UNIVERSITI

TEKNOLOGI MARA
KAMPUS PUNCAK ALAM

BUSINESS LAW (LAW416)

ASSIGNMENT 1
The Law of Contract

Prepared By : SITI SYAFIQAH BINTI SAAD (2016945037)

NURUL SYAFIKAH ROSLI (2016382647)

AZRAEI BINTI PARNAU (2016166995)

Group : NBH2A

Programme : BM243

Prepared for : MADAM NURUL SHUHADA BINTI SUHAIMI

Submission Date : 12th NOVEMBER 2017

QUESTION 1

Abu was a member of a religious group known as "Kerajaan Bumi". One evening, Abu
was told by his spiritual adviser Ayah Din that their religious group urgently needed a
new meeting place and Ayah Din reminds Abu in a friendly way of the large bungalow
which Abu owns in Klang. On being told to pray for guidance, Abu announces that he
has been inspired to sell the said bungalow to Ayah Din for RM50.000. The market
value of the bungalow at that time was RM600.000. Three days later, Abu met his
solicitors and executed the transfer of his said bungalow to Ayah Din at the said value.
Two months later Abu was expelled from his religious group by Ayah Din. He now
wants to set aside the sale of his bungalow.

Advise Abu.

(15 marks)

ANSWERS:

Although the terms contract and agreement are often used to mean the same thing,
actually the term contract can be distinguished from the term agreement. Every
contract involves an element of agreement but not every agreement will result in a
contract recognize able by law. This is because sometimes the parties to an
agreement may not intend to create legal relations. For example, agreements on social
agreements. Some agreements also do not result in contracts because one or more
of the principles governing contractual relations may not have been satisfied. For
example, when the purpose of the agreement is illegal, or there is a lack of
consideration.

The word contract may be defined as an agreement enforceable by law. In other

words, a contract is an agreement which is legally binding between the parties. The
basic elements of a contract are offer, acceptance of the offer, intention to create legal
relations, consideration, certainty and capacity. An offer or proposal is necessary for
the formation of an agreement. Section 2(a) of the Contracts Act 1950 provides that
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. The first limb of section 2(c) of the Contracts Act 1950
calls the person making the proposal the promisor. The promisor (sometimes also
known as the offeror) must have declared his readiness to undertake an obligation
upon certain terms, leaving the option of its acceptance or refusal to the offeree, the
person to whom the offer is made.

Section 2(b) of the Contracts Act 1950 provides that when the person to whom the
proposal is made signifies his assent thereto, the proposal is said to have been
accepted. A proposal, when accepted, become a promise. Acceptance must be
absolute and unqualified so that there is complete consensus. If the parties are still
negotiating, an agreement is not yet formed. Although the Contracts Act 1950 is silent
on the intention to create legal relations as one of the requirements of a valid contract,
case-law clearly dictates the necessity of this requirement.

Section 26 of the Contracts Act 1950 provides that, as a general rule, an agreement
without consideration is void. The word consideration is defined in section 2(d) of the
said Act as follows when, at the desire of the promisor, the promisee 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.

The terms of an agreement cannot be vague but must be certain. An agreement which
is uncertain or is not capable of being made certain is void. The parties entering into
a contract should also be competent to contract, they must have the legal capacity to
do so. Capacity refers to the ability of the parties to a contract to fully understand its
terms and obligations. Assuming that a simple contract has been created and that
there are no elements which affect its validity, it may be necessary to consider exactly
what it is that the parties have agreed to include in the contract. On other words, what
is the extent of the rights and obligations that the parties have entered into? The
answer can only be found by deciding what are the terms of the contract, and then
what is their relative meaning and importance, but in the context of whether they have
been qualified by the inclusion of an exclusion clause.

The Malaysian Contracts Act 1950 does not contain any provision which deals
specifically with the contents of a contract. One may say that the contents of a contract
are made up of terms which may be expressed and/ or implied. A term is basically a
statement which creates contractual obligations between the parties, breach of which
will result in the injured party being able to sue.

Terms may be classified as either conditions or warranties. A condition is a term that

is vital to the contract. The parties consider it is so important that its non-performance
may be considered by the injured party as amounting to substantial failure to honour
the contract at all and thus may be regarded as grounds for setting the contract aside,
and or suing for damages. On the other hand, a warranty is a type of term considered
by the parties to be of lesser importance to the main purpose of the contract. If it is
breached, the injured party must still perform their part of the contract but they have
the right to sue for damages for any loss that they may suffer as a result of the breach.

Once a contract is formed, it is deemed to be valid and recognized by law However,

this can be rebutted due to various reasons. They are classified as void, voidable and
illegal. A contract is said to be induced by undue influence. Consent is said to be free
when it is not caused by as defined in Section 16 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.

According to section 2(g) of the Contracts Act 1950 a void contract is an agreement
not enforceable by law. Section 24 of the said Act provides that the consideration or
object of an agreement is unlawful if it falls within any of the subsections of the section.
Remedy is the method by which an injured party enforces a right or corrects a loss.

When consent to an agreement is caused by undue influence as defined in section 20

the agreement is a contract voidable at the option of the party whose consent was so
caused. Any such contract may be set aside either absolutely or, if the party who was
entitled to avoid it has received any benefit thereunder, upon such terms and
conditions as to the court may seem just.

In Abu cases, the remedies available to the injured party will depend on the nature of
the breach and the results will differ between the parties. The usual remedy for a
breach of contract is an award of damages, which is common law remedy. However,
if a monetary remedy is not satisfactory, the court may exercise its discretion and order
any one of several equitable remedies. One of the remedy for breach of contract is
rescission.
Rescission is an equitable remedy, which allows Abu to cancel the contract by
rescinding or, if there has been misinterpretation by the other party, raising that
misinterpretation as a defense if sued for damages or specific performance by the
other party. Its purpose is to reverse the contract and restore the parties as near as
practicable to their original pre-contractual positions, relieving each party of their
obligations and permitting recovery of any benefits conferred on each other.
 QUESTION 2

Explain any two (2) examples of remedies available under the law of contract.
(10 marks)

ANSWERS:

REMEDIES FOR BREACH OF CONTRACT

What are the Remedies for Breach of Contract?

There are several remedies for breach of contract, such as award of damages, specific
performance, rescission, and restitution. In courts of limited jurisdiction, the main
remedy is an award of damages. Because specific performance and rescission are
equitable remedies that do not fall within the jurisdiction of the magistrate courts, they
are not covered in this tutorial.

A legal remedy is a court order that seeks to uphold a persons rights or to redress a
breach of the law.
When one party breaches a contract, the other party may ask a court to provide a
remedy for the breach. The court may order the breaching party to pay money to the
non-breaching party.

Types of Remedies

i. Suit for Rescission

The term Rescission refers to the cancellation of contract. In such cases, if one party
has broken his contractual relations, the other party may treat the breach as discharge
and refuse to perform his part of performance. Thus, in case of rescission of contract,
the aggrieved or injured party discharge from all his obligations of the contract.

Examples
A contracts to supply 10kg of tea leaves for RM5,000 to B on 16 Sept. If A does not
supply the tea leaves on the appointed day, B need not pay the price. B may treat
 the contract as rescinded and may sit quietly at home. B may also file a suit for
rescission and claim damages.

A promises B to supply 10 bags of cement on a certain day. B agrees to pay the price
after the receipt of the goods. A does not supply the goods. B is discharged from
liability to pay the price

ii. Suit for Damages

Damages are a monetary compensation allowed to the injured party for the loss or
injury suffered by him as a result of the breach of contract. The fundamental principle
underlying damages is not punishment but to compensate the aggrieved party for the
loss suffered by him in the original position as he would have been.

Examples
Mr Robin contracts to pay RM2,000 to Mr Peter on 1 st April. Mr. Robin does not pay
the money on that day. Mr Peter is unable to pay his debts and suffer a loss. Mr Robin
is liable to pay Mr Peter principal amount and also interest on it.

If the machinery of any factory arrives late and due to this reason one party suffers a
loss or profits.

What Damages Can Be Awarded?

There are two general categories of damages that may be awarded if a breach of
contract claim is proved. They are:

A. Compensatory Damages.
Compensatory damages (also called actual damages) cover the loss the non-
breaching party incurred as a result of the breach of contract. The amount awarded is
intended to make good or replace the loss caused by the breach.

There are two kinds of compensatory damages that the non-breaching party may be
entitled to recover:
i. General Damages. General damages cover the loss directly and necessarily
incurred by the breach of contract. General damages are the most common type
of damages awarded for breaches of contract.

Example: Company A delivered the wrong kind of furniture to Company B. After

discovering the mistake later in the day, Company B insisted that Company A pick up
the wrong furniture and deliver the right furniture. Company A refused to pick up the
furniture and said that it could not supply the right furniture because it was not in stock.
Company B successfully sued for breach of contract. The general damages for this
breach could include:
Refund of any amount Company B had prepaid for the furniture; plus
Reimbursement of any expense Company B incurred in sending the furniture
back to Company A; plus
Payment for any increase in the cost Company B incurred in buying the right
furniture, or its nearest equivalent, from another seller.

ii. Special Damages. Special damages (also called consequential damages) cover
any loss incurred by the breach of contract because of special circumstances or
conditions that are not ordinarily predictable. These are actual losses caused by
the breach, but not in a direct and immediate way. To obtain damages for this type
of loss, the non-breaching party must prove that the breaching party knew of the
special circumstances or requirements at the time the contract was made.

Example: In the scenario above, if Company A knew that Company B needed the new
furniture on a particular day because its old furniture was going to be carted away the
night before, the damages for breach of contract could include all of the damages
awarded in the scenario above, plus:
Payment for Company Bs expense in renting furniture until the right
furniture arrived.

B. Punitive Damages.
Punitive damages (also called exemplary damages) are awarded to punish or make
an example of a wrongdoer who has acted willfully, maliciously or fraudulently. Unlike
compensatory damages that are intended to cover actual loss, punitive damages are
intended to punish the wrongdoer for egregious behavior and to deter others from
acting in a similar manner. Punitive damages are awarded in addition to compensatory
damages.

Punitive damages are rarely awarded for breach of contract. They arise more often in
tort cases, to punish deliberate or reckless misconduct that results in personal harm.

How are Compensatory Damages Calculated?

The calculation of compensatory damages depends on the type of contract that was
breached and the type of loss that was incurred. Some general guidelines are:

Standard Measure.
The standard measure of damages is an amount that would allow the non-breaching
party to buy a substitute for the benefit that would have been received if the contract
had been performed. In cases where the cost of the substitute is speculative, the non-
breaching party may recover damages in the amount of the cost incurred in performing
that partys obligations under the contract.

Contracts for the Sale of Goods.

The damages are measured by the difference between the contract price and the
market price when the seller provides the goods, or when the buyer learns of the
breach.

Are There Any Limitations on the Award of Compensatory Damages?

An important limitation on the award of damages is the duty to mitigate. The non-
breaching party is obligated to mitigate, or minimize, the amount of damages to the
extent reasonable. Damages cannot be recovered for losses that could have been
reasonably avoided or substantially ameliorated after the breach occurred. The non-
breaching partys failure to use reasonable diligence in mitigating the damages means
that any award of damages will be reduced by the amount that could have been
reasonably avoided.
REFERENCES

1. Lee Mei Pheng and Ivan Jeron Detta, Business Law : Second Edition (Shah
Alam: Oxford Fajar Sdn Bhd, 2014)
2. Iqbal, U. (2016). Recognizing Malaysia Contract Law (Malay Version). Journal
of Civil & Legal Sciences, [online]of Civil & Legal Sciences, [online] s1.
Available at
https://www.researchgate.net/scientificcontributions/2112370055_Uqbah_Iqba
l [Accessed 26 Oct. 2017].
3. Kathros (2012, 27 July). Contract Act. Retrieved from
https://www.scribd.com/doc/111084405/ACCA-F4-MALAYSIA-Variant
Contract-Act-Self-made-notes
4. Salleh Buang., Hamid Ibrahim., Nasser Hamid. and Maimoonah Hamid.
(1993). Contracts Act 1950. Kuala Lumpur: Central Law Book Corporation.
5. Vijaychandran, A. (2008). CONSENT CLAUSES- VOID AND VOIDABLE
CONTRACTS. [online] Vijayhighcourt.blogspot.my. Available at:
http://vijayhighcourt.blogspot.my/2008/09/consent-clauses-void-and
voidable.html [Accessed 24 Oct. 2017].