Breach of contract

Pharmaceutical Society of Great Britain v. Boots Cash Chemist Ltd. Facts of the case: Defendants charged under the Pharmacy and Poisons Act 1933 (U. K. ) which provided that it was unlawful to sell certain poisons unless such sale was supervised by a registered pharmacist. The defendant argued that in every case involving drugs, a pharmacist supervised the transaction at the cashier’s desk and was authorized to prevent a sale. Held: The display was only an invitation to treat. A proposal to buy was made when the customer placed the articles in the basket. Contract of sale would only be made at the cashier’s desk.

Therefore, shop owners had 12 not made an unlawful sale. OFFER / PROPOSAL (continue.. ) ? Advertisement: * Only an invitation to applicants to make an offer and not an offer itself. * It is an attempt to induce offer. 13 OFFER / PROPOSAL (continue.. ) ? Coelho v. The Public Services Commission Fact of the case: Applicant applied for a position in response to a newspaper advertisement. He was later informed that his application had been accepted. Subsequently, the Public Service Commission attempted to terminate his employment on the basis that he was appointed on probation.

Applicant then applied to the court for an order to quash the decision. Held: The advertisement was an invitation to qualified persons to apply and the resulting application were offers. Termination of applicant invalid. 14 OFFER / PROPOSAL (continue.. ) ? Auction: * When an auctioneer invites bids, he is merely making an invitation to treat, and when a bidder makes a bid, he is making an offer. * The contract (i. e. the sale), is only made when the auctioneer announces its completion by the fall of the hammer. 15 OFFER / PROPOSAL (continue.. ) ? To whom a proposal can be made?

? A proposal can either be made to: (a) a particular person; or (b) general public. 16 OFFER / PROPOSAL (continue.. ) ? Where it is made to a particular person, only the addressee may accept the proposal. Where it is made to the general public, then anyone who meets all the terms of the proposal may accept. 17 ? OFFER / PROPOSAL (continue.. ) ? Carlill v. Carbolic Smoke Ball Co. Facts of the case: Defendants advertised & offer ? 100 to anyone who would still succumb to influenza after using a certain product according to the instructions for a fixed period.

Plaintiff used the product but still contracted influenza. Defendants refused to honour their promise. Held: The plaintiff had accepted the offer of the company made to the world at large. Therefore, he is entitled to the money. 18 COMMUNICATION OF PROPOSAL ? Section 4(1) Contracts Act: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. ? An offer/proposal is effective once it is communicated to the offeree by the offeror. 19 COMMUNICATION OF PROPOSAL ?

Section 3 Contracts Act: The communication of an offer or a proposal is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal or which has the effect of communicating it. 20 COMMUNICATION OF PROPOSAL ? Section 9 Contracts Act: A proposal can be made: ? Expressly ? Oral or written. ? Impliedly ? By conduct. 21 REVOCATION OF PROPOSAL ? Section 5(1) Contracts Act: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

22 REVOCATION OF PROPOSAL ? Section 6 Contracts Act – A proposal is revoked: (a) By the communication of notice of revocation by the proposer to the other party; (b) By the lapse of the time prescribed in the proposal for its acceptance; (c) By the failure of the acceptor to fulfill a condition precedent to acceptance; or (d) By the death or mental disorder of the proposer. 23 REVOCATION OF PROPOSAL Revocation by proposer: ? In order for the revocation of the proposal to be effective, it must be communicated by the proposer to the other party before it accepts.

? Communication of revocation can be done by the proposer or his agent acting on his behalf. ? In the event of acceptance by post or telegram, the acceptance is complete as against the proposer upon posting or delivery of the telegram. 24 REVOCATION OF PROPOSAL ? Byrne v. Tienhoven Facts of the case: Defendant posted letter of offer to the plaintiff on 1 October. On 8 October, defendant posted a letter revoking the offer. On 11 October, plaintiff received the letter of offer and sent acceptance by telegram the same day. Only on 20 October did the defendant’s letter of revocation was received by plaintiff.

Held: There is a contract between the parties. Revocation of the offer posted on 8 October was not effective till 20 October when it was received by the plaintiff. But in the meantime, the latter had already accepted the offer on 11 October when the telegram was sent. 25 REVOCATION OF PROPOSAL Lapse of time: ? Expiration of time prescribed on proposal ? If no time is so prescribed, then by the lapse of a reasonable time. 26 REVOCATION OF PROPOSAL ? Ramsgate Victoria Hotel Co. v. Montefiore Facts of case: Defendant applied for shares in the company in June & paid deposit.

Only in November defendant was informed that the shares had been allocated to him and the balance of the purchase price should be paid. Defendant refused the shares. Held: Refusal justified because such proposal should have been accepted within a reasonable time. 27 REVOCATION OF PROPOSAL Failure of acceptor to fulfill a condition precedent to acceptance: ? Eg. Shell offers to employ Mary on condition that he passes a skills test. If Mary fails the test, the proposal can be revoked. 28 REVOCATION OF PROPOSAL Death / mental disorder of proposer: ?

If the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance, the proposal no longer available for the acceptor. 29 ACCEPTANCE Section 2(b) Contracts Act: ? When the person to whom the proposal is made signifies his assent thereto, the proposal is said to have been accepted. 30 ACCEPTANCE Section 9 Contracts Act: ? Acceptance can be made (a) Expressly (b) Impliedly Section 7 Contracts Act: ? Acceptance of proposal must be (a) absolute and unqualified. (b) expressed in usual & reasonable manner. 31 ACCEPTANCE ? Lau Brothers & Co. v.

China Pacific Navigation Co. Ltd. Facts of the case: Negotiation for the delivery of logs were conducted through a series of telegrams and letters. While still in negotiating stage, the defendant withdrew. Was there a binding contract between the two parties? Held: Parties still in negotiation. No agreement was formed. Defendant can withdraw. 32 ACCEPTANCE ? ? Any modification or variation of the proposal does not constitute an acceptance but amounts to a counter-proposal by the party to whom the original proposal was made. A counter-proposal is treated as a rejection of the original proposal.

33 ACCEPTANCE ? Hyde v Wrench Facts of the case: Defendant offered to sell his land to plaintiff for ? 1000. Plaintiff made a counter-proposal to buy at ? 950. Defendant refused to accept his proposal. Plaintiff then wanted to accept the original proposal. Held: No acceptance. Counterproposal made by plaintiff rejected the original proposal. 34 ACCEPTANCE ? For acceptance qualified by (i) ‘subject to contract’; or (ii) ‘subject to a formal contract being drawn up by our solicitors’; or (iii) words to similar effect * No binding agreement until the contract as stipulated is completed.

35 ACCEPTANCE ? Low Kar Yit & Ors v Mohamed Isa & Anor Facts of the case: Defendants gave option to agent of plaintiff to buy a piece of land subject to a formal contract being drawn up and agreed upon by the parties. Plaintiff’s agent duly exercised the option but defendant failed to sign the sale agreement. Held: The option was conditional. No binding contract. 36 ACCEPTANCE Section 6(b) Contracts Act: ? Acceptance must be made within a reasonable time. ? Fraser v. Everett Facts of the case: Acceptance not given within a reasonable time. Held: No contract.

37 COMMUNICATION OF ACCEPTANCE ? General Rule: Acceptance of a proposal must be communicated to the proposer for there to be a binding contract between the parties. * It is only effective/complete when it has been communicated to the proposer. * It is communicated when it comes to the actual knowledge of the proposer. 38 COMMUNICATION OF ACCEPTANCE ? Acceptance must be: (a) Ordinarily communicated, and (b) Made in usual and reasonable manner (if no method of acceptance is prescribed). ? Proposer cannot prescribe silence as a manner of acceptance. 39.

COMMUNICATION OF ACCEPTANCE ? Felthouse v Bindley Facts of the case: F wrote letter to nephew offering to buy his horse & mentioned that the nephew’s silence on the matter will constitute an acceptance. Nephew didn’t reply but told B, who was auctioning his farm, not to include the horse in the auction. B sold the horse by mistake. Held: Nephew’s acceptance had not been communicated to the F. Therefore, there is no contract between them. 40 COMMUNICATION OF ACCEPTANCE Exception to the GR: Acceptance through post (The Postal Rule) ? Section 4(2) Contracts Act ?

Proposer is bound when the offeree posts the letter of acceptance, even though the proposer has no knowledge of the acceptance. * When the letter is posted, the acceptor has no longer any control over it. * The transaction becomes binding irrespective of any delay or disappearance in the course of transit. * Acceptance is complete upon posting. 41 COMMUNICATION OF ACCEPTANCE ? Ignatius v. Bell Facts of the case: Defendant made an offer to plaintiff to sell his land. The offer opened till 20th August. Plaintiff posted his letter of acceptance on 16th August.

Defendant sold the land to another person on 23rd August. Plaintiff’s letter of acceptance was only received by the defendant on 25th August. Held: Acceptance was complete upon posting of the acceptance letter on 16th August. 42 REVOCATION OF ACCEPTANCE ? Section 5(2) Contracts Act: * May be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards. ? Revocation of acceptance made by post: * May revoke at any time before or at the time when the letter communicating it reaches the proposer, but not afterwards.

43 CONSIDERATION ? General rule – Section 26 Contracts Act: * An agreement without consideration is void. Definition – Section 2(d) Contracts Act: * Consideration is the price which one party pays to buy the promise or act of the other. 44 ? CONSIDERATION ? Consideration may be classified as: (a) executory (b) executed (c) past 45 CONSIDERATION ? Executory consideration: * Is when one promise is made in return for another (i. e. a promise in return for a promise) * Eg: X agrees to sell Y a motor-cycle and Y promises to pay RM2000 for it. 46 CONSIDERATION ?

Executed consideration: * Is when a promise is made in return for the performance of an act. * Eg: X offers RM100 to anyone who finds and returns his camera which he has earlier lost. Y finds and returns the camera in response to the offer. Y’s consideration for X’s promise is executed. 47 CONSIDERATION ? Past consideration: * Is where a promise is made subsequent to and in return for an act that has already been performed. * Y finds and returns X’s camera and in gratitude, X promises to reward him with RM100, the promise is made in return for a prior act. 48 CONSIDERATION ? Exception to the general rule:

(a) An agreement made on account of natural love and affection between parties standing in near relation to each other. An agreement to compensate for a past voluntary act. An agreement to compensate a person who did an act which the promisor was legally compellable to do. An agreement to pay a statuebarred debt. 49 (b) (c) (d) CONSIDERATION Natural love and affection is valid consideration – S. 26(a) English law does not recognize natural love and affection as valid consideration However, in Malaysia – natural love and affection are valid consideration if certain prerequisites are complied with Section 26(a) Contracts Act.

50 ? ? CONSIDERATION ? Section 26(a) Contracts Act: An agreement made on account of natural love and affection would be held to be binding in Malaysia if these requirements are present: It is expressed in writing ? It is registered (if applicable) ? The parties stand in a near relation to each other ? 51 CONSIDERATION ? A past voluntary act – S. 26(b) There are 2 limbs to this exception: (a) It is a promise to compensate either wholly or in part the promisee. (b) The promisee has voluntarily done something for the promisor. 52 CONSIDERATION.

Agreement to compensate for act the promisor legally compellable to do – S. 26(b) Example 1: A supports B’s infant son. B promises to pay A’s expenses. Example 2: X pays a fine imposed by the court on Y who promises to compensate him. 53 ? ? CONSIDERATION Agreement to pay statutedbarred debt – S. 26(c) Statuted-barred debt is debt which cannot be recoverred through legal action because of a lapse of time fixed by law. Time limit for an action in contract under Limitation Ordinance 1953 is 6 years from the time of the cause of action arises. 54 ? ?

Consideration Need Not be Adequate ?an agreement is not void merely because the consideration is inadequate – Explanation 2, section 26 ? Illustration (f) section 26 – A agrees to sell a horse worth RM1000 for RM10. The agreement is a contract notwithstanding the inadequacy of the consideration. 55 Consideration Need Not be Adequate ? Phang Swee Kim v. Beh I Hock Facts of the case: Respondent agreed to transfer to appellant a parcel of land on payment of RM500. Respondent later refused to honour the promise. Held: Consideration need not be adequate. Valid consideration. 56 Past consideration is a good consideration ?

English law does not recognize past consideration. HOWEVER ? Malaysia: Past consideration is good consideration. 57 Past consideration is a good consideration ? Kepong Prospecting Ltd & Ors. v. A. E. Schmidt & Marjorie Schmidt Facts of the case: S, a consulting engineer, had assisted in obtaining a mining permit and the setting up of the company. He was appointed Managing Director. After formation of company, company agree to pay him 1% of the value of all ore sold from the mining land. Later refused to do so due to a misunderstanding. Held: Valid consideration. S entitled to claim on the amount.

58 Consideration Need Not Move from the Promisee ? Section 2(d) Contracts Act: A party to an agreement can enforce the promise even if he himself has no given no consideration as long as somebody else has done so. 59 Consideration Need Not Move from the Promisee ? Venkata Chinnaya v. Verikatara’ma’ya Facts of the case: A sister agreed to pay an annuity of Rs 653 to her brothers who provided no consideration for the promise. On the same day, their mother gave the sister some land stipulating that she must pay the annuity to her brothers. She later failed to pay. Held: Valid consideration.

Sister liable on the promise to pay annuity to her brothers although consideration was given by their mother. 60 INTENTION TO CREATE LEGAL RELATION ? Parties to an agreement must intend that it be legally enforceable for it to be a binding contract. Such intention may be either: (a) express (b) implied 61 ? INTENTION TO CREATE LEGAL RELATION ? ? Although Contracts Act is silent on this requirement, case law clearly indicates its necessity. Two presumptions: (a) Business agreements – there is presumption that the parties intend legal consequences to follow unless the parties specify otherwise.

(b) Social, domestic or family agreements – it is implied that no legal relations are contemplated (rebuttable). 62 TERMS OF A CONTRACT ? Terms may be (i) expressed; or (ii) implied Terms may be classified as either: (i) conditions (ii) warranties 63 ? TERMS OF A CONTRACT ? Condition: * Vital to the contract. * The parties consider it so important that its nonperformance may be considered by the injured party as amounting to substantial failure to honour the contract at all. * Thus may be regarded as grounds for setting the contract aside, and or suing for damages 64

TERMS OF A CONTRACT ? Warranty: * Considered to be of lesser importance to the main purpose of the contract. * If it is breached, the injured party must still perform their part of the contract but they have the right to sue for damages for any loss that they may suffer as a result of the breach 65 TERMS OF A CONTRACT ? 5 conditions for a term to be implied into a contract – it must be: 1. Reasonable and equitable 2. Necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it 3. So obvious that ‘it does without saying’ 4.

Capable of clear expression 5. Not in contradiction of any express term of the contract 66 TERMS OF A CONTRACT ? Terms may be implied by: 1. Custom and usage pertaining to a particular type of transaction Statutory provisions The courts, based on the intention of the parties 67 2. 3. TERMS OF A CONTRACT ? Where there is no express provision to the contrary in a contract, and the trade custom or usage relied on is so well-known that everyone in that business making a contract would be assumed to have included it as a term into the contract, then it may be implied by the courts.

68 DISCHARGE OF CONTRACTS ? ? When a contract is terminated, it is said to be discharged and the contracting parties are free from further obligations arising from it. A contract may be discharged by any one of the following ways: (a) By performance (b) By consent or agreement between the parties (c) By impossibility (d) By breach 69 DISCHARGE OF CONTRACTS ? Discharge by performance: * General rule : Performance of a contract must be exact and precise and should be in accordance with what the parties had promised – S. 38(1) * E. g.

– If Aaron promises to deliver goods to Mary on 1st June on payment of RM500, Aaron is bound to deliver the goods to Muthu on that day and Muthu is bound to pay the RM500. 70 DISCHARGE OF CONTRACTS * When parties have carried out exactly what they have undertaken to do, there is a complete discharge. But if only one party performs his part of the bargain, he alone will be discharged (S. 40) 71 * DISCHARGE OF CONTRACTS ? Discharge by agreement: * A contract that is created by consent can be extinguished by consent. * Consent can be: (a) expressed (b) implied 72 DISCHARGE OF CONTRACTS ? ? ?

The consent of all parties must be given to discharge a contract. Expressed consent may be given at the time of the contract or subsequently. Eg. The parties may agree at the time of making a contract that on occurrence of an event, one or more parties will be discharged. 73 DISCHARGE OF CONTRACTS ? ? Section 63 & 64 of the Contracts Act provide for the discharge of contracts by consent. Section 63 deals with the effects of novation, rescission and alteration: ? If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. 74.

DISCHARGE OF CONTRACTS ? ? Novation is the substitution of a new contract for an earlier one – the original contract will be discharged. E. g. A owes money to B under a contract. A, B and C later agree to accept C as debtor instead of A. The old debt between A and B is at an end. A new debt from C to B has been contracted. 75 DISCHARGE OF CONTRACTS ? Section 64 deals with remission of performance: ? Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

76 DISCHARGE OF CONTRACTS ? The remission of performance may be applied in the following situations: 1. Payment of a lesser sum in satisfaction of a larger sum is binding on the promisee if he accepts it. ? A owes B RM5000. A pays to B RM2000 in satisfaction of the whole debt. B accepts. The whole debt is discharged. 77 DISCHARGE OF CONTRACTS 2. Payment of a lesser sum by a 3rd party to satisfy a larger debt and accepted by the promisee is a good discharge of the original debt. ? A owes B RM5000. C pays to B RM1000 and B accepts in satisfaction of his claim on A. This payment is a discharge of the whole claim. 78

DISCHARGE OF CONTRACTS 3. If the promisee accepts payment in satisfaction of an unascertained sum, the payment is a discharge of the amount. ? A owes B under a contract, a sum of money. The amount has not been ascertained. A, without ascertaining the amount, gives to B, RM2000. B accepts in satisfaction of the unascertained sum. This is a discharge of the whole 79 debt, whatever may be its amount. DISCHARGE OF CONTRACTS 4. An arrangement for the settlement of debts between a debtor and his creditors is also binding despite the absence of consideration. ? A owes B RM2000 and is also indebted to other creditors.

A makes an arrangement with his creditors, including B. Payment to B of RM1000 is a discharge of B’s demand. 80 DISCHARGE OF CONTRACTS ? Discharge by impossibility of performance: * Section 57 lays down the law relating to 2 categories of impossibility of performance (a) impossibility of performance at the time a contract is made (b) impossibility after it has been made. 81 DISCHARGE OF CONTRACTS ? Impossibility of performance at the time a contract is made: An agreement to do an act impossible in itself is void. ? E. g An agreement ‘to discover treasure by magic’ is obviously void. ? 82 DISCHARGE OF CONTRACTS ?

Impossibility of performance after it has been made: A contract becomes impossible, or by reason of some event the promisor could not prevent, is unlawful (the common law doctrine of frustration). ? E. g An agreement to hire a music hall for a series of concert can be discharged by frustration on the outbreak of war / the music hall was burnt down. ? 83 DISCHARGE OF CONTRACTS ? ? Frustration terminates the contract automatically. Since the contract is void, ‘any person who has received any advantages under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it’ – Section 66 84.

DISCHARGE OF CONTRACTS ? E. g X contracts to sing for Y at a concert for RM1000, which was paid in advance. X became too ill to sing. X is not bound to make compensation to Y for the loss of profits, but must refund to Y the RM1000 paid in advance. 85 DISCHARGE OF CONTRACTS ? Discharge by breach: * When a promisor fails to perform his obligations or to tender performance, there is a breach of the contract. * Party not in breach can take appropriate action which may include repudiation (denial of the existence of a contract and/or refusal to perform a contract obligation. ) 86 DISCHARGE OF CONTRACTS ?

Section 40 Contracts Act: * The right to ‘put an end to the contract’ may be exercised in two situations: (a) (b) Refusal by the promisor to perform Disability to perform * * The party not in breach has the option either to continue with the contract and claim damage or repudiate the contract. Continuation with the contract despite the breach may be ‘signified by words or conduct’. 87 REMEDIES ? When there is a breach of contract, the party not in default may claim one or more of the following remedies: (a) Rescission of contract (b) Damages (c) Specific performance (d) Injunction (e) Quantum Meruit 88.

REMEDIES (a) Recission of contract ? Section 40 Contracts Act ? An innocent party to cancel the contract by rescinding it. 89 REMEDIES (b) Damages ? ? Section 75 confers entitlement to compensation for any damage sustained by the party who has the right to rescind the contract. The measure of damages recovarable is set out in section 74 which is based on the common law rule laid down in the case of Hadley v Baxendale. 90 REMEDIES ? The rule that flow from section 74 is that an injured party is entitled to: 1. Damages arising naturally according to the usual course of things resulting from the breach.

2. If he claims special damages for any loss sustained, he must show that they are such that the other party knew at the time of making the contract that the special loss is likely to result from the breach; but 3. Such compensation is not to be given for any remote and indirect loss or damage sustained as a result of the breach. 91 REMEDIES ? ? There is a general duty requiring that reasonable steps be taken to mitigate losses flowing from a breach. The party who has failed to mitigate losses cannot later recover any such loss flowing from his neglect. 92 REMEDIES ? Kabatasan Timber Extradiction Co.

v. Chong Fah Shing Facts of the case: Appellant failed to deliver logs to the mill but left them some 500 feet away. Respondent bought logs from elsewhere and claim damages. Held: It is the duty of the respondent to take reasonable steps to mitigate the damages caused by appellant. There was no need to go to the expense and trouble of buying new logs from elsewhere when the log were laying 500 feet away. All that was required was additional expense for hauling them up to the sawmill. Thus, the damages awarded to the respondent for failing to mitigate were reduce accordingly.

93 REMEDIES (c) Specific performance ? A discretionary order granted by the courts directing a person to carry out their obligations under the contract. ? Not generally used in breach of contract actions unless damages prove to be inadequate. 94 REMEDIES ? Section 20 of the Specific Relief Act: ? Specific performance will not be granted where monetary compensation is adequate. 95 REMEDIES ? The court will exercise its discretion not to decree specific performance: 1. Where damages will provide an adequate remedy – Section 20(1)(a),Specific Relief Act 1950.

Where the terms of the contract are uncertain – Section 20(1)(c), Specific Relief Act 1950. Where there has been delay in bringing the action 96 2. 3. REMEDIES 4. 5. Where there is evidence of fraud. Where to do so would require the constant supervision of the court. Contracts for personal services. 6. 97 REMEDIES ? Specific performance may be granted in respect of agreement relating to land transactions where there is a presumption that the breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money – Section 11(2) of the Specific Relief Act 1950.

98 REMEDIES ? Specific performance may also be granted in respect of executory contracts (contract under execution – one or more parties have not yet perform their duties as stipulated in the contract document); and ? in cases where actual damage cannot be ascertained. ? 99 REMEDIES (d) Injunction ? ? A discretionary court order. It may be: a) prohibitory – preventing the breach of a contract. b) mandatory – requiring a person to perform some contractual obligation. c) interlocutory – where it freezes the status quo between the parties until the dispute can be heard by the court 100.

REMEDIES ? It is an equitable remedy – can be varied or dissolved if the court discovers later that the application was made on suppressed facts or facts upon which the order was granted no longer exist 101 REMEDIES (e) Quantum Meruit ? Means as much as he has earned and only arises in cases of part performance. ? It can arise where: a defendant has prevented a plaintiff from carrying out the remainder of their contractual duties b) the parties cannot agree on payment c) the parties agree on payment for the partperformance but not the actual amount 102 a).