Past year questions and answers (ACCA):

Contract Act 1950

2. Tom made the following offers to Ken:

(i) An offer to lease his land in Kuantan, ‘for as long as Ken wishes’.
(ii) An offer to sell his pen collection for RM20,000.
Ken immediately accepted the first offer. As for the second offer, Ken initially replied
that he would be willing to pay RM15,000 for the pen collection but Tom refused.
Later Ken replied that he was willing to accept Tom’s original offer at RM20,000.
However, Tom now refuses both to grant the lease as well as to sell the pen collection
to Ken.

Required:
(a) Explain whether there is a valid contract between Ken and Tom in respect of
the offer for the lease of the and in Kuantan. (3 marks)
(b) Explain whether Ken can successfully sue Tom for breach of contract with
respect to the offer for the sale of the pen collection. (3 marks)

2 (a) In relation to the offer by Tom to grant a lease to Ken, it is to be noted that
one of the requirements for a valid contract is that the subject matter of the contract
must be certain. A case in point is Karuppan Chetty v Suah Thian (1916), where a
lease had been granted, ‘for as long as he likes’. The court held that this agreement
was not valid as the period of the lease was not certain.
The facts in the given problem are similar to the facts of the case mentioned
above. Applying the law as explained above, it can be concluded that there is no valid
contract between Ken and Tom for the lease, due to the uncertainty of the duration of
the lease.

(b) In relation to the offer to sell the pen collection, the issue is whether there has
been a valid acceptance by Ken of Tom’s offer. The rule is that an offer must be
unconditionally accepted in order to constitute a valid agreement. An acceptance must
be distinguished from a counter-offer. A counter-offer has the effect of extinguishing
the original offer.
A case in point is Hyde v Wrench (1840), where the defendant offered to sell his
farm to the plaintiff for £1,000. The plaintiff replied that he was willing to pay £950
for it. When the defendant refused, the plaintiff purported to accept the original offer
of £1,000. The court held that when the plaintiff stated that he was willing to pay
£950, he was making a counter-offer. This had the effect of rejecting and destroying
the original offer. Thus, there was no valid acceptance of the original offer.
Applying the law to the given problem, Ken’s offer to pay RM15,000 amounted
to a counter-offer which destroyed Tom’s original offer. Thus, there was no valid
acceptance of Tom’s offer by Ken and therefore no valid contract between Tom and

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Ken for the sale and purchase of the pen collection. Ken will be unsuccessful if he
sues Tom for breach of contract.

1 Ali is a dealer in second-hand goods. He seeks your legal advice on the following
matters:
(a) Ali entered into a contract with Ben for the purchase of an old grandfather clock
from Ben for RM200. Ben has since refused to sell the clock to Ali, stating that the
price is too low and that the actual value of the clock is RM2,000.
Required:
Explain whether Ali has the right to purchase the clock at the agreed price of
RM200.

(b) Ali contracted with Ashley, aged 16, to sell him a vase for RM15,000. Ashley has
refused to honour the contract, stating that it is void.
Required:
Explain whether the contract is void. (3 marks)
(6 marks)

1 (a) The issue in this case is whether there is valid consideration for the contract
between Ali and Ben. Ben claims that the consideration of RM200 is too low. Under
the law of contract, consideration must be sufficient but need not be adequate.
Sufficiency of consideration means that it must have some value and it need not
necessarily be of equal value. Thus, Ali may be advised that there is a valid contract
between him and Ben and he has the right to purchase the clock at the agreed price of
RM200.

(b) The issue in this case concerns validity of contracts made by minors. Under the
law of contract, a person must have the capacity to enter into a valid contract. They
would have the necessary capacity if they are of full age and sound mind. Ashley is a
minor as she is 16 years old. If a minor, i.e. a person under the age of 18 years, enters
into a contract, the contract is void, unless it falls within certain exceptions. On the
facts of the case, none of the exceptions apply. Thus, Ali may be advised that the
contract entered into with Ashley is void.

4. In relation to the law of contract:

(a) explain what is meant by specific performance; (2 marks)
(b) describe THREE instances when the court would grant specific performance;
and (3 marks)
(c) describe FIVE contracts which cannot be specifically enforced. (5 marks)
(10 marks)

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4 This question on contract law tests the candidates’ knowledge on the equitable
remedy of specific performance.
(a) A decree of specific performance is one of the equitable remedies for breach of
contract. Under the decree the court will order a party to a contract to carry out that
which that party had agreed to perform. In Malaysia specific performance of a
contract is regulated by the Specific Relief Act 1950, which emphasizes the fact that it
is a discretionary remedy of the court.

(b) Specific performance is a discretionary remedy of the court. Chapter II of the

Specific Relief Act 1950 in s.11 sets out the circumstances when the court may grant
specific performance as indicated below:
(i) when the act agreed to be done is in the performance, wholly or partly, of a trust;
(ii) where there exists no standard for ascertaining the actual damage caused by the
non-performance of the act which is agreed to be done;
(iii) when the act agreed to be done is such that pecuniary compensation would not
afford adequate relief; and
(iv) when it is probable that pecuniary compensation cannot be obtained for
non-performance of the act agreed to be done.
(Note: Candidates are required to state only THREE of the above.)

(c) Section 20 Specific Relief Act 1950 deals with the situations when the court will
not grant the order of specific performance, namely in the case of:
(i) a contract for the non-performance of which compensation in money is an
adequate relief;
(ii) a contract which runs into minute or numerous details or which is dependent on
the personal qualifications or wish or choice of the parties;
(iii) a contract the terms of which the court cannot determine with reasonable
certainty;
(iv) a contract the nature of which makes it revocable;
(v) a contract made by trustees either in excess of their powers or in breach of their
trust;

10 (a) Janet, who is 80 years old and in poor health, is a wealthy widow who owns
three bungalows in Shah Alam. Until recently she suffered from hallucinations that
she was pursued by demons. About two months ago she enrolled herself for the
treatment offered by a spiritual adviser, Singa, who operated from his link house in
Shah Alam. Whilst she was receiving treatment as a resident at Singa’s house, he told
her that he needed a bungalow to house the persons seeking his treatment and
impressed upon her that her assistance was required in this matter. This prompted
Janet to state that she would help Singa as soon as she recovered from her ailment.
Two months after commencing the treatment offered by Singa, Janet no longer had
the hallucinations mentioned above. She returned home last week. A day after she

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returned home she signed a contract prepared by Singa’s solicitor agreeing to sell one
of her bungalows in Shah Alam to Singa for RM200,000. The market value of the
bungalow is RM2 million.
Janet comes to see you today. She says that she regrets having signed the contract and
seeks your advice whether she could avoid the contract on any ground.
Required:
Advise Janet.

10 This problem-based question on contract law tests the candidates’ knowledge and
ability to apply the law relating to undue influence and coercion as matters affecting
free consent and thus the validity of contracts.
(a) The issue in this case is whether Janet’s consent to sell her bungalow at a gross
undervalue was given freely at the time she signed the agreement. If her consent was
not freely given but was in fact caused by one of the vitiating elements like coercion,
undue influence, fraud or misrepresentation, the contract would be voidable at her
option. It cannot be assumed outright that her consent was not freely given merely
because the price to be paid by Singa was well below the market price, although it is
one of the factors which may be taken into account for the purpose of determining
free consent (see Explanation 2 to s.26 Contracts Act 1950).
The crucial point in this case is whether undue influence was exercised by Singa,
Janet’s spiritual adviser. Section 16(1) states that a contract is said to be induced by
‘undue influence’ where the relationship between the parties is such that one of them
is in a position to dominate the will (free consent) of the other, and uses that position
to obtain an unfair advantage
over the other.
By virtue of s.16(2), a person is deemed to be in a position to dominate the will or
free consent of another:
(i) where he holds a real or apparent authority over the other, or where he stands in
fiduciary relation to the other, or
(ii) where he makes a contract with the person whose mental capacity is temporarily
or permanently affected by reason of age, illness or mental or bodily distress.

In a case where a person, A, is in a position to so dominate the will of another

person, B, enters into a contract with B and the contract appears to be unconscionable,
the burden of proving that the contract was not induced by undue influence is on A.
In Janet’s case, Singa was her spiritual adviser and in a position to dominate her
free consent. Singa appears to have used his dominant position to gain an advantage
for himself by impressing upon Janet that her assistance was necessary to acquire a
bungalow to house those seeking his treatment. Janet appears to have made up her
mind to assist Singa while she was still a resident at Singa’s house and under his
spiritual influence, although the contract was signed a day after she returned home.
Further, Janet may not be free of Singa’s influence on the day she signed the contract

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as the interval between the date she left Singa’s house and the date she signed the
agreement was just one day. Thus, it is submitted that there is a presumption of undue
influence, which Singa must rebut.
Taking into account all the facts of the case including Janet’s age and poor health,
it is unlikely that he will be able to do so. Janet may be advised the contract appears to
be voidable at her option.

(b) Ramu’s dog, Barkie, strayed into his neighbour’s garden and accidentally knocked
into and broke a vase valued at RM2,000. The angry neighbour detained Barkie in his
compound. He refused to return Barkie to Ramu unless Ramu paid him RM15,000.
Ramu was anxious about Barkie’s safety and promptly paid the neighbour that
amount. Barkie was then returned to Ramu unharmed. Ramu is now unhappy about
having made the payment and wishes to know whether there are any grounds under
the law of contract on which he could recover the amount of RM15,000 from the
neighbour.
Required:
Advise Ramu. (5 marks)

(b) The issue in this situation is whether Ramu can recover the amount of RM15,000
from his neighbour on the ground that his consent to pay that sum was induced by
coercion.
As stated in (a) above, a contract must be entered into with the free consent of the
parties. The consent would not be free if it was caused by one of the vitiating
elements like coercion, undue influence, fraud or misrepresentation. The contract
would be voidable at his option in the event that any of these vitiating elements are
present. The issue here is whether Ramu’s consent was caused by coercion.
Coercion is defined in s.15 Contracts Act 1950. It states, ‘Coercion is the
committing or threatening to commit any act forbidden by the Penal Code, or the
unlawful detaining or threatening to detain, any property, to the prejudice of any
person whatever, with the intention of causing any person to enter into an agreement’.
In Chin Nam Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors (1988), the
respondents had entered into a sale and purchase of homes to be constructed by the
appellants at the price of RM29,500. Subsequently, the respondents were required by
the appellants to pay an additional RM4,000, failing which the appellants threatened
to cancel their bookings for the houses. The court held that the agreement to pay the
additional sum was caused by coercion within the meaning of s.15 and consequently it
was voidable at the respondents’ option.
As Ramu had paid the sum of RM15,000 on the threat of detention and possible
harm to his property (Barkie), it can be concluded that his agreement to pay the sum
was caused by the coercion of the neighbor. Therefore, the contract is voidable at his
option and he may be advised that he will be able to recover the said sum.

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10 (a) On 10 April 2013, Sonny, who lives in Kuala Lumpur, posted a letter to his
friend Ron, who lives in Penang, offering to sell to Ron an antique vase for RM10,000.
The letter reached Ron on 12 April 2013. Ron accepted the offer by posting his letter
of acceptance the very same day. Due to a postal delay, Ron’s letter of acceptance
only reached Sonny two weeks later, i.e. on 26 April 2013. Meanwhile, on 20 April
2013 Sonny sold the vase to Tom, a rich businessman, who had offered him
RM20,000 for it. Ron, who has come to know of the sale of the vase to Tom, wishes
to sue Sonny for breach of contract.

Required:
Advise Ron on his prospects of success. (5 marks)

(b) On 2 May 2013, Lim wrote a letter to his friend, Jane, offering to sell his prized
horse to Jane for RM2 million. Upon receipt of the letter, Jane wrote to Lim asking
whether Lim would accept RM1.5 million for the horse. Lim received Jane’s letter.
He decided not to reply. After waiting for two weeks, Jane wrote a letter to Lim
accepting Lim’s original offer to sell the horse for RM2 million. However, Lim
telephoned Jane stating that he had changed his mind and did not wish to sell the
horse to her. Jane wishes to sue Lim for breach of contract.
Required:
Advise Jane on her prospects of success. (5 marks)

10 This problem-based question, on contract law, contains two parts. Part (a) tests the
candidates’ ability to identify and apply the law concerning the postal rule in relation
to an offer and its acceptance. Part (b) relates to the identification and application of
the issue of counter-offer as opposed to an acceptance.

(a) The issue in this case is whether there has been a valid acceptance by Ron of
Sonny’s proposal (offer) to create a binding contract between them. According to
s.2(a) Contracts Act 1950, a proposal (offer) is said to be made when one person
signifies to another his willingness to do or abstain from doing anything with a view
to obtaining the assent of that other to the act or abstinence.
Section 2(b) states that an acceptance takes place when the person to whom the
proposal is made signifies his assent thereto. The general rule is that the acceptance
must be communicated to the proposer. By s.7, the acceptance must be expressed in
some usual and reasonable manner unless the proposal itself prescribes the manner in
which it is to be accepted.
However, there is an exception to this rule. The effect of s.4(2) Contracts Act
1950 is that where the parties have contemplated the use of the post as a means of
communication, the communication of the acceptance is complete as against the
proposer when it is put in a course of transmission to him so as to be out of the power
of the acceptor.

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 In the present problem, Ron accepted Sonny’s offer by a letter posted on 12 April
2013. Thus, though the letter of acceptance reached Sonny only on 26 April 2013, it
was effective as against Sonny from the date of posting, i.e. 12 April 2013. Thus,
there was a valid contract between Ron and Sonny as at 12 April 2013. As Sonny had
sold the vase on 20 April 2013, i.e. after the acceptance became effective against him,
Ron may successfully sue Sonny for breach of contract.

(b) An agreement will arise where one party has made a proposal (offer) to another
party and that other has unconditionally accepted it. See s.2 Contracts Act 1950. By
s.7(a), the acceptance must be ‘absolute and unqualified’. In the event that the person
to whom the proposal is made varies the terms of the proposal, he is deemed to be
making a counter-proposal (counter-offer).
A counter-offer has the effect of destroying the original offer. This is
well-illustrated in the case of Hyde v Wrench (1840). In this case, the defendant
offered to sell his estate to the plaintiff for £1,000. The plaintiff replied by letter that
he was willing to purchase the estate at £950. When the defendant did not reply, the
plaintiff sent another letter to the defendant accepting the original offer price. The
court held that there was no contract between the parties.
The counter-offer made by the plaintiff had destroyed the original offer.
Reference may also be made to the Malaysian case of Malayan Flour Mills Bhd v Saw
Eng Chee (Administrator of the estate of Saw Cheng Chor, deceased) & Anor (1997),
which applied the above principle.
In the given situation, Lim had offered to sell his horse to Jane for RM2 million.
Jane’s letter in reply to Lim asking whether Lim would be willing to sell the horse at
RM1·5 million clearly amounted to a counter-offer. It had the effect of destroying
Lim’s original offer. Thus, Jane’s subsequent letter accepting Lim’s original offer to
purchase the horse at RM2 million was not a valid acceptance.
Applying the law to the given problem, Jane may be advised that she will not be
successful if she sues Lim for breach of contract.

3 Explain the following remedies for a breach of contract:

(a) injunction; and (4 marks)
(b) damages. (6 marks)
(10 marks)

3(a) Injunction
An injunction is essentially an order of the court, which prevents or stops the
defendant from doing or continuing to do something in breach of the terms of the
contract between him and the plaintiff. An injunction is a discretionary remedy and
not one which is obtainable as of right. In Malaysia, the remedy of injunction may be
obtained in accordance with the Specific Relief Act 1950, which provides for two
types of injunctions viz, ‘temporary injunctions’ or ‘perpetual injunctions’.

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 By s.51, temporary injunctions are such as are to continue until a specified time
or until the further order of the court. This temporary injunction is sometimes called
an interlocutory or interim injunction and is usually granted by the court pending the
outcome of a full hearing by the court. The purpose of the temporary injunction is to
preserve the status quo of the parties until the final outcome of the court case.

By s.51(2), the perpetual injunction, on the other hand, is one that is granted by
the court at the end of the hearing and upon the merits of the suit. The defendant is
thereby perpetually enjoined from the assertion of a right, or from the commission of
an act, which would be contrary to the rights of the plaintiff.

Injunctions may also be classified as either mandatory or prohibitory. A

mandatory injunction is to compel the performance of a term of the contract. However,
s.54(f) provides that an injunction may not be granted if its effect is to enforce a
contract that cannot be specifically enforced.

(b) Damages
An order for damages refers to an order of the court requiring the party in breach
to pay the other party monetary compensation for the loss or other inconvenience
suffered as a result of the breach. The measure of damages recoverable is stipulated in
s.74 Contracts Act 1950. This is similar to the measure of damages payable under
common law as established in the case of Hadley v Baxendale (1854).
By virtue of this section, when a contract has been broken, the party who suffers
by the breach is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him:
(i) which arose naturally in the usual course of things from the breach, or
(ii) which the parties knew when they made the contract to be likely to result from the
breach of it.
However, the section also states that such compensation is not to be given for any
remote and indirect loss or damage sustained by reason of the breach. See: Bee Chuan
Rubber Factory Sdn Bhd v Loo Sam Mooi (1976); Tham Cheow Toh v Associated
Metal Smelters Ltd (1972).

10 Ah Seng, who owned a rare vintage car offered to sell it to his friend Ramu. The
offer was made through a letter dated 1 May 2011, which was posted on the same day.
The letter expressly stated that the offer was only open until 10 May 2011. Ramu
received the letter on 5 May 2011 and immediately posted his letter of acceptance to
Ah Seng. Due to a postal delay, this letter reached Ah Seng only on 12 May 2011.
Meanwhile, on 11 May 2011, Ah Seng, not having heard from Ramu, sold the car to
someone else.
Required:
Advise Ramu:

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(a) whether he can successfully sue Ah Seng for breach of contract; and (5 marks)
(b) whether he is likely to obtain the remedy of specific performance, in the event
there was a breach of contract by Ah Seng. (5 marks)
(10 marks)

10(a) The issue in this case is whether there has been a valid acceptance by Ramu of
Ah Seng’s proposal (offer) so as to create a binding contact between them.
According to s.2(a) Contracts Act 1950, a proposal (offer) is said to be made
when one person signifies to another his willingness to do or abstain from doing
anything, with a view to obtaining the assent of that other to the act or abstinence.
Section 2(b) states that an acceptance takes place when the person to whom the
proposal is made signifies his assent thereto. The general rule is that the acceptance
must be communicated to the proposer. By s.7, the acceptance must be expressed in
some usual and reasonable manner unless the proposal itself prescribes the manner in
which it is to be accepted.
However, there is an exception to this rule. By s.4(3) Contracts Act 1950, where
the parties have contemplated the use of the post as a means of communication, the
communication of the acceptance is complete as against the proposer when it is put in
a course of transmission to him so as to be out of the power of the acceptor.
In the present problem, Ramu accepted Ah Seng’s offer by a letter posted on 5
May 2011. Thus, though the letter of acceptance reached Ah Seng only on 12 May
2011, it was effective as against Ah Seng from the date of posting, i.e. 5 May 2011.
Thus, there was a valid contract between Ramu and Ah Seng as at 5 May 2011 and
Ramu may successfully sue Ah Seng for breach of contract.

(b) The issue here is whether Ramu is likely to obtain the remedy of specific
performance against Ah Seng for breach of contract. Specific performance is an order
of the court requiring the party who is in breach of the contract to perform his part of
the contract exactly as he had promised.
The remedy of specific performance is provided for under the Specific Relief Act
1950. By s.11(1), specific performance of any contract may be granted at the
discretion of the court in certain circumstances. Among them are:
(i) where there exists no standard for ascertaining the actual damage caused by the
non-performance of the act agreed to be done.
For example, A agrees to buy and B agrees to sell, a picture by a dead painter and two
rare China vases. A may obtain specific performance as there is no standard for
ascertaining the actual damage which would be caused by its non-performance; and
(ii) when the act agreed to be done is such that compensation for its non-performance
would not afford adequate relief. An example is provided by illustration (c) to
s.11(1)(c) Specific Relief Act 1950 as follows:

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‘A contracts to sell, and B contracts to buy, a certain number of railway-shares of a
particular description. A refuses to complete the sale. B may compel A specifically to
perform this agreement, for the shares are limited in number and not always to be had
in the market, and their possession carries with it the status of a shareholder, which
cannot otherwise be procured.’
Applying the above principles to the given problem it is quite clear that monetary
compensation is unlikely to be adequate for Ramu as the car was a rare one and on
principle Ramu should obtain the remedy of specific performance.
However, there is also an equitable principle that the court would not grant an
order of specific performance if the subject matter of the contract has been acquired
by a bona fide purchase for value without notice of the previous sale. Ramu may
therefore be advised that the court is unlikely to grant specific performance as the
vintage car has been sold and delivered to a third party, presuming that the third party
was a bona fide purchaser for value.

2 This question on contract law tests the candidates’ knowledge and understanding of
the distinction between a proposal and an invitation to treat as well as the distinction
between an acceptance and a counter-proposal.

(a) It is very important to distinguish a proposal from an invitation to treat. A

proposal (offer) is one of the essential ingredients of a valid contract. Section 2(a)
Contracts Act 1950 states that a proposal is made when one party ‘signifies to another
his willingness to do or abstain from doing anything, with a view to obtaining the
assent of that other to the act or abstinence’.
When the proposal is unconditionally accepted, a binding agreement arises. For
example, A may make an offer to B in the following terms: ‘I offer to sell you my car,
a Proton Saga 2005 model, for the price of RM20,000.’ If B unconditionally accepts
the offer, a binding agreement arises.
The offer must be clear. If the terms of the offer are vague it will not be a valid
offer. The case of Gunthing v Lynn (1831) provides an illustration. In this case, an
offer to pay an additional amount if the horse proved ‘lucky’ was held to be too vague.
A proposal must be distinguished from an invitation to treat. The invitation to treat is
in law only an effort to invite others to make an offer. An invitation to treat is not
capable of being accepted so as to create a binding agreement. A common example of
an invitation to treat is a display of goods for sale in a shop. A case in point is
Pharmaceutical Society of Great Britain v Boots Cash Chemists (1957). In this case,
the issue was whether a display of drugs on the shelves of a pharmacy amounted to an
offer, which was accepted when the customer took it and placed it in a wire basket.
The court held that the display of the drugs did not amount to an offer. It was a mere
invitation to treat. Other examples of invitation to treat are advertisements and
invitation for tenders.

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(b) It is also very important to distinguish an acceptance from a counter-proposal
(counter-offer). As stated in (a) above, there must be a valid acceptance of an offer in
order to create a binding agreement. Section 2(b) Contracts Act 1950 states that a
proposal is accepted, ‘when the person to whom the proposal is made signifies his
assent thereto’. Further, by s.7(a) Contracts Act 1950, such acceptance must be
‘absolute and unqualified’. Thus, there will only be a valid acceptance if the acceptor
(offeree) accepts the terms of the offer without any conditions or modifications. If the
offeree purportedly accepts with some modification made to the offer, then it would
only amount to a counter-proposal (counter-offer).
A counter-proposal has the effect of rejecting the original proposal. A case in
point is Hyde v Wrench (1840). In this case, the defendant offered to sell his property
to the plaintiff for a price of £1,000. The plaintiff replied stating his willingness to
purchase it at a price of £950. When this price was not acceptable to the defendant,
the plaintiff wrote to the defendant accepting the original offer. The court held that the
plaintiff’s reply indicating his willingness to purchase the property at £950 amounted
to a counter-proposal (counter-offer), which had the effect of destroying the original
offer. Thus, when the plaintiff purportedly accepted the original price, the offer had
ceased to exist.

10 Umar entered into the following two separate contracts with Ramu:
(i) a contract to purchase Ramu’s two-acre plot of land at Cameron Highlands for
RM3 million, which reflects its fair market price; and
(ii) a contract to sell to Ramu, his (Umar’s) motorcar, a Toyota Corolla, for
RM50,000. The market price of the car is RM55,000.
Subsequently Ramu, without giving any reason, informed Umar that he did not want
to sell the land to Umar. Umar then told Ramu, ‘In that case I refuse to sell you my
car. I will also sue you for breach of contract.’ Ramu replied that he too would sue
Umar for breach of contract if Umar did not sell the motorcar to him as agreed.
Required:
Advise Umar regarding,
(a) the most appropriate remedy for him against Ramu for breach of contract in
relation to Ramu’s land; and (5 marks)
(b) the most likely remedy which the court may order against him (Umar) in
favor of Ramu for breach of contract in relation to the sale of the motorcar. (5
marks)

10 (a) There are several remedies for breach of contract. These include damages and
specific performance. In relation to the contract to purchase Ramu’s land, Umar may
be advised that the most appropriate remedy for him against Ramu for Ramu’s breach
of contract is specific performance. Specific performance is a remedy that entitles the
party not in default to demand that the contract be performed as promised by the other

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party. This remedy is provided for in the Specific Relief Act 1950. It is a discretionary
remedy and not one that may be obtained as of right.
Section 11(1) provides, among other things, that specific performance may be
granted:
(i) when there exists no standard for ascertaining the actual damage caused by the
non-performance of the act agreed to be done; and
(ii) when the act agreed to be done is such that pecuniary compensation for its
non-performance would not afford adequate relief.
Further, the section also provides for a rebuttable presumption that the breach of a
contract to transfer immovable property cannot be adequately compensated in money.
The case of Zaibun Sa binti Syed Ahmad v Loh Koon Moy & Anor (1982) is illustrative.
In this case, the Privy Council upheld the decision of the Federal Court of Malaysia
which had applied s.11 Specific Relief Act 1950 and ordered specific performance of
a contract for the sale of land.
Applying the law as explained above to the given problem, the presumption is
that Umar cannot be adequately compensated in monetary form as the contract in
question relates to land, i.e. immovable property. Thus, he will be entitled to seek the
remedy of specific performance against Ramu.

(b) In the case of breach of contract by Umar in refusing to sell the motorcar to Ramu,
Umar may be advised that the most likely remedy that the court will order against him
in favor of Ramu is damages. Damages refers to the monetary compensation awarded
to a plaintiff for the loss suffered by him as a result of the defendant’s breach of
contract.
At common law, the principles regarding the assessment of damages recoverable
by a plaintiff was laid down in the case of Hadley v Baxendale (1854). Section 74
Contracts Act 1950 has adopted these principles. Under the section, the party who
suffers loss by the breach is entitled to receive from the party who has broken the
contract, compensation for any loss or damage caused to him thereby, which naturally
arose in the usual course of things from the breach or which the parties knew, when
they made the contract, to be likely to result from the breach of it. However, such
compensation is not to be given for any remote and indirect loss or damage sustained
by reason of the breach. This rule has been applied in numerous cases. See for
example: Bee Chuan Rubber Factory Sdn Bhd v Loo Sam Mooi (1976).
Specific performance will not be granted in the case of a sale of movable property
(e.g. a car) unless the movable property is unique and damages will not be an
adequate remedy. Applying the law to the given problem, the court is unlikely to grant
an order of specific performance against Umar in favor of Ramu as the contract
relates to a sale of a common type of motorcar which is readily available in the
second-hand car market. As such, monetary compensation will be deemed to be an
appropriate remedy for Ramu and he will only be entitled to an order for damages
against Umar for breach of contract.

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Companies Act 1965

4. Downhill Sdn Bhd borrowed RM2 million from Bank Kawan. The loan was
secured by a floating charge over all its assets. It later borrowed RM2 million from
Bank Bagus. The security for this loan was a fixed charge over its office building.
Required:
(a) Explain whether the charges require registration under the Companies Act
1965. (2 marks)
(b) State the consequences of failure to register the charges, presuming the
charges were registrable but not registered. (2 marks)
(c) Explain the order of priority of the charges between Bank Kawan and Bank
Bagus in the event the company is unable to pay its debts in full. (2 marks)
(6 marks)

4 (a) Section 108 Companies Act 1965 stipulates the categories of charges which
require registration. These include all fixed charges and floating charges created by
the company to secure a debenture. Thus both the fixed charge and the floating
charge created by Downhill Sdn Bhd must be registered. By s.108, the charges must
be registered within 30 days of their creation.
(b) In the event the charges are not registered within the stipulated time, s.108
provides that the charges will be void against the liquidator and any other creditor of
the company. Further, when the charge becomes void, the monies secured thereby
becomes immediately payable.
(c) The general rule on the order of priority of charges is that fixed charges have
priority over floating charges. Thus the fixed charge in favour of Bank Bagus will
have priority over the floating charge in favour of Bank Kawan.

Jack and Jill are the directors of Semuaboleh Sdn Bhd, a trading company. Bernard is
the purchasing officer of the company. The company has suffered losses over the past
three years and is now insolvent. One year ago, Jack and Jill decided to order RM1
million worth of goods on credit from Easytrade Sdn Bhd. They directed Bernard to
execute
the transaction. When Bernard pointed out to them that the company was not in a
position to repay Easytrade Sdn Bhd, he was told that they had no intention to repay
as the company was soon going to go into liquidation. Bernard then ordered the goods
on credit from Easytrade Sdn Bhd, and the goods were promptly delivered.
Semuaboleh Sdn Bhd has now gone into liquidation and a liquidator has been
appointed. Easytrade Sdn Bhd has not been paid.

Required:

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(a) Explain whether Jack and Jill can be charged with the offence of fraudulent
trading under the Companies Act 1965. (2 marks)
(b) If Jack and Jill had ordered the goods on credit in the belief that the resale of
those goods at a profit would save the company from insolvency, explain whether
they could still be charged with a criminal offence under the Companies Act
1965. (2 marks)
(c) Assuming that Jack and Jill are found guilty of the offence of fraudulent
trading, explain whether they can be made personally liable for all, or any part,
of the company’s debts and liabilities. (2 marks) (6 marks)

5 (a) Fraudulent trading refers to a situation where the business of the company has
been carried on with intent to defraud the creditors of the company or for any
fraudulent purpose. Under the Companies Act 1965, where the business has been so
carried on, every person who was knowingly a party to the carrying on of the business
in such a manner will be guilty of an
offence. As Jack and Jill have stated that they did not have the intention to repay the
creditor, EasyTrade Sdn Bhd, it can be said that they had the intent to defraud the
creditor. Thus Jack and Jill can be charged with the offence of fraudulent trading.

(b) If Jack and Jill had ordered the goods in the belief that the company could be
saved from insolvency, then there is no intention to defraud the creditors. In such a
case, they may be guilty of an offence for wrongful trading under the Companies Act
1965.
Wrongful trading occurs where the company had contracted a debt at a time when
there was no reasonable or probable ground of expectation of the company being able
to pay the debt. In this situation, any officer who was knowingly a party to the
contracting of such a debt would be guilty of an offence. Thus, Jack and Jill being the
directors of the company would
be guilty of the offence of wrongful trading.

(c) Under the Companies Act 1965, it is provided that where fraudulent trading has
taken place, the court may declare any person who was knowingly a party to such
fraudulent trading to be personally liable for all or any of the debts or other liabilities
of the company as the court directs. Thus, Jack and Jill may be made personally liable
for all or any part of the company’s debts and liabilities if the court so directs.

5 In relation to company law:

(a) explain the meaning of ‘veil of incorporation’; and (2 marks)
(b) explain, with reference to relevant authorities or examples, FOUR situations
in which the veil of incorporation may be lifted.

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5 (a) The ‘veil of incorporation’ refers to the legal phenomenon that upon the
incorporation of a company it becomes in law a separate legal entity distinct from its
members. The company is regarded as an artificial legal person having its own rights,
duties and liabilities. For example, the company has power to hold land and to sue and
be sued in its own name. It also
enjoys perpetual succession and in the case of a limited company, its members enjoy
limited liability in the sense that their liability to contribute to the assets of the
company in the event of a liquidation is limited to the amount, if any, unpaid on their
shares. See Salomon v Salomon & Co Ltd (1897) and s.16 (5) Companies Act 1965.

6 (a) State TWO circumstances in which a company may be voluntarily wound

up. (2 marks)
(b) In relation to winding up by the court:
(i) State THREE circumstances in which it may occur; (3 marks)
(ii) State when winding up by the court is deemed to have commenced; (2 marks)
(iii) State the effects of the commencement. (3 marks) (10 marks)

6 This question, which contains two parts, tests the candidates’ knowledge on certain
basic aspects of winding up of companies.
(a) By s.254(1) Companies Act 1965, a company may be wound up voluntarily:
(i) when the period, if any, fixed for the duration of the company by the memorandum
or articles expires, or
(ii) the event, if any, occurs, on the occurrence of which the memorandum or articles
provide that the company is to be dissolved, and the company in general meeting has
passed a resolution requiring the company to be wound up voluntarily; or
(iii) if the company so resolves by special resolution.
(Candidates are required to state only TWO situations in which a company may be
wound up voluntarily.)

(b) (i) By s.218(1), a company may be wound up by the court in a number of

circumstances. These include the following:
1. if the company has, by special resolution, resolved that it be wound up by the court;
2. if default is made by the company in lodging the statutory report or in holding the
statutory meeting;
3. if the company does not commence business within a year from its incorporation or
suspends its business for a whole year;
4. the number of members is reduced in the case of a company below two;
5. if the company is unable to pay its debts; and
6. if the court is of the opinion that it is just and equitable that the company be wound
up.

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(ii) By s.219(1), where before the presentation of the petition, a resolution has been
passed by the company for voluntary winding up, the winding up shall be deemed to
have commenced at the time of the passing of the resolution. By s.219(2), in any other
case the winding up shall be deemed to have commenced at the time of the
presentation of the petition for the winding up.
(iii) The effects of the commencement of a winding up are stated in ss.223 and 224.
By s.223, any disposition of the property of the company including things in action
and any transfer of shares or alteration in the status of the members of the company
made after the commencement of the winding up by the court shall, unless the court
otherwise orders, be void. By s.224, any attachment, sequestration, distress or
execution put in force against the estate or effects of the company after the
commencement of the winding up by the court shall be void.

7. State and explain FIVE characteristics of a company which distinguish it from

other forms of business organisation, such as a partnership or a sole
proprietorship.

7. There are several characteristics which a company possesses upon incorporation as

opposed to unincorporated businesses such as a partnership or a sole proprietorship.
(i) The most significant characteristic of a company is that upon incorporation the
company becomes in law a separate legal entity distinct from its members and other
stakeholders. This has been firmly established in the well-known case of Salomon v
Salomon & Co Ltd (1897), where the House of Lords held that even though Salomon
was in reality in absolute control of
the company, upon incorporation the company was clothed with a legal personality
distinct and separate from Salomon and the other shareholders. Thus Salomon could
also be a secured creditor of the company and a secured debenture issued in his favour
could have priority over the unsecured creditors. This position is clearly recognised in
Malaysia under s.16(5) Companies Act 1965. A sole proprietorship and a partnership
do not possess such a separate legal identity.

ii) In company law, a member of a company is not an agent of the company and
cannot bind it by his actions. In a partnership,a partner is an agent of the firm as well
as the other partners.
(iii) Property of the company belongs to the company and not its members. As the
company is a separate legal person, it has the power to own property in its own name.
This is quite unlike unincorporated business associations, where the property may
have to be registered in the names of some or all of its members. In the case of a sole
proprietor, he is the owner of all the
assets of his business.
(iv) A company may be formed with limited liability. This means that the members of
the company will not be liable for the debts of the company beyond the amount of

16
capital they had agreed to subscribe. The partners of a partnership and a sole
proprietor do not have limited liability and are fully liable for the debts of their
business.
(v) A registered company, if formed as a public company, may raise capital from the
public, provided it satisfies the requirements of the Companies Act 1965 and the other
specific legislation. A partnership and a sole proprietor cannot raise funds from the
public.
(vi) The company is said to enjoy perpetual succession. This means that the company
will continue to exist despite the death of its members. Neither a partnership nor a
sole proprietor enjoys perpetual succession.
(vii) The company enjoys a privilege in relation to borrowing. It is allowed to give
security in the form of a floating charge. Such a charge allows the company to
continue using the assets in the ordinary course of its business. Neither a partnership
nor a sole proprietor is permitted by law to create a floating charge.
(Candidates are required to state and explain only FIVE such characteristics.)

4 In relation to insolvency and the Companies Act 1965:

(a) list any FOUR persons who may petition for the winding up of a company by
the court. (4 marks)
(b) explain when a company may be deemed unable to pay its debts. (6 marks)

4 This question on company law tests the candidates’ knowledge on some basic
aspects of liquidation of companies.
(a) The persons who can petition for the winding up of a company by the court are
listed in s.217(1) Companies Act 1965.
Among the persons listed are:
(i) the company itself;
(ii) any creditor, including a contingent or prospective creditor of the company;
(iv) the liquidator;
(v) the Minister in the circumstances specified under the Act;
(vi) Bank Negara Malaysia in the circumstances mentioned in s.217(1)(f) and (g);
(Candidates are only required to state any FOUR of the above.)

(b) Section 218(1) Companies Act 1965 deals with the circumstances in which a
company may be wound up by the court. One of the circumstances is that the
company is unable to pay its debts. Section 218(2) provides that a company shall be
deemed to be unable to pay its debts in three circumstances:
(i) if a creditor to whom the company owes RM500 or more has served on the
company a written demand by leaving the same at the company’s registered office
requiring the company to pay the debt and the company has neglected for
threemweeks thereafter either to pay or secure or compound it to the reasonable
satisfaction of the creditor; or

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(ii) if a creditor has obtained from the court an execution or other process and this is
returned unsatisfied in whole or in part; or
(iii) if it is proved to the satisfaction of the court that the company is unable to pay its
debts as they fall due and this includes the situation where it is proved to the
satisfaction of the court that the value of the company’s assets is less than the amount
of its liabilities, including its contingent and prospective liabilities.

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