Post on 04-Feb-2021
EUT 440
ENGINEERS IN SOCIETY
TOPIC 2: CONTRACT LAW
LECTURERS:
DR. KHADIJAH MOHAMED
MDM. ROHIZAN HALIM
CONTRACT LAW IN MALAYSIA: BACKGROUND
English law (common law, equity & statute) forms part of
the laws in Malaysia and still applicable
Section 3(1)(a) Civil Law Act 1956 states that courts
should apply Common Law and the Law of Equity as
administered in England:
in Peninsular Malaysia: 7 April 1956.
in Sabah: 1 December 1951.
in Sarawak: 12 December 1949
Section 5(1) Civil Law Act 1956 states that the principles
of English commercial law apply in Peninsular Malaysia
except Penang and Malacca in absence of local
legislations.
2EUT440 LAW 2 KM2013
…BACKGROUND
The case law related to the boundaries of
application.
Jamil Bin Harun v. Yang Kamsiah & Anor [1984] 1 MLJ 217.
It was decided that courts have the authority to decide
whether to follow English Law (common law and law of
equity) or Federal law, considering the circumstances and
the scope the written law permits to do so.
Smith Kline & French Laboratories Ltd. v. Salim
(Malaysia) Sdn. Bhd.[1989] 2 CLJ. 228.
It was held that the courts have the authority to put aside
any Common Law or Law of Equity which cannot be applied
in Malaysia.
3EUT440 LAW 2 KM2013
CONTRACT LAW IN MALAYSIA
Contract law is governed by the Contracts Act (CA)
1950.
The Act is a re-enactment of the Contracts (MalayStates) Ordinance 1950.
Principles of contract originated from England, but theoriginal Ordinance was a reproduction of the IndianContract Act of 1872.
The functions of the contract law-
establishes what kinds of promises will be legallybinding.
supplies procedures for enforcing legally bindingpromises, or agreement.
4EUT440 LAW 2 KM2013
WHAT IS CONTRACT? An agreement between two or more parties that creates
an obligation to perform (or not perform) a particular
duty.
S.2(h) CA 1950 – “an agreement enforceable by law is a
contract”.
S.10(1) CA 1950 – „All agreements are contracts if they
are made by the free consent of parties competent to
contract, for a lawful consideration and with lawful
object, and are not hereby expressly declared to be
void‟.
All contracts must be built upon an agreement although
not all agreements are automatically contracts e.g:
social agreements & domestic agreements.5
EUT440 LAW 2 KM2013
TYPES OF CONTRACT
Formal vs Informal Contracts.
Formal, need a seal v informal, simple & without
seal.
Unilateral vs Bilateral Contracts.
Unilateral, a promise on 1 side v bilateral,
promises on both sides.
Unilateral: Carbolic Smoke Ball case
Forms of Contract
Oral
Written
6EUT440 LAW 2 KM2013
ELEMENTS OF CONTRACT
A legally enforceable contract constitutes the
elements of contract -
(1) Offer/proposal (I‟ll fix your sink this weekend, if
you pay me RM50)
(2) Acceptance (You‟ve got a deal)
(3) Consideration (The value received and given –
the money and the sink fixed)
(4) Intention to create legal relations
(5) Certainty
(6) Legal Capacity
(7) Free Consent7
EUT440 LAW 2 KM2013
ESTABLISHING OFFER AND ACCEPTANCE
S.2(a) CA 1950: Proposal – “when one personsignifies to another his willingness to do or to
abstain from doing anything, with a view to
obtaining the assent of that other to such act or
abstinence”.
S.2(b) CA 1950: Acceptance – “when the person towhom the proposal is made signifies his assent
thereto, the proposal is said to be accepted: a
proposal, when accepted, becomes a promise”.
A legally recognized offer and an acceptance creates a
“meeting of the minds‟, or mutual assent, between
the parties.8
EUT440 LAW 2 KM2013
EXAMPLE
Ali wants to sell his car. He makes an offer to sell his
car to Rahim for RM25,00.00. If Rahim say yes, the
offer is said to be accepted.
A person who make an offer is now referred as
promisor (offeror) and the party accepting the
proposal as promisee (offeree).
Once the offer has been made and accepted, it
becomes a promise or an agreement.
9EUT440 LAW 2 KM2013
TYPES OF OFFER
Specific: the offer only can be accepted by a person
who has been offered.
Boulton v Jones (1857) 2 H & N 564.
Jones used to have business dealings with Brockle Hurst. He sent an
order (offer) to Brockle Hurst for the purchase of certain goods. By
the time the order reached Brockle Hurst, he had sold his business to
Boulton. Boulton receiving the order sent all the goods to Jones as
per the order without informing Jones of the changing of the hands
of the business. When Jones learnt that the goods were not supplied
by Brockle Hurst, he refused to pay for the goods. His contention
was that he had never placed an order to Boulton, the offer being
made to Brockle Hurst, and therefore had no intention to make a
contract with Boulton. Held: Jones was not liable to pay.
10EUT440 LAW 2 KM2013
…TYPES OF OFFER
General: the offer is general as it is made to the
public.
Carlill v Carbolic Smoke Ball Co.[1892] EWCA Civ 1
The defendant company advertised that a reward of £ 100 would be
paid to any person who contracted influenza, cold, or any other
disease associated with cold even after using the smoke balls of the
company – a preventive remedy, 3 times a day, for 2 weeks in
accordance with the printed directions. The plaintiff had seen the
advertisement, used the smoke balls according to the printed
directions and for a period as specified, but still contracted
influenza. She sued the defendant company to claim the reward.
Held: that the advertisement constituted the offer to the whole
world at large ( – general offer) which was accepted by the plaintiff
by conduct. ( – by using smoke balls).
11EUT440 LAW 2 KM2013
WHEN IS AN OFFER EFFECTIVE?
S.4(1) CA 1950 – A proposal/offer is only effective if it is
communicated to the acceptor.
3 elements are necessary for an offer to be effective(mutual assent):
Intention: There must be serious, objective intentionby the offeror to become bound by the offer.
Non-offer situations include: expressions of opinion,statements of intention, preliminary negotiations &advertisements, catalogues and circulars.
Definiteness: The terms of the offer must bereasonably certain + definite.
Communication: The offer must be communicated tothe offeree.
12EUT440 LAW 2 KM2013
OFFER V INVITATION TO TREAT
„Invitation to treat’ - a sort of preliminary
communication which passes between the parties at
the stage of negotiation.
Advertisement in newspapers, catalogues, circulars &
display of goods in self-service mall.
Auction sale.
Invitations to make offers rather than offers, thus,
the „advertisor‟ would have several offers to choose
from and could accept the best one without
incurring any liability for the rest he/she rejected.
13EUT440 LAW 2 KM2013
TERMINATION OF THE OFFER
S.6 CA 1950: A proposal is revoked—
(a) by the communication of notice of revocation by the
proposer to the other party;
(b) by the lapse of the time prescribed in the proposal
for its acceptance, or, if no time is so prescribed, by the
lapse of a reasonable time, without communication of
the acceptance;
(c) by the failure of the acceptor to fulfil a condition
precedent to acceptance; or
(d) by the death or mental disorder of the proposer, if
the fact of his death or mental disorder comes to the
knowledge of the acceptor before acceptance.
14EUT440 LAW 2 KM2013
ACCEPTANCE
To establish a contract, the acceptance must be
communicated to the offeror/promisor.
Only offeree/agent may accept the offer.
S.2(b) CA 1950: “when the 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”.
15EUT440 LAW 2 KM2013
REQUIREMENTS OF ACCEPTANCE
(1) Acceptance must be unequivocal (absolute and
unqualified).
S.7(a) CA 1950: any modification or variation of the proposal does
not constitute an acceptance but amounts to a counter-proposal
by the party to whom the original proposal was made).
Case: HYDE v. WRENCH [1840] 3 Beav. 344 ER 132
6 June: Def. offered to sell his estate to the Plf. for £100.
8 June: Plf. replied and made a counter offer to purchase at £950
(counter-offer), but the Def. refused.
27 June: Plf. wrote to Def. saying he was prepared to pay the
original sum demanded.
Held: no contract existed between them since Plf. had rejected the
original proposal on 8 June so that he was no longer capable of
accepting it later.16
EUT440 LAW 2 KM2013
…REQUIREMENTS OF ACCEPTANCE
(2)Acceptance must be expressed in some usual and
reasonable manner-
S.7(b) CA 1950: acceptance must be expressed in some
usual and reasonable manner, unless the proposal
prescribes the manner in which it is to be accepted. If
the proposal prescribes a manner in which it is to be
accepted, and the acceptance is not made in that
manner, the proposer may, within a reasonable time
after the acceptance is communicated to him, insist
that his proposal shall be accepted in the prescribed
manner, and not otherwise; but, if he fails to do so, he
accepts the acceptance.
17EUT440 LAW 2 KM2013
COMMUNICATION OF ACCEPTANCE General rule: acceptance of a proposal must be
communicated to the proposer/promisor.
Exception: Postal rule (parties involved are notdealing face to face).
S.4(2) CA 1950: the communication of an acceptance iscomplete –
(a) As against the proposer, when it is put in a courseof transmission to him, so as to be out of the powerof the acceptor; and
(b) As against the acceptor, when it comes to theknowledge of the proposer.
18EUT440 LAW 2 KM2013
CONSIDERATION S.2(d) CA 1950: “when, at the desire of the promisor,
the promisee or any other person has done orabstained from doing, or does or abstains fromdoing, or promises to do or to abstain from doing,something, such act or abstinence or promise iscalled a consideration for the promise”.
Consideration is defined as the value given in returnfor a promise.
Sufficiency & adequacy of consideration.
Something of legally sufficient value must be given inexchange for the promise; and
Must be a bargained-for exchange.
19EUT440 LAW 2 KM2013
CONTRACTUAL CAPACITY The legal ability to enter into a contractual
relationship.
S.11 CA 1950: Capacity – “every person is competentto contract who is of the age of majority… , andwho is of sound mind, ….”
Age of Majority Act 1971: the age of majority (adult) in
Malaysia is18 years.
S.12(1) CA 1950: „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 of forming a rational judgment as to its effect
upon his interest‟.
20EUT440 LAW 2 KM2013
…CONTRACTUAL CAPACITY
3 types of people who do not have the capacity to enter
a contract are minors, intoxicated persons and mentally
incompetent persons.
Exception of contract by minors: Contracts for necessity;
scholarship; insurance, and relating to marriage, divorce
and dower.
Sound mind:
(a) A patient in a mental hospital, who is at intervals of sound
mind, may contract during those intervals.
(b) A sane man, who is delirious from fever, or who is so drunk
that he cannot understand the terms of a contract, cannot
contract whilst such delirium or drunkenness lasts.
21EUT440 LAW 2 KM2013
INTENTION
2 assumptions of intention-
Social @ domestic agreements – are not
intended to create legal relations unless
proven otherwise.
Commercial agreements – are intended to
create legal relations unless proven otherwise.
22EUT440 LAW 2 KM2013
CERTAINTY The terms of an agreement cannot be vague but must
be certain.
A agrees to sell to Mary a hundred crates of toys without
specifying what kind they are; such an agreement is
void.
S.30 CA 1950: An agreement which is uncertain is
void.
In Karuppan Chetty v. Suah Thian (1916) 1 F.M.S.L.R. 300,
the contract was held void for uncertainty because the
parties agreed to lease of $35 per month „for as long as
he likes‟. The terms are uncertain as the duration of the
lease is not specified or capable of being made certain.
23EUT440 LAW 2 KM2013
FREE CONSENT
S.10(1) CA 1950: “agreements are contracts if they are
made by the free consent of parties competent to
contract …”
What constitutes consent?
S.13 CA 1950: Two or more persons are said to consentwhen they agree upon the same thing in the same sense”.
S.14 CA 1950 : Consent is said to be free when it is notcaused by:
(a)Coercion, as defined in s.15
(b)Undue influence, as defined in s.16
(c)Fraud, as defined in section 17
(d)Misrepresentation, as defined in s.18
(e)Mistake, subject to sections 21,22-23.
24EUT440 LAW 2 KM2013
VOID AND ILLEGAL CONTRACTS For a contract to be valid and enforceable, it must
be formed for a legal purpose.
Contracts contrary to public policy?
Contracts in restraint of trade
Unconscionable clauses
Exculpatory clauses – “once broken considered sold”?
Contract to commit an immoral act & contract thatprohibits marriage.
A offers a young man RM3000 if he refrains frommarrying A’s daughter. If the young man accepts, nocontract is formed (the contract is void) because it iscontrary to public policy.
25EUT440 LAW 2 KM2013
…VOID AND ILLEGAL CONTRACTS
Not enforceable by law
S.24 CA 1950: the consideration or object of an
agreement is lawful unless:
forbidden by law
if permitted, would defeat any law
fraudulent
implies injury to a person or property of another
court regards it as immoral or opposed to public
policy
26EUT440 LAW 2 KM2013
DISCHARGE OF CONTRACT
Contract that is otherwise VALID may beunenforceable if the parties have not genuinelyassented to the terms or the contract is not in theproper form.
Contract discharge-
Discharge by agreement of the parties ~ byrescission, novation or accord and satisfaction;
Discharge based on impossibility of performance~by complete performance or inadequateperformance (constitutes a material breach ofcontract).
27EUT440 LAW 2 KM2013
BREACH OF CONTRACT
Breach of contract is a legal cause of action in which
a binding agreement is not honored by one or more
of the parties to the contract by non-performance or
interference with the other party's performance.
If the party does not fulfill his contractual promise,
or has given information to the other party that he
will not perform his duty as mentioned in the
contract or if by his action and conduct he seems to
be unable to perform the contract, he is said to
breach the contract.
Breach of contract is a type of civil wrong.
28EUT440 LAW 2 KM2013
REMEDIES S.66 CA 1950: When an agreement is discovered to be
void, or when a contract becomes void, any person who
has received any advantage under the agreement or
contract is bound to restore it, or to make compensation
for it, to the person from whom he received it.
A contracts with B to deliver to him 250 gantangs of rice
before the 1st of May. A delivers 130 gantangs only before
that day, and none later. B retains the 130 gantangs after
the 1st of May. He is bound to pay A for them.
A contracts to sing for B at a concert for RM1,000, which
are paid in advance. A is too ill to sing. A is not bound to
make compensation to B for the loss of the profits which B
would have made if A had been able to sing, but must
refund to B the RM1,000 paid in advance.29
EUT440 LAW 2 KM2013
…REMEDIES Remedies from the court:
Damages - to compensate the innocent party for losses suffered as
result of the contract being breached by the party in breach.
Compensatory, consequential, punitive, nominal, liquidated.
Rescission and restitution
Specific performance - a decree directing a contract orcertain act should be performed specifically according to its
original terms
Injunction - An order of court refrain the party to whom it isaddressed from doing a specified act.
Election of remedies: A common law doctrine under which
a non-breaching party must choose ONE remedy from
those available to prevent double recovery.
30EUT440 LAW 2 KM2013