contract law

CHAPTER FIVE
LAW OF CONTRACT

1.1 INTRODUCTION
o Definition of Contract: An agreement made between two or more parties, which the

law will enforce.
o S. 2(h) of the Contracts Act 1950 - it is an agreement enforceable by law.
o A contract is different from all other forms of agreement because the parties to a

contract acquire as a result of the agreement certain rights and obligations which are
legally enforceable.
o If a party breaks his promise and persists with his refusal to act as agreed, the other
party may well wish to enforce performance.
o Generally, the law will only compel a person to carry out his promise if that promise
is embodied in a valid contract. If a valid contract exists then a party to the contract
can sue the other for failure to carry it out.

“All contracts are agreements, but all
agreements are not contracts”

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5.2 TYPES OF CONTRACTS

o Valid, Unenforceable, Voidable, and Void Contracts
1. Valid: it satisfies the law’s requirements.
2. Unenforceable: when the parties intend to form a valid bargain but some rule of law

prevents enforcement.
3. Voidable: when the law permits one party to terminate the agreement.
4. Void: one that neither party can enforce, usually because the purpose is illegal or

one of the parties had no legal authority.

o Generally, contract may be divided into two:

BILATERAL CONTRACT UNILATERAL CONTRACT

The standard type of contract whereby Only one party make a promise and the
both parties (the promisor and the other accepts the offer by performing the
promise) promise to do something and condition. For example: finding a lost cat
then carry out their part of promise. For The best example of the case law : Carlill v
example: Buying a loaf of bread from the Carbolic Smoke Ball Co.
bakery

5.3 ELEMENTS OF A CONTRACT

1. Proposal/Offer
2. Acceptance
3. Intention to create legal obligation
4. Consideration
5. Certainty
6. Legal capacity
7. Free consent
8. Legality of the objects
9. Required formalities

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1. PROPOSAL
o S.2 (a) of the Contract Act 1950 provides that:

When one person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtaining the assent of that other to the act or abstinence, he
is said to make a proposal.
o Example: Mr. Squidward wrote offering to sell his car to Mr. Crab for RM50,000.
o The person making the proposal is called the promisor / proposer / offeror. The party
accepting the proposal is referred to as the promisee/ proposee / offeree.
o Based on the above example, Mr. Crab acceptance of Mr. Squidward’s proposal to
buy the car establishes an agreement.

COMMUNICATION OF PROPOSAL
o A proposal can be made to an individual, a class of persons, a firm, a company or to

the public at large.
o A proposal / offer can be of two types:
1. Specific: It is made to one person or group of people. Then only that particular

person or group of people can accept.
BOULTON V JONES (1857)

Facts: Jones used to have business dealings with Brockle Hurst. He sent an order
(offer) to Brockle Hurst for the purchase of certain goods. By the time the order

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reached Brockle Hurst, he had sold his business to Boulton. Boulton receiving
the order sent all the goods to Jones as per the order without informing Jones of
the changing of the hands of the business. When Jones learnt that the goods
were not supplied by Brockle Hurst, he refused to pay for the goods. His
contention was that he had never placed an order to Boulton, the offer being
made to Brockle Hurst, and therefore had no intention to make a contract with
Boulton.
Held: Jones was not liable to pay. There was no contract.

2. General: It is made to ‘the whole world’ (the public at large), particularly seen in the
cases of rewards and other public advertisements.

CARLILL V CARBOLIC SMOKE BALL CO. (1893) IQB 256
Facts: The defendant issued an advertisement in which they offered to pay £100 to any

person who succumbed to influenza after having used one of their smoke balls in
a specified period. The plaintiff Mrs. Carlill bought and used the smokes ball as
prescribed and caught influenza. She sued the company for the promised
reward. The defendants contended that the contract was made with the entire
world that is with everybody and that one can’t contract with everybody.
Held: An offer could be made to the entire world because the contract will only be
made with that limited portion of that public who came forward and performed the
condition on the faith of the advertisement. (There was a proposal made by the
Carbolic Small Ball Co to the general public.)

o A proposal can be made in any form; it can be made in writing, orally, by conduct or
by combination of these.

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o A proposal must be clear, complete, final and detailed to avoid doubt. If the terms
used are not clear, it is not to be regarded as a valid offer. This is because the law
cannot enforce a contract based on ambiguous or indefinite terms.

GUTHING v LYNN
Facts: L offered to buy a horse form Guthing on condition that if the horse brings luck to

him, he will pay another £5 extra.
Held: The offer was too vague and no contract could be formed.
o S.4 (1) of the Contracts Act 1950 provides that:

The communication of the proposal is complete when it comes to the knowledge of
the person to whom it is made
o Rule:
 Only an addressee may accept the proposal.

 A party accepting a proposal must be aware of its existence.

TAYLOR v LAIRD(1856)
Facts: 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
vessel home and wanted to claim his wage for this work.
Held: It was held however that he could not do so as his offer to help bring the vessel
home was not communicated, therefore there had been no opportunity to accept
or reject his offer.

 A party who casually returns a lost property to its owner cannot legally claim a
reward if he is unaware of it at the time but subsequently discovers the existence
of an offer of rewards for its return.

WILLIAMS v CARWARDINE(1833)
Facts: The defendant offered a £20 reward for information leading to the discovery of

the murderer of Walter Carwardine. The plaintiff had given the information ‘to
ease my conscience and in the hope of forgiveness thereafter’. She was in fact ill
and feared that she would soon die.
Held: The plaintiff was entitled to the reward: she was aware of the offer and had
complied with its terms and her motives were irrelevant.

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R v CLARKE (1927)
Facts: The Western Australian Gov. offered a reward for information leading to the

arrest and conviction of persons responsible for the murder of two police officers.
X and Clarke were arrested for the crime. Clarke gave information which lead to
the arrest of another person, Y. X and Y were later convicted for the crime and
Clarke who was not guilty was released. Clarke then claimed for the reward.
Held: The claim failed on the grounds that the information was given only to clear /
release himself and not in reliance on the offer of rewards. (In fact, in this case
Clarke knew of the offer in the past but has completely forgotten about it, they
are treated as never having known about it.)

Invitation to Treat

o Invitation to treat is not a proposal but a sort of preliminary communication which
passes between the parties at the stage of negotiation.

o Differences between offer and invitation to treat:

An offer – which is capable of acceptance.

An invitation to treat – which is an invitation to others to make an offer or

to negotiate an offer.

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o EXAMPLES OF INVITATION TO TREAT:

1. The display of goods with a price ticket attached in a shop window or on a
supermarket.
This is not an offer to sell but an invitation for customers to make an offer to buy.
FISHER v BELL [1960]

Facts: A flick knife was displayed in the shop window. A shopkeeper was charged with
offering weapon contrary to the provisions of the Restriction of Offensive Weapon
Act 1959.

Held: The display of goods with a price ticket attached in a shop window is an invitation
to treat (not an offer to sell)

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v BOOTS CASH CHEMISTS Ltd
[1953]

Facts: The Defendant was charged under Pharmacy and Poisons Act 1933 (unlawful to
sell certain poisons unless such sale was supervised by a registered
pharmacist).

Held: The display was only an invitation to treat. (Payment was to be made at the exit
where a cashier was stationed and in every case involving drugs, a pharmacist
supervised the transaction and authorized to prevent a sale.)

2. Advertisements, catalogues and brochures.

PARTRIDGE v CRITTENDEN [1968]
Facts: A notice ”Bramble finch cocks and hens, 25s each” was placed in the classified

advertisement page of a periodical. The cock has been sold out when the plaintiff
attended the auction.
Held: The advertisement was an invitation to treat (no contract exist between them)

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o However, there are some situations where an advertisement may be regarded as a
definite offer: Carlill’s case

COELHO v THE PUBLIC SERVICES COMMISSION [1964]
Facts: The Defendant advertised a job vacancy in the newspaper. The Plaintiff applied

for the job and he was employed by the Defendant. After a while, the defendant
wanted to terminate his post on the ground that he was on probation and the
defendant has the right to terminate his post.
Held: The advertisement is an invitation to treat. When Coelho applied, he is making a
proposal. When he was employed, the defendant was accepting the proposal.
Thus, a valid contract exists between them. The defendant cannot simply
terminate his post.

3. Auctions

PAYNE v CAVE [1789]
Facts: Defendant made the highest bid (offer) at an auction sale but withdrew his bid

before the fall of the auctioneer’s hammer (acceptance).
Held: Defendant was not bound to purchase the goods.

HARRIS v NICKERSON [1873]
Facts: It was informed to the public that an auction sale was to include office furniture. It

was found out that there was no office furniture on auction. The Plaintiff sued the
Defendant for breach of contract.
Held: The auction sale is an invitation to treat. Proposal only exists when the customer
bids. Contract only exist when the auctioneer accepts the price bids by the
customer. There was no contracts exists between the auctioneer and the
customer.

4. Tender
Tender is an invitation to treat and the person who announced the tender may accept or
refuse the offer made by the readers of the said tender.

SPENCER V HARDING
Facts: The defendant had sent out letters of tender for a sale of certain goods. The

Plaintiff’s tender was the highest but the defendant did not accept it.
Held: The defendant was right to refuse the offer because no contract had existed

between them. A letter of tender is only an invitation to treat.

5. Company prospectus

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6. Statements of price in negotiations for the sale of land/ Price List/Quotation.

HARVEY v FARCEY [1893]
Facts: Harvey sent telegram to Farcey: “Will u sell us Bumper Hall Pen? Telegraph

lowest cash price…” Harvey telegraphed his response: We agree to buy Bumper
Hall Pen for £900 asked by u.
Held: There was no contract.

TERMINATION OF PROPOSAL

o An proposal can be revoked, or cancelled or withdrawn, by the offeror at any time
before it is accepted. This must be communicated to the offeree before acceptance
takes place.

o S.5(1) CA:“A proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards.”

Modes of Revocation:

o S. 6 CA states that a proposal is revoked:

a) By notice of revocation - S. 6(a)
o ie: Communication of notice of revocation by the proposer to the other party.

o Revocation for Postal Rule:
Revocation can be made before such posting/delivery at the appropriate
telegraph office.

Illustration- S. 5
A proposes by a letter sent by post to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his
letter of acceptance, but not afterwards.

BYRNE v TIENHOVEN [1880]

Facts: The Defendant offered to sell 1,000 boxes of tinplates to the Plaintiff. The

following communication took place:
- 1 Oct: Defendant posted letter of offer in Cardiff to the Plaintiff in New York.
- 8 Oct: Defendant posted a letter revoking the offer of Oct 1.
- 11 Oct: Plaintiff received the letter of offer posted on Oct 1 and sent acceptance

by telegram the same day. It also followed up with letter of acceptance on 15

Oct.
- 20 Oct: Defendant’s letter of revocation received by the Plaintiff.
- Issue : Whether the revocation was effective or not?

Held: There was a contract between the parties because the revocation of the offer
posted on 8 October was not effective till 20 October when it was received by the
Plaintiff but in the meantime, the latter had already accepted the offer on 11
October when the telegram was sent.

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b) By the lapse of time - S. 6(b)
o By the lapse of time prescribed in the proposal for its acceptance, or if there is no
such prescription, by the lapse of reasonable time without the communication of
its acceptance.

RAMSGATE VICTORIA HOTEL CO V MONTEFIORE [1866] LR 1 Ex Ch 109
Facts: The defendant applied for shares in the company in June and paid a deposit he

into the company’s bank. It was not until November that the company informed
the defendant that shares has been allotted to him and the balance of the
purchase price should be paid. The defendant refused to accept the shares.
Held: The defendant’s refusal was justified because such proposal should have been
accepted within a reasonable time.

c) By the failure of acceptor to fulfil a condition precedent - S. 6(c)
o If the offeror puts a condition to be fulfilled by the offeree before making an
acceptance, the offeree must fulfil it. If not, the offer is automatically revoked.

FINANCINGS LTD v STIMSON
Facts: The defendant offered to buy a car from the Plaintiff’s company. There was a

condition that the contract was to become binding only upon acceptance by
Plaintiff provided that the car be in good condition. However, the car was stolen
and damaged before the Plaintiff accepted the offer. The plaintiff did not know
and signed an agreement.
Held: There was no acceptance, since the precondition that the car was in a certain
state had failed, and there was therefore no valid contract.

d) By the death or mental disorder of the offeror - S. 6(d)
o The offer is only revoked if the offeree is aware of the fact before he makes any
acceptance. If the offeree has no knowledge about the death or mental disorder
of the offeror, his acceptance is valid and binding.

BRADBURY v MORGAN
The court held that if the death of the offeror is not known, acceptance may still be made
and effective for a valid contract.

REJECTION = TERMINATION

 An offer is rejected if:
a) The offeree notifies the offeror to that he does not wish to accept the offer;
b) The offeree attempts to accept subject to certain conditions;
c) The offeree makes a counter-offer.

HYDE v WRENCH

June 6 - Defendant offered to sell his estate to the Plaintiff for £1,000.

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June 8 - Plaintiff replied stating he was willing to buy at £950, defendant refused
to sell.
June 27
formed. - Plaintiff wrote again offering to pay £1,000 as there was no contract

Held: By making the counter offer the plaintiff had rejected the original offer on
June 8, and is no longer able to accept it later.

2. ACCEPTANCE

o S.2 (b) CA provides that “when a person to whom the proposal is made signifies his
assert thereto, the proposal is said to be accepted, a proposal when accepted
becomes a promise.”

o S.9 CA provides that,”where the acceptance is made in words, the acceptance is
expressed, where the acceptance is made other than in words, it is implied.”

o S.7(a) CA provides that,
” ACCEPTANCE MUST BE ABSOLUTE AND UNQUALIFIED.”

 The acceptance must be made on exactly the same terms as proposed without
modifications or variations.

 Any modifications or variations of the proposal do not constitute an acceptance
but amounts to a counter-offer.

 Counter-offer is treated as a rejection of the offer and it destroys the structure of
the offer. Therefore, there is no valid acceptance which creates a binding
contract when the offeree responds with the counter-offer.

HYDE V WRENCH (1840).

Facts:

June 6 Defendant offered to sell his estate to the Plaintiff for £1,000.
June 8 Plaintiff replied stating he was willing to buy at £950, defendant refused
to sell.
June 27 Plaintiff wrote again offering to pay £1,000 as there was no contract
formed.

Held: By making the counter offer the plaintiff had rejected the original offer on
June 8, and is no longer able to accept it later

 However, a distinction needs to be drawn between a counter-offer and a
request for further information. A request for further information does not
reject the original offer.

STEVENSON JAQUES & CO v MCLEAN [1880]
Facts: The defendant wrote to the Plaintiff offering to sell iron and would open the offer

till Monday. On Monday, plaintiff sent telegram asking about method of delivery.
The defendant sent a telegram telling about the sale to another purchaser. The

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Held: plaintiff again sent a telegram accepting the offer without knowing about the sale
to another purchaser.
There was a contract between them. There was no counter-offer but a mere
inquiry which should have been answered and not treated as a rejection of the
offer.

LAU BROTHERS & CO v CHINA PACIFIC NAVIGATION CO. LTD. [1965]
Facts: The parties negotiate for the delivery of logs through a series of telegram and

letters. Eventually, the defendant withdrew from the negotiation. Question arises
as to whether there is a binding contract between the parties.
Held: There is no contract between the parties because they are in the state of
negotiation. No counter-proposal involved.

“ACCEPTANCE MUST BE MADE IN SOME USUAL AND REASONABLE MANNER”

o The offeree must show in some positive way an intention to accept.
o An acceptance has to be communicated to the offeror in a prescribed way.

o S.7 (b) CA: The acceptance may “be expressed in some usual and reasonable
manner, unless the proposal prescribes a manner in which it is to be accepted. If the
proposal prescribes a manner in which it is to be accepted, and the acceptance is
not made in such manner, the proposer may within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be accepted in the
prescribed manner, and not otherwise, but if he fails to do so, he accepts the
acceptance.”

o If no method of communicating acceptance is stipulated, the acceptance is made
using the same method of communication as the offeror.

o Silence, absence of response or just total disregard of the proposal is not
acceptance as there is no positive act that can be related to the proposal.

o The proposer may not throw the burden on the addressee to a positive act of
rejection by saying for instance:

‘if I do not hear from U within a week, I shall assume that U have accepted my
proposal.”

FRASER v EVERETT (1889)
Held: There was no rule of law saying that “silence gives consent” applicable to

mercantile contracts.”

POWELL v LEE(1908)
Facts: The plaintiff applied for the post of headmaster of a school and after a series of

interviews the management decided to give it to him. However, the decision was
not communicated to the plaintiff. One of the managers, acting in his individual
capacity, informed the plaintiff about the selection but the plaintiff did not receive
any appointment letter. However, it was decided to give the post to someone
else. Plaintiff sued the board of managers to enforce the contract.

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Held: In the absence of authorized communication of acceptance from the whole board
of managers, there was no valid contract.
FELTHOUSE v BINDLEY (1862)

Facts: The claimant had been negotiating to buy his nephew’s horse. He wrote to his
nephew “If I hear no more about him, I shall consider the horse is mine at £30
15s.” The nephew did not reply to this letter but he did ask the auctioneer, who
had been engaged to sell all his farming stock, to keep the horse out of sale as
he had sold it to his uncle. The auctioneer by mistake had sold his property.

Held: Although the nephew had mentally accepted the offer, some form of positive
action was required for a valid acceptance. There was no contract between the
uncle and nephew.

COMMUNICATION OF ACCEPTANCE
General Rule:
An acceptance is effective or complete only when it is communicated to the proposer.
(comes to the actual knowledge of the proposer)
Explanation: Acceptance has no effect until it is communicated to, and received by the
offeror. One the offeror knows of the acceptance, he is bound by to a contract. In
instantaneous communication, the contract is complete as soon as the offeror knows of
the acceptance.
E.g: Jojo phones Jaja making an offer. Jaja accepts but Jojo cannot hear her
acceptance over the phone because of some noisy disturbance. There is no contract
between Jojo and Jaja.

Exception:

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Acceptance through Post (Postal Rule)
S.4(2) : Where the parties have contemplated the used of the post as means of
communication:
 The communication of an acceptance is complete:

a) As against the proposer, when it is put in a course of transmission him, so as to
be out of the power of the acceptor; and

b) As against the acceptor, when it comes to the knowledge of the proposer.
Illustration (b) of s.4:
 B accepts A’s proposal by a letter sent by post.
 The communication of the acceptance is complete:

As against A, when the letter is posted;
As against B, when the letter is received by A
Example:
Aina offers to sell her car for RM20,000 to Balqis on 1 March
Balqis posts a letter accepting the offer on 3 March
Aina receives the Letter of Acceptance on 5 March

ADAM v LINDSELL (1818)
Facts: 2 Sept - The Defendants wrote to the claimants offering to sell them some wool

and asking for an answer ‘in course of post’. The letter was wrongly addressed
and as result it did not reach the claimants until 5 Sept. The same day, the
claimant posted a letter of acceptance which reached the Defendants on 9 Sept.
On 8 Sept, the defendants sold the wool to someone else.
Held: The contract was formed when the claimant posted their letter of acceptance.

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Held: The contract
was formed on 5 Sept

HOUSEHOLD FIRE INSURANCE CO v GRANT (1879)
Facts: Grant applied for shares in the claimant company. A letter of allotment was

posted but Grant never received it. When the company went into liquidation,
Grant was asked as a shareholder, to contribute the amount still outstanding on
the shares he held.
Held: Grant was a shareholder of the company. The contract to buy shares was formed
when the letter of allotment (acceptance) was posted.

Held: ENTORES LTD v MILES FAR EAST CORPORATION [1955]

Denning LJ stated as follows:
“When a contract is made by post it is clear law throughout the common law

countries that acceptance is complete as soon as the letter is put into the post
box, and that is the place where the contract is made.”

IGNATIUS v BELL (1913)
Facts: The defendant gave an option to the plaintiff to purchase a piece of land on the

condition that the option must be exercised on or before 20 August 1912 by a
notice in writing. The plaintiff exercised the option by posting a letter on 16
August. The defendant only received the letter on 25 August. The plaintiff sued
the defendant for specific performance.
Held: The option was duly exercised by the Plainff when the letter was posted on
August 16.

Notes:
o Where there is a delay in the post or the letter of acceptance is misplaced by the

postal authority, the proposer is bound irrespective of his knowledge of the
acceptance; while on the other hand, the acceptor remains free till actual receipt by
the proposer. This implies that in the meantime, the acceptor may also withdraw his

acceptance.
o Therefore, a proposer should stipulate in a proposal that acceptance is complete

only upon receipt. That would exclude the postal rule by express terms of the
proposal.
o The postal rule also applies to telegram sent through the post office but not to more

instantaneous methods of communication such as telex and telephone.

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REVOCATION OF ACCEPTANCE

o When an offeree has accepted an offer and communicated the acceptance to the
offeree, but the acceptance has still not been received by him (offeror), he may
revoke it at any time before the acceptance is received by the offeror.

o If the offeror has already received the acceptance, the offeree cannot revoke it. In
that case the revocation would not be effective. Revocation of acceptance must be
communicated to the offeror.

o Revocation of acceptance can be communicated by an act or omission of the offeree
(Section 3 of the Contracts Act 1950 Malaysia).

o S.5(2) states:
“An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.”

 Illustration to S.5:
 A proposes by a letter sent by post to sell his house to B,
 B accepts the proposal by a letter sent by post,
 B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.

DUNMORE v ALEXANDER
Facts: The letter of acceptance and the letter of revoking the acceptance were received

by the offeror simultaneously.
Held: The acceptance had been effectively revoked by the offeree. There was no

contract.

3. CONSIDERATION

o Section 26 of CA provides that:
“An agreement made without consideration is void.”

o Section 2(d) of CA defines consideration as
“when, at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstain from doing, or promises to do or to abstain
from doing something such an act or abstinence or promise is called a consideration
for the promise.”

o Consideration refers to what one party to an agreement is giving or promising in
exchange for what is being given or promised from the other side.

o Consideration may be viewed as a sort of bargain, a quid pro quo or the price which
one party pays to buy the promise or act of the other.

o When a promisor promises to do or abstain from doing something, the promisee
must pay a price for it. This price to be paid may be an act or an abstinence or a
promise to perform a future act or abstinence.

(Consideration is the price paid for the promisor’s promise and is the benefit
received under the contract.)

CURRIE v MISA

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Held: “A valuable consideration, in the sense of the law, may consist in come right,
interests, profits or benefits accruing to the one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other.”

OSMAN BIN ABDUL GHANI & ORS V UNITED ASIAN BANK BHD [1987]
Facts: The respondent (the bank) promise not to sue the appellant if the appellant pay

for the debt.
Held: If the appellant pay for the debt, the respondent cannot sue the appellant. There

was a valid consideration.

o Example: X has lost his camera while travelling on a train and he offers a reward of
$50 to anyone who finds and returns it to him. Y finds and returns it to him.

o In this simple illustration, X promises to pay RM50 to anyone in return for an act i.e.
finding the camera and returning it. Y pays the price for X’s promise by performing
the act which, by section 2(d) is the consideration for the promise.

TYPES OF CONSIDERATION

1.EXECUTORY CONSIDERATION

o When one promise is made in return for another. (Promise for a promise)

o Section 2(d) of CA states that:
“when, at the desire of the promisor, the promisee or any other..promises to do or
to abstain from doing something...”

o eg: X agrees to sell Y a motorcycle and Y promises to pay RM 2000 for it.
o Illustration (a) of S.24:

A agrees to sell his house to B for RM10,000. Here, B’s promise to pay the sum of
RM10,000 is the consideration for A’s promise to sell the house, and A’s promise to
sell the house is the consideration for B’s promise to pay RM10,000. These are
lawful consideration.

K. MURUGESU V NADARAJAH [1980]
Facts: The appellant agreed to sell a house to the respondent and the agreement was

written on a scrap of paper. It read, in part, as follows:
“I agree to sell my house no. (address) held under……… to Mr. Nadarajah, the
present tenant of the house at $26,000 within 3 months from date.”
Held: The contract exists between them due to the existence of executory
consideration.

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2.EXECUTED CONSIDERATION

o When a promise is made in return for the performance of an act (Promise for an Act).
o Section 2(d) of CA states that:

when, at the desire of the promisor, the promisee or any other person..does or
abstain from doing... from doing something...”
o For example: X offers RM100 to anyone who finds and returns his camera which he
has earlier lost. Y finds and returns the camera in response to the offer. Y’s
consideration for X’s promise is executed, and only X’s liability remains outstanding.

3.PAST CONSIDERATION

o Where a promise is made subsequent to and in return for an act that has already
been performed.

o Section 2(d) of CA states that:
when, at the desire of the promisor, the promisee or any other person..has done or
abstained from doing...something...”

o So, if Y finds and returns X’s camera and in gratitute, X promises to reward him with
RM100, the promise is made in return for a prior act.

o Illustration (c) of S.26:
A finds B’s purse and gives him. B promise to give A RM 50. This is a contract.

o Past consideration may be good consideration.
o Section 2(d) provides that if the act done were at the desire of the promisor, then

such an act would constitute consideration. The phrase ‘has done or abstained from
doing’ implies that even if the act done was prior to the promise, such an act would
constitute consideration as long as it was done at the desire of the promisor.

KEPONG PROSPECTING LTD V A.E SCHMIDT & MARJORIE SCHMIDT [1968]
Facts: Schmidt, a consulting engineer had assisted another in obtaining a prospecting

permit for mining iron ore in the State of Johore. He also helped in the
subsequent formation of the company, Kepong Prospecting Ltd, and was
appointed Managing Director. After the company was formed, an agreement was
entered into between them under which the company undertook to pay him one
percent of the value of all ore sold from the mining land.
Held: It did constitute a valid consideration so that Schmidt was entitled to his claim on
the amount.

LAMPLEIGH v BRATHWAITE [1615]
Facts: The defendant, who had killed another person, requested the claimant to obtain a

pardon from the King. Lampleigh was successful and as a result, Brathwaite
made a promise to pay £100 for the service, but this payment was never made.

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Held: Lampleigh was able to recover the £100 because the court felt that both parties
must have contemplated that payment for the service would be made

Exception to the General Rule
o In order for an agreement to be valid, there must be a consideration; however, there

are 4 exceptions to the general rule:
1. An agreement on account of natural love and affection. [S.26(a)]

 The validity of this agreement is dependent upon the following conditions:
a) It is expressed in writing;
b) It must be registered where a law exists requiring such registration; and
c) It is made on account of natural love and affection between parties standing in

near relation to each other.

2. An agreement to compensate for a past voluntary act. [S.26(b)]
o There are two limbs to this exception:

a) It is a promise to compensate either wholly or in part the other person.
b) The promisee has voluntarily done something for the promisor.

3. An agreement to compensate for an act the promisor was legally compellable
to do.(S.26(b))

o The necessary ingredients of this exception are as follows:
a) The promisee has voluntarily done an act;
b) The act is one which the promisor was legally compellable to do; and
c) An agreement to compensate, wholly or in part, the promisee for the act.

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o Illustration (d) of S.26 provides an example:
A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a
contract.

4. An agreement to pay a statute-barred debt. (S.26(c))

o A statute barred-debt refers to a debt which cannot be recovered through legal action
because of a lapse of time fixed by law.

o There are 2 requirements must be fulfilled:
a) The debtor made a fresh promise to pay the statute-barred debt. For example :
”I know I still owe you $400 which I borrowed 7 years ago. I shall pay within two
months.”
b) The promise is in writing and signed by the person to be charged or his
authorized agent in that behalf.

o Illustration (e) to S.26 provides:
A owes B $1000, but the debt is barred by limitation. A signs a written promise to
pay B $500 on account of the debt. This is a contract.

THE RULES OF CONSIDERATION

i. Consideration must have some value.

o An act or a promise to do something which one is bound to do will not be a valid
consideration.

ii. Consideration needs not be adequate.

o Consideration needs not be adequate but sufficient.
o Sufficient means it is freely given without fraud, misrepresentation and other vitiating

factors.
 For example, illustration (f) to section 26 states: “A agrees to sell a horse worth

RM1,000 for RM10. The agreement is a contract notwithstanding the inadequacy of
the consideration.”

iii. Consideration need not move from the promisee.

o Under Local law, a party to an agreement can enforce the promise, even if he
himself has given no consideration, so long as somebody else has done so.

o A,B and C are parties to an agreement in which C promises to pay A RM1000 if B
will repair C’s house. B repairs C’s house and C does not pay A anything. Although A
has not given any consideration for C’s promise, he may sue C on the promise
because consideration has moved from B.

iv. Waiver of Performance

o Under English law (Pinnel’s case), it is a general rule that, payment of a smaller sum
is not a satisfaction of an obligation to pay a large sum.

o However, the rule does not apply in Malaysia.
o S.64 of the Contracts Act provides that:

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“Every promisee may dispense with or remit, wholly or in part, the performance of the
promise made to him, or may accept instead of it any satisfaction which he thinks fit.”
o Illustration C to S.64 provides:
“A owes B RM5000. C pays to B RM1000 and accepts them in satisfaction of his
claim on A. This payment is a discharge of the whole claim.

4. INTENTION TO CREATE LEGAL RELATION
o A valid contract requires an intention to create legal relations. The court determines

where there is such an intention from the language used and the context in which it
is used. There are 2 presumptions have developed in the determination of intention
with respect to agreements:
a) Business / Commercial agreements

o Presumption: there is an agreement that the parties intend legal consequences to
follow unless the parties specify otherwise.

o If any party wishes that the agreement is not binding, the party must rebut the
presumption by evidence or express terms (normally done by the usage of an
express clause in the agreement that the agreement is not to be legally binding).

o Examples: ‘subject to contract’ clause and ‘subject to the preparation and approval
of a formal contract’ ( the oral or informal agreement is not binding until the execution
of a full or final agreement )

b) Social, domestic and family agreements

o In social, domestic or family agreement, it is implied as a matter of course that no
legal relations are contemplated, but such presumption may be rebuttable.

o Normally it does not constitute a legally binding agreement. This is because parties
have no intention to create legal relation.

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BALFOUR V BALFOUR [1919]
Facts: The defendant husband was a civil servant stationed in Sri Lanka. When he was

in England, he had promised his wife that he will pay her a monthly allowance as
maintenance. The wife was unable to accompany the husband because of her
poor health. The defendant did not give the plaintiff the monthly allowance. The
plaintiff brought an action against the defendant for breach of a contract.
Held: It was not a legally enforceable agreement because the parties did not intend
that they should be attended by legal consequences.

o However, in certain cases, social, domestic and family agreements are binding upon
the parties. Whether there is intention or not, it depends on the language used and
the circumstances of each case.

o The presumption is rebuttable in the case:

MERRIT V MERRIT [1970]
Facts: The husband left the matrimonial home which was in the joint names of husband

and wife and subject to a mortgage. The husband and wife had a discussion in
which the husband agreed to pay the wife £40 a month out of which she should
pay the outstanding mortgage payments and when such payments had been
completed, he would transfer the property to her sole ownership. The agreement
was recorded in writing on a piece of paper and signed by the husband. Upon
completion of the payment, the husband refused to transfer the house.

Held: The parties had intended to create legal relations
and the court ordered that the house be transferred
to the wife.

5. CERTAINTY

o S. 30 CA: “Agreements, the meaning of which is not certain, or capable of being
made certain, are void.”

o At common law, there are two aspects of uncertainty:
1) The language used may be too vague.
Examples:
A agrees to sell to B ‘a hundred tons of oil’.

What kind of oil?
Unless if A is a dealer in coconut oil only.

A agrees to sell B ‘one thousand gantangs of rice at a price to be fixed by C.’
As the price is capable of being made certain, there is no uncertainty to make the
agreement void.

2) Failure to reach agreement on a vital or fundamental term of an agreement.

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A agrees to sell his ‘white horse for dollars five hundred or dollars one thousand.’
The agreement is void.

KARUPPAN CHETTY V SUAH THIAN (1916)
The contract was declared void for uncertainty because the parties agreed to a lease
of $35 per month ‘for as long as he likes’.
6. LEGAL CAPACITY
o The parties entering into a contract should also be competent to a contract. It means
that they must have the legal capacity to do so.
o AGE

S.11 of the Contracts Acts 1950 provides that:
“Every person is competent to contract who is of the age of majority according to the
law to which he is subject, and who is of sound mind, and is not disqualified from
contracting by any law to which he is subject.”
o According to S.2 of the Age of Majority Act 1971, the age of majority is 18 years.
o The general rule:
“All contracts entered into by a minor are void.”

MOHORI BIBEE v DHURMODAS GHOUSE
Facts: The appellant in this case lent the respondent, a minor, a sum of money. The

loan was secured by way of mortgage on some houses belonging to the
respondent. The minor, through the mother, applied for a court declaration that
the agreement was void because the minor had no capacity to contract.
Held: The contract with the minor was void and he could not sue or be sued on any
contract.

TAN HEE JUAN V TEH BOON KEAT [1934]
Facts: The Plaintiff infant executed transfers of land in favour of the defendant. The

transfers were witnessed and subsequently registered. The plaintiff by his next of
friend, applied to the court an order setting aside the transfers and for incidental
relief.

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Held: The transactions were void and ordered the restoration of the property to the
minor

o Exception to the general rule:

1. Under the Age of Majority Act 1971 [S.4 (a)]

a) In matters relating to marriage, divorce, dower and adoption;
b) The religion and religious rites and usages ;
c) Any other written law fixing the age of majority.

RAJESWARY & ANOR v BALAKRISHNAN & ORS. (1958)
Facts: A promise of marriage entered into by minor. The agreement was entered into

with provisions for dowry and penalty for breach. Then, the promise to marry is
repudiated. The plaintiff sued for breach of promise to marry. The defendant
pleaded among others the incapacity of the plaintiff to enter into the contract to
marry.
Held: The age of majority for entering into a marriage contract differed from other
contracts entered into by a minor and consequently such contracts were not
affected by the general rule.

2. Under Contracts Act 1950

a) Necessaries / Necessities
o Necessaries are things which are essential to the existence and reasonable comfort

of the infant such as food, shelter, clothing, education, medical services, transport
etc.
o The test of whether the goods or services are ‘necessaries” would depend on:

1) The nature of the goods or services supplied.
It must be suitable to the minor’s condition of life.

2) The minor’s actual needs.
It must be suitable to the actual needs of the minor.

o ‘Necessaries” may vary according to the facts and circumstances of the case.

NASH v INMAN [1908]
Facts: The defendant (minor) ordered certain clothes from the plaintiff. The plaintiff sued

the defendant to recover the cost of the clothes supplied. Based on the evidence
given by the minor’s father, the minor already had adequate supply of clothes
suitable and necessary for his condition in life.
Held: The minor was not liable because the clothes supplied by the plaintiff were not
necessaries.

GOV. OF MALAYSIA v GURCHARAN SINGH [1971]
Facts: The defendant was sued for the amount of $11,500 alleged to be the sum

actually spent by the government in educating the defendant. It was argued that
at the time of the contract he was a minor.
Held: The contract was void but since education was necessaries, the defendant was
liable for the repayment of a reasonable sum spent on him.

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3. Scholarships
o S.4 (a) Contracts (Amendment) Act 1976 provides that:

“No scholarship agreements shall be invalidated on the ground that the scholar
entering into such agreement is not of the age of majority.”

o What is scholarship agreement?
Any contract or agreement between the appropriate authority and any person, with
respect to any scholarship, award, bursary, loan, sponsorship or appointment to a
course of study, the provision of leave with or without pay or ‘any other facility for the
purpose of education or learning.

4. Insurance
o Under the Insurance Act 1963 (Revised 1972), a minor over the age of 10 may

enter into a contract of insurance but if he or she is under 16 years, the written
consent of the parents or guardians is essential.
o This is based on the presumption that it is in a minor’s best interest to insure himself
or his property against contingencies.

5. Apprenticeship
o The Children and Young Persons (Employment) Act 1966 provides the necessary

capacity for a minor to enter into a contract of apprenticeship or service.
o S. 13 reads: “Notwithstanding anything to the contrary contained in the Contracts Act

1950 or the provisions of any other written law, any child or young person shall be
competent to enter into a contract of service under this Act otherwise than as an
employer, and may sue as plaintiff without his next friend or defend any action
without a guardian ad litem.”

STATE OF MIND

o A meeting of mind and free consent is the basis of a contract.
o A person suffering from mental disability, either permanently or temporarily, at the

time of the contract obviously lack the capacity.
o S.12(1) of the Contracts Act 1950 provides that:

“A person is said to be of sound mind for the purpose of making a contract if, at the
time when he makes it, he is capable of understanding it and forming a rational
judgment as to its effect upon his interests.”
o A person who is competent to enter into a contract is a person who is of sound mind.
o An unsound mind person refers to person who is mentally disorder as well as those
of a person incapacitated through sickness, alcohol or other drugs.

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7. FORMALITIES

o The General Rule: a contract can be made orally, in writing or by conduct.

DIAMOND PEEK SDN. BHD & ANOR V D.R TWEEDIE [1982]
Gunn Chitt Tuan J. observed: ”Under our law, as in India, an oral contract for the
sale of immovable property is valid and enforceable. The mere fact that the parties
desired to have that agreement put in writing and drawn up in proper form does not
affects its validity.”

o However, there are exceptions to the general rule:
S.10(2) CA provides that: “Nothing herein contained shall affect any law by which
any contract is required to be made in writing or in presence of witnesses, or any law
relating to the registration of documents.”

o For examples:
1. The Hire-Purchase Act 1967 requires hire-purchase agreements to be in writing
and signed by the hirer or by his agent and all other parties to the agreement.
2. Under the Contracts Act 1950: S.26(a) and S.26(b) requires that these two
agreements need to be in writing;-agreement made out of natural love and
affection and a promise to pay statute-barred debt.

What is the meaning of VOID AND ILLEGAL CONTRACTS?

 Void contract: S.2(g) provides that :
“ an agreement not enforceable by law is said to be void.”

 A contract will be void if the consideration / objects are unlawful- it must be
permitted by law

 S.10 (1) provides that:
All agreements are contracts if they are made by the free consent of parties
competent to contract, for a lawful consideration and with a lawful object, and are
not hereby expressly declared to be void.

8.LEGALITY OF OBJECTS

o The object or consideration of a contract must be that which is permitted by the law.
If the object is not permitted, it is said to be unlawful.

o General Rule: The court will refuse its aid to a person who found his or her cause of
action upon an immoral or illegal act (maxim: ex dolo malo non aritur actio )

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o S.2(g) provides that: “An agreement not enforceable by law is said to be void.”

o S.24 of the Contracts Act 1950 provides that: “The consideration or object of an
agreement is lawful unless:
a) It is forbidden by a law
b) It is of 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.

What is the meaning of VOIDABLE CONTRACTS?

o Voidable contract: S.2(i) provides that:
“an agreement which is enforceable by law at the option of one or more of
parties, but not at the option of the other or others, is a voidable contract.”

o Meaning: the contract is VALID, BUT one of the parties to the contract can
choose to enforce it as a valid contract or treat it as void.

That party is the party who had entered the contract without FREE CONSENT

9.FREE CONSENT

o Free consent is the basis of a contractual relationship. There must be a meeting of
minds as to the nature and scope of a contract, a consesus ad idem.

o S.10 (1) provides that: “all agreements are contracts if they are made by the free
consent of parties competent to contract…”

o What is consent?
S.13 provides that: “two or more persons are said to consent when they agree upon
the same thing in the same sense.”

o Consent is said to be free when it is not caused by:
a) Coercion (as defined in S.15)
b) Undue Influence (as defined in S.16)
c) Fraud (as defined in S.17)
d) Misrepresentation (as defined in S.18)
e) Mistake (subject to S.21,22 & 23)

o If a contract is entered into by virtue of the above mentioned sections, the contract is
either void or voidable.

o Void contract: S.2(g) provides that : “ an agreement not enforceable by law is said to
be void.”

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o Voidable contract: S.2(i) provides that: “An agreement which is enforceable by law at
the option of one or more of parties, but not at the option of the other or others, is a
voidable contract.”

o S.19 (1) of the Contracts Act 1950 provides that: “When consent to an agreement is
caused by coercion, fraud or misrepresentation, the agreement is a contract voidable
at the option of the party whose consent was so caused.”

1. COERCION

 Coercion is defined under S.15 CA 1950 as: “Coercion is the committing, threatening

to commit any act forbidden by the Penal Code, or the unlawful detaining or

threatening to detain, any property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement.”

Held: KANHAYA LAL v NATIONAL BANK OF INDIA (1913)
The plaintiff was entitled to recover money which was paid as a consequence of
coercion caused by the wrongful interference of the defendant bank with
property.

Held: KESARMAL S/O LETCHMAN DAS v VALIAPPA CHETTIAR [1954]
A transfer executed under the orders of the Sultan, issued in the ominous
presence of two Japanese officers during the Japanese Occupation of Malaya
was invalid. The consent was not freely given and the agreement was voidable at
the will or option of the party whose consent was so caused.

Effect of the Contract:
A contract is voidable at the option of the party whose consent was so caused. [S.19 (1)]

2. UNDUE INFLUENCE

o Undue influence is defined under S.16 CA 1950: “The relations subsisting between
the parties are such that one of the parties is in a position to dominate the will of the
other and uses that position to obtain an unfair advantage over the other.”

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o Essential elements:
1) The domination of the will by one party over the other party.
2) The dominating party uses that position to obtain an unfair advantage over
the other in the contract.

DATUK JAGINDER SIGH v TARARAJARATNAM (1983)
Facts: The respondent (the owner of the land) claimed that she was induced by the

fraud and undue influence of the Appellant to transfer her land to the appellant.
Held: The appellant and the respondent were in a solicitor-client relationship. The

transaction was unconscionable and therefore the burden was on the appellant
to rebut the presumption of undue influence. Since the appellant had failed to
discharge the burden, the contract of transferring the respondent’s land to the
appellant was set aside.

Effect of the Contract:
A contract is voidable at the option of the party whose consent was so caused (S.20)

3. FRAUD

o Under S.17 CA 1950, fraud is defined:
To include various acts committed by a party with intent to deceive the other
contracting party.

o Elements of Fraud:
1) False representation / statement made with the intention to deceive.
2) The other party relied on the representation in making decision to make
contract.

LETCHEMY ARUMUGAM v ANNAMALAY [1982]
Facts: The defendant had made a fraudulent misrepresentation to the plaintiff, an

illiterate woman rubber tapper and induce her to enter into a sale and purchase
agreement. The defendant had fraudulently represented to the plaintiff that the
document she was required to sign was for a loan she took and to free the land
from a charge. In fact, the documents she signed included a sale agreement
relating to land, a transfer of the land and further agreements to purchase three
unapproved sub-lots in her own land.
Held: The agreement is voidable at the option of the plaintiff and must be rescinded.

B says to A, “If you do not deny it, I shall assume that the horse is sound.” A says
nothing. Here, A’s silence is equivalent to speech.

Effect of the Contract:
A contract is voidable at the option of the party whose consent was so caused. [S.19 (1)]

4. MISREPRESENTATION

o Representation: A statement made during the course of negotiations or it is made
before a contract is concluded.

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o Misrepresentation refers to certain false statements made by representor and which
induces the other party to enter into a contract (S.18 CA 1950)

o Essential Elements:

1) False statement or untrue representation
2) The representation must induce the misled party to enter into a contract.

Effect of the Contract:
A contract is voidable at the option of the party whose consent was so caused. [S.19 (1)]

5. MISTAKE

o Mistake means a misunderstanding or erroneous belief about a matter of fact or a
matter of law.

Types of Mistake

1) Mutual mistake – mistake of both parties
2) Unilateral mistake – mistake of one party only

o S.21 : Mistake made by both parties to an agreement. (Mistake of Fact)
“where both parties to an agreement are under a mistake as to matter of fact
essential to the agreement, the agreement is void.”

o Illustration B to S.21:
A agrees to buy from B a certain horse. It turns out that the horse was dead at the
time of the bargain, though neither party was aware of the fact. The agreement is
void.

o S.22: Mistake as to the law in force in Malaysia should not make the contract
voidable. (Mistake of Law)

“ A contract is not voidable because it was caused by a mistake as to any law in
force in Malaysia; but as mistake as to a law not in force in Malaysia has the same
effect as a mistake of fact.”

Illustration :
A and B make a contract grounded on the erroneous belief that a particular debt is
barred by limitation, the contract is not voidable.

o S.23: Mistake by one party as to fact should not make the contract voidable.

“ A contract is not voidable merely because it was caused by one of the parties to it
being under a mistake as to matter of fact…”

- It appears that such as agreement is valid as the mistake is made by only one of
the parties concerned.

- If the mistake is made by both parties, then the agreement is void.

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o Mistake as to Document
- One party may have made mistake as to the nature of a document he has signed.
- General Rule: a person is bound by the terms of the contract that he signs.

SUBRAMANIAM v RETNAM [1966]
Facts: The defendant had signed a written agreement in the English language even

though he did not understand the language. Held: the defendant is bound by the
contract.

5.4 DISCHARGE OF CONTRACTS

 When the contract is terminated, it is said to be discharged and the contracting
parties are free from further obligations arising from it.

 A contract may be discharged by any one of the following ways:

1) By performance
2) By consent or agreement between the parties
3) By impossibility / frustration
4) By breach

1) DISCHARGE BY PERFORMANCE
o A contract is said to be discharged when the parties to the contract has

performed what they have agreed to do in the contract (S.38(1) CA 1950)
o Example : Suzy enters into a contract with Umy. Suzy has to give Umy a laptop and

in return Umy has to give Suzy RM 1,000. In this case, if Suzy has given Umy the
laptop and Umy has given Suzy RM1,000, the contract is said to be discharged by
performance.

2) DISCHARGE BY CONSENT / AGREEMENT
o The parties may have agreed in their original contract that it should end automatically

with the happening of some event of after a fixed period of time. (S.63 CA 1950)
o Illustration (a):
o A owes money to B under a contract. It is agreed between A,B and C that B shall

henceforth accept C as his debtor, instead of A. The old debt of A to B is at end, and
a new debt from C to B has been contracted.

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3) DISCHARGE BY IMPOSSIBILITY/FRUSTRATION
o A contract is terminated if the things that the parties agreed to do is impossible to

perform.
o Impossibility can be divided into two categories:
1) Impossibility of performance at the time a contract is made.
2) Impossibility of performance after a contract has been made.

4) DISCHARGE BY BREACH
o When a promisor fails to perform his obligations or to tender performance, there is a

breach of the contract which entitles the party not in breach to take appropriate
action which may include repudiation. (S.40 CA 1950)
o The party not in breach has two options:
1. To continue with the contract and claim damages or
2. To repudiate the contract

5.5 REMEDIES FOR BREACH OF CONTRACT

o Remedies are rights of redress given by courts to an injured party when the other
party fails to fulfill their part of contract.

o When there is a breach of contract, the party not in default may claim one or more
remedies:

1. Rescission
2. Damages
3. Specific Performance
4. Injunction
5. Quantum Meruit

1. RESCISSION

o Rescission is an equitable remedy, the setting aside of a voidable contract which is

thereby treated as if it is never existed.
o It provides that if the contract is voidable and the party chooses to rescind the

contract, the party who has received any benefit under the contract is bound to
restore it to the person from whom he received it.

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2. DAMAGES

o Damages are awarded to a party as compensation (a sum of money) for the
damage, loss or injury he has suffered through a breach of contract.

o Types of damages:

a) Substantial Damages
- Pecuniary compensation intended to put the plaintiff in the position he would have

enjoyed had the contract been performed.
b) Nominal Damages
- Consists of a small token award where the plaintiff has proved a breach of a

contractual right but suffered no actual loss.
c) Exemplary Damages
- Consists of a sum awarded which is far greater than the actual pecuniary loss

suffered by the plaintiff. They are awarded only in exceptional circumstances such as
breach of promise to marry.

3. SPECIFIC PERFORMANCE

o Specific performance is a discretionary remedy (given at the discretion of the court).
o It is a decree of the court directing that the contract shall be performed according to

its terms.
o This remedy is governed by the Specific Relief Act 1950.

4. INJUNCTION

o Injunction is a discretionary court order. It is an act to restraint someone from doing
something or requiring someone to perform a specific act.

o Injunction is granted by the courts normally where the contract contains a negative
term

o S.50 SRA provides that injunction is granted at the discretion of the court.
o There are several types of injunction:
a) Mandatory Injunction – requiring a person to perform some contractual obligation
b) Prohibitory Injunction – prohibits a person from doing or continuing to do a certain act
c) Temporary / Interlocutory / Interim Injunction – an order for a specified period,

normally while a case is being tried.
d) Perpetual Injunction – it can only be granted after a full trial and upon the merits of a

case and the defendant is permanently prohibited from doing the act or ascertaining
a right for which the injunction was granted.

5. QUANTUM MERUIT

o Meaning : ‘as much as he has deserved’ – only arises in cases of part-performance.
o It is a claim for reasonable remuneration for work done or services supplied under

the contract.
o If there is a breach of a contract, the injured party maybe entitled to claim for work

done and services performed.

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5.6 CATEGORIES OF CONTRACT

CONTRACTS OF EMPLOYMENT
Definition
o It is a contract between an employer and employee, governing the relationship

between them.
o It is called as contract of service.
Laws
o The statutory laws related to it are:

- Employment Act 1955
- Wages Council Act 1947
- Employees Provident Fund Act 1991
- Employees’ Social Security Act 1969
Requirements for a Valid Contract of Employment
o It can be made orally or writing
o It must be according to the law
o Written in a language that the employee can understand
o Complete (include all necessary terms & conditions)
Formation of a Contract of Employment
1. Offer and acceptance
Offer must contain the terms of contract (eg: letter of appointment, company
handbooks or manuals, or collective agreements.) It may be made orally or in writing.
2. Consideration
Employer’s promise to pay the agreed wages in return for employee’s promise to
perform certain task.
3. Capacity

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Under certain conditions minors have restrictions under the law.
4. Legality (lawful purpose)

Terms of Contract

Terms of contract may be expressed or implied.

Express Terms

o Express terms of a contract are contained in a written contract of agreement. A
contract of employment is called a contract of service.

o Express terms of contract cover all the important conditions of service or terms of
the contract, and will include the following:
1. Employees occupation and position
2. Salary, allowances, bonuses, benefits (educational scholarships, medical
benefits, car and housing loans)
3. Salary increments and rates of increment
4. Duration of the salary period, weekly, fortnightly, or monthly
5. Overtime, if any and payments for overtime
6. Working hours
7. Official uniform at work
8. Holidays and paid annual leave
9. Right to transfer to other subsidiaries or other places of work
10. Periodic medical examination
11. Age or retirement
12. Employment outside official work
13. Termination of employment
14. A restraint of trade ( General rule: all contracts that restraint a person from
carrying a lawful profession, trade or business of any kind is to that extent is void)

Implied Terms

o Implied terms are presumed from the employment
o On the part of employee : For example;

- The employee will serve employer with due care ( doing his work responsibly &
safely)

- Obedience – will carry out any lawful order of employer
- Act faithfully – will not take action which would harm employer’s business or

undertaking
o On the part of employer:

- Employer should pay wages to the employee
- Provide a safe working environment
- Maintain relationship of mutual trust & respect.

Can the Terms of an Employment Contract be changed?

o The terms and conditions in a contract of employment is binding on both the
employer and employee

o It can be changed ONLY BY MUTUAL CONSENT of both parties.
o If the employer tries to change contract without employee’s agreement, it is

considered as a breach of contract. The employee can sue his employer when he

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changes a major term. A change of the terms entitles the employee to sue the
employer for constructive dismissal.
o However, if there are no written conditions, changes or variation of contract maybe
allowed by implication to give flexibility to the contracts:

a) implied in fact, because it makes the business of contract more efficient.
b) implied by customs & practice
c) implied by law ( common law & statute)

CONTRACTS OF SPONSORSHIP

Definition

o Contracts of sponsorship is where sponsor pays a sum of money (sponsorship fee)
and/ or provide certain products, services or other facilities (value in kind) to the
sponsored party.

o Sponsorship grants certain rights of association with the sponsored party:

 Sponsor can promote the image of the sponsor and the sales of the sponsor’s
product and/or services. e.g. Olympic games – Olympic rings

 Sponsor can describe itself as “official sponsor of the xyz event”
In all advertising & promotional literature product packaging/labelling &
merchandising materials

What is sport sponsorship?

Sport sponsorship gives a wide range of commercial rights and opportunities such as:-

- Title sponsorship
- Event sponsorship
- Broadcast sponsorship
- Team & individual sponsorship ( including corporate logos on team & individual

athletes clothing)
- Official designation ( e.g official airlines & credit card for the event)
- Official supplier ships ( sport goods & equipment for the event)
- Franchise ( exclusive sale of sponsor’s drink at the event)
- Display rights ( right to mount display of sponsors goods at event)
- Official programme
- Product & character merchandising ( official event & mascots)
- Commemorative items
- Corporate hospitality
- Ticket & access to VIP areas

Legal Matters

1. The rights being granted
2. Product or service category ( where there are multiple concurrent sponsorship)
3. Territorial issues
4. Warranties ( especially by event organiser regarding broadcast coverage of the

event)
5. Duration options and renewal of sponsorship rights
6. Financial terms and conditions

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7. Obligation of event organisers
8. Obligations of sponsors
9. Public and product liability
10. Insurance
11. Indemnities
12. Access to venue & accreditations
13. Event cancellation and force majeure
14. Termination
15. Post-termination
16. Options to renew
17. Applicable to law & dispute

CONTRACTS OF PROMOTION

Definition
o A contract in which a sponsor agrees to pay a fee or provide product to an athlete in

exchange for using the athlete’s image, name, or image in its promotions. This is not
an employer-employee contract (it is known as independent contractor contract –
contract for service).
o The sponsor has the right to use (licence) the athlete’s image, name or likeness in
connection with advertising the sponsor’s product or services.
Form of Contract
o Similar with employment contract except the terms & conditions depends on the
sponsor and the creativity of the parties.
o Usually if the sponsor feels that the sponsored athlete can push up the sales of their
product he will be paid more.

DRAFTING OF SPORTS CONTRACT

o A sports contract normally defines the relationship between sportsperson and
employer.

o Sports contract must be in writing.

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o If the sports contracts is considered as providing employment, all provisions of
employment law applies. As there is no union for sportsperson – collective
bargaining that trade unions use with employers to reach collective agreement do
not apply. In the United Kingdom, football associations have collective agreements
but it is presumed not legally binding.

EXPRESS TERMS

For sports contract the standard express terms are important. For example: to provide
medical treatment and to continue to pay players wages during periods he is injured or
not in a capacity to play. Other terms of contract include:

 Regulating marketing and sponsorship deals
 Duties of players to behave in a professional manner and abide by the rules of

the game.
 Agreement by the player to play to the best of his ability, and to attend training at

any reasonable place.
 Player shall agree at all times have due regard for necessary maintaining a high

standard of physical fitness and not to take part in activity that can endanger
such fitness.
 Player should not bring the game into disrepute, by speaking to the media in an
irresponsible manner.
 Player should not advise other player to leave employment or cease to register
as player.

DUTIES OF EMPLOYER

An employer of a sports person is required to:

 Provide work
 Take reasonable care (health, safety and welfare of players)
 Maintain mutual trust and confidence

DUTIES OF PLAYER

The duties of player include:
 Obedience
 Take reasonable care
 Fidelity to play exclusively for his employer

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