The Mindmap Book

The TOPIC 1: CONTENTS OF
Mindmap CONTRACT

Book TOPIC 2: PRIVITY OF
CONTRACT

TOPIC 3: ILLEGALITY
& VOID CONTRACTS

DAYANG FARAH AMALINA BINTI AHMAD MARZUK (2022104779)

HANNA MAHFUZAH BINTI KAMARUZZAMAN (2022947045)
NUR NAZMANIZA ELIESYA BINTI ROSMAN (2022950237)
RIDWANA AWATIF BINTI RASLI (2022782911)



HOW IT CAN BE Topic 1 Contents of CLASSIFICATION OF TERMS:
IDENTIFIED? Contract
1. Condition - terms that go to the very root of a contract. It forms
Oral contract

How? - By the words actually used by the an essential part of the contract. Breach of these terms

parties. invalidates the contract, allowing the other party to discharge the

A question of factwill be determined by court. contract and claim damages. - S 12(2) SOGA 1957

The presence of witness will often be vital. TESTS/GUIDELINES

Case: Ching Yik Development Sdn Bhd v Setapak Heights

Written contract 1.The Time Factor Development Sdn Berhad (1996) 3 MLJ 675.
How? - It can be in written form. 2.The Writing Factor
3.The Relative Skill and Knowledge Test 2. Warranty- less imperative than a condition, so the contract will
.CA 1950 4.Importance of the statement. survive a breach. Breach of a warranty will give rise to damages,
No provision that specifically deals with not termination of contract. - S 12(3) SOGA 1957

the contents of the contract. TWO TYPES OF

Characteristics: STATEMENTS: Case: Bettini v Gye (1876) 1 QBD 183, Baker v Asia Motors Co Ltd
contractually (1962) MLJ 425, Ching Yik Development Sdn Bhd v Setapak
binding. 1. Representation: A statement TYPES OF TERMS: Heights Development Sdn Berhad(1996) 3 MLJ 675
promissory that induces a party to enter

into a contract, which may be 1. Express Terms: Terms specifically

Effect of breach: an enforceable term or a mere agreed upon by the parties 3. Innominate–consequences depended on the
Remedy of representation, having no actual outcome of breach. If the nature and
damages and/or contractual effect. - E.g: price, quality, quantity. consequences are sufficiently serious, breach of it
may discharge the contract. - S 12(2) SOGA 1957
- Terms which are made tion2. Implied terms: Terms which,
be vital and are written though may have been Case: Hong Kong Fir Shipping Co Ltd v Kawasaki
recission. 2. Term: A statement becomes a Kisen Kaisha[1962] 2 QB 26,
the contract. Ching Yik Development Sdn Bhd v Setapak Heights
Depending on the term when it is incorporated into - May be agreed upon by discussed, are not Development Sdn Berhad(1996) 3 MLJ 675
specifically included
type of contract. the contract, and becomes word/mouth.
- Terms which are valid and
Characteristics: part of the contract. in the contract.
- Terms which “goes without
Not contractually enforceable.
binding. Effect of breach: saying.”
statement made by 1 Typical remedy
partybefore the damages (for - The courts will have to
contract is formed. misrepresentation)
“read” or “imply” into the

contract.

Parol Evidence Rule

Prohibits a person from adducing oral evidence where the terms of the contract have been put into writing.
The courts will not allow parties to adduce extrinsic evidence to add to, vary, or contradict the terms of the
written document.
The rule aims to protect the written contracts’ original content, which will contribute to maintaining its
certainty and stability. Without the rule, no agreement would be safe from being re-written by one party in a
court of law.

S.91 of the Parol S.92 of the Parol Evidence Act

Evidence Act 1950 1950
When the terms of any such contract... have been proved
When the terms of a contract... according to Section 91, no evidence of any oral agreement
have been reduced by or by or statement shall be admitted as between the parties to
consent of the parties to the any such instrument or their representatives in interest for
form of a document... no the purpose of contradicting, varying, adding to or
evidence shall be given in proof subtracting from its terms.
of the terms of the contract... Case: Keng Huat Film Co. v Makhanlal [1984] 1 MLJ 243
except the document itself.

Parol Evidence Rule

EExxcceepptitoionnsstotoththeePPaarrool lEEvvidideenncceeRRuulele(P(PrroovvisisoototoSS.9.922EEAA11995500) )

Section 92(a): Any fact may be proved Case : Held: The Federal Court disagreed with the trial judge’s approach. The
which would invalidate any document or evidence sought to be adduced did not come within provisos (a) or (b) of
entitle any person to any decree of Tindok Besar Estate Sdn Bhd v Section 92, but was evidence adding a new term to the agreement. Unless
order relating thereto. Tinjar Co the additional evidence sought to be adduced falls within any of the
Section 92(b): The existence of any
exceptions in Section 92, Evidence Act, it should not be introduced as it
separate oral agreement, as to any would be to contradict, vary, add or subtract to the terms of the
matter on which a document is silent agreement.
and not inconsistent with its terms, may Chang Min Tat FJ: The contract could only be proved by the document
be proved. (Collateral contract) itself, and it is not open to the respondent to seek to introduce and the
Section 92(c): The existence of any judge to admit evidence that would... add new terms.
separate oral agreement constituting a
condition precedent to the attaching of
any obligation under any such contract.

Parol Evidence Rule

Exceptions to the Parol Evidence Rule (Collateral Contract)

The burden of proving the existence of a collateral contract is upon the party alleging its existence.

Explanation Conditions

Used to overcome the parol evidence 1.The collateral contract must exist side by side (separately) with the main contract, and yet
rule to admit pre-contractual independent.
statements that had not been Case: Tan Swee Hoe Co Ltd v Ali Hussain Brothers
incorporated into the written
agreement. 2.The statement must be promissory in nature and has induced the party to enter into the contract.
A mere representational statement is an insufficient basis upon which a collateral contract is to be
Use of Collateral contract found.
Parties must have intended for the collateral contract to be incorporated.
>To enable oral statements made to be
admitted as a separate oral contract and 3.The collateral contract must override any inconsistent written term
collateral to the principle agreement. Where the collateral contract contradicts a written term in the main contract, then it is said to override
>Confers certain rights, not in the main the inconsistent written term.
contract. Case: Tan Chong & Sons Motor Company Sdn Bhd v Alan McKnight

4.The collateral contract cannot destroy the main contract.
The collateral contract cannot destroy the written contract entirely, as it can only exist if there is a
written contract.
A collateral contract does not have the effect of substituting the main contract.
>It merely confers certain other rights which are not incorporated in the main contract.

By Custom Implied Terms By Law

3 basic requirements: Terms which “goes without SOGA 1957 (Revised 1989)
1) Not inconsistent with saying.” S14
expressed terms
The courts will have to a) Implied condition as to title
Preston Corporation Sdn Bhd v “read” or “imply” into the Rowland v Divall [1923]
Edward Leong [1982]

contract. b) Quiet possession
Microbeads A. G. v Vinhurst
2) Reasonable By Court Road Markings Ltd [1975]
Cheng Keng Hong v Government
3 tests: c) Free of encumbrances
of the Federation of Malaya 1) Bussiness efficacy test S15 (Sale by description)
[1966]

Moorcock (1889) Re Moore and Landauer [1921]
2) Officious bystander test S16 (1) Implied condition as
3) Knowledge of custom to fitness or quality
Shirlaw v Southern Foundries S17 (Sale by sample)
Cunliffe-Owen v Teather & [1940] Parker v Parker [1821]
Greenwood [1967]

3) Combined test
Sababumi (Sandakan) Sdn Bhd v

Datuk Yap Pak Leong

Exclusion/Exemption Clause

A clause may be inserted into a contract which aims to exclude or
limit one party's liability for breach of contract or negligence.
G.H.L. Fridman defines it as "such as clause that excludes or modifies
contractual obligation.

1.Limits liability to cases of willful neglect or default. Is the exclusion clause valid?
2.Excludes or restricts liability which would otherwise There are 2 steps used by the court to
determine a fair and reasonable
attach to a breach of contract such as liability to be exemption/exclusion clause in a
sued for breach or be liable for damages. contract/contractual obligation.
3.Limits the amount of damages(or otherwise called
limitation clause) in the event of breach of the i) Incorporation
contract by one party. ii) Interpretation

INCORPORATION Exclusion Clause BY COURSE OF DEALING
(Incorporation)



An exemption clause must be 1) Exclusion clause are incorporated where there are
consistency in the course of dealings between parties
incorporated into the contract as a term. of the same.
Case : McCutcheon v David MacBrayne [1964]
There are three types of exclusion clause Case 1 WLR 125
i) Case : Olley v Marlborough Court [1949] - Held : The exemption clause could not be not be
by Incorporation: Other case 1 KB 532 incorporated into the contract.
i) Signed document
ii) By unsigned document/Notice Case : Curtis v Chemical Cleaning Co -Held : The contract was entered before 2) To prove againts a private consumer, a number of
[1951] 1 KB 80 past transactions are required (frequency).
iii) Course of dealing plaintiffs entered the hotel room, Case : Hollier v Rambler Motors [1972] 2 AB 71
-Held : The defendant could not rely on - Held : It was held that there was not a regular
and as a notice of the exemption course of dealing, therefore the defendants
the exemption clause because were liable.
clause was given after the
BY SIGNED DOCUMENT the shop assistant had 3) An exclusion clause can still become part of the
contract was entered into and it contract through trade usage or custom even without
misrepresented the exact scope course of dealing.
was not incorporated into the
A party is bound by the contract despite if he has of the clause
contract.

not read or understand the contract.

The signature rule will not apply if there was fraud

or misrepresentation as to the effect of the

exemption clause.

Case : L'Estrange v Graucob BY UNSIGNED DOCUMENT/NOTICE Case : British Crane Hire v Ipswich Plant Hire
Ltd [1934] 2 KB 394 [1974] QB 303.
The exclusion clause may be in the form of a ticket or a
-Held : The plaintiff was bound by her printed notice and must be known to the user/buyer - Held : The court held that the terms would be
signature despite the fact that the before or at the time the contract was made. incorporated into the contract and the
relevant clause was in small print In such a case, reasonable and sufficient notice of the defendants were liable for the expense
and despite the fact that she had involved in recovering the crane.

not read it. existence of the exclusion clause should be given.

Requirement for valid exclusion clause:

Case i) The clause must be contained in a contractual Case
i) Case : Parker v South Eastern Railway Co document. i) Case : Chapelton v Barry Urban District

ii) Exemption clause must be brought to the [1940] 1 KB 531

[1877] attention of the party. -Held : The exemption clause could not be

-Held : It is insufficient that the person in iii) Reasonably sufficient notice of the clause relied upon because it was in a

question knows that there was must be given. ticket which merely a receipt about

writing on the ticket but he must be the payment received.

given sufficient notice of the clause.

INTERPRETATION Exclusion Clause iii) RULE OF LAW
(Interpretation)
After it has been determined that the A party should not rely on an exclusion clause
exemption clause has been properly ii) EFFECT OF NEGLIGENCE if he has breach a contract which goes to the
incorporated into the contract, the clause core and root of the contract.
must be interpreted in order to determine if The party relying on the clause will not be liable Case : CIMB Bank Bhd v Anthony Lawrence
it covers the event which has occured. for whatever caused.
There are four matter regarding the Clear words must sufficiently used to show the Bourke & Anor [2019] 2 CLJ 1
interpretation of exclusion clauses which intention to exclude the negligence. - Held : The exclusion of a liability clause in the
are : Case : Chin Hooi Nan v Comprehensive Auto
agreement cannot be sustained and
i) Contra proferentum rule Restoration Service Sdn Bhd cannot absolve the bank
ii) Effect of negligence - Held : Despite being wide and general, an
iii) Rule of law from liability in contract or tort.
iv) Rule of construction exemption clause does not absolve the
respondents from proving that the iv) RULE OF CONSTRUCTION
i) CONTRA PROFERENTUM RULE damage caused to the car was not
caused by their negligence or A rule for interpreting legal instruments(contract
Applies if there is an uncertainty in the meaning and misconduct. and statutes).
scope of the words used.("howsoever caused" is too Case : Sekawan Guards Sdn Bhd v Thong Guan Case : Photo Production Ltd v Securicor
general) Sdn Bhd
The court will interpret the ambiguous phrase againts - Held : The exclusion clause was invalid. Transport Ltd
the party that rely on the clause in favour of the other - Held : The defendants effectively modified their
party.
Case : Malaysia National Insurance Sdn Bhd v Abdul obligation under the contract to the
. exercise of due diligence in their
Aziz bin Mohamed Daud
- Held : The respondent fell in the category people who capacity as employers, and no evidence

had been permitted to drive the motor vehicle of any lack on their part to prevent the
and was not disqualified by the court of law or
by reason of any regulation from driving the fire. The clause was adequate to cover
vehicle. the appellant's position.

Topic 2:

Privity of Contract

The Doctrine Common Law Position Malaysian Law Position

- Only persons who are parties to a Tweddle v Atkinson [1861] - Same as common / English Law
contract have enforceable rights Held: The plaintiff was not - Main aspects of the doctrine:
and obligations to entitled to recover the unpaid sum 1. contracting party cannot impose
sue or be sued on the contract. as he was a stranger to the

any liability or burden on the
contract even though third party
- A contract cannot be enforced by it was made for his benefit.
or against third parties. Badiaddin bin Mohd Mahidin & Anor v

Beswick v Beswick [1966] Arab Malaysian Finance Bhd [1998]
Held: The widow could only enforce 2. a person who is not a party
- General rule: “No stranger to the to the contract cannot enforce the
consideration can take advantage of the nephew’s promise in her rights under the contract
capacity as an administratrix, and Kepong Prospecting Ltd v Schmidt
a contract, even [1968]
if it is made for his benefit.” she was entitled to an order of
specific performance against the


nephew.

01 Exceptions 04
to the
AGENCY ESTOPPEL
Privity of
02 Contract 05

TRUST RESTRICTIVE
COVENANTS

03 07 08 06

ASSIGNMENT RESTITUTION/ CONTRACT OF COLLATERAL
GUARANTEE CONTRACT
UNJUST

ENRICHMENT

exception What is Example of
Agency? Agency?
AGENCY
Where an agent is The legal relationship
authorised to represent his between an agent and a
principal in his dealings with principal is an agency.

a third party. Example of
Agency?
Case Explanation
Client (P) and lawyer (A)
Case: Beswick v Beswick. [1966] In a dealing, there are three parties Employer (P) and employee (A)
Ch. 538. involved: House owner (P) and housing
agent (A)
The party succeeded in her 1. Principal Company (P) and director (A)
claim as there was no reason 2. Agent Car dealer (P) and salesman
why a party to an agreement for 3.Third party (A)
the benefit of a third party
could not recover all the The principal and agent are in an
damages suffered by the third employment contract where the terms of
party from the breach of appointment and authority have been set
contract. out.
The agent made an agreement with the
third party to sell the house at a certain
price.
The agreement made by the agent binds
the third party and the principal.

exception What is Trust? Example of Trust?

TRUST Where the court ruled that When A and B enter into a
the parties intended to set contract, and A promises B
Case up a trust of the benefit of that A will do something for a
the contract in favor of a third party, e.g. pay money,
Case: Ramli bin Shahdan v Motor the courts have occasionally
Insurers’ Bureau of West Malaysia & third party. treated B (promisee) as a
Anor (2006) 1 AMR 277
trustee of the rights of the

The court held that when a contract is Case third party beneficiary.
made between the first respondent and

the second respondent for the benefit Case: Trident General Insurance Co Ltd
of the appellants, then the second v McNiece Bros Pty Ltd (1988) Explanation
respondent can sue for the benefit of
the appellants and recover all that the There was a contract of insurance between Blue BUT must first prove the trust
appellants would have recovered Circle, a construction company, and Trident. The relationship exists.
insurance policy defined ‘the assured’ as ‘Blue If the promisor fails to carry out
Circle, its subsidiaries and ‘all contractors and the promise, the trustee and
subcontractors’’. McNiece was a principal the beneficiary are allowed to
contractor for Blue Circle and relied on the join together as co-claimants
insurance policy for indemnity when he was sued to sue the promisor for
by a crane driver for negligence. This claim was breaking the promise.
denied by Trident on the ground that McNiece
was not a party to the insurance contract.
However, the Court allow McNiece’s claim partly
because Blue Circle held part of the contractual
rights on trust for McNiece.

exception What is
Assignment?
A S S I G N M E Example of
N T A transfer of contractual Assignment?
rights from the assignor to a
Where there is a contract
third party, the assignee. between A and B and B
assigns the benefit of the
contract to C, C can enforce
the contract against A

Case Case

Case: Darlington Borough Council v. Case: Perkayuan OKS v Kelantan
Wiltshire Northern Ltd [1995] 3 All ER SEDC
895
The Court of Appeal held in favour of the Appellants entered into an agreement with the respondents
Council. Both Wilshier and Morgan Grenfell whereby the appellants were allowed to carry out logging in a
intended the contract to benefit the Council. It timber concession. The respondents then served a notice on the
was foreseeable that any breach would cause appellants to terminate the agreement alleging that they had
the Council loss. Accordingly, the Council breached it by assigning the main agreement to a third party
gained the right to recover their own damages without the respondents’ written consent.
when Morgan Grenfell assigned their Held: There was no breach of contractual rights as the contract
contractual rights. The Court held that damages between the appellant and the third party was merely a sub-
should be assessed as if the Council had contract and not an assignment of the main agreement.
always been a party to the contract.

exception What is What is
Estoppel? Estoppel?
ESTOPPEL
Estoppel is where a 3rd Estoppel is where a third
Case party has relied on party has relied on

assumption induced by assumption induced by
another that a benefit would another that a benefit would

be conferred upon him 0r be conferred upon him 0r
her. her.

Case

Case: Tropical Profile Sdn Bhd v Case: Boustead Trading (1985) What is
Kerajaan Malaysia Jabatan Kerja Raya Sdn Bhd v Arab-Malaysian Estoppel?
Malaysian & Ors [2007] 8 MLJ 419 Merchant bank BHd [1985] 3 MLJ
331 Estoppel will prevent the
High Court declared that the 1st def. was promisor from denying the
estopped from making payments to the The Federal Court decided promise had been made.
2nd def. and that the 1st def. held the
money on trust for the benefit of the that mere silence can also
plaintiff.
In this case, the def. made a contract constitute active
with the 6th def. to build a highway.
encouragement and give rise

to estoppel.

exception What is Restrictive What is Restrictive
Covenant? Covenant?
R ECSOTVREINCATNITV E
A private agreement between Restrictive covenants once agreed
for right for easement: land owners where one party will between the parties, are placed in the
right attached to the restrict the use of its land in title deeds to the property. They bind
land- (Burden Rule some way for the benefit of the land and not the parties personally.
another's land.
Case
Case What is Restrictive
Case: Tulk v Moxhay (1848) Covenant?

P sold land (garden) in Leicester Case: Tan Kam Cheong v Stephen Leong In other words, the restrictive
Square to Elms with the covenant that Kon Sang [1980] 1 MLJ 36. covenant 'runs with the land'. This
Elms should not build upon it and means that the covenant continues
preserve it in its existing condition. After Held: Contract between vendor and even when the original parties to the
several conveyances, the garden was respondents contained a stipulation covenant sell the land on to other
sold to Moxhay. Though, Moxhay knew of that the respondents shall have people.
the covenant, he proposed to built. access to the rooftop for the
inspection of the water tank and such What is Restrictive
P sought for an injunction. Held: access will be via staircase. The Covenant?
Injunction was granted, since the D appellant knew about this although he
knew about the covenant. Covenant was not a party to that contract. Owner of land attaches covenant to subsequent
bound the D (TP). Hence he was bound by that purchasers/owners (TP) The covenant runs with
covenant. the land provided subsequent purchaser /owner
(TP) has knowledge of the covenant. TP bound
by the covenants.

exception What is Collateral
Contract?
C O L L A T E R A L
C O N T R A C T A separate (collateral) contract between the
promisor and the third party.

Case Case: Shanklin Pier v Detel Products (1951)2
All ER 471

Held: in addition to the contract of sale of the paint,
there was a collateral contract between P and D by
which in return for the P specifying that D’s paint
should be used, the D guaranteed its suitability.

exception What is
Restitution/Unjust
RESTITUTION/
UNJUST ENRICHMENT Enrichment?

When a promisor has received consideration
for a promise but later refused to fulfill the
promise on the ground that the third party was
not a party to the contract and this may give
rise to a cause of action by the third party
under the principle of unjust enrichment.
It is recognized and applied widely in Australia.
Restitution allows a person to obtain again the
benefit given to another party in a situation
where it is unjust that the party retains the
benefit.
Its law is governed by Section 71 of the
Contracts Act 1950.

exception What is Contract of What is Contract of
Guarantee? Guarantee?
C O N T R A C T E O F
G U A R A N T E S. 79 of Contracts Act 1950 states Where there is an undertaking by the
that a contract of guarantee is a guarantor that if the debtor fails to pay,
Guarantee may be contract to perform the promise of a the guarantor will perform the contractual
either oral or written. third person in case of his default. obligation.
Surety : Person giving the guarantee. S. 81 of Contracts ACt 1950 says the
What is Contract of Debtor : Person for whoose default liability of a guarantor arises only upon
Guarantee? the guarantee is given. the failure of the debtor's obligation to
Creditor : Person to whom the pay(breach of contract).
Essentials of a Guarantee guarantee is given.
- Capacity of Parties Case
- S. 80 of Contracts Act 1950 Case
Case : UMK v Zainal Abidin & Ors.
Consideration. Capacity of Parties : The parties must have Held : The guarantors cannot be held liable
legal capacity to enter into a contract. In the as payment of the sum spent would only be
Case case of individuals, they must be of the age of made by them if Zainal gad completed his
majority. studies and later defaulted in payment.
Further, Zainal cannot be held liable as he
S. 80 of Contracts Act 1950 Consideration : Case : Government of Malaysia v Gurcharan returned to serve with the consent of UKM
Anything done, or any promise made, for the Singh [1971] itself.
benefit of the principal debtor may be sufficient
consideration to the surety for giving the guarantee. Held : Chang Min Tat, judge dismissed the
goverment's claim againts the guarantors.

Case : Low Chin Meng v Cimb Islamic Bank Bhd [2014]
Held : The remedy of the creditor therefore is to sue
the surety on his own undertaking in the contract of
guarantee.

S.24 of Contracts Act 1950 is the primary source of TOPIC 3 An agreement may become illegal
illegality in Malaysia. ILLEGALITY because of :
S.24 - The consideration or object of an agreement
AND VOID i) Unlawful consideration
is lawful,unless these 5 circumstances : CONTRACTS ii) Unlawful object
a) it is forbidden by law. S.10 of Contracts Act 1950 stated
b) it is such a nature that, if permitted, it would CONTRACTS NOT AFFECTED BY ILLEGALITY that '.... the consideration and object
defeat any law. - When the statutes itself saves the contract of the agreement must be lawful...
c) it is fraudelent. - Case : Rengamah a/p Rengasamy v Tai Yoke Lai Lawful consideration
d) it involves or implies injury to the person or Illustration (a) : sale of property
property of another. & Anor [] Illustration (b) : a contract of guarantee
e) the court regards it as immoral, or opposed EFFECT AND REMEDY Illustration (c) : a contract of insurance
to public policy. - Effect : Illegal contract is void and unenforceable Illustration (d) : a contract for services
Unlawful consideration
S.24 (a) : Agreements which are forbidden by law under S.24 illustration (f) : opposed/againts public
-Cases : 1)Haji Hamid bin Arifin v Ahmad bin Mahmud [1976] - Remedy : S.66 provides the remedy of restitution.
- Remedy for restitution available under 2 conditions : policy
2)Foo Say Lee v Ooi Heng Wai [1969] Unlawful object
S.24 (b) : Agreements which would defeat the law 1) Agreement is discovered to be void
-Cases : 1) Hee Cheng v Krishnan [1955] MLJ 103 2) The other party has received an advantage Illustration (e) : fraudulent
- Case : Ahmad bin Udoh v Ng Aik Chong [1970] Illustration (g) : fraudulent
2) Lim Kar Bee v Duofortis Properties (M) Sdn Bhd SEVERABILITY Illustration (h) : opposed/againts public
[1992] - Case : Murugesan v Krishnasamy [1958]
policy
S.24 (c) : Agreements involving fraud Example cases :
-Case : Datuk Jaginder Singh v Tara Rajaratnam [1983] 1) Arumugam v Somasundram [1934]
S.24 (d) : Agreements that cause injury 2) Aroomoogum Chitty v Lim Ah Hang
-Cases : 1)Syed Ahamed b Mohammed Alhabshee v Puteh
[1894]
bte Sabtu (1922)
S.24 (e) : Agreements that are immoral/opposed to public

policy
Illustration (j) and (k) are examples of immoral agreements.
-Case : Theresa Chong v Kin Khoon & Co [1976]

(a) SECTION (d)
24
Agreements that Agreement that
are forbidden by of CA 1950 cause injury

law Syed Ahamed Mohamed Alhabshee v
Puteh Satu
1. Both subsection (a) and (b) refer to agreements that are

illegal for expressly contravening a statute or any
subsidiary legislation or by implication. Held: The agreement was to the detriment
of the minor as it appears
2. Subsection (a) deals with cases of express or direct
prohbition. to be an agreement involving an injury to
the property of another, and is therefore,
Haji Hamid bin Arifin v Ahmad bin Mahmud [1976]
Held : The first sale was void because of S.6 of the void.
Enactment and the second sale by the Siamese lady to the
plaintiff is void and the plaintiff's claim was dismissed. (e)

Foo Say Lee v Ooi Heng Wai [1969] Agreements that are
Held : The agreement was held not to be null and void. immoral / opposed to

(b) (c) public policy

Agreements which Agreement Agreements are immoral when:
would defeat the involving Illustration (j) - bribery
fraudulent
law Illustration (k) - concubinage
Agreements involving fraudulent when: Theresa Chong v Kin Khoon & Co [1976]
1.Subsection (b) deals with implied or indirect prohibition Illustration (e) - fraudulent “No court can invent a new head of public policy.”
Agreements can defeat the law when: Illustration (g) - fraudulent Agreements which fall outside of the English tradition
Illustration (i) classification of public policy will not be considered as
Hee Cheng v Krishnan [1955] MLJ 103 Datuk Jaginder Singh v Tara Rajaratnam
[1983] objects falling within Sec. 24(e).
Held : The court held that the contract was unlawful due to S.24 1. The objects are illegal by common law or legislation
of the Contract Ordinance as being of such a nature that if Held : The agreement was an attempt to
defraud the other creditors in the winding 2. The objects are injurious to good government
permitted it would defeat the provisions of any law, hence it is up petition. Consideration was unlawful. Datuk Ong Kee Hui v Sinyium Anak Mutit
void.
3. The objects interfere with the proper working of the
Lim Kar Bee v Duofortis Properties (M) Sdn Bhd [1992] machinery of justice
Held : The sceme was therefore considered illegal.

Ooi Kiah Inn Charles v Kukuh Maju Industries Sdn Bhd
4. The object is injurious to family life
Nafsiah v Abdul Majid

5. The object is economically against the public interest
Lim Kar Bee v Duofortis Properties Sdn Bhd

Relief Effect

There are 2 requirements for the availability of Where the consideration or object of an
the remedy of restitution under S.66 agreement is unlawful, the agreement is
i) The agreement is discovered to be void void ab initio and it is unenforceable by law
ii) The other party has received an advantage - Parties have no rights to enforce the contract.
- The innocent party cannot apply for specific
Case The effect and remedy performance of the contract.
of illegality and void
Case: Ahmad bin Udoh v Ng Aik Chong contracts Case
[1970]
Held: Since the facts and circumstances of the case Case: Murugesan v Krishnasamy [1958]
proved that the parties were ignorant that they were The general rule is that, where you cannot
executing an illegal agreement, s. 66 of the Contracts sever the illegal from the legal part of a
(Malay States) Ordinance would apply hence the covenant, the contract is altogether void;
plaintiff was entitled to the return of his advance. but, where you can sever them, whether the
To obtain the remedy of restitution under S.66, the illegality is created by statute or by the
party must not be aware of the illegality. common law, you may reject the bad part
A guilty party to an illegal agreement will not receive and retain the good.
any remedy under S.66. Held: the contracts are void by reason of s.
57 of the Ordinance, when it became
impossible for the defendants to transfer
the titles of the land to the plaintiff when the
State Authority refused the defendants’
application
The plaintiff was allowed to recover the
purchase money in accordance with s. 66.

Section 27 of the Contract Act 1950 says Restraint of marriage Case
Every agreement in restraint of the agreement
marriage of any person, other than a minor Case: Nafsiah v Abdul Majid [1969]
during his or her minority, is void. The plaintiff claimed for damages for
breach of contract of marriage.
Case She claimed that the defendant made a
promise in 1963 and it was reduced into
Cont... writing by a document.
Counsel for defendant argued that because the The plaintiff also alleges that she was
plaintiff knew that the defendant was already seduced by the defendant and as a result
married, even if the defendant had made any of such seduction she became pregnant
promise to marry the plaintiff, such a promise or and a son was born to her through the
agreement in such circumstances was void ab defendant in 1964.
initio. The defendant denies both of the plaintiff’s
The parties in the present suit, are governed by claims.
Muslim law and the defendant is under his own

personal law entitled to more than one wife ,
hence such an argument does not apply to the
conditions which prevail in this country and
more particularly to males professing the
Muslim faith.
Having found that the defendant had promised
to marry the plaintiff and that the defendant had
committed a breach of such promise the court
assesses the damages at the sum of $1,200.

Section 28 of the CA 1950. Not all clauses / agreements restricting the exercise of a trade will be deemed a restraint
Scenario A of trade clause.
A will not use his/her expertise to carry
on/conduct/be interested in a similar business QS1: Does the clause therein is restraining a party’s trade OR merely restricting the
within defined local limit. manner of the exercise of said trade.
Scenario B Thorne J in The Hua Khiow Steamship Co. Ltd v Chop Guan Hin [1930] 1 MC 175 held
In a partnership business (that is about to be in the event a clause / agreement is merely restricting the manner of the exercise of
dissolved/terminated with official ending), a trade, such clause would not be rendered void under section 28.
Partner A agrees with Partner B that Partner A
will not carry on a similar business within Restraint of trade, Case
defined local limits. business & employment
Case: Polygram Records Sdn Bhd v The
Case agreements Search & 5 Ors [1994]:

Case: Petrofina (Gt. Britain) Ltd v Martin And Case “any clause which seeks to prohibits the
Another [1966] 1 All ER 126 defendants from making any recordings
“A contract in restraint of trade is one which a party Except in respect of the three exceptions as after the expiry of the contract becomes an
agrees with any other party to restrict his liberty to provided in section 28 of the Act, every unlawful restrain of trade and is void under
carry on trade, business or profession in such manner agreement by which anyone is restrained from section 28.
as he chooses……”. exercising a lawful profession is to that extent
Common issue: is whether a clause that (even though void. Cross Ref. to Exclusive service contract (Solus
it was agreed between the parties) restricts Held - that the agreement was void under Agreement)
atrade/restricts a person’s freewill from earning a Section 28 of the Contract Act and the distance
livelihood he/she chooses (a.k.a restrictive clause) and place of the restraint are irrelevant. The Court has stated
can be enforced by the Malaysian courts?
Answer: Prima facie - No. “An analysis of these cases indicates that the
S. 28 - Every agreement by which anyone is restrained English courts have considered the doctrine of
from exercising a lawful profession, trade or business restraint of trade in two different
of any kind, is to that extent void. circumstances: (a) restrictions which are
The main purpose -•to promote free trade, anti imposed to apply after the expiration of the
competition,and free movement of labour. contract; and (b) restriction imposed during the
currency of the contract …”.

Common Law & Statutory Exceptions The principle of Reasonableness Case
QS 2: does the clause falls under one of the Recognized in Common Law.
Exceptions (under s 28)? Case: Nordenfelt v Maxim Nordenfelt Guns &
Exception 1 – One who sells the goodwill of a The application of the principle of Ammunition Company; HL 1894
business may agree with the buyer to refrain carrying Reasonableness in Malaysia
on a similar business, within specified local limits, so HoL held: the 1st ROT clause – valid, the
long as the buyer, or any person deriving title to the See exception 1- it is applicable to 2nd ROT clause – void.
goodwill from him, carries on a like business therein: the sale of a goodwill of business The court severed the restraint of trade
Provided that such limits appear to the court enters into covenant with the buyer covenant. It held that the italicised words (in
reasonable, regard being had to the nature of the not to carry on similar business. any business competing or liable to
business. compete in any way with that for the time
Exception 2 – Partners may, upon or in anticipation Restraint of trade, being carried on by the company’)were
of a dissolution of the partnership, agree that some business & employment unreasonable (thus void) therefore,
or all of them will not carry on a business similar to unenforceable because they extended
that of the partnership within such local limits as are agreements protection to the company for its future
referred to in exception 1. business activities and were not confined to
Exception 3 – Partners may agree that some one or -Finally, it was not contrary to public policy the company's business as it was at the
all of them will not carry on any business, other than since Maxim was an English company who time of its sale.
that of the partnership, during the continuance of the would be making guns and ammunition for The remainder of the covenant in restraint
partnership. foreign territories, thus benefitted/contributed of trade (Nordenfelt would not, for a quarter
Reasonable if: to England’s economy. of a century, 'engage … either directly or
-the party imposing the restraint has a The court needs to consider: indirectly in the trade or business of a
legitimate interest to protect; i) the length of time for which it will operate; manufacture of guns, gun mountings or
-the restraint is reasonable in the context ii) the geographical area which it will cover; carriages, gun powder explosives or
of protecting that interest; and iii) the scope of the restraint (that is, the range of ammunition), the court held, was
-the restraint is not otherwise contrary to activities covered) reasonable between the parties, although it
the public interest. covered a wide area,
RoT is justified if it is reasonable having i) firstly, because Nordenfelt received a
regards of the interest of party and public. large sum of money,


ii) secondly, because Nordenfelt reserved
for himself his inventive and manufacturing
skills. (ie Maxim have legitimate interest
that must be protected),

Questions: what is the legitimate interest that party must Restraint of trade, Case
protect? Whether the party has one? business & employment
Interest of Buyer? Case: Thomas Cowan Co Ltd v Orme [1961]
agreements Held:Though the covenant was reasonably
The seller’s ‘know how’, client base and reputation in necessary for the protection of the Ps` bu
the market area collectively form part of the business siness with regard to space and time as
goodwill, is a very important intangible asset as it well as the nature of the defendant`s e
represents a portion of the business’ value that can’t mployment, it was against public policy
be attributed to any of its other assets. since to prevent the defendant from o
A business' goodwill represents an immaterial perating as a fumigator in Singapore would
property right that’s worthy of protection. This leads give the P a virtual monopoly of the
us to the key purpose of a restraint of trade provision business.
in the sale of a business: to protect its so-called Hence the covenant was void and could not
goodwill. be enforced.
Any new purchaser of a business must know that the
seller (who is equipped with the experience, contacts Burden of Proof
and ‘reputation’) won’t initially go on to compete with
his or her former business. This initial time period will i) Covenantee must prove the restraint is
be determined so as to allow the new owner to reasonable to protect his interest (legitimacy
(re-)establish the business in the market. of interest).

Interest of the Public? ii) The party challenging the covenant must
Relation to a restraint on the work of a leading prove the restraint tends to injure the public.
artist, playwright, doctor or scientist, whose
work might well be for the public benefit.
This goes for the type of business as well.

Whether to restraint the D from engaging into that
type of business affects the public choice/option?