Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Summary 96
Key Terms 96
References 96
Table of Contents
Welcome to BMLW5103 xii
How can you get the most from this course? xiii
Learning package
Course topics
Organisation of the course content
This is followed by the Law of Agency (Part I and II). In these topics, there will be
discussions on the creation of agency contracts, the authority of persons acting as
agents, rights and duties of agents and principles and the application of the law
of agency in businesses.
Subsequently, the law of Partnership (Part I and II) will be discussed. In contract
of partnership, you will learn about the liabilities of partners in a partnership, the
relationship between partners, the partnership property and the rules on
dissolution of partnership.
The course will also cover a discussion on the Law of Sale of Goods (Part I and
II). In contract of sale of goods, you will learn the meaning of goods and the
implied terms in the contract of sale of goods, product liability and transfer of
title, and performance of contract and remedies available for breach.
Finally, the discussion will focus on the Law of Hire-Purchase. The discussion
covers the formation of the hire-purchase contract, the statutory rights of the
hirer, the rules of repossession of goods by the owner and other important matter
like insurance of the goods under a hire-purchase contract.
COURSE GUIDE xiii
Learning Package
In this Learning Package you are provided with THREE kinds of course materials:
1. The Course Guide you are currently reading
2. The Course Content (consisting of 14 topics) and
3. The Course Assignment Guide (which describes the assignments to be
submitted and the examinations you have to sit for) will be given to you in
a separate folder.
Mind Map
A basic knowledge on Business Law is considered relevant for every business
student and will assist them in handling their job assignments successfully. An
overview of the course and a description of the contents are provided below.
Table of Content
Topic 1 Law of Contract (Proposal and Acceptance)
Topic 2 Law of Contract (Consideration)
Topic 3 Law of Contract (Intention to Create Legal Relations)
Topic 4 Law of Contract (Capacity to Contract)
Topic 5 Law of Contract (Free Consent to Contract)
Topic 6 Law of Contract (Void and Illegal Contract)
Topic 7 Law of Contract (Discharge of Contract and Remedies)
Topic 8 Law of Agency (Part I)
Topic 9 Law of Agency (Part II)
Topic 10 Law of Partnership (Part I)
Topic 11 Law of Partnership (Part II)
Topic 12 Law of Sale of Goods (Part I)
Topic 13 Law of Sale of Goods (Part II)
Topic 14 Law of Hire-Purchase
Course Content
This course consists of 14 topics altogether.
Topic 4: Discusses the need for the parties to have the capacity before
entering into a valid contract.
Topic 9: Discusses duties of agents and principals, the rights of agents and
principals, the effect of agency contract, and the rules of
termination of agency contract.
Topic 11: Discusses the rights, duties and liabilities of partners, the
obligations of partners to one another, the rules on partnership
property, the grounds for dissolution of partnership and the
consequences of dissolution of partnership.
Topic 12: Discusses the meaning of goods, the classification of goods, the
implied terms in a contract of sale of goods and the importance of
transfer of property in the goods.
Topic 13: Discusses the rule of nemo dat quod non habet and its exceptions,
the effect of sale by a person other than the owner, the rules
relating to the performance of contract of sale and the remedies
available to the seller and buyer for breach of contract of sale of
goods.
To help you read and understand the individual topics, numerous realistic
examples support all definitions, concepts and theories. Diagrams and text are
combined into a visually appealing, easy-to-read module. Throughout the course
content, diagrams, illustrations, tables and charts are used to reinforce important
points and simplify the more complex concepts. The module has adopted the
following features in each topic:
ACTIVITY
These are situations drawn from situations to show how knowledge of
the principles of learning may be applied to real-world situations. The
activities illustrate key points and concepts dealt with in each chapter.
SELF-CHECK
The main ideas of each topic are listed in brief sentences to provide a review of
the content. You should ensure that you understand every statement listed. If
you do not, go back to the topic and find out what you do not know.
xviii COURSE GUIDE
Key terms discussed in the topics are placed at the end of each topic to make you
aware of the main ideas. If you are unable to explain these terms, you should go
back to the topic to clarify.
At the end of each topic, a list of articles and topics of books is provided that is
directly related to the contents of the topic. As far as possible, the articles and
books suggested for further reading will be available in OUMÊs Digital Library
which you can access and OUMÊs Library. Also, relevant Internet resources are
available to enhance your understanding of selected curriculum concepts and
principles as applied in real-world situations.
COURSE GUIDE xix
Assessment Format
Please refer to myVLE.
Facilitator
Your facilitator will mark your assignments. Do not hesitate to discuss during the
seminar session or online if:
• You do not understand any part of the course content or the assigned
readings
• You have difficulty with the self-tests and activities
• You have a question or problem with the assignments.
Library Resources
The Digital Library has a large collection of books, journals, thesis, news and
references which you can access using your student ID.
xx COURSE GUIDE
Learner Connexxions
This is an online bulletin which provides interesting and relevant information to
help you along the programme. There are many useful study hints and you can
read about the experiences of other distant learners.
FINAL REMARKS
Once again, welcome to the course. To maximise your gain from this course, you
should try at all times to relate what you have studied to the real world. Look at
the environment in your institution and ask yourself whether the ideas discussed
can be applied. Most of the ideas, concepts and principles you learn in this course
have practical applications. It is important to realise that much of what we do in
education and training has to be based on sound theoretical foundations. The
contents of this course provide the principles and theories explaining human
learning, whether it be in a school, college, university or training organisation.
We wish you success with the course and hope that you will find it interesting,
useful and relevant in your development as a professional. We hope you will
enjoy your experience with OUM and we would like to end with a saying by
Confucius – „Education without thinking is labour lost‰.
COURSE ASSIGNMENT
GUIDE
xxiv COURSE ASSIGNMENT GUIDE
COURSE ASSIGNMENT GUIDE xxv
Table of Contents
Introduction xxvi
INTRODUCTION
This guide explains the basis on which you will be assessed in this course during
the semester. It contains details of the facilitator-marked assignments, and final
examination of the course.
One element in the assessment strategy of the course is that all students should
have the same information as facilitators about the answers to be assessed.
Therefore, this guide also contains the marking criteria that facilitators will use in
assessing your work.
Please read through the whole guide at the beginning of the course.
ACADEMIC WRITING
(a) Plagiarism
(i) What Is Plagiarism?
Any written assignment (essays, project, take-home exams, etc)
submitted by a student must not be deceptive regarding the abilities,
knowledge or amount of work contributed by the student. There are
many ways that this rule can be violated. Among them are:
(c) Referencing
All sources that you cite in your paper should be listed in the Reference
section at the end of your paper. HereÊs how you should do your Reference.
INTRODUCTION
This topic introduces the law which governs the formation of contracts in Malaysia.
Throughout the discussion, the relevant provisions of the statute, in particular the
Contracts Act 1950 and relevant case-laws will be referred to in order to give us a
clear understanding of the topic. The Malaysian law of contract is governed by the
Contracts Act 1950. However, the Act does not address all aspects of the law of
contract. Thus, in absence of any provision relating to issues arising under the
contract, reference may be made to English law by virtue of Section 5 of the Civil
Law Act 1956. It is important to note that despite reference being made to English
Law, these can only be treated as guidelines or persuasive authority and will not
bind the decisions of the courts in Malaysia. Decisions of the courts in India may also
be referred to since some of the provisions of the Indian Contracts Act are in pari
materia with the Malaysian Contracts Act. However, this will be regarded as a
source of reference only.
2 TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE)
However, there are contracts which are considered as complex in nature, like contracts
entered into by companies doing the business of selling houses and lands, and joint-
venture contracts. These contracts are normally drafted and prepared in a written
form, containing the details of the terms and conditions agreed by the parties therein.
SELF-CHECK 1.1
1. How do you distinguish between a social agreement and a
contract?
2. What are the important elements to form a valid contract?
3. What are the advantages of having a contract in written form?
4. Give two examples of standard forms of contract that are
available in Malaysia.
A proposal can also be made to the public. In such situation, the acceptance can
be made by any person who knows about the proposal and performs the
obligations required by the proposer. The example of a proposal made to the
public is illustrated in the case of:
TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE) 5
The claimant, a lady, used the ball as advertised, and was attacked by
influenza during the course of treatment. She then sued for £100 as promised
in the advertisements. The defendants tried to avoid liability by saying that
there was no offer made because the offer was too vague and not sure to
whom it was made.
Held: The Court rejected the argument and held that the advertisement was
an offer to the whole world. It was not an attempt to contract with the whole
world but with the portion of the public who came forward and performed
the condition in the advertisement. Thus, it was possible to make an offer of
this kind and there was a binding contract made between Mrs Carlill and the
defendants.
The display of goods on the shelves in shops is also an invitation to treat and not
a proposal by the shopkeeper. The proposal is made by the buyers when the
buyers take the goods from the shelves and bring it to the counter for payment.
The acceptance takes place when the seller accepts the payment from the buyer.
In short, the contract was formed at the payment counter. A relevant case to
explain the above principle is the case of:
6 TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE)
The defendants were charged under the Pharmacy and Poison Act 1933 (UK)
which provided that it was unlawful to sell certain poison unless such sale
was supervised by a registered pharmacist. Every sale of the drugs on the
Poison List was supervised at the cash desk by a qualified pharmacist, who
had the authority to prevent customers from taking goods out of the shop if
he thought fit. In this case, the question arises whether a sale had occurred in
the self-service shop when the customer selected articles which he desired to
purchase and placed them in the wire basket.
Held: The Court held that the display of goods did not constitute an offer but
only an invitation to treat. A proposal to buy was made when the customer
placed the articles in the basket. Hence, the contract of sale would be made at
the cash desk when the cashier accepted the customerÊs offer to buy what the
latter had chosen. By that principle, the defendants (shop owners) had not
made an unlawful sale.
In the case of Coelho v. The Public Services Commission [1964] MLJ 12, the
High Court ruled that the newspaper advertisement was an invitation for
qualified persons to apply and the applications were treated as offers.
In the case of Ahmad Meah & Anor v. Nacodah Merican (1890) 4 Ky 583, an
agreement to build „a suitable house‰ was held by the court as vague to
constitute a binding contract.
The defendant published a handbill with the promise that he would pay the
sum of £20 to any person who would provide information leading to the
discovery of the murderer of Walter Carwardine. The claimant in this case
lived with Williams and was severely beaten by him. As she believed that
she was going to die and to ease her conscience, she gave information
leading to the conviction of Williams for the murder. In an action to recover
the reward, the jury found that the claimant was not induced to give the
information by the reward offered, but by motives of revenge.
However, the Court held that she was entitled to the reward because she had
seen the handbill and had given information.
For example:
(a) When the proposer communicated the revocation of the proposal to the
other party before its acceptance.
If the revocation of proposal is made by post, the revocation is only
effective when it comes to the knowledge of the acceptor and not at the
time when the letter of revocation is posted. One relevant case to illustrate
the principle is the case of:
TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE) 9
The court held that there was a contract between the parties because the
revocation of the offer posted on 8 October was only effective on 20 October
(when the plaintiff received it). The plaintiff had accepted the offer on 11
October (when he sent the telegram accepting the offer).
The defendant offered to sell houses by letter stating: „This offer to be left
over until Friday, 9am.‰
On Thursday afternoon, Mr Berry informed the claimant that the defendant
had been negotiating a sale of the property with Allan.
On Thursday evening, the claimant left a letter of acceptance at the
defendantÊs house but the letter was not delivered to the defendant.
On Friday morning, at 7am, Berry (acting as the claimantÊs agent) handed the
defendant a duplicate letter of acceptance.
However, on Thursday, the defendant had entered into a contract to sell the
property to Allan.
The court held that the defendant was free to revoke his offer at any time
because there was no consideration given by the claimant for the promise, to
keep the offer open. Further, BerryÊs communication indicated that Dodds
(defendant) was no longer interested to sell the property to the claimant. This
was a good communication of DoddsÊs revocation of offer. Therefore, there
was no binding contract between the parties.
10 TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE)
(b) By the lapse of time prescribed in the proposal for its acceptance. If no time
is prescribed, by the lapse of a reasonable time.
An example of case to illustrate the principle is:
Held: The defendantÊs refusal was justified because the offer had lapsed
due to the companyÊs delay in accepting the offer within a reasonable
time. The period between June and November was not reasonable.
SELF-CHECK 1.2
ACTIVITY 1.1
Discuss the following problem by applying the principle of law on
proposal:
Browny made an offer of RM1,000 in Looking Times to anyone who
returned his Persian cat. Tony, a friend of Browny, found the Persian
cat which he knew belonged to Browny. When Tony returned the
Persian cat to Browny, Browny was so excited that he forgot all about
the offer he had made. The next day, Tony came across the
advertisement in Looking Times but when he went to see Browny to
claim the reward, Browny refused to pay. Advise Tony.
1.3 ACCEPTANCE
What is an acceptance? According to Section 2(b) of the Contracts Act 1950,
„when the person to whom the proposal is made signifies his assent thereto, a
proposal is said to be accepted: a proposal, when accepted, becomes a promise.‰
This means, an acceptance is an agreement by the acceptor to the terms contained
in the proposal made by the proposer. With that acceptance, a binding contract is
said to exist.
If the party varies or modifies the terms made in the proposal, an acceptance
does not exist but that act will amount to a counter-proposal. The case to
illustrate the rule is the case of:
12 TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE)
The defendant offered to sell his estate to the plaintiff for £1,000. In reply, the
plaintiff made a counter-proposal to purchase at £950 but the defendant
refused to accept this proposal. The plaintiff then wrote again to the
defendant, agreeing to accept the original proposal, but the defendant refused
to sell.
The court ruled that the counter-offer made by the plaintiff at the price of £950
constituted a rejection to the original proposal (which cannot be revived).
Therefore, no acceptance had occurred and the defendant had the right not to
sell the estate to the plaintiff.
Next, if the parties are still in the process of negotiation, there is no question of an
agreement. An example is the case of:
Lau Brothers & Co v. China Pacific Navigation Co. Ltd. [1965] 1 MLJ 1
The parties in this case conducted negotiations for the delivery of logs,
through a series of telegrams and letters. Finally, the defendants withdrew
from the negotiations. The issue was whether there was a binding contract
between the parties?
The court held that the parties were still in a state of negotiations and the
defendants had the right to withdraw from it.
Low Kar Yit & Ors v. Mohd Isa & Anor [1963] MLJ 165
The court decided that: there was no binding contract because the option to
purchase was conditional and subject to „a formal contract to be drawn up
and agreed upon‰ by the parties. Thus, the exercise of the option has no legal
effect and it was an agreement to enter into an agreement.
But if the proposal specifies a particular mode of acceptance and the acceptor
does not follow it, then the proposer can insist on the mode of acceptance. The
proposer must act within reasonable time after the acceptance is communicated.
If not, then the proposer is said to have accepted the acceptance.
Thus, if the acceptor remains silence after being proposed, then the act of
silence cannot constitute an acceptance. As what happened in the case of:
The plaintiff wrote to the defendant, offering to buy a horse for £30.75p
and added as follows: „If I hear no more about him, I consider the horse
is mine at that price.‰ The defendant did not reply.
The court held that there was no contract between the plaintiff and the
defendant because the defendant had never communicated his
acceptance to the plaintiff. Silence is no acceptance.
(b) Exceptions
It is clear that the general rule requires the communication of acceptance
and this means the acceptance must be brought to the notice of the
proposer.
Paragraph (a) means, when the acceptor posts his letter of acceptance,
the proposer is bound to perform his obligation, even though the
proposer does not know about the acceptance (for instance, the letter
does not reach the proposer or delay in transit). A case to illustrate this
principle is:
TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE) 15
Paragraph (b) means, when the acceptor posts his letter of acceptance,
he is not bound to perform his obligation until his letter of acceptance is
received by the proposer. For example, if A proposes to sell his car to B
(by letter) and B accepts the proposal (also by letter), A is bound at the
time when B posts his letter of acceptance, but B himself is not bound
until A receives the letter of acceptance. It also means that in the
meantime, the acceptor may still withdraw his acceptance.
For example:
SELF-CHECK 1.3
ACTIVITY 1.2
Acceptance Performance
Communication Proposal
Counter-proposal Postal Rule
Invitation to treat Revocation
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Wu, M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Ahmad Meah & Anor. v. Nacodah Merican (1890) 4 KY 583.
Byrne v. Tienhoven (1880) 5C.P.D. 344.
Carlill v. Carbolic Smoke Ball Co. Ltd. (1893) 1 QB 256.
Coelho v. The Public Services Commission [1964] MLJ 12.
Dickinson v. Dodds (1876) 2 Ch 468.
Felthouse v. Bindley (1862) 11 CB (NS) 869.
Hyde v. Wrench (1840) 3 Beav. 334.
Ignatius v. Bell (1913) 2 FMSLR 115.
Lau Brothers & Co. v. China Pacific Navigation Co. Ltd. [1965] 1 MLJ 1.
Low Kar Yit & Ors. v. Mohd. Isa & Anor [1963] MLJ 165.
TOPIC 1 LAW OF CONTRACT (PROPOSAL AND ACCEPTANCE) 19
INTRODUCTION
Consideration is another important element of a contract and any agreement
made without consideration is a void agreement. Section 26 of the Contracts Act
1950 provides that „an agreement made without consideration is void‰.
According to Section 2(d) of the Contracts Act 1950, „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 of the
promise.‰
some acts according to the promisorÊs (person making the proposal) desire, that
act or abstinence or promise is called „consideration‰.
Therefore, consideration is a price that you pay to buy a promise or an act of the
other person.
Take an example where you lose your mobile phone while travelling on a train
and you offered a RM100 reward to anyone who found and returned the mobile
phone to you. Later, A found and returned the mobile phone to you. In such case,
you promised to pay RM100 and A paid the price for your promise by
performing the act. Thus, the act of returning the mobile phone to you is the
consideration for the promise. The case of Osman bin Abdul Ghani & Ors v.
United Asian Bank Bhd [1987] 1 MLJ 27 on consideration, where the court held
that forbearance to sue could amount to a valid consideration.
Consideration may be executory when one promise is made in return for another
promise. For example, you (refer to Figure 2.1) agree to sell a fax machine to B for
RM2,000. Here, BÊs promise to pay RM2,000 is the consideration for your promise
to sell the fax machine and your promise to sell the fax machine is the
consideration for BÊs promise to pay RM2,000. These are lawful considerations.
Promises which form the consideration for each other are called reciprocal
promise, and every promise and sets of promises forming the consideration for
each other is an agreement.
Next, consideration may be executed when one promise is made in return for the
performance of an act. For instance, you advertise a reward of RM100 to anyone
who finds and returns your lost watch. C finds and returns the watch to you in
response to the offer. CÊs consideration for your promise is executed. Only your
liability remains outstanding which is to pay C the RM100 reward. Figure 2.1
demonstrates the difference between these two considerations.
22 TOPIC 2 LAW OF CONTRACT (CONSIDERATION)
Under English law, past consideration will not support a claim in contract
because the act which was performed before the promise of reward was made is
regarded as gratuitous. However, under the Malaysian Contracts Act 1950, past
consideration is sufficient to support a promise because Section 2(d) and Section
26 (b) apply to past consideration. The words „has done or abstained from
doing‰ referred to an act which has been performed before the promise is made.
Thus, the position in Malaysia is that, even though the consideration is past, it is
valid if it is done „at the desire of the promisor.‰
TOPIC 2 LAW OF CONTRACT (CONSIDERATION) 23
The Malaysian case which applied the principle of past consideration is the case of:
Kepong Prospecting Ltd & S.K. Jagatheesan & Ors v. A.E. Schmidt &
Marjorie Schmidt [1968] 1 MLJ 170
Later, an issue arose in this case, whether the services rendered by Schmidt
after the incorporation of the company but before the agreement was made,
were sufficient to constitute a valid consideration, even though they were
past.
The Privy Council held that it was a valid consideration and Schmidt was
entitled to claim the amount.
SELF-CHECK 2.1
ACTIVITY 2.1
Discuss the following problem by applying the principle of law on
consideration:
Intan and Berlian were neighbours. Intan had to go abroad for business
arrangements. Before she left, she told Berlian, „Please look after my house.‰
After four weeks of Intan being away, IntanÊs house caught fire and Berlian
could only save IntanÊs wedding album. When Intan returned home, she
thanked Berlian for saving her wedding album which she treasured so much
and promised Berlian that she would pay RM100 for what Berlian had done.
Now Intan refused to pay what she has promised. Advise Berlian.
This means the agreement that is not supported by any consideration is valid if it
fulfils the following conditions:
(a) The agreement is made in writing;
(b) The agreement is registered under the existing law which requires its
registration; and
(c) The agreement is made on account of natural love and affection between
the parties standing in near relation to each other.
For example: A, for natural love and affection, promises to give his son, B,
RMl,000. A puts his promise to B into writing and registers it under a law for
the time being in force for the registration of such documents. This is a
contract.
Under the exception, there is a phrase „near relation‰ that is attached to the
position of the parties in the agreement. What is meant by „near relation‰? It is
not defined in the Act, but a case example in which an attempt was made to
define the term is the case of:
The court granted that: Chinese adopted children are related to the adoptive
parents and brothers, but they were not nearly related to the family of their
adoptive mother. Thus, the uncles and aunties of the adoptive mother did
not stand in near relation to their nephews and nieces. In such a case, there
was no natural love and affection between the signatories and the donees.
The agreement was void.
26 TOPIC 2 LAW OF CONTRACT (CONSIDERATION)
Therefore, in order to enforce the agreement made on account of natural love and
affection, the court must be satisfied that the parties who enter into the
agreement must stand in near relation to each other besides having natural love
and affection. The term „near relation‰ is not defined in the Act. Thus, what
signifies „near relation‰ may be different for every social group, depending on
the ethnic groups and their customs. This is because the personal law relating to
family matters is applicable to the groups.
It means, if the promisee has done some act voluntarily on his own will, for the
promisor (without being requested by the promisor) and subsequently the
promisor promises to compensate the promisee for such act, then that promise is
enforceable. Similarly, if the promisee has done some act (an act which the
promisor is compellable to do in law, for example, paying tax to the government)
voluntarily on his own will for the promisor, the promise made by the promisor
to compensate the act is also enforceable.
For example: A supports B's infant son. B promises to pay A's expenses in
doing so. This is a contract and A can enforce BÊs promise.
Similar to Section 2(d), this exception covers the principle of past consideration
which has been explained above. If Section 2(d) covers an act which has been
done at the request of the promisor, Section 26(b) covers an act which has been
done voluntarily by the promisee (before the promise to compensate the
promisee is made by the promisor). What is meant by „voluntarily‰ is not
defined in the Act but a case example that considered the term is the case of:
TOPIC 2 LAW OF CONTRACT (CONSIDERATION) 27
The court found that: there were promises of compensation made by the
defendant firm to the plaintiff, but these promises were not supported by
consideration. Therefore, the promises cannot be legally enforceable, unless it
falls under Section 26(b); „a promise to compensate, wholly or in part, a
person who has already voluntarily done something for the promisor‰.
The question was whether the plaintiff had already „voluntarily‰ done
something for the defendant. It was found that the plaintiff had acted on the
suggestion of the defendant, so that the action could not be said to have been
done voluntarily. Therefore, the promise made by the defendant firm to
compensate the plaintiff was not enforceable.
Thus, in order to enforce the promise made for past consideration under Section
26(b), the promisee must have acted voluntarily for the promisor in that
particular action.
What it means under this exception is that, the promisor is liable to pay a
previous debt (which the creditor cannot recover through legal action because
the time within which the creditor must commence legal action is limited by
statute) if the following conditions arise:
28 TOPIC 2 LAW OF CONTRACT (CONSIDERATION)
The debtor makes a fresh promise to pay the statute-barred debt; and
The promise is made in writing and signed by the person to be charged or his
authorised agent.
For example: A owes B RM1,000, but the debt is barred by limitation. A signs a
written promise to pay B RM500 on account of the debt. This is a contract.
SELF-CHECK 2.2
1. What is the general rule of consideration?
2. Is there any exception available to the general rule of
consideration?
3. What was the decision of the court in the case of J.M.
Wotherspoon & Co Ltd v. Henry Agency House [1962] MLJ 86?
4. What are the important conditions required in an agreement to
pay a statute-barred debt?
TOPIC 2 LAW OF CONTRACT (CONSIDERATION) 29
ACTIVITY 2.2
Discuss the following problems by applying the principle of law on the
exception to consideration:
(a) Mr Ajay was a successful business man. One day, he promises
his eldest son, Suresh, that he wishes to transfer one of his
bungalows to Suresh to show how much he loved him. Mr Ajay
made his promise in writing and registered it. A few years later,
when Suresh married Salwath, Suresh requested from Mr Ajay
the possession of the bungalow for him to start his matrimonial
life. However, Mr Ajay was reluctant to accept Salwath as his
daughter-in-law and refused to give Suresh the bungalow.
Advise Suresh.
(b) Azrai, a bank manager, left for his hometown in haste as his
mother passed away. He left his briefcase containing important
documents on his table. Unfortunately, a fire broke out at the
bank. Baini, the secretary of the bank manager, saw the briefcase
and realising that the briefcase was important to her boss, dashed
into the room and took the briefcase with her. Azrai reported
back to work the subsequent week and felt so relieved that the
briefcase was not destroyed in the fire. Azrai promised to give
Baini a reward in the sum of RM1,000 in return for BainiÊs act.
Several weeks passed and there was no sign of Azrai giving Baini
the reward. Baini came to see Azrai for the reward but Azrai
refused to pay her on the basis that it was BainiÊs duty as his
secretary to do so. Advise Baini.
the promise even though he personally does not give any consideration. Such
consideration can come from some other persons. The authority for this principle
is in Section 2(d) of the Contracts Act which provides the words „any other
person‰, in the following part of the provision:
„........the promisee or Âany other personÊ has done or abstained from doing.....‰.
Therefore, even though the promisee does not give any consideration for a
promise made by the promisor, he can still claim for the promise if the
consideration is given by some other persons.
For example: A promises to pay B RM1,000 when C paints AÊs house. As soon
as C completes the work (paints AÊs house), B can claim the amount of
RM1,000 from A although B does not personally give any consideration for
AÊs promise. This is because the consideration has moved from C.
The case was about a sister who agreed to pay an annuity of Rs 653 to her
brothers who provided no consideration for the promise. On the same day,
their mother gave the sister some land with the requirement that the sister
must pay the annuity to her brothers. Later, the sister failed to fulfil her
promise to pay the annuity and her brothers sued her on the promise.
The court ruled that: The sister was liable to pay the brothers. Even though the
consideration did not move from the brothers, there was a valid consideration
that was given by their mother.
For example: A agrees to sell a horse worth RMl,000 for RMl0. A's consent to
the agreement was freely given. The agreement is a contract notwithstanding
the inadequacy of the consideration.
Thus, if you agree to sell your house that worth RM100,000 to Mr Man for only
RM100, this agreement is a contract, provided that your consent to sell at that
amount is freely given. You are not under fraud or oppression, etc., to sell at that
price.
For example: A agrees to sell a horse worth RM1,000 for RMl0. A denies that
consent to the agreement was freely given. The inadequacy of the
consideration is a fact which the court should take into account in considering
whether or not A's consent was freely given.
This case involved the respondent who agreed to transfer a parcel of land to
the appellant on payment of $500 when the land was subdivided. At that time,
the land was worth much more than the price. Subsequently, the respondent
refused to honour the promise and claimed that the promise was
unenforceable. The trial judge in the case held that the agreement was void
because of inadequacy of consideration. However, on appeal, the Federal
Court reversed the decision and applied the principle in Explanation 2 of
Section 26.
32 TOPIC 2 LAW OF CONTRACT (CONSIDERATION)
Hence, the agreement to transfer the land to the appellant for the $500 payment
was valid and the promise was enforceable because the consent was freely given
by the respondent although the consideration was inadequate.
SELF-CHECK 2.3
1. Can the promisee enforce the promise made by the promisor if
the consideration is given by some other persons?
2. Would the principle on the above situation (para (a) above) be the
same under the English common law?
3. What is meant by adequacy of consideration?
4. Why is the free consent of the promisor important in considering
the adequacy of consideration?
ACTIVITY 2.3
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Wu, M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
J.M.Wotherspoon & Co. Ltd. v. Henry Agency House [1962] MLJ 86.
Kepong Prospecting Ltd. & S.K. Jagatheesan & Ors v. A.E. Schmidt &
Marjorie Schmidt [1968] 1 MLJ 170.
Lampleigh v. Braithwait (1615) 80 ER 255.
Osman bin Abdul Ghani & Ors v. United Asian Bank Bhd [1987] 1 MLJ 27.
Phang Swee Kim v. Beh I Hock [1964] MLJ 383.
Re Tan Soh Sim [1951] MLJ 21.
Venkata Chinnaya v. VerikataraÊmaÊya (1881) I.L.R. 4 Mad. 137.
Topic Law of
3 Contract
(Intention to
Create Legal
Relations)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the importance of intention to create legal relations in
an agreement;
2. Discuss the presumption of intention in domestic, family and
social agreements;
3. Analyse the situations in which the presumption of intention
is rebuttable; and
4. Compare the presumption of intention in business or
commercial agreements.
INTRODUCTION
Any agreement made between the parties (the proposer and the acceptor) will
only become a binding contract if both parties intend to make the contract
enforceable. The element of intention has not been defined in the Contracts Act
1950 and there is no provision in the Act which clearly provides the element of
intention as one of the elements to form a valid contract. The provisions which
may imply to the element of intention is the word „with a view‰ used in Section
2(a), and the word „at the desire‰ used in Section 2(d) of the Act. However, the
principles in the English common law will apply in the absence of such provision
36 TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS)
under the Contracts Act 1950. In determining whether there is an intention by the
parties to create a legally binding contract, the law has divided an agreement into
two categories:
(a) Domestic, Family and Social Agreements; and
(b) Business Agreements.
The Court held that although it was not impossible for a husband and wife to
enter into a contract for maintenance, in this case they never intended to make
a bargain which could be enforced in law. Thus, there was no enforceable
contract between the parties.
Therefore, in the above case that involved husband and wife, there is a
presumption of no intention to create legal relations. However, if the
presumption can be rebutted on the evidence that there was a serious intent, then
a different situation will appear. For example, where a husband and wife were
living together but not in amity or were separated when the agreement was
made, the court may enforce the agreement. The following case illustrates the
situation:
TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS) 37
In this case, a meeting was held between the husband and the wife after the
husband had left her to live with another woman. The husband agreed to
pay the wife £40 per month for maintenance and wrote and signed a
document agreeing that if the wife paid all charges in connection with their
matrimonial home until the mortgage repayments had been settled, the
husband would transfer the matrimonial home to the wife as a sole owner.
The wife paid off the mortgage but the husband did not subsequently
transfer the property to her. She then claimed ownership of the property and
asked for an order that her husband should transfer the house to her. The
husbandÊs defence was that the agreement was a family arrangement and
there was no intention to create legal relations.
The Court held that: The agreement which was made when the parties were
not living together in amity was enforceable. Furthermore, payment of the
mortgage balance was a detriment to the wife and the husband has received
the benefit of being relieved of liability to the building society, i.e., the
financier. Therefore, the wife was entitled to the relief claimed.
The above case shows that the presumption that no intention is present in
ordinary domestic or social arrangement may be rebutted if there is a proof of the
true intention of the parties which may be inferred from the language they use
and the circumstances in which they use it.
Apart from the cases involving husband and wife, there were other cases which
involved other family and personal relationships. The following cases illustrate
the situations in which the court presumed that legal relations were intended.
38 TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS)
The Court held that: There was an intention to create legal relations. The
evidence showed that it was not merely a friendly domestic arrangement but a
joint enterprise. Thus, the parties expected to share any prize that was won.
The defendants in this case, an elderly couple, agreed with the plaintiffs (who
were twenty years younger) that if the plaintiffs would sell their cottage and
come to live with the defendants and share household expenses, the male
defendant would leave them a portion of his estate in his will. The plaintiffs
sold their cottage and moved in with the defendants. But difficulties
developed between the two couples. The defendants then repudiated the
agreement by requiring the plaintiffs to find somewhere else to live. As a
result of this, the plaintiffs claimed damages for breach of contract. It was
argued by the defendants that the agreement amounted to no more than a
family arrangement.
The Court held that: The circumstances indicated that the parties intended to
affect their legal relations and thus the defendants were liable.
Since the true intention of the parties may be inferred from the language they
use, it is important that the words used by the parties are certain. If the words are
uncertain, then the agreement will not be enforced because the uncertainty may
lead to the conclusion that there is no intention to create legal relations. Example
of cases are as follows:
TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS) 39
The word „so long as I can manage it‰ in the case of Gould was considered as
uncertain and does not create an intention to enter into a legally binding contract.
Mrs Jones (the claimant) made an offer to her daughter, Mrs Padavatton (the
defendant) that she would provide the daughter a maintenance at the rate of £42 a
month if she leave her job in Washington and go to England and read for the Bar.
The agreement was an informal one and there was uncertainty as to its exact
terms. However, Mrs Padavatton came to England (bringing her child with her) in
November 1962 and began to read for the Bar. Her fees and maintenance were
paid for by Mrs Jones. Later, Mrs Jones offered to buy a large house in London to
be occupied by the daughter and partly by tenants. The income from the rents
would go to the daughter in lieu of the maintenance. Again, there was no written
agreement. In January 1965, Mrs Padavatton moved into the house and the
tenants also arrived. It was still uncertain what was to happen to the surplus of
the rent income and what rooms Mrs Padavatton was to occupy. There was an
uncertainty as to the utilisation of the surplus of the rent income and the room
that Mrs Padavatton would occupy. In 1967, Mrs Jones claimed possession of the
house from Mrs Padavatton. Mrs Padavatton counter-claimed for £1,655 18s 9d
(the amount she had paid for running the house).
Held by the court: The arrangements were family agreements depending upon
the good faith of the parties in keeping promise made and not intended to be rigid
binding agreements. Furthermore, the agreements were too vague and uncertain
to be enforceable as contracts.
Although the agreement to maintain while reading for the Bar might be regarded
as creating a legal obligation in the mother to pay, the daughter could not claim
anything in respect of that agreement. The arrangements in relation to the home
were very vague and must be regarded as made without contractual intent.
Thus, the mother was entitled to possession of the house and had no liability
under the maintenance agreement.
40 TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS)
SELF-CHECK 3.1
1. How does the law determine the existence of an intention in any
agreement between two parties?
2. What is the presumption on intention to create legal relations in a
domestic, family and social agreement?
3. In relation to question (b) above, is this presumption rebuttable?
How?
4. What was the principle established by the court in the case of
Merritt v. Merritt [1970] 2 All ER 760?
5. Must the words used by the parties in their agreement be certain
and unambiguous? Why?
ACTIVITY 3.1
Discuss the following problems by applying the principle of law on
intention to create legal relations:
(a) Three sisters, Viv, Valerie and Victoria, agree to form a syndicate
for the purpose of making a weekly entry in a fashion contest in a
local newspaper. Viv and Valerie do not know much about fashion
and give Victoria RM7.00 each week. Victoria fills in and sends off
the contest forms every week and she always fills the forms in her
own name. After one month, one of the entries that Victoria sent
won a RM10,000 prize. Viv and Valerie are very happy to know
about the news and want to claim their share. Victoria now refuses
to share. Advise Viv and Valerie.
(b) Mr and Mrs Alan are husband and wife. Lately, they quarrelled
over the week because Mr Alan was very busy with his business
trips and had no time for a vacation with Mrs Alan. Mrs Alan had
expressed her intention to go back to her hometown if the situation
remained the same. After a series of argument, Mr Alan promised
Mrs Alan that if he got a new business offer, he would take Mrs
Alan to Neverland for a vacation. Mrs Alan was very happy and
gave up her intention to go back to her hometown. Two months
later, Mr Alan was offered a new business contract and Mrs Alan
wanted to enforce the promise made by her husband. Explain
whether she will succeed in her claim.
TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS) 41
However, it is not necessary that there is an intention to create legal relations just
because the parties are in business. The parties to a business transaction may
state that they do not intend to enter into any legal obligation. In such case, the
court will then treat their promises as binding in honour only. The following
cases illustrate this point:
The claimant in this case had sent a successful football coupon to the
defendants but the defendants denied receiving it and relied on a clause
printed on every coupon. The clause provided that the transaction should
not „give rise to any legal relationship.....or be legally enforceable .... but .....
binding in honour only‰.
The Court held that: This clause was a bar to any action in a court of law.
42 TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS)
Rose and Frank Co v. Crompton (JR) & Brothers Ltd [1925] AC 445.
In this case, the agreement between the claimant and the defendants
contained an „Honourable Pledge Clause‰ as follows: „This arrangement is
not entered into nor is this memorandum written as a formal or legal
agreement and shall not be subject to legal jurisdiction in the courts of the
United States of America or England....‰.
The Court held that: The agreement was not binding on the parties.
Apart from the above, there are various other clauses used in business
agreements that negate contractual intention. The most common is the use of the
words „subject to contract‰ or „subject to formal contract‰. Such agreement gives
rise to no legal liability. The case to explain this is the case of:
Therefore, the insertion of the words „subject to contract‰ renders the agreement
to be unenforceable. It means a binding contract will come into existence only
when a subsequent formal contract is entered into by the parties. Up to this time,
either party is free to re-negotiate or even to withdraw from their arrangements.
TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS) 43
Low Kar Yit & Ors v. Mohd. Isa & Anor. [1963] MLJ 165
The defendant in this case gave an option to the plaintiffsÊ agent to buy a
parcel of land subject to „a formal contract to be drawn up and agreed upon
by the parties‰. Subsequently, the plaintiffsÊ agent exercised the option but
the defendant failed to sign the agreement for sale. The plaintiffs brought an
action for specific performance or (alternatively) damages for breach of
contract.
The Court held that: The option was conditional upon and subject to a
formal contract to be drawn up and agreed upon between the parties. Thus,
the exercise of the option amounted to nothing more than an agreement to
enter into an agreement.
In most instances like the above cases, the use of the words „subject to contract‰
infers that there is no intention by the parties to create legal relations.
However, the Privy Council had rejected a „subject to contract‰ issue in a case
involving a booking pro forma signed by the purchaser to purchase a house to be
built by a housing developer. The case is:
Daiman Development Sdn Bhd v. Mathew Lui Chin Teck & Anor [1981] 1
MLJ 56
The purchaser (respondent) signed a booking pro forma for the purchase of
a house to be built by the housing developer (appellants). After the payment
of a deposit was made and the pro forma was signed, the appellants
informed the respondent that the price of the house was to be increased.
The respondent did not agree and applied to the court for specific
performance. The appellant argued that the pro forma was „subject to
contract‰. Thus, no contractual obligation arose from the pro forma itself
until a further document was agreed and signed. The argument was
rejected by the court.
The Lordships held that: The appellants were bound by the pro forma and
could not argue that it did not create an obligation to purchase and sell the
property.
44 TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS)
Note: The provision as to booking pro forma has been abolished and under the
current provisions of the Housing Development (Control and Licensing) Act
1966, it is an offence to collect any money from a purchaser as a booking pro
forma.
SELF-CHECK 3.2
ACTIVITY 3.2
Discuss the following case by applying the principle of law on the
intention to create legal relations:
An agreement without an intention to create legal relations does not bind the
parties to the agreement.
In domestic, family and social agreements, the parties are presumed to not
have any intention to create legal relations.
The presumption of no intention may be rebutted if there is a proof of true
intention of the parties.
Uncertainty of words in an agreement may render the agreement
unenforceable.
In business or commercial agreements, the parties are presumed to have the
intention to create legal relations.
Various clauses used in business or commercial agreements have the effect
that negate the contractual intention.
Text Books:
Guest, A. G. (1988). AnsonÊs Law of Contract (26th ed.). Singapore: Oxford
University Press.
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Wu M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
46 TOPIC 3 LAW OF CONTRACT (INTENTION TO CREATE LEGAL RELATIONS)
Cases:
Balfour v. Balfour [1919] 2 K.B. 571.
Daiman Development Sdn Bhd v. Mathew Lui Chin Teck & Anor [1981] 1 MLJ
56.
Edwards v. Skyways Ltd [1964] 1 All ER 494.
Gould v. Gould [1969] 3 All ER 728.
Jones v. Padavatton [1969] 2 All ER 616.
Jones v. VernonÊs Pools Ltd [1938] 2 All ER 626.
Low Kar Yit & Ors. v. Mohd. Isa & Anor. [1963] MLJ 165.
Merritt v. Merritt [1970] 2 All ER 760.
Parker v. Clark [1960] 1 W.L.R. 286.
Rose and Frank Co. v. Crompton (JR) & Brothers Ltd [1925] AC 445.
Simpkins v. Pays [1955] 3 All ER 10.
Winn v. Bull (1877) 7 ChD 29.
Topic Law of
4 Contract
(Capacity to
Contract)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the importance of contractual capacity of a minor to
contract;
2. Describe the types of contract validly entered into by a minor;
3. Examine the effect of a minor contract;
4. Explain the importance of mental capacity for purposes of
contract; and
5. Discuss the status of contract made by a person of unsound
mind.
INTRODUCTION
In forming a valid contract, it is paramount that the person who enters into the
contract must have the full capacity in terms of age and mind. This means the
person who has not reached the age of majority, or is of unsound mind, cannot
make a valid contract (Refer to Figure 4). This is provided by Section 11 of the
Contracts Act 1950 whereby „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
mind, and is not disqualified from contracting by any law to which he is subject‰.
48 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)
The following discussion will also look into the status of a contract entered into
by a minor and person of unsound mind.
4.1 MINORS
A minor or an infant is a person who is below the age of majority. Under the Age
of Majority Act 1971, the age of majority is 18 years. With regards to the minorÊs
contractual capacity, the general rule is that all contracts entered into by a minor
are void. The authority was derived from the following Indian case of:
The Privy Council held that: the combined effects of Sections 10 and 11 of
the Indian Contracts Act (which is similar to the same sections of the local
Act) rendered the contracts void.
TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) 49
The local case that applied the decision in the Mohori BibeeÊs case was the case of:
The plaintiff in this case was an infant. The infant executed transfers of
land in favour of the defendant. The transfers were witnessed and
registered. Later, the plaintiff applied to the court for an order to set aside
the transfers and for incidental relief.
The Court ruled that the transactions were void and ordered the
restoration of the property to the minor.
Normally, when a contract is void, under Section 66 of the Contracts Act 1950,
„any person who has received any advantage under the agreement or contract is
bound to restore it, or to make compensation for it, to the person from whom he
received it‰.
However, the Privy Council in Mohori BibeeÊs case decided that a party who is a
minor cannot be compelled to repay any monies that he has received in the
contract. Thus, Section 65 of the Indian Contracts Act (similar to Section 66,
Malaysian Contracts Act) does not apply to a minor contract. It applies to a
contract between competent parties, whereas in a case involving a minor, the
contract never exists from the beginning.
In the case of Tan Hee Juan, the plaintiff (minor) had received the purchase price
for the transfers of land to the defendant. However, when the court made an
order declaring the transfers void, the court refused to order the minor to refund
the purchase price paid by the defendant.
Exceptions to Minors
The Age of Majority Act 1971 (including matters relating to marriage,
divorce, dower, adoption; religion and religious rites and usages of any
class of persons within Malaysia; and any other written law fixing the age
of majority).
The Contracts Act 1950 (contract for necessaries).
The Contracts (Amendment) Act 1976 (contract of scholarships).
The Insurance Act 1963 (Revised 1972) (contract of insurance).
The above provision shows that minors can enter into contracts of promise
of marriage and the contracts are valid. Apart from marriage contracts, etc.,
minors can also make a valid contract depending on the statute that
provides the age of majority for particular purposes. For example, the age
for voting is 21 years and the age of a young person to join a trade union is
above 16.
The parties in this case were Ceylonese Hindus. They entered into a
marriage agreement according to customary practice that provides for a
dowry and a penalty for breach, and they went through a customary
ceremony. Later, the first defendant repudiated the promise of marriage and
the plaintiffs then brought an action for breach of promise of marriage. The
defendant pleaded that the first plaintiff had no capacity to enter into the
marriage contract because she was a minor.
The High Court held that: the age of majority for entering into a marriage
contract differed from other minor contracts and were not affected by the
general principle established in the Mohori BibeeÊs case.
In the above case, the contract was a valid contract and enforceable
although the party to the contract was a minor.
The above principles will therefore apply to contract for necessaries entered
into by a minor. The contract will be valid if the minor has been supplied
with articles which are considered as necessary to the minorÊs actual
requirements and suited to the minorÊs condition in life. For example, food,
52 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)
shelter, clothing, medical services, and education. The Contracts Act 1950
does not define the word „necessaries‰ but the concept has been
mentioned by the Lordship in the case of Government of Malaysia v.
Gurcharan Singh & Ors [1971] 1 MLJ 211, by holding that education was
„necessaries‰ for the minors.
The Government sued the first defendant (the minor) and the second
and third defendants (the sureties) for breach of contract. The amount
of claim was RM11,500, being the sum spent by the Government for the
minorÊs education. At the time when the contract was made, the first
defendant was a minor.
The Court held that: The contract was void but since education was
„necessaries‰, the minor was liable for the repayment of a reasonable
sum spent on him. The amount ordered as payment to the Government
was RM2,683 because the minor has served the Government for three
years and ten months out of the contractual period of five years.
The Court held that: The contract was for the minorÊs benefit. Thus, the
claimant could continue the action for damages for breach of contract.
Damages of £1,500 were awarded.
necessaries even though they are useful for the minor. As illustrated by the
following case:
The claimant was a Savile Row tailor and the defendant was a minor
undergraduate at Trinity College, Cambridge. The claimant sent his
agent to Cambridge because he had heard that the defendant was
spending money freely, and might be the sort of person who would be
interested in high-class clothing. Following the agentÊs visit, the
claimant supplied the defendant with various articles of clothing to the
value of £145. The clothes included 11 fancy waistcoats. The claimant
then sued the minor for the price of the clothes. There was evidence
that the minorÊs father was in a good position, being an architect with a
town and country house, and it could be said that the clothes supplied
were suitable to the defendantÊs position in life. However, the father
proved that the defendant was adequately supplied with such clothes
when the claimant delivered the clothing.
It was held that: The claim failed because the claimant had not
established that the goods supplied were necessaries.
The above case shows that a minor will not be bound by a contract of goods
supplied, which are not of necessaries for the minor. The burden to prove
that the goods supplied are necessaries for the minor is on the supplier or
the seller.
Section 11 is followed by Section 12(1) of the Contracts Act 1950 which provides
that „a person is said to be of sound mind for the purpose of making a contract if,
at the time when he makes it, he is capable of understanding it and of forming a
rational judgement as to its effect upon his interests‰.
Further, Section 12(2) and (3) state that „a person who is usually of unsound
mind, but occasionally of sound mind, may make a contract during the period
when he is sound. Conversely, a person who is usually of sound mind, but
occasionally of unsound mind, may not make a contract when he is of unsound
mind‰.
TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) 55
Illustration (b)
A sane man, who is delirious from fever, or who is so drunk that he cannot
understand the terms of a contract, or form a rational judgment as to its effect
on his interest, cannot contract whilst such delirium or drunkenness lasts.
Illustration (a)
The Contracts Act 1950 does not state the status of contracts entered into by
persons of unsound mind. Under English common law, the contract is voidable if
the fact of mental disorder or intoxication can be proven, and the other party
knew this. Thus, the drunken person can ratify contracts when sober, as in the
above case of Matthew.
56 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)
SELF-CHECK 4.1
ACTIVITY 4.1
Discuss the following cases by applying the principles of law on
capacity to contract:
(a) Alan is a college university student, aged 17. He had difficulty
in coming to the college and decided to purchase a Modenas
(the national motorcycle of Malaysia) from Ismail. Alan paid
RM500 as deposit for the motorcycle and promised to pay the
balance of the purchase price in two weeks time. After two
weeks, Alan failed to come up with the balance and Ismail
wanted to claim the payment from Alan. At the same time,
Alan, who was in need of money, had disposed the motorcycle
to his other friend, Rani. Can Ismail succeed in his claim?
Discuss.
(b) Norman, aged 17, enters into a contract of apprenticeship with
Roy to become an enterpreneur in a health product. For that
purpose, Norman is given training on marketing the product.
An outlet is provided for Norman to carry out this task and
goods worth RM10,000 are ordered for Norman. Later, Roy
has difficulty supervising NormanÊs training and disagreement
arises between them. Norman is not happy and decides to
withdraw himself from the training. Roy is not happy either
and brings an action for damages for breach of contract of
RM20,000. Discuss the legal action that can be taken by Roy
against Norman.
TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT) 57
However, the supplier of necessaries may only claim a reasonable price from
the minor.
A minor is only liable to pay from his property and is not personally liable.
The burden to prove that goods or services supplied are necessaries is on the
supplier.
Capacity Necessaries
Insurance Reimbursement
Minor Scholarship
Marriage contract Sound mind
58 TOPIC 4 LAW OF CONTRACT (CAPACITY TO CONTRACT)
Text Books:
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Cases:
INTRODUCTION
Previous chapters have discussed the important elements to form a valid
contract. Apart from the elements, free consent of the parties to enter into
contract is also essential in determining the legality of the contract. As provided
by Section 10(1) of the Contracts Act 1950 that „all agreements are contracts if
they are made by the free consent of parties competent to contract.....‰. There are
various factors which can affect an agreement once it has been formed. These
factors which affect the true consent of one or both parties may release the party
from contractual obligation. Under Section 13 of the Contracts Act, 1950, „two or
60 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
more persons are said to consent when they agree upon the same thing in the same
sense‰. Therefore, under Section 14, consent must be free and not caused by :
Coercion (Section 15);
Undue influence (Section 16);
Fraud (Section 17);
Misrepresentation (Section 18); or
Mistake (Section 21, 22 and 23).
5.1 COERCION
Coercion under Section 15 of the Contracts Act 1950 means „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 means, if a person commits or threatens to commit any act forbidden under the
Penal Code 1950 (the criminal law of the country) with the intention to make the
other party enter into a contract with him, then he is said to have employed
coercion.
Coercion under Section 15 covers the common law „duress‰ which means actual
violence or threats of violence to the contracting party. In the case of:
Kesarmal s/o Letchman Das v. Valiappa Chettiar [1954] MLJ 119, the Court
held that a transfer executed under the order of the Sultan, issued under
duress of two Japanese officers during the Japanese Occupation of Malaya
was invalid.
In the case, consent was not freely given and the transfer became voidable at the
will of the party whose consent was so caused.
In another case of Chin Nam Bee Development Sdn Bhd v. Tai Kim Choo & 4
Ors. [1988] 2 MLJ 117, the respondents purchased houses to be constructed
by the appellants. Each respondent had signed a sale and purchase
agreement to purchase a house at RM29,500. The respondent was then made
to pay an additional amount of RM4,000. The issue was whether the
additional payment was made voluntarily or under threat by the appellants
to cancel the respondentsÊ booking.
The Court held that the payment was not voluntary and had been made
under threat. There was coercion as defined in Section 15 of the Contracts
Act 1950.
The term „voidable‰ refers to an agreement which gives one or more parties but
not the other, the choice of either affirming or rejecting it. Thus, the agreement is
valid and binding until the party entitled to avoid it chooses to do so.
Based on the wording of Section 16(1), the two important aspects of undue
influence are:
(a) The domination of the will by one party over the other; and
(b) Obtaining an unfair advantage.
Illustration (a)
A, having advanced money to his son, B, during his minority, upon B's
coming of age, obtains, by misuse of parental influence, a bond from B for a
greater amount than the sum due in respect of the advance. A employs undue
influence.
TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT) 63
Illustration (b)
Undue influence applies to every case where influence is acquired and abused, or
where confidence is reposed and betrayed.
T (an Oxford undergraduate), aged 23, was being pressed to pay his college
debts. He asked his great-uncle to advise him how he should find the means
to pay. The great-uncle was unable to advise in person, owing to ill health,
thus, he deputed the defendant (his nephew) to do so. Conversations took
place between T and the defendant in which T expressed the desire to sell part
of his estate. The defendant offered to buy it for £7000. Before the sale was
completed, the defendant obtained a report from a surveyor on the property
and it was valued at £20,000. The defendant did not disclose this fact to T, but
proceeded with the purchase.
It was held that the purchase must be set aside. The defendant, having been
asked to give advice, stood in a confidential relationship to T. This prevented
him from becoming a purchaser of the property without the fullest
communication of all material information which he had obtained as to its
value.
64 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
Another example of a case where a confidential relationship arises is the case of:
In the case of Che Som bt Yip & Ors v. Maha Pte Ltd & Ors [1989] 3 MLJ 468,
the Court held that the charge document that has been signed by the third
plaintiff who was of unsound mind could be set aside at his option.
Illustration (c)
In case where undue influence is shown to exist, the presumption of its exercise
can be rebutted by proof that the party reposing the confidence has formed a free
judgement, independent of any kind of control. The way to establish this is by
showing that the person has received independent legal advice and took it.
The defendant, an elderly farmer, and his only son, had been customers of
the plaintiff bank for many years. The son founded a company which banked
at the same bank. In 1966, the defendant guaranteed the companyÊs overdraft
for £1,500 and charged his farm to the bank to secure that sum.
Subsequently, the overdraft was increased and the bank sought further
security. In May 1969, the defendant took legal advice and signed a further
guarantee in favour of the bank for £5,000 and a further charge for £6,000. In
December 1969, the bank manager visited the defendant and indicated to
him that the continuance of the companyÊs overdraft facility was dependent
upon the defendant executing in favour of the bank a further guarantee for
£11,000 and a further charge for £3,500. The bank manager did not advise the
defendant to seek independent advice, and the defendant signed the
required guarantee and charge without such advice.
The Court of Appeal held that the last guarantee and charge should be set
aside for undue influence because a special relationship of confidence
existed between the defendant and the bank in the particular case.
66 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
The Court held that a confidential relationship existed between the plaintiff
and B and C. The burden of proof therefore lay on B and C to show that the
plaintiff fully understood the transaction and executed the conveyance freely
and without being subject to undue influence. Since B and C failed to
discharge the burden, the transaction was set aside.
Datuk Jaginder Singh & Ors. v. Tara Rajaratnam [1983] 2 MLJ 196.
The respondent was the registered proprietor of a piece of land. She claimed
that she was induced by fraud and undue influence of the first and second
appellant to transfer her land to the second appellant.
The Federal Court held that the appellants and respondent were in a solicitor-
client relationship and the transaction was unconscionable. Therefore, the
burden was on the appellants to rebut the presumption of undue influence. In
this case, the appellants had not discharged that burden and thus the
transaction was set aside.
SELF-CHECK 5.1
1. What is meant by coercion?
2. What are the important ingredients to establish undue
influence?
3. What is the legal effect of a contract made under coercion and
undue influence?
4. Who must prove that a contract is not induced by undue
influence?
5. In what type of relationship is a person said to be in a position
to dominate the will of another in a contract?
6. What is the importance of independent legal advice in undue
influence cases?
ACTIVITY 5.1
5.3 FRAUD
Fraud refers to acts committed by a party to a contract with the intent to deceive
the other contracting party. According to Section 17 of the Contracts Act 1950,
„fraud includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agent, with intent to deceive another party thereto
or his agent, or to induce him to enter into the contract:........‰.
(a) „The suggestion, as to a fact, of that which is not true by one who does not
believe it to be true.‰
It means fraud will exist when the party to a contract is suggesting a fact
which is not true to another party, and he himself knows that the fact is not
true. In the case of:
The Court held that the evidence clearly showed that the defendant
had exercised fraud and therefore the plaintiff was entitled to rescind
the contract.
(b) „The active concealment of a fact by one having knowledge of belief of the
fact.‰
Illustration (c)
The plaintiff sued for damages arising from the defendantÊs fraud in letting to
the plaintiff a house which he knew for immediate occupation (without
disclosing that it was in a ruinous condition).
The Court rejected the claim and held that there was nothing amounting to
deceit (fraud).
70 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
The above statement means, there are circumstances in which failure by one
party to speak out may amount to fraud.
Firstly, where there is a legal duty to disclose the material facts (duty of
disclosure) to the other party in a contract. This duty arises where the
relationship between the contracting parties is in the nature of fiduciary
relationship, as in a solicitor-client relationship. For instance:
B is AÊs daughter and has just come of age. Here, the relation between the
parties would make it AÊs duty to tell B if the horse is sound.
B says to A, „If you do not deny it, I shall assume that the horse is sound‰. A
says nothing. Here, AÊs silence is equivalent to speech.
(Here, the act of A keeping silence means approving BÊs statement that the
horse is sound).
This means, if the party who was deceived has the means or capable of
investigating the truth of the facts given by the other party, by taking reasonable
appropriate measures, then the untruth facts cannot render the contract void.
Thus, the contract cannot be rescinded. In the case of:
Tan Chye Chew & Anor v. Eastern Mining & Metals Co Ltd [1965] 1 MLJ
201,
The Court held that the respondent had sufficient means to carry out his
own inspection or investigation in determining the truth of the facts in their
contract. Thus, there was no fraud on the appellantÊs part.
This means, the false statement does not give rise to a cause of action if it has not
induced or caused the other party to enter into the contract. The representee must
have relied on the statement of the representor. In the case of:
The burden of proving fraud lies on the party making the claim.
5.4 MISREPRESENTATION
Misrepresentation refers to an untrue statement made by a representor and that
induces the other party to enter into a contract. Misrepresentation under Section
18 of the Contracts Act 1950 includes:
(a) „The positive assertion, in a manner not warranted by the information of
the person making it, of that which is not true, though he believes it to be
true.‰
72 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
The Court held that the statement was merely of an opinion which
the appellant honestly held. The claim to rescind the contract failed.
This means, the act of misrepresentation does not give rise to a cause of action if
it has not induced or caused the other party to enter into the contract. The
representee must have relied on the statement of the representor.
SELF-CHECK 5.2
1. What is meant by fraud and misrepresentation?
2. What is the difference between fraudulent misrepresentation
and innocent misrepresentation?
3. What is the legal effect of a contract made under fraud and
misrepresentation?
4. What is meant by „silence is no fraud‰?
5. Is there any exception to the above principle?
6. Under what circumstance a contract cannot become voidable
by reason of fraud and misrepresentation?
7. What is the implication of not exercising oneÊs ordinary
diligence to discover the truth of a statement made in a
contract under fraud and misrepresentation?
74 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
ACTIVITY 5.2
Discuss the following problems by applying the principles of law on
consent of the contracting parties:
(a) Tim is a mechanic who wishes to take a partner into his business.
During negotiations between Tim and Kyra, Tim states that the
income of the business is RM60,000 a year. The accounts which
Tim produces show that the income is not quite RM60,000 a year
and Kyra asks about the balance. Tim then produces further
accounts to show how the figure is made up. However, Kyra
does not examine the accounts in detail and agrees to become a
partner. Later, Kyra discovers the true position and seeks to
rescind the contract on the ground of fraud. Advise Tim.
(b) Jade was induced to lend money to a company by a
representation made by its directors that the money would be
used to improve the companyÊs buildings and generally expand
the business. In fact, the directors intended to use the money to
pay off the companyÊs existing debts because the creditors were
pressing hard for payment. Jade then discovered that she had
been misled and sought the legal advice to sue the directors for
damages for fraud and misrepresentation. Advise Jade.
5.5 MISTAKES
Mistake under the Contracts Act 1950 includes a mistake as to a matter of fact (by
one or both contracting parties) and mistake as to any law in force or not in force
in Malaysia. Sections 21 and 23 of the Contracts Act 1950 provide for the effect of
a contract entered into under a mistake of fact. Under Section 21, both parties to
the contract are under a mistake of fact, and under Section 23, only one of the
parties is under a mistake of fact which is essential to the contract made.
The above provisions provide that if the mistake of fact is done by both parties in
a contract, the contract will be void. But if the mistake is done by one of the
TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT) 75
parties to a contract, then the contract will not be voidable. Examples of cases are
illustrated below:
A agrees to buy from B a certain horse. It turns out that the horse was dead at
the time of the bargain, though neither party was aware of the fact. The
agreement is void.
A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead
at the time of the agreement, but both parties were ignorant of the fact. The
agreement is void.
Section 21 of the Contracts Act 1950 covers the English common law classification
of common mistake and mutual mistake. Common mistake occurs when both
parties make the same mistake as to the subject matter of the contract, while
mutual mistake occurs when both parties misunderstand each other. In the case
of:
Section 23 covers the unilateral mistake in English common law. The example of
case is:
B made a successful bid at an auction for the sale of a public house under
the mistaken belief that a certain field was included in the lot when in fact,
it was not. The contract was held to be valid by the English court.
For example:
Illustration
Thus, if the mistake is made by the contracting parties as to the law in force in
Malaysia, the contract is not voidable. But if the mistake is made as to the law not
in force in Malaysia, then the contract is void.
However, there is an exception in English law that allows the defence of non est
factum, and the Malaysian courts applied the principle in the local cases. Non est
factum means „it is not his deed‰. Thus, it is a plea that the agreement is not the
act of the person. In the case of:
Awang bin Omar v. Haji Omar & Anor [1949] MLJ Supp 28,
The plaintiff and the second defendant entered into a contract and the
performance was guaranteed by the first defendant (who was induced by the
second defendant, to sign a document). The first defendant did not know
English and he was persuaded to sign in the mistaken belief that he was
merely witnessing his brotherÊs signature.
The High Court ruled that there was a mistake as to the nature of the
document signed and therefore, the first defendant was not liable.
Illustration (a)
Section 30 of the Specific Relief Act 1950 also provides remedy of rectification in
cases where the parties made a contract under a mistake and the contract does
not accurately record the true intention of the parties.
It is also important that the order to rectify must not be prejudicial to the rights of
an innocent third party. An example is provided in the illustration below:
Illustration (a)
A, intending to sell to B his house and one of three godowns adjacent to it,
executes a conveyance prepared by B, in which, through BÊs fraud, all three
godowns are included. Of the two godowns which were fraudulently
included, B gives one to C and lets the other to D for rent, neither C nor D
having any knowledge of the fraud. The conveyance may, as against B and C,
be rectified so as to exclude from it the godown given to C, but it cannot be
rectified so as to affect DÊs lease.
Under the English common law, the remedy of rectification is available in equity.
The local case below is a case where rectification of a document was granted to
the claimant.
The appellant, Lin Hong shin (and his predecessors) had always been
in possession of the middle lot. A third party and his predecessors had
always been in possession of the bottom lot. By mistake, the
predecessor of the appellant was registered as owner of the top lot, and
the predecessors of the claimant-respondent as owners of the middle
lot.
The High Court ruled that the mistake was common to all parties, so
that it could rectify the instrument so as to express the real intentions.
TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT) 79
SELF-CHECK 5.3
ACTIVITY 5.3
Discuss the following cases by applying the principles of law on free
consent of the contracting parties:
(a) Nadia agrees to buy a camera and Hans agrees to sell the same.
Explain how the mistakes in the following would affect the
contract:
(i) Nadia believes that she is obtaining credit over four
months whereas Hans believes that it is a cash sale.
(ii) Nadia believes that he is buying from Vince and not from
Hans.
(b) Mr Sam advertised his „Durian Orchard‰ for sale. Kamal was
one of those who was interested in the orchard because he had
seen Mr Sam using the adjacent field to graze cows. Kamal
always wanted to graze cows that would bring him profit apart
from maintaining the orchard. Later, Kamal obtained the details
of the sale advertisement which clearly stated that the field in
question was not part of the sale since it did not belong to Mr
Sam. Kamal did not read this statement and believed that the
field would be included in the sale. Kamal then bought the
orchard from Mr Sam. After the sale was completed, Kamal
discovered that the field was not included in the sale and
intended to set aside the contract. Advise Kamal.
80 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
Coercion Mistake
Fiduciary relation Ordinary diligence
Fraud Real/apparent authority
Free consent Rectification
Mental capacity Undue influence
Misrepresentation Voidable contract
Text Books:
Guest, A. G. (1988). AnsonÊs Law of Contract (26th ed.). Singapore: Oxford
University Press.
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Wu, M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Awang bin Omar v. Haji Omar & Anor [1949] MLJ Supp 28.
Bisset v. Wilkinson [1927] AC 177.
Che Som bt Yip & Ors v. Maha Pte Ltd & Ors [1989] 3 MLJ 468.
Chin Nam Bee Development Sdn Bhd v. Tai Kim Choo & 4 Ors. [1988] 2 MLJ
117.
Datuk Jaginder Singh & Ors. v. Tara Rajaratnam [1983] 2 MLJ 196.
Keates v. Lord Cadogan (1851) 10 C.B. 591.
Kesarmal s/o Letchman Das v. Valiappa Chettiar [1954] MLJ 119.
Letchemy Arumugam v. Annamalay [1982] 2 MLJ 198.
Lim Hong Shin v. Leong Fong Yew (1918) 2 FMSLR 187.
82 TOPIC 5 LAW OF CONTRACT (FREE CONSENT TO CONTRACT)
INTRODUCTION
Section 2(g) of the Contracts Act 1950 provides that „an agreement not
enforceable by law is said to be void‰. Under Section 24, the consideration or
object of the agreement is unlawful (see Figure 6.1) when it: -
(a) is forbidden by law;
(b) defeats the provisions of any law;
(c) is fraudulent;
(d) implies injury to person or property of others; or
(e) is regarded as immoral or opposed to public policy.
84 TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT)
Whereas Section 27 of the Contracts Act considers an agreement which affects the
freedom and stability of marriage of any person as void. Section 28 makes an
agreement that restrains trade transaction as void agreement. The same also
applies to an agreement that restricts a person from enforcing his absolute rights
under any law or limits the time for a person to enforce his rights. These kinds of
agreements are regarded as void according to Section 29 of the Contracts Act,
1950.
An example of this is Section 31 of the Contracts Act 1950 which states that any
wager contract is void and no legal action can be taken to recover money won
out of such wager. The same is also stressed in Section 26 of Civil Law Act 1956.
It provides that all agreements, either made orally or written, by way of gaming
or wagering shall be null and void. No legal action can be taken to recover
money or valuable things won out of the same.
TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT) 85
In the case of Rasiah Munusamy v. Lim Tan & Sons Sdn Bhd [1985] 2 MLJ 291,
the respondent orally agreed to sell and transfer a house to the appellant,
which the respondent undertook to build. However, the agreement
contravened Rule 12(1) of the Housing DeveloperÊs (Control and Licensing)
Rule 1970 which requires every contract of sale to be in writing.
The Court held that there was nothing in the rules which provided that verbal
agreement was invalid. The court further held that although the oral
agreement contravened Rule 12(1), the appellant-purchaser clearly belonged
to a class for whose protection the statutory prohibition was imposed.
Therefore, he could enforce it.
Chung Khiaw Bank Ltd. v. Hotel Rasa Sayang Sdn. Bhd. & Anor [1990] 1 MLJ
356.
The appellants extended loans to the respondents and the loan was secured by
documents and guarantees. The documents evidencing the loans showed that
the hotel whose shares were being purchased by a company had given
financial assistance to that company. This act contravened Section 67 of the
Companies Act 1965.
The Court held that: The transactions were tainted with illegality.
The plaintiff entered into an agreement with the defendant for a purchase of a
piece of land held under Temporary Occupational License (TOL). The
defendant breached the contract and the plaintiff claimed for specific
performance of the agreement. The agreement, however, was in contravention
of Rule 41 of the Land Rules 1930 which provides that a licence for temporary
occupation of a state land shall not be transferable.
The Court held that the agreement was an attempt to sell a land under the
TOL. Such an attempt if allowed would frustrate the law. Therefore, it was
unlawful by reason of Section 24 of the Contracts Act.
86 TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT)
The defendant held a logging licence in Pahang under the Forest Rules 1935
which prohibited transfer without written approval from the District Forest
Officer. The defendant agreed to assign his rights under the licence (to extract
timber) to the plaintiff.
A, B and C enter into an agreement for the division among them of gains
acquired, or to be acquired, by them by fraud. The agreement is void, as its
object is unlawful.
In the case of Syed Ahamed Alhabsyee v. Puteh bt Sabtu (1922) 5 FMSLR 243),
The defendant, who was a trustee of a piece of land belonging to a minor, had
agreed to sell it to the plaintiff. Since the sale of the land, if allowed, would
affect the interest of the minor, the Court held that the transaction was void.
TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT) 87
Immoral Contracts
Public Policy
The Court held that the money lent for the purpose of brothel business
was not recoverable for illegality. The object of the agreement was
clearly immoral.
88 TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT)
SELF-CHECK 6.1
1. When does a consideration or an object of an agreement become
unlawful?
2. What kind of contracts are regarded as against public policy?
3. What is the status of a contract with an unlawful object or
consideration?
ACTIVITY 6.1
1. Joey, a remisier, paid RM20,000 to Harry, the Director of a few
listed companies, for „insider information‰ which he intended to
use in determining how to invest his clientsÊ funds. Insider
trading is an offence under Section 132A of the Companies Act
1965. Harry has since failed to provide any information to Joey
and has indicated that he has no intention of ever doing so.
Advise Joey as to whether he could recover the RM20,000 paid to
Harry.
Under common law, any contract that prevents a person from practising a
profession, trade or any lawful business is enforceable provided the restraint is
reasonable. In other words, English common law only invalidates contracts with
unreasonable restraint. However, in Malaysia, Section 28 clearly provides that a
TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT) 91
contract which prevents a person from exercising lawful profession, trade or any
kind of business is void.
There are three exceptions under Section 28. Those exceptions are as follows:
(a) Exception 1
One who sells the goodwill of a business may agree with the buyer to
refrain carrying on a similar business, within specified local limits, so long
as the buyer, or any person deriving title to the goodwill from him, carries
on a like business therein: Provided that such limits appear to the court
reasonable, regard being had to the nature of the business.
(b) Exception 2
Partners may, upon or in anticipation of dissolution of the partnership,
agree that some or all of them will not carry on a business similar to that of
the partnership within such local limits.
(c) Exception 3
Partners may agree that some one or all of them will not carry on any
business, other than that of the partnership, during the continuance of the
partnership.
In the case of Corporation Royal Exchange v. Teck Guan (1912) 2 FMSLR 92,
„If the claim be made and rejected, and an action or suit be not commenced
within three months after such rejection, all benefit under this policy shall be
forfeited.‰
The Court held that this clause reduced the period within which an assured
might bring a suit for compensation to a period less than that sanctioned by
the limitation statute. Thus, the clause infringed Section 28 of the Contracts
Enactment (now Section 29 of the Contracts Act 1950) and was to that extent,
void.
92 TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT)
(a) Exception 1
This section shall not render illegal a contract by which two or more
persons agree that any dispute which may arise between them in respect of
any subject or class of subjects shall be referred to arbitration, and that only
the amount awarded in the arbitration shall be recoverable in respect of the
dispute so referred.
(b) Exception 2
Nor shall this section render illegal any contract in writing, by which two or
more persons agree to refer to arbitration on any question between them
which has already arisen, or affect any law as to references to arbitration.
(c) Exception 3
Nor shall this section render illegal any contract in writing between the
Government and any person with respect to an award of a scholarship by
the Government wherein it is provided that the discretion exercised by the
Government under that contract shall be final and conclusive and shall not
be questioned by any court.
The plaintiff bought a share in three tickets from the defendant. One of the
tickets won a prize which was not paid in full by the defendant. The plaintiff
sued for the balance but the defendant claimed illegality of the contract,
being a wager.
The Court held that an agreement for the purchase of a share in a ticket in a
public lottery was illegal and not merely void. Therefore, the plaintiff was a
party to an illegal agreement and she could not maintain an action based on
the agreement.
In Ahmad bin Udoh & Anor v. Ng Aik Chong [1970] 1 MLJ 82,
The respondent and the appellants entered into an agreement for a lease of
paddy field for a period of six years and $1500 was paid pursuant to the
agreement. The agreement was illegal, contravening Section 3(1) of the
Paddy Cultivators Ordinance. Subsequently, the appellants refused to allow
the respondent to till the land. The respondent took legal action to recover
the sum paid to the appellants and the appellants claimed illegality of the
agreement.
The Federal Court held that the parties were ignorant of the fact that they
were executing an illegal agreement. Hence, Section 66 would apply and the
respondent was entitled to recover the deposit paid.
„if any part of a single consideration for one or more objects, or any one or any
part of any one of several considerations for a single object, is unlawful, the
agreement is void‰.
94 TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT)
That means, if the considerations of the contract are partly lawful and partly
unlawful, the whole agreement is void if it is not possible to sever the
considerations. For example:
Illustration
Illustration
A agrees to sell a house to B and B agrees to buy it for $10,000. But if B uses it
as a gambling house, he will instead pay $50,000. The first set of reciprocal
promises for sale of the house at $10,000 is a contract while the second set is
void.
TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT) 95
SELF-CHECK 6.2
ACTIVITY 6.2
Discuss the following problems by applying the relevant principles
of law:
Text Books:
Guest, A. G. (1988). AnsonÊs Law of Contract (26th ed.). Singapore: Oxford
University Press.
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
TOPIC 6 LAW OF CONTRACT (VOID AND ILLEGAL CONTRACT) 97
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Wu, M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Ahmad bin Udoh & Anor v. Ng Aik Chong [1970] 1 MLJ 82.
Aroomogum Chitty v. Lim Ah Hang (1894) 2 SSLR 80.
Chung Khiaw Bank Ltd. v. Hotel Rasa Sayang Sdn. Bhd. & Anor [1990] 1 MLJ
356.
Corporation Royal Exchange v. Teck Guan (1912) 2 FMSLR 92.
Foster v. Driscoll [1929] 1 KB 470.
Hee Cheng v. Krishnan [1955] MLJ 103.
Parkinson v.College of Ambulance Ltd & Harrison [1925] 2KB 1.
Rasiah Munusamy v. Lim Tan & Sons Sdn Bhd [1985] 2 MLJ 291.
Seong Sam v. Goon Food On (1933-34) FMSLR 169.
Syed Ahamed Alhabsyee v. Puteh bt Sabtu (1922) 5 FMSLR 243).
Tan Bing Hock v. Abu Samah [1968] 1 MLJ 221.
Wrigglesworth v. Anthony Wilson [1964] MLJ 269.
T op i c Law of
7
Contract
(Discharge of
Contract and
Remedies)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the various ways by which a contract may be
discharged;
2. Explain the lawful and unlawful ways of discharging a contract;
3. Discuss the remedies available to the parties in a contract;
4. Identify the circumstances under which remedies may not be
granted;
5. Explain the requirement of principles in various remedies
available; and
6. Distinguish the importance of each remedy in a contract.
INTRODUCTION
This topic explains the situations in which contracts can be discharged and the
remedies available to the parties in a contract. When a contract is terminated, it is
said to be discharged and the contracting parties are free from further obligations
arising from it. A contract may be discharged by any one of the following ways:
(a) Discharge by consent or agreement between parties;
(b) Discharge by performance;
TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES) 99
„if the parties to a contract agree to substitute a new contract for it, or to rescind
or alter it, the original contract need not be performed‰.
Illustration (a)
The consideration for the new agreement is the mutual discharge of the original
contract and consent of all parties is secured. For example:
100 TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES)
Illustration (c)
Illustration (b)
„every promisee may dispense with or remit, wholly or in part, the 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.‰
The provision allows the party to remit the performance of the contract, which
will apply to the following situations:
Illustration (b)
Illustration (d)
Illustration (e)
A third party, the son of the appellant debtor, made an offer of $4,000 to
the creditorÊs solicitor in discharge of $8,650 (on the condition that the
creditor could either return the cheque to the offeror or retain it and
discharge the debtorÊs debt).
The Court held that the creditorÊs conduct in cashing the cheque and
retaining the money would be considered an agreement to discharge
the debtor from any futher liability.
„promises bind the representatives of the promisors in case of the death of the
promisors before performance, unless a contrary intention appears from the
contract‰.
Illustration (a)
Illustration (b)
It means that with the promiseeÊs consent, a contract will continue to exist even
though promisorÊs act has already amounted to a breach of the contract.
The question "what is a reasonable time" is, in each particular case, a question of
fact.
In Section 48,
For instance:
Illustration
„when a promise is to be performed on a certain day, and the promisor has not
undertaken to perform it without application by the promisee, it is the duty of
the promisee to apply for performance at a proper place, and within the hours of
business‰.
Yeoh Kim Pong (Realty) Ltd v Ng Kim Pong [1962] MLJ 118
In this case, the developer appellant was supposed to perform certain
obligations for the respondent. Nevertheless, the appellant delayed in
performing their obligation. Although the appellant was late, the
respondent allowed the delivery dates to pass by agreeing to the work
being done by the appellant and by further ordering extra work.
Held: The respondent cannot rescind the contract because he had waived
his right to do so by allowing the appellant to still perform the obligation
after the time had passed. Thus, the respondent had to treat the contract as
subsisting.
Illustration
Central Malaysia Development Ltd v Chin Pak Chin [1967] 2 MLJ 174
There was an agreement for the sale of land where the defendant-vendor was
to execute a valid transfer and deliver vacant possession of the land to the
plaintiff upon paying the deposit.
„if it is the intention of the parties that the contract should be performed by the
promisor himself, then it must be performed by him personally‰.
Chin Swee Onn v Puchong Realty Sdn. Bhd [1990] 1 MLJ 108
The parties agreed to transfer land to each other, the consideration for
the appellantÊs parcel being $25,000 and that of the respondentÊs, $14,000.
It was also agreed that the difference of $11,000 would be settled by two
sons of the respondent; one would be responsible for $4,000 and the
other for $7,000. The $7,000 was not paid and the appellant thereupon
claimed payment from the respondent.
Illustration (a)
Impossibility after a contract has been made (under Section 57(2)) means, a
contract becomes impossible to perform subsequent to its making. Section 57(2)
of the Contracts Act 1950 states,
This principle covers the doctrine of frustration in common law. The frustration
doctrine is applied on the ground that there is supervening impossibility which
causes the whole purpose of a contract to be different from what was undertaken
by the contract or its performance has become unlawful. Therefore, frustration
refers to circumstances that occur, where there is no default by the contracting
TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES) 107
The defendant agreed to let the claimant have the use of a music hall
for the purpose of holding four concerts. Before the first concert was
due to be held, the hall was destroyed by fire without negligence by
any party. The claimant sued for damages for wasted advertising
expenses.
(b) Supervening events defeat the whole purpose or object of the contract. As
in the case of:
Held: The defendant could be excused from paying rent for the room as the
contract was frustrated. The fact that the procession had been cancelled
discharged the parties from their obligations, since it was no longer possible
to achieve the real purpose of the agreement.
108 TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES)
For example:
Illustration (d)
Section 15 of the Civil Law Act 1950 (Revised 1972) is also relevant to frustration
contract. Section 15(2) provides that money due but not paid before frustration
ceases to be payable. But if the money has actually been paid, it must be restored.
If the party in the contract has incurred expenses in performing the contract
TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES) 109
before frustration, the court has the discretion to order payment not exceeding
the amount of the said expenses.
Illustration (a)
A is a singer, and enters into a contract with B, the manager of the theatre,
to sing at his theatre two nights a week during the next two months. B
engages to pay her $100 for each nightÊs performance. On the sixth night, A
wilfully absents herself from the theatre. B is at liberty to put an end to the
contract.
Ban Hong Joo Mine Ltd v. Chen & Yap Ltd [1969] 2 MLJ 83
The party not in breach has the option either to continue or repudiate the
contract. If the party not in breach chooses to continue with the contract, the
obligation of both parties sustains and the party not in breach could still claim for
damages. As illustrated below:
110 TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES)
Illustration (b)
A, a singer, enters into a contract with B, the manager of a theatre, to sing at
his theatre two nights in every week during the next two months, and B
engages to pay her at the rate of $100 for each night. On the sixth night, A
wilfully absents herself. With the assent of B, A sings on the seventh night. B
has signified his acquiescence in the continuance of the contract, and cannot
now put an end to it, but is entitled to compensation for the damage sustained
by him through AÊs failure to sing on the sixth night.
SELF-CHECK 7.1
1. How can a contract be discharged?
2. What is the effect of novation?
3. Under what situations remission of performance is allowed to
the party in contract?
4. Is time of performance essential in a contract?
5. Can the performance of a contract be done by a third party?
6. What is the meaning of frustration in contract?
7. What are the circumstances under which a contract may be
discharged by supervening impossibility?
8. What is the effect of frustration?
9. What is meant by breach that entitles the party to discharge a
contract?
ACTIVITY 7.1
Discuss the following problems by applying the relevant principles of
law:
(a) An action was brought by Mr Fernando for damages for non-
acceptance of 5,200 bags of Moghul rice by Mr Roshan. The sold
note stated that the rice was to be shipped during the months of
November and/or December 2007. A total of 5,100 bags was put
on board ship on 31 October 2007, and the remaining 100 bags
on 3 November 2007. Mr Roshan refused to take delivery
because the rice was not shipped in accordance with the terms
of their contract. Discuss the rights of Mr Fernando and Mr
Roshan in the above contract.
TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES) 111
(b) Edward agreed to let Daw have a room for the purpose of viewing the
Parade for Visit Malaysia Year 2007 on 1 September 2007, for RM550. The
contract provided that the money be payable immediately. The
procession did not take place because of heavy rain and flood. Daw who
had paid RM300 on account, left the balance unpaid. Daw sued to
recover the RM300 and Edward counter-claimed for RM250. Advise the
parties on their rights in the above contract.
(c) Steve agreed in April 2007 to engage Smith as a courier for Malaysian
travel, his duties to commence on 1 June 2007. On 11 May 2007, Steve
wrote to Smith saying that he no longer required SmithÊs services.
Feeling unsatisfied, Smith decided to commence an action for breach of
contract on 22 May 2007. Steve contended that there was no cause of
action until the date due for performance. Advise Smith.
7.5 REMEDIES
In cases of breach of contract, the party not in default may claim one or more of
the following remedies:
(a) Rescission of contract;
(b) Damages;
(c) Specific Performance;
(d) Injunction; and/or
(e) Quantum Meruit;
7.5.2 Damages
The claim for damages in cases of breach of contract is provided under Sections
74 to 76 of the Contracts Act 1950. Section 74 provides the measure of damages
recoverable by the claimant. This section re-enacts the common law rule in the
case of Hadley v. Baxendale (1854) 9 Ex 341. The rule provides that an injured
party is entitled to the following:
(a) Damages arising naturally, that is, according to the usual course of things
resulting from the breach.
Held: The loss which arises naturally resulting from the breach by the
defendant is the loss of plaintiffÊs profit which is usually the difference
between the contract price and the market price.
(b) If the party is claiming special damages for loss, he must show that the
other party knew at the time of making the contract that the special loss is
likely to result from the breach. This is explained in the case of:
The defendant agreed to buy the plaintiffÊs car for RM6,390. However,
the defendant committed breach and the plaintiff had to sell his car to
another company at a cheaper price, RM4,477.69. Plaintiff later claimed
damages amounting to RM1,912.31, being the difference between the
selling price that he could get from the defendant and the actual selling
price that he acquired from another company.
Tham Chew Toh v. Associated Metal Smelters Ltd [1972] 1 MLJ 171
(c) The compensation given is not for any remote and indirect loss or damage
sustained as a result of the breach.
Mitigation of loss
It is also the duty of the party to take reasonable steps to mitigate losses flowing
from a breach. If the party has failed to mitigate losses, he cannot later recover
any loss flowing from his neglect. A case to illustrate this:
114 TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES)
Held: It was the duty of the respondent to take reasonable steps to mitigate
the damages caused by the appellant. There was „no need for the
respondent to have gone to the expense and trouble of buying logs from
elsewhere when the logs were lying a few hundred feet away and all that
required was additional expense for hauling them up to the sawmill.‰
Classification of Damages
Nominal Small token of award that is given when the plaintiff has
proved there is a breach, but he did not suffer actual loss.
(a) When the act agreed to be done is in the performance, wholly or partly, of a
trust.
Illustration
(b) When no standard exists to ascertain the actual damage caused by the non-
performance of the act agreed to be done.
Illustration
(c) An act agreed to be performed is such that its non-performance would not
afford adequate relief.
Illustrations
(iv) A contracts with B to paint a picture for B, who agrees to pay therefore
RM1,000. The picture is painted. B is entitled to have it delivered to him
on payment or tender of the RM1,000.
(d) When it is probable that pecuniary compensation cannot be obtained for the
non-performance of the act agreed to be done.
Illustration
Further, Section 20(1)(a) of the Specific Relief Act 1950 clearly states that specific
performance will not be granted where monetary compensation is adequate.
7.5.4 Injunction
Injunction as a remedy is classified under Part III of the Specific Relief Act 1950
as „Preventive Relief‰. It is granted at the discretion of the court and it can be
either „temporary‰ or „perpetual‰ (Section 50).
Section 51 of the Specific Relief Act 1950 explains the injunctions as follows:
The temporary injunction is granted by the court to preserve the status quo
pending the resolution of a legal action. A perpetual injunction can only be
granted after a full trial and upon the merits of a case, and the defendant is
permanently prohibited from doing the act or asserting a right for which the
injunction was granted. In the case of:
Neoh Siew Eng & Anor v. Too Cheng Kwong [1963] MLJ 272
Further principles in Section 55 of the Specific Relief Act 1950 provides that
where a contract consists of affirmative agreement and negative agreement, the
court cannot compel specific performance of the affirmative agreement but shall
grant injunction to perform the negative agreement. For instance:
118 TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES)
Illustration
A contract with B to sing for twelve months at BÊs theatre and not to sing
elsewhere. B cannot obtain specific performance of the contract to sing but he
may be able to secure an injunction to restrain A from singing at any other
place of public entertainment.
An example of case:
Pertama Cabaret Nite Club Sdn. Bhd v. Roman Tam [1981] 1 MLJ 149
A singer had signed a contract to appear and sing at the appellantÊs night
club for a number of days, and the contract provided that in the event of a
breach, the respondent should not perform in Kuala Lumpur during the
fixed period of the contract. Later, the singer dishonoured the contract by
singing in a rival club. The court had granted an interlocutory injunction.
SELF-CHECK 7.2
ACTIVITY 7.2
Agreement Injunction
Breach Performance
Damages Quantum Meruit
Discharge of contract Remedies
Frustration Specific performance
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Keenan, D. (2006). Smith and KeenanÊs Law for Business (13th ed.). UK: Pearson
and Longman.
Wu M. A. & Vohrah B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Ban Hong Joo Mine Ltd v. Chen & Yap Ltd [1969] 2 MLJ 83.
Central Malaysia Development Ltd v Chin Pak Chin [1967] 2 MLJ 174.
122 TOPIC 7 LAW OF CONTRACT (DISCHARGE OF CONTRACT AND REMEDIES)
Chin Swee Onn v Puchong Realty Sdn. Bhd [1990] 1 MLJ 108.
East Asiatic Co. Ltd v. Othman [1966] 2 MLJ 38.
H A Berney v Tronoh Mines Ltd [1949] MLJ 4.
Hadley v. Baxendale (1854) 9 Ex 341.
Kabatasan Timber Extraction Co. v. Chong Fah Shing [1969] 2 MLJ 6.
Kerpa Singh v Bariam Singh [1966] 1 MLJ 38.
Krell v Henry [1903] 2 KB 740.
Lee Hin v. Mohamed Abubakar [1958] MLJ 25.
Lee Kin v. Chan Suan Eng [1933] MLJ 197.
Neoh Siew Eng & Anor v. Too Cheng Kwong [1963] MLJ 272.
Pertama Cabaret Nite Club Sdn. Bhd v. Roman Tam [1981] 1 MLJ 149.
Taylor v. Caldwell (1863) B&S 826.
Tham Chew Toh v. Associated Metal Smelters Ltd [1972] 1 MLJ 171.
Yeoh Kim Pong (Realty) Ltd v Ng Kim Pong [1962] MLJ 118.
Topic Law of
8 Agency
(Part 1)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the meaning of agency;
2. Explain the purpose of agency contract;
3. Describe the types of agency contract;
4. Explain the statutory requirements for creation of agency contract;
and
5. Discuss the scope of authority of the agent.
INTRODUCTION
The relationship between a principal and an agent is very important because at
times, a person needs help and assistance from another person to act on his
behalf or become his proxy to perform certain acts. For example, where a person
intends to sell his land, he may need the service of a real estate agent to sell the
land on his behalf. The owner will then authorise the real estate agent to deal
with the land. This is where the agency relationship comes into existence. In
Malaysia, the law of agency is governed by Part X of the Contracts Act 1950.
Section 135 of the Act defines an „agent‰ as „a person employed to do any act for
another or to represent another in dealings with third persons‰, and a „principal‰
as „the person for whom such act is done, or who is so represented‰. From the
definition above, it can be said that the contract of agency is divided into two:
124 TOPIC 8 LAW OF AGENCY (PART 1)
(a) A contract between the principal and agent, where the agent attains the
authority to act for and on behalf of the principal; and
(b) A contract between the principal and third party through an agent.
An agent can therefore enter into contracts with third parties that are binding on
the principal.
8.1 CAPACITY
Section 137 of the Contracts Act 1950 provides a requirement for a person to
become an agent. According to the provision,
„any person may become an agent, but no person who is not of the age of
majority and of sound mind can become an agent, so as to be responsible to his
principal‰.
For example, A hires B, who is 16 years old, to buy goods from C on his behalf. C
supplies the goods to A through B, but B sells the goods for his benefit. A cannot
deny his responsibility to C on the ground that B is a minor. A is still liable to C
for the payment of the goods and A cannot claim damages from B.
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For example, A stays in Shah Alam and has a shop in Kuala Lumpur. Most of the
time, B, who manages the shop, orders and pays for goods from Y, using AÊs
name. Here it is clear that B has an implied authority from A, as an agent to deal
with Y in purchasing goods for the shop.
There are, however, situations where the authority given under the express
appointment by the principal does not specify the extent of the agentÊs authority.
In such a case, an agent who has been authorised to do certain acts, will have the
authority to do other acts, which are connected to the authorised act. This
principle is laid down in Section 141(1) of the Act that says,
„an agent having an authority to do an act has authority to do every lawful thing
which is necessary in order to do the act‰.
The Court held that even though the agent was not expressly authorised to
receive deposits from prospective buyer, he was presumed to have acted
under the ambit of implied authority of an agent.
In the event of the above, Section 149 of the Contracts Act 1950 provides that,
„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‰.
In Muthuchellapa Chettiar v. Indian Overseas Bank Ltd [1952] MLJ 25, part
payment on an overdraft by the principal (which had been arranged by the
agent without the principalÊs authority) was an implied ratification of the
loan.
However, such ratification by the principal can only be done under the following
conditions:-
(a) The unauthorised act must be recognised by the law and not a void
contract.
(b) At the time the contract was made, the agent must have acted as an agent
for the principal. Therefore the agent must disclose that the contract was
entered into on behalf of his principal.
It was held that the principal (Keighley) was not liable and could not
ratify the contract because at the time of the contract, the agent has acted
in his own capacity.
(c) At the time the contract was made, the agent must have actual principal in
existence.
(d) At the time of ratification, the principal must have full knowledge of the
material facts to be ratified, unless there is evidence to show that he does
not care of the facts that he intends to ratify. According to Section 151 of the
Contracts Act 1950, „no valid ratification can be made by a person whose
knowledge of the facts of the case is materially defective‰.
(e) The principal must ratify the whole contract. He cannot ratify only part
which is advantageous to him and reject the rest. Section 152 of the
Contracts Act 1950 provides „a person ratifying any unauthorised act done
on his behalf ratifies the whole of the transaction of which the act formed a
part‰.
TOPIC 8 LAW OF AGENCY (PART 1) 129
(f) Ratification must not affect, injure or terminate a third partyÊs rights.
Section 153 of the Contracts Act 1950 provides that „an act done by one
person on behalf of another......which.....would have the effect of subjecting
a third person to damages, or of terminating any right or interest of a third
person, cannot, by ratification, be made to have that effect‰.
(h) At the time the contract was made and at the time of ratification, the
principal must have contractual capacity.
„an agent has authority, in an emergency, to do all such acts for the purpose of
protecting his principal from loss as would be done by a person of ordinary
prudence, in his own case, under similar circumstances‰.
The Court held that: The plaintiff was entitled to damages because
the defendants were not agents of necessity. They have failed to
communicate with the plaintiff.
(b) The agent acted to prevent the principal from incurring loss or damages.
If the goods are not perishable goods like clothes or furniture, it will not
give rise to emergency situation that requires disposal of them. Therefore,
an agent who acted in such case will be liable for the loss suffered by the
principal.
(c) The agent acted in good faith for the interest of the principal.
The agent may be considered has acted in good faith to protect the interest
of the principal if he collects the payment from the third party in order to
prevent his principal from suffering losses, if the third party does not pay
certain amount after using services provided by the principal.
„when an agent has, without authority, done acts or incurred obligations to third
persons on behalf of his principal, the principal is bound by those acts or
obligations if he has, by his words or conduct, induced such third persons to
believe that those acts and obligations were within the scope of the agentÊs
authority‰.
TOPIC 8 LAW OF AGENCY (PART 1) 131
For instance, E tells X in the presence of P that he is PÊs agent and is authorised to
make contract on behalf of P. In actual fact, E is not PÊs agent. P does not deny EÊs
statement. When X sold goods to E, X may claim for the payment of the goods
from P, and P was estopped from denying the existence of EÊs authority.
It is important to know the extent of an agentÊs authority because any act done by
the agent within his authority will bind the principal. The agentÊs authority is
classified into:
(a) Actual authority; and
(b) Apparent authority.
„when an agent has, without authority, done acts or incurred obligations to third
persons on behalf of his principal, the principal is bound by those acts or
obligations if he has, by his words or conduct, induced such third persons to
believe that those acts and obligations were within the scope of the agentÊs
authority‰.
The Court held that the company (defendant) was liable for the contract of
hiring of motor vehicles made by the company secretary. Although the
company secretary exceeded his actual authority in hiring the motor vehicles
from the plaintiffs, the act was within the usual authority of a company
secretary, and it was considered as part of the company administration.
The principal is, therefore, precluded from denying the authority of the agent
because the element of estoppel applies. It is due to the representation made by
the principal to the third party that leads the third party to believe that the agent
has such authority.
In the case of Graphic Lines Pte Ltd v. Chai Chee Mein & Ors (1987) Nov.
ButterwothsÊ Digest,
The Court held that the assistant manager had apparent authority because the
general manager had represented to the plaintiffs that advertisements should
be done through the assistant manager.
TOPIC 8 LAW OF AGENCY (PART 1) 133
SELF-CHECK 8.1
1. Who is an agent?
2. Can a minor become an agent ?
3. What are the ways of formation of agency contract?
4. Must the appointment of an agent be done expressly?
5. Under what circumstances can the principal ratify his agentÊs act?
6. Does ratification of agency contract operate retrospectively?
7. What are the conditions for an agency by necessity to exist?
8. What is meant by agency by estoppel?
9. What is the importance of an authority to an agent?
10. What is the difference between actual authority and ostensible
authority?
134 TOPIC 8 LAW OF AGENCY (PART 1)
Agency arises from an agreement between the principal and the agent.
In the agreement, the principal authorises the agent to do things on behalf of
the principal.
The formation of an agency contract can be done through an express or
implied appointment, ratification, necessity or estoppel.
Agency by express appointment can be done verbally or in writing.
Agency by ratification arises when the principal accepts the contract made by
the agent who exceeds his authority or acts without authority.
A ratified contract is valid and effective from the date the contract was made.
Agency by necessity arises when there is an emergency situation which
would require the agent to act promptly.
Implied actual authority is the proper or necessary authority given to the
agent to execute the express authority.
Apparent authority arises where a principal makes the third party believes
that the agent has the authority to make contracts for the principal.
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu M. A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
136 TOPIC 8 LAW OF AGENCY (PART 1)
Cases:
Graphic Lines Pte Ltd v. Chai Chee Mein & Ors (1987) Nov. Butterwoths‰
Digest.
Grover & Grover v. Mathews [1910] 2 KB 401.
Keighley Maxted & Co. v. Durant [1901] AC 240.
Kelner v. Baxter (1866) LR 2 CP 174.
Muthuchellapa Chettiar v. Indian Overseas Bank Ltd [195] MLJ 25.
Panorama Development (Guilford) Ltd. v. Fidelis Furnishing Fabrics Ltd
[1971] 3All ER 16.
Springer v. Great Western Railway Company [1921] 1 KB 257.
Summers v. Solomon (1897) AC 22.
Watteau v. Fenwick [1893] 1 QB 346.
Topic Law of
9 Agency
(Part II)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. List the duties of agents and principals;
2. Describe the rights of agents and principals;
3. Discuss the effect of agency contract; and
4. Explain the rules of termination of agency contract.
INTRODUCTION
An agency relationship arises out of an agreement between the principal and the
agent. The agreement confers the rights and duties to the principal and agent,
whether express or implied. However, if the contract does not specify the rights
and duties of the parties, the provisions in Sections 164 to 178 of the Contracts
Act, 1950 will be applicable. The provisions in Section 164 to 174 govern the
duties of an agent to his principal and the provisions in Section 175 to 178 deals
with the principalÂs duties to his agent.
loss sustained, he must make it good to his principal, and if any profit
accrues, he must account for it‰.
The provision provides that an agent who fails to carry out his principalÊs
instructions will result in breach of contract and consequently, the agent
will be liable for any loss sustained by the principal. For example, the
principal instructed his agent to purchase certain goods at a certain price.
However, the agent purchased at more than the authorised price and as a
result, the agent was to be personally liable for the payment of the price of
the goods. If the principalÊs order is clearly illegal, the agent has no
obligation to obey the order.
In the case of Turpin v. Bilton (1843) 5 Man & G 455, an agent failed to
insure his principalÊs ship although he had been ordered to do so.
When the ships lost, the court decided that the agent was liable for the
losses.
"an agent is bound to conduct the business of his principal according to the
directions given by the principal, or, in the absence of any such directions,
according to the custom which prevails in doing business of the same kind
at the place where the agent conducts the business‰.
Therefore, the provision requires the agent to act according to the customs
which prevail in doing business of the same kind if there is no clear
instruction from the principal. Otherwise, he has to make good any loss
sustained by the principal.
TOPIC 9 LAW OF AGENCY (PART II) 139
Illustration (a)
Illustration (b)
3. Exercise care and diligence in carrying out his work and to use skill as he
possesses.
‰an agent is bound to conduct the business of the agency with as much skill
as is generally possessed by persons engaged in similar business, unless the
principal has notice of his want of skill. The agent is always bound to act
with reasonable diligence, and to use such skill as he possesses; and to
make compensation to his principal in respect of the direct consequences of
his own neglect, want of skill, or misconduct, but not in respect of loss or
damage which are indirectly or remotely caused by such neglect, want of
skill or misconduct‰.
The following case and illustrations explain the provision above. It means if
an agent failed to carry out his duty diligently, skilfully and with due care,
the agent must make good any loss sustained by the principal as result of
his act.
140 TOPIC 9 LAW OF AGENCY (PART II)
In the case of Keppel v Wheeler [1927] 1 KB 577, the plaintiff employed the
defendant to sell his house. The plaintiff received an offer and accepted it
„subject to contract‰. A few days later, X made a higher offer for the property
but the defendant did not communicate this offer to the plaintiff. As a result,
the first offer was signed.
The court held that the defendant was liable to the plaintiff for the difference
between the two offers.
Illustration (a)
Illustration (b)
A, an agent for the sale of goods, having authority to sell on credit, sells to B
on credit, without making proper and usual enquiries as to the solvency of B.
B, at the time of the sale, is insolvent. A must make compensation to his
principal in respect of any loss sustained.
Illustration (c)
Illustration (d)
This means the agentÊs duty is to account for all monies and the property
handled by him as agent for the principal and to produce such accounts
when demanded by the principal.
„the agent is bound to pay to his principal all sums received on his account
(subject to the deductions in Section 170)‰.
„an agent may retain, out of any sums received on account of the principal
in the business of the agency, all moneys due to himself in respect of
advances made or expenses properly incurred by him in conducting such
business, and also such remuneration as may be payable to him for acting
as agent‰.
Section 174 of the Contracts Act 1950 also gives the agent the right to retain
his principalÊs property in his possession until his remuneration is paid.
According to Section 174,
„in the absence of any contract to the contrary, an agent is entitled to retain
goods, papers and other properties, whether movable or immovable, of the
principal received by him, until the amount due to himself for commission,
142 TOPIC 9 LAW OF AGENCY (PART II)
It is the agentÊs duty not to let his personal interest conflict with his duty.
Obviously, an agent must not become a party in a transaction and he must
act solely for the benefit of the principal. For instance, A directs B to sell AÊs
estate, but B buys the estate for himself in the name of C. Thus, if the
principal discovers the truth, he has the right to repudiate the transaction.
For the example above, A on discovering that B has bought the estate for
himself, may repudiate the sale if he can show that B has dishonestly
concealed any material fact, or the sale has been disadvantageous to the
principal.
„if an agent deals on his own account in the business of the agency, without
first obtaining the consent of his principal and acquainting him with all
material circumstances which have come to his own knowledge on the
subject, the principal may repudiate the transaction, if the case shows either
that any material fact has been dishonestly concealed from him by the
agent, or that the dealings of the agent have been disadvantageous to him‰.
Consequently, the principal has the right to claim any benefit gained by the
agent from the transaction. As laid down in Section 169 of the Contracts Act
1950,
„if an agent, without the knowledge of his principal, deals in the business
of the agency on his own account instead of on account of his principal, the
principal is entitled to claim from the agent any benefit which may have
resulted to him from the transaction‰.
TOPIC 9 LAW OF AGENCY (PART II) 143
For instance, A directs B to buy a certain house for him. B tells A it cannot
be brought, and buys the house for himself. On discovering this, A may
compel B to sell it to him at the price he gave for it.
8. Not to make any secret profit out of the performance of his duty.
An agent is also under a duty not to make secret profit out of the
performance of his duty. Secret profit may include payment of a secret
commission or any financial advantage received by the agent, above the
commission or remuneration agreed by the parties. An agent can only keep
the profit if the principal consents to it. Otherwise, the principal may take
the following actions:
(b) Recover the amount of the secret commission from the agent (Section
169 of the Contracts Act 1950).
(e) Sue the agent and third party giving the secret commission, for
damages for any loss he may have sustained through entering into the
contract.
144 TOPIC 9 LAW OF AGENCY (PART II)
The Privy Council held that the Housing Society could recover either the
bribe or the amount of the actual loss suffered by it as a result of
entering into the contract.
In the case of L.S Harris Trustee Ltd v. Power Packing Services (Hermit
Road) Ltd (1970) 2 LloydÊs Rep 65, the court held that the agentÊs action
revealing the information about the defendantÊs fire insurance policy
had given right to the defendant to terminate the contract and sued for
damages.
"an agent cannot lawfully employ another to perform acts which he has
expressly or impliedly undertaken to perform personally, unless by the
ordinary custom of trade a sub-agent may, or, from the nature of the
agency, a sub-agent must, be employed‰.
However, to this rule there are exceptions. Thus, an agent may delegate his
authority or appoint a sub agent under the following circumstances:
(a) Where the principal approves of the delegation of authority;
(b) Where it is presumed from the conduct of the parties that the agent
shall have power to delegate his authority;
(c) Where the customs of the trade or business permits delegation;
(d) Where the nature of the agency is such that delegation of the authority
to another person is necessary to complete the business;
(e) In cases of necessity or unforeseen emergency (for instance, due to
sickness of agent); or
(f) Where the act to be done is purely ministerial or clerical and does not
involve the exercise of discretion.
146 TOPIC 9 LAW OF AGENCY (PART II)
1. Pay the agent any commission or other remuneration unless the agency
relationship is gratuitous.
The amount of commission to be payable to an agent depends on the terms
of the contract of agency. Generally, the right to receive commission or
other remuneration arises when the agent has done all that he had agreed
to do. Where no amount is agreed, the agent is entitled to reasonable
remuneration.
"an agent who is guilty of misconduct in the business of the agency is not
entitled to any remuneration in respect of that part of the business which he
has misconducted‰.
2. Not to wilfully prevent or hinder the agent from earning his commission
A principal cannot employ another agent if an agent has already been
appointed to carry out certain duties. Particularly, if the appointed agent is
already in the midst of negotiations and the act of appointing another agent
is to deprive the original agent from earning his commission.
3. Indemnify the agent for acts done in the exercise of his duties
According to Section 175 of the Contracts Act 1950,
TOPIC 9 LAW OF AGENCY (PART II) 147
Illustration (a)
Illustration (b)
„where one person employs another to do an act, and the agent does the act
in good faith, the employer is liable to indemnify the agent against the
consequences of that act, though it cause an injury to the rights of third
person‰.
It means the agent has the right to be indemnified by his principal for any
expenses incurred and consequences of any act, while the agent is acting in
good faith in the execution of his authority, even if it causes injury to third
person.
148 TOPIC 9 LAW OF AGENCY (PART II)
For example:
Illustration (a)
Illustration (b)
For example:
Illustration (b)
Consequently, if the agent suffers injury during the course of his duty due
to his principalÊs neglect or want of skill, Section 178 of the Contracts Act
1950 provides that,
TOPIC 9 LAW OF AGENCY (PART II) 149
Davison v. Fernandes (1889) 6 TLR 73. The defendant in this case asked
the plaintiff to quote the price of some stock ex dividend, but the
plaintiff quoted the price cum dividend. Due to plaintiffÊs negligence,
he failed to inform the defendant accordingly. The defendant then
authorised the plaintiff to sell the stock. The plaintiff sold and had to
pay the dividend to the purchaser (under the rules of the London Stock
Exchange).
The Court held that: The plaintiff was not entitled to be indemnified by
the defendant.
In case of Solloway and Anor. v. McLaughlin [1938] MLJ 23, the Privy
Council held that agents who engaged in a fraudulent scheme to
defraud their principals, will forfeit their right to an indemnity in
respect of transactions which form part of the fraud.
150 TOPIC 9 LAW OF AGENCY (PART II)
SELF-CHECK 9.1
1. What are the agentÊs duties towards his principal under the
law?
2. What is the liability of an agent who breaches the duty?
3. What actions can be taken by a principal who discovers his
agent making a secret profit?
4. Can an agent delegate his authority to another person? Why?
5. Under what circumstance can an agent appoint a sub-agent?
Give at least one example.
6. What are the legal duties of a principal to his agent?
7. Under what situations will an agent lose his right to
remuneration?
8. What are the conditions under which a principal is not bound to
indemnify his agent?
ACTIVITY 9.1
Discuss the following questions:
(b) Mr Kim employed a firm of estate agents to sell his bungalow for
him. Goh, a member of the firm, represented to Mrs Irene that the
property was of considerable value that any financier would easily
provide financial assistance to the purchaser of the bungalow. In
actual fact, this was quite untrue because the bungalow had been
underpinned several times to prevent it from falling down. Mr
Kim knew that the bungalow was in poor condition but did not
authorise Goh to make the representation. Goh himself had no
knowledge of the underpinning. Mrs Irene bought the bungalow
on the faith of the representation and on discovering the
underpinning, sued Mr Kim for damages for fraud. Advise Mrs
Irene whether her action would succeed.
(c) Mr Kim employed a firm of estate agents to sell his bungalow for
him. Goh, a member of the firm, represented to Mrs Irene that the
property was of considerable value that any financier would easily
provide financial assistance to the purchaser of the bungalow. In
actual fact, this was quite untrue because the bungalow had been
underpinned several times to prevent it from falling down. Mr
Kim knew that the bungalow was in poor condition but did not
authorise Goh to make the representation. Goh himself had no
knowledge of the underpinning. Mrs Irene bought the bungalow
on the faith of the representation and on discovering the
underpinning, sued Mr Kim for damages for fraud. Advise Mrs
Irene whether her action would succeed.
(d) Ramoo and Santhi employed Ryder and Co, a firm of merchants to
buy goods for them. Ryder & Co bought the goods in their own
names from Mr Kye. Mr Kye did not inquire whether they were
acting as agents or principals, and supplied the goods on credit.
Ramoo and Santhi paid Ryder & Co for the goods in the ordinary
course of business. A fortnight later, Ryder & Co stopped payment
and did not settle the payment to Mr Kye. Upon discovering the
agency, Mr Kye sued Ramoo and Santhi for the price. Can Mr Kye
succeed?
152 TOPIC 9 LAW OF AGENCY (PART II)
(e) Mr Kim employed a firm of estate agents to sell his bungalow for
him. Goh, a member of the firm, represented to Mrs Irene that the
property was of considerable value that any financier would easily
provide financial assistance to the purchaser of the bungalow. In
actual fact, this was quite untrue because the bungalow had been
underpinned several times to prevent it from falling down. Mr Kim
knew that the bungalow was in poor condition but did not
authorise Goh to make the representation. Goh himself had no
knowledge of the underpinning. Mrs Irene bought the bungalow on
the faith of the representation and on discovering the underpinning,
sued Mr Kim for damages for fraud. Advise Mrs Irene whether her
action would succeed.
(f) Ramoo and Santhi employed Ryder and Co, a firm of merchants to
buy goods for them. Ryder & Co bought the goods in their own
names from Mr Kye. Mr Kye did not inquire whether they were
acting as agents or principals, and supplied the goods on credit.
Ramoo and Santhi paid Ryder & Co for the goods in the ordinary
course of business. A fortnight later, Ryder & Co stopped payment
and did not settle the payment to Mr Kye. Upon discovering the
agency, Mr Kye sued Ramoo and Santhi for the price. Can Mr Kye
succeed?
there are exceptions under Section 183 of the Contracts Act 1950, where an agent
would be personally liable for the contract as follows:
(a) Where the agent agrees to accept personal liability;
(b) Where the agent executes a deed in his own name;
(c) Where the agent signs a negotiable instrument in his own name; and/or
(d) Where the agent exceeds his authority and the principal does not ratify the
contract.
"in cases where an agent is personally liable, a person dealing with him may hold
either him or his principal, or both of them, liable‰.
Illustration
A enters into a contract with B to sell him 100 bales of cotton, and
afterwards discovers that B was acting as agent for C. A may sue either B or
C, or both, for the price of the cotton.
The agent may be held personally liable on the contract because the third party
does not know that the agent is acting for someone.
In the case of Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka
[1979] 2 MLJ 124, the respondents ordered chemicals and fertilisers for
themselves (rather than on behalf of the principal), but they denied liability
when the appellants sued for the balance of the price.
The Federal Court held that although the respondents were agents for a
principal, they had contracted for themselves. Therefore, they were
personally liable.
154 TOPIC 9 LAW OF AGENCY (PART II)
According to Section 183(b) of the Contracts Act 1950, if the agent does not
disclose the name of the principal, the agent is presumed to be personally liable.
„an agency is terminated by the principal revoking his authority; or by the agent
renouncing the business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of unsound
mind; or by the principal being adjudicated or declared a bankrupt or an
insolvent‰.
„Where the agent has himself an interest in the property which forms the
subject-matter of the agency, the agency cannot, in the absence of an
express contract, be terminated to the prejudice of such interest‰.
For example, A gives authority to B to sell AÊs land, and to pay himself, out
of the proceeds, the debts due to him from A. A cannot revoke this
authority, nor can it be terminated by his unsoundness of mind or death.
TOPIC 9 LAW OF AGENCY (PART II) 155
„The principal cannot revoke the authority given to his agent after the
authority has been partly exercised; so far as regards such acts and
obligations as arise from acts already done in the agency‰.
„an agency is terminated by the principal revoking his authority; or by the agent
renouncing the business of the agency; or by the business of the agency being
completed; or by either the principal or agent dying or becoming of unsound
mind; or by the principal being adjudicated or declared a bankrupt or an
insolvent.‰
SELF-CHECK 9.2
An agency contract confers rights and duties to the principal and agent.
An agent is bound to conduct the business of his principal according to the
principalÊs instruction.
An agent must act according to the customs prevailent in the absence of
instruction from the principal.
An agent must exercise care and diligence, and use his skill in carrying out
his work.
An agentÊs duty is to render proper accounts to his principal.
An agent must communicate with his principal to get further instructions.
It is an agentÊs duty not to let his personal interest conflict with his own duty.
An agent must not make any secret profit out of the performance of his duty.
An agent must not disclose confidential information or documents entrusted
to him by his principal.
An agent cannot delegate his authority to another person without permission
or approval from the principal.
A principalÊs duty is to pay the agent his commission or remuneration.
A principal must not wilfully prevent his agent from earning his commission.
A principal is bound to indemnify his agent for acts done within his scope of
authority.
158 TOPIC 9 LAW OF AGENCY (PART II)
Duties Termination
Named principal Renunciation
Notice Revocation
Mutual agreement Undisclosed principal
Text Books
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu. M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases
Andrews v Ramsay & Co [1903] 2 KB 635.
Boardman v. Phipps [1966] 3 All ER 721.
Davison v. Fernandes (1889) 6 TLR 73.
Keppel v Wheeler [1927] 1 KB 577.
L.S Harris Trustee Ltd v. Power Packing Services (Hermit Road) Ltd (1970) 2
LloydÂs Rep 65.
Mahesan v. Malaysia Govt. Officers Co-operative Housing Society Ltd. [1978]
1 MLJ 149.
Pernas Trading Sdn Bhd v. Persatuan Peladang Bakti Melaka [1979] 2 MLJ
124.
Solloway and Anor. v. McLaughlin [1938] MLJ 23.
Turpin v. Bilton (1843) 5 Man & G 455.
Topic Law of
10 Partnership
(Part I)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the meaning of partnership;
2. Explain the important characteristics of partnership;
3. Discuss the rules on formation of partnership;
4. Describe the relations of partners to outsiders; and
5. Describe the liabilities of partners to third parties.
INTRODUCTION
There are various types of business that are widely being carried out in Malaysia.
The most common types of business are:
Sole Proprietorship,
Partnership; and
Company.
In Malaysia, the law that governs partnership is the Partnership Act 1961. The Act
is similar to the English Partnership Act 1890 and Section 47(1) of the Partnership
Act 1961 provides for the application of rules of equity and common law in
partnership so long as they are not inconsistent with the express provisions of the
Act.
160 TOPIC 10 LAW OF PARTNERSHIP (PART I)
Section 3(2) of the Partnership Act 1961 therefore excludes the following list from
the definition of partnership:
Where a partnership agreement does not exist, Section 4 of the Partnership Act
1961 provides a number of tests in determining the existence of a partnership, as
follows:
Section 4(a) Joint tenancy, tenancy in common, joint property, or part ownership
does not of itself form a partnership.
Section 4(b) The sharing of gross returns does not of itself establish a partnership,
whether the parties who share the returns have or do not have a joint
right or interest in the property from which or from the use of which
the returns are derived.
Section 4(a)
Partnership does not exist between tenants regardless whether they share or not
the profit gained through the use of the land. In the case of jointly owned
property, it does not of itself form a partnership between the owners.
In Davis v. Davis (1894) 70 LT 265, a father gave his business and three
houses to be shared together by his two sons. Two of the houses were
rented out. The sons used part of the money earned from the rental of the
house to improve the business and shared the other remaining portion
equally.
The Court held that the business was a partnership between the sons but
the joint ownership of the houses and equal share on the earnings did not
make them partners.
Section 4(b)
The Court decided that even though the defendant and Mill shared the gross
returns from the business, it did not make the defendant and Mill partners.
Both had separate responsibility and liability. The defendant was liable to pay
for the rent of the stage and lighting services from the 60% returns he received.
Mill, on the other hand, would settle the journey expenses, salaries of the actors
and the cost incurred during the show from the 40% returns he received. This
showed that no partnership was formed between the defendant and Mill.
Thus, the defendant was not liable to the plaintiff.
Section 4(c)(i)
Payment of a debt out of profits of the business to a creditor by instalments does
not make the creditor a partner in the business. For instance, A lends B a sum of
RM15,000 and A receives a sum RM1,000 per month from the business as
TOPIC 10 LAW OF PARTNERSHIP (PART I) 163
repayment of the loan. Though the payment of RM1,000 per month to A comes
from the profit of the business, A is not a partner to B in the business.
Section 4(c)(ii)
Remuneration to a servant or an agent of the business from the profit of their
employer's business. Any form of payment to a servant or an agent which comes
from the employerÊs business profit constitutes salary or wages. Therefore, a
servant or an agent is not a partner in the employerÊs business and has no
partnership liability.
In Abdul Gaffoor v. Mohamed Kassim & Ors [1931-32] FMSLR 19, the plaintiff
was a despatch clerk in the defendantÊs firm. He was then appointed as a
manager in one of the firmÊs branch office. One of the firmÊs documents stated
that the profit from the firm would be divided into 79.4 parts and would be
shared between the plaintiff, the defendant and others partners. The plaintiff
contended that he was a partner but the defendant argued that the relationship
was a mere employer-employee relationship.
The Court held that the receipt of salary from the profit did not make the
plaintiff a partner of the firm.
Section 4(c)(iii)
Payment of an annuity or a portion of the profits to a widow or child of a
deceased partner in the business. Some partnership agreements provide a term on
payment of annuity to the dependants of a deceased partner. The annuity comes
from the profit of the partnership. In this situation, although the widow or the
child receives payment from the profit of the partnership, it did not make them
partners in the business.
164 TOPIC 10 LAW OF PARTNERSHIP (PART I)
The Court held that AÊs widow is not a partner of the firm. Therefore, her
portion of money must not be taxable.
Section 4(c)(iv)
Payment of interest which varies with the profits on a loan advanced for use in
the business under a written contract. A person who gives advance payment by
way of a loan and receives a payment of interest which varies according to the
profit of the business is not a partner in the business.
The Court held that the receipt of the payment from the profit in YÊs business
does not make J a partner although J was authorised to deal with the business.
Section 4(c)(v)
Payment to a seller of the goodwill of a business in the form of a share of the
profits of the business. For example, A, a solicitor agreed to sell his firm to B and
agreed to introduce his clients to B. In consideration, B agreed to give A 10% out
of the profit of the business for the period of three years. In this case, although A
receives payment out of the profit of the business, it does not make him a partner
to B in the business.
In Rawlinson v. Clarke (1860) 15 M&M 292, a doctor sold his business and
introduced his clients to the buyer. In consideration, he received certain
payment and shares from the profit made in the first year of the business.
10.2.3 Capacity
In William Jacks & Co. (Malaya) Ltd v. Chan & Yong Trading Co (1964) MLJ
105, Jacks claimed a sum of RM12,734.91 being the payment of the goods sold
to the defendant who were partners in a firm. Yong, who was a minor partner
at the time of the purchase of the goods, did not defend his case but Chan
denied that the goods were for YongÊs personal use. Therefore, other partners
were not liable for the claim.
The Court held that even though the goods were bought for YongÊs personal
use, it did not mean that the firm and other partners were not liable and since
Yong did not take any action to terminate his partnership upon attaining
majority age, he was also liable as a partner.
The partners must have the capacity to enter into contract. A partner is competent
to contract if he is an adult, of sound mind and has not lost capacity to enter into
contracts under any laws. In partnership, a minor can become a partner.
However, a minor partner is not liable for all the firmÊs debt and contractual
liabilities. When a minor partner reaches his age of majority, he can exonerate
himself from liability by withdrawing himself from the firm. But if he remains in
the firm, he will be liable with other partners.
SELF-CHECK 10.1
ACTIVITY 10.1
Discuss the following questions:
(a) The partnership business plans to engage Niza to manage the
business and one of the terms is that Niza will receive
remuneration from the profit of the business. Is Niza a partner?
Discuss.
(b) S lends a sum of RM5,000 to firm Y and receives repayment by 12
monthly instalments of RM500 per repayment from the profits of
the firm. Does that make S a partner of firm Y? Discuss.
(c) T and H has entered into an agreement whereby H would lend a
sum of RM1,000 to T and as a consideration, H would receive
RM50 a week from the profit of T's business. H would also assist
in the administration of the firm and was given certain authority
to manage the business of the firm. Is H a partner of T? Discuss.
(d) R and F are partners of a restaurant business. They intend to
expand their business and make a loan from G. G will receive
20% from the nett profit of the business. Is G a partner of R and
F? Discuss.
knows that the partner has no authority or does not know or believe him to be a
partner.
Therefore, for a partner to bind the firm and other partners, his act must have
been carried out within his scope of authority and in the usual way of the
partnership business. Consequently, outsiders or third parties dealing with the
partner may assume that the partner has the authority to do such acts usually
done by partners in that particular kind of business. This is an implied authority
of a partner as an agent for the firm, as illustrated in the following cases:
In Mercantile Credit Ltd. v. Garrod [1962] 3 All ER 1103, P and G were partners
in a garage business. One of the terms of their partnership agreement
prohibited the partners from buying and selling cars. Without the knowledge
of G, P sold a car to Mercantile Credit for a sum of £700 and the money was
deposited into the firmÊs account. When Mercantile Credit initiated a suit to
claim the money back, the Court held that G was liable to the plaintiff. Even
though P was prohibited by the partnership agreement to engage in buying
and selling cars, the act of P was usually done by those who engaged in a
garage business.
In another case, Chan King Yue v. Lee & Wong [1962] 28 MLJ 379, the plaintiff
lent RM35,000 to her husband who was a partner in a firm. The husband issued
a receipt under the firmÊs name and used the money to pay the firmÊs debt. The
plaintiff took an action to recover her money but other partners refused to pay
on the grounds that the plaintiffÊs husband had no authority to borrow money.
The Court held that the act of borrowing money by the plaintiffÊs husband was
important for the firmÊs continuous business. Therefore, the firm was liable.
Section 7 also provides that the partner who has no authority or is unauthorised
to act for the firm will not bind the firm if the third party knows that the partner
has no authority or does not know or believe him to be a partner. For example, A
has been informed about B's limited authority and B was unauthorised to order
goods exceeding RM15,000. A made a contract with B for the supply of electrical
goods worth of RM17,000 to the firm. The firm was not bound by the contract.
manner showing an intention to bind the firm, by any person thereto authorised,
whether a partner or not, is binding on the firm and all the partners.
In the case of Hock Hin Chan v. Ng Kee Woo [1966] 1 MLJ 223, H gave a loan
to one of the partners in a firm. As a security, a bill of sale was issued bearing
the signature and seal „by Ng Teng Tuan, a partner to Wan Lee Chan, for
and on behalf of Wan Lee Chan⁄‰. The issue that arose was whether the bill
of sale issued by the firm was valid and binding on the firm.
The Court held that a partner in a firm had an implied authority to issue a
bill of sale on behalf of other partners. Therefore, the bill of sale was valid
and binding on the firm.
According to Section 9 of the Partnership Act 1961, where one partner pledges the
credit of the firm for a purpose apparently not connected with the firm's ordinary
course of business, the firm is not bound, unless he is, in fact, specially authorised
by the other partners. However, this section does not affect any personal liability
incurred by an individual partner.
This means, a partner cannot misuse the trust given to him by the firm to make
debt which is not connected with the firm's business. The partner who misuses the
trust shall be personally liable unless he has been given the express authority to
do as such.
For instance, A and B are partners carrying on the business of printing and selling
„batik‰. A, without the knowledge of B bought a dishwasher under the firmÊs
name. The supplier requested payment from the firm. In this case, B may deny
liability under Section 9 and A would be personally liable. In other words, A
cannot bind the firm because his act was not carried out within the usual course of
the partnership business. Another example where a firm will not be liable is
where a partner issues the firm's cheque for the purpose of settling personal debt.
In the case of Osman b. Haji Mohamed Usop v. Chang Kang Swi (1924)
4 FMSLR 292, a partnership has been formed by six partners including
the appellant. Three of the partners borrowed RM10,000 from a third
party by effecting a promissory note. The loan was guaranteed by the
respondent (Chan Kang Swi). Later, the firm failed to pay the debt and
Chan was called to pay for the debt on his own account. He then
initiated action against the six partners for recovery of his money and
five partners accepted their liability, except the appellant.
The Court decided that the debt was a firmÊs debt and was obtained for
the purpose of partnership. The partners who signed the promissory
note had acted for the firm and they were authorised to do so.
Therefore, the firm or the six partners were liable.
172 TOPIC 10 LAW OF PARTNERSHIP (PART I)
Tort is a civil wrong. The examples of tortious acts are nuisance, defamation,
trespass and negligence. In partnership, tort may occur in the following
situation. For instance A, B and C are partners carrying out business of
repairing electrical equipment. C repaired a washing machine for a
customer but due to his negligence, the customer was electrocuted when
using the washing machine. In this case, C was negligent in performing his
work and therefore, the firm and other partners were liable to the customer.
The Court held that H, as the partner, had done illegitimately that
which was part of his business to do legitimately. Hence, the firm was
liable for his act.
TOPIC 10 LAW OF PARTNERSHIP (PART I) 173
In the above case, the firm was liable because the bribe was part of the firmÊs
money and such information was for the purpose of the partnership
business and would have been legitimate if obtained by proper means.
Provided as follows:
(i) this section shall not affect any liability incurred by any partner by
reason of his having notice of a breach of trust; and
(ii) nothing in this section shall prevent trust money from being followed
and recovered from the firm, if still in its possession or under its
control.‰
For example, A, B and C are partners of a firm. A who has been appointed as
a trustee, improperly uses the trust property in the business. Other partners,
B and C are not liable for the trust property. However, if B and C have notice
of a breach of trust, they cannot avoid liability and the trust money may be
recovered from the firm if it is still in possession and under the control of the
firm.
In Ex parte Heaton (1819) Buck 386, a father and sons were partners in a
firm. The sons used the trust property for the purpose of the firmÊs
business. When the firm became bankrupt, the Court held that the
money which had been misappropriated could not be recovered from
the partnership property because the father had no knowledge of the
breach of trust committed by his sons.
Whether A and B are jointly liable with C depends on their knowledge of the
transaction. If the firm or the partners knew about CÊs contract on behalf of
the firm and did not deny it in due course, then the firm or partners would
be jointly liable for the payment of the product to D. But if they have no
knowledge about the contract, then C would be personally liable as a
partner for holding out.
In the case of Re Buchanan & Co. (1876) 4 QSCR 202, if the holding out
or representation is made without the knowledge or consent from the
real partner, only the person holding out as a partner shall be liable to
the third party acting in reliance of the representation.
TOPIC 10 LAW OF PARTNERSHIP (PART I) 175
This means the use of the deceased partnerÊs name for the partnership
business does not constitute holding out.
In the case of Chung Shin Kian & Anor v. Pendakwaraya [1980] 2 MLJ
246, two partners in a firm had used a trade name („Texwood‰) that
belonged to another company on their products. There was no evidence
to prove that the second appellant was involved in the crime, except as
to become a partner in the business. Thus, the appeal of the second
appellant was allowed.
For a person retiring from the firm, he is not free from liabilities before his
retirement. He remains liable for the partnership debts incurred before his
retirement, as provided under Section 19(2) of the Act, „a partner who
retires from a firm does not thereby cease to be liable for partnership debts
or obligations incurred before retirement‰. A retiring partner may only be
discharged from liabilities by a novation agreement between himself, the
new firm and the creditors.
In the case of Duke v. Brewer (1848) 2 Car. & Ker. 828, it was held that for
a new incoming partner, if the liability was for a continuous contract
(which was made before he became a partner and continue to exist after
he became a partner), then he shall be liable for the same.
176 TOPIC 10 LAW OF PARTNERSHIP (PART I)
SELF-CHECK 10.2
1. How can a partner bind the firm for his act?
2. What is the liability of a partner in contracts?
3. Are partners jointly liable in tortious liability?
4. What is the liability of a partner in the case of improper use of
trust property in a firm?
5. What is the effect of holding out by a person who is not a
partner?
6. What are the liabilities of incoming and outgoing partners?
7. Will a partner be liable for the criminal offence committed by
other partners?
ACTIVITY 10.2
(b) Malik and Noor were partners in a firm operating a Cyber Café
business. Malik made a friendly loan amounting to RM8,000 from
Aiman as capital for the business. The said loan was guaranteed by
Azmin. The firm failed to pay the loan and Azmin had to pay
instead. Then, Azmin took a civil action against both partners, Malik
and Noor, to recover his money. However, Noor did not admit the
said liability and decided to walk away from the partnership. After
Noor withdrew from the partnership, Malik invited Jefri as a new
partner to replace Noor. In helping to settle the debt, Jefri intended
to get a bank loan for the firm. In dealing with the bank, he brought
along his brother, Mr Zuki, a well-known businessman and
introduced his brother as one of the partners in the firm. Believing
the representation made by Jefri, the bank agreed to approve the
loan amounting to RM50,000. However, the firm failed to pay the
loan. Discuss the liabilities of all parties involved by referring to the
Partnership Act 1961 and the relevant case-laws.
Text Books:
Wu M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
TOPIC 10 LAW OF PARTNERSHIP (PART I) 179
Cases:
Abdul Gaffoor v. Mohamed Kassim & Ors [1931-32] FMSLR 19.
Badeley v. Consolidated Bank (1888) 38 ChD 238.
Chan King Yue v. Lee & Wong [1962] 28 MLJ 379.
Chung Shin Kian & Anor v. Pendakwaraya [1980] 2 MLJ 246.
Commissioners of Inland Revenue v. LebusÊs Trustees [1964] 1 All ER 475.
Cox v. Coulson (1916) 114 LT 599.
Davis v. Davis (1894) 70 LT 265.
Duke v. Brewer (1848) 2 Car. & Ker. 828.
Ex parte Heaton (1819) Buck 386.
Hamlyn v. Houston & Co [1903] 2 KB 82.
Hock Hin Chan v. Ng Kee Woo [1966] 1 MLJ 223.
Mercantile Credit Ltd. v. Garrod [1962] 3 All ER 1103.
Osman b. Haji Mohamed Usop v. Chang Kang Swi (1924) 4 FMSLR 292.
Rawlinson v. Clarke (1860) 15 M&M 292.
Re Buchanan & Co. (1876) 4 QSCR 202.
Re Young Ex p Jones (1896) 75 LT 278.
William Jacks & Co. (Malaya) Ltd v. Chan & Yong Trading Co (1964) MLJ 105.
Topic Law of
11 Partnership
(Part II)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the rights, duties and liabilities of partners;
2. List the obligations of partners to one another;
3. Discuss the rules on partnership property;
4. Describe the grounds for dissolution of partnership; and
5. Explain the consequences of dissolution of partnership.
INTRODUCTION
The previous topic discusses and explains the meaning of partnership, the
important characteristics of partnership, the rules on formation of partnership,
the relations of partners to outsiders and the liabilities of partners to third parties.
As a continuation, this topic focuses on:
the relation of partners to one another;
the mutual rights and duties of the partners;
the liabilities of incoming and outgoing partners;
the assignment of a partner's share in the partnership property; and
the dissolution of partnership.
TOPIC 11 LAW OF PARTNERSHIP (PART II) 181
(a) Every partner is entitled to equal share of capital and profits of the
business, and must contribute equally to losses; and
(b) Every partner who made any payment and incurred personal liabilities in
the course of the firmÊs business is entitled to be indemnified by the firm.
In the case of Kok Hok Leong & Anor v. Seow Kah Cheng & Anor
(1950) 16 MLJ 87, the appellant and respondent were partners in a firm
which has been sued for breach of contract and ordered to pay for
damages of RM4,246.50. The respondent engaged a solicitor and
managed to reduce the payment of damages in the legal suit. When
the partnership was dissolved, the court ordered the legal fees
incurred by the respondent to be paid out of the partnership assets.
The appellant refused to pay and went for appeal.
The Court rejected the appeal on the ground that the respondentÊs
action in the defence was an act to protect the firmÊs assets. Therefore,
he was entitled to be indemnified from the firm's assets.
182 TOPIC 11 LAW OF PARTNERSHIP (PART II)
(c) Every partner who made any advance for the purpose of the firm's
business, beyond the capital amount he subscribed, is entitled to 8% interest
per annum from the date of the payment of the advance.
(g) No partner may introduce another (new) partner without the consent of
other existing partners.
TOPIC 11 LAW OF PARTNERSHIP (PART II) 183
The Court held that there was evidence to show that Tan's consent
had been obtained and that consent from GohÊs children was not
necessary. The agreement signed on 26 March 1959 was only a
transfer of GohÊs interests in the partnership but not his right as a
partner in the firm. Therefore, the plaintiff had no right to claim his
money back.
(h) The majority partners may decide any differences as to ordinary matters
connected with the firm's business but the changes in the nature of the
firm's business must be made with consent of all the existing partners.
However, in the case of Tham Kok Cheong & Ors v. Low Pui Heng
[1966] 2 MLJ 52, the Court held that the act of the first, second and
third partners who sold the partnership business to a company
without informing the fourth partner was invalid.
(i) The partnership books are to be kept at the place of partnership business, or
at the principal place if there is more than one place of business.
In Gan Khuan v. Tan Jin Luan [1939] MLJ 286, the Court held that the
right to examine and make copies of the partnership books is not
limited to partners. The right can be exercised through an authorised
agent appointed by the partners.
(a) Under Section 30, every partner is obliged to render true accounts and full
information on all things affecting the partnership.
In Law v. Law (1904) All ER 526, a partner transferred part of his shares
to another partner for £21,000. The partner who bought the shares knew
that the partnership assets comprised securities and charges but
concealed the facts from the partner's knowledge.
The Court held that the partner who had the information must disclose
it; otherwise the sale of the shares may be set aside.
TOPIC 11 LAW OF PARTNERSHIP (PART II) 185
(b) According to Section 31, every partner who uses the partnership property,
name or business connection, or involve in any transaction concerning the
partnership, without the consent of other partners, must account to the firm
for any secret profit or benefit derived by him.
The Court held that the profit gained by the defendant from the agency
contract belonged to the firm because the defendant had used the firmÊs
goodwill to obtain the new contract before the partnership was
dissolved.
(c) Section 32 covers the obligation of a partner not to compete with the firm in
business of the same nature without consent of the other partners. Thus, if a
partner opens a competing business without the consent of other partners,
he must account for and render all profits made by him to the firm.
The Court held that other partners had no right to claim for the benefit
since the ship building business was of a different nature from the
ship-brokerage business.
186 TOPIC 11 LAW OF PARTNERSHIP (PART II)
The incoming partner will only be liable to the creditors of the firm under a
contract of novation whereby the creditors agree to accept the liability of the
incoming partners. On the other hand, a partner who retires from the firm
continues to be liable for the partnership debt incurred before he retires, as
provided under Section 19(2) of the Partnership Act 1961, whereby:
"A partner who retires from a firm does not thereby cease to be liable for
partnership debts or obligations incurred before his retirement." (Also refer to
Topic 10, sub-topic 10.3.2).
After a partner retires, he is still liable to any person who deals with the firm
after a change in its constitution unless he has given express notice to the person
that he is no longer a partner.
"where a person deals with a firm after a change in its constitution, he is entitled
to treat all apparent members of the old firm as still being members of the firm
until he has notice of the change".
In the case of Re Siew Inn Steamship Co. [1934] MLJ 180, a retired partner had
inserted a notice of his retirement in several issues of a newspaper to which
certain old customers were proved to be regular subscribers. After his
retirement, these old customers lent money to the firm on the security of
promissory notes executed by the remaining partners. One of the lenders later
sued the retired partner on these notes, denying having actually seen notice of
his retirement in the papers.
The Court held that the retired partner was liable on the notes, actual notice
being necessary so far as old customers were concerned.
In relation to dismissal under Section 27, the majority partners cannot expel any
partner unless the power to do so has been conferred by express agreement
between the partners.
In Ong Kian Loo v. Hock Wah Trading Co. & Ors [1990] 1 MLJ 315, Ong
contended that he was a partner in the defendant's firm after taking over all
his mother's shares in the partnership. Thus, he had the right to interfere in
the administration of the partnershipÊs business. The defendant denied it on
the ground that Ong was only an assignee of his motherÊs shares and he had
no locus standi to contend as such.
The Court decided that Section 33(1) of the Partnership Act 1961 was
applicable in this case. Ong was only an assignee to the share of his mother in
the firm. Therefore, he had no right to interfere in the administration of the
partnership including the right to inspect the partnership books.
188 TOPIC 11 LAW OF PARTNERSHIP (PART II)
SELF-CHECK 11.1
ACTIVITY 11.1
Car Universal Partners (CUP) was registered in 2004 to carry out the
business of the trading of national cars. The partners of the firm are
Mark, Cathy and Sarah. The firm managed to acquire a handsome
profit due to the national campaign which encouraged people to buy
national cars. In the year 2006, the firm agreed to sell their branch at
Beruntung since the business was not doing well. Sarah offered to
purchase the business in Beruntung as she has knowledge that the
state government intended to develop the place as a mass housing
project and there was the opportunity to have a good market for car-
trading. Sarah purchased the branch and withdrew from being the
partner of CUP. The fact that Sarah has been very successful in
Beruntung and with the development in Beruntung itself, has come to
the knowledge of all other partners in CUP. The partners claimed that
Sarah has not disclosed the information to the firm with the intention
to get the sole profit for herself. Advise Mark and Cathy.
"all property and rights and interests in property originally brought into the
partnership stock or acquired, whether by purchase or otherwise, on account of
the firm or for the purposes and in the course of the partnership business, are
called in this Act as partnership property and must be held and applied by the
partners exclusively for the purposes of the partnership and in accordance with
the partnership agreement....".
According to Section 23, unless the contrary intention appears, property bought
using firmÊs money is deemed to have been bought on account of the firm.
190 TOPIC 11 LAW OF PARTNERSHIP (PART II)
From the statutory provisions and the decided case-laws, the following
conclusions may be made:
(a) Whether the property brought into the firm is a partnership property or
property of an individual partner depends on the partnership agreement
between the partners.
In Miles v. Clark [1953] 1WLR 537, a photographer who carried out his
own business brought in a new partner who had many business
contacts. There was no clear agreement between the partners. Later, a
dispute arose between them and the partnership was dissolved.
The Court decided that since there was no clear agreement pertaining
to the use of the assets in the partnership, the assets were not
partnership properties but owned individually by the partners who
brought them into the firm.
(b) If there is no agreement provided for the partnership property, the partners
must have the intention to regard the property as a partnership property.
The property is intended to be a partnership property when it is purchased
using the partnership money, even though it was purchased under a
partnerÊs name. The property remains as a partnership property even
though it is not used for the partnership business.
If the property is obtained using an individual partner's money, the property will
remain the individual partner's property.
TOPIC 11 LAW OF PARTNERSHIP (PART II) 191
there was no agreement between the parties that the land was
purchased or owned as a partnership property;
the intention of the firm was to develop the land and not necessarily
the land must be owned by the firm to carry out its business; and
Therefore, the said land was owned by the respondent as his personal
property and was not regarded as a partnership property.
(c) If certain asset is acquired for the firm, such asset is regarded as partnership
property.
(d) In the absence of specific provisions or proof to show that the property is
intended for the partnership, then the property is regarded as the property
of an individual partner.
(e) The facts of every case will be considered in ascertaining whether the
property is a partnership property or property of an individual partner.
By expiration of Section 34
term or notice Subject to any agreement between the partners, a partnership is
dissolved by the expiration of the term fixed, or by the termination of an
adventure or undertaking, or by any partner giving notice to the other of
his intention to dissolve the partnership.
By death, Section 35
bankruptcy, Subject to any agreement between the partners, every partnership is
charge dissolved by the death or bankruptcy of any partner.
A partnership may also be dissolved if any partner suffers his share of
the partnership property to be charged under this Act for his separate
debt.
By supervening Section 36
illegality A partnership is dissolved by the happening of any event which makes
it unlawful for the business of the firm to be carried on or for the
members of the firm to carry it on in partnership.
By court order Section 37(a)
When a partner is lunatic, or of permanently unsound mind.
Section 37(b)
When a partner becomes permanently incapable of performing his part
in the partnership contract.
Section 37(c)
When a partner has been guilty of any conduct which affect prejudicially
the carrying on of the business.
Section 37(d)
When a partner wilfully or persistently commits a breach of the
partnership agreement, or conducts himself in a manner that is not
reasonably practicable for the other partner/s to carry on the business in
partnership with him.
Section 37(e)
When the partnership business can only be carried on at a loss.
Section 37(f)
Whenever any circumstance arises that renders it just and equitable (in
the opinion of the court) for the partnership to be dissolved.
TOPIC 11 LAW OF PARTNERSHIP (PART II) 193
SELF-CHECK 11.2
1. What is meant by a partnership property?
2. If a certain asset is acquired for the firm, is the property
regarded as a partnership property?
3. If a property is obtained using an individual partnerÊs money,
is the property regarded as a partnership property?
4. What are the ways of termination of a partnership?
5. What is the effect of dissolution of partnership?
6. What are the rules for the settlement of a partnership account
after dissolution, in absence of a specific agreement between
partners?
194 TOPIC 11 LAW OF PARTNERSHIP (PART II)
ACTIVITY 11.2
(a) Gemilang & Co. is a trading firm comprising four partners; Joyce,
Wan, Mulan and Sam. The partnership was established under
Wan's name. In the year 2000, Wan died and his widow took his
position as a partner. In 2005, the partners bought a shop-house
using partnership money. Mulan signed the transaction with the
consent of the other partners. When Mulan died, the three
surviving partners applied for a court declaration that the shop-
house belonged to them, having still carried on the business
under the name of Wan. Decide whether the shop-house is a
partnership property. Why?
Every partner is entitled to equal share of capital and profits of the business,
and must contribute equally to losses.
Every partner who made any payment and incurred personal liabilities in the
course of the firmÊs business is entitled to be indemnified by the firm.
Every partner who made any advance for the purpose of the firm's business,
beyond the capital amount he subscribed, is entitled to 8% interest per annum
from the date of the payment of the advance.
TOPIC 11 LAW OF PARTNERSHIP (PART II) 195
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Ass v. Benham [1891] 2 Ch 244.
Gan Khuan v. Tan Jin Luan [1939] MLJ 286.
Highley v. Walker (1910) 26 TLR 685.
Kelly v. Tucker (1907) 5 CLR 1.
Kok Hok Leong & Anor v. Seow Kah Cheng & Anor (1950) 16 MLJ 87.
Law v. Law (1904) All ER 526.
Miles v. Clark [1953] 1WLR 537.
Murtagh v. Castello (1881) T LR Ir 428.
Ong Kian Loo v. Hock Wah Trading Co. & Ors [1990] 1 MLJ 315.
Pathirana v. Ariya Pathirana [1967] 1 AC 233.
Ponnukon v. Jebaratnam [1980] 1 MLJ 283.
Re Siew Inn Steamship Co. [1934] MLJ 180.
Rishton v. Grissell (1868) LR 5 Eq 326.
Tham Kok Cheong & Ors v. Low Pui Heng [1966] 2 MLJ 52.
Wong Peng Yuen v. Senanayake [1962] 1 MLJ 204.
Topic Law of Sale
12 of Goods
(Part I)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the meaning of goods;
2. Describe the classification of goods;
3. Differentiate a contract of sale and an agreement to sell;
4. Explain the implied terms in a contract of sale of goods; and
5. Identify the importance of transfer of property in the goods.
INTRODUCTION
The Sale of Goods Act 1957 (Revised 1989) is the statute applicable to sale of
goods in Peninsular Malaysia. For Sabah and Sarawak, the law of sale of goods is
governed by Section 5(2) of the Civil Law Act 1956. It provides that:
In effect, Sabah and Sarawak continue to apply principles of English law relating
to the sale of goods. The Sale of Goods Act 1957 was enacted based on the
English Sale of Goods Act 1893 (which was replaced by the Sale of Goods Act
1979). The Sale of Goods Act 1957 applies to contracts for the sale of all types of
goods including second-hand goods, and to commercial and private sales,
wholesale and retail. The general law of contract will continue to apply to
contracts for the sale of goods as Section 3 of the Sale of Goods Act 1957 expressly
provides for the continual application to contracts for the sale of goods of the
198 TOPIC 12 LAW OF SALE OF GOODS (PART I)
provisions of the Contracts Act 1950 „in so far as they are not inconsistent with
the express provision of this Act‰.
In Section 6 of the Sale of Goods Act 1957, goods which form the subject of a
contract of sale may be either existing goods or future goods. Existing goods are
goods already owned or possessed by the seller and may comprise specific or
unascertained goods.
Goods are specific if they are identified and agreed upon at the time a
contract of sale is made.
Unascertained goods are goods not identified and agreed upon at the time a
contract of sale is made.
Ascertained goods are those unascertained goods which have been identified
and appropriated to the contract after the contract has been made.
Future goods consist of goods to be manufactured or produced or acquired
by the seller after the making of the contract of sale.
„Where under a contract of sale the property in the goods is transferred from the
seller to the buyer, the contract is called a sale, but where the transfer of the
TOPIC 12 LAW OF SALE OF GOODS (PART I) 199
„An agreement to sell becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in the goods is to be transferred.‰
In an agreement to sell, the goods still belong to the seller. Consequently, if the
buyer breaches an agreement to sell, the seller may sue for unliquidated
damages. If the seller breaches an agreement to sell, the buyer has only a
personal remedy for damages against the seller. Whereas in a sale, if the buyer
fails to pay, the seller can sue for the contract price because ownership has
passed to the buyer.
„A stipulation essential to the main purpose of the contract, the breach of which
gives rise to a right to treat the contract as repudiated.‰
200 TOPIC 12 LAW OF SALE OF GOODS (PART I)
There are circumstances which permit the buyer to treat a breach of condition as
a breach of warranty, as provided in Section 13(1) of the Sale of Goods Act 1957.
It provides that:
However, under Section 13(2), where a contract is not severable and the buyer
has accepted the goods or part thereof, the breach of condition must be treated as
a breach of warranty. Similarly, in a case where the contract is for specific goods
and the property has passed to the buyer. Therefore, the buyer cannot reject the
goods and repudiate the contract.
„This right, duty or liability that would arise under a contract of sale by
implication of law may be negatived or varied by express agreement or by the
course of dealings between the parties, or by usage, if the usage is to bind both
parties to the contract.‰
This means the parties to a contract of sale may exclude the implied terms by the
express agreement or by previous dealings or by usage.
TOPIC 12 LAW OF SALE OF GOODS (PART I) 201
12.4.1 Title
Section 14 of the Sale of Goods Act 1957 provides the implied undertaking as to
title in a contract of sale. According to the provision, „unless the circumstances of
the contract indicate 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 in the case of an agreement to sell, he will
have a right to sell the goods at the time when the property or ownership is
to pass.
(b) An implied warranty that the buyer shall have and enjoy quiet possession
of the goods.
(c) An implied warranty that the goods shall be free from any charge or
encumbrance in favour of any third party not declared or known to the
buyer before or at the time when the contact is made.‰
A breach of condition entitles the buyer to treat the contract as repudiated and
recover the price in full even though he has used the goods. This is because the
buyer pays the price of the goods in order to enjoy the ownership as well as the
use of the goods.
In the case of Rowland v Divall [1923] 2 KB 500, the plaintiff bought a car from
the defendant. After using the car for four months, the plaintiff discovered
that it was a stolen car and he had to return it to the true owner.
The Court of Appeal held that the defendant had breached the condition as to
title and the plaintiff could recover the full price because of total failure of
consideration.
„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.‰
202 TOPIC 12 LAW OF SALE OF GOODS (PART I)
In addition,
„If the sale is by sample as well as by description, it is not sufficient that the bulk
of the goods corresponds with the sample if the goods do not also correspond
with the description.‰
Sale of goods by description covers all cases where the buyer has not seen the
goods but is relying on the description alone, for example, goods ordered from a
catalogue or if ordered over the counter, by a trade name. Thus, it includes all
contracts for the sale of unascertained goods and sale of specific goods which the
buyer has not seen prior to the contract.
In the case of Nagurdas Purshotumdas & Co. v Mitsui Bussan Kaisha Ltd
(1911) 12 SSLR 67, previous contracts between the parties for the sale of
flour had been sold in bags bearing a well-known trade mark. Further flour
was ordered, described as „the same as our previous contract‰. Flour
identical in quality was delivered but it did not bear the same well-known
trade mark. It was held that it did not comply with the description.
In another case of Beale v. Taylor [1967] 1 WLR 1193, the seller advertised a
car as „Herald Convertible, white, 1961, twin carb⁄‰. The buyer saw the
car before he agreed to buy. Later, he discovered that the rear of the car was
part of a 1961 Herald Convertible while the front half was part of an earlier
model. It was held that he was entitled to claim damages for breach of the
condition.
In the case of Moore & Co v. Landauer & Co [1921] 2 KB 519, the buyers
were entitled to reject the goods because half of the cases contained only 24
tins, even though the total quantity was met. The contract was for 3100
cases of Australian canned fruit packed „30 tins to case‰.
Goods must be reasonably fit for the purpose for which the buyer wants them
(Section 16(1)(a)); or
Goods must be of merchantable quality (Section 16(1)(b)).
But in the case of a contract for the sale of a specified article under its patent
or other trade name, there is no implied condition as to its fitness for any
particular purpose.
The buyer may invoke Section 16(1)(a) if he makes known to the seller the
particular purpose for which he acquires the goods and the buyer is relying
on the sellerÊs skill and judgement. The goods must also be a description
which is in the course of the sellerÊs business to supply and if the goods are
specific, they must be bought under their trade name or patent.
Thus, the buyer must clearly indicate the special purpose for which the
goods are to be used. Otherwise, there is no breach of the implied condition
if the goods are suitable for their general and normal purpose. If the
description of the goods is only for one purpose, then it requires no further
indication. For example, a hot water bottle is meant to contain hot boiling
water; if it breaks upon filling of hot water, then it is not fit for its purpose.
204 TOPIC 12 LAW OF SALE OF GOODS (PART I)
In Baldry v. Marshall [1925] 1 KB 260, the buyer asked the dealer for a
car suitable for touring and the dealer recommended a Bugatti car. A
contract for the sale of the car was made. Later, the buyer found that the
car was unsuitable for touring.
The Court of Appeal held that the dealer was liable because the buyer
had relied on the dealerÊs judgement in selecting a suitable car for the
specific purpose stated by the buyer (even though the car was bought
under its trade name).
Hence, if the buyer purchases goods under its trade name but at the same
time relies on the sellerÊs recommendation, it means the buyer is still
relying on the sellerÊs skill. But if the buyer purchases specific goods under
a trade name and gives the impression that he is not relying on the sellerÊs
skill, then he cannot claim under this section.
However,
„If the buyer has examined the goods, there shall be no implied condition
as regards defects, which such examination ought to have revealed.‰
„Merchantable quality‰ means the goods are fit for the particular use in
which they were sold. Therefore, if they are defective for their purpose,
they are considered unmerchantable.
TOPIC 12 LAW OF SALE OF GOODS (PART I) 205
For implied condition as to merchantable quality, the buyer need not make
known to the seller the particular purpose for which he requires the goods.
The section only requires the goods to be bought by description and bought
from a seller dealing with the goods of that description.
Where goods are sold under their trade name, the implied condition as to
merchantable quality is applicable although the implied condition as to
fitness is excluded.
In Wilson v. Ricket, Cockerall & Co. Ltd [1954] 1 All ER 868, fuel by its
trade name ÂCoaliteÊ was ordered from a fuel merchant. The
consignment was contaminated in that a detonator was embedded in
the coal, resulting in an explosion in the fire-place when used.
In the proviso to Section 16(1)(b), the implied condition does not apply
„where the buyer has examined the goods as regards defects which such
examination ought to have revealed.‰ This means if the buyer has
conducted some examination before or at the time of the contract, the buyer
cannot later complain about the defects which would be revealed by a
proper examination.
In the case of Thornett & Fehr v. Beers & Sons [1913] 1 KB 486, the
buyer had conducted a superficial look at the outside of some barrel of
glue. It was held that there was an examination and thus the implied
condition as to merchantable quality did not apply.
(c) That the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination
of the sample.
The three conditions above are independent of one another. If the bulk
corresponds with the sample but there is a latent defect rendering the goods
unmerchantable, the buyer is still entitled to reject them.
In the case of Drummond v. Van Ingen (1887) 12 App. Cas. 284, the cloth
supplied by the seller was equal to sample previously examined but because
of a latent defect not discoverable by a reasonable examination, the Court
found the seller in breach of the condition.
SELF-CHECK 12.1
ACTIVITY 12.1
Discuss the following questions:
(a) Michael and his wife Betty, were busy shopping for new furniture
for their new house. Three days before moving, they visited a
furniture shop Antique Design. Betty was very interested in a sofa
set from Italy worth RM15,000. The set was made from soft leather,
brown in colour and consist of one coffee table, and they agreed to
buy the set. Both the husband and wife also agreed to buy a double
bed for their daughters. Michael informed the seller that he wanted
a double bed made from good quality wood. The seller assured
Michael that he would meet MichaelÊs request, as he was an expert
and experienced in selling furniture. After payment, the seller
promised to deliver the furniture on the day that they were
supposed to move into their new house. Michael and Betty also
went to Cool Air-Cond, a shop selling air conditioners. The seller
managed to attract Michael to buy a portable air-conditioner at the
price of RM2,000, with a guarantee that the air conditioner could be
used for the next five years without any problem. After checking
the goods and satisfied with their condition, Michael made a
payment. The seller promised to deliver the air conditioner on the
day they move to the new house.
(b) On the day of moving, all of the goods ordered by Michael and
Betty were delivered. Nevertheless, they were disappointed to see
that the sofa set that was delivered was not brown and did not
include the coffee table and that the double bed ordered was not of
good quality wood. Meanwhile, the portable air conditioner that
Michael bought produced a strong noise when it was switched on.
Michael and Betty were very disappointed with what had
happened and seek your legal advice on what action can be taken
on the sellers of the goods.
(c) B placed an advertisement in a local newspaper offering for sale, a
second-hand car at RM40,000 o.n.o. The car was described as
„Toyota, late 2000‰ model. Q responded by offering to buy the car
at RM37,000. The offer was accepted by B. After driving the car for
almost three months, Q discovered that only the body of the car
was of „late 2000‰ model while the engine was from a much
earlier model. Q now wishes to rescind the contract and seeks
your advice on the matter. Advise Q on her rights under the Sale of
Goods Act 1957.
208 TOPIC 12 LAW OF SALE OF GOODS (PART I)
(d) Sally, a contestant in one of the top reality shows in TVReality was
preparing for the final contest to become the winner for the new
season 2008. Sally engaged a professional tailor to sew the dress
suitable for the contest. Sally consulted Robin, a well-known fashion
designer in town, on the choice of fabric for the dress because she
had sensitive skin and was allergic to certain types of fabric. Sally
paid RM3,000 for the cost of the dress. After the contest, Sally
discovered red spots on her skin. She went to see the doctor and was
told that her skin was sensitive to the fabric used for the dress that
she had worn for the contest. Sally went to see Robin and returned
the dress because the fabric used for the dress was not fit for the
purpose she made known to Robin and caused her skin complaint.
Sally also claimed for the refund of the cost of the dress from Robin
and the medical expenses incurred by her. Decide whether Sally
could claim for the refund of her money from Robin as well as the
cost for her medical expenses.
„Unless otherwise agreed, the goods remain at the sellerÊs risk until the property
therein is transferred to the buyer, but when the property therein is transferred to
the buyer, the goods are at the buyerÊs risk whether delivery has been made or
not:
Provided that where delivery has been delayed through the fault of either buyer
or seller, the goods are at the risk of the party in fault as regards any loss which
might not have occurred but for such fault.‰
TOPIC 12 LAW OF SALE OF GOODS (PART I) 209
This means, if delivery has been delayed through the fault of either party, the
goods are at the risk of the party in fault as regards any loss which might not
have occurred but for such fault.
Unless a different intention appears, the following rules are the rules for
ascertaining the intention of the parties as to the time of passing of property
in the goods.
goods for the purpose of putting them into a deliverable state, the property
does not pass until such thing is done and the buyer has notice thereof.
(e) Specific goods in a deliverable state when the seller has to do anything
thereto in order to ascertain price
Under Section 22 of the Sale of Goods Act 1957, where there is a contract for
the sale of specific goods in a deliverable state, but the seller is bound to
weigh, measure, test, or do some other act or thing with reference to the
goods for the purpose of ascertaining the price, the property does not pass
until such act or thing is done and the buyer has notice thereof.
For example, A agrees to sell to B all the flour contained in a specific sack
for RM3 per kilogram. The title does not pass to B until A weighs the flour
and B knows that the flour has been weighed.
Further, Section 23(2) of the Sale of Goods Act 1957 provides that where (in
pursuance of the contract) the seller delivers the goods to the buyer or to a
TOPIC 12 LAW OF SALE OF GOODS (PART I) 211
carrier or other bailee for the purpose of transmission to the buyer, and
does not reserve the right of disposal, he is deemed to have unconditionally
appropriated the goods to the contract. The effect is that property in the
goods passes to the buyer at the time when the goods are handed over to a
carrier (for example, a transportation company such as shipping, trucking
or railway). The carrier is the buyerÊs agent for the purpose of delivery. But
if the carrier is the agent of the seller, then property in the goods will not
pass until the goods are actually delivered to the buyer.
(i) when the buyer signifies his approval or acceptance to the seller or
does any other act adopting the transaction; or
(ii) if he does not signify his approval or acceptance to the seller but
retains the goods without giving notice of rejection, then, if a time has
been fixed for the return of goods, on the expiration of such time, and
if no time has been fixed, on the expiration of a reasonable time.
Under the second situation above, if a time is fixed for the return of the
goods, then property in the goods passes upon the expiration of the time.
But if no time is fixed, property in the goods passes upon the expiration of a
reasonable time.
SELF-CHECK 12.2
1. What is the meaning of property in the goods?
2. What is the significance of the transfer of title or ownership in the
goods?
3. When does the risk pass to the buyer in a contract of sale of goods?
4. How would you determine the time when the property in the
goods passes to the buyer?
5. When is the property in the goods transferred to the buyer in a
contract for sale of unascertained goods?
6. When is the title or ownership transferred to the buyer in a
contract for sale of a specific or ascertained goods?
212 TOPIC 12 LAW OF SALE OF GOODS (PART I)
ACTIVITY 12.2
A contract of sale is the transfer of ownership of the goods to the buyer for a
money consideration.
Where the property in the goods is transferred from the seller to the buyer,
the contract is called a sale.
Where the transfer of the property in the goods is to take place at a future
time or subject to some condition thereafter to be fulfilled, the contract is
called an agreement to sell.
What distinguishes a sale from an agreement to sell is in terms of ownership
or „the property in the goods‰.
A condition is a stipulation essential to the main purpose of the contract, the
breach of which gives rise to a right to treat the contract as repudiated.
A warranty is a stipulation collateral to the main purpose of the contract, the
breach of which give rise to a claim for damages but not a right to reject the
goods and treat the contract as repudiated.
The conditions and warranties implied in a contract of sale of goods bind the
contracting parties, the buyer and the seller.
The parties to a contract of sale may exclude the implied terms by the express
agreement or by previous dealings or by usage.
TOPIC 12 LAW OF SALE OF GOODS (PART I) 213
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu M. A. & Vohrah B. (2000). The Commercial Law of Malaysia (2nd Ed.).
Selangor: Pearson and Longman.
Cases:
Baldry v. Marshall [1925] 1 KB 260.
Beale v. Taylor [1967] 1 WLR 1193.
Cammell Laird & Co v. Manganese Bronz and Brass Co Ltd [1934] AC 402.
Drummond v. Van Ingen (1887) 12 App. Cas. 284.
214 TOPIC 12 LAW OF SALE OF GOODS (PART I)
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Describe the rule of nemo dat quod non habet;
2. Explain the effect of sale by a person other than the owner;
3. Identify the exceptions to the rule of nemo dat quod non habet;
4. Explain the rules relating to the performance of contract of sale; and
5. Discuss the remedies available to the seller and buyer for breach of
contract of sale of goods.
INTRODUCTION
This topic is a continuation of the previous topic on the law of sale of goods. It
focuses on the transfer of title, the rule of nemo dat quod non habet and the
exceptions, the performance of the contract of sale of goods and the remedies
available to the seller and buyer for breach of contract. The rule relating to the
transfer of title protects the right of ownership whereby the right of the original
owner is preserved. However, there are certain circumstances provided by the
law in which a sale by a person other than the owner may confer a good title in
the goods to a bona fide purchaser. Subsequently, the rules relating to the
performance of contract of sale of goods are important in determining the rights
of the seller and buyer in cases of breach by either party to the contract.
216 TOPIC 13 LAW OF SALE OF GOODS (PART II)
„Subject to this Act and of any other law for the time being in force, where
goods are sold by a person who is not the owner thereof, and who does not
sell them under the authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had....‰
This rule protects the right of ownership. The right of the original owner is
preserved and the suit for the tort of conversion can be taken against an
unauthorised seller and an innocent purchaser.
In the case of Lim Chui Lai v. Zeno Ltd [1964] 30 MLJ 314, Zeno Ltd entered
into an agreement with a contractor named Ahmad who had secured
contracts from the Petaling Jaya Authority for construction of culverts.
Under the contract, Zeno Ltd would provide Ahmad with all the materials
for the culverts construction. They brought the materials for the projects and
delivered them to the construction site. Later, AhmadÊs contracts with
Petaling Jaya Authority were cancelled whereupon Zeno Ltd informed the
authority that the materials on the site belonged to them. When they
attempted to sell the materials, they discovered that the materials had been
sold by Ahmad to Lim Chui Lai, the appellant in this action.
In an action for conversion, the Federal Court held that Ahmad was merely
the bailee and not the owner of the goods at the time he sold them to the
appellant. Since Ahmad had no title to the goods or authority to sell them, he
therefore could not transfer any title to the appellant.
However, there are a few exceptions to the rule of nemo dat quod non habet (refer
to Figure 13.1. The exceptions are provided in the following provisions under the
Sale of Goods Act 1957.
TOPIC 13 LAW OF SALE OF GOODS (PART II) 217
Figure 13.1: Exceptions to the rule of nemo dat quad non habet
13.1.1 Estoppel
The provision for estoppel can be found under Section 27 of the Sale of Goods
Act 1957 which states that „.....unless the owner of the goods is by his conduct
precluded from denying the sellerÊs authority to sell‰. This means if the owner of
the goods through his conduct makes the buyer believes that the person who
sells the goods has the authority to sell, then the buyer will acquire a good title of
the goods.
N.Z. Securities & Finance Ltd v. Wrightcars Ltd [1925] 1 NZLR 77.
„Provided that where a merchantile agent is, with the consent of the
owner, in possession of the goods or of a document of title to the
goods, any sale made by him when acting in the ordinary course of
business of a merchantile agent shall be as valid as if he were
expressly authorised by the owner of the goods to make the same;
provided that the buyer acts in good faith and has not, at the time of
the contract of sale, notice that the seller has no authority to sell.‰
„If one of several joint-owners of goods has the sole possession of them by
permission of the co-owners, the property in the goods is transferred to any
person who buys them in good faith and has no notice at the time of the contract
that the seller has no authority to sell.‰
For example, Sheila and Tracey are joint-owners of one refrigerator which they
bought a year ago. Sheila has just moved out from the house that they both
rented from the landlord, Mr Justin. Sheila agreed at the time when she moved
out that the refrigerator is to be kept and used by Tracey who will still occupy the
house. Later, Tracey sold the refrigerator to a friend of hers (Dewi) who bought
it in good faith and did not know that the refrigerator was jointly owned by
Tracey and Sheila. The ownership of the refrigerator is transferred to Dewi.
TOPIC 13 LAW OF SALE OF GOODS (PART II) 219
„Where the seller of goods has obtained possession under a contract voidable
under Section 19 or Section 20 of the Contracts Act 1950, but the contract has not
been rescinded at the time of the sale, the buyer acquires a good title to the goods
provided he buys them in good faith and without notice of the seller's defect of
title.‰
Where the seller of goods has obtained possession under a voidable contract, but
the contract has not been avoided at the time of the sale, the buyer acquires a
good title to the goods provided he buys them in good faith and without notice
of the sellerÊs defect of title. This provision applies to contracts which are
voidable, when the consent of the original owner is caused by coercion, fraud,
misrepresentation or undue influence. The seller must have sold the goods to the
buyer before the original owner rescinded the voidable contract.
Under this exception, a seller who remains in possession of the goods or of the
documents of title for the goods which he had sold can pass a good title to a bona
fide purchaser. Thus, the second buyer gets a good title while the original buyer
loses his.
„Where a person, having bought or agreed to buy goods, obtains, with the
consent of the seller, possession of the goods or the documents of title to the
goods, the delivery or transfer by that person or by a mercantile agent acting for
him of the goods or documents of title under any sale, pledge, or other
disposition thereof to any person receiving the same in good faith and without
notice of any lien or other right of the original seller in respect of the goods shall
have effect as if such lien or right did not exist.‰
This means if a buyer having bought or agreed to buy goods, obtains possession
of the goods or the documents of title with the consent of the seller, he can pass a
good title to a subsequent bona fide purchaser.
The Court of Appeal held that A, the original buyer was in possession with
consent of the plaintiffs. Hence, he could pass a good title to B who then
transferred it to the defendant.
(a) Whether it is for the buyer to take possession of the goods or for the seller
to send them to the buyer is a question depending in each case on the
contract, express or implied, between the parties. Apart from any such
contract, goods sold are to be delivered at the place at which they are at the
time of the sale, and goods agreed to be sold are to be delivered at the place
at which they are at the time of the agreement to sell, or, if not then in
existence, at the place at which they are manufactured or produced.
(b) Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
(c) Where the goods at the time of sale are in the possession of a third person,
there is no delivery by seller to buyer unless and until such third person
acknowledges to the buyer that he holds the goods on his behalf:
(d) Provided that nothing in this section shall affect the operation of the issue
or transfer of any document of title to goods.
(f) Unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state shall be borne by the seller.
222 TOPIC 13 LAW OF SALE OF GOODS (PART II)
(a) Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them, but if the buyer accepts the
goods so delivered, he shall pay for them at the contract rate.
(b) Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the contract
and reject the rest, or he may reject the whole. If the buyer accepts the
whole of the goods so delivered, he shall pay for them at the contract rate.
(c) Where the seller delivers to the buyer the goods he contracted to sell mixed
with goods of a different description not included in the contract, the buyer
may accept the goods which are in accordance with the contract and reject
the rest, or may reject the whole.
(d) This section is subject to any usage of trade, special agreement or course of
dealing between the parties.
(a) Unless otherwise agreed, the buyer of goods is not bound to accept delivery
thereof by instalments.
(b) Where there is a contract for the sale of goods to be delivered by stated
instalments which are to be separately paid for, and the seller makes no
delivery or defective delivery in respect of one or more instalments, or the
buyer neglects or refuses to take delivery of or pay for one or more
instalments, it is a question in each case depending on the terms of the
contract and the circumstances of the case, whether the breach of contract is
a repudiation of the whole contract, or whether it is a severable breach
giving rise to a claim for compensation but not to a right to treat the whole
contract as repudiated.
(b) Unless otherwise authorised by the buyer, the seller shall make such
contract with the carrier or wharfinger on behalf of the buyer as may be
reasonable having regard to the nature of the goods and the other
circumstances of the case. If the seller omits to do so, and the goods are lost
or damaged in course of transit or whilst in the custody of the wharfinger,
the buyer may decline to treat the delivery to the carrier or wharfinger as a
delivery to himself, or may hold the seller responsible in damages.
(c) Unless otherwise agreed, where goods are sent by the seller to the buyer by
a route involving sea transit, in circumstances in which it is usual to insure,
the seller shall give such notice to the buyer as may enable him to insure
them during sea transit, and if the seller fails to do so, the goods shall be
deemed to be at his risk during such sea transit.
(a) Where goods are delivered to the buyer which he has not previously
examined, he is not deemed to have accepted them unless and until he has
had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract.
(b) Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable opportunity
of examining the goods for the purpose of ascertaining whether they are in
conformity with the contract.
Provided that nothing in this section shall affect the rights of the seller where the
neglect or refusal of the buyer to take delivery amounts to a repudiation of the
contract.
(a) Where under a contract of sale the property in the goods has passed to the
buyer and the buyer wrongfully neglects or refuses to pay for the goods
according to the terms of the contract, the seller may sue him for the price
of the goods.
(b) Where under a contract of sale the price is payable on a day certain
irrespective of delivery and the buyer wrongfully neglects or refuses to pay
such price, the seller may sue him for the price although the property in the
goods has not passed and the goods have not been appropriated to the
contract.
(a) The seller of goods is deemed to be an "unpaid seller" within the meaning
of this Act:
(i) when the whole of the price has not been paid or tendered;
TOPIC 13 LAW OF SALE OF GOODS (PART II) 225
(b) In this topic, the term "seller" includes any person who is in the position of
a seller, for instance, an agent of the seller to whom the bill of lading has
been endorsed or a consignor or agent who has himself paid, or is directly
responsible for the price.
(a) Subject to this Act and of any law for the time being in force,
notwithstanding that the property in the goods may have passed to the
buyer, the unpaid seller of goods, as such, has, by implication of law:
(i) a lien on the goods for the price while he is in possession of them;
(ii) in case of the insolvency of the buyer, a right of stopping the goods in
transit after he has parted with the possession of them; and/or
(iii) a right of resale as limited by this Act.
(b) Where the property in goods has not passed to the buyer, the unpaid seller
has, in addition to his other remedies, a right of withholding delivery
similar to and co-extensive with his rights of lien and stoppage in transit
where the property has passed to the buyer.
I. LIEN
(a) Subject to this Act, the unpaid seller of goods who is in possession of them
is entitled to retain possession of them until payment or tender of the price
in the following cases, namely:
(i) where the goods have been sold without any stipulation as to credit;
(ii) where the goods have been sold on credit, but the term of credit has
expired; or
(iii) where the buyer becomes insolvent.
(b) The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer.
226 TOPIC 13 LAW OF SALE OF GOODS (PART II)
(b) The unpaid seller of goods, having a lien thereon, does not lose his lien by
the only reason that he has obtained a decree for the price of the goods.
(a) Goods are deemed to be in course of transit from the time when they are
delivered to a carrier or other bailee for the purpose of transmission to the
buyer, until the buyer or his agent in that behalf takes delivery of them
from such carrier or other bailee.
(b) If the buyer or his agent in that behalf obtains delivery of the goods before
their arrival at the appointed destination, the transit is at an end.
(c) If after the arrival of the goods at the appointed destination, the carrier or
other bailee acknowledges to the buyer or his agent that he holds the goods
on his behalf and continues in possession of them as bailee for the buyer or
his agent, the transit is at an end and it is immaterial that a further
destination for the goods may have been indicated by the buyer.
TOPIC 13 LAW OF SALE OF GOODS (PART II) 227
(d) If the goods are rejected by the buyer and the carrier or other bailee
continues in possession of them, the transit is not deemed to be at an end,
even if the seller has refused to receive them back.
(e) When the goods are delivered to a ship chartered by the buyer, it is a
question depending on the circumstances of the particular case, whether
they are in the possession of the master as a carrier or as agent of the buyer.
(f) Where the carrier or other bailee wrongfully refuses to deliver the goods to
the buyer or his agent in that behalf, the transit is deemed to be at an end.
(g) Where part delivery of the goods has been made to the buyer or his agent in
that behalf, the remainder of the goods may be stopped in transit, unless
such part delivery has been given in such circumstances as to show an
agreement to give up possession of the whole of the goods.
(a) The unpaid seller may exercise his right of stoppage in transit either by
taking actual possession of the goods, or by giving notice of his claim to the
carrier or other bailee in whose possession the goods are. Such notice may
be given either to the person in actual possession of the goods or to his
principal. In the latter case, the notice, to be effectual, shall be given at such
time and in such circumstances that the principal, by the exercise of
reasonable diligence, may communicate it to his servant or agent in time to
prevent a delivery to the buyer.
(b) When notice of stoppage in transit is given by the seller to the carrier or
other bailee in possession of the goods, he shall redeliver the goods to or
according to the directions of the seller. The expenses of such redelivery
shall be borne by the seller.
(a) Subject to this Act, the unpaid seller's right of lien or stoppage in transit is
not affected by any sale or other disposition of the goods which the buyer
may have made unless the seller has assented thereto:
(b) Provided that where a document of title to goods has been issued or
lawfully transferred to any person as buyer or owner of the goods and that
person transfers the document to a person who takes the document in good
faith and for consideration, then, if such last-mentioned transfer was by
way of sale, the unpaid seller's right of lien or stoppage in transit is
228 TOPIC 13 LAW OF SALE OF GOODS (PART II)
(c) Where the transfer is by way of pledge, the unpaid seller may require the
pledgee to have the amount secured by the pledge satisfied in the first
instance, as far as possible, out of any other goods or securities of the buyer
in the hands of the pledgee and available against the buyer.
III. RESALE
(a) Subject to this section, a contract of sale is not rescinded by the mere
exercise by an unpaid seller of his right of lien or stoppage in transit.
(b) Where the goods are of a perishable nature, or where the unpaid seller who
has exercised his right of lien or stoppage in transit gives notice to the buyer
of his intention to resell, the unpaid seller may, if the buyer does not within
a reasonable time pay or tender the price, resell the goods within a
reasonable time and recover from the original buyer damages for any loss
occasioned by his breach of contract; but the buyer shall not be entitled to
any profit which may occur on the resale. If such notice is not given, the
unpaid seller shall not be entitled to recover such damages and the buyer
shall be entitled to the profit, if any, on the resale.
(c) Where an unpaid seller who has exercised his right of lien or stoppage in
transit resells the goods, the buyer acquires a good title thereto as against
the original buyer, notwithstanding that no notice of the resale has been
given to the original buyer.
(d) Where the seller expressly reserves a right of resale in case the buyer should
make default and, on the buyer making default, resells the goods, the
original contract of sale is thereby rescinded, but without prejudice to any
claim which the seller may have for damages.
(a) Where there is a breach of warranty by the seller, or where the buyer elects
or is compelled to treat any breach of a condition on the part of the seller as
a breach of warranty, the buyer is not by reason only of such breach of
warranty entitled to reject the goods; but he may:
(i) set up against the seller the breach of warranty in diminution or
extinction of the price; or
(ii) sue the seller for damages for breach of warranty.
(b) The fact that a buyer has set up a breach of warranty in diminution of the
price does not prevent him suing for the same breach of warranty if he has
suffered further damage.
230 TOPIC 13 LAW OF SALE OF GOODS (PART II)
SELF-CHECK 13.1
1. What is the meaning of the maxim nemo dat quod non habet?
2. Can a seller other than the owner transfer an ownership in
the goods to a purchaser?
3. What is the effect of a transfer of property in the goods by a
seller who is not the owner?
4. Are there any exceptions to the rule of nemo dat quod non
habet?
5. Can a buyer acquire a good title to the goods from a seller
under a voidable contract?
6. What is meant by a bona fide purchaser?
7. What are the rights of an unpaid seller under the statute?
8. What are the remedies available to the buyer when the seller
breaches the contract of sale of goods?
ACTIVITY 13.1
(b) Last August, Rafique sold a car that he possessed as joint-owner with his
wife (Sarah) to Samuel at the price of RM30,000. The sale was made
without the knowledge of Sarah, which disappointed her very much.
Sarah wished to obtain the car and went to see Samuel for such purpose.
However, Samuel refused to allow Sarah to take the car for the reason
that the payment for the car had been given to Rafique and he had no
knowledge about Sarah not consenting to the sale. Advise Samuel on his
right to retain the car.
Nemo dat quod non habet means no one can transfer a better title than he has
himself.
Purchaser can only acquire a good title in the goods if he purchases from the
owner of the goods.
Purchaser will acquire a good title of the goods if the owner of the goods
makes the buyer believe that the person who sells the goods has the authority
to sell.
A merchantile agent is an agent having in the customary course of business
authority either to sell goods, or to consign goods for the purpose of sale, or
to buy goods, or to raise money on the security of goods.
If a seller of goods obtained possession under a voidable contract, the buyer
acquires a good title to the goods provided he buys them in good faith and
without notice of the sellerÊs defect of title.
A seller who remains in possession of the goods or of the documents of title
of the goods can pass a good title to a bona fide purchaser.
A buyer who obtains possession of the goods or the documents of title with
the consent of the seller can pass a good title to a subsequent bona fide
purchaser.
The performance of contract of sale of goods covers the rules relating to
delivery of goods, place and time of delivery and quantity of goods
delivered.
Breach of contract of sale of goods by the buyer includes the buyerÊs failure to
take delivery, to accept goods and to pay for the goods.
Remedies available to the seller include a suit against the buyer for the price
of the goods or damages for non-acceptance of the goods.
232 TOPIC 13 LAW OF SALE OF GOODS (PART II)
Delivery Performance
Estoppel Remedies
Lien Resale
Nemo dat quod non habet Stoppage in transit
Payment Unpaid seller
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Lim Chui Lai v. Zeno Ltd [1964] 30 MLJ 314.
Newtons of Wembley Ltd v. Williams [1965] 1 QB 560.
N.Z. Securities & Finance Ltd v. Wrightcars Ltd [1925] 1 NZLR 77.
Topic Law of
1
144 Hire-Purchase
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the meaning of hire-purchase;
2. Describe the formation and nature of hire-purchase agreement;
3. Describe the parties involved in hire-purchase;
INTRODUCTION
Hire-purchase is part of consumer credits. Consumer credits in Malaysia are
governed by various statutes depending on the types of goods involved. For
instance, the Moneylenders Act 1957, Pawn Brokers Act 1974, Banking and
Financial Institutions Act 1989, Islamic Banking Act 1983, Insurance Act 1963,
Takaful Act 1963 and Cooperative Societies Act 1948. Hire-purchase is basically a
purchase through credit in which the hirer purchases by way of instalment. The
owner (for instance, a financial institution) will hire the goods to the hirer
(purchaser) and the hirer has an option to return the goods and terminate the
contract or buy the goods upon completion of the agreed period. In Malaysia, the
hire-purchase transaction is governed by the Hire-Purchase Act 1967. The Hire-
Purchase Act provides for standard form of agreement for hire-purchase,
regulates the rights and liabilities of the owner and hirer and procedures for
repossession of the goods.
234 TOPIC 14 LAW OF HIRE-PURCHASE
(a) whereby the property in the goods comprised therein passes at the time of
the agreement or upon or at any time before delivery of the goods; or
(b) under which the person by whom the goods are being hired or purchased is
a person who is engaged in the trade or business of selling goods of the
same nature or description as the goods comprised in the agreement.‰
In hire-purchase, property in the goods does not pass at the time of the
agreement, before delivery of the goods or at the time of delivery. In hire-
purchase agreement, there would be a seller or dealer who offers the goods for
sale to a purchaser. However, this seller does not offer payment by instalment to
the purchaser. Thus, the seller will sell the goods to a finance company which
will subsequently hire the goods to the purchaser under the hire-purchase terms.
Therefore, there will be an original sale between a seller and and a finance
company and a hire-purchase agreement between a purchaser and a finance
company.
(b) Motor vehicles including invalid carriages, motor cycles, motor cars (for
example taxi cabs and hire cars), goods vehicles (the maximum permissible
laden weight does not exceed 2540 kilograms) and buses (including stage
buses).
TOPIC 14 LAW OF HIRE-PURCHASE 235
The respondent paid all the amount claimed by the appellant and the
ownership of the tractor had been transferred to the respondentÊs name. The
respondent contended that the agreement between the respondent and the
appellant was not a hire-purchase but an ordinary sale of goods. Therefore,
the appellantÊs action in taking possession of the tractor when the respondent
defaulted in making instalment payments was against the law.
The Court held that: On a proper construction of the agreement, it was clearly
the intention of the parties that the property in the tractor was not to pass until
full payment is made. Thus, it was not a sale on instalment terms but rather in
the nature of a hire-purchase. The appellant therefore had the right to
repossess the tractor on breach of the terms of the agreement by the
respondent.
236 TOPIC 14 LAW OF HIRE-PURCHASE
Section 4C(1)(c) of the Hire-Purchase Act 1967 further provides that the following
information shall be included in the hire-purchase agreement and failure to
comply with this provision will render the agreement void:
(a) Date of the commencement of hiring;
(b) Number of instalments to be paid by the hirer;
(c) Amount of each instalment;
(d) Time for payment for each instalment;
(e) Description of the goods; and
(f) Address where the goods are kept.
If there are more than one goods, Section 4D(1) of the Hire-Purchase Act 1967
requires a separate hire-purchase agreement to be prepared for every item.
Failure to observe the requirement will render the agreement void under Section
4D(2).
SELF-CHECK 14.1
1. What is the meaning of hire-purchase?
2. How is a hire purchase agreement different from an ordinary
contract of sale of goods?
3. How do you describe the relationship between all parties
involved in the hire purchase agreement?
4. What is the importance of hire purchase as one of the consumer
credits in Malaysia?
5. What are the types of goods that fall within the First Schedule of
the Hire Purchase Act 1967?
6. What are the important requirements for the formation of a hire-
purchase agreement?
TOPIC 14 LAW OF HIRE-PURCHASE 239
(a) The owner has the right to sell the goods at the time when the property is to
pass (Section 7(1)(b)).
(b) The goods sold to the hirer must be of merchantable quality (Section 7(2)).
There is no definition of merchantable quality under the Hire-Purchase Act
1967 but it means the same as Section 16 of the Sale of Goods Act 1957.
(i) Where the hirer has examined the goods or a sample and the
examination ought to have revealed the defects;
(ii) If the goods are used items (second-hand goods) and the agreement
contains a statement that the goods are second-hand and all
conditions and warranties as to quality are expressly negated; and
(iii) The owner proves that the hirer has acknowledged in writing that the
statement was brought to his notice.
(c) The goods must be fit for the hirerÊs purpose (Section 7(3)). The implied
condition as to fitness shall not apply to second-hand goods and where
exclusion of the implied conditions and warranties as to fitness is expressly
spelt out in the agreement.
240 TOPIC 14 LAW OF HIRE-PURCHASE
The Act lays down certain procedures that require mandatory compliance.
Failure to observe such procedures gives the right to the hirer to challenge the
validity of the repossession by the owner.
TOPIC 14 LAW OF HIRE-PURCHASE 243
In the case of death of the hirer, under Section 16(1A), the owner can
repossess the goods after there have been four consecutive defaults of
payment.
Held: The act of KUBB to repossess the car without giving any 4th
Schedule Notice was considered as invalid procedure under section
16(1) of the Hire-Purchase Act 1967.
244 TOPIC 14 LAW OF HIRE-PURCHASE
Held: The Hire-Purchase Act 1967 did not specify any time limit within
which an owner must repossess goods after the service of the notice.
In Pang Brothers Motors Sdn Bhd v. Lee Aik Seng [1978] 1 MLJ 179, the
appellant repossessed the car purchased by the respondent through hire-
purchase. The notice of repossession has been served two days less of the
required notice period under section 16(1) of the Hire-Purchase Act 1967.
The court held that: The notice which was served less than 21 days before
repossession was invalid.
After 14 days of the service of the Fourth Schedule notice, a notice under
Rule 3 of the Regulation shall be served on the hirer. This notice is intended
to inform the intention of the owner to take possession of the goods. Failure
to issue this notice is an offence under Rule 9 of the Regulation.
After the goods had been repossessed by the owner, he must prepare a
short description of the goods and the date, time and place where the
repossession of the goods had taken place.
14.8 INSURANCE
According to Section 26(1) of the Hire-Purchase Act 1967, the owner has to take
the insurance cover in the name of the hirer for the goods under the hire-
purchase agreement. For motor vehicles, the obligation of the owner to take
insurance cover is for the first year of the agreement. For the following years, the
hirer is under the duty to insure (Section 26(2)). For other goods, the cover is
taken out throughout the duration of the goods remain under hire-purchase. For
renewal of motor vehicle insurance, a hirer must inform the owner that he has
renewed the policy not less than 14 days before its expiry (Section 26(5)). If the
TOPIC 14 LAW OF HIRE-PURCHASE 247
hirer fails to renew the policy, the owner may proceed to insure the motor vehicle
and the hirer must bear the cost (Section 26(6)).
SELF-CHECK 14.2
1. What are the implied terms contained in a hire-purchase
agreement?
2. Under what situation is a condition of merchantable quality not
implied in hire-purchase?
3. What are the rights of a hirer against a dealer or an owner who
makes a misrepresentation?
4. What are the statutory rights of a hirer under the hire-purchase
agreement?
5. What are the situations that give the right to the owner to
repossess goods under hire-purchase?
6. Can the owner repossess goods from the hirer without giving
notice? Why?
7. Is the service of notice of repossession under the Fourth and
Fifth Schedule mandatory?
8. What are the rights of a hirer after repossession?
9. What is the effect of non-compliance of the repossession
procedures laid down under the Hire-Purchase Act 1967?
248 TOPIC 14 LAW OF HIRE-PURCHASE
ACTIVITY 14.1
(a) Explain the procedures for the repossession of goods under a hire
purchase agreement as provided in the Hire-Purchase Act 1967.
(b) Ashraf has just started working with a new company after his
employment was terminated from the previous company for
reason of retrenchment. Three months before he was terminated,
he bought a car from Citra Merdeka Cycle & Carriage and for the
purpose of financing, Ashraf obtained a loan from Jimat Kira
Finance Berhad. Ashraf had no problem paying the instalment of
the car until the end of February 2007, when he was retrenched.
Due to his financial difficulty, Ashraf has defaulted in making
two monthly instalments for the car. As a result of the default in
payment, without any notice, JJ was sent by Jimat Kira Finance to
AshrafÊs house to repossess his car. Ashraf, in upholding his
right, showed JJ his „parang‰ and said, „Get out or youÊll die‰.
Discuss whether Ashraf has the right to evict JJ.
(c) Zakri, a clerk was terminated from his company two months ago.
Since then, Zakri had no other financial means and was unable to
pay the monthly instalments for his Myvi car. One day, while
Zakri was driving his car, three men stopped him. They claimed
that they were instructed by ZakriÊs financier to repossess the car
due to his failure to pay the monthly instalments. Zakri was
shocked and immediately surrendered the keys of the car to the
three men. The three men told Zakri that if he wanted to claim
his car, he had to settle the instalment arrears with the financier.
Zakri managed to borrow money from his friend for the
settlement of the arrears. Unfortunately, he was informed by the
financier that his car had already been sold to Ali. Discuss the
legality of the repossession and the sale of the car to Ali.
TOPIC 14 LAW OF HIRE-PURCHASE 249
Conditions Hirer-purchase
Dealer Owner
Goods Repossession
Hirer Warranties
250 TOPIC 14 LAW OF HIRE-PURCHASE
Text Books:
Harlina Mohamed On & Rozanah Ab. Rahman. (2007). Undang-Undang
Perniagaan Malaysia. Selangor: Kumpulan Usahawan Muslim Sdn. Bhd.
Wu M.A. & Vohrah, B. (2000). The Commercial Law of Malaysia (2nd ed.).
Selangor: Pearson and Longman.
Cases:
Pang Brothers Motors Sdn Bhd, v Lee Aik Seng [1978] 1 MLJ 179
Public Prosecutor v Mohamed Nor [1988] 3 MLJ 119
Tractors Malaysia Bhd v Kumpulan Pembinaan Malaysia Sdn.Bhd. [1979] 1
MLJ 129
United Manufacturers Sdn. Bhd. v Sulaiman bin Ahmad & Anor [1989]