2020 - 1 (I) - NOTES CONTRACT (SEM JULY 2020) - AMENDED

THE LAW OF CONTRACT
What we will learn:

 Introduction – Contract and Agreement
Form of Contracts
Types of Contracts
 Privity of Contract
 Terms of a Contract
 Form of Contracts:-
 Valid Contract - Elements of a Valid Contract
 Voidable Contracts
 Void and/or Illegal Contracts
 Restraint of Trade and Legal Proceedings
 Discharge by Frustration, Performance and Breach
 Remedies
Introduction –
What is CONTRACT and what is AGREEMENT
In his book Principles of the Law of Contracts, Sir William Anson defined a contract as ‘a legally binding
agreement made between two or more partiers, by which rights are acquired by one or more to acts or
forbearances on the part of the other or others’. Shortly, it may be defined as an agreement between two or
more parties which is intended to have legal consequences.
The agreement referred to in the definition means a meeting of minds, called in law as consensus ad idem,
signifying that the parties are agreed together about the same thing. The definition also emphasizes that the
parties to the contract must intend that their agreement shall be legally enforceable. Unless the law
recognizes this and enforces the agreements between the parties, it would be impossible to carry on
commercial or business activities. These contractual agreements give rise to rights and obligations which
the law recognizes and enforces. Thus, the object of the law of contract is to identify those agreements
which it will enforce and those which it will not.
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
 The law of Contract in Malaysia is governed by the Contracts Act 1950 (Act 136) (Revised
1974).
 Section 2 h CA 1950 Under Section 2(h) of the Act, the word “contract” may be defined as an
agreement enforceable by law. In other words, contract is an agreement which is legally binding
between the parties.
 Section 10 (What agreement are contracts) – Section 10(1) provides that “ All agreements are
contracts if they are made by the free consent of parties competent to contract, for lawful
consideration and with a lawful object, and are not hereby expressly declared to be void.”
 In other words, contract is an agreement which is legally binding between the parties.
Note:
 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 [1968] 1 MLJ 56
BUSINESS LAW (EIB20303/JAN2020) 1

THE LAW OF CONTRACT
FORM OF CONTRACTS
Written contract.
A written contract is an agreement made on a printed document that has been signed by both parties to the
contract. Written contracts are legally binding and easier to enforce than oral contracts.
Oral Contract
Oral contracts are verbal agreements between two parties. An oral contract occurs when spoken words
are rendered valid and legally enforceable in a court of law. ... Oral agreements may also be called verbal
contracts; however, this is an incorrect statement.
Contract by Conduct (Implied Contract)

An implied contract is created when two or more parties have no written contract, but the law creates an
obligation in the interest of fairness based on the parties’ conduct or circumstances. There are two types of
implied contracts: contracts that are implied in-fact and contracts that are implied at-law. While it is always
a good idea to put all contracts in writing, a writing is not always necessary to create an enforceable
contract between parties.
Implied In-Fact Contracts

An implied in-fact contract creates an obligation between the parties based on the facts of the situation. If
the parties’ conduct or the circumstances suggests they had an agreement or understanding that created an
obligation, then the law will find that they had an implied in-fact contract.
For example, assume your neighbor hires you to mow his lawn every Friday for the entire summer. You
mow your neighbor’s lawn for the first three weekends of the summer and get paid on Saturday morning
each time. The fourth Friday you mow the lawn and when you arrive at your neighbor’s house on Saturday
morning, your neighbor refuses to pay you. The law will infer that there is a contract between you and your
neighbor, even though you never put anything in writing. This is an implied in-fact contract. Your neighbor
is obligated to pay you because you performed your part of the bargain, there was an agreement based on
both parties' prior conduct, and your neighbor was enriched by your performance.
Courts will look at the course of conduct between the parties to determine if a contract exists. Given that
your neighbor paid you for the three consecutive Saturdays of the summer, it can be inferred that you had
an arrangement or an implied in-fact contract to continue to perform and get paid for those services.
Implied At-Law
With an implied at-law contract, the law imposes a duty to perform a contract, and will enforce a contract
even against a person’s will, where circumstances are such that without this remedy one party would be
unfairly enriched by another party’s action. In this situation, one party is entitled to restitution for the
services provided, even if there was never any intent by either party to enter into an agreement.
For example, someone is eating dinner at a restaurant and chokes on his food. A doctor is seated at a table
nearby and observes the person choking. The doctor rushes over to perform the Heimlich maneuver and
saves the other customer’s life. He later sends a medical bill for services rendered to the diner he saved.
The customer is obligated to pay the doctor even though he had no intent to enter into an agreement with
him because otherwise he would be unfairly enriched by the doctor’s services. To avoid this outcome, the
law will find an implied at-law contract and require the customer to pay fair value for the services he
received.
This type of agreement is considered a quasi-contract. A quasi-contract is where the law imposes an
obligation upon parties where in fact the parties did not intend to enter into a contract and made no promise
to perform. However, because one party would be unjustly enriched by another party’s action, the
beneficiary of those actions must make restitution or pay fair value for the services provided, even though
there was never any intent to enter into an agreement.

THE LAW OF CONTRACT
TYPES OF CONTRACT
A Valid Contract
A valid contract is a written or expressed agreement between two parties to provide a product or service.
A valid contract is one that meets the basic elements of contract law.There are essentially six elements of
a contract that make it a legal and binding document.
A Void Contract
A contract will be considered void, for example, when it requires one party to perform an act that is
impossible or illegal. A "voidable" contract, on the other hand, is a valid contract and can be enforced.
Usually, only one party is bound to the contract terms in a voidable contract.
A Voidable Contract
A voidable contract provides the option to rescind by either party. At the creation of the contract, it
is valid but it could be voided in the future.
There are certain situations when a contract becomes void. Void means that the contract is no longer valid
and can't be enforced under state or federal laws. ... The contract involves illegal matters (such as drug
dealing or other crimes) Any of the parties to the contract is not "competent" to enter into a
legal agreement.
Essentially, the difference between void and voidable contracts is enforceability: a void contract is

illegal and unenforceable; a voidable contract is legal and enforceable. A contract that
is void is unenforceable, meaning that neither party has legal recourse against the other for a breach.
PRIVITY OF CONTRACT
 The fundamental principle of common law (apart from special circumstances) is that only the
persons who are parties to the contract can acquire rights and incur liabilities under it. See Andrew
Christopher Chuah Choong Eng Chuan [2007]2 CLJ 405 CA
 obligations under a contract generally cannot be transferred unless all the parties consent to the
transfer by way novation – tripartite agreement – where the original parties to the agreement agree
to add another third party as a new party to their agreement.
 equity, and in limited cases, the law permits an assignment of contractual rights, including debts,
provided the followings are complied with:
 the intention to assign must be clear
 the assignor cannot give a better title than they themselves have
 contract requiring performance of personal service is not assignable
TERMS OF A CONTRACT
 terms may be classified as:

o 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
o 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
Conditions and Warranties

 whether a particular term in a contract is a condition or a warranty depends on the intention of
the parties

THE LAW OF CONTRACT
 the courts will have to determine the exact intention of parties. See Associated Metal Smelters
Ltd v Tham Cheow Toh
Example from Sale of Goods Act 1957

Section 12(1) of the Sale of Goods Act 1957 provides that “A stipulation in a contract of sale with
reference to goods which are the subject thereof may be a condition or a warranty”.
Section 12(2) provides that “A condition is a stipulation essential to the main purpose of the contract, the
breach of which gives rise to a right to treat the contract as repudiated”.
Section 12(3) provides that “A warranty is a stipulation collateral to the main purpose of the contract, the
breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract
as repudiated”.
Section 12(4) provides that “whether a stipulation in a contract of sale is a condition or a warranty depends
in each case on the construction of the contract”.
It should be noted that conditions and warranties are both terms of the contract, unlike a representation,
which is a statement of fact made by one party which induces the other party to enter into a contract. A
condition is a central or important term of the contract. It is so essential to the contract that its non-
fulfilment “may give rise to a right to treat the contract as repudiated”. Whereas a warranty is only
collateral to the main purpose of the contract breach of which gives rise to a claim for damages but not a
right to treat a contract as repudiated.
 Terms may be expressed or implied
The 5 conditions for a term to be implied into a contract – it must be:

a. Reasonable and equitable
b. Necessary to give business efficacy to the contract, so that no term will be implied if the contract
is effective without it
c. So obvious that ‘it does without saying’
d. Capable of clear expression
e. Not in contradiction of any express term of the contract
 terms may be implied by:

 Custom and usage pertaining to a particular type of transaction
 Statutory provisions
 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
 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 [1889] 14 PD 64
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
 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 LAW OF CONTRACT
 the courts will have to determine the exact intention of parties. See Associated Metal Smelters
Ltd v Tham Cheow Toh
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 [1909] AC 369
 the effectiveness of an exclusion clause is a matter of construction
 if the exclusion clause is properly incorporated, there are 3 possibilities for one’s approach to
interpretation:
(a) The contra proferentum rule – see White v John Warwick & Co Ltd
The contra proferentem rule is a legal doctrine in contract law which states that any clause
considered to be ambiguous should be interpreted against the interests of the party that created,
introduced, or requested that a clause be included.
This rule states that if there is any doubt about the meaning or scope of an exclusion clause, the
ambiguity should be resolved against the party seeking to rely on the exclusion clause. It is the
other party who is given the benefit of the doubt.
(b) The ‘four corners’ rule – see The Council of the City of Sydney v West
The four corners rule contract law, also known as the parol evidence rule, stipulates that if two
parties enter into a written agreement, they cannot use oral or implied agreements in court to
contradict the terms of the written agreement. The term "four corners" refers to the four
corners of a document.
(c) 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

THE LAW OF CONTRACT
TYPES OF CONTRACTS:
 Valid contract
 Voidable contract
 Void or illegal Contract
A Valid Contract
A valid contract is a written or expressed agreement between two parties to provide a product or service.
A valid contract is one that meets the basic elements of contract law.There are essentially six elements of
a contract that make it a legal and binding document.
A Void Contract
A contract will be considered void, for example, when it requires one party to perform an act that is
impossible or illegal. A "voidable" contract, on the other hand, is a valid contract and can be enforced.
Usually, only one party is bound to the contract terms in a voidable contract.
A Voidable Contract
A voidable contract provides the option to rescind by either party. At the creation of the contract, it
is valid but it could be voided in the future.
There are certain situations when a contract becomes void. Void means that the contract is no longer valid
and can't be enforced under state or federal laws. ... The contract involves illegal matters (such as drug
dealing or other crimes) Any of the parties to the contract is not "competent" to enter into a
legal agreement.
Essentially, the difference between void and voidable contracts is enforceability: a void contract is

illegal and unenforceable; a voidable contract is legal and enforceable. A contract that
is void is unenforceable, meaning that neither party has legal recourse against the other for a breach.
VALID CONTRACT
The basic elements constituting a valid contract are as follows:
1. offer
2. acceptance of the offer
3. intention to create legal relations
4. consideration
5. certainty
6. capacity.
A. OFFER
An offer or proposal is necessary for the formation of an agreement. Section 2(a) of the Contracts Act 1950
provides that “when one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtain assent of that other to the act or abstinence, he is said to make a proposal”. The first
limb of Section 2(c) of the Contracts Act calls the person making the proposal the “promisor”. The offer is
something capable of being converted into an agreement when it is accepted by the other party.
1. Offer must be firm or it must be a definite promise.

THE LAW OF CONTRACT
The promisor must declare his readiness to undertake an obligation upon certain terms and leaving the
option whether to accept or refuse the offer. For example in the case of GUNTHING V LYNN (1831)
where the offeror (promisor) offered to pay a further sum of money for a horse if it was “lucky”. The Court
held that the offer to pay a further sum of money was too vague and no contract could be formed by any
purported acceptance.
2. It may be made to an individual or to a large number of people

An offer can be made to an individual or to the whole world and the court will look into the firmness of the
offer and the intention of the party making the offer. For example in the case of CARLILL V CARBOLIC
SMOKE BALL CO. (1892). In this case the company promised issued an advertisement and promised to
give £100 to any one who purchased their smoke ball remedy for influenza, and caught the illness within 14
days. To show good faith the company deposited £1,000 with a bank to meet any claims. Mrs Carlill
bought the remedy but still caught influenza and she claimed £100. The Court awarded Mrs Carlill £100
and held that:
1) an offer may be made to the whole world and it does not have to be to specific person.
2) although the general rule is that advertisements are not offers, the fact that £1,000 had been
deposited with a bank showed it was a firm offer and legal relations were intended.
3) communication of acceptance may be implied by the conduct of the acceptor.
3. It may be made in writing, by words or by conduct.

An offer or proposal made in words (oral or written) is said to be expressed. And if the offer or proposal is
made other than by words (example by conduct), it is said to be implied. Section 9 of the Contract Act,
1950 provides that:-
“So far as the proposal or acceptance of any promise is made in words, the promise is said to be express. So
far as the proposal or acceptance is made otherwise than in words, the promise is said to be implied”.
4. It must be communicated to the offeree.

Section 4(1) provides that “The communication of a proposal is complete when it comes to the knowledge
of the person to whom it is made”. This means that an offer or proposal is effective once it is
communicated to the offeree by the offeror. Illustrations (a) of Section 4 of the Contracts Act 1950
illustrates this point.
Illustration (a ) A proposes, by letter, to sell a house to B at a certain price.
The communication of the proposal is complete when B receives the letter.
Section 3(1) provides that the communication of an offer or proposal is deemed to have been made by any
act or omission of the party proposing by which he intends to communicate the proposal or which have the
effect of communicating it.
Example: TAYLOR V LAIRD (1856)

Taylor, a ship captain, give up his command of a vessel in the course of a voyage, but nevertheless helped
to work the ship home. He then claimed compensation for his services. The Court held that since Taylor
had not communicated his offer to work on the ship home, the defendant owners had no opportunity of
accepting or rejecting the services. Therefore, Taylor could not recover compensation.

THE LAW OF CONTRACT
Distinguished from Proposal/Offer
COUNTER OFFER: Counter-offer terminated the original offer
It should be noted that beside revocation an offer can also be considered as terminated when the offeree
makes his counter-offer to the original offer. This can be seen in the case of HYDE V WRENCH (1890)
where the defendant offered to sell his estate to the plaintiff on 6 June for £1,000. On 8 June, in reply, the
plaintiff made a counter proposal to purchase the estate at £950. When the defendant refused to accept this
offer on 27 June, the plaintiff wrote again that he was prepared to pay the original asking price. The
defendant refused to sell and the defendant sued. The Court held that the counter-offer terminated the
original offer.
However, a counter-offer may be accepted by the original offeror and this situation will have the effect of
creating a binding contract. For example in the case of BUTLER MACHINE TOOL CO V EX-CELL-O
CORP (1979) where the plaintiff offered to sell tools to the defendant. Their quotation included details of
their standard terms and conditions of sale. The defendant “accepted” the offer but enclosing their own
standard terms and conditions. The plaintiff acknowledged acceptance by returning a tear-off slip to the
defendant from the order form. The Court held that the defendant order was really a counter-offer but the
plaintiff had accepted this by returning the tear-off slip from the order form. Therefore in this case the
counter-offer from the defendant became the offer which was accepted by the plaintiff by returning the
tear-off slip from the order form.
Further, in some cases, the offeree may reply to the offeror in terms which leave it uncertain whether he is
making a counter-offer or merely seeking further information before making up his mind. A mere request
for information obviously does not destroy the offer. For example in the case of STEVENSON V McLEAN
(1880) where the defendant offered on Saturday to sell to the plaintiffs 3,800 tons of iron “at 40s nett cash
per ton, open till Monday”. Early on Monday the plaintiffs telegraphed to the defendant: “Please wire
whether you would accept 40s for delivery over two months, or if not longest limit you would give”. No
reply was received from the defendant. So, by a telegram sent at 1.34 pm on the same day the plaintiff
accept the offer to sell at 40s cash. Meanwhile the defendant sold the iron to a third person and informed
the plaintiffs of this in a telegram dispatched at 1.25pm. The plaintiff sued to recover damages for breach of
contract. The Court held that the plaintiffs had not made a counter-offer, but had addressed to the defendant
“a mere inquiry, which should have been answered and not treated as a rejection of the offer.

INVITATION TO TREAT: An offer must be distinguish from an invitation to treat .
An offer should be distinguished or contrasted with an invitation to treat. Where an offer can be converted
into an agreement by acceptance, an invitation to treat occurs where a party is said to be initiating
negotiations or inviting another party to make an offer. Therefore an invitation to treat cannot be accepted
to form a binding contract. In determining whether it is an offer or merely an invitation to treat, it is
important to know which party makes the offer and which party accepts the offer.
There are four types of invitation to treat:-

1. Advertisements
2. Displays of goods in a shop window or on the open shelves
3. Auction sales

THE LAW OF CONTRACT
4. Invitation for tenders
Advertisements
An advertisement is merely an attempt to induce offers and therefore classified as an invitation to treat.
This can be seen in the case of COELHO V THE PUBLIC SERVICES COMMISSION (1964) MLJ 12. In
this case the applicant. Health Inspector under the Town Board, Tanjong Malim, applied for the post of
Assistant Passport Officer in the Federation of Malaya Government Oversea Missions advertised in the
Malay Mail dated 19 February 1957.
The Court held (inter alia) that the Malay Mail advertisement was an invitation to qualified persons to
apply and the resulting applications were offer.
Further in the case of PARTRIAGE V CRITTENDEN (1968) the plaintiff placed an advertisement in Cage
and Aviary Birds magazine’s classified columns containing the words “Bramblefinch cocks, bramblefinch
hens, 25s each”. One person who in response to the advertisement purchased a bird and reported the
plaintiff to authority for offering for sale a brambling in contravention to the Protection of Birds Act 1954.
If the advertisement is considered as the plaintiff is making an offer for sale then the plaintiff will commits
an offence under the said Act. The Court held that an advertisement is merely an invitation to treat and not
an offer for sale.
Displays of goods
In the case of goods on display in a shop, it has long be decided that it is the customer who makes an offer
and the shopkeeper who accepts the offer. The price displayed on goods is not the offer, it is only an
invitation for the customer to make an offer and the amount shown is an indication of the acceptable price.
It is not an offer for sale but is merely an invitation to treat.
For example in the case of PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V BOOTS CASH
CHEMIST LTD (1953) 1QB 401. In this case the defendants were charged under the Pharmacy and
Poisons Act 1933 which made it unlawful to sell certain poisons unless such sale was supervised by a
registered pharmacist. The case depended on whether there was a sale when the customer selected items he
wished to buy and placed them in his basket. Payment was to be made at the exit where a cashier was
stationed and, in every case involving drugs, a pharmacist supervised the transaction and was authorized to
prevent sale. The Court held that the display was only an invitation to treat. A proposal to buy was made
when the customer put the articles in the basket. Hence the contract would only be made at the cashier’s
desk. As such, the shop owners had not made an unlawful sale.
Another example is the case of FISHER V BELL (1961) where the shopkeeper displays a flick knife in his
shop window for sale. The question is whether the displays of a flick knife constitute an offer and if so the
shopkeeper will be liable under the law which prohibits the offer of an offensive weapon for sale. The
Court held that it is clear that under the law of contract, the display of an article with a price on it in a shop
window is merely an invitation to treat. It is in no sense an offer for sale, the acceptance of which
constitutes ca contract.
Auction sales
An auctioneer’s request for bids is not a definite offer to sell to the highest bidder, it is rather an invitation
to treat. The bid itself is the offer, which the auctioneer is then free to accept or reject. For example in the
case of PAYNE V CAVE (1789) where the defendant made the highest bid for the plaintiff’s goods at an
auction sale. But he withdrew his bid before the fall of the auctioneer’s hammer. The Court held that the
defendant was not bound to purchase the goods. His bid amounted to an offer which he was entitled to
withdraw at any time before the auctioneer signified acceptance “by knocking down the hammer”.
In HARRIS V NICKERSON (1873), Nickerson, an auctioneer, advertised that a sale of office furniture
would take place at Bury St. Edmund. The plaintiff (Harris) upon seeing an advertisement of an auction,
travelled down from London to the advertised venue to attend the sale, but found the furniture was
withdrawn from the sale. The plaintiff later claimed for the traveling expenses. The Court held that the
plaintiff failed in his claim because the advertisement for the auction was not an offer but a mere invitation
to treat.

THE LAW OF CONTRACT
Invitation for tenders
A tender is an estimate submitted in response to a prior request. When a person tenders for a contract he is
making an offer to the person who has advertised a contract as being available. An invitation for tenders
does not amount to an offer to contract with the person quoting the lowest price. An invitation for tenders is
merely an invitation to treat.
But when the tender is accepted, the tender becomes an offer. Where the tender is a standing offer to supply
goods or services as required by the buyer (offeree), a separate acceptance is made each time an order is
placed. For example in the case of G.N. RAILWAY CO. V WITHAM (1873) where a railway company
advertised tenders for the supply of stores. Witham bid for the tender and undertook “to supply the
company for 12 months with such quantities of specified articles as the company may order from time to
time”. The tender was accepted. Orders were placed and goods were supplied for some time, but later
Witham refused to continue with the supply according to the tender. The Court held that the tender was a
standing offer to supply goods to the company for 12 months and this offer was accepted. This standing
offer was to be converted into a series of contract. Thus, Witham was bound to supply goods within the
terms of the tender.

ASKING FOR INFORMATION: An offer must be distinguish from the mere supply of information.
Only an offer in the proper sense (made with the intention that it shall become binding when accepted) may
be accepted so as to form a binding contract. A mere supply of information does not constitute an offer. For
example in the case of HARVEY V FACEY (1893) where the plaintiff telegraphed to the defendant “Will
you sell us Bumper Hall Pen? Telegraph the lowest cash price”. The defendant telegraphed in reply
“Lowest price for Bumper Hall Pen, £900. The plaintiff telegraphed to accept what he regarded as an offer.
The defendant made no further reply. The plaintiff then sue the defendant for breach of contract. The Court
held that the defendant’s telegram was merely a statement of his minimum price if a sale were to be agreed.
It was not an offer which the plaintiff could accept. Therefore no contract had been made.
REVOCATION OF AN OFFER
An offer may be withdrawn at any time before acceptance. Section 6 of the Contract Act, 1950 states that:-
“A proposal is revoked-
a) by the communication of notice of revocation by the proposer to the other party;
b) by the lapse of time prescribed in the proposal for its acceptance, or, if no time is so prescribed, by
the lapse of a reasonable time, without communication of the acceptance;
c) by the failure of the acceptor to fulfill a condition precedent to acceptance; or
d) by the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to
the knowledge of the acceptor before acceptance.
Communication of revocation
The revocation of the offer must be communicated to the offeree. Section 3 provides that the
communication of the revocation of proposals are deemed to be made by any act or omission of the party
revoking, by which he intends to communicate the revocation, or which has the effect of communicating it.
The communication of the revocation is complete when the proposer transmit the revocation to the acceptor
and the revocation has come to the acceptor’s knowledge.

THE LAW OF CONTRACT
Section 4(3) provides that “ The communication of a revocation is complete –
(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
(b) as against the person to whom it is made, when it comes to his knowledge.
For example, illustrations (c ) of Section 4 of the Contracts Act 1950 illustrates this point. Illustration (c )
A revokes his proposal by telegram.
The revocation is complete as against A when the telegram is dispatched. It is complete as against B when
B receives it.
Another example is the case of BYRNE V TIENHOVEN (1880).

The defendant were in Cardiff and the Plaintiffs in New York. The sequence of events are as follows:
October 1 – Letter posted in Cardiff offering to sell 1,000 boxes of tinplates.
October 8 – Letter of revocation of offer posted in Cardiff
October 11 – Letter of offer received in New York and telegram of acceptance sent.
October 15 – Letter confirming acceptance posted in New York.
October 20 – Letter of revocation received in New York. The offeror had meanwhile sold the contract
goods.
The Court held that the letter of revocation could not take effect until received on October 20. Therefore it
could not revoke the contract made by the telegram acceptance of the offer on October 11. Simply posting a
letter does not revoke the offer until it is received.
Revocation of an offer may be communicated by any third party who is a sufficiently reliable informant.
For example in the case of DICKENSON V DOODS (1876) where the offeree was informed by a reliable
third party that the property, which was the subject of the offer, had been sold. It was held that this
communication, although by an outside party, was good notice of the revocation of the offer.
Revocation by lapse of time

An offer may be expressed to last for a specified time. It then expires at the end of that time. If however
there is no express tome limit set, it expires after a reasonable time. What is reasonable depends on the
circumstances of the case, on what is usual and to be expected. For example in the case of RAMSGATE
VICTORIA HOTEL CO V MONTEFIORE (1866) where the defendant applied to purchase shares in the
company in June and had paid a deposit to the company’s bank account. At the end of November the
company sent him an acceptance by issuing a letter of allotment on the shares and requested payment of the
balance sum due for payment. The defendant contended that his offer had expired and could no longer be
accepted. The Court held that the offer was for a reasonable time only and five months was not a
reasonable time especially in the sale and purchase of shares. Therefore the offer had lapsed.
Revocation by failure to fulfill a condition precedent

An offer may be conditional. If the condition is not satisfied, the offer is not capable of acceptance and
therefore revoked by way of Section 6 (c) of the Contract Act 1950.
For example in the case of FINANCINGS LTD V STIMSON (1962) where the defendant wished to
purchase a car and on March 16 signed a hire-purchase form. The form issued by the Plaintiff stated that
the agreement would be binding only upon signature by them.
On March 18th, the defendant paid the first installment of £70 and took away the car. On March 20 th, the
defendant not satisfied with the car, returned the car to the car dealer, On March 24 th, the car was stolen
from the premises of the dealer, and was recovered badly damaged. On March 25 th, the plaintiffs signed the
form. The plaintiff sued the defendant for breach of contract when the defendant refused to accept the car.
The Court held that the defendant was not bound to take the car. His signing of the agreement was actually
an offer to contract with the plaintiff. There was an implied condition in this offer that the car would be in
substantially the same condition when the offer was accepted as when the offer was made.

THE LAW OF CONTRACT
B. ACCEPTANCE
Section 2(b) of the Contracts Act provides that when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to have been accepted. A proposal,
when accepted, becomes a promise.
Section 2(c ) of the Contracts Act calls the person accepting the proposal the ‘promisee’.
Section 9 of the Act provides that so far as the acceptance of any promise is made in words, the acceptance
is said to be expressed. If the acceptance is made other than in words, the acceptance is said to be implied.
1. Acceptance must be absolute and unqualified.

For a proposal to be converted into a promise, the acceptance of that proposal must be absolute and
unqualified. This is provided for in Section 7(a) of the Contracts Act which reads:
7. In order to convert a proposal into a promise the acceptance must-
(a) be absolute and unqualified;
(b) be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted. If the proposal prescribes the manner in which it is
to be accepted, and the acceptance is not made in that manner, the proposer may, within a
reasonable time after the acceptance is communicated to him, insist that his proposal shall
be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he
accepts the acceptance.
Acceptance must be absolute and unqualified so that there is complete consensus. If the parties are still
negotiating, an agreement is not yet formed. For example in the case of LAU BROTHERS & CO. V
CHINA PACIFIC NAVIGATION CO. LTD (1965 1 MLJ 1 In this case, negotiations for the delivery of
logs were conducted through a series of telegrams and letters. Whilst still in the negotiating stage, the
defendant withdrew. The question is whether there was a contract between the parties. The court held that
the parties were still in a state of negotiation and no agreement was formed. Therefore the defendants were
justified in withdrawing.
Where 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 hold in the absence of strong and exceptional
circumstances to the contrary that there is but a mere conditional contract. In LOW KAR YIT & ORS. V
MOHD ISA & ANOR (1963) MLJ 165, the defendants gave an option to the agent of the plaintiffs to buy a
piece of land subject to (1) a formal contract to be drawn up and agreed upon by the parties, and (2) the
approval of the sale and of the said contract by the High court at Kuala Lumpur. The plaintiff’s agent duly
exercised the option and, on the defendant’s failing to sign the agreement of sale, the plaintiff instituted the
legal proceedings for specific performance or damages for breach of contract. The court held that 1) on the
construction of the document sued upon, the option was conditional upon and subject to a formal contract
to be drawn up and agreed upon between the parties, so that the exercise of the option amounted to nothing
more than an agreement to enter into an agreement; and 2) accordingly, there was no concluded contract
between the parties.
2. Acceptance must be expressed in some usual and reasonable manner

This is provided for in Section 7(b) of the Contracts Act which reads:
7.In order to convert a proposal into a promise the acceptance must-
(b) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in
which it is to be accepted. If the proposal prescribes the manner in which it is to be accepted, and the
acceptance is not made in that manner, the proposer may, within a reasonable time after the acceptance
is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not
otherwise; but if he fails to do so, he accepts the acceptance.
Therefore, acceptance must be expressed in some usual and reasonable manner unless the proposer
prescribes the manner in which it is to be accepted. 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.

THE LAW OF CONTRACT
3. Acceptance must be made within reasonable time
Besides the requirement that acceptance must be unconditional, it is also essential that acceptance must be
made within reasonable time. This requirement is embodied in section 6(b) of the Contracts Act which
reads:
Section 6. A proposal is revoked:
(b)by the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed,
by the lapse of a reasonable time, without communication of the acceptance…….
What amount to ‘reasonable time’ is a question of fact depending on the circumstances of each case, for
example the nature of the subject matter or the method by which the offer is communicated. 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 (1976) 2 MLJ 177 as follows:
“An offer lapses after a reasonable time not because this must be implied in the offer but because failure to
accept within a reasonable time implies rejection by the offeree. As a consequence, the Court can take into
account the conduct of the parties after the offer was made in deciding whether the offeree has allowed too
long a time to lapse before accepting.”
4. Acceptance must be communicated

Section 3 of the Contracts Act provides inter alia that the communication of acceptance are 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 4(2) of the Contracts Act provides for the time when the communication of the acceptance is
complete. This Section 4(2) provides that:
4. Communication, when complete
(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; and
(b) as against the acceptor, when it comes to the knowledge of the proposer.
Further understanding might be obtained from the illustrations (a) and (b) provided for by Section 4 of the
Contracts Act 1950.
(a) A proposes, by letter, to sell a house to B at a certain price.
The communication of the proposal is complete when B receives the letter.
(b) B accept A’s proposal by a letter sent by post.

The Communication of the acceptance is complete-
As against A, when the letter is posted;
As against B, when the letter is received by A
This postal rule is better illustrated in the case of ADAMS V LINDSELL (1818) where the defendants
made an offer by letter to the plaintiff on 2 September 1817 requiring an answer “in course of post”. The
letter of offer was misdirected and somewhat delayed in the post. It reached the plaintiff on 5 September
when the plaintiff immediately posted a letter of acceptance, which reached the defendant on 9 September.
If the original offer had been properly addressed, the defendants could have expected a reply by 7
September, and they assumed that the absence of a reply within the expected period indicated non-
acceptance and sold the goods to another buyer on 8 September. The Court held that the acceptance was
made “in course of post” and was effective when posted. The contract was made on 5 September, when the
acceptance was posted.
Another example is the case of HOUSEHOLD FIRE AND CARRIAGE ACCIDENT INSURANCE CO.
V GRANT (1879) where the defendant handed a letter of application for shares to the plaintiff company’s
agent in Swansea with the intention that it should be posted to the company in London. The company
posted an acceptance (letter of allotment) which was lost in the post, and never arrived. The defendant was
called upon to pay the amount outstanding on his shares. The Court held that the defendant had to pay. The
contract between the company and him had been formed when the letter of allotment was posted, regardless
of the fact that it was lost in the post.
THE LAW OF CONTRACT
5. Acceptance by performing conditions, or receiving consideration
Section 8 of the Contracts Act provides that “Performance of the conditions of a proposal, or acceptance of
any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the
proposal.” Therefore if the acceptor perform the act required under the offer, the acceptor can be said as
accepting the offer. This is illustrated in the English case of HOLIWELL SECURITIES LTD V HUGHES
(1974) 1 WLR 155 where the offer prescribed that the acceptance must be by notice in writing to the
intending vendor. Thus it was held that in such case, the mere posting of the letter of acceptance was not
sufficient but it must reached the intending vendor.
3. INTENTION TO CREATE LEGAL RELATIONS

Under the common law, a contract is an agreement that is intended to have legal consequences. Whether or
not an agreement is intended to have such consequences is not always easy to determine. - otherwise an
"intention to be legally bound", is a doctrine used in contract law, particularly English contract law and
related common law jurisdictions.
The doctrine establishes whether a court should presume that parties to an agreement wish it to be
enforceable at law, and it states that an agreement is legally enforceable only if the parties are deemed to
have intended it to be a binding contract.
Presumption. ... An example of presumption without basic facts is presumption of innocence.

An example of presumption with basic facts is Declared death in absentia, e.g., the law says if a person
has been missing for seven years or more (basic fact), that person is presumed dead.
The rebuttable/irrebuttable presumption

An irrebuttable (or irrefutable) presumption is a legal concept in which a statement is considered
absolute fact which can not be challenged. ... The term only exists to contrast with the concept of
a rebuttable presumption. A statement assumed to be true until evidence is given to prove it otherwise.
The rebuttable presumption establishes a burden of proof; but the burden may be rebutted by evidence to
the contrary. The civil standard of proof is "a balance of probabilities", while the criminal standard of proof
is "beyond reasonable doubt". Here, different presumptions will apply, according to the class of agreement.
For these purposes, there are four classes of agreement:

 Family agreements: a presumption of no contract
 Social agreements (i.e. agreements between friends): no presumption (case decided on its merits,
using the objective test)
 Commercial agreements: a presumption of a valid contract
 Collective agreements: a presumption of no contract
Generally, under the common law, agreements of a pure social or domestic nature are not contract.
However, there are some ‘domestic’ agreements which do create legal obligations. For example in the
following cases:-
SIMPKINS V PAYS (1955). Simpkins agreed with Pays and Pay’s grand-daughter to ‘go shares’ in a
weekly coupon submitted in a fashion competition. A forecast by the grand-daughter proved correct, and
Pays received a prize of £750 and refused to pay Simpkins his share. Simpkins sued for his share of £250.
The Court held that there was an intention to create legal relations. Evidence showed there was a joint
enterprise and the parties are expected to share any price won in the competition. It was not a mere
domestic arrangement.
PARKER V CLARK (1960). The Clarks (an aged couple) made an arrangement by correspondence with
their niece and her husband (the Parkers) whereby the Parkers sold up their home in Sussex in order to live

THE LAW OF CONTRACT
with the Clarks and share the household and other expenses. The two couples subsequently quarreled and
the Parkers were ordered to leave the house. The Parkers sued the Clarks for damages. The Court held that
there was an intention to create legal relations between the Clarks and the Parkers, and damages were
awarded to the Parkers.
In business and commercial arrangement between the parties, the law will always presume that the parties
entering into an agreement with the intention for those agreements to have a legal consequences.
Nonetheless, this presumption may be rebutted by express terms provided by the parties. This can be seen
in the following cases:-
ROSE & FRANK CO. V J.R. CROMPTON & BROS LTD. (1925). The Plaintiffs were appointed as
selling agent by the Defendants to conduct the sale of their product in North America. The parties entered
into an agreement which include the following clause: ‘This arrangement is not, nor is this memorandum
written as, a formal or legal agreement and shall not be subject to legal jurisdiction in the law courts.’
Sometimes later the dispute arose between the parties and the Plaintiff sued the Defendant for breach of
contract. The Court held that this agreement was not a legally binding contract and the court will respect
the intention of the parties as shown in their agreement.
APPLESON V LITTLEWOOD LTD. (1939). Appleson sent in a football-pools coupon, bearing a written
condition that ‘it shall not be attended by or give rise to any legal relationship, rights, duties,
consequences’. The Court held that the agreement was not binding because the clause manifests that the
agreement is not a contract creating a legal relations between the parties.
The position in Malaysia.

Although the Contracts Act 1950 is silent on the intention to create legal relations between the parties, it is
still one of the requirement of the valid contract. There are cases clearly dictates the necessity of this
requirement.
For example in CHOO TIONG HIN 7 ORS V CHOO HOCK SWEE (1959) MLJ 67
The Plaintiff (respondent) and his first wife, then poor, went to live in a house and farm in Singapore in
about 1916. In the course of time 2 daughters were born and 5 sons were adopted and most of the family
live together on the premises. All those were old enough to do works on the farm, which was enlarged, and
in various other enterprises which the expanding prosperity of the family made possible. In 1955 as a result
of the family quarrel after the respondent remarried following the death of his first wife, the respondent left
the family home. He then brought action against 3 of his adopted sons and 2 of his grandsons, claiming
possession of the farm and family house and damages for trespass, a declaration that he was the beneficial
owner of the petrol station erected by him on land adjacent to the farm, and the return of 2 lorries used on
the farm. The defendants (appellants) alleged inter alia, that there were contracts between the respondent
and the adopted sons whereby the latter agreed to be adopted and to work with the respondent for the
acquisition of wealth to be administered by him, and that, having been adopted and having helped to
acquire wealth, they were entitled equally with the respondent to possession of the farm and the other
property and to equal share in it when the respondent died.
The Court held that inter alia the agreements alleged by the appellants, even if proved, were not intended to
create legal relations, and were therefore not binding in law as contracts.
4. CONSIDERATION

THE LAW OF CONTRACT
One of the fundamental rules of the law of contract is that ‘consideration’ is a necessary element in the
formation of a valid simple contract. In the common law case of RANN v HUGHES (1778), the principle
was created clearly that ‘if contracts be merely written and not specialties (i.e. by deed), they are parol (i.e.
oral) and a consideration must be proved.’
A bare promise (nudum pactum) is not legally binding, so that if a promises £10 to B, it follows that B
cannot enforce the payment of the sum at law if A subsequently changes his mind. ‘A promise without
consideration is a gift; one made for consideration is a bargain.’
Section 26 of the Contracts Act provides that an agreement without consideration is void. And
consideration under the Act is defined in Section 2(d):
“when, at the desire of the promisor, the promisee or any other person has done or abstained from
doing, or does or abstains from doing or promises to do or to abstain from doing, something, such
act or abstinence or promise is called consideration for the promise.”
1.Consideration need not be adequate

Under Malaysian law, consideration need not be adequate. Explanation 2 to Section 26 of the Contracts Act
provides that an agreement to which the consent of the promisor is freely given is not void merely because
the consideration is inadequate. Illustration (f) to Section 26 shows the application of the rule:
(f) A agrees to sell a horse worth RM1,000-00 for RM10. A’s consent to the agreement was freely
given. The Agreement is a contract notwithstanding the inadequacy of the consideration.
The issue of adequacy of consideration was dealt with by the Federal Court in PHANG SWEE KIM V
BEH I HOCK (1964) MLJ 383. In this case the defendant, in 1944, executed a memorandum of transfer of
his half share of the land in question to the appellant’s husband in consideration of $20,000 in Japanese
currency. The husband now deceased. The transfer was not registered but the deceased obtained possession
of the land, and in 1946 he died intestate. The appellant, the widow of the deceased, extracted grant of
letters of administration in 1951 and she continued to be in possession. Sometime in 1963, the land was
subdivided into two lots and the respondent became the sole proprietor of the lot occupied by the appellant.
Subsequently in 1963, the respondent’s solicitor notified the appellant that she had trespassed on the said
land and asked for vacant possession and also for an account of all income received by her from the land. In
May 1963, the respondent instituted an action against her. The appellant counter claimed for a declaration
that she was entitled to the said land. The Court held that there was adequate consideration in this case
(there being no evidence of fraud or duress) because the respondent agreed to transfer the land to the
appellant on payment of $500 when the land was subdivided. The appellant was therefore entitled to the
declaration sought by her.
2. Consideration need not move from the promisee

Under the Contracts Act, a party to an agreement can enforce the promise even if he himself has given no
consideration as long as somebody has done so. The relevant part of Section 2(d) of the Act reads:
“…. When…the promisee or any other person has done…. Something, such act….is called a consideration
for the promise.”
This principle was applied in the Indian case of VENKATA CHINNAYA V VERIKATAR MA’YA
(1881). In this case a sister agreed to pay an annuity of Rs653 to her brothers who provided no
consideration for the promise. But on the same day their mother had given the sister some land, stipulating
that she must pay the annuity to her brothers. The sister subsequently failed to pay the annuity and was
sued by her brothers. The court held that she was liable to pay the annuity. There was good consideration
for the promise even though it did not move from her brothers.
3. Past consideration is good consideration

Consideration under the Act is defined in Section 2(d):
“when, at the desire of the promisor, the promisee or any other person has done or abstained from
doing, or does or abstains from doing or promises to do or to abstain from doing, something, such
act or abstinence or promise is called consideration for the promise.”
THE LAW OF CONTRACT
Therefore the phrase “has done or abstained from doing” implies that even if the act done was prior to the
promise, such an act would constitute consideration as long as it was done at the desire of the promisor.
Such a claim would be valid so long as the promisee had done or abstained from doing something pursuant
to the desire of the promisor and not necessarily in pursuance of a promise to be made by the promisor.
For example in the case of KEPONG PROSPECTING LTD & ORS V SCHMIDT (1968) 1 MLJ 170. In
1953 Tan applied to the Government of the State of Johore for a prospecting permit for iron ore. He was
assisted in the negotiation by Schmidt, a consulting engineer. A prospecting permit was granted to Tan in
November 1953 and in December 1953 Tan wrote to Schmidt stating that Schmidt was to be paid 1 percent
of the selling price of all ore that might be sold from any portion of the said land and this was in payment
for the work Schmidt had done in assisting to obtain the prospecting permit and for any work that Schmidt
might do in assisting to have mining operation started up. Tan then executed a power of attorney in favour
of Schmidt which conferred upon Schmidt widely expressed powers to contract for disposal of any of Tan’s
mining properties on such consideration and subject to such conditions as Schmidt thought proper. In Julai
1954 Kepong Prospecting Ltd was established to take over the mining works.
In September 1955, an agreement was made between the company and Schmidt. Under Clause 1 of the
Agreement the company inter alia agreed to pay Schmidt 1 percent of all selling ore from the mining
operation in consideration of the services by the consulting engineer for and on behalf of the company prior
to its formation, after incorporation and for future services. Disputes arose and Schmidt commenced the
present proceedings claiming all moneys payable to him under the 1955 agreement.
The Court held that Clause 1 of the agreement established a legally sufficient consideration moving from
Schmidt.
Illustration (c ) of Section 26 also provides further authority that the Contract Act recognized past
consideration as a good consideration.
Illustration (c ) A finds B’s purse and gives it to him. B promises to give A RM50. This is a contract.
It should be noted that as a general rule, English law does not recognize past consideration as a valid
consideration.
4. Natural love and affection is a valid consideration

The Contract Act recognizes natural love and affection as valid consideration if certain prerequisites are
complied with. These are contained in Section 26(a) which reads:
“An agreement made without consideration is void unless it is expressed in writing and registered under the
law (if any) for the time being in force for the registration of such documents, and is made on account of
natural love and affection between parties standing in a near relation to each other”.
In other words, an agreement made on account of natural love and affection would be held to be valid in
Malaysia if the requirements of Section 26(a) are present:-
(a) it is expressed in writing,
(b) it is registered (if applicable); and
(c) the parties stand in a near relation to each other.
The meaning of the words “near relation” varies from one social group to another as it depends on customs
and practices of such groups. For example in RE TAN SOH SIM (1951) MLJ 21 it was held that a Chinese
adopted son is related to the family of his adoptive farther but a son whether natural or adopted, is not
nearly related within the scope of the Contract Ordinance, to the family of his adoptive mother.
In this case the deceased, in her death bed expressed her intention to give her property to 4 of her adopted
sons. The Court held that the claimed made by the 4 sons cannot be enforceable since Section 26(a)
requires the agreement to be made in writing and under their customs adopted son is related to the family of
his adoptive farther but a son whether natural or adopted, is not nearly related to his adoptive mother.
It should be noted that as a general rule, English law does not recognize natural love and affection as a
valid consideration.

THE LAW OF CONTRACT
NOTE:
VALID AGREEMENT WITHOUT CONSIDERATION
As the general rule any agreement without consideration is void. However, Section 26 of the Contract Act
1950 provides for 3 type of agreement which can be valid even without consideration. They are the
agreement :-
1. made in writing and registered; or

2. is a promise to compensate for something done; or
3. is a promise to pay a debt barred by limitation law.
an agreement is in writing and registered

Section 26(a) of the Contract Act 1950 provides that an agreement made without consideration is valid if it
is expressed in writing and registered under the law (if any) for the time being in enforce for the registration
of such documents, and is made on account of natural love and affection between parties standing in a near
relation to each other.
The application and explanation to this principle can be found in Illustration (b) of Section 26 which
provides that “A, for natural love and affection, promises to give his son, B, RM1,000. A puts his promise
to B in writing and registers it under a law for the time being in force for the registration of such
documents. This is a contract.
or a promise to compensate for something done

Section 26(b) of the Contract Act 1950 provides that an agreement made without consideration is valid if it
is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to do.
The application and explanation to this principle can be found in Illustration (c ) of Section 26 which
provides that “ A find B’s purse and gives it to him. B promises to give A RM50. This is a contract”.
Further application and explanation to the principle can be found in Illustration (d) of Section 26 which
provides that “ A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.”
or is a promise to pay a debt barred by limitation law

Section 26(b) of the Contract Act 1950 provides that an agreement made without consideration is valid if it
is a promise, made in writing and signed by the person to be charged therewith , or by his agent generally
or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have
enforced payment but for the law for the limitation of suits.
The application and explanation to this principle can be found in Illustration (e) of Section 26 which
provides that “ A owes B RM1,000, but the debt is barred by limitation. A signs a written promise to pay B
RM500 on account of the debt. This is a contract.
5. CERTAINTY

THE LAW OF CONTRACT
The terms of an agreement cannot be vague but must be certain. An Agreement which is uncertain or is not
capable of being made certain is void. Section 30 of the Contract Act provides that “Agreements, the
meaning of which is not certain, or capable of being made certain, are void”.
Section 30 of the Contract Act also provides six illustrations (Illustrations (a) to (f)) as to the requirement
for certainty of the terms of the contract.
In KARUPPAN CHETTY V SUAH THIAN (1916) the contract was declared void for uncertainty when
the parties agreed upon the granting of a lease “at $35.00 per month for as long as he likes”.
6. CAPACITY
The parties entering into a contract must have the capacity to enter into a contract or competent to contract.
They must have legal capacity to do so.
Section 11 of the Contracts Act reads:
“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”.
In Malaysia, the age of majority is eighteen (18) years, as provided for in the Age of Majority Act 1971.
Therefore the general rule is that in Malaysia is that contracts made by an infant are void.
However, there are some exceptions to this general rule. They are the followings:
1) contracts for necessaries
2) contracts of scholarship
3) contracts of insurance
contract for necessaries

Section 69 of the Contract Act provides that:
“If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has furnished
such supplies is entitled to be reimbursed from the property of such incapable person.
ILLUSTRATIONS
(A) A supplies B, a mentally disordered person, with necessaries suitable to his condition in life. A is
entitled to be reimbursed from B’s property.
(B) A supplies the wife and children of B, a mentally disordered person, with necessaries suitable to
their condition in life. A is entitled to be reimbursed from B’s property.
“Necessaries” are things which are essential to the existence and reasonable comfort of an infant.
Luxurious articles are, however, excluded. For example in NASH V INMAN (1908) . In this case a
Cambridge undergraduate, who was a minor, ordered 11 fancy waistcoats from a tailor, but refused to pay
the bill. It was held by the court that tailor’s action failed because the minor already had a sufficient supply
of clothing and therefore the waistcoats were not necessaries. The minor did not have to pay the bill.
In another case of RYDER v WOMBWELL (1868) the Court held that a pair of jeweled solitaires worth
25 and an antique goblet worth 15 guineas could not possibly be regarded as necessaries for an infant
possessing an income of 500 a year.
However in the case of PETERS v FLEMING (1840) the Court decided that prima facie it was not
unreasonable for an infant undergraduate to have a watch and consequently a watch-chain.
Another example is the case of ELKINGTON V AMERY (1936) the Court held that a holiday is a
necessary if it were for convalescence after an illness, or the minor’s condition of life is such that holidays
spent in hotels were an inevitable part of it.
Therefore what may be termed as necessaries depends on the nature of goods supplied or services required
as well as the infant’s actual needs.
Contract of scholarship
THE LAW OF CONTRACT
By virtue of Section 4 (a) and Section 5 of the Contracts (Amendment) Act 1976 a scholarship agreement
entered into by an infant is valid when the scholarship, award, bursary, loan or sponsorship is granted by
the Federal or State Government, a statutory authority, or an educational institution such as a university.
Section 4 provides that “Notwithstanding anything to the contrary contained in the principal Act, no
scholarship agreement shall be invalidated on the ground that -
(a) the scholar entering into such agreement is not of the age of majority;
Section 5 of the Contracts (Amendment) Act 1976 provides that:-

“Where a scholarship agreement has been broken by the scholar -
(a) if a sum is named in the agreement as the amount to be paid in case of such breach,
notwithstanding anything to the contrary contained in the principal Act, the scholar and the surety
shall be liable jointly and severally to pay and the appropriate authority shall be entitled to be paid
the whole of such named sum whether or not actual damage or loss has been caused by such
breach, and no deduction shall be made from the said named sum on account of any partial period
of service performed by the scholar on completion of his course of study; or
(b) if no such sum is mentioned in the scholarship agreement, the scholar and the surety shall be
jointly and severally liable to pay and the appropriate authority shall be entitled to be paid-
(i) the whole amount expended by the appropriate authority under the agreement; and
(ii) the whole of such further amount as it will cost the appropriate authority or another
authority designated by it to engage a person with qualifications and experience
similar to those which were to be obtained by the scholar to perform the services
required of the scholar on the completion of his course of study for the period
specified in the scholarship agreement.
Contract of insurance
Paragraph 4 Schedule 8 Financial Services Act 2013, the law provides that:-
4. (1) Notwithstanding any law to the contrary, a minor who has attained the age of ten years but has not
attained the age of sixteen years, with the consent in writing of his parent or guardian— (a) may effect a
life policy upon his own life or upon another life in which he has an insurable interest; or (b) may assign
the life policy on his own life or take an assignment of a life policy.
(2) A minor who has attained the age of sixteen years— (a) may effect a life policy upon his own life or
upon another life in which he has an insurable interest; or (b) may assign the life policy on his own life or
take an assignment of a life policy, and is as competent in all respects to have and exercise the powers and
privileges of a policy owner in relation to a life policy of which he is the owner as he would be if he had
attained the age of majority.
(3) A minor who has attained the age of sixteen years shall obtain the consent in writing of his parent or
guardian to assign a life policy on his own life under subsubparagraph (2)(b).
VOIDABLE CONTRACT

THE LAW OF CONTRACT
Section 10 of the Contracts Act provides inter alia that all agreements are contracts if they are made by the
free consent of parties competent to contract.
Section 13 of the Contracts Act provides that two or more persons are said to consent when they agree upon
the same thing in the same sense.
Section 14 further provides that consent is free when it is not caused by:-
I) coercion;
II) undue influence;
III) fraud;
IV) misrepresentation; or
V) mistake
Therefore if the consent of the parties to an agreement is given without the present of any of the above
element, the consent to contract of the parties is said to be given freely.
However, if the parties enter into an agreement because of coercion, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was so caused.
Section 19(1) of the Contracts Act provides that “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 so caused”.
The party who enters into a contract because of coercion, fraud, or misrepresentation can chose whether to
continue with the contract or to terminate the contract.
Section 19(2) of the Contracts Act further provides that “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 representations made had been true.
A. VOIDABLE CONTRACT BECAUSE OF COERCION

Section 15 of the Contracts Act 1950 provides the definition and illustration of the word “coercion” as
follows:-
‘coercion’ is the committing or threatening to commit any act forbidden by the Penal Code, or the unlawful
detaining or threatening to detain, any property, to the prejudice of any person whatever, with the intention
of causing any person to enter into an agreement.
Illustration to Section 15 illustrate that:-

A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to
criminal intimidation under the Penal Code. A afterwards sues B for breach of contract at Taiping. A has
employed coercion, although his act is not an offence by the law of England and although section 506 of
the Code was not in force at the time when or place where the act was done.
Case example for voidable contract because of coercion.
Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors. [ 1988] 2 MLJ 117
Respondent purchased houses off to be constructed by the appellant. Each of the respondents had signed a
sale and purchase agreement to purchase house at RM 29,500. Subsequently, the Respondent were forced
to pay additional RM 4,000 under a threat by the appellant to cancel the respondent’s booking of their
house. Court held that respondent’s promise to pay extra money for house-booking is voidable since the
promise made under coercion.
B. VOIDABLE CONTRACT BECAUSE OF UNDUE INFLUENCE

The definition of undue influence can be found in Section 16(1) of the Contract Act 1950 which provides
that:-
“A Contract is said to be induced by “undue influence” where the relations subsisting between the parties
are such that one of the parties is in a position to dominate the will of the other and uses that position to
obtain an unfair advantage over the other”.

THE LAW OF CONTRACT
Section 16(2) provides for a situation where a person is deemed to be in a position to dominate the will of
another-
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary
relation to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently
affected by reason of age, illness, or mental or bodily distress.
Section 16 (3)(a) provides for the burden of proving that the contract was entered into was not induced by
undue influence lies upon the person who was in a position to dominate the will of another.
Illustrations to Section 16
(a) A having advanced money to his son, B, during his minority, upon B’s coming of age, obtains, by
misuse of parental influence, a bond from B for a greater amount than the sum due in respect of
the advance. A employs undue influence.
(b) A, a man enfeebled by disease or age, is induced, by B’s influence over him as his medical
attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue
influence.
(c) A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which appear
to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The
banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on
these terms. This is a transaction in the ordinary course of business, and the contract is not induced
by undue influence.
C. VOIDABLE CONTRACT BECAUSE OF FRAUD

The General principle is that whenever 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.
Fraud is defined in Section 17 of the Contracts Act 1950 as follows:-

“Fraud includes any of the following acts committed by a party to a contract or with his connivance, or by
his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the
contract:
(a) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
(b) the active concealment of a fact by one having knowledge or believe of the fact;
(c) a promise made without any intention of performing it;
(d) any other act fitted to deceive; and
(e) and such act or omission as the law specially declares to be fraudulent.
An Explanation to Section 17 of the Contracts Act states that: “Mere silence as to facts likely to affect the
willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such
that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, in
itself, equivalent to speech”.
An Illustrations to Section 17 Of the Contracts Act 1950 further states that:-
Illustration (a) “A sells, by auction, to B a horse which A knows to be unsound, A says nothing to B about
the horse’s unsoundness. This is not fraud in A”.
Illustration (b) “B is A’s daughter and has just come of age. Here, the relation between the parties would
make it A’s duty to tell B if the horse is unsound”.
Illustration ( c) “B says to A, ‘if you do not deny it, I shall assume that the horse is sound.’ A says nothing.
Here, A’s silence is equivalent to speech.”.
Illustration (d) “A and B, being traders, enter upon a contract. A has a private information of a change in
prices which would affect B’s willingness to proceed with the contract. A is not bound to inform B”.
D. VOIDABLE CONTRACT BECAUSE OF MISREPRESENTATION

Misrepresentation is defined in Section 18 of the Contracts Act 1950 as follows:-
‘Misrepresentation’ includes-
(a) the positive assertion, in a manner not warranted by the information of the person making it, of
that which is not true, though he believes it to be true;
THE LAW OF CONTRACT
(b) any breach of duty which, without an intent to deceive, gives an advantage to the person
committing it, or anyone claiming under him, by misleading another to his prejudice, or to the
prejudice of anyone claiming under him; and
(c) causing, however innocently, a party to an agreement to make a mistake as to the substance of the
thing which is the subject of the agreement.
Note: the basic difference between fraud and misrepresentation

In fraud – the person making the representation does not himself believe in its truth
In misrepresentation – the person making the representation may believe the representation to be true.
VOID (AND ILLEGAL CONTRACT)

A VOID CONTRACT is an agreement NOT enforceable by law – Section 2(g) of the Contract Act 1950.
From a legal stand point, a void contract is a contract which not in existence from the very beginning.
(a) mutual mistake as to the fact

Under Section 21 of the Contract Act 1950 provides that an agreement is void where both parties are under
mistake as to matter of fact. Section 21 reads:-
“Where both the parties to an agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void”.
Explanation to the section provides – An erroneous opinion as to the value of the thing which forms the
subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.
ILLUSTRATIONS
(a) A agrees to sell B a specific cargo of goods supposed to be on its way from England to Kelang. It
turns out that, before the day of the bargain, the ship conveying the cargo had been cast away and
the goods lost. Neither party was aware of the facts. The agreement is void
(b) A agrees to buy B a certain horse. It turns out that the horse was dead at the time of the bargain,
though neither party was aware of the fact. The agreement is void.
(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the
agreement, but both parties were ignorant of the fact. The agreement is void.
However, unilateral mistake by one party will not render the contract to be void. Section 23 of the
Contracts Act provides that “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.. This can be best illustrated in the case of FREEMAN V
KIAMESHA CONCORD INC (1974) where a guest at a resort hotel misread an advertisement concerning
the Memorial day weekend entertainment and so believed that a popular entertainer would be performing
for three nights during the weekend rather than just one. Upon learning the truth, he sought to cancel off his
three days reservation. The Court held that his mistake was a factual one and it was unilateral. Therefore,
although he departed the resort before the end of the three days weekend, he remained obligated to pay his
hotel bill in full.
It should be noted that for a mistake of law Section 22 of the Contracts Act 1950 provides that:- “ A
contract is not voidable because it was caused by a mistake as to any law in force in Malaysia; but a
mistake as to a law not in force in Malaysia has the same effect as a mistake of fact”.
ILLUSTRATION
A and B make a contract grounded on the erroneous belief that a particular debt is barred by limitation: the
contract is not voidable.
(b) unlawful consideration or object

Section 24 on the Contract Act provides that the consideration or object of an agreement is unlawful if it
falls within any of the subsections of the section. The said section reads:

THE LAW OF CONTRACT
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; or
(e) the court regards it as immoral, or opposed to public policy.
In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every
agreement of which the object or consideration is unlawful is void.
ILLUSTRATIONS
(f) A, B and C enter into an agreement for the division among them of gains acquired, or to be
acquired, by them by fraud. The agreement is void, as its object is unlawful.
(g) A, being agent for a landed proprietor, agrees for a money without knowledge of his principle, to
obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as
it implies a fraud by concealment, by A, on his principal.
(h) A promises to drop a prosecution which he has instituted against B for robbery, and B promises to
restore the value of the things taken. The agreement is void, as its object is unlawful.
(i) A’s estate is sold for arrears of revenue under a written law by which the defaulter is prohibited
from purchasing the estate. B. upon an understanding with A, becomes the purchaser, and agrees
to convey the estate to A upon receiving from him the price which B has paid. The agreement is
void, as it renders the transaction, in effect, a purchase by the defaulter, and would so defeat the
object of the law.
(j) A, who is B’s advocate. Promises to exercise his influence, as such, with B in favour of C, and C
promises to pay RM1,000 to A. The Agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is
immoral, though the letting may not be punishable under the Penal Code.
(c) part of the consideration or object is unlawful

Section 25 of the Contracts Act 1950 also provides for an agreements to be void if any part of their
considerations and objects are unlawful.
This section provides that “If any part of a single consideration for one or more objects, or any one or any
part of any one of several considerations for a single object, is unlawful, the agreement is void”.
ILLUSTRATION
A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in other
articles. B promises to pay to A a salary of RM10,000 a year. The agreement is void, the object of A’s
promise and the consideration for B’s promise, being in part unlawful.
(d) an agreement without consideration

Section 26 of the Contract Act provides that “ An agreement without consideration is void unless……….
ILLUSTRATIONS
(a) A promises, for no consideration, to give to B RM1,000. This is a void agreement.
(e) agreement in restraint of marriage
Section 27 of the Contract Act 1950 provides that:-
“ Every agreement in restraint of marriage of any person, other than a minor during his or her minority, is
void”.
(f) uncertainty
Section 30 of the Contract Act 1950 provides that:-
“ Agreements, the meaning of which is not certain, or capable of being made certain, are void.
ILLUSTRATIONS
(a) A agrees to sell to B “a hundred tons of oil”. There is noting whatever to show what kind of oil
was intended. The agreement is void for uncertainty.

THE LAW OF CONTRACT
(b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article of
commerce. There is no uncertainty here to make the agreement void.
(c) A, who is a dealer in coconut oil only, agrees to sell to B “one hundred tons of oil”. The nature of
A’s trade affords an indication of the meaning of the words, and A has entered into a contract for
the sale of one hundred tons of coconut oil.
(d) A agrees to sell to B “all the grain in my granary at Ipoh”. There is no uncertainty here to make
the agreement void.
(e) A agrees to sell B “one thousand gantangs of rice at a 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.
(f) A agrees to B “my white horse for dollars five hundred or dollars one thousand”. There is nothing
to show which of the two prices was to be given. The agreement is void.
(g) agreement by way of wager

Section 31 (1) of the Contract Act provides that “ An agreement by way of wager are void; and no suit shall
be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the
result of any game or other uncertain event on which any wager is made.
However there is an exception to the provisions in Section 31(1) in cases concerning certain prices for
horse-racing. Section 31(2) provides that “This Section shall not be deemed to render unlawful a
subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward
any plate, prize, or sum of money, of the value or amount of five hundred ringgit or upwards, to be
rewarded to the winner or winners of any horse-race.
Section 31(3) further provides that “Nothing in this section shall be deemed to legalise any transaction
connected with horse-racing forbidden by any written law.
EFFECT OF VOID OR ILLEGAL CONTRACT.

The general rule under the Contracts Act 1950 is that void contract or illegal contract is not enforceable by
law. Further Section 24 provides that an agreement which is unlawful is void. And Section 2(g) provides
that “an agreement not enforceable by law is said to be void.
However, Section 66 of the Contracts Act 1950 provides that when an agreement is discovered to be void
or when a contract become void, the person who received any advantage under such agreement or contract
is bound to restore it to the other party or to pay adequate compensation for the same. Section 66 reads:-
“When an agreement is discovered to be void, or when a contract becomes void, any person who has
received any advantage under the agreement or contract is bound to restore it, or to make compensation for
it, to the person from whom he received it.
illustrations
(a) A pays B RM1,000 in consideration of B’s promising to marry C, A’s daughter. C is dead at the
time of the promise. The agreement is void, but B must repay A the RM1,000.
(b) A contracts with B to deliver to him 250 gantangs of rice before the 1 st of may. A delivers 130
gantangs only before that day, and none later. B retains the 130 gantangs after the 1 st May. He is
bound to pay for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every
week during the next two months, and B engages to pay her RM 100 for each night’s performance.
On the sixth night a willfully absents herself from the theatre, and B, in consequence, rescinds the
contract. B must pay A for the five nights on which she had sung.
(d) A contracts to sing for B at a concert for RM1,000, which are paid in advance. A is too ill to sing.
A is not bound to make compensation to B for the loss of the profits which B would have made if
A had been able to sing, but must refund to B the RM1,000 paid in advance.
DISCHARGE OF CONTRACT
A party who is subject to the obligations of a contract may be discharged from those obligations in one of
four ways. The agreement is then at the end. The four ways are listed below.
THE LAW OF CONTRACT
1. BY PERFORMANCE
2. BY AGREEMENT
3. BY FRUSTRATION
4. BY BREACH
1.DISCHARGE BY PERFORMANCE
This is the normal method of discharge. Discharge of a contract occurs when each party to a contract have
fully fulfils or performs their respective contractual obligations under the contract. As a general rule,
performance of a contract must be exact and precise and should be in accordance with what the parties had
promised. The Contracts Act 1950 makes detailed provisions concerning performance.
Section 38(1) of the Act provides that parties to a contract must either perform or offer to perform their
respective promises, unless such performance has been dispensed with by any law.
Section 38 (2) of the Act provides promises bind the representatives of the promisors in case of death of the
promisors before performance, unless a contrary intention appears from the contract.
Examples for this section is provided for by illustrations (a) and (b) to this section.
illustrations
(a) A promises to deliver goods to B on a certain day on payment of RM1,000. A dies before that day.
A’s representatives are bound to deliver the goods to b, and B is bound to pay the RM1,000 to A’s
representatives.
(b) A promises to paint a picture for B by a certain day, at a certain price, A dies before the day. The
Contract cannot be enforced either by A’s representatives or by B.
Section 40 of the Act provides that if the party has refused to perform or disabled himself from performing
his promise in its entirety, the other party may put an end to the contract, unless he has acquiesced in its
continuance.
illustrations
(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights
in every week during the next two months and B engages to pay her RM100 for each night
performance. On the sixth night A willfully absents herself from the theatre, B is at liberty to put
an end to the contract.
(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights
in every week during the next two months and B engages to pay her RM100 for each night. On the
sixth night A willfully absents herself. With the assent of B, A sings on the seventh night. B has
signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but
is entitled to compensation for the damage sustained by him through A’s failure to sing on the
sixth night.
Another example that the contract must be performed in its entirety is in the case of BOLTON V
MAHADEVA (1972) where the plaintiff agreed to install a central heating system in the defendant’s home
for 800. The work was defective, the system did not heat adequately and it gives off fumes. The defendant
refused to pay for it. The Court held that the plaintiff could recover nothing.
Further in the case of CUTTER V POWELL (1795), the defendant employed C as second mate of a ship
sailing from Jamaica to Liverpool at a wage for the complete voyage of 30 guineas. The voyage began on
August 2, and C died at sea on 20 September, when the ship was still 19 days from Liverpool. C’s widow
sued for a proportionate part of the agreed sum. The Court held that C was entitled to nothing unless he
completed the voyage.
Section 41 of the Act deal with the circumstances in which personal performance by the promisor is
necessary. This section provides that “If it appears from the nature of the case that it was the intention of
the parties to any contract that any promise contained in it should be performed by the promisor himself,
such promise must be performed by the promisor. In other cases, the promisor or his representatives may
employ a competent person to perform it.
THE LAW OF CONTRACT
illustrations
(a) A promises to pay B a sum of money. A may perform this promise, either by personally paying
the money to B, or by causing it to be paid to B by another, and, if A dies before the time
appointed for payment, his representatives must perform the promise, or employ some proper
person to do so.
(b) A promises to paint a picture for B. A must perform this promise personally
As for the performance of a promise provided for by a third person and accepted by the promisee, Section
42 provides that “when a promisee accepts performance of the promise from a third person, he cannot
afterwards enforced it against the promisor.
2. DISCHARGE BY AGREEMENT
!. There is a general principle that since a contract is created by agreement, it may be discharged by
agreement and so the parties may agree to cancel the contract before it has been completely performed on
both sides. But the agreement to cancel is itself a new contract which must be made under seal or for which
consideration must be given.
2. If there are unperformed obligations of the original contract on both sides (it is an executory
contract), each party provides consideration for his own release by agreeing to release the other (bilateral
discharge). Each party surrenders something of value.
3. But if one party has completely performed his obligations, his agreement to release the other from
his obligations (unilateral discharge) requires considerations, such as payment of a cancellation fee ( this is
called accord and satisfaction). Alternatively a unilateral discharge may be given under seal.
4. If the parties enter into a new contract to replace the unperformed contract, the new contract
provides any necessary consideration. This is called novation of the old contract – it is replaced by a new
one.
5. A contract may include provision for its own discharge by imposing a condition precedent, which
prevents the contract from coming into operation unless the condition is satisfied. Alternatively, it may
imposed a condition subsequent by which the contract is discharged on the later happening of an event; a
simple example of the latter is provision for termination by notice given by one party to the other.
Effectively these are contracts whereby discharge may arise through agreement.
For example in ABERFOYLE PLANTATION LTD V CHENG (1960) where the parties agreed in 1955 to
sell and buy a plantation which included 182 acres in respect of which leases had expired in 1950. The
Vendor had tried without success in the intervening years to obtain a renewal of the leases. The agreement
provided that “the purchase is conditional on the vendor obtaining a renewal” of the leases. If he was
“unable to fulfill this condition, this agreement shall become null and void”. The vendor failed to obtain the
renewal. The Court held that the purchaser could recover the deposit he had paid.
In the case of HEAD V TATTERSALL (1871) the plaintiff bought a horse guaranteed “to have been
hunted with the Bicester hounds” on the understanding that it could be returned within a time limit if it did
not answer the description. The horse was injured and the plaintiff discovered that it had never hunted with
the Bicester hounds. The plaintiff returned it and sued for the return of the price. The Court held that a
contract had come into existence, but the option to return the horse was a condition subsequent. The
plaintiff was entitled to cancel the contract, return the horse and recover the price.
3. DISCHARGE BY FRUSTRATION
A contract is said to be frustrated when there is a change in the circumstances which renders a contract
legally or physically impossible of performance.
Section 57 of the Contracts Act 1950 provides as follows:-
Agreement to do impossible act
(1) An Agreement to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful

(2)A contract to do an act which, after the contract is made, becomes impossible, or by reason of some
event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or
unlawful.
THE LAW OF CONTRACT
Compensation for loss through non-performance of act known to be impossible or unlawful
(3)Where one person has promised to do something which he knew, or, with reasonable diligence, might
have known, and which the promise did not know, to be impossible or unlawful, the promisor must make
compensation to the promisee for any loss which the promisee sustains through the non-performance of the
promise.
ILLUSTRATION
(a) A agrees with B to discover treasure by magic. The agreement is void.

(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The
contract becomes void.
(c) A contracts to marry B, being already married to C, and being forbidden by the law to which he is
subject to practise polygamy. A must make compensation to B for the loss caused to her by the
non-performance of his promise.
(d) A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war
against the country in which the port is situated. The contract becomes void when war is declared.
(e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On
several occasions A is too ill to act. The contract to act on those occasions becomes void.
The following instances are the example of the contracts which have been discharged by frustration at
common law:-
1-Destruction of the subject matter
In the case which give rise to the doctrine of frustration, the subject matter of the contract was destroyed
before performance fell due. For example in the case of TAYLOR V CALDWELL (1863) WHERE A
HALL WAS LET TO THE PLAINTIFF FOR A SERIES OF CONCERTS ON SPECIFIED DATES.
Before the date of the first concert the hall was accidentally destroyed by fire. The plaintiff sued the owner
of the hall for damages for failure to let him have the use of the hall as agreed. The Court held that the
destruction of the subject matter rendered the contract impossible to perform and discharged the defendant
from his obligation under the contract.
2- Government intervention
Government intervention is a common cause of frustration, particularly in time of war. If maintenance of
contract would impose upon the parties a contract fundamentally different from that which they made, the
contract is discharged. For example METROPOLITAN WATER BOARD V DICK, KERR & CO (1918)
where the defendants contracted in July 1914 to built a reservoir for the plaintiffs within six years subject
to the proviso that the time should extended if delays were caused by difficulties, impediments or
obstructions. In February 1916 the Minister of Munitions ordered the defendants to cease work and sell all
their plant. The Court held that the proviso in the contract did not cover such a substantial interference with
the contract. The interruption was likely to cause the contract, if resumed, to be radically different from that
contemplated by the parties. The contract was discharged for frustration.
3-Supervening illegality
In many cases of government intervention, further performance of contract become illegal. Supervening
illegality, for example owing to an outbreak of war or the government intervention to restrain or suspend
performance of contract, is a common cause of frustration. For example in the case of Re SHIPTON,
ANDERSON & CO AND HARRISON BROTHERS & CO (1915) where a contract was made for the sale
of wheat store in a Liverpool warehouse. It was requisitioned by the government under emergency wartime
legal powers. The Court held that it was no longer lawful for the seller to the deliver the wheat. The
contract had been discharged by frustration.

THE LAW OF CONTRACT
4 - Non- occurrence of an event if it is the sole purpose of the contract
For example in the case of KRELL V HENRY ( 1903) where a room belonging to the plaintiff and
overlooking the route of the coronation procession of Edward VII was let for the day of the coronation for
the purpose of viewing the procession. The coronation was postponed owing to the illness of the King. The
owner of the rooms sued for the agreed fee, which was payable on the day of the coronation. The Court
held that the contract was made for the sole purpose of viewing the procession. As the event did not occur
the contract was frustrated.
4. DISCHARGE BY BREACH
When a party fails to fulfill his obligations under a contract, that party is said to have committed a breach of
his contractual obligations and the innocent party has certain remedies.
Section 40 of the Act provides that if the party has refused to perform or disabled himself from performing
his promise in its entirety, the other party may put an end to the contract, unless he has acquiesced in its
continuance.
illustrations
in every week during the next two months and B engages to pay her RM100 for each night
performance. On the sixth night A willfully absents herself from the theatre, B is at liberty to put
an end to the contract.
in every week during the next two months and B engages to pay her RM100 for each night. On the
sixth night A willfully absents herself. With the assent of B, A sings on the seventh night. B has
signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but
is entitled to compensation for the damage sustained by him through A’s failure to sing on the
sixth night.
Section 40 envisages two situation under which the breach may entitle the innocent party to treat the
contract as being discharged: (a) refusal to perform; and (b) disability to perform.
(a) refusal to perform
Where one parties indicates to the others, either by conduct or in clear terms, an intention not to go on with
the contract, the party is said to have repudiated the contract or renounced the contract. Difficulties arise
both under common law and under the Contracts Act in determining when a party “has refused” to perform
his promise. In the case of BAN HONG JOO MINES LTD V CHEN & YAP LTD (1969) the Federal
Court held that the failure of the appellants to pay the installments amounted to “a deliberate refusal which
entitled the respondents to treat the contract as having been repudiated”. Normally the Courts will gather
the intention not to perform the promise from the surrounding facts of the case.
(b) disability to perform
Like refusal to perform, a party may put an end to the contract if the other party has disabled himself from
performing either before the time due for performance or during the time of performance.
For example in CUTTER V POWELL (1795), the defendant employed C as second mate of a ship sailing
from Jamaica to Liverpool at a wage for the complete voyage of 30 guineas. The voyage began on August
2, and C died at sea on 20 September, when the ship was still 19 days from Liverpool. C’s widow sued for
a proportionate part of the agreed sum. The Court held that C was entitled to nothing unless he completed
the voyage.
In this case an action by C’s widow to recover a proportion of the agreed sum failed because by the terms
of the contract the deceased was obliged to perform a given duty before he could demand payment.
Another example is the case of SUMPTER V HEDGES (1898) where the plaintiff had agreed to erect upon
the defendant’s land two houses and stables for 565. The defendant did part of the work to the value of
333 and then abandoned the contract. The defendant himself completed the buildings. The Court held that
the plaintiff could not recover the value of the work done.
BOLTON V MAHADEVA (1972) where the plaintiff agreed to install a central heating system in the
defendant’s home for 800. The work was defective, the system did not heat adequately and it gives off
fumes. The defendant refused to pay for it. The Court held that the plaintiff could recover nothing.
THE LAW OF CONTRACT
Effects of breach
The effect of an innocent party putting an end to the contract is that the innocent party must restore any
benefits which he may received from the other party – this is provided for under Section 65 of the Contracts
Act 1950. If the innocent party has rendered services or had supplied goods, he may recover a reasonable
sum for such services or goods rendered. If the innocent party has paid money under the contract, he may
be entitled to recover the said sum. On the other hand, as a general rule, the party in default cannot
terminate the contract which he himself had broken.
REMEDIES FOR BREACH OF CONTRACT

1. DAMAGES – as compensation for loss caused by the breach
2. SPECIFIC PERFORMANCE – a court order for the defendant to perform the contract
3. INJUNCTION – a court order for the other party to observe negative instructions
4. QUANTUM MERUIT – payment for the value of what he has done
5. RESCISSION – cancellation or annulment
6. RESTITUTION - restoration
7. MAREVA OR ANTON PILLER ORDER
(1) DAMAGES
Damages are granted to a party as compensation for the damage, loss or injury he has suffered through a
breach of contract. Damages are primarily intended to restore the party who has suffered loss to the same
position he would have been in if the contract had been performed. They are not meant to be a punishment.
In addition, they should not allow the party to whom they are awarded to profit, nor to achieve a better
result than he would have done under the contract – the law will not make up for a bad bargain.
Section 74 of the Contracts Act set out the provision for such compensation. The section reads:-

THE LAW OF CONTRACT
Section 74 Compensation for loss or damage caused by breach of contract.
(1) When a contract has been broken, the party who suffers by the breach is entitled to receive, from the
party who has broken the contract, compensation for any loss or damage caused to him thereby, which
naturally arose in the usual course of things from the breach, or which the parties knew, when they made
the contract, to be likely to result from the breach of it.
(2) Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of
the breach.
Compensation for failure to discharge obligation resembling those created by contract.

(3) When an obligation resembling those created by contract has been incurred and has not been
discharged, any person injured by the failure to discharge it is entitled to receive the same compensation
from the party in default as if the person had contracted to discharge it and had broken his contract.
Explanation – In estimating the loss or damage arising from a breach of contract, the means which existed
of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
See also the Illustrations to Section 74.
The illustrations to Section 74 clearly indicate that the party may recover damages for other expenses
incurred as a result of the breach; for the loss of profits arising as a result of the breach; and for the
difference between the price of goods as contracted for and the actual price the goods were sold for as a
result of the breach.
In cases where the penalty is stipulated in the contract in the event of breach, Section 75 of the Contracts
Act 1950 provides that:-
Section 75. Compensation for breach of contract where penalty stipulated for.
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of
breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the
breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive
from the party who has broken the contract reasonable compensation not exceeding the amount so named
or, as the case may be, the penalty stipulated for.
Explanation – A stipulation for increased interest from the date of default may be a stipulation by way of
penalty.
See also the Illustrations to Section 75.
The effect of Section 75 is that the plaintiff (the claimant) is only allowed to recover a reasonable sum for
breach of contract. If a sum is stipulated in the contract, the amount of damages recoverable by the plaintiff
cannot exceed the sum in the contract.
The plaintiff cannot recover simpliciter the sum fixed in the in the contract, whether as penalty or
liquidated damages. The plaintiff is required to prove actual damage he has suffered. This can be illustrated
in the case of WEARNE BROTHERS (M) LTD V JACKSON (1966) where the case was an appeal against
the award of damages for breach of contract in respect of hire-purchase relating to a motor car. The main
ground of appeal was that the learned president of the Sessions Court failed to consider whether the
relevant clause in the hire-purchase agreement was a penalty clause or was a genuine pre-estimate of the
damage as on the date of the agreement. The learned president merely applied the common law principle
for the assessment of damages for breach of contract.
The Court held that:-
(1) Whether the clause in the agreement was a penalty clause or not is irrelevant in view of Section 75
which provides that in every case the court must determine what is the reasonable compensation. The effect
of the section is that the plaintiff is disentitled from recovering simpliciter the sum fixed in the contract

THE LAW OF CONTRACT
whether as penalty or liquidated damages and must prove the damages suffered by him unless the sum
named is a genuine pre-estimate;
(2) In the case the clause in the agreement gave a genuine pre-estimate of the damages for depreciation
contemplated by the parties at the time when they entered into the contract and as the damages fixed by the
parties did not appear to be unreasonable or disproportionate to the nature and extent of the depreciation,
the court would award such damages.
Duty to mitigate damages

The general rule is that the party seeking damages is also under a duty to mitigate the loss. This rule is
embodied in the explanation to Section 74.
In the case of KABATASAN TIMBER EXTRACTION CO V CHONG FAH SHING (1969) the Federal
Court recognized this general duty and held that the plaintiff’s claim should be reduced accordingly. In this
case, MacIntyre FJ in delivering the judgment of the Federal Court made the following observations:-
“…The law, however, imposes a duty on every person who suffers damages on account of breach of
contract to take reasonable steps to mitigate the damage…….’’
“It also follows from the rule that damages are compensatory only that one who has suffered loss from a
breach of contract must take any reasonable steps that are available to him to mitigate the extent of the
damage caused by the breach. He cannot claim to be compensated by the party in default for loss which is
really due not to the breach but to his own failure to behave reasonably after the breach”.
Facts:- In this case the appellants had contracted to supply timber to the respondent to be delivered at the
site of the sawmill to be erected by the respondent. The timber was delivered in three lots. The second lot
of 198 logs and 4 of the 22 logs in the third lot were not delivered to the sawmill but were dumped at a
distance of more than 500 feet from the sawmill.
The Court held that there was no need for the respondent to have gone to the expense and trouble of buying
logs from elsewhere when the logs were lying a few hundred feet away from the sawmill for the mere
taking, and all that was required was additional expense for hauling them up to the sawmill. The
appropriate damages to be awarded was the cost of hauling the logs to the sawmill.
(2) SPECIFIC PERFORMANCE

A decree of specific performance is a decree issued by the court as a form of relief that is purely equitable
in origin. The purpose of such a decree is to ensure that justice is done. In Malaysia, the law on specific
performance is governed by the Specific Relief Act, 1950. Specific performance is a discretionary remedy.
This can be seen in the provision under Section 21 of the Specific Relief Act where the court, inter alia, has
a discretion to refuse specific performance where granting of it would cause undue hardship to the
defendant.
Section 21 reads as follows:-
Discretion as to decreeing specific performance
(1) The jurisdiction to decree specific performance is discretionary, and the court is not bound to grant any
such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and
reasonable, guided by judicial principles and capable of correction by a court of appeal.
(2) The following cases in which the court may properly exercise a discretion not to decree specific
performance:
a. Where the circumstances under which the contract is made are such as to give the
plaintiff an unfair advantage over the defendant, though there may be no fraud or
misrepresentation on the plaintiff’s part; and
b. Where the performance of a contract would involve some hard ship on the defendant
which he did not foresee, whereas its non-performance would involve no such hardship
on the plaintiff.
(3) A case in which the court may properly exercise a discretion to decree specific performance is where
the plaintiff has done substantial acts or suffered losses in consequence of a contract capable of
specific performance.

THE LAW OF CONTRACT
Section 11(2) of the Specific Relief Act provides that specific performance may be granted in respect of
agreements relating to the 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 20(1)(a) provides that the court will exercise discretion not to decree specific performance where
damages will provide adequate remedy.
Section 20(1)(c) provides that specific performance will be refused where the terms of the contract are
uncertain.
(3) INJUCTIONS
An injunction is another remedy in contract which depends on the discretion of the courts. An injunction is
an order of the court to refrain from doing a particular act. An injunction which seeks to prevent a party
from committing a breach of contract is called a prohibitory injunction. On the other hand, an injunction
that seeks to compel performance of a term of a contract is called a mandatory injunction. To this extent, a
mandatory injunction has the same effect as the remedy of specific performance.
Generally, injunctions are of two types. They are interlocutory and final injunctions. The Specific Relief
Act 1950 employs the term “temporary injunction” to refer to interlocutory injunction and the term
“perpetual injunction” to mean final injunction.
Section 50 of the Specific Relief Act 1950 provides that “Preventive relief is granted at the discretion of the
court by injunction, temporary or perpetual”.
Temporary/Interlocutory Injunction
Section 51(1) of the Specific Relief Act provides that:-
Temporary injunctions
“Temporary injunctions are such as are to continue until a specified 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”.
Thus, the remedy of an interlocutory injunction is used by a party to maintain the status quo of the subject
matter in a pending suit.
The temporary injunction can also be mandatory injunction when the court order requiring something to be
done. Foe example in the case of NEOH SIEW ENG & ANOR V TOO CHEE KWANG (1963) where an
injunction was granted requiring the landlord to keep the water supply open for his tenants.
Perpetual/Permanent Injunction
Section 51(2) of the Specific Relief Act provides that:-
Perpetual injunctions
“A perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the
suit; the defendant is thereby perpetually enjoined from the assertion of a right, or from the commission of
an act, which would be contrary to the rights of the plaintiff”.
Section 52 of the Act provides that:-

Perpetual injunctions when granted
(1) ……a perpetual injunction may be granted to prevent the breach of an obligation existing in favour of
the applicant, whether expressly or by implication.
(2) When such an obligation arises from contract, the court shall be guided by the rules and provisions
contained in Chapter II.

THE LAW OF CONTRACT
(3) When the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment of, property, the
court may grant perpetual injunction in the following cases, namely:
(a) where the defendant is trustee of the property for the plaintiff;
(b) where there exists no standard for ascertaining the actual damage caused, or likely to be
caused, by the invasion;
(c) where the invasion is such that pecuniary compensation would not afford adequate relief;
(d) where it is probable that pecuniary compensation cannot be got for the invasion;
and
(e) where the injunction is necessary to prevent a multiplicity of judicial proceedings.
(4) QUANTUM MERUIT

In particular situation, an equitable claim may be made on a quantum meruit basis as an alternative to an
action for damages for breach of contract.
The phrase quantum meruit literally means “how much it is worth”. It is a measure of the value of
contractual work which has been performed. The aim of such an award is to restore the plaintiff to the
position he would have been in if the contract had never been made. It is a restitutory award.
Quantum meruit is likely to be sought where one party has already performed part of his obligations and
the other party then repudiates the contract. Provided the injured party elects to treat the contract as
terminated, he may claim a reasonable amount for the work done. For example in the case of De
BENARDY V HARDING (1853) where the plaintiff agreed to advertise and sell tickets for the defendant,
who was erecting stands for spectators to view the funeral of the Duke of Wellington. The defendant
cancelled the arrangement without justification. The Court held that the plaintiff can recover the value of
services rendered.
In most cases, a quantum meruit claim is needed because the other party has unjustifiably prevented
performance. For example in PLANCHE V COLBURN (1831) where the plaintiff had agreed to write a
book on costumes and armour for the defendant’s “Juvenile Library” series. He was to receive £100 on
completion. He did some research and wrote part of the book. The defendants then abandoned the series.
The Court held that the plaintiff was entitled to 50 guineas as reasonable remuneration on a quantum meruit
basis.
(5) RESCISSION (i.e. cancellation or annulment)

On a breach of a condition of a contract, the injured party may treat the contract as rescinded and refused to
perform his obligation under the contract unless he has signified by words or conduct, his acquiescence
when the other party continue with the contract: section 40 of the Contract Act 1950.
A person who rightly rescinds the contract is entitled to claim damages as provided for under section 76 of
the Contract Act 1950. The illustration to section 76 provides as follows:
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in
every week during the next two months, and B engages to pay her RM100 for each night’s
performance. On the sixth night A willfully absents herself from the theatre, and B, in
consequence, rescinds the contract. B is entitled to claim compensation for the damage which he
has sustained through the non-fulfillment of the contract.
It is a discretionary remedy, and in any legal action on the contract it is granted subject to certain important
principles. In particular the party misled will lose his right to rescission if:
(i) The parties cannot be restored to their original positions. This is known as restitution in integrum.
(ii) The party, knowing of the misrepresentation, takes a benefit under the contract, or in some
other
way affirms the contract.
(iii) Third party have acquired rights under the contract.
(iv) There has being long delay in taking legal action to rescind the contract. Delay indicates to the
THE LAW OF CONTRACT
court that the party misled affirms the contract. For example in case of LEAF V
INTERNATIONAL GALLARIES (1950). Leaf bought a painting of Salisbury Cathedral
described innocently by the seller as a genuine Constable. After five years Leaf discovered that
the painting was not a genuine Constable, and he claimed rescission on the ground of innocent
misrepresentation. The Court held that Leaf Claim must fail because his action was too long
delayed.
(6) RESTITUTION (i.e. restoration)

It basis is unjust enrichment. This occur in a situation where the courts are of the opinion that it would be
very unfair if the defendant was to be allowed to retain the money or goods or services without payment.
(7) MAREVA INJUNCTION AND ANTON PILLER INJUNCTION
I – MAREVA INJUNCTION
A Mareva injunction restrains a defendant from removing out of jurisdiction or in any way disposing of his
assets within the jurisdiction or in any way disposing of his assets within jurisdiction until further order.
This is a drastic order designed to ensure that a plaintiff who eventually obtains judgment against the
defendant has removed all his assets from the jurisdiction and consequently the judgment cannot be
enforced. It will only be granted if the plaintiff can show a real risk that the defendant might attempt to
remove or dispose of his assets.
This remedy is originated from the case of MAREVA COMPANIA NAVIERA SA V INTERNATIONAL
BULK CARRIERS SA, THE MAREVA (1975) 1 ALL ER 213. In this case the shipowners hired out their
ship, the Mareva, to International Bulk Carriers. The hire of the ship was to be half monthly in advance.
After International Bulk Carriers were only able to meet the first two installments, Mareva sued for
damages and unpaid hire. They also sought an injunction to stop the hirers from removing from the court’s
jurisdiction any money received from the voyage. The issue was whether an injunction can be obtained
from the court to prevent the removal of assets before judgement. The Court held that an injunction was
granted to continue until the dispute came to trial to prevent the defendants from disposing of any assets.
II – ANTON PILLER INJUNCTION

It is available only in an exceptional circumstances where the plaintiff must prove that the defendant,
having in their possession an incriminating evidence which is necessary to the plaintiff and which may be
destroyed before the court order for discovery can be made. An Anton Piller injunction enables the plaintiff
to enter the defendant’s premises and search them for evidence. It is commonly used in trade-mark, patent
or passing-off actions.
This remedy is originated from ANTON PILLER V MANUFACTURING PROCESSES LTD (1976). The
Anton Piller company was under the belief that one of its agents was supplying confidential information to
one of its competitors. They believed that the agent had documentation in their possession that would prove
their breach. However, they are concerned that a subpoena would give the agent advance warning of their
intentions and that any relevant documents would then be destroyed. The issue was whether the company
could obtain an order enabling them to enter the agent’s premises to inspect the documents and remove or
copy the relevant ones. The Court held that as there was a strong prima facie case of infringement which
could cause damage to the applicant, and clear evidence that the defendants had incriminating material in
their possession which they would destroy, the order is granted.

THE LAW OF CONTRACT

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THE LAW OF CONTRACT

What we will learn:

Compare ‘contract’ with ‘agreement’:

BUSINESS LAW (EIB20303/JAN2020) 1

Contract by Conduct (Implied Contract)

Implied In-Fact Contracts

BUSINESS LAW (EIB20303/JAN2020) 2

Essentially, the difference between void and voidable contracts is enforceability: a void contract is

 terms may be classified as:

Conditions and Warranties

BUSINESS LAW (EIB20303/JAN2020) 3

Example from Sale of Goods Act 1957

 Terms may be expressed or implied

The 5 conditions for a term to be implied into a contract – it must be:

 terms may be implied by:

 normally, the courts will imply terms into a contract:

Conditions and Warranties

BUSINESS LAW (EIB20303/JAN2020) 4

Standard Contracts and Exemption Clauses

BUSINESS LAW (EIB20303/JAN2020) 5

Essentially, the difference between void and voidable contracts is enforceability: a void contract is

1. Offer must be firm or it must be a definite promise.

BUSINESS LAW (EIB20303/JAN2020) 6

2. It may be made to an individual or to a large number of people

3. It may be made in writing, by words or by conduct.

4. It must be communicated to the offeree.

Example: TAYLOR V LAIRD (1856)

BUSINESS LAW (EIB20303/JAN2020) 7

Distinguished from Proposal/Offer

There are four types of invitation to treat:-

BUSINESS LAW (EIB20303/JAN2020) 8

BUSINESS LAW (EIB20303/JAN2020) 9

Distinguished from Proposal/Offer

BUSINESS LAW (EIB20303/JAN2020) 10

Another example is the case of BYRNE V TIENHOVEN (1880).

Revocation by lapse of time

Revocation by failure to fulfill a condition precedent

BUSINESS LAW (EIB20303/JAN2020) 11

1. Acceptance must be absolute and unqualified.

2. Acceptance must be expressed in some usual and reasonable manner

BUSINESS LAW (EIB20303/JAN2020) 12

4. Acceptance must be communicated

(b) B accept A’s proposal by a letter sent by post.

3. INTENTION TO CREATE LEGAL RELATIONS

Presumption. ... An example of presumption without basic facts is presumption of innocence.

The rebuttable/irrebuttable presumption

For these purposes, there are four classes of agreement:

BUSINESS LAW (EIB20303/JAN2020) 14

The position in Malaysia.

BUSINESS LAW (EIB20303/JAN2020) 15

1.Consideration need not be adequate

2. Consideration need not move from the promisee

3. Past consideration is good consideration

4. Natural love and affection is a valid consideration

BUSINESS LAW (EIB20303/JAN2020) 17

1. made in writing and registered; or

an agreement is in writing and registered

or a promise to compensate for something done

or is a promise to pay a debt barred by limitation law