TOPIC 2

LAW OF CONTRACT
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TOPIC 2: LAW OF CONTRACT

LEARNING OUTCOMES By the end of this topic, students should be able to: 1. To explain the definition of contract.

2. To determine the essential elements of contract.

3. To explain the importance of free consent in a contract. 4. To discuss on how the contact can be discharged.

5. To list down the remedies for breach of contract.

PREVIEW
1. Introduction 2. Essential Elements of a Contract
Proposal Acceptance Intention to Create Legal Relations Consideration Legal capacity Certainty

3. 4. 5. 6.

Voidable Contracts - Free Consent Void and Illegal Contracts Discharge of Contract Remedies for breach of Contract

(1) INTRODUCTION & DEFINITION OF CONTRACT

LAW APPLICABLE IN MSIA The legislation in Msia governing contracts is the CONTRACTS ACT 1950. If there is no provisions to that subject ENGLISH LAW will be applied by virtue of Sec. 5(1) & Sec. 5(2) Civil Law Act 1956 DEFINITION OF CONTRACT an agreement made between two or more parties that enforceable by law and legally binding between the parties.
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(1) INTRODUCTION & DEFINITION OF CONTRACT

AGREEMENT = CONTRACT?
Authority: Sec.2(h) CA 1950 an agreement enforceable by law is a contract Authority: Sec.10(1) CA 1950 What agreements are contract? All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly 5 declared to be void.

(2) ESSENTIAL ELEMENTS OF CONTRACT The contract can only be enforceable by law and legally binding, if the contract has been fulfilled the essential elements. These elements are required:

1. Proposal (Offer) 2. Acceptance 3. Intention to Create Legal Relations 4. Consideration 5. Legal capacity (Competency)

6. Certainty 7. Free consent 8. Legality of the objects 9. Required formalities

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ELEMENT 1: PROPOSAL (OFFER)

(a) DEFINITION
Auth: Sec. 2(a) CA 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

(b)Who is a person making a proposal?

Auth: 1st Limb of Sec.2(c) the person making the proposal is called the promisor and (PROMISOR/OFFEROR/ PROPOSER) Eg: Ali wrote to Ahmad offering to sell his car, BMW 720i for RM500,00. 7

ELEMENT 1: PROPOSAL (OFFER) cont

(c)To whom a proposal can be made?
1. to an individual - Auth: Case law Boulton v. Jones 2. to a class of persons 3. to a public at large - Auth: Case law Carlill v. Carbolic

Smoke Ball Co.[1893] 1 QB 256 CA

Fact:Defendant (CSB) issued an advertisement in which they offered to pay 100 to any person who succumbed to influenza after having used one of their smoke balls in a specific manner & for a specified period. Plaintiff, Mrs Carlill bought & used the smoke balls as prescribed & caught influenza. She sued a co. for the promised reward in the newspaper.

Held: an offer can be made to all world because the contract will only be made with that limited portion of the public who came forward & performed the condition on the faith of the advertisement. (Defendants advertisement being considered as proposal addressed to public at 8 large)

ELEMENT 1: PROPOSAL (OFFER) cont

(c)To whom a proposal can be made?
Issue: Supply an information = NOT AN OFFER? Auth: Case Law Harvey v Facey
Fact: A telegraphed B Will you sell us Bumper Hall Pen? Telegraph lowest cash price. B replied by telegram Lowest price for Bumper Hall Pen is of 900. A telegraph B We agree to buy Bumper Hall Pen for a price of 900 as you wish. A claimed that a contract existed because there was an offer and an acceptance. Held:The Court decided that in the telegram, B only supplied information and did not make an offer. A however in his second telegraph had made the offer. It t4 did not constitute a contract.
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ELEMENT 1: PROPOSAL (OFFER) cont

(d)How a proposal can be made?
(i) By Express proposal Auth: Sec. 9 So far as the proposalis made in words, the promise is said to be express. (ii) By Implied Proposal Auth: Sec. 9So far as the proposalis made otherwise than in words, the promise is said to be implied.
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ELEMENT 1: PROPOSAL (OFFER) cont

(e) Statements which are not a proposal i.e. INVITATION TO TREAT (ITT). -ITT = a sort of preliminary communication which passes between the parties at the stage of negotiation. e.g.: (i) Advertisement (ii) Display of Goods at self-service shop (iii) Adertisement for tender (iv) Auctioneers Invitation for Bids
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ELEMENT 1: PROPOSAL (OFFER) cont

ITT : (i)An Advertisement
An Advertisement : an attempt to induce offers. Auth: Case Law Coelho v. Public Services Commission [1964] 1 MLJ 12 Fact: newspaper advertisement of a job vacancy Held: Ong J. :- the advertisement was an invitation to treat & the resulting applicants were offers. Compare;

Auth: Case Law Carlill v. Carbolic Smoke Ball Co.[1893] 1 QB

256 CA

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ELEMENT 1: PROPOSAL (OFFER) cont

ITT : (ii)Display of Goods in self-service shop
The shop-owner merely holds himself prepared to consider proposals made to him at the suggested prices. The proposal is in fact made by the customer when he or she selects the desired goods for payment at the counter. Auth: Case Law Pharmaceutical Society of Great Britain v. Boots Cash Chemist Ltd [1953] 1 QB 401 Fact: Held: an offer to buy was made by the customer when he picked up the bottle of medicine from the shelf & there was no sale effected until the customers offer to buy was accepted by the registered pharmacist at the counter by the acceptance of the price.
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ELEMENT 1: PROPOSAL (OFFER) cont

ITT : (iii)Advertisement for Tenders
Auth: Case Law Clifton v. Palumbo [1944] 3 AER 497 Fact: Held: Advertisement for tenders is an ITT because it is supply of information & still in negotiation & not a definite offer to sell.

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ELEMENT 1: PROPOSAL (OFFER) cont

ITT : (iv)Auctioneers Invitation for Bids
Auth: Case Law Sec. 10 of the Auction Sales Enactment

[Chap. 81 of the Federated Malay State] states that

A sale by public auction shall be complete when the auctioneer announces its completion by the fall of the hammer. Auth: Case Law Payne v. Cave(1789)100 ER 502 Fact:The Defendant made the highest bid & withdrew it before the fall of the hammer. Held: The bid itself constituted the proposalwhich the auctioneer was free to accept it by the fall of the hammer or to reject it. Since the bid was withdrawn before the fall of the hammer there was no contract between the parties.
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ELEMENT 1: PROPOSAL (OFFER) cont

(f)When communication of proposal is deemed to be made?
Auth: Sec. 3 The communication of proposals,are deemed to be made by any act or omission of the party proposing,by which he intends to communicate the proposal,or which has the effect of communicating it.

(g)When a communication of a proposal is said to be completed?

Auth: Sec. 4(1) when it comes to the knowledge of the person to whom it is made. -it means that the proposal is effective once it is communicated to the OFFEREE by the OFFEROR. 16 -Illustration (a) of Sec. 4

ELEMENT 1: PROPOSAL (OFFER) cont

(h)Termination of the proposal sec. 6 5 ways in which a proposal may come to an end:
s.6(a) Notice of Revocation s.6(b) Lapse of Time

s.6(c) Failure to fulfill a condition Precedent to acceptance s.6(d) Death/Mental Disorder of a party Rejection
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ELEMENT 1: PROPOSAL (OFFER) cont

(i)Revocation of proposal When? -Auth: Sec. 5(1) A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. -Illustration to Sec.5 (j)Revocation of proposal How? -Auth: Sec. 6(a),(b),(c),(d)
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ELEMENT 1: PROPOSAL (OFFER) cont

(k)Revocation of proposal When it is said to be communicated?
-Auth: Sec. 4(3)(a) as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;and -Auth: Sec. 4(3)(b) as against the person to whom it is made, when it comes to his knowledge.

-Illustration (c) to Sec. 4 A revokes his proposal by

telegram. The revocation is complete as against A when the telegram is 19 despatched. It is complete as against B when B receives it.

ELEMENT 2: ACCEPTANCE

(a) DEFINITION
Auth: Sec. 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...

(b)Who is a person making an acceptance?

Auth: 2nd Limb of Sec.2(c) and the person accepting the proposal is called the promisee (PROMISEE/OFFEREE/ACCEPTOR) Eg: Ahmad accepts Alis offer by letter to buy his car, BMW 720i for 20 RM500,00.

ELEMENT 2: ACCEPTANCE

(c)How an acceptance can be made?

(i)By Express acceptance Auth: Sec. 9 So far as the acceptance of any promise is made in words, the promise is said to be express. (ii)By Implied acceptance Auth: Sec. 9 So far as theacceptance is made otherwise than in words, the promise is said to be implied.
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ELEMENT 2: ACCEPTANCE
(d) Terms of an Acceptance
Auth: Sec. 7 In order to convert a proposal into a promise the acceptance must (a) be absolute & unqualified; (b) be expressed in some usual & reasonable manner.

A
(proposal) Term x Term y Term z

B
(acceptance) Term x Term y Term z

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ELEMENT 2: ACCEPTANCE
(e) Issue s.7(a): Counter proposal/Offer
If there are modifications/variations of proposal it will become a counter proposal/offer and NOT AN ACCEPTANCE.

Auth: Case Law Hyde v. Wrench (1840)3 Beav. 334

Fact: June 6 W offered to sell his estate to H for f1,000. June 8 H replied & willing to buy at f950, W refused to sell. June 27 H wrote again offering to pay f1,000. H sued W for specific performance. Held: there was no valid binding contract between the parties because H had rejected the original offer of f1,000 by the counter offer of f950.
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ELEMENT 2: ACCEPTANCE
(f) Issue s.7(b): Form of Acceptance
Gen. Rule: SILENCE DOES NOT AMOUNT TO CONSENT/ACCEPTANCE Auth: Case Law Fraser v. Averett Held: There is no rule of law like the saying Silence gives consent. Auth: Case Law Felthouse v. Bindley Fact: F wrote to his nephew offering to buy a horse for f30 15s. And he added If I hear no more about him, I consider the horse mine at f30 15s. The nephew did not reply. The nephew however told B (an auctioneer) to keep the horse out of the sale of his farming stocks because he wanted to set it aside for F. B (auctioneer) sold it by mistake. F sued B. Held: There was no acceptance by the nephew as he had kept silent. F (Plaintiff) 24 therefore had no right to claim the horse as there was no contract.

ELEMENT 2: ACCEPTANCE
(g) Issue s.7(b): Form of Acceptance
Exception: (Silence may amount to acceptance)
Auth: Case Law Weatherby v. Banham Fact: A proposer sent food to the promisee, prescribing that payment for the food need to be paid if the promisee accepts the proposal by consuming the said food. Held: The act of consuming the food amounted to an acceptance even if the promisee kept silent (not communicating his acceptance to the proposer).

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ELEMENT 2: ACCEPTANCE
(h) Issue s.7(b):Time limit for an acceptance
REASONABLE TIME??? Auth: Case Law Ramsgate Victoria Hotel Co. v. Montefiore Fact: M (the defendant) wrote to apply for shares in RVH (the plaintiff )company on the 8th of June. He received no further news until 23rd November. When he was informed that the shares have been alloted to him the defendant refused to accept them.

Held: RVH (the plaintiff) had allowed too long a time to lapse before accepting defendants offer. M (the defendant) therefore is not liable to accept the shares.

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ELEMENT 2: ACCEPTANCE

(i)When communication of acceptance is deemed to be made?

Auth: Sec. 3 The communication of the acceptance of proposals,are deemed to be made by any act or omission of the partyaccepting,by which he intends to communicate theacceptance,or which has the effect of communicating it.

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ELEMENT 2: ACCEPTANCE
(j)When a communication of an acceptance is said to be completed?
Auth: Sec. 4(2)(a)&(b) (a)as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor.. (b)as against the acceptor, when it comes to the knowledge of the proposer. -Illustration (b) to Sec. 4
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ELEMENT 2: ACCEPTANCE
(k) Issue (s.4(2)):When a communication of an acceptance is complete
INSTANTANEOUS MEANS OF COMMUNICATION??? By phone, verbal, video conrefrence,telex etc. Auth: Case Law Entores Ltd v. Miles Far East Corp.

Fact: The defendant, in Amsterdam, sent an acceptance by telex. The plaintiff (proposer) received the telex in London. When a dispute on the contract arose the plaintiff brought it to the English Court to get a writ against the defendant. The English Court therefore had to first decide whether there was a contract made in London.
Held: There was a contract made in London, and the English Court therefore had the jurisdiction to hear the case. Communication of acceptance was deemed instantaneous, and was formed the moment the plaintiff received the defendants telex of acceptance in London. 29

ELEMENT 2: ACCEPTANCE
(l) Issue (s.4(2)):When a communication of an acceptance is complete
NON-INSTANTANEOUS MEANS OF COMMUNICATION POSTAL RULE Issue: where there is a gap of time between acceptance made by the acceptor and communicated to the proposer)? Auth: Case Law Ignatius v. Bell. Fact: The Dft, Bell, gave an option to the Pltf to purchase a piece of land on the condition that the option must be exercised on or before 20/8/12. Both parties had contemplated the use of the post as means of communication. The Pltf sent a registered letter on the 16/8/12. Because he was not at home, the Dft only received it on the evening of the 25/8/12. Held: the contract bound the defendant on the 16/8/12, that is, when the plaintiff posted the letter of acceptance. The said option was executed within the specified 30 time.

ELEMENT 2: ACCEPTANCE
(m) Revocation of Acceptance When? -Auth: Sec. 5(2) An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. -Illustration to Sec.5

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ELEMENT 2: ACCEPTANCE
(n) Revocation of acceptance When it is said to be communicated?
-Auth: Sec. 4(3)(a) as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;and -Auth: Sec. 4(3)(b) as against the person to whom it is made, when it comes to his knowledge.

-Illustration (d) to Sec. 4 B revokes his acceptance by

telegram. Bs revocation is complete as against B when the telegram is 32 despatched, and as against A when it reaches him.

ELEMENT 3: INTENTION TO CREATE LEGAL RELATION (ICLR)

(1)Commercial Arrangement/ Business Agreement -there is a presumption INTENTION to CLR unless there are evidence to show otherwise.
-Issue: subject to contractNO ICLR Auth:Case Law Low Kar Yit v.

(2)Social/Domestic/ Family Arrangement -there is a presumption NO Intention to CLR unless there are evidence to show otherwise.
Auth:Case Law Balfour v. Balfour Ferris v. Weaven
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Mohd Isa

ELEMENT 4: CONSIDERATION
(4.1) WHAT AGREEMENTS ARE CONTRACT? Authority: Sec.10(1) CA 1950: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. (4.2) DEFINITION Auth: Sec. 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 34 is called a consideration of the promise.

(4.3) CLASSIFICATION OF CONSIDERATION

(A)
-A promise is made in return for the performance of an act.
PROMISE + ACT

(B)
-A promise is made in return for another promise. -

EXECUTED

EXECUTORY

(C) PAST

PROMISE + PROMISE

-a subsequent promise made in response to past acts or previous considerations made.

ACT + PROMISE

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(4.4) RULES OF CONSIDERATION (ISSUES)

(a) Consideration moves from 3rd party
Msia Position: GOOD & VALID Auth:Section.2(d): when at the desire of the promisor, the promisee or any other person has done or... Case : Venkata Chinnaya v. Verikataramaya OR Kepong Prospecting Ltd & Ors v. Schmidt English Position: NOT VALID / NO CONSIDERATION Auth:Case Law: Tweddle v.Atkinson

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(4.4) RULES OF CONSIDERATION (ISSUES)

(b) Past Consideration
Msia Position: GOOD & VALID Sec. 2(d): when at the desire of the promisor, the promisee or any other person has done or... Case Law :Kepong Prospecting Ltd & Ors v. Schmidt
English Position: NOT VALID / NO CONSIDERATION Case Law: Roscorla v. Thomas Held:Past consideration will not make a promise binding.

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(4.4) RULES OF CONSIDERATION (ISSUES)

(c) Dispense with/Remit the Performance of Promise
Msia Position: Part payment may discharge the whole obligation -Section 64 :Every promisee may dispense with or remit, wholly

or in part the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit -Illustration (b)&(c) of Sec.64

-Case Law : Kerpa Singh v. Bariam Singh

English Position: Part payment . may not discharge the whole obligation
-Case Law: Pinnels case Held: Payment of a lesser sum in satisfaction of a greater sum could not be any satisfaction for the whole

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(4.4) RULES OF CONSIDERATION (ISSUES)

Issue: Whether consideration provided by the promisee is adequate or not? consideration need not be adequate to create a contract. It is sufficient if it is of value and the promisor has freely given his consent. Section 26 : Explanation 2 An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate, but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given. Illustration (f) to SECTION 26 A agrees to sell a horse worth RM1000 for RM 10. As consent to the agreement was freely given. The agreement is a contract not withstanding the inadequacy of the consideration. Case: Phang Swee Kim v. Beh I Hock [1964] MLJ 383 Fact of the case: Held of court:

(d) ADEQUACY OF CONSIDERATION

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(4.5) AGREEMENT WITHOUT CONSIDERATION

Sec. 26 provides that agreement made without consideration is VOID EXCEPT (it is VALID) if:(A) Sec. 26(a):It is in writing and registered; 3 conditions:
(i) is in writing; (ii) is registered under the law for the time being in force for the registration of such documents (if any); (iii) is made on account of natural love and affection between parties 40 standing in a near relation to each other.

(4.5) AGREEMENT WITHOUT CONSIDERATION

Sec. 26 provides that agreement made without consideration is VOID EXCEPT (it is VALID) if:(B) Sec. 26(b): It is a promise to compensate for something done 3 conditions:
(i) It is a promise to compensate, wholly or in part; (ii) One who has already voluntarily done something for the promisor;or 41 (iii) Something which the promisor was legally compellable to do.

(4.5) AGREEMENT WITHOUT CONSIDERATION

Sec. 26 provides that agreement made without consideration is VOID EXCEPT (it is VALID) if:(C) Sec. 26(c): It is a promise to pay a debt barred by limitation law. 4 conditions:
(i) The agreement is made in writing (ii) The agreement is signed by the debtor or his authorised agent (iii) The agreement is to pay wholly or in part a debt (iv) The creditor might have enforced payment of the debt but for the 42 law for the limitation of suits

ELEMENT 5: CAPACITY TO CONTRACT

Sec. 10 (1) What agreements are contract?

All agreements are contracts if they are made by the free consent of parties competent to contract,and are not hereby expressly declared to be void.

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ELEMENT 5: CAPACITY TO CONTRACT

Sec. 11- Who are the parties competent to contract?

Every person is competent to contract:(i) who is of the age of majority according to the law to which he is subject (ii) who is of sound mind, and (iii) who is not disqualified from contracting by any law to which he is subject.
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(5.1) Age of Majority

18 years old- Age Of Majority Act , 1971. Case: Mohari Bibee v. Dharmodas Ghose. The Privy Council held: that an infant cannot make any valid contracts- General rule contract by minor is void. However, there are some EXCEPTIONS (a minor person can make a contract):1. Contracts for NECESSARIES 2. Contracts of SCHOLARSHIP 3. Contracts of INSURANCE 4. Contracts of MARRIAGE 5. Contracts of SERVICE/APPRENTICESHIP
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Exception: (1) Contracts for Necessaries

Definition of necessaries : -bare essentials of life and includes goods and services, reasonably,e.g. food, clothes,and shelter. Sec. 69-Claim for necessaries supplied to person incapable of contracting, or on his account. Case: Government of Malaysia v. Gurcharan Singh. Fact: Held: Education was held to be included under necessaries.

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Exception: (2) Contracts of Scholarship

Sec. 4(a): Contracts (Amendment) Act ,1976 no scholarship agreements shall be invalidated on the ground that the scholar entering into such agreement is not of the age of majority. A scholarship agreement entered into by an infant is valid when the scholarship, award, bursary, loan or sponsorship is granted by the Federal/ State Government, a statutory authority, or an educational institution such as an university.

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Exception: (3) Contracts of Marriage

Case: Rajeswary v. Balakrishnan Held: a contract to marry is valid and enforceable even if the parties involved were minors. Sec. 12 of Law Reform (Marriage and Divorce) Act 1976 provides that whosoever below the age of 21 cannot enter into a marriage contract except with the written consent of his father/ mother/adopted father/adopted mother/guardian (according to sequence; if father dies, then consent must be given by the mother and so on).
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Exception: (4) Contracts of Insurance

Sec. 153 Insurance Act 1963 ( revised 1972 )
An infant >10 years old is allowed to sign a life insurance contract for himself or upon another life in which he has an insurable interest. If he is <16 years old, he can only do so with the written consent of his parents or guardian. If he is >16 years old can enter into such contracts without having to get his parents or guardians consent.
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Exception: (5) Contracts of Service/Apprenticeship

Section 13 of the Children and Young Persons (Employment) Act 1966 provides that a minor can enter into a contract of apprenticeship or services. Child = below the age of 14 Young person = age of 14 -16.

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(5.1) Age of Majority cont

EFFECT OF CONTRACTS SIGNED BY A MINOR.

VOID AB INITIO
WHAT HAPPENS TO THE BENEFITS PASSED UNDER THE CONTRACT? CAN IT BE RECOVERED? In Mohori Bibee v. Dharmodas Ghose The court held that the moneylender was not entitled to enforce the mortgage in order to force him to pay the loan because he had known at the time the contract was agreed upon that the borrower was a minor. In Tan Hee Juan v. The Boon Keat The Court held that the transfer was void and the minor allowed to get the return of his land, and the court denied the buyers claim for refund of the purchase money.
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(5.1) Age of Majority cont

EFFECT OF CONTRACTS SIGNED BY A MINOR.

VOID AB INITIO
WHAT HAPPENS TO THE BENEFITS PASSED UNDER THE CONTRACT? CAN IT BE RECOVERED? However, Section 40 of The Specific Relief Act 1950 provides: On adjudging the cancellation of an instrument, the court may require the party to whom the relief is granted to make any compensation to the other which justice may require. It shows that the court has the discretion whether to require that the benefits be restored or to make compensation.

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(5.2) Sound mind

DEFINIITION Section 12 (1) 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 interest.

Section 12 (2) A person who is usually of unsound mind,

but occasionally of sound mind, may make a contract when he is of sound mind.

Section 12 (3) A person who is usually of sound mind, but

occasionally of unsound mind, may not make a contract when he is of unsound mind.
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(5.3) Not disqualified

a person must not loose the capacity to make a contract according to whatever law he is subjected to. Loss of capacity= means that the said party may at first have the capacity to contract but lost it due to some circumstances under any laws or he is capable according to the CA 1950 but lost it according to other laws to which he is subjected to. Eg. bankrupt

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ELEMENT 6: CERTAINTY OF TERMS

Common law :1) Language used too vague. 2) Failure to reach agreement on a vital / fundamental term.

Section 30 & illustration (c),(e),(f). In case of Karuppan Chetty v. Suah Thian.

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Section 30 Agreements is void for uncertainty.

Agreements, the meaning of which is not certain, or capable of being made certain, are void. Illustration (e);
A agrees to sell B 100 gantangs of rice at price to be fixed by C. As the price is capable of being made certain,
there is no uncertainty here to make the agreement void. Where the meaning is unclear but it is capable of being made certain - agreement not void for uncertainty. Only void- if refuse/unable to make it certain. In case of Karuppan Chetty v. Suah Thian :Held: the contract was declared void for uncertainty because the parties agreed to lease of $35 per month for as long as 56 he likes.

Common Law Agreements void for uncertainty.

Language used too vague. -the contract needs to be convinced that the alleged contract is expressed in language so obscure and so incapable of any definite or precise meaning that it is unable to attribute to the parties any particular contractual intention. Failure to reach agreement on a vital or fundamental term. - unclear or incomplete agreement. - Case: Thorby v. Goldberg
Held: there can be no binding and enforceable obligation unless its essential or critical terms have been agreed upon no concluded contract where essential terms is left to be settled by future agreement 57 of the parties

ELEMENT 7: FREE CONSENT (VOIDABLE CONTRACT)

Sec. 10(1): All agreements are contracts if they are made by the free consent of parties competent to contract

Sec.13: Two or more persons are said to consent when they agreed upon the same thing in the same sense.
Sec. 14: Consent is said to be free when it is not caused by -

(a)Coercion Sec. 15 (b)Undue influence Sec. 16 (c)Fraud Sec. 17 (d)Misrepresentation Sec. 18 (e)Mistake subject to Sec. 21,22 & 23

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ELEMENT 7: FREE CONSENT (VOIDABLE CONTRACT) cont

Effect of voidable contract: Sec. 19(1) : When consent to an agreement is caused
by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was caused.

Illustration to Sec. 19
Sec. 19(2) :

Sec 65: Consequences of rescission of voidable contract

Sec 66: Obligation of person who has received advantage
under void agreement or contract that becomes void.
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(a) COERCION SECTION 15

Committing or threatening to commit act forbidden by Penal Code. Unlawful detaining or threatening to detain property, to the prejudice of any person. With intention to cause the person enter into agreement. Illustration to Sec.15 Effect of a contract entered into by coercion: Section 19
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(a) COERCION SECTION 15 cont

Case: Kesarmal s/o Letchuman Das v. Valiappa Chettiar
Held: A transfer executed the orders of Sultan, issued in the ominous presence of 2 Japanese officers during the japanese occupation of Malaya, was invalid. The court held that consent was not freely given & the agreement was voidable at the option of the party whose consent was so caused.

Case: Barton v. Armstrong

Held: A deed executed under threat to kill was held to be void for duress.
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(b) Undue Influence SECTION 16

Where the relations subsisting between the parties One of the parties is in a position to dominate the will of the other Uses that position to obtain an unfair advantage over the other. Sec. 16(2)(a)&(b):THREE (3) circumstances whereby a party is deemed to be in a position to dominate the will of another:(i) Where one party holds a real or apparent authority on the other eg. A parents authority over a child.

(ii) Where one party stands in a fiduciary relation to the other eg. In the case of the confidential relationship between a solicitor & client, trustee & beneficiary, religious advisor & 62 follower/diciple, doctor & patient continue

(b) Undue Influence SECTION 16 cont

(iii) Where a party makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental/bodily distress.

Illustration to Sec.16
Case: Inche Noriah v. Shaikh Allie b. Omar Fact: Held: The gift should be set aside as the presumption of undue influence, which raised by the r/ship proved to have been in existence between the parties, was not rebutted.
Effects of a contract entered into by fraud: Section 20.

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(c) Fraud SECTION 17

DEFINITION Includes certain acts which are committed with intent to induce another party to enter into a contract with intent to deceive another party. (S. 17) - 5 acts which may constitute fraud:
A. S.17(a): when A suggests as to a fact which he knows not true. B. S.17(b): when A made active concealment of fact he believes to be true. C. S.17(c): when A made a promise w/o intention of performing it. D. S.17(d): any other act fitted to deceive E. S.17(e): any act/omission as the law specially declares to be fraudulent 64 continue

(c) Fraud SECTION 17 cont

Gen. Rule: wherever a person causes another to act on a false representation which the maker himself does not believe to be true, he is said to have committed a fraud. Illustration to Sec. 17. Case : Kheng Chwee Lian v. Wong Tak Thong Fact: Held: Gen. Rule: mere silence/non-disclosure would not constitute fraud. Auth: Explanation to Sec. 17 Exceptions (mere silence constitute fraud): A. The act of silence equivalent to speech that later found out to be untrue. 65 continue B. The contract is of uberrimae fide.

(c) Fraud SECTION 17 cont

Exceptions (mere silence constitute fraud): A. The act of silence equivalent to speech that later found out to be untrue. B. The contract is of uberrimae fide. Effects of a contract entered into by fraud:

Section 19.

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(d) Misrepresentation SECTION 18

DEFINITION
It is a situation when A made a false statement to B, but A believes it to be true. A made the statement without intention to deceive but it prejudice A. Misrepresentation includes in S 18 (a) (c):A. S. 18(a) positive assertionwhich is not true, though the person making it believes it to be true. B. S. 18(b) any breach of duty, w/o an intent to deceive, gives an advantage to the person committing it. C. S. 18(c) causinginnocentlymake a mistake as to the substance of the thing 67 continue

(d) Misrepresentation SECTION 18 cont

Difference between misrepresentation and fraud ;
FRAUD The person making the representation does not himself believe in its truth. MISREPRESENTATION He may believe the representation to be to true.

In the case of fraud, silence in certain situation where there is a duty imposed to disclosed, may amount to misrepresentation. S18 (b).

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(d) Misrepresentation SECTION 18 cont

Due to the fact that a high standard of proof is required in cases where fraud is alleged, it is a common practice for a party who attempts to set aside a contract on the grounds of misrepresentation to plead both fraudulent and innocent misrepresentation. Auth: Tan Chye Chew v. Eastern Mining & Metal co.

Effects of a contract entered into by misrepresentation:

Section 19.

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(e) Mistake SECTION 21,22,23

Mistake of Fact (Sec.21 & 23) Mistake of Law (Sec. 22)
Sec. 21: Where both the parties are under a mistake as to a matter of fact essential to the agreement VOID Explanation to Sec. 21 Illustration to Sec. 21 Case: Galloway v. Galloway
Fact: an agreement to divorce between plaintiff & defendant is void since both parties mistaken about their maritul status. Held: their marriage is void, t4 the subject matter does not exist.

Sec. 23: Contract caused by mistake of one party as to matter of fact NOT VOIDABLE/VALID Mistake as to any law in force in Msia NOT VOIDABLE/VALID
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(4) VOID/ILLEGAL CONTRACT

Definition : Sec. 2(g) an agreement not enforceable by law is said to be void. Examples:
(1) Sec. 24: Every agreement of which the object or consideration is unlawful is VOID. (2) Sec. 27: An agreement in restraint of marriage VOID. (3) Sec. 28: Agreement is restraint of trade void. (4) Sec. 29: agreement in restraint of legal proceedings void.

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VOID/ILLEGAL CONTRACT
CONSEQUENCES OF VOID/ILLEGAL AGREEMENT
Gen. Rule: ex turpi causa non oritur actio (no action will arise from a wrong done) The courts will not enforce an illegal contract. However, Sec. 66 lays down when an agreement is discovered to be void, the person who received an advantage under such contract is bound to restore it to other party or to pay adequate compensation for 72 the same. (the right of RESTITUTION)

(5) DISCHARGE OF CONTRACT

Means that the contract has come to an end. The parties to an agreement are freed from their contractual obligations. Neither party has any further obligation under it. A contract may be discharged by one of these FOUR (4) following ways:

A. DISCHARGE BY PERFORMANCE B. DISCHARGE BY AGREEMENT C. DISCHARGE BY FRUSTRATION D. DISCHARGE BY BREACH OF CONTRACT

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(A) DISCHARGE BY PERFORMANCE

Usual method for the discharge of a contract. Parties to the contract perform the duties

completely. Performance must be exact & precise and in accordance with the terms of the contract. S. 38(1) CA provides that parties to a contract

When the parties have carried out exactly what they

have undertaken to do, there is a complete discharge but if only one party performs his part of the bargain, he alone will be discharged.
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must either perform or offer to perform their respective promises unless such performance has been disposed with by any law.

(B)DISCHARGE BY AGREEMENT/CONSENT

agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Novation = is the substitution of a new contract for an
earlier one, particularly a contract between a creditor, a debtor and a third party whereby they agree to substitute a third party for the debtor or creditor under the original contract which will be discharged. Illustration (a) to S. 63 CA
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Either by expressed or implied consent. The consent of all parties to the contract is necessary. e.g. Waiver, release, novation, remission or rescission. S. 63 CA provides that if the parties to a contract

(C)DISCHARGE BY FRUSTRATION

A contract is frustrated when there is a change in

the circumstances which renders the contract legally or physically impossible of performance. SECTION 57(1) provides that an agreement to

Circumstances of impossibility of performance:

a)

do an act impossible in itself is void.

Destruction of a subject-matter of a contract

-when a contract depends on the existence of that thing but the thing was destroyed. Case: Taylor v. Caldwell music hall was accidentally burnt down b4 the date of the concert.
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(C)DISCHARGE BY FRUSTRATION
b) Where a contract depends on the happening of a

certain event.

-if the event does not occur the contract is discharged by frustration. Case: Krell v. Henry a room was hired for the sole purpose of watching the coronation procession of King cancelled coz the Kings illness. c) Supervening illegality -when the contract becomes illegal eg. by outbreak of war. Case: Berney v. Tronoh Mines Ltd. Japan invaded Msia contract of employment was discharged. d) Death/Personal incapacity -Case: Condor v. The Bsrron Knight Ltd drummer employed-ill-not fit to perform contract was discharged.
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(D)DISCHARGE BY BREACH

When a one of the parties fails to perform his

obligation. Indicates to other party an intention not to go on with the contract, the party is said to repudiated the contract. The disability to perform is due to the fault of the party concerned. Three (3) forms of breach:

1. Refused to perform 2. Disables himself from performing promise. 3. Repudiated liability under contract.
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(D)DISCHARGE BY BREACH

The effect of breach: an innocent party may

put an end to the contract + must restore any benefit which he may have received from the other party. S. 65 CA Remedies available for breach of contract: 1. Damages 2. Quantum meruit 3. Specific performance 4. Injunction

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(6) REMEDIES FOR BREACH OF CONTRACT

REMEDY
means a right that can be claimed by a party to a contract that experience losses coz of the other party to the contract was in breach.

FOUR (4) types of remedies:1. 2. 3. 4.

DAMAGES QUANTUM MERUIT SPECIFIC PERFORMANCE INJUNCTION

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(1)DAMAGES
DEFINITION -The courts estimated compensation in money for detriment or injury sustained by the plaintiff in contract/tort.

In Hadley v. Baxendale the court decided that damages may only be awarded in respect of loss which either:a. arises naturally- accord. to usual course of things for the breach b. which the parties may be reasonably supposed to have contemplated in making the contract as the probable result of the breach of it. Sec. 74 an injured party is entitled to: a. Natural damages b. Special damages continue 81

(1)DAMAGES

Aim of rewarding damages = to give relief to the innocent party for the losses incurred, not to punish the party whos in breach. Case: Tham Cheow Toh v. Associated Metal Smelters Ltd Held: a failure to sent a smelter that could burnt up to f2600 is a breach of contract. Dft can expect the losses that might incurred from that breach.

Such compensation is not to be given for any remote and indirect loss or damages sustained as a result of the breach. continue 82

(1)DAMAGES

Damages of unspecific amount are divided into 3: 1. Substantial a reward given is to put plaintiff in a place that he should if defendant perform the contractual obligation. 2. Nominal a small reward to plaintiff after he shows that there is a breach of contract, even though there is no real losses incurred. 3. Exemplary a reward given is far higher than the losses incurred.

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(2)QUANTUM MERUIT

means as much as he has earned and only arises in cases of part performance. can arise where:
a) a defendant has prevented a plaintiff from carrying out the remainder of their contractual duties b) the parties cannot agree on payment c) the parties agree on payment for the part-performance but not the actual amount

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(3)SPECIFIC PERFORMANCE
DEFINITION It is the decree or the court directing that the contract shall be performed specifically, that, according to its term.

Section 11(1) Specific Relief Act 1950 provides that specific performance may granted by the court in the following circumstances:a. The contractual obligation is a trust. b. Actual damage cannot be ascertained c. A breach cannot be adequately relieved by
compensation of money.
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(4)INJUNCTION
DEFINITION A decree by the court ordering a person not to do a certain act. It is an equitable remedy given at the discretion of the court.

In the Specific Relief Act 1950, the injunction is a remedy classed in Part III as the Preventive Relief.

Section 50 merely states that it is granted at the discretion of the court and injunction can be either temporary or perpetual.
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(4)INJUNCTION
A Temporary injunction are such as to continue until a specific time, or until the further order of the court. They may be granted at any period of a suit, and are regulated by the law relating to civil procedure.

A perpetual injunction can only be granted by the decree made at the hearing and upon the merit at the suit , the defendant is thereby perpetually enjoined from the assertion of a right, or from the commission of an Act, when would be contrary to the right of the plaintiff.
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(5) RESCISSION

an equitable remedy, which allows an innocent party to cancel the contract by rescinding or, if there has been misrepresentation by the other party, raising that misrepresentation as a defence if sued for damages or specific performance by the other party

(6) RESTITUTION

is sometimes referred to as quasi-contract. It is not contractual and does not rely on the plaintiff suffering loss or damage. Its basis is unjust enrichment; that is, those situations where it would be very unfair if the defendant was to be allowed to retain the money, or the goods or services, without payment.
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REVIEW
1. Introduction 2. Essential Elements of a Contract
Proposal Acceptance Intention to Create Legal Relations Consideration Legal capacity Certainty 3. Voidable Contracts - No Free Consent Coercion Undue Influence Fraud Misrepresentation Mistake
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REVIEW
4. Void and Illegal Contracts 5. Discharge of Contract
By Performance By Agreement By Frustration By Breach 6. Remedies for breach of Contract Damages Quantum Meruit Specific Performance Injunction Rescission Restitution
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