Law 2013

Faculty of Business, Finance and Hospitality

Assessments

Key Information Programme

: Bachelor of Business Administration

Module Title

: Commercial Law

Module Code

: LAW 2013

Module Leader

: Kharmeyni Jumbulingam

Group Members NO 1 2 3 4 5 6 7

NAME

STUDENT ID

AZRUL AMINUL RASHID BIN MARZUKI SALMI DARINA BINTI OSMAN AHMAD IZWAN BINTI JUMAHAT OSMAN SALAHUDDEEN BIS OSMAN MOHD SHAHFIZZAN BIN KHAMIS MUHAMAD ZAIRUN BIN JAMAK MOHD SHAFIQ BIN OMAR

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BBAP18011162 BBAP18011233 BBAP18011157 BBAP18011232 BBAP18011209 BBAP18011213 BBAP18011312

TABLE OF CONTENT No.

Content

Page

1.

Introduction

4

2.

Elements of Contracts

4

2.1 Offer and Acceptance

5–6

2.2 Consideration

6–7

2.3 Intention to create legal relations

8

2.4 Legal Capacity

8–9

2.5 Certainty

9

2.6 Consent of Parties

9 – 10

2.7. Legality of objects

10

Breach of contracts

11

3.1 Void Contracts

11

3.2 Voidable Contracts

11 – 12

Breach of Contract Remedies

13

4.1 Compensation Damages

13

4.2 Specific Performance

13

4.3 Injunctions

13

4.4 Quatum Meruit

14

4.5 Rescind the Contract

14

Conclusion

14

3.

4.

5.

2

6.

References

15

3

1. Introduction Contract laws in Malaysia are administered in accordance with the Contracts Act 1950 (revised 1974). This Act is matched from the India Contract Act 1872 which emulates the English law with modified in certain matters as per local requirements in Malaysia. Previously it was known as the Contract Ordinance 1950 which also contained provisions relating to the law of partnership but after the revision came into force on 1 July 1974 the provisions relating to the laws of the partnership were repealed and the laws of partnership were governed by a separate statute of the Partnership Act 1961. Generally a contract is a binding agreement between two or more parties. Section 2 (h) of the Contracts Act 1950 defines contract as 'an enforceable law.' This means that all contracts are contracts where not all agreements are contracts if they do not meet the essential elements of the contract as set out in Section 10 (1) 'All agreements are contracts if made on the basis of the parties' valid consideration and with a valid purpose, and not expressly set forth under the provisions of this Act that it is nullified '. It is therefore clear that an agreement can only be referred to as a contract when it can be enforced by law. An agreement may only be enforced if it meets the essential elements of the contract. An agreement that does not comply with the essential elements of the contract shall not constitute a binding obligation by the parties. 2. Elements of Contracts For a contract to be lawful and enforceable, certain elements need to be met. The elements are: i.

Offer and acceptance

ii.

Consideration.

iii.

Intention to create legal relations

iv.

Legal Capacity

v.

Certainty

vi.

Consent of Parties

vii.

Legality of objects: Unlawful or Void Contracts The absence of these elements will result in a contract unlawful and unenforceable.

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2.1 Offer and Acceptance To create an agreement between 2 or more parties, there must be an offer and acceptance. For example if A by bidding sells his car to B RM10000 with B's expectation to receive it. If B accepts A's proposal to sell his car for RM10000, there is an agreement between them. A proposal can be made either to a specific person or to the general public. If the proposal is made to a specific person, then the proposal is only acceptable to the person. On the other hand, if the proposal is made public, then anyone can accept it, provided it fulfills the terms of the offer. Case example: Carlill Iwn. Carbolic Smoke Ball Co (1893). Fact: The defendant advertises that they are willing to offer £ 100 to anyone who is still infected with flu after taking a medication within a certain period of time. Decision: He is entitled to receive £ 100 because he has accepted the offer made to the public. The same theory applies to ads offering rewards to anyone who returns the lost item: is considered an offer. 2.2 Consideration To make the agreement a legally binding contract, it must contain consideration. If there is no consideration, then the agreement is not a contract that can be enforced by law. The consideration is one act or price awarded by one party to repay the promise or act of the other party. Section 2 (d) of the Contract Act defines the reply as follows: "In accordance with the undertaking of the plaintiff, when the plaintiff or anybody who makes or refuses to make something, or makes or refrain from making something then the act or detention or promise is called a reply to the promise." The definition in section 2 (d) may be described as 'the price paid by one party to purchase the promise or act of the other party.' For example, A has lost its camera while traveling and offers RM 50 prizes to anyone who finds it and returns it to him. B finds it and returns it. B

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performs the act which is the price paid by him for the promise A. This act is a consideration for the promise. 2.3 Intention to create legal relations Intention can be defines as something that lies in one's heart, and cannot see the intentions hidden within one's self. In contrast to intentions, one's actions can be seen through his movements. The question is how to know the intention of the party who wants to initiate a contract. In the case of Carlill vs Carbolic Smoke Ball Co., the defendants have advertised a drug called "The Carbolic Smoke Ball". In the advertisement, the defendant offered 100 pounds sterling to anyone who did not recover from the flu after using the medicine in the prescribed manner and period. The defendants have also deposited 1000 pounds sterling to prove their honest intentions. The plaintiff has brought a claim against the defendant because the plaintiff has not recovered from the flu by using the medication in accordance with the prescribed instructions. In this case, the court also sees "the defendant's act of depositing 1000 pounds sterling into the bank indicates that there is an intention to establish a legally binding relationship. 2.4 Legal capacity Anyone who wishes to enter into a contract must be legally bound to contract. Elements such as offer and acceptance, considerations and intentions are not sufficient. According to section 11: "Everyone is eligible to make a contract if he is mature in accordance with the law it is subject to, and if it has perfect understanding, and is not disqualified to make a contract in accordance with any law to which it is subject. 2.5 Certainty While the requirements relating to the offer and acceptance, consideration and intention of a legal relationship have been fulfilled, the agreement may still have disabilities or a weakness which makes it difficult for the court to determine the exact conditions agreed upon by the parties involved therefore the meaning of uncertain or indefinite agreements is invalid. For

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example if A agrees to sell two hundred tons of oil to B, then nothing can show the type of oil that is intended and the agreement is nullified because of its uncertainty. Case example: Karuppan Chetty vs Suah Thian, where the requirements of the provisions are not met when the parties involved agree to lease RM35 a month for how long he wishes for. 2.6 Consent of Parties The contract will be valid when it is made with the free consent of the parties involved. Free consent does not exist when there are elements such as coercion, improper influence, mistake, misrepresentation and fraud. However, a free contract is a contract that can be canceled by the choice of the party whose work is so. 2.7 Legality of objects: Unlawful or Void Contracts A contract must have a legitimate purpose because otherwise it will cause the agreement to be unenforceable. The purpose of the contract is legally required. Under the Contract Act 1950 an agreement shall be lawful except: a) it is prohibited by law, b) it is such that if it is allowed, then it will frustrate the provisions of any law, c) it is a fraud, d) it enters or involves a disaster to the person or property of another person, e) The court considered it morally or incompatible with public deception. Parties wishing to enter a contract should be cautious about what they consent to. Case example: Pearce vs Brooks (1866). Fact: The case is about the plaintiff selling a carriage to the defendant. The carriage was used by the defendant for the purpose of his job being a prostitute. The defendant pledged to pay the train in installments. However, the defendant failed to fulfill his promise The Plaintiff makes a lawsuit. Decision: The court ruled that the plaintiff failed in his claim because the plaintiff knew 7

the purpose of the defendant to buy the carriage to carry out something prohibited by law.

3. Breach of contracts 3.1 Void Contracts Void contracts are not valid contracts at all. The parties concerned are not directly bound and have no responsibility here. The law will assume that there are no contracts that exist and the parties will be returned to the original state. A null contract is contracts made without taking into account the essential elements or elements in the formation of the contract. 3.2 Voidable contracts A contract is valid until one of the contracting parties makes an option to cancel it. Contracting parties may terminate the contract on the ground that there is an element which may cancel the contract. Property or goods that have been transferred before the party makes the option to cancel the contract usually cannot be reclaimed as it is valid. Elements of Voidable Contracts are as shown in Figure 1.1 below. VOIDABLE CONTRACTS

KONTRAK BOLEH BATAL

COERCION

MISTAKE

FRAUD

UNDUE INFLUENCE

MISREPRESENTATION

Figure 1.1 Voidable Contracts

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3.2.1 Coercion Section 15 AK 1950 defines the meaning of coercion generally as any violence or threat to violence against any person, family or property, for the purpose of contracting a person. Case Example: 1. KESARMAL A / L LETTY VS VALIAPPA DAS CHETIAR (1954) MLJ 119. i.

The issue of validity or not the agreement made under the imposition of 2 Japanese military officers. Contract is void or invalid.

ii.

2. CHIN NAM BEE DEVELOPMENT SDN. BHD. LWN TAI KIM COO & 4 ORS (1988) 2 MLJ 117 i.

The issue of the validity or absence of a contract made on compulsion where the appellant asks for an additional fee for a home reservation without the consent of the respondent. Decision: The contract is canceled because there is an element of coercion of the appellant in which the respondent enters into a contract without the consent.

ii.

3.2.2 Undue Influence Section 16 (1) AK 1950 defines it as,  

One party in a position can dominate the other party and Use that position to gain an unfair advantage.

Case Example: 1. SALWATH HANEEM VS HADJEE ABDULLAH (1894)  

The legal issue or not of a plaintiff's property transfer agreement to the defendant on improper influence by the defendant. Decision: The contract becomes void and the plaintiff chooses to cancel the contract and regain its right.

2. CHAIT SINGH VS BUDIN BIN ABDULLAH (1918) 1 FMSLR 348 

Is whether the interest rates are so high that they impose the plaintiff against the illiterate defendant is considered as a undue influence. 9



Decision: The plaintiff failed to prove no influence reasonable to be imposed on the defendant.

3.2.3 Fraud Section 17 AK 1950 defines fraud as a party contract with the intention of deceiving others to make contract with him. Those acts are: a. b. c. d. e.

suggesting a fact, concealing something false, make an appointment without the intention of keeping promise, doing any act to deceive, any act or concealment prescribed by law as a fraud.

Case examples: SENANANYAKE VS ANNIE YEO (1965) 



Issue whether the incorrect statement given by the defendant to the financial position of the defendant firm is causing the plaintiff suffered losses after investing in the defendant firm. The court ruled that the defendant intends to deceive the plaintiff and the contract is canceled.

3.2.4 Misrepresentation Section 18 AK 1950 states that misrepresentation should be a factual fact. If it's just personal opinion, it can not be a blame even if the opinion is not true. Misrepresentations can be in two forms of fraud and misrepresentations that do not have the intention to deceive. Case Example: R VS KYLSANT (1932)  

The issue of whether a deceptive fact in a company's prospectus is considered a fraudulent misrepresentation. Decision: Fraud on actual facts about the company's financial position is considered a fraudulent misrepresentation.

3.2.5 Mistake Section 21 AK1950 states that when there is a mistake to the important facts made by the two contracting parties, the agreement is void. Case Example: RAFFLES VS WICHELHAUS (1864) 10



The issue with regard to the mistakes of two ships carrying cotton loads - the main thing in the contract is considered as a mistake in the fact of the fact that the contract is breach. When the mistake happens to one party, the contract is not canceled. This is provided by section 23 AK 1950.

4. Breach of Contract Remedies Remedies are a way given by law to enforce a right or to obtain monetary compensation in place of execution. Claims can be made in the form of; i.

Compensatory Damages

ii.

Specific Performance

iii.

Injunctions

iv.

Quatum Meruit

v.

Rescind the contract

4.1 Compensatory damages The main purpose of giving harm to the innocent is not to punish the wrongdoer. The compensation principle of compensation may be referred to in section 74 up to section 76 AK 1950. The compensation provided is usually in two forms for instance the amount determined in the contract and the damages for the indefinite amount. The indemnity for an indefinite amount is divided into three namely special damages, nominal damages and exemplary damages. Case example: 1. HADLEY VS BAXENDALE (1854) 9 EX 341 

The Plaintiff has ordered machinery from Greenwich but due to the delay of the defendant to send the machinery to the plaintiff's plant causing the plaintiff to suffer losses.



The court ruled that the defendant was liable to pay a reasonable sum of damages to the defendant. 11

2. THAM CHEOW TOH VS ASSOCIATED METALS SMELTERS LTD (1972) 1MLJ 171 

The defendant agreed to sell the furnace to the plaintiff and promised that the furnace could reach the heat of up to 2600 degrees Fahrenheit. Nevertheless, the defendant did not comply with the agreement. The plaintiff is claiming damages.



The court ruled that the defendant had to pay damages for loss of profits.

4.2 Specific Performance An order issued by the court directs the defendant to execute his agreement in accordance with the conditions specified in the contract. This order is only given if the payment of the sum is not sufficient remedy or the contract is a mandate to be performed and it depends on the discretion of the court. This is stated in sections 11 (1) and 21 (1) of the Special Relief Act 1950 (Act 137). Section 20 of the Specific Relief Act outlines the circumstances under which specific execution will not be provided: a. if the damages are not sufficient remedies b. Contract is something that relates to personal qualification. c. The contract is so detailed in its content, for example construction contracts. Case example: CITY INVESTMENT SDN BHD VS COOPERATIVE SERVICE CUEPACS TERENGGANU BHD (1985) 1 MLJ 285 

In this case a transfer of property has not been realized due to a breach of contract.



The court provides specific execution orders because immovable property (land) cannot be redeemed with money compensation.

4.3 Injunctions Injunctions is a court order to correct the wrongdoing which is the cause of a breach of contract, it may be categorized as prohibited and mandatory injunction. The prohibited ban prohibits any 12

action from being done. Mandatory injunctions require certain actions to be taken to maintain the status quo of the contracting parties. In accordance with section 50 of the Special Relief Act 1950, injunctions are also another remedy subject to the discretion of the court. It can be given temporarily or permanently. Case example: NEOH SIEW ENG & ANOR VS TOO CHEE KWANG (1963) MLJ 272 

Homeowners have cut water supplies to their home tenants.



The court then issued an injunction order that homeowners did not cut water supplies to their tenants.

4.4 Quatum Meruit Quantum meruit means as much as it deserves. It is a claim to earn a sum or payment or damages for a reasonable amount as it ought to be received from the services rendered. Case example: 1. UPTON RDC LWN POWELL (1942) 1 ALL ER 220 

There is an informed contract between the defendant and the plaintiff for the services rendered by the plaintiff to the defendant.



The Court decides which reasonable and reasonable remuneration shall be paid by the defendant for the services it has received.

2. DE BERNADY LWN HARDING (1853) 8 EX 822 

The power of an agent has been terminated by the principal wrongly before the agent has completed his duties.



The court ruled that the agent may claim payment based on the work he has done while performing his duties.

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4.5 Rescind the contract When one party has breached the contract, the other party with the loss can choose to terminate the contract. Section 40 of the 1950 Contract Acts provides when a party has breached the contract, the other party does not have to carry out further obligations. When a contracting party has refused to perform or cause him to be powerless to execute his promise fully the contractor may terminate the contract, unless he indicates, in words or conduct, his consent to continue the contract. If the aggrieved party chooses to terminate the contract, then the subsequent damages may be made. 5. Conclusion It can be said the contract is always around us whether realized or unknowingly. Formed in two means of real contract and oral implied contract. Contracts can occur when one party promises to do something in return for the promise of another party to do something. The remedial requirements in contract management area positive step in managing the business closely related to business and legal relations. History of contract law development shows that remedial action is fundamental development of contract law. Theory of remedies which became the background of theoretical development contract law has justified that the importance of the theory of remedies in securing interest contracting parties.

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6. References Akta Kontrak 1950 (Akta 136), International Law Book Services. Buang. S & Torji, N (1992) , Undang-Undang Kontrak Di Malaysia Major, W. T. (1997). Undang-undang kontrak, Kuala Lumpur : International Law Book Services Mohamed A et. al (2009), Business Law, (6th ed.). Selangor : Open University Malaysia Yusoff S.S & Aziz A.A (2003), Mengenali Undang-Undang Kontrak Malaysia Yusoff, S.S.A., Ismail, R. & Suhor, S. (2015) Pengguna dan Undang-undang. Bangi: Penerbit Universiti Kebangsaan Malaysia.

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