged in writing that the exclusion or exemption clause was brought to his notice.

Section 34 further reiterates that the Act may itself permit the exclusion of certain provisions of the Act. Thus it is permissible to provide exemption clauses in respect of second-hand goods. (d) In Ming Lian Corporation Sdn Bhd v Haji Noordin (1974) the court held that the enforceability of a hire-purchase agreement was not affected if the hirer signed an agreement with blank spaces which were later filled in by the owner provided the hirer was aware of the terms and knew what he was signing. However, section 4B(2) expressly prohibits an owner, or dealer requiring any intending hirer to sign a hire-purchase agreement unless such hire-purchase agreement has been duly completed. The words unless such hire-purchase agreement has been duly completed thus suggest that the hirepurchase agreement cannot be a blank document. It is thus submitted that Ming Lians case is no longer good law in the light of section 4B(2).

(a)

As the sale is conducted through home parties, and not through the usual retailers or a fixed place of business, it would be deemed to be a door-to-door sale and thus be deemed to be a direct sale.The Direct Sales Act 1993 would be the regulating legislation. Section 2 of the Direct Sales Act 1993 defines a direct sale to include a door-to-door sale. A door-to-door sale is further defined as the sale of goods conducted by a person or any person authorized by him who goes from place to place not being a fixed place of business seeking out for purchasers. Goods are further defined as every kind of movable property other than choses in action, negotiable instruments, shares, debentures and money. To ensure that the business can be carried out legitimately, Angeline is advised that by virtue of section 4 of the Direct Sales Act 1993, the business must be carried out by a body incorporated under the Companies Act 1965. In addition, a licence must be obtained from the Ministry of Domestic Trade and Consumer Affairs under section 6. The licence will only be issued provided that the business is a genuine direct sale and not an illegal pyramid scheme. Section 7 defines an illegal pyramid scheme as one where the commission given to the vendors is not dependent on sales volume but merely by the recruitment of members.

(b)

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Angeline is thus advised that the first thing she has to do is to register a company under the Companies Act 1965. An application for a licence should then be made by filing the documents required under section 6 which includes not only the companys memorandum and articles of association, but also the marketing and trading scheme. Upon the issuance of the licence, it has to be renewed yearly in order to ensure that the business remains legitimate. The licence may be revoked by the Controller of Direct Sales for various reasons such as in the event that the company deviates from its marketing scheme or the company is wound up. In addition, Angeline is advised that the manner of conducting door-to-door sales must comply with the Direct Sales Regulations 1993. (c) Any person who, in the course of a trade of business, applies a false trade description to any goods or who supplies or offers to supply any goods to which a false trade description is applied shall be guilty of an offence under the Trade Descriptions Act 1972. A false trade description as defined under section 4 includes the place of manufacture. Thus in this case, when the goods are described as being manaufactured in the United States whereas they are manufactured in Taiwan, the offence of applying a false trade description has been committed. On conviction, the person shall be liable to a fine not exceeding RM100,000.00 or to imprisonment for a term not exceeding 3 years or both. For a second or subsequent offence, the fine imposed shall not exceed RM200,000.00 or imprisonment not exceeding 6 years or more. (d) There is a presumption of liability on advertisers under section 7A of the Act. Thus Success Sdn Bhd would be guilty of the committing an offence. However, the company can raise the defence under section 23 on the ground that the commission of the offence was due to the fault of another person, in this case, Angeline. Similarly, Lim & Co will also be held to have committed the offence but they can easily claim the defence under section 24 that the commission of the offence was to the reliance of information supplied to them by Angeline. However, for this defence to apply, they must prove that they had taken all reasonable precautions and had exercised all due diligence to avoid the commission of the offence. 4 (a) Section 20 of the Patents Act 1983 provides that in the absence of any provisions to the contrary in any contract of employment, the rights to a patent for an invention made in the performance of the contract of employment shall be deemed to accrue to the employer. Sub-section 2 further states that if the employees contract of employment does not require him to engage in any inventive activity but nevertheless the employee makes an invention using the data or means placed at his disposal by the employer, the right of the invention belongs to the employer unless otherwise provided in his contract of employment. As the employee makes use of the employers data and means, it is fair to say that the invention should belong to the
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employer. Where the employee is employed to make inventions, he is said to be paid by the employer to make inventions and since the employer has expended money for this purpose, it is just to say that the invention should belong to the company. However, an employee can expressly provide in his contract that the invention belongs to him. It will be up to him to negotiate with his employer and the Patent Act 1983 does recognize the right of the employee to expressly provide that the invention belongs to him. Where an invention acquires an economic value much greater than the parties could reasonably have foreseen at the time of concluding the agreement or the execution of the work, the Act further provides that the inventor (ie the employee) may be entitled to equitable remuneration which may be fixed by the court in the absence of agreement between the parties. What is equitable remuneration is for the court to decide and it is possible that a court of law may adequately compensate an employee. Section 26 of the Copyright Act 1987 similarly recognizes that copyright belongs to the employer so long as the work was made in the course of the employees employment. However unlike the Patents Act 1983, there is no express provision for equitable remuneration in the event that the work becomes highly successful and profitable. A court may perhaps be persuaded to follow the Patents Act 1983. This is yet to be seen. (b) Unlike copyright protection which does not have a system of registration, the exclusive rights of the owner of a patent under section 36 will only be enjoyed by him when the patent has been registered. An application must be filed in the Patent Registration Office and when the Registrar is satisfied that the application complies with the Act, he shall grant the patent and issue a certificate of grant and record the patent in the Register. Thereupon, the owner has the exclusive right to exploit his patent. Section 26 of the Sale of Goods Act 1957( referred to as the Act) states that the goods remain at the sellers risk until the property is transferred to the buyer. It is thus important to determine whether property has passed to the buyer, Ali, for if it has, then Ali will have to bear the risk of the loss of the painting. Section 19(1) of the Act states that where there is a contract for the sale of specific or ascertained goods, property in the goods is transferred to the buyer at such time as the parties of the contract intend it to be transferred. In this case, the agreement between Ali and John specifically states that the painting will not pas to the buyer until the last and final payment. As Ali has not made the last and final payment, property has not passed to him. Property remains with the seller, John, who thus will have to bear the risk of the loss of the painting. In this case, the parties Tanya and Vanessa did not indicate expressly when property is to pass. In such a situation, the rules for ascertaining the intention of the parties are found in sections 20 to 24 of the Act. Section 21 states that where there is a contract for the sale of specific goods but the goods are not in
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(a)

(b)

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a deliverable state (ie ready to be taken by the buyer) and the seller is bound to do something to put the goods into a deliverable state, the property does not pass to the buyer until the seller has taken the steps to put the goods in a deliverable state and the buyer has notice of it. Here the wheel on the mountain bicycle had to be repaired, thus indicating that the bicycle is not in a deliverable state. Since the bicycle was damaged while at the workshop, property and risk thus remains with the seller, Vanessa. She will have to bear the risk. (c) Section 31 of the Act states that it is the duty of the seller to deliver the goods and the duty of the buyer to accept and pay for them in accordance with the terms of the contract of sale. It is thus essential that parties keep to what has been agreed upon. Thus section 37(3) states that where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer do any of the following: accept the goods which are in accordance with the contract and reject the rest or reject the whole.

Peter is advised that he can, if he wishes, refuse to accept the goods. (d) Salim, as an unpaid seller, has essentially two rights ie rights in relation to the goods under section 46 which includes a lien on the goods, right of stopping the goods when the goods are on transit to the buyer or a right of resale; or to sue for the price of the goods under section 55.

In this case, Salim is no longer in possession of the goods as the 10 cartons have been delivered to Saads office. His only remedy is to sue for the price of the goods.

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