LAW OF CONTRACT

PART 11

OTHER ELEMENTS OF CONTRACT

Consideration It

basically 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. Section 2(d) defines consideration as follows: When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promise to do or abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

CONT..

Section 26 declares that an agreement without consideration is void. However there are three exceptions to this general rule: An agreement made on account of natural love and affection but three requirements must be fulfilled:
y y y

it is expressed in writing it is registered (if applicable); and the parties stand in a near relation to each other.

CONT..
An agreement to compensate for a past voluntary act or an act which the promisor was legally compellable to do. An agreement to pay a statute-barred debt.

TYPES OF CONSIDERATION

Executory where the parties exchange promises to perform certain acts. For e.g, A agrees to sell B a car and B promises to pay RM20,000 for it. Executed where one party promises to do something in return for the act of another. For e.g. A offers RM100 reward for the return of his lost cat, B finds the cat, returns it to A and claims the reward. Past where a promise is made subsequent to and in return for an act that has already been performed. For e.g. A finds Bs purse and gives it to him. B promises to give A RM50. This is a contract.

ADEQUACY OF CONSIDERATION
2 to section 26 provides that an agreement is not void merely because the consideration is inadequate. In other words a consideration needs not be adequate. If a man is prepared to sell his BMW car for RM1,000, the contract will not fail for lack of consideration. The question is whether the promisor has made a bargain, not whether he has made a good bargain. Therefore so long as the consideration has some value in the eyes of the law, it is sufficient.
Explanation

INTENTION TO CREATE LEGAL RELATIONS

is no provision in the Contracts Act regarding this element. Under the common law it is a requirement for a valid contract that the parties intended to enter into a legal relationship. For the purpose of establishing the intention of the parties, agreements are divided into two categories: Business or commercial agreements it is automatically presumed that the parties intended to make a legally enforceable contract. Social, domestic or family agreements it is presumed that the parties never intend their agreement to be legally binding, but such presumption may be rebuttable.
There

CERTAINTY
terms of an agreement must be certain or at least capable of being made certain. Section 30 states that agreements, the meaning of which is not certain, or capable of being made certain, are void. Illustration (a) to the section provides the example: A agrees to sell B a hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. In Karuppan Chetty v Suah Thian [1916] FMSLR 300, the requirement of certainty was not met when the parties agreed upon the granting of a lease at $35.00 per month for as long as he likes.
The

CAPACITY
The parties entering into a contract must have legal capacity to do so. Section 11 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.

CONT..
Under the Age of Majority Act 1971, the age of majority in Malaysia is eighteen years. Thus, generally a contract made by a person below 18 is void. However there are exceptions to this rule: Contracts of necessaries refer to things which are essential to the existence and reasonable comfort of the infant, such as food, clothes and education.

CONT

Contracts of scholarship Section 4(a) of the 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. Contracts of insurance Under Insurance Act 1963, a minor over the age of ten may enter into a contract of insurance.

FREE CONSENT
Section 10(1), among other things, provides that all agreements are contracts if they are made by the free consent of parties competent to contract., section 13 states that two or more persons are said to consent when they agree upon the same thing in the same sense.

CONT..
By virtue of section 14, consent is said to be free when it is not caused by one of the following: Coercion Undue influence Fraud Misrepresentation Mistake

COERCION

Section 15 defines coercion as the committing, or 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.

UNDUE INFLUENCE
16(1) states that a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. There are two essential elements of undue influence: the domination of the will by one party over the other, and the use of that dominant position to obtain an unfair advantage.
Section

FRAUD

Fraud is defined in section 17 to include various acts which are committed with intent to deceive the other contracting party. The section lists down five different acts which may constitute fraud: the suggestion, as to a fact, of that which is not true by one who does not believe it to be true; the active concealment of a fact by one having knowledge of belief of the fact; a promise made without any intention of performing it; any other act fitted to deceive; and any such act or omission as the law specially declares to be fraudulent.

MISREPRESENTATION
Section

18 defines Misrepresentation to

include: the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; any breach of duty which, without an intent to deceive, gives an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice, or to the prejudice of anyone claiming under him; and causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

MISTAKE

Section 21 provides that when both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. A mistake of fact made by both parties may occur in the following circumstances:
y y y y

Mistake as to the existence of the subject matter of the contract Mistake as to the identity of the subject matter Mistake as to the quality of the subject matter Mistake as to the possibility of performing the contract.

LEGALITY OF THE OBJECTS

the consideration or object of an agreement must be legal or lawful. Section 24 provides that the consideration or object of an agreement is lawful unless: it is forbidden by a law; it is of such a nature that, if permitted, it would defeat any law; it is fraudulent; it involves or implies injury to the person or property of another; or the court regards it as immoral, or opposed to public policy.

THE EFFECT OF VOID OR ILLEGAL

CONTRACT Section 66 states: When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.

PRIVITY RULE
It

is a fundamental principle of common law that a contract can only impose rights or obligations on persons who are parties to it. No one except a party to a contract can acquire rights under it, and no one except a party can be subjected to liabilities under it. This rule was derived from the case of Winter Bottom v. Wright (1842) and confirmed by the House of Lord in Dunlop v. Selfridge (1915) Lord Haldane in this case said that In the Law of England certain principles are fundamental. One is that only a person who is a party to a contact can sue on it.

CASE
v Atkinson (1861) B&S 393 The plaintiffs father and father in law agreed with each other to pay the plaintiff certain amount of money in consideration of his intended marriage. After the marriage they confirmed the agreement in writing but the money was not paid. The plaintiff sued his father in law. However the action failed and the court held that no stranger to the consideration can take advantage of contract although made for his benefit.
Tweddle

TERMS OF CONTRACT
After the parties have entered into a valid contract, it is important for them to determine their rights and obligations under the contract. They must understand the contents of the contract or legally known as terms of the contract. Based on the method in which it is incorporated into a contract, terms can be divided into express and implied terms

CONT..
terms - the statements actually made by one of the parties, either by word of mouth or in writing. Implied terms - are not actually stated, but included in the contract by implication. Terms may be implied by: custom and usage pertaining to a particular type of transaction; statutory provisions By court
Express

CONT..

Terms may also be classified according to its importance and legal effect. In this respect terms can be divided into three: Condition an essential term of the contract. A breach of condition entitles the innocent party to repudiate the contract and claim for damages. Warranty less important terms of the contract. A breach of warranty entitles the innocent party only to damages. Intermediate or innominate it is a new category formulated by the court in recent times. In deciding the case the court will look at the gravity (seriousness) of the breach and its consequences.

STANDARD CONTRACTS AND EXEMPTION CLAUSES

a general rule parties are free to contract (freedom of contract). In other words both parties to the contract are free to negotiate and to include whatever relevant terms in their agreement. However in the commercial world today, a standard contract is commonly used for a practical purpose. Standard contracts are normally designed by large enterprises or trader associations and form the basis of most contracts in consumer transactions, for example insurance, banking, credit or any other supply of goods and services.
As

CONT..
One of the disadvantage of standard contract is that the party who drew up the contract tends to include terms which are more favourable to them but unfair to the other party. A clear example of unfair term is the exemption clauses which have the effect of limiting or exempting a party or his company from certain liabilities.

CASE
MAS v Malini Nathan and Anor [1986] 1 MLJ 330 The Supreme court held that the appellant was not in breach of contract with the respondents for his failure to fly the first respondent who had a confirmed ticket on a particular flight simply because the later was bound by condition 9 printed on the ticket.

CONT
9 reads: Carrier undertakes to use its best efforts to carry the passenger and baggage with reasonable dispatch. Times shown in timetables or elsewhere are not guaranteed and form no part of this contract. Carrier may without notice substitute alternate carriers or aircraft, and may alter or omit stopping places shown on the ticket in case of necessity. Schedule are subject to change without notice. Carrier assumes no responsibility for making connections.
Condition

THE LAW
is no specific law in Malaysia governing exemption clauses ad unfair contract terms. Thus various techniques to check and control exemption clauses that have been developed by the common law judges are applicable. This judicial control can be divided into two: Notice incorporation the court will first determine whether the clause is part of the contract. However this rule does not apply to the document which has been signed by a party. (LEstrange v Groucob (1934)) Rule of construction.
There