Faculty of Business, Finance and Hospitality

Assessments
Key Information
Programme : Bachelor of Business Administration

Module Title : Commercial Law

Module Code : LAW 2013

Module Leader : Kharmeyni Jumbulingam

Group Members

NO NAME STUDENT ID
1 AZRUL AMINUL RASHID BIN MARZUKI BBAP18011162
2 SALMI DARINA BINTI OSMAN BBAP18011233
3 AHMAD IZWAN BINTI JUMAHAT BBAP18011157
4 OSMAN SALAHUDDEEN BIS OSMAN BBAP18011232
5 MOHD SHAHFIZZAN BIN KHAMIS BBAP18011209
6 MUHAMAD ZAIRUN BIN JAMAK BBAP18011213
7 MOHD SHAFIQ BIN OMAR BBAP18011312

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 TABLE OF CONTENT

No. Content Page

1. Introduction 4

2. Elements of Contracts 4

2.1 Offer and Acceptance 5–6

2.2 Consideration 6–7

2.3 Intention to create legal relations 8

2.4 Legal Capacity 8–9

2.5 Certainty 9

2.6 Consent of Parties 9 – 10

2.7. Legality of objects 10

3. Breach of contracts 11

3.1 Void Contracts 11

3.2 Voidable Contracts 11 – 12

4. Breach of Contract Remedies 13

4.1 Compensation Damages 13

4.2 Specific Performance 13

4.3 Injunctions 13

4.4 Quatum Meruit 14

4.5 Rescind the Contract 14

5. Conclusion 14

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6. References 15

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1. Introduction

Contract laws in Malaysia are administered in accordance with the Contracts Act 1950 (revised
1974). This Act is matched from the India Contract Act 1872 which emulates the English law
with modified in certain matters as per local requirements in Malaysia. Previously it was known
as the Contract Ordinance 1950 which also contained provisions relating to the law of
partnership but after the revision came into force on 1 July 1974 the provisions relating to the
laws of the partnership were repealed and the laws of partnership were governed by a separate
statute of the Partnership Act 1961.

Generally a contract is a binding agreement between two or more parties. Section 2 (h) of
the Contracts Act 1950 defines contract as 'an enforceable law.' This means that all contracts are
contracts where not all agreements are contracts if they do not meet the essential elements of the
contract as set out in Section 10 (1) 'All agreements are contracts if made on the basis of the
parties' valid consideration and with a valid purpose, and not expressly set forth under the
provisions of this Act that it is nullified '. It is therefore clear that an agreement can only be
referred to as a contract when it can be enforced by law. An agreement may only be enforced if it
meets the essential elements of the contract. An agreement that does not comply with the
essential elements of the contract shall not constitute a binding obligation by the parties.

2. Elements of Contracts

For a contract to be lawful and enforceable, certain elements need to be met. The elements are: -

i. Offer and acceptance

ii. Consideration.
iii. Intention to create legal relations
iv. Legal Capacity
v. Certainty
vi. Consent of Parties
vii. Legality of objects: Unlawful or Void Contracts

The absence of these elements will result in a contract unlawful and unenforceable.

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 2.1 Offer and Acceptance

To create an agreement between 2 or more parties, there must be an offer and acceptance. For
example if A by bidding sells his car to B RM10000 with B's expectation to receive it. If B
accepts A's proposal to sell his car for RM10000, there is an agreement between them. A
proposal can be made either to a specific person or to the general public. If the proposal is made
to a specific person, then the proposal is only acceptable to the person. On the other hand, if the
proposal is made public, then anyone can accept it, provided it fulfills the terms of the offer.

Case example: Carlill Iwn. Carbolic Smoke Ball Co (1893).

Fact: The defendant advertises that they are willing to offer £ 100 to anyone who
is still infected with flu after taking a medication within a certain period of time.

Decision: He is entitled to receive £ 100 because he has accepted the offer made to the
public.

The same theory applies to ads offering rewards to anyone who returns the lost item: is
considered an offer.

2.2 Consideration

To make the agreement a legally binding contract, it must contain consideration. If there is no
consideration, then the agreement is not a contract that can be enforced by law. The
consideration is one act or price awarded by one party to repay the promise or act of the other
party.

Section 2 (d) of the Contract Act defines the reply as follows: "In accordance with the
undertaking of the plaintiff, when the plaintiff or anybody who makes or refuses to make
something, or makes or refrain from making something then the act or detention or promise is
called a reply to the promise."

The definition in section 2 (d) may be described as 'the price paid by one party to
purchase the promise or act of the other party.' For example, A has lost its camera while traveling
and offers RM 50 prizes to anyone who finds it and returns it to him. B finds it and returns it. B

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performs the act which is the price paid by him for the promise A. This act is a consideration for
the promise.

2.3 Intention to create legal relations

Intention can be defines as something that lies in one's heart, and cannot see the intentions
hidden within one's self. In contrast to intentions, one's actions can be seen through his
movements. The question is how to know the intention of the party who wants to initiate a
contract.

In the case of Carlill vs Carbolic Smoke Ball Co., the defendants have advertised a drug
called "The Carbolic Smoke Ball". In the advertisement, the defendant offered 100 pounds
sterling to anyone who did not recover from the flu after using the medicine in the prescribed
manner and period. The defendants have also deposited 1000 pounds sterling to prove their
honest intentions. The plaintiff has brought a claim against the defendant because the plaintiff
has not recovered from the flu by using the medication in accordance with the prescribed
instructions. In this case, the court also sees "the defendant's act of depositing 1000 pounds
sterling into the bank indicates that there is an intention to establish a legally binding relationship.

2.4 Legal capacity

Anyone who wishes to enter into a contract must be legally bound to contract. Elements such as
offer and acceptance, considerations and intentions are not sufficient.

According to section 11: "Everyone is eligible to make a contract if he is mature in

accordance with the law it is subject to, and if it has perfect understanding, and is not
disqualified to make a contract in accordance with any law to which it is subject.

2.5 Certainty

While the requirements relating to the offer and acceptance, consideration and intention of a
legal relationship have been fulfilled, the agreement may still have disabilities or a weakness
which makes it difficult for the court to determine the exact conditions agreed upon by the
parties involved therefore the meaning of uncertain or indefinite agreements is invalid. For

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example if A agrees to sell two hundred tons of oil to B, then nothing can show the type of oil
that is intended and the agreement is nullified because of its uncertainty.

Case example: Karuppan Chetty vs Suah Thian, where the requirements of the provisions
are not met when the parties involved agree to lease RM35 a month for how long he wishes for.

2.6 Consent of Parties

The contract will be valid when it is made with the free consent of the parties involved. Free
consent does not exist when there are elements such as coercion, improper influence, mistake,
misrepresentation and fraud. However, a free contract is a contract that can be canceled by the
choice of the party whose work is so.

2.7 Legality of objects: Unlawful or Void Contracts

A contract must have a legitimate purpose because otherwise it will cause the agreement to be
unenforceable. The purpose of the contract is legally required. Under the Contract Act 1950 an
agreement shall be lawful except:

a) it is prohibited by law,
b) it is such that if it is allowed, then it will frustrate the provisions of any law,
c) it is a fraud,
d) it enters or involves a disaster to the person or property of another person,
e) The court considered it morally or incompatible with public deception.

Parties wishing to enter a contract should be cautious about what they consent to.

Case example: Pearce vs Brooks (1866).

Fact: The case is about the plaintiff selling a carriage to the defendant. The carriage was

used by the defendant for the purpose of his job being a prostitute. The defendant pledged

to pay the train in installments. However, the defendant failed to fulfill his promise

The Plaintiff makes a lawsuit.

Decision: The court ruled that the plaintiff failed in his claim because the plaintiff knew

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

3. Breach of contracts

3.1 Void Contracts

Void contracts are not valid contracts at all. The parties concerned are not directly bound and
have no responsibility here. The law will assume that there are no contracts that exist and the
parties will be returned to the original state. A null contract is contracts made without taking into
account the essential elements or elements in the formation of the contract.

3.2 Voidable contracts

A contract is valid until one of the contracting parties makes an option to cancel it. Contracting
parties may terminate the contract on the ground that there is an element which may cancel the
contract. Property or goods that have been transferred before the party makes the option to cancel
the contract usually cannot be reclaimed as it is valid.

Elements of Voidable Contracts are as shown in Figure 1.1 below.

VOIDABLE CONTRACTS

KONTRAK BOLEH BATAL

COERCION FRAUD MISTAKE

UNDUE MISREPRESENTATION
INFLUENCE

Figure 1.1 Voidable Contracts

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 3.2.1 Coercion

Section 15 AK 1950 defines the meaning of coercion generally as any violence or threat to
violence against any person, family or property, for the purpose of contracting a person.

Case Example:

1. KESARMAL A / L LETTY VS VALIAPPA DAS CHETIAR (1954) MLJ 119.

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

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

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

3.2.2 Undue Influence

Section 16 (1) AK 1950 defines it as,

 One party in a position can dominate the other party and

 Use that position to gain an unfair advantage.

Case Example:

1. SALWATH HANEEM VS HADJEE ABDULLAH (1894)

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

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

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

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

3.2.3 Fraud

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

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

Case examples: SENANANYAKE VS ANNIE YEO (1965)

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

3.2.4 Misrepresentation

Section 18 AK 1950 states that misrepresentation should be a factual fact. If it's just personal
opinion, it can not be a blame even if the opinion is not true. Misrepresentations can be in two
forms of fraud and misrepresentations that do not have the intention to deceive.

Case Example: R VS KYLSANT (1932)

 The issue of whether a deceptive fact in a company's prospectus is considered a

fraudulent misrepresentation.
 Decision: Fraud on actual facts about the company's financial position is
considered a fraudulent misrepresentation.

3.2.5 Mistake

Section 21 AK1950 states that when there is a mistake to the important facts made by the two
contracting parties, the agreement is void.

Case Example: RAFFLES VS WICHELHAUS (1864)

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

4. Breach of Contract Remedies

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

i. Compensatory Damages
ii. Specific Performance
iii. Injunctions
iv. Quatum Meruit
v. Rescind the contract

4.1 Compensatory damages

The main purpose of giving harm to the innocent is not to punish the wrongdoer. The
compensation principle of compensation may be referred to in section 74 up to section 76 AK
1950. The compensation provided is usually in two forms for instance the amount determined in
the contract and the damages for the indefinite amount.

The indemnity for an indefinite amount is divided into three namely special damages,
nominal damages and exemplary damages.

Case example:

1. HADLEY VS BAXENDALE (1854) 9 EX 341

 The Plaintiff has ordered machinery from Greenwich but due to the delay of the
defendant to send the machinery to the plaintiff's plant causing the plaintiff to
suffer losses.
 The court ruled that the defendant was liable to pay a reasonable sum of damages
to the defendant.

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

 The defendant agreed to sell the furnace to the plaintiff and promised that the furnace
could reach the heat of up to 2600 degrees Fahrenheit. Nevertheless, the defendant
did not comply with the agreement. The plaintiff is claiming damages.
 The court ruled that the defendant had to pay damages for loss of profits.

4.2 Specific Performance

An order issued by the court directs the defendant to execute his agreement in accordance with
the conditions specified in the contract. This order is only given if the payment of the sum is not
sufficient remedy or the contract is a mandate to be performed and it depends on the discretion of
the court. This is stated in sections 11 (1) and 21 (1) of the Special Relief Act 1950 (Act 137).

Section 20 of the Specific Relief Act outlines the circumstances under which specific
execution will not be provided:

a. if the damages are not sufficient remedies

b. Contract is something that relates to personal qualification.
c. The contract is so detailed in its content, for example construction contracts.

Case example: CITY INVESTMENT SDN BHD VS COOPERATIVE SERVICE

CUEPACS TERENGGANU BHD (1985) 1 MLJ 285

 In this case a transfer of property has not been realized due to a breach of contract.
 The court provides specific execution orders because immovable property (land)
cannot be redeemed with money compensation.

4.3 Injunctions

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

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action from being done. Mandatory injunctions require certain actions to be taken to maintain the
status quo of the contracting parties.

In accordance with section 50 of the Special Relief Act 1950, injunctions are also another
remedy subject to the discretion of the court. It can be given temporarily or permanently.

Case example: NEOH SIEW ENG & ANOR VS TOO CHEE KWANG (1963) MLJ
272

 Homeowners have cut water supplies to their home tenants.

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

4.4 Quatum Meruit

Quantum meruit means as much as it deserves. It is a claim to earn a sum or payment or damages
for a reasonable amount as it ought to be received from the services rendered.

Case example:

1. UPTON RDC LWN POWELL (1942) 1 ALL ER 220

 There is an informed contract between the defendant and the plaintiff for the
services rendered by the plaintiff to the defendant.
 The Court decides which reasonable and reasonable remuneration shall be paid by
the defendant for the services it has received.

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

 The power of an agent has been terminated by the principal wrongly before the
agent has completed his duties.
 The court ruled that the agent may claim payment based on the work he has done
while performing his duties.

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 4.5 Rescind the contract

When one party has breached the contract, the other party with the loss can choose to terminate
the contract. Section 40 of the 1950 Contract Acts provides when a party has breached the
contract, the other party does not have to carry out further obligations.

When a contracting party has refused to perform or cause him to be powerless to execute
his promise fully the contractor may terminate the contract, unless he indicates, in words or
conduct, his consent to continue the contract. If the aggrieved party chooses to terminate the
contract, then the subsequent damages may be made.

5. Conclusion

It can be said the contract is always around us whether realized or unknowingly. Formed in two
means of real contract and oral implied contract. Contracts can occur when one party promises to
do something in return for the promise of another party to do something.

The remedial requirements in contract management area positive step in managing the
business closely related to business and legal relations. History of contract law development
shows that remedial action is fundamental development of contract law. Theory of remedies
which became the background of theoretical development contract law has justified that the
importance of the theory of remedies in securing interest contracting parties.

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6. References

Akta Kontrak 1950 (Akta 136), International Law Book Services.

Buang. S & Torji, N (1992) , Undang-Undang Kontrak Di Malaysia

Major, W. T. (1997). Undang-undang kontrak, Kuala Lumpur : International Law Book Services

Mohamed A et. al (2009), Business Law, (6th ed.). Selangor : Open University Malaysia

Yusoff S.S & Aziz A.A (2003), Mengenali Undang-Undang Kontrak Malaysia

Yusoff, S.S.A., Ismail, R. & Suhor, S. (2015) Pengguna dan Undang-undang. Bangi: Penerbit
Universiti Kebangsaan Malaysia.

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