LECTURE NOTES ON

INTRODUCTION TO
COMMERCIAL LAW
(LAW 240)

(For Internal Circulation only:2022-2023)

UITM TERENGGANU DUNGUN CAMPUS

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INTRODUCTION TO COMMERCIAL LAW

Table of Contents

Chapter Topic Pages

Chapter 1 Introduction to Malaysian Legal System 3-12

Chapter 2 Law of Contract 13-34

Chapter 3 Employment Law 35-41

Chapter 4 Introduction to Shari’ah Principles Governing 42-45

Commercial Transaction
Chapter 5 Law of Agency 46 -52

Chapter 6 Law of Torts & Professional Negligence 53-

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INTRODUCTION
TO MALAYSIAN
LEGAL SYSTEM

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DEFINITION OF LAW
 Rule of conduct
 Oxford Dictionary “ Body of enacted or customary rules recognized by a community
as binding”
 Salmond “Body of principles recognized and applied by the state in the administration
of justice”
 Austin “A command set by a superior being to an inferior being and enforced by
sanction”
On the whole, law is a system of rules designed to ensure that people live in peace and
harmony. It includes rights, duties and obligations.

CLASSIFICATION OF LAW
 Public law
regulates the relationships between the citizen and the state
examples: constitutional law, criminal law and administrative law.
 Private law
deals with the relationship between a citizen and another citizen in the state
examples: contracts, torts, trust, family law, company law and property law.
 International law
laws that govern one particular independent country.
subdivided into international public law and international private law
 International public law is the law that governs the relationship between provinces
and international entities examples are law of seas and treaties.
 International private law is the law that deals with conflict of laws. The issues are
on which law to use and which court of a country the case to be heard.

SOURCES OF LAW

Written law Unwritten law

English law

Constitution Legislation Subsidiary legislation

Judicial
Precedent
Federal constitution Federal law
Customary law
State constitution State law
Islamic law

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Written Law
 law enacted by Parliament and the States Assemblies. The sources of written law are:

1. Federal Constitution
 Art 4 FC: Constitution is the supreme law of the land
 Any law passed which is inconsistent with the constitution shall to the extent of the
inconsistency, be void
 Article 32(1) “A constitutional monarchy and the supreme head of the federation is
called YDPA
 Federal Constitution lays down powers of the federal government and the state
government. These powers are stated in the federal list, state list or concurrent list.
 The federal list:- relating to external affairs, defense, internal security, civil and
criminal law procedures, the administration of justice, federal citizenship,
naturalization and aliens, the machinery of government, finance, trade,
commerce and industry, shipping, navigation and fishery, communications and
transport, education, medicine, health, labor and social security, federal
holidays, professions and occupations, newspapers, publications, theatres,
cinemas, films etc.
 The state list:- relating to Islamic personal and family law, land, agriculture and
forestry and local government, state works and water, state holidays etc.
 The concurrent list:- relating to the social welfare, protection of women,
children and young persons, social services, scholarship, protection of wild
animals and wild birds, national parks, town and country planning, sanitation
and prevention of diseases etc.
 It also lay down fundamental rights of every citizen: Chapter 2 of the Federal
Constitution.
 Any clause of the Federal Constitution can be changed by two third (2/3) majority
votes of total number of members of parliament.
2. States Constitutions
 Each state has its own constitution. This constitution is applicable to that particular
state only.
 The provisions in the State Constitution are relating to state matters, for example
relating to ruler, financial, state employees etc.

3. Legislation
 Legislation refers to the law enacted by Parliament and the State Legislative
Assemblies.
 For the law enacted after 1946 until 1956, they are known as Ordinance. For those
that are enacted from 1957 they are known as Act.
 For the laws legislated by the State Legislative Assemblies, they are known as
Enactment except in Sarawak, known as Ordinance.

4. Subsidiary Legislation
 Also referred as to delegated legislation
 Made by specific bodies or persons in authority under powers given to it by
legislation.
 These laws basically concern with everyday matters, which are not covered by
Parliament or State Assemblies. Normally they relate to policies.
 Subsidiary legislation also known as rules, regulations, order and by-law.
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Procedure of the law making process before any law is passed by Parliament
How a Bill becomes a law?
 Parliament exercises its power to make laws by passing of Bill in both Houses i.e.
House of Representative (Dewan Rakyat) and Senate (Dewan Negara).
 In Each House, a Bill is required to undergo 4 stages:
 First Reading – reading of long title, i.e. the title of the Bill will be read. If it
is accepted, the bill will be printed and distributed to the members of
Parliament.

 Second Reading – the members will discuss and debate on the Bill. Voting
by simple majority (by voices) or 2/3 majority through divisions. If it is
accepted, it will be sent to the next stage for the consideration of the
Committee of the House.

 Committee Stage – Specific Debate on all clauses, schedule and preambles

will take place. The committee will consider the Bill and may amend any
part of it. If the committee approved, the bill will be sent to the next stage.

 Third Reading – voting for second time. Long title will be read and passed
by the house.

 Royal Assent - Once passed by the Houses in which the Bill is originated, it
will be sent to the other House. Once the House (second House) passes the
Bill, it must be presented to the YDPA for His assent thereto. The YDPA
must within 30 days assent to the Bill by causing Public Seal to be affixed
thereto. If He fails to do so, the Constitution provides that the Bill should
become law at the expiration of 30 days as if He had assented thereto.

 Gazetted and Printed - The Bill shall become law on being assented to by the YDPA,
but no law shall become into force until it had been gazetted.

 Law

 Similar procedures apply in both House of Representative and Senate.

Unwritten Law
 law which is not enacted by Parliament nor the State Assemblies. In Malaysia the sources
of unwritten law are:

1. Principles of English law

 The guidelines in application of English law throughout Malaysia is based on the Civil
Law Act 1956.
 Our legal system normally would adopt English Common Law and Equity and English
Commercial Law depends on:
 the local circumstances where the Malaysian written law permits; and
 when there is no statute of particular law in Malaysia that deals with that kind of
situations
 English Land Law is not applicable in Malaysia because Malaysia has adopted the
National Land Code.

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2. Judicial Precedents
 Under the common law, judicial decisions means the non-statutory law evolved through
judicial decisions.
 In deciding cases before the courts, the judges are bound to follow the previous decisions
made by the previous judges.
 The effect of not following the judicial precedent:
 The decision will be legally wrong. There is a likely that the decision will be
subject to appeal and overruled on appeal.
 Where there is no appeal, it might be overruled in later cases.
 Content of judicial precedent:
i. Ratio decidendi: the legal reasoning (it is binding)
ii. Obiter dicta: “things said by the way” i.e. the judge’s opinion (it is persuasive)
 How it works?
i. Vertically: higher courts will bind the lower courts
ii. Horizontally: Courts are bound by:
 Its own previous decisions
 The decisions of its predecessors
 The decision of courts of equal rank

3.Customary law
 Customary law is the law that based on customs of each race and they are legally
binding.
 Adat perpatih
 Adat temenggung
The differences between adat pepatih and adat temenggung:
i. Adat Pepatih is the democratic matrimonial adat law while Adat
Temenggung is an autocratic patriarchal adat law.
ii. Adat Pepatih is brought to Negeri Sembilan while Adat Temenggung
prevailed in other parts of the Malay Peninsula
iii. Adat Perpatih is matrilineal form of organization which one belongs to
mother's lineage while Adat Temengung is patrilineal form of organization
which one belongs to father's lineage.
iv. Adat Pepatih generally involves the inheritance of property, names or titles
from mother to daughters, while Adat Temengung generally involves the
inheritance of property, names or titles from father to son.
v. Adat Temenggong is not favourable to women compared with Adat Pepatih.
 Chinese Customary law
originated from the Ching dynasty but has been modified and influenced by the
English law
 Indian Customary law
adapted from India, however it is not necessarily the same as in India provided that
it is not contradict with the general public policy and justice
4.Islamic Law
 Its application is limited to Muslim only.
 Covers the aspect of family law e.g. inheritance, matrimonial and ta’zir offences
 Islamic law falls under the state list
 Art 3 of the Federal Constitution: Islam is the religion of the federation but other
religions may be practiced in peace and harmony. Art 11 provides that every citizen
has a right to profess and practice his religion

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 The administration of Islamic law Enactments were given to three principal
authorities i.e. the Majlis Agama Islam Negeri, the Mufti and the Syari`ah Courts.
 The sources of Islamic law are Al-Quran, Sunnah, Ijma’ and Qiyas.

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 THE JUDICIAL SYSTEM IN MALAYSIA

Federal Court

Superior
Court of Appeal Courts
Vertical relationship

Horizontal relationship

High Court of Malaya High Court of

Sabah/Sarawak

Sessions Court Sessions Court

Subordinate
Courts
Magistrate Courts Magistrate Courts

Hierarchy Of Courts
Composition And Jurisdiction Of Courts In Malaysia

Magistrates Court
Composition
 Presided over by a magistrate
 Two types of courts:
 First Class Magistrate : appointed by the State Authority with the recommendation
of the Chief Judge. Must be fit and proper (the member of Judicial and Legal Service
of the Federation)
 Second Class Magistrate: appointed by the State Authority and could be any fit and
proper person

Jurisdiction
Jurisdiction of the First Class Magistrate (civil cases)
 Can try all actions and suits where the amount in disputes or value of the subject matter
does not exceed RM100,000
Jurisdiction of the First Class Magistrate (criminal cases)
 Can try all offences for which the maximum term of punishment provided by law does
not exceed 10 years imprisonment, or
 Can try all offences punishable with fine only

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 Where a person is found guilty, the magistrate may pass any sentence allowed by law
not exceeding:
o 5 years’ imprisonment
o fine of RM10,000
o whipping up to 12 strokes
o a combination of any of the abovementioned sentences

Jurisdiction of the Second Class Magistrate (civil cases)

 For the recovery of debt or liquidated demand on money not exceeding RM10,000
Jurisdiction of the Second Class Magistrate (criminal cases)
 Can try offences for which the maximum term of imprisonment provided by law does
not exceed 12 months imprisonment, or
 Can try all offences punishable with fine only.
 A second class magistrate may pass any sentence allowed by law:
o Not exceeding 6 months imprisonment
o Fine of not more than RM1,000
o Any sentence combining either the abovementioned

Sessions Court
Composition
 Will be headed by Sessions Court Judge
 Appointed by YDPA on the recommendation of the Chief Justice
 Must be the member of Judicial and Legal Service of the Federation

Jurisdiction
Jurisdiction (civil cases)
 Can try cases where the amount in disputes or value of the subject matter does not
exceed RM1 million
 Unlimited civil jurisdiction for motor-vehicle accidents, landlord and tenant issues and
distress
 Has the jurisdiction to grant injunction
 Subject matters which are excluded from the jurisdictions: matters related to land; issue
of grant of representation legitimacy of any person; guardianship or custody of infant;
and validity or dissolution of marriage.
Jurisdiction (criminal cases)
 May try all offences other than offences punishable with death
 May pass any sentence allowed by law other than death sentence

High Court
Composition
 Consists of a Chief Judge and not less than four other judges. However, the number of
judges appointed shall not exceed sixty in Peninsula Malaysia and thirteen in
Sabah/Sarawak unless the Yang di-Pertuan Agong order otherwise.
 The appointment of judges in the High Court is made by the Yang di-Pertuan Agong
acting on the advice of the Prime Minister, after consulting the Conference of Rulers.
 To be qualified as the High Court judge, he must be a Malaysian citizen and has been in
the legal service for at least ten years
Jurisdiction
A. Original jurisdiction
 The court has unlimited jurisdiction in civil and criminal cases
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B. Supervisory jurisdiction
 Has a jurisdiction to revise and review the decision of the subordinate courts
C. Appellate jurisdiction
 Can hear criminal and civil appeals from subordinate courts

The Court of Appeal

Composition
 Consists the President of Court of Appeal and 10 other judges.
 Appointment of judges in this Court shall be appointed by the Yang di-Pertuan Agong
acting on the advice of the Prime Minister after consulting the Conference of Rulers
 To be qualified as the Court of Appeal judge, he must be a Malaysian
citizen and has been in the legal service for at least ten years

Jurisdiction
A. Civil Appeal
 Can hear any appeal in civil matter
 No appeal can be made to the Court of Appeal where:
 The amount or value of the subject matter of the claim is less than
RM250,000
 The judgment or order is made with the consent of the parties
 The judgment or order related to costs only
 By any written law, the judgment or order of the High Court is expressly
declared to be final
B. Criminal Appeals
 Can hear any appeal against the decision of the High Court.

The Federal Court

Composition
 Headed by the Chief Justice.
 The members of the Federal Court include the President of Court of Appeal, the Chief
Judges of the High Court and seven other judges and any additional judges as may be
appointed.
 Appointed by Yang di-Pertuan Agong acting on the advice of the Prime Minister after
consulting the Conference of Rulers
 To be qualified as the Federal Court judge, he must be a Malaysian citizen and has been
in the legal service for at least ten years

Jurisdiction
A. Original jurisdiction
 To exercise exclusive jurisdictions including:
 To determine the validity of the laws made by the Parliament or state legislature,
where it is alleged that the respective legislature has no power to make it
 To determine disputes on any question between the states or between the Federal
Government and the state
 As an advisor to the YDPA on any question on Constitution

B. Appellate jurisdiction
 To hear civil and criminal appeals from decisions of the Court of Appeal and High Court

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Tribunal for Consumer Claims
 The Tribunal for Consumer Claims is established under section 85 of the Consumer
Protection Act 1999 (hereinafter CPA 1999). It is an independent body that caters
consumer claims.
 Section 86 of the CPA 1999 provides the composition of this Tribunal. It consists a
Chairman and a Deputy Chairman who both among members of the Judicial and Legal
Service and not less than five members who are qualified individual within the meaning
of the Legal Profession Act 1976 or Advocates Ordinance Sabah or Advocates
Ordinance Sarawak or have held the posts specified in the Fourth Schedule to the
Subordinate Courts Act 1948. The appointment of each member is made by the Minister.
 Based on section 98(1) of the CPA 1999, the Tribunal has jurisdiction to look into
consumer claims which the value of subject matter does not exceed RM25, 000.
 However, section 100(1) of the CPA 1999 allows the Tribunal to hear consumer claims
which exceeding RM25,000 if the parties involved in the claim have make a written
agreement that the Tribunal shall hear and determine the claim.
 The following matters are excluded from the jurisdiction of this Tribunal: -
 Disputes involving land except fixtures example land recovery as stated in section
99(1)(a) and section 99(1)(b) of the CPA 1999;
 Disputes involving will and intestacy example entitlement of person on will as stated
in section 99(1)(c)(i) of the CPA 1999;
 Disputes on trade secret or intellectual property as in section 99(1)(c)(iv) of the CPA
1999; and
 Claims arising from personal injury and death as in section 99(3) of CPA 1999.
 The limitation period of consumer claims under this Tribunal is three years as prescribed
in section 99(2) of the CPA 1999. It means that any consumer claims must be made
within three years otherwise the legal action would be expired and could not be catered
by this Tribunal.

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 LAW OF
CONTRACT
STATUTE
Contracts Act 1950

DEFINITION
S.2(h) CA: Contract is an agreement enforceable by law.

ELEMENTS OF A VALID CONTRACT

Some agreements are not contracts because they lack certain essential elements. These
essential elements are:
1. Proposal/Offer and Acceptance
2. Consideration
3. Intention to Create Legal Relation
4. Certainty
5. Legal Capacity
6. Free Consent
7. Legality of the Object
8. Required Formalities

TYPES OF CONTRACTS/ LEGAL EFFECTS OF AGREEMENTS

 Valid contracts: enforceable
 Void contracts: no legal effects
 Voidable contracts: can be set aside by one party‘s option. The contract is valid unless
it is avoided.

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PROPOSAL/OFFER AND ACCEPTANCE

PROPOSAL/OFFER
Definition
S.2(a) CA: When a person signifies to another his willingness to do or to abstain from doing
anything, with a view to obtain the assent of that other… he is said to make a proposal.
S.2(c) CA: The person making the proposal is called the promisor.
The person who makes the offer is also known as the offeror, proposer or promisor.

Proposal/Offer Distinguished From Invitation to Treat (ITT)

An offer, if accepted, may result in a legally enforceable contract (if the other elements
exist). It is important to distinguish an offer from invitation to treat.

 Definition of ITT
ITT is not an offer. It is a mere invitation by one party to the other to make an offer. It is
up to the person making the ITT whether to accept the offer or not.
Wu Min Aun: ITT means preliminary communication which passes between the parties
at a stage of negotiation.

 Display of goods in shop or its window

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v BOOTS CASH
CHEMISH LTD
Boots Cash Chemist was charged with illegal offering certain drugs without supervision
of qualified pharmacists. Boots argued that they did provide the pharmacist at the cash
counter.
Held: The display of goods on shelves is ITT. Customer made an offer when he selected
the goods and put it in the basket. Acceptance will be made at the cash counter after the
qualified pharmacist satisfied. The contract is made at the cash counter, not in the shop.

 Advertisement (Exception- advertisement for reward:offer)

COELHO v THE PUBLIC SERVICE COMMISION
The plaintiff had applied for a position in response to a newspaper advertisement. He was
informed that his application had been accepted. Later, the Commission attempted to
terminate his employment on the basis that he was appointed on probation.
Held: The advertisement was ITT. Application made by plaintiff was offer. Acceptance
was made by the Commission and the letter of acceptance did not state any condition.
The termination was invalid

But, there is an EXCEPTION. If somebody advertises for reward, the advertisement is

offer not ITT.
CARLILL v CARBOLIC SMOKE BALL COMPANY
Defendant advertised that they would reward 100 pounds sterling to anyone who would
still suffer influenza after using their product, on condition that the buyer would use it
according to the instructions.
The plaintiff bought and used the product according to the instructions but nevertheless,
still suffering influenza. Plaintiff claimed the money but the defendant refused to pay on
the ground that the offer was not addressed to the plaintiff.
Held: Advertisement for reward was an offer to the whole world. Mrs Carlill had
accepted by her conduct when she used the medicine according to the instructions.
Therefore, there was a valid contract and she entitled to the money.
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 Price List/Quotation
PRESTON CORPORATION SDN BHD v EDWARD LEONG & OTHERS
The Appellant (publishers) asked for quotations from the Respondent (printers). The
Respondent gave the quotations to the Appellant. The Appellant then made some printing
orders based on the quotation.
Held: The quotations were only a supply of information which was an invitation to treat.
The printing orders made by the Appellant were offers which was subject to the
acceptance by the Respondent.

 Auction/Auctioneer Inviting Bids

S.10 Auction Sales Act: A sale by public auction shall be complete when the auctioneer
announces its completion by the fall of the hammer..

Types of Proposal/Offer
a) Specific Offer
 The offer is addressed to a specific/particular person (addressee).
 Only addressee may accept the offer.

b) General Offer
 The offer is addressed generally to anyone who may satisfy all the terms and
conditions of the offer.
 Anyone who meets all the terms of the offer is considered as making the acceptance.

CARLILL v CARBOLIC SMOKE BALL COMPANY

Defendant advertised that they would reward 100 pounds sterling to anyone who
would still suffer influenza after using their product, on condition that the buyer
would use it according to the instructions.
The plaintiff bought and used the product according to the instructions but
nevertheless, still suffering influenza. Plaintiff claimed the money but defendant
refused to pay on the ground that the offer was not addressed to the plaintiff.
Held: The plaintiff is entitled to the money. The offer was a unilateral offer
addressed to the general public at large. Anyone who read and fulfills the conditions
is regarded as making an acceptance.

Communication of Proposal/Offer
 Proposal must be communicated
 S.4(1) CA: The communication of a proposal is complete when it comes to the knowledge
of the person to whom it is made.
 Before making any acceptance, the offeree must know about the existence of the offer.
If a person has done something which coincides with the offer without being aware of
the offer, he does not create any contract.

R v CLARKE
Australian Government offered a reward for information leading to the arrest and
conviction of persons responsible for the murder of two police officers. Mr. X and Clarke
were arrested and Clark gave information leading to the arrest of Mr.Y. X and Y were
convicted. Later, Clark knew about the reward and claimed for it.
Held: Clarke was not aware of the reward at the time he gave the information. He was
merely acting to clear and release himself. Therefore, Clark’s claim failed.
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Revocation of Proposal/Offer
Revocation means cancellation or termination. Contracts Act provides four situations where
a proposal is revoked:
i. By communication of notice of revocation by the proposer to the other
party/offeree: S.6(a) CA.
 The offeror/proposer may revoke his offer by giving notice of his intention to revoke.
 S.5(1) CA: A proposal may be revoked at any time before acceptance.

ii. By lapse of time: S.6(b) CA.

 The acceptance must be made within the given time. If no time given, within
reasonable time.
RAMSGATE VICTORIA HOTEL v MONTEFIORE
In June, M made an offer to the company to buy its shares. The company only
accepted the offer on November. M refused to buy the shares for lapse of time.
Held: The offer could be terminated by the offeror. The period between June and
November was unreasonable.

iii. By failure of the acceptor to fulfil a condition precedent to acceptance: S.6(c) CA.
 The offeree must accept the offer according to the terms in the offer.
FINANCING LTD v STIMSON
The defendant offered to buy a car on hire-purchase terms from the plaintiff’s
company. There was a condition that the contract was to become binding only upon
acceptance by the plaintiff provided that the car remains in the same good condition.
However before the plaintiff accepted the offer, the car was stolen and was
subsequently recovered in a damaged condition.
Held: The defendant’s offer was only able to be accepted if the car remained in the
same condition as it was when the offer was made. Since this condition was not
fulfilled, the offer had terminated.

iv. By death or mental disorder of the proposer: S.6(d) CA.

 Death or mental disorder of the offeror may revoke the offer.
 However, the offer is only revoked if the offeree aware of the fact that the offeror is
dead or mentally disordered before he makes any acceptance.
BRADBURY v MORGAN
Held: The death of the offeror will not terminate the offer if the acceptance has been
made in ignorance of his death.

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ACCEPTANCE
Definition
S.2(b) CA: When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted.
S.2(c) CA: The person accepting the proposal is called the promisee.
The person who receives the offer is also called the offeree, acceptor or promisee.

Conditions of an Acceptance
1. Acceptance must be made absolute and unqualified: S.7(a) CA.
 Acceptance must be made exactly on the same term of the offer, without any
modification.
 Any modification or attempt to accept a proposal on a new term not contained in
proposal is called counter proposal/counter offer.
 Counter proposal/counter offer is treated as a rejection of the original offer, therefore
no valid acceptance exists.

HYDE v WRENCH
The defendant offered to sell his estate to the plaintiff for 1000 pounds. The plaintiff
made a counter proposal to purchase at 950 pounds. Defendant refused. After that, the
plaintiff wrote again that he was prepared to pay 1000 pounds.
Held: The plaintiff had rejected the original proposal of 1000 pounds by the counter
proposal of 950 pounds. Therefore no contract.

2. Acceptance must be made within specified time or reasonable time

 If the offeror stipulate time for an acceptance, it must be made within the time given.
If not, within reasonable time.

3. Acceptance must be communicated or expressed in some usual manner: S.7(b) CA.

 The communication of acceptance made by the offeree must come to the knowledge
of the offeror.
 Communication of acceptance must be usual and reasonable, unless the proposal
prescribes the manner in which it is to be accepted.
However, proposer cannot prescribe silence as a manner of acceptance.

FRASER v AVERETT
Held: There was no rule of law saying that silence gives consent applicable to
mercantile contract.

FELTHOUSE v BINDLEY
The uncle made an offer to buy his nephew’s horse. He wrote to his nephew, “if I hear
no more about him, I shall consider the horse is mine”. The nephew made no reply.
When the horse was sold to the other person, the uncle brought a legal action to
enforce his rights against the horse.
Held: Acceptance could not be imposed on the offeree on the basis of his silence.

 Other than direct communication, the acceptance would only be valid if there is some
positive act to show acceptance. Positive acts include performing the conditions of the
proposal.
S.8 CA: Performance of the conditions of proposal is an acceptance of the proposal.
CARLILL v CARBOLIC SMOKE BALL COMPANY

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 Defendant advertised that they would reward 100 pounds sterling to anyone who
would still suffer influenza after using their product, on condition that the buyer would
use it according to the instructions.
The plaintiff bought and used the product according to the instructions but
nevertheless, still suffering influenza. Plaintiff claimed the money but defendant
refused to pay on the ground that the offer was not addressed to the plaintiff.
Held: The plaintiff is entitled to the money. The offer was addressed to the general
public at large. Anyone who performs the conditions of the proposal is regarded as
making an acceptance.

 Acceptance must be communicated by the promisee or an authorized person.

POWELL v LEE
Powell had applied for the post of headmaster in one particular school. The Board had
accepted his application but the decision had not been communicated to him officially.
One of the managers, acting in his individual capacity informed plaintiff about the
selection but plaintiff did not receive any appointment letter. The decision was later
rescinded by the Board.
Held: In the absence of an authorized communication of acceptance from the Board,
there was no valid contract between them.

 There are number of exceptions to the rule that acceptance must be communicated.
One of the exceptions is Postal Rule.
S.4(2)(a) CA: The communication of acceptance is complete, as against the proposer,
when it is put in the course of transmission to him. (when the letter is posted).
i.e. when the communication is complete against the proposer, the proposer cannot
revoke his offer anymore.

ADAM v LINDSELL
Adam wrote to Lindsell offering to sell wool. However he misdirected the letter and
it reached Lindsell later than usual. Upon receiving the letter, Lindsell immediately
posted his acceptance. In the meantime, Adam had already sold it to another person
claiming that the acceptance was too late.
Held: Once the letter of acceptance is posted, a contract comes into existence
immediately.

IGNATIUS v BELL
The defendant made an offer to the plaintiff and the offer is opened until 20th August.
The plaintiff post the letter of acceptance on 16th August but reached defendant on 25th
August. The defendant refused to sell on the ground that the acceptance arrived later
than specified date.
Held: The acceptance was complete against the offeror on 16th August when the letter
is posted. The contract concluded at that time.

S.4(2)(b) CA: The communication of acceptance is complete, as against the acceptor,

when it comes to the knowledge of the proposer. (when the letter is received by the
offeror).
i.e. when the communication is complete against the acceptor, the acceptor cannot
revoke his acceptance anymore.

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Revocation of Acceptance
S.5(2) CA: An acceptance may be revoked at any time before the communication of its
acceptance is complete as against the acceptor. (when the letter is received by the offeror).
i.e. the acceptor can always revoke his acceptance before his letter of acceptance received
by the offeror.

Problematic question and suggested answering technique.

Shaza advertised her Acer laptop for sale in a newspaper for RM5000. Malik came across
the advertisement and went to Shaza’s house to buy the laptop. Shaza however, refused to
sell the laptop and Malik wishes to sue Shaza for breach of contract.
Advise Shaza.
Structure of the answer:
1. Read the question carefully and identify the relevant topic of discussion – ITT, offer
and acceptance.
2. Write an issue based on the given situation – the issue in the situation is whether
Malik can sue Syaza for breach of contract? Whether there is a valid agreement in the
situation?
3. State the relevant Principle of law – the student has to provide relevant points
based on the issue. First, state the relevant statute/ Act that governs law of contract in
Malaysia. Principle of law means referring to the specific sections, General Rule and its
exceptions, supporting cases or certain conditions that are relevant to the question.
4. Application Apply the principle of law to the situation given. First, identify the
parties and apply the principle of law above to solve the problems.
5. Conclusion. Give advice to the person based on the above discussion. The
conclusion must be able to answer the issue stated in the beginning.

The required structure: -

Issue : Whether Malik can sue Syaza for breach of contract or Whether there is a valid
agreement in the situation?
Principle of Law : Define ITT, define offer according section 2(a) and acceptance under
section 2(b) of Contracts Act 1950.
Examples of ITT – advertisement and comparison with offer. Only advertisement that
advertises reward constitutes an offer otherwise it is ITT. Discuss Carlill v Carbolic Smoke
Ball Co and Coelho V The Public Service Commission.
Application : Identify the nature of advertisement in the question given i.e whether it is an
offer or ITT?
Explain the process of how the situation given leads to an offer by using principles suggested
in Coelho’s case.
Does acceptance happen?
Conclusion : Determine whether there is a contract or not and if there is no contract Malik
cannot sue Syaza for breach of contract.
19
Converting the structure into an essay:-
The issue in the situation given is whether Malik can sue Syaza for breach of contract.

The relevant principles law is according to Contracts Act 1950. Section 2(a) states that when
one person signifies to another his willingness to do or abstain from doing anything, with
regard to obtaining the assent of the other, he is said to make a proposal or offer. Invitation
to treat (ITT) is not an offer but merely inviting a person to make an offer first. An example
of ITT is advertisement. Offer on the other hand is a proposal that is capable of being turned
into a contract by acceptance as in section 2 (b).

Based on Carlill V Carbolic Smoke Ball Co case, an advertisement may constitute an offer
if it advertises a reward. This case was about Mrs Carlill who bought the Carbolic Smoke
Ball based on the advertisement which advertised the instructions of using the Carbolic
Smoke Ball to prevent influenza. The advertisement further explained that any person who
still caught the influenza after using the Smoke Ball would be given a cashback of 100
pounds sterling. In this case the court held that Mrs Carlill was entitled for the cash back as
the nature of advertisement was an offer which is capable of being turned into a contract by
acceptance.
However, in Coelho V the Public Service Commissioner, the job advertisement in
newspapers consider ITT to be a qualified person to apply. The application made by the
plaintiff is an offer and acceptance only made by the authorized person.

Based on the facts given, the advertisement of Acer laptop for RM5,000 is considered as
ITT since there is no purpose of giving the reward as in the case of Coelho. Applying section
2(a), the offer was made by Malik but Syaza refused to accept the offer which shows that
there is no acceptance. Hence, there is no contract between Malik and Syaza and therefore,
Syaza is not liable to sell her laptop to Malik.

In conclusion, Malik cannot sue Syaza for breach of contract.

20
TRY THIS:-
Pak Jabit lost his Brazilian Shorthair Cat, Comel. He advertised a reward of RM500 in the
local newspaper, Facebook and Twitter for its return. Mak Limah, Pak Jabit ‘s neighbour,
who was cleaning her backyard found the cat up on her rambutan tree. Five days later, Mak
Limah knew about the reward advertisement and she returned Comel to Pak Jabit. Pak Jabit
refused to pay RM500.

Advise Mak Limah whether she can claim the reward from Pak Jabit.

Issue :

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PL :

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Application:

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Conclusion:

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21
CONSIDERATION
Definition
S.2(d) CA: 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.
In other words, it is a price for which one party pays to buy the promise or act of another.

Types of Consideration
1. Executory Consideration
 A promise made in return of a promise / mutual promises.
K. MURUGESU v NADARAJAH
The appellant agreed to sell, and the respondent agreed to buy, a house from the
appellant. The agreement was written on a piece of paper. Later, the appellant refused
to perform the contract and argued that there was no consideration in the agreement
and therefore the contract is void.
Held: The agreement must be seen to be a case of executory consideration. A promise
is made by one party in return by a promise made by the other.

2. Executed Consideration
 A promise made in return for the performance of an act.
CARLILL v CARBOLIC SMOKE BALL COMPANY
Defendant advertised that they would reward 100 pounds sterling to anyone who
would still suffer influenza after using their product, on condition that the buyer would
use it according to the instructions.
The plaintiff bought and used the product according to the instructions but
nevertheless, still suffering influenza. Plaintiff claimed the money but defendant
refused to pay on the ground that the offer was not addressed to the plaintiff.
Held: Held: The plaintiff is entitled to the money. Anyone who performs the
conditions of the proposal is regarded as making an acceptance. The use of the product
was deemed sufficient consideration.

3. Past Consideration
 A promise made subsequent to and in return of an act that has already been performed.
KEPONG PROSPECTING LTD v A.E SCHMIDT
Schmidt, a consulting engineer, had assisted Mr X in obtaining a prospecting permit
for mining iron ore and also helped in formation of a company, Kepong Prospecting
Ltd. Schmidt was appointed as a managing director. After the company was formed,
the company promised to pay Schmidt 1% of the value from the mining land. The
promise was in consideration of the services given by Schmidt for the company before
its formation. However, the company later failed to pay.
Held: The service given by Schmidt before the promise was made is a valid
consideration even though those services were clearly past.

Rules of Consideration
1. Consideration must be sufficient or must have some value in term of money.
 Performance of an existing duty is not a valid consideration.
STILK v MYRICK

22
 The captain of a ship promised his crew that if they shared between them the work of
2 seamen who had deserted, the wages of the deserters would be shared out between
them.
Held : the promise was not binding because the seamen gave no consideration. They
were already contractually bound to do any extra work to complete the voyage.

HARTLEY v POSSONBY
A ship’s crew had been seriously depleted by a number of desertions. The captain
promised to the remaining crews to pay 40 pounds extra if they would complete the
voyage.
Held : The promise was binding because there was a totally new duty (they did more
than is obliged to do in dangerous situation)

2. Consideration need not be adequate

 S.26 Explanation 2 CA: An agreement to which the consent of the promisor is freely
given is not void merely because the consideration is inadequate.
PHANG SWEE KIM v BEH I HOCK
The respondent agreed to transfer a piece of land for RM500 although the land was
worth more than that. He later changed his mind and refused to transfer.
Held: There was a binding contract even though the consideration was inadequate.

3. Consideration need not come from the promisee

 Anybody can provide consideration.
VENKATA CHINNAYA v VERIKATARA MAYA
The sister agreed to pay annuity to her brothers. In consideration of the payment, the
mother agreed to transfer her land to her. Later, the sister refused to give the annuity
arguing that there was no consideration from the brother.
Held: The promise to pay was binding because the consideration may come from
anybody.

Legal Effect: An Agreement Without Consideration is Void

S.26 CA: An agreement without consideration is void.

However, in certain situations, the contract is still valid even without consideration. These
exceptions are found in S.26(a), (b), (c) CA.

1. An agreement on account of natural love and affection: S.26(a) CA.

Conditions:
i. The agreement must be in writing.
ii. It must be registered, if required.
iii. The agreement must be between parties in near relation.

S.26 Illustration (b) CA: A, for natural love and affection, promises to give his son, B,
$1000. A puts his promise to B into writing and registers it under a law. This is a contract.

RE TAN SOH SIM

The deceased (Tan Soh Sim) in her last illness had expressed a wish that her estate should
be divided amongst the 2 adopted sons and 2 adopted daughters. The legal next-of-kin,
respecting this wish and drew up an agreement renouncing all rights in favour of the 4
adopted children who were their nephews and nieces. The question was whether the
agreement valid or void because no consideration.
23
 Held : According to Chinese custom the adopted children are only related to their adopted
parents and adopted brothers and sisters. They are not in near relation to the relatives or
family to their adopted mother. Hence, uncles and unties do not stand in near relation to
their nephews and nieces. Furthermore, the will made by Tan Soh Sim was not in writing.

KRISHNAN v LASHMI AMAL

Held: Parents and children are near relation to each other.

2. An agreement to compensate for something done by the promisee for the promisor:
S.26(b) CA.
The promise to compensate can be divided into two limbs:
 Promise to compensate the promisee, wholly or partly, a past voluntary act.

S.26 Illustration (c) CA: A finds B’s purse and gives it to him. B promises to give A
$50. This is a contract.

JM WOTHERSPOON v HENRY AGENCY HOUSE

Held: This case did not fall under exception as the party had done the act on suggestion
of defendant. Thus, it cannot be said to have been done voluntarily.

 Promise to compensate the promisee, wholly or partly, for an act which the promisor
was legally compellable to do.

S.26 Illustration (d) CA: A support B’s infant son. B promises to pay A’s expenses in
so doing. This is a contract.

3. An agreement to pay a statute barred debts: S.26(c) CA.

Under Limitation Ordinance 1953, there is a limit of 6 years to enforce legal rights.
After 6 years, the action is statute barred.
Unless this conditions are fulfilled:
i. There is a fresh promise
ii. The promise is to pay the statute barred debt
iii. The agreement is made in writing
iv. The agreement must be signed by the promisor or his agent.

S.26 Illustration (e) CA: A owes B $1000, but the debt is barred by limitation. A signs a
written promise to pay B $500 on account of the debt. This is a contract.

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INTENTION TO CREATE LEGAL RELATIONS
 Though the Contracts Act is silent on the question of intention, case law clearly dictates
the necessity of this element. Without intention, there is no contract.
 Since intention is something in somebody’s mind, the court had made a presumption on
the existing of intention based on the nature of the agreement:

1. Commercial Agreement
Presumption: Parties do intend to create legal relations; there is a binding
agreement; except the parties can rebut the presumption.

ROSE & FRANK v CROMPTON BROS

A business agreement was entered into between an American firm and a British firm.
Their agreement contained the clause “…This agreement is not entered into as a
formal or legal agreement and shall not subject to legal jurisdiction in the law
courts…”. When there was a dispute, the American firm brought an action for breach
of contract.
Held: The presumption was rebutted by the clear wording in the clause. Therefore
the agreement was not legally binding.

2. Domestic and Social Agreement

Presumption: Parties do not intend to create legal relations; there is no binding
agreement; except the parties can rebut the presumption.

BALFOUR v BALFOUR
The husband who was working abroad promised to pay maintenance to his wife in
London. However he failed to perform his promise.
Held: There was no binding contract. He was not obliged to pay.

MERRIT v MERRIT
The husband promised to transfer the matrimonial house to the wife if she would pay
the outstanding mortgage payment. The agreement was made in writing and signed
by the husband.
Held: There was a binding contract between the parties.

SIMPKINS v PAYS
A grandmother, grandchild and a tenant entered a weekly competition. They shared
all the efforts and expenses together but they only used the tenant’s name as
candidate. They agreed to share competition prize had they won it. When their entry
won the prize, the tenant refused to share.
Held: There was a binding contract between the parties.

25
LEGAL CAPACITY
S.10 CA: All agreements are contracts if they are made by the free consent of parties
competent to contract.
S.11 CA: Every person is competent to contract who is of the age of majority, sound mind
and not disqualified by any law to which he is subject.

Age of Majority
 Age of Majority Act 1971: age of majority is 18 years.
 Under 18: minor.

Contract by Minors; Legal Effect: Void.

MOHORI BIBEE v DHARMODAS GHOSE
Held: The effect of contract entered by minor is void ab initio and whatever benefits
passed to the minor cannot be recovered.

However, there are some exceptions where the contract is still valid despite the fact that
the party is a minor.

1. Contract of marriage
RAJESWARY & ANOR v BALAKRISHNAN
The parties were Ceylonese Hindus. A marriage agreement was made by their fathers.
Subsequently the defendant refused to perform the contract. The plaintiff sued for
damages. The defendant argued that the contract is not binding because the plaintiff
was a minor.
Held: The contract of promise of marriage was binding.

2. Contract of necessaries
 Necessaries can be in form of goods or services. Education also was considered as
necessaries.

GOVERNMENT OF MALAYSIA v GURCHARAN SINGH
Held: Food and clothes are necessaries to the student. Education is also necessary.

 Test of necessaries:
i. Depends on the conditions of life of a minor
ii. Actual requirement of a minor

NASH v INMAN
A tailor sued for the price of clothes which includes 11 fancy waistcoats supplied to
the minor.
Held: although the clothes were suitable in the life of the minor, they were not
necessary as he had already sufficient clothing.

CHAPPEL v COOPER
Held: The provision of a funeral for her deceased husband was necessary for a minor
who was a widow.

DOYLE v WHITE CITY STADIUM

Held: A minor who agreed to undergo a training to be a boxer was bound by the
terms of his agreement with the stadium.

26
  Claim for necessaries supplied to person incapable of contracting.
S.69 CA: If a person incapable of entering into a contract, or anyone whom he is
legally bound to support, is supplied with 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.

3. Contract of scholarship
 S.4(a) Contract (Amendment) Act 1976: No scholarship agreement shall be
invalidated on the ground that the scholar is a minor.
 Scholarship includes an award, bursary, loan or sponsorship, appointment to a course
of study and any other facility for the purpose of education or learning.
GOVERNMENT OF MALAYSIA v GURCHARAN SINGH
A minor joined a Teacher’s Training College, sponsored by the government RM11,500.
Among the terms in the agreement was that he has to serve the government for 5 years.
However after servicing 3 years, Gurcharan breached the contract. The government
claimed back the amount of sponsorship.
Held: He has to pay back to government.

4. Apprenticeship
 Contracts of employment such as apprenticeship may be entered by the minor and
are valid.
 Section 1A(1) of the Children and Young Persons (Employment) Act 1966
defined child as minor below 14 years old and young person is between 14 and 16
years old.
 An apprenticeship, also known as Traineeship, Training period or Studentship is a
system of training a new generation (fresh graduated) of practitioners of a trade or
profession with “on the job training”.
 Apprenticeship also enables practitioners to gain a license or certificate to practice
in profession.
 Such program help fresh graduates acquire the skills and knowledge to succeed in
the industry; they earn while they learn on-the-job; get access to mentors; and gain
confidence as well as a career path advantage.
 In Malaysia, most of apprentice program involve working full-time and on a
rotational basis, from department to department.
 Normally a two-year program such as:
1. Global Maybank Apprentice Program (GMAP)
2. Technical Apprenticeship Program (TAP)
3. CIMB Fusion Program.

5. Contract of insurance
 Insurance Act 1963 (Revised 1972): a minor over the age of 10 may enter into a
contract of insurance. If under the age of 16, a written consent of his parents or
guardian is essential.

27
Sound Mind
 S.12 CA: A person is said to be of sound mind… if at the time when he makes it,
capable of understanding it and of forming a rational judgement.
 S.12 IIlustration (a) CA: A patient in a mental hospital, who is at intervals of sound
mind, may contract during those intervals.
 S.12 IIlustration (b) CA: A sane man, who is delirious from fever, or who is so drunk
that he cannot understand the terms of a contract, or form a rational judgement as to
its effect on his interests, cannot contract whilst such delirium or drunkenenness lasts.

Not Disqualified by Law

 A person who has attained the age of majority and sound mind can always enter into a
contract as long as he is not disqualified by any other written law which he is subject to.

28
FREE CONSENT
S.13 CA: Two or more persons are said to consent when they agreed upon the same thing
in the same sense.
S.14 CA: Consent is said to be free when it is not caused by-
(a) coercion (S.15)
(b) undue influence (S.16)
(c) fraud (S.17)
(d) misrepresentation (S.18)
(e) mistake (S.21,22,23)

Coercion
 S.15: Coercion is the committing or threatening to commit any act forbidden by
Penal Code, or the unlawful detaining or threatening to detain any property to the
prejudice of any person, with intention of causing any person to enter into an
agreement.
 S.19(1) CA: Contract is voidable.
CHIN NAM BEE DEVELOPMENT SDN. BHD v TAI KIM CHOO & 4 ORS
Respondents purchased houses to be constructed by appellant. They signed a sale and
purchase agreement valued at $29,500. Later, the respondents were forced to pay an
additional $4000 under a threat by the appellant to cancel the respondents’ booking for
their houses.
Held: The payment was not voluntary but had been made under threat / coercion and thus
was recoverable.

Undue influence
 S.16 CA: A contract is said to be induced by undue influence when there is subsisting
relationship between the parties where one party is in the position to dominate the
will of the other and he uses that position to obtain unfair advantage over the other.
 The relationship may arise when:
i. one party relies on another for advice / fiduciary relationship, or
ii. a person holds real authority over the other
 S.20 CA: Contract is voidable.
DATUK JAGINDER SINGH & ORS v TARA RAJARATNAM
The lawyer had influenced the client to transfer his property to the second defendant.
Held: The second defendant could set aside the contract. The transfer was voidable.

Fraud
 S.17 CA: Fraud includes any of the following acts committed by a party to a contract,
with intent to deceive another party, or to induce him to enter into the contract;
(a) suggestion as to fact which is not true
SENANANYAKE v ANNIE YEO
An untrue statement was made about the good potential of a firm.
Held: It was fraud as it was to deceive others into buying the shares.
(b) active concealment of fact by one having knowledge of the fact
(c) promise made without intention to perform
(d) any act fitted to deceive
(e) any act or omission which the law specifically declares to be fraudulent
 S.19(1) CA: Contract is voidable.

29
Misrepresentation
 S.18 CA: Misrepresentation includes:
(a) positive assertion …that is not true, though he believes it to be true
(b) any breach of duty , without intention to deceive, give an advantage to the
person committing it…, by misleading the other to his prejudice…
(c) causing, however innocently a party to an agreement to make a mistake…
 Conditions to be fulfilled in order to prove misrepresentation:
i. There must be a positive false statement
KEATES v LORD CARDOGAN
Defendant let the plaintiff a house which the defendant knew was in ruinous
condition. The defendant kept silent.
Held: No misrepresentation because there is no positive statement
ii. The representation must be one of fact
BISSET v WILKINSON
Wilkinson agreed to buy certain land for sheep farming. Wilkinson relied on Bisset’s
statement that the land would carry 2000 sheep. The land in fact could only carry
less than the said amount.
Held: No misrepresentation because Bisset was never a sheep farmer and no person
had ever carried on sheep farming on the land.
iii. The statement was addressed to the misled party
iv. The representation must induce the contract
 S.19(1) CA: Contract is voidable.

Mistake
i. Mistake of fact
a) Mutual mistake
S.21 CA: Where both parties to an agreement are under a mistake as to a matter of
fact essential to the agreement, the agreement is void.
RAFFLES v WICHELHAUS
Two parties contracted for a sale of cargo of cotton from a ship called “Peerless”
sailing from Bombay. Unknown to both parties, there were two ships name
“Peerless” leaving from Bombay at a different time. They were both negotiating
under a mistake and had in mind different ships.
Held: The contract was void for mutual mistake.

b) Unilateral mistake
S.23 CA: 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.
 If one party mistake, the contract is valid unless it falls under the exceptions;
(depends on the circumstances of the case).
TAMPLIN v JAMES
A bidder made a bid to an auction, believing that certain field was included in the
lot, in which, it was not.
Held: The contract was valid as the mistake was done by the bidder alone.

30
 Exceptions: one party mistake will cause a voidable contract:
a) Mistake of one party as to term
TAYLOR V JOHNSON
Mrs Johnson mistakenly stating a lower price for a land that she was selling to
Taylor. Instead of stating 15000 pounds per acre, she stated 15000 pounds for
the whole land. Taylor knew about this and did not correct it.
Held: The contract is voidable

b) Mistake of one party as to document

AWANG BIN OMAR V HAJI OMAR & ANOR
Haji Omar was induced to sign a document by his brother. The document was in
English in which he did not understand. He was told that he signed as a witness.
Instead he found out that he had mistakenly signed as a guarantor.
Held: The contract is voidable. He can plea non-est factum.

c) Mistake of identity
INGRAM V LITTLE
Seller sold a car to a person named Hutchinson from Stanstead Rd. He was paid
by cheque but later it turned out to be a bounce cheque.
Held: The contract was voidable because of mistaken identity and fraud
element.

ii. Mistake of law

S.22 CA: 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.
Illustration to S.22 CA: A and B make a contract grounded on the erroneous belief that
a particular debt is barred by limitation; the contract is not voidable.

31
CERTAINTY
S.30 CA: If the terms of the agreement are uncertain, the agreement is void.
S.30 Illustration (a) CA: A agrees to sell B a hundred tons of oil. There is nothing to show
what kind of oil was intended. The agreement is void for uncertainty.

KARUPPAN CHETTY v SUAH THIAN

The parties agreed to enter into an agreement of a lease at RM35 per month for as long as
he likes.
Held: The contract was void for uncertainty.

LEGALITY OF THE OBJECT

S.24 CA: The consideration or object of an agreement is lawful unless
(a) it is forbidden by law;
(b) it is of such a nature, if permitted , 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.

REQUIRED FORMALITIES
Contract can take any form; oral, written or by conduct. However, some legislation
requires contract to take certain formalities in order to be valid. Eg., hire purchase
agreement.

32
DISCHARGE OF CONTRACTS
Once a contract is discharge;
i. it is actually terminated
ii. the parties are free from further obligations under the contract

1. Discharge by performance
S.38(1) CA: The parties to a contract must either perform or offer to perform their
respective promises, unless such performance has been dispensed with by law.
 When the parties have perform their contracts, by carrying out their promises under
the contracts, there is a complete discharge of the contract.
 If only one of the parties has performed his part under the contract, he alone will be
discharged. The other party is still bound to the contract until he performs his
promise.

2. Discharge by agreement
S.63 CA: If the parties to a contract agree to substitute a new contract, or to rescind or
alter it, the original contract need not be performed.

S.64 CA: Every promise may dispense 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.
 This section allows:
i. Payment of smaller sum in discharge of a larger sum
ii. Part payment of somebody else in discharge of a debt
iii. A discharge of unascertained amount owing under a contract by an agreed sum
in satisfaction of it.
iv. Arrangement of settlement of debts between a debtor and his creditors where the
creditors agree to accept a stated amount or a certain percentage of his debt in
full satisfaction.

KERPA SINGH V BARIAM SINGH

The Defendant owed the plaintiff RM8000. However, plaintiff agreed to accept the
payment of RM4000 by cheque in full satisfaction of the whole amount. Thus, plaintiff
cannot claim back the remaining.

3. Discharge by impossibility of performance/frustration

 The contract becomes impossible to be performed after it has been made.
 S.57(2) CA: A contract to do an act which, after the contract is made, becomes
impossible, or by reason of some event which the promisor could not prevent,
unlawful, becomes void when the act becomes impossible or unlawful.
 This happen in several situations:
i. Destruction of the subject matter of the contract
TAYLOR v CALDWELL
Music hall accidently burnt down before the date of the concert.
Held: The contract to hire the hall was discharged.

33
 ii. Supervening event defeats the whole purpose or object of the contract
KRELL v HENRY
There was a contract to rent a room for the purpose of witnessing the
coronation of the king. The king was sick and the coronation was cancelled.
Held: The contract was frustrated.

iii. Death or personal incapacity of the contracting parties

CONDOR v THE BARON KNIGHTS LTD
Condor was employed by a band to play drum in a club for seven nights a
week. After a while, he felt sick and on doctor’s advice, he has to reduced his
activity to four nights a week. The band had to terminate his contract on the
reason that he was no longer capable of performing his contract.
Held: The contract was frustrated.

iv. Supervening illegality

E.g : change in law and declaration of war.

 S.66 CA: Any person who has received any advantage under the agreement is
bound to restore it or make compensation for it
 S.15(2) Civil Law Act 1965: Money due but not paid ceases to be payable.

4. Discharge by breach
 When a promisor fails to perform his obligations, there is a breach of contract.
 The party not in breach has the option either to continue with the contract or to
repudiate it.
 S.40 CA: When a party to a contract has refused to perform, or disabled himself
from performing, his promise in its entirety, the promisee may put an end to the
contract…

Illustration (a) to S.40 CA: A, a singer, enters into a contract with B, the manager of
a theatre, to sing at his theatre two nights in every week during the next two months,
and B engages to pay her $100 for each night’s performance. On the sixth night A
willfully absents herself from the theatre. B is at liberty to put an end to the contract.

SMITH CONSTRUCTION CO LTD v PHIT KIRIVATA

Held: The refusal to issue an architect’s certificate as agreed under a contract
amounted to a breach of contract because it prevented the contractor from proceeding
with the construction of the building. Since the time is important in the contract, the
party not in default has choice either repudiating the contract or treating it as
subsisting.

34
REMEDIES FOR BREACH OF CONTRACTS
1. Damages
 Financial compensation
 Aim: to place the party who has suffered the loss as a result of breach as nearly as
possible in the same position as he or she would have been in, if the breach has not
occurred.
 S.74(1) CA and HADLEY v BAXENDALE:
The injured party is entitled to:
i. Actual damages
ii. Special damages
iii. No compensation for any remote or indirect loss.
THAM CHEW TOH V ASSOCIATED METAL SMELTERS
There was a delay in delivery of metal melting furnace.
Held : the respondent can claim the actual loss and special loss for loss of profit
because the appellant knew of the requirement to deliver a furnace according to
the specified temperature and the urgency of delivery.

2. Specific Performance
 A decree of the court directing that the contract shall be performed specifically
according to its terms.
 Discretionary remedy.
 S.11 Specific Relief Act 1950 provides some circumstances under which specific
performance may be granted, Eg:
a) when the act agreed to be done is in the performance wholly or partly of a trust.
b) when there exists no standard for ascertaining the actual damage caused by non-
performance of the act agreed to be done
c) when the act to be performed is such that pecuniary compensation would not
afford adequate relief.
 There are some circumstances when contracts cannot be specifically enforced, eg:
compensation in money is an adequate relief or the terms of the contract are
uncertain (S.20 SRA) or if it would cause undue hardship to the defendant (S.21
SRA).

3. Injunction
 A court’s order to restrain the doing, continuance or repetition of some wrongful
conduct.
 Discretionary remedy.
 Types:
i. Temporary Injunction
: to preserve status quo pending resolution
AMERICAN CYANAMID V ETHICON
Held: An interlocutory injunction is granted to maintain the status quo, if there
were serious questions to be tried.
ii. Perpetual Injunction
: granted after full trial, to permanently prohibit the defendant from doing an act
or asserting a right
PERTAMA CABERET NITE CLUB V ROMAN TAM
There was a contract to sing at a club but it was breached. The club can restrain
the singer to sing at another club within the town.

35
4. Quantum Meruit
 An award made where one party has completed all or part of his side of the bargain
before the other’s breach.
 It is a payment of the amount deserved for what has been done up until the breach.

36
EMPLOYMENT
LAW

37
INTRODUCTION
Industrial relations: is to study the relationship between workers and their employers within
the work environment. Also known as employee or labour relations.

EMPLOYMENT LEGISLATION
The major pieces of employment-related legislation are:
1. Employment Act 1955
2. Trade Union Act 1959
3. Industrial relations Act 1967
4. Occupational Safety and Health Act 1994

THE EMPLOYMENT ACT

The Act lays down provisions to protect workers from exploitation and to provide minimum
benefits for all workers covered by the Act.

ENFORCEMENT OF THE EMPLOYMENT ACT

Labour Department
It is the responsibility of the Department of Labour to enforce compliance with the
Employment Act. This is done through the State-level officer found throughout the country.
Their jobs are to:
1. carry out routine inspections of places of employment
2. investigate complaints from employees
3. make decisions on employees’ claims when they are disputed by the employer
4. answer queries on the Employment Act and other labour legislations from
employers and employees

Labour Court
When a dispute arises between an employer and his employee concerning the employee’s
entitlement under the Act, the Labour officers are empowered to hear the dispute and make
a decision. This process is commonly known as the “labour court”. The type of claims heard
by the Labour Department officers relating to the provisions of the Employment Act, which
includes claims for:
1. termination benefit
2. maternity benefits
3. overtime payments
4. sick pay and annual leave pay
5. public holiday pay

COVERAGE OF THE EMPLOYMENT ACT

Not all employees are protected by the Employment Act. Those according to the first
schedule of the Act, include:
i. Any person who has entered into a contract of service with an employer under
which such person’s wages do not exceed RM1,500 a month
ii. Any person who has entered into a contract of service with an employer without
regard to his wages who:
a. is engaged in a manual labour; or
b. is engaged in supervising or overseeing other employees engaged in manual
labour; or
c. is engaged in the operation or maintenance of any vehicle used for
transportation of passengers or goods, or for reward or for commercial
purposes; or
38
 d. is engaged in any capacity in any locally registered vessel but is not certified
officer; or
e. is engaged as a domestic servant
The Act only applies to West Malaysia. Workers in Sabah and Sarawak are covered under
separate legislation. Public sector employees, consisting of the civil service, statutory bodies
and local authorities, have been exempted from the Act.

THE EMPLOYMENT CONTRACT

One of the issues to be determined in order for the employee to get a protection under the
Employment Act (EA) is whether he is employed under a contract of service. A contract of
service is called a contract of employment under the Industrial Relations Act 1967 IRA).

The differences between contract of service and contract for service

No. Contract of service Contract for service

1. It is a contract between employer and A contract between contractors who
employee including the terms and provides services to his client. The person
conditions of employment. providing the services is an independent
Eg: Ahmad had entered into a contract contractor, a business for himself or self-
of service with ABC Sdn Bhd. and employed.
being paid a salary by the company. Eg: if an individual home-owner pays a
His status is the employee of ABC Sdn person or a group of persons to paint his
Bhd. house, the contract between them is a
contract for service
2. An employee cannot be employed by Independent contractor have control over
two employers at once time. The their business. They know what have to
worker is controlled by their employer. be done and how the job has to be carried
They must follow the employer’s out. Independent contractor can provide
instruction according to job their service to more than one client at
descriptions. one time
3. The employees have statutory rights to Independent contractor are not entitle to
holiday pay, sick pay, maternity and any of these rights. They provide their
paternity rights and contribute to EPF own insurance cover and not by EPF.
scheme under Employees Provident
Fund Act 1991
4. Under Common Law, the employer The independent contractor does not
owes a duty of care to the employee to usually owe a duty to the client.
provide a reasonably safe system of
work.
5. Apply the concept of vicarious liability Not apply the concept of vicarious
- An employer can be made liable for liability.
the act done by its employee. If a tort is
committed by an employee in the course
of his employment, the employer will
be liable for any injury or damage to
third parties

39
TEST TO DETERMINE STATUS OF EMPLOYEE
In determining the employment status of a worker, the courts have developed a number of
tests to assist in the decision-making process. Basically there are three tests for determining
the existence of contract of service:
i. Traditional or Control test
The traditional or control test refers to the control of an employee by another, not only as to
what he must do but also as to how and when he must do. This test however is quite difficult
to apply in modern industrial relationships.
ii. The organization or integration test
The organization or integration depends on whether the person is part and parcel of the
organization. However, there is no specific rule to measure whether a person is considered
as part of the organization. Therefore, it seems that the test is not so conclusive.
iii. Multiple or mixed test
Because of the problem in applying the test to determine the status of the employee in the
organization, the court had adopted a more liberal and “common sense” approach namely
multiple or mixed test. Using the reasonable man approach, it is suggested that the test
should be applied in two stages:
i) it must be asked whether there is control, and
ii) whether the provision of the contracts are inconsistent with its being a contract
of service.
No test can be conclusive. Since then, if there is a dispute in determining whether there is a
contract of service or a contract for service, normally, the court will use a combination of
factors. Among the factors that will be examined and several questions that will be asked
are:
i) Does the employer control when and how the work is done and who does it?
ii) Does the employer provide the tools, raw materials and equipment necessary to
do the work
iii) How payment is made? On a regular basis or on completion of the work?
iv) Are contributions to statutory funds such the Employees Provident Fund being
made?
v) Is there is a written contract, and what are the terms in the contracts?
vi) Does the worker have to follow the organizational rules?

TERMS OF CONTRACT OF EMPLOYMENT

Written and oral contract
A contract of employment does not have to be in writing. If a worker has no written letter
of appointment, it does not mean that no contract of employment exists between him and
the employer. Such a contract can be implied by the fact that he is working for the employer.
However, if dispute arises about the terms of that contract, both parties will have a difficult
time proving to the Labour Department or a Court what they have agreed in the terms of
their agreement.

Duration of the employment contract

An employment contract can be for a particular period of time or they can be open-ended
and not specify the duration. The former is known as fixed-term contract. Such contract will
specify the time period for which the worker is to be employed.
If the contract is open-ended contract, the job is belonged to the employee until their services
is formally terminated by the employer or if they decide to leave the organization.

40
Notice to terminate a contract of service
A contract of service can be terminated by both parties (either the employer or the
employee). According to section 12 EA, “either party to a contract of service may at any
time give to the other party notice of his intention to terminate such contract of service”.
There are two provisions of the EA relating to notice of termination of a contract of
employment.
i) the length of the notice period required of each party must be the same
ii) the employer can decide on the notice period required and have this agreed to in
the contract of employment
Section 12 EA states that where the contract is silent on the length of the notice period, then
the notice shall be not less than:
a) four weeks’ notice if the employee has been employed for less than two years on the
date on which the notice is given
b) six weeks’ notice if he has been employed for two years or more but less than five
years
c) eight weeks’ notice if he has been employed for more than five years
Apart from that, the employer or the employee can also terminate a contract of service
without giving the required notice if he pays to the other party an indemnity, i.e a sum of
money equivalent to the amount of wages which would have been earned during the notice
period.

Termination for misconduct

The employer also can terminate the contract of employment/ service of its employee on the
reason of misconduct. According to section 14 EA, an employer has a right to dismiss,
downgrade or impose any other lesser punishment on an employee who after a due inquiry
(or domestic inquiry) has been conducted, and he is found guilty of misconduct.
Prior to the holding of the inquiry, if the employer wishes to suspend the employee from
work to facilitate the investigations or for any other reasons, he can do so up to a a maximum
of two weeks. During that suspension period, the worker is entitled to half his wages. If the
employee is subsequently found not guilty (after the domestic inquiry was conducted), the
remaining half-pay must be paid to him.
In conducting a domestic inquiry, the employer must observe the principle of natural justice.
Basically, the principle consists of two elements i.e audi alteram partem and nemo judex in
sua causa.
Failure to comply, the employee challenge the decision of the employer for his dismissal.

PRINCIPLES OF NATURAL JUSTICE

Audi alteram partem
means that the court has to satisfy that the accused party must get fair hearing in court / right
to be heard.
METAL INDUSTRY EMPLOYERS UNION v REGISTER OF TRADE UNION
The Register of Trade Union had issued an order directing the secretary of Trade Union to
remove several names from its register. The persons affected were not given opportunity to
defend themselves.
Held: the rule of audi alteram partem should be strictly observed.

Nemo judex in sua causa

Means that the judge must be free from bias. In conducting the hearing, there should not be
the element of bias. A judge should be impartial.
COOPER v WILSON

41
The head of authority had dismissed the police officer. The officer made an appeal to the
Revised Committee. The authority also attended the proceeding held by the Revised
Committee.
Held: Even though the head of police was not a member in the appeal (Revised Committee),
there was a possibility of bias.

DISMISSAL
 Dismissal is an act of employer to terminate the contract of service unilaterally.
 By such act, the employee ceases to be in the services of the employer.
 The employer can exercise this right only if there is any cause.
 The International Labour Organization recommended that a worker aggrieved by the
termination of his employment should be entitled to appeal to some neutral body such
as an arbitrator or court
 Such body should be empowered to order reinstatement or adequate compensation.
 If an employee by his own act commits breach of contract of employment, the employee
can be said to have terminated the contract and not dismissed by the employer.
 In such a situation, he is not entitled to the safeguards against dismissal.
 S.20(1) Industrial Relations Act 1967: a dismissed workman can make representation
in writing to the Director General for reinstatement if he considers that he has been
dismissed from the service without just cause or excuse by his employer.
 The representation must be made within sixty days from the date of such dismissal.
 Where a workman is dismissed with notice, he can file a representation at any time
during the period of that notice.

RIGHTS OF EMPLOYEES UNDER EMPLOYMENT ACT

Annual leave
According to section 60E Employment Act 1966, an employee shall be permitted to annual
leave of not less than the following:
a) 2 years’ service – 8 days for each year of service
b) More than 2 years but less than 5 years – 12 days for each year of service
c) 5 years or more – 16 days for each year of service
Where an employee has not completed 12 months of continuous service with the same
employer, such employee’s entitlement to paid annual leave shall be proportioned to the
number of completed months of service.
An employee is not permitted to annual leave due to the following:
i. If absent from work without the permission of the employer and without reasonable
excuse for more than 10 % of the working days during the 12 months of continuous
service in respect of which such employee entitlement to such leave accrues.
ii. If dismissed after due inquiry.

Sick leave
An employee shall be permitted to pay sick leave of not less than the following:
a) Less than 2 years’ service – 14 days
b) More than 2 years but less than 5 years – 18 days
c) 5 years or more – 22 days
Hospitalization is necessary as certified by a registered medical practitioner – 60 days

42
Maternity rights
A female employee is entitle to maternity leave for a period of not less than the eligible
period of 60 consecutive days and maternity allowance in respect of the eligible period.

Rest day
An employee shall be entitled to at least 1 whole day of rest day in a week

DUTY OF CARE
1. It’s employer’s duty to take reasonable care to avoid exposing his employee to
unnecessary risk of injury.
MANLIO VASTA v INTER OCEAN SALVAGE & TOWAGE LTD
Held: Defendant company had failed to provide safe and proper system of work, as they did
not provide a second diver at the scene and also they were negligent for unreasonable delay
in bringing the plaintiff to the decomposition chamber at Loyang after the accident.

2. Vicarious liability of an employer for not providing safe system of work

ANG TOH WAH v GOH LOH & ANOR
Held:. At the time of the accident, the plaintiff (employee of the first defendant) who was
injured when the crane driver lowered the grab to pick up a load of granite was doing the
work of the second defendant company which held the control and direction of the
unloading, therefore, the second defendant was vicariously liable by the negligence of his
employee; the crane driver.

3. Employee not insured under Employees’ Social Security Act 1969 can claim
damages under common law.
LIAN ANN LORRY TRANSPORT & FORWARDING SDN BHD v
GOVINDASWAMY
Held: the respondent who suffered serious injuries while unloading bundles of carpets from
the lorry was not debarred from claiming damages under common law even though he was
not an insured person within the meaning of the Act.

4. Duty of care is personal to the employer, it cannot be delegated under any

circumstances.
KONDIS v STATE TRANSPORT AUTHORITY
Held: duty of care is not merely personal but non-delegable. If employer engages an
independent contractor, a failure by employer to ensure that the contractor adopts a safe
system of work will nevertheless constitute a breach of duty of care, if the contractor’s
negligence causes injury to employees of the employer.

5. Employee willfully ignoring safety measures and employer’s liability

LEONG CHIN KUM v SELCO SHIPYARD PTE LTD
Held: the employers were not in breach of statutory duty. The deceased was a very
experienced project supervisor. He willfully entered the tank ignoring all the safety
procedures.

6. Duty to provide safe system includes duty to take reasonable care

JOHNSTONE v BLOOMSBURY HEALTH AUTHORITY
Held: the employee would have a good claim against his employer for operating an unsafe
system of work since he was required to work in excess of 72 hours a week with inadequate
sleep he suffered personal injury, stress and depression.

43
INTRODUCTION
TO SHARI’AH
PRINCIPLES
GOVERNING
COMMERCIAL
TRANSACTION

44
PRINCIPLES OF VALID CONTRACTS UNDER SHARI’AH
1. The functions and operation modes of Islamic banks are based on the principles of
Islamic Shariah.
2. It promote risk sharing between provider of capital (investor) and the user of funds
(entrepreneur).
3. Its aim is maximizing profit but subject to Shariah restrictions. There must be no
elements of Gharar, Riba and Maisir.
4. In the modern Islamic banking system, it has become one of the service-oriented
functions of the Islamic banks to be a Zakat Collection Centre and they also pay out
their zakat.
5. Participation in partnership business is the fundamental function of the Islamic Bank.

DIFFERENCES BETWEEN ISLAMIC BANKING SYSTEM AND

CONVENTIONAL BANKING SYSTEM.

CONVENTIONAL BANKS ISLAMIC BANKS

i. The functions and operating modes i. The functions and operating modes of
of conventional banks are based on Islamic banks are based on the
fully manmade principles. principles of Islamic Shariah.

ii. The investor is assured of a ii. It promotes risks sharing between

predetermined rate of interest. provider of capital (investor) and the
user of funds (entrepreneur).

iii. It aims at maximizing profit without iii. It aims at maximizing profit but subject
any restriction. It can charge to Shariah restrictions. There must be
additional money for penalty and no elements of Gharar, Riba and
compounded interest in the case of Maisir.
defaulters.

iv. It does not deal with zakat. iv. In the modern Islamic banking system,
it has become one of the service-
oriented functions of the Islamic banks
to be a Zakat Collection Centre and
they also pay out their zakat.

v. Lending money and getting it back v. Participation in partnership business is

with compounding interest is the the fundamental function of the Islamic
fundamental function of banks.
conventional banks.

45
SYARIAH CONTRACT IN COMMERCIAL TRANSACTION
1. Mudharabah (Profit Sharing)
 The first tier of mudharabah agreement is between the bank and the depositors.The
depositors are the providers of capital and the bank functions as the manager of
funds.
 The second tier of a mudharabah agreement is between the bank and the
entrepreneurs. The bank functions as the provider of capital and entrepreneur
works as the manager.
 Profits accruing from their business will be shared between them in a previously
agreed proportion, but loss shall be borne by the bank only.

2. Murabahah (Set Profit Sale)

 It is a sale of a commodity for cash and deferred payment.
 The customer will first identify the goods to be financed
 The bank will purchase the good and resale it to the client adding cost plus profit
basis.

3. Musyarakah (Partnership)
 A contractual relationship established under a contract by the mutual consent of the
parties.
 The Bank and the Customer will both contribute their capital as well as expertise in
a project.
 Profit and loss will be shared normally based on the capital contribution.

4. Bai Bithaman Ajil /BBA (Credit sale/Deferred payment sale)

 It is a mode of Islamic financing used for property and house purchasing, vehicle, as
well as financing of other consumer goods.
 The bank will buy the asset from the third party at the request from the client and
sell to the client at cost plus profit margin.
 The client will pay by installment.

5. Bai Inah ( Sell And Buy Back)

 A customer offers to sell some of his inventory to a bank for an immediate cash
payment.
 He then buy back the inventory on an instalment basis but at a higher price than the
price he sold to the bank earlier.
 The difference in the price is therefore the bank's maximum profit, which is
determined in advance.

6. Bai’Salam (Advance Purchase / future delivery)

 A sale and purchase transaction whereby the payment is made in cash at the time of
contract but the delivery of the asset purchased will be deferred to a pre-determined
date.
 Particularly for production of agricultural goods.
 The commodity should be generally available in the market at the time of delivery.

46
7. Istisna’ ( Commercial Manufacture)
 It is an order sale used mainly in financing assets that are under construction.
 It allows the Bank to disburse payments according to the stage of completion.
 Once completed, the asset will be handed over to the customer through Ijarah, BBA,
Murabahah, Mudharabah or Musyarakah.

8. Ijarah Thumma Al Bai’ (Hire Purchase)

 There are two contracts involve:
i. Ijarah contract/leasing (agreed rental for specified period; the bank purchases
the car from dealer and leases the car to the customer)
ii. Bai contract/purchase(at the end of leasing period and at an agreed price)

9. Qardul Hassan ( benevolent loan)

 A loan extended on goodwill basis
 The debtor is only requiring repaying the amount borrowed.
 However, the debtor may, at his discretion pay an extra amount beyond the amount
of the loan as a token of appreciation to the creditor.

10. Al- Wakalah

 Literally, Al-wakalah means agency
 Technically, it means the appointment of someone to take over the appointer’s
affairs on his behalf for the purpose of accomplishment of certain task.
 Elements of al-wakalah:
1. Wakil – agent
2. Muwakkil – principal
3. Muwakkil bih – subject matter
4. Sighah – offer and acceptance
 Types of al-wakalah:
1. Al-wakalah Mutlaqah (unlimited agency).
 It is a wakalah contract that is not restricted to any conditions except for those
that are permitted in Islam and not confined to certain circumstances or time
limit.
2. Al-wakalah Muqayyad (limited agency).
 It is a wakalah that is restricted or confined with certain conditions that
legitimized by Islam, bounded by special circumstances or time limit.

47
LAW OF AGENCY

48
STATUTE
Contracts Act 1950

DEFINITION
Agency : relationship between principal and agent.
Agent : a person who is employed to do any act for another or to represent another
in dealings with third persons. (S.135 CA)
Principal : the person for whom such act is done or who is so represented. (S.135 CA)

CAPACITY
Agent : any person may become an agent but an agent who is a minor or unsound
mind is not responsible for his act. (S.137 CA)
Principal : must be of the age of majority and sound mind. (S.136 CA)

CREATION
 Principal is liable for an act or omission done by agent in the course of business.
1. By Express Appointment
 S.140 CA: The principal may appoint the agent expressly, either orally or in writing.

2. By Implied Appointment
 Implied by the circumstances of the case:
The creation of agency may be implied by referring to the words or conducts of the
business between the parties.
 Implied by the Partnership Act 1961:
S.7 PA: A partner is an agent to his firm and other partner.
 Implied from the relationship of husband and wife:
Impliedly the wife is an agent to the husband.
However, the husband can rebut this implied authority by proving that,
i. he expressly forbid his wife from pledging his credit, or
ii. he expressly warned the tradesman not to supply his wife with goods on credit, or
iii. his wife was sufficiently provided with goods, or
iv. his wife was given sufficient allowance to buy goods without pledging her
husband’s credit, or
v. the order was unreasonable with her husband’s income.

3. By Ratification
 Arise in two situations:
i. an agent who is appointed exceeded his authority, or
ii. a person who had no authority to act but acted as if he has the authority
 S.149 CA: Principal has choice;
i. elect to ratify – principal liable
ii. disown the act – agent liable
 However there are eight conditions need to be fulfilled before principal ratifies:
i. The act must be unauthorized or the agent has exceeded his authority.
ii. The act must be recognized by law.
iii. The agent must expressly acts as an agent for the principal at the time of
contract.

49
 KEIGHLEY MAXTED v DURENT
An agent bought wheat at a price higher than authorized by the principal in his
own name.
Held: Principal could not ratify the contract.
iv. The principal must be in existence and have contractual capacity at the time of
the contract.
v. The principal must have knowledge of all material facts of the contract-S.151
CA.
MARSH v JOSEPH
vi. The principal must ratify the whole contract-S.152 CA.
vii. Ratification must be made within reasonable time.
GROVER & GROVER v MATHEWS
viii. Ratification must not injure or affect the interest of a third party-S.153CA.

4. By Necessity
 S.142 CA: An agent has authority, in an emergency, to do all acts for the purpose of
protecting his principal from loss as would be done by a person of ordinary prudence,
in his own case, under similar circumstances.
 Conditions:
i. Emergency situation
ii. Prior contractual relationship between the parties from the beginning
iii. The agent’s action is necessary to prevent loss to principal.
iv. It is impossible for the agent to communicate and get further instruction from the
principal.
v. The agent must act in good faith and reasonable in the circumstances.

GREAT NORTHERN RAILWAY COMPANY v SWAFFIELD

The plaintiff had transported the defendant’s horse to a station but once it arrived,
there was no one collected the horse. The plaintiff tried to get further instructions
from the defendant but failed. The horse was stored in a stable, which the stabling
charges was paid by the plaintiff. The plaintiff claimed for the charges from the
defendant.
Held: the plaintiff was an agent by necessity and entitled to the claim.

PHELPS JAMES & CO v HILL

Held: Agency by necessity does not arise if there is no real urgency.

SPRINGER v GREAT WESTERN RAILWAY

The defendant, a railway company that was supposed to carry the goods to its
destination, sold the goods in the middle of the way without trying to
communicate with the owner to get further instruction when it was possible to do
so.
Held: No agency by necessity. Agent is liable for the loss.

5. By Estoppel
i. When the principal himself induce the third party to believe that a person has an
authority to act for him as if that person is his agent.
The principal is estopped from denying the agent’s authority.
ii. When a principal does not inform to the third party that his agent has no authority or
the agent’s authority had been terminated, but the agent still continues acting on behalf
of that principal.
50
 FREEMAN & LOKYER v BUCKHURST PARK PROPERTIES LTD
Kapoor without authority, hired a firm of architects and surveyors to do work for the
company. The other directors even though had knowledge about this did not inform the
third party that Kapoor had no authority. Third party sued the company for payment.
Held: The company was estopped from denying Kapoor’s authority to act for them.
Agency by estoppel existed between Kapoor and the company.

AGENT’S AUTHORITY
1. Actual Authority
Comprises of:
i. Express authority: expressly given by the principal orally or in writing.
ii. Implied authority: implied from the following;
- express authority given by the principal
- custom and trade usage
- circumstances of the case
- conduct of the parties.
2. Apparent/Ostensible Authority
Arise in two situations:
i. Where a principal by his words or conducts leads the third party to believe that his
agent has authority to make contracts for him.
ii. Where the agent previously had authority to act but that authority was terminated by
the principal without notifying it to the third party.

DUTIES OF AGENT TOWARDS THE PRINCIPAL

Since the relationship between the principal and agent is contractual relationship, there are
certain duties must be performed by both parties. If the agent breached his duty, the principal
has a right to repudiate the transaction, dismiss agent and claim compensation from the
agent.

1. Obey the principal’s instruction: S.164 CA.

TURPIN v BILTON
The agent has been instructed by the principal to get insurance for his vessel. The agent
failed to do so. The vessel lost and the principal claimed damages.
Held: The agent is liable for breach of duty.
 Exception:
COHEN v KITTEL
Held: Agent is under no duty to obey unlawful instructions.

**In the case where there is no instruction given, the agent must follow the custom.
This means that the agent must do what he usually does.

2. Exercise care and diligence, and use all skills he possesses in carrying out his work:
S.165 CA.
KEPPEL v VELLER
An agent sold a house at a lower price when there was a higher offer.
Held: Agent was liable.

51
3. Render proper accounts when required: S.166 CA.
PARKER v MASON
Held: It is a duty of agent to prepare and show proper account when requested by
principal.

4. Duty to communicate with the principal : section 167 CA

Agent must use all reasonable diligence in communicating with his principal, to obtain
his instruction. If he fails to get further instruction, then, he can use his own discretion
to act, in order to protect the interest of his principal.
SPRINGER v GREAT WESTERN RAILWAY
The defendant, a railway company that was supposed to carry a cargo of tomatoes to
its destination, sold the goods in the middle of the way without trying to communicate
with the owner to get further instruction when it was possible to do so. Held: agent
was liable for the loss.

5. Act in good faith and cannot let his interest conflict with his duty- section 168 CA
1950
WONG MUNG WAI v WONG THAM FATT
Held: The agent had breached his duty because he sold the principal’s share below
market value to his own wife without informing the principal.

6. Cannot make any secret profit- section 168

 Secret profit can be defined as a bribe means any extra payment, secret commission
or any financial advantage from third party. It also refer to any profit that is not
revealed to the principal.
 Effects:
- If principal knows and consents, agent is entitled to keep.
- If principal does not consent, he can:
i. repudiate the contract, or
ii. recover the secret profit, or
iii.refuse to pay commission, or
iv. dismiss the agent, or
v. sue the agent and/or third party for any loss/damages,
vi. initiate criminal action under Malaysian Anti-Corruption Commissioner Act
2009
MAHESAN V GOVERNMENT OFFICERS COOPERATIVE SOCIETY
Principal instructed agent to buy a piece of land. The agent found the seller who wanted
to sell the land to the company for RM944,000. The seller gave a bribe to the agent
RM122,000.
Held: the principal may recover the bribe due to loss suffered.

7. Cannot disclose any confidential information and documents entrusted to him by

principal.

8. Must pay his principal all sums received on his behalf: S.171 CA.
 S.170: agent is entitled to deduct any sum from the principal’s money for advances
made/expenses incurred, commission and other remuneration.

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9. Cannot delegate his authority to other person: S.143 CA.
 Maxim: Delegatus non protest delegare.
 Exceptions:
i. Where the principal approves the delegation.
ii. Where it is presumed from the conduct of the parties that the agent would have
power to delegate.
iii. Where the custom of trade permit delegation.
iv. Where it is necessary to complete the business.
v. In case of necessity or emergency.
vi. Where the act to be done is purely ministerial or clerical.
DE BUSHE V ALT
The principal appointed the agent in China to sell a ship. The agent was unable to
sell so he sought the principal’s approval to appoint sub agent to sell the ship in
Japan.
Held: the agent is allowed to appoint an agent in Japan as his principal has consented.

DUTIES OF PRINCIPAL TOWARDS THE AGENT

1. To pay commission and other agreed remuneration: S.172 CA.
 S.172 CA: agent who is guilty of misconduct losses his right of remuneration.

2. Not to willfully prevent the agent from earning his commission.

 Principal is said to have willfully prevent if he appointed another agent to carry on the
same duty, to deprive the original agent from earning his commission.

3. To indemnify and reimburse the agent.

 Arise in the following circumstances:
i. The agent has incurred losses or liabilities in performance of his duties: S.175 CA.
KYALL AND EVATT v LIM KIM KEAT
The agent was hired to sell shares. The principal failed to disclose certain
important information which caused loss to the agent who had to buy other shares
for substitution.
Held: The agent was entitled to be indemnified for the loss.
ii. The agent causes injury to third party in the execution of his authority: S.176 CA.
iii. The agent suffers injury during the course of his duties due to the principal’s
neglect or lack of skill: S.178 CA.

EFFECTS OF CONTRACT MADE BY AGENT

1. Named principal
 The agent contracted as an agent and identity of principal is disclosed.
 Clear agency relationship: principal liable
 Exception:
i. agent agreed with third party to accept personal liability
ii. agent executes a deed/agreement in his own name
iii. agent exceed authority and principal does not ratify
iv. custom of trade made agent liable

2. Disclosed principal
 The agent contracted as an agent but identity of principal remains unknown.
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  Principal liable
 Exception:
i. Agent made contract for sale and purchase of goods for merchant resident abroad
ii. Where principal cannot be sued

3. Undisclosed principal
 The existence and identity of principal is not disclosed
 Right of the third party: has right to claim either agent or principal or both
 Right of the principal: may require the performance of the contract even though the
third party does not know that there is a principal
 Right of the agent: can claim his right under the contract

TERMINATION OF AGENCY
1. Termination by act of the parties
2. Termination by operation of law.

1) Termination by act of the parties – section 154 CA

a) Mutual consent
The principal and agent may terminate their agency relationship by mutual consent between
them.
Once they agreed to terminate the agency, the agent has no longer any authority to act on
behalf of the principal, and the principal would not be liable for any contract made by the
agent after the termination.

b) Unilateral termination - Revocation by the Principal or by agent

Section 156 - The principal may revoke the agent’s authority at any time before the agent
has exercises the authority.

Section 159 – the principal / agent must give reasonable notice for the termination. If no
notice, the agent/ principal can claim for damages. Reasonable notice depends on the
circumstances of the case.

In Sohrobji V Oriental Security Assurance it was held that a notice of 3 and half months
was inadequate to terminate 50 years agency relationship. The reasonable notice is two
years.
In the case of Syarikat Jaya V Star Publication, 6 months’ notice was reasonable to
terminate a sole agency relationship.

2)Termination by operation of law : Section 154 CA

a) When the business of agency is completed
b) By expiration period agreed by both parties
c) By death of agent or principal.
d) By subsequent insanity of agent or principal.
e) By bankruptcy of the principal
f) By frustration or by happening of an event which renders the agency unlawful.

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LAW OF TORTS
& PROFESSIONAL
NEGLIGENCE

55
REFERENCES:

Statutes:
1. Contracts Act 1950
2. Hire-Purchase Act 1967
3. Sale of Goods Act 1957
4. Bills of Exchange Act 1949

Books:
1. Abdul Aziz Bari,Farid Sufian Shuaib (2007),Constitution of Malaysia, Tex and
Commentary, Pearson, Kuala Lumpur.
2. Ahmad Hidayat Buang (2000), Studies in Islamic Law of Contracts: The Prohibition of
Gharar, International Law Book Services, Kuala Lumpur.
3. Ahmad Mohamed Ibrahim (2000), The Administration of Islamic Law in Malaysia,
Institute of Islamic Understanding Malaysia, Kuala Lumpur.
4. Beatrix Vohrah, Wu Min Aun (2000), The Commercial Law of Malaysia, Longman,
Kuala Lumpur.
5. Islamic Banking Practice from the Practitioner’s Perspective (1994), Bank Islam
Malaysia Berhad, Kuala Lumpur.
6. Lam Sinn Hui (1996), Commercial Law (Students’ Companion Law Series),
International Law Book Services, Kuala Lumpur.
7. Lee Mei Pheng (2005), General Principles of Malaysian Law. 5th Edition, Penerbit Fajar
Bakti Sdn. Bhd. Kuala Lumpur.
8. Lee Mei Pheng, Detta Samen (1997), Commercial Law in Malaysia, Malayan Law
Journal, Kuala Lumpur.
9. MP Jain (1997),Administrative Law of Malaysia and Singapore, Malayan Law Journal,
Kuala Lumpur.
10. Shaik Mohd. Noor Alam (2000), Undang-Undang Komersil Malaysia, Dewan Bahasa
dan Pustaka, Kuala Lumpur.
11. Sue Valquis Md. Mashhor,Azni Mohd Dian,(2005), Malaysian Legal System (Law245),
InED, UiTM Shah Alam.
12. Syed Ahmad S A Alsagoff (1996), Principles of the Law of Contract in Malaysia,
Malayan Law Journal, Kuala Lumpur.
13. Wan Arfah Hamzah, Ramy Bulan (2003), An Introduction to The Malaysian Legal
System, Fajar Bakti, Kuala Lumpur.

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