GCM 6113 – MALAYSIAN BUSINESS LAW

LAW OF CONTRACT
 Definition of Contract

• An agreement enforceable by law

• An agreement which is legally binding between the parties
• Governing Act – Contracts Act 1950 (CA)
 SOURCES OF CONTRACT LAW
• Legislation
 Contracts Act 1950 (CA 1950)
 Where provisions of the CA differ from English law, the
CA must prevail Song Bok Yoong v Ho Kim Poui [1968] 1
MLJ 56

• Case law – Malaysian and English cases

• Others - Federal & State Constitutions

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 Examples of types of contract

• Employment
• Sale of goods
• Insurance
• Services - banking, medical treatment, building contracts
• Scholarship
 Elements of Contract
1) Offer
2) Acceptance of the offer
3) Consideration
4) Intention to create legal relations
5) Certainty
6) Legal capacity
7) Free consent
8) Legality of object
9) Formalities
 Offer
• Section 2(a) CA: 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
• A proposal must be a definite promise to be bound
• s.2(c) CA - the person making the proposal is called the “promisor”
• The promisor/offeror must have declared his readiness to undertake an
obligation upon certain terms. Acceptance or refusal of the offer is by the
offeree
• Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui [1984] MLJ 169 – where there
was a lack of offer and acceptance the purported hire purchase agreement was
declared void ab initio (void from the beginning) (condition precedent in s.4(1)
of the Hire-Purchase Act were not met and the offer was subject to the
condition precedent being met)
• An offer must be communicated to be effective
• 4(1) CA - the communication of a proposal is complete when it comes
to the knowledge of the person to whom it is made
• Express offer – in words (oral or written)
• Implied offer – other than in words e.g. by conduct
• s.9 CA – a proposal can be express (oral/writing) or implied (by
conduct)
• An offer must be distinguished with option or advertisement
Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd
[1953] 1 QB 401
Partridge v Crittenden [1968] 2 All ER 421
Majumder v Ag of Sarawak [1967] 1 MLJ 101
Eckhardt Marine GMBH v Sheriff, High Court of Malaya, Seremban &
Ors [2001] 4 MLJ 49
• Contrast with:
Carlill v Carbolic Smoke Ball Co Ltd v [1893] 1 QB 256
• An offer must be distinguished with an invitation to treat (ITT) – an
offer to consider offers
• Examples of ITT:
1) Auctions
2) Advertisement of tenders
3) Catalogues
4) Price Lists
5) Goods displayed in shop windows and shelves
• EON Bank Bhd v BH Steel Sdn Bhd & Anor [2005] 2 MLJ 753
 Acceptance
• s.2(b) CA - 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
• s.2(c) CA - the person accepting the proposal is called the “promisee”
• s.7 (a) CA – For a proposal to be converted into a promise the
acceptance must be absolute and unqualified s.9 CA – an acceptance
can be express (oral/writing) or implied (by conduct)
Lau Brothers & Co v China Pacific Navigation Co Ltd [1965] 1 MLJ 1 – if
the parties are still negotiating, an agreement is not yet formed
• Counter offer – Hyde v Wrench [1840] 49 ER 132
• Acceptance must be made within a reasonable time
Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 EXCH 109
Macon Works Trading Sdn Bhd v Phang Hon Chin & Anor [1976] 2 MLJ
177 – an offer lapses after a reasonable time not because this must be
implied in the offer but because failure to accept within a reasonable
time implies rejection by the offeree
• s.7(b) CA - For a proposal to be converted into a promise the
acceptance must be and expressed in some usual and reasonable
manner, unless the proposal prescribes the manner in which it is to be
accepted
• A proposer cannot prescribe silence as a manner of acceptance –
Felthouse v Bindley [1862] 142 ER 1037
• Revocation of proposals and acceptances

• 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.5(2) CA – an acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor,
but not afterwards
• Revocation of offer – s.6 CA
a) Communication of the notice of revocation
b) Time prescribed in the proposal for acceptance has lapsed or of no
prescribed time, by lapse of reasonable time
c) Failure by acceptor to fulfil condition precedent required for
acceptance
d) Death or mental disorder of the proposer if the fact of the proposer’s
death or mental disorder comes to the knowledge of the acceptor
before acceptance
• Revocation of acceptance:
1) Acceptance is not complete
2) When acceptance is complete an agreement is formed
 Consideration
• s.2(d) CA - when, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or abstains
from doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration for the
promise
• s.26 CA - An agreement made without consideration is void
Guthrie Waugh Bhd v Malaippan Muthucumaru [1972] 1 MLJ 35 – no
cause of action as the claim was based on a deed of arrangement for
which there was no consideration
Contrast with Wong Hon Leong David v Noorazman bin Adnan [1995]
3 MLJ 283 – exchange of mutual promises was good consideration.
There was binding agreement
• Consideration need not be adequate
Chappel & Co Ltd v Nestle Co Ltd [1960] AC 87
Phang Swee Kim v Beh I Hock [1964] MLJ 383

• Natural love and affection is valid consideration

An agreement made on account of natural love and affection will be
binding if the requirements of s.26(a) CA are satisfied i.e.
1) It is expressed in writing
2) It is registered (if applicable)
3) The parties stand in near relation to each other
Tan Soh Sim, Chan Law Keong & Ors v Tan Saw Keow & Ors [1951] MLJ
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 Intention to Create Legal Relations
• CA silent on this element
• The requirement comes from case law
• Circumstances and conduct of the parties may indicate a lack of such
intention – Yap Eng Thong & Anor v Faber Union Ltd [1973] 191
• In domestic arrangements there is a presumption against the
existence to create legal relations – Balfour v Balfour [1919] 2 KB 571
• In commercial arrangements the rebuttable presumption is that legal
relationships are intended – Esso Petroleum Co Ltd v Customs &
Excise Commissioner [1976] 1 WLR 1
 Certainty
• Terms of an agreement must be certain and not vague
• An agreement which is uncertain or not capable of being made
certain is void
Karuppan Chetty v Suah Thian [1916] FMSLR – the requirement of
certainty was not met when the parties agreed upon the granting of a
lease “at RM35.00 per month for as long as he likes”
 Legal Capacity
• s.11 CA - 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
• Parties entering into a contract should be competent to contract i.e.
must have legal capacity
• Age of majority in Malaysia is 18 years – Age of Majority Act 1971
Tan Hee Juan v Teh Boon Keat [1934] FMSLR 96
• General rule – contracts made by infants are void
• Exceptions:
1) Contracts for necessaries – s.69 CA “If a person, incapable of
entering into a contract, or anyone whom he is legally bound to
support, is supplied by another person with necessaries suited to his
condition in life, the person who has furnished such supplies is
entitled to be reimbursed from the property of such incapable
person”
2) Contracts of scholarship – s.4 CA (Amendment) Act 1976
3) Contracts of insurance – s.153 Insurance Act 1996
- with written parental consent
 Free Consent
• s.10(1) CA - 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
• s.14 CA - consent is said to be free when it is not caused by one or
more of the following:
1) Coercion
2) Undue influence
3) Fraud
4) Misrepresentation
5) Mistake
• s.19(1) CA - when consent to an agreement is caused by coercion,
fraud, or misrepresentation, the agreement is a contract voidable at
the option of the party whose consent was so caused

• s.19(2) CA – a party to a contract, whose consent was caused by fraud

or misrepresentation, may, if he thinks fit, insist that the contract shall
be performed, and that he shall be put in the position in which he
would have been if the representations made had been true
 Legality of Object
• Every agreement of which the object or consideration is unlawful is
void
• s.2(g) CA an agreement not enforceable by law is said to be void
• s.24 CA the consideration or object of an agreement is lawful, unless -
(a) it is forbidden by a law;
(b) it is of such a 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.
 Formalities
• S.9 CA – contracts may be made in writing or orally
• However, the CA does not contain any provision which deals
specifically with the contents of a contract
• Most contracts do not require formalities to be met
• Examples of commercial documents requiring formalities:
1) Power of Attorney
2) Trust deeds
3) Wills
 Privity of Contract
• General rule – only the persons who are parties to the contract can acquire
rights or incur liabilities under it
• A fundamental principle of common law that, apart from special
circumstances, a person who is not a party to a contract has no right to sue
on the contract
Andrew Christopher Chuah v Choong Eng Chuan [2007] 2 CLJ 405
• Exception – obligations under a contract cannot be transferred unless all
the parties consent through a novation agreement
• Novation agreement – a tripartite agreement where the original parties
agree to rescind their contract in consideration of a new contract entered
into on the same terms between one of the original parties and a third
party
 Terms and Conditions of a Contract
• The CA does not contain any provision which deals specifically with the
contents of a contract
1) Express and/or implied terms
i) Express terms:
Statements which creates contractual obligations between the parties
ii) Implied terms – may be implied from:
Custom and usage pertaining to a particular type of transaction
Statutory provisions
The courts – based on the intention of the parties
Yong Ung Kai v Enting [1965] 2 MLJ 98 – the court implied a term in the contract
that the sale of timber was subject to the obtaining of the necessary licence
2) Conditions and warranties
i) Conditions
A term vital to the contract
The parties consider it so important that its non-performance may be
considered by the injured party as amounting to a substantial failure to
honour the contract
Possible grounds for setting aside he contract and sue for damages
ii) Warranties
A term less important to the main purpose of a contract
If breached, the injured party must still perform part of their contract
but may have the right to sue for damages
Associated Metal Smelters Ltd v Tham Cheow Toh [1971] 1 MLJ 271
 Voidable Contracts
• Refer to ss. 10, 14 and 19 of CA
• s.14 CA - consent is said to be free when it is not caused by one or
more of the following:
1) Coercion
2) Undue influence
3) Fraud
4) Misrepresentation
5) Mistake
 Coercion
• s.15 CA - “Coercion” is 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, with
the intention of causing any person to enter into an agreement
• Kanhaya Lal v National Bank of India Ltd [1913] 40 Cal 598 – definition
of coercion is limited to an unlawful act done with the intention of
causing the person to enter into an agreement
• Kesarmal s/o Letchman das v Valiappa Chettiar [1954] 20 MLJ 119 – a
transfer executed under the orders of a Sultan issued in the presence of
two Japanese armies during the Japanese occupation of Malaya was
invalid. Consent was not freely given and the contract is voidable at the
option of the party whose consent was given
 Undue Influence
• s.16 CA - A contract is said to be induced by “undue influence” where 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
• Ragunath Prasad v Sarju Prasad [1924] AIR 1924 PC 60 – elements of undue
influence:
i) The relations between the parties to each other must be such that one is in a
position to dominate the will of another
ii) Whether the contract has been induced by undue influence
iii) The burden of proving that the contract was not induced by undue influence is
upon the person who was in the position to dominate the will of another
• See also - Rosli Darus v Mansor Hj Saad & Anor [2001] 4 CLJ 226
 Fraud
• s.17 CA - “Fraud” includes any of the following acts committed by a
party to a contract, or with his connivance, or by his agent, with intent
to deceive another party thereto or his agent, or to induce him to enter
into the contract:
(a) the suggestion, as to a fact, of that which is not true by one who does
not believe it to be true;
(b) the active concealment of a fact by one having knowledge or belief of
the fact;
(c) a promise made without any intention of performing it;
(d) any other act fitted to deceive; and
(e) any such act or omission as the law specially declares to be fraudulent
• Wong Cheong Kong Sdn Bhd v Prudential Assurance Sdn Bhd [1998] 3
MLJ 324
• Datuk Jaginder Singh & Ors v Tara Rajaratnam [1983] 2 MLJ 196
• Eastern & Oriental Hotel (1951) Sdn Bhd v Ellarious George Fernandes
& Anor [1989] 1 MLJ 35
 Misrepresentation
• s.18 CA “Misrepresentation” includes —
• (a) 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;
• (b) 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; and
• c) 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
• Difference between misrepresentation and fraud:
i) Fraud – the person making the representation does not himself
believe in its truth
ii) Misrepresentation - the person making the representation may
believe the representation to be true
Tan Chye Chew & Anor v Eastern Mining & Metal Co [1965] 1 MLJ 201
 Mistake
1) Section 21 CA: both parties are under mistake as to matter of fact.
• Where both the parties to an agreement are under a mistake as to a matter of
fact essential to the agreement, the agreement is void
2) Section 22 CA: mistake as to law
• A contract is not voidable because it was caused by a mistake as to any law in
force in Malaysia i.e. it may be valid

3) Section 23 CA: mistake of one party as to matter of fact

• The contract is not voidable merely because it was caused by one of the
parties to it being under a mistake as to a matter of fact
• Effect: Contract may still be valid
Chan Yoke Lain v Pacific & Orient Insurance Co Sdn Bhd [1997] 4 CLJ Supp 8
 Void and Illegal Contracts
• s.2(g) CA – a void contract is an agreement not enforceable by law
• s.24 CA - the consideration or object of an agreement is lawful, unless:
(a) it is forbidden by a law;
(b) it is of such a 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.
• In each of the above cases, the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful is void
• Amalgamated Steel Mills Bhd v Ingeback (Malaysia) Sdn Bhd [1990] 2 MLJ 374 – an
agreement for the purpose of evading the Stamp Ordinance 1949 and attempting
fraud against the revenue department and third parties was illegal and therefore void
 Discharge of Contract
• There are four ways to discharge/end/terminate a contract
1) Frustration
• s.57(2) CA - a contract is frustrated when there is a change in the circumstances
causing it to be legally or physically impossible to perform
• The doctrine of frustration applies where any of the following situations occur:
a) Physical impossibility because of destruction of subject matter – Taylor v Caldwell
[1863] 122 ER 209 (building destroyed by fire)
b) Physical impossibility e.g. death or incapacity under contract of personal service -
Sathiaval a/l Maruthamuthu v Shell Malaysia Trading Sdn Bhd [1998] 1 MLJ 740
(employee’s inability to continue with his employment due to his detention under
the Emergency (Public Order and Prevention of Crimes) Ordinance 1969)
c) Change in the law rendering performance impossible – Horlock v Beal [1916] AC
486 (no wages were due to crew after the date they were removed from the ship to
prison after the ship was detained at a German port after declaration of war
between Great Britain and Germany)
d) Impossibility due to non-occurrence of event essential to the contract – Krell v
Henry [1903] 2 KB 740 (King’s coronation did not take place)
e) Where the particular state of affairs ceases to exist – Codelfa Construction Pty
Ltd v State Rail Authority (NSW) [1982] 149 CLR 337 (supervening events made
terms of original contract frustrated)

2) Performance
• General rule – performance of a contract must be exact, precise and should be
in accordance with what the parties had promised
• s. 38(1) CA – parties to a contract must either perform or offer to perform their
respective promises, unless such performance has been dispensed with any law
• Non performance as agreed may render the contract frustrated
3) Breach
• Where a party fails to perform their obligations as agreed, they are in
breach of contract
• A breach may occur in any of the following ways:
a) Failure to comply with a term of the contract
b) By a party announcing to the other party that they are no longer
interested in carrying out their obligations prior to the time for
performance
c) A delay in the performance where time is of the essence of the
contract
4) Agreement
• Both parties agree to end the contract
 Remedies for Breach of Contract
1) Damages
• Monetary compensation
• Not awarded to punish the wrongdoer but to put the injured party back in the position
that they would have occupied if the contract had been performed as intended
• s.74 CA
2) Specific performance
• Discretionary order granted by the courts directing a person to carry out their obligations
under the contract
• Only suitable if damages are not an adequate remedy
• Specific Relief Act 1950
3) Rescission
• Allows the innocent party to cancel the contract by rescinding it
• Purpose – to reverse the contract and restore the parties to as near as practicable to
their original pre-contractual positions, relieving each party of their obligations and
permitting recovery of any benefits conferred on each other
4) Restitution
• Also known as restoration
• It does not rely on the plaintiff suffering loss or damage
• Its basis is unjust enrichment i.e. it would be very unfair if the defendant was
allowed to retain the money, goods or services, without payment
5) Injunction
• Discretionary court order
• Will not be awarded if damages are adequate remedy
• An injunction may be:
a) Prohibitory – preventing the breach of contract
b) Mandatory – requiring a person to perform some contractual obligations
c) Interlocutory – maintains the status quo between the parties until the
dispute can be heard by the court
Reading list and references:
1) Mei Pheng Lee & Ivan Jeron Detta, Commercial Law, Third Edition,
Oxford Fajar (2017) – Chapter 2
2) Dr Syed Ahmad Alsagoff – Principles of the Law of Contract in
Malaysia, Fourth Edition, LexisNexis (2015)
3) Contracts Act 1950
4) Specific Relief Act 1950
5) Age of Majority Act 1971