LAW OF CONTRACT

PROPOSAL AND ACCEPTANCE

PROPOSAL

An agreement between two or more parties is constituted by a proposal and an

acceptance of it. A proposal is made ‘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 such act or abstinence’. Thus A, by offering to buy B‘s car for
$10,000 in the hope that B will accept, is making a proposal. Then, according to
section 2(b), ‘when the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted’. Upon such acceptance by B, an
agreement between the parties is created. The proposal has become a ‘promise’
and the party making the proposal (proposer or offeror) is now referred to as the
‘promisor’ and the party accepting the proposal, the ‘promisee’. Therefore in the
example given above, B’s acceptance of A’s proposal to buy the car establishes an
agreement or promise. A is the promisor and B the promisee.

INVITATION TO TREAT

A proposal must be distinguished from an invitation to treat. The Contract Act does
not contain any provision respecting this aspect of contract. An invitation to treat is
not a proposal but a sort of preliminary communication which passes between the
parties at the stage of negotiation, for instance, a price list, a display of goods with
price tags in a self-service supermarket, an advertisement or an auctioneer inviting
bids for a particular article. If an auctioneer is considered making a proposal when
inviting bids, then when an bidders makes a bid, he is accepting the proposal and
an agreement comes into being at that stage. This is clearly untenable and defeats
the very purpose of an auction. The actual state of the law is that the auctioneer is
only making an invitation to treat. The auctioneer is merely inviting the people
present to make proposals which the former may accept or decline to accept.
According to section 10 of the Auction Sales Act,

‘ A sale by public auction shall be complete when the auctioneer announces its
completion by the fall of the hammer…’

The invitation to the people present to make bids is a preliminary communication

and not a proposal within the meaning of the Act. Therefore, the legal expression
‘invitation to treat’ refers to those instances in which

‘… you offer to negotiate, or you issue advertisement that you have got a stock
of books to sell, of houses to let, in which case there is no offer to be bound by
any contract. Such advertisement are offers to negotiaste – offers to receive
offers – offers to chaffer…’
Display of goods in a shop as in advertisements generally do not constitute a
proposal sell. The shop-owner merely holds himself prepared to consider proposals
made to him at the suggested prices. The invitation is not capable of being
accepted as it is not a proposal. The proposal is in fact made by the customer when
he or she selects the desired goods for payment at the counter. This well-
established rule was clearly determined by the celebrated case of Pharmaceutical
Society of Great Britain v. Boots Cash Chemist Ltd [1953] 1 QB 401. The
defendants were charged under the Pharmacy and Poisons Act 1933 (U.K.) which
provided that it was unlawful to sell certain poisons unless such sale was supervised
by a registered pharmacist. The case depended on whether a sale had occurred in
the self-service shop when a customer selected articles which he desired to
purchase and placed them in a wire basket. Payment was to be made at the exit
where a cashier was stationed and in every case involving drugs, a pharmacist
supervised the transaction and was authorized to prevent a sale. The Court ruled
that the display was only an invitation to treat. A proposal to buy was made when
the customer placed the articles in the basket. Hence the contract of sale would
only be made at the cashier’s desk. That being the principle, the shop owners had
not made an unlawful sale.

Automatic vending machines and automatic ticket machines in parking areas do

present some legal difficulties. Does a contract come into being the moment a coin
is inserted or is the user merely making a proposal at that stage? What happens if
the coin is inserted and the machine fails to deliver because it is empty and the coin
is not returned? Lord Denning in Thornton v. Shoe Lane Parking Ltd [1971] 2
QB 163 attempted to resolve the issue by the following analysis with particular
reference to an automatic ticket machine in a parking lot:

‘ … The customer pays his money and gets a ticket. He cannot refuse it. He
cannot get his money back. He may protest to the machine, even swear at it. But
it will remain unmoved. He is committed beyond recall. He was committed at the
very moment when he puts his money into the machine. The contract was
concluded at that time. It can be translated into offer and acceptance in this way:
the offer is made when the proprietor of the machine holds it out as being ready
to receive money. The acceptance takes place when the customer puts his
money into the slot. The terms of the offer are contained in the notice placed on
or near the machine stating what is offered for the money. The customer is
bound by those terms as long as they are sufficiently brought to his notice
beforehand, but not otherwise…’

TO WHOM CAN A PROPOSAL BY MADE?

A proposal can either be made to a particular person or to the general public. Where
it is made to a particular person, it appears that only the addressee may accept the
proposal. The opening words of section 2 (b) which provides ‘when the person to
whom the proposal is made …’ lends support to this view. On the other hand, where
it is made to the general public, then anyone who meets all the terms of the
proposal may accept. In an English case, Carlill v. Carbolic Smoke Ball Co.
[1893]1 QB 256, the defendants advertised that they would offer a sum of money
to anyone who would still succumb to influenza after using a certain product
according to the instructions for a fixed period. The plaintaiff duly used the product
advertised but, nevertheless, became ill. The plaintiff, upon refusal of the
defendants to honour their promise, proceeded to sue them. The Court of Appeal
held that the plaintiff had accepted the offer of the company made to the world at
large and is, therefore entitled to the money. Similarly, an advertisement of reward
for the return of lost property would, as a general rule, be treated in the same
manner in the absence of other terms attached to the offer.

Facts: Carbolic Smoke Ball Co. Ltd. advertised that they would offered $1,000 to
anyone who still succumbed to influenza after using a certain remedy for a fixed
period. The plaintiff duly used it but, nevertheless, contracted influenza. The
plaintiff then sued for the money.

Held: The plaintiff was entitled to the $1,000 as she had accepted the offer made to
the world at large.

COMMUNICATION OF PROPOSAL

A corollary to the rule that only an addressee may accept the proposal is the
principle of communication of the proposal. Unless there is communication of the
proposal as suggested by section 2(a) which reads ‘when one person signifies to
another his willingness to do or to abstain from doing anything…’, there
can be no acceptance to form an agreement. The fact that the other party has done
something which coincides with the proposal without being aware of the proposal
does not bring an agreement into being. Likewise, a party accepting a proposal
must be aware of its existence. A party who casually returns a lost property to its
owner cannot legally claim a reward if he is unaware of it at the time but
subsequently discovers the existence of an offer of reward for its return.

In R. v. Clarke (1927) 40 C.L.R. 227, an Australian case, the western Australian

Government offered a reward for information leading to the arrest and conviction of
persons responsible for the murder of two police officers. X and Clarke were
arrested and charged with the murders but shortly after, the latter gave information
which lead to the arrest of another person, Y. X and Y were later convicted for the
offence and Clarke who did not commit the murders claimed the reward. His claim
failed on the grounds that the information was given to clear himself and not in
reliance on the offer of reward. In the words of Higgins J
 ‘Clarke has seen the offer, indeed; but it was not present to his mind – he had
forgotten it, and gave no consideration to it, in his intense excitement as to his
own danger. There cannot be assent without knowledge of the offer, and
ignorance of the offer is the same thing, whether is its due to never hearing or it
or to forgetting it after hearing.’

M N Guha Majumder v R E Donough [1974] 2 MLJ 114

Facts: Property owned by the defendant was advertised for sale, and written offers
to purchase were invited. The plaintiff viewed the property on two occasions. During
the interval between the two occasions the plaintiff was in communication with the
defendant’s agent, and it was alleged that the defendant had accepted the
plaintiff’s offer to purchase the property for RM70, 000. There had been on the
occasion of the second visit to the property some discussion on the mode of
payment. There was also no clear agreement on the sale of orchid plants which the
defendant wished to sell separately, although the matter was discussed between
the parties. The defendant denied that he had decided to go on with the sale. The
defendant was anxious, however, to effect a quick sale as he was desirous of
leaving Kuching permanently for Johore Bahru. The question for determination was
a contract in existence between the plaintiff and the defendant at the material time.

Held: 1. The law does not impute an intention to enter such a legal relationship as
that of vendor and purchaser where the circumstances and the conduct of the
parties negative any intention of the kind.

2. the evidence indicated that the parties did not intend to be immediately bound.
They had not the necessary animus contrahendi. What passed was only a
negotiation from beginning to end.

COUNTER-PROPOSAL AND 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. The
acceptance must be made on exactly the same terms as proposed without
modifications or variations. In other words, an acceptance must be ‘absolute and
unqualified’ as provided in section 7(a). Any modifications or variation of the
proposal does not constitute an acceptance but amounts to a counter-proposal by
the party to whom the original proposal was made. A counter-proposal is treated as
a rejection of the original proposal.

This rule was determined in the English case of Hyde v. Wrench (1840) 3 Beav.
334. The defendant offered to sell his estate to the plaintiff on June 6 for 1,000
pounds. On June 8 in reply, the plaintiff wrote again purportedly accepting the
original proposal. The Court ruled that no acceptance had occurred because the
plaintiff’s letter of June 8 had rejected the original proposal which could not be
revived.

Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 EXCH 109

Facts: Montefiore applied for shares on 8 June but he was not told until 23
November that his offer had been accepted and that the shares had been allotted to
him and that the balance owing on the shares was now due. Montefiore refused to
pay and the company threatened to sue, alleging breach of contract. The issue was
whether the offer lapsed through passage of time.

Held: The offer to purchase shares had not been accepted within a reasonable time
and the offer had therefore lapsed. There was no contract created.

COMMUNICATION OF ACCEPTANCE

The general rule is that acceptance of a proposal must be communicated to the

proposer for there be a binding contract between the parties. This acceptance may

be expressed in some usual and reasonable manner, unless the proposal

prescribes a manner in which it is to be accepted. If the proposal prescribed a
manner in which it is to be accepted, and the acceptance is not made in such
manner, the proposer may, within a reasonable time after the acceptance is
communicated to him, insist that his proposal shall be accepted in the prescribed
manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

Hence acceptance must ordinarily be communicated and made in some usual and
reasonable manner if no method of acceptance is prescribed. But if the proposal
specifies a particular mode of acceptance and it is not followed, the proposer is
entitled to insist on it. It is necessary that the proposer act ‘within a reasonable
time’ after the communication of the acceptance. If he does nothing, he would be
deemed to have accepted. The duty to object lies with the proposer. The law in this
respect is different from English contract law which does not require such positive
objection to deviation from the prescribed manner of acceptance.

To the general rule that acceptance must be communicated, there are a number of
exceptions:

1. The proposer has dispended with the need for it.

 2. The proposer allows the party to whom the proposal is made to perform ‘the
conditions of a proposal’. i.e. acceptance taking the form of performance of
an act stated in the proposal.

3. The proposer allows ‘the acceptance of any consideration for a reciprocal

promise which may be offered with a proposal’.

The second exception falls within the rule established in the English case, Carlill v.
Carbolic Smoke Ball Co., cited earlier in the chapter. In this case, it was contended,
inter alia, by the defendants that the plaintiff should have notified them of her
acceptance of their proposal. This argument was rejected by the court. It held that
performance was sufficient to constitute acceptance if that was the intention of the
proposer.

POSITIVE ACT OF ACCEPTANCE

While communication of an acceptance may be waived, it will still be necessary for

the addressee to do something positive to accept such as actual performance of the
conditions of the proposal or alternatively, express his acceptance in an acceptable
manner. Section 2(b) requires the person to whom the proposal is made to signify
his assent thereto to a proposal. ‘Signifies his assent thereto’ implies a positive act
of acceptance on the part of the addressee. Silence, absence of response or just
total disregard of the proposal is not acceptance as there is no positive act that can
be related to the proposal. The proposer may not throw the burden on the
addressee to a positive act rejection by saying for instance, ‘if I do not hear from
you within a week, I shall assume that you have accepted may proposal’. The
addressee may safely ignore such a statement. If the law were otherwise, we shall
all be in untenable position. All manners of proposals would rain upon us, obliging
us to reject them on penalty of legal liabilities.

In Fraser v. Everett (1889) 4 Ky. 512, a case decided in the former Straits
settlements, wood A.C.J. held that there was no rule of law saying that ‘Silence
gives consent’ applicable to mercantile contracts. The defendant, in this instance,
had contracted for the purchase of ‘transfer and scrip’ shares but were tendered
bearer-warrant shares. His Lordship held that the defendant could not be treated as
a waiver of objection. His silence did not constitute consent.

Fraser v. Everett also laid down the rule that an acceptance of a proposal must be
made within a reasonable time. In that case, the contract was for shares ‘expected
to be mailed would have arrived on 23 April. The court held that it was not a
delivery within a reasonable time to have scripts mailed early in April and offered to
the defendant on 15 May. The fact that the mining shares were a very fluctuating
character was a significant factor in determining the issue of time. It should be
noted that what constitutes a reasonable time is a question of fact depending on
the circumstances such as the nature of the subject matter, and in this case, it was
shares of a fluctuating character so that one would expect their prompt delivery.

The rule that acceptance must be within a reasonable time is really embodied in
section 6(b) which provides that a proposal is revoked:

‘by the lapse of the time prescribed in the proposal for its acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without communication
of the acceptance; …’

ACCEPTANCE THROUGH POST

The general rule, as mentioned earlier, is that acceptance is effective or completely

only when it is communicated to the proposer. It is communicated when it comes to
the actual knowledge of the proposer. This is the legal position under English law
and it appears to be similar under local law. But section 4(2) of the Contracts Act
provides an exception to the general rule where the parties have contemplated the
use of the post as a means of communication. According to the sub-section

The communication of an acceptance is complete –

(a) As against the proposer, when it is put in a course of transmission to him, so

as to be of the power of the acceptor; and

(b) As against the acceptor, when it comes to the knowledge of the proposer.

Illustration (b) of section 4 gives the following example:

B accepts A’s proposal by a letter sent by post

The communication of the acceptance is complete:

as against A, when the letter is posted;

as against B, when the letter is received by A.

According to paragraph (a) and supported by Illustration (b), the proposer is bound
when the offeree posts the letter even though the former has no knowledge of the
acceptance. When the letter is posted the acceptor has put it ‘in a course of
transmission’ is such a way that he no longer has any control over it. The
transaction becomes binding irrespective of any delay or disappearance in the
course of transit. Denning L.J. in Entores Ltd v. Miles Far East Corporation
[1955] stated as follows:
‘When a contract is made by post it is clear law throughout the common law
countries that acceptance is complete as soon as the letter is put into the post box,
and that is the place where the contract is made.’

The postal rule has evolved from reasons of practical convenience, arising from the
delay that is inevitable in delivering letters. The Court of Appeal decision in the
Selangor case Ignatius v. Bell (1913) 2 FMSLR 115 is the local authority for the
principle that acceptance is complete upon posting where communication by post is
the method contemplated by the parties. In this case, the plaintiff sued for specific
performance of an option agreement which purported to give him the option of
purchasing the defendant’s rights over a piece of land. The option was to be
exercised on or before the 20th day of August, 1912. The parties had contemplated
the use of the post as means of communication. The plaintiff sent a notice of
acceptance by registered post in Klang on August 16, 1912 but it was not delivered
till the evening of August 25 because the plaintiff was away. The letter had
remained in the post office at Kuala Selangor until picked up by the defendant. The
Court, applying section 4, held that the option was duly exercised by the plaintiff
when the letter was posted on August 16.

On the other hand, acceptance is complete ‘as against acceptor, when it comes to
the knowledge of the proposer’. This implies that while the proposer is bound upon
dispatch of acceptance by the acceptor, the latter is not bound until it is actually
received by the proposer. Therefore if X proposes by the letter to sell his house to Y
and Y accepts it in the same manner, X is bound at the moment Y dispatches the
letter through the post but he himself is not bound until it actually reaches X.

This state of the law is rather unsatisfactory for two principal reasons. First, whether
there is a binding agreement at a given time is by reference to the parties. Second,
there appears to be no common moment during the period between transmission
by the acceptor and receipt by the proposer when the agreement is said to be
mutually binding. The binding moment for both parties occurs only when the
proposer actually receives the acceptance and not before. Hence, where there is a
delay in the post or the letter of acceptance is misplaced by the postal authority,
the proposer is bound irrespective of his knowledge of the acceptance, while in the
other hand, the acceptor remains free till actual receipt by the proposer. This
necessarily implies that in the meantime, the acceptor may also withdraw his
acceptance. The proposer is severely disadvantaged by the rule and is placed in an
unequal position.

Proposers who contemplate the use of letters sent through the post as a means of
acceptance should provide adequate protection for themselves by, for instance,
stipulating in a proposal that acceptance is complete only upon receipt. That would
exclude the postal rule by express terms of proposal.
The postal rule also applies to telegram sent through the post office. Instantaneous
communications such as telephone and telex are governed by the general rule. In
Entores Ltd v. Miles Far East Corp., supra, the English Court of Appeal classified
communications by telex with instantaneous communications. Parker L.J. noted:

‘So far as Telex messages are concerned, through the dispatch and receipt of a
message are not completely instantaneous, the parties are to all intents and
purposes in each other’s presence just as if they were in telephonic
communication, and I can see no reason for departing from the general rule that
there is no binding contract until notice of the acceptance is received by the
offeror.’

REVOCATION OF PROPOSAL

A proposal, once communicated, remains open until it lapses or is withdrawn, under

normal circumstances, there is no obligation for the proposer to keep his proposal
open indefinitely. He may revoke it any time before acceptance. Section 5(1) of the
Act provides

A proposal may be revoked at any time before the communication of its acceptance
is complete as against the proposer, but not afterwards.

Section 6 states that a proposal is revoked:

(a) By the communication of notice or revocation by the proposer to the other

party;

(b) By the lapse of the time prescribed in the proposal for its acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance;

(c) By the failure of the acceptor to fulfil a condition precedent to acceptance; or

(d) By the death or mental disorder of the proposer, if the fact of his death or
mental disorder comes to the knowledge of the acceptor before acceptance.

Under subsection (a), the revocation of the proposal must be communicated by the
proposer to the other party before it accepts. In the event of acceptance by post or
telegram, the acceptance is complete as against the proposer upon posting or
delivery of the telegram to the appropriate telegrapgh office. Therefore, withdrawal
of the proposal must necessarily be communicated by the proposer to the offeree
before such posting or delivery. The application of this rule is found in the
Illustration to section 5.

A proposes, by a letter sent by post, to sell his house to B.

B accept the proposal by a letter sent by post.

A may revoke his proposal at any time before or at the moment when B posts his
letter of acceptance, but not afterwards.

In Byrne v. Tienhoven (1880) 5 C.P.D. 344, and the law appears to be similar. In
this case the defendant offered to sell 1,000 boxes of tinplates to the plaintiff. The
following communications took place:

1 October: Defendant posted letter of offer in Cardiff to the plaintiff in New York.

8 October: defendant posted a letter revoking the offer of October 1.

11 October: Plaintiff 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: Defendant’s letter of revocation received by plaintiff.

The court ruled that there was a contract between the parties because the
revocation of the offer posted on 8 October was not effective till 20 October when it
was received by the plaintiff but in the meantime, the latter had already accepted
the offer on 11 October when the telegram was sent.

Subsection (b) deals with revocation by lapse of time and provides for two
situations: lapse of time occurring upon the expiration of the time prescribed in the
proposal for its acceptance and where no time is prescribed, by the lapse of a
reasonable time. What a reasonable time is depends on the facts and circumstances
of each case. In Fraser v. Everett, supra, in addition to deciding that ‘Silence is
not acceptance’, the Supreme Court of the Straits Settlements also ruled that the
acceptance of the plaintiff was not made within a reasonable time. The document of
title to shares should have been delivered much earlier, taking into consideration
that ‘the shares in question were mining shares of a very fluctuating character’.

In the English case of Ramsgate Victoria Hotel Co. v. Montefiore (1866) L.R. 1
Ex. Ch. 109, the defendant applied for shares in the company in June and paid a
deposit into the company bank. It was not till November that the company informed
the defendant that shares had been allotted to him and that the balance of the
purchase price should be paid. The defendant refused to accept the shares and the
court held the refusal justified because such a proposal should have been accepted
within a reasonable time. The period between June and November was clearly not
reasonable. The rationale for this rule, in the words of Hashim Yeop A Sani J

‘An offer lapses after a reasonable time not because this must be implied in the
offer but because failure to accept within a reasonable time implies rejection by
the offeree. As a consequence, the court can take into account the conduct of the
 parties after the offer was made in deciding whether the offeree has allowed too
long a time lapse before accepting.’

Subsection © provides that a proposal may be revoked where the acceptor fails to
fulfil a condition precedent to acceptance. For instance, a company offers to employ
an applicant on condition that he passes a skills test. If the applicant fails the test,
the proposal is obviously revoked because the applicant has failed to fulfil a
condition precedent.

Finally, subsection 9(d) deals with the death or mental disorder of proposer
subsequent to the communication of the proposal. The happening of these two
events does not automatically result in the demise of the proposal. The fact of the
death or mental disorder must be known to the acceptor before acceptance. It is
only upon such knowledge that the proposal is no longer available for acceptance.
The necessary implication from the subsection, therefore, is that acceptance
without prior knowledge of the death or mental disorder of the proposer is a good
acceptance.

REVOCATION OF ACCEPTANCE

Is may seem strange that an acceptance can be revoked but that is the law with
respect to those acceptance which is nit complete as against the acceptor.
Subsection (2) of section 5 states:

An acceptance may be revoked at any time before the communication of the

acceptance is complete as against the acceptor, but not afterwards.

The Illustration to section % provides an example of revocation of acceptance made

by post.

A proposes by a letter sent by post, to sell his house to B.

B accepts the proposal by letter sent by post.

B may revoke his acceptance at any time before or at the moment when the
letter communicating it reaches A, but not afterwards.

CONSIDERATION
Section 26 provides that an ‘agreement made without consideration is void’ unless
they belong to one of these categories of agreements listed in the same section as
being exempted from the rule. Consideration is defined in section 2(d) as

when, at the desire of the promisor, the promise or any other person has done or
abstained from doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration of the promise;

Consideration may be viewed as a sort of bargain, a quid pro quo or the price which
one party pays to buy the promise or act of the other. When a promisor promise to
do or to abstain from doing something, the promise must pay a price for it. This
price to be paid may be an act or an abstinence or a promise to perform a future act
or abstinence.

EXECUTORY, EXECUTED AND PAST CONSIDERATION

Consideration may be classified as executory, executed or past. It is executory

when one promise is made in return for another i.e. a promise in return for a
promise. For example, X agrees to sell Y a motor-cycle and Y promises to pay $2000
for it. The Act provides an example in Illustration (a) section 24.

A agrees to sell his house to B for $10,000. Here, B’s promise to pay the sum of
$10,000 is the consideration for A’s promise to sell the house, and A’s promise to
sell the house is the consideration for B’s promise to pay $10,000. These are
lawful consideration.

A consideration is executed when a promise is made in return for the performance

of an act. For example, X offers $100 to anyone who finds and returns his camera
which he has earlier lost. Y finds and returns the camera is response to the offer. Y’s
consideration for X’s promise is executed, and only X’s liability remains outstanding.

Finally, where promise is made subsequent to and in return for an act that has
already been performed, the promise is made on account of a past consideration.
So if Y finds and return X’s camera an din gratitude, X promises to reward him with
$100, the promise is made in return for a prior act. Under English law, the general
rule is that past consideration is insufficient to support a contract. In a real sense,
Y’s action is gratuitous because he has acted without reference to X’s. this English
rule is of some antiquity and a number of exceptions have since developed.

EXCEPTIONS TO GENERAL RULE

Exceptions to the general rule that an agreement without consideration is void are
provided in section 26 and these may be summarized as follows:

(a) An agreement made on account of natural love and affection between parties
standing in near relation to each other.

(b) An agreement to compensate for a past voluntary act.

(c) An agreement to compensate a person who did an act which the promisor
was legally compellable to do.

(d) An agreement to pay a statute-barred debt.

An Agreement on Account of Natural Love and Affection 26(a)

The validity of this agreement is dependant upon the following conditions,

1. It is expressed in writing which may be in any reasonable form;

2. It must be registered where a law exists requiring such registration; and

3. It is made on account of natural love and affection between parties standing

in near relation to each other.

Natural love and affection are not recognized as valid consideration under English
law. Under subsection 29(a), it is a valid consideration provided the condition of
‘near relation’ between the parties is also met. Unfortunately, ‘near relation’ is not
defined in the Act. While members of the immediate family will ordinarily constitute
‘near relation’, there will be exceptions and any extension outside that group
presents some real difficulties. Personal law with respect to family matters are still
applicable to various ethnic groups, and consequently, what constitutes near
relation can vary with each social group, depending on its customs and social
organization.

In Re Tan Soh Sim [1951] MLJ 21, attempt made to define ‘near relation’. The Court
of Appeal considered the validity of an agreement between members of a Chinese
family governed by their personal laws. The principal issues were whether an
agreement was made on account of natural love and affection and three sisters and
seven half-sisters and brothers stood in near relationship to their adopted nephews
and nieces. The deceased Tan Soh Sim, in her last illness, had expressed a wish
that her estate should be divided amongst the two adopted sons and two adopted
daughters. The legal next-of-kin, respecting this wish, drew up an agreement
renouncing all rights in favour of the four adopted children who were their nephews
and nieces. The Court, in its judgement, said that ‘relationship’ and ‘near’ must be
applied and interpreted in each case according to the mores of the group to which
they the parties belong and with regard to their circumstances of the family
concerned. While the Court conceded that Chinese adopted children are related to
the adoptive parents and brothers, it held that they were not nearly related to the
family of their adoptive mother. Thus the uncles and aunties of the adoptive mother
in this instance did not stand in near relation to their nephews and nieces. The
Court further ruled that there was no natural love and affection between the
signatories and donees. In the opinion of Justice Briggs, ‘natural’ meant ‘reasonably
to be expected, having regard to the normal emotional feelings of a human being’.
This emotional feeling was of a special type ordinarily expected to spring from the
fact of ‘near relation’. If either the feelings or the relation were lacking, the
agreement could not stand under this subsection.

ADEQUACY OF CONSIDERATION

If X promises to sell his car worth $20,000 for ten ringgit, is the amount of ten
ringgit sufficient consideration for the promise? The sum of money is obviously not
adequate for his promise but the court will not assess whether a promisor has
received adequate consideration. It appears that the adequate consideration. It
appears that the adequacy of consideration s immaterial. This state of the law is
borne out by Explanation 2 of section 26 which reads:

An agreement to which the consent of the promisor is freely given is not void
merely the consideration is inadequate; but the inadequacy of the consideration
may be taken into account by the court in determining the question whether the
consent of the promisor was freely given.

Illustration (f) of the section provides the example:

A agrees to sell horse worth $1,000 for $10. A’s consent to the agreement was
freely given. The agreement is a contract notwithstanding the inadequacy of the
consideration.

The legal view is that parties to a contract are capable of appreciating their own
interests so that in the absence of such events as fraud, misrepresentation and
other vitiating factors, a person may do as he pleases with regard to the value he
places on his property. It is only when the issue of consent not being freely given is
raised that the fact of adequacy of consideration would be taken into account by the
court.

OTHER ESSENTIALS OF A CONTRACT

INTENTION TO CREATE LEGAL RELATIONS

The mere fact of an agreement does not of itself create a binding legal contract.
The law requires evidence that the parties to an agreement intend that it be legally
enforceable, such intention may be either express or implied from the
circumstances.

The Contracts Act is silent on the subject of informal agreements no intended by the
parties to have legal effects. Since the Act is not a code and it is silent on the
question, it appears that English common law principles will apply. Two
presumptions, though rebuttable, have developed in the determination of intention
with respect to agreement.

1. In business agreements, there is a presumption that the parties intend legal

consequences to follow unless the parties specify otherwise.

2. In social, domestic or family agreements, it is implied as a matter of course

that no legal relations are contemplated, but such presumption may be
rebuttable.

Social, Domestic and Family Agreements

Agreements are made every day is social and family life, where parties would be
horrified if they could be taken to court for such arrangements. Parties do no
contemplate legal action where an invitation to a dinner is accepted or an
arrangement made between spouses for the maintenance and upkeep of the home.
There is a body of case law in England and other common law countries establishing
the principle that parties to such agreements are presumed not to have intended
legal consequences to flow from them.

There appears to be no local authority on this point. So the English case of Balfour
v. Balfour [1919] 2 KB 571 is an appropriate starting point in the discussion of
domestic agreement. In that case, the defendant was a civil servant stationed in
what was then Ceylon (Sri Lanka) and while on leave in English, he had promised to
pay his wife and monthly allowance as maintenance. The wife was unable to
accompany the defendant abroad on account of her poor health. He defaulted and
the wife sued for breach of contract. The court held it was not a legally enforceable
agreement because the parties did not intend that they should be attended by legal
consequences.

CERTAINTY
Section 30
Agrements, the meaning of which is not certain, or capable of being made certain,
are void

Karuppan Chetty v Suah Thian, the requirement of certainty was not met when
the parties agreed upon the granting of a lease ‘at RM 35 per month for as long as
he likes’

CAPACITY TO CONTRACT

At common law, it is presumed that a person who enters into a contract has the full
capacity to do so. But where one or more parties to a contract lacks such capacity
in certain instances, the contract may be invalid. According to section 11 of the
Act,

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.

Mohori Bibee v Dhamados Ghose, the privy Council held that an infant cannot
make any valid contracts.

However, there are some exceptions to this rules. These are the following:

1 Contracts for necessaries

2 Contracts of scholarship

3 Contracts of insurance

Minors

A minor is a person who has not reached the age of majority. The common law
established 21 years as the age of majority for most purposes and those persons
under the age of majority were referred to, quite inappropriately, as ‘infants’.
Insofar as it affects contractual capacity, the age of majority is 18 years as provided
in the Age of Majority Act 1971. Prior to this Act, the repealed Age of Majority Act
1961 had fixed the age of majority for Muslims at 18 years and non-Muslims at 21
years. This change in the age of majority followed developments in England and
other countries where a climate of opinion had developed in favour of lowering the
age of majority from the traditional 21 which, it was felt, was no longer necessarily
desirable.

Section 69
CONSENT OF PARTIES
CONSENT

Free consent is the basis of a contractual relationship. There must be a meeting of

the minds as to the nature and scope of the contract, a consensus ad idem. Section
10(1), among other things, provides that all ‘agreements are contracts if they are
made by the free consent of parties competent to contract… ‘. Two or more persons
are said to consent when they agree upon the same thing in the same sense.
Consent must be free and not secured through such means as fraud, coercion,
undue influence or misrepresentation. Section 14 provides:

Consent is said to be free when it is not caused by –

(a) Coercion, as defined in section 15;

(b) Undue influence, as defined in section16;

(c) Fraud, ad defined in section 17;

(d) Misrepresentation, as defined in section 18; or

(e) Mistake, subject to section 21, 22 and23

Consent is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation or
mistake.

UNDUE INFLUENCE

Allcard v.Skinner (1887) Ch D 145 observed that the doctrine

‘ to protect people from being forced, tricked or misled in any way by others into
parting with their property is one of the most legitimate objects of laws; and the
equitable doctrine of undue influence has grown out of and been developed by the
necessity of grappling with insidious forms of spiritual tyranny and with the infinite
varieties of fraud’.

Datuk Jagindar Singh & Ors v Tara Rajanratnam the Federal Court held that as
there was a solicitor-client relationship, the presumption of undue influence has to
be rebutted.1
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Inche Noriah v Shaik Allie Bin Omar [1929]

Facts: An old and illiterate Malay woman executed a deed of gift of a landed
property in Singapore in favour of her nephew who had been managing her affairs.
Before executing the deed the donor had independent advice from a lawyer who
acted in good faith. However, he was unaware that the gift constituted practically
the whole of her property and did not impress upon her that she could prudently,
and equally effectively, have benefited the done by bestowing the property upon
him by a will.

Held: The gift should be set aside as the presumption of undue influence, which is
raised by the relationship proved to have been in existence between the parties,
was not rebutted.

COERCION2

Kesarmal s/o Letchman Das v Valiappa Chettiar [1954] MLJ 119 where there
court held invalid a transfer executed under the orders of the Sultan, issued in the
ominous presence of two Japanese officers during the Japanese Occupation of
Malaysia. In the instant case, consent was not free and, therefore, the transfer
become voidable at the will of the party whose consent was so caused.

UNLAWFUL AND VOID CONTRACTS

A contract may be void through illegality or other reasons such as the lack of
consideration or operative mistake. English law makes a distinction between
contracts that are merely void and those that are void through illegality either at
common law or by statue. Contracts void through illegality either at common law or
by statute. Contracts void through illegality are treated more strictly by the law, and
the general rule is that the court will refuse its aid to a person who founds his or her
cause of action upon an immortal or illegal act; the policy is encapsulated in the
maxim ex dolo malo non oritur action.

The Contracts Act 1950 does not seem to distinguish between the class of contracts
that are merely void without the character of illegality from those contracts which
are void through illegality as understood in English law. Section 2(g) merely
provides that ‘an agreement not enforceable by law is said to be void’. Other
relevant provisions are section 10(1) which states that a contract must be made by
the free consent of competent parties, ‘for a lawful consideration and with a lawful
object’, and section 24 which provides:

The consideration or object of an agreement is lawful unless –

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 (a) It is forbidden by a law;

(b) It is of such a nature that, if permitted, it would defeat any law;

(c) It is fraudulent;

(d) It involves or implies injury to the person or property of another; or

(e) The court regards it is immoral, or opposed to public policy.

In each of the above cases, the consideration or object of an agreement is said

to be unlawful. Every agreement of which the object or consideration is unlawful
is void.

The foregoing section 24 is then illustrated by four examples of lawful

considerations and seven examples of agreements that are unlawful. It is then
followed by several other provisions under the heading ‘Void Agreements’ providing
further categories of contracts that would be considered void at common law but
not necessarily illegal, namely:

(1) Section 25 which provides that an agreement is void if the consideration for
one or more objects is in part unlawful

(2) Section 26 which provides that an agreement made without consideration is

void except in the circumstances provided

(3) Section 27 which provides that an agreement in restraint3 of marriage of a

person other than a minor is void

(4) Section 28 which provides that an agreement in restraint of trade, profession

or business is void except in certain limited circumstances

(5) Section 29 which provides that an agreement in restraint of legal proceedings

is void except contracts to refer a dispute to arbitration and certain written
agreements relating to award of scholarships by the Government

(6) Section 30 which provides that agreements that are uncertain are void

(7) Section 31 which provides that an agreements by way of wager is void except
a subscription or contribution made in favour of certain prizes for horse-
racing

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.