LAW OF CONTRACT - LAW 416 SEM 4/23 HHHHH

Law of Contract

1. CHAPTER 2: LAW OF CONTRACT Prepared by: Madam Siti Asishah Hassan, Pensyarah, Jabatan Undang-Undang, UiTM Perlis

2. WHAT IS CONTRACT? 2

3. Introduction Contra c t An agreement made between two or more parties, which the law will enforce. S. 2(h) of the Contracts Act 1950 – Contract is an agreement enforceable by law. A contract acquires certain rights and obligations which are legally enforceable. 3

4. Cont… If A breaks a promise or refuse to fulfill his promise.... B may sue A for breach of contract However, it must be a VALID CONTRACT 4

5. Types of Contract Valid Void V oi d a b le Unenforceable

6. Contracts - 2 MAIN TYPES: Bilateral The standard type of contract whereby both parties (the promisor and the promise) promise to do something and then carry out their part of promise. eg: Buying a loaf of bread from the bakery Unilateral Only one party make a promise and the other accepts the offer by performing the condition. Eg: Finding a lost cat. The best example of the case law : Carlill v Carbolic Smoke Ball Co.

7. Bilateral Contract promise to sell promise to buy

8. Unilateral Contract promise to give a reward for those who finds and returns his lost cat Finds and returns the lost cat

9. “ ALL CONTRACTS ARE AGREEMENTS” ( eg: an agreement between a seller and a buyer) BUT “NOT ALL AGREEMENTS ARE CONTRACTS” ( eg: an agreement between a father and a son) 9 Contract v Agreement

10. ESSENTIALS FOR A VALID CONTRACT - Masuk quiz 10 Proposal/Offer Acceptance Intention to create legal obligation Consideration Certainty Legal capacity Free consent Legality of the objects Required formalities

11. What is Proposal?

12. 1.PROPOSAL S.2(a) of the Contract Act 1950 provides that: When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal. Ex amp l e : M r . S qu i d w ard wrote offer i n g t o se l l his car to Mr. Crab for RM50,000. 12

13. The person making the proposal is called promisor / proposer / offeror The party accepting the proposal is called promisee / proposee / offeree 13

14. COMMUNICATION OF PROPOSAL A proposal can be made in any form (Section 9 CA 1950): EXPRESS- writing and verbal IMPLIED- by conduct A proposal can be made to an individual, a class of persons, a firm, a company or to the public at large. Types of Offer/Proposal: Specific (Individual) General (Public at Large) 14

15. Specific : It is made to one person or group of people. Then only that particular person or group of people can accept. BOULTON V JONES (1857) Jones Brockle Hurst B o u l ton J offer BH to purchase certain goods BH sold his business to B B sent the goods to J refused to pay after knowing the changing of hands of the biz Held: Jones was not liable to pay. There was no contract.

16. Carlill v Carbolic Smoke Ball Co. (1893) IQB 256 16 General : It is made to ‘the whole world’ (the public at large), particularly seen in the cases of rewards and other public advertisements.

17. Con t… CSB issued an advertisement offered to pay ₤100 to any person who succumbed to influenza after having used one of their smoke balls in a specified period. Mrs. Carlill bought and used the smokes ball as prescribed and caught influenza. sued the company for the promised reward. Held: There was an offer made by the company to the public at large. Acceptance on the part of Mrs. Carlill when she bought and used the smokes ball. Therefore, she was entitled for the reward. 17

18. Rule: Offer must be clear and not too vague GUTHING v LYNN Pay ₤5 EXTRA if the horse brings LUCK TOO VAGUE 18

19. RULE: COMMUNICATION OF PROPOSAL - KNOWLEDGE The communication of the proposal is complete when it comes to the knowledge of the person to whom it is made (S.4(1) of the Contracts Act 1950). Only an addressee may accept the proposal A party accepting a proposal must be aware of its existence. A party who casually returns a lost property to its owner cannot legally claim a reward if he is unaware of it at the time but subsequently discovers the existence of an offer of rewards for its return.

20. TAYLOR v LAIRD (1856) Captain of the ship- resigned from his work – work as ordinary crew- claim for wages – Df did not receive any offer of work - Held: he could x claim for the wages WILLIAMS v CARWARDINE (1833) Mrs. W gave the info about the murderer of Walter Carwardine – coz feared that she would soon die – Held: she was entitled to the reward as long as she aware of the reward. Motive is irrelevant. 20

21. Cont… R v CLARKE [1927] The Western Australian Gov. offered a reward for information leading to the arrest and conviction of persons responsible for the murder of two police officers. Held: The claimed failed on the grounds that the information was given to clear himself and not in reliance on the offer of rewards.

22. PROPOSAL INVITATION TO TREAT It is capable of acceptance. No negotiation It is not a proposal. An invitation to others to make an offer or negotiate the offer. OFFER v INVITATION TO TREAT 22

23. Invitation to Treat Definition: A sort of preliminary communication which passes between the parties at the stage of negotiation. Examples of invitation to treat : 1) The display of goods with a price ticket attached in a shop window or on a supermarket. T hi s i s n o t an offe r t o sel l bu t a n i n vitation for customers to make an offer to buy. 23

24. Con t … FISHER v BELL Held: The display of goods is an invitation to treat ( not an offer to sell) PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v BOOTS CASH CHEMISTS LTD Drugs were displayed in open shelves. Held: The display was an invitation to treat. (Payment was to be made at the exit where a cashier w as st a tioned a n d a ph a rmaci s t s upe r vised the transaction and authorized to prevent a sale.) 24

25. Cont… 2. Advertisements, catalogues and brochures . PARTRIDGE v CRITTENDEN [1968] Held: the advertisement was an invitation to treat. However, there are some situations where an advertisement may be regarded as a definite offer: Carlill’s case. COELHO v THE PUBLIC SERVICES COMMISSION [1964] Held: The advertisement is an invitation to treat. When Coelho applied, he is making a proposal. When he was employed, the defendant was accepting the proposal. Thus, a valid contract exists between them. The defendant cannot simply terminate his post. 25

26. Cont… 3. Auctions PAYNE v CAVE [1789] Defendant made the highest bid (offer) at an auction sale but withdrew his bid before the fall of the auctioneer’s hammer (acceptance). Held: Defendant was not bound to purchase the goods. HARRIS v NICKERSON [1873] It was informed to the public that an auction sale was to include office furniture. It was found out that there was no office furniture on auction. The Plaintiff sued the Defendant for breach of contract. Held: the auction sale is an invitation to treat. Proposal only exists when the customer bids. Contract only exist when the auctioneer accepts the price bids by the customer. There was no contracts exists between the auctioneer and the customer 26

27. Cont… Tender – SPENCER v HARDING Company prospectus Statements of price in negotiations for the sale of land. HARVEY v FARCEY [1893] Harvey sent telegram to Farcey: “Will u sell us Bumper Hall Pen? Telegraph lowest cash price…” H arvey telegraphed hi s r e sp o ns e : We agree to buy Bumper Hall Pen for £900 asked by u. Held: there was no contract

28. S.5(1) CA: “A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.” S. 6 CA states that a proposal is revoked: By notice of revocation – BYRNE v TIENHOVEN By the lapse of time – RAMSGATE VICTORIA HOTEL By the failure of acceptor to fulfil a condition precedent – FINANCINGS LTD v STIMSON By the death or mental disorder of the party - BRADBURY v MORGAN TERMINATION OF PROPOSAL

29. Who can revoke the offer? Dickinson v Dodds (1875) Dodds offered to sell his house to Dickinson (Dodds would keep the offer until Friday). However, on Thursday, Dodds sold the house to the third party. Dickinson sued Dodds for breach of contract. Held: There was no binding contract formed. The Df had communicated an offer for buying his house to the Pf and this offer can be revoked any time before there is acceptance.

30. Cont… REJECTION An offer is rejected if: The offeree notifies the offeror to that he does not wish to accept the offer; Th e offer e e attemp t s to a c ce p t s ubje c t t o certain conditions; The offeree makes a counter-offer.

31. Cont… Illustration- S. 5 A proposes by a letter sent by post to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards. HYDE v WRENCH Wrench offered to sell his farm to Hyde for £1,000. Hyde replied with a counter-offer of £950 which was refused. The n H y d e was pr e p a r e d to meet the origi n al o f offe r of £1,000. Held: No contract had been formed

32. When the revocation of offer is effective? - Effective only after the offeree knows that the offer has been revoked. BYRNE v TIENHOVEN [1880] Df offered to sell 1,000 boxes of tinplates to the Pf. 1 Oct: 8 Oct: 11 Oct: 20 Oct: Df posted letter of offer in Cardiff to the Pf in New York. Df posted a letter revoking the offer of Oct 1. Pf received the letter of offer posted on Oct 1 and sent acceptance by telegram the same day. It also followed up with letter of acceptance on 15 Oct. Df’s letter of revocation received by the Pf. There was a contract because the revocation of the offer posted on 8 October was not effective till 20 October when it was received by the Pf but in the meantime, the latter had already accepted the offer on 11 October when the telegram was sent.

33. Definition: S.2 (b) CA “when a person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted, a proposal when accepted becomes a promise .” S.9 CA provides that, ”where the acceptance is made i n w o rds , t h e acceptance where the acceptance is made i s expr e sse d , o t he r than in words , it is implied .” 2.ACCEPTANCE 33

34. Con t … S.7(a) CA “ Acceptance must be absolute and unqualified .” Meaning: The acceptance must be made on exactly the same terms as proposed without modifications or variations . Any modifications / variations does not constitute an acceptance but amounts to a COUNTER-OFFER rejection of the offer. 34

35. Cont … 35 June 6- June 8- June 27- HYDE V WRENCH (1840) Defendant offered to sell his estate to the Plaintiff for £1,000. Plaintiff replied stating he was willing to buy at £ 950, defendant refused to sell. Plaintiff wrote again offering to pay £1,000 Held: By making th e counter of f er th e plaintif f ha d rej e cted the accept it original offer on June 8, and is no longer able to later. There was no contract formed.

36. COUNTER-OFFER v REQUEST / INQUIRY STEVENSON JAQUES & CO v MCLEAN [1880] The defendant offered to the Plaintiff to sell iron and would open the offer till Monday . On Monday, plaintiff sent telegram asking about method of delivery. The defendant sent a telegram telling about the sale to another purchaser. The plaintiff again sent a telegram accepting the offer without knowing about the sale to another purchaser. HELD: There was a contract between them. There was no counter-offer but a mere inquiry which should have been answered and not treated as a rejection of the offer. 36

37. LAU BROTHERS & CO v CHINA PACIFIC NAVIGATION CO. LTD. The parties negotiate for the delivery of logs through a series of telegram and letters. Eventually, the defendant withdrew from the negotiation . Question arises as to whether there is a binding contract between the parties. Held: there is no contract between the parties because they are in the state of negotiation. No counter-proposal involved.

38. S.7 (b) CA: The acceptance may “ be expressed in some usual and reasonable manner , unless the proposal prescribes a manner in which it is to be accepted….” Silence , absence of response or just total disregard of the proposal is not acceptance as there is no positive act that can be related to the proposal. “ if I do not hear from U within a week, I shall assume that U have accepted my proposal.” 38

39. FRASER v EVERETT [1889] Held: there was no rule of law saying that “silence gives consent” applicable to mercantile contracts.” FELTHOUSE v BINDLEY [1862] Felthouse (uncle): “ If I hear no more about him (nephew), I shall consider the horse is mine at £30 15s. ” The nephew did not give answer to this letter but he did ask the auctioneer, to keep the horse out of auction sale. The auctioneer by mistake had sold his property. Held : There was no contract between the uncle and nephew. (No communication of acceptance by the nephew) 39

40. Pf : applied for the post of headmaster of a school Management: decided to give it to him. However The decision was not communicated to the Pf. ( No appointment letter) One the managers informed the Pf about the selection. Later, the post was given to someone else Held: There was no valid contract 40 POWELL v LEE

41. General Rule: An a c c eptance is eff e ctive o r c o mpl e te onl y when it is communicated to the proposer . (comes to the actual knowledge of the proposer) E.g: Jojo phones Jaja making an offer. Jaja accepts but Jojo cannot hear her acceptance over the phone because of some noisy disturbance. There is no contract between Jojo and Jaja. 41 Acceptance Through Post

42. Cont… Exception: (Postal Rule) S.4(2) , The communication of an acceptance is complete: As against the proposer , when it is put in a course of transmission him, so as to be out of the power of the acceptor; and As against the acceptor , when it comes to the knowledge of the proposer .

43. Cont … Example: Aina offers to sell her car for RM20,000 to Balqis on 1 March Balqis posts a letter accepting the offer on 3 March Aina receives the Letter of Acceptance on 5 March 43

44. Con t… ADAM v LINDSELL (1818) Held : The contract was formed when the claimant posted their letter of acceptance.

45. Cont… 45 HOUSEHOLD FIRE INSURANCE CO v GRANT (1879) Grant applied for shares in the claimant company. A letter of allotment was posted but Grant never received it. When the company went into liquidation, Grant was asked as a shareholder, to contribute the amount still outstanding on the shares he held. Held: Grant was a shareholder of the company. The contract to buy shares was formed when the letter of allotment (acceptance) was posted. ENTORES LTD v MILES FAR EAST CORPORATION [1955] Denning LJ stated as follows: “ when a contract is made by post it is clear law throughout the common law countries that acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made.”

46. In the case, the parties had contemplated the use of the post as a means of communication. The plaintiff sent a notice of acceptance by registered post in Klang on August 16, 1912 but it was not delivered till the evening of August 25 because the Plaintiff was away. The letter had remained in the post office at Kuala Selangor until picked up by the Defendant. Held: the option was duly exercised by the Pf when the letter was posted on August 16 46 Cont… IGNATIUS v BELL (1913)

47. Cont… Notes: Where there is a delay in the post or the letter of acceptance is misplaced by the postal authority, the proposer is bound irrespective of his knowledge of the acceptance, while on the other hand, the acceptor remains free till actual receipt by the proposer. This implies that in the meantime, the acceptor may also withdraw his acceptance. Therefore, a proposer should stipulate in a proposal that acceptance is complete only upon receipt. That would exclude the postal rule by express terms of the proposal. The postal rule also applies to telegram sent through the post office but not to more instantaneous methods of communication such as telex and telephone. 47

48. S.5(2) states: “ An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.” Illustration to S.5: A proposes by a letter sent by post to sell his house to B, B accepts the proposal by a letter sent by post, B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards. REVOCATION OF ACCEPTANCE 48

49. Facts: 49 Held: The letter of acceptance and the letter of r e v o king t h e acceptan c e we r e re c eived b y t h e offeror simultaneously. The acceptance had been effectively revoked by the offeree. There was no contract. DUNMORE v ALEXANDER

50. Section 26 of CA provides that: “ An agreement made without consideration is void” Section 2(d) of CA : DEFINITION “when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing something such an act or abstinence or promise is called a consideration for the promise.” 50 3.CON S IDERAT I ON

51. CURRIE v MISA (1875 ) Held : A valuable consideration, in the sense of the law, may consists of some rights interests , profits or benefits accruing to the one party; or some forbearances, detriments, losses or responsibilities given, suffered or undertaken by the other. 51

52. Consideration a sort of bargain, a quid pro quo or the price which one party pays to buy the promise or act of the other. OSMAN BIN ABDUL GHANI & ORS V UNITED ASIAN BANK BHD [1987] T h e respo n den t (th e bank ) pr o mise no t t o su e the appellant if the appellant pay for the debt. Held : if the appellant pay for the debt, the respondent cannot sue the appellant. There was a valid consideration. 52

53. TYPES OF CONSIDERATION Executory Promise + Promise Eg: X agrees to sell Y a motorcycle and Y promises to pay RM 2000 for it. Case: K. Murugesu v Nadarajah Executed Promise + Act Eg: X offers RM100 to anyone who finds and returns his camera which he has earlier lost. Y finds and returns the camera in response to the offer. Past Act + Promise A finds B’s purse and gives him. B promise to give A RM 50. This is a contract. Kepong Prospecting Ltd v A.E Schmidt & Marjorie Schmidt

54. 1 . An agree m ent o n acc o un t o f natura l lo v e and affection. (S.26(a)) Conditions: It is expressed in writing ; It must be registered where a law exists requiring such registration; and It is made on account of natural love and affection between parties standing in near relation to each other . Exceptions to the General Rule

55. Cont… Re Tan Soh Sim [1951] Held: The adopted sons and daughters were not nearly related to the family of their adoptive mother. The court further ruled that there was no natural love and affection between the signatories and donees.

56. Cont… An agre e m ent to co m pensat e fo r a pas t v o luntary a ct. (S.26(b)) There are two limbs to this exception: It is a promise to compensate either wholly or in part the other person. Th e promise e ha s v o luntarily don e som e thing fo r the promisor. J.M. Wotherspoon & Co.Ltd. v Henry Agency House [1962] Held: The promise was not supported by consideration because the plaintiff has not done anything voluntarily to the plaintiff. It was not a valid agreement.

57. Cont… 3. An agreement to compensate for an act the promisor was legally compellable to do.(S.26(b)) 3 Conditions: The promisee has voluntarily done an act; a) b) The act is one which the promisor was legally compellable to do ; and c ) An agree m ent to c o m pensat e , w holl y o r i n par t , the promisee for the act Illustration (d) of S.26 provides an example: A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.

58. 4. An agreement to pay a statute-barred debt. (S.26(c)) A statute barred-debt refers to a debt which cannot be recovered through legal action because of a lapse of time fixed by law. 2 requirements; The debtor made a fresh promise to pay the statute-barred debt. For example : ” I know I still owe you $400 which I borrowed 7 years ago. I shall pay within two months .” The promise is in writing and signed by the person to be charged or his authorized agent in that behalf. Illustration (e) to S.26 provides: A owes B $1000, but the debt is barred by limitation. A signs a written promise to pay B $500 on account of the debt. This is a contract.

59. THE RULES OF CONSIDERATION 1. Consideration must have some value An act or a promise to do something which one is bound to do will not be a valid consideration. STILK V MYRICK (1809) HARTLEY V PONSONBY (1857) 2. Adequacy of Consideration PHANG SWEE KIM v BEH I HOCK (1964) FC held: the consideration was adequate because the respondent has agreed to transfer the land to the appellant for $500. There was a valid contract. 59

60. 3. Consideration need not move from the promisee. Example: A,B and C are parties to an agreement. C promises to pay A RM1000 if B will repair C’s house. B repairs C’s house C does not pay A anything. Although A has not given any consideration for C’s promise, he may sue C on the promise because consideration has moved from B.

61. Cont … CASE: Venkata Chinnaya v Verikatara ma’ya (1881) A sister agreed to pay an annuity of Rs 653 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. When the sister subsequently failed to fulfill her promise to pay the annuity, her brothers sued her on the promise. Held: She was liable on the promise on the ground that there was a valid consideration for the promise even though it did not move from the brothers. 61

62. Cont… 4. Waiver of Performance Under English law (Pinnel’s case), it is a general rule that, payment of a smaller sum is not a satisfaction of a obligation to pay a large sum. However, the rule does not apply in Malaysia. S.64 of the Contracts Act provides that: “Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may accept instead of it any satisfaction which he thinks fit.” Illustration C to S.64 provides: “ A owes B RM5000. C pays to B RM1000 and accepts them in satisfaction of his claim on A. This payment is a discharge of the whole claim.

63. Cont… KERPA SINGH v BARIAM SINGH [1966] The Defendant owed the Plaintiff $8,869.94. The defendant’s son offered to pay $4000 as payment in full in order to discharge his father from liability and that if the appellant did not agree to the said settlement, the money should be returned to him. The cheque was cashed and the money retained by the appellant’s solicitor. Later on the plaintiff claimed for the balance. Held : The acceptance of the cheque from the debtor’s son in full satisfaction precluded them from claiming the balance.

64. A valid contract requires an intention to create legal relations. The court determines where there is such an intention from the language used and the context in which it is used. There are 2 presumptions have developed in the determination of intention with respect to agreements: Business / Commercial agreements Social, domestic and family agreements 64 4. INTENTION TO CREATE LEGAL RELATION

65. Cont… BUSINESS / COMMERCIAL AGREEMENTS Presumption: there is an agreement that the parties intend legal consequences to follow unless the parties specify otherwise. WINN v BULL (1877) A written agreement for a lease of a house ‘subject to the preparation and approval of a formal contract’. Held:There was no enforceable contract because no further formal contract was entered into. 65

66. LOW KAR YIT v MOHD ISA [1963] An option to buy a parcel of land was given by the defendant to the plaintiff ‘subject to a formal contract’ to be drawn up and agreed upon by the parties. Held: there was no contract. LIM KENG SEONG & ANOR V YEO AH TEE [1983] Few letters have been exchanged between the parties Held: there was a contract DAIMAN DEVELOPMENT SDN BHD v MATTHEW LUI CHIN TECK [1981] The parties agreed to the purchase price of a house so they signed a ‘pro forma’. Held: The appellant was bound by the ‘pro forma’.

67. Cont… SOCIAL, DOMESTIC AND FAMILY AGREEMENTS In social, domestic or family agreement, it is implied as a matter of course that no legal relations are contemplated, but such presumption may be rebuttable. Normally it does not constitute a legally binding agreement. This is because parties have no intention to create legal relation. Balfour v Balfour [1919] The defendant husband was a civil servant stationed in Sri Lanka. When he was in England, he had promised his wife that he will pay her a monthly allowance as maintenance. The wife was unable to accompany the husband because of her poor health.

68. Cont… The def en dan t di d no t gi v e t h e plaintif f the mon t hly allowance. The plaintiff brought an action against the defendant for breach of a contract. The court held: it was not a legally enforceable agreement because the parties did not intend that they should be attended by legal consequences. Pettitt v Pettitt [1970] Lord Diplock said that : Although many agreements between spouses are not intended to be legally enforceable, performance of such agreements may give rise to legal consequences in other fields of law.

69. The presumption is rebuttable in the case: Merrit v Merrit [1970] The husband left the matrimonial home which was in the joint names of husband and wife and subject to a mortgage. The husband and wife had a discussion in which the husband agreed to pay the wife £40 a month out of which she should pay the outstanding mortgage payments and when such payments had been completed, he would transfer the property to her sole ownership. The agreement was recorded in writing on a piece of paper and signed by the husband. Upon completion of the payment, the husband refused to transfer the house. Held: the parties had intended to create legal relations and accordingly ordered that the house be transferred to the wife.

70. At common law, there are two aspects of uncertainty: The language used may be too vague Failure to reach agreement on a vital or fundamental term of an agreement. S. 30 CA: “ Agreements, the meaning of which is not certain, or capable of being made certain, are void.” Examples: A agrees to sell to B ‘ a hundred tons of oil’. What kind of oil? Unless if A is a dealer in coconut oil only. 5.CERTAINTY

71. Cont… A agrees to sell his ‘white horse for dollars five hundred or dollars one thousand.’ The agreement is void. A agrees to sell B ‘one thousand gantangs of rice at a price to be fixed by C.’ As th e pri c e is capab l e o f bein g made c e r ta i n , there is no uncertainty to make the agreement void. Karuppan Chetty v Suah Thian (1916) The contract was declared void for uncertainty because the parties agreed to a lease of $35 per month ‘for as long as he likes’.

72. The parties entering into a contract should also be competent to a contract. It means that they must have the legal capacity to do so. 1. AGE S.11 of the Contracts Acts 1950 provides that: “ 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.” According to S.2 of the Age of Majority Act 1971 , the age of majority is 18 years. The general rule: “ all contracts entered into by a minor are void.” 6.LEGAL CAPACITY

73. Con t… MOHORI BIBEE V DHURMODAS GHOUSE The appellant in this case lent the respondent, a minor, a sum of money. The loan was secured by way of mortgage on some houses belonging to the respondent. The minor, through the mother, applied for a court declaration that the agreement was void because the minor had no capacity to contract. Held: The contract with the minor was void and he could not sue or be sued on any contract. TAN HEE JUAN V TEH BOON KEAT The Plaintiff infant executed transfers of land in favour of the defendant. The transfers were witnessed and subsequently registered. The plaintiff by his next of friend, applied to the court an order setting aside the transfers and for incidental relief. Held : the transactions were void and ordered the restoration of the property to the minor

74. Exceptions to the general rule: 1. Under the Age of Majority Act 1971 a) I n ma t ters r e la t ing t o m a r r i age, div o rc e , dowe r and adoption; The religion and religious rites and usages ; Any other written law fixing the age of majority.

75. Cont… Case Law : RAJESWARY & ANOR v BALAKRISHNAN & ORS. (1958) A promise of marriage entered into by minor. The agreement was entered into with provisions for dowry and penalty for breach. Then, the promise to marry is repudiated. The plaintiff sued for breach of promise to marry. The defendant pleaded among others the incapacity of the plaintiff to enter into the contract to marry. Held: the age of majority for entering into a marriage contract differed from other contracts entered into by a minor and consequently such contracts were not affected by the general rule.

76. Under Contracts Act 1950 Necessaries / Necessities Necessaries are things which are essential to the existence and reasonable comfort of the infant such as food, shelter, clothing, education, medical services, transport etc. NASH v INMAN [1908] The defendant (minor) ordered certain clothes from the plaintiff (11 fancy waistcoats). The plaintiff sued the defendant to recover the cost of the clothes supplied. Based on the evidence given by the minor’s father, the minor already had adequate supply of clothes suitable and necessary for his condition in life. Held : the minor was not liable because the clothes supplied by the plaintiff were not necessaries.

77. Cont… GOV. OF MALAYSIA v GURCHARAN SINGH [1971] The defendant was sued for the amount of $11,500 alleged to be the sum actually spent by the government in educating the defendant. It was argued that at the time of the contract he was a minor. Held : the contract was void but since education was necessaries, the defendant was liable for the repayment of a reasonable sum spent on him.

78. 3. Scholarships S.4(a) Contracts (Amendment) Act 1976 provides that: “No scholarship agreements shall be invalidated on the ground that the scholar entering into such agreement is not of the age of majority.” What is scholarship agreement? Any contract or agreement between the appropriate authority and any person, with respect to any scholarship, award, bursary, loan, sponsorship or appointment to a course of study, the provision of leave with or without pay or ‘any other facility for the purpose of education or learning. The amendment nullifies the decision in Gurcharan Singh’s case that contract for scholarship was void under Contract Act 1950.

79. Cont… 4. Insurance Under the Insurance Act 1963 (Revised 1972), a minor over the age of 10 may enter into a contract of insurance but if he or she is under 16 years, the written consent of the parents or guardians is essential. This is based on the presumption that it is in a minor’s best interest to insure himself or his property against contingencies.

80. Cont… 5. Apprenticeship The Children and Young Persons (Employment) Act 1966 provides the necessary capacity for a minor to enter into a contract of apprenticeship or service. S. 13 reads: “ Notwithstanding anything to the contrary contained in the Contracts Act 1950 or the provisions of any other written law, any child or young person shall be competent to enter into a contract of service under this Act otherwise than as an employer, and may sue as plaintiff without his next friend or defend any action without a guardian ad litem.”

81. Cont… DOYLE v WHITE CITY STADIUM D, a professional boxer and a minor entered into the contract with WCS. It was agreed that if D was disqualified from tournament, he would lost all the money. D contested that he was minor and not bound by the contract. Held: The contract was binding against D because it was for training and his benefit. DE FRANCESCO v BARNUM The contract between P and D (a minor) for apprentice dancer included such terms that she could not marry, not receive any payment and not dance for other person. Held: The terms were so harsh and unreasonable therefore the contract cannot be enforce against minor.

82. Con t … 2. STATE OF MIND A meetings of mind and free consent is the basis of a contract. A perso n suf f er i n g fro m m e nta l disab ili t y, e i ther per m anently or temporarily, at the time of the contract obviously lack the capacity. S.12(1) of the Contracts Act 1950 provides that: “ A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and forming a rational judgment as to its effect upon his interests.” A person who is competent to enter into a contract is a person who is of sound mind. An unsound mind person refers to person who is mentally disorder as well as those of a person incapacitated through sickness, alcohol or other drugs.

83. The General Rule: a contract can be made orally, in writing or by conduct. In Diamond Peek Sdn. Bhd & Anor v D.R Tweedie [1982] Gunn Chitt Tuan J. observed: ”Under our law, as in India, an oral contract for the sale of immovable property is valid and enforceable. The mere fact that the parties desired to have that agreement put in writing and drawn up in proper form does not affects its validity.” 7.FORMALIT I ES

84. Cont... However, there are exceptions to the general rule: S.10(2) CA provides that :“ Nothing herein contained shall affect any law by which any contract is required to be made in writing or in presence of witnesses, or any law relating to the registration of documents.” For example: The Hire-Purchase Act 1967 requires hire- purchase agreements to be in writing and signed by the hirer or by his agent and all other parties to the agreement. Under the Contracts Act 1950: S.26(a) and S.26(b) requires that these two agreements need to be in writing; -agreement made out of natural love and affection and a promise to pay statute- barred debt.

85. What is VOID AND ILLEGAL CONTRACTS? Void contract: S.2(g) provides that : “ an agreement not enforceable by law is said to be void .” A contract will be void if the consideration / objects are unlawful- it must be permitted by law S.10 (1) provides that: All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object , and are not hereby expressly declared to be void.

86. The court will refuse its aid to a person who found his or her cause of action upon an immoral or illegal act (maxim: ex dolo malo non aritur actio ) S.24 of the Contracts Act 1950: The consideration/object of an agreement is unlawful if: It is forbidden by a law It is of such nature, that, if permitted, it would defeat any law It is fraudulent It involves or implies injury to the person or property of another The court regards it as immoral, or opposed to public policy. 8.LEGALITY OF OBJECTS / Lawful Objects

87. What is VOIDABLE CONTRACTS? Voidable contract: S.2(i) provides that: “ an agreement which is enforceable by law at the option of one or more of parties, but not at the option of the other or others, is a voidable contract .” Meaning: the contract is VALID, BUT one of the parties to the contract can choose to enforce it as a valid contract or treat it as void. That party is the party who had entered the contract without FREE CONSENT!

88. Free consent means a meeting of minds as to the nature and scope of a contract, a consensus ad idem. S.10 (1) provides that: “ all agreements are contracts if they are made by the free consent of parties competent to contract…”. S.13 provides 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 free when it is not caused by: Coercion ( as defined in S.15) – VOIDABLE (S.19) Undue Influence (as defined in S.16) – VOIDABLE (S.20) Fraud (as defined in S.17) – VOIDABLE (S.19) Misrepresentation (as defined in S.18) – VOIDABLE (S.19) Mistake (subject to S.21,22 & 23) – Contracts made due to Mistake are NOT VOIDABLE 9. FREE CONSENT

89. Coercion is defined under S.15 CA 1950 as: “ Coercion is the committing, threatening to commit any act forbidden by the Penal Code, or the lawful 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.” KANHAYA LAL v NATIONAL BANK OF INDIA (1913) Held: The plaintiff was entitled to recover money which was paid as a consequence of coercion caused by the wrongful interference of the defendant bank with property. COERCION

90. Cont… KESARMAL S/O LETCHMAN DAS v VALIAPPA CHETTIAR [1954] Held: A transfer executed under the orders of the Sultan, issued in the ominous presence of two Japanese officers during the Japanese Occupation of Malaya was invalid. The consent was not freely given and the agreement was voidable at the will or option of the party whose consent was so caused.

91. Cont… CHIN NAM BEE DEVELOPMENT v TAI KIM CHOO & 4 ORS [1988] The respondents purchased homes off the plan to be constructed by the appellants. Each of the respondents had signed a sale and purchase agreement at $29,000. Subsequently, the respondent was made to pay an additional $4,000. It was held that: the additional payment was not made voluntarily but under threat by the appellant to cancel the respondents’ booking for their houses. Effect of the Contract: A contract is voidable at the option of the party whose consent was so caused (S.19)

92. Undue influence is defined under S.16 CA 1950 : “ 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.” Essential elements : Domination of the will Unfair advantage SALWATH HANEEM v HADJEE ABDULLAH (1894) UNDUE INFLUENCE

93. Cont … CHAIT SINGH v BUDIN BIN ABDULLAH (1918) DATUK JAGINDER SIGH v TARARAJARATNAM (1983) Effect of the Contract: A contract is voidable at the option of the party whose consent was so caused (S.20)

94. S.17 CA 1950 : to include various acts committed by a party with intent to deceive the other contracting party . There are five different acts which may constitute fraud: The suggestion , as to fact, of that which is not true by one who does not believe it to be true; The active concealment of a fact by one having knowledge or belief of the fact; A promise made without any intention of performing it ; Any other act fitted to deceive ; and Any such act or omission as the law specially declares to be fraudulent. FRAUD

95. Con t… KHENG CHWEE LIAN v WONG TAK THONG [1983] The respondent had been persuaded to enter into a second contract on the false representation that the area of land to be transferred was of the same size as the land which the respondent had agreed to buy under a first agreement. Held: the respondent was right in repudiating an agreement with the appellant on the ground that it was induced by fraudulent representation within the meaning of S.17(a) and (d)

96. Con t. LETCHEMY ARUMUGAM v ANNAMALAY [1982] Held : the agreement is voidable at the option of the plaintiff and must be rescinded.

97. Cont… SILENCE Mere silence or non-disclosure would not constitute fraud. Exception : For parties who have fiduciary relationship , it is the duty of the person to disclose material facts. Otherwise, it may constitute fraud. Illustrations: 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. 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.

98. However, in certain circumstances, silence may constitute a fraud. Illustration (c) to section 17 : “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.” Effect of the Contract: A contract is voidable at the option of the party whose consent was so caused (S.19)

99. Representation: A statement made during the course of negotiations or it is made before a contract is concluded. Misrepresentation refers to certain false statements made by representor and which induces the other party to enter into a contract. (Without intent to deceive) eg: “This is a great car” - telling someone a PC is “practically new” so that someone buy it, when it is in fact 5 years old and heavily used’) S.18 CA 1950 Essential Elements: False statement or untrue representation The representation must induce the misled party to enter into a contract. MISREPRESENTATION

100. Cont… SILENCE Mere silence does not amount to misrepresentation unless it is the duty of the person keeping silence to speak. EXCEPTION: contract of utmost good faith ( uberrimae fidei ) eg. Insurance contract TYPES OF MISREPRESENTATION Fraudulent Misrepresentation as defined in Derry v Peek the statement is lie & he knows that it is not true (lie) Negligent Misrepresentation making a st atem e n t w/ o u t any r e asonable grounds for knowing whether it is true or not – aspect of carelessness

101. 3) Innocent Misrepresentation - making a statement believes that the statement is true when it is not. – eg: relying on outdated info / incorrect info from someone else Effect of the Contract: A contract is voidable at the option of the party whose consent was so caused (S.19)

102. Example: A real estate broker tries to sell a house to a buyer, who stresses his need for peace and quiet. The broker promises that the house is very quiet ( in reality the house next door is undergoing a very noisy reconstruction) Fraudulent M Negligent M Innocent M : The broker knew about the construction and lied about it. : The broker did not know or simply assumed : If the broker had lived in the house for 10 years and always found it to be quiet in the past

103. DEFINITION: A misunderstanding or erroneous belief about a matter of fact or a matter of law. TYPES OF MISTAKE: Mutual mistake Unilateral mistake S.21 : Mistake made by both parties to an agreement-VOID ( Mistake of Fact) Illustration B to S.21: A agrees to buy from 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. MISTAKE

104. Cont… RAFFLES v WICHELHAUS (1864) Two parties agreed to a sale of a cargo of cotton arriving in London by a ship called “The Peerless”, sailing from Bombay. But unknown to both parties, there were two ships of the same name both leaving from Bombay at different times. Held: they were both negotiating under a mistake and had in mind different ships, therefore the contract of sale was void. CHAN YOKE LAIN v PACIFIC & ORIENT INSURANCE CO SDN BHD [1997] Held: A personal Accident Insurance contract was void as the insurer was under mistake as to the identity of the proposer since the signature in the proposal form was not signed by the proposer.

105. Cont… S.22: Mistake as to the law in force in Malaysia should not make the contract voidable. (Mistake of Law)-VALID “ A contract is not voidable because it was caused by a mistake as to any law in force in Malaysia; but as 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.

106. S.23: Mistake by one party as to fact should not make the contract voidable- VALID If the mistake is made by both parties, then the agreement is void. be c ause a pe r s o n is e x pe c ted to take reas o nabl e ca r e to ascertain what he is contracting about. Mistake as to Document On e part y may hav e made m ist a ke as to the natur e o f a document he has signed. General Rule: a person is bound by the terms of the contract that he signs.

107. Con t… SUBRAMANIAM v RETNAM [1966] The defendant had signed a written agreement in the English language even though he did not understand the language. Held: the defendant is bound by the contract. Exception: plea of non est factum AWANG BIN OMAR v HAJI OMAR & ANOR [1949] The first defendant did not know English and he was persuaded to sign in the mistaken belief that he was merely witnessing his brother’s signature. The court found that there was a mistake as to the nature of the document signed and therefore the first defendant was not liable.

108. DISCHARGE OF CONTRACTS When the contract is terminated , it is said to be discharged and the contracting parties are free from further obligations arising from it. A contract may be discharged by any one of the following ways: By performance – the parties perform what they have agreed to do in the contract By consent or agreement between the parties – Where parties agree or consent that the contract to be discharged. By impossibility / frustration – if the things that the parties agreed to do is impossible to perform. By breach – where one party fails to performs his obligations & entitles another party not choose either continue with the contract and claim damages or repudiate the contract.

109. Remedies are rights of redress given by the courts to an injured party when the other party fails to fulfill their part of the contract. Types of remedies: Rescission – S.40 & 65 CA 1950 Damages – S.74 CA 1950 Specific Performance – S.11 (1) SRA 1950. Injunction – S.50 SRA 1950. Quantum Meruit REMEDIES FOR BREACH OF CONTRACT