LAW OF CONTRACT (Contract Act 1950)

Learning objectives
At the end of this lesson, students should be able to:

a) Define the contract

b) State and understand the elements of contract
c) List and understand the free consent of contract

d) Discharge of contract and its remedies

Definition of contract
Section 2 (h) CA 1950 defines contract as the

agreement enforcement by law.

In other words, a contract is an agreement that binds
the parties who enter into it and it can be enforced
against one another.
It can be a contract to sell and purchase of land, hire
purchase, insurance contracts ,etc.
However, not all agreements are contract BUT the
contract are agreement. Ex, in case domestic
agreement the formations are not intended to bind
the parties in law.

Elements of a contract
1) Offer
2) Acceptance

3) Intention to create legal relations

4) Consideration
5) Certainty

6) Legal Capacity
7) Free Concent
8) Legality of Object
9) Formalities

1) Offer
Section 2 (a) CA 1950 offer is said to exist 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, he is said to make a
proposal/offer.
In other words, a proposal is the readiness of the
person who makes the offer to create a legal relation
and be bound by the law.

a) To whom can the proposal be

Made?
Can be made to a specific or particular person or to the

public.
Proposal to specific person can be accepted by that
person only. For ex, A propose B to sell his Viva car at
RM35000. The proposal of A can only be accepted by B
and not other persons.
For proposal to public, the acceptance can be made by
any person who knows about the proposal and
performs the obligations required by the proposer.

Case : Carlill vs. Carbolic Smoke Ball

Facts : the defendants was inserted advertisements in

newspapers in which they offered to pay 100 to any

person who contracted influenza after using the
medicine. They added that they had deposited 1000
at the bank to show their sincerity in the matter.
Held : the court reject the argument and held the
advertisement was an offer to the whole world.

b) The different between a

proposal and invitation to treat
Usually, before a proposal is made, the parties will

hold some negotiations. The negotiation is an

invitation to call for a proposal and not yet a proposal.
Ex of invitation to treat such as auctions and display of
goods on the shelves in shops.
The proposal comes from the buyer when the buyers
take the goods from the shelves and bring it to the
counter for payment. The acceptance take place when
the seller accepts the payment from the buyer.

Case : Pharmaceutical society of Great Britain vs. Boots

Cash Chemist
Held : the court held that the display of goods did not

constitute an offer but only an invitation to treat. A

proposal to buy was made when the customer placed
the articles in the basket. Hence, the contract of sale
would be made when the cashier accepted the
customers offer to buy what had been chosen.
An advertisement is also an invitation to treat. Case:
Coelho vs. The Public Services Commission,
Held :the High Court ruled that the newspaper
advertisement was an invitation to qualified persons to
apply and the applications were offers.

c) Proposal must be clear and

communicated
S. 4(1) CA 1950 provides that the communication of a

proposal is complete when the proposal comes to the

knowledge of the proposer.
In order to make the proposal effective, it must be
clear and communicated. A proposal which is vague
and uncertain may not lead to a binding contract.
Case : Ahmad Meah & Anor vs. Nacodah Merican,
an agreement to build a suitable house was held by
the court as vague to create a binding contract.

d) Revocation of proposal
Under S.5(1) CA 1950, a proposal may be revoked at

any time before the communication of its acceptance

is complete but not afterwards.
S. 6 CA 1950, revocation of proposal may be happen in
the following situation:
1) Revocation noted from proposer
2) Expired date of acceptance
3) Acceptor rejected the proposal
4) When the proposal was died, sick or mental
disorder.

2) Acceptance
S. 2(b) CA 1950, when the person to whom the

proposal is made signifies his assent thereto, a

proposal is said to be accepted.
A proposal, when accepted becomes a promise. ( S.
2(c) CA 1950.
S.9 CA 1950 provided that there is an expressed
acceptance if an acceptance of any promise is made in
words and an implied acceptance if the acceptance is
made other than in words.

a) Acceptance must be absolute

and unqualified
S. 7(a) CA 1950 provides that an acceptance must be

absolute and unqualified. This mean acceptance must

be made on the same terms as provided in the
proposal and there must not be any variation or
modification.
Case : Hyde vs. Wrench, the court ruled that the
counter-offer made by the plaintiff at the price 950
constituted a rejection to the original proposal.
Therefore, no acceptance had occurred and the
defendant had the right not to sell the estate to the
plaintiff.

b) Acceptance must be
communicated
In order to form a binding contract between the

parties, the acceptance of the proposal must be

communicated to the proposer.
S.7(b) CA 1950 provides that the acceptance may be
expressed in some usual and reasonable manner.
Communication of acceptance had been complete
when its comes to the knowledge of proposal. Thus, if
the acceptor remains silence after being proposed, the
act of silence cannot constitute an acceptance.

c) Exceptions communication of
acceptance
1) acceptance through post (postal rule)

2) Acceptance through performance of an act stated in

the proposal

1) Acceptance through post

S.4(2)(a) CA 1950 provides that the communication of

an acceptance is complete:
a) As against the proposer, when it is put in a course of
transmission to him
b) As against the acceptor, when it comes to the
knowledge of the proposer.

Case: Ignatius vs. Bell

Fact: The parties in this case agreed to use the post as a

means of communication. The defendants made a

proposal to sell his piece of land to the plaintiff and
must be exercised on or before the 20th August 1912.
The plaintiff sent his acceptance by registered post on
16th August 1912 but it was not delivered to the
defendant till 25 August 1912.
Held: The court applying S.4 held that communication
of acceptance was complete when the notice of
acceptance was post on 16 August 1912, even though
the defendant did not know about the acceptance.

2) Acceptance through performance of act

stated in the proposal
In some cases, the acceptance need not be

communicated to the proposer.

S.8 CA 1950 provides that performance of the
conditions of a proposal is an acceptance of the
proposal.
Case: Carlill vs. Carbolic Smoke Ball

d) Revocation of acceptance
S.5(2) CA 1950 an acceptance may be revoked at any

time before the communication of the acceptance is

complete as against the acceptor, but not afterwards.
Example:
A proposes (by a letter sent by post), to sell his house to
B.
B accepts the proposal (by letter sent by post).
B may revoke his acceptance at any time ( before or at
the time when) his letter of acceptance reaches A.

3) Consideration
Consideration is one of the essential elements of a

valid contract. The absence of consideration in any

agreement can nullify the validity of contract.
S. 26 CA 1950 provided that an agreement made
without consideration is void.
The essence of consideration is subject to the
agreement between the contracting parties.
According to S.2(d) CA 1950, when , at the desire of
the promisor, the promisee has done or abstained from
doing something is called a consideration of the
promise

a) Types of consideration
Executory consideration

Executed consideration

Past consideration

i) Executory consideration
Consideration may be executory when one promise is

made in return for another promise.

Ex: Ali bought a car for the price of RM30,000 and he
promise to add another RM500 if the car was sent to
him at his house.

ii) Executed consideration

Consideration may be executed when one promise is

made in return for the performance of the act.

Ex: Ana advertised a reward of RM100 to anyone who
finds and returns her lost watch. Caca find and return
the watch to her in response to the offer. Cacas
consideration for her promise is executed. Only her
liability remains outstanding, that is to pay Caca the
RM100 as reward.

iii) Past consideration

If a promise is made in return for an act that has

already been performed, that act is regarded as past

consideration.
For example, ali has saved abu from drowning. safe
after abu has promised to give the ashes of RM200.

Exception to the rule of

consideration
S. 26 CA 1950 provide that an agreement without

consideration is void. However, there are exceptions to

this general rule.
This exceptions include the following:
1) Agreement made on account of natural love and
affection
2) Agreement to compensate a past voluntary act.
3) Agreement to pay a statute-barred debt.

Adequacy of consideration
Another important principle is on the adequacy of

consideration.
The question is : must consideration be adequate? Can
you sell your house worth RM100,000 for only RM100
to En. Abu? Is the amount of RM 100 sufficient as
consideration for your promise?
S.26 CA 1950 an agreement to which the consent of
the promisor is freely given is not void merely because
the consideration is inadequate.
Case : Phang Swee Kim vs Beh I Hock

Consideration from third party

According to S. 2 (d) CA 1950 anyone may be replace

for the consideration whether he is not involved in the

said contract.
Case : Kerpa Singh vs. Barian Singh

4) Intention to create legal relation

Intention reflects the true desire of a person to perform

certain act. In forming a valid contract, parties must have

the intention to create legal relation.
In S.2(a) CA 1950 which states with a view and S.2(d) CA
1950 which states with a desire
The word view and desire impliedly prove that the
element of intention as to create legal relation is legally
required.
The law had divided an agreement into 2 categories:
A) Domestic, family and social agreement
B) Business Agreement

Case : Balfour vs. Balfour

Fact: A husband was employed in Ceylon but his wife

was unable to go back to Ceylon for medical reasons.

He consequently promised orally to make her an
allowance of 30 a month until she rejoined him. The
husband failed to make the payment and the wife sued
him
Held : The court held they never intended to make a
bargain which could b enforced in law. Thus, there was
no enforceable contract between the parties.
Another case : Merritt vs. Merritt

5) Certainty
The term of an agreement cannot be vague but must

be certain. An agreement which is uncertain or is not

capable of being made certain is void.
Case : Karuppan Chetty vs. Suah Tian

6) Capacity
Every person who want to entering into a valid

contract must be capable to enter the contract and not

are minors or unsound mind person.
S.11 CA 1950 states that every person is competent to
contract who is of the age of majority , sound mind
and not disqualified from contracting by ant law to
which he is subject.
Under The Age of Majority Act 1971, the act of majority
is 18 years old.

Case: Tan Hee Juan vs. The Boon

Keat
Fact: the plaintiff in this case was an infant. The infant

executed transfers of land in favour of the dependant.

The transfers were witnessed and registered.
Held: the court ruled that the transactions were void
and ordered the restoration of the property to the
minor. The court refused to to order the minor to
refund the purchase price paid by the defendant.
Other case : Government of Malaysia vs. Gurcharan
Singh

Exception of capacity
Contract for necessaries

Contract of scholarship

Contract of insurance

7) Free consent to contract

S.10 CA 1950 provides inter alia that all agreements are

contracts if they are made by the free consent of

parties.
By virtue of S.14, consent is said to be free when it is
not caused by one or more as following:
1) Coercion
2) Undue influence
3) Fraud
4) Misrepresentation
5) Mistake

Differentiate between void

contract and voidable contract
Void contract
The contract is already void because
unfulfilled the elements of contracts

Voidable contract
The contract is valid but then was terminated
by parties who entering that contract.

1) Coercion
Coercion under S.15 CA1950 means the committing,

threatening to commit any act forbidden by the Penal

Code, with the intention of causing any person to
enter the agreement.
Case : Kesarmal s/o Letchman Das vs. Valiappa
Chettiar
-The court held that a transfer executed under the order
of Sultan, issued under duress of 2 Japanese officers
during the Japanese Occupation of Malaysia was
invalid.

2) Undue influence
According to S.16 (1) CA 1950, 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 than other.
Case : Chait Singh vs. Budin Bin Abdullah

3) Fraud
S.17 CA 1950 state that fraud includes any of the

following acts committed by a party to a contract with

intent to deceive another party to induce him to enter
into the contract.
A fraud including the following act such as:
i) The suggestion as to a fact which is not true by one
who does not believe it to be true
ii) A promise made without any intention of performing
it
iii) Any other act fitted to deceive

Case : Senanyake vs. Annie Yeo

Fact : issue of whether a statement is true given by the

defendant on the financial position of the defendant

that caused the plaintiff's firm suffered losses after
investing in the firm which intention of cheating from
defendant.
Held: The court was decide the contract is void
because the defendant try to cheating the plaintiff.

4) Misrepresentation
Misrepresentation refer to an untrue statement made

by a representor and that induces the other party to

enter into a contract. It made without any intention to
deceit
S.18 stated misrepresentation should be a single
statement of fact. If just a personal opinion only, it
can not be a misrepresentation even though this is not
true. Misrepresentation can be in two forms which is
fraud misrepresentation and faith misrepresentation
which they have no intention to deceive.

Case : R vs. Kylsant

Fact : issue of whether fraudulent statements in the

prospectus of the Company is considered to be a fraud

misrepresentation.
Held :court decided that the fraud about the real facts

about the company's financial position is considered

to be a fraud misrepresentation.

5) Mistake
Under S.21, both parties to the contract are under a

mistake of fact, the contract is void, but under S.23,

when only one of the parties is under a mistake of fact
the contract is still valid.
Case : Raffles vs. Wichelhaus
Fact: Issues related to the mistake of the two ships laden
with cotton which is the subject matter of the contract
is treated as a mistake of fact in the contract that
makes the contract void. When disagreement occurs
on the one parties, the contract is not void. (S.23 CA
1950)

Activity 1: One minutes paper

Question :

State 5 types of voidable contract

Answer 1:
5 types of voidable contract :
Coercion
Undue influence
Fraud
Misrepresentation
mistake

Activity 2: Three minutes paper

Question :

Illustratiate the case of the following :

1) Chait Singh vs. Budin bin Abdullah

2) Senanyake vs. Annie Yeo

DISCHARGE OF CONTRACT
AND REMEDIES
Contractual parties may discharge their contract and

once the contract is discharged, parties are no longer

bound to the terms of the contract.
The contract can be discharged through:1) Agreement of the contractual parties
2) Performance
3) Impossibility of performance/ frustration
4) Breach of contract

1) Discharge by agreement
between parties
A contract that is created by agreement can be

discharged by agreement.
New agreement can be in the following form:
1) Novation
2) Rescission
3) Alteration
4) Remission of performance

2) Discharge by performance
A contract is said to be discharged when the parties to

the contract has performed what they have agreed to

do in the contract.
Case : Bolton Vs. Mahadewa
Fact : The plaintiff has agreed to install a home heater
to defendant. After completion, the defendant refused
to make the payment because that heater does not
work.
Held: The court held the plaintiff is not entitled to
recover the claim.

3)Discharge by
impossibility/frustration
A contract is frustrated when there is a change in the

circumstance.
Effect : Sec.57(3) compensation must be paid by the
promiser to the promisee
Case : Robinson v. Davidson
As the payment was supposed to be fully payment
upon completion of the whole voyage since Cutter did
not perform his promise, there was no right to any part
of salary.
Case : Cutter v Powell

4)Discharge by breach
S.40 states when a party to a contract has refused to

perform or disable from performing, the promisee may put

an end to the contract.
This means, when a promisor fails to perform his
obligations or to tender performance, there is a breach of
the breach which entitles the party not in breach to take
appropriate action which may include repudiation.
Effect : Sec.65 of the CA stated that the innocent party
must restore any benefit from other party.
If the innocent party has paid money under the contract,
he may be entitled to recover the sum paid.

Remedies
In cases of breach of contract, the party not in default

may claim one or more of the following remedies:

a) Rescission of contract
b) Damages
c) Specific performance
d) Injunction
e) Quantum Meruit

a) Rescission of contract
Under S.40 CA 1950 when a party to a contract had

refused to perform his promise, the promisee may put

an end to the contract . It means that a nonperformance of a contract by any of the party to the
contract will entitle the other party to rescind the
contract.

2) Damages
The claim for damages in cases of breach of contract is

provided under S. 74 S.76 CA 1950. S.74 provides the

measure of damages recoverable by the claimant.
Case : Hadley vs. Baxendale
Fact : Plaintiff has made ordering a machine from
Greewich from defendant but due to the delay to send
the machine to the factory plaintiff causing the
plaintiff to suffer losses.The court ruled that the
defendant is liable to pay a reasonable amount of
compensation to the defendant.

3) Specific Performance
Specific performance is a discretionary remedy granted

by the court.
The court directing that the contract shall be
performed specially according to its terms.
Example : A contracts with B to sell him a house for
RM1000. B is entitled to a decree directing A to convey
the house to him, he paying the purchase-money.

4) Injunction
Injunction as a remedy is classified under Part III of

the Specific Act 1950 as Preventive Relief.

It is granted of the court and it can be either
prohibitory injunction and mandatory's injunction.
Case : Neoh Siew Eng & Anor vs.Too Chee Kwang
Fact : Homeowners have cut the water supply to the
tenant house. The court has issued an injunction order
so that homeowners do not cut off the supply of water
to his tenants.

5) Quantum Meruit
This remedy means that the claimant will be awarded

as much as he has earned or deserved. The remedy can

be used contractually or quasi-contractually.
Case : Bernady vs. Harding
Fact : The power of an agent has been terminated by
the principal before the agent could complete the
tasks. The court ruled the agent may claim based on
the work he has done during his duty.

THE END
Do your exercise page 105 for your better
understanding.