CHAPTER 2: LAW OF CONTRACT

Legal Capacity
A person must competent to contract.
Legal capacity refers to the ability to
make a contract.
A person is considered competent when:
1. Reach the age of majority
In Malaysia, age of majority is 18 years.
>18 is called a minor.
Whatever benefits passed to the minor
cannot be recovered.
Void ad initio (void from beginning)
Exceptions [contract is still valid]
Contract of marriage
Contract of necessaries
Contract of scholarship
Contract of insurance

d. Any act fitted to deceive

e. Act or omission which
law specifically declares
to be fraudulent
Voidable
Except of not caused the
other party to enter the
contract or not use his
diligence to discover the truth
Misrepresentation (S18)
False facts do not have the
intention to deceive
1. positive false statement
2. One of fact, mere expression of
opinion or not a representation of
fact
3. addressed to the misled party
4. induced the misled party to enter
into a contract

2. Sound mind
3. Not disqualified by any law
which he is subject
Free Consent
Parties enter into a contract with their
own willingness

Mistake (S21,22,23)

No element of:
Coercion (S15)
Threatening intention of causing any
person to enter into an agreement
Voidable
Undue Influence (S16)
Pressure of influence by another person
Voidable
Fraud (S17)
Various act - Intent to deceive
a. Fact which is not true
b. Concealment of fact (did
not reveal)
c. Promise made without an
intention to perform
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 Void & Illegal Contracts

S2(g) CA - A void contract is an
agreement not enforceable by law
Cannot bring the case to court in order
to enforce their rights in that agreement
1. S24 CA Consideration or object of
an agreement is lawful unless:
a) forbidden by law
b) nature that if permitted would
defeat any law
c) fraudulent
d) involves or implies injury to
the person or property
e) immoral or opposed to public
policy
2. S26 An agreement without
consideration is void except S26(a),
(b),(c)
3. S27 An agreement in restraint of
marriage of any person other than a
minor during his or her minority is
void
4. S30 - Agreement which is uncertain
is void
Consequences of void or illegal
agreement S66, a person who received
any advantage under the agreement are
bound to restore it to the other party or
pay adequate compensation for the same.

4. Sincere intention to create legal

relation
5. Subject matter which is recognized
by Shariah
Ijab (Offer) word first spoken
Modes of Ijab Words, written, gesture,
conduct, post
Termination of Ijab
Revocation
Rejection by the oferee
Counter offer
Absence of acceptance
Deah
Lapse of time
Qabul (Acceptance) Spoken words by
the second party
Majlis al-Aqd
- concluded in a contracting
session (majlis) If the parties are
separate, the offer fails to exist.
Offer must be renewed and new
majlis must be created.
Acceptance of the offer only has
legal effect BEFORE the
separation of the parties.
The majlis created the essential unity of
time and place necessary for the
declaration of intention and consent.

LAW OF CONTRACT IN SHARIAH

Al-Aqd Contract between two parties
Ijab One party makes an offer
Qabul Other party accepts
Valid contract:
1. legal capacity
2. Ijab & Qabul
3. Valuable consideration

Termination of Aqd
1. Performance (al-ada)
2. Express agreement (iqalah)
3. Impossibility of performance
(istihalah at-tanfidh) natural
disaster, policy, revoke in
writing/verbal
4. Breach (naqd al-Aqd)

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CHAPTER 3: SALES OF GOODS

S4(1) a contract whereby a seller
transfer the property in the goods
to a buyer for a price
Contract of sale the ownership; at
the time of the sale
Agreement to sell the ownership;
in the future

goods shall correspond with

description most be the same as
described. Applies particularly if
the buyer has not seen the goods
but relies on the description of
the seller. Goods may be
unascertained or future goods.

Implied condition as to fitness or

quality
S16 (1) buyer must exercise care in
making purchases.

Goods (S2) Moveable property

Formation of a contract of sale

1. Proposal - Acceptance
2. Formalities Words/writing
Terms of contract
Implied terms:
Condition Important term, essential
part of the contract. If seller breach;
buyer may repudiate or terminate the
contract S12(2)
Warranty Only a stipulation collateral
to the main purposes of the contract. If
breach; may only claim damages.
IMPLIED CONDITION
Term as to title S14(a)
- Seller has the right to sell
Term as to time S11
Time for payment is not
important [warranty] seller
cannot repudiate
Time for delivery is important
[condition] buyer may refuse to
accept and recover the purc. price
Implied condition as to sale by
description S15

S16(1)(a) implied condition that the

goods should be reasonably fit for a
particular purpose.
1. Make known to the seller either
expressly or implication before
or at the time of the contract.
the particular purpose
2. buyer relies on the skill and
sellers judgement to choose the
goods
3. goods are of description
4. goods must not be bought under
patent or trade name
S16(1)(b) - Implied condition as to
merchantable quality
goods are fit for the purpose to which
they are bought. If has several purposes
considered as merchantable for any of
the purposes.
1. bought by description
2. seller who deals in goods of that
description is the manufacturer of
producer or not
Implied condition as to sale by sample
1. bulk shall correspond with the
sample in quality S17(2)(a)
2. reasonable opportunity to
compare S17(2)(b)
3. goods are free from any defect
S17(2)(c)
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Transfer of property/risk in the goods

Essential to know the time when the
property is transferred to determine who
should bear the risk if the goods are
stolen, lost, or damaged
S19: Sale of specific goods or
ascertained goods property passes at
the time when the parties INTEND it to
pass
S20: Sale of specific goods in a
deliverable state when the contract is
made
S21: Sale of specific goods, still to be
put in a deliverable state property
does not pass until the action has been
done and the buyer has notice thereof
S22: sale of specific goods in a
deliverable state, where the seller needs
to ascertain the price of the goods,
weight or measure it property does
not pass until this is done and the buyer
has notice thereof
S23: in a contract of sale of ascertained
or future goods sold by description
property passes when the goods is
unconditionally appropriated to the
contract with the consent of another and
put in a deliverable state
S24: for goods delivered on approval or
on sale or return property passes
when the buyer
- signifies his acceptance to the
seller
- does any act adopting the
transaction
- retains the goods without giving
any notice of rejection within a
fixed or reasonable time

Goods sent on trial where the buyer is

given the options to purchase or to return
the goods within a specific time. Risk
lies with the seller until the property
passed to the buyer unless there is a
damage or loss caused by the buyers
fault
Transfer of risk
S26 generally risk passes with the
property in the goods irrespective of
whether delivery has been made
- goods remain at the sellers risk
until the property pass to the
buyer
- when the property pass to the
buyer, is at the buyers risk
whether delivery has been made
or not
- however, if there is a delay in
delivery, the person at fault must
bear the risk whether the
property is passed or belonged to
the other person
Nemo dat quod non habet (nemo dat
rule) S27
No one can transfer a better title than
what he has. only the owner or his
authorized agent can transfer the title to
another person
There are exceptions somebody
without title may transfer the ownership
to a third party (bona fide purchaser)
Bona fide purchaser who bought the
goods in good faith for value, paid and
does not know about the sellers lack of
authority to sell

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May get the title in six circumstances:

1- Sale under estoppel S27
- someone without the authority
sells the owners goods in his
knowledge without his objection.
i.
seller must be in
possession of the
goods or document of
title
ii.
possession must be
with the consent of
the owner
iii.
bona fide purchaser
2- Sale by mercantile agent S27
- acts as an agent in the course of
business
i.
at the time of
disposition, the aent
must be in possession
of the goods or
document of title
ii.
possession must be
with the consent of
the owner
iii.
disposition made
when ordinary course
of business
iv.
bona fide purchaser
3- Sale by one joint-owners S28
i.
one of the owner has
sole possession of the
goods
ii.
permission of the
other co-owners
4- Sale under a voidable contract
S29
i.
true owner must have
intended to transfer
the title under the
voidable contract
ii.
seller in possession of
the goods

iii.

iv.

voidable contract ha
snot been rescinded
by true owner at the
time of sale
bona fide purchaser

5- Sale by seller in possession

after sale S30(1)
- Original buyer has to pursue his
remedy against the seller. Cannot
claim the goods from the bona
fide purchaser
6- sale by buyer in possession
S30(2)
- buyer bought the goods or agreed
to buy the goods obtain
possession of the goods with the
consent of the owner can pass a
good title to a bona fide
purchaser under a sale even
though he has NOT OBTAINED
THE TITLE YET
Owner could only claim the price from
the first buyer. H cannot claim the goods
from bona fide purchaser
Law will always protect bona fide
purchaser
Remedies to the seller when the buyer
breaches the contract of sale
Against the buyer
- sue for the price S55
- claim damages S56

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Against the goods S46(1)

- Lien
Keep the goods until payment is made
i.
the property in the
goods has been
passed to the buyer
but the seller is still in
possession of the
goods
- Stoppage in transit
Stop the goods in transit and retake
delivery if
i.
buyer becomes insolvent
ii.
goods are still in transit

3. action in tort
- the title to the goods has passed to the
buyer but the delivery is withheld.
wrongful interference with the goods
4. action for conversion, seller has
dealt with the goods in a manner
inconsistent with the ownership
of the buyer. better for a buyer
to sue under contract

- Resale
After seller has exercise his right of lien
or stoppage in transit he may resell
i.
goods are of a perishable
nature (veg, fruit)
ii.
if imperishable nature, seller
gives notice of his intention
to resell and the buyer does
not tender the price within a
reasonable time
iii.
right to resell is expressly
reserved in th contract in case
the buyer should make any
default
Remedies to the buyer
1. damages for non-delivery of
goods S57
- seller neglects or refuses to deliver the
goods
buyer entitled to his loss of profit on the
resale as a result of sellers non delivery
2. specific performance S58
- will grant this remedy if the conract is
for a sale of specific goods or
ascertained goods. Consider this is
appropriate remedy
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