ASSIGNMENT

BUSINESS LAW

Question 1(5 marks)

“A consideration must be adequate”. Do you agree with the statement?

Discuss your answer by quoting the relevant decided cases to support your answer.

I do not agree with the statement. Providing consideration has some value, the court
will not investigate its adequacy. Where consideration is recognised by the law as
having some value, it is described as “real” or “sufficient” consideration. The court
will not investigate contracts to see if the parties have got equal value.

Consideration need not be adequate: Section 26, Explanation 2, Contracts Act, 1950:
an agreement is not void merely because the consideration is inadequate.
Illustration (f): application to the rule: ‘A agrees to sell a horse worth RM1,000 for RM10#
The agreement is a contract not with standing the inadequacy of the consideration.’

Case:
Phang Swee Kim v Beh I Hock (1964) MLJ, 383. In the case, the respondent alleged
that the appellant had trespassed on his land. He instituted an acting claiming for
possession and for an account of all income received by the appellant from the said
land. The appellant counter-claimed for a declaration that she was entitled to the said
land. At the hearing , the appellant argued that there was an oral agreement
made between her and the respondent in which the respondent agreed to
transfer the land to her on payment of RM500.

HELD: The learned trial judge held that the agreement was void due to the inadequacy
of consideration. There was adequate consideration in this case (there being no
evidence of fraud or duress) because the respondent agreed to transfer the land to the
Appellant for RM500 when the land was subdivided.

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Question 2.

State whether the parties below are required by the law of contracts to fulfill
their legal obligation in the following situations and explain your answer:

a ) Alia placed the following advertisement in the notice board of Seven to Seven
Stores:
Missing a dark and grey colour Persian cat. The cat is wearing a silver necklace
with a heart shape pendent with a written name 'Kitty'. Anyone who finds the cat
may return the cat immediately. Do contact Miss Alia at telephone no .015 343900,
and reward will be given for those who returns the cat"

Last weeks, Tam while jogging a park near his housing area, found a Persian cat. But
he decided to keep the cat at his home. Yesterday morning, Tam went to Seven to
Seven Stores to buy newspaper. He came across Alia’s advertisement to find her cat
and it had reminded him that the details of the cat that specified by Alia are the same as
the cat that he found last weeks. Immediately Tam contacted Alia to inform her that cat
was safe with him. Then Tam returned the cat to Alia, but when Tam enquire as to the
rewards as promised, Alia argued that her advertisement was only as an invitation to
treat therefore she has no obligation to pay the rewards to Tam. Tam came to you to
seek for your legal advice.

Topic :
Advertisement Offer Issue / Problem.-

Miss Alia lost her cat ‘Kitty’.

- She put advertisement in Seven to Seven Stores and stated that she would give
reward to the person who returns cat to her.
-Tam found the cat and kept it in his house. He saw her advertisement when he went to
shop.

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-He returned her cat and asked about reward. Alia did not want to give any reward
because she said that advertisement was only for invitation to treat.

Authorities :

Section 2 (a) of contract Act 1950.“

When one person signifies to another his willingness to do or to abstain from doing
anything, with a view of obtaining the assent of that other to the act or abstinence, he is
said to make a proposal”.

A proposal can be made to an individual, to a class of persons, a firm, a company or the

public at large.

Section 4(1) of the Contract Act 1950

Provides that the communication of an offer is complete when it comes to
knowledge of the person to whom it is made.

Case :

Carlill v. Carbolic Smokeball Co (1893) IQB 256, CA

HELD: An offer (proposal) could be made to the entire world because the contract will
be only be made with that limited portion of the public who came forward and
performed the condition on the faith of the advertisement.

Conclusion : Miss Alia did not put any contract to anyone specifically, so she
had the right not give the award to Tam even though she took her cat from him
as per as her advertisement. So here Tam cannot sue Miss Alia, because there
is not a contract among them, only an ‘invitation to treat’.

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b) Lim wrote to Wahid offering to sell his car for RM20,000. Wahid answered that he
agreed to buy the car for only RM15,000. But Lim disagreed with the said price. Two
days later, Wahid wrote again: ‘I agree to buy your car at the original price offered i.e.
RM20,000’. Lim then withdrew his offer.

In relation to the offer to sell the car, the issue is whether there has been a valid
acceptance by Wahid of Lim 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, Wahid offered to pay RM15,000 amounted to a
counter- offer which destroyed Lim original offer. Thus, there was no valid acceptance
of Lim offer by Wahid and therefore no valid contract between Lim and Wahid.

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Question 3 (5 marks)

Hani, a seventeen years old girl, wants to know as to whether she can enter
into commercial contracts. Advise he r as to what types of contracts she may
enter into legally

The Malaysian Age of Majority Act recognizes 18 as the age of majority. In

countries based on English common law, contracts with a person under the
age of majority would either be void or voidable (varies depending on the
jurisdiction) except for contracts of necessity, but this doesn't apply since
Malaysian law isn't based on English common law.

One of the elements constituting a valid contract is that the parties entering the
contract are those who have the competency to contract. This is based on
section10 (1) of the Contract Act 1950 which states: “All agreements are contracted
if they are made by the free consent of parties competent to contact, for a lawful
consideration and with a lawful object, and are not hereby expressly declared to be
void.”

Competency refers to the capacity of being an adult, having a sound mind and not
forbidden by la w t o en te r an y cont ra ct (e. g, ba nkrup tcy). Th is p rincip le is
ba sed on section1 1 o f t h e Contract Act 1950which provides that “every person is
competent to contract who is of the age of majority according to the law to which he
is subject, and who is of sound mind, and is not disqualified from contracting by
any law to which he is subject”

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Question 4 (8marks).

Is an invitation to treat an offer ? support you answer with cases, whenever

necessary.

An invitation to treat is an action inviting other parties to make an offer to form a contract.
These actions may sometimes appear to be offers them, and the difference can
sometimes be difficult to determine. The distinction is important because accepting an
offer creates a binding contract while "accepting" an invitation to treat is actually making
an offer.

Advertisements are usually invitations to treat, which allows sellers to refuse to sell
products at prices mistakenly marked. Advertisements can also be considered offers in
some specific cases. A proposal or an offer must be distinguished from an invitation to
treat. It is provided in section 2(a) of the Contracts Act 1950 which states that a proposal
is made when “one person …show more content…
An advertisement could be either an offer or an invitation to treat, depends on the
intention of the parties in the case. In the case of Majumder v Attorney General of
Sarawak (1967) 1 MLJ 101.

HELD: That an advertisement in the newspaper for the post of a doctor was not an offer
but merely an invitation to treat.

Auctions are sometimes invitations to treat which allows the seller to accept bids and
choose which to accept. However, if the seller states that there is no reserve price or the
reserve price has been met, the auction will be considered an offer accepted by the
highest bidder. An Invitation to treat will be anything that is displayed to a large number of
people with an undefined way of choosing who can accept. An offer will be directed at a
specific person with specified terms. So if an item is displayed saying it will be sold to the
highest bidder or to the first to accept the labeled price, it will be considered an offer.
As per Payne v Cave case (1789) 3 Term Rep 148; 100 ER:-

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The defendant made the highest bid and withdrew it before the fall of the hammer.

HELD: That the bid itself constituted the proposal or the offer which the auctioneer was
free to accept by the fall of the hammer or to reject it. Since the bid was withdrawn before
the fall of the hammer there was no contract between parties.

Question 5(5 marks)

Discuss the legal right of unpaid seller against the buyer

Introduction

The Sale of Goods Act 1930 provides the remedies available to both the seller and the
buyer in different possible circumstances. When a buyer and a seller has entered into a
contract, each party is to perform the promise made to the other. If one of the parties
does not perform one or more of the promises made, then there is breach of contract
and the other party can have remedy for the breach.

An Unpaid Seller

The definition of ‘unpaid seller’ is provided in section 45 of the Sale of Goods Act and it
runs as follows “the seller of the goods deemed to be an unpaid seller is:

 when the whole of the price has not been paid

 when a bill of exchange or other negotiable instrument has been received as
conditional payment and the condition on which it was received has not been
fulfilled by reason of the dishonour of the instrument or otherwise
 Thus, a seller who has received only a part of the payment is an unpaid seller.
However, a seller is not an unpaid seller if the buyer has tendered, i.e. offered to
pay the price, and the seller has refused to accept the payment. In such a case,
the seller will lose the rights of an unpaid seller.

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 Illustration: Seema sold certain goods to Bindu for Rs.10,000. Bindu made the
payment by cheque. Seema presented the cheque to the banker for payment but
it got dishonoured as there was not enough money in the bank account of Bindu.
Seema can return the cheque to Bindu and claim the payment as Seema is in the
position of an ‘unpaid seller’.

The seller must not refuse to accept the payment when tendered. If the price has been
offered by the buyer but the seller wrongfully refuse to accept it, the seller is not
considered as an‘unpaid seller’.

Illustration: Suresh sold certain quantity of jute to Jatin for Rs.5000. Jatin paid
Rs.2500 and failed to pay the balance. In this case, Suresh is in position of an ‘unpaid
seller’. The cost of the jute is Rs. 5,000, and until Jatin makes the entire payment,
Suresh can claim the payment due to him

Where the price has been paid to the seller by bill of exchange, cheque or promissory
note, etc., the seller is not an unpaid seller’. However if such bill of exchange, cheque,
etc. is dishonoured, the seller becomes an ‘unpaid seller’.

Question 6 (5marks)

Discuss the kind of contract of agency.

Characteristics of Agency
certain essential elements of Agency are given below:
1. Agreement between Principal and Agent: It is important that there be an
agreement as agency depends on agreement and not necessarily on contract.
A contract cannot be formed with a minor because an agreement with a minor
is void, but an agreement of agency with a minor is possible because
between the principal and the third person any person may be appointed as
an agent whether it be a minor or a person of unsound mind.

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Figure: Principal & Agent

Illustration

Illustration Rustam a shoe manufacturer appointed Kapil as his agent to sell

shoes. Kapil was just fifteen years old. Therefore the agreement between
Kapil and Rustam is a void agreement and cannot become a contract.
However the agreement between them can be treated as a contract of agency
because in an agency the agent can be a minor.

2. Intention of the Agent to Act on Behalf of The Principal: For an agency to

arise, it is important that the person (agent) intends to act on behalf of
another (principal).

Illustration

Illustration Prabhu a builder appointed Sooga as his agent to sell houses. The
agreement between them can become a contract of agency only when Sooga
gives his consent to Prabhu to become his agent.

Krishna Vs. Ganapathi

(1955) A.I.R, Mad. 648
It was held by the Court that it is only when one acts as a representative of
the other in business dealings so as to create contractual relations between
that other and third persons, that one is an agent and there is an agency.

3. Whatever the Principal can do Personally he/she can do through his/her

Agent:The agent can perform all those activities which the principal is liable
to perform. However the agent cannot perform acts which are personal in
character or are annexed to public office such as marriage and the duty of a
magistrate.

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Illustration
Ramlal was going to get married, so he appointed Shambhu, his cousin as his
agent to look after his business and all other personal and business affairs.
Shambhu had the right to run the business on b ehalf of Ramlal but he did not
have the right to marry on behalf of Ramlal.

4. He who does an act through another does it by himself/ herself: The acts of
an agent are the acts of the principal. The principal is liable to the third party
for the acts done by the agent.

Illustration
Radheylal a creditor appointed Ramu as his agent to recover payments from
his debtors. Ramu was sent by Radheylal to recover rupees fifty thousand
from, Sangeeta a debtor. Ramu took rupees fifty thousand from Sangeeta and
ran away with it. Hence Radheylal cannot ask Sangeeta to pay the money
again. However if Ramu is a major, then Radheylal can take legal action
against him.

5. No Consideration Required for Agency: According to section 185 of the

Indian Contract Act no consideration is necessary to create an agency. The
fact that the principal has agreed to be represented by the agent is a
sufficient detriment to the principal to support the contract of agency.

Illustration
Sangeeta had a headache so she asked her son to go to the market and get a
tablet of disprin. In this case the relation between the mother and son is that
of a principal and agent and for the service of getting a tablet of disprin
Sangeeta gave nothing in cash or kind to her son. Thus there is a contract of
agency without any consideration.

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Question 7 (4 marks).

Answer the following questions briefly.

i. What the main legislation governing partnership in Malaysia?(1mark)

The main law governing partnership in Malaysia is the Partnership

Act 1961,
Partnership is defined in section 3(1) of the Partnership Act 1961:
Partnership is the relation which subsists between persons carrying
on business in common with a view of profit.

ii. Once a partner retires from a partnership, he automatically ceases to

be liable for all the partnership debts before and after his retirement.
Is the statement correct ? Why ?(3 marks)

Although a partner retires from the firm, he is not automatically freed of his liability
for partnership debts whether incurred before or after his retirement. This is made
clear by virtue of ss.19(2) and 38(1) Partnership Act 1961.

By s.19(2), a partner who retires from the firm does not thereby cease to be liable for
partnership debts or obligations incurred before his retirement.

Further, by s.38(1) ‘where a person deals with a firm after a change in its
constitution, he is entitled to treat all apparent members of the old firm as still being
members of the firm, until he has notice of the change’.

However, a retiring partner may, by taking appropriate measures, be released from

his liability from both existing as well as future debts of the firm.

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In the case of existing debts, he may not be liable if there is an agreement between
himself, the new firm and the creditors to the effect that he shall no longer be liable
for such debts. Such an agreement may either be express or implied. The authority
for this is s.19(3), which states, ‘a retiring partner may be discharged from any
existing liabilities by an agreement to that effect between himself and the members
of the firm as newly constituted and the creditors, and this agreement may be either
express or inferred as a fact from a course of dealing between the creditors and the
firm as newly constituted.’

In the case of future debts, the retiring partner may protect himself from liability
towards new creditors by advertisement in the Federal Gazette, Sabah Gazette, or
Sarawak Gazette. See: s.38(2) Partnership Act 1961.

In so far as existing creditors are concerned actual notice is necessary. A case that
illustrates this is Re Siew Inn Steamship (1934). In this case a retired partner had
placed a notice of his retirement in certain newspapers which were regularly read by
some old customers. Subsequent to his retirement these old customers lent money
to the firm.

They had not read the notice in the newspapers. The court held that the retired
partner was liable. The newspaper advertisement was insufficient. Further, it was
held in Phillips Singapore Private Ltd v Han Jong Kwang & Anor (1989) that even a
notice to the Registrar of Business, of the retirement of the partner, is not sufficient
notice towards old customers of the firm.

However, it is to be noted that the retiring partner will not be liable after the
retirement towards new persons who deal with the firm, and who never knew him to
be a partner of the firm.

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