Prepared by:

Mohd Hafizee Shahri

BUSINESS LAW
(ALW10103/BLW10103)
Topic 3

LAW OF CONTRACT
 Learning Outcomes

At the end of this lecture, students

should able to:

• Explain elements of a valid contract.

• Describe enforceability of a contract.
• Analyse discharge of a contract.
• Discuss remedies available for a breach
of contract.
 Topic Outline

Elements Enforceability

Discharge Remedies
 Introduction

Daily activities
Individuals Businesses
No contract =
commerce
collapse
 Definition of Contract
• A LEGAL CONTRACT is an agreement between
two or more parties in which legal rights and
obligations are created, and are enforced by a
court.

Agreement Enforceable CONTRACT

ELEMENTS OF CONTRACT
Essential Elements
Offer

Certainty Acceptance

Capacity Intention

Consideration
 1 Element – Offer
st

The MANIFESTATION
OF WILLINGNESS TO
ENTER into a bargain,
so as to justify another
person in
understanding that his
ASSENT TO THAT
BARGAIN IS INVITED
Person making the promise/proposal =
and will conclude it. promisor / offeror /proposer
 How Offer is made

Sec. 9

Express Implied Combination

 Types of Offer

Specific General

Fizee
Mohd Mohd
X
Hafiz
 Conditions of Valid Offer

Certainty

• Offer must be certain, clear, complete

to avoid doubt.

Communication

• Offer must be communicated.

 Communication of Offer

Effective offer
comes to the knowledge
of the person to whom it
is made

Oral Words Written Not Conduct

Words
 Invitation to Treat
Invitation
WILLINGNESS TO ENTER Offer MERE INVITATION
to treat

Advertisements

Auctions Goods displayed in shop

 Revocation of Offer
Failure

Notice Sec. 6 Death

Time lapse

Time to revoke: Sec. 5(1) – at any time before communication of

acceptance is complete as against offeror.

Complete communication – it put into a course of transmission.

 2 Element – Acceptance
nd

when the person to whom the

proposal is made SIGNIFIES HIS
ASSENT thereto, the proposal has
been accepted

Person accepting the proposal/promise =

promisee/offeree/acceptor.

Word How Not

word
s
? s
 Conditions

must be
must be
COMMUNICATED in
ABSOLUTE and
USUAL &
UNQUALIFIED
REASONABLE manner
Communication of Acceptance
• Must be expressed in some
Mean usual
manner,
and reasonable
UNLESS the
s proposer prescribes the
manner.

Time • within a REASONABLE TIME.

Must be Communicated in Prescribed
Manner
Eliason v Henshaw
• Eliason offered to buy Henshaw’s flour.
Acceptance of the offer must be sent
to Eliason BY THE WAGON at a specific
place together with the letter of
acceptance.
• However, Henshaw sent the letter BY
MAIL thinking that it would reach
Eliason speedily.

• Held: Eliason was ENTITLED TO REJECT

the acceptance made by Henshaw.
 Counter-offer

introduction
of NEW TERM

A offers B a car for

RM5,000.

B accepts the offer,

BUT for a lower
price RM4,000.
Revocation of Acceptance

Time:
At any time before communication of
acceptance is complete as against
offeree

Complete:
it comes to knowledge of offeror
Offer and Acceptance - Summary
3 Element – Consideration
rd

when, at the desire of the offeror, the offeree or any other person HAS
DONE OR ABSTAINED FROM DOING, or DOES OR ABSTAINS FROM
DOING, or PROMISES TO DO OR TO ABSTAIN FROM DOING, something,
such act or abstinence or promise is called as consideration,

Something in return
 Types
• Promise in return IN THE FUTURE.
Executory • A promised to pay RM500 for B’s phone. B delivers the
phone to A and receives RM500 from A.

• DOING AN ACT in return to a promise.

Executed • A promised to reward RM200 to anyone who found his
cat. B found A’s cat.

• SUBSEQUENT PROMISE made in response to past act.

Past • B found A’s cat. A then promised to reward him RM200.
Adequacy
 4 Element – Capacity
th

The parties entering into contract should also

be competent to contract, i.e. they must have
the legal capacity to do so.

Capacity refers to the ability to a contract to

fully understand its terms and obligations.
 4 Element – Capacity
th

Sec. 11 – competent persons

• Every person is competent to contract

who is of the age of majority to the
law to which he is subject, and who is
of sound mind, and is not
disqualified by any law to which he is
subjected.
 5th Element – Intention to Create Legal
Relation
Parties have
No contract Except
intention

Presumption

Domestic Commercial

No intention Has intention

 6 Element – Certainty
th

• Every term and

condition must be
CLEAR and
ASCERTAINABLE.
• E.g.:
– You may rent the house
for RM100 as long as you
like.
 Offer

Certainty Acceptance

Capacity Intention

Consideration
ENFORCABILITY OF CONTRACT
 Introduction
The legal effect or enforceability of
contract may be classified into:

• Meets all of the essential elements to

Valid establish a contract .

• An agreement that is not enforceable by

Void law.

• A party has the option of voiding or

Voidable enforcing the contract.

Illegal • Contain unlawful object/consideration.

 Consequences

Valid Enforceable

Void Unenforceable

Continue the Valid &

Contract contract enforceable
Voidable
Cancel the Not
contract enforceable

Illegal Unenforceable
 Voidable Contract
Sec. 2(i)
An agreement which is enforceable by law at the option of one or more of the
parties…is a voidable contract.

One or more parties whose consent was so caused

Affirm Reject

The agreement is VALID AND BINDING until the party

entitled to avoid it
 Affecting Factors

Sec. 14
Consent is said to be free when it is not
caused by one or more of these

Sec. 16 Sec. 18
Sec. 15 Sec. 17 Sec. 21
Undue Misreprese
Coercion Fraud Mistake
Influence ntation
 Void Contracts
Sec. 2(g) – an agreement that is not enforceable by law.

Sec. • Agreement contravene

the law.
24
Sec. • Agreement in restraint
of trade.
28
Sec. • Agreement in restraint
of legal proceedings.
29
DISCHARGE OF CONTRACT
 Introduction

Termination of contract – END of

contract.

Parties are FREE from

obligations.
 Modes
Performance • Once a contract is performed, the
– sec. 38(1) contract is discharged.

Agreement – • Substitution/alteration/rescission.
sec. 63
Frustration – • Impossible or unlawful after
sec. 57 contract is made.

• A party fails to perform their

Breach obligations as agreed.
REMEDIES FOR BREACH OF CONTRACT
 Introduction

Injured party ENFORCES a right to correct

a loss.

The remedies available to the injured

party will depend on the nature of the
breach.
 Types of Remedies
• Innocent party may CANCEL the
Rescission contract.

• Innocent party to receive MONETARY

Damages COMPENSATION.

• Court order RESTRAINING a party from

Injunction breaking their contract or from
committing a wrongful act.

• Court order DIRECTING a person to

Specific carry out their obligations under the
performance contract.
 Conclusion
• Contract is one of the utmost important
aspect in business transaction.

• It deals with the rights, responsibilities, duties

of persons dealing with the contract.

• Without contract, business would collapse.