CORPORATE LAW SEMESTER 1

Summary : The Law of Contract

LECTURER: En. Zawawi AUTHOR: KHAIRUL HAKIMI BIN ABDUL AZIZ (60397113034)

Summary of the Law of Contract in Malaysia

Law of contract in Malaysia is administrates by Contract Act 1950 (Act 136) (Revised 1974). Contract defines as agreement between parties enforceable by law in Section 2(h) Contract Act. It is comprises of offer, acceptance, intention for legal relation, consideration, certainty and capacity. Offer must be firm or definite promise (Section 2(c) Contract Act) as in case of GUNTHING V LYNN (1831), may be create to a person or a group as in case of CARLILL V CARBOLIC SMOKE BALL CO. (1892), may be done in writing, words or conduct (Section 9 Contract Act), must be communicated to acceptor by offeror (Section 4(1) and 3(1) Contract Act). Counter-offer cancelled the Original offer as in case of HYDE V WRENCH (1890), while binding contract formed when Counter-offer became Offer when accepted by original offeror as in case of BUTLER MACHINE TOOL CO V EX-CELL-O-CORP (1979). Offeree asks for information from offeror which must be answered and it does not abolish offer as in case of STEVENSON V McLEAN (1880). Offer must be differentiate from invitation to treat such as advertisement (effort to induce offers) as in cases of COELHO V THE PUBLIC SERVICES COMMISSION (1964) MLJ 12, PARTRIAGE V CRITTENDEN (1968), and M. N. GUHA MAJUNDER V R. E. DONOUGH (1974) 2MLJ 114, displays of goods as in cases of PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V BOOTS CASH CHEMIST LTD (1953) 1QB 401 and FISHER V BELL (1961), auction sales as in case of PAYNE V CAVE (1789) and invitation for tenders. Offer is different from mere supply of information as in case of HARVEY V FACEY (1835). Under the Section 6 Contract Act (1950), offer could be revoke at any time before acceptance by the communication of revocation, lapse of time, failure of acceptor to fulfill preliminary condition, death and mental disorder. Communication of revocation must be made to acceptors kno wledge (Section 3 Contract Act), it is complete when offeror sent the revocation and acceptor received it (Section 4(3) Contract Act), it does not revoke offer by simply posting letter until it is received as in case of BRYNE V TIENHOVEN (1880), it is sufficient using reliable informant third party as in case of DICKENSON V DOODS (1876). Offer may revokes for a specified time or expires after a reasonable time which is based on circumstances of case as in case of RAMSGATE VICTORIA HOTEL CO V MONTEFIORE (1866). Failure to fulfill a condition precedent may cause the offer to revoke (Section 6(c) Contract Act) as in case of FINANCINGS LTD V STIMSON (1962). When offer made accepted it becomes a promise (Section 2(b) Contract Act). Person accepting proposal is called promisee (Section 2(c) of Contract Act). Acceptance made in word (expressed) while made in other than word (implied) as in (Section 9 Contract Act), it must be absolute and unqualified for complete consensus as in case of LAU BROTHERS & CO V CHINA PACIFIC NAVIGATION CO. LTD (1965) 1 MLJ 1. Concluded contract not happens when acceptance using agreement to enter into the real agreement as in case of LOW KAR YIT & ORS. V MOHD ISA & ANOR (1963) MLJ 165. Acceptance must be expressed in some usual and reasonable manner (Section 7(b) Contract Act), it must be agreed within reasonable time (Section 6(b) Contract Act) as in case of MACON WORKS & TRADING SDN BHD V PHANG HON CHIN & ANOR (1976) 2 MLJ 177, it must be communicated (Section 3 Contract Act), it is effective when posted accordance to postal rule (Section 4 Contract Act) as in case of ADAMS V LINDSELL (1818) and HOUSEHOLD FIRE AND CARRIAGE ACCIDENT INSURANCE CO. V GRANT (1879). Using performing condition acceptor or receiving consideration by acceptor (Section 8 Contract Act), it may be defines as acceptance as in case of HOLIWELL SECURITIES LTD V HUGHES (1974) 1 WLR 155. Intention to create legal relations is required for valid contract as in case of CHOO TIONG HIN 7 ORS V CHOO HOCK SWEE (1959) MLJ 67. Agreement without consideration is void (Section 26 Contract Act). Consideration need not to be adequate as in case of PHANG SWEE KIM V BEH I HOCK (1964) MLJ 383, it can be done even not from the promisee as in case of VENKATA CHINNAYA V VERIKATAR MAYA (1881) it may uses past consideration (Section 2(d) Contract act) as in case of KEPONG PROSPECTING LTD & ORS V SCHMIDT (1968) 1 MLJ 170. Natural love and affection between parties standing in near relation are valid consideration based f customs and practices of such group (Section 26(a) Contract Act) as in case of RE TAN SOH SIM (1951) MLJ 21. However, 3 types of agreement is valid without consideration such as expressed in writing and registered, or promise to compensate for things done, or promise to pay debt barred by limitation law.

Agreement must be certain as in case of KARUPPAN CHETTY V SUAH THIAN (1916). Parties engaging contract must have legal capacity. Every person who is age of majority (Age of Majority Act, 1971) according to law and sound mind is competent for contract and qualified to be contracted by law (Section 11 Contract Act). However, 3 exceptions have been made such as contract for necessaries (Section 26 Contract Act) as in cases of RYDER V WOMBWELL (1868), PETERS V FLEMING (1840) and ELKINGTON V AMERY (1936), contract for scholarship (Section 4(a) and 5 of Contract (Amendment) Act, 1976), enable contract for insurance for Infant over age of ten while below age of sixteen may come with the parents or guardians consent (Insurance Act, 1963 to be revised 1972). Illegal contract (Void) is an agreement not enforceable by law (Section 2(g) Contract Act), happens when both parties under mistakes as to matter of fact (Section 21 Contract Act), if one party makes unilateral mistakes, the contract is not void (Section 23 Contract Act) as in case of FREEMAN V KIAMESHA CONCORD INC (1974), consideration or object of an agreement is unlawful if falls within any of subsection of section (Section 24 Contract Act), if any part of considerations or objects unlawful (Section 25 Contract Act), without consideration (Section 26 Contract Act), restrain of marriage to any person, other than a minor during his or her minority (Section 27 of Contract Act), uncertainty (Section 30 Contract Act), and way of wager (Section 31 Contract Act). However, under Section 31(1), 31(2) and 31(3) state that exception to the provision by way of wager for horse-racing. If contract is void or illegal then person who received any advantage shall restore or pay the adequate compensation (Section 66 Contract Act). Contract becomes voidable by coercion (Section 15 Contract Act), undue influence (Section 16 of Contract Act), fraud (Section 17 of Contract Act), misrepresentation (Section 18 Contract Act), or mistake (Section 19 Contract Act). There are four ways of discharge of contract such as discharge of performance (Section 38(1) , 38(2) , 40, 41 and 42 Contract Act) as in cases of BOLTON V MAHADEVA (1972) and CUTTER V POWELL (1795), discharge by agreement as in case of ABERFOYLE PLANTATION LTD V CHENG (1960) and HEAD V TATTERSALL (1871), discharge by frustration (Section 57 Contract Act) through destruction of subject matter as in case of TAYLOR V CALDWELL (1863), government intervention as in case of METROPOLITAN WATER BOARD V DICK, KERR & CO (1918), Re SHIPTON, supervening illegality as in case of ANDERSON & CO AND HARRISON BROTHERS & CO (1915) and Non-occurrence of an event if it the sole purpose of the contract as in case of KRELL V HENRY (1903). Contract may be discharge by breach of contract as in case of BAN HONG JOO MINES LTD V CHEN & YAP LTD (1969) for refusal to perform, CUTTER V POWELL (1975) for disability to perform, SUMPTER V HEDGES (1898) and BOLTON V MAHADEVA (1972). Remedies for breach of contract are damages, specific performance, injunction and quantum meruit. Damages given to party as compensation, the provision for compensation for loss or damage caused by breach of contract (Section 74), compensation for failure to discharge obligation resembling by created contract (Section 74), compensation for breach of contract where penalty stipulated for (Section 75), responsibility of finder of goods (Section 72), liability of person to whom money is paid, or thing delivered, by mistake or under coercion (Section 73), part rightfully rescinding contract entitled to compensation (Section 76), contract indemnity (Section 77), rights of indemnity-holder when sued (Section 78) such as in case of WEARNE BROTHERS (M) LTD V JACKSON (1966). Under Section 74 Contract Act, a party request for damage also under duty to mitigate loss as in case of KABATASAN TIMBER EXTRACTION CO V CHONG FAH SHING (1969). Specific Relief Act (1950) defines that specific performance issued by court to ensure justice is done. Court filed an injunction for remedies of contract breach (Section 50 of Specific Relief Act, 1950) in which defines preventive relief from court by injunction, temporary or perpetual. Temporary Injunction is (Section 51(1) of Specific Relief Act) as in case of NEOH SIEW ENG & ANOR V TOO CHEE KWANG (1963) while Permanent injunction is (Section 51(2) and 52 of Specific Relief Act). Quantum meruit may be used as in case of De BERNARD V HARDING (1853) and PLANCHE V COLBURN (1831).