KIX 2005 LAW, ETHICS AND SUSTAINABILITY FOR

ENGINEERS

CONTRACT
(Edition 2020)
LAW OF CONTRACT

•
• INTRODUCTION

Distinction
Contract and Tort
CONTRACT – CONTRACTS ACT 1950

Oral
Agreement: s 2(g)
Writing Contract
Contract: s 2(h)
Conduct

Offeror Offer Offeree

Offer: s 2(a)
Acceptance: s 2(b)
Consideration: s 2(d)
Intention to create legal relations
Capacity: s 11
Certainty: s 30
Legal: s 10. s 24
Free consent: s 10, s 14
 DEFINITION
• Offer – s 2(a)
A contract is an agreement between two or more
persons to do or abstain from doing an act and it is
intended to create a legally binding relation.

• s 2(b) Contracts Act 1950

‘When the person to whom the proposal (offer) is made
signifies his assent thereto, the proposal is said to be
accepted: a proposal, when accepted, becomes a
promise (contract)’
 Contract vs agreement
•s 2(g) Contracts Act 1950
‘an agreement not enforceable by law is
said to be void’.
•s 2(h) Contracts Act 1950
‘an agreement enforceable by law is a
contract’.
A contract may be made:
•in writing
•orally
•by conduct
 What constitute a valid contract?
A valid contract must have following elements:
1. offer
2. acceptance
3. consideration
4. intention to create legal relation
5. capacity of persons
6. legal
7. certain
8. Consent
What if the contract does not have any above elements?
 What is an offer, offeror or offeree?
• s 2(a) CA 1950
‘when one person signifies to another his willingness to
do or 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 (offer)’.
• s 2 (c) CA 1950
‘the person making the proposal is called the promisor
(offeror) and the person accepting the proposal is called
the promisee (offeree)’
Offer must be:
•absolute
•unqualified
• An acceptance must be an unqualified acceptance of the terms of the offer. If the
terms of the offer are varied or qualified the acceptance is not valid. It is in fact a
counter-offer.
• The offer was to sell land at £280. P purportedly accepted enclosing £80 and
promising to pay the rest by instalments of £50.
Held:
It was implied that the term £280 meant cash and not instalments. The 'acceptance'
was not valid because it was qualified

•communicated to offeree
Offer must be absolute, cannot be vague

• Definite promise to be bound by specific terms

• Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui [1984]
1MJL 169
Held:
Terms of offer must be disclosed before acceptance can be
given to conclude a contract, failing which such agreement
is void.
Offer must be clear, definite and certain
White v Bluett (1853) LJ Ex 36
• Son claimed father agreed to discharge him from liability in
consideration of his promise to cease complaining.

Held: Son’s promise was no more than a promise not to bore his
father and was too vague to form a consideration.
• s 30 – terms of agreement must be certain otherwise
void

Karuppan Chetty v Suah Thian [1916]

Issue: Agreement to grant a lease at RM35 per month
for as long as he liked.
 Offer must be communicated to offeree
• Taylor (T) v Laird (L) (1856) 156 ER 1203
T was engaged to work on L’s ship. He threw up his
job but continued to help on ship without L’s
knowledge. Ship reached port and he claimed
remuneration.
Held:
T could not claim because he did not communicate his
offer and L had no opportunity to accept his offer.
• s 4 (1) ‘communication of proposal is complete when
it comes to knowledge of person to whom it is made’.
Offer: distinguish (various form as contract)
• Invitation to treat – attempt to induce offers
E.g. Partridge v Crittenden [1968]
Advertisement can sometimes be offer
E.g. Carlill v Carbolic Smoke Ball Co [1893]

• Display of goods
E.g. Fisher v Bell [1960]
Pharmaceutical Society of Great Britain v Boots
Cash Chemists [1952]
Advertisement – invitation to treat/Attempt to induce offers

• Partridge v Crittenden [1968]

P advertised bramble finch cocks and hens for sale and was charged for
offering for sale under Protection of Birds Act 1954.
Held:
When P advertised he was making invitation to treat and when C
responded he was making an offer. If P’s advertisement was treated as
offer then he would himself contractually bound to supply to all who
responded.

Advertisement – offer
- Carlill v Carbolic Smoke Ball Co [1893]
Display of goods
• Fisher v Bell [1961]
D exhibited flick knife in his shop window. Prosecuted under
Restriction of Offensive Weapons Act 1959
Held:
Display of goods in shop window even with price tag not an offer
for sale but an invitation to treat.

• Pharmaceutical Society of GB v Boots Cash Chemists [1953]

Lady picked up controlled medicine from Boots, a sell service
store. Boots was prosecuted under Pharmacy and Poisons Act
1933.
Held:
Medicines on display merely invitation to treat; only when lady
took goods to check out cashier she made an offer, which
pharmacist at check out could refuse.
*Sometimes invitation to treat can be offer*
E.g. Harvela Investment Ltd v Royal Trust Co of
Canada 1986] AC 207
Owner invited two bidders for their shares and stated
they would accept highest offer. First bidder submitted
fixed bid and second bidder submitted referential bid.

Held:
“ Invitation to tender was an offer of a unilateral
contract to sell to highest bidder. Second bid was
invalid because it was a referential bid intended to
frustrate the other bid”
 Offer distinguished from supply of information
• Harvey v Facey [1893] AC 552
H telegraphed F, ‘ Will you sell us Bumper Hall? Telegraph lowest
cash price.’
F telegraphed H, ‘Lowest price for BHP, £900.
H telegraphed F, ‘We agree to buy BHP for £900 asked by you.’
Held:
No contract F merely supplying information on lowest price
acceptable. It was H who made the offer which was never accepted by
F.

• Stevenson v McLean (1880) 5 QBD 346

Held:
Offeree could still accept offer even though he had telegraphed to
offeror requesting information on credit terms because it did not
destroy offer.
Tender
• Invitation to tender is generally an invitation to treat and
bidder’s tender is an offer
• Invitation to treat – attempt to induce offers
E.g. Harris v Nickerson (1873)
“ Auctioneer advertised to hold auction. Harris travelled to
auction site to find item had been withdrawn. He sued for
loss of expenses because Nickerson was in breach of
contract for not holding sale.

• Held:
Advertisement of auction an invitation to treat to invite
offers.
Termination of offer
s 5 (1) – offer may be revoked at any time before
communication of its acceptance is complete

s 6(a) - by communication of notice of revocation

s 6(b) - by lapse of time
s 6(c) - by failure of offeree to fulfill condition precedent
s 6(d) - by death or mental disorder of offeror if
fact of death or mental disorder comes to
offeree’s knowledge before acceptance
Cross-offer
• Two identical offers which crossed each other will not conclude
a contract because each offer is made in ignorant of the other.
Tinn v Hoffman & Co (1873) 29 LT 271
On 28 Nov 1871, H wrote to T to sell him 800 tons of iron at
69s per ton. On same day, T wrote to H to buy 800 tons of iron at
same price. Letters crossed in post. T contended there was a
contract.
Court held:
No contract as offers were made in ignorant of each other.
Counter-offer
- is a purported acceptance which does not accept all the terms
and conditions of the offer; it introduces new terms and is
treated as a new offer
E.g. Hyde Wrench (1840) 3 Beav 334.
D offered to sell his land to P for £1000, but P replied
to buy for £950. D refused to accept. P, later, offered
to buy for £1000. D refused.
Court held:
No contract made because P’s counter-offer is a rejection of
D’s offer which could not later be accepted.
Acceptance

• S 7 In order to convert an offer into a contract of acceptance:

• S 7 (a) must be absolute and unqualified
• S 7 (b) be expressed in some usual and reasonable manner,
unless the proposal prescribed the 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.
• However, offeror cannot prescribe silence as a manner in which
it is to be accepted.
E.g. Felthouse v Bindley [1862] 142 ER 1037
F wrote to his nephew offering to buy his horse, adding
‘if I hear no more about him, I shall assume horse mine at
£40.’ Bindley, auctioneer, sold horse by mistake though
nephew told auctioneer to exclude it from auction.
• Held:
Nephew’s acceptance had not been communicated to uncle,
hence horse did not belong to him.
Consideration
• s 26 – agreement made without consideration is void
• s 2(d) – ‘when, at desire of offeror, offeree or any other person
has done or does something …’
• A sort of bargain, quid pro quo, something done in return or in
exchange for something
• s 2(d) - Past consideration is valid consideration
• Adequacy of consideration
• Explanation 2 of s 26
- Consent of offeror is freely given is not void merely because
consideration is inadequate.
Executory consideration
• Where a contract is made in return for an offer, i.e.
mutual exchange of a mutual promises
• Illustration (a) s 24 – A’s promise to sell the house is
the consideration for B’s promise to pay $10,000 for
the house.
Executed consideration
• Where a promise is made in return for the performance
of an act
E.g. A has lost her purse. She offers to pay $100 to
anyone who can finds and returns her purse. B
finds her purse and returns it to her. A has to pay
B for her executed act.
Consideration must be lawful
• s 24 – an agreement of which the object orconsideration
is unlawful is void
• s 24(a) – it is forbidden by law
• s 24(b) – it would defeat any law
• s 24(c) – it is fraudulent
• s 24(d) – it involves or implied injury to the person
or property of another
• s 24(e) – court regards it as immoral or opposed to
public policy
Bilateral contract
• Mutual exchange of promises between parties

Unilateral contract
• There is only a promise by the offeror. The offeree
makes no promise. He performs the act to conclude the
contract. Usually an offer for performance of act
• e.g. Carlill v Carbolic Smoke Ball Co [1893]
Past consideration
• A promise is made subsequent to and in return for an
act that has already been performed
• s 26 Illustration (c) A finds B’s purse and gives it to
her. B promises to pay A $100. It is a contract.
Adequacy of consideration
• s 26 Explanation 2
• Agreement to which consent of offeror is freely given
is not void merely because consideration is inadequate
• Though inadequacy of consideration may be taken into
account by court in determining whether consent is
freely given
• “A agrees to sell a horse worth RM 1,000 for RM 10.
A’s consent to the agreement was freely given. The
agreement is a contract notwithstanding the
inadequacy of the consideration.”
Exception to general rule of consideration
• s 26 – agreement without consideration is void
Exception:
• s 26(a) - agreement made for natural love and affection
with conditions must be made in writing, registered, if
registerable and parties in near relation.
• s 26(b) – agreement to compensate a person for past
voluntary act or for which offeror is legally compel to
do.
• s 26(c) – promise to pay debt barred by limitation law
Consideration need not move from offeree

• s 2(d) – when at desire of offeror, offeree or any other

person has done …something, such act is a consideration
\
E.g. Venkata Chinnaya v Verikatara Maya (1881)
Mother gave land to sister in consideration that sister would
give brothers an annuity sum held to be valid consideration
though brothers did not give any consideration
Waiver of performance

• s 64 – offeree may dispense with the performance of a

promise made to him, or extend the time for such
performance, or may accept instead of it any
satisfaction which he thinks fit.

• s 64 Illustration (b)
A owes B $5,000. A pays to B, and B accepts, in
satisfaction of whole debt, $2000. Whole debt is
discharged.
Waiver of performance – third party
• s 64 Illustration (c)
A owes B $5,000. C pays to B $1,000, and B accepts
them in satisfaction of his claim on A. This payment
discharges whole claim.

E.g. Kerpa Singh v Barjam Singh [1966] 1 MLJ 38

B owed K $8,869.64 in judgment debt. B’s son,
Gurbakhash wrote to K offering to pay $4,000 in full
satisfaction of his father’s debt. K’s lawyers cashed
cheque and retained money. They then proceeded to sue
for balance. Court held acceptance of payment preclude
them from claiming balance.
INTENTION TO CREATION LEGAL RELATIONS
• Recognize under common law as an element for
existence of contract
• Malaysian contract law though silence recognizes under
common law such element as essential for contract to be
enforceable
• Social and domestic agreement
• Presumption that there is no intention to create legal
relations, though rebuttable
E.g. Balfour v Balfour [1919]
Jones v Padavatton [1961]
Merritt v Merritt [ 1970]
Balfour v Balfour (1919)

• The defendant who worked in Ceylon, came to England with his wife
on holiday.
• He later returned to Ceylon alone, the wife remaining in England for
health reasons. The defendant promised to pay the plaintiff £30 per
month as maintenance, but failed to keep up the payments when the
marriage broke up. The wife sued.

• It was held that the wife could not succeed because: (1) she had
provided no consideration for the promise to pay £30; and (2)
agreements between husbands and wives are not contracts because
the parties do not intend them to be legally binding.
Jones v Padavatton (1969)

• In 1962, Mrs Jones offered a monthly allowance to her daughter if

she would give up her job in America and come to England and study
to become a barrister.
• Because of accommodation problems Mrs Jones bought a house in
London where the daughter lived and received rents from other
tenants. In 1967 they fell out and Mrs Jones claimed the house even
though the daughter had not even passed half of her exams.

• It was held that the first agreement to study was a family

arrangement and not intended to be binding. Even if it was, it could
only be deemed to be for a reasonable time, in this case five years.
The second agreement was only a family agreement and there was
no intention to create legal relations. Therefore, the mother was not
liable on the maintenance agreement and could also claim the house.
Merrit v Merrit (1970)

• The husband left his wife. They met to make arrangements for the
future. The husband agreed to pay £40 per month maintenance, out
of which the wife would pay the mortgage. When the mortgage was
paid off he would transfer the house from joint names to the wife’s
name. He wrote this down and signed the paper, but later refused to
transfer the house.
• It was held that when the agreement was made, the husband and
wife were no longer living together, therefore they must have
intended the agreement to be binding, as they would base their
future actions on it. This intention was evidenced by the writing. The
husband had to transfer the house to the wife.
CAPACITY

Parties must have legal capacity to enter into contract

• s 10: all agreements are contracts if made by:
1. free consent of parties
2. parties are competent
3. consideration and object are lawful 4. agreement not
declared void
Competent to enter into contract

1. persons of sound mind

2. reached age of majority (18 years old), Age of
Majority Act 1971
3. persons not disqualify by law
Though minor, can, provided for:

* Scholarship or skill training (Contracts (Amendment)

Act 1976 following Govt of Malaysia v Gurcharan
Singh & Ors [1971]
*Necessaries – Nash v Inman [1908] – waist coat
*Insurance – Financial Services Act 2013
One can enter into contract for insurance below 16 yrs
but with consent of parents/guardian
CERTAINTY
• Terms of contract must be certain
• s 30 – agreement, meaning of which is not certain, or
capable of being certain is void
E.g. Karuppan Chetty v Suah Thian [1916]
The parties agreed upon the granting of a lease at RM
35.00 per month ‘for as long as he like’. The court held
that this contract is uncertain and is void.
PRIVITY OF CONTRACT (contract rights)
• Only parties to contract can sue or be sued
• Only parties to contract have rights and obligations
under contract.
E.g. Dunlop Pneumatic Tyre v Selfridge [1915]AC 847
D sold tyres to S with price restriction, if sold
below price would pay D £5 each tyre. S sold to
customer below restricted price. D sued S.
Held:
D did not provide consideration to S and D not party to
contract between S and customer.
Jackson v Horizon Holidays Ltd ]1975] 3 All ER 92
• J bought holiday for family. Holiday fell short of what had been
promised. J claimed damages for all.
Held:
J entitled to claim for himself and family. Family as
beneficiaries were entitled to the claim.

Woodar Investment v Wimpey Construction [1980] 1 All ER 571

• Woodar contracted to sell land to Wimpey for £150,000 on behalf of
third party. Wimpey breached contract. Woodar sued for both sums.
Held:
Even if Wimpey was in breach, Woodar could only succeed in claim for
themselves but not for third party as they were not privy to the
contract. Woodar had not suffered in respect of that loss of third party.
Condition
Major term or essence of contract
• If breached, innocent party can repudiate and
terminate contract and claim damages
• Warranty
• Minor term which is collateral to main purpose of
contract.
• If breached, innocent party cannot repudiate or
terminate contract but only seek damages
EXEMPTION/EXCLUSION CLAUSES
• Contract may contain exclusion clause exempting or
limiting one party from liability for fault done to
another party
SIGNED AGREEMENT
• If parties signed contract containing exclusion clauses
then they are bound
E.g. L’Estrangee v F’Graucob Ltd [1934]
• UNSIGNED
• Depend whether contractual or non-contractual
Contractual
• Must give reasonable notice, e.g. signboard which is clear
and unambiguous
E.g. Thompson v London, Midland and Scottish Railway Co
• Timing of notice
• Must be given before contract made
E.g. Thornton v Shoe Lane Parking Ltd [1971]
• SLP Ltd had not done enough to bring the existence of the
terms to Thornton’s attention prior to the contract
formation. The offer was contained within the notice at the
entrance, and Thornton accepted the offer on those terms
when he drove in. It was too late to seek to incorporate
further terms after he had driven in to the car park.
Legal, void and voidable contract

Legal: s 2(h) CA
Void: s 2(g) CA
• s 10 unlawful object or consideration
• s 11 agreement by minor, person of unsound mind
• s 21 agreement entered into under mistake
• s 26 without consideration
• s 30 agreement meaning of which is uncertain
• s 2(i) – Voidable contract
• s 15 - coercion
• s 16– undue influence
• s 17 – fraud
• s 18 - misrepresentation
VOIDABLE CONTRACT

• s 2(i) – an agreement which is enforceable by law at

option of one but not at option of the other is a voidable
contract
• s 10 – all agreements are contracts if they are made by
free consent of parties competent to contract for a lawful
consideration and with a lawful purpose are not void
• s 19(1) when consent to agreement is caused by
coercion, undue influence, fraud, or misrepresentation,
agreement is a contract voidable at option of party
whose consent was so caused.
• s 19(2) a party to a contract whose consent was caused
by fraud or misrepresentation may, if he thinks fit,
insist that contract shall be performed and he shall be
put in position in which he would have been as if
representation was true.
E.g. A intending to deceive B, falsely represents
his company was making RM5M a year and hereby
induces B to buy company. Contract is voidable
at option of B.
Exception

• If consent is caused by misrepresentation or by silence

or by fraudulent act within s 17 contract is not
voidable if party whose consent is so caused has
meaning of discovering truth with ordinary diligence.
• e.g. A, by misrepresentation of B, leads B erroneously
to believe his company is making RM5 M a year. B
examines account and discovers company is only
making RM4 M a year. B bought company. Contract is
not voidable
• Where contract is voidable aggrieved party has right to
either continue with contract or repudiate it.
• s 14 – consent is said to be free when not caused by:
• s 15 – coercion – commit or threaten to commit any act
forbidden by law or unlawful detaining or threaten to
detain any property to prejudice of any person
• s 16 – undue influence – person in position to
dominate will of the other use that position to obtain
unfair advantage
s 17 – fraud – intend to deceive another person or to
induce another to enter into contract.

s 18 – misrepresentation
• (a) positive assertion which is not true by person
though he believes to be true
• (b) any breach of duty, without intention to deceive
gives an advantage to person committing it
• (c) causing however innocently party to agreement to
make mistake as to substance of thing
DISCHARGE OF CONTRACT

1. By performance
• Parties have performed their obligations under the
contract
• s 40 – if a party refuses to perform or disabled himself
from performing the other party can put end to
contract
2. By agreement
• Parties may consent to mutually agree to end contract
• s 63 & s 64 – provide for to end contract by consent
 3. Frustration
• s 66 – any advantage received must be restored

4. By breach
• Either party to contract fail to perform his obligations
under contract
• s 40 – where one party fails to perform the other party
can rescind or end contract and claim damages
Rescission and damages

• s 76 – party that rightfully rescind can claim damages

• s 74 – party not in breach can from party in breach loss
or damages which naturally arose in the usual course
of thing from breach
or which parties knew when they made contract to loss
or damages likely to result from breach, i.e., but
not for any remote or indirect loss sustained ,
E.g. Tham Cheow Toh v Associated Metal Smelters
[1972]; Hadley v Baxendale [ 1854]