LAW OF CONTRACT

Prepared by: Pn. Siti Nurazani Mustaffa

Commerce Department
Politeknik Mersing Johor
KURSUS PENGURUSAN PERNIAGAAN KV/PMJJUN15

COURSE OUTLINE
Principles of contract law
Define contract
Elements to form valid contract
The factors for discharge of contract
The remedies for breach of contract

KURSUS PENGURUSAN PERNIAGAAN KV/PMJJUN15

DEFINITION : CONTRACT
a written or spoken agreement,
especially one concerning
employment, sales, or tenancy, that
is intended to be enforceable by law
Oxford Dictionary

Section 2 (h) CA 1950 defines contract

as the agreement enforcement by
law.

KURSUS PENGURUSAN PERNIAGAAN KV/PMJJUN15

CONTRACT

In other words, a contract is an agreement that binds the

parties who enter into it and it can be enforced against one
another.

It can be a contract to sell and purchase of land, hire purchase,

insurance contracts ,etc.

However, not all agreements are contract BUT the contract are
agreement. Example: in case domestic agreement the formations are
not intended to bind the parties in law.

KURSUS PENGURUSAN PERNIAGAAN KV/PMJJUN15

ELEMENTS OF A CONTRACT
Offer
Acceptance
Consideration
Intention to create legal relations
Certainty
Legal capacity

1) Offer
Section 2 (a) CA 1950 offer is said to exist when one
person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining
the assent of that other, he is said to make a
proposal/offer.
In other words, a proposal is the readiness of the
person who makes the offer to create a legal relation
and be bound by the law.

a) To whom can the proposal be

Made?
Can be made to a specific or particular person or to the
public.
Proposal to specific person can be accepted by that
person only.
For example, A propose B to sell his Viva car at RM35000.
The proposal of A can only be accepted by B and not other
persons.

For proposal to public, the acceptance can be made by

any person who knows about the proposal and performs
the obligations required by the proposer.

Case : Carlill vs. Carbolic Smoke

Ball
Facts : the defendants was inserted advertisements
in newspapers in which they offered to pay 100 to
any person who contracted influenza after using the
medicine. They added that they had deposited 1000
at the bank to show their sincerity in the matter.
Held : the court reject the argument and held the
advertisement was an offer to the whole world.

b) The different between a

proposal and invitation to treat
Usually, before a proposal is made, the parties will
hold some negotiations. The negotiation is an
invitation to call for a proposal and not yet a proposal.
Example of invitation to treat such as auctions and
display of goods on the shelves in shops.
The proposal comes from the buyer when the buyers
take the goods from the shelves and bring it to the
counter for payment. The acceptance take place when
the seller accepts the payment from the buyer.

Case : Pharmaceutical society of Great

Britain vs. Boots Cash Chemist
Held : the court held that the display of goods did not
constitute an offer but only an invitation to treat. A
proposal to buy was made when the customer placed
the articles in the basket. Hence, the contract of sale
would be made when the cashier accepted the
customers offer to buy what had been chosen.
An advertisement is also an invitation to treat.
Case: Coelho vs. The Public Services Commission,
Held :the High Court ruled that the newspaper
advertisement was an invitation to qualified persons
to apply and the applications were offers.

c) Proposal must be clear and

communicated
S. 4(1) CA 1950 provides that the communication of
a proposal is complete when the proposal comes to
the knowledge of the proposer.
In order to make the proposal effective, it must be
clear and communicated. A proposal which is vague
and uncertain may not lead to a binding contract.
Case : Ahmad Meah & Anor vs. Nacodah Merican,
an agreement to build a suitable house was held by
the court as vague to create a binding contract.

d) Revocation of proposal
Under S.5(1) CA 1950, a proposal may be revoked at
any time before the communication of its acceptance
is complete but not afterwards.
S. 6 CA 1950, revocation of proposal may be happen
in the following situation:
1) Revocation noted from proposer
2) Expired date of acceptance
3) Acceptor rejected the proposal
4) When the proposal was died, sick or mental disorder.

2) Acceptance
S. 2(b) CA 1950, when the person to whom the
proposal is made signifies his assent thereto, a
proposal is said to be accepted.
A proposal, when accepted becomes a promise. ( S.
2(c) CA 1950.
S.9 CA 1950 provided that there is an expressed
acceptance if an acceptance of any promise is made
in words and an implied acceptance if the acceptance
is made other than in words.

a) Acceptance must be absolute

and unqualified
S. 7(a) CA 1950 provides that an acceptance must be
absolute and unqualified. This mean acceptance
must be made on the same terms as provided in the
proposal and there must not be any variation or
modification.
Case : Hyde vs. Wrench, the court ruled that the
counter-offer made by the plaintiff at the price 950
constituted a rejection to the original proposal.
Therefore, no acceptance had occurred and the
defendant had the right not to sell the estate to the
plaintiff.

b) Acceptance must be
communicated
In order to form a binding contract between the parties,
the acceptance of the proposal must be communicated to
the proposer.
S.7(b) CA 1950 provides that the acceptance may be
expressed in some usual and reasonable manner.
Communication of acceptance had been complete when
its comes to the knowledge of proposal. Thus, if the
acceptor remains silence after being proposed, the act of
silence cannot constitute an acceptance.

c) Exceptions communication of
acceptance
1) acceptance through post (postal rule)
2) Acceptance through performance of an act stated in
the proposal

1) Acceptance through post

S.4(2)(a) CA 1950 provides that the communication
of an acceptance is complete:
a) As against the proposer, when it is put in a course of
transmission to him
b) As against the acceptor, when it comes to the
knowledge of the proposer.

Case: Ignatius vs. Bell

Fact: The parties in this case agreed to use the post as a
means of communication. The defendants made a
proposal to sell his piece of land to the plaintiff and must
be exercised on or before the 20th August 1912. The
plaintiff sent his acceptance by registered post on 16 th
August 1912 but it was not delivered to the defendant till
25 August 1912.
Held: The court applying S.4 held that communication of
acceptance was complete when the notice of acceptance
was post on 16 August 1912, even though the defendant
did not know about the acceptance.

2) Acceptance through performance

of act stated in the proposal
In some cases, the acceptance need not be
communicated to the proposer.
S.8 CA 1950 provides that performance of the
conditions of a proposal is an acceptance of the
proposal.
Case: Carlill vs. Carbolic Smoke Ball

d) Revocation of acceptance
S.5(2) CA 1950 an acceptance may be revoked at any time
before the communication of the acceptance is complete as
against the acceptor, but not afterwards.
Example:

A proposes (by a letter sent by post), to sell his house to B.

B accepts the proposal (by letter sent by post).

B may revoke his acceptance at any time ( before or at the time

when) his letter of acceptance reaches A.

3) Consideration
Consideration is one of the essential elements of a valid
contract. The absence of consideration in any agreement
can nullify the validity of contract.
S. 26 CA 1950 provided that an agreement made
without consideration is void.
The essence of consideration is subject to the agreement
between the contracting parties.
According to S.2(d) CA 1950, when , at the desire of the
promisor, the promisee has done or abstained from doing
something is called a consideration of the promise

a) Types of consideration
Executory consideration
Executed consideration
Past consideration

i) Executory consideration
Consideration may be executory when one
promise is made in return for another promise.
Ex: Ali bought a car for the price of RM30,000
and he promise to add another RM500 if the
car was sent to him at his house.

ii) Executed consideration

Consideration may be executed when one promise is
made in return for the performance of the act.
Ex: Ana advertised a reward of RM100 to anyone who
finds and returns her lost watch. Caca find and return
the watch to her in response to the offer. Cacas
consideration for her promise is executed. Only her
liability remains outstanding, that is to pay Caca the
RM100 as reward.

iii) Past consideration

If a promise is made in return for an act that
has already been performed, that act is
regarded as past consideration.
For example, ali ali has saved ash from
drowning. safe after ash has promised to give
the ashes of RM200.

Exception to the rule of

consideration
S. 26 CA 1950 provide that an agreement without
consideration is void. However, there are exceptions
to this general rule.
This exceptions include the following:
1) Agreement made on account of natural love and
affection
2) Agreement to compensate a past voluntary act.
3) Agreement to pay a statute-barred debt.

Adequacy of consideration
Another important principle is on the adequacy of
consideration.
The question is : must consideration be adequate?
Can you sell your house worth RM100,000 for only
RM100 to En. Abu? Is the amount of RM 100 sufficient
as consideration for your promise?
S.26 CA 1950 an agreement to which the consent of
the promisor is freely given is not void merely
because the consideration is inadequate.
Case : Phang Swee Kim vs Beh I Hock

Consideration from third party

According to S. 2 (d) CA 1950 anyone may be
replace for the consideration whether he is not
involved in the said contract.
Case : Kerpa Singh vs. Barian Singh

4) Intention to create legal

relation
Intention reflects the true desire of a person to perform certain
act. In forming a valid contract, parties must have the intention
to create legal relation.
In S.2(a) CA 1950 which states with a view and S.2(d) CA 1950
which states with a desire
The word view and desire impliedly prove that the element of
intention as to create legal relation is legally required.
The law had divided an agreement into 2 categories:
A) Domestic, family and social agreement
B) Business Agreement

Case : Balfour vs. Balfour

Fact: A husband was employed in Ceylon but his wife was
unable to go back to Ceylon for medical reasons. He
consequently promised orally to make her an allowance of 30 a
month until she rejoined him. The husband failed to make the
payment and the wife sued him
Held : The court held they never intended to make a bargain
which could b enforced in law. Thus, there was no enforceable
contract between the parties.
Another case : Merritt vs. Merritt

5) Certainty
The term 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.
Case : Karuppan Chetty vs. Suah Tian

6) Capacity
Every person who want to entering into a valid
contract must be capable to enter the contract and
not are minors or unsound mind person.
S.11 CA 1950 states that every person is competent
to contract who is of the age of majority , sound mind
and not disqualified from contracting by ant law to
which he is subject.
Under The Age of Majority Act 1971, the act of
majority is 18 years old.

Case: Tan Hee Juan vs. The Boon

Keat
Fact: the plaintiff in this case was an infant. The infant
executed transfers of land in favour of the dependant.
The transfers were witnessed and registered.
Held: the court ruled that the transactions were void
and ordered the restoration of the property to the
minor. The court refused to to order the minor to
refund the purchase price paid by the defendant.
Other case : Government of Malaysia vs.
Gurcharan Singh

Exception of capacity
Contract for necessaries
Contract of scholarship
Contract of insurance

Free consent to contract

S.10 CA 1950 provides inter alia that all agreements
are contracts if they are made by the free consent of
parties.
By virtue of S.14, consent is said to be free when it is
not caused by one or more as following:
1) Coercion
2) Undue influence
3) Fraud
4) Misrepresentation
5) Mistake

Differentiate between void

contract and voidable contract
Void contract
The contract is already void because
unfulfilled the elements of contracts

Voidable contract
The contract is valid but then was
terminated by parties who entering that
contract.

1) Coercion
Coercion under S.15 CA1950 means the committing,
threatening to commit any act forbidden by the Penal
Code, with the intention of causing any person to enter
the agreement.
Case : Kesarmal s/o Letchman Das vs. Valiappa Chettiar

-The court held that a transfer executed under the order of

Sultan, issued under duress of 2 Japanese officers during
the Japanese Occupation of Malaysia was invalid.

2) Undue influence
According to S.16 (1) CA 1950, 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 than other.
Case : Chait Singh vs. Budin Bin Abdullah

3) Fraud
S.17 CA 1950 state that fraud includes any of the
following acts committed by a party to a contract with
intent to deceive another party to induce him to enter
into the contract.
A fraud including the following act such as:
i) The suggestion as to a fact which is not true by one
who does not believe it to be true
ii) A promise made without any intention of performing it
iii) Any other act fitted to deceive

Case : Senanyake vs. Annie Yeo

Fact : issue of whether a statement is true given by
the defendant on the financial position of the
defendant that caused the plaintiff's firm suffered
losses after investing in the firm which intention of
cheating from defendant.

Held: The court was decide the contract is void

because the defendant try to cheating the plaintiff.

4) Misrepresentation
Misrepresentation refer to an untrue statement made by
a representor and that induces the other party to enter
into a contract. It made without any intention to deceit
S.18 stated misrepresentation should be a single
statement of fact. If just a personal opinion only, it can
not be a misrepresentation even though this is not true.
Misrepresentation can be in two forms which is fraud
misrepresentation and faith misrepresentation which
they have no intention to deceive.

Case : R vs. Kylsant

Fact : issue of whether fraudulent statements in the prospectus
of the Company is considered to be a fraud misrepresentation.
Held :court decided that the fraud about the real facts about the
company's financial position is considered to be a fraud
misrepresentation.

5) Mistake
Under S.21, both parties to the contract are under a
mistake of fact, the contract is void, but under S.23,
when only one of the parties is under a mistake of fact
the contract is still valid.
Case : Raffles vs. Wichelhaus
Fact: Issues related to the mistake of the two ships
laden with cotton which is the subject matter of the
contract is treated as a mistake of fact in the contract
that makes the contract void. When disagreement
occurs on the one parties, the contract is not void.
(S.23 CA 1950)

Activity 1: One minutes paper

Question :
State 5 types of voidable contract

Answer 1:
5 types of voidable contract :

Coercion
Undue influence
Fraud
Misrepresentation
mistake

Activity 2: Three minutes paper

Question :

Illustratiate the case of the

following :
1)Chait Singh vs. Budin bin
Abdullah
2)Senanyake vs. Annie Yeo

Discharge of contract and

remedies

Contractual parties may discharge their contract and

once the contract is discharged, parties are no longer
bound to the terms of the contract.
The contract can be discharged through:1) Agreement of the contractual parties
2) Performance
3) Impossibility of performance/ frustration
4) Breach of contract

1) Discharge by agreement
between parties
A contract that is created by agreement can be discharged by
agreement.
New agreement can be in the following form:
1) Novation
2) Rescission
3) Alteration
4) Remission of performance

2) Discharge by performance
A contract is said to be discharged when the parties to the
contract has performed what they have agreed to do in the
contract.
Case : Bolton Vs. Mahadewa
Fact : The plaintiff has agreed to install a home heater to
defendant. After completion, the defendant refused to make the
payment because that heater does not work.
Held: The court held the plaintiff is not entitled to recover the
claim.

3)Discharge by
impossibility/frustration
Impossibility of performance covers two situations. Impossibility
at the time a contract is made and impossibility after it has been
made.
Impossibility at the time is made ( S.57(1) ) means an agreement
to do an act impossible in itself, which is void.
Case : Seng Djit Hin Nagurdas Pushotumdas
Fact: A marine transportation agreement to be impossibility when
the ship was taken over by the government after the war broke
out.

4)Discharge by breach
S.40 states when a party to a contract has refused
to perform or disable from performing, the promisee
may put an end to the contract.
This means, when a promisor fails to perform his
obligations or to tender performance, there is a
breach of the breach which entitles the party not in
breach to take appropriate action which may include
repudiation.

Remedies
In cases of breach of contract, the party not in default
may claim one or more of the following remedies:
a) Rescission of contract
b) Damages
c) Specific performance
d) Injunction
e) Quantum Meruit

a) Rescission of contract
Under S.40 CA 1950 when a party to a contract had
refused to perform his promise, the promisee may put
an end to the contract . It means that a nonperformance of a contract by any of the party to the
contract will entitle the other party to rescind the
contract.

2) Damages
The claim for damages in cases of breach of contract is provided
under S. 74 S.76 CA 1950. S.74 provides the measure of
damages recoverable by the claimant.
Case : Hadley vs. Baxendale
Fact : Plaintiff has made ordering a machine from Greewich
from defendant but due to the delay to send the machine to the
factory plaintiff causing the plaintiff to suffer losses.The court
ruled that the defendant is liable to pay a reasonable amount of
compensation to the defendant.

3) Specific Performance
Specific performance is a discretionary remedy
granted by the court.

The court directing that the contract shall be

performed specially according to its terms.

Example : A contracts with B to sell him a house for

RM1000. B is entitled to a decree directing A to
convey the house to him, he paying the purchasemoney.

4) Injunction
Injunction as a remedy is classified under Part III of the
Specific Act 1950 as Preventive Relief.
It is granted of the court and it can be either
prohibitory injunction and mandatory's injunction.
Case : Neoh Siew Eng & Anor vs.Too Chee Kwang
Fact : Homeowners have cut the water supply to the
tenant house. The court has issued an injunction order
so that homeowners do not cut off the supply of water
to his tenants.

5) Quantum Meruit
This remedy means that the claimant will be awarded
as much as he has earned or deserved. The remedy
can be used contractually or quasi-contractually.
Case : Bernady vs. Harding
Fact : The power of an agent has been terminated by
the principal before the agent could complete the
tasks. The court ruled the agent may claim based on
the work he has done during his duty.

Activity 3: Round Robin

Instruction:
You are required to discuss in your group regarding the following
matter :
1)

Offer

2)

Acceptance

3)

Consideration

4)

Certainty

5)

capacity

Activity 4: Gallery walk

Instruction :
Every group are required to prepared a
Gallery ( noted prepared during Round
Robin Activity) for view and discussion
from another group. Share your
knowledge with your classmates.

THE END
60

KURSUS PENGURUSAN PERNIAGAAN KV/PMJJUN15