CONTRAC

T Law

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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

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ELEMENTS OF CONTRACT

Offer
acceptance the offer
Consideration
Intention to create legal relations
Capacity to contract Consent
Certainty

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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.

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 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

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OFFER WHEN IT IS EFFECTIVE?

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.

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 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.

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PROPOSAL vs INVITATION TO TREAT :

Proposal/offer must be distinguished from

an invitation to treat.
What is an invitation to treat?
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.

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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 Suppose that you put an ad in the
classified section of your local newspaper
offering to sell your guitar for RM 150.
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 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 contracts to sell your guitar.
But advertisements are treated as invitations to
make offers rather than an offer, thus, you would
have offers to choose from, & you could accept
the best one without incurring any liability for the
you rejected.
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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
Refer case Carlill v. Carbolic Smoke Ball

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TERMINATION OF THE OFFER

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.

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 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.

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 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.

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ACCEPTANCE S 2(b)

when a person to whom the promise is

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

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COMMUNICATION OF ACCEPTANCE

Acceptance must be communicated/ make

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

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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.

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 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

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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
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 EXAMPLES
A-offerror B-acceptor post letter of offer 5 Jan
Pos letter of acceptance (put the letter into a
letter box)
A cannot cancel the 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
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 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)

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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

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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

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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

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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

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 EXCEPTIONS
Contracts by minors are valid under certain
circumstances Contracts for necessaries.

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 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

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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
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 A person who is usually of sound mind,

but occasionally of unsound mind, may
not make a contract when he is of
unsound mind

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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)

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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

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VALID CONTRACTS

If fulfil all the elements of contracts offer

and acceptance considerations legal
capacity of parties intention to create legal
obligations certainty

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VOIDABLE CONTRACTS
coercion (threat)
undue influence
fraud (any act to induce another party to
enter a contract)
misrepresentation (true/ false statement)
mistake

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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

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LEGAL REMEDIES
Valid contract breach of contract actions in
court order of court rescission damages
specific performance injunction

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

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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

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PECUNIARY LOSSES
Wasted expenditure Loss of profits (if the
contract had been performed)

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NON PECUNIARY LOSSES

The damages granted for disappointment,

distress

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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
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 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
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 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.

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 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 Mareva Injuction - prevent the
defendant from removing assets from within the
jurisdiction BBMB v. Lorrain Osman

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 DISCUSSION 1:
Discuss your experience relating to
contract
entered
by
your
company/institution.
How do you solve the problems relating to
the said contract ?

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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.
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 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?
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 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.

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 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
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sold their wool to third parties.

 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.
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 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.
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 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?

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 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 pricemarked 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?
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 DISCUSSION 7 Contracts via internet: uncertainties? - when? - whether there is

an offer + acceptance? - what rules to be
applied instantaneous / postal rule?

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END OF THE TOPIC

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