Nov 5, 2015

Contracts Need Not Be In Writing


A successful claim can still be made if there is sufficient evidence, oral or in the nature of the conduct, to support it.

IN the context of various dealings, rights and obligations are understandably created. Yet, there is a widespread perception that a person cannot enforce rights which are believed to have been acquired because there is no written document and therefore a contract. As such, people sometimes refrain from taking any further action and let matters be.

However, it is not correct that a bargain entered into cannot be enforced or pursued just because there is no written document. The absence of a written document notwithstanding, a successful claim can be made if there is sufficient evidence. Such evidence could be oral or in the nature of conduct.

The perception that rights do not exist if not evidenced by a contract in writing is, of course, not absolutely without basis. This belief owes its origin to the law in England in which the ancestry of our secular law lies. The law on the subject was earlier governed by the Statute of Frauds 1677 which required contracts for the sale of land to be in writing.

The present law in Malaysia relating to oral contracts is different now. It is the Contracts Act 1950 that applies. As said by Gunn Chit Tuan J in Diamond Peak Sdn Bhd v. Dr Tweedie, under our law, as in most Commonwealth Countries, an oral contract for the sale of immovable property is valid and enforceable.

However, much earlier in the case of MN Guha Majumder v. Re Donough, an oral contract for sale of land was held to be unenforceable in Sarawak. This was because the Statute of Fraud applied in the territory and the Contracts Act 1950 was not yet in force and applicable.

So the question that arises is the manner in which a contract that is entered into orally can create binding obligations and therefore be enforceable. In Tan Swee Hoe Ltd v. Ali Hussain Bros, the facts were that the occupant was told it could occupy the land for so long as it wished. All that was required was the payment of RM40,000.00 as “tea-money”. A binding obligation was construed to have been created. The views of the Federal Court were expressed in the following:

“So it seems to us ... that after looking at the totality of the evidence in the present appeal and not from isolated answers given in it, the parties intended or must be taken to have intended that the oral promise was to form part of the basis of the contractual relations between them. ... The appellants gave such a promise which, to our mind, against this background plainly amounted to an enforceable contractual promise.

“In those circumstances, it seems to us that the contract was this: ‘If we give you US$14,000 tea-money, you will ensure that we can stay for as long as we wish’; and the appellant agreed that this would be so. Thus, there was a breach of that contract by the appellants when they issued the notice to quit. We do not see how the appellant can escape from the bond of the oral promises which was given and which seems to us to have been given for perfectly good consideration.

“It may well be asked: why not put the oral promise into the written agreement if it is so important? The short answer is that often people do not behave in this way and the law should accommodate to the needs of ordinary people and not expect from them the responses of astute businessmen.”

A similar question can arise in the case of employment. A person may work for another but while the relationship of employer and employee may initially and earlier on proceed smoothly, there may not be anything in writing. However, when differences arise eventually, attention may shift to whether there was a contract in writing or not.

In Melaka Farm Resorts (M) Sdn Bhd v. Hong Wei Seng, there was no contract in writing but there was evidence that the Claimant’s salary was RM2,000 per month. There was more evidence to show that RM4,000 had been paid as two months’ salary. In this connection, the supporting documents reflected the nature of the relationship.

A clearer and more obvious illustration is the case of Britannia Brands (M) Sdn Bhd v. Low Lay Kiang. The Claimant had faithfully served the Company for 25 years. There was also an employer’s record kept by the Company containing the terms and conditions of the Claimant’s appointment. Yet, no letter of employment had been issued or was in force all the time. Obviously, it was not open to the Company to deny that there was an employment contract just because no letter of appointment was issued.

There is then the situation where there may be documents prepared which are in writing but one of the parties has not signed them. Does these detract from the facts of creating a binding obligation?

Such a situation arose in Heller Factoring Sdn Bhd v. Metalco Industries (M) Sdn Bhd where only one of the parties signed their agreement. The question that arose was whether, in the circumstances, there was a concluded contract between the parties or merely an offer to enter into an agreement by the party who had signed the agreement.

The Court of Appeal in that case went on to hold that the mere fact that one party to the agreement had signed the agreement did not necessarily mean that there could be no concluded contract. Their Lordships observed: “The true position is that where the contract has been signed by one party only, it can be enforced where there is evidence that the other party has elected to be bound by it. Part performances by one party, accepted by the other, is such other evidence.”

Of course, where the phrase “written contract” is used, it does not mean it must be a formal agreement that is prepared, printed and bound or, for that matter, stamped to be enforceable. It can be a mere ex­change of correspondence. Howe­ver, the correspondence must be looked at in order to come to the conclusion that it is a binding arrangement.

Finally, it must be noted that in the present environment, written documents would not be confined to use of paper or printed in the conventional form. Exchange of communications by electronic means would also constitute an instrument in writing.

Any comments or suggestions for points of discussion can be sent tomavico7@yahoo.com. The views expressed here are entirely the writer’s own.

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