January 2013 Past Year question

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QUESTION 1

With regards to the Malaysian legal system, discuss on the following matters:a) Legislation

(9 marks)

Introduction: It refers to law enacted by a body constituted for this purpose. Laws are enacted by Parliament at the federal level and by the various State Legislative Assemblies at State level.

Body:Laws enacted by the Parliament is known as Acts (e.g. Sedition Act, Contract Act etc) meanwhile the State Legislative Assembly (DUN) legislates Enactment (e.g. State Land Enactment, Enakmen Pentadbiran Agama Islam Selangor etc). An ordinance is a law passed by the Yang Di Pertuan Agong during the Emergency (Darurat).

Generally, an Act is passed through the following processes at Dewan Rakyat:a) First readingb) Second readingc) Parliamentary Committeed) Third Readinge) Dewan Negara to endorsef) Royal Assent

b) English law(8 marks)

English law can be found in the English common law and rules of equity. Common law means laws that are derived from the English system. Due to historical reason, Malaysia inherited the English legal system after Merdeka. However, not all English law are applicable in Malaysia. This is because, according to Section 3 (1) Civil Law Act 1956, the courts in peninsular Malaysia shall apply the common law of England and rules of equity as administered in England on 7TH day of April 1956. In Sabah and Sarawak, the courts shall apply the common law of England and the rules of equity, together with the statutes of general application as administered or in force in England on the 1ST day of December 1951 and the 12TH day of December 1949 respectively.

The above datelines mean Malaysian court must not adopt any English principle thereafter.

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c) Islamic law(8 marks)

Islamic law or also known as Syariah law is for Muslims in Malaysia. Only matters such as inheritance, divorce, penal offences can be heard in Syariah court. YDPA is the Head of Islamic for the Federation, meanwhile Sultans and Governors in Sabah & Sarawak is the Head of Islam in their respective States.

Article 121 (1A) of the Federal Constitution separate the jurisdiction of civil and syariah court. Syariah court can only be applicable to Muslims only.

There are 3 level of syariah court in Malaysia; namely Syariah Lower Court, Syariah High Court and Syariah Appeal Court.

QUESTION 2

a) Harris lost his camera recently. He advertised in the Mempelam Daily, a localnewspaper, a reward of RM500 to anyone who can find and return the camera to him. Govinda, his neighbour, found the camera. He knew that the camera belonged to Harris, so he returned it to him. Govinda only knew of the reward the next day after reading the advertisement. Govinda wishes to claim the RM500 from Harris.

Advise Govinda. (15 marks)

Issue: Whether Govinda could claim RM500 from Harris even though he was not aware of the offer when he handed the camera to him?

Relevant laws:Consideration is one of the main element of a valid contract. Section 2(d) of the Contracts Act states that a consideration is a person agrees to do something or to abstain from doing something .

An agreement without consideration is void (sec 26 of the Contracts Act)- means, if the contract does not have any consideration at all, such contract is invalid. There are 4 exceptions to this rule:a) Agreement is made based on natural love and affection . sec 26(a)b) Agreement to compensate the past voluntary act. Sec 26(b) c) Agreement to compensate for an act promisor was legally compelled to do . Sec

26(b)d) Agreement to pay statute-barred debt. Sec 26(c) .

For a consideration that has been performed in the past, it is known as past consideration. It is a past consideration when the promisee had carried out his task and in return for an act already performed, the promisor made an offer.

Case: Kepong Prospecting v AE Schmidt- explain the facts and principle of this case;

Application - From the question, it appears that Govinda had performed his consideration. This

is known as a past consideration (Sec 26(b)). This is because, he had performed his consideration after he get to know the contract.

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- Therefore, by applying sec 26(b) and the case of Kepong Prospecting into question, the contract between Harris and GOvinda is still valid. This is because a past consideration is a valid consideration in Malaysia.

- As a result, Govinda can ask for the RM500 from Harris, even though he only discovered the offer much latter.

ConclusionPast consideration is a valid consideration in Malaysia pursuant to Sec 26(b)

b) Explain the rules governing intention to create legal relations under the law of contract.

(10 marks)

There is no specific provision in the Contract Act 1950 that requires the parties to have the intention to create legal relation. However, case laws have established the principle that both parties must have the intention to create a legal relation in order to translate the agreement into a binding contract.

There are 2 type of agreement; domestic agreement and business agreement.

For domestic agreement, for example an agreement between a husband and wife, such agreement was not meant for legally binding purposes. Example of such instances like a husband promise to buy ring for their anniversary, or a father promised his son to buy him toys if he do well in the exam. This is just a domestic arrangement and has not legally binding force. In the case of Balfour v Balfour, the husband promised to give the wife 30 pounds as maintenance while he was away in Ceylon. The court decided that this promise is only social contract and the parties had not designed a binding contract. However, in Merit v Merit, an agreement by the husband that he agreed to pay for the house installment and upon completion, the house will be transferred to his wife. The agreement was made in writing and signed by the husband. However, the husband refuse to transfer the house. It was held that there was an intention by both parties to be legally bound by the contract. The husband then was ordered by the court to transfer the house.

Meanwhile, In a commercial contract, it is presumed that the parties intended to create a legal relation and enter into a valid contract. In the case of Carlill v Carbolic Smoke Ball - even though the P purchased the smoke ball from the retailer, the court held that the D being the manufacturer and has made an offer to the world at large to reward anyone who has accepted to purchase the smoke ball and yet still suffered from influenza after using it, was liable to pay the P since a valid contract was formed between the P and the D.

In conclusion, the parties to an agreement must make sure whether they have the intention to create legal relation or not.

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QUESTION 3

Discuss the duties of an agent towards his principal.(25 marks)

IntroductionThe person who seeks assistance is known as the principal and the person who gave assistance is known as an agent. An agent has a duty towards his principal. The duties are as follows: (students to elaborate briefly for each points)

A. To obey the principal's instructions - Section164;B. In the absence of instructions from principal, to act according to customs which was

practiced at the place where he carries on his work - Section 164;C. To exercise care and diligent in carrying out his duties and to use such skill as he

possesses - Section165 -Case: KEPPEL V WHEELERD. To render proper accounts when demanded by the principal - Section 166;E. To pay the principal all sums received on his behalf - Section 171;F. To communicate with the principal - Section 167G. Not to let his own interest conflict with his duty as agent - Section169 provides that

the principal is entitled to recover from the agent any benefit which he may have obtained from the contract. Case: WONG MUN WAI V WONG THAM FATT

H. Not to make any secret profit out of the performance of his duty. In the case of INDUSTRIES AND GENERAL MANAGER MORTGAGE CO V LEWIS, secret profit refers to bribe or any secret commission paid on top of the agreed remuneration agreed between the agent and principal. Once it is established that an agent received a secret profit, the law presumes that he had been influenced by the payment to the detriment of the principal. It is not necessary to prove corrupt motive of the agent.

I. Not to disclose confidential information or documents entrusted to him by the principal.

J. Not to delegate his duty.

Conclusion

QUESTION 4a) Malik runs a restaurant at Taman Desa Kluang, Johor. He ordered from Ah Chong

Mini Market 50 bags of Pakistani basmati rice at RM40 per bag and 200 packets of sugar at RM2.20 per packet. It was expressly agreed between the parties that Ah Chong must pack the sugar in boxes containing 20 packets each. However, when Ah Chong delivered the goods to Malik's restaurant, it was found that the sugar was packed in boxes containing 30 packets each. The basmati rice that was supplied was found to be from India and not Pakistan. Malik wishes to reject the goods. Advise Malik. (15 marks)

Issue:Whether Malik could reject the goods on the ground that Ah Chong had breached the implied condition that the goods must correspond with the description?

Relevant LawsSec 15 of the Sales of Goods Act- provides that when the goods were described, it should correspond with the description.

Cases:

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MOORE & CO V LAUNDAUER & CO; Contract for 3100 cases of Australian canned fruit packed 30 tins per case. Held: Buyer was entitled to reject the goods when half of the cases contained only 24 tins per case. Goods do not correspond with the contractual description.

VARLEY V WHIPP - Contract for a second hand reaping machine described as new the previous year and used to cut 50 acres, was not performed when the goods delivered was a very old machine which has been repaired.

Application:Ah Chong had agreed to supply the goods as ordered by Malik. However, it turns out that upon delivery it was discovered that the goods did not correspond with the description of the contract. As such, this is a breach of Sec 15 of SOGA whereby if the goods were described, it should correspond with the description.

Applying section 15 and the principles from the cases mentioned above, it is said that Ah Chong had breach the implied condition as to the description because the goods sent to Malik did not correspond with the contract. As such Malik has the right to return the goods to Ah Chong.

Conclusion When it was agreed that the goods must correspond with the description, the relevant party must ensure the goods fit the description. Failure to comply entitled the innocent party to reject the goods as provided under Sec 15 of SOGA.

b) Discuss the differences between conditions and warranties in a contract of sale of goods. (10 marks)

Conditions:Section 12(2) – a condition is an essential terms to the main purposes of the contract, the breach of which will rise to the right to treat the contract as repudiated. The innocent party has the right to sue for damages and terminate the contract.

Warranties:Section 12(3) - terms collateral to the object of the contract; the breach of which gives rise to claim for damages but not to a right to reject the goods and terminate the contract. Whether the term is a condition or warranty depend on each fact and circumstances of each case.

QUESTION 5

Hire purchase agreement is only considered valid if certain formalities are followed.Explain the above statement with reference to the Hire Purchase Act 1967.

(25 marks)

IntroductionHire purchase as defined in Section 2 (1) - letting of goods with an option to purchase and an agreement for the purchase of good by installment. Under this transaction, the hirer retain possession of the goods but the title does not pass to the hirer until the installment have been completed.

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There are certain formalities to be followed in order for the hire purchase agreement to be valid:

a) Section 4A(1) – the HP agreement must be in writingb) Section 4B (1) - HP Agreement must be signed by all parties to the agreement.c) Section 4C (1) requires the following HP agreement to contain the information:- a date on which the hiring starts- the amount of each installments and the person to whom and the place at which the

payments are to be made- the time for the payment of each of the installments- a description of the goods sufficient to identify them- the address where the goods are keptd) Section 4D - If there are more than one goods being hired at one time from the same

owner, there must be separate agreements for each goods.e) There should be no alterations or additions made to the HP agreement or written

documents containing the terms and conditions of the agreementAny alteration or addition will have no effect unless the hirer (or his/her agent) has consented by signing or initialing the agreement in the margin opposite the change - Section 39.

f) Copies of the Agreement must be served on the Hirer whereby within 14 days after the making of the HP Agreement, the owner must serve on the hirer and the guarantors each with a copy of' the agreement - Section 5 (1 )

g) Deposit by the Hirer – at least one tenth of the total value (10%).

Conclusion

QUESTION 6

Define "cheque" and explain the types of crossings on a cheque and their effects. (25 marks)

Under the Bill of Exchange Act 1949, cheque is defined as a bill of exchange drawn on a banker and payable on demand. A cheque which is crossed can only be paid through a bank and therefore, the person presenting the cheque must have a bank account. Crossing is made to protect the cheque from being cashed by a person who is not entitled to do so. There are few type of crossings:

Sec 76(1) -General crossings: 2 parallel lines crossed at the left side of the cheque that contains any of the following words: not-negotiable, and company, a/c payee, and company and not negotiable. The effect of this crossing is that paying banker can only pay the amount cheque to the collecting banker.Sec 76(2)- special crossings: the name of a banker is written between the 2 parallel line. The effect is that the paying banker must pay to the bank stated in the crossing. For e.g. CIMB Bank.

Sec 81- Limited crossing. Putting words like “not-negotiable” or “a/c payee only”. The effect of using the word ‘not negotiable’, the cheque is not easily negotiable but remains transferable i.e the person taking it cannot obtain a better title than that of the person to whom he receives it.

Meanwhile, the effect of putting ‘a/c payee only’ is to minimise the chances of fraud because these words operate as a notice to the collecting banker that only the account of the payee is to be credited.QUESTION 7

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Discuss the judicial exceptions to the doctrine of separate legal entity under the company law.

(25 marks)

IntroductionDoctrine of separate legal entity derives from the case of Salomon v Salomon where it was held that the law will treat the company and the members as separate legal persons. In other words, the shareholder/members of the company will not be responsible for any acts by the company even though they are the same, because there are two separate entities. There are exceptions to this doctrine as follows:

Statutory exceptions: - Section 140 (1) of the Income Tax Act the Director General of Inland Revenue

Malaysia may choose to ignore transactions which alter the incidences of tax or evade or avoid any liability to tax.These transactions conceal the true nature of the company’s affairs and the DG may disregard them in his assessment of taxes payable.

- Section 36 of the Companies Act 1965 When the membership of a company falls below 2 (people), the remaining member must within 6 months find another person to become a member. If he still proceeds with the business after that period by himself, he will be personally liable for the debts of the company incurred after six months period, unless he can prove that he did not know that he was the only member of the company.

Judicial exceptions or also known as lifting the corporate veil: (as provided by the court); fraud, agency,sham/mere facade & group of companies

Fraud : Use of a company to evade legal obligation or to commit fraud. The separate personality doctrine can not be used for evading legal obligation. GILFORD MOTORS CO LTD V HORNE : Horne was formerly a MD of the plaintiff’s company. He had agreed not to solicit the company’s customer after the termination of his employment. However, when he left the company, he set up JM Home Co & Ltd through which he solicited the plaintiff’s customers. The court held that he had breached his agreement and was using his company to evade his legal obligation.

Agency: Company employed as an agent of its controllers. A company, like any other legal person, may act as an agent for its member or controllers. If a person incorporates a company, specifically to take over a person’s obligations, it is likely that the company will be held to be that person’s agent. Aspatra Sdn Bhd v Bank Bumiputra Malaysia Berhad.

SHAM/MERE FAÇADE: Incorporation is often used as a device to circumvent the law or to hide the true state of affairs from the court. Some people might use the corporate form as a means to exploit loopholes in the law. In such situation, the court will not be blinded to reality, notwithstanding the technical separateness of the company and its members.

GROUP OF COMPANIES In certain situation, a group of companies may be treated as a single corporate entity, although the general rule is that each company within a group is distinct entity. This is due to commercial realities. Hotel Jaya Puri Sdn Bhd v National Union Bar & Restaurant Workers

ConclusionThe court can ignore the concept of the separate legal entity by treating the owners and the company as one entity.

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