law 1

KOLEJ PROFESIONAL MARA
BERANANG

DIPLOMA IN ACCOUNTING
COMMERCIAL LAW
(LAW 1013)
MODULE BY:

SITI SAFINA BINTI ABU BAKAR

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KOLEJ PROFESIONAL MARA BERANANG

DIPLOMA IN ACCOUNTING
SCHEME OF WORK

WEEK/ DATE TOPIC CONTENTS/SKILLS CONTACT ASSESSMENT
HOURS
Week 1 MALAYSIAN LEGAL 1.1 Definition & Aim of law
SYSTEM 1.2 Classification of law (per week)
1.3 Malaysian constitution 4 (3L + 1T)

Week 2 MALAYSIAN LEGAL 1.4 Sources of Malaysian law 4 (3L + 1T)
SYSTEM 1.5 Interpretation of statute
1.6 Judicial system in Malaysia 4 (3L + 1T)
1.7 Alternative Dispute Resolution
4 (3L + 1T)
Week 3 LAW OF CONTRACT 2.1 Definition of contract 4 (3L + 1T)
2.2 Essential elements of valid contract:- 4 (3L + 1T)
➢ Proposal 4 (3L + 1T)
➢ Acceptance 4 (3L + 1T)
4 (3L + 1T)
Week 4 LAW OF CONTRACT 2.2 Essential elements of valid contract:-
➢ Consideration 4 (3L + 1T)
➢ Intention to create legal relation 4 (3L + 1T)
➢ Legal capacity 4 (3L + 1T)

Week 5 LAW OF CONTRACT 2.2 Essential elements of valid contract:-
➢ Free consent

Week 6 LAW OF SALE OF 3.1 Introduction to Sale of Goods
GOODS 3.2 Terms of Contract

Week 7 LAW OF SALE OF 3.3 Transfer of Title
GOODS 3.4 Performance of the Contract
3.5 Remedies for Breach of Contract

Week 8 LAW OF SALE OF 3.6 Consumer Protection under Consumer Protection
GOODS Act 1999

Week 9 LAW OF AGENCY 4.1 Introduction to law of agency
4.2 Creation of agency
4.3 The authority of an agent

Week 10 LAW OF AGENCY 4.4 Duties of an agent and a principal
4.5 Categories of principal and the effects of the

contract made by agent
4.6 Termination of an agency contract

Week 11 LEGAL ASPECT OF E- 5.1 Laws Governing E-commerce in Malaysia
COMMERCE 5.2 Electronic Commerce Act 2006

Week 12 LEGAL ASPECT OF E- 5.3 Computer Crimes Act 1997
COMMERCE 5.4 Financial Services Act 2013 & Islamic Financial

Services Act 2013
5.5 Digital Signature Act 1997

FINAL EXAMINATION

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MALAYSIAN LEGAL SYSTEM
1. Definition & Aim of law
2. Classification of law
3. Doctrine of separation of powers
4. Parliament & Federal Court
5. Malaysian constitution
6. Sources of Malaysian law
7. Interpretation of statute
8. Judicial system in Malaysia
9. Alternative Dispute Resolution

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1. Definition & aim of law
Law is a body of rule which is enforceable by the State. In relation to justice, the aim is to
attain justice in society. Justice is as an abstract idea of right and wrong, fairness and equality.
Therefore, the aim of a given law is to encourage the doing of what is right or just in a
particular set of circumstances. However, one should always bear in mind that justice differs
from one society to another.

2. The classification of law
Law is most adopted into three broad divisions, public law, international law and Private law.
Public Law is basically the law which governs the relationship between individuals and the
State. Public law may be further divided into two categories – constitutional law and criminal
law. Constitutional law lays down the rights of individuals in the State. While Criminal law
codifies the various offences committed by individuals against the State.
International law may be defined as that body of law which is composed for its part of the
principles and rules of conduct which States feel themselves bound to observe. It may further
be subdivided into two categories – public international law and private international law.
Private law concerned with matters that affect the rights and duties of individuals amongst
themselves. There are contracts where rights and duties arise by agreement. Tort is where
rights and duties arise by breach of general duty which is imposed by law. Trust is where
rights and duties arise by relationship between trustee and beneficiary.

3. The Doctrine of separation of powers
Malaysia is a country that exercises the doctrine of separation of powers. Under this doctrine,
the system of the government is divided into different set of bodies. Each body has a different
set of function and not to interfere with the function of other bodies. Malaysian can be divided
into three bodies - legislative, executive and judiciary.
Legislative is a body that consists of Parliament (acts to draft legislation for the federal) and
State Assembly (acts to draft legislation for the state). Since there are 13 states, thus there
are 13 State Assemblies. Executive consists of few components. The components under
executive body are cabinet, civil servant, police and arm force. Executive is a body that
governs day to day activities in Malaysia based on legislation under Federal Constitution and
statutes drafted by legislative body. Judiciary body function is played by Court. Court will try
and decide over disputes as wished by Constitution and legislation. Court is also under duty
to decide whether one person is criminally guilty and will reward a suitable punishment.

4. The Parliament and The Federal court
Malaysia, which consists of Peninsular Malaysia, Sabah and Sarawak is one political unit, but
it is not governed by the same set of laws. There are attempts to achieve uniformity. However,
there are links that unite the two parts of Malaysia, the Parliament and the Federal Court. The
Parliament can and does legislate for the whole country, while The Federal Court acts as a
final court of appeal for the whole country.

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The Parliament consists of House of Representatives (Dewan Rakyat) and House of Senate
(Dewan Negara). Members of Dewan Rakyat are elected by the people in election. Members
of Dewan Negara are those appointed by Yang Dipertuan Agong. The Senators are achievers
in their field of profession. The Federal Court acts as the final appeal court.

5. The Federal Constitution and State Constitutions

Malaysia is a federation of 13 states and 3 Federal Territories. All these states and federal
territories are governed by one law, the Federal Constitution. The Federal Constitution is the
supreme law of the land. The ruling government is to abide the Federal Constitution. Any law
made by Parliament or by State Legislature which inconsistent with the Federal Constitution
is void to the extent of inconsistencies. Unlike any legislation that can be amended by majority
vote of members of the legislative body, Federal Constitution can be amended by legislative
body if agreed by Yang Di Pertuan Agong only.

The State Constitution on the other hand is law made by the state assemblies to govern her
own state. If there is any inconsistency between the State Constitutions and the Federal
Constitution, the Federal Constitution prevails.

Part IV of the Federal Constitution distributes legislative powers between the Parliament and
the State Legislature. It provides that Parliament may make laws with respect to any of the
matters enumerated in the Federal List. The State Legislature may make laws in respect to
any of the matters enumerated in the State List. In respect to matters enumerated in the
Concurrent list, both Parliament and State Legislature has power to legislate.
The matters are summarized as below: -

Federal List external affairs, national defense, internal security, civil and criminal law,
State procedure, administration of justice, federal citizenship and naturalization;
Legislature aliens, the machinery of government, finance, trade, commerce and
industry, shipping, navigation and fisheries, communication and transport,
federal works and power, surveys, inquires and research, education,
medicine and health, labour and social security, welfare of the aborigines,
professional occupations, holidays; standard of time, unincorporated
societies, control of agricultural, newspapers, publications, censorship,
theatres, cinemas, public amusements, federal housing, co-operative
societies, prevention and extinguishment of fire.
Islamic law, family law of Muslims, land, agriculture and forestry, local
government, local services, State works and water, machinery of state
government, state holidays, offences against state law, inquiries for state
purposes, indemnity, turtles and riverine fishing.

Concurrent social welfare, services, protection of woman, children, young person,
List scholarships, protection of wild animals, National Park, animal husbandry,
town and country planning, vagrancy and itinerant hawkers, public health,
drainage, rehabilitation of mining land, fire safety measures and
maintenance of building.

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6. Sources of Malaysian law
Sources of law can be found from statutes, law reports and textbooks. The sources of
Malaysian law can be classified into written law and unwritten law. Written law is the most
important source of law. It refers to that portion of Malaysian law which is made by formal
legislative bodies. Written law includes Constitutions (the Federal Constitution and State
Constitution), Legislation (enacted by Parliament and State Assemblies), and subsidiary
legislation. Unwritten law does not mean that it is not written. What made it refers to as
unwritten law is that it is not made by the formal legislative bodies. Sources of unwritten law
are English law, Case law (judicial decision), Customs.
Federal Constitution is the supreme law of the country. Any law passes after Independence
Day with inconsistent with the Federal Constitution is void to the extent of inconsistency.
Parliament exist under Constitution; therefore, all Parliament’s action must be consistent with
the Constitution. If inconsistent, the action is considered as void. It is the court duty to protect
the Constitution. Therefore, part of the court duty is to declare whether the law passes by the
Parliament is valid or void.
Legislation refers to law enacted by the body of legislature, the Parliament and the State
Assemblies. The law made by these bodies is regarded as primary legislation. Power to
legislate at the federal level is vested to the Parliament and at state level by State Assemblies.
Law enacted by State Assemblies is referred to as enactments except in Sarawak which called
Ordinances.
The legislation made by the executive through delegation is known as subsidiary legislation.
It refers to the law made by body or person authorized by the legislative body. In theory,
power to make laws is vested to the legislative body. However, there are too little laws made
by the legislative body. It is because legislative body has other duties. Therefore, part of the
power is vested to the executive body.
The application of an English Law as one of the sources of Malaysian law is provided in Section
3 and Section 5 of Civil Law Act 1956 (CLA 1956). The application of common law of England
and rules of equity in West Malaysia, Sabah and Sarawak is different from each other. In West
Malaysia, the application of common law of England and rules of equity as administered in
England on 7th April 1956. In Sabah, application of common law of England and the rules of
equity, together with statutes of general application, as administered in England on 1st
December 1951. In Sarawak, application of common law of England and the rules of equity,
together with statutes of the general application, as administered in England on 12th December
1949. However, the application as stated by the statute will bound by two limitations. It is
applied in the absence of local statutes on particular subjects and be applied to the extent
that it suits the local circumstances only. In Malaysia, there are various races, cultures and
religions. English law has got to tolerate with the existing customary laws.
The law is found not in legislation only, but also in cases decided by the courts. The law taken
from the court decision is known as case law. Case law is taken by the decision of a judge
sitting in superior courts from a trial, not one’s opinion in a conference, book or lecture. Judges
cannot make a decision freely; judges are bind to follow a doctrine, known as ‘Doctrine of
Judicial Precedents’. By this doctrine, every time the judge is to make a decision in a trial,
they are to follow the previous decision made by the previous judge, where the fact in the
previous case is the same as in the present case. If there is no precedent, the judge is bound
to make decision as he think just. The policies in the ‘Doctrine of Judicial Precedent” are
decisions made by superior court will bind decision made by courts which rank lower from her
in hierarchy of courts. The decisions of a High Court will not bind decisions of other High Court

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but are to be respected and decisions of subordinate courts will bind those particular courts
only.
Besides English law and case law, judge may also refers to customs. The most common
customs that apply are ‘adat perpatih’ and ‘adat temenggung’. There is also customs for
Chinese and Indian.

7. Interpretation of statutes
Statutory interpretation is a process where the judiciary needs to interpret the statutes in
order to apply the law that has been legislated by the legislators. The judges in court may in
certain circumstances have to interpret provisions under the statute in order to ascertain the
intention of the laws enacted by the Legislature.
For example, in a child custody case, a law might say that custody should be determined with
the “best interest” of the child in mind. The child’s mother may think that means living with
her with occasional visits to the child’s father, whereas the father might feel the child should
live part-time with each parent. Both father and mother in this example have different
interpretation of what the law means and how it protects them.
The courts have to interpret legislation in order to resolve disputed over the meaning of statute
when the judges were to apply the Act in actual case. In order to interpret, the judges are
assisted by statute or common law rules.

i. Statutory Rules
In Malaysia, there are 3 statutes on statutory interpretation which set out general
guidelines to judges in interpretating statutes . These statutes are:
1. Interpretation Acts 1948 and 1967.
2. Interpretation and General Clauses Enactment of Sabah applicable to Sabah
enactments.
3. Interpretation Ordinance of Sarawak 1953 applicable to Sarawak Ordinances.
In addition to the statutes on interpretation, most statutes have a 'definition section' which
usually in section 2. The provisions in section 2 defining terms used in the statute.

ii. Common law rules
Meanwhile under common law rules, it is further divided into two methods which are Rules
of Statutory Interpretation and Language Rules.

1. Rules of Statutory Interpretation
Rules of Statutory Interpretation consist of three rules namely Mischief, Literal and Golden
Rules. In modern days now there is new adaptation of closely to mischief rules known as
Purposive rules.

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The Literal Rule The literal rule uses the plain ordinary meaning of words.
The Golden Rule In Fisher v Bell [1960], the defendant, a shopkeeper,
displayed in his window a flick knife with a price ticket, and
The Mischief Rule was prosecuted for “offering for sale” an offensive weapon
contrary to the Restriction of Offensive Weapons Act 1959.
The High Court said the phrase “offer for sale” was to be
taken literally, in accordance with its meaning in contract law,
and that the shopkeeper’s display of the weapon was no more
than an invitation to treat. It was presumed that
Parliamentary draftsmen know technical legal language thus
common law expression was not altered.
The golden rule is an extension of the literal rule and has both
a narrow and wider application and is used where the literal
rule creates an absurdity.
In the narrow sense in Adler v George [1964], in this case
Adler gained access to a RAF station and obstructed a
member of Her Majesty’s forces engaged in security duties ‘in
the vicinity of a prohibited place’. He argued that, as he was
actually in the prohibited place, he could not be said to be “in
the vicinity” of the prohibited place. The literal interpretation
of the Official Secrets Act 1920 would allow protesters to
demonstrate within military bases but not outside them,
creating an absurdity. This was clearly not the intention of
this Act. Adler was found guilty of the offence because “in the
vicinity of” should be interpreted to mean on or near the
prohibited place.
In its wider sense, the court may modify the reading of words
to avoid a repugnant situation as in Re Sigsworth [1935].
Section 46 of the Administration of Estates Act 1925 stated
that where a person dies intestate leaving children but no
spouse, the estate passes to the children. The defendant had
murdered his mother, who did not have a will, and he stood
to inherit her estate as next of kin by being her “issue”. The
court applied the golden rule and held that “issue” would not
be entitled to inherit where they had killed the deceased.

The mischief rule allows judges slightly more discretion. It
looks at the gap or the mischief the statute was intended to
cover.
It was established in Heydon’s Case (1584). To truly interpret
the statute using this approach and to enables the statute to
fulfil its intended purpose, the court has to examines and
consider what was the law before the Act to discover the
mischief and defect that the statute was intended to rectify in
which the common law did not provide a remedy, what
remedy had been decided upon by Parliament to rectify the
mischief and what was the true reason for the remedy?

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The Purposive Therefore, this rule is used where there is ambiguity in the
Approach statute.

In the case of Corkery v Carpenter [1951], the Licensing
Act 1872 stipulated that it was an offence to be drunk in
charge of a carriage. Whilst no direct reference was made to
bicycles, the court ruled that Corkery was guilty as the term
“carriage” could also be applied to a bicycle.

In Malaysia, this mischief rule was explicitly adopted in the
case of Hong Leong Equipment Sdn Bhd v Liew Fook
Chuan and Another Appeal [1996] where Gopal Sri Ram
JCA alluded to the position at common law and the legislative
history behind s.20(1) of the Industrial Relations Act 1967 and
in delivering the judgement, said that:

“The purpose for which Parliament passed the Act may not be
properly discovered unless one bears in mind the general
background against which the legislature acted. In this way,
one may gather the true spirit and intendment of the provision
that has fallen for construction in these appeals.”

The purposive rule is originating from mischief rules. It is
sometimes argued that the purposive approach is the same
as the mischief rule because the courts are simply trying to
find out the purpose of the act.

The mischief rule however is different to the strict criteria set
out in Heydon’s case. The purposive approach goes further
by seeking to determine Parliament intentions in passing the
Act. This approach requires judges to seek and promote the
purpose underlying the legislation.

As Lord Denning explained that one of this: The judges out
not to go by the letter of the statute but by the spirit of it.

In Malaysia, this approach has received statutory recognition
via s.17A of the Interpretation Acts 1948 and 1967 5 which
directs the courts to use “a construction that would promote
the purpose or object underlying the Act (whether that
purpose or object is expressly stated in the Act of not)”.

In United Hokkien Cemetries Penang v Majlis
Perbandaran P.Pinang (1979), The Federal Court used
the purposive approach in interpreting a provision of
Municipal Ordinance particularly the meaning to be assigned
to the phrase “all building used exclusively as places for
worship is exempt from the payment of rates”. In this case
the court hel in affirmative that a columbarium fall within the
meaning of worship place. Malaysian judges show greater
preference to this approach in recent years 6. Gopal Sri Ram
JCA stated in obiter: “... If you look at the decisions of our
courts over the past few years, you will notice that we no
longer resort to the literal rule when interpreting statutes. We

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will not use it when it will produce an absurd result. Neither
will we use it if it does not advance the aim or object of a
statute.”

2. Language Rule
In addition, the courts may also apply rules of language, intrinsic and extrinsic aids
and presumptions to aid statutory interpretation. There are three main rules of
language.
Intrinsic aids are taken from the Act itself and may include the long or short title of
the Act, the preamble, headings, side notes and contextual punctuation.
Extrinsic aids consists of previous case law, international conventions, regulations and
directives, dictionaries, official reports and most recently in Pepper (Inspector of
Taxes) v Hart [1993] 1 All ER 583, Hansard.
Presumptions within law are numerous and may range from presumption against
alterations of the common law to a presumption against ousting the jurisdiction of the
courts, to name but a few.

In summary, the view that is expressed by James Holland and Julian Webb in Learning Legal
Rules (Seventh edition) appears to be simplistic and literal in its context. The rules of statutory
interpretation are not rules in the strict sense, as each one may point to different solution to
the same problem. There is no hierarchy of rules to be applied and neither is any court bound
to follow a particular rule. They are purely guidelines for the judiciary to solve problems with
statutory interpretation.

8. The judicial system
Court is to carry the function of judiciary. Court in Malaysia has a single hierarchy, and it
enforces both federal and state laws. These courts have general jurisdiction, i.e., jurisdiction
to deal with civil and criminal matters except any matters within the jurisdiction of the Syariah
Court and the Native Court.
The civil jurisdiction is related to matters of family affairs, estate, trust, will, contract and
commerce. The Criminal jurisdiction is to try criminal case started by the Law Office.
Accusation is by the Prosecutor or Assistant Prosecutor. Examples of criminal cases are drugs,
murder and robbery.
All primary courts in Malaysia is federal, none of it is under state authority. Syariah Court and
Native Court in Sabah and Sarawak in each State is under State authority.

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Superior Courts

Subordinate Courts

Court Jurisdiction

Federal Court Federal Court has four jurisdictions; original, appellate, referral and
(ranks at the advisory.
highest in hierarchy Original jurisdiction - to hear case for the first time. Its exclusive
of courts in original jurisdiction is to determine whether the law made by the
Malaysia) legislature is invalid and to decide dispute between States of Federation
or between the Federation and the State.

Appellate jurisdiction - to hear and determine civil and criminal appeals.
Criminal appeals from the High Court can be made by the convict as
against sentence only, whereas the prosecutor can appeal as against
any decision including acquittal.

In civil appeal, appeal is disallowed if amount in demand is less than
RM 250,000 (except under the Federal Court or High Court discretion).

Referral jurisdiction - arisen when High Court or any of subordinate
courts referred to it to determine constitutional provisions arisen during
its proceedings.

Advisory jurisdiction - to give its opinion on any question by Yang Di
Pertuan Agong, concerning the Constitution.

The Court of Has appellate jurisdiction only and is to hear and determine any appeal
Appeal against any High Court decision on criminal matters.
The jurisdiction to hear and disposed civil appeals only where the
amount of claim is at least RM 250,000.

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Court Jurisdiction
High Court of The jurisdictions of High Court are original, appellate and supervisory.
Malaya
Original jurisdiction – unlimited jurisdiction, but in practice, the High
and Court does not try small criminal or civil cases. The High Court
jurisdiction is to try cases under her province only. Example, if the
High Court of conviction is in Malacca, High Court of Malaya has jurisdiction to try.
Borneo
Appellate jurisdiction - to hear appeal cases from subordinate courts,
(equal jurisdiction i.e., appeals from Magistrates’ Court and Session Court. However, the
and status) appeals of criminal cases are disallowed if the amount of penalty is not
more than RM 25. In civil cases, appeals are allowed if amount of claims
is not less than RM 10,000.

Supervisory jurisdiction - to revise criminal proceedings in subordinate
courts.

Session Court The jurisdictions of Session Court are original and supervisory.

Original jurisdictions - are to try any types of criminal cases except
those deals with death sentence and civil cases where the amount of
claims does not exceed 1 million. For complex matters, such as trust,
termination of contract, the cases will be heard in High Court even the
amount in demand is less than RM 1 million.

Supervisory jurisdiction - is limited over Magistrates’ and Penghulu’s
court.

Magistrates’ First class magistrates’ court has the jurisdictions are original and
Courts appellate.

(are divided into Original jurisdiction - the power is for try civil case where amount in
two, a first class claims is less RM 100,000 and in criminal case, it may try offences
magistrates’ court punishable with up to 5 years imprisonment or up to fine of RM10,000
and a second class or whipping of up to 12 strokes, or combination of both.
magistrates’ court) Appellate jurisdiction, it is to hear both civil and criminal appeals from
Penghulus’ Court.

Second class magistrates’ court jurisdiction of this court is original only
and to hear civil claims of not exceeding RM10000 and criminal
offences punishable with up to 6 months imprisonment or up to fine of
RM1000, or combination of both.

Courts for Original jurisdiction for cases involving juvenile age between 10-18
children except cases carrying the death penalty.

The Penghulu Jurisdiction is original and the proceeding shall be heard and disposed
Court by Penghulu. The jurisdiction is to try civil cases where amount of
claims is not more than RM 50 and any criminal offences punishable
with fine up to RM50.

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9. Alternative Dispute Resolution (ADR)
Alternative dispute resolution is a collective term for the methods that parties can use to settle
their disputes without resorting to court proceedings. The most common forms of alternative
dispute resolution are:

1. Mediation
2. Conciliation
3. Arbitration
4. Adjudication
Today, the ADR procedures are being introduced into court and tribunal procedures.
Examples:
1. Small Claims Court - settle industrial disputes through conciliation and arbitration.
2. Consumer Claims Tribunals – settle disputes between consumers and traders through

mediation and arbitration.

Mediation
Mediation is a voluntary process in which a mediator facilitates communication and
negotiations between parties to assist the parties in reaching an amicable settlement. Parties
may choose to attempt mediation before resorting to litigation or arbitration.
The Mediation Act 2012 seeks to facilitate this process. Generally, the parties are free to agree
on the appointment of any person as their mediator. If parties cannot come to a consensus,
they can request the Malaysian Mediation Centre of the Bar Council (“MMC”) to appoint a
qualified mediator from its panel. Any agreement arising from a successful mediation is
reduced to writing in a Settlement Agreement signed by the parties. In the event the mediation
is not successful, parties may proceed to pursue their respective rights in litigation or
arbitration.
Very often, parties commence legal proceedings without first attempting mediation. In such
circumstances, it is common for the judge to suggest that parties to attempt mediation. If
parties are agreeable, the judge may mediate the matter himself, or alternatively refer the
parties to another judge or registrar to assist with the mediation. Where the mediation is
unable to bring about an amicable settlement, the case is returned to the hearing judge for
disposal.
All disclosures, admissions and communications made in and during mediation sessions are
made on a without prejudice basis. This means that in the event the mediation is unsuccessful,
parties cannot later use or repeat any disclosures, admissions and communications in
mediation to further their case in litigation or arbitration.

Conciliation
Conciliation is a form of alternative dispute resolution (ADR) process whereby the parties to a
dispute agree to utilize the services of a conciliator, who then meets with each of the parties
separately in an attempt to resolve their differences.
Conciliation differs from arbitration in that the conciliation process, of itself, has no legal
standing, and differs from mediation in that the parties seldom, if ever actually face each other
across the table in the presence of a conciliator.

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A conciliator usually has no authority to require the presentation of evidence or call witnesses;
indeed, the conciliator usually writes no decision and makes no award. However, if the
conciliator is successful in negotiating an understanding between the parties, then that
understanding is almost always recorded in writing, often with the assistance of the respective
parties’ legal advisors, and signed by the parties, at which time it becomes a legally binding
agreement between the parties.
Conciliation can be carried out by a conciliator appointed by the parties, being someone that
both parties respect and consider able to bring about a resolution of the dispute. Alternatively,
the parties may prefer to use a professional conciliator, being someone trained in the
conciliation process, and best able to assist the parties towards a resolution.
The Conciliator may choose to attempt to resolve the dispute between the parties using
several methods. The choice of which will be of his choice but at all times he should act
impartially. A common method is termed as shuttle diplomacy, whereby the parties to the
dispute are placed in separate rooms and the conciliator goes from one room to the other
trying to find common ground in order to bring about a resolution of the dispute.

Arbitration
Arbitration is a private and judicial determination of a dispute by an independent third party.
The difference between mediation and arbitration is that parties maintain full control of the
workings and outcome of the mediation; whereas in arbitration the arbitrator decides the
outcome of the proceedings and the parties are bound by that decision.
Arbitration is similar to court proceedings in that the arbitrator (like the judge) will decide the
dispute; the difference is that parties can decide on the appointment of the arbitrator and the
rules and procedures to be applied in the arbitration.
Parties to a contract may agree by way of an arbitration clause to refer any dispute that might
arise in respect of that contract to arbitration. Parties may also agree to refer an existing
dispute to arbitration even though there was no such prior agreement between them. In all
events, parties are at liberty to decide, among others, on the number of arbitrators that will
decide the matter, the appointing body in the event parties cannot mutually agree on the
choice of arbitrators, the place of the arbitration and the rules to be applied to the arbitration.
Arbitration in Malaysia is governed by The Arbitration Act 2005. Arbitrators do not have to be
legally qualify but they must be independent and impartial. There are no specific qualifications
required of arbitrators. However, parties are usually advised to appoint arbitrators who have
sufficient experience in arbitration as well as technical knowledge on the subject matter in
dispute.
Parties to arbitration proceedings are commonly represented by lawyers. However, as
arbitration proceedings do not come within the purview of the Legal Profession Act 1976,
parties may choose to be represented by lay persons or foreign lawyers. The arbitrator is
generally required to give a reasoned award, that is, an award explaining the grounds for his
decision.
In the event a losing party refuses to comply with an award, the winning party may apply to
the High Court to register the award, and thereafter pursue enforcement proceedings. There
is no appeal against an award made in Malaysia under the Arbitration Act 2005. The only
challenge that can be made is an application to the High Court to set aside the award. Such
an application has to be within 90 days of the receipt of the award. The grounds for setting

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aside such an award are limited to fraud, or breach of the rules of natural justice or where
the award is contrary to public policy of Malaysia.
Adjudication
Adjudication is a new process for the resolution of construction disputes, recently introduced
by the Construction Industry Payment and Adjudication Act 2012 (CIPAA).

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LAW OF CONTRACT
1. Types of agreement & Elements to form a contract
2. Offer
3. Acceptance
4. Consideration
5. Intention to create legal relations
6. Capacity
7. Free consent
8. Terms of contract
9. Discharge of contract
10. Remedies for breach

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1. Types of agreement & Elements to form a contract
Agreement exists when two or more parties agree on something. The word ‘agreement’ and
‘contract’ are often used to mean the same thing, but these two terms must be distinguished.
Contracts in Malaysia are govern by Contracts Act 1950. Section 2(h) Contracts Act 1950
provides that ‘an agreement enforceable by law is a contract’. The provision of this section
shows that a contract is an agreement. However, not every agreement will result in a contract
recognized by law. This is because, in order to form a contract, there must be an offer &
acceptance by the promisor and promisee, a consideration, intention to create legal relations,
capacity and free consent. An agreement that lack one of these elements cannot be regarded
as a contract. An agreement becomes a valid agreement (an agreement enforceable by law)
if it fulfills all the elements to form a contract. If an agreement entered by free consent of
parties but lack one or more of other elements to form valid agreement, then the agreement
is void (an agreement that cannot be enforced by law). If an agreement entered fulfills all
elements to form valid agreement except free consent, then the agreement is voidable
agreement (valid agreement that can be made void).

2. Offer
Section 2(a) Contracts Act 1950:
When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to the act or abstinence, he is said to make
a proposal.
An offer must be certain, complete and final to avoid misunderstanding. The rule of certainty
is very important to form a contract because an offer is something that can be converted into
an agreement by its acceptance. When an offer is accepted, terms in an offer will become
terms of contract. If an offer is uncertain, the offer in void, thus an acceptance to that offer
is void. As the result, a contract is void ab initio. Section 30 Contracts Act 1950 states that an
agreement that incapable to be made certain, are void. In the case of Guthing v
Lynn(1831),the defendant in this case bought a horse from plaintiff under a terms that if the
horse proved to be lucky, the defendant will pay plaintiff another 5 pounds. The defendant
broke his promise. When the case brought to trial, court decided that the term ‘the horse is
lucky’ is too vague. Thus, the contract is void.

2.1 Offer or Invitation to treat
An offer must be distinguished from an invitation to treat. An invitation to treat is not an offer,
but rather an act to induce someone to make an offer. When an offer is accepted, it becomes
an agreement. When an invitation to treat is accepted, it does not create any legal relationship.
Situations that could cause some confusion between two parties as whether there is a valid
contract or not is normally in cases of advertisement of tender, auctions, advertisements &
catalogues and display of goods.
Advertisement of tender is a situation where X invites suppliers to tender a quotation for goods
or services. An advertisement to tender made by X is not an offer; it is an invitation to treat.
An offer is actually made by the supplier to X. X is not bind to accept the lowest bid or any

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bid. However, if X makes it clear by words or conducts that he intends to accept the lowest
bid, and then the advertisement of tender will be construe as an offer1.
Advertisement of an auctions or an auctions itself is an invitation to treat. There will be an
offer when a person who attends an auction entered into bids. An offer to buy can be make
verbally or by action such as waiving a catalogue. Normally, an acceptance to the offer by the
auctioneer is by knock of hammer. In an auction, earlier offer automatically void when a higher
bid is made. Since, auctions is only an invitation to treat, auctioneer has right to pull away
any goods from auction at any time before any offer is accepted. In Harris v Nickerson(1873),
court held that plaintiff cannot claim from defendant expenses to attend an auction advertised
by defendant.
Whether an advertisement is an offer or merely an invitation to treat depends on the intention
of parties in each case. Generally, advertisement of bilateral contracts is invitation to treat
whereas advertisement of unilateral contracts is construed as offers. In Partridge v Crittenden
(1968), plaintiff advertised to illegally sell a protected bird species. Mr. T interested to buy
and sent money through post. Plaintiff sent the bird to Mr. T. Later, plaintiff was accused for
‘offer to sell’ a protected species. The plaintiff was found not guilty by court because the
accusation was not valid. Plaintiff did not offer to sell, he invites an offer.
Advertisement of a vacancy in a newspaper is not an offer that can be accepted. It is merely
an invitation to treat. In Majumder v Attorney General of Sarawak (1967), the court held that
an advertisement for post of a doctor is an invitation to treat. Unilateral contract is a situation
when one party bind himself with a conditional promise and let the other party to either fulfils
or not the condition. In Carlill v Carbolic Smoke Ball (1893), defendant is a company that
produces a flu medicine named ‘Carbolic Smoke Ball’. Defendant advertises in a newspaper
that they would pay 1000 pound to whoever experience influenza after using the medicine as
prescribed. To show their earnestly, defendant deposited 1000 pound into a bank account.
Plaintiff duly used it, nevertheless, contracted influenza. Plaintiff sued for the money after the
defendant refused to pay with reason that the advertisement is merely an invitation to treat.
Court held that the advertisement is indeed an offer made to the world.
The concept of ‘self service’ shop is where the customers enter and choose items displayed
on shelves, put it into the basket and then take it to the cashier’s counter to pay. In
Pharmaceutical Society of Great Britain v Boots Cash Chemists (1953), the defendants were
charged under the Pharmacy and Poisons Act, 1933 which made it unlawful to sell certain
poisons unless such sale was supervised by a registered pharmacist. The case depended on
whether there was a sale when a customer selected items he wished to buy and placed them
in his basket. Payment was to be made at the exit where the cashier was stationed and, in
every case involving drugs, a pharmacist supervised the transaction and was authorized to
prevent a sale. The court held that the display was only an invitation to treat. The same order
given by court in Fisher v Bell (1961), the defendant, a shopkeeper, was prosecuted for
displaying an illegal flick-knife for sale. The court held that the display of goods is an invitation
to treat. The accusation against the defendant was not valid.

1 Harvela Investment Ltd. v. Royal Trust of Canada (1986), defendant invites 2 parties to buy the
company’s shares. Defendant has made an announcement to accept the highest bid. Plaintiff bids 2.175
million dollar whilst Y bids 2.1 million dollar or 101 thousand dollar higher from highest bid. Defendant
accept Y’s offer. Plaintiff files claim against defendant and Y for breach of contract. It was then held by
the court that there is a breach of contract. Defendant is not merely making an invitation to treat, but
is actually making an offer.

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2.2 Communication of offer
Section 4(1) Contracts Act 1950:
Communication of a proposal completes when it comes to the knowledge of the person to
whom it is made.

An offer may be express or implied. An express offer if it is made verbally or in writing. Implied
offer comes from one’s act or behaviour. However, there is situation where an offer can be a
combination of both2.

In Taylor v. Laird (1856), the captain of a ship, employed for a trading and exploring voyage,
refused to go any further and resigned his command. He subsequently helped to work the
ship home and wanted to claim his wage for this work. It was held however that he could not
do so as his offer to help bring the ship home was not communicated, therefore there had
been no opportunity to accept or reject his offer.

In order for an agreement to exist, an offeree must know about the offer before making an
acceptance. If the offeree has no knowledge about the offer while making an action that look
similar to an acceptance, it cannot be treated as an acceptance3.

In a situation where offeree knew of the offer, did not forget about it, but has different motives
while making the acceptance, the court in Williams v Cawardine (1833) decided that plaintiff
action by giving information that leads to the catch of a wanted criminal is a valid acceptance
even his motives at that time is to calm himself.

2.3 Revocation of offer & Communication of revocation

Section 5(1) Contracts Act 1950:
A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards.

Section 4(3) (a) Contracts Act 1950:
The communication of revocation of either an offer or acceptance, is completes as against the
person who make the revocation when he put the notice of revocation in a course of
transmission, so as to be out of the power of the sender.

Section 4(3) (b) Contracts Act 1950:
The communication of revocation is completes as against the person to whom it is made,
when it comes to his knowledge.

2 Western Electric v Welsh Development Agency (1983), the defendant offers to rent his premise to
plaintiff and plaintiff is to fill a form. Plaintiff fails to fill in the form but moves in and starts operation
in defendant premise and then moved out after finding that the premise is not safe to be occupied.
Plaintiff claims damages for breach of contract from defendant. In defense, defendant claims that there
is no contract between them because there is no acceptance. The court held that a valid contract exist
impliedly. Defendant is not making an offer, he is making an invitation. Offer made by plaintiff when
he moves into the premise and acceptance by the defendant when he lets plaintiff operates and receive
rents.
3 R v Clarke (1972), the court held that Clarke’s action by giving information to the police that leads to
the catch of a wanted criminal is not an acceptance. This is because at the time he gave the
information, he forgot about the offer of reward. Thus, he has no right to claim for the reward. He is
at that time as a person who has no knowledge about the offer.

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Section 6 Contracts Act 1950:
An offer may be revoked by-
(a) Communication of notice of revocation by the proposer to the other party4.
(b) Lapse of time prescribed in the proposal for its acceptance, or, if no time is so

prescribed, by the lapse of a reasonable time, without communication of the acceptance5.
(c) Failure of an offeree to fulfils condition precedent to acceptance6.
(d) If offeree before the acceptance knows that the offeror is dead or experience mental

disorder.

4 Byrne v. Van Tienhoven (1890), a revocation letter send by the defendant to plaintiff is void because
it arrives after plaintiff made an acceptance.

5 Ramsgate Victoria Hotel Co Ltd v. Montefiore (1866), court held that the offer is revoked since lapse
of reasonable time. Plaintiff in this case agrees to accept defendant’s offer after 5 months.
6 Pyrn v Campbell (1856), an agreement to sell an intellectual property is made but with a condition
that the property gains approval from a third party. No contract exists if approval fails. In this case,
offer and acceptance depends on term of getting third party’s approval.

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3. Acceptance
Section 2(b) Contracts Act 1950:
when to whom the proposal is made signifies his assent thereto, the proposal is said to be
accepted: a proposal, when accepted, become a promise.
An offer can be made to one person, to a group of person or to the whole world. But the
above provision shows that only to whom the proposal is made capable to accept. In Boulton
v Jones (1857), the defendant does business with one particular trader. On the day when
defendant’s order arrives, the trader has sold his business to plaintiff. Plaintiff send to
defendant goods as ordered. When defendant knows that the goods were send by the new
owner, he refused to pay for the goods. Plaintiff then takes an action against defendant for
breach of contract. Court held that plaintiff cannot take action against defendant because
there is no contract between them. Plaintiff has no right to accept an offer which was not
directed to him.
In a unilateral contract such as Carlill v. Carbolic Smoke Ball (1893), where an offer is made
to the whole world, then anyone who knows about the offer capable to accept.

3.1 Terms of acceptance
Section 7 Contracts Act 1950:
In order to convert an offer into a promise, the acceptance must be-
(a) Absolute and unqualified
(b) Be expressed in some usual and reasonable manner, unless the proposal prescribes

the manner in which it is to be accepted.
a. Absolute & unqualified
If an offer is accepted by an offeree but with new terms, then it is not an acceptance; it is a
counter-offer. A counter-offer destroyed the original offer. In Hyde v Wrench (1840),
defendant made an offer to sell his estate to plaintiff for the price of 1000 pound Sterling.
Plaintiff agreed to buy for 950 pound. When he receives no answer from defendant after 2
days, he sent another letter stating that he agrees to pay the original price of 1000 pound but
defendant refused to sell. Plaintiff sought order of specific performance from court. He claimed
that a valid contract exist when he agrees to pay 1000 pound. It was held by court the plaintiff
no longer can accept the original offer. The original offer destroyed when he made a counter-
offer. However, we have to remember that simply questioning to gain further knowledge on
one’s offer is not a counter-offer7.

b. Be expressed in some usual and reasonable manner
In a situation where the offeror does not prescribed manner of an acceptance, an acceptance
must be made in some usual and reasonable manner. Usual and reasonable manner can be
described by referring to Lee Seng Heng v. The Guardian Assurance Co. Ltd. (1932), the court
in held that cancellation of plaintiff insurance policy by letter is valid since postal service is the
most usual manner at the place where plaintiff lives and is commonly use while plaintiff holds
the insurance policy.

7 Stevenson Jacques v McLean (1880).

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However, if offeror has prescribed manner in which the offer shall be accepted, then it must
be done in that manner. In Ignatius v Bell (1913), the defendant give option to plaintiff to
buy defendant estate before or on 20 August 1912 and acceptance must be in writing. Plaintiff
wrote acceptance letter and post it on 16 August 1912, but defendant receives the letter on
25 August 1912. Plaintiff sued defendant when he refused to honour the contract. It was held
by court that defendant is bind by the contract since parties to the contract agree to use postal
service as manner of acceptance.
If offeree fails to accept in the manner prescribed, the offeror must within reasonable time
after the acceptance is being communicate to him, insist offeree to accept in the prescribed
manner. If offeror fails to insist, the acceptance is considered as a valid acceptance. In
Manchester Diocesan Council for Education v. Commercial and General Investment Ltd.
(1970), the court held that even if acceptance made in a manner other than prescribed, it is
still valid if the other manner use is no less good.
Silence cannot be treated as acceptance to an offer. In Felthouse v Bindley (1862), Defendant,
who is an auctioneer, is under duty to auction part of J.Felthouse property. Plaintiff, J.
Felthouse’s uncle, interested to buy a horse that is supposed to be auction. He wrote a letter
to his nephew that reads, “If I receive no news from you, I will consider the horse to be mine
at the price of 30 pound and 15 shilling.” J. Felthouse does not answer the letter but has
instructed defendant to pull away the horse from being auction. By mistake, defendant sold
the horse. Plaintiff filed a claim against defendant under law of tort. The claim shall succeed
if could be shown that plaintiff owned the horse. The court held that plaintiff has no ownership
to the horse because there is no contract. However, in situation where offeree is silence but
start using the goods supplied by the offeror, it will be treated as valid acceptance.

3.2 Communication of acceptance
Section 4(2) (a) Contracts Act 1950:
Communication of an acceptance completes as against the offeror when offeree put the
acceptance letter in a course of transmission, so as to be out of the power of the offeree.
Section 4(2) (b) Contracts Act 1950:
Communication of an acceptance completes as against the acceptor/ offeree, when it comes
to the knowledge of the offeror.
Generally, communication of an acceptance completes against the offeror and the offeree
when it comes to the knowledge of the offeror. That is, the offeror clearly hear and understand
that the offeree is accepting his offer. Similar with an offer, an acceptance may be express or
implied. An express offer if it is made verbally or in writing. Implied offer comes from one’s
act or behaviour8. If the offeror prescribed that doing some action is enough to show
acceptance, then there is no need to communicate acceptance to him. Example is clearly
described in the case of Carlill v Carbolic Smoke Ball (1893), where an act of taking the
medicine as prescribed is considered as lawful act of acceptance.
Today, telecommunication has made easy. Beside traditional method of sending a letter by
post or sending a message through telegram, people communicate by telephone, facsimile,
video-conferencing, e-mail, etc. In communicating an acceptance by telephone, facsimile or
video conferencing, the general rule applies, that is communication completes when offeror
hear clearly that offeree is accepting his offer. But, if the communication between parties is
by letter, telegram or e-mail, ‘The Postal Rule’ applies.

8 Western Electric v Welsh Development Agency (1983)

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In the Postal Rule, the communication of an acceptance completes as against the offeror and
as against the offeree at a different time. In Household Fire Insurance v Grant (1879), the
defendant has made an offer to buy shares in plaintiff’s company. Plaintiff accepted the offer
and sent the acceptance letter by post. The acceptance letter is lost in post. Before long,
Plaintiff is facing financial difficulty. When plaintiff asked for the money, defendant refused to
give. Defendant claims that there was no contract between them since the he did not receive
the acceptance letter. The court held that the valid contract exist between them. The
acceptance completes as against the offeror when the acceptance letter is put in a course of
transmission to him.
This rule is appropriate in the sense that it is easier to obtain the sending proof rather than
to obtain the receiving proof. An acceptance letter considered as been putted in a course of
transmission to the offeror when it is put into a post box or surrender to the post officer who
has a power to do so. If the acceptance letter is given to a postman, whose duty is to deliver
letter, and ask him to put the letter into a post box, it is not an act of transmission.
However, an acceptor/offeree cannot easily accept a proposal by letter and then claims that
the acceptance completes. ‘The postal rule’ applies only if the offeror prescribed the manner
of acceptance is by post or when it is the most usual and reasonable manner to use. Normally,
if the offer is made by post, the acceptance will be by post, unless the offer prescribed other
manner of acceptance.
3.3 Revocation of acceptance & Communication of revocation
Section 5(2) Contracts Act 1950:
An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the offeree/acceptor, but not afterwards.
Section 4(3) (a) Contracts Act 1950:
The communication of revocation of either an offer or acceptance, is completes as against the
person who make the revocation when he put the notice of revocation in a course of
transmission, so as to be out of the power of the sender.
Section 4(3) (b) Contracts Act 1950:
The communication of revocation is completes as against the person to whom it is made,
when it comes to his knowledge.
In Dunmore (Countess of) v. Alexander (1830), the court held that if the revocation letter
delivered together with the acceptance letter, the revocation is effective.

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4. Consideration
Section 2(d) 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 abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise.
Section 26 Contracts Act 1950:
An agreement without consideration is void unless,

(a) Promise made on account of natural love and affection between parties standing in
near relation to each other.

(b) Agreement without consideration is valid if it is a promise to compensate for
something done for the promisor.

(c) A promise to pay a debt barred by limitation law is valid if it is made in writing and
signed by the person to be charged therewith or his agent.

4.1 Validity of consideration
1. Consideration may move from a person who is not the promisee.

Consideration may be given by third party. In Venkata Chinnaya v. Verikatara’ma’ya
(1881), a young sister agreed to pay annuity to her elder brothers if their mother
give her a piece of estate. Her brothers sued her after she fails to pay as promised.
The court held that there is a contract between them even when the consideration
comes from their mother.
2. Consideration must come from both parties.
In Combe v Combe (1952), plaintiff is defendant’s wife. They have separated.
Defendant promised that he will give plaintiff 100 pound yearly as alimony. Plaintiff
voluntarily did not file formal order. Defendant fails to do as promise. Plaintiff took
action against defendant for breach of contract. Plaintiff claims was rejected by court
because there is no consideration for defendant promise.
In Williams v Williams (1957), plaintiff is defendant’s wife. Plaintiff has left defendant.
Defendant then promise to give alimony of 30 pound a week to plaintiff with a
condition that plaintiff will not take any credits using defendant’s name. Defendant
fails to do as promised. Plaintiff sought action through court. In his defence, defendant
says that the agreement is void for lack of consideration. However, court held that
there is a contract. A promise not to take credits on defendant’s name is a good
consideration.
However, a promise made on account of natural love and affection between parties
standing in near relation to each other to be enforceable even it is lack of
consideration. The promise may be enforceable only if it is made in writing and
registered under the law, if any. A question of near relation to each other is a question
of fact9.

9 In Kwan Teck Meng v Liew Sam Lee (1963), defendant rented ground floor premise own by X. X
transfer the property to plaintiff. X then passed away. Transfer of property is settled 2 months after X
death. When asked by plaintiff to vacant the premise, defendant refused and claimed that plaintiff has

24

3. A consideration need not be tangible assets.
A promise to do or to abstain from doing something is also a consideration as decided
by the court in Williams v Williams (1957).

4. Consideration can either be executory, executed or past consideration.
Executory consideration is a promise to do something in future is considered as
executory consideration. In K Murugesu v Nadarajah (1980), appellant agrees to sell
his house to respondent (tenant) for RM 26,000. The offer is open to acceptance within
3 months. When respondent agreed to buy, appellant refused to sell. Respondent
claims that there is no contract since there is no consideration. The court decided that
a promise to sell and a promise to buy is a valid consideration.

Executed consideration is an act which performed in exchange for a promise. Example:
A offer a reward to anyone who found and return back his lost pet. B found and returns
the pet to A and claim for the reward. B’s act is executed consideration.

Past consideration is good consideration if it is made under offeror’s wish or if it is a
voluntary consideration, it is made for the promisor. Example: X ordered goods from
Y. Y in short of stocks, ordered from Z. Z send the goods directly to X. Y pays for the
goods to Z, and claim price for the goods from X. If X refuse to pay, Y may sue for
breach of contract. There is a voluntarily consideration by Y and he did the act for X.

5. Consideration must be sufficient but need not be adequate
A consideration given under a contract must have some value in the face of law. But
the value need not be adequate, i.e., need not be in the same value as the other
consideration. In Phang Swee Kim v Beh I Hock(1964), the court held that a payment
of RM 500 by appellant to the respondent as a price to buy respondent‘s estate is
adequate consideration.

6. Payment to compensate part of debt is a valid consideration
If A owes B RM 5000. C pays to B RM 1000 and B accepts them, in satisfaction of his
claim on A. This payment is a discharge of the whole claim.

7. Moral obligation is not a good consideration
In Eastwood v Kenyon (1840) when respondent’s promise to pay for the debt made
by plaintiff to raise respondent’s wife while she was a child until before he married her
is not a consideration. It is a moral obligation on plaintiff to raise his dependant well.

8. Public obligation is not a good consideration
A person who is under duty to carry public obligation cannot claim his act as
consideration to one’s promise. In Collins v Godefroy (1831), plaintiff has been
subpoenas to court to give statement as defendant’s witness. Defendant promises to
give reward to plaintiff. After attending court session, defendant refuses to pay as he
promised. Plaintiff sued defendant for breach of contract. Plaintiff claims was rejected
by court. It is everyone duties to help court to uphold justice. But if the obligation is
more than necessary to public obligation, it can be a consideration to one’s promise.
In Glassbrook Brothers v. Glamorgan City Council (1925), plaintiff requested defendant

no rights since no consideration given by plaintiff to X. The court held that the transfer is valid since it
fulfils section 26(a). In Re Tan Soh Sim (1951), a Chinese woman raised few adopted children. When
she was very sick, her siblings signed an agreement, surrendering all their rights on her properties to
her adopted children. After she died, a question arises, whether the agreement is valid? In deciding the
case, court has adopted Chinese custom. The custom sets that adopted children are considered to be
in near relation with their adopted mother and adopted siblings, but not with their adopted mother
siblings. Therefore, the agreement is void. It fails to fulfilled section 26(a).

25

to give extra protection on his mines when a group of workers strike. When claims
made by plaintiff after defendant refusal to pay cost of 2200 pound, the court decides
that protection given by the police is more than a necessary public obligation. The
protection is a valid consideration.
9. Former obligation to the promisor is not a good consideration
A party that already has an obligation to the promisor cannot claim that his action is a
consideration to a new promise made by the promisor. In Stilk v Myrick (1809), a
promise made by a ship captain to pay extra wages to the crews when 2 of them
passed away during the voyage is not a valid consideration. The crews are under
obligation to perform in case of emergency to bring the ship to safe destination. But,
if suppose the former contract has ended and there is a new contract, then the court
will decide contradict as to the above principle. In Hartley v Ponsonby (1857), a
promise to pay extra wages is considered to be valid consideration to a new contract
when the former contract void after from 36 crews, only 19 crews left. From the 19
crews, only 5 crews have an experience.
10. Unlawful consideration is not a good consideration
Section 24 Contracts Act 1950:
Every consideration or object of an agreement made by parties to a contract is
lawful, unless-
(a) it is forbidden by law,
(b) it is of a such nature that, if permitted, it would defeat any law
(c) it is fraudulent
(d) it involves or implies injury to the person or property of another
(e) the court regards it as immoral, or opposed to public policy

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5. Intention to create legal relation
Intention to create legal relation means that parties to the agreement are ready to face
circumstances if fails to perform obligation under the agreement. Contract Act 1950 is silent
on the intention to create legal relations. But, case-law clearly dictates the necessity of this
requirement. The need for parties to show intent to contract is important. Reference can be
made to English law where intention to create legal relations can be recognize by using the
‘objective test’ as in Carlill v Carbolic Smoke Ball (1893).
To recognize intention to create legal relations in an agreement, the court will look as whether
the agreement is of family/social arrangement or of commercial purposes. The court will
presume intention of parties based on these contracts. However these presumption made by
court is a rebuttable presumption. Parties to the contract who claim that there is no intention
to create legal relations must prove otherwise to the court.

5.1 Family/ Social arrangements
The law treats family arrangement as an agreement without intention to create legal relations.
This principle was firmly established at common law by the early 20th century case of Balfour
v Balfour (1919), where a husband's promise to pay his wife an allowance of £30 a week -
during his absence on business - was deemed unenforceable. This principle is not absolute
however, and clearly in cases where spouses are not on friendly terms, it is important they be
able to make enforceable agreements. In Merritt v Merritt (1970), where a husband who left
his wife agreed to transfer title of their house to her, if she paid off the remainder of the
mortgage was held to be enforceable.
Agreements made between other family members may also be subject to the question of
contractual intention, as shown in the case of Jones v Padavatton (1969). In this case, a
mother made a promise to her daughter that she would pay her an allowance of $200 a
month, and provide her with a house, if she moved to England and studied for the bar. The
Court of Appeal held that the mother held title to the house, as the agreement was purely
domestic. However, Lord Denning stated in Hardwick v Johnson (1978)[ that where good
consideration can be shown for a domestic promise, this may rebut the principle that it is
intended not to have legal consequences.
Social agreements between friends, work colleagues, and those sharing households, are
equally scrutinised when considering intent to create legal relation. Agreements which
encompass purely social activities, such as meeting for dinner, are never considered to be
legally binding; however, this principle has been extended even where financial bargains have
been considered. In Coward v Motor Insurers Bureau (1963), one man's agreement to pay his
work colleague a sum for transport to work was deemed to be informal enough not to be
legally binding.
Parent-children relationship is also family arrangement that unenforceable. In Choo Tiong
Hin & Ors v Choo Hock Swee(1959), respondent left home and his property after a family
fight. On returns respondent claims the house and property from appellant. Appellant claims
that the property must be divided equally between respondent and them since they have
pulled their effort to maintain the estate. Court decided that relationship of adopted family
between appellant and respondent is purely family arrangement.

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5.2 Business negotiations
If agreement is of commercial purposes, parties to agreement are presumed to have intention
to create legal relations. Parties involved are presumed to create legal relations, unless the
circumstances or nature of an agreement preclude this. In Rose & Frank Co. v Crompton Bros
(1924), appellant was appointed by respondent as mercantile agent. A agreement between
them states that the arrangement is not a legal agreement but it is only a definite expression
and record of the purpose and intention of parties concerned, to which they each honorably
pledge themselves with the fullest confidence based on past business with each other that it
will be carried through by each of the parties with mutual loyalty and friendly co-operation.
As a result of this statement, the Court of Appeal held that the contract was not legally
enforceable. The intentions of the parties were sufficient to override the presumption of
intention to create legal relations.
As stated above, the presumption of court is a rebuttable presumption. In Carlill v Carbolic
Smoke Ball Co. (1893) an advertisement offered a reward of £100, for anyone who purchased
a 'Smoke ball', used it, and subsequently contracted certain illnesses (namely influenza). The
company was bound by this unilateral offer, as the advert contained several statements which
were held to show intent to create legal relations; namely the fact that they had deposited
£1,000 into a bank account, to 'show their sincerity.'

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6. Capacity
Section 11 Contract Act 1950:
‘Every person is competent to contract as long as of the age of majority, of sound mind and
is not disqualified from contracting by any law to which he is subject. ‘
A person who is not of the age of majority has no capacity to contract. A person is of the age
of majority at attaining the age of eighteen as stated in section 2 Majority Age Act 1971. A
person who is not of the age of majority is referred to as a minor. A agreement made by a
minor is void ab initio. In India’s court decision in Mohori Bibee v Dharmodas Ghos (1903),
appellant gives credits to respondent (a minor). Respondent charges a house as a security.
Respondent, through her mother, sought order from court to declare that the charge is invalid
because lack of capacity to contract. The court grants the order. Malaysia’s court in Tan Hee
Juan v Teh Boon Keat (1934) upholds the decision in Mohori Bibee v Dharmodas Ghos (1903)
when decided that a transfer of title to an estate by plaintiff (a minor) is void.
In a situation where a minor purposely misrepresent the other party about his capacity, his
action does not make the contract to be valid. In Natesan v Thanaletchumi & Anor (1951), a
minor contracted with plaintiff after making false statement about his age. When sued, he use
of lack of capacity as reason. Plaintiff claimed that defendant may no longer use the reason
because defendant made false statement of his age. The court held that misrepresentation
does not obstruct the minor to use lack of capacity as defence.
However, there are a few types of agreement when entered into by a minor is treated by
law as valid contract. These agreements are:
i. Agreement in relation to marriage, divorce, dower, adoption, religion, religious rites.
In Rajeswary & Anor v. Balakrishnan & Ors (1958), defendant is a Hindu. He broke a promise
to marry plaintiff, also a Hindu. When plaintiff claim damages for breach of contract, court
granted the claims even though plaintiff is a minor. Defendant broke contract of marriage
which is a made under normal practice of their customs.
ii. Agreement of necessities
A minor is responsible to agreement if goods or service provided under the agreements is of
necessities. The term ‘necessities’ is explain in England’s Sale of Goods Act as goods and
services reasonably necessary to a minor’s actual requirement, i.e., food, shelter, medical
services, clothing at the time the sale was made. The type of necessaries also depends on a
minor’s condition of life or standard of life. Also consider whether or not he has been
adequately supplied. In Nash v Inman (1908), a tailor sued a minor to whom he had supplied
clothes, including 11 fancy waistcoats. The minor was an undergraduate at Cambridge
University. It was held that although the clothes were suitable according to the minor’s station
of life, they were not necessary as he already had sufficient clothing.

iii. Agreement of apprentice or employment
A minor is bound by a contract of apprenticeship or employment as long as it is in the whole,
for his benefit. In Doyle v White City Stadium (1935), a minor was bound by the terms of this
agreement with the stadium when he agreed to undergo a training to be boxer.

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iv. Agreement of a scholarship
In Government of Malaysia v. Gurcharan Singh (1971), Gurcharan received scholarship from
government to attend trainings as a teacher and for that he is to serve with government for
5 years after graduated. Gurcharan left before full term. When sued, he claims that contract
is void. He was lack of capacity during that time. The court held that education is a necessity
to a minor. Gurcharan is in breach of contract.
Section 12 (1) Contract Act 1950:
‘ A person is said to be of a sound mind … if at the time he makes it, he is capable of forming
a rational judgment as to effect of the agreement upon his interests.
Individuals who are clearly intoxicated - by alcohol or otherwise - are generally deemed not
to be able to enter legally binding agreements. Such persons have "no agreeing mind", though
similar principles apply as to those who are otherwise incapacitated. A person who is of
unsound mind enters into a contract while he is of sound mind, the contract is valid and vice
versa.

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7. Free Consent

Section 10 Contract Act 1950:
All agreements are contracts if they are made by a free consent of parties competent to
contract….
Section 14 Contract Act 1950:
Consent is said to be free when it is not caused by-
(a) coercion
(b) undue influence
(c) fraud
(d) misrepresentation
(e) mistake.

7.1 Coercion
Section 15 Contract Act 1950:
“Coercion” as committing or threatening to commit any act forbidden by a 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.
Coercion may be of physical coercion or economic coercion. Physical coercion is as in Kesalmal
s/o Letchman Das v Valiappa Chettia (1954), the court decided that a sale contract made by
the King’s order in front of 2 Japanese officers during Japanese occupation in Malaya is void.
Economic coercion as in Chin Nam Bee v Tai Kim Choo (1988), respondent promise to pay
extra money for house-booking is unenforceable since the promise made under coercion.

7.2 Undue Influence
Section 16 Contract Act 1950:
…induced by “undue influence” where the relations subsisting between the parties are such
that one of the parties is in a position to dominate the will of the other and uses that position
to obtain unfair advantage over the other.
An existence of undue influence is depend on proof by parties to a contract (a person claims
to be undue influenced must show to the court the existent of the influence and that it has
urged him to contract) or by an assumption by court or when the contract was obvious to be
advantageous only to one party (the use of such power by the person in position to dominate
to obtain what he desire, the existent of trusty-beneficiary relationship10, party’s mental
capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily
stress11, obvious to advantage one party only12).

10 Salwath Haneem v Hadjee Abdullah(1894), plaintiff’s husband has transferred titles to all his
properties to his 2 brothers. When he passed away, plaintiff claims that the contract was made under
undue influence. Court has held that the contract is void. Plaintiff shows to court that she is in trusty-
beneficiary relationship with her in-laws.

11 Inche Noriah v Shaik Allie bin Omar (1929), appellant, an uneducated-old Malay woman depends
wholly on respondent (her nephew) to get supply of food and cloths. All matters are settled by
respondent, until she has no idea of how much her own property’s worth. Plaintiff action that gave to
respondent an estate under a writing agreement was held to be made under undue influence.

12 Chait Singh v Budin bin Abdullah (1819), Plaintiff (a chetty) sued defendant (uneducated man) for
failure to pay debts. Defendant has charge his land as security with an interest rate at 36%. Court
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7.3 Fraud
Section 17 Contracts Act 1950:
‘Fraud’ includes any of the followings act…
a. When A suggests as to a fact whi ch he knows not true.
b. When A concealed a fact he believes to be true.
c. When A made a promise without intention of performing it.
d. any other act fitted to deceive.
e. any such act or omission as the law specially declares to be fraudulent.
Fraud is an act of giving false statement with intention to deceive. It is an active act, not
passive. Can mere silence on matter that a person knows to be true is a fraud? Under the law,
there is no duty to expose facts. Mere silence is not a fraud unless the act of silence equivalent
to speech that later found out to be untrue and the contract is of uberrimae fide. If a contract
wants to be repudiated under fraud of mere silence, a person who claims to be fraud must
proof that the silence encourage him to contract and he has taken steps to investigate the
truth but fails.
In Kheng Chwee Lian v Wong Tak Thong (1983), respondent contracted to buy an estate from
appellant. Under appellant urge, respondent bought another estate after the appellant told
respondent that the second estate is as extensive as the first estate, but it is not. Court gives
right to the respondent to repudiate the second contract because it is made under fraud of
section 17 (a) and (b).

7.4 Misrepresentation
By the provision of section 18, misrepresentation is a situation when X made a statement to
Y. The statement is untrue but X believes it to be true and Y enters into a contract in reliance
of that statement. Misrepresentation must be a positive act, not passive. Silence is not
misrepresentation. In Keats v Lord Cadogan (1851), defendant lets a house that was in bad
condition to plaintiff. The act is not misrepresentation. Plaintiff should be caution and
investigate13.

7.5 Mistake
Mistake is a situation when both parties to the agreement believe a false fact about the
essential matters in relation to their agreement. Among essential matters are identity of the
subject matter and performance of the agreement. A mistake can either be mistake of fact or
mistake of law. A mistake must be by both parties. In Strickland v Turner (1852), a buyer
bought and pay annuity scheme on X life. The fact that X has already passed away is unknown
to both the buyer and the seller. The contract is void, the subject matter of the contract, i.e.,
X life is not existing.
In Galloway v. Galloway (1914), an agreement to divorce between plaintiff and defendant is
void since both parties mistaken about their marital status. Their marriage is void; therefore
the subject matter does not exist.

has held that the interest rate is too high for a loan with security. It shows that the contract is
advantageous to one party only.
13 Bisset v Wilkinson (1927), contract of sale a poultry farm is valid even though the seller made a
statement that the farm can breed 2000 sheep is not true. It is because it is an opinion. He never
breeds a sheep at the farm before.

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In Bell and Anor v Lever Brothers Ltd. (1931), claims by Lever Bros. to get back reward money
after ended Bell and his partner service was rejected by court. The mistake is not of the
subject matter, but quality of the contract. Mistake on quality of contract does not render the
contract to be void.
In Falck v Williams (1900), a trade discussion of a contract to rent a ship is void because of a
mistake on the identity of a subject matter. Plaintiff thought the discussion is to bring cargo
of copra from Fiji to Barcelona, while defendant thought the discussion is to bring a cargo of
shale from Sydney to Barcelona.
In Sheikh Brothers Ltd v. Ochsner (1957), a contract to produce 50 tons of jute a month from
5000 acres of estate is void. Both parties are mistakes about the performance of the contract.

7.6 Effects of contract made without free consent

Cause Void Voidable
Coercion - Section 19 Contract Act

Fraud - 1950
Section 19 Contract Act
Misrepresentation -
1950
Undue influence - Section 19 Contract Act

Mistake as to the fact Section 21 Contract Act 1950
1950 Section 20 Contract Act
Mistake as to the law in -
Malaysia 1950
Mistake as to the law not in -
force in Malaysia -

Section 22 Contract Act
1950

Section 2(g) Contract Act 1950: an agreement not enforceable by law is said to be void.
Section 2(i) Contract Act 1950: an agreement which is enforceable by law at the option of

one or more parties thereto, but not at the option of the
other or others, is a voidable contract.
Section 65 Contract Act 1950: ….the party rescinding a voidable contract shall,… restore the
benefit,… from whom it was received.
Section 66 Contract Act 1950: … discovered to be void,… any person who received any
advantage…bound to restore or compensate…to …whom he
received..

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LAW OF SALE OF GOODS
1. Contract of sale of goods
2. Classification of goods
3. Terms in a contract of sale of goods
4. Transfer of property
5. Nemo dat quad non habet
6. Performance of contract
7. Remedies for breach
8. Consumer Protection Act 1999

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1. Contract of sale of goods
The law about sale of goods is in Sale of Goods Act 1957 (SOGA 1057) and Contract Act 1950
(CA 1950). SOGA 1957 provides that CA 1950 will be used to the extent that it does not
contravene with SOGA 1957. In other words, SOGA 1957 prevails over CA 1950.
Section 4 SOGA 1957 defines a sale of goods as a contract whereby a seller transfers the
property in the goods to a buyer for a price or an agreement to transfer the property in the
goods to a buyer for a price. Section 2 SOGA 1957 defines ‘goods’ as every kind of moveable
property other than actionable claim and money; and includes stock and shares, growing
crops, grass and things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale.
A contract of sale and an agreement to sell must be distinguished. In a contract of sale, the
ownership in the goods passes to the buyer at the time of the sale. If the buyer breaches the
contract by failing to pay, the seller can sue for the price because the ownership has passed
to the buyer. In an agreement to sell, the ownership in the goods passes to the buyer
sometime in future. If buyer breaches he agreement by refusing to accepts the goods when
the times comes, seller may sue for unliquidated damages.

2. Classification of goods
Under section 6 SOGA 1957, goods are classified into 2, existing goods and future goods.
Existing goods is goods that is already owned or possessed by the seller, and may be either
specified or agreed upon at the time a contract of sale is made. Future goods are goods to be
manufactured or produced or acquired by the seller after the making of the agreement to sell.
Future goods can only be the subject matter of agreement to sell not a contract of sale.
Section 2 SOGA 1957 further divides the existing goods into 2 classes, specific goods and
unascertained goods. Specific goods are goods that has already been identified and agreed
upon at the time a contract of sale is made. While, unascertained goods are identified by
description only.

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3. Terms in a contract of sale of goods
Terms are contents of an agreement. The terms can be expressed by the parties in their
agreement or implied from the provision contains in SOGA 1957. Section 62 SOGA 1957 allow
modification of implied terms by express agreement made between parties to the contract.
The importance of each terms are different therefore terms may either be a conditions or
warranties.
Section 12(2) SOGA 1957: Condition is a stipulation essential to the main purpose of the
contract, the breach of which give rise to a right to treat the contract as repudiated.
Section 12(3) SOGA 1957: Warranty is a stipulation collateral to the main purpose of the
contract and thus if it is breached, the innocent party may only claim damages but not to a
right to reject the good.
Condition is an important term or stipulation, essential part of the contract that goes to the
root of it. A breach of a condition is a serious breach while a breach of warranties is less
serious. But if parties to the contract wish to treat breach of condition as a breach of
warranties, they may do so. Either a term is a condition or a warranty is a question of fact.
Some might be called as warranty but is actually a condition.

3.1 Implied conditions in a contract of sale of goods
1. Section 14 (a): an implied condition….the seller…in a case of a sale, he has a right to

sell..in a case of agreement to sell…will have the right to sell at the time when the property
is to pass.
If there was a breach of this condition, the plaintiff may recover the full price paid from
defendant. In Rowland v Divall (1923), plaintiff bought a stolen car from defendant.
Defendant did not have the right to sell; therefore the title to the car did not pass to
plaintiff. Plaintiff had to return the car to the true owner.
2. Section 15: …sale of goods by description…implied condition that the goods shall
correspond with the description.
This condition applies particularly if the buyer has not seen the goods but relies on the
seller. The goods may be unascertained or future goods. In Beale v. Taylor (1967), a
seller advertised a car as ‘Herald Convertible, 1961, twin carb’. The buyer took a look and
bought the car. Later, the buyer realized that the back of the car is 1961 model but the
front part is from other model. The court held that the seller is in breach of a condition.
3. Section 16 (1)(a): …no implied condition and warranty as to quality or fitness for any
particular purpose for goods supplied under contract of sale except …buyer, expressly or
by implication makes known to seller the particular purpose for which the goods is
required, …buyer relies on seller’s skill…the goods…is in the course of the seller’s business
to supply…
In Griffiths v Peter Conway Ltd. (1939), a woman bought a coat without implicating to
the seller that she has sensitive skin. As a result, she fails to claim damages after
experience skin problems. The coat is fit for the purpose to a normal person. If the goods
are bought by the buyer under its trade name, under the impression that he does not rely
on the seller’s skill and judgment, this implied condition does not apply.

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4. Section 16(1)(b): Where goods are bought by description from a seller who deals in goods
of that description…an implied condition that the goods shall be of merchantable quality.
Merchantable quality means that the goods are fit for the purpose to which they are
bought. If it is defective for that purpose, it is not merchantable. If goods have several
purposes, it will be considered as merchantable if it is fit for any of the purpose. In Wilson
v Rocket Cockerall & Co.(1954) , a lady ordered a fuel under its trade name of “Coalite”.
The consignment of the fuel was mixed up with a piece of coal and it caused in explosion
of the fireplace. It was held that the consignment as a whole was unmerchantable. It had
defects making it unfit for burning.
However section 16(1) (b) does not apply where the defect is specifically drawn to buyer’s
attention before the contract is made or the buyer has examined the goods and defect
ought to have been revealed from the examination. Thus, the buyer must exercise care
in making purchase, if not they have to bear the consequences if there is any defect in
the goods. In Thornett & Fehr v Beers & Sons (1919), there was a sale of a few barrels
of glue. Buyer examined the outside of the barrels before buying. It was held that the
condition as to merchantable quality did not apply. If he had looked inside the barrels, he
would have seen that there was a defect in the glue.

5. Section 17: In a contract for sale by sample…implied condition…that shall correspond with
the sample in quality; …buyer shall have reasonable opportunity of comparing bulk with
the sample; … goods shall be free from any defect…

3.2 Implied warranties in a contract of sale of goods
1. Section 11: …time of payment are not ….the essence of a contract of sale.

If the buyer fails to pay on the agreed time, the seller cannot repudiate the contract. It
is a breach of warranty. Any other stipulation in relation to time is treated as a breach of
warranty unless stated otherwise in the agreement. If time for delivery is essence, late
delivery by the seller entitles the buyer to repudiate the contract, refuse to accept the
delivery and recover the purchase price. In Harrington v Browne, it was held that time
for delivery was the essence in contract of sale of livestock. The buyer should have been
ready to take delivery. A failure to do so can create a problem for the seller to keep the
animals.
2. Section 14(b): an implied warranty that the buyer shall have and enjoy quiet possession
of the goods.
3. Section 14(c): an implied warranty that the goods shall be free from any charge or
encumbrance…not declared…before or at the time when the contract is made.

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4. Transfer of property

Section 26 SOGA 1957:
Unless otherwise agreed, the goods remain at the seller’s 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 buyer’s risk whether delivery has been made or not….

Property refers to title or ownership, not possession. There is a situation when a person may
be in possession of the goods but the ownership belongs to someone else. In a contract of
sale of goods, it is important to know when the property in goods is transferred from a seller
to a buyer in order to determine who should bear the risk if the goods are stolen, lost or
damaged.

Section 18 SOGA 1957:
In a sale of unascertained goods, no property is transferred unless and until the goods are
ascertained.

Section 19 SOGA 1957:
In a sale of specific goods or ascertained goods, property transferred at the time the parties
to the contract intend it to be transferred. Intention of parties can be ascertained by referring
to terms of contract, conduct of parties, circumstances of the case.

Section 20 SOGA 1957:
In unconditional contract of sale of specific goods in a deliverable state, property passes when
the contract is made14.

Section 21 SOGA 1957:
In a sale of specific goods but the seller need to do something to the goods to put in a
deliverable state, property does not pass until this action has been done and the buyer has
notice thereof15.

Section 22 SOGA 1957:
In a sale of specific goods in a deliverable state, but the seller needs to weight, measure, test
or do some act to ascertain the price of the goods, property does not pass until this has done
and buyer has notice thereof.

Section 23 SOGA 1957:
In a contract of sale of unascertained or future goods sold by description, property passes
when the goods are unconditionally appropriated to the contract by one party with the consent
of another and it is put in deliverable state.

Section 24 SOGA 1957:
In a contract where goods delivered on approval or “on sale or return”, property passes when
buyer signifies his approval or acceptance to the seller or does any act adopting the transaction
or retains the goods without giving any notice of rejection within a fixed/ reasonable time16.

14 In Turling v Baxter (1827), a buyer bought a haystack but before he took it away, it was destroyed
by fire. It was held that the property passed at the time of the contract and the loss fell on the buyer.
15 Wallace v Safeway Caravan, a buyer agreed to buy a caravan with condition that the shower head
is to be fixed. He pays before the job is done. The caravan was later stolen before the shower head is
fix. It was held that the risk is borne by the seller.
16 Poole v Smith’s Car Sales, a car seller gives 2 cars to another car seller with term ‘sale or return’. One
car has been sold but another car was return 3 months later than due date and in a bad condition. The
court held that the first seller can claim price for the second car.

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5. Nemo dat quad non habet
Section 27(1) SOGA 1957:
…where goods are sold by a person who is not the owner thereof, and who does not sell them
under the authority …of the owner, the buyer acquire no better title to the goods than the
seller had, …
The provision of the above section is as the law maxim of Nemo dat quod non habet (No one
can transfer a better title than he has himself). The rationale of this rule is to protect the right
of ownership. If this rule is not present, the interest of the true owner of the goods which
were stolen from him would be jeopardized.
In Lim Chui Lai v Zeno Ltd (1964), Ahmad had contracted with PJ Authority for construction
of culverts. Later, he entered into another contract with Zeno to buy materials for the project.
The materials were delivered to the construction site but Ahmad’s contract with PJ Authority
was cancelled. Upon cancellation of the contract, Zeno attempted to sell the materials to
somebody else. Unfortunately for them, Ahmad had sold the materials to the appellant (Lim).
When the case brought to the court, the court held that Ahmad was a bailee and not the
owner of the goods. He had no title to the goods, so he cannot sell the goods and he could
not pass any title to the 3rd party (appellant).

5.1 Exceptions to nemo dat quad non habet
There are a few situations, where when a buyer bought goods from a seller, who is not the
true owner, the buyer may obtain title to the goods if the buyer bought the goods in good
faith for value. These situations are when the sale is made;
1. Under the doctrine of estoppels

Where the owner by his conduct makes it appear to the buyer that the person who sells
the goods has his authority to do so and the buyer relies on that conduct, the buyer
obtains a good title because the owner is precluded by his conduct from denying the
seller’s authority to sell.
2. By mercantile agent
Under the law of agency, an agent can transfer the title to the goods own by his principal
to the buyer as long as he is acting in ordinary course of power given to him by his
principal. Mercantile agent is a person who has a power as an agent to sell, deliver goods,
and buy goods.
3. By one of joint-owners
Goods may be owned by more than one person. Section 28 SOGA 1957 provides that if
one of several joint owners of goods has the sole possession of them by permission of the
co-owners, the property in goods is transferred to any person who buys them from such
joint owner in good faith and has no at time of the contract of sale, had not received
notice that the seller has no authority to sell.
4. Under voidable contract
Section 29 SOGA 1957 provides that where possession in goods obtained under voidable
contract and the goods then sold to the buyer before the contract been rescinded, the

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buyer acquires a title to the goods, provided he buys them in good faith and without notice
of the seller’s defect of title.
5. By a seller in possession after sale
Section 30(1) SOGA 1957 provides that if a seller continues or is in possession of the goods
or documents of title to goods, resells to a second buyer the goods sold by him previously
to the first buyer, the second buyer will obtain good title to the goods.
6. By a buyer in possession
Section 30(2) SOGA 1957 provides that 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 buyer, even if under the first transaction he has
not obtained a good title.

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6. Performance of contract
Section 31 SOGA 1957:
It is the duty of the seller to deliver the goods and buyer to accept and pay for them, in
accordance with the terms of the contract of sale.
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 terms of the contract, express or
implied, between the parties. If there is no agreement between parties, then the place of
delivery for:
1. Goods sold are at the place at which they are at the time of the sale.
2. Goods agreed to be sold are at the place at which they are at the time of the agreement
to sell.
3. Future goods are at the place at which they are manufactured or produced.
As to the time of delivery section 36(2) SOGA 1957 provides that under the contract of sale,
the seller is bound to send the goods to the buyer. But if no time for sending them is fixed,
the seller is bound to send them within a reasonable time. Section 38(1) SOGA 1957 provides
that unless agreed by the parties, the buyer is not bound to accept delivery by installments.
Where the seller delivers goods of less quantity than contracted, by the provision of section
37(1) SOGA 1957, the buyer may reject them or he can accept the goods and pay for them
at the contract rate. In Harland and Wolff v J.Burstal (1901), the contract was for 500 loads
of timber but the seller delivered only 470 loads. The buyer was entitled to reject the whole
timber because of nonperformance of the contract.
Where the seller delivers goods larger than quantity contracted, by the provision of section
37(2) SOGA 1957, the buyer may accept the goods included in the contract and reject the
others or accept the whole goods or reject the whole goods.
Where the seller delivers goods of mix quantity, by the provision of section 37(3) SOGA 1957,
the buyer may accept the goods included in the contract and reject the rest or reject the
whole goods
Buyer may refuse to accept goods if he has the right to do so. Buyer is not bound to return
rejected goods since it is sufficient if he intimates to the seller that he is rejecting the goods.
Where the buyer wrongfully neglects/refuses to accept and pay for the goods, seller may sue
him for damages.

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7. Remedies for breach
Remedies to the buyer available when the seller neglects or refuses to deliver the goods. The
buyer may sue for damages for any loss naturally arose from the breach or which the parties
knew would likely to result from the breach and if the title to the goods has passed to the
buyer, the buyer may take an action in tort for wrongful interference with the goods17 or
specific Performance order in a contract for a sale of specific goods or ascertained goods or
goods with a unique quality.

Remedies to the seller available in few situations. These are when:
1. Where the buyer has paid the price of the goods, seller may sue for damages for non-

acceptance and for care and custody when the buyer fails to take delivery on the agreed
date.
2. Where the buyer fails to pay for the goods at agreed time of payment, remedies available
to the unpaid seller is two kinds of actions, an action against the buyer (seller may sue
for price and claim damages) and an action against the goods.
In an action against the goods, under the provision of section 46(1) SOGA 1957, the
seller has a right to exercise lien or stoppage in transit and then to resell the goods.
By provision of section 47, lien is a right to keep the goods until payment is made. This
right can be exercised if the property in the goods has passed to the buyer but the seller
is still in possession of the goods. The unpaid seller loses his lien in a situation where he
delivers the goods to a carrier for transmission to the buyer without reserving right of
disposal or when the buyer or his agent lawfully obtains possession of the goods or when
the seller waives his right to exercise lien in sale of goods contract. If credit has been
given, the right to exercise lien does not exist until period of credit has expired. In a
situation where the unpaid seller has made part delivery, he may exercise right of lien on
the remainder: section 48.
Right of stoppage in transit as provided by section 50 can be exercise when the buyer of
the goods becomes insolvent and the seller has parted with the possession of the goods.
The seller may stop the goods in transit and retake delivery while they are in possession
of the carrier. The seller has right to retain them until payment of price.
Right to resell can be exercise if the goods are of perishable nature i.e. vegetables, fruit
and after the seller gives notice of his intention to resale and the buyer does not tender
the price within a reasonable time or when the right of resale is expressly reserved in the
contract in case the buyer should make any default.

17 Hedley v Baxendale(1854), the seller knew that the buyer was a trade and he bought the goods
with a view to resale. It was held that buyer was entitled to his loss of profit on the resale as a result
of seller’s non delivery.

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8. Consumer Protection Act 1999
Consumer Protection Act 1999 (CPA) came into force on the 15th of November 1999 to provide
legislative provisions for consumer protection in relation to sale of goods.
CPA applies in respect of all goods (as define in SOGA 1957) and services offered or supplied
to one or more consumers in trade.
The CPA provides protection for consumers covering deceptive conduct, false representation
and unfair practice of traders; ensures safety standards and requirement for goods and
prohibits unsafe goods; provides guarantees in respect of supply of goods.
In Puncak Niaga (M) Sdn Bhd v NZ Wheels Sdn Bhd (2012), a new luxury car kept breaking
down, the court held to the effect that the car was not of satisfactory or acceptable quality
and was unfit for its purpose and the purchaser was protected by CPA 1999.
CPA provides for:
1. The protection of consumers.

Provides consumers with certain rights against suppliers and manufacturers in respect
of guarantees in the supply of goods and with product liability.
2. The establishment Tribunal for Consumer Claims.
Every party can appear at the hearing but cannot be represented by advocates.
Tribunal proceedings are open to public. The tribunal hears claim of up to RM10,000.
However, the Tribunal has no jurisdiction over land matters (except fixtures), wills,
goodwill, trade secret or intellectual property.
The Tribunal can negotiate for settlement and if claim can be settled, the Tribunal will
approve and record settlement and it becomes an award. If there is no settlement, the
Tribunal will determine the dispute. Agreed settlements and awards are final and
binding and deemed as an order of a Magistrate’s Court.
Failure to comply with an award within 14 days is a criminal offence and can be
punished with a fine up to RM 5,000 or 2 years imprisonment, or both.
3. The establishment of National Consumer Advisory Council
Advises the Ministry on all aspects of consumerism.

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A few amendments have been made to CPA 1999.

Year Amendments
2002 Subsection 17 (1) listing the types of Future Services Contract gazette by the
Ministry for the purpose of the section has been made.

2003 Increase the TTPM’s membership to include members from judicial and legal
services as well as increasing the TTPM’s award from RM10, 000 to RM25, 000.

2007 Widening the scope of Act 599 to include the electronic commerce transactions.

2010 Expand existing provisions in ensuring the Act remains relevant to the changes
in current trade practices as well as providing more protection to the
consumers. This amendment introduces two new parts namely:

1. Part IIIA: Unfair Contract Terms which defines the provisions to protect
consumers from unfair terms in a standard form contract

2. Part XIIA: Committee on Advertisement which provides power to the Minister
to establish a committee, to monitor and take necessary action against the
supplier that produces false and misleading advertisement.

3. Part IIIA: Unfair Contract Terms which defines the provisions to protect
consumers from unfair terms in a standard form contract

4. Part XIIA: Committee on Advertisement which provides power to the Minister
to establish a committee, to monitor and take necessary action against the
supplier that produces false and misleading advertisement.

2015 Widening the scope of Act 599 to include the consumer claim relating to
aviation service.

2017 Introduction of Part IIIB: Credit Sale Transaction to control credit sales
transaction.

2019 Increasing the TTPM’s award from RM25,000 to RM50,000 as well as the
penalty for non-compliance of award.

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LAW OF AGENCY
1. An agency relation
2. Creation of agency relation
3. Rights and duties of agent & principal
4. Agent’s authorities & its relation to principal liabilities
5. Types of principal & its relation to agent’s authority
6. Termination of agency relation

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1. An agency relation
Law of Agency is governed by Part X, Contracts Act 1950. Agency is a relationship created
when one person cannot act by himself and has to appoint someone else to the act for him.
Agency is a relationship between a Principal and his Agent.
Section 135 Contract Act 1950:
An ‘agent’ as a person employed to do any act for another or to represent another in dealings
with third persons. The person for whom such act is done, or who is so represented, is called
the ‘principal’.
Agency relationship creates 2 contracts enforceable by law, a contract of agency between
principal and agent and a contract of sale between principal and third party. Under section
136 and 137 Contract Act 1950, capacity to be a Principal and Agent are as the capacity to
contract i.e., of majority age and sound mind. An agency may be created in 5 ways, by express
appointment, by implied appointment, by ratification, by necessity, under the doctrine of
estoppel.

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2. Creation of agency relation
An agency relations may exist between principal and agent in following ways:
2.1 Appointment by express
Section 139 Contract Act 1950:
The authority of an agent may be expressed or implied.
Section 140 Contract Act 1950:
An authority is said to be expressed when it is given by words spoken or written….

2.2 Appointment by implied
Section 139 Contract Act 1950:
The authority of an agent may be expressed or implied.
Section 140 Contract Act 1950:
… An authority is said to be implied when it is be inferred from the circumstances of the case
An agency may be implied if a person allows another to order goods on his behalf and
habitually pays for them, an agency may be implied. In such a case, he will be bound by the
contracts as if he has expressly authorized. In Chan Yin Tee v William Jack & Co (1964), Yong
a minor, ordered goods for the business. However, another person, Chan used to pay for the
goods. In this instance, Chan refused to pay. The court held that agency relationship exists
between Chan and Yong by referring to their conducts and thus Chan would have to pay for
Yong’s order.
An implied agency may be implied also from the relationship of a husband and wife. A wife
can pledge her husband’s credit but not otherwise. A wife can use his husband’s name to buy
goods on credit if the goods is a necessity and suitable for their standard of living. However
this is a rebuttable presumption. A husband may rebut by proving that he has expressly forbids
his wife to pledge his credit, or has expressly warned the tradesman no to supply his wife with
goods on credit, or has sufficiently provided his wife with the goods, or his wife was given
sufficient allowance to buy good without pledging husband’s credit, or the order was
unreasonable with her husband’s income even though it was a necessity.

2.3 Appointment by ratification
An agency by ratification may arise in two situations, when an agent who was appointed
exceeded his authority or when a person who had no authority to act but acted as if he has
the authority.
Section 149 Contract Act 1950:
Where acts are done by one person on behalf of another but without his knowledge or
authority, he may elect to ratify or to disown the acts.
Section 150 Contract Act 1950:
Ratification may be made by express or may be implied….
In Waithman v Wakefield (1807), a wife bought a goods which is not necessities therefore
agency by implied appointment does not exist. However, since her husband kept the goods
and refused to return the goods to the seller. The court held that the husband action is an

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approval to his wife act. Thus, agency by ratification comes into existence. However, in order
for a ratification to be valid, the act must:
1. Be unauthorized act or an agent has exceeded his authority.
2. The act must be recognized by law.
3. The agent must expressly acts as an Agent for the Principal at the time of contract. When

the Agent use his own name and does not disclose that he is an Agent for a principal, he
would be personally liable18.
4. The Principal must be in existence and have contractual capacity at the time when the
Agent made the contract.
5. The Principal must have knowledge about the material facts of the contract in order to
ratify it19.
6. The Principal if he chooses to ratify must ratify the whole contract, not only the part that
is beneficial to him.
7. Ratification must be made within reasonable time.
8. Ratification must not injure to third party

2.4 Appointment by doctrine of estoppel
Agency by Estoppels created 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 agent’s authority: Section 190 Contracts Act
1950.

2.5 Appointment by necessity
By the provision of section 142, agency by necessity comes into existence without formal
appointment by principal in an emergency situation. However some kind of contractual
relationship must already exist between them.
Section 142 Contract Act 1950:
An agent has authority, in an emergency, to do 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 agency of necessity arises when:
1. Agent’s action is necessary to prevent loss to the principal.

Agency by necessity does not arise if there is no real urgency i.e. where the goods are
sold merely because they were an inconvenience to the carrier. In Great Northern
Railway Co. v Swaffield (1874), the railway company contracted to carry the
defendant’s horse to a destination. An agent to the defendant should take delivery at
the destination. However on arrival, there was no one to take delivery, so the
stationmaster directed that the horse to be put in a stable. He did not know the

18 Keighley Maxted & Co v Durant (1901), Robert (an Agent) brought flour at a price higher than
instructed by his Principal in his own name. It was held that his principal could not ratify Robert’s
action so he would have to be personally responsible to pay for the flour.

19 Marsh v Joseph (1897), the ratification was void because the principal was not aware of the material
facts of the contract at the time of ratification.

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defendant or his agent’s addresses and had no way of contacting them. The railway
company later claimed for the charges of the stable from the defendant but he refused
to pay. The court held that the station master acted as an agent of necessity in this
matter so the principal had to pay for the charges.
2. It is impossible for the Agent to communicate and get further instruction form the
Principal. In Springer v Great Western Railway Co. (1921), the defendant (a railway
company) who was supposed to carry the goods to its destination, sold the goods in
the middle of the way without trying to communicate with the owner to get further
instruction when it was possible to do so. It was held that there was no agency by
necessity arose. The owner can claim damages form the defendant, as it was not the
Agent.
3. The act must in good faith and his action must be reasonable in the circumstances.

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3. Rights and duties of agent & principal
A contract of agency is an agreement between Principal and Agent. Like any other contract,
the obligation of parties to the contract is as expressly agreed between them and included in
the contract document. However, if the contract of agency does not expressly provide rights
and obligations of parties to the contract, the rights and duties is as provided in section 164
to 178 Contract Act 1950. It should be understood that duties of an agent is rights of a
principal and vice versa.

3.1 Duties of an agent
1. To obey the principal’s instruction or to act according to the customs.

Section 164 Contract Act 1950:
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. When the agent acts otherwise, if any loss be sustained, he must make it good
to his principal…
In Turpin v Bilton (1843), the agent failed to insured a ship when instructed to do so by
his principal. The ship was lost in a storm and the principal claimed damages from the
agent. The court held that failure to obey may be treated as breach of contract and the
Agent was liable for the loss. However, an agent is under no obligation to obey unlawful
instructions of his Principal. An agent is under no duty to obey the unlawful instructions
of his principal20.

2. To use skill and to exercise care and diligence.
Section 165 Contract Act 1950:
An agent is bound to conduct the business…with as much skill as generally possessed by
persons engaged in similar business,…to act with reasonable diligence, to use such skill
as he possesses; and to make compensation …in respect of direct consequences of his
own neglect…misconduct…
In Keppel v Veller (1927), an agent sold a horse at a lower price when there was a higher
offer. The agent held to be liable because he did not exercise care and diligence in carrying
out his duty. He supposed to get the best offer available.

3. To render proper account.
Section 166 Contract Act 1950:
An agent is bound to render proper accounts to his principal on demand.
The account must include all monies, properties and goods handle by the agent. In Parker
v Mason (1940), it is the duty of an agent to prepare and show a proper account which
includes money received by him from illegal or void transaction, when requested by the
principal.

20 Cohen v Kittel (1889)

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