PAROL EVIDENCE RULE

- Parol evidence – the court will not allow any oral evidence to add, vary, or contradict a
written document unless the oral evidence comes within one of the exception or illustration
contained in that section
- Where the terms of the contract have been incorporated into an agreement, the general rule
is that extrinsic evidence (evidence not contained in the document) may not be given to
contradict, vary, add to, or subtract the said agreement.
- Purpose : To protect the written document to maintain certainty and stability & to preserve
the integrity of a written agreement.
- Neither parties are allow to adduce extrinsic evidence to show that his intention has been
misstated in the document.
- Case : Jacobs v Batavia and General Plantations Trust [1924] 1 Ch 287 “It is firmly
established as a rule of law that parol evidence cannot be admitted to add to, vary or
contradict a deed or other written instrument.

EFFECTS OF RULES
- Applies to documentary evidence as well or oral evidence;
- Prevents admission of evidence relating to disagreements in respect to what was promised.
The Court will refer to the contractual words used by the parties to determine itself what
was promised;
- Excludes what a party thought the contract meant, and what they were contracting for;
- Excludes preliminary drafts of the contractual documentation,
- Render inadmissible correspondence, letters, emails and other communications where the
terms of the contract were being negotiated prior to formation of the agreement;

BURDEN PROOF
- The burden of proving the existence of an oral collateral contract lies on the party alleging
the same: Industrial & Agricultural Distribution Sdn Bhd v Golden Sands Construction

MALAYSIA POSITION
- The parol evidence rule in Malaysia mirrored in s 91 and s 92 of the Evidence Act 1950
- Section 91
o Based on the ‘best evidence rule’
o The contents of a document must be proved by primary evidence which is the
document itself in original
o To prove the terms of a written document, one must produce the original document
itself or adduced it by way of secondary evidence allowed under s.63 & s.64 of the
EA 1950
o Oral evidence cannot be given in proof of any matter which is required by law to be
reduced into writing
o Case : Ng Yee v PP, the prosecution had to prove the seating capacity of a vehicle.
The seating capacity was required by law to be recorded in the license. The license
 was not tendered on court but instead a police gave oral evidence that the “bus
could carry 16 passengers”.
 Held : Under s.91 of EA, no evidence may be given in proof of the terms of
such matter, except the document (the license itself) or secondary evidence
of its content.

- Section 92
o S.92 comes into operation only after the document has been produced to prove its
terms following s.91.
o A party is not precluded from adducing oral evidence to contradict a recital of a fact
in it.
o This section applies only between parties to the contract or their representative and
not to strangers
o Proof of real transaction behind contract – evidence of oral agreements or
statements can be accepted to determine real transaction behind the façade of the
agreements entered into between the parties
o Case : Mohammaed Azmi FJ in Keng Huat Fil Co Sdn Bhd, laid out the rule in Prenn v
Simmonds, that is :
 To exclude evidence of negotiations leading up to the contract
 To exclude evidence of the parties’ subjective intentions
 To admit evidence of surrounding circumstances and factual evidence to
determine the ‘aim’ or the ‘real commercial bargain; between the parties
o No oral evidence where terms reduced to form of a document. Oral evidence is
excluded when the terms have been reduced in the form of a document.

EXCEPTION sec 92
- The provisos to section 92 operate as exceptions to the general rule
- Section 92 has 6 provisos (a-f)
a) Deal with proof of facts to show fraud, intimidation, illegality, want of incapacity in
any contracting party, wrongly dated, want of failure of consideration, mistake in fact
or law
 Case: Ganam d/o Rajamany v Samoo s/o Sinnath,
 whether the sum 10,000 was actually paid?
 Held: although the App signed the acknowledgement that she
received a deposit of 10,000, it was open to the App to prove by way
of oral evidence under s92(a) that no consideration had been paid

b) Deal with existence of a separate oral agreement as to any matter where the
documents is silent and which is not inconsistent with its terms.
 Such separate contract are called – collateral contracts
c) Deal with existence of a separate oral agreement constituting a condition precedent
to the main agreement
 Case : Ganeson & Anor v Baskaran, the App agreed to buy land belonging to
the R and had paid a deposit of RM20,000. There was a retriction in a
 document of title that the land could not be transfereed without the consent
of the Ruler in Council. No such consent was obtained. The App contended
that the R did orally promise that he would get the consent.
 Issue : whether evidence of a separate agreement could be adduced
 Held: court admitted the evidence
d) If two parties make an oral agreement later to change or cancel a written contract, it
can be accepted, unless the contract is required by law to be in writing (like property
deals) or needs to be registered.
e) if there’s a common practice or custom for adding certain terms to a type of contract
that aren’t written in the contract itself, those terms can be used as long as they
don’t contradict or conflict with the written terms of the contract.
f) any fact may be proved which shows in what manner the language of a document is
related to existing facts.
IMPLIED TERMS
- Terms, contents, provision – not specifically included in the contract OR not even discussed
in the negotiations
- It is a term that the court will ‘read’ or imply into the contract by the Court or by the
Legislators.
- The court will do so when the implied terms appear to be consistent with the intention of
the parties
- An integral part of the contract despite the parties not having expressly provided it.
- Case : Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong, there are 3 ways terms can be
implied into a contract:
1) Terms implied by custom
2) Terms implied by courts
3) Terms implied by law (CL & Statute)

TERMS IMPLIED BY CUSTOM

- If a custom exists, it can be implied into the contract.
- For the parties to import custom/trade usage as terms of contract, must establish 3 basic
requirements:
a) Certain (the practice is clearly established) & Notorious (it is so well known in the
market)
b) Reasonable
c) Consistent with the express term

a) Custom must be certain and notorious

o Issue : Whether a party needs to know the existence of such custom or usage?
o Case: Cunliffe-Owen v Teather & Greenwood,
 if the practice is reasonable, certain and notorious, the party will be bound
even if he is not aware of it.
 However, if the practice is unreasonable (though certain and notorious), it
cannot constitute a usage, but if a party knows of it and agrees to it, it will
bind him.
o However, in the case of De Cruz v Seafield Amalgamated Rubber , the High Court
took the position that a party must be aware of a custom or trade usage before it can
bind him

b) Reasonable
o Before a practice can be implied as a custom or trade usage, it must be established
that it is a reasonable practice
o Case : Preston Corporation Sdn Bhd v Edward Leong & Ors
 Appellant: a publishing co, Respondent: firm of printers
 Respondent claimed that the films were theirs and would only give
ownership if the A paid for them.
  Held: to claim the existence of a trade usage/custom entitling the party (firm
of printers) to ownership of the film positives was unreasonable.
 Grounds: it conflicts with justice, the alleged trade usage is completely
unilateral thus beyond the need to protect the party’s business interest

c) Consistent with the express term

o The importation of usage of custom rests on the assumption that it represents the
wishes of the parties, but it must be excluded if otherwise stated to the contrary.
o Case : Cheng Keng Hong v Government of the Federation of Malaya
 Not a trade custom but merely a long established irregularity.
 The alleged custom was inconsistent with general tenor of the documents.

TERMS IMPLIED BY COURT

- Terms may be implied by the courts to allow for the unexpressed intentions of the parties to
take effect
- The courts will be prepared to imply a term into a contract to give effect to the obvious
intentions of the parties. Sometimes the point at issue has been overlooked or the parties
have failed to express their intention clearly
- There are 3 tests for implying terms :
a) The business efficacy test
b) The officious by stander test
c) A combined test

a) The business efficacy test

o The court imply a necessary term so as to give it business efficacy
o The basis is that the contract is unworkable without it
o Case: Moorcock
 the D wharfingers agreed to allow the P shipowner to discharge his vessel at
D’s jetty. The vessel sustained damaged. The COA implied into the contract a
term that a defendant should take reasonable care to ascertain the safety of
the vessel’s berth.

b) The officious by stander test

o To imply a term into a contract where the term ‘is something so obvious that it goes
without saying, so that, if, while the parties were making their bargain, an officious
bystander were to suggest some express provision for it in their agreement, they
would testily suppress him with a common,‘Oh, of course!’. MacKinnon LJ in Shirlaw
v Southern Foundries
o This is because the term is so necessary and implied in the agreement that it is
considered an obvious part of their intentions, even if it was not directly stated.
 o Case : Yong Ung Kai v Enting
 the written agreement did not provide for obtaining a license. The D tried his
best to get license but was unsuccessful.
 Held : There was an implied term that the sale of timber was to be subject to
license. It must have been in the mind of the parties that the
agreementrequired the obtaining of a license.

c) A combined test
o As the law on implied terms developed, courts have combined and used both tests
o Case: Sababumi v Datuk Yap Pak Leong [1998].
 Two tests must be satisfied before a court could infer them.
 The first is subjective in nature, and it is that such a term to be implied must
be “something so obvious that it goes without saying, so that, if, while the
parties were making their bargain, an officious bystander were to suggest
some express provisions for it in the agreement, they would testily suppress
him with a common ‘Oh, of course’.”
 The second test is that the implied term should be of a kind that will give
business efficacy to the transaction of the contract of both parties

TERMS IMPLIED BY LAW

i. Through Common Law
 For example employment contract, landlord & tenants, bankers & customers. *There is
an implied term that the employer will provide a safe system of work.

ii. Through Statutes

 Many specific implied terms have been incorporated into statutes
 For example s 14 & 16 of the SOGA 1957 provides an implied condition that the vendor
has the right to sell the goods and that the goods are fit and merchantable. A second
hand car is ‘reasonably fit for the purpose’ if it is in a roadworthy condition, fit to be
driven in safety, even though not as perfect as a new car.

Examples of statutes which provide that certain terms are to be implied into particular contracts are:
❑ The Sale of Goods Act 1957
❑ The Hire-Purchase Act 1967
❑ National Land Code 1965
IMPLIED TERMS IN SOGA
- The SOGA implies a number of stipulations in every contract for the sale of goods.
- Provided the parties have not excluded or modified them
- S.14 to S.17 of SOGA
- Seller’s obligation:
a. S 14 – implied condition as to title, quiet possession & free from encumbrances
b. S 15 – sale by description
c. S 16 – implied condition as to quality or fitness
d. S 17 – sale by sample

a. S 14(a)- implied condition as to title, quiet possession & free from encumbrances
 S 14(a) – an implied condition on the part of seller that in the case of a sale, he has the
right to sell the goods, and that, in the case of an agreement to sell, he will have a right
to sell the goods at the time when the property is to pass.
 When a person sells the goods by infringing the copyright or trademark of the others, he
is considered as not having the right to sell the goods. (even though he has title to
goods)
 Case: Rowland v Divall [1923]
 the P bought a car and after using it for some four months, discovered that it
was stolen. He had to return it to the true owner.
 CA: The Court of Appeal ruled that the seller (Divall) had breached the implied
condition as to title, meaning the seller had no legal right to sell the car in the
first place. Since the buyer did not receive what he had contracted for – which
was the legal ownership of the car – the buyer was entitled to a full refund on
the grounds of total failure of consideration.
 Nemo dat rule - "no one can give what they do not have”. It essentially means
that a person cannot transfer a better title to goods than they themselves have.
If the seller does not have ownership of the goods, they cannot sell or transfer
ownership of those goods to someone else.
 S 14(b) – an implied warranty that the buyer shall have and enjoy quiet possession of the
goods.
 S 14(c) Implied warranty that the goods are free from any charge or encumbrance in
favour of any TP not declared or known to the buyer before or at the time when the
contract is made.
b. S 15 – implied condition that goods correspond with description
- If you contract to sell peas, you cannot oblige a party to take beans.
- Where there is a contract for the sale of goods by description.
- if the sale is by sample + description, the bulk must correspond not only with the sample,
but also must correspond with the description.
- Case : Joseph Travers & Sons Ltd v Longel Ltd
o Charateristic by sale with description
A. Future or unascertained goods;
B. Specific goods which have not been seen by buyer
 Goods identified and agreed upon at the time a contract of sale is made.
 E.g. based on advertisement, mail order, sale from catalogue.
 may either be existing or future goods.
C. Specific goods which have been seen by buyer
 Case: Beale v Taylor
o car did not correspond to the ‘description’ as advertised. The car
was in fact not really a 1961 model: the back of the car was 1961
model but the front part was a 948c.c. model.
o Held: it was a sale by description even though the sale was of a
particular car as seen, tried and approved. (rejecting the D’s
argument).
o Thus, where goods have been seen by the buyer, the sale can
only be a sale by description if:
 there is some description relating to the goods; and
 Reliance by the buyer on such description

c. S 16- fitness for purpose & merchantable quality

 CL caveat emptor=s 16(1).
o the buyer must exercise care in making the purchase. If he does not, he must bear
the consequences. “there is no implied warranty or condition as to the quality or
fitness for any particular purpose of goods supplied under a contract of sale.
 But ;
o S 16(1)(a) – implied condition that goods are reasonable fit for a particular purpose
o S 16(1)(b)- implied condition that goods must have merchantable quality.
o To invoke s 16(1)(a), four requirements:
 The buyer must make known, either expressly or impliedly to the seller at or
before the time when the contract is made, the particular purpose for which
the goods are required,
 The buyer is relying on the seller’s skill/judgment,
 The goods are of a description which it is in the course of the seller’s
business to supply
 If the goods are specific, they must not be bought under their patent/trade
name.
o s 16(1)(a) does not apply to private sale/transaction
 o S 16(1)(b)- implied condition that goods must have merchantable quality
 ‘Merchantable quality’ also means – they must be reasonable for the
purpose described.
 Factors to determine ‘merchantability’ include :
a. Price
b. The description applied to the goods
c. Whether the purpose for the goods had been made known to the
seller
d. Any other circumstances
 S 16(1)(b) – also applies to instructions on the packing/labels.
a. The state of the packing affected the merchantable quality of the
goods. See Niblett v Confectioners’ Materials – tin bearing labels. So
labels were part of the state or condition of the goods as tins were.

d) S 17- Sale by sample

 S 17(1) – a contract of sale is a contract for sale by sample where there is a term in
the contract express or implied to that effect
 S 17(2) – three implied conditions:
o S 17(2)(a) – that the bulk shall correspond with the sample in quality,
o S 17(2)(b) – that the buyer shall have a reasonable opportunity of comparing
the bulk with the sample,
o S 17(2)(c)- that the goods are free from any defect rendering them
unmerchantable which would not be apparent on reasonable examination of
the sample.
# PRIVITY OF DOCTRINE
- Only the original party to a contract may sue and be sue upon it
- It is the original party that may enforce / be bound by the terms of the
contract
- It affects contracts which confer benefits to strangers or impose liabilities
on them
- Treitel - a contract cannot, as a general rule, confer rights or impose
obligations arising under it on any person except the parties to It.

LIMB OF PRIVITY
- 2 limbs/components:
i. Benefit Rule - it prevents third parties from obtaining rights or
benefits under contract
ii. Burden Rule - it prevents parties to a contract from imposing
liabilities or obligations on third parties.

BENEFIT RULE
- Deny complete strangers from enforcing contractual provisions
- In cases where the contract attempts, either expressly or impliedly, to
confer benefits on a third party.
- Persons who stand to gain benefit from the contract (third party
beneficiaries) are not entitled to take any enforcement action if they
have been denied the promised benefit.
- Such benefits can be a financial, services, goods or other advantage, or
an exclusion of liability or an indemnity in favour of a third party.
- Case: Lim Foo Yong & Sons Realty v Datuk Eric Taylor
 Supreme Ct: Wife was not a party to the contract and could not
claim for any loss suffered by her in her personal capacity

- Case: Tweddle v Atkinson

 The action failed because it was held that no stranger to
consideration can take advantage of a contract, even though it
was one which was made for his benefit.
 - Case : Dunlop Pneumatic Tyre Co Ltd v Selfridge
 court ruled that only parties to a contract can sue and be sued
on it. His decision was on three grounds:
i. The doctrine of privity requires that only a party to a
contract can sue under that contract.
ii. The doctrine of consideration requires a person with
whom a contract not under seal is made is only able to
enforce it if there is consideration from the promisee to
the promisor.
iii. The doctrine of agency requires that a principal not
named in the contract can only be sued if the promisee
was contracted as an agent.

BURDEN RULE
- Prevent the attempt to impose a liability onto the third party
- Case : Wilson v Darling Island Stevedoring and Lighterage
o The defendant stevedore damaged the plaintiff consignee’s goods
after discharge from the carrier’s vessel. The plaintiff brought
proceedings against the stevedore, claiming damages for the
stevedore’s negligence.
o The High Court of Australia faced with the opportunity to rule on
the availability of the protection or immunity afforded by the bill
of lading to the carrier or its agents.
o The defendant was held not to be entitled to such benefit.
o Further, it was stated that only the ship owner was protected by
the clause in the bill of lading.
o Being a stranger to the bill of ladings, the doctrine of privity
prevents the stevedore in seeking the benefit of the exclusion
clause stated in the bill of ladings.
MALAYSIAN POSITION
- The Malaysian Contracts Act 1950 makes no mention of the doctrine of
privity of contract, it is beyond doubt that the doctrine is applicable in
Malaysia.
- As per Privy Council’s decision in Kepong Prospecting Ltd v Schmidt. –
first case.
o The most important issue that must be decided before the court
was whether the English doctrine of privity of contract was
applicable under s 2(d) (intention) of the Contracts Ordinance
1950.
o Tan Chew Seah initially agreed to pay Schmidt 1% of iron ore sales
for helping secure a permit. When Kepong Prospecting Co. took
over, they agreed to pay Schmidt under the same terms. In 1955,
Kepong and Schmidt signed a new agreement for future
payments. Schmidt later claimed payments under either
agreement.
o Held : The Privy Council ruled he was entitled to payment under
the 1955 agreement but not the 1954 agreement, since he wasn’t
a party to the latter.

COMMON LAW EXCEPTION

1. Agency
- Agency is the relationship that exists when one person (the agent) is
appointed by another person (the principal) to act as their
representative.
- A contract entered into by the agent on behalf of the principal will be
legally binding on the principal.
- Case : The Viva Ocean
o where the court used agency to impose liability to the third
party.
o In this case, the High Court held that the ship owner, despite
being a third party in the contract, could be sued for the
damage of a cargo.
 o It was argued by the ship owner that the carriage of good
contract was entered into between the carrier and the cargo
owner and being a third party, the ship owner was not liable.
o Held ; the court resorted to the use of the concept of agency in
holding the ship owner liable. It was held that the carrier
entered into the contract as an agent to the ship owner.

2. Trust
- When two parties enter into a contract, and one party promises the
other that the promisor will do something for a third party, e.g. pay
money, the courts have occasionally treated the promise as a trustee
of the rights of the third party beneficiary.
- If the promisor fails to carry out the promise, the trustee and the
beneficiary are allowed to join together as co-claimants to sue the
promisor for breaking the promise.
# DISCHARGE BY BREACH
- Section 40 of the Contracts Act 1950 states about discharge by breach
- A breach of contract is a failure by one of the contracting parties to
perform his obligations under the contract or not within the time
stipulated for the performance of the obligation.
- Any failure to perform a contractual obligation will constitute a breach of
contract giving rise to an obligation to pay damages.

TYPES OF BREACH
- 3 types of failure to perform :
• Non – performance – X contracts with Y to sell certain goods to be
delivered on May 1. If X fails to deliver the goods to Y, X is liable.
• Late performance – If X delivers the goods on May 2, and Y accepts
the goods, X is liable.
• Defective performance – If X delivers goods on May 1 but the
goods o not conform to the quality specified, then he is liable
PHRASES OF BREACH
i. Repudiatory breach
o occurs where a party indicates, either by words or by conduct, that
he does not intend to honour his contractual obligations, e.g.
refusal to perform or failure to perform an entire obligation.
ii. An anticipatory breach
o occurs where a party breaks a condition of the contract by
declaring in advance that he will not perform it.
o If anticipatory breach, the other party has 2 options: -
 Treat the contract as discharged forthwith.
 The innocent party may accept the repudiation when it is
made and sue for damages. He need not wait until the date
of the performance.
iii. Termination and Rescission. Involves an election by the innocent party
to terminate the performance of the contract for breach or repudiation
of the obligations under the contract by the other party.
WHEN ONE PARTY TO A CONTRACT
1. Refused to perform
o This amounts to repudiation
o The refusal to perform can occur either before or at the time of
performance
o If it occurs before which when anticipatory breach phase
o Illustration (a) in Section 40
o Case : Ban Hong Joo Mines Ltd v Chen
 the FC held that failure to pay instalments amounted to a
deliberate refusal which entitled the other party to treat the
contract as being repudiated.

2. Disabled himself from performing

- Example when a defendant undertaken to deliver goods and before
the day arrives, delivers the goods to a third party.
- Case : In Arkitek Tenggara v Mid Valley City Sdn Bhd,
 ‘disabled himself’ – any deliberate act
 Thus, where a party refuses to perform or disables himself
from performing, he repudiates the contract by breach or
he commits a repudiatory breach

The party not at fault can:

1. The innocent party is released from further performance of the
contract which remains unperformed
2. The innocent party is not bund to accept or to pay for, any
further performance of the contract by the contract breaker
3. The duty of the contract breaker to further performance also
comes to an end
4. The innocent party is entitled to damages (s.76) and must
restitute, that is, pay back any advantage or benefit he has
received (s.65,s.66)