CONTRACT LAW

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CONTRACT LAW : 1 CONTRACT LAW

INTERPRETATION CONTRACTS ACT 1950 : 2 INTERPRETATION CONTRACTS ACT 1950 S 2(h)

contract is an agreement enforceable by law Valid agreement is legally binding
the parties Enforceable in the court of law S 2(g) an agreement not enforceable
by law is void

ELEMENTS OF CONTRACT : 3 ELEMENTS OF CONTRACT Offer and acceptance Consideration

Intention to create legal relations Capacity to contract Consent Certainty

OFFER AND ACCEPTANCE : 4 OFFER AND ACCEPTANCE proposal s 2(a) when a person
signifies to another his willingness to do or to abstain from doing anything , with
a view of abstaining his assent of that other to the act of abstinence, he is said
to make proposal Proposal should be distinguished from invitation to treat An
attempt to induce another party to make an offer. -It is not an offer by itself)
not be bound by the law.

OFFER WHEN IT IS EFFECTIVE? : 5 OFFER WHEN IT IS EFFECTIVE? S 4 proposal is

only effective if it is communicated to the acceptor

PROPOSAL vs INVITATION TO TREAT : 6 PROPOSAL vs INVITATION TO TREAT

Proposal/offer must be distinguished from an invitation to treat. Q: What is an
invitation to treat ?? general rule: An invitation to treat is NOT a
proposal/offer but a sort of preliminary communication which passes between the
parties at the stage of negotiation.

EXAMPLES OF INVITATION TO TREAT : 7 EXAMPLES OF INVITATION TO TREAT Display of

goods in a self service supermarket Auctioneer inviting bids for a particular
article Advertisement in the newspaper

Think : 8 Think Suppose that you put an ad in the classified section of your
local newspaper offering to sell your guitar for RM 150. 7 people called &
accepted your offer before you can remove your ad from the newspaper. If the ad
were truly an offer, you would be bound by 7 contracts to sell your guitar. But
advertisements are treated as invitations to make offers rather than an offer,
thus, you would have 7 offers to choose from, & you could accept the best one
without incurring any liability for the 6 you rejected.

EXCEPTION TO THE GENERAL RULE: : 9 EXCEPTION TO THE GENERAL RULE: On some

occasions, courts have construed advertisements to be offers because the ads
contained definite terms that invite acceptance. E.g: deposited an amount of money
See Carlill v. Carbolic Smoke Ball

TERMINATION OF THE OFFER BY: : 10 TERMINATION OF THE OFFER BY: Revocation of the
offer the offeror can revoke the offer as long as the revocation is communicated
to the offeree before the offeree accepts. Rejection of the offer by the offeree
the offer may be rejected by the offeree, in which case the offer is terminated.
Counteroffer by the offeree a counter offer is a rejection of the original offer
& the simultaneous making a new offer.

TERMINATION OF THE OFFER BY: : 11 TERMINATION OF THE OFFER BY: Lapse of time an
offer terminates automatically by law when the period of time specified in the
offer has passed. Destruction of the subject matter an offer is automatically
terminated if the specific subject matter of the offer is destroyed before the
offer is accepted. Death or incompetence of the offeror/ offeree an offerees
power of acceptance is terminated when the offeror/offeree dies or is deprived of
legal capacity to enter into the proposed contract.

ACCEPTANCE : 12 ACCEPTANCE S 2(b) when a person to whom the promise is made

signifies his assent thereto, the proposal is said to be accepted.

COMMUNICATION OF ACCEPTANCE : 13 COMMUNICATION OF ACCEPTANCE Acceptance must be

communicated/ make known Acceptance is said to be communicated if it reaches to the
proposer/offeror

ACCEPTANCE BY POST : 14 ACCEPTANCE BY POST S 4(2) communication of acceptance by

post is complete as against the proposer when it is put in the course of
transmission to him, so as to be out of the course of the acceptor as against the
acceptor, when it comes to the knowledge of the offeror The offeror is bound by a
contract made through post even though he does not know about the acceptance The
acceptor is bound by the contract only when the acceptance has reached the
knowledge of the offeror

Slide 15: 15 REVOCATION OF OFFER AND ACCEPTANCE S 5(1) A proposal may be revoked
at any time before the communication of its acceptance is complete as against the
proposer, but not afterwards S. 5 (2) - An acceptance may be revoked at any time
before the communication of the acceptance is complete as against the acceptor, but
not afterwards

Slide 16: 16 EXAMPLES A-offerror B-acceptor post letter of offer 5 Jan Pos letter
of acceptance (put the letter into a letter box) A cannot cancelthe contract
s.4(2)(a) - Acceptance is completed against A when the letter is posted receives
letter of acceptance from B - S.4(2)(b) acceptance completed against B 1 Jan 8
Jan

Slide 17: 17 S.5(2) A-offerror B-acceptor 1 Jan Post LO to B 5 Jan Post LA to A

(s.4(2)(a)- contract concluded) 8 Jan : receive LA from B B cannot revoke his
acceptance on 8 Jan, contract completed against B. (S 5(2))

CONSIDERATIONS : 18 CONSIDERATIONS The price which one party pays to buy the
promise or act of the other. No need to be adequate (bungalow = RM500) Pang Swee
Kim v. Beh I Hock

INTENTION TO CREATE LEGAL RELATIONS : 19 INTENTION TO CREATE LEGAL RELATIONS

Intention relates to somebodys state of mind Law cannot read the mind use
presumption In business agreement, there is a presumption that the parties intend
to enter into contractual relationship/ to enforce the contract In social/ domestic
agreement, it is implied that no legal relations are contemplated but these
presumptions are rebuttable proven otherwise

CAPACITY TO CONTRACT : 20 CAPACITY TO CONTRACT S 11 every person is competent to

contract who is of the age of majority, who is of sound mind, is not disqualified
from contracting from any law to which he is subject

Slide 21: 21
Can a minor enter into a contract? : Can a minor enter into a contract? 22

CONTRACT BY MINOR : 23 CONTRACT BY MINOR Age of Majority Act 1971 18 years Effect
of contract by minor VOID Mohori Bibee v. Dharmodas Ghose (contract by an infant
is void) Exceptions S 4 matters relating to marriage, divorce, dower and adoption
Religion and religious rites of persons within Malaysia

EXCEPTIONS : 24 EXCEPTIONS Contracts by minors are valid under certain

circumstances Contracts for necessaries.

Slide 25: 25 Scholarships Insurance Insurance Act1963 A minor over the age
of 10 may enter into a contract of insurance but if he is under 16, the written
consent of parent or guardian is needed

SOUND MIND : 26 SOUND MIND S 12 Contracts Act A person is said to be of sound mind
for the purpose of making the contract, if at the time when he makes it, he is
capable of understanding it and of forming a rational judgment as to its effect
upon his interest A person usually suffering from mental disorder may make a
contract during those periods when he is sound

Slide 27: 27 A person who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is of unsound mind

CERTAINTY : 28 CERTAINTY Terms in the contract must be certain if the terms are
uncertain, not capable of being made certain - the agreement is void unenforceable
Ali offers to sell to B his house for RM50,000 or RM70,000 100 kg of flour (what
kind of flour)

LEGAL EFFECTS OF CONTRACTUAL RELATIONSHIP : 29 LEGAL EFFECTS OF CONTRACTUAL

RELATIONSHIP Valid contract -Contractual obligations, legal remedies in the case of
breach voidable contracts - can affirm or repudiate the contract void contracts -
cannot be enforced in the court of law

VALID CONTRACTS : 30 VALID CONTRACTS If fulfill all the elements of contracts offer
and acceptance considerations legal capacity of parties intention to create legal
obligations certainty

VOIDABLE CONTRACTS : 31 VOIDABLE CONTRACTS : coercion (threat) undue influence

fraud (any act to induce another party to enter a contract) misrepresentation
(true/ false statement) mistake

VOID AND ILLEGAL CONTRACTS : 32 VOID AND ILLEGAL CONTRACTS Not enforceable by law s
24- the consideration or object of an agreement is lawful unless: forbidden by law
if permitted, would defeat any law fraudulent implies injury to a person or
property of another court regard it immoral or opposed to public policy

LEGAL REMEDIES : 33 LEGAL REMEDIES Valid contract breach of contract actions in

court order of court rescission damages specific performance injunction

RESCISSION : 34 RESCISSION One party breach/ does not perform his obligation the
other party may rescind the contract because of non performance

DAMAGES : 35 DAMAGES S 75 -a party who has the right to rescind the contract can
seek legal redress damages/ compensation for any damage sustained Type of damages
pecuniary losses non pecuniary losses

PECUNIARY LOSSES : 36 PECUNIARY LOSSES Wasted expenditure Loss of profits (if the
contract had been performed)
NON PECUNIARY LOSSES : 37 NON PECUNIARY LOSSES The damages granted for
disappointment, distress

SPECIFIC PERFORMANCE : 38 SPECIFIC PERFORMANCE A decree of the court directing that

a contract/ certain act should be performed specifically, according to its terms
(original terms) Specific Relief Act 1950 s 11 - When the contract agreed to be
done is in the performance, wholly or partly of a trust

illustration : 39 illustration A holds certain stock in trust for B. A wrongfully

disposes of the stock. The law creates an obligation on A to restore the same
quantity of stock to B and B may enforce specific performance of this obligation

INJUNCTION - restrain from doing unlawful act : 40 INJUNCTION - restrain from doing
unlawful act Temporary injunction for specified time or until the order of the
court to preserve status quo of the parties can be granted at any time by order of
court Perpetual injunction permanent order granted by the degree made at hearing
upon merits of the suits, defendant perpetually enjoined from the assertion of the
right, from commission of an act

examples : 41 examples Mareva Injuction - prevent the defendant from removing

assets from within the jurisdiction BBMB v. Lorrain Osman

Slide 42: DISCUSSION 1: Discuss your experience relating to contract entered by

your company/institution. How do you solve the problems relating to the said
contract ? 42

DISCUSSION 2: (REFER PAPER) : DISCUSSION 2: (REFER PAPER) CASE STUDY Case 1

CARLILL V. CARBOLIC SMOKE BALL CO [1893] 1 QB 256 FACTS: The defendants, who were
the proprietors and vendors of a medical preparation called The carbolic Smoke
Ball inserted in the Pall Mall Gazette of November 13, 1891, and in other
newspapers, the following advertisement: 100 reward will be paid by the Carbolic
Smoke Ball Company to any person who contracts the increasing epidemic influenza,
colds, or any disease caused by taking cold, after having used the ball three times
daily for two weeks according to the printed directions supplied with each ball.
1000 is deposited with the Alliance Bank, Regent Street, showing our sincerely in
the matter. The plaintiff, a lady, on faith of this advertisement, bought one of
the balls at a chemists, and used it as directed, three times a day, from November
20, 1891, to January 17, 1892, when she was attacked by influenza. The plaintiff,
upon refusal of the defendants to honour their promise, proceeded to sue them.
Consider the above case in relation to offer, acceptance and invitation to treat.
43

Discussion3: ETHICAL ISSUE : 44 Discussion3: ETHICAL ISSUE A took his son to B, a

doctor, and asked B to operate on the sons hand. B said that the boy would be in
the hospital 3 or 4 days & that the hand would probably heal a few days later. The
sons hand did not heal for a month. Q:Would A succeed in the legal suit against B?
Is this legal suit ethically brought up?

Slide 45: A: B did not make an offer to heal the sons hand in 3 or 4 days. He
merely expressed an opinion as to when the hand would heal. An opinion is not an
offer & not a contract term. Goods or services can be perfect in one partys
opinion & poor in anothers. 45

case 4: ADAMS V. LINDSELL (1818) 1 BE ALD 681 : case 4: ADAMS V. LINDSELL (1818) 1
BE ALD 681 FACTS: The plaintiffs were woolen manufacturers in Worcestershire. The
defendants were wool dealers in Huntingdon. On 2nd Sept 1817, defs wrote to ptfs
offering to supply wool to ptfs and requiring an answer in course of post. This
letter was misdirected with the result that it did not reach the ptfs until 5th
Sept. The same evening ptfs posted a letter of acceptance. This letter was
delivered to the Defs on 9th Sept. on 8th Sept; the defendants had sold their wool
to third parties. 46

Slide 47: The vital question was whether a contract for the sale of wool had come
into existence before Sept. 8th, the date that the defs had sold the wool to the
3rd party. Three possible options were open to the court. They could say that the
defs offer was accepted by the ptfs when: The ptfs posted it on the 5th When the
ptfs letter was delivered to the defs address on 9th, or When that letter was
brought to the actual notice of the def. 47

case 5: BRYNE V VAN TIENHOVEN (1880) 5 C.P.D. 344 : case 5: BRYNE V VAN TIENHOVEN
(1880) 5 C.P.D. 344 1 October, def posted letter of offer in Cardiff to the ptf in
New York. 8 October, def posted a letter revoking the offer of October 1. 11 Oct,
ptf received the letter of offer posted on October 1 and sent acceptance by
telegram the same day. It also followed up with letter of acceptance on 15 October.
20 October: defendants letter of revocation received by plaintiff. 48

Question: : Question: Has a revocation any effect until communicated? Does the
posting of a letter of revocation amount to a communication to the person to whom
the letter is sent? 49

Slide 50: Case 6 THE KODAK CASE FACTS: Early in 2002, Kodak refused to honour
orders for digital camera advertised on their retail website at 100 pounds, denying
that an automated response to customers confirming confirmation of their orders
constituted an acceptance of their 100 pounds offer. Kodak claimed the price was a
mistake and should have been 329 pounds. Several hundred consumers were believed to
be affected and had been threatening legal actions against Kodak unless their
contract were honoured. Kodaks defense: Their standard terms on the site, which
were the terms of sale which state Kodak had a right to change the content of the
website at any time including prices. The defence of mistake in English Law which
makes a contract void The display of price-marked goods wherever the display is, is
not an offer to sell goods but, is an invitation to a customer to make an offer to
buy an invitation to treat). How would you decide the above case? 50

DISCUSSION 7 : DISCUSSION 7 Contracts via internet: - uncertainties? - when? -

whether there is an offer + acceptance? - what rules to be applied
instantaneous / postal rule? 51