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AYER HITAM TIN DREDGING

MALAYSIA BHD V YC CHIN


ENTERPRISES SDN BHD [1994] 2 MLJ
754

GROUP MEMBER:
WAN HAZIQAH
SHARENA
DANIA IMAAN
FATINI MAT SAAD
HAIRINA MALIK

PARTIES INVOLVED IN THIS


CASE

YC CHIN
ENTERPRIS
E SDN BHD

PARTIES
INVOLVE
D
MALAYSIA
MINING
CORP BHD
(MMCB)

AYER
HITAM TIN
DREDGING
MALAYSIA
BHD

SUMMARY/FACTS OF THE CASE


The recorded provided shows that in March 1981,the
plaintiff( YC CHIN) had entered into negotiations with a third
party, Malaysia Mining Corp Bhd. (MMCB) a majority
shareholder of the defendant to develop and construct lowcost houses and shop houses for the defendant (AHTD)
AHTD wrote a letter to YC CHIN accepting their proposals in
respect of the project
In reliance upon the letter, YC CHIN proceeded to perform
some of the terms stated in the letter.
However, AHTD instructed to cease all the work stating that
the negotiations was still ongoing for a future agreement.
The trial judge found that there was a contract and allowed
YC CHIN to claimed for breach.
Therefore AHTD had decided to appeal.

ISSUE

Whether there was a concluded contract


between the Ayer Hitam Tin Dredging Malaysia
Bhd ( AHTD) as employer and YC Chin as
contractor

SUPREME COURT (IPOH)

The trial judge found that there


was a contract and allowed YC
CHINs claim for breach of
contract.

AHTD APPEALED

JUDGEMENT

CROSSLEY v MAYCOCK
If an agreement is made subject to certain
conditions, then until those conditions are
accepted, there is no enforceable final
agreement.

EDGAR JOSEPH JR SCJ

The judge have


dismissed the
plaintiffs claim for
general and special
damages for breach
of contract and
interest on such
damages

The liability of the


defendant would be
on a quantum meruit
basis not exceeding
RM300,000

GENERAL PRINCIPLE
ACCEPTANCE

ACCEPTANCE MUST BE ABSOLUTE


AND UNQUALIFIED
As stated in section 7 (a) of the Contracts Act is
that an acceptance must be an unconditional
assent to the terms proposed in the offer. This
principle was stated in The Ka Wah Bank Ltd v
Nadinus Sdn Bhd & Anor as follows:
According to Chitty on Contracts, 26 th Ed(1989)
Vol I, para 54, p 44, an acceptance is a final and
unqualified
expression of assent to the terms of
the offer. But where the reply is qualified or
attempts to vary the terms of the offer or
attempts to accept an offer on new terms (not
contained in the offer), then such reply is not a
communication of an acceptance but may be a

ACCEPTANCE MADE SUBJECT TO


CONTRACT OR TO FULFIL CONDITION
PRECEDENT
- It is unusual to find commercial documents containing phrases
such as subject to contract, without prejudice or a formal
agreement would be prepared and executed.
- The questions arises whether these qualified statement constitute
a valid acceptance bringing forth legal obligations to the parties.
- There are two approaches to this matter:
- There is no contract and the court will construe such words so
as to postpone liability until the formal contract signed.
- Another view is that the parties have already entered into a
legally
binding contract and the execution and signing of the
document is a mere formality.
- To determine whether the parties intend presently to be bound to
each other or whether, no matter how complete their arrangements
might appear to be, they do not so intend until the concurrence of
some further event, including the signature of some further
document or the making of some further arrangement.

KAM MAH THEATRE SDN BHD V TAN


LAY SOON
The alleged contract contained a proviso that the
sale and purchase agreement shall incorporate
other usual terms and conditions.
The Supreme Court was of the view that the
proviso would have the same effect as if the
formula subject to the contract had been in the
document.
Court held that the formula subject to the
contract gives rise to a strong presumption of
the necessity of a further formal contract.
On the facts, the Court held that there was no
contract at all and that documents was dependent
on the signing of a formal contract to be further

Branca v Cobarro, the agreement entered into


by the parties contained a clause as follows:
This is a provisional agreement until a fully
legalized agreement, drawn up by a solicitor
and embodying all the conditions herewith
stated, is signed.
It was held by the Court of Appeal that a
binding into an agreement had come into effect.
Generally, when an agreement is made subject
to the contract or subject to the preparation
and approval of a formal contract and similar
expressions, it will generally be construed to
mean that the parties are still in state of
negotiation and do not intend to be bound
unless and until a formal contract is exchanged.

GENERAL PRINCIPLE
Intention to create
legal relationS

INTENTION TO CREATE
LEGAL RELATIONS

The intention of the party to


become legally bound with legal
consequences to sue and be
sued.

INTENTION TO CREATE
LEGAL RELATIONS

No provision in the Contracts Act 1950 for the


element of intention to create legal relations, hence
the courts in Malaysia have applied common law
cases.
The parties to an agreement must have the
intention to enter into a legal relationship between
them.
In determining the intention of the parties, two
presumptions have been developed:
Domestic/social agreements (GR: no ITCLR)
Business/commercial agreements (GR: there is
ITCLR)

BUSINESS/COMMERCIAL
AGREEMENTS

In contrast with social/domestic agreements


where there is a presumption that there is no
legal relations, in business/commercial
agreements, the general rule is that such
intention exists.
This is to facilitate trade and commerce and to
promote certainty in business transactions.
However, this presumption may be rebutted
(contractual clauses may be employed to
negative contractual intention, e.g, "subject to
formal contract" clause)

CONTRACTUAL CLAUSES

If the parties have made the agreement with the


phrase "subject to formal contract":
It is usually used to express that the oral or informal
agreement is not binding until the execution of a full
and final agreement in a formal written instrument.
i.e. Winn v Bull
If an agreement is made "subject to terms and
conditions":
Until those conditions are accepted, there is no
enforceable final agreement.

LETTER OF INTENT

A document which expresses the intention of a party to


enter into a contract at a future date by outlining the terms
which are intended to be included in a finalised agreement.
It is a mere negotiation, not a formal contract.
However, if both parties expect a formal contract to
eventuate, but one party requests the other to commence
work, the work done is treated as having been done under
the expected contract, and if no contract is entered into, the
party carrying out the work can claim payment under the
principle of quantum meruit, i.e. a reasonable price for work
done pursuant the said request.

RATIO DECIDENDI

ACCEPTANCE MUST BE
ABSOLUTE AND
UNQUALIFIED

ACCEPTANCE MADE
SUBJECT TO
CONTRACT OR TO
FULLFILL CONDITION
PRECEDENT

"Subject to the following terms and conditions"


negatived the intention because the conditions
are yet to be accepted. (letter of 19
September 1984, condition (vi))
No formal contract was concluded. (letter of 5
August 1987, "To date, we have yet to receive
from your office the formal master
agreement...")
It was only a letter of intent, but since the
plaintiff had commenced the preliminary
works, quantum meruit will be awarded.

o THERE IS NO CONTRACT AND THE COURT


WILL CONSTRUE SUCH WORDS SO AS TO
POSTPONE LIABILITY UNTIL THE FORMAL
DOCUMENT IS SIGNED.
o PLAINTIFFS CLAIM FOR GENERAL AND
SPECIAL DAMAGES FOR BREACH OF
CONTRACT AND INTEREST ON SUCH
DAMAGES HAVE BEEN DISMISSED BY THE
JUDGES AS THEY WAS NEVER A
CONCLUDED CONTRACT, HOWEVER, A
CLAIM ON QUANTUM MERUIT IS
GRANTED.