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Q1.

Consideration Need Not Be Adequate, but Must Be Sufficient

There is no requirement that the consideration must be at market value, as long as

the promise provides something in value i.e. 2 for an exchange of a car would be
valid. The courts are not concerned the adequacy.

Chappell & Co V Nestle (1960)

Nestle had a special offer involving if customers sent in 1s6d and three chocolate
bars wrappers, they would get a record of a song called Rockin Shoes'. Chappell &
Co who owned the copyright of the song has brought an action for breaches of
copyright and claimed royalties. Nestle willing to pay the royalties at 6.25% of 1s6d
however Chappell & Co argued that it should include the chocolate wrappers
although Nestle thrown it away after they received it. The court held that
consideration must be sufficient but need not be adequate; hence, the chocolate
wrappers were part of consideration as it was part to increase sales and provided
value. Therefore, Chappell & Co were granted the injunction and Nestle could not
sell the records.

Under the Malaysian Law, explanation 2 to Section 26 of Contracts Act 1950

provides that an agreement to which the consent of the promisor is not void merely
because the consideration is inadequate; but the inadequacy will be question by the
court whether the consent of the promisor is freely given. The illustration (f) to
Section 26 of Contracts Act 1950 clearly states the application of the rule:

A agrees to sell a horse worth RM 1,000 for RM 10. A's consent to the agreement
was freely given. The agreement is a contract notwithstanding the inadequacy of the
consideration.

This was illustrated in the case of Phang Swee Kim v Beh I Hock (1964), the
respondent's solicitor notified the appellant that she had trespassed on the said land
and claimed for vacant possession and for an account of all income received by her
from the land.

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In May 1963, the respondent instituted an action against her claiming the relief
stated. The appellant counter-claimed for a declaration that she was entitled to the
said land. At the hearing, the appellant contended that there was an oral agreement
made between her and the respondent in which the respondent agreed to transfer
the land to her on payment of $500 in 1958. The learned trial judge accepted her
evidence, but held that the agreement is void due to inadequacy of consideration.
However, on appeal the Federal Court held that by virtue of explanation 2 to Section
26 of Contracts Act 1950, there was adequate consideration as being no evidence of
misrepresentation or fraud. The appellant was therefore entitled to the declaration
sought by her.

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Q2.

(a)

Topic : Law of Contract Consideration

Issue : Can a consideration move from a person who is not the promise, can
Sherrys husband pay on behalf of Sherry?

Authorities:

(i) Section 2(d) of the Contracts Act 1950

(ii) Reference case:

Phang Swee Kim v. Beh I Hock (1964) MLJ 383

In this case, the respondent alleged that the appellant had trespassed on his
land. He instituted an action claiming for possession and for an account of all
income received by the appellant from the said land. The appellant counter-
claimed for a declaration that she was entitled to the said land.

At the hearing, the appellant argued that there was an oral agreement made
between her and the respondent in which the respondent agreed to transfer
the land to her on payment RM500.00

HELD: The learned trial judge held that the agreement was void due to the
inadequacy of consideration.

Conclusion:

Fauziah has to transfer the ownership for the Plasma television to Sherrys name. As
per the Law of Consideration, a consideration can move from a person who is not
the promise. As such the payment made by Sherrys husband is acceptable.

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(b)

Topic : Law of Contract Proposal

Section 4(1) of the Contracts Act 1950

Held: An offer (proposal) could be made to the entire world because

the contract will only be made with that limited portion of the public who
came forward and performed the condition on the faith of the
advertisement

Issue : Do Tam has the rights to claim for the reward that was advertise

by Alia?

Authorities:

(i) Section 2(a) of the Contracts Act 1950:

(ii) Reference case: Carlill v. Carbolic Smokeball Co (1893) IQB 256, CA

Facts: In this case, the defendant issued an advertisement in which they
offered to pay 100 to any person who succumbed to influenza after
having used one of their smoke balls in a specific manner and for a
specified period. The plaintiff, Mrs. Cargill bought and used the smoke
balls as prescribed and caught influenza. She sued the defendant for the
promised reward of 100. The defendant argued that the contract was
made with the entire world, that is with everybody, and that a person
cannot contract with everybody.

Conclusion:

Tam does have any legal rights to claim for the reward.

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Q3.

This Act may be cited as the Age of Majority Act 1971.

1. Age of majority

2. Subject to section 4, the minority of all males and females shall cease and
determine within Malaysia at the age of eighteen years and every such male and
female attaining that age shall be of the age of majority. Interpretation

3. (1) All computations of age under this Act shall be reckoned according to the
Gregorian calendar.

(2) In computing the age of any person the day on which he was born shall be
included as a whole day, and he shall be

Those individuals who are under the age of 18 are recognised as minors, this is
outlined under the Family Reform Act 1969. Minors have capacity limitations; there
are different types of contracts where there may be liability of minors.

The Sale of Goods Act (1979) defines liability of minors when buying
necessaries. Necessaries are the basic goods needed for living, The Sale of
Goods Acts states, and goods suitable to the condition in life of the minor.
Therefore, minors are liable under a contract for buying necessaries.
Necessaries extend beyond the essentials for living; they can also be items
which are needed for a young person and for their lifestyle. The minor is not
liable for goods or services that have not been delivered to them. Valuable
utility items may be considered necessaries but items of luxury are not
considered as necessaries. Therefore, a minor would still be liable to pay for
such utility items. An example of this was in the case of Chapple v Cooper
(1844), where a service was considered necessaries. However, in the case of
Nash v Inman (1908), it was decided that waistcoats supplied to a student
could have been considered as necessaries, but in this case they were not
necessaries because the students father had already provided the student
with many waistcoats. When something is considered necessaries and the
minor liable to pay a reasonable price, this would depend on the income of the
minor and whether the goods and services are actually necessaries and are
needed by the minor. It would also depend on the supply, even if the minor

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needed something and can afford it, the good or service would not be
considered necessaries if the minor already has a supply of it.

Contracts that are considered for the benefit of the minor are that of service,
education, training, apprenticeship and employment. However, the courts will
reject a contract if it is considered not in the benefit of a minor. For example,
in the case of De Francesco v Barnum (1889), a minor aged 14 years old, had
an agreement to train as a dancer on stage, however, the contract had
conditions which were considered not beneficial to the minor and therefore,
the minor was not bound by the contact.

A case where a contract had been enforced is the case of Doyle v White City
Stadium (1935); this is where there was an agreement to train a boxer. There
was no money paid, but the contract was enforceable because it was
considered that the contract was beneficial because of the training. In another
case where the contract was enforceable was in Clements v London & NW
Rail Co (1894) where certain benefits were removed from the contract, but the
contract was considered to be beneficial.

Contracts that can be voided with minors

A voidable contract is where a contract can be ended. In this instance, if there is a

contract with a minor in a continuous agreement such as payment for renting
property. The contract is considered to be valid; however, if the minor rejects the
contract before reaching the age of 18 years, this means that the minor can end the
agreement in the contract. In the case of Steinberg v Scala (Leeds) Ltd (1923), the
contract was voided.

However, in the case of Edwards v Carter (1892) the court decided that the contract
could not be rejected and the agreement was enforceable.

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Q4.

A person making an invitation to treat does not intend to be bound as soon as it is

accepted by the person to whom the statement is addressed." Contract lawyers
distinguish this from a binding offer, which can be accepted to form a contract
(subject to other conditions being met).

What makes a contract?

In extremely simple terms, the elements that a court will look for when deciding if a
contract is legally binding are an offer, acceptance, the intention to create legal
relations, and consideration.

An offer is generally viewed as one party being prepared to enter a contract on

certain terms, and acceptance being a clear agreement to those terms. There is a
need for both parties to intend for this to be a formal agreement (as opposed to, for
example, an agreement between a parent and child over pocket money). The final
element of a contract is the need for consideration. Consideration is essentially
something given or promised by one of the parties for the completion of the goods or
services passing under the contract. A simple example would be when buying some
milk from the supermarket, the consideration would be the money given in exchange
for the milk.

The offer

As mentioned, an offer takes place when one party indicates they are prepared to
contract with another party or parties on a certain set of terms. During a contract
dispute, a court will always look to see if the set of circumstances show that one
party indicated willingness to contract. An example would be the words, I will sell
you this car right now for RM20, 000.00.

An invitation to treat

What then is an example of when an offer is not deemed to have been made? The
key question would appear to be whether one party should be bound by his offer.
This is essential for contract law as if an offer is deemed to have been accepted then

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it may well be that a contract has been formed. The courts therefore distinguish an
offer from what is known as an invitation to treat by objectively asking if the party
intended to be bound by their statement.

A good example of when an invitation to treat is likely to be inferred by a court as

opposed to an offer is if one party is merely hoping to commence negotiations.
Therefore, the courts will always look at the language used or the inferred intention
of the parties when deciding between an offer and an invitation to treat.

SAMPLE OF CASES

A Malaysian case involving tenders is

Cheng Keng Hong v Government of the Federation of Malaya (1966)
.. In this case, the respondent issued a notice inviting tenders to build a school. The
appellant tendered for the work and his tender was accepted and a contract was
entered into. The issue was whether the contract was valid without condition stated.
The court held that the unconditional acceptance of the tender by the respondent
bound both parties thus, a contract was formed. As Raja Azlan stated, The law with
regard to acceptance of a tender is perfectly clear. The unconditional acceptance of
a tender by the employer binds the parties and a contract is thereby formed.

Application for club membership

In Abdul Rashid v Island Golf Properties Sdn Bhd (1989)
..The plaintiff applied to become a member of the golf club owned, managed and
operated by the defendants. The issue was where the application for club
membership was an offer or, was the offer made by the club after considering the
application. Here, the court did not use the language of invitation to treat but used
the term preliminary step. Wan Adnan J stated, ... the offer for membership came
from the defendants after the defendants had considered the plaintiffs application.
The contract between the plaintiff and the defendants was formed only when the
plaintiff accepted the offer by making the payment of the entrance fee and the first
subscription.

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Q5.

The Sale of Good Act 1957 (SOGA herein forth) was enacted in 1957 and the
statue was applicable to sale of goods in peninsular Malaysia (East Malaysia),
excluding the states of Penang and Malacca. The Act was later revised in 1990 and
it includes both states1. The states of Sabah and Sarawak (West Malaysia) are not
governed by this act instead they are governed by section 5(2) of the Civil Law Act of
1956, which provides, among others, that the law to be administered in England in
the like case at the correspondent period.

In addition to the unpaid sellers rights against the goods, he has rights even against
the buyer personally. They are as follows:

1. Suit for Price

Generally the seller can sue for the price of the goods only when the property
in the goods has passed to the buyer and the price is not paid as per the
terms of the contract. In cases where the property in the goods has not
passed to the buyer, suit for price generally, cannot be maintained, unless
under the contract, price is payable on a certain date irrespective of the
delivery of passing of the ownership of the goods.

2. Suit for damages The unpaid seller can bring an action for damages where
the buyer wrongfully refuses to accept the goods or repudiates the contract.

3. Suit for interest In case of breach of contract on the part of the buyer, the
unpaid seller can claim for interest from the date of tender of the goods or
from the date, the price becomes payable along with the suit for price.

Qq5

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Q.6

The law of agency is governed by Part X of the Contracts Act 1950. An agent is
defined as a person employed to do any act for another or represent another in
dealings with third person. The person for whom such act is done, or who is so
represented, is called the principal

In other words, agency is the relationship which subsists between the principal and
the agent, who has been authorized to act for him or represent him in dealings with
others

Thus in agency there are in effect two contracts:-

i. The first made between the principal and the agent from which the agent
derives his authority to act for and on behalf of the principal; and
ii. the second, made between the principal and the third party through the
work of the agent

A. Who can become an agent/principal?

ii. Section 136 CA - Any person who is eighteen years old and above and
who is of sound mind may be a principal. As between the principal and
third persons, any person may become an agent, but persons of unsound
mind and who are below 18 years of age are not liable towards their
principal for acts done by them as agents

iii. E.g. If A employs B (a minor) to buy some goods from C on his behalf and
C supplies the goods, A cannot allege that he is not liable to pay for the
goods just because B is not at the age of majority. A is still liable to pay C
for the goods.

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B. CREATION OF AGENCY

1. BY EXPRESS APPOINTMENT

Express appointment may be in written or oral form. An example of an

express appointment made in writing is a Power of Attorney. Even a letter
written or words spoken may be effective in appointing an agent.

2. BY IMPLIED AGREEMENT

The Law can infer the creation of an agency by implication when a person by
his words or conduct holds out another person as having authority to act for
him.

E.g. If he allows another person to order goods on his behalf and habitually
pays for them, an agency may be implied. In such terms he will be bound by
the contracts as if he has expressly authorised them.

Chan Yin Tee v William Jacks & Co (Malaya) Ltd [1964] MLJ 290

3. BY RATIFICATION

Agency by ratification can arise in any one of the following situations:-

i. An agent who was duly appointed has exceeded his authority or

ii. A person who has no authority to act for the principal has acted as if he has
the authority.

Section 149 CA 1950

Where acts are done by one person on behalf of another but without his
knowledge or authority, he may elect to ratify or to disown the acts. If he
ratifies them, the same effect will follow as if they had been performed by his
authority.

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BY NECESSITY

An agency by necessity may be created if the following three conditions are

met:-
1. It is impossible for the agent to get the principals instruction

2. The agents action is necessary, in the circumstances, in order to

prevent loss to the principal with respect to the interest committed to his
charge e.g. when an agent sells perishable goods belonging to his principal to
prevent from rotting.

The agent of necessity must have acted in good faith. In an emergency an

agent has authority to do all such acts for the purpose of protecting his
principal from loss as would be done by a person of ordinary prudence, his
own case, under similar circumstances.

BY ESTOPPEL

A person cannot be bound by a contract made on his behalf without his authority.
However, if he by his words and conduct allows a third party to believe that the
particular person is his agent even when he is not, and the third party relies on it to
the detriment of the third party, he will be estopped or precluded from denying the
existence of that persons authority to act on his behalf.

C. Agency in Relation to Banking

The law of agency is relevant to bankers because the relation between a banker and
a customer is based on agency. Furthermore, bank employees are agents of the
bank.

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D. Bank as Agent of Customers

The relationship between a banker and his customers are generally that of a debtor
and a creditor or vice versa.

Foley v Hill [1848] 9 ER 1002

When a banker receives money from his customers as deposit, the banker is a
debtor and his customers are creditors. On the other hand, where a banker
advances money as a loan or other credit, or extends banking facilities to his
customer, the bank is the creditor and the customer is the debtor.

When a customer hires a safe deposit box in which he keeps his valuables, the bank
is the customers agent.

E. Bank Employees as Agent for the Bank

Within a bank, employees of the bank are agents for the bank. Thus employees who
are so authorised may act on behalf of the bank. The bank, as employer, is
vicariously liable for the torts committed by its employees in the course of business.

F. Duties of Principal and Agent

The rights and duties of the principal and agent depend on the express or implied
terms of the contract of agency. Where there is no such contract of agency, the
rights and duties of an agent to his principal and vice versa are laid down in Section
164 176 of the Contracts Act 1950

H. THE AUTHORITY OF AN AGENT

An agents authority may be actual or apparent. Actual authority is authorised

expressly given by the principal (orally or written) or implied from the express
authority given, from the circumstances of the case, custom or usage of trade, and
the conduct of parties.

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I. TERMINATION OF AGENCY

Section 154 163 of Contract Act 1950 deal with the manner which an agent may be
terminated.

J. TERMINATION BY THE ACT OF THIRD PARTY.

When both parties agree that the agency shall terminate, the agency is terminated.
The principal may revoke the authority of the agent at any time before it has been
exercised to bind the principal.

When the agency is for an indefinite period of time, the agent can terminate the
agency by giving reasonable notice of termination to the principal - Section 159.

K. TERMINATION BY OPERATION OF LAW

An agency may be revoked by operation of law in any of the following

circumstances:-

i. When the contract of agency has been performed

ii. Upon the expiry of the period fixed in the contract

iii. Death of the principal or agent

iv. When the principal or agent become insane

v. When the principal or agent become insolvent

vi. Upon the happening of an event which renders the agency unlawful.

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Q 7 (i)

a) The main law governing partnership in Malaysia is the Partnership Act 1961
b) Partnership is defined in Section 3 (1) of the Partnership Act 1961

Partnership is the relation which subsists between persons carrying on business in

common with a view of profit. Q 7 (i)

c) The main law governing partnership in Malaysia is the Partnership Act 1961
d) Partnership is defined in Section 3 (1) of the Partnership Act 1961
a. Partnership is the relation which subsists between persons carrying on
business in common with a view of profit.

(ii) Yes.

Section 19 (2) of the Partnership Act states that a partner who retired from
a partnership is not liable to any debts which are made after the date of his
retirement. This depends however on Section 16 and Section 38 of the
Partnership Act.

Section 16 requires that the person who has retired from a

partnership must ensure that there is no other representation made
by words or conduct of himself or other partners to the effect that he
is still a partner of the firm
Section 38 (1) provides that after retirement, a partner is still liable
to persons who deal with the firm after a change in its constitution
unless he has given notice to such persons that he is no longer a
partner.

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EN

ENDE

-END-

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