INTRODUCTION

• The law of contract is the basic law that governs and

relates to most aspects of human life. It governs human
daily activities in almost all aspects, which may vary from
simple contracts entered by individuals in order to get
daily supplies to contracts of marriage, etc. Contracts
provide the means for individuals and businesses to sell
or transfer property, services and other rights.

• The common law of contracts developed in England

around the thirteenth century. Malaysian contract law
evolved from the English common law. In Malaysia, the
Contracts Act 1950 governs the law of contract.
However, the Contracts Act 1950 “ … is modelled on the
Indian Contracts Act 1872”, per Lord Brightman in Ooi
Boon Leong & Ors. v. Citibank NA [1984] 1 MLJ 222.
DEFINITION

• Basically a contract is a promise or set of promises

which the law will enforce. Section 2(h) of the
Contracts Act, 1950 provides that an agreement
enforceable by law is a contract.

• This definition has two elements. First there must

be agreement.

• Section 2(e) of the Contracts Act provides that

“every promise and every set of promises, forming the
consideration for each other, is an agreement”. A
promise is formed when a proposal is accepted

Offer + Acceptance = Agreement

DEFINITION

• A promise is formed when a proposal is accepted.

Therefore, there is an agreement if A’s offers to B to
sell his books for RM350 is accepted by B.

• Secondly, the agreement must be enforceable by law.

This implies that not all agreements are contracts
although all contracts must be based on agreement.
Any agreements, which are not enforceable by law, are
not considered as valid contracts.

• Therefore, if A promises B RM5,000 for murdering

C, to which B has agreed, the agreement is void and not
enforceable by law.
PARTIES TO CONTRACT

• Every contract must involve at least two parties that

is the person who proposes the contract, who is known
as the offeror, and the parties to whom the proposal is
made, who is known as the offeree.

Makes offer to B • Hence, if A makes an

offer to sell his books
for RM350 to B, A is the
offeror, being the person
who proposes a contract;
and B is the offeree,
being the person to whom
the proposal is made.
offeree offeror
ELEMENTS OF CONTRACT

Agreement Intention to create Formalities

legal relations

Consideration Capacity
& Lawful Object & Free Consent

Offer
Acceptance
Certainty of Terms (s. 30)
OFFER

• Offer or proposal is an expression of willingness to do

or to abstain from doing anything with a view to obtaining
the assent of that other to the act or abstinence (s. 2(a)
of the Contracts Act, 1950).

• It can be made either orally or in writing or implied by

the conduct of the person making the offer.

• An offer is made orally when a person uses verbal

communication in making his proposal. When he puts such
proposal in written form (including by sending such offer
through e-mail) then he is making offer in writing. When a
person takes an item from the shop-shelf, brings it to the
cashier and gives his money to pay for the items’ price, his
conduct indicates that he is making an offer.
Types of Offer

1. Bilateral Offer, ie, the offer that is made to a

specific person or group of persons
2. Unilateral Offer Carlill v. Carbolic Smoke Ball, ie,
the offer that is made to the world at large

• Generally an offer cannot be made to the world at

large. (Hence advertisement is not an offer)

• However, if the offer is conditional, then there is

effective offer and this can be accepted when the
offeree performs the act in question.
OFFER

Offer must be distinguished from:

1. Invitation to Treat
2. Mere answer to a request for Information
Invitation to Treat

1. Display of Goods in shops

(Pharmaceutical Society of GB v. Boots)
(Fisher v. Bell)

2. Advertisements
(Partridge v. Crittenden )
(Mazumder v. AG of Sarawak)

c/f Carlill v. Carbolic S.B.)

3. Auctions (Payne v. Cave)

Answer to a Request for Information

Hence in Harvey v. Facey where the appellant sent a

telegram to the respondent asking the price of Bumper
Hall Pen to which the respondent replied “Lowest cash
price for Bumper Hall Pen $900.” It was held that the
respondent was not bound by the subsequent telegram
from the appellant, stating that “we agree to buy Bumper
Hall Pen for $900 asked by you” because the respondent’s
telegram was merely a supply of information and not an
offer.
Cross Offer

There is no contract when A sends a letter to B

offering to sell his handphone for RM500 and B,
not knowing about this letter has sent an e-mail,
asking if A would sell his handphone for RM500 to
him.
Cross-offers are actually two offers, neither party
knowing of the other’s offer when he makes his
own. There is no acceptance hence there can’t be
any contract (Tinn v. Hoffman)
Termination of Offer

1. Revocation 2. Rejection 3. Lapse of Time

may be done either express or
anytime before the implied, ie by
offeree accepts the attempting to
offer, provided the modify the terms of
4. Lost of capacity
revocation is offer
communicated to
Hyde v. Wrench
the offeree
c/f Stevenson v.
5. Failure to meet
Revocation may be conditions
McLean, where the
communicated by a
court held that
reliable third party
further enquiry of
Dickinson v. Dodds
an offer is not
rejection of the
offer
Stevenson v. Mclean
The D offered to sell to the P 3,800 tons of iron
“…40s nett cash per ton.” The P telegraphed
the D “Please wire whether you would accept
40 for delivery over two months, or if not, the
longest time you would give.” the D did not
reply. The P, on the same day, accepted the
offer to sell at 40s cash. The D, in the mean
time, had already sold the iron to a third
party.
Held: The court found in favour of the P as the
original offer was still open.
Stevenson v. Mclean
A request for further and better
information, unlike counter offer, does not
indicate the original offer is not
acceptable. Rather, it is a situation where
the offeree is merely postponing his
decision until more information is received
to clarify certain points.
ACCEPTANCE

• Acceptance is a final and unqualified assent to the

terms of the offer, made in the manner specified or
indicated by the offeror.

• Section 7 of the Contracts Act, 1950 requires the

following conditions to be met:

a. acceptance must be absolute and unqualified.

b. acceptance must be communicated to the offeror.

c. be expressed in some usual and reasonable manner,
unless the proposal prescribes the manner in which it
is to be accepted.
Types of Acceptance

Types of Acceptance: 1. By Conduct

2. Oral Acceptance
3. Acceptance in writing

Silence is not acceptance (Felthouse v. Bindley)

Exceptions:
1. The offeree assumed the duty to do positive act to
reject the offer;
2. Unilateral contract, where the offeror has waived
the need of communication of acceptance;
3. Previous course of dealing.
Conditions of Acceptance

1. Acceptance must be absolute and

unqualified. Any attempt to modify the
contents of an offer will operate as implied
rejection to the offer; if the parties are
still negotiating, the agreement is not yet
formed- Hyde v. Wrench

2. When there are conditions stated in the

offer as to how the acceptance shall be
communicated, these shall be complied with;

3. Acceptance must be communicated to the

offeror.
Case: Hyde v. Wrench
• Facts: The defendant on 6 June offered to sell his
farm to the plaintiff for £1000 and on 8 June the
plaintiff replied that he was willing to buy the
farm for £950. The defendant refused to sell the
farm for £950. Then on 29 June the plaintiff was
willing to buy the farm for £1000.

• Held: No contract was made between them

because the plaintiff made a counter-offer
Communication of Acceptance

1. By Instantaneous Modes of Communication

(there must be actual communication. S. 4(1))
( Entores v. Miles Far East Corporation)

2. Postal Acceptance Rule (Ignatius v. Bell)

(Communication is presumed by properly
sending the letter. See illustration b to s. 4)

3. Internet Communication
(whether Instantaneous or postal?)
CERTAINTY OF TERMS

• It is very important that the terms of an

agreement must be certain because section 30 of
the Contracts Act provides that any ‘agreements,
the meaning of which is not certain, or capable of
being made certain, are void’
•An agreement between A and B to sell ‘a hundred
tons of oil’ without any indication as to the kind of
oil was intended is void for uncertainty. However if
there is any indication that specifies the kind of oil,
then the agreement is valid.
•A lease term “ as long as the leasee likes” is void as
it is vague. ( Karuppan Chetty v. Suah Thian)
CONSIDERATION

• Section 2 (d) defines consideration as the act of

the promisee or his abstinence from doing either in
past or present or even his promise to act or to
abstain from doing something, at the desire of the
promisor.

• In Currie v. Misa, the word consideration is

defined as ‘some right, interest, profit or benefit
accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or
undertaken by other.’
Types of Consideration

1. Executed: in return for promise, the other party

performs an act (Carlill v. Carbollic SM)

2. Executory: in return for a promise, the other

party gives promise to do something in future

3. Past: promise given in returned for an act done

(this type of consideration is not generally
considered as a good consideration Roscorla v.
Thomas. Exception --> if done with request,
understood to be rewarded and it’s legal)
Past Consideration

• The above is the principle as enunciated by the common

law of England. However in Malaysia, the principle has been
modified. S. 2(d) of the Contracts Act, 1950 recognises
past consideration where there has been a desire
expressed first by the promisor (Kepong Prospecting Ltd. &
Others v. Schmidt)
• However, an exception to the general doctrine of
consideration is provided in s. 26 and s. 26(2) provides: “An
agreement made, without consideration is void unless it is a
promise to compensate… a person which has already voluntarily
done something for the promisor, or something which the
promisor was legally compellable to do.”
• Hence, in Malaysia, past consideration is a good
consideration
Conditions of Consideration

• Consideration must be lawful: ss. 24 and 25

• Consideration must move from the promisee in order for

the promise to promisee to enforce the contract (Tweddle
v. Atkinson) - this principle is not applicable in Malaysia
since section 2(d) that defines that word ‘consideration’
expressly allows the consideration to be given by the
promisee or any other person

• Consideration must be sufficient but need not be

adequate (Chapple v. Nestle) - There are situations where
consideration may be considered as insufficient. Two of
those include the situation where there is a performance
of an existing obligation, and where there is part payment
of a debt.
Performance of Existing Obligation

• Performance of existing obligation can essentially be

divided into two categories:
1. The performance of public duty imposed by law;
2. The performance of an existing contractual obligation
owed to the defendant.

• The two categories are not considered as sufficient

consideration
Part Payment of Debt

• Generally, English law regards part payment of debt is

not a sufficient consideration unless if, at the creditor’s
request, it is made in a different form, or at a different
place or time: Pinnels’ case

• Similarly, part payment of debt is sufficient when the

payment is made by a third party: Hirachand Punamchand
v. Temple

• In Malaysia, this principle is governed by section 64 of

the Contracts Act that provides: “every promisee may
dispense with or remit, wholly or in part, the performance
of the promise made to him, or may extend the time for
such performance, of may accept instead of it any
satisfaction which he thinks fit.”
Necessity for Consideration

• Section 26 provides that an agreement made without

consideration is void.
• There are exceptions to this. These exceptions include
1. an agreement in writing and registered (when
applicable) made on account of natural love and
affection between parties standing in a near relation to
each other;
2. a promise to compensate a past voluntary act or to
compensate a person who had done something which the
promisor was legally compellable to do; or
3. a promise to pay a debt bared by limitation law.
LAWFUL OBJECT

• Section 24 of the Contracts Act provides that the object

or an agreement is lawful unless:
(a) it is forbidden by a law;
(b) it is of such 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.

• The object of an agreement must be lawful because if any

part of the object is unlawful, the agreement is void: s. 25.
INTENTION TO CREATE
LEGAL RELATIONS

• Some agreements are not intended to be legally

enforceable. There is this presumption in domestic and
social arrangements (Balfour v. Balfour)

• The above presumption may be rebutted if contrary

conclusion is reached by the court after examining the
words used and surrounding circumstances (Merrit v.
Merrit)

• In cases involving commercial dealings, the mere

fact that an agreement is supported by the
consideration raises a presumption that the parties
intended the agreement to be legally binding
INTENTION TO CREATE
LEGAL RELATIONS

• In order to determine whether there is any intention to create

legal relations, it is necessary to ask the following questions and
adopt this approach:
1. Is the agreement social/domestic or commercial in nature?
2. * If it is domestic/social arrangements the presumption is;
there is no intention to create legal relations.
** However if it is commercial agreement, it is presumed that
the parties intended to bind one another legally.
3. Is there any evidence to rebut the above presumption?
4. * If the answer is ‘no’, then the presumption shall stand.
** However if there’s any evidence to show the contrary, the
presumption is rebutted and the result shall be contrary to the
presumption. (See the case of Jones v. Vernon’s Pools Ltd)
CAPACITY

Natural Persons Corporations

Subject to the provision

Age Sanity of Companies Act, 1965 &
the doctrine of ultra vires
Ss 11 & 12

Must be at least 18 (the Age of majority Act 1971)

Minors’ contract is void (s. 11 of the Contract Act)
• Exception is provided in s. 69 of the Contract Act as applied
in Government of Malaysia v. Gurcharan Singh & ors. See s. 4
of the Contracts (Amendment) Act 1976
Case: Mohori Bibee v. Dharmodas Ghose

• Fact: Privy Council held that an infant could not make any
valid contracts.
- Exceptions
a) Contracts for necessaries
b) Contracts of Scholarship
c) Contracts of Insurance

• Contracts for Necessaries: Under section 69 of the

Contracts Act 1950 (Malaysia) a person may supply to a
mentally disordered person or a minor necessaries suited
to their condition in life and that person is entitled to be
reimbursed from the property of such incapable persons.
Case: Government of Malaysia
v. Gurcharan Singh

Fact: Government spent RM 11,500 for the

defendant for his education purpose when he was a
minor student. So, a contract was made with the
defendant. Later the defendant refused to pay back
the money.
Held: The court held that the money given for
education came under necessaries and therefore the
defendant was bound to pay back.
FREE CONSENT

• Section 13 of the Contracts Act provide

that ‘two or more persons are said to consent
when they agree upon the same thing in the
same sense.’

• Consent is said to be freely given if it is not

caused by coercion, undue influence, fraud,
misrepresentation, and mistake: s. 14
Coercion, Fraud & Misrepresentation

• Section 15 defines ‘coercion’ as 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, whit the intention of causing any person
to enter into an agreement.( Kesarmal v. Valiappa Chettiar)

• Section 17 defines ‘fraud’ so as to include any suggestion, as to

a fact, of that which is not true by one who does not believe it to
be true; or the active concealment of a fact by one having
knowledge of belief of the fact; or a promise made without any
intention of performing it; or any other act fitted to deceive; or
any such act or omission as the law specially declares to be
fraudulent—committed by a party to a contract…with intent to
induce him to enter into the contract.
(Kheng Chwee Lian v. Wong Tak Thong)
Coercion, Fraud & Misrepresentation

• Section 18 of the Contracts Act defines ‘misrepresentation’ so as

to include 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; or 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; or 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.

• When consent to an agreement is caused by coercion, fraud, or

misrepresentation, the contract is voidable: s. 19(1). Voidable
contract has been defined as an agreement enforceable by law at the
option of one or more of the parties thereto, but not at the option of
the other or others: s. 2(i). Therefore the person, whose consent has
been impaired either by coercion or fraud or misrepresentation, has
the right to choose either to terminate the agreement or otherwise.
Undue Influence

• Section 16 of the Contracts Act provides that a contract is said to

be induced by ‘undue influence’ where the relationship 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. (section 16(1). There is the
presumption that a person is in position to dominate the will of
another if he holds a real or apparent authority over the other or he
stands in a fiduciary relation to the other (section 16(2)(a)); or he
makes a contract with a person whose mental capacity is temporarily
or permanently affected by reason of age, illness or mental of bodily
distress: s. 16(2)(b).

• Cases law suggest that ‘undue influence’ can be categorised into

two categories. In Allcard v. Skinner (1887) 36 Ch D 145, the Court
of Appeal stated that the doctrine of undue influence may be divided
into two classes; namely actual undue influence and presumed undue
influence.
Undue Influence

• For cases falling within the class of actual undue influence, the
claimant has to prove that the wrongdoer exerted undue influence on the
complainant to enter into the transaction.
• However in cases involving parties with relationship where undue
influence may be presumed, the claimant does not have to prove that
actual undue influence was exerted in relation to the transaction he
entered into. He only has to show that there was a relationship of trust
and confidence between the complainant and the wrongdoer and it can be
presumed from such relationship that the wrongdoer had abused this to
procure the complainant to enter into unconscionable contract. Once this
is done, the burden will be shifted to the wrongdoer to rebut the
presumption of undue influence.
• When a contract has been entered into as a result of undue influence,
such contract is voidable at the option of the party whose consent was so
caused. The contract may be set aside absolutely or if the complainant
has received any benefit thereunder, then it may be set aside upon such
terms and conditions as the court may think just: s. 20.
Mistake

• Section 21 of the Contracts Act provides that an

agreement is void where both parties are under mistake as
to matter of fact.

• However if a contract caused by mistake of fact of only

one party, then the contract does not, by itself, become
voidable: s. 23.

• A contract does not become voidable on the basis of

mistake of law: s. 22.

• If the mistake is of foreign law, which is not in force in

Malaysia, this will have the same consequence as mistake of
fact, that is to say, the contract is void if there is common
mistake, but the contract is valid if the mistake is
unilateral.
FORMALITIES

• Section 10(2) provides that the provisions of the

Contract Act will not affect any formalities
requirement that may be required by other statutes.

• Hence in Sabah & Serawak, transfer of land or any

interest therein must be made in writing (as required
by the Statute of Frauds.
• Similarly, The Hire-Purchase Act, 1967 requires
that a hire-purchase agreement must be made in
writing and must be signed (ss. 4A & 4B). Hence unless
the formalities are observed, a hire-purchase
agreement is not legally enforceable by the owner.
Terms of the Contract
• There are two terms:
- Condition
- Warranty
Condition: A condition is a stipulation
essential to the main purpose of the contract
and the breach of which entitles the injured
party to repudiate the contract.
Warranty: 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 a right to
repudiate the contract.

Case: Associated Metal Smelters Ltd. v. Tham Chew

Toh
Fact: The defendant had agreed to sell a metal
melting furnace to the plaintiff and the plaintiff
stipulated that the temperature should not be lower
than 2, 600 degree F. The defendant supplied the
furnace with lower than 2,600 degree F.
Held: The stipulation was a condition.
Exclusion Clauses
• Standard contracts include exclusion clauses.
• Exclusion clauses exclude the liabilities of a
contracting party.
• Bus, train and air travel companies, banking and
insurance companies usually include exclusion
clauses in their contract with the customers.
• Exclusion clauses are normally held valid and
operative by the court unless there is no
fundamental breach of obligation in the contract.
Case: Port Swettenham Authority v. T.W. Wu
and Company
Fact: Ninety-three cases of pharmaceutical goods were
unloaded at Port Klang and kept in the custody of the
Port Authority. Sixty-four cases of pharmaceutical
goods were stolen due to the negligence of the Port
Authority. By-law 91(1) of the Port Sweetenham
Authority By-laws 1965 excluded the liability of the
Port authority for any loss or damage of the goods.
Held: The exclusion clause was invalid as it excluded
the fundamental obligation of the port authority.
Discharge of contracts
• 3 ways in which a contract may be
discharged:
a) Discharge by performance
b) Discharge by frustration
c) Discharge by breach of contract
Discharge by performance
• If the parties perform their respective
promises in accordance with the terms of
the agreement, then it is said that the
contract has been discharged by
performance.
Discharge by frustration
• A contract is frustrated if the contract
legally or physically becomes impossible to
perform for subsequent change of
circumstances.
Discharge by Breach of contract

• If one of the parties in a contract refuses to

perform his promise it is said that the
contract has been discharged by breach.
• Example: A agrees to sell his apartment to
B for RM120,000 but after some days A
refuses to sell the apartment. Here A has
breached the contract.
Remedies for Breach of Contracts

• There are four remedies for breach of

contract. They are as follows:

a) Damages
b) Specific Performance
c) Injunction
d) Quantum Meruit
Damages
• If one of the parties breaks the contract made
between them, then the party affected by the
breach may claim damages from the party who has
breached the contract.
• Case: Associated Metal Smelters Ltd. v. Tham
Chew Toh
• Fact: The defendants had agreed to sell the furnace to the
plaintiff and had given an undertaking that the melting
furnace would have temperature not lower than 2,600
degrees F.
The furnace supplied by the defendants did not
in fact reach the required temperature.

Held: The court held that the defendant has

breached the condition in the contract.
Therefore, the plaintiff could treat the
condition as warranty and could claim
damages.
Specific Performance
• In specific performance, the court orders the party
which breaks the contract to perform his promise.
• Example: A promised to sell his house to B and B
promised to buy it for RM 100,000. However,
later A refused to fulfil the contract. Here if B sues
A for specific performance the court may order A
to fulfil the contract.
Specific performance is a discretionary remedy. The
court may refuse to grant specific performance if the
injured party may get damages and that damages can
provide an adequate remedy.
Case: Yeo Long Seng v. Lucky Park (Pty.) Ltd.,

Held: the court refused to grant specific performance

because the damages could provide adequate
remedies.
Injunction
• If one of the parties breaches the contract then the
other party may apply for interlocutory injunction
to maintain status quo of the subject-matter in a
pending suit.
• Example: A has made a contract to sell his land to
B. However, after few days A made another
contract with C to sell the same land. Here the
court can grant interlocutory injunction requiring
A not to transfer the ownership of the land to C.
Injunction may be mandatory or prohibitory
in nature.

In Neoh Siew Eng case the court granted an

injunction requiring the landlord to keep the
water supply open for his tenants.
Quantum Merit

• In the event of a breach of contract, the injured

party may have a claim other than that for
damages. In particular he may claim payment for
what he has done under the contract.
• Case: Planche v. Cloburn (1831)
• Fact: P agreed with C to write a volume on ancient
armour for a periodical called The Juvenile
Library for 100 pounds.
After P had written part of his work the defendant C
abandoned the periodical. The Contract could not,
therefore, be completely performed, and P sued.

Held: The court held that the defendant had

repudiated the contract and P was entitled to treat it
as discharged and recover on a quantum meruit for
the work he had already done.