Contract Law: Validity & Dissolution

This assignment delves into contract law, focusing on factors that impact a contract's validity. It analyzes the effects of misrepresentation, mistake, duress, and undue influence on contractual agreements. The assignment also explores legal remedies available when contracts are deemed invalid and discusses the process of contract dissolution. Students are expected to demonstrate their understanding of these complex legal concepts and apply them to real-world scenarios.

Business law

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1..................................................................................................................................1
QUESTION 2..................................................................................................................................4
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business law comprises with many rules and regulations that shows how to form or run a
business in industry. It includes all rules, regulations, policies, procedures that help in starting,
managing, selling or closing any type of business. This law is established with some rules and
regulations that every organisation is required to follow in appropriate manner (Burke & Grube,
2011). In present report, Malaysia’s legal system has been explained. This country’s system
contains state legislations, federal constitution and subsidiary legislation. In this assignment,
different types of contract i.e. valid, void and voidable are discussed. Along with this, term hire
purchase agreement has been explained in context of Malaysia.
QUESTION 1
The contract is to be considered as massive or a complex document. According to section
2(h), of Contract Act 1950, ‘contract’ means when there is an agreement between two or more
parties and which is legally bound to follow all terms and conditions which are enforceable by
law. It is not always possible for anyone to include the basic requirement of contract such as
acceptance, offer, consideration, consent or capacity of parties and so on. These agreements are
binding by courts.
As per section 38 (1) of contract act, parties have either to perform or offer to execute
their promises, unless their performances are dispensed by any law. There are many terms which
are included in contract i.e. void, voidable and valid. These terms are essential for everyone to
form any type of contract (Jianyuan, 2012). Based on validity, there are various types of contract;
valid, void, illegal and many more and it depends upon both parties that what kind of contract
they are entering into performing any agreement.
Voidable contract: These agreements will become enforceable at the option of one of
the two parties. In this type of contract, one or both the parties cannot terminate written
agreement at any point of time (Schooner, 2011). The agreement will not become valid until and
unless the aggrieved party does not withdraw it. For example, if any contract has been done by
minor then it becomes voidable. Voidable contracts sometimes are considered as void contract.
In this contract, between parties, agreements are either accepted or rejected at the option of one
person. There are some grounds on which contract becomes voidable contract i.e. coercion,
misrepresentation, undue influence or fraud.
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Case Law – Korsah, C.J., Sarkodee-Adoo and Adumua-Bossman, JJ.S.C. The fact of
this was; contract has been done in hire-purchase-misrepresentation-claim for recession, return of
rent paid and damages. But plaintiff use car for full one year before withdrawing any action. As
per provision, decision of court is held that they dismiss plaintiff’s claim for paying the rent
amount in returns under a hire-purchase agreement. Plaintiff wanted to withdraw on the grounds
that there was a misrepresentation of facts. These facts are set out in cited case law.
Valid contract means a contract which complies with all essential elements of contract
and it is compulsory and enforceable on all parties. For example, a homeowner has signed a
contract with an appliance store that they will buy a Sony T.V. At the same time, homeowner
has paid the amount for buying T.V. and appliance store have given permission to owner to take
T.V to their home. The following are terms which are included in valid contracts.
 An offer that specifically gives all necessary details about what exactly will be provided.
 Acceptance, other party have accepted the proposal which has been presented by the
offerer as acceptance.
 Consideration, value which has been exchanged between parties.
 Competency of parties which is related with mental ability or age.
 Intention of both parties to carry out their promises.
Void Contracts, these are those contracts which are not enforceable by law. The contract
will become valid, if it fulfils all essential conditions which are required to constitute a valid
contract. The contract may become void, if there is any change in law or it has been entered in
with a minor person (Qing, 2012). For example, if contract has is done between illegal drug
dealer and supplier to purchase specific amount of drug. This contract has become void because
it does not contain any valid essential element of agreement. Following are the grounds which
makes contract void; repudiation of voidable contract, illegality, impossibility of supervening.
Case law, Government of Malaysia – Gurcharan Singh (1971) 1 MLJ 211. In this
case, an infant, like lunatic or insane is unstable to do agreement on purchase in strict sense of
words, but another party is satisfying their needs by providing them necessaries items, then in
such situation, obligation will be applied on plaintiff to repay such amount for rendering
services. Along with this obligation will be imposed on infant person. The execution of these
obligation was to impose rules and regulation on infant person and receive fair payment in
respect of satisfying their basic needs.
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Case Law, Lord Blanesburgh in Bell v Lever Bros Ltd [1932] AC 161, [1931] All ER
Rep 1, decision of court was held that, claim was made at the time of recession of agreement of
settlement. The case is related with void-ability either fraud or unilateral mistake which is induce
can be induce as fraud. But, if allegation has entered into agreements and mutual mistake of fact
is there, then these agreements will not be voidable but they are void ab initio.
Following are some factors which is causing contract to be voidable.
Illegality - Illegal contract are not enforceable and court should be vigilant to enforce
these agreements which form for the purpose of prohibited. The contracts which are tending
towards dishonesty of public life, promoting sexual immorality, agreements attempting to oust
jurisdiction and many more, then these all will be considered as unenforceable or illegal. These
types of contracts are voidable at particular period of time which is causing damage to parties.
Case law, Anderson v Daniel (1924), this case demonstrates that if contract is unenforceable
and their performance involve illegality then it is considered as breach of statues which is
intended to protect public.
Undue influence - It occurs when one party force another party to pressure or influence
them to enter into contract. There are two kinds of undue influence namely; presumed and actual
(Ayres & Schwartz, 2014). Presumed undue influence, when one party takes an advantage of
relationship which is involving trust or confidence with another person. On the contrary, actual
undue influence means, when first party puts pressure on other party to take an advantage of that
person. Case law, Royal Bank of Scotland v Etridge [2002] 2 AC 773, the judgement of court
was that, undue influence has taken place which includes cases regarding domination, coercion
and victimisation. At the time of forming contract, undue influence will take place and
agreement will become voidable at the option of second party.
Mistake – A mistake is said to have been made by one or more parties while creating
contract erroneously either intentionally or unintentionally. Depending upon nature of mistake,
contract will become void or voidable unless it is decided by court. There are different kinds of
mistakes which can be done by any of the parties i.e. common, unilateral and mutual. Common
mistake occurs when same fault has been done by both parties (The impact of misrepresentation,
mistake, duress and undue influence on the validity of a contract, 2014). Whereas, mutual mistake occurs
when parties misunderstand each other. In such cases or situations, contract would be rendered as
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voidable after a point of time. Sometimes the contract will also become void if it has been done
with minor person mistakenly.
Misrepresentation – There are many facts which can be act by person to represent their
facts in proper manner. A representation is statement of opinion which are made by one party to
another and subsequently encourages other party to enter into contract (Wang, Yeung & Zhang,
2011). If there is no proper representation of facts, then it affects the validity of contract. A
negligent representation of facts arises in common laws where there is a special relationship
between parties and they are showing duty of care among them. In this case, remedy will be
based on tortuous measures of negligence.
Duress – It is based on threats which are causing damage to person by physical violence.
In this, one party forms a contract and which shows illegitimate pressure on another person. A
threat which is committing unlawful act, then it sometimes also considers as unlawful duress. For
example, if one party has made contract with another person and after particular point of time,
first party thinks that this contract cannot continue. So, at the option of first party, agreement can
become voidable.
In Malaysian law, there is also need to amend these laws as per needs of people. As many
amendments have been made by government of Malaysia. These amendments are supported by
two-third members of parliament (Shapiro & Pearse, 2012). For example, if there are issues
arising in voidable contract, then opportunities should be given to both parties. So that court can
give best decision on the basis both parties opinions.
QUESTION 2
Hire purchase, is an agreement on which things are buying on the basis of credit. The
ownership of goods is brought under hire purchase. In Malaysia they should comply with hire-
purchase agreement. The ownership of goods remains with owner until and unless hirer has paid
full amount on which price has been agreed between both. Hire purchase agreement covers in
section 11(1)(a), as it is inserted as Debtor-creditor-supplier agreement under section 12(a) [4].
This agreement includes letting of products with an option to purchase and agreement has been
done to paid amount in instalments. But it does not include following agreements which has been
done between two parties;
 Person by whom goods are being hired or purchased or selling same kind of products or
description of goods are not comprised in agreement.
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 Property are comprising and passing at the time of agreement or before delivering of
goods.
Hire purchase is considered as type of borrowing of goods. It differs from other type of
borrowings because owner cannot use the goods until they have paid the full amount. Under this
agreement, person got an authority to use the goods when they have paid full amount on
instalments (Bar-Gill & Ben-Shahar, 2012). If person is not paying full amount, then it will be
considered as criminal offence.
As per law of Malaysia, there are two forms of hire purchase agreements which are
created by person. First, when goods are purchased from dealer in form of financier or in other
form. In first case, financier obtains a hire-purchase agreement from dealer, customer become the
owner of goods, owner gets money from financier and they recover the cost from customers. In
other form, it includes, the customer had purchase goods and executes hire-purchase agreement
with the help of financier, investor gets a right to seize goods when there is a non-fulfilment of
conditions of hire-purchase agreement by customers. When this law has been amendment by
Malaysia of government, then it became essential for parties to do agreement in writing. This
agreement is specified in first schedule; so it is also written in English language. If hire-purchase
agreement does not comply with both situations, then contract will become void. Hire-purchase
act regulated and contain agreement which spells out the rights and duties of parties.
Hire-Purchase (Amendments) Act 2004, this act seeks in; to enhance transparency and
disclosure requirements so that consumer can get rights to get access of all materials and relevant
information which will help them whether to enter in hire-purchase agreement or not. They have
to also update with hire-purchase act in such a manner which can balance the needs of consumers
and facilitates market developments (Abdullah, 2012).
There are different types of hire-purchase agreement such as; lease purchase, rent-to-own
and many more. Lease purchase is the form of conditional sale agreement, where monthly
instalment is paid by user to owner at particular period of time. When full price is paid by user to
owner, then possession remains with owner and title of property are transferred to seller. These
agreements are considered as capital lease for accounting purpose. There are two or more than
two parties are their while creating this contract. One is lessor and other is lessee. There are some
elements which are included in lease purchase agreement. Agreement between parties are
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generally done for one year. Following are legal terms which are included in hire-purchase
agreement.
Agreement – In this more than two parties are doing contract for a particular period of
time. In this, consent of both parties are there to execute their agreement.
Parties – There are three parties which are included in this agreement i.e. debtor, creditor
and third person. Third person is giving guarantee on the behalf of first person to make the
payment with in time period. So, third person become responsible to make payment on the behalf
of first person.
Money – While making contract, money takes place. There is consideration between two
parties in exchange of something. These amount should be paid in time period.
Time - While forming this contract, there is time foundation between them. First person
gives guarantee to second party to make payment on instalment until and unless they did not use
their property.
Hire purchase act reading protection of vehicles is different from each other. It this it
states the rights of hirers i.e. appropriate of payment should be made as per hire-purchase
agreement, they are having power to determine hiring, power to regain possession of goods in
certain circumstances and many more. Following are amendments which have done by minister
by notification in Gazette. Previous there was no section 16, but now it has been added in context
of hire-purchase agreement. As per this section, owner will not exercise any power in relation to
possession of property which comprises in hire-purchase agreement, if any breach of contract is
arising, then payment of instalment amount will be not paid not more than one third of total cash
of property. On contrary, if there is two successive default payments by hirer have to serve notice
before 21 days. But in amendment, payment of instalment will be paid more than one third of
total cash and second party does have right to breach contract unless permission has been
obtained by an order of court.
These section will be beneficial for owner that they will get amount in time period. If
second party have to breach the contract, then it is essential to get prior approval from court so
that further action can be taken. If it is compare with previous section, parties are not getting this
much right to recover their amount from seller in time period.
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There are different types of hire purchase agreement which can be used by person. Hire
purchase agreement are done between two parties according to their capacities that what kind of
terms and conditions they are applying.
In the first form of goods which are purchased
by financier from dealer
In other form
 Financier is obtaining hire-purchase
agreement from consumers.
 Customer is becoming owner of
products
 Owner of goods are recovering money
from financier who get the cost from
customer.
 In this, customer is purchasing goods
and executes hire-purchase agreement
with the help of financier.
 Under some circumstances, payment is
paid by financier on the behalf of
owner
 In lase, financier is having right to
seize the goods when customers have
not paid full amount on hire–purchase
agreement.
As per amendments in Malaysia law, financier have to serve notice period to customers
for recovering amount. The notice period should be given for 30 days. So customers will have
time to collect funds. The nature of transactions is determined in the form of agreement. If
customer is desiring to purchase the goods without having sufficient money, then he/she made
transaction with third party as a loan. These transactions will not charge any amount from lender.
Comparison between old and new amendments of hire purchase agreement.
In old act there was no section
17(A) and 17 (B).
New section 17A and 17B – This has been amended
inserted after section 17 in following:
 17A permits for repossession, (1) no person is
allowed to undertake a repossession of goods which
are comprises in hire-purchase agreement until and
unless written permit has been issues by controller.
Under subsection (2), if any person contravenes
with subsection (1), then they shall be guilty as
offence under this act.
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 17(B), offence has to appoint non-permit holder.
Under subsection (1), owner is having right to
appoint their agent to undertake repossession of
goods which is comprised under section 17(1).
Under subsection 17(2), if person contrivance under
subsection (1), then they will get punishment.
In old act there was no section
30(A).
This principal act is amended by inserting after section 30.
 Section 30A is related with booking fee - under
subsection 30A (1), no owner, dealer person or
agent shall collect or accept any booking fee from
an intending hire before the receipt of duty which is
completed set out in part II od second schedule by
hirer. Further sub section 30A (2), booking fee shall
not exceed 1% of cash price which is comprised in
hire-purchase agreement. In section 30A (3), if
notwithstanding anything under cited act, then
booking fee will be included in deposit under
section 31. In 30A (4), owner, dealer, person who
are acting on the behalf of owner have to refund the
90% of booking fee which is comprised under this
act. Last in subsection (5), any person who is found
guilty shall be considered as offence under this act.
If these both section as compared with old act, then there were no such section and
person are having any right to get repossession of goods until permission has been granted from
controller. Along with this, now dealer has to pay booking fee with 1% who are acting as an
owner of goods. Previous there was no subsection of 30 which describes booking fee of hire
purchase agreement.
Case law – PN Pillay & Co V Kah Motor Co ltd, in this plaintiff entered into hire
purchase agreement on 6 august with opposite party. As per clause 4 of agreement, in this default
was made by hirer to pay monthly instalments. But the owner immediately terminates hiring
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contract and they have to act upon without previous notice demand which is becoming entitled to
pay possession of vehicle. On the basis of this, judgement of court held that there was an
unlawful of repossession is made by defendant. He also held that owner could not repossess the
case until they had terminated hiring agreement.
CONCLUSION
After summing up report, it has been concluded that there are different types of contract
which are formed at the time of making agreements with another person. Whenever, contract has
been made then both persons are responsible to see that void agreement should not take place.
Court has given their different decisions in case of various kinds of contract. Further, term hire
purchase agreement is explained which shows the contract between both parties at the time of
purchasing goods. Government of Malaysia has done many amendments in hire purchase
agreement for the benefit of parties. It will help to parties to recover their amount by following
all rules and regulations properly.
REFERENCES
Books and journals
Abdullah, N. I. (2012). IMPLEMENTATION OF MUÑÓMALAH HIRE-PURCHASE BILL IN
MALAYSIA: CHASING A MIRAGE?. IIUM Law Journal, 17(1).
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Ayres, I., & Schwartz, A. (2014). The no-reading problem in consumer contract law. Stan. L.
Rev., 66, 545.
Azma, N., Rahman, M., & Albaity, M. (2014). Issues and Prospects of Islamic Hire Purchase
Financing: Malaysian Evidence. Journal of Management Research, 6(1), 12.
Bar-Gill, O., & Ben-Shahar, O. (2012). Regulatory techniques in consumer protection: A critique
of European consumer contract law.
Burke, D. D., & Grube, A. J. (2011). The NCAA letter of intent: A Voidable agreement for
minors. Miss. LJ, 81, 265.
Jianyuan, C. (2012). Comments on the Eclectic Theory of the Effect of Contract Dissolution [J].
Chinese Journal of Law, 2, 006.
Md Saad, N. (2012). Microfinance and prospect for Islamic microfinance products: The case of
Amanah Ikhtiar Malaysia. Advances in Asian Social Science, 1(1), 27-33.
Mingyi, Y. (2012). The Civil Regulation of Fraud Concerning Contract [J]. China Legal Science,
1, 014.
Nor, K. M., Shaaban, M., & Rahman, H. A. (2014). Feasibility assessment of wind energy
resources in Malaysia based on NWP models. Renewable Energy, 62, 147-154.
Qing, C. H. E. N. (2012). The Intellectual Property Application and Development in Worldwide
of Exhaustion Doctrine [J]. Hebei Law Science, 1, 019.
Schooner, S. L. (2011). Desiderata: Objectives for a system of government contract law.
Shapiro, F. R., & Pearse, M. (2012). The most-cited law review articles of all time. Michigan
Law Review, 1483-1520.
Teck-Hong, T. (2012). Housing satisfaction in medium-and high-cost housing: The case of
Greater Kuala Lumpur, Malaysia. Habitat International, 36(1), 108-116.
Wang, L., Yeung, J. H. Y., & Zhang, M. (2011). The impact of trust and contract on innovation
performance: The moderating role of environmental uncertainty. International Journal
of Production Economics, 134(1), 114-122.
Online
Hire-Purchase Act (Chapter 125) and Hire-Purchase (Amendment) Act 2004. 2014. [Online].
Available through: <https://www.mti.gov.sg/legislation/Pages/Hire-Purchase%20Act
%20(Chapter%20125)%20and%20Hire-Purchase%20(Amendment)%20Act
%202004.aspx>. [Accessed on 4th July 2017].
The impact of misrepresentation, mistake, duress and undue influence on the validity of a contract. 2014.
[Online]. Available through: <https://writepass.com/journal/2014/04/the-impact-of-
misrepresentation-mistake-duress-and-undue-influence-on-the-validity-of-a-contract/>.
[Accessed on 4th July 2017].
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