Q.
(a) (i) Explain the meaning of “consideration need not be adequate” under the law of contract. (3 marks)
(ii) Mark entered into a contract with David to purchase all the produce from David’s palm oil plantation. The value of the contract amounts to RM200,000.00. The contract includes the harvesting and extraction of the palm fruit from the plantation. At the time of the contract, Mark paid a 10% deposit to David. However, before Mark could begin harvesting, a mud slide from a neighboring land had destroyed almost the entire crop in David’s plantation while whatever remains could not be harvested due to inaccessibility.
Advise David on his obligations towards Mark regarding their contract. (5 marks)
(iii) Explain the meaning of “intention to create legal relations” as one of the requirements of a valid contract. (3 marks)
(b) N/A Sale of Goods Act, 1957
(c) Define the term ‘subsidiary legislation’ and explain its importance in relation to laws made by Parliament and the state legislatures. (3 marks)
(MIA QE 2011/3 Q1, 20 marks)
A.
(a)(i) Consideration need not be adequate means the consideration does not need to be seemed as rightful or equivalent to the value of the object of the contract.
Refer earlier post Without consideration a valid contract?
Definition by Law Dictionary:
'a settlement that is not equal to the value of the loss'.
Ref:
Law Dictionary: What is INADEQUATE CONSIDERATION? definition of INADEQUATE CONSIDERATION (Black's Law Dictionary)
Illustration from S.26 Contracts Act 1950 is extracted below.
(f) A agrees to sell a horse worth RM1,000 for RM10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.
Explanation 2—An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given.
(ii) Frustration, more readings at:
Similar question was asked in:
MIA QE 2010/9 Q1 (a)(ii) Mark rented David's hall.
MIA QE 2012/9 Q1 (b)(ii) Explain how a contract may be ‘discharged by frustration’.
MIA QE 2011/3 Q1 (a)(ii) Mark entered into a contract with David Oil Palm Plantation.
MIA QE 2013/9 Q1 (b) Haron and Aziz purchase of timber but destroyed by flood.
2011 D02 Q2 Discharging obligation under contract.
LPPEH 2012 D02 Q1 Doctrine of frustration.
This is frustration of performance of contract by Act of GOD. A landmark case is about a musical hall being burnt down and performance could not be carried out in Taylor v Caldwell (1863).
David could not perform the contract to supply the farm produce to Mark due to the mud slide which had destroyed the entire crop. It was Act of GOD that the mud slide happened. Hence, Mark could not take David to Court for the damage as it was not because of David that the mud slide happened. Due to the nature of the condition, the performance of the contract is frustrated.
MIA model answer:
A contract is terminated if the things that the parties agreed to do is impossible to perform. It can either be at the time the contract was made or when the obligation became impossible to perform after the conclusion of the contract.
S.57(1) - an agreement to do an act impossible in itself is void.
S.57(2) - a contract becomes impossible.
When a contract becomes impossible to perform, it becomes automatically void.
Obligation of person who has received advantage under void agreement, or contract that becomes void
66. When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under the agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.
ILLUSTRATIONS
(a) A pays B RM1,000 in consideration of B’s promising to marry C, A’s daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the RM1,000.
(b) A contracts with B to deliver to him 250 gantangs of rice before the 1st of May. A delivers 130 gantangs only before that day, and none later. B retains the 130 gantangs after the 1st of May. He is bound to pay A for them.
(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her RM100 for each night’s performance. On the sixth night A wilfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A for the five nights on which she had sung.
The contract between David and Mark is considered as discharged by frustration. This renders the contract void for impossibility (to perform). A mud slide is an incident normally associated with heavy rain and unstable grounds. While rain and landslides may be considered as foreseeable, the incident involving Mark and David is not due to the fault of any of them and, given the facts, not within their contemplation. David however, must return the 10% paid to him earlier as a rescission of the voided contract requires so.
From Contracts Act, 1950 there are provisions for impossible act being void.
Agreement to do impossible act
57. (1) An agreement to do an act impossible in itself is void.
Contract to do act afterwards becoming impossible or unlawful
57 (2) A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes
impossible or unlawful.
Similar question was asked in:
MIA QE 2008/3 Q1 (a)(i) Doctrine of Frustration
MIA QE 2011/3 Q1 - Mark and David
LPPEH D02 2012 Q1
(iii) Meaning of “intention to create legal relations” as one of the requirements of a valid contract.
Please see:
MIA QE 2008/3 Q1(ii) on requirement of law as 'intention to create a legal relationship' here
LPPEH D02 2012 Q8 Contract - Intention Q8
MIA QE 2014/9 Q1 (b) explain the circumstances no intention
MIA model answer:
The Contracts Act, 1950 is silent as to the specific meaning of "intention to create legal relations". Its necessity is obviously dictated by case-laws.
Presumption on "intention to create legal relations":
In domestic arrangements there is a presumption against the existence of an intention to create legal relations whilst in commercial arrangements the rebuttable presumption is that legal relationships are intended.
Case: ESSO Petroleum Co. Ltd. v Customs & Excise Commissioner [1976] 1 WLR 1.
Generally, it is up to the Courts to ascertain the intentions of the parties from the language used and the context in which they are used as well as what is customary in such transactions.
(b) Not included in Syllabus.
(c) Meaning of ‘subsidiary legislation’ and explain its importance.
MIA model answer:
Subsidiary legislation:
Interpretation Act, 1967: subsidiary legislation is defined as
"any proclamation, rule, regulation, order, notification, by-law or other instrument made under any Ordinance, Enactment or other lawful authority and having legislative effect."
Importance:
Subsidiary legislation is important as legislation by Parliament and the State Legislature is insufficient to provide the laws required to govern every day matters. Subsidiary legislation deals with the details about which legislature neither has the time nor the technical knowledge to enact laws.
Ref:
MIA website, available at
mia.org.my
S.26 , S.57 and S.66 of Contracts Act, 1950.