LECTURE 3

Contract Law – Formation

The formation of a valid contract requires that certain elements are present -
1 Exchange of promises - offer and acceptance
2 Capacity to contract – between persons legally capable to contract
3 Enforceable - intention to create legal relations
4 Creation of obligation – consideration

Offer
S 2(a) Contracts Act 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’.

S 2(c) Contracts Act 1950 - the person making the proposal is called the “promisor” and
the person accepting the proposal is called the “promisee”;

Contracts can be made expressly:

- in writing
- orally
- partly oral and partly in writing

Contracts can be made impliedly by conduct

Communication of Offer
Must be communicated to the offeree to be effective.

S 4(1) Contracts Act 1950 The communication of a proposal is complete when it comes
to the knowledge of the person to whom it is made.

Offer can be made to a specific person or persons - only that person or persons can
accept the offer.
Offer made to world at large – can be accepted by any one who complies with the terms
of the offer.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256; [1891-4] All ER Rep 127; 62 LJQB 257
(CB 31)
The defendant was the manufacturer of a product called the Carbolic Smokeball which
was designed to prevent the used from contracting flu. To promote the smokeball the
defendant advertised in a newspaper to pay ₤100 to any person who contracted flu
after using the smokeball in the specified manner for a specified period. The plaintiff
relying on the advertisement, purchase the smokeball and used it in the manner and
the period prescribed. The plaintiff contracted flu and demanded from the defendant
the payment of ₤100.
CA: the plaintiff could recover the ₤100 from the defendant.
Lindley J: the advertisement is an offer to anyone who will perform the conditions and
the performance of that condition is an acceptance.

Communication of the offer is essential if there is to be the ‘meeting of the minds’

(consensus ad idem) necessary for agreement. The acceptor must be aware of the offer
and its terms or else there cannot be an acceptance.
Two offers, identical in terms, which cross in the post, do not make a contract since they
were made in ignorance of each other’s existence and there is no meeting of the minds
necessary for an agreement.
Tinn v Hoffman [1893] 29 LT 271
Parties wrote to each other on the same day – both plaintiff and defendant offering to
sell 800 tons of iron at 69 shillings.
Court: No contract because neither of the letters amounted to an acceptance.

Ayer Hitam Tin Dredging Malaysia Bhd v Y.C. Chin Enterprises Sdn Bhd [1994] 2 MLJ
754
SC: The existence of an agreement depends upon the intention of the parties, and that
for there to be an agreement the parties must be ad idem, i.e. there must be a
consensus between them.
It is now well settled that when an arrangement is made ‘subject to contract’ or
‘subject to the preparation and approval of a formal contract’ and similar expressions,
it will generally be construed to mean that the parties are still in a state of negotiation
and do not intend to be bound unless and until a formal contract is exchanged.

What is not an Offer

Supply of information –
Harvey v Facey [1893] AC 552–
One party was anxious to purchase from another the property being known as
‘Bumper Hall Pen’. The prospective purchasers sent a telegram to the owners in the
following terms: ‘Will you sell us Bumper Hall Pen? Telegraph lowest price.’ The owner
replied ‘Lowest price for Bumper Hall Pen ₤900.’ The purchasers did not respond. The
owners refused to complete the sale.
PC: no relief granted to purchasers because the owners were only responding to the
purchasers by supplying information to them. It was not agreement to sell.

Invitation to treat (ITT)–

An invitation to treat is not an offer. It is a statement inducing another person to come
and negotiate or to make an offer.
An invitation to treat is different from an offer because unlike an offer, an invitation to
treat cannot be accepted to form a contract or rejected.
There is a fine line between a statement constituting an invitation to treat and an offer.
This can only be determined by considering all the circumstances in interpreting the
intention of the parties.
(a) Display of goods for sale
The display of goods in a retail outlet is a form of advertising. The display can be
in the form of displaying at a shop window or on the shelf in a store. A customer
who picks the item and takes it to the payment counter is making an offer which
is accepted when payment is made.

Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401;

[1953] 1 All ER 482; [1953] 2 WLR 427 (CB 28)
Boots was charged for offer for sale of some dangerous drugs without the
prescription of a registered pharmacist.
Held: When the drugs were displayed on the shelf, the company merely made
an invitation to treat to its customer. When the customer asked to buy the
drugs at the check-out point, he made an offer to buy. There was a registered
pharmacist at the check-out point at that time. The company did not
contravene the law.

(b) Advertisements
In newspapers, catalogues, circulars, list etc. are usually an ITT.
Bowen LJ described an invitation to treat in the case of Carlill v Carbolic Smoke
Ball as,
‘…cases in which you offer to negotiate or you issue advertisements that you
have got a stock of books to sell, or houses to let, in which case there is no offer
to be bound by any contract. Such advertisements are offers to negotiate – offers
to receive offers – offers to chaffer, as, I think, some learned judge on one of the
cases has said.’

Partridge v Crittenden(1968)
The plaintiff had advertised live birds for sale in a periodical. The plaintiff was
charged with unlawfully offering for sale a wild live bird contrary to s. 6(1) and
sch. 4 of the Protection of Birds Act 1954. It was held that the plaintiff could
not be guilty of the offence and charged because the advertisment was an
invitation to treat and not an offer for sale.

Fisher v Bell [1961] 1 QB 394; [1960] 3 WLR 919; [1960] 3 All ER 482
A shopkeeper displayed in his shop a flick-knife. He was charged for offer for
sale a dangerous weapon contrary to the Restriction on Offensive Weapons Act
1959.
Held: Display of goods in a shop was an invitation to treat, not an offer for sale.
 Grainger & Son v Gough [1896] AC 325
Wine merchant sends out wine list with prices to all his customers.
Lord Herschell: the transmission of such a price list does not amount to an offer
to supply an unlimited quantity of the wine described at the price named so
that as soon as the order is given there is a binding contract to supply that
quantity. If it were so the merchant might find himself involved in any number
of contractual obligations to supply wine of a particular description which he
would be quite unable to carry out, his stock of wine of that description being
necessarily limited.

There are advertisements that are offers –

Carlill v Carbolic Smoke Ball [1893] 1 QB 256
Carbolic Smokeball advertised in the newspaper that its product, the Carbolic
Smoke Ball, was very effective to prevent its users from catching influenza. The
Company also said in the same advertisement a promise to pay anyone £100 if
he should catch influenza after using it three times a day for at least two weeks.
The advertisement also mentioned that a sum of £1000 had been deposited
with a bank as a sign of sincerity in its promise. Mrs Carlill saw the
advertisement, bought one from the pharmacy but she caught influenza. She
claimed the money from the company. The company refused to pay her. She
sued the company for breach of contract. The company argued that there was
no contract because:

(i) the advertisement was too vague to be a contract

(ii) an offer cannot be made to the whole world and therefore the advertisement
cannot be an offer.
(iii) Even if the advertisement is an offer, Mrs Carlill had not communicated her
acceptance of the offer by informing the company that she was accepting
(iv) The advert is not an offer but just a mere puff, i.e. a marketing gimmick.

CA: There is a contract between Mrs Carlill and Smokeball. The advertisement
amounts to an offer and not an invitation to treat.

Advertisement for jobs/vacancies -

In the case Coelho v The Public Service Commission [1964], MLJ 12, HC the
applicant has to publish advertisements in The Malay Mail inviting qualified people
to apply for positions at the Immigration office. Decided by the High Court that the
ad is only an invitation to those who are qualified to apply for this position, and the
application of qualified people is a bid. Offer may be accepted or not by employers.

Prospectus for shares – It is an ITT

Auction –
 Auctions are an invitation to treat.
Payne v Cave (1789) 3 TR 148
Defendant bid £40 for goods at an auction but before fall of hammer he withdrew
his bid.
An auctioneer's request for bids is not an offer (an invitation to treat instead)
which can be accepted by the highest bidder. In other words, the court held (in
effect) that the auctioneer's request for bids was an invitation to treat, and each
bid constituted an offer which could be withdrawn at any time until it's accepted,
and finally, the fall of the auctioneer's hammer constituted acceptance of the
highest bid.

Where there is a reserve price – the auctioneer cannot accept bids below the RP.
Where there is no RP – the auctioneer has to accept the highest bid.

Tenders -
The general rule is advertisements calling for tenders are only an invitation to treat.
The person who submits the tender is the person who makes the offer (offeror). The
person inviting or advertising the tender is then free to accept or reject the tender.
The tender itself is the offer made.

(c ) Puff –
Statements, although inducing a contract are so clearly far-fetched or exaggerated that
no reasonable man would believe it to be binding.
Leonard v Pepsico Inc
Pepsi through an advertisement offered a range of product e.g. t-shirts, baseball caps
etc. that can be redeemed for Pepsi points. Points can also be bought for 10 cents
each. Advertisement also showed a Harrier Jet under which appeared ‘Harrier Fighter,
7,000,000 Pepsi Points’. Leonard got the points and wanted to claim the jet. Pepsi said
it was a joke. He sued.
Court: The inclusion of the jet in the advertisement was to inject humor. No
reasonable person seeing the advertisement would believe that Pepsi would be able
to supply one.

Carlill v Carbolic Smoke Ball Co [1893]

Company argued that the advert is not an offer but just a mere puff, i.e. a marketing
gimmick but they failed because the deposit of the £1000 clearly showed an intention.

Termination of Offer
1. Reject it – An offer can be rejected by saying ‘NO’. i.e. an explicit rejection - no
contract. It cannot be revived i.e. accepted later or offeror falling back on it. Offeror will
be making a fresh offer.
2. Counter-offer –
This is made by the offeree to the offeror. Roles will be reversed. Offeree becomes
offeror and vice-versa.
Hyde v Wrench (1840) 49 ER 132
W offered to sell a farm to H for $1,000. H said he would give $950. W refused and H
then said he would give $1,000. When W declined to adhere to his original offer, H
tried to obtain specific performance of the alleged contract.
Held: No contract had come into existence. An offer to buy at $950 in response to an
offer to sell at $1,000 was a counter-offer. An offer once rejected cannot be revived.
Since H had rejected W’s offer, there was no offer to accept by H. H by offering a price
of £950 had effectively made a counter offer in response to W’s offer to sell at £1000
and H’s counter offer effectively destroy W’s offer.

Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the estate of Saw Cheng
Chor, deceased) & Anor [1997] 1 MLJ 763
The defendants were the registered proprietors of a piece of land (`Lot 5020'). On 12
January 1979, the defendants made an offer via telex (`the telex offer') to sell Lot 5020
for the sum of RM350,000 to the plaintiff. The plaintiff was to confirm the offer on or
before 15 January 1979. On 15 January 1979, the plaintiff and the defendant discussed
the sale of three other lots together with Lot 5020 for the additional price of
RM120,000 making a total of RM470,000 for all four lots. This led to the drawing up of
a letter of offer by the defendants' solicitors for the sale of all four lots. The defendant
then decided not to proceed with the offer. The plaintiff relied on and accepted the
original telex offer. A cheque for the sum of RM47,000 being earnest money was
enclosed with the letter of acceptance and was duly acknowledged by the solicitors for
the defendants. The plaintiff claimed for the specific performance of the agreement
with the defendants for the sale of Lot 5020. The defendants argued that: (i) the telex
offer was subject to terms to be drawn up and agreed to by the parties; and (ii) they
had already withdrawn the telex offer when they proceeded with the negotiations
with the plaintiff to sell Lot5020 together with three other lots.
Kang Hwee Gee J held, dismissing the plaintiff's claim: a counter-offer involved the
introduction by the offeree of material variation of the terms of an offer of the same
subject matter. In this case, by proposing to purchase all four lots, the plaintiff had not
only varied the terms but also the subject matter of the original offer and in doing so,
it had in fact made a counter-offer. This had diverted the mind of the first defendant
away from his original telex offer, such that it could be legitimately assumed that he
was no longer minded to keep the telex offer open, the effect of which was the same
as if he had withdrawn that offer.
(Obiter) for the acceptance of the original offer to be effective, there had to be a fresh
offer on exactly the same term as in the original telex offer. As there was no evidence
to indicate this, the receipt with the endorsement stating that the sum of RM47,000
was received, by itself, would not be sufficient evidence that a fresh offer had been
made.
Stevenson v McLean [1880] 5 QBD 346
On Saturday M made an offer to S to sell certain iron “at 40s nett cash per ton, open
till Monday”. In reply on Monday at 9.42 am, S sent a telegram to M, “Pls wire
whether you will accept 40 for delivery over two months, or if not, longest limit you
would give.” M did not reply. Accordingly at 1.34pm S sent another telegram to M
accepting the original offer made by M on the previous Saturday. At 1.25 pm M sent a
telegram to S advising him that the iron had been sold to a third party. S received the
telegram only at 1.46 pm. S sued M for breach of contract.
Issue : Did S’ telegram sent out on Monday at 9.42 am amounted to a counter offer? If
the answer is yes then it would amount to a rejection of M’s offer and an offer once
rejected could not be revived. If so S’ action would fail because there would be no
offer to accept.
Alternatively if S’ s telegram sent out on Monday at 9.42 am merely amounted to an
inquiry then S’s telegram sent out at 1.34 pm amounted to a legitimate acceptance of
M’s offer and M had breached a valid contract.
Held : S’s telegram was merely a request for further information and was not a counter
offer and it did not amount to a rejection of M’s offer. The subsequent telegram sent
out by S at 1.34 pm amounted to a valid acceptance. M in breach of contract.

3. Revocation -
S 5 (1) Contracts Act 1950 - A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not
afterwards.

ILLUSTRATION
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.
B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.

Payne v Cave
Defendant bid £40 for goods that were being auctioned but before it could be knocked
down to him, he withdrew his bid.
Held: he could do this as the bid was only an offer and could be revoked anytime
before acceptance (fall of hammer).

Routledge v Grant (1828) 4 Bing 653

Defendant offered to buy plaintiff’s house and gave the plaintiff 6 weeks to think
about it. Before the 6 weeks were up, the defendant revoked his offer. Plaintiff sued.
Crt: Defendant could revoke his offer during the 6 weeks as it had not been accepted.
S 6 Contracts Act 1950 (a) - A proposal is revoked by the communication of notice of
revocation by the proposer to the other party
Byrne v Van Tienhoven (1880) 5 CPD 344
On 1st October, the defendant offered by letter goods for sale to B. On 11th, B
received the letter and accepted by telegraph immediately. On 8th, defendant wrote
to B revoking the offer. On 20th, B received the letter of revocation.
Revocation was inoperative until communicated. The revocation of an offer was not
communicated by the mere posting of a letter. Therefore, the plaintiff’ acceptance on
the 11th could not be affected.

An offer can be revoked at any time before acceptance even if a time period is given for
acceptance unless the offeree has paid consideration to keep the offer open.
Dickinson v Dodds (1876) 2 Ch D 463
On 10th June, Dodds offered to sell Dickinson certain premises, stating that this offer
would remain open until 9am on June 12th. On 11th June, Dodds sold the property to
a 3rd person without notice to Dickinson. But Dickinson was actually informed of the
sale by someone else (reliable source). Nevertheless he proceeded to give notice
before 9am on the 12th that he accepted the offer to sell.
Held : There was no contract. It was stated that a promise to hold an offer open could
not be binding and that any moment before completed acceptance, one party was as
free as the other. Unless the promise to keep the offer open for a stated period of time
is supported by consideration, the offeror is free to revoke the offer at any time before
acceptance. There is no requirement for there to be an express or actual withdrawal of
the offer.

What about the revocation of an offer which is to be accepted by the performance of an

act e.g. in unilateral contracts?
There is a long standing authority that an offer cannot be revoked once performance has
commenced.
McPherson J said in the case of Veivers v Cordingly [1989] 2 QdR 278 that acceptance
takes place when the offeree elects to do the relevant act and the offer becomes
irrevocable once the act or acts have been partly performed.
But in the recent case of
Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd (1998) 153 ALR 198
An offer requiring acceptance by performance of a particular act could be revoked, but
that such revocation could give rise to a claim for breach of an implied promise not to
revoke. The importance of such an analysis is that the damages to which the offeree is
entitled will be the loss of the opportunity to obtain the contract, and not necessarily
loss of the contract itself. This distinction will be critical where performance of the
requested act by the offeree would not necessarily lead to the offeree obtaining the
contractual benefits.

In unilateral offers to the public at large it is more difficult but it has been said that the
offeror should use the same medium to convey the revocation. No Australian cases but
there is an American authority.
Shuey v U.S. [1875] 92 US 73
A proclamation dated 20th April 1865 had been published offering a reward of $25000
for the arrest of a certain criminal. On 24 November 1865 a notice revoking the reward
was published. In 1866 P discovered the criminal and informed the authorities. He was
not aware of the revocation of the offer of a reward.
Held: P had not actually apprehended the criminal as required by the terms of the
offer. An offer made by advert in a newspaper could be revoked by a similar advert
even though the second advert was not read by some of the offerees. P ought to know
that an offer of reward which was not made to him directly and specifically but by
means of a public proclamation can also be revoked in the same manner in which the
offer was made. There was no evidence to suggest that on the facts P had started
performance before the revocation of the offer.

4. Lapse of Time
S 6 (b) Contracts Act 1950 - A proposal is revoked by the lapse of the time prescribed in
the proposal for its acceptance, or, if no time is so prescribed, by the lapse of a
reasonable time, without communication of the acceptance.

The general rule is an offer will lapse if it is not accepted within a specified time or if no
time is specified, within a reasonable time. What is reasonable time is a question of facts
depending on the particular facts of the case.
Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 Ex 109
M applied for shares in Ramsgate Victoria Hotel Co Ltd in June and paid a deposit
thereon at the time of his application. In November of the same year he was advised
that the shares had been allotted to him and that the balance due on them was now
payable. M refused to accept the shares and was sued by the company.
Held: M was entitled to refuse the shares because his offer had not been accepted
within a reasonable time.

5. Failure of Condition Precedent

S 6 (c) Contracts Act 1950 - A proposal is revoked by the failure of the acceptor to fulfill a
condition precedent to acceptance.
Ex: Fail to get approval of Authority to buy house.

6. Death
S 6 (d) Contracts Act 1950 A proposal is revoked by the death or mental disorder of the
proposer, if the fact of his death or mental disorder comes to the knowledge of the
acceptor before acceptance.

Fong v Cilli (1968) 11 FLR 495 –

Vendor and one of 2 purchasers signed a contract. Before the other purchaser could
sign, the vendor died. The other purchaser still signed the contract. Purchasers tried to
enforce the contract against the vendor’s estate but failed because the offer lapsed
upon the vendor’s death and purchaser was aware of the death.
Where the offeree has no notice of the offeror's death, there can be a valid contract
which can be enforced against the offeror’s estate.
Bradbury v Morgan (1862) 1 H & C 249; 158 ER 877
Leigh requested the plaintiff to give his son a loan to which he will guarantee the
repayment. The plaintiff’s gave the loan and continued to give even when Leigh died.
Plaintiff did not know about the death. The son defaulted and the plaintiff sought to
enforce the guarantee against Leigh’s estate.
Crt; Estate liable. Guarantee continues until plaintiff had notice of the death.

The Contracts Act is silent on the death of the offeree. Common law position – only an
offeree can accept an offer unless the offer is not of a personal nature.
Acceptance

S 2(b) Contracts Act 1950 - when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes
a promise;

S 7 Contracts Act 1950 - In order to convert a proposal into a promise the acceptance
must—
(a) be absolute and unqualified;
(b) be expressed in some usual and reasonable manner, unless the proposal prescribes
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 that 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.

Method of Acceptance -
Ho Kham Phaw v Fam Sin Nin [1998] 2 MLJ 713,
“Method must generally be complied with. An offer which requires the acceptance to
be expressed or communicated in a certain way can generally be accepted only in that
way."

Terms of Acceptance -
The terms of the offer must be accepted without the offeree changing them or trying to
introduce new terms. The offeree must be aware of the terms of the offer and must be
agreeing to those exact terms. An offeree cannot accept an offer of which he has no
knowledge of -
R v Clarke (1927) 40 CLR 227 (CB 63)
A reward was offered by the government ‘for such information that will lead to the
arrest and conviction of the person who committed the murders of 2 police officers.
Starke J: “unless a person performs the conditions of the offer acting upon its faith
or in reliance on it, he does not accept the offer and the offeror is not bound to him.”
.

Communication of Acceptance –
S 3 Contracts Act 1950 The communication of proposals, the acceptance of proposals,
and the revocation of proposals and acceptances, respectively, are deemed to be made
by any act or omission of the party proposing, accepting, or revoking, by which he
intends to communicate the proposal, acceptance, or revocation, or which has the effect
of communicating it.

S 4(2) Contracts Act 1950 The communication of an acceptance is complete—

(a) as against the proposer, when it is put in a course of transmission to 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.

Acceptance must generally be communicated to the offeror to be effective. It must come

to the notice of the offeror. The offeree in the case of acceptance is not bound until the
offeror receives the acceptance.

Powell v Lee
Plaintiff applied to be headmaster. School decided to appoint but did not
communicate this to him. Someone else not authorised informed him. The school
changed their mind about appointing him. He sued.
Crt: No valid acceptance by school. Communication of acceptance by a person not
authorised.

Silence is not a mode of acceptance -

Felthouse v Bindley (1862) 11 CBNS 869
F offered by letter to buy his nephew’s horse for $30.15, adding “If I hear no more
from him, I shall consider the horse mine at $30.15”. No answer was returned to this
letter but the nephew told B, an auctioneer, to keep the horse out of a sale of his farm
stock, as he intended to reserve it for his uncle. B sold the horse by mistake and F
sued him for conversion of his property.
Held: As the nephew had never signified to F his acceptance of the offer before the
auction sale took place, there was no bargain to pass the property to F.

Brogden v Metropolitan Railway Company [1877] 2 AC 666

Brogden was a colliery owner in Wales. He supplied the Metropolitan Railway
Company (Railway) with coal. In November 1871 a representative of Brogden
suggested that a contact should be entered into. Representatives of each side met and
prepared a draft agreement that referred to quantities, quality, price and other
matters. The draft was prepared by the representative of Railway, who handed it to
the representative of Brogden for approval. He filled in some parts and returned to
Railway, the expectation being that a more formal document would be prepared in
duplicate for execution. This never happened, but the parties continued to do business
on the new terms until December 1873, when Brogden declined to continue to supply
on that basis. Railway brought action for breach of contract by Brogden.
Held - The parties were clearly headed for contract. It would be very strange if, having
got to this point, nothing further was done. In fact, more was done. Railway
commenced placing orders in terms of the contract, and Brogden commenced to fulfil
orders and charge accordingly, maintaining the fixed price and agreed add-ons.
Correspondence refers to a "contract", and the whole attitude is that both are bound
to performance. Thus there was consensus.
Instantaneous Communication -
Communication of an acceptance can be Instantaneous via fax, telex, SMS.
The general rule acceptance via instantaneous mode of communication takes place
when the offeree actually receives the letter of acceptance. If the acceptance
is sent during office hours the offeree has the right to assume that the
machine will be attended to. If both parties are from different countries then
the law of the country where the acceptance is received by the offeror will be
applied.
Entores v Miles Far East Corporation [1955] 2 QB 327 CA
P in London made on offer by telex to defendant in Amsterdam. D sent a letter of
acceptance from Amsterdam which was received by P’s machine in London. Issue :
where was the contract concluded?
Held :The contract had been made in London where the letter of acceptance was
received.
Lord Wilberforce - “ Since 1955 the use of telex communication has been greatly
expanded and there are many variants on it. The senders and recipients may not be
the principles to the contemplated contract. They may servants or agents with limited
authority. The message may not reach or be intended to reach the designated
recipient immediately. Messages may be sent out of office hours or at night with the
intention or upon the assumption that they will be read at a later time. There may be
some error or default at the recipient’s end which prevents receipt at the time
contemplated and believed in by the sender. The message may have been sent and/or
received through machines operated by third persons. And many other variants may
occur. No universal rule can cover all such cases: they must be resolved by reference to
the intention of the parties, by sound business practice and in some cases by a
judgment where the risks should lie…”

Communication by Post -
See S 4(2) Contracts Act 1950 The communication of an acceptance is complete—
(a) as against the proposer, when it is put in a course of transmission to 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.

ILLUSTRATIONS
(a) A proposes, by letter, to sell a house to B at a certain price. The communication of the
proposal is complete when B receives the letter.
(b) 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.

Acceptance by Performance
S 8 Contracts Act 1950 Performance of the conditions of a proposal, or the acceptance
of any consideration for a reciprocal promise which may be offered with a proposal, is an
acceptance of the proposal.

Revocation of Acceptance
S 5(2) Contracts Act 1950 An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor, but not
afterwards.

ILLUSTRATION
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.
B may revoke his acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.
Consideration
Common Law Definitions -

 An act or forbearance of one party, or the promise thereof, is the price for
which the promise of the other is bought, and the promise thus given for
value is enforceable - Winfield, editor, 1950, Pollock's principles of contract,
13th edition, page 133.
 It involves an exchange of promises.
 Consideration then is the price paid by each party for the promise of the other or
in a unilateral contract an act is given as the price of or in exchange for the
promise. Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
[1915] AC 847
 ‘…some right, interest, profit or benefit accruing to one party or some
forbearance, detriment, loss or responsibility given, suffered or undertaken
by the other’ Currie v Misa (1875)

S 2(d) Contracts Act 1950 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 promises to
do or to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise;

S 26 Contracts Act 1950 An agreement made without consideration is void, unless—

it is in writing and registered
(a) it is expressed in writing and registered under the law (if any) for the time being in
force for the registration of such documents, and is made on account of natural love and
affection between parties standing in a near relation to each other;
or is a promise to compensate for something done
(b) it is a promise to compensate, wholly or in part, a person who has already voluntarily
done something for the promisor, or something which the promisor was legally
compellable to do;
or is a promise to pay a debt barred by limitation law
(c) it is a promise, made in writing and signed by the person to be charged therewith, or
by his agent generally or specially authorized in that behalf, to pay wholly or in part a
debt of which the creditor might have enforced payment but for the law for the
limitation of suits.
In any of these cases, such an agreement is a contract.

Explanation 1—Nothing in this section shall affect the validity, as between the donor and
donee, of any gift actually made.
Explanation 2—An agreement to which the consent of the promisor is freely given is not
void merely because the consideration is inadequate; but the inadequacy of the
consideration may be taken into account by the court in determining the question
whether the consent of the promisor was freely given.
ILLUSTRATIONS
(a) A promises, for no consideration, to give to B RM1, 000. This is a void agreement,
(b) A, for natural love and affection, promises to give his son, B, RM1, 000. A puts his
promise to B into writing and registers it under a law for the time being in force for the
registration of such documents. This is a contract.
(c) A finds B’s purse and gives it to him. B promises to give A RM50. This is a contract.
(d) A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a
contract.
(e) A owes B RM1,000, but the debt is barred by limitation. A signs a written promise to
pay B RM500 on account of the debt. This is a contract.
(f) A agrees to sell a horse worth RM1,000 for RM10. A’s consent to the agreement was
freely given. The agreement is a contract notwithstanding the inadequacy of the
consideration.
(g) A agrees to sell a horse worth RM1,000 for RM10. A denies that consent to the
agreement was freely given. The inadequacy of the consideration is a fact which the
court should take into account in considering whether or not A’s consent was freely
given.

Unlawful Consideration -
S 24 Contracts Act 1950 The consideration or object of an agreement is lawful, unless—
(a) it is forbidden by a law;
(b) it is of such a 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; or
(e) the court regards it as immoral, or opposed to public policy.
In each of the above cases, the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful is void.

ILLUSTRATIONS
(a) 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 the RM10,000. These are lawful
considerations.
(b) A promises to pay B RM1,000 at the end of six months, if C, who owes that sum to B,
fails to pay it. B promises to grant time to C accordingly. Here the promise of each party
is the consideration for the promise of the other party, and they are lawful
considerations.
(c) A promises, for a certain sum paid to him by B, to make good to B the value of his ship
if it is wrecked on a certain voyage. Here A’s promise is the consideration for B’s
payment, and B’s payment is the consideration for A’s promise, and these are lawful
considerations.
(d) A promises to maintain B’s child, and B promises to pay A RM1,000 yearly for the
purpose. Here the promise of each party is the consideration for the promise of the other
party. They are lawful considerations.
(e) A, B and C enter into an agreement for the division among them of gains acquired, or
to be acquired, by them by fraud. The agreement is void, as its object is unlawful.
(f) A promises to obtain for B an employment in the public service, and B promises to pay
RM1,000 to A. The agreement is void, as the consideration for it is unlawful.
(g) A, being agent for a landed proprietor, agrees for money, without the knowledge of
his principal, to obtain for B a lease of land belonging to his principal. The agreement
between A and B is void, as it implies a fraud by concealment, by A, on his principal.
(h) A promises B to drop a prosecution which he has instituted against B for robbery, and
B promises to restore the value of the things taken. The agreement is void, as its object is
unlawful.
(i) A’s estate is sold for arrears of revenue under a written law, by which the defaulter is
prohibited from purchasing the estate. B, upon an understanding with A, becomes the
purchaser, and agrees to convey the estate to A upon receiving from him the price which
B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by
the defaulter, and would so defeat the object of the law.
(j) A, who is B’s advocate, promises to exercise his influence, as such, with B in favour of
C, and C promises to pay RM1,000 to A. The agreement is void, because it is immoral.
(k) A agrees to let her daughter to hire to B for concubinage. The agreement is void,
because it is immoral, though the letting may not be punishable under the Penal Code.

Heng Yea Lee & Anor v. Cheah Cheng Lan [2007] 3 CLJ 16
To decide if s 24(a) makes a contract illegal and unenforceable in connection with a
statute, and this bears repeating, one must find out first if the statute prohibits or
forbids the act which the parties have contracted to do by the contract in question,
and not whether the statute prohibits the contract or the making of the contract in
question by the parties. This difference is real, though very subtle (emphasis ours).

S 25 Contracts Act 1950 If any part of a single consideration for one or more objects, or
any one or any part of any one of several considerations for a single object, is unlawful,
the agreement is void.
ILLUSTRATION
A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal
traffic in other articles. B promises to pay to A a salary of RM10,000 a year. The
agreement is void, the object of A’s promise and the consideration for B’s promise, being
in part unlawful.

Sufficiency of Consideration –
Consideration must be sufficient but need not be adequate unless the inadequacy of the
consideration is agreed by the parties.
See Explanation 2 and Illustration (f) of s 26.

Chappel v Nestle [1960] AC 87

Chappell owned the copyrights in a piece of music called “Rocking Shoes”. Nestle
offered record for 75Pence to the public provided whoever should send in a postal
order of 75P must enclose 3 pieces of candy wrappers of Nestle milk chocolate. When
the wrappers came to Nestle, they were thrown away. Nestle offered to pay Chappell
royalty of 6.5 % of “the ordinary retail selling price” based on S.8 of the Copyright Act
1956 which permits the making of records of a musical work provided the maker of
the copyright prior notice and pays a royalty of 6.5 % of the ordinary retail selling
price. Chappell argued that Nestle could not rely on this section since S 8
contemplated a price consisting of money alone, whereas D was selling the record at
the cash price of 75 P plus the price of three chocolate bars represented by the 3
wrappers. The 3 wrappers should be considered as part of the “retail selling price”.
HL - 3 wrappers form part of the consideration. The object of requiring for wrappers to
be enclosed was to increase the sales of the chocolate bars.
Lord Somervell – “…a peppercorn does not cease to be good consideration if it is
established that the promisee does not like pepper and will throw away the corn.”

Thomas v. Thomas [1842] 2 QB 851

A dying man’s wish to his executors was that the wife should be allowed to live in his
house for so long as she wished and so long as she remained a widow. Acting on this
the executors promised the house to the widow in exchange for a promise by the
widow to pay £1 p.a. as ground rent and to maintain the property in good repair.
When one of the executors died, the other executor turned her out. She sued him for
breach of contract.
Court - The widow’s promise to pay £1 p.a. was consideration and sufficient although
it needs not be adequate.

Wisma Denmark Sdn Bhd v. Landcorp Finance Bhd [2008] 1 CLJ 704
The payment of RM1,100.00 by the Defendant do not form the required consideration
for the purchase of the properties worth more than RM150,000,000.00. The terms and
conditions of the Agreements are clearly imbalanced, the effect of the various above-
quoted provisions is that the Defendant would get the two properties belonging to the
Plaintiff with no cost at all except for the RM1,100.00 whereas the Plaintiff would be
deprived of both properties for a meagre RM1,100.00. In my view, that in itself shows
undue advantage and for want of consideration, I hold that the agreements are void
under s 26 of the Contracts Act 1950.

Natural love and affection is good consideration –

See s 26(a)

Consideration may be executed, executory but not past -

Executed consideration - The party already done what has been promised before the
contract.

Executory consideration - The consideration not given yet. Only the promises have
exchanged.
Past Consideration

Roscorla v Thomas [1842] 3 QB 234 –

A buyer buys a horse from a seller. After the sale the seller promises that the horse is
‘free from vice’. The horse was vicious. The buyer sued the seller for breach of promise
but did not succeed because there was no consideration provided for the promise.

Anderson v Glass (1868) 5 W, W & a’B 152

Glass promised his employee Anderson an increase in wages. The increase was to take
effect in the future but was backdated to a date before the promise.
Crt: The promise to pay increased wages for the future was enforceable but the
promise to backdate the wages was not enforceable because work was already done
and completed. Consideration was past and did not support the promise.

Past consideration is not good consideration unless it is at the request of the promisor.

Lampleigh v Braithwaite [1615] 80 ER 255 –

B convicted for murder. He asked L to do what he could to get him a pardon from the
King. L, acting on B’s request got him the pardon, incurring expenses in the process.
After that, B promised to pay L £100 but did not pay him. L sued. Court decided that L
could recover because there was request from B and L acted on that request. The
promise made was all to be considered as one transaction.

Re Casey’s Patents (1892) 1 CH 104

Members of the Stewart family, who jointly owned certain patent rights agreed to give
Casey a one-third share of the patents in consideration of services provided by Casey
in developing these patents.
Subsequently the Stewarts sought to have the agreement cancelled. They argued that
their promise to give the share of the patents was not binding because it was made in
respect of services already rendered. The promise therefore was supported by past
consideration which in fact was no consideration at all.
CA: rejected Stewarts’ argument. Bowen LJ effectively said that the fact of a past
service raises an implication that at the time it was rendered it was to be paid for. The
promise to pay made after services had been rendered may be treated either as an
admission that such services must be paid for, or as a positive bargain which fixes the
reasonable payment on the faith of which the service was originally rendered. S must
assign the share to Casey.

Forbearance to sue –
A promise to forbear to sue or actual forbearance is good consideration.
If someone has a right of action against the other and he promises the other that he
would not sue and make a valid claim against him in return for his promise or act, such a
promise is sufficient consideration to enforce the promise made by the promisor. Policy
reason: to avoid litigation and to encourage disputing parties to compromise and settle
out of court.
Wigan v Edwards (1973) 47 A.L.J.R. 586
The plaintiffs agreed to buy a house from the defendants for $15,000. Before
settlement, the plaintiffs said they had found defects and were not going to pay the
balance until defects were rectified. On the defendants promise to rectify, the
plaintiffs paid the balance. The plaintiffs later brought this action claiming damages for
defects not put right by the defendants. Defendant claimed there was no
consideration for his promise to repair the defects.
HELD Mason J : The general rule is that a promise to perform an existing duty is no
consideration. The defendants were therefore contractually bound to correct the
defects.

Payment of a lesser sum –

S 64 Contracts Act 1950 Every promisee may dispense with or remit, wholly or in part,
the performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit.
ILLUSTRATIONS
(a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer
bound to perform the promise.
(b) A owes B RM5, 000. A pays to B, and B accepts, in satisfaction of the whole debt,
RM2, 000 paid at the time and place at which the RM5,000 were payable. The whole
debt is discharged.
(c) A owes B RM5,000. C pays to B RM1,000 and B accepts them, in satisfaction of his
claim on A. This payment is a discharge of the whole claim.
(d) A owes B under a contract, a sum of money, the amount of which has not been
ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction
thereof, accepts the sum of RM2,000. This is a discharge of the whole debt, whatever
may be its amount.
(e) A owes B RM2,000, and is also indebted to other creditors. A makes an arrangement
with his creditors, including B, to pay them a composition of fifty cents in the dollar upon
their respective demands. Payment to B of RM1,000 is a discharge of B’s demand.

Kerpa Singh v Bariam Singh [1966] 1 MLJ 38

Estoppel –
Equitable principle. Where one party makes a representation to another intending it to
be acted on, and once the other party acts on it to his detriment, the party who made
the representation cannot go back on his word. No need for consideration.

Hughes v Metropolitan Railway Co (1877) 2 App. Cas. 439 -

In October 1874, the landlord gave his tenant 6 months notice to repair the premises.
If the tenant failed to comply, the lease could be forfeited. In November, the landlord
started negotiations with the tenant for the sale of the reversion and indicated that
repairs would not effected while negotiations continued, but these were broken off on
31st Dec.
Meanwhile, the tenant had done nothing to repair the premises. On expiry of 6
months notice from the date of the original notice, the landlord claimed to treat the
lease as forfeited & brought an action of ejection.
HL: The tenant was entitled to equitable relief. The opening of negotiations amounted
to a promise by the landlord, as long as they contract, he would not enforce the notice
& it was in reliance upon this promise that the tenant did not repair the premise. The
6 month period was suspended during negotiations and only recommenced when the
negotiations broke down.

Lord Cairns stated the principle of promissory estoppel as follows :

(i) If parties who have entered into definite & distinct terms involving certain legal
results- certain penalties or legal forfeiture- afterwards by their own act or with
their own consent enter upon a course of negotiations;

(ii) which has the effect of leading one of the parties to suppose that the strict legal
rights arising under the contract will not be enforced or will be kept in suspense,
or held in abeyance;

(iii) the person who otherwise might have enforced those rights will not be allowed
to enforce them where it would be inequitable having regard to the dealings
which have thus taken place between the parties.

Boustead Trading (1985) Sdn Bhd v Arab Malaysian Merchant Bank Bhd [1995] 3 AMR
2871
Federal Court held: The doctrine of estoppel is a flexible principle by which justice is
done according to the circumstances. It is a doctrine of wide utility and has been
resorted to in varying fact patterns to achieve justice. The maxim 'estoppel may be
used as a shield but not a sword does not limit the doctrine of estoppel to defendants
alone. Plaintiffs too may have recourse to it. Estoppel may assist a plaintiff in enforcing
a cause of action by preventing a defendant from denying the existence of some fact
which would destroy the cause of action.
Even though estoppel was not pleaded as required under Order 18 rr 7(1) and 8(1) of
the Rules of the High Court 1980, the material facts giving rise to the estoppel were
sufficiently pleaded without actually using the term 'estopped'. Furthermore,
considerable evidence on the point was led at the trial by the respondent without
objection from the appellant.
A court may permit a litigant to argue an unpleaded estoppel if it is in the interest of
justice to do so. It is a matter within the discretion of the judge who must have due
regard to all the circumstances of the case, including any prejudice that may be caused
by the affected party being taken by surprise. Nevertheless, such departures should
rarely be permitted, for otherwise, the rule that a party is bound by its pleadings will
be rendered meaningless.

Intention to Create Legal Relations

There is no contract unless the parties to the agreement enter into the contract with the
intention to be legally bound and for their agreement to attach with it legal
consequences. Mere exchange of promises is not enough to form a contract. Even if
there is an offer, acceptance and consideration, the absence of an intention makes it an
unenforceable contract.

Whether or not parties intended to enter into a legally binding agreement would
determined objectively i.e. whether or not reasonable parties to such an agreement
would have intended to create legal relations.

2 types of agreements –
Social and domestic agreements -
It is presumed that there is no intention to create legal relations.
E.g. agreements between, parent and child and husband and wife, close friends.

Balfour v Balfour (1919) 2 KB 571

D was a civil servant stationed in Ceylon. D and his wife, P, came to England on leave.
When D’s leave was over D went back to Ceylon but P had to stay back in England on
the doctor’s advice. D promised to pay her £30 per month. D did not keep his promise
and P sued him.
CA held : there was not contract between them since they did not intent that the
agreement should be attended by legal consequences.
Atkin LJ’s judgment seemed to rest on policy concerns. Domestic agreements are
outside the jurisdiction of the courts or else the courts would be flooded with these
sort of cases if allowed to be litigated in the courts.
.
This is merely a presumption which can be rebutted.

Merritt v Merritt (1970)1 WLR 1121

H left his wife and went off to live with another woman. W pressed H to make
arrangements for the future. Both met and talked the matter over and H made certain
oral promises to her and on her insistence, he wrote and signed and dated these
notes: “in consideration of the fact that you will pay all charges in connection with the
house – until such time as the mortgage repayment has been completed, I will agree to
transfer the house to your sole ownership.” W paid for the mortgage but H refused to
transfer the house to her. W sued D for a declaration.
CA held : A declaration would be made that the wife is now the sole beneficial owner
of the house. Balfour v Balfour does not apply because the principle only applies if the
agreement between H and W was made when both were amicable to each other.
Wakeling v Ripley (1951) 51 SR (NSW) 183
Elderly man invited his sister and her husband to come live with him in Australia until
his death. He will provide them with an income and leave them his property when he
dies. The husband gave up his job and they moved to Australia. Dispute arose. Courts
found in favour of the sister and her husband. There was something more than a mere
family or social arrangement. A consideration was the fact that the husband gave up
his job to move

Business/Commercial Agreements –
There is a presumption that the parties intended to enter into legal relations unless
specified otherwise or rebutted.

Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256

D had made some extravagant claims in an advertisement about the efficacy of their
smoke ball in preventing influenza. D supported their claims with a promise to pay
£100 to anybody who used it and yet caught influenza within a given period. D also
stated that in order “to show their sincerity” D had deposited £1000 with their
bankers. P bought the smokeball, used it and caught influenza. D argued that the
advertisement was a “mere puff” and was not intended to create any legal relations.
CA held: The bank deposit was strong evidence that the defendant had contemplated
legal liability when they issued their advertisement.

Rebuttal –
A comfort letter which is a letter of assurance from one party that sufficient financial
means will be available to meet liabilities in a loan application has the ability to displace
the presumption that business persons intend to create legal relations.

Kleinwort Benson Ltd v Malaysia Mining Corporation Berhad (1989) 1 WLR 379
P which is a bank agreed to make available a loan facility to D. During the negotiations
both parties had not agreed upon any security for the loan but D provided a “letter of
comfort” which reads “It is our policy to ensure that the business is at all times in the
position to meet its liabilities to you under the above arrangements.” D later went into
liquidation without paying its debt to P. P sued.
CA held : P’s action would fail on the grounds that no contractual promise had been
made based on the correct construction of the above quoted sentence. Such a
sentence expressly displaced any presumption of contractual intention.
Capacity – Minors
s 11 Contracts Act 1950 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.

S 2 Age of Majority Act 1971 Subject to section 4, the minority of all males and females
shall cease and determine within Malaysia at the age of eighteen years and every such
male and female attaining that age shall be of the age of majority.

S 4 Age of Majority Act 1971 Nothing in this Act shall affect—

(a) the capacity of any person to act in the following matters, namely, marriage, divorce,
dower and adoption;
(b) the religion and religious rites and usages of any class of persons within Malaysia;

The general rule under Malaysian law is that a contract entered into by a minor (i.e.
person who has not attained the age of 18 years) is void. However, this general rule that
minors cannot validly enter into a contract is subject to a number of exceptions as
follows:

(i) Marriage contracts – see S 4 Age of Majority Act 1971

(ii) Contracts for necessaries

S.69 Contracts Act 1950 states, ‘If a person, incapable of entering into a contract, or
anyone whom he is legally bound to support, is supplied by another person with
necessaries suited to his condition in life, the person who has furnished such supplies is
entitled to be reimbursed from the property of such incapable person’.
There is no statutory definition of what amounts to necessaries. the word ‘necessaries’
must be construed broadly and in so interpreting, a court would have regard to the facts
of the case, the conditions and the circumstances in which the goods were supplied. The
legal definition is thus wider that bare essentials of life and includes goods and services
reasonably necessary to the minor’s actual requirements such as food, shelter, clothing,
medical services. However, these must be tested against the minor’s station in life. Thus
what may constitute ‘necessaries’ may vary according to the position of the minor. The
test is to look at the nature of the goods or services supplied, the minor’s actual needs
and his station in life.– Govt of Malaysia v Gurcharan Singh (1971).

(iii) Scholarship agreements

By virtue of the Contracts (Amendment) Act 1976, scholarship agreements between a
minor and an ‘appropriate authority’ cannot be invalidated on the ground of his
minority. Appropriate authority refers to the Federal Government, State Government,
statutory authority or an educational institution, e.g. university.
Govt of Malaysia v Gurcharan Singh (1971)
Gurcharan Singh was given a scholarship to pursue teacher’s training in the UK. He was
required to work for the govt for 5 years on his return. He worked for 3 years. Govt
claimed compensation of RM11,500. Gurcharan claimed he was a minor at the time
contract was entered into and contract is void.
Court: contract was void since he was a minor but since they were for necessaries, he
had to pay for them.
This is now corrected by s 4 Contracts (Amendment) Act 1976 - No scholarship
agreement shall be invalidated on the ground that the scholar entering into such
agreement is not of the age of majority.

s 5 of the Contracts (Amendment) Act 1976 provides Where a scholarship agreement

has been broken by the scholar, if a sum is named in the agreement as the amount to be
paid in case of such breach, notwithstanding anything to the contrary contained in the
Contracts Act 1950, the scholar and the surety shall be liable jointly and severally to pay
and the appropriate authority shall be entitled to be paid the whole of such named sum
whether or not actual damage or loss has been caused by such breach, and no
deduction shall be made from the said named sum on account of any partial period of
service performed by the scholar on completion of his course of study.

(iv) Contracts of insurance

By virtue of s.153(1) Insurance Act 1996, a minor may enter into a contract of insurance,
if he is aged above 10 years. However, if he is below 16 years, he has to have the consent
of his parent or guardian.

(v) Employment Contracts

Under s 13 Children & Young Persons (Employment) Act 1966 any child (below the age
of 14) and any young person (between the ages of 14 and 16) is competent to enter into
contracts of service.

Effect -
S 66 Contracts Act 1950 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.

ILLUSTRATIONS
(a) A pays B RM1,000 in consideration of B’s promising to marry C, A’s daughter. C is
dead at the time of the promise. The agreement is void, but B must repay A the
RM1,000.
(b) A contracts with B to deliver to him 250 gantangs of rice before the 1st of May. A
delivers 130 gantangs only before that day, and none later. B retains the 130 gantangs
after the 1st of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two
nights in every week during the next two months, and B engages to pay her RM100 for
each night’s performance. On the sixth night A willfully absents herself from the theatre,
and B, in consequence, rescinds the contract. B must pay A for the five nights on which
she had sung.
(d) A contracts to sing for B at a concert for RM1,000, which are paid in advance. A is
too ill to sing. A is not bound to make compensation to B for the loss of the profits which
B would have made if A had been able to sing, but must refund to B the RM1,000 paid in
advance.,