2.1.Contract Law... Esential Elements

7/21/2019 2.1.Contract Law... Esential Elements

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CONTRACT LAW



INTRODUCTION

A contract may be defined simply as ‘a legally binding agreement between two parties’.

Contracts are essential to commercial life.

Generally in Malaysia, the law of contracts is regulated by theContra ts A t !"#$ .

If a particular subject concerning the law of contract is notdealt with sufficiently or not at all by the Contracts Act orMalaysian decided cases, then the %nglis& law may be applied.



%''%NTIAL %L%(%NT'

The essential elements or pre-re uisites of a !alidcontract are"

i) o**erii) a eptan eiii) intention to reate legal relations

i+) onsideration+) apa ity



O,,%R - ACC% TANC%

an agreement is the presence of offer andacceptance .

#ection /0a) of the Contracts Act states"‘ when one person signifies to another hiswillingness to do or to abstain from doinganything, with a view to obtaining the assent ofthat other to such act or abstinence, he is said tomake a proposal’ .



CONT…

A $promisor % is also &nown as a $proposer % or an $o**eror %.

A $promisee % is also referred to as an $ a eptor % or $o**eree%.

Generally, an offer 'or acceptance( will be either oral orwritten .

)owe!er, in a number of cases, an offer 'or acceptance( may

be implied from the ond1 t 0be&a+io1r ( of the parties orfrom the circumstances concerned.

#ection *" an o**er or a eptan e an be e2press or implied.



AN OFFER MAY BE MADE TO AN INDIVIDUAL ORTO A LARGE NUMBER OF PEOPLE :

Carlill v Carbolic Smoke Ball Co. 0!3"/)

Carbolic smo&e +all Co. td., in its newspaper ad!ertisement, promisedto gi!e // to anyone who purchased their smo&e ball remedy for

influen0a, and caught illness within 1 days. To show good faith, thecompany deposited /// with a ban& to meet any claims. Mr. Carlill

bought the remedy, caught influen0a and claimed //. The court heldthat the ad!ertisement was an offer to the world at large, and Mrs. Carlillhad accepted the offer by purchasing and ta&ing the remedy.An offer must be a definite promise by which the offeror intends to belegally bound by the terms stated.In Carlill v Carbolic Smoke Ball Co ., the fact that /// had beendeposited with a ban& showed that it was a firm offer and the company

intended to be legally bound.



DIFFERENCES BETWEEN AN OFFER AND AN INVITATION TO TREAT

It is important to &now which party ma&es the offer and whichaccepts.

In the case of goods on display in a shop or supermar&et, the law

has decided that it is the customer who ma&es the offer by ta&ing thegoods and placing them on the shop&eeper%s or cashier%s counter,and the shop&eeper or cashier accepts the offer by accepting thecustomer%s money.

T&e pri e displayed on t&e goods is not t&e o**er4 it is only anin+itation *or t&e 1stomer to ma5e an o**er6 it is only aninvitation to treat .



PH !" C#$%&C ' S(C&#%) (* +!# % B!&% & - B((%S C SH CH#"&S% '% . /01234

The law re uires that the sale of certain pharmaceuticals must becarried out under the super!ision of a ualified pharmacist.

+oots operated a store where the drugs were displayed on a self-ser!ice basis and the customers paid at a cash des& for the goodsthey has selected. A pharmacist was present at the cash des& butnot at the shel!es where the goods were displayed with a price tag.The 2harmaceutical society claimed that the law was contra!ened.

The court held that the display of goods in the store was not anoffer but an in!itation to treat. It was the customer who made theoffer and +oots could either accept or reject this offer at the cashdes& .



RELATED CASES

Partridge v Crit

Harvela Investments v Royal TrusCanada (1985)

Blackpool Aero Club v Blackpool BoroughCouncil (1990)

Harvey v Facey (1893)

Fisher v Bell



ACC% TANC%

#ection /0b) of the Contracts Act states"

‘ when the person to whom the proposal is made signifies hisassent thereto, the proposal is said to be accepted5 a proposal,when accepted, becomes a promise.’

It is the u nconditional consent to the t erms of theoffer . In other w ords, it is a nal and unqualiedacceptance of the t erms of an offer.

It is important to note t hat if an ‘acceptance con tains a nyreserva tionsto the t erms of the offer, then the ‘acceptance’will be conditional . Since i t will not be a n unconditionalconsent to the terms of the offer, it will not be an

acceptance.





CONT….

The general rule is that an acceptance must becommunicated to the offeror.

3ntil and unless the acceptance is so communicated, nocontract comes into e4istence. '#ee the case of #ntores !

"iles *ar #ast Corp 5 *667 "

ord 8enning stated that acceptance must becommunicated by the offeree or someone authorised by theofferee. If someone accepts on behalf of the offeree,without authorisation, this will not be a +alid acceptance.

#ince the acceptance must be communicated to the offeror,merely remaining silent annot amo1nt to a eptan e ,unless it is absolute clear acceptance was intended.'case of Powell ! 'ee -"



THE POSTAL RULE

T&e postal r1les ONL7 apply w&en t&e ‘a eptan e’is sent by post.

Acceptance here ta&es effect when the letter is posted.

In other words, where acceptance by post has beenre uested or where it is an appropriate and reasonablemeans of communication between the parties, thenacceptance is complete as soon as the letter is posted,e+en i* t&e letter is delayed4 destroyed or lost in the

post so that it ne!er reaches the offeror.



CA#9 :; "S < '& S#''

indsell wrote to Adams on Tuesday / 'ept = >.indsell misdirected the letter and as a result it was not recei!ed byAdams till >.//pm on ;riday # t& 'ept . :n that e!ening Adams

posted a letter accepting indsell%s offer.

The letter of acceptance was not recei!ed by indsell till Tuesday" t& 'ept .:n Monday 3 t& 'ept , indsell not ha!ing recei!ed the answer on#unday > th #ept, as they e4pected, sold the wools to another

person.The issue before the court was as to when acceptance too& effect.The court held that a eptan e too5 e**e t w&en t&e letter wasposted i.e. # t& 'ept.



R%8OCATION O, O,,%R9ACC% TANC%

#ection 6 pro!ides "“A proposal may be revoked at any time before thecommunication of its acceptance is complete asagainst the proposer, but not afterwards.

an offer may be withdrawn at any time beforeacceptance is complete, under section ?'a(.

R%8OCATION O



R%8OCATION O,O,,%R9ACC% TANC%

In general, an offer terminates"

i) W&en re:e ted by t&e o**eree.

ii) W&en t&e o**eree made a o1nter;o**er.

iii) On t&e deat& o* eit&er t&e o**eror or t&e o**eree be*orea eptan e.

i+) <y non;a eptan e wit&in t&e time stip1lated *or a eptan e4or wit&in a reasonable time.

8) W&en re+o5ed be*ore a eptan e.



INT%NTION TO CR%AT% L%=AL R%LATION'

Although e!ery contract is an agreement, there are manyagreements which are not contracts.

;or e4ample, if A and + agree to meet at = o%cloc& to ha!e dinnertogether, the agreement is made without intending that there will belegal conse uences if either A or + in the end, does not turn up. It ismerely a so ial agreement4 and not a ontra t.

In order that an agreement becomes a contract, there must be a

genuine intention to create legal relations which has legalimplications. !wong !um Sun"s# $te %td v %ian Soon Siew & 'rs. 5 *=17.



!(S# *! 6 C(. - C!("P%( ' *@6(

In a written agreement between the parties stipulated that it wasnot a formal or legal document and should not be subject to thelegal jurisdiction of the court. The )ouse of ords held that theagreement had no legal effect.

2arties usually engage in a process of negotiation before theysettle into an agreement. 8uring this process of negotiation, theydo not intend to be legally bound yet.i&ewise, when the parties include the words $subject to

contract%, it usually means that whate!er agreement that seems toha!e been reached still needs further deliberation, which showsthat the parties are not ready to be legally bound. In all thesecircumstances, there is no contract yet.



BALFOUR V BALFOUR (1919)

The husband went to work in Ceylon andagreed to pay his wife £30 per month. Edid not pay t he m oney a nd the wife sued.

It was held that there was no contractbecause t he p arties d id not intend to cr eatea legal relationship.



CONSIDERATION

#ection @? pro!ides that an agreement wit&o1t onsideration is+oid .

The word $consideration% is defined in section @'d ). It means

merely t&e pri e in a bargain . The price need not be money, butmust ha!e a monetary !alue.

%2amples> If A enters a shop and buys a pac&et of groundnuts,

the $consideration% which A pro!ide is the money, whereas the$consideration% moving from the shop&eeper is the pac&et ofgroundnuts. They ha!e each pro!ided $consideration% for the

business transaction.



CONSIDERATION NEED NOT BE ADEQUATE

In order for consideration to be !alid, it must bemeasurable in terms of some economic gain or loss .

In legal lang1age4 t&e onsideration m1st be

sufficient 4 b1t need not be ade7uate .

In Phang Swee 6im v Beh & Hock ?!"@ B4the ;ederal

court held that" an agreement to which the consent ofthe promisor is freely gi!en is not !oid merely

because the consideration is inade uate.



CONT…

#o, if A told + that he would sell his new Mercedesto her for M6, and + agreed, there is a bindingcontract between A and + for the sale of A%s newMercedes. The R( # is sufficient consideration,

although not ade(uate .

)owe!er, if A said to + that she could ha!e his new

Mercedes in return for her praying for him, wishinghim good health, there would not be sufficient consideration if + actually carried out the prayingand wishing.



CAPACITY

Generally, any person may ma&e a contract, but the law

sometimes protects certain classes of persons such as minors andmental patients who, because of an inherent wea&ness ordisability, cannot be e4pected to manage their own affairsade uately.

'e tion !! states that" B9!ery person is competent to contractwho"i( is of the age of majority according to the law

ii( and who is of sound mind, iii( and is not dis ualified from contracting by any law

(INOR'; UN'OUND (IND' DI' UALI,I%D <7 LAW





+(-#! "# % (* " ' )S& - +$!CH ! S& +H 8 (!S 5 *> 7

In it was held that education was included undernecessaries. ..3nder the Contracts 5Amendment7 Act*>?, for s &olars&ips or loans gi!en by thego!ernment or a statutory body or an ed1 ationalinstitution, the scholarship agreement entered into byan infant is +alid .

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2.1.Contract Law... Esential Elements