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Ch6: 1

CHAPTER

The Law of Contract

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Ch6: 2

OBJECTIVES
This chapter:
describes the basic principles of the law
governing contracts

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Ch6: 3

PREVIEW

Introduction
Elements of a Contract
Privity of Contract
Terms of a Contract
Voidable Contracts
Void and Illegal Contracts
Restraint of Trade and Legal Proceedings
Discharge by Frustration, Performance and Breach
Remedies

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Ch6: 4

INTRODUCTION

compare contract with agreement:


contract involves an element of agreement but
not every agreement will result in a contract
recognizable by law
contract is an agreement enforceable by law
contract is an agreement which is legally binding
between them parties

Malaysian legislation Contracts Act 1950

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Ch6: 5

INTRODUCTION (cont.)

where there are no provisions in Contracts


Act 1950 English law applies by virtue of
the Civil Law Act 1956
where the Contracts Act makes certain
provisions which differ from English law, the
provisions of the Contracts Act 1950 must
prevail see Song Bok Yoong v Ho Kim Poui

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Ch6: 6

ELEMENTS OF A CONTRACT
1. Offer (Proposal)
section 2(a), Contracts Act 1950 when one
person signifies to another his willingness to do
or to abstain from doing anything, with a view to
obtaining the assent of that other to the act or
abstinence, he is said to make a proposal
the promisor (offeror) must have declared his
readiness to undertake an obligation upon
certain terms, leaving the option of its
acceptance or refusal to the offeree. See Affin
Credit (Malaysia) Sdn Bhd v Yap Yuen Fui
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Ch6: 7

ELEMENTS OF A CONTRACT
(cont.)

the communication of a proposal is complete


when it comes to the knowledge of the person
to whom it is made section 4(1)of the
Contracts Act 1950
compare offer with option and advertisement
is complete when it comes to the knowledge of
the person to whom it is made section 4(1)of
the Contracts Act 1950
compare offer with option and advertisement

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Ch6: 8

ELEMENTS OF A CONTRACT
(cont.)

option undertaking to keep the offer open for a


certain period of time

option arises when the offeror promises to keep


the offer open for a specified period. See
Goldsborough Mort & Co Ltd v Quinn, Coelho v
The Public Services Commission, M N Guha
Majumder v Re Donough

whether an advertisement is an offer or an


invitation to treat depends on the intention of the
parties in each case

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Ch6: 9

ELEMENTS OF A CONTRACT
(cont.)

advertisements of bilateral contracts are not


offers whereas advertisements of unilateral
contracts are construed to be offers. See
Majumder v Attorney-General of Sarawak,
Pharmaceutical Society Of Great Britain v Boots
Cash Chemist Ltd, Partridge v Crittenden, Rooke
v Dawson, Grainger & Sons v Gough
if a party intends their words or conduct to
constitute and offer, the court will construe as
such. See Carlill v Carbolic Smoke Ball Co. Ltd

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Ch6: 10

ELEMENTS OF A CONTRACT
(cont.)

offer must be distinguished from invitations to


treat, e.g.:
auctions
advertisement of tenders
catalogues
price lists
goods displayed in shop windows and shelves

the advertisement of an auction is not an offer to


hold it but an invitation to treat. See Harrison v
Nickerson

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Ch6: 11

ELEMENTS OF A CONTRACT
(cont.)
2. Acceptance

when the person to whom the proposal is


made signifies his assent thereto, the proposal
is said to have been accepted section 2(b)of
the Contracts Act 1950
when a proposal is accepted, it becomes a
promise
the person accepting the proposal the
promisee
if the acceptance is made in words
expressed acceptance

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Ch6: 12

ELEMENTS OF A CONTRACT
(cont.)

if the acceptance is made other than in words


implied acceptance
for a proposal to be converted into a promise, the
acceptance of that proposal must be absolute and
unqualified section 7 of said Act
acceptance must be absolute and unqualified so
that there is complete consensus. If the parties
are still negotiating, an agreement is not yet
formed.
a conditional assent is not an acceptance

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Ch6: 13

ELEMENTS OF A CONTRACT
(cont.)

if acceptance is qualified by words such as subject


to contract or subject to a formal contract being
drawn up by our solicitors, the courts would be
inclined to regard it as a mere conditional contract
the mere use of the words subject to contract does
not necessarily mean that the contract is not yet
binding. Whether the parties contemplated a binding
contract to take immediate effect or whether they
were postponing their rights and obligations under
the proposed contract until formalization is a
question of fact and depends on the circumstances
of each case

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Ch6: 14

ELEMENTS OF A CONTRACT
(cont.)

in Ayer Hitam Tin Dredging Malaysia Bhd v YC


Chin Enterprises Sdn Bhd:
1. The existence of an agreement depends upon the
intention of the parties who must be ad idem. It may be
inferred from the language used, the parties conduct
having regard to the surrounding circumstances and the
object of the contract. The court will generally apply an
objective or reasonable man test.
2. Merely because the parties contemplate the preparation
of a formal contract, that would not prevent a binding
contract from coming into existence before the formal
contract is signed.

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Ch6: 15

ELEMENTS OF A CONTRACT
(cont.)

although the formula subject to contract gives rise


to a strong presumption of the necessity of a
further formal contract, it does not detract from the
well-established principles that:
1. An informal contract without any express details may be
binding
2. A bargain with essential terms, though a formal document is to
be drawn up with further terms, is still a bargain
3. Where there is a definite and complete agreement, the
reservation in respect of a formal document only means that it
should be put into proper shape and in legal phraseology with
any subsidiary terms necessary for insertion in a formal
document

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Ch6: 16

ELEMENTS OF A CONTRACT
(cont.)

acceptance which is qualified by the


introduction of a new term may be considered
as a counter-offer destroying the original offer.
See Hyde v Wrench

acceptance must be made within a reasonable


time. See Fraser v Everett

reasonable time depends on the


circumstances of each case, e.g. the nature of
the subject-matter or the method by which the
offer is communicated

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Ch6: 17

ELEMENTS OF A CONTRACT
(cont.)

an offer is normally short-lived in the case of


perishable goods, whereas in the case of land,
provided that there is nothing in the offer to
indicate a degree of urgency, the offer remains
open for a longer time. See Ramsgate Victoria
Hotel Co Ltd v Montefiore

the rationale for this rule is given by Hashim


Yeop A Sani J in the case of Macon Works &
Trading Sdn Bhd v Phang Hon Chin & Anor

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Ch6: 18

ELEMENTS OF A CONTRACT
(cont.)

acceptance must be expressed in some usual


and reasonable manner, unless the proposer
prescribes the manner in which it is to be
accepted. The proposer cannot prescribe
silence as a manner of acceptance section
7(b) of the Contracts Act 1950

however, silence may also amount to


acceptance if there are other facts like the
conduct of the offeror to indicate acceptance.
See Weatherby v Banham

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Ch6: 19

ELEMENTS OF A CONTRACT
(cont.)

thus, acceptance must be made in the manner


prescribed by the offeror. When the acceptor
deviates from the prescribed manner, the offeror
must not keep silent. If he does so and fails to insist
upon the prescribed manner, he is considered as
having accepted the acceptance in the modified
manner section 7(b)
the acceptance of proposals is deemed to be made
by any act or omission of the party accepting by
which he intends to communicate the acceptance
or which has the effect of communicating it
section 3

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Ch6: 20

ELEMENTS OF A CONTRACT
(cont.)

the communication of an 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
with respect to the acceptor, the communication of an
acceptance is complete as against the acceptor when it
comes to the knowledge of the proposer
when the acceptance does not reach the proposer,
there can still be an agreement because the offeror,
though having no knowledge of the acceptance, is
bound whilst the acceptor, because his acceptance had
not come to the knowledge of the proposer, is not
bound. See Ignatius v Bell

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Ch6: 21

ELEMENTS OF A CONTRACT
(cont.)

in cases of acceptance through post, acceptance is


complete upon posting
however, this rule that acceptance is complete upon
posting may be excluded by the express terms of the
offer Holiwell Securities Ltd v Hughes
the mere posting of the letter of acceptance was not
sufficient
exception to the aforesaid rule as regards acceptance
through the post lies in cases of instantaneous
circumstances, e.g. telephone, telex and telefax see
Entores Ltd v Miles Far East Corporation, Tenax
Steamship Ltd v The Brimmes

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Ch6: 22

ELEMENTS OF A CONTRACT
(cont.)
Revocation of Offer and Acceptance
a proposal may be withdrawn in any of the
following ways:
1.Communicating the notice of revocation by the
proposer to the party to whom the proposal was
made
2.The time prescribed in the proposal for its
acceptance elapses, or if no time is prescribed for
acceptance by the lapse of a reasonable time
3.The failure of the acceptor to fulfil a condition
precedent to a acceptance
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Ch6: 23

ELEMENTS OF A CONTRACT
(cont.)
4. The death or mental disorder of the proposer if the
fact of the proposers death or mental disorder
comes to the knowledge of the acceptor before
acceptance

when acceptance is complete, an agreement is


formed so that there is no question of revocation
revocation is possible if the acceptance is not
complete
revocation of an offer must be communicated to be
effective section 6(a)

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Ch6: 24

ELEMENTS OF A CONTRACT
(cont.)
the communication of revocation section 4(3)
section 4(2) the communication of an
acceptance is complete:

1. 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
2. As against the acceptor, when it comes to the
knowledge of the proposer

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Ch6: 25

ELEMENTS OF A CONTRACT
(cont.)

the communication of a revocation is also


complete at 2 different times:
1. As against the person who makes the revocation,
when it is put in the 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 section 4(3)(a)
2. As against the person to whom it is made, only when
it comes to his knowledge section 4(3)(b)

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Ch6: 26

ELEMENTS OF A CONTRACT
(cont.)

a proposal may be revoked at any time before


the communication of its acceptance is
complete as against the proposer, but not
afterwards section 5(1)

an acceptance may be revoked at any time


before the communication of the acceptance is
complete as against the acceptor, but not
afterwards section 5(2)

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Ch6: 27

ELEMENTS OF A CONTRACT
(cont.)
3. Intention to Create Legal Relations

there are cases where there were no intention to


enter into legal relations
where the agreements merely represent family
arrangements
where concessions were made in the course of
business negotiations

circumstances and conduct of parties may also


indicate lack of intention
in domestic arrangements presumption against the
existence of an intention to create legal relations

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Ch6: 28

ELEMENTS OF A CONTRACT
(cont.)

in commercial arrangements presumption is


that legal relationships are intended
it is up to the courts to ascertain the intentions of
the parties from the language used and the
context in which they are used

4. Consideration

as a general rule, an agreement without


consideration is void section 26, Contracts Act
definition of consideration see section 2(d),
Contracts Act

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Ch6: 29

ELEMENTS OF A CONTRACT
(cont.)
Consideration Need Not be Adequate

an agreement is not void merely because the


consideration is inadequate Explanation 2,
section 26
for the application of the rule see Illustration
(f) section 26
adequacy of consideration see Chappell &
Co Ltd v Nestl Co. Ltd, Phang Swee Kim v
Beh I Hock

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Ch6: 30

ELEMENTS OF A CONTRACT
(cont.)
Provision of Consideration
consideration may move from a person who is
not the promisee. It may move from the
promisee or any other person section 2(d)
Past Consideration is Good Consideration
English law does not recognize past
consideration

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Ch6: 31

ELEMENTS OF A CONTRACT
(cont.)

exceptions to this rule an act originally done at the


request of the promisor, a promise made subsequent
to the doing of that act, was deemed binding since
the act constituted consideration. See Lampleigh v
Brathwait
definition of the word consideration in section 2(d)
appears extensive enough to cover the
aforementioned rule
an agreement made without consideration is void
unless it is a promise to compensate a person who
has already voluntarily done something for the
promisor section 26(b)

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Ch6: 32

ELEMENTS OF A CONTRACT
(cont.)
Natural Love and Affection is Valid
Consideration
English law does not recognize natural love and
affection as valid consideration
natural love and affection are valid consideration
if certain prerequisites are complied with
Contracts Act 1950 in Malaysia

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Ch6: 33

ELEMENTS OF A CONTRACT
(cont.)

an agreement made on account of natural love


and affection would be held to be binding in
Malaysia if the requirements of section 26(a)
are present:
1. It is expressed in writing
2. It is registered (if applicable)
3. The parties stand in a near relation to each
other

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Ch6: 34

ELEMENTS OF A CONTRACT
(cont.)
Accord and Satisfaction Part Payment may
Discharge an Obligation
English law (Pinnels Case) general rule that
payment of a smaller sum is not a satisfaction of an
obligation to pay a large sum this does not apply
in Malaysia
exceptions to the rule [T]he gift of a horse, hawk,
or robe ... in satisfaction is good. For it shall be
intended that a horse, hawk, or robe ... might be
more beneficial ... than the money ... .
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Ch6: 35

ELEMENTS OF A CONTRACT
(cont.)

section 64 is wide enough to cover all the


exceptions to the general rule under English law.
Indeed, it goes further to provide that the promisee
may do away with the promise completely see
Illustration (b) of section 64

Consideration Need Not Move from the Promisee


a party to an agreement can enforce the promise
even if he himself has no given no consideration as
long as somebody else has done so section 2(d)
see Venkata Chinnaya v Verikatara Maya
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Ch6: 36

ELEMENTS OF A CONTRACT
(cont.)
5. Certainty

an agreement which is uncertain or is not capable


of being made certain is void. See Karuppan
Chetty v Suah Thian

6. Capacity

refers to the ability of the parties to a contract to


fully understand its terms and obligations
every person is competent to contract who is of
the age of majority according to the law to which
he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which
he is subject section 11
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Ch6: 37

ELEMENTS OF A CONTRACT
(cont.)

the age of majority is eighteen years


Age of Majority Act 1971
exceptions to the rule that contracts by minors
are void:
1. Contracts for necessaries
2. Contracts of scholarship
3. Contracts of insurance

necessaries are things which are essential to


the existence and reasonable comfort of the
infant, e.g. food and clothing, shelter, and
education

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Ch6: 38

ELEMENTS OF A CONTRACT
(cont.)

a scholarship agreement is valid if


granted by the Federal or State
Government
anyone between the age of ten and
sixteen may enter into a contract of
insurance with written consent of his
parents/guardian

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Ch6: 39

PRIVITY OF CONTRACT

only the persons who are parties to the


contract can acquire rights and incur liabilities
under it. See Andrew Christopher Chuah
Choong Eng Chuan case

obligations under a contract generally cannot


be transferred unless all the parties consent

equity, and in limited cases, the law permits an


assignment of rights

contract requiring performance of personal


service is not assignable

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Ch6: 40

TERMS OF A CONTRACT

terms may be expressed or implied


terms may be classified as:
1. Condition vital to the contract. The parties consider it so
important that its non-performance may be considered by
the injured party as amounting to substantial failure to
honour the contract at all and thus may be regarded as
grounds for setting the contract aside, and or suing for
damages
2. Warranty considered to be of lesser importance to the
main purpose of the contract. If it is breached, the injured
party must still perform their part of the contract but they
have the right to sue for damages for any loss that they
may suffer as a result of the breach
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Ch6: 41

TERMS OF A CONTRACT (cont.)

the 5 conditions for a term to be implied into a


contract it must be:
1. Reasonable and equitable
2. Necessary to give business efficacy to the
contract, so that no term will be implied if the
contract is effective without it
3. So obvious that it does without saying
4. Capable of clear expression
5. Not in contradiction of any express term of the
contract

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Ch6: 42

TERMS OF A CONTRACT (cont.)

terms may be implied by:


1. Custom and usage pertaining to a particular type of
transaction
2. Statutory provisions
3. The courts, based on the intention of the parties

where there is no express provision to the contrary


in a contract, and the trade custom or usage relied
on is so well-known that everyone in that business
making a contract would be assumed to have
included it as a term into the contract, then it may
be implied by the courts

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Ch6: 43

TERMS OF A CONTRACT (cont.)

statutes that imply terms into a contract


Sale of Goods Act 1957, Hire-Purchase Act
1967, National Land Code 1965

normally, the courts will imply terms into a


contract:
1. To give efficacy to the transaction see The
Moorcock
2. By applying the officious bystander test or what is
commonly known as the Oh, of course! test see
Reigate v Union Manufacturing Co Ltd, Shirlaw v
Southern Foundries (1926) Ltd

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Ch6: 44

TERMS OF A CONTRACT (cont.)

terms may also be imported from a previous


course of dealing between the parties to the
contract see Popular Industries Limited v
Eastern Garment Manufacturing Sdn Bhd

Conditions and Warranties

whether a particular term in a contract is a


condition or a warranty depends on the intention of
the parties
the courts will have to determine the exact
intention of parties. See Associated Metal
Smelters Ltd v Tham Cheow Toh

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Ch6: 45

TERMS OF A CONTRACT (cont.)


Standard Contracts and Exemption Clauses

provisions limiting (as distinguished from exempting)


liability have been held to be valid. See Chartered
Bank of India, Australia and China v British India
Steam Navigation Co Ltd, Sze Hai Tong Bank Ltd v
Rambler Cycle Co Ltd

the effectiveness of an exclusion clause is a matter


of construction

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Ch6: 46

TERMS OF A CONTRACT (cont.)

if the exclusion clause is properly incorporated, there


are 3 possibilities for ones approach to interpretation:
1. The contra proferentum rule see White v John Warwick &
Co Ltd
2. The four corners rule see The Council of the City of
Sydney v West
3. Interpretation according to the express agreement see
Photo Production Ltd v Securicor Transport Ltd

however, the presumption of equality of bargaining


positions in commercial contracts is a rule of
construction based on the presumed intention of the
contracting parties in each case

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Ch6: 47

VOIDABLE CONTRACTS

all agreements are contracts if they are made by the


free consent of parties section 10, Contracts Act
according to section 14, consent is said to be free
when it is not caused by:
1. Coercion
2. Undue influence
3. Fraud

4. Misrepresentation
5. Mistake

a party to a contract, whose consent was caused


by fraud or misrepresentation, may, if he thinks fit,
insist that the contract shall be performed, and that he
shall be put in the position in which he would have
been if the representation made had been true
section 19

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Ch6: 48

VOIDABLE CONTRACTS (cont.)


1. Coercion

is defined in section 15, Contracts Act 1950


see Kanhaya Lal v National Bank of India, Ltd,
Kesarmal s/o Letchman Das v Valiappa Chettiar,
Allied Granite Marble Industries Sdn Bhd v Chin
Foong Holdings Sdn Bhd & Ors

2. Undue Influence

is defined in section 16, Contracts Act 1950


3 matters to be dealt with under section 16(3)
are:

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Ch6: 49

VOIDABLE CONTRACTS (cont.)


The relations between the parties to each other must be such
that one is in a position to dominate the will of the other
The issue whether the contract has been induced by undue
influence
The burden of proving that the contract was not induced
by undue influence lies upon the person who was in a
position to dominate the will of the other

3. Fraud

is defined in section 17, Contracts Act 1950


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
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Ch6: 50

VOIDABLE CONTRACTS (cont.)


4. Misrepresentation

is defined in section 18, Contracts Act 1950


see Tan Chye Chew & Anor v Eastern Mining & Metal
Co., Malayan Miners Co (M) Ltd v Lian Hock & Co,
Maria Chia Sook Lan v Bank of China

5. Mistake

cases where there is a mistake of fact see section 21,


Contracts Act 1950
section 22 provides for cases where there is a mistake
as to law
a contract is not voidable merely because it was caused
by one of the parties to it being under a mistake as to a
matter of fact section 23

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Ch6: 51

VOID AND ILLEGAL


CONTRACTS

a void contract is an agreement not enforceable by law


section 2(g)
according to section 24, the consideration or object of an
agreement is lawful unless:
a) it is forbidden by a law
b) it is of such a nature that, if permitted, it would defeat any
law
c) it is fraudulent
d) it involves or implies injury to the person or property of
another
e) the court regards it as immoral, or opposed to public policy

agreements are void if any part of their considerations and


objects are unlawful section 25

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Ch6: 52

VOID AND ILLEGAL


CONTRACTS (cont.)

agreements declared void by the Contracts Act 1950:


1. An agreement made without consideration unless it is
in writing and registered, or is a promise to
compensate for something done, or is a promise to
pay a debt barred by limitation law section 26
2. An agreement in restraint of marriage section 27
3. An agreement in restraint of trade except for an
agreement not to carry on business of which goodwill
is sold; or an agreement made prior to a dissolution
of a partnership or an agreement made during the
continuance of a partnership section 28

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Ch6: 53

VOID AND ILLEGAL


CONTRACTS (cont.)
4. An agreement in restraint of legal proceedings except
for a contract agreeing to refer disputes to arbitration or
a contract relating to scholarships section 29
5. An agreement, the meaning of which is not certain, or
capable of being made certain section 30
6. An agreement by way of wager section 31

Consequences of Void or Illegal Agreements


the courts will not enforce an illegal contract ex turpi
causa non oritur
right of restitution section 66
see Menaka v Lum Kum Chum, Wong Lee Sing v Mansor
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Ch6: 54

RESTRAINT OF TRADE AND


LEGAL PROCEEDINGS
1. Restraint of Trade
all contracts restraining a person from carrying
on a lawful profession, trade or business is to
that extent prima facie void section 28
3 exceptions to the general rule:
1. Restrictions on the sale of the goodwill of a
business
2. Agreements between partners made upon or in
anticipation of a dissolution
3. Agreements between partners not to carry on
business during the continuance of the partnership
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Ch6: 55

RESTRAINT OF TRADE AND


LEGAL PROCEEDINGS (cont.)
2. Restraint of Legal Proceedings

every agreement by which any party to an agreement


is restricted absolutely from enforcing his rights under
the contract, or any agreement which limits the time to
enforce a partys rights, is void section 29
exceptions to this general rule:
1. Contracts to refer disputes which may arise to arbitration
2. Contracts to refer any question which may have already arisen
to arbitration
3. Contract in respect of an award of a Government scholarship
wherein it is provided that the discretion exercised by the
Government under that contract shall be final and conclusive
and shall not be questioned by any court

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Ch6: 56

RESTRAINT OF TRADE AND LEGAL


PROCEEDINGS (cont.)
3. Effects of Contracts in Restraint of Trade
and Legal Proceedings

contracts in restraint of trade or legal


proceedings are not entirely void. Such a
contract is void to the extent of the restraint only

it is possible to sever that part which is invalid


and to enforce the rest of the agreement
provided it does not substantially alter the nature
of the agreement

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Ch6: 57

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH
1. Discharge by Frustration

if a party promises to carry out a particular act, the law


will hold them to their promise doctrine of absolute
liability
for exceptions to this rule of frustration see Cutter v
Powell
doctrine of frustration applies where the following
situations occur:
1.
2.
3.
4.
5.

Physical impossibility because of destruction of subject matter


Physical impossibility under contract of personal service
Change in the law rendering performance impossible
Impossibility due to non-occurrence of event basic to contract
Where the particular state of affairs ceases to exist

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Ch6: 58

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH (cont.)

a contract is frustrated when there is a change in the


circumstances which renders a contract legally or
physically impossible of performance section 57(2)
frustration should be supervening and subsequent to the
formation of the contract see Maritime National Fish, Ltd
v Ocean Trawlers Ltd
frustration only arises where there is an unforeseen and
radical change in surrounding circumstances see Yee
Seng Plantations Sdn Bhd v Kerajaan Negeri Terengganu
& Ors), H A Berney v Tronoh Mines Ltd, Standard
Chartered Bank v Kuala Lumpur Landmark Sdn Bhd,
Eastacres Development Sdn Bhd v Fatimah Mutallip &
Anor, Dato Yap Peng & Ors v Public Bank Bhd & Ors

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Ch6: 59

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH (cont.)
Effects of Frustration
to discharge a contract immediately, but only as to the
future. The contract is not void ab initio, but only void
from the time of the frustrating event.
a total failure of consideration would need to be
established in order that the money be recovered
see Fibrosa Spolka Akcyjna v Fairburn Lawson Combe
Barbour Ltd
2. Discharge by Performance
performance of a contract must be exact and
precise and should be in accordance with what the
parties had promised section 38(1)
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Ch6: 60

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH (cont.)

performance may be from a third party and not


necessarily from the promisor section 42

section 56 regulates the position when time is of


the essence of a contract

the performance of any promise may be made in


any manner, or at any time, which the promisee
prescribes or sanctions section 51

the effect of both sections 51 and 56 a promise


must be performed at the time agreed by the
parties

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Ch6: 61

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH (cont.)

when a promise is to be performed on a certain day,


and the promisor has undertaken to perform it without
application by the promisee, the promisor may
perform it at any time during the usual hours of
business on the day and at the place at which the
promise ought to be performed section 48

when a party to a contract has refused to perform, or


disabled himself from performing, his promise in its
entirety, the promise may put an end to the contract,
unless he has signified, by words or conduct, his
acquiescence in its continuance section 40

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Ch6: 62

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH (cont.)
3. Discharge by Breach
when a party fails to perform their obligations
as agreed
can occur due to:
Failure to comply with a term of the contract
Anticipatory breach
Delay in the performance where time is of the
essence

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Ch6: 63

DISCHARGE BY FRUSTRATION,
PERFORMANCE AND BREACH (cont.)
Effects of Breach
the innocent party is entitled to treat the contract
as ended and may be able to recover damages
partial breach the innocent party still has to
carry out his obligations but may sue for
damages
if the innocent party ends the contract, he must
restore any benefits received from the other party
section 65
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Ch6: 64

REMEDIES
1. 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

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Ch6: 65

REMEDIES (cont.)
2. 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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Ch6: 66

REMEDIES (cont.)
3. Damages
main purpose is to enable the innocent party
to receive monetary compensation from the
party responsible for the breach of contract.
Damages are granted to a party as
compensation for the damage, loss or injury
he has suffered through a breach of contract
the general principle for the assessment of
damages is compensatory section 74
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Ch6: 67

REMEDIES (cont.)

the requirement of the plaintiff seeking


substantial damages to prove both the fact and
amount of damages before he can recover the
damages is seen in Popular Industries Limited
v Eastern Garment Manufacturing Sdn Bhd
the court must determine what is the
reasonable compensation and whether or not
actual damage or loss is proved to have been
caused thereby section 75

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Ch6: 68

REMEDIES (cont.)
Mitigation of Loss
duty upon the person claiming damages to take
all reasonable steps to reduce, minimize or
mitigate their loss
if he fails in doing so, the amount of damages to
recover will be reduced
if the plaintiff is able to avoid loss, damages will
not be recoverable for the potential loss
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Ch6: 69

REMEDIES (cont.)
4. Specific Performance

is a discretionary order granted by the courts


directing a person to carry out their obligations
under the contract. It is not generally used in
breach of contract actions unless damages
prove to be inadequate.
the court has a discretion to refuse specific
performance where the granting of it would
cause undue hardship to the defendant
section 21,Specific Relief Act 1950

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Ch6: 70

REMEDIES (cont.)

specific performance may be granted in


respect of agreement relating to land
transactions where there is a presumption that
the breach of a contract to transfer immovable
property cannot be adequately relieved by
compensation in money section 11(2) of the
Specific Relief Act 1950
specific performance may also be granted in
respect of executory contracts and in cases
where actual damage cannot be ascertained

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Ch6: 71

REMEDIES (cont.)

the court will exercise its discretion not to


decree specific performance:
1. Where damages will provide an adequate remedy
section 20(1)(a),Specific Relief Act 1950.
SeeYeo Long Seng v Lucky Park (Pte) Ltd
2. Where the terms of the contract are uncertain
section 20(1)(c), Specific Relief Act 1950. See
Lim Nyuk Chan v Wong Sz Tsin

3. Where there has been delay in bringing the action

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Ch6: 72

REMEDIES (cont.)
4. Where there is evidence of fraud
5. Where to do so would require the constant
supervision of the court see Lee Sau Kong v Leow
Chang Chiang
6. Contracts for personal services see Dato Abdullah
bin Ahmad v Syarikat Permodalan Kebangsaan Bhd
& Ors

the court has the power to award damages in


addition to or in lieu of specific performance
section 18, Specific Relief Act 1950

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Ch6: 73

REMEDIES (cont.)
5. Injunction

is a discretionary court order


may be:
a) prohibitory preventing the breach of a contract
b) mandatory requiring a person to perform some
contractual obligation
c) interlocutory where it freezes the status quo between
the parties until the dispute can be heard by the court

is an equitable remedy can be varied or


dissolved if the court discovers later that the
application was made on suppressed facts or facts
upon which the order was granted no longer exist

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Ch6: 74

REMEDIES (cont.)
6. Mareva Injunction
prevents the defendant removing or disposing of
any assets in the jurisdiction until the court
makes a decision
a plaintiff must be able to establish all the
following:
a) the defendant has assets that are in the courts
jurisdiction
b) there is a real risk that the defendant will remove or
get rid of any assets before judgement
c) the plaintiff can establish a substantive cause of
action such as a claim for damages
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Ch6: 75

Remedies (cont.)
7. Anton Piller Order

may be made available in exceptional


circumstances where it can be shown that the
defendant has incriminating evidence in their
possession, which is necessary to the plaintiffs
case and which may well be destroyed before a
court order for discovery can be made

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Ch6: 76

REMEDIES (cont.)
8. 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 partperformance but not the actual amount
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Ch6: 77

REVIEW

Introduction
Elements of a Contract
Privity of Contract
Terms of a Contract
Voidable Contracts
Void and Illegal Contracts
Restraint of Trade and Legal Proceedings
Discharge by Frustration, Performance and Breach
Remedies

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Ch6: 78