5 Topic 3 Contract Law

� INTRODUCTION

What is a contract? In the world of business, contracts are made every day. Therefore, it is important to understand the amounts in a contract and the valid elements to form a contract. In this topic, we will look at the important elements of a contract. We will start with the elements to form a contract. A contract is a legal agreement between two or more parties or a legal obligation arising from an agreement. It has also been defined as a promise or a set of promises made by one party to another party. If a contract is breached by one party, the other party can resort to a legal remedy. In Malaysia, contract law is governed by the Contracts Act 1950 (Act 136) (Revised 1974). By the application of the Civil Law Act 1956, English law applies. However, in the case of Song Bok Yoong v Ho Kim Poui [1968] 1 MLJ 56, it was held that if there was a conflict of provisions between the two acts above, the Contracts Act (CA) 1950 would prevail. The provisions under the Civil Law Act 1956 states that if there has been any development in English law after 7 April 1956, it will not be applicable to the

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� Contract Law

LEARNING OUTCOMES

By the end of this topic, you should be able to:

1. Demonstrate an understanding of the need for contracts;

2. Analyse the elements of a valid contract;

3. Demonstrate an understanding of the procedures and remedies available to resolve contractual disputes; and

4. Demonstrate an understanding of common law cases.

TOPIC 3 CONTRACT LAW � 53

courts of the states of Peninsular Malaysia except for Penang and Malacca. However, in Penang, Malacca, Sabah and Sarawak, these changes will hold persuasive authority. Web resource: http://www.expertlaw.com/library/business/contract_law.html

BASIC ELEMENTS TO FORM A CONTRACT

The basic elements to form a contract are as shown in Figure 3.1 below:

Figure 3.1: Basic elements to form a contract

3.1.1 Agreement (Offer and Acceptance)

In this subsection, we will discuss in detail about agreements which consist of offer and acceptance.

(a) OOffer

(i) Section 2(a) CA 1950 defines an offer to be "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." In other words, an offer is an indication to be legally bound under definite and prescribed terms.

(ii) For an offer to be valid there must be:

� An offerer � the person making the offer; and

� An offeree � the person accepting the offer.

3.1

� TOPIC 3 CONTRACT LAW 54

(iii) If these two are absent, then the agreement is void ab initio (no effect from the beginning). See the case of Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169.

(iv) An offer must be communicated. S4(1) CA 1950 states that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. S3 CA 1950 states that a proposal can be expressed or implied.

(v) An offer must be contrasted with an Invitation to Treat. An invitation to treat is an invitation to make an offer. This takes place before an offer is made. There are a few categories that have been identified by courts.

(vi) An Invitation to Treat can be demonstrated through advertisements, display of goods, tenders and auctions. Examples of cases for Invitation to Treat are listed below:

� Advertisements Case: Majunder v Attorney General of Sarawak [1967] 1 MLJ 101. Held: An advertisement in the newspaper of a vacancy for the

position of a doctor was an invitation to treat. Contrast with: Case: Carlill v Carbolic Smokeball [1893] 1 QB 296. Held: An advertisement to the world at large (i.e. open to the

world to accept, also known as an unilateral contract) was an offer.

� Display of goods Case: Pharmaceutical Society of Great Britain v Boots Cash

Chemist Ltd [1953] 1 QB 401. Held: Drugs displayed on the shelf which was unsupervised by a

registered pharmacist was an invitation to treat.

� Tenders Case: Harvela Investments v Royal Trust Co. of Canada [1985] 2

All ER 966. Held: Goods advertised for a tender is an invitation to treat

because the owners of the goods request for offers to purchase the goods.

Lord Templeman stated: "To constitute a fixed bidding sale all that

was necessary was that the vendors should invite confidential offers and should undertake to accept the highest offer. Such was the form of the invitation. It follows that the invitation upon its true construction created a fixed bidding sale and that Sir Leonard


was not entitled to submit and the vendors were not entitled to accept a referential bid."

� Auction Sales Case: Payne v Cave (1789). Held: The defendant had withdrawn his bid before the fall of the

hammer. He was allowed to withdraw at any time because acceptance occurs by the auctioneer knocking the hammer three times. The auctioneer's call for bids amounted to an invitation to treat. Today this rule in England has been codified under S 57(2) Sale of Goods Act 1979.

(vii) OOffer must be contrasted with Supply for Information Case: Harvey v Facey (1893). Held: The defendant who replied the plaintiff's enquiry for information amounted to supply of information and not an offer as the defendantÊs statement was an indication of the minimum price that the defendant would have wanted. Therefore, the subsequent telegram by the plaintiff did not amount to an acceptance.

(viii) TTermination of an offer

� Rejection and Counter Offer Case: Hyde v Wrench (1840) 49 ER 132. Held: The defendant who had offered to sell his farm for 1,000

pound sterling was rejected by the plaintiff who counter offered 950 pound sterling. This effectively terminated the original offer of 1,000 pound sterling.

� Revocation S5 and S6 of CA 1950 are the provisions relating to revocation. S5(1) states: "A proposal may be revoked at any time before the

communication of the acceptance is complete as against the acceptor (offeree), but not afterwards."

S6(a) states: "A proposal is revoked by the communication of

notice of revocation by the proposer (offeror) to the other party." S4(3) states: "The communication of a revocation is complete: (a)

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; and (b) as against the person to whom it is made, when it comes to his knowledge."


Case: Byrne & Co v Van Tienhoven (1880) 5 CPD 354. Held: Defendant's revocation which was posted on 8 October was

only effective when it arrived on 20 October. Therefore, the telegram that was sent on 11 October was a valid acceptance. (Telegrams and letters adopt the postal rule).

� Lapse of Time S6(b) states: An offer (proposal) comes to an end by the lapse of

time prescribed, by the lapse of reasonable time, without communication of the acceptance.

Case: Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Exch

109. Held: The notification of the acceptance was too late as there was a

lapse of five months between the offer and acceptance. Therefore, keeping the offer open for five months would have been unreasonable.

� Failure of Condition Precedent S6(c) states that an offer comes to an end by the failure of the

offeree to fulfil a condition precedent to his acceptance.

� Death or Mental Disorder S6(d) states that an offer comes to an end by the death or mental

disorder of the offerer, if the fact of his death or mental disorder comes to the knowledge of the offeree before acceptance.

Case: Fong v Cili (1968) 11 FLR 495. Held: The death of the offerer terminated the offer.

(b) AAcceptance

(i) S2(b) states: "When the person to whom the proposal is made signified his assent thereto, the proposal is said to be accepted; a proposal, when accepted, becomes a promise."

S4(2) states: "The communication of an acceptance is complete:

� As against the proposer, when it is put in a courses of transmission to him, so as to be out of the power of the acceptor; and

� As against the acceptor, when it comes to the knowledge of the proposer."

S7 states: "In order to convert a proposal into a promise the acceptance

must be:


� Absolute and unqualified; and

� Expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in that manner, the proposer may, within a reasonable time after acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts the acceptance."

Therefore, under S7(b), for there to be a valid acceptance, it must be communicated and it must be done within a reasonable time.

(ii) FFactors taken into consideration for a valid acceptance:

� Acceptance must be in Reliance of an Offer Case: R v Clarke (1927) 40 CLR 227. Held: Clarke's acceptance was not valid because he did not have an offer in mind at the time he supposedly accepted the offer.

� Absolute and Unqualified Case: Lau Brothers & Co v China Pacific Navigations Co Ltd [1965] 1 MLJ 1. Held: Withdrawal during negotiations which was done through a series of telegrams and letters was justified. There was no agreement.

� Communication Case: Felthouse and Bindly (1862) 11 CBNS 689. Held: The offeror stated that if he heard no more from the prospective offeree, he would infer that it would be an acceptance. Silence by the person to whom the offer was directed to is not acceptance. Acceptance must be communicated by words or conduct.

� Offeror Prescribing the Manner of Acceptance This is where the offeror will state the method of acceptance by the offeree. It can be communicated in two main ways which are by post, also known as the "postal rule", and "instantaneous communications."

(iii) PPostal Rule Acceptance is effective the moment it is posted or telegrammed.

However, the offeree must ensure that the letter or telegram is properly addressed with the correct amount stamps and legible address. This is a general law which is not present under CA 1950. This was a rule that was developed in the 1800s in England for business efficacy purposes.


CCase: Ignatius v Bell [1913] 2 FMSLR 115. HHeld: Post was in contemplation of both parties, and acceptance was

complete upon posting. However, there are English cases that suggest if the offeror indicates

that the "acceptance must be notice in writing" even with the posting of the letter, the postal rule will not apply. The offeror here wanted notice of the acceptance.

CCase: Holwell Securities Ltd v Hughes [1974] 1 WLR 155. HHeld: Posting of letter was not valid acceptance.

(iv) IInstantaneous Communications Contract is only valid when the offeror receives the final acceptance. The key word here is "receives." Case: Entores Ltd v Miles Far East Corp [1955] 2 QB 327; [ 1955] 2 All ER 493. Held: A telexed acceptance is only valid if it was actually accepted i.e. received. Case: Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mbH GmbH [1983] 2 AC 34. Held: Actual communication would be instantaneous, despite the use of an instantaneous method of communication. If the offeree had done everything possible to ensure that his message is communicated to the offeror, then the acceptance should take effect when it is reasonable to expect that it has been communicated to the offeror. The point to note in the judgement is that if acceptance is done during business hours, then it is reasonable for the offeree to expect that the offeror will be monitoring (for example, fax) and it would be reasonable to expect that communication will occur when the message has been received (by the fax machine). Also note that for Internet contracting, the instantaneous communication rule will apply i.e. the receipt rule.

(v) RRevocation or Retraction of Acceptance S5(2) states: "An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards."


The illustration is given under this act: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards. The above illustration gives the offeree the option to change his mind even after accepting. However, he must ensure if he has accepted by post, that the "postal rule" has not applied or he must make sure that the revocation must be made using a speedier method. In this way, the revocation will reach the offeror faster than the letter, provided the offeror stated that the acceptance by letter should be "by notice in writing."

(vi) IIntention to Create Legal Relations There is no provision under the CA 1950. However, case law exists in

this area.

� Domestic Agreements The presumption is that there is no intention to create legal

relations. This is based on a policy reason in that the courts are unwilling to interfere with domestic disputes as far as possible.

Case: Choo Tiong Hin & Ors v Choo Hock Swee [1959] MLJ 67. This presumption may be rebutted by looking at the intentions

and circumstances of the case. Case: Meritt v Meritt [1970] 2 All ER 760. HHeld: Presumptions do not apply where parties are separated or

contemplating divorce.

� Commercial Agreements The presumption is that there is an intention to create legal

relations. This is based on the reason that intention to create legal relations should not be a hurdle if a party is seeking to enforce a commercial contract.

Case: Carlill v Carbolic Smokeball Co [1893] 1 QB 256. Held: The company placing 1,000 pounds sterling in the bank

account, which is to show their sincerity in the claim that any who uses the smokeball in the prescribed manner and still caught influenza will be rewarded 100 pound sterling, was held to be an intention to create legal relations and not an advertising gimmick. Accordingly, it was a contract in this case.


This presumption may be rebutted if there are "express words to the contrary denying that there is an intention to create legal relations."

Case: Yap Eng Thong & Anor v Faber Union Ltd [1973] 1 MLJ 191. Held: "Subject to contract" clause in the agreement was held that

there was no valid contract.

Web resource: http://www.australiancontractlaw.com/law/formation-agreement.html


SELF-CHECK 3.1

1. Fill in the blanks with the correct answers.

(a) For an offer to be valid there must be:

(i) An _______ � the person making the offer.

(ii) An _______ � the person accepting the offer.

(b) Acceptance is effective the moment it is ______ or ________. However, the offeree must ensure that the letter or telegram is properly _________ with the correct amount stamps and legible address.

(c) Contract is only valid when the offeror ________ the final acceptance.

2. Match the tables below correctly.

Display of goods

Auction Sales

Tenders

Case: Harvela Investments v Royal Trust Co. of Canada [1985] 2 All ER 966.

Held: Goods advertised for a tender is an invitation to treat because the owners of the goods request for offers to purchase the goods.

Case: Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953] 1 QB 401.

Held: Drugs displayed on the shelf which was unsupervised by a registered pharmacist was an invitation to treat.

Case: Payne v Cave (1789).

Held: The defendant had withdrawn his bid before the fall of the hammer. He was allowed to withdraw at any time because acceptance occurs by the auctioneer knocking the hammer three times. The auctioneer's call for bids amounted to an invitation to treat. Today this rule in England has been codified under S 57(2) Sale of Goods Act 1979.


3.1.2 Consideration

S26 CA 1950 states the definition of consideration:

S2(d) CA 1950 states:

Consideration may also be defined as a price for which a promise is bought. Consideration may be executory or executed. Executory means a promise in exchange for a promise. Executed means an act done in exchange for a promise. Case: Wong Hon Leong David v Noorazman bin Adnan [1995] 3 MLJ 283. Held: Exchange of mutual promises (executory) was good consideration. Next, we are going to discuss more about consideration, such as rules of consideration, part payment of a debt, consideration need not move from the promisee and promissory Estoppel. (a) RRules for Consideration

(i) CConsideration Need Not be Adequate Section 26, explanation 2 states that an agreement is not void merely

because consideration is inadequate. Therefore, consideration may be sufficient.

Illustration (f) under s 26 states: "A agrees to sell a horse worth $1000

for RM10�.." The agreement is a contract notwithstanding the inadequacy of the consideration.

CCase: Phang Swee Kim v Beh I Hock [1964] MLJ 383.

"That an agreement without consideration is void."

"When, at the desire of the promisor, the promise 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."


HHeld: The transfer of land by respondent to the plaintiff on payment of $500 when the land was sub-divided was an adequate consideration. This is in absence of fraud or duress.

CCase: Chapell & Co Ltd v Nestle Co Ltd [1960] AC 87; [1959] 2 All ER

701. HHeld: The chocolate wrappers which were sent back to the company

for a promotional gimmick formed part of the consideration. It was valuable to the company because it was sent for promoted Nestle products. The company's sales and public relations increased due to this promotion.

(ii) CConsideration May be Past S2(d) states that when at the desire of the promisor, the promise 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.

S26 (b) states that an agreement made without consideration is void

unless it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to.

Illustration c in s26 states: A finds BÊs purse and gives it to him. B promises to give A RM50. This is a contract.

Case: South East Asia Insurance Bhd v Nasir [1992] 2 MLJ 355. Held: The essence of consideration is where the promise has taken upon itself some kind of burden or detriment. The chronological order should not matter. It should not matter if the consideration and the promise are substantially one transaction.

Therefore, when can past consideration be classified as a good

consideration?

� When the act was done at the request of the promisor.

� When the act was done for a subsequent promise.

� When the act was done, it was understood that there was an advance promise of a remuneration by way of a payment or conferment of some benefit.


(iii) CConsideration for Guarantees Section 80: "Anything done or any promise made, for the benefit of

the principal debtor may be a sufficient consideration to the surety for giving the guarantee."

Illustrations:

� B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of AÊs promise to deliver the goods. This is a sufficient consideration for C's promise.

� A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the debt for a year, and promises that, if he does so, C will pay for them in default of payment by B. A agrees to forbear as requested. This is a sufficient consideration for C's promise.

� A sells and delivers goods to B. B afterwards, without consideration, agrees to pay for them in default of B. B agrees to pay in default of B. The agreement is void.

� Past consideration may be a good consideration for contract of

guarantees in light of Section 2(d) and Section 26, which should be read together with Section 80. However, there are cases which suggest otherwise.

Case: Sabah Bank Bhd v Ho Juan Hua & Anor [1993] 3 MLJ 113. Held: Whether the guarantee covered past advances, as well as future advances depended on the intention of the parties, this can be decided for the language used in the guarantee. Past advances are good consideration provided if it was given at the request or desire (this is by way of inference from evidence gathered) guarantors.

(iv) NNatural Love and Affection is Good Consideration In Malaysia, natural love is good consideration, provided certain

conditions are complied with. S26(a) states: An agreement made without consideration is void

unless it is expressed in writing and registered under the law (if any) for the time being in force for the registration of such documents, and is made on account of natural love and affection between parties standing in a near relation to each other.

In other words, it is binding if it is expressed in writing; it is registered

(if any) and the parties are in a near relation with each other.


CCase: Tan Soh Sim, Chan Law Keong & Ors v Tan Saw Keow & Ors. HHeld: The test for "near relation" depends on the social group because

the customs and practices of each group are different. (b) PPart Payment of a Debt is a Good Consideration In Malaysia, part payment of a debt is a good consideration. This is

reflected under Section 64 of CA 1950 which states: "Every promise may dispense with or remit, wholly or in part, for performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit."

Illustrations :

(i) A promises to paint a picture for B. Afterwards, B forbids him to do so. A is no longer bound to perform the promise.

(ii) A owes B RM5,000. A pays B and B accepts, in satisfaction of the whole debt, RM2,000 paid at the time and place at which the RM5,000 was payable. The whole debt is discharged.

(iii) A owes B RM5,000. C pays to B RM1,000 and B accepts it in satisfaction of his claim on A. This payment is a discharge of the whole claim.

(iv) A owes B, under a contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives to B, and B in satisfaction thereof, accepts the sum of RM2,000. This is a discharge of the whole debt, whatever may be its amount.

(v) A owes B RM2,000 and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a composition of fifty sen to the ringgit for their respective demands. Payment to B of RM1,000 is a discharge of BÊs demand.

This is unlike the law in England where the general rule is that payment of a lesser sum is not a satisfaction of the whole amount. Although in the case of Pinnel [1602] 77 ER 237, the courts held that there can be an exception which includes: "[T]he gift of a horse, hawk, or robe�..in satisfaction is good. For it shall be intended that a horse, hawk or robe��.might be more beneficial�..than the money.."

In other words, the court stated that payment of a lesser sum can discharge a full debt if it was given in other ways than money, even though the "other form" may be less of a value. The fact that the person accepted it shows that he is satisfied with it.


(c) CConsideration Need Not Move from the Promisee Section 2(d) of CA 1950 states: "��when ��.the promisee or any other

person has done �.something, such act �.is called a consideration for the promise."

CCase: Venkata Chinnaya v Verikatara Ma'ya [1881] 1 LR 4. HHeld: A sister was liable to pay annuity even though the brother had not

given consideration for the promise. A piece of land given to her by her mother to ensure that she paid the brother annuity was held to be a valid consideration even though their mother was not a party to the promise.

(d) PPromissory Estoppel This is an equitable principle and there is no need for consideration if

promissory estoppel is invoked. Estoppel arises when one person makes a representation (by word or

conduct) to the other party, and this party relies on the representation to his detriment.

This doctrine, evolved from England, has a few limitations. However, these

limitations vary from one jurisdiction to another. For example, some of the limitations applicable in England are not applicable in Australia.

The doctrines are operative in the following circumstances:

(i) It is a „flexible principle by which justice is done according to the circumstances of the case‰; it is a doctrine of "wide utility" and the „circumstances in which the doctrine may operate are endless‰.

(ii) May be applied to enlarge or reduce rights and obligations under a contract.

(iii) May operate to prevent a litigant from denying a validity of an otherwise invalid trust.

(iv) May prevent the denial of the validity of an option in a lease declared by statute to be invalid for want of registration.

(v) May prevent a litigant from asserting that there is no contract.

(vi) May create binding obligations where none existed before.

(vii) Is not limited by maxim, estoppel may be used as shield not as a sword, it may be used as a sword and a shield.

(viii) It is not confined to representation of fact; it also extends to representation of law.


(ix) Operates even if there is no active encouragement by the party seeking to be estopped; the encouragement could take the form of silence.

(x) Does not need the element of "inducement" for its operation; all that is required is sufficient material for the court to draw a fair inference that the person claiming estoppel was influenced by his opponent in actions.

(xi) Does not require the conduct relied upon to be the sole influencing factor.

(xii) Does not require the element of "detriment" for its operation; all that is required is proof that it would be unjust to permit the representor or encourager to insist upon his strict legal rights.

For further reading, see:

� English Case: Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130.

� Australian Case: Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387.

� Malaysian Case: Federal Court case of Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331 FC.

Web resource: http://www.lectlaw.com/def/c098.htm

3.1.3 Capacity

S11 CA 1950 states:

Age of Majority Act 1971 states that the age of majority in Malaysia is 18. Case: Mohori Bibee v Dharmodas Chose [1903] 1 LR 30 Cal 539 (P.C). Held: An infant cannot make any valid contract. The contract will be void.

"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 of mind, and is not disqualified from contracting by any law to which he is subject."


S69 CA 1950 states :

Illustrations:

(a) A supplies B, a mentally disordered person, with necessaries suitable for his condition in life. Therefore, A is entitled to be reimbursed from BÊs property.

(b) A supplies the wife and children of B, a mentally disordered person, with necessaries suitable to their condition in life. Therefore, A is entitled to be reimbursed from BÊs property.

There are exceptions to the rule. An infant's contract can be a valid contract if it falls in the following circumstances: (a) CContract for Necessaries Malaysian Contracts Act does not define necessary. However, S3 of Sale of

Goods Act 1979 defines it as "suitable to the condition in life of the minor and their actual requirements at the time of sale."

CCase: Nash v Inman (1908). HHeld: The contract was not a contract for necessaries even though the tailor

had supplied the minor clothes, including 11 fancy clothes which were suitable according to the minor's station in life, because he had sufficient clothing.

(b) CContracts of Scholarship CCase: Government of Malaysia v Gurcharan Singh & Ors [1971] 1 MLJ 211,

HC. Held: A scholarship agreement entered into by an infant is valid when the scholarship, award, bursary, loan or sponsorship is granted by the government, a statutory authority, or an educational institution. This is by virtue of the Contracts (Amendments) Act 1976.

"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."


(c) CContract of Insurance An infant over the age of 10 may enter into a contract of insurance.

However, if he is below 16, the written consent of his parents or guardian is needed. This is by virtue of the Insurance Act 1963 (Revised 1972).

The general principle for fraud is that a minor can be sued under torts.

However, under contract, a minor cannot be sued even by trying to invoke the defence of estoppel.

CCase: Natesan v Thanalecthumi & Anor [1952] MLJ 1 HC. Contract being a nullity under the Contracts Act, cannot be given life by

holding that the minor is estoppel from raising his minority as a defence. Attempts for relief against the minor may be made under the Contracts Act

and the Specific Relief Act 1950. Minor contracts are an exception with regards to marriage contracts and employment contracts.

3.1.4 Contents of Contract

(a) CContract Terms and Mere Representations Parties are normally bound to perform what they have contracted to do.

However, it is important to establish the promises to be included in the contract.

It is important because some statements made may not form part of the

contract even though these statements had induced the other party to enter into a contract. These pre-contractual statements are known as representation. A statement that forms part of a contract is known as a term. A term is made before or at the time of the contract which form part of the contract.

It is not easy to identify a statement. It can be either a representation or a

term. Therefore, the courts have come up with four tests to distinguish one from the other.

These tests are:

(i) Was the statement very important to the contract, that if it was not included, the promise would not have entered into the contract? If yes, then it is a term.

(ii) Was there a time gap between the making of the statement and the making of the contract? If yes, it is a representation.


(iii) Was the statement made orally and then subsequently reduced to writing? If yes, then it is a term.

(iv) Was the statement made by the party who had special knowledge or skill? If yes, then it is a term.

(b) TTerms Terms are contained in a contract. Terms may be expressed or implied. It is

important to determine what type of term it is. The reason for this is because the remedies available for its breach would be different. Terms can be classified into three types, as follows:

(i) CConditions This term is very important to the contract. It goes to the root of the

contract. If breached, the innocent party has the right to either repudiate the contract or sue for damages.

(ii) WWarranty A warranty is not as important or vital to the overall contract. It does

not go to the root of the contract. If breached, the innocent party has the right to only sue for damages. Whether it is a condition or warranty depends on the facts of the case and the intention of both parties.

CCase: Poussard v Spiers and Pond (1876). HHeld: The failure of an opera singer to appear on the opening night

was a breach of condition, as the opening night was very important to the whole running of the opera.

CCase: Bettini v Gye (1876). HHeld: The failure of a musician to appear during rehearsals and

arriving three days before the opening night was held to be a breach of warranty. This is because he did not miss the opening night.

(iii) IInnominate Term Whether it is an innominate term depends on the consequence of the

breach. The innocent party may repudiate the contract, if the breach deprives the party of the whole benefit of the contract. However, the innocent party may only sue for damages if the breach does not deprive the party of the whole contract.

CCase: Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha Ltd

[1962] 2 QB 26. HHeld: Diplock LJ "�.to look at the events which occurred as a result of

the breach at the time at which the charterers purported to rescind the


charter party, and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charter party that the charterers should obtain from the further performance of their own contractual undertakings."

(c) IImplied Terms

Terms implied may arise by: (i) CCustoms and or Trade Usages These must be consistent with the term of the contract. It must be

certain, reasonable and not contrary to the law and it must be something more than trade usages: Chitty on Contracts (27th ed).

It is, however, a complex question of law and facts. These terms are

incorporated on the presumption that the parties did not incorporate into their contract all the terms which they intended to be bound. Therefore, these agreements must be read together with the prevailing customs and trade usages.

(ii) PPrevious Dealings Parties who have been dealing with each other for a long time may feel

that it is unnecessary to incorporate certain details into the contract. This is because these are known to them through their past dealings.

(iii) BBusiness Efficacy To give life to the contract due to the presumed intentions of the

parties, the term will be implied into the contract to give business efficacy. The courts are willing to add a term on the grounds that without it, the contract will not work.

CCase: Sababumi ( Sandakan) Sdn Bhd v Datuk Yap Pak Leong [1998] 3

MLJ 151. HHeld: Peh Chin Swee FCJ opined that "business efficacy" simply means

�. ( the attainment of) �.. the desired result of the business in question." (iv) CCourts To give full effect to the intention of the parties to a contract, the court

may imply terms into the contract. (v) SStatutory Provision Terms can be implied by statutes. One such example is the Sale of

Goods Act 1957 (Revised 1989) (SOGA).


SOGA is applicable in Peninsular Malaysia. In East Malaysia, however, the Sale of Goods Act from the United Kingdom continues to be applicable. This is due to SS5(2) of CLA 1956.

SELF-CHECK 3.2

1. State whether the following statements are correct or wrong.

(a) Consideration may be executory or executed. Executed means a promise in exchange for a promise. Executory means an act done in exchange for a promise.

(b) Terms are contained in a contract. Terms may be expressed or implied. It is important to determine what type of term it is. The reason for this is because the remedies available for its breach would be different.

(c) A warranty is not as important or vital to the overall contract. It does not go to the root of the contract. If breached, the innocent party has the right to only sue for damages.

(d) Parties who have been dealing with each other for a long time may feel that it is necessary to incorporate certain details into the contract.

2. Describe the types of terms for the following cases.

(a) Case: Hong Kong Fir Shipping Co Ltd V Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26.

Held: Diplock LJ "�.to look at the events which occurred as a result of the breach at the time at which the charterers purported to rescind the charter party, and to decide whether the occurrence of those events deprived the charterers of substantially the whole benefit which it was the intention of the parties as expressed in the charter party that the charterers should obtain from the further performance of their own contractual undertakings."

(b) Case: Poussard v Spiers and Pond (1876). Held: The failure of an opera singer to appear on the

opening night was a breach of condition, as the opening night was very important to the whole running of the opera.


SALES OF GOODS ACT (SOGA)

3.2.1 S14 SOGA

S14 SOGA: In a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is:

(a) An implied condition on the part of the seller, that, in the case of a sale, he has a right to sell the goods, and that in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass�

(b) An implied warranty that the buyer shall enjoy quiet possession of the goods.

(c) An implied warranty that the goods shall be free from any charge or encumbrances in favour of any third party not declared or known to the buyer before or at the time when the contract is made.

In other words, (a) implies a condition into the contract that the seller has a "right to sell" to the goods. If the seller cannot transfer ownership, he does not have the "right to sell."

CCase: Rowland v Divall (1923). HHeld: The buyer of a car did not receive ownership, as the garage which sold him

the car did not own it. S12(1) was breached (equivalent to S14 in Malaysia) and the full purchase price was recovered, even though the car was used for four months.

The (b) and (c) implies into the contract warranties of quiet possession and

freedom from encumbrances. This means that the buyer's title will not be interfered with or be subject to anyone else's rights, except in so far as such are known by or disclosed to the buyer before the contract is made.

3.2

ACTIVITY 3.1

1. Have you ever done any contract in your life? Describe the content of the contract from one of them.

2. What will happen if you breach the contract in (1)?


Case: Heng Long Motor Trading Co v Osman bin Abdullah [1994] 2 MLJ 456, HC. Held: There was evidence that there had been a sale of the van by the dealer to the customer before the hire-purchase agreement. The appellant had breached S14(b).

3.2.2 S15 SOGA

‰Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with sample if the goods do not also correspond with the description." Case: Nagurdas Purshotumdas & Co v Mitsui Bussan Kaisha. Held: The goods sold did not comply with the description because the previous contract between the parties for sale of flour bore a well-known trademark, whereas the new flour ordered did not bear the same well-known trademark. Case: Lau Yaw Seng v Cooperation Ceramica DÊ Imola [1991] 1 MLJ 393. Held: There was a breach of sale by sample as well as by description, because the quality of goods shipped did not correspond with the quality that was displayed as samples at a fair where the plaintiff made the order.

3.2.3 S16 SOGA

States: Subject to the provisions of this Act and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale, except as follows:

(a) Where the buyer, expressly or by implication makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller's skill or judgement, and the goods are of a description which it is in the course of the seller's business to supply (either he is the manufacturer, producer or not) there is an implied condition that the goods shall be reasonably fit for such purposes;

(b) Where the goods are bought by description from a seller who deals in goods of that description (either he is the manufacturer, producer or not) there is an implied condition that the goods shall be of merchantable quality: provided that if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have revealed.


An implied warranty or condition as to quality or fitness for a particular purpose may be annexed by the usage of trade. Whereas, an express warranty or condition does not negative a warranty or condition implied by this Act unless inconsistent therewith. In other words, what this section means is that goods must be reasonably fit for purposes for which the buyer wants them and goods must be of merchantable quality. However, if the buyer informs that he wants the goods for a particular purpose and then relies on the sellerÊs skill and judgement, then there is an inference that the goods will be fit for the purpose the buyer has requested for. Case: Cammel Laird & Co v Manganese Bronz Etc Co [1934]. Held: There was a breach of an implied condition since the buyer had informed the seller of the purpose for which he required the goods and relied on the seller's skill and judgement. Other cases: Case: Sunrise Bhd & Anor v L & M Agencies Sdn Bhd [1999] 3 MLJ 544. Case: Reveex International S.A v Maclaine Watson Trading (M) Sdn Bhd [1991] 2 CLJ 1388. Held: Goods were not of merchantable quality because these were not reasonably fit for the purpose for which they were intended. Quality of goods refers to the state or condition.

3.2.4 S17 SOGA

(a) A contract of sale is a contract for sale by sample where there is a term in the contract expressed or implied to that effect.

(b) In the case of a contract for sale by sample, there is an implied condition:

(i) That the bulk shall correspond with the sample in quality;

(ii) That the buyer shall have a reasonable opportunity to compare the bulk with the sample; and

(iii) That the goods shall be free from any defect rendering them unmerchantible which would not be apparent on reasonable examination of the sample.

In other words, the goods must correspond with the sample.


Case: Godley v Perry [1960] 1 WLR 9. Held: Although the shopkeeper had made reasonable examination, the defect was not one which was apparent upon such examination. Therefore, the shopkeeper had an action against the wholesaler because he bought the catapult from a wholesaler by sample and tested it by pulling back the elastic.

3.2.5 Exemption Clauses

Exemption clauses are terms of a contract which excludes liability. For this kind of clause to be valid, it must be brought to the notice of the party against whom it is to be used. There must be reasonable notice. This means that the terms must contain clear reference to the clauses, i.e. it must be of a large print. It does not matter if the person is not able to read or write as long as sufficient notice has been given. If a party signs the contract with the exemption clauses in it, then the party is bound by it unless the party can plead the defence of non est factum i.e. the act of signing is not my deed. However, if the exemption clauses have been obtained through duress or undue influence, then the exemption clauses are not valid. The exclusion of liability can be very wide to even include death and personal injury. The courts are very strict in interpreting these clauses and usually give it a narrow interpretation. In the United Kingdom, to curb these abuses, there is the Unfair Contracts Terms Act 1977. It is clearly stated in one of the sections that exclusion of liability of death is invalid. As for personal injury, it is based on reasonableness.

PRIVITY OF CONTRACT

The doctrine of privity of contract is that, as a general rule, in common law a contract cannot confer rights or impose obligations on strangers to it, that is, persons who are not parties to it. The parties to a contract are those persons who reach an agreement and, while it may be clear in a simple case who those parties are, it may not be so obvious where there are several contracts, or several parties, or both. For example, in the case of multilateral contracts; collateral contracts; irrevocable credits; contracts made on the basis of the memorandum and articles of a company; collective agreements; contracts with unincorporated associations; and mortgage surveys and valuations. Despite some earlier doubts, in the mid-nineteenth century, the doctrine of privity was accepted by the courts, though those doubts seem to have been resurrected in more recent times, albeit by a minority of cases. The privity of

3.3


contract rule used to be regarded as intimately connected with the doctrine of consideration and the rule that consideration must move from the promisee.

VITIATING FACTORS

Even when a contract has apparently been properly made, and its terms are clear, it may, for various reasons, be void or voidable or unenforceable. Here, we consider the reasons why such a thing might happen, and the consequences of any such occurrence. There are situations where the parties have reached agreement but the question arises whether the existence or non-existence of some fact, or the occurrence or non-occurrence of some event, destroys the basis upon which that agreement was reached so that the agreement is discharged or in some other way vitiated. S10 Contracts Act 1950 states: "All agreements are contracts if they are made by the free consent of parties." S14 states: "Consent is said to be free when it is not caused by one of more of the following: which are coercion, undue influence, fraud, misrepresentation, mistake." S19(1) states 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.

3.4.1 Misrepresentation

Common law defines a misrepresentation as an untrue statement of fact which induces a party to enter a contract but which is not itself part of the contract. There must therefore be a statement of some kind, although a representation need not always be verbal; it may also be implied. Mere silence cannot constitute misrepresentation even when it is obvious that the other party is mistaken as to the facts, subject to these three qualifications:

(a) Where the contract requires uberrima fides (utmost good faith), the party is bound to disclose all material facts. The best-known uberrima fides contracts are those of insurance, where the insured party is required to disclose all material facts whether or not he is asked about them.

(b) If a party makes any representation on a particular matter, it must be full and frank.

(c) Silence may not be used to distort a positive representation.

3.4


(d) There are three types of misrepresentation which are:

(i) Fraudulent;

(ii) Negligent; and

(iii) Innocent. In Malaysia, misrepresentation is governed under the Contracts Act 1950, where fraudulent is known as fraud and innocent as just misrepresentation. Negligence is not covered under the Act. Please see S17 of the Contracts Act for fraud and S18 for misrepresentation.

3.4.2 Mistake

Various mistakes may occur in the negotiations leading to the formation of a contract and they are not all treated the same. We distinguish three kinds of mistakes, though different writers use different names and different classifications. A common mistake, we shall say, occurs when both parties make the same mistake (e.g. as to the existence, ownership or nature of the subject-matter of the contract). A mutual mistake occurs when each party is mistaken as to the intentions of the other in respect of the contract, and a unilateral mistake occurs when just one party is mistaken as to the identity or intention of the other, or as to the nature of a document being signed. That situation is sometimes described as a "mistake." However, in utilising that description, the following distinction must be borne in mind: if a mistake operates at all in contract, it operates so as to negate or, in some cases, nullify consent. A mistake negates consent where, on ordinary offer and acceptance principles, it prevents any agreement coming into existence. This may be because of a mistake as to the person with whom one is contracting, or as to the subject matter or terms of the contract. A mistake nullifies consent where the parties reach agreement, but that agreement may be nullified because it was made under a fundamental mistaken assumption. In this circumstance, the effect of the mistake may differ according to whether the mistake renders the contract impossible to perform. The Contracts Act in Malaysia discusses mistake under S21, S22 and S23. Please see these sections for explanations and illustrations.


3.4.3 Coercion, Duress and Undue Influence

Coercion is defined under S15 of the Contracts Act which states: It 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. It is immaterial whether the Penal Code is in force in the place where the coercion is employed. Illustration: A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Penal Code. A afterwards sues B for breach of contract in Taiping. A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Penal Code was not in force at the time when or place where the act was done. Duress is not defined under the contract act. Under common law, duress is an illegal threat applied to induce a party to enter a contract, and makes the contract voidable: the threatened illegality may be either criminal or tortious, and although physical violence is the most obvious form of duress, a threat to property or profits is in principle also sufficient. Undue influence is defined under S16 which states:

(a) 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.

(b) In particular and without prejudice to the generality of the foregoing principles, a person is deemed to be in a position to dominate the will of another:

(i) Where he holds a real or apparent authority over the other, or where he stands in fiduciary relation to the other;

(ii) Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.

(c) Where a person who is in a position to dominate the will of another, enters into a contact with him and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that the contract was not induced by undue influence shall lie upon the persons in a position to dominate the will of the others.

Nothing in the subsection shall affect section 111 of the Evidence Act 1950. Please see the illustrations under this section for further understanding.


3.4.4 Illegality

Where a contract is illegal from the beginning because it requires one party to do an illegal act, or where both parties intend that it shall be performed in an illegal way or for an illegal purpose, then it is wholly illegal and void. Neither party can generally assert any right or remedy under such a contract � the money paid cannot be recovered, for example, and the court will veto any attempt at enforcement even though the defendant may be just as guilty as the plaintiff. Where a contract is prima facie lawful, however, and one party (unknown to the other) executes it for an illegal purpose or in an illegal way, the remedies of the innocent party are preserved. The guilty party loses any legal rights and remedies he might have sought under the contract, but the innocent party is protected in respect of anything he does before learning of the illegality. Even a guilty party may not always be wholly without remedies. See sections 25-30 of the Contracts Act 1950.

DISCHARGE OF CONTRACT

Contracts are often silent on the position of the parties in the event that something happens subsequent to the formation of a contract which renders its performance literally impossible, or only possible in a very different way from that originally contemplated. The doctrine of frustration operates to excuse from further performance where:

(a) It appears from the nature of the contract and the surrounding circumstances that the parties have contracted on the basis that some fundamental thing or state of things will continue to exist, or that some particular person will continue to be available, or that some future event which forms the basis of the contract will take place; and

(b) Before breach, an event in relation to the matter stipulated in head (a) above renders performance impossible or only possible in a very different way from that contemplated.

A contract may provide or imply that performance is due from each party at a certain time. In the case of an executed contract, of course, one party has already performed his obligations and it only remains for the other to reciprocate, but with an executory contract there may be room for manoeuvre. In a contract of employment, for example, the employer's obligation to provide safe working conditions comes before the employee's duty to do the work, which in turn precedes the employer's duty to pay wages.

3.5


Where a party fails to perform his obligations, he may offer one of a number of excuses which will prevent his being in breach of contract. He may claim, for example:

(a) That the contract has been discharged or varied by agreement between the parties;

(b) That the contract has been frustrated, as discussed below;

(c) That the contract has become impossible to perform in circumstances falling short of frustration, as when an employee is temporarily too sick to attend work; or

(d) That there is an express contractual provision allowing non-performance; or

(e) That he has exercised his right to terminate the contract in view of the other party's prior or anticipated breach.

See sections 38-68 of the Contracts Act 1950. Web resource: http://law.jrank.org/pages/5695/Contracts-Discharge-Contracts. html

REMEDIES

3.6.1 Damages

Where an innocent party has suffered financial loss following another's breach of contract, the court must decide whether the breach actually caused the loss, whether the party at fault is legally liable for it (which is not the same thing), and how much compensation is payable. Causation is largely a matter of fact, and the rules in contract are a little different from those in tort. Where one party is in breach of his contractual obligations, the remedies open to the other depend in part on the seriousness of the breach. An action for damages

3.6

ACTIVITY 3.2

Explain the following terms using your own words.

(a) Misrepresentation.

(b) Mistake.

(c) Illegality.


is possible in almost every case, and in some cases an order for specific performance, but where the breach is serious the innocent party may prefer to abandon the contract altogether. There is also the possibility of rescission in some cases of mistake or misrepresentation. (a) QQuantum of Damages Once D's liability for P's losses has been established, the court must then

consider an appropriate measure of damages. Three possible measures are applicable:

(i) Expectation damages put P in the position he would have been had the contract been completed;

(ii) Reliance damages restore P to the position he would have been in had the contract never been made; and

(iii) Restitution damages compel D to restore any benefits he may have received from P.

(b) MMitigation of Damages Where D is in breach of contract, the law expects P to take reasonable steps

to mitigate any loss resulting from the breach, and although this is not a positive duty, he is unlikely to be awarded damages in respect of additional loss resulting from his failure to mitigate. In particular, if a seller fails to deliver goods as promised, the purchaser should try to obtain similar goods at a reasonable price elsewhere, and if a purchaser refuses to accept delivery, the vendor should try to sell it to someone else at the market price. This is the basis on which damages are normally calculated, as already discussed.

See sections 69-75 of the Contracts Act. (c) PPenalty Clauses A contract may provide for payments in the event of a breach, and such a

provision is, prima facie, a valid and enforceable term of the contract. Insofar as such payments represent a genuine estimate at the date of the contract of the loss likely to be suffered by the innocent party, they are treated as liquidated damages and will be enforced irrespective of the actual loss suffered. Where they are clearly in excess of the actual loss, however, they are treated as a penalty and the court has an equitable jurisdiction to reduce them if it thinks it desirable.


3.6.2 Rescission

If a contract is rescinded, then it is as if it had never existed, and the parties are restored to their original positions. A party discovering a relevant mistake, or the victim of a misrepresentation, may affirm or rescind the contract, explicitly or by his conduct, but this decision once made is irrevocable. Since the effect of rescission is to nullify the contract, it is available only where restitutio in integrum is possible and the parties can be restored to their original positions. The courts interpret this fairly widely, however, as is appropriate in matters of equity, and are prepared to make consequential orders as necessary. The right to rescind for misrepresentation is lost if:

(a) The representee has affirmed the contract;

(b) Restitutio in integrum is impossible;

(c) Too much time has elapsed, though what is "too much" will depend on the circumstances; or

(d) Rescission would unfairly damage an innocent third party.

3.6.3 Specific Performance/Specific Relief

There are a limited number of cases in which a breach of contract cannot adequately be compensated by purely monetary damages. It is in such cases that the equitable decree of specific performance comes into play, whereby the offending party is ordered (on pain of imprisonment) to fulfil his part of the bargain. Specific performance is discretionary, like all equitable remedies, and the exercise of discretion is governed by a principle of mutuality which operates in several ways. For example, since the buyer of land can claim specific performance, the courts have held it to be equitable to give the same relief to the seller, even though he could have been awarded damages instead. And again, a decree of specific performance will not be granted to a minor, since such a decree could not be enforced against him if the roles were reversed. An alternative to specific performance in some cases may be an ordinary injunction, also an equitable remedy and therefore, discretionary. It may be prohibitory (to enforce a contract not to sell beer brewed by any other firm, for example) or mandatory (to knock down a wall built in breach of a restrictive covenant), but the court will consider what is reasonable in the circumstances.


Neither an order for specific performance nor an injunction will normally be granted where damages would be an adequate remedy; nor in employment contracts or other contracts for personal services (though an injunction may be granted forbidding similar performance for a competitor); nor for the delivery of goods bought, unless they are unique objects of special value; nor where P gave no consideration for a contract under seal, since "equity will not assist a volunteer." See sections 4, 20, 21 and 23 of the Specific Relief Act 1950 for specific performance and sections 50 and 53 of the same act for injunction.

3.6.4 Rectification

Where it can be shown clearly that a document such as a will or a contract does not reflect the true intentions of the parties (or where one party to a contract took unfair advantage of a mistake made by the other) the court has power to rectify the document to make it show the true position.

3.6.5 Right to Reject

In contracts for the sale or supply of goods, the buyer has the right to reject the goods and terminate the contract if the goods supplied are not up to standard. If he accepts the goods, however, the right to reject is lost and the buyer is limited to damages. Acceptance is deemed to take place when:

(a) The buyer intimates to the seller that he has accepted the goods;

(b) The goods have been delivered to him and he does any act in relation to them which is inconsistent with the ownership of the seller; or

(c) After a lapse of reasonable time, the buyer retains the goods without intimating to the seller that he has rejected them.

Deemed acceptance does not occur, however, unless the buyer has had a reasonable opportunity to examine the goods or (if the contract is for sale by sample) to compare the bulk with the sample.

3.6.6 Restraint of Trade

A contract is "in restraint of trade" if one party restricts his future liberty to carry on his trade, business or profession in such manner or with such persons as he may choose, and such a contract may be void under some circumstances. The most


common example of such contracts occur where a skilled employee undertakes not to set up his own business in competition with his former employers, and where the seller of a business undertakes not to compete with the buyer.

SELF-CHECK 3.3

1. The statement below refers to?

"Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods corresponds with sample if the goods do not also correspond with the description."

2. Fill in the blanks.

(a) A contract may provide for payments in the event of a breach, and such a provision is, prima facie, a valid and enforceable term of the contract. Insofar as such payments represent a genuine estimate at the date of the contract of the loss likely to be suffered by the innocent party, they are treated as ________ damages and will be enforced irrespective of the actual loss suffered. Where they are clearly in excess of the actual loss, however, they are treated as a ________ and the court has an __________ jurisdiction to reduce them if it thinks it desirable.

(b) Where D is in breach of contract, the law expects P to take reasonable steps to ___________ any loss resulting from the breach, and although this is not a positive duty, he is unlikely to be awarded damages in respect of additional loss resulting from his failure to mitigate. In particular, if a seller fails to deliver goods as promised, the purchaser should try to obtain similar goods at a reasonable price elsewhere, and if a purchaser __________ to accept delivery, the vendor should try to sell it to someone else at the market price. This is the basis on which damages are normally __________, as already discussed.


After completing this topic you have learned:

� The fundamental facts that anyone should know about the Law of Contract and the principals that make a contract valid.

� The basic components that must always be in a valid contract � offer, acceptance, consideration (money) and intention to enter legal relations. With the aid of real-life cases, we have thoroughly examined the rights and obligations that contracts create and which the law will enforce.

� The issues discussed range from how many people are needed to form a contract, what are their duties, what they must avoid in order to not be liable in law to when they can decide not to continue with a contract.

� The knowledge gained from this topic could be used to properly analyse situations and circumstances of a personal and professional nature.

Agreement

Capacity

Consideration

Content of contract

Contract

Discharge of Contract

Privity

Remedies

SOGA

Vitiating

5 Topic 3 Contract Law

Documents

boots cash

kawasaki kisen

create legal

additional

mentally disordered

fixed bidding

correct amount

actual loss