HLB2013

COMMERCIAL LAW
GROUP ASSIGNMENT

NAME OF GROUP MEMBERS

STUDENT ID

SECTION

1. Anis Shafiqah Binti Saharuddin

PTM130707420

01

2. Nur Syazwani Binti Mohd Noor

PTM130707390

01

3. Nur Aliah Najihah Binti Azlan

PTM130707394

01

4. Nurkhairunnisa Binti Mohamad Khalid

PTM130707361

01

SUBMISSION DATE: 4TH OF AUGUST 2014 (MONDAY)

LECTURER: BADRUL HISHAM MOHD SIDEK

QUESTION 1
Explain on the FOUR (4) ways on how a contract can be discharged.
ANSWER
The ways to discharge a contract :
1.
2.
3.
4.
5.

Discharge by performance
Discharge by agreement
Discharge by impossibility
Discharge by breach
Sale by a the Limitation Act

Choose any FOUR (4) ways + relevant case/ example for each way.
The first way to discharge a contract is discharged by performance. It is when the
contract comes to an end when both parties perform their contractual obligations.
Performance must substantially correspond with what the parties agreed allowing for
minor or trivial defaults. The original rule was that performance must be precise and
exact. In the case of Cutter v Powell (1795), the defendant agreed to pay Cutter 30
Guineas that he served as second mate on a voyage from Jamaica to Liverpool. The
voyage began on 2 August. Cutter died on 20 September, when the ship was 19 days
short of Liverpool. Cutters widow brought an action to recover a proportion of the 30
guineas. However, the widows action failed. The contract was interpreted as being an
entire contract for a lump sum, and nothing was payable until it was completed. Thus,
even though the defendant had the benefit of Cutter labour for a substantial part of the
voyage, on compensation for this was recoverable.

The second way to discharge a contract is discharged by agreement. In this case,

the agreement of one party forms consideration for the agreement of the other.
But if one party having performed or being ready and willing to perform his part of the
contract, merely waives performance by the other he can always retract the waiver by
reasonable notice unless it has been supported by fresh consideration. An existing
contract can be replaced by another, discharging the old one, upon mutual agreement.
In the case of Penny v Cole (1602), Cole owed Pinnel 8-10s-0d (8.50) which was due
on 11 November. At Pinnel's request, Cole payed 5-2s-2d (5.11) on 1 October, which
Pinnel accepted in full settlement of the debt. Pinnel sued Cole for the amount owed. It
was held that part-payment in itself was not consideration. However, it was held that the
agreement to accept part-payment would be binding if the debtor, at the creditor's
request, provided some fresh consideration. Consideration might be provided if the
creditor agrees to accept part-payment on an earlier date than the due date or chattel
instead of money or part-payment in a different place to that originally specified.
The third way to discharge a contract is discharged by impossibility. A contract is
discharged when it is impossible to perform. The impossibility may result from the
destruction of the subject matter, the adoption of a new law that prohibits performance,
the death or disability of a party whose personal action was required for performance of
the contract, or the act of the other party to the contract. In the case of Taylor v Caldwell
(1863), Caldwell & Bishop owned a music hall in England, and agreed to rent it out to
Taylor & Lewis at the rate of 100/day. Taylor planned to use the music hall for four
concerts for four different dates during the summer of 1861. A week before the first
concert was to be given, the music hall burned to the ground. Taylor sued the music hall
owners for breach of contract for failing to rent the music hall. The court held that both
parties were excused from their obligations under their contracts. The court found that
the agreement between the parties was a contract, despite their use of the term lease.
The court found that the rule of absolute liability only applied to positive, definite
contracts, not to those in which there was an express or implied condition underlying the
contract.

Lastly, the way to discharge a contract is discharged by breach. A failure to

perform the terms of a contract constitutes a breach. A breach which is serious enough
to give the innocent party this option of treating the contract as discharged can occur in
one of two ways, either one party may show by express words or by implications from
his conduct at some time before performance is due that he does not intend to observe
his obligations under the contract, or he may in fact break a condition or otherwise
break the contract in such a way that it amounts to a substantial failure of consideration.
One preliminary question, in cases of anticipatory breach is to ascertain whether once
repudiation has been communicated to the innocent party, that party accepts the
repudiation or not. The question of whether silence/inaction can amount to acceptance
of repudiation was considered in the case of Vitol SA v Norelf Ltd (1996). In this case,
the seller was to deliver molasses by a ship set to leave on a certain date. The market
was falling. The buyer, when it was clear that the ship would be unable to leave on the
day fixed, sent a telex to say that the contract was repudiated. The seller did nothing,
but later sued for the loss on a later sale. The buyer said that the sellers mere failure to
carry out his side of the contract was sufficient to be an acceptance of the repudiation,
thus

excusing

the

buyer

from

the

purchase.

The court held that the sellers appeal succeeded. A party suffering a repudiation of a
contract can notify his election to accept or affirm the contract in any way: a failure to
perform may sometimes signify to a repudiating party an election by the aggrieved party
to treat the contract as at an end. Silence can be held to be an acceptance of a
contract, and it can exceptionally, and as a question of fact, also amount to an
acceptance of a repudiation.

QUESTION 2
Explain any FOUR (4) acts in which may constitute fraud as provided by section 17 of
the Contract Act 1950.
ANSWER
Acts constitute fraud :
1. The suggestion of the fact by one who does not believe it to be true.
2. An active concealment of a fact by one having knowledge or belief of the fact.
3. A promise made without any intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declare to be fraudulent.
Choose any FOUR (4) acts + relevant case/ example for each condition.
The first act constitute fraud is the suggestion of the fact by one who does not
believe it to be true. In the case of Kheng Chwee Lian v Wong Tak Thong [1983]2 MLJ
320, the respondent had been persuaded by the appellant to enter into second contract
on the false representation that the area of land to be transferred was the same size as
the land which the respondent had agreed to buy under a first agreement. In fact, the
area even less than that. The court held that the respondent had been induced by
fraudulent

misrepresentation

into

signing

the

second

agreement

and

that

misrepresentation was fraudulent meaning of Section 17 (a) and (d).

The second act constitute fraud is an active concealment of a fact by one having
knowledge or belief of the fact. In the case of Letchemy Arumugan v Annamalay [1982]
2 MLJ 198, the defendant had induced the plaintiff an illiterate Indian woman to enter
into sale and purchase agreement. The defendant had fraudulently represented to the
plaintiff that the document that she was signed was for loan she took and it was to free
the land from a charge. In fact the document that she signed was included a sale
agreement relating to land, a transfer of the land and further agreement to purchase
three unapproved sub-lots in her own land. The court held that the agreement was
voidable.
The third act constitute fraud is a promise made without any intention of
performing it. For example, the owner of the house (A) promised to the tenant (B) that

he will repair the defects of the house and he will disburse the said repairs done by the
tenant. However, after the said repairs are completed, the owner of the house refused to
pay that. He actually from the very beginning does not intend to pay for that.
The fourth act constitute fraud is any such act or omission as the law specially
declares to be fraudulent. In the case of Senanayake v. Annie Yeo (1965) 2 MLJ 241,
the Privy Council ruled that where a contract is entered as a result of misrepresentation
the Plaintiff can terminate the contract and seek a refund of all payments made.
Defendants counsel submitted that here the Defendants have terminated the Tenancy
Agreement and are seeking a refund of all payments made amounting to RM61, 357.80
in deposits and also all rents already paid.

QUESTION 1
Explain any FOUR (4) conditions to be satisfied for ratification to be valid.

ANSWER
Conditions of ratification :
1. The act must have been authorized.
2. The transaction must be lawful.
3. Agent must acted as an agent of principal.
4. The principal must existence at the time of the contract.
5. The principal must have capacity at the of contract.
6. Principal must have knowledge of all relevant facts.
7. Ratification must be made within reasonable time.
8. Ratification must be made to the whole transaction.
9. Ratification must not injured third party.
Choose any FOUR (4) conditions + relevant case/ example for each condition
The first condition to be satisfied for ratification to be valid is the agent must acted
as an agent of principal. It is necessary that the act in question must have been done on
behalf of the person who is to ratify it. The agent must purport to act on behalf of an
identifiable principal. In the case of Keighley v Durant (1901), K & Co authorized
Roberts, a corn merchant, to buy wheat on a joint account for himself and them at a
certain price. Roberts, on his own behalf and without authority of anybody else, bought
wheat at a higher price than the authorized one, from Durant. The intention that he was
acting for K& Co. as well as himself was not disclosed by Roberts to Durant. K & Co,
however, later agreed with Roberts to buy the wheat at that (high) price but eventually
failed to do so. Durant resold it at a loss and sued them for loss. The court held that It
reversed the decision made by Day J. and a special jury as regards the appellants,
and ordered a new trial on the ground that there was evidence for the jury that Roberts
contracted on behalf of himself and the appellants.
The second condition to be satisfied for ratification to be valid is the principal must
existence at the time of the contract. Since ratification relates back to the date when the
con-tract was made by the agent, it is important that the principal must be in existence
and competent at the time of original contract and at the time or ratification. Thus an act
done on behalf of minor without his authority cannot be ratified on attaining majority and
a company cannot ratify a contract made in its name before its incorporation. In the
case of Kelner v Baxter (1886), Baxter and two others agreed on behalf of a company

yet to be formed to purchase trade stock for its business. Later the company was
formed and accepted and used the trade stock, but failed to pay for the stock. The court
held that the company was not liable as it could not ratify a pre incorporation contract
with retrospective effect to a date before the company existed. Baxter and friends were
therefore unable to recover their money.

The third condition to be satisfied for ratification to be valid is the principal must
have knowledge of all relevant facts. Section 198 provides that 'no valid ratification can
be made by a person, whose knowledge of the facts is materially defective.' There must
be full knowledge of what those facts were.
The fourth condition to be satisfied for ratification to be valid is ratification must be
made to the whole transaction. Ratification must relate to the whole act. A contract
cannot be ratified 'in part and repudiated in part'. A ratification of part of a transaction
operates as a ratification of the whole transaction.

QUESTION 2
Explain the requirements to be fulfil for creation of agency by necessity.
ANSWER
Requirements for creation of agency by necessity.
1. It was impossible to obtain principals instruction + 2 cases i) Great Northern
Railways v Swaffield ii) Springer v Great Western Railway.
2. The agent action was necessary to prevent loss to the principal + a case
i) Prager v Blatspiel Stamp.
3. The agent acted in the good faith + example.

The requirement for creation of agency by necessity is it was impossible to obtain

principals instruction. It is important for the agent to get the instruction from his principal
before doing or acting in certain situation. If he fails to get the instruction, then only he
can use his own judgment or decision in order to act. In the case of Great Northern
Railway v. Swaffield (1874), the principal or defendant instructed the agent (the
transportation company) to carry horse to a certain destination. When the train arrived
at the destination, nobody took the horse. The station master kept the horse in the
stable. The horses stayed overnight in the stable. The principal refused to pay or bear
the cost and charges of the horse, when the agent claimed for him. The court held that
the station master had acted as an agent by necessity. The principal was bound to pay.
However, in the case of Springer v. Great Western Railway Company (1921), the
principal instructed the company (agent) to bring tomatoes from Jersey to London.
When the train arrived at Port Weymouth, there was a strike. The agent sold tomatoes
without informing the principal. The court held that no agency by necessity arose. The
agent has to pay damages or compensation to the principal for the losses suffered by
him.

Next, the requirement to be fulfill for creation of agency by necessity is the

agents action was necessary to prevent loss to the principal. The agent is justified to
use his own judgment only in the case of real urgency. In the case of Prager v.Blatspiel
Stamp, the principal instructed the agent to keep the animal skin for him. The agent has
sold the skin because of war. The court held that the agents action is not considered as
acting in emergency because the animal skin will not perish. It is still good if safely kept
even during war. The agent was held liable to his principal.
Lastly, the requirement to be fulfill for creation of agency by necessity is the agent
must act in good faith. For example, the defendant, Company A, and the claimant, Said
Ali, entered an agreement whereby Said Ali was granted the exclusive right to distribute

Malaysian branded merchandise in certain duty free outlets in May 2009. The contract
was to run until December 2011. However Said Ali terminated the relationship after 15
months following a number of disputes with Company A. Said Ali alleged that Company
A had committed several breaches, including failing to ship orders promptly, failing to
make products available, refusing to supply certain products even after Said Ali had
marketed them, undercutting agreed prices, attempting to claw-back certain distribution
rights and providing false information in the knowledge that Said Ali would rely on it.
Said Ali promptly issued proceedings against Company A for breach of contract and
misrepresentation. The High Court held that Company A had made a number of
breaches and misrepresentations in relation to the contract with Said Ali, including
breaches of certain implied obligations of good faith. As well as breaches of implied
obligations of good faith, the court also found that Company A had committed
repudiatory breaches and made false representations in relation to the contract. Said Ali
was therefore entitled to terminate the contract and recover damages.

QUESTION 1
Explain the implied terms in which stated in the Hire-Purchase Act.
Answer
Implied conditions
1. Sec 7(1)(b)
2. Sec 7(2)
3. Sec 7(3)
Implied Warranties
1. Sec 7(1)(a)

2. Sec 7(1)(c)
Explain all the implied terms + relevant case/ example for each term.
The implied terms in which stated in the Hire-Purchase Act on implied condition in
Section 7(1)(b) states that owners shall have a right to sell goods at the time
when the property is to pass. There will be a breach of Section 7(1)(b) if at
the time when property is to pass the owners does not have the right to sell
the goods. This could mean at the time when a hirer decides to pay all the
sums due under a hire-purchase agreement and not necessarily only upon
payment of the last instalment when it becomes due-in other words at the
time when a hirer exercises his options to purchase. For instance, a buyer of a
car was deprived of the same due to the defective title of the seller. The court
decided that the buyer can recover the full price of the car even though he has used the
same for a few months. The above implied warranties, in fact, depend upon this
condition because a buyer can only enjoy those goods which the seller has right to sell.
In the case Public Finance Bhd v Ehwan bin Saring (1996) 1 MLJ 33, it
had briefly explained this Section 7(1)(b). The respondent purchased a motor
car from T (RM82000). Respondent paid RM57000 to Public Finance Bhd. The
balance RM25000 is entered into hire purchase agreement. Then, the
respondent had signed an indemnity letter. After 6 weeks, all the agreement
are executed, the vehicle was seized by the customs and Excise Department
for an alleged offence. The respondent filed an action for return of the
RM57000 and repair expenses. The appellant had breached the implied
warranties and conditions provided by reason of seizure. Then the appellants
counterclaimed for payment of RM25294.01. However, the court decides that
those appeals is dismissing because the appellants failed to pass a good title
to the respondent. He also doesnt provide that the implied condition and
warranties under section 7(1) do not apply to second hand goods and the
letter of indemnity formed part of the agreement.

Next, Section 7(2) states that the implied condition that the goods shall be of
merchantable quality shall not be implied where the hirer has examined the goods or a
sample there of, as regards defects which the examination ought to have revealed.
Apart from that, it shall not be applied if the goods are second-hand goods and the
agreement contains a statement to the effect that the goods are second-hand. Also, if
all the conditions and warranties as to quality are expressly negative and the owner
proves that the hirer has acknowledged in writing that the statement was brought to his
notice, this implied condition shall not be applied. For instance, A purchased vegetables
packed in the casks and A inspected the containers from outside alone and agreed to
purchase the goods but later on when the vegetables were found to be adulterated, the
court decided that there was no breach of condition as buyer has examined the
goods and if he has not properly examined them, seller cannot be held liable.
In the case of Trader Finance Corp Ltd v Ramlee & Anor, it had briefly
explained this Section 7(2). In this case, in which the court decided that in
the agreement is stated that the goods are second-hand goods.
Lastly, Section 7(3) clearly stated that there shall be implied condition in the hirepurchase agreement that the goods shall be reasonably fit for that purpose where the
hirer expressly or by implication makes known to the owner or the dealer or to any
servant or agent of the owner or the dealer the particular purpose for which the goods
are required,. However, such a condition shall not be implied under certain
circumstances. First, if the goods are second hand goods and the agreement contains a
statement to the effect that the goods are second-hand, the implied condition above
shall not be applied and secondly, if all conditions and warranties of fitness and
suitability are expressly negative, and the owner successfully proves that the hirer has
acknowledged in writing that the statement was brought to his notice shall exclude the
implied condition. For instance, A agreed to purchase from B jute bags for the purpose
of packing food articles but when supplied jute bags had a peculiar smell which
rendered them unfit for packing food stuff. The court decided that there is no a breach of
the condition relating to fitness for any particular purpose because the particular
purpose for which bags were to be used was not make known to B and so although

bags might have been purchased must be unfit for packing food articles, they were fit
for other purposes.
In the case of Lau Hee Teah v Hargill Engineering, it had briefly explained
this Section 7(3). The agents have visited the owner of the goods at the place of the
tenants and found that it was used in conformity with the purposes and functions of the
goods. The plaintiff-appellant attempted to rescind an agreement to take a loader on
hire-purchase alleging fraudulent misrepresentation. The court held that in dismissing
the appeal, the appellant had failed to discharge the burden of proof required of him on
the question of fraud.
The implied terms in which stated in the Hire-Purchase Act on implied warranties
in Section 7(1)(a) states that there shall be an implied warranty that the hirer shall have
and enjoy quiet possession of the goods. For instance, A had given his bicycle on
hire for a period of ten days to B. Soon after A sold it to C without disclosing to him that
B was entitled to use the bicycle on account of hire agreement. B claims the bicycle
from C. Cs possession is disturbed. He is entitled to get damages from A.
Next, Section 7(1)(c) states that there is an implied warranty that the goods shall
be free from any charge or encumbrance in favour of any third party at the time when
the property is to pass. For instance, A pledges his bicycle with C for a loan of
Rs. 100 and promises him to give its possession the next day. Soon, after he sells the
bicycle to B, an innocent buyer, who does not know about the fact of bicycle being
pledged. B may either ask A to clear the loan or may himself pay the money and then
file a suit against A to recover the money with interest.
Therefore, it can be clearly seen that there are implied terms dealing with hire
purchase agreement in Malaysia as stated in Hire Purchase Act 1967. Those implied
terms do protect the right of the parties in hire purchase agreement as it can prevent
them from inserting unfair terms in their contract. However, as the act also provides
situation where the parties can exclude the implied conditions, it indirectly promote the
freedom of contract that can be exercise by either parties in the agreement. Hence, we

should have a general act that will protect the right of the parties in the hire purchase
agreement in dealing with unfair terms in Malaysia.
2. Explain the requirements to be fulfill for creation of agency by necessity.
The requirement for creation of agency by necessity is it was impossible to obtain
principals instruction. It is important for the agent to get the instruction from his principal
before doing or acting in certain situation. If he fails to get the instruction, then only he
can use his own judgment or decision in order to act. In the case of Great Northern
Railway v. Swaffield (1874), the principal or defendant instructed the agent (the
transportation company) to carry horse to a certain destination. When the train arrived
at the destination, nobody took the horse. The station master kept the horse in the
stable. The horses stayed overnight in the stable. The principal refused to pay or bear
the cost and charges of the horse, when the agent claimed for him. The court held that
the station master had acted as an agent by necessity. The principal was bound to pay.
However, in the case of Springer v. Great Western Railway Company (1921), the
principal instructed the company (agent) to bring tomatoes from Jersey to London.
When the train arrived at Port Weymouth, there was a strike. The agent sold tomatoes
without informing the principal. The court held that no agency by necessity arose. The
agent has to pay damages or compensation to the principal for the losses suffered by
him.
Next, the requirement to be fulfill for creation of agency by necessity is the
agents action was necessary to prevent loss to the principal. The agent is justified to
use his own judgment only in the case of real urgency. In the case of Prager v.Blatspiel
Stamp, the principal instructed the agent to keep the animal skin for him. The agent has
sold the skin because of war. The court held that the agents action is not considered as
acting in emergency because the animal skin will not perish. It is still good if safely kept
even during war. The agent was held liable to his principal.
Lastly, the requirement to be fulfill for creation of agency by necessity is the agent
must act in good faith. In the case of Lucas v Chichester DHA, the Employment Appeal
Tribunal (EAT) gave guidance to tribunals on applying Street. It says it is for the

employer to assert a lack of good faith and that any evidence it relies on should be set
out in advance so the claimant can respond to it. Drawing, like the Court of Appeal, on
the analogy of malice or bad faith in defamation, the EAT said tribunals should not lightly
find that a disclosure was not made in good faith. As malice in a working relationship
was both exceptional and a serious allegation, the employer should produce cogent
evidence which the tribunal should then weigh with the other evidence in the case
before deciding whether some dominant or predominant ulterior motive meant PIDA
protection should be forfeited. The court held that it is for the employer to show that the
disclosure had been made in bad faith.