This report mainly will talk about the elements of a valid contract, factors causing a contract to be voidable, types of void contract with its effects, relevant definitions, decided cases and relevant provisions under the contract Act 1950. The purpose of this report is to develop the learners’ ability to analyze elements in the formation of a contract using legal provisions and decided cases.

The first part of this report will give an introduction covering the meaning of contract with reference to the Contract Act 1950 and examples.

The second part will give definition of contract and elements of a valid contract covering offer, acceptance, consideration, capacity to contract, intention to create legal relations, certainty, free consent and valid object. In addition to this the other important parts like revocations and decided cases will be discussed.

The third part will give the definition of a voidable contract, decided cases and the factors causing a contract to be voidable like coercion, undue influence, fraud, innocent misrepresentation and mistake.

The fourth part will talk about the definition of void contract, types of void contracts including agreements which contravene the law, contracts in restraint of trade and contracts in restraint of legal proceedings. In addition to this the decided cases and effects of void contracts will be discussed. Finally a conclusion of this report will be given.

2.0 Introduction

Every day we enter into contracts by orally when we travel or when we buy products from shops. In certain situations we need to have a written contract such as when purchase a business. The successes of businesses depend on the fulfillment of the contracts we made. The law of contracts guarantees the performance of contracts. Therefore, the law of contracts is fundamental to existence of the business world.

The purpose of this assignment is to develop the ability to analyze the elements in the formation of a contract using legal provisions and decided cases. This assignment will talk about the definition of contract, elements of a valid contract, factors causing a contract to be voidable, the definition void contract and types of void contracts with the effects by applying the decided cases and relevant provisions under the Contract Act 1950.

2.1 Definition of Contract

According to Contracts Act 1950 section 2(h) says, “An agreement enforceable by law is a contract”. The s. 2(g) says “an agreement not enforceable by law is said to be void”. The s. 2(b) says “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”. According to s. 2(C), “all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”. Section 2(e) says “every promise and every set of promises, forming the consideration for each other, is an agreement”.

Therefore, all contracts are agreements but not all agreements are contracts and if the agreement is not enforced by law will be invalid. The agreement will be made when one person offers a proposal and other person accepts it. The agreement will be also made if both parties have free consent to make an agreement for lawful considerations and objects. For instance, a contract will be made, if Ali offers a car for $5000 and Hassan agrees to pay $5000.

The two parties in the contract are promisor and promisee. According to s. 2(C), promisor is the person who makes the proposal and promisee is the person who accepts the proposal. The contracts can be made in different ways. The s. 10(2) says that contract need not be in writing but it can be made in presence of witnesses and by registration of documents.

3.0 Elements of valid a contract

3.1 Offer

Contract Act 1950, s 2(a) says “when a person signifies to another his willingness to do or to abstain from doing anything , with a view of abstaining his assent of that other to the act of abstinence, he is said to make proposal”. An offer is a situation when a proposal is made from one person to another with an intention to create legal relations. An offer must be certain, complete and final to avoid misunderstanding. If an offer is uncertain, the acceptance will definitely void. In the case of Guthing v Lynn – D (1831), it was held that the term ‘bring good fortune’ was too vague and the contract was void (Mohamed et al., 2011, p. 2-48).

Types of offer: Section 9 says that an offer may be express (made verbally or in writing) or implied (offer comes from one’s act or behavior) but offer can be a combination of both. In the case of Western Electric v Welsh Dev. Agency (1983), it was held that valid contract exist impliedly (Mohamed et al., 2011, p. 2-48).

An offer can be made to one person, a group or to the whole world. But every offer can be only accepted by certain people. In the case of Boulton v Jones (1857), it was held that Plaintiff cannot take action against Defendant because there is no contract between them. If an offer is made to a group of people, then only individuals within the group can make an acceptance. But, if an offer is made to the whole world as in the case Carlill v Carbolic Smoke Ball (1893), then anyone who knows about the offer can accept (Mohamed et al., 2011, p. 2-48).

Communication of an offer: Section 4(1) says that the communication of a proposal complete when it comes to the knowledge of the person to whom it is made. In the case of Taylor v Laird (1856), it was held that there was no valid contract between them because Plaintiff’s has not been communicating to Defendant (Mohamed et al., 2011, p. 2-48).

Revocation of offer and communication of revocation: Section 5(1) says “A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards”. There are 4 ways of revocation.

Section 6(a) says “a proposal is revoked by communication of notice of revocation by the proposer to the other party”. In the case of Byrne v Van Tienhoven (1880), it was held that a revocation letter send by the Defendant to Plaintiff is void because it arrives after Plaintiff made an acceptance. Section 6(b) says that offer is revoked by the lapse of time. In the case of Ramsgate Victoria Hotel Co. Ltd v Montefiore (1866), it was held that the offer is revoked since lapse of reasonable time. Section 6(c) says that offer is revoked if an offeree fails to fulfill a condition precedent to acceptance. In the case of Pym v Campbell (1865), it was held that an agreement to sell an intellectual property is made but with a condition that the property gains approval from a 3rd party. No contract exists if approval fails. In this case, offer and acceptance depends on term of getting third party’s approval. Section 6(d) says that offer is revoked if the offeror is dead or experience mental disorder before the acceptance. This was decided in the case of Bradbury v. Morgan (1862) (Mohamed et al., 2011, p. 2-48).

Invitation treat is not an offer but it is inviting to buy. The types of invitation treat are auction, advertisement and display of goods. An auction is only an invitation to treat, auctioneer has right to pull away any goods from auction at any time before any offer is accepted. The example case is Spencer v Harding (1870). In the case of Partridge v Crittenden (1968), it was held that advertisement in a newspaper is not an offer that can be accepted. It is merely an invitation to treat. In the case Carlill v Carbolic Smoke Ball co. (1893), it was held that the advertisement is indeed an offer because all the facts of an offer were present in this case and this is an exception to the general rule. In the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists ltd (1963), it was held that display of goods is only an invitation to treat (Mohamed et al., 2011, p. 2-48).

3.2 Acceptance

Section 2 (b) says “When the person to whom the proposal is made signifies his assent threto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise.” There are two terms of acceptance. Section 7 says “the acceptance must be absolute and unqualified”. The acceptor must accept the offer without any condition. In the case of Hyde v Wrench (1840), it was held that there was no valid contract since Plaintiff failed to fulfill the Defendant condition precedent. Section 7 also says that it should also be express in some usual and reasonable manner unless the proposal suggests the manner in which it is to be accepted.

The counter offer, cross offer and request for the clarification are not considered as acceptance for the offer. The example cases are Hyde v. Wrench (1840), Tinn v. Hoffman (1873) and Stevenson v. Mc Lean (1880) (Mohamed et al., 2011, p. 2-48).

Communication of Acceptance: Section 4(1) says that the communication of acceptance is completed when it come to the knowledge of the proposer. The communication of acceptance can be by the instantaneous method and post. In the case of Entores ltd v Miles Far East Corp (1955), it was held that the communication of acceptance was completed in London when the proposer received it. The contract was made in London. The instantaneous means of communication include telephone, telex and email. Section 4(2) and (b) says that communication of acceptance by post is complete as against the offeror. The acceptor is bound when the acceptance has reached the knowledge of the offeror (Mohamed et al., 2011, p. 2-48).

Time Limit for an Acceptance: In the case of Ramsgate Victoria Hotel Co. v. Montefiore (1866), it was held that the plaintiff had allowed too long a time to lapse before accepting defendant’s offer. Therefore, a reasonable time is allowed for acceptance.

Revocation of acceptance: Section 5(2) says “an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards”. Therefore, the promisee must communicate his revocation of acceptance to the proposer before the letter of acceptance reaches the proposer (Mohamed et al., 2011, p. 2-48).

Section 9 provides that the acceptance of any promise is made in words, the acceptance is said to be expressed. If the acceptance is made other than in words, the acceptance is said to be implied. In the case of Felthouse v Bindley (1826), it was held that there was no contract since there was no acceptance from the nephew. Therefore, silence does not amount to an acceptance even if the promisee wants to accept the proposal (Mohamed et al., 2011, p. 2-48).

3.3 Consideration

According to the s. 2(d), the consideration is the price which one party pays to buy the promise of the other. In the case of Phang Swee Kim v Beh I Hock (1964), it was held that the contract was valid and the consideration was adequate (Mohamed et al., 2011, p. 2-48).

The three types of considerations are executory, executed and past considerations. Executory consideration is a promise to do or to abstain from doing something. The section 24 illustrations (a) say that a promise to do something in future but the act was not perform yet. Executed consideration is offer of a reward for an act. For instance, Ali offers $500 to anyone who shall return his lost cat. Hassan found the cat and returns it to Ali. Hassan executed the consideration by returning the cat. Ali has to pay RM500 to Hassan. Past consideration is something wholly performed before the promise was made. According to s. 2(d) the meaning of past consideration is the phrases of “has done” and “abstained from doing”. The example case for past consideration is Kepong Prospecting ltd v Schmidt (1968).

Adequacy of consideration: In the case of Phang Swee Kim v Beh I Hock (1964), it was held that by virtue of s. 26 explanation (2) and illustration (f) the contract was valid and the consideration was adequate. Section 26 and illustration (f) says “A agrees to sell a horse worth RM1000 for RM10. A’s consent to the agreement was freely given. An agreement is a contract although the inadequacy of the consideration” (Mohamed et al., 2011, p. 2-48).

Payment of lesser sum: Section 64 says “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”. In the case of Kerpa Singh v Bariam Singh (1966), it was held that the consideration was valid since the A was given to choose either to cash or to return the cheque. Since he cashed the cheque, it means that he agreed to the condition. However, this is not the case in English law: Pinnel’s case (1602). It was held that payment of lesser sum is not a sufficient consideration.

Payment by 3rd party: Section 64 illustration (c) and s. 2(d) says that payment by 3rd party is a good consideration. In the case of Kerpa Singh v Bariam Singh (1966), the son paid his father’s debt and the court held that payment is a good consideration.

Performance of an Existing Duty: In the case of Collins v. Godefroy (1831), it was held that held that a person who received a subpoena to attend court is under the duty and bound to do so. However, if a promisee had done something over and above their legal duties, it would be considered a valid consideration. The example case is Glassbrook Brothers Ltd v Glamorgan County Council (1925). In the case of Stilk v. Myrick (1809), it was held that such a promise did not bind the ship captain as the crews were already bound in contract to ensure the ship would arrive safe to its specified destination (Mohamed et al., 2011, p. 2-48).

Agreement without Consideration: In the case of Macon Works & Trading Sdn. Bhd v. Phang Hon Chin & Anor (1976), the Court held that the option to purchase a piece of land was not valid due to lack of consideration. However, an agreement which lacks of consideration but falls under one of the exceptions in s. 26(a), (b) and (c) is deemed a valid and binding contract (Mohamed et al., 2011, p. 2-48).

3.4 Capacity to contract

Section 11 says that a person who is competent to enter into contract is the one who attain the age of majority, who is of sound mind, and not disqualified from contracting from any law to which he is subject.

Contract by minor: According to Age of Majority Act 1971, those 18 years and above has capacity to enter into a contract in Malaysia. Effect of contract by minor is void. Mohori Bibee v. Dharmodas Ghouse, Hereford J. said “The privy council have held that the effect of sections 10 and 11 of the Contract Act of India is that an infant cannot make a contract within the meaning of the Act, and that the contract made by infant is not only voidable but void…the decision of the Privy Council is binding on this court, and therefore there can be no doubt whatever that these transfers are void” (Mohamed et al., 2011, p. 2-48).

In the case of Rajeswary v. Balakrishnan& Ors (1958), it was held that the age of majority for entering into a marriage contract differed from other contracts entered into by a minor were not affected by the general rule (Mohamed et al., 2011, p. 2-48).

Contracts by minors are valid under the circumstances of contracts for necessaries, scholarships, insurance, apprenticeship contracts and marriage contracts. Contract for necessaries; s. 69 says “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”. Scholarships; Contracts Act 1976, s. 4 says “no scholarship agreement shall be invalidated on the ground that the scholar entering into such agreement is not of the age of majority”. Insurance; Insurance Act 1963 says “A minor over the age of 10 may enter into a contract of insurance but if he is under 16, the written consent of parent and guardian is needed”. Apprenticeship; the Children and Young Persons Act 1966 say that Child is a person below the age of 14, young person between the age of 14 and 16 (Mohamed et al., 2011, p. 2-48).

Sound mind: Section 12 says “A person is said to be of sound mind for the purpose of making the contract, if at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interest”. A person usually suffering from mental disorder may make a contract during those periods when he is sound. In the case of Imperial Loan Co. v. Stone (1892), shows that if a person of unsound mind wishes to make void a contract, he first needs to prove both conditions in s. 12(1). Section 12(3) says “A person, who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind” (Mohamed et al., 2011, p. 2-48).

3.5 Intention to create legal relations

Each party which enters into a contract must have the intention or purpose to create legal relations. Based on presumption of intention there are two types. They are social and domestic agreements and Business or commercial agreements.

Domestic agreements: Courts will presume that agreements between friends and family members are not intended to be legally enforceable. In the case of Balfour v Balfour (1919), it was held that the parties had not intended it to be legally binding and there is a presumption that domestic arrangements are not intended to finish up in court. The case of Roufos v Brewster (1971), it was held that it was a joint enterprise to which each contributed in the expectation of sharing any prize that was won and there was a contract.

Commercial agreements: Courts will presume that agreements arrived at in a commercial context are intended to be legally enforceable. In the case of Jones v Vernon’s Pools Ltd (1938), it was held that the relationship is clearly commercial, there is a presumption that the relationship is binding. However, the court held that the clause in the coupon was sufficient to rebut the presumption. Therefore, there was no contract between VP and the entrants. In the case of Esso Petroleum Ltd v Commissioners of Customs and Excise (1976), it was held that a contract for the supply of the coins existed. Everyone who purchased 4 gallons of Esso petrol had a contractual right to claim a ‘free’ coin. That is, E and the motorist who bought 4 gallons intended to create legal relations. The clause “subject to contract” usually indicates no intention to create legal relations (Mohamed et al., 2011, p. 2-48).

3.6 Certainty

A contract must contain conditions which are clear in meaning and not vague. Section 30 says that every term of an agreement must be certain if not, the contract may be void. In the case of Hillas & Co. Ltd v Arcos Ltd (1932), there was an agreement in writing for the wood during 1930, together with an option. There was a certainty apply in this case, because Hot Sellers Bhd agreed to sell and given a guarantee that the oven would have a temperature of not lower than 1500º c.

3.7 Free consent

Section 10(1) says “all agreements are contracts if they are made by free consent of parties competent to contract…” Section 13 elaborates it as “two or more person are said to consent when they agree upon the same thing in the same sense”. Hence, consent must be free.

Section 14 has listed 5 circumstances where consent given is to be said not be given freely. They are Coercion (S. 15), undue influence (S. 16), Fraud (S. 17), Misrepresentation (S. 18) and Mistake (S. 21, 22 & 23). In such cases the contract may be set aside by the court and declared the said contract either void or voidable which will be discussed later.

3.8 Valid Object

The object of the agreement must be lawful. In other words, it means that the object must not be; illegal, immoral and opposed to public policy. These will be discussed in detail in Void Contracts. Section 24 states that the consideration of an agreement is unlawful if falls within any of the subsections of the section 24. Based on the scenario of the case Hillas & Co. Ltd v Arcos Ltd (1932), there was validity. During the whole process, they were dealing in proper way and doing legal business which selling cooking oven.

4.0 Voidable Contracts

4.1 Definition

Section 2(i) says “an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract”. This means that the innocent party has right to make the contract void at any time but guilty party does not have this option. The s. 10 says “…agreements are contracts if they are made by the free consent of parties competent to contract…” According to the s. 13 the “consent” is “Two or more persons are said to consent when they agree upon the same thing in the same sense” (Mohamed et al., 2011, p. 49-68).

4.2 Factors causing a contract to be voidable

Section 14 says “Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake”. Section 20 says “consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused” Therefore coercion, undue influence, fraud, misrepresentation and mistake are the factors that will cause a contract to be voidable (Mohamed et al., 2011, p. 49-68).

Coercion: According to s. 15, coercion means “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”. The s. 15 explanation says “It is immaterial whether the Penal Code is or is not in force in the place where the coercion is employed” The threat amounting to coercion may be from a stranger to the contract (Mohamed et al., 2011, p. 49-68).

In the case of Kesarmal s/o Letchman Das v Valiappa Chettiar (1954), it was held that the transfer of land executed under the orders of the Sultan was voidable at the option of the party forced into giving his consent. In Chin Nam Bee Development Sdn. Bhd v. Tai Kim Choo & Ors (1988), it was held that the additional payment was not voluntarily made and ordered the appellants to refund the respondents (Mohamed et al., 2011, p. 49-68).

Effects of Contract Due to Coercion: Section 19(1) says “When consent to an agreement is caused by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused”. Section 65 specifies that when a person makes the option to void the voidable contract he must restore the benefit to the person affected. Section 73 provides that a person to whom money is paid under a voidable contract must repay or return it to the person he had coerced (Mohamed et al., 2011, p. 49-68).

Undue Influence: Section 16 says “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” Therefore, there are two elements that must be present for the contract to be categorized as one made under undue influence. They are the existence of a close relationship between the parties in which one of the parties was in a dominant position and the party who is in a dominant position made use of that position to obtain an unfair advantage over the other (Mohamed et al., 2011, p. 49-68).

Section 16(2b) says that a person is in a dominant position if he enters into a contract with a person whose mental capacity is affected by any illness. Section 16(2a) says that father does hold real or apparent authority over his son. Although a person may have been proven to be in a dominant position, the contract made is still valid if he did not use that position to gain unfair advantage over the other party (Mohamed et al., 2011, p. 49-68).

In the case of Raghunath Prasad v. Sarju Prasad AIR (1924), it was held that once an existence of undue influence is successfully proven, the burden of proving that the contract was not induced by undue influence is upon the person said to be in the position to dominate the will of the other. Section 16(3) states “the burden of proving that the contract was not induced by undue influence.” In the case of Salwath Haneem v. Hadjee Abdullah (1894), it was held that it was upon the two brothers to prove that the consent was voluntarily given without undue influence. They failed to do so and it was decided that the transfer must be set aside. In the cases of Chait Singh v. Budin bin Abdullah (1918) and Datuk Joginder Singh & Ors v. Tara Rajaratnam (1983), there were undue influences (Mohamed et al., 2011, p. 49-68).

Effects of Contracts Induced By Undue Influence: In the case of Letchemy Arumugan v. Annamalay (1982) and s. 20 say that contract with an element of undue influence will be a voidable contract (Mohamed et al., 2011, p. 49-68).

Fraud: The s. 17(a) says “the suggestion, as to a fact, of that which is not true by one who does not believe it to be true believe it to be true” The example case is Derry v. Peek (1889). The s. 17(b) says “the active concealment of a fact by one having knowledge or belief of the fact”. The s. 17(c) “a promise made without any intention of performing it” The s. 17(d) says “any other act fitted to deceive” The s. 17(e) says “any such act or omission as the law specially declares to be fraudulent” (Mohamed et al., 2011, p. 49-68).

Silence is Not Fraud: Illustration of s. 17(a) says that silence is not a fraud. According to this explanation silence is a fraud “if it is the duty of the person keeping the silence to speak and his silence is, in itself, equivalent to speech”. In the case of Vyramuthu v. State of Pahang (1924), it was held that the plaintiff was not bound to disclose the said information to the defendant. There are three situations where a person is under a duty to speak. They are earlier statements which later became untrue, when there is a relationship of trust between the parties and Uberrimae fidei contracts (Mohamed et al., 2011, p. 49-68).

Silence equivalent to Speech: This situation may occur where one party discloses only partial facts. In the case of R v. Kyslant (1932), it was held that the prospectus was misleading and therefore there was fraud (Mohamed et al., 2011, p. 49-68).

Effects of Fraudulent Contracts: If a contract is fraudulent it will be void by the affected person. However, according to s. 19, contract is valid if the person whose consent caused by fraud had the means of discovering the truth (Mohamed et al., 2011, p. 49-68).

Innocent Misrepresentation: According to s. 18 the innocent misrepresentation refers to any misrepresentation made by a person without intent to deceive and of which he himself believed to be true. Misrepresentation can only be made on statements of facts. In the case of Bisset v. Wilkinson (1927), it was held that the contract was valid and could not be rescinded because there was no misrepresentation. The appellant’s statement was an honest opinion but not a fact statement. According to s. 19, the effect of misrepresentation is the contract can be made voidable (Mohamed et al., 2011, p. 49-68).

The consent which is caused by misrepresentation or by silence, fraudulent within the meaning of s. 17, the contract is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence. In the case of J.C Weber v. E.A Brown (1908), this exception could not rely by the defendant because he had committed fraudulent misrepresentation. A contract is voidable at the option of the innocent party. This is clearly mentioned in s. 19. If the guilty party can apply the exceptions in s. 19, the contract therefore cannot be made voidable (Mohamed et al., 2011, p. 49-68).

Mistake: The meaning of mistake is “error”. According to s. 21, 22, and 23the three types of mistakes are mistake of essential facts by both parties, mistake as to law and mistake of fact by one party. Mistake of Essential Facts by Both Parties: Section 21 says “Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void”. In the case of Courturier v. Hastie (1856), it was held that there was no contract because they were mistaken over the existence of the subject matter of the agreement. The buyer was not liable to pay (Mohamed et al., 2011, p. 49-68).

Mistake as to law: Section 22 says “A contract is not voidable because it was caused by a mistake as to any law in force in Malaysia; but a mistake as to a law not in force in Malaysia has the same effect as a mistake of fact” In the case of Seck v. Wong & Lee (1940), it was held that the plaintiff’s mistake as to the law would not rescind the contract and he could not get a refund (Mohamed et al., 2011, p. 49-68).

Mistake as to matter of fact by one party: Section 23 says “A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact” The example case is Taylor v. Johnson (1983). A contract where one of the parties made a mistake as to a matter of fact may be a voidable contract in the following situations; Mistake as to the identity of the other party and Mistake of fact as to type of instrument. In the case of Cundy v. Lindsay (1878), it was held that the respondent could recover the goods because the contract between Blenkarn and the respondent was void due to mistake as to identity. In the case of Awang bin Omar v. Haji Omar & Anor (1949), it was held that there was a mistake as to the type of instrument signed and the first defendant therefore was not liable to the contract (Mohamed et al., 2011, p. 49-68).

Effects of Contracts Caused by Mistake: A contract which contains an element of mistake by both parties as to a matter of essential fact is a void contract. In the case of Oh Hiam v. Tham Kong (1980), the court ordered rectification is made in the contract when both parties were under the mistake in respect of a piece of land which should not be included in the contract (Mohamed et al., 2011, p. 49-68).

5.0 Void Contracts

5.1 Definition

Section 2(g) defines void contract as “an agreement not enforceable by law is said to be void” The void contract will not have any legal effect and the parties to the contract will not have any obligation to perform the contract (Mohamed et al., 2011, p. 71-84).

5.2 Types of Void contracts

5.21 Agreements Which Contravenes the Law

As mention earlier s. 24 lists five categories of agreements which contravene the law and resulting in the contract being void. According to s. 10, a consideration or object of an agreement should be lawful for the formation of a contract. Consideration of Agreement Forbidden by Law: Section 24 says that agreements agreed by the contracting parties clearly contravenes with the provision of any laws. Such contravention will therefore result in the contract being void because it is forbidden by law (Mohamed et al., 2011, p. 71-84).

In the case of Govindji v Soon Hin Huat (1982), it was held that the contract was void because it was done in contravention of the law. In the case of Hee Cheng v. Krishnan (1955), it was held that the agreement was unlawful and therefore void being in contravention with the law. In the case of Rasiah Munusamy v. Lim Tan and Sons Sdn. Bhd (1985), it was held that the contract was valid but becomes impossible to perform. The plaintiff therefore was entitled to damages and recovery of monies paid (Mohamed et al., 2011, p. 71-84).

Consideration of an Agreement if permitted would defeat any Law: Section 24(b) refers to a contract which was signed but not expressly contrary to any provisions of the law. The law on the other hand only forbids such agreements or contract by implication that is by imposing fines for any breach. In the case of Raymond Banham & Anor v Consolidated Hotels Ltd (1975), held that the consideration and object of the contract was valid. If the consideration was allowed, it would defeat the provision of the law. This law does not forbid such contracts to be made and restraints those who are unregistered (Mohamed et al., 2011, p. 71-84).

Consideration of the Agreement is a Fraud: Section 24(c) says that an agreement where its consideration or object is fraudulent in nature, contravenes the law. Consideration or Object of the Agreement Implies or Involves Injury To the Person or Property of another: Section 24(d) says “it involves or implies injury to the person or property of another” In the case of Syed Ahamed bin Mohamed Alhabshee v. Puteh binti Sabtu (1922), it was held the contract was void (Mohamed et al., 2011, p. 71-84).

Consideration of the Agreement Presumed by Court as Immoral or Against Public Policy: Section 24(e) highlights two types of agreement which are immoral agreement and agreement which are opposed to public policy. In the case of Pearce v. Brooks (1866), it was held that the plaintiff failed in the claim for the hire charges because the agreement was illegal as it was immoral. In the case of Sinyium Anak Mutut v. Datuk Ong Kee Hui (1982), the court did not agree with Theresa’s case restricting the range of categories which can fall under public policy. In general we cannot clearly determine what are agreements regarded as opposed to public policy (Mohamed et al., 2011, p. 71-84). The types of agreements decided by the courts in earlier cases as being of those opposed to public policy are;

Illustration (f) of s. 24 says that, Agreements for the sale of appointments are unlawful because it is considered as corruption. In the case of Parkinson v. Royal College of Ambulance Ltd. & Harrison (1925), it was held that the action failed because the agreement was based on an illegal contract. According to Illustration (h) of s. 24 say that contracts which interferes with the proper workings of justice is void. Any agreement which might injure the interest of the country is void because it is illegal. In the case of Foster v. Driscoll (1929), a partnership agreement was formed between 5 partners with the implicit intention of smuggling whiskey into the United States. This was in violation of the Prohibition laws and the contract was void (Mohamed et al., 2011, p. 71-84).

Section 27 says “Every agreement in restraint of the marriage of any person, other than a minor during his or her minority, is void”. In the case of Fender v. St. John Mildmay (1983), the court allowed an agreement made to determine the rights of the parties upon their divorce where separation has actually occurred or become inevitable. But the law will not allow an agreement which contemplates the possibility of future separation as it would prejudice the stability of the parties at the time the contract was made. In certain cases, the court would allow such agreements, even if it was made while a marriage was still stable and in a good state of affairs. The example case is Hamzah bin Musa v. Fatimah Zaharah binti Mohamad Jalal (1982). The marriage brokerage contract is a contract matchmaking person and some payment is charged for those services (Mohamed et al., 2011, p. 71-84).

5.22 Contracts in Restraint of Trade

Section 28 says “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” According to English law, an agreement which contains restraint of trade will only be declared as void if the restraint is unreasonable. This was so decided in Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894). The decision differs from s. 28 which provides that such restriction is still void even if it is reasonable (Mohamed et al., 2011, p. 71-84).

In the case of Wrigglesworth v. Wilson Anthony (1964), it was held that the restraint of trade covenant was void in absolute in accordance with Section 28. As a general rule, an agreement in restraint of trade is void to the extent of the period and distance of restraint stipulated in the contract. However it is subjected to several exceptions provided in explanation 1, 2 and 3 in s. 28. If a case indicates that any of the exceptions can be applied, the contract then is valid and enforceable although it is in restraint of trade (Mohamed et al., 2011, p. 71-84).

5.23 Contracts in Restraint of Legal Proceedings

Section 29 says “Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tibunals, or which limits the time within which he may thus enforce his rights, is void to that extent.” The party to a contract who suffered losses due to breach of the contract has 6 years to bring legal action. In the case of Corporation Royal Exchange v. Teck Guan (1912), it was held that claim was less than the time provided for under the Limitation Act. It was contradicting with s. 29 and hence the contract was void (Mohamed et al., 2011, p. 71-84).

There are three exceptions to the general rule in s. 29. Exceptions 1 and 2 provide that it is valid for the parties to agree to insert a condition in the contract to refer to arbitration for any disputes which may arise in respect of the contract. This was decided in Scott v. Avery (1836). Exception 3 provides that any scholarship agreement between a person and government which state that the government’s discretion is final and conclusive and not to be questioned by any court is valid (Mohamed et al., 2011, p. 71-84).

5.3 Effects of Void Contracts

Illegal Contracts: The effects of these contracts are not the same as for void contracts due to other factors given in s. 66. Illustrations (a) to (d) in Section 66 do not provide the examples regarding unlawful contracts. Since there is no clear provision in the Act, the court has to refer to English law. Generally, all parties to such contracts will not get any rights when enforcing the contract. This principle is a based on the maxim ex dolo malo no oritur actio which means that a court would not give any help to a person whose action arise from an unlawful act (Mohamed et al., 2011, p. 71-84).

The exceptions are; if the Party Makes a Claim Independent of the Unlawful Transaction. The example case is Sajan Singh v. Sardara Singh (1960), the decision made was based on Sajan’s infringement of Ali’s property without permission and not on the unlawful contract. Section 66 says that if the other party knew that the said contract is unlawful, he would not be allowed to claim for the return of benefits or any compensation. In the case of Ahmad bin Udoh v. Ng Aik Chong (1970), it was held that the respondent is entitled for the refund money according to Section 66 of CA 1950 because he did not know the agreement was prohibited by law at the time he made it (Mohamed et al., 2011, p. 71-84).

Contracts in Restraint of Trade or Legal Proceedings: These contracts are not wholly void but only void to the extent of the restriction. Once the restrictions are severed from the other whole part of the agreement without changing the nature of the contract, the valid part of the contract is enforceable. Section 66 can be used to sue for return of benefits for void contracts except contracts void due to illegality (Mohamed et al., 2011, p. 71-84).

6.0 Conclusion

In conclusion, the valid contracts are the agreements which are enforced by law. All contracts are agreements but not all agreements are contracts and if the agreement is not enforced by law will be void. The contracts should be done with the free consent of both promisor and promisee.

The elements of contract include offer, acceptance, consideration, capacity to contract, intention to create legal relations, certainty, free consent and valid object. Offer is a situation when a proposal is made from one person to another and it should be certain. Offer can be implied or expressed or combination of both. Offer can be made to one person, a group or to the whole world. Revocation offer can be made in four ways. Auction, advertisement and display of goods are invitation to treat. Acceptance is done when the promisee accepts the offer. The acceptance can be revoked before the communication of the acceptance is completed. Silence does not amount to an acceptance.

Consideration is the price pays to buy the promise of the other. The three types of considerations are executory, executed and past considerations. There is no certain amount for adequacy of consideration. However, in Pinnel’s rule, payment of lesser sum is not a sufficient consideration. The payment by 3rd party is a good consideration. Performing of an existing duty is not a consideration. Capacity to contract means the person is capable to enter into contract by attaining the age of majority, who is of sound mind, and not disqualified from contracting from any other law. Intention to create legal relations includes social and commercial agreements. In social agreements there is no intention to create legal relations except when there is evidence to show. In commercial agreements there is intention unless it says “subject to the contract.” A contract must contain conditions which are clear in meaning and not vague. All agreements are contracts if they are made by free consent. The object of the agreement must be lawful.

If a contract has the elements which can make it voidable, the innocent party has the right to make it void. Factors which make the contract voidable include coercion, undue influence, fraud, misrepresentation and mistake. Coercion is forcing a person to make contract. Undue influence is when a person tries to dominate the other. There are five different types of fraud. Silence is not a fraud but silence equivalent to speech is a fraud. Misrepresentation is any misrepresentation made by a person without intent to deceive. The meaning of mistake is “error”. Types of mistakes include mistake of essential facts by both parties, mistake as to law and mistake as to matter of fact by one party. The innocent party can make the contract void if these elements are present except certain situations.

Any agreement which is not enforced by law is said to be void. Types of void contracts include agreements which contravene the law, contracts in restraint of trade and contracts in restraint of legal proceedings. There are five categories of agreements which contravene the law such as consideration of agreement forbidden by law, consideration of an agreement if permitted would defeat any Law, consideration of the agreement is fraud, and consideration of the agreement implies injury to the person or property. If an agreement is restrained from exercising a lawful trade or business, it will be void. The time limit a person could enforce his rights under a contract is 6 years from the date of the breach of the contract. All parties to void contracts will not get any rights when enforcing the contract and the court would not give any help to a person whose action arise from an unlawful act.

7.0 Reference

Contracts Act 1950 (Malaysia). Retrieved May 15, 2013, from http://www.agc.gov.my/Akta/Vol.%203/Act%20136.pdf

Mohamed, M., Shariff, N. A., Halim, R., & Anuar, H. M. (2011). Business Law. Malaysia: Meteor Doc. Sdn. Bhd.

8.0 Case Laws

Ahmad bin Udoh v. Ng Aik Chong (1970) 1 MLJ 82

Awang bin Omar v. Haji Omar & Anor (1949) MLJ Supp 28

Balfour v Balfour (1919) 2 K.B 571

Bisset v. Wilkinson (1927) PC

Boulton v Jones (1857) 2 H&N 564, 157. ER 232.

Bradbury v. Morgan (1862) 1 H.&C. 249

Byrne v Van Tienhoven (1880) 5 CPD 344

Carlill v Carbolic Smoke Ball co. (1893) 1 Q.B 256

Chait Singh v. Budin bin Abdullah (1918) 1 FMSLR 348

Chin Nam Bee Development Sdn. Bhd v. Tai Kim Choo & Ors (1988) 2 MLJ 117

Collins v. Godefroy (1831) 1 B & Ad 950

Corporation Royal Exchange v. Teck Guan (1912) 2 FMSLR 92

Courturier v. Hastie (1856) 5 H.L.C 673

Cundy v. Lindsay (1878) 2 App Cas 337

Datuk Joginder Singh & Ors v. Tara Rajaratnam (1983) 2 MLJ 196

Derry v. Peek (1889) 14 App Cas 337

Entores ltd v Miles Far East Corp (1955) 2 Q.B 327

Esso Petroleum Ltd v Commissioners of Customs and Excise (1976) 1 All ER 117

Felthouse v Bindley (1826) 142 ER 1037

Fender v. St. John Mildmay (1983) AC 1

Foster v. Driscoll (1929) 1 K.B 470

Glassbrook Brothers Ltd v Glamorgan County Council (1925) A. C 270

Govindji v Soon Hin Huat (1982) 1 MLJ 255

Guthing v Lynn – D (1831) 2 B. & Ad. 232

Hamzah bin Musa v. Fatimah Zaharah binti Mohamad Jalal (1982) 1 MLJ 361

Hee Cheng v. Krishnan (1955) MLJ 103

Hillas & Co. Ltd v Arcos Ltd (1932) UKHL 2

Hyde v Wrench (1840) 3 Beav 334

Imperial Loan Co. v. Stone (1892) 1 Q.B 599

J.C Weber v. E.A Brown (1908) 1 FMSLR 12

Jones v Vernon’s Pools Ltd (1938) 2 All ER 626

Kepong Prospecting ltd v Schmidt (1968) 1 MLJ 170

Kerpa Singh v Bariam Singh (1966) 1 MLJ 38

Kesarmal s/o Letchman Das v Valiappa Chettiar (1954) MLJ 119

Letchemy Arumugan v. Annamalay (1982) 2 MLJ 198

Macon Works & Trading Sdn. Bhd v. Phang Hon Chin & Anor (1976) 2 M.L.J 177

Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. Ltd. (1894) AC 535

Oh Hiam v. Tham Kong (1980) 2 MLJ 159

Parkinson v. Royal College of Ambulance Ltd. & Harrison (1925) 2 KB 1

Partridge v Crittenden (1968) 1 W.L.R 1204

Pearce v. Brooks (1866) L.R 1 Ex. 213

Phang Swee Kim v Beh I Hock (1964) MLJ 383

Pharmaceutical Society of Great Britain v Boots Cash Chemists ltd (1963) HL

Pym v Campbell (1865) 119 ER 903

R v. Kyslant (1932) 1 KB 442

Raghunath Prasad v. Sarju Prasad AIR (1924) PC 60

Rajeswary v. Balakrishnan& Ors (1958) 3 MC 178

Ramsgate Victoria Hotel Co. Ltd v Montefiore (1866) L.R. 1 Ex. 109

Rasiah Munusamy v. Lim Tan and Sons Sdn. Bhd (1985) 2 MLJ 291

Raymond Banham & Anor v Consolidated Hotels Ltd (1975) 1 MLJ 5

Roufos v Brewster (1971) 2 SASR 218

Sajan Singh v. Sardara Singh (1960) 1 MLJ 52 AC 169

Salwath Haneem v. Hadjee Abdullah (1894) 2 S.S.L.R 5

Scott v. Avery (1836) 10 ER 1121

Seck v. Wong & Lee (1940) MLJ 146

Sinyium Anak Mutut v. Datuk Ong Kee Hui (1982) 1 MLJ. 49

Spencer v Harding (1870) L.R 5 C.P 561

Stevenson v. Mc Lean (1880) 5 QBD 346

Stilk v. Myrick (1809) 2 Camp. 317

Syed Ahamed bin Mohamed Alhabshee v. Puteh binti Sabtu (1922) 5 FMSLR 243. 48

Taylor v Laird (1856) 1 H & N 266

Taylor v. Johnson (1983) 151 CLR 422

Tinn v. Hoffman (1873) 29 LT 271

Vyramuthu v. State of Pahang (1924) 4 FMSLR 277

Western Electric v Welsh Dev. Agency (1983) QB 796

Wrigglesworth v. Wilson Anthony (1964) MLJ 269

Adam Khaleel

Monday, May 11, 2015

Module Name: Business Law

1.0 Executive Summary