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CHAPTER 8 – LAW OF CONTRACT (PART I)
8
...
These contracts are largely made orally, for
example, buying coffee at a shop, buying groceries at a sundry shop, boarding a bus, parking our cars etc
...
The parties also wish to know what will be his
remedies if the other party breaches the agreement
...
The factor
which distinguishes contractual obligations from other legal obligations is that they are based on the
agreement of the contracting parties
...
2 Features of a contract
8
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1 Freedom of Contract
One of the most important features of a contract is that the contracting parties must be allowed to enter into
a contract freely
...


Freedom of contract and sanctity of contract are the dominant ideologies of the law of contract
...


8
...
2 The Objective Test
The doctrine of freedom of contract has lately been doubted and this subjective approach to the making of
contracts has now largely been abandoned, though its influence can still be detected in certain rules in the
law of contract
...


Thus the general rule is that the intention of the parties is to be assessed objectively
...
This objective principle is based on the needs of commercial
convenience and certainty
...

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Ir
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So if Peter actually knows that John in fact has no intention to contract with him, or to
contract on terms alleged, then there will be no contract
...
3 Cont ract L aw in Mal a ysi a
8
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1 The Origin of Contracts Act 1950 and Specific Relief Act 1950
In Malaysia, the law of contract can be found in Acts of Parliament, delegated legislation and case law
...
This Act is a reenactment of the Contracts (Malay States) Ordinance 1950 which was modeled from the Indian Contract Act
1872
...


The Indian Contract Act 1872 is largely a codification of the then existing English common law and rules of
equity
...


The other important Act for the law of contract in Malaysia is Specific Relief Act 1950 which provides for
various remedies and reliefs to the innocent party
...
However, the Indian Act of
1877 has been repealed in India and has now been replaced by the Specific Relief Act 1963
...
3
...
Section 3
provides for the general reception of English law in Malaysia
...
In Sabah and Sarawak, in addition to the common
law and rules of equity, statutes of general application as administered in England on 1 December 1951 and
on 12 December 1949 apply respectively
...
Under section 3(2), where there is any
conflict between common law and equity, the rules of equity will apply
...


English law on these matters applies to all states as at 7 April 1956 other than Melaka, Penang, Sabah and
Sarawak
...
Therefore, there is a continuous reception of English law in these four states
...
Both sections permit
reception of English law unless there are no provisions made under any written law
...
Thus in
Government of Malaysia v Gurcharan Singh (1971) 1 MLJ 211, the court relied on the well-established
English definition of ‘necessaries’ in interpreting the scope of the term in section 69 of the Contracts Act
1950
...
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From the local judicial decisions, it is obvious that English cases continue to exert great influence on
Malaysian contract law notwithstanding the existence of Contracts Act 1950
...
Therefore, the reception of English cases is understandable
and necessary in some instances
...
3
...
But because the Malaysian
Act is based on the Indian Contract Act, Indian decisions are obviously persuasive and are consequently
given due weight and treated with greatest respect by local courts
...
”

However, where the decisions on Indian cases are decided by Privy Council on an India statute which is in
pari materia with a local statute, then it is binding on local courts and not merely persuasive
...
2) (1964) MLJ 108 said:
“All we have to say is that the Privy Council were not discussing the law of England
...
In these circumstances a decision of their Lordships is binding on this
Court and a fortiori, it is binding on every High Court in Malaysia and no judge is at liberty, whatever
his private opinion may be, to disregard it
...
111)

8
...


Section 10(1) further 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”
...
Some
agreements are not contracts because they are not enforceable due to lack of certain elements that form the
basis of a contract
...
Offer (or Proposal)
b
...


Consideration

d
...
Certainly
f
...
Free Consent
h
...
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Therefore where one or more of the above ingredients is missing, the agreement is not a contract and the
law will not enforce this agreement
...


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...
5
...
The term will have been set out in a
written agreement signed by both parties
...
The dealings between the parties are traditionally analysed in
terms of offer and acceptance
...


In Malaysia, s 2(a) of Contracts Act 1950 provides:
“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
...


8
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2 When is an offer valid?
An offer is valid if the following conditions are satisfied:

a
...
The offer may be in writing or oral or by conduct;
c
...
The offer must be definite in substance; and
e
...


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3 Communication of offer
An offer is effective when it is communicated to the offeree
...
The reason for this requirement is that if we say that a contract is an
agreed bargain, there can be no agreement without knowledge of the offer
...
Section 4(1) provides that “the communication of a
proposal is complete when it comes to the knowledge of the person to whom it is made
...
In the case of Gibbons v Proctor
(1891) 64 LT 594, a policeman was allowed to recover a reward when he sent the required information to the
police in ignorance of the offer of award
...
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The other view, which was agreed by most academicians to be better, is that the offer must be
communicated in order for a contract to be valid
...
Thus 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 reward for its return
...


Once it is shown that the offer has been communicated to the offeree, a person who knows of the offer may
do the act required for acceptance with some motive other than that of accepting the offer [Williams v
Carwardine (1833) 4 B & Ad 621]
...
5
...
e
...
This was provided under
section 9 of the Contracts Act 1950
...
5
...
Where it is
made to a particular person, it appears that only the offeree may accept the proposal
...


In Carlill v Carbolic Smoke Ball Company (1893) 1 QB 256, the defendant who manufactured ‘carbolic
smoke balls’ issued an advertisement in which they offered to pay £100 to any person who used one of their
smoke balls and then succumbed to influenza, within a specified time
...
Carlill, after seeing the
advertisement, bought and used the smoke ball and promptly went down with influenza
...
The defendant argued, inter alia, that an offer to the whole world was not possible in
English law
...


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6 The offer must be certain
An offer must contain terms which are definite and certain so that the other can perform his obligation in
accordance to the terms
...
5
...
An invitation to treat is not an offer but a sort of
preliminary communication which passes between the parties at the stage of negotiation; for instance, a
price list, a display of goods with price tags, an advertisement etc
...
In Gibson v Manchester City Council (1999) 1 WLR 294, the
council’s letter which stated ‘we may be prepared to sell you’ was held to be an invitation to treat and not an
offer
...
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The distinction between an offer and an invitation to treat depends largely on the intention of the parties; that
is, did the maker of the statement intend to be bound by an acceptance of his terms without further
negotiation or did he only intend his statement to be part of the continuing negotiation process
...


The effect of distinguishing an offer from an invitation is that an offer may lead to a binding contract if it is
accepted whilst a response to an invitation to treat does not lead to an agreement
...


The courts have already established that there is no intention to be bound in the following cases
...
5
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1 Display of goods for sale


In a shop

In Pharmaceutical Society of GB v Boots Cash Chemist (1953) 1 QB 401, the Court of Appeal held that in a
self-service shop, the sale takes place at the check-out counter, when the assistant accepts the customer’s
offer to buy the goods
...
e
...



In a Shop window

In Fisher v Bell (1961) 1 QB 394, it was held that a ‘flick knife’ displayed in a shop window with a price
attached, was an invitation to treat
...
5
...
2 Advertisement
The general rule is that an advertisement in newspaper or magazine is an invitation to treat rather than an
offer
...

The court pointed out that if the advertisement was treated as an offer this could lead to many legal suits for
breach of contract since his stock of birds was limited, and therefore, he could not have intended the
advertisement to be an offer
...


Nevertheless there are certain cases where an advertisement may be interpreted as an offer rather than an
invitation to treat
...
In Carlill v Carbolic Smoke Ball
Co (1893) 1 QB 256 the advertisement was held to be an offer to the whole world and not an invitation to
treat as it is a unilateral offer to general public
...
5
...
3 Price List and Catalogue
In Grainger & Sons v Gough (1896) AC 325, the court held that a circulation of a price list and catalogue by a
wine merchant is only an invitation to treat
...

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5
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4 Auctions
The general rule is that an auctioneer, by inviting bids to be made, makes an invitation to treat
...
Similarly the advertisement of an auction sale is generally only
an invitation to treat (Harris v Nickerson [1873] LR 8 QB 286)
...
5
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5 Tenders
Where a party invites tenders for a particular project, the general rule is that the invitation to tender is simply
an invitation to treat
...

However in an appropriate case a court may hold that the invitation to tender was in fact, an offer
...


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8 Unilateral and Bilateral Contract
A bilateral contract consists of an exchange of promises
...
For example, “I will sell you any car for RM10,000” is bilateral offer whereby “I will pay RM10,000 for
your car” is an acceptance to the offer
...
For example, if one says “I will pay RM100 to anyone who will find my lost cat and
return it to me”, this is a unilateral offer
...
Thus,
a ‘unilateral’ offer is accepted by doing what is requested in the offer
...


The distinction between bilateral and unilateral contracts is important with regard to:


Advertisements



Revocation of offers



Communication of acceptance

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9 Termination of an Offer
An offer may be terminated in one of these ways:-

8
...
9
...
Section 5(1) of the Contracts Act 1950
provides that “a proposal may be revoked at any time before the communication of its acceptance is
complete against the proposer, but not afterwards
...
In Byrne v Van Tienhoven (1880) 5 CPD 344, the withdrawal of an offer sent by telegram was held to
be communicated only when the telegram was received
...
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revocation is treated as being brought to his attention
...


Communication of the revocation is difficult if the offer was made to the whole world as in the case of a
reward in newspapers
...
e
...

For a unilateral offer, it has been established that revocation cannot take place if the offeree has started to
perform the required act
...
The young couple
duly paid the installments, but the father withdrew his offer shortly before the whole debt was paid
...


The situation is not clear whether the offeror must know that the offeree has started to perform
...
5
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2 Lapse of Offer
An offer may lapse and thus cannot be accepted if the time prescribed in the offer for its acceptance lapses
...
What amounts to reasonable time is
a matter of fact to be decided by the court
...


An offer may also lapse by the death of the offeror, if the offer was of a personal nature
...
The generally accepted view is that on the offeree’s death the offer comes to an end by
operation of law
...


An offer will come to an end if a certain event occurs that lead to the situation that the offer cannot be
accepted
...
See s 6(c)
...
5
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3 Rejection of Offer
An offer will lapse if the offeree rejects the offer, either expressly or by conduct
...
If any alteration is made, or
anything added, then this ‘acceptance’ will become a counter-offer, and will terminate the offer
...
The plaintiff signed the agreement and entered the name of an
arbitrator in a space which had been left empty for this purpose
...


Once an offer lapses due to counter-offer, it cannot be accepted by the offeree anymore
...
334)

However, a request for further information is not a counter-offer and will not ‘kill’ the offer
...
The plaintiff
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Ir
...
It was held that this was a mere enquiry for
information and not a counter-offer
...
6 Acceptance
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1 What is an acceptance?
An acceptance is an unqualified expression of assent to the terms proposed by the offeror
...


In Malaysia, section 2(b) of the Contracts Act 1950 provides:
‘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
...
6
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An acceptance must be unqualified assent to all the terms of the offer
b
...


The acceptance must be communicated to the offeror

d
...
A person cannot accept an offer of which he has no knowledge
f
...
6
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It must be made on exactly the
same terms as offered without modifications or variations
...


Section 7(a) of the Contracts Act 1950 stipulates:
‘In order to convert a proposal into a promise the acceptance must be absolute and unqualified’

Therefore a purported acceptance which does not accept all the terms and conditions proposed by the
offeror but which in fact introduces new terms is not an acceptance, but a counter-offer, which is then treated
as new offer; which is capable of acceptance or rejection
...
This rule was applied in the case of
Hyde v Wrench (1840) 3 Beav 334 whereby the offeree was not allowed to accept the original offer once he
had made a counter-offer
...
6
...
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Under such circumstances, whether an acceptance is valid or not depends largely on facts of the case such
as the intention of the parties is there any more terms to be agreed etc
...
It is generally held that the intention of the parties is not to make a concluded
bargain at all, unless and until they have executed a formal contract
...
In this case the court held that we should look at the
intentions of the parties when they entered into the agreement
...
However if there is only an agreement to enter into contract later, then the agreement is not a
binding contract
...
It is for the court in each case to construe the
correspondence exchanged between the parties and to decide whether that is the result intended by the
parties
...
Rather, it is, when read in the context of the correspondence and the objective aim of the
transaction, an indication of an intention to merely formalize the agreement already concluded between the
parties
...
6
...
Section 7(b) of the Contracts Act 1950 provides:
“The acceptance must be expressed in some usual and reasonable manner, unless the proposal
prescribes the manner in which it is to be accepted
...
But if he fails to do so within a reasonable time, then it is deemed that
he accepts the acceptance
...


What if a method of communication is specified whereas the offeree uses another method of acceptance?
The general rule is that if the other method used is no less advantageous to the offeror, the acceptance is
good and a contract is formed
...
Lord Denning in Entores v Miles Far East Corp (1955) 2 QB 327 said that if an oral acceptance is
drowned out by an overflying aircraft, such that the offeror cannot hear the acceptance, then there is no
contract unless the offeree repeats his acceptance once the aircraft has passed over
...
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8
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6 Communication by instantaneous/electronic means
In the case of instantaneous communication, such as telephone and telex, the acceptance takes place at the
moment the acceptance is received by the offeror and at the place at which the offeror happens to be
...
For acceptance communicated via a voice recorder, it is not clear if
acceptance takes place when the message is recorded or when it is played back
...


However, it is not entirely clear on the modern tool of instantaneous communication such as short message
service (sms), fax, email etc
...
Because of
the technology involved in both these forms of communication, they are not entirely instantaneous
...

In some cases, the email is lost and never received by the intended recipient
...


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7 Exceptions to the Communication Rule
The rule that acceptance must be communicated to the offeror is not an absolute one
...
This may be done
expressly as in the case of Felthouse v Bindley (1862) 11 CB 869 or implicitly as in the case of Carlill
v Carbolic Smoke Ball (1893) 1 QB 256
b) When failure of communication is the fault of the offeror
c) When the post is deemed to be the proper method of communication, acceptance takes place when
a letter is posted, not when it is received (The Postal Rule)

8
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8 Act of Acceptance
While communication of an acceptance may be waived, it will still be necessary for the offeree to do some
positive acts to ‘signify his assent’, silence, absence of response or just total disregard of the offer is not
acceptance as there is no positive act to indicate one’s willingness to accept the offer
...
In a unilateral contract such as in the case
of Carlill v Carbolic Smoke Ball, an acceptance is made by the conduct of performing the required action
...


8
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9 Acceptance by Silence
As an offeree must do some positive acts to signify his acceptance, an offeror may not stipulate that the
silence of the offeree will amount to an acceptance
...
” The offeree may safely ignore
such a statement
...
All manners of offers
would address to us, obliging us to reject them on penalty of legal liabilities
...
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The rule was established in the case of Felthouse v Bindley (1862) 11 CB 869
...
The nephew did not reply to this letter, but told the defendant, an auctioneer who was to sell his horse,
that this horse was to be kept out of the sale
...


However, acceptance by silence must be distinguished from acceptance by conduct
...
It was held that he had accepted the landlord’s offer by his conduct though he has
kept silence about his acceptance
...
6
...
This is also known as “the postal rule” and
it was established in the case of Adams v Lindsell (1818) 1 B & Ald 681
...


Under the rule, a postal acceptance takes effect when the letter of acceptance is posted, i
...
when it is in the
control of the post office or of one of its employees authorized to receive letters
...
An acceptance by telegram similarly takes effect
when the telegram is communicated to a person authorized to receive it (Bruner v Moore [1904] 1 Ch 305)
...
Normally such misdirection will be
due to the carelessness of the offeree
...
However GH Treitel
argued that postal rule should not apply to such case
...

For example, an offeror makes an offer and unbeknown to him, the offeree accepts the offer
...
In this case, the offeror is now in breach of his contract with the original offeree
...
He may later be liable to the offeree for breach of contract for failure to carry
out the obligations in the contract
...
It may also be excluded expressly or impliedly by the offeror,
e
...
requiring “notice in writing” (Holwell Securities), i
...
the acceptance must actually be received by the
offeror
...
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8
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11 Revocation of acceptance
An acceptance may be revoked at any time before the communication of the acceptance is complete as
against the acceptor, but not afterwards
...


If the offeree telephoned the offeror to revoke his letter of acceptance sent by post and the letter is yet to
reach the offeror, the interesting question here is whether the revocation is valid? The illustration to s 5 of
the Act provides that the offeree may revoke his acceptance at any time before or at the moment when the
letter communicating it reaches the offeror, but not afterwards
...
The revocation must
actually be communicated to the offeror and not merely by sending the revocation by post
...
6
...
It is not enough that their wishes happened to
coincide: the act or promise constituting the acceptance must be given in exchange for an offer
...
For example, if A writes to B offering to sell his car for
RM50,000 and B simultaneously writes to A offering to buy the car for RM50,000, and if no further
communication took place between them, then the contract does not exist
...
7 Consideration
8
...
1 Doctrine of Consideration
In English law and similarly in Malaysian law, a promise is not, as a general rule, binding as a contract
unless it is supported by some “consideration”
...


The basic feature of this “doctrine of consideration” is the idea of reciprocity; something of value in the eyes
of the law must be given for a promise in order to make it enforceable as a contract
...
In this case,
a promise to make a gift will not generally be treated as legally binding
...


8
...
2 What is consideration?
Consideration was defined in the case of Currie v Misa (1875) LR ID Ex 153:
“A valuable consideration in the eyes of law may consist either in some right, interest, profit or
benefit to one party, or some forbearance, detriment, loss or responsibility given, suffered or
undertaken by others”
...

________________________________________________________________________________________________
Ir
...
The promise may be in the form of an act or omission (i
...
to abstain from doing
something)
...
7
...
7
...
1 Executory Consideration
Executory consideration is a promise to do something in the future, for example, A agrees to sell B a car and
B promises to pay RM10,000 30 days later for it when A delivers the car to him
...
7
...
2 Executed Consideration
An executed consideration is an act or promise which has been wholly performed at the time the contract is
entered into
...

B finds and returns the handphone in response to the offer
...


8
...
3
...
So if B finds and returns the
handphone without A making any reward, and subsequently A promises to pay RM100 to B when he returns
the handphone, the promise to pay is made on a past consideration
...
By ‘past consideration’ it simply means that your consideration has already completed before I
made my promise; so that you have not given anything new in return for my promise
...
One of
the major objections is that there is no reciprocity; the promisee does not give anything in return for the
promise made by the promisor
...

(i) Section 2 (d) provides that “when, at the desire of the promisor, the promisee or any person had done or
abstained from doing something, such act or abstinence promise is called a consideration for the promise
...
What is then “at the desire”? In South East Asia
insurance v Nasir Ibrahim (1992) 2 MLJ 355, the court held that the word “desire” is synonymous with the
word “request”
...

(iii) Section 71 provides that if the act is done by a promisee “not intending to do so gratuitously’, then the act
done provides good consideration
...
This can be expressed or implied from circumstances
...
7
...
e
...
Therefore only a person who has provided
consideration for a promise can enforce the promise
...
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The situation in Malaysia differs from that in England whereby the consideration may move from third party
...
So assuming A, B and C are parties to an agreement where C promises to
pay A RM100 if A repairs B’s car
...


8
...
5 Consideration need not be adequate
One of the important doctrines in the law of consideration is that “consideration need not be adequate but it
must be sufficient”
...
This is meant by saying that consideration must be ‘sufficient’
...
This is what it meant by saying that consideration need not be ‘adequate’
...


Since consideration need not be adequate, acts or omissions of very small value can be a good
consideration and in some cases, objects of trifling value can constitute consideration
...
The House of Lords held that the wrappers themselves, although of very trivial
economic value, were nevertheless part of a consideration
...


This doctrine was codified in the Contracts Act 1950 in which explanation 2 to section 26 provides that an
agreement to which the consent of the promisor is freely given is not void merely because the consideration
is inadequate
...
Mere inadequacy of consideration is
not a sufficient ground to set aside a contract
...
7
...
For example, doing something which one is legally
bound to do cannot amount to consideration
...


There are two types of situations in which the consideration provided or duty performed is regarded by law
as insufficient and hence not a good consideration
...
It has been generally
accepted that a person, who by his official status or through the operation of the law is under a public duty to
act in a certain way, is not regarded as furnishing consideration merely by discharging that duty
...
This legal principle was stated in Collins v Godefroy (1831) 1 B & Ad 950 in which a
promise to pay a fee to a witness who has been properly subpoenaed to attend a trial was held to have been
made without consideration
...

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Ir
...
In Glassbrook v Glamorgan County Council (1925) AC 270, the council, as
police authority, sued on an agreement to pay for police protection of a coal mine during a strike
...

The company refused to pay and when sued, pleaded the absence of consideration, The House of Lords
held that the police were bound to afford protection, but they had a discretion as to the form it should take,
and an undertaking to provide more protection than in their discretion they deemed necessary was
consideration for the promise of reward
...


In Malaysia, this legal principle is codified under s 26(b) where it provides that an agreement without
consideration is valid if “it is a promise to compensate …
...
something
which the promisor was legally compellable to do”
...
Thus if A is bound to do something by virtue of a
contract with B, performance of that duty or the promise to perform that duty cannot be consideration for a
further promise by B
...
It was held that the crews were already
bound by their contract to meet the normal emergencies of the voyage and were doing no more than
their original contractual duty in sailing the ship back to London
...


Where the promisor, however, performs more than he had originally promised, then there can be
consideration
...
This
discharged the contracts of the remaining sailors as it was dangerous to sail the ship home with only half
the crew
...




Exception to the rule in Stilk v Meyrick
In Williams v Roffey Bros & Nicholls (1991) 1 QB 1, the main contractor were refurbishing a block of flat
and they sub-contracted the carpentry work to the plaintiff
...
It was
held that where a party to an existing contract later agree to pay an ‘extra bonus’ in order that the other
party performs his obligations under the original contract, then the new agreement is binding if the party
agreeing to pay the bonus has thereby obtained some new practical advantage or avoided a
disadvantage
...


________________________________________________________________________________________________
Ir
...




Part payment of a debt
An old rule was established in the Pinnel’s Case (1602) 5 Co Rep 117a in which a promise to accept part
payment of a debt in discharge of the entire debt was held not supported by consideration
...
In this case the debtor is already contractually obliged to repay the
entire debt and so provides no consideration for the creditor’s promise to accept part payment
...

The rule in Pinnel’s Case was later confirmed by the House of Lords in Foakes v Beer (1884) 9 App Cas
605
...
Foakes was indebted to Mrs
...
It was agreed by Mrs
...
Foakes paid the money as agreed but Mrs
...
The court held that there was
no consideration for the promise and that Foakes was still bound to pay the additional sum
...
But payment of debt of lesser amount on or after the due date
for payment will never provide consideration for a promise to forego the balance
...


The law in Malaysia with respect to this aspect differs from that in England
...
Therefore a promisee can validly agree to
accept as consideration something other than that which was originally promised
...
It states: “where A owes B RM5,000 and B
accepts from C RM1,000 in satisfaction of his claim against A, this payment would discharge the whole
claim”
...
Similarly in Associated Pam Malaysia Cement Sdn Bhd v
Syarikat Teknikal & Kejuruteraan Sdn Bhd (1990) 3 MLJ 287, the Supreme Court observed that ‘section
64 of Contracts Act 1950 represents a departure from the common law in England”
...
It is obvious that the third party is getting something more than
he is entitled to
...
The claimant sued to enforce the promise and it was held

________________________________________________________________________________________________
Ir
...

See Pao On v Lau Yiu Long (1980) AC 614 also
...
7
...
The exceptions are:
a) An agreement made on account of natural love and affection between parties standing in near
relation to each other;
b) An agreement to compensate for a past voluntary act;
c) An agreement to compensate a person who did an act which the promisor was legally compellable
to do;
d) An agreement to pay a statute-barred debt, such as debt barred by limitation
...
7
...
Under
the classical common law of contract, such modification would only be binding if consideration was supplied
...


This doctrine was initially established in the case of Hughes v Metropolitan Railway Co
...


In the High Tree case, the plaintiffs let a block of flats to the defendants
...
In 1945,
the flats were all let out and the plaintiffs claimed full rent again from 1945 onward
...
However, the plaintiffs are estopped by their promise from claiming full rent from the
period from 1940 to 1945
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Traditionally, the law
will require evidence that the parties intend to create legal relations and that the agreement be legally
enforceable
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Over the years, the English law has developed two presumptions in the determination of intention with
respect to agreements
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For commercial agreements, there is a presumption that the parties intend to create legal relations and all
agreements signed are to be enforceable
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In this instance, the burden is ‘a heavy one’ and ‘clear’ evidence is required to rebut
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It
would be horrified and socially unacceptable if they could be taken to court for such social arrangements
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In Balfour v Balfour (1919) 2 KB 571, the court refused to enforce a promise by the husband to give his wife
£30 a month whilst he was working abroad in Sri Lanka
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In such a case, the parties would have bargained keenly and do not rely on
honourable understanding
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In this
case, the court held that in considering the expense and trouble the parties have been to in selling up and
moving to Australia, the agreement must be intended to be binding
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Similarly, agreements between parents and children are presumed to be not legally binding
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Jones persuaded her daughter to give up her job in Washington and
came to England to read law by promising her a monthly allowance of USD 200
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Mrs
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Mrs
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The court held that the agreement of paying
monthly allowance was not intended to be legally binding and that the mother was entitled to possession
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See Lens v Devonshire Social
Club (1914) Times
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The
presumption may be rebutted by evidence of contrary intentions
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create legal relations will not suffice
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Three
important factors that the court will look at are:
a) The context and surrounding facts of how the agreement was made
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See Snelling v John Snelling (1973) 1
QB 87
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See Parker v Clark (1960) 1 WLR 286
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3 Commercial Agreement
The presumption is that parties to a commercial agreement do intend to create legal relations and the
rebuttal is a heavy one
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In Esso Petroleum Ltd v Commissioners of Customs and Excise (1976) 1 WLR 1, Esso promised to give one
world cup coin with every four gallons of petrol sold
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A majority in the House of Lords held that the
presumption was not rebutted and there was intention to create legal relations
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The parties must, however, make their intention clear
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Some examples of such rebuttal are:
a) ‘The agreement is not entered into as a formal or legal agreement, and shall not be subject to legal
jurisdiction in the Law Courts’ (Rose and Frank v JR Crompton and Bros Ltd [1925] AC 445)
b) Agreement to be binding ‘in honour only’ (Jones v Vernon Pools [1938] 2 All ER 464)
c) Letters of Comfort, i
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statements to encourage lending to an associated company (Kleinwort
Benson Ltd v Malaysia Mining Corp [1989] 1 WLR 379)

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The primary reason behind this rule is that it is for the parties, and not the
courts, to make the contract
...

Therefore if the agreement contains terms that are uncertain there is no way for a court to interpret the
contract and to ascertain what the intentions of the parties are
...
In Malaysia, s 30 of the Contracts
Act 1950 provides that “agreements, the meaning of which is not certain, or capable of being made certain,
are void”
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In
Scammell & Nephew Ltd v Ouston (1941) AC 251, the House of Lords held that an agreement to buy goods
“on hire-purchase” was too vague to be enforced, since there were many types of hire-purchase agreements
in widely different forms
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But the courts do not expect commercial documents to be drafted with strict precision and will, particularly if
the parties have acted on an agreement, do their best to avoid striking it down on the ground that it is too
vague
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g
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9
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There is, for example, no contract if an agreement for a lease fails to specify the date on which the term is to
commence
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An agreement may also be incomplete if it expressly requires further agreement to be reached on points as
left open
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e
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In Walford v Miles (1992) 2 AC 128, an agreement to negotiate in good faith
was held to be too vague and incomplete
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10
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Where one or more parties to a contract lack such capacity, the
contract may be void
...


Then who are the parties that are competent to contract? Section 11 of the Act codifies the common law rule
and provides that “every person is competent to contract who is of the age of majority according to the law …
and who is of sound mind”
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However, the Act does not expressly provide for the effect of an agreement that is entered into by
incompetent parties
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539, the
minor had mortgaged his property to an adult and the Privy Council held that the combined effect of section
10 and 11 of the Indian Contract Act, which is similar to the same sections of the local Act, rendered such
contracts void and not voidable
...
This so because s 65 of the Indian Contract Act (equivalent to s 66 of
Malaysia Contracts Act) “starts from the basis of there being an agreement or contract between competent
parties and has no application to a case in which there never was, and never could have been, any contract
...
In this case, the court ordered the adult to refund the purchase price of a piece of land
to the infant upon the infant vacating the land occupied by him
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10
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Other than several statutory and common law exceptions, the general rule is that all contracts entered into
by a minor are void
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However there is a competing policy that the law does not wish to
expose to hardship those deal fairly and in all good faith with such persons
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2
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But if the terms are harsh or onerous, then the contract is not binding upon the minor
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The word “necessaries” is not defined in the Act and it has been held by the court that it must be construed
broadly
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2
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In Malaysia, section 13 of the Children and Young Person (Employment) Act 1966 provides that a minor of
14 years and above is competent to enter into a contract of employment
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2
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However, the section applies only
to scholarship agreement between the government and the minor and does not cover the agreements
between minors and private organizations
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10
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Therefore a person who suffers from mental disability, either permanently or temporarily, at the time of
contract lacks the capacity to enter into an agreement, section 11 of the Act provides that a person with
sound mind is competent to contract
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A person usually suffering from mental disorder may make a contract during those periods when he is sound
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See
illustration (a) of section 12
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See illustration (b)
of section 12
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11 Free Consent
Free consent is an important element for the formation of a contract
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In short, there must be a consensus ad idem
...
”

What constitute consent? Section 13 provides that “two or more persons are said to consent when they
agree upon the same thing in the same sense”
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When is consent free? Section 14 provides that:
“Consent is said to be free when it is not caused by:
a) Coercion, as defined in section 15;
b) Undue influence, as defined in section 16;
c) Fraud, as defined in section 17;
d) Misrepresentation, as defined in section 18; or
e) Mistake, subject to sections 21, 22 and 23
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Therefore, any agreements procured under any of the above situations will render the agreement invalid and
the contract is either void or voidable
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12 Legality of the Object
8
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1 Contract void for illegality
As a general rule, the courts, under the common law, will not enforce a contract which is illegal, i
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the
contract involves the commission of a legal wrong or is in some way contrary to public policy; nor as a
general rule, will the courts permit the recovery of benefits conferred under such a contract
...
The first is that the court cannot be called
upon to aid a willing party to an illegal contract or to a contract which is contrary to public policy
...
The third is that a refusal to grant relief will make entry into illegal contracts a hazardous enterprise
and will thus deter people from entering into such contract
...
In addition, s 24 provides:
“The consideration or object of an agreement is lawful, unlessa) It is forbidden by a law;
b) It is of such a nature that, if performed, 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
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Every
agreement of which the object or consideration is unlawful is void
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12
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Where the making of such
a contract is expressly prohibited, no difficulties arise; the contract is illegal
...
The function of the court in
such a case is to interpret the statute to discern whether on its proper construction, the said Act prohibits the
making of such a contract
...
So the process of ‘finding the intention’ of Parliament is frequently an extremely artificial one
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

S 29 – agreement in restraint of legal proceedings



S 31 – agreement by way of wager

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3 Illegality under common law
Besides the above statutory illegality, a contract may be illegal at common law
...
Illegality at common law therefore goes beyond
contracts to commit a crime and extends, for example, to contracts which are contrary to good morals such
as prostitution
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Similarly, a promise by a man to
pay a woman if she will become his mistress is illegal (Franco v Bolton [1797] 3 Ves 368)
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4 Illegal contracts under the Contracts Act 1950
Section 24(a) and (b) provides that an agreement is void if the object of an agreement is forbidden by law or
if it is of such a nature that, if permitted, would defeat any law
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In this case, the parties devised a scheme for the transfer of land with the primary purpose of
avoiding estate duty
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Where a contract is made in contravention of some statutory provisions, then in addition to any criminal
sanctions, the courts will, in general, find that the contract is stricken with illegality
...
For example,
construction of a building in breach of building by-law will not invalidate the contract of sale of the property
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e
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Some of the examples where such contracts are illegal are:


Agreement to purchase human organs



Agreement to share proceeds from robbery



Agreement to murder or injure someone



Contract to commit a crime

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The action failed as the
object of the agreement, i
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robbery, is unlawful and prohibited by law
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12
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For example, an agreement for the division of profits from a fraudulent act such as transfer of property
by forgery is void
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12
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Therefore if two parties agree to cause physical harm to another or to cause physical
damage to a property belonging to another, the agreement is void and unenforceable
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12
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This sub-section codifies the common law rule and is extremely wide in its scope
...
Some examples are:
a) A contract to hire a vehicle for purpose of prostitution (Pearce v Brooks [1861] All ER 102)
b) A promise by a man to pay a woman money if she will become his mistress (Benyon v Nettlefold
[1850] 3 Mac & G 94)
c) A contract to lease a property for the purpose of prostitution

Contracts that are against public policy

A contract which does not involve the commission of a legal wrong may be illegal because its tendency is to
bring about a state of affairs of which the law disapproves on grounds of public policy
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What is ‘harmful’ depends on the circumstances of the case
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In Jupiter Ltd v Gan Kok Beng (2008) 7 CLJ 715, the defendant engaged in certain gaming activities in the
plaintiff’s casino in Australia on several occasions
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The cheques were not honoured by the defendant
and the plaintiff sued to recover the debt
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8 Effect of Illegality
At common law and under the Contracts Act 1950, illegal contracts are void and not voidable
...
The general rule is
that neither party to an illegal contract can enforce it, and the court will not enforce the contract
...
So,
the promisee will not receive any consideration even though he has performed his part of the bargain
...
However the above
general rule is not an absolute one and in some cases, the court may be prepared to give to the ‘innocent
party’ a remedy
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That means the contract has
no legal effect as if it never exists at all
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Section
2(g) provides that “an agreement not enforceable by law is said to be void”
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Therefore, it appears that no distinction is made in Malaysia between
void contract due to illegality and contract which is void or void ab initio and the parties may not be able to
recover any benefits conferred earlier
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However, benefits accrued by one party must be
returned to the other party; otherwise the party will be unjustly enriched
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In respect to voidable contract, the Contracts Act 1950 codifies English common law rule in which section 2(i)
provides that:
“An agreement which is enforceable by law at the option of one or more of the parties thereto, but
not at the option of the other or others, is a voidable contract
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The party
who has the right to avoid the contract is generally the innocent party
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Consequently all
rights and obligations existed before the contract is avoided remain intact and enforceable by law
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If the innocent party
chooses not to avoid the contract, then the other party must complete his obligations under the contract

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