CONTENTS OF CONTRACT (1)

DR. SONNY ZULHUDA

INTERNATIONAL ISLAMIC UNIVERSITY

MALAYSIA
OUTLINE
Terms
Terms vs Mere Representation
Terms: Conditions vs Warranties

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Terms of Contract
Terms of Contract are its contents that spell
out the rights and obligations of the parties
under the contract.

Contracts Act 1950 contains no provision

dealing explicitly with the terms of a
contract.

In most cases, Malaysian courts had filled

this lacuna by adopting common law
through the decided cases.
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Contracting parties dispute on:
Whether or not certain statements are in
fact made;

Whether or not certain statements that are

in fact made, were held binding and
incorporated into the contract; or

Whether or not those statements (that are

part of the contract) are to be given the
same importance as ascribed by the other
party. <Dr. Sonny Zulhuda> 4
Some principles of construction..
Court will not allow any oral evidence to ‘add, vary or contradict’
a written document  Parol evidence rule (note some
exceptions given under section 92 of the Evidence Act 1950

Court do not make or improve the terms that are already agreed
by the parties to contract (see Seet Chuan Seng v Tee Yih Jia
Foods Manufacturing Pte. Ltd.)

If a document contains an ambiguity that cannot otherwise be

satisfactorily resolved, it is to be construed adversely to the party
who proffered it for execution (see Kandasami v Mohammed
Mustafa).

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Statements are either TERM or a
mere REPRESENTATION..
TERMS of contract are those that spell out the rights and
obligation of the contracting parties. The breach of which
creates a legal obligation, and the injured party is entitled
to take a legal action based on the breach of contract.

Mere REPRESENTATION means those statements made

by either parties in the contract which induces the
representee. It is also called an inducement. If it is
breached, contract is not broken and it does not create
legal obligation.

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How to distinguish Terms from
mere Representation?
Lapse of time
Importance of the statement in the minds of the
parties
Knowledge of the parties
Manner of the statement
Whether the statement is reduced to writing
Inducement factor
Oral agreement incorporate d in a written agreement

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Routledge v McKay [1954] 1 All ER 855
Also, the fact that such
statement was not included
when contract was reduced
to writing could mean it is
purposely left out and hence
deemed as mere
representation
Lapse of time & whether
reduced to writing
P purchased D’s motorcycle – prior to
that, on 23rd October, D told P that the
motorcycle was 1942 model – A written
contract was subsequently made 30th Oct
in which the model was not mentioned –
P found out later that the bike was
actually of 1930 model – P sued D for
damages.
Court: the gap of time shown that what
seems to be broken was only a
representation.
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 Importance of the statement in the
minds of the parties

Bannerman v White (1861) 142 ER 685

 D (a hop merchant) purchases hops from P –
during negotiation D asked whether sulphur
was used for treatment, if yes, D would not
proceed – P said no sulphur – agreement
concluded – After delivery D found sulphur
was used – D repudiated the contract.

 Does the statement of ‘no sulphure’ constitute

a term of contract?

 The test: the more important such a

statement, the more likely it becomes terms
of contract.
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 Knowledge of the parties

Schawel v Reade (1913) 2 IR 81

P wanted to buy stallion for stud purpose – when
he examined a horse D interrupted saying “You
need not look for anything, the horse is perfectly
sound. If there is anything the matter with the
horse I would tell you.” – P stopped his
examination – agreement reached.

P later found out that the horse was unfit for stud
purposes.

Test used: Did the maker has a special knowledge

or skill? Did P rely on such<Dr.
statement?
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 Inducement factor

Low Kon Fatt v. Port Klang Golf Resort

(M) Sdn Bhd [1998] 6 MLJ 448.
 D was the licence-holder of a golf course at a resort – P,
lured by the defendant's brochure which promised various
seasports facilities at the resort, signed up for membership
at the resort – P was dissatisfied with the facilities provided
(no sea sport facilities were provided) – P wanted to rescind
the agreement and get the refund

 D argued it did not amount to a warranty or representation

of whatever nature – P claimed the brochure has induced
him to become a member.

 Test to be used: When a statement is represented in such a

way that induces a representee to enter into a contract,
then such a statement intends to have contractual force and
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thus a term of contract. 11
 Inducement factor

Lim Sew Lan v Pembangunan Hysham

Sdn Bhd & Anor [1999] 5 MLJ 670
 P purchased from D one unit of shop office within D’s
building – Recital C to the agreement said that D were
developing six blocks of five to seven storey shop office
and service suites – P terminated the agreement after it
was found that D would only construct three-storey
shop office without service suites – P contended that he
was induced by D’s brochure to enter into the
agreement.

 Test to be used: When a statement is represented in

such a way that induces a representee to enter into a
contract, then such a statement intends to have
contractual force and thus a term of contract.

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Condition vs Warranty
Terms are either: Condition or Warranty

Contracts Act 1950 is silent; Sale of Goods Act 1957

provides the distinction, which only applies on the
sale of goods contract.

For other types of contract, court has adopted the

common law in distinguishing conditions from
warranty.

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Sale of Goods Act 1957
Section 12. Condition and warranty.
 (1) A stipulation in a contract of sale with reference to goods which are
the subject thereof may be a condition or warranty.
 (2) A condition is a stipulation essential to the main purpose of the
contract, the breach of which gives rise to a right to treat the contract
as repudiated.
 (3) A warranty is a stipulation collateral to the main purpose of the
contract, the breach of which gives rise to a claim for damages but not
to a right to reject the goods and treat the contract as repudiated.
 (4) Whether a stipulation in a contract of sale is a condition or a
warranty depends in each case on the construction of the contract.
The stipulation may be a condition, though called a warranty in the
contract.
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Condition vs Warranty
Conditions: terms which are essential to the main
objective of the contract, once broken it goes to the
root of the contract, and the injured party may seek
for repudiation of contract.

Warranty: terms which are less essential, i.e.

subsidiary to the main objective of the contract, once
breached it does not entitle the injured party to
repudiate a contract, though other remedies would be
available, i.e. damages.
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Consider buying a house….
Which is a condition and which is a
warranty?
Price: RM 150,000 nett
Specification: width, length, etc..
Interior design
Chimney’s functions
Adjacent lands
Access to highway
Outside view
History/previous occupant
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Ching Yik Developments S/B v Setapak
Heights Development S/B [1996] 3 MLJ 675
R, an owner of land, sold the land to A on an increased price.
Soon after the A sent a cheque for paying the remaining price,
Appellant stopped payment of the cheque.

Appellant argued: R had breached a condition of contract

having failed to deliver up a duly executed memorandum of
transfer to A’s solicitor,

R argued: it is A who had breached the condition of contract by

not fulfilling the payment. Failure of delivery of the
memorandum of transfer should only amount to a breach of
warranty.
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Ching Yik Developments S/B v Setapak
Heights Development S/B [1996] 3 MLJ 675
Court: in a contract for the sale of land, the payment of
the purchase price was a fundamental term or a condition.

The obligation to deliver the executed memorandum of

transfer was merely a subsidiary term or warranty, the
non-performance of which did not relieve the appellant of
its obligations under the contract.

The appellant’s failure to pay was a breach of condition.

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Compare and contrast:
Poussard v Spiers and Pond [1876] 1 QBD 410
Singer was contracted to play in an opera by D – did not
show up due to illness in four performances – but can
play afterwards – D refused – P lost the case.

Bettini v Gye [1976] 1 QBD 183

P (a singer) was contracted to perform at D’s theater for a
period of 3½ months, provided that he should undergo
rehearsal 6 days before the opening night – P could only
come 2 days before the start due to illness – D refused
him – P sued – D lost, could not repudiate.
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NEXT: Exclusion Clause