LAW OF CONTRACT

What

is Contract? Parties to a Contract Elements of Contract

WHAT IS CONTRACT?

The Oxford Concise Dictionary defines contract as follows; Contract is a written or spoken agreement between two or more parties, intended to be enforceable by law In Malaysia, all contracts made are governed by Contracts Act 1950.

WHAT IS CONTRACT? continued

Section 2(h) of the Contracts Act 1950 provides that; Contract is an agreement enforceable by law

All agreements are not contracts although all contracts are agreements.

WHAT IS CONTRACT? continued

ELEMENTS

THERE MUST BE AN AGREEMENT

THE AGREEMENT MUST BE ENFORCEABLE BY LAW

There must be an offer and a complete acceptance; A offered and B accepted the offer.

Examples of contracts not enforceable by law; contract for killing someone, contract for theft and others

PARTIES TO A CONTRACT
Offeror

Has the power either to accept or to reject the offer

Makes an offer to the offerree

Offeree

ELEMENTS OF A VALID CONTRACT

1. Offer 2. Acceptance 3. Consideration 4. Intention to create legal intention 5. Certainty 6. Capacity

1. OFFER

When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal.
[Section 2(a) of the Contracts Act ]

OFFER continued

In other words, under the Contracts Act 1950 and English Law, a proposal or offer is something which is capable of being converted into an agreement by its acceptance.

OFFER continued
It is very important to differentiate an OFFER from a mere INVITATION TO TREAT

What is INVITATION TO TREAT?

INVITATION TO TREAT
Invitation to treat is not an offer. It is just an invitation to make an offer. It is a sort of preliminary negotiation before any contract is entered into Examples:

Goods displayed in the shop with price tag. Advertisement in the newspaper. Auction sale.

Display Of Goods In Shop

CASE

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V. BOOTS CASH CHEMIST

Fact: The defendant was prosecuted for selling drugs (poison) without the presence of a qualified pharmacist. The customer selected the drug and put in the basket and has not paid yet to the cashier. Held: Display of goods on the shelf is merely an invitation to treat and not an offer.

Display Of Goods In Shop

CASE

FISHER v BELL

Fact: The defendant displayed flick knives in his shop windows. He was then convicted of a criminal offence of offering such knives for sale. Held: Display of any goods with a price tag on it in a shop window was not an offer but rather it was an invitation to treat.

Display Of Goods In Shop

Display of goods

Customer put in the basket

IT IS NOT AN OFFER

Not paid yet

Advertisements in the Newspaper

Referring to Oxford Advanced Learners Dictionary, advertisement here means a notice, picture or film telling people about a product, job or service.

Advertisements in the Newspaper

CASE MAZUMDER V. ATTORNEY-GENERAL OF SARAWAK

The Federal Court of Malaysia held that an advertisement in the newspaper for the post of a doctor was an invitation to treat.

Auction Sale
A call for bids by the auctioneer is merely an invitation to treat. When someone places his bid he is regarded as making an offer and the auctioneer is free to accept or reject the bid. A sale by public auction is complete when the auctioneer announces its completion by the fall of the hammer.

Auction Sale continued

OFFER; places a bid INVITATION TO TREAT

COMPLETION; Fall of hammer

ACCEPTANCE; accepts the bid

AGREEMENT

AN OFFER

Auction Sale
CASE

PAYNE v CAVE

Held: Court held that the auctioneers request for bids is an invitation to treat and each bid is an offer.

Tenders
When tenders are invited from the public for the highest price for the tendered items/ services or lowest price to supply the required items/ services it is regarded as mere invitation to threat. In Spencer v Harding, the Court held that tenders are mere invitation to treat like auction sale.

Offer Made to the World at Large

CASE CARLILL v CARBOLIC SMOKE BALL CO. LTD

Fact: The defendant company advertised in the newspaper that they would offer 100 to anyone who took medicine as prescribed by the defendant for a fixed period and still succumbed to influenza after finishing the prescribed doses.

Offer Made to the World at Large continued

CASE continued...

The plaintiff used the medicine for a fixed period as prescribed, but still contracted influenza. The plaintiff then sued the defendant for the money. Held: The Court of Appeal held that the plaintiff was entitled to the 100 as the advertisement is an offer to the world at large and she had accepted the offer.

2. ACCEPTANCE
When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise. [Section 2 (b) of the Contract Act]

ACCEPTANCE continued

According to Oxford Dictionary of Law, acceptance means agreements to the terms of an offer that, provided certain other requirements are fulfilled, converts the offer into a legally binding contract.

Acceptance Must Be Absolute and Unqualified

In order to convert a proposal into a promise the acceptance must be absolute and unqualified. [Section 7(a)]

Acceptance Must Be Absolute and Unqualified continued

According to Oxford Advanced Learners Dictionary, absolute means definite and without any doubt or confusion, while unqualified means having the right knowledge.

Acceptance Must Be Absolute and Unqualified - continued

CASE

HYDE v WRENCH

Facts: The defendant on 6 June offered to sell his farm to the plaintiff for 1000 and on 8 June the plaintiff replied that he was willing to buy the farm for 950. The defendant refused to sell the farm for 950. Then on 29 June the plaintiff was willing to buy the farm for 1000. Held: No contract was made between them because the plaintiff made a counter-offer.

Communication of Proposal continued

Offeror

Has the power either to accept or to reject the offer

Makes an offer to the offerree

The proposal is completely Communicated when It comes to his knowledge

Offeree

3. Intention to Create Legal Relations

The parties in the contract should have intention to create legal relations. If there is no intention to create legal relation between the parties, no valid and binding contract could be made. The court may ascertain the intention of the parties to create legal relation from the language and context of the agreement and conduct of the parties.

Intention to Create Legal Relations continued

When business agreement is made it is generally understood that the parties are serious in creating contractual relation. However, when social, domestic or family agreement is made it is generally presumed that the parties did not have intention to create legal relation. This general rule might be rebutted if the parties may show the required intention to create legal relation.

Intention to Create Legal Relations continued

CASE

BALFOUR v BALFOUR The defendant promised to give his wife, the plaintiff 30 per month as maintenance. Held: The Court of Appeal held that this promise was not enforceable because the parties did not intend to create legal relation.

Intention to Create Legal Relations continued

CASE

MERRIT v MERRIT
There was a document providing that in consideration of the wife paying all charges in connection with the matrimonial home until the mortgage repayments had been completed, the husband would agree to transfer the property to her sole ownership. The Court held that the agreement was enforceable since the parties intended the agreement to be legally binding.

4. CONSIDERATION
When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing something, such act or abstinence or promise called a consideration for the promise. [Section 2(d) of Contracts Act 1950] It is the element of exchange and reciprocity in contracts

CONSIDERATION continued
CONSIDERATION

EXECUTORY

EXECUTED

PAST

HOW ABOUT WITHOUT THE CONSIDERATION?

Executory Consideration
It is a consideration where the parties exchange promises to perform acts in the future. For example, A promised to sell his house to B and B promised to pay RM100,000 to A.

Executed Consideration
where one party promises to do something in return for an act of the other party. Example: Mike promises to give RM1000 to Wilma if she finds and returns Mikes lost cat. Wilma returned the cat with a hope to receive RM1000.

Past Consideration
It is where one party has voluntarily performed an act and the other party later promises to reward for the voluntary act. In past consideration the voluntary act is done first and the promise is made later. This voluntary act is called past consideration.

Past Consideration continued

Example: As little son was drowning at the lake and B rescued the son voluntarily. Later A promised to pay B RM1,000 as B saved his sons life. Here, As rescue work was past consideration and was a good consideration.

Past Consideration continued

It should be noted that past consideration is not recognised in the UK.

Past consideration is recognised in Malaysia but not in UK

Inadequacy of Consideration
An agreement without consideration is void..

[Section 26,Contract Act 1950]

An agreement is not void merely because the consideration is inadequate. [Explanation 2 of section 26]

Consideration must be sufficient but need not be adequate.

Purpose and Consideration should be Legal and Enforceable by Law

The purpose or consideration of the contract should be legal. If the purpose of the contract is illegal, then the contract would be invalid and would not be enforceable by law. Example: Selling of dangerous drugs, narcotic drugs, heroine etc.

5. CERTAINTY

Agreements, the meaning of which is not certain, or capable of being made certain, are void. [Section 30, Contracts Act] Example: A agrees to sell to B 50 crates of toys, but the kind and type of the toys are not specifically mentioned. Here the contract is uncertain and therefore void.

CERTAINTY continued
CASE KARUPPAN CHETTY v SUAH THIAN

Fact: The parties agreed for a lease at RM 35.00 per month for as long as the leasee likes. Held: The contract is void since the term as long as the leasee likes is uncertain.

6. Capacity to Make a Contract

Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject. [Section 11, Contracts Act]

Under Malaysian law, the age of majority is 18 years old (Age of Majority Act).

Capacity to Make a Contract continued

MOHORI BIBEE V. DHARMODAS GHOSE Fact: Privy Council held that an infant could not make any valid contracts. Exceptions; a) Contracts for necessaries b) Contracts of scholarship c) Contracts of insurance

THE END Please email your queries to hafiza.razak@mmu.edu.my Thanks