LAW OF CONTRACT (1) LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW.UiTM SHAH ALAM January 2008 LAW OF CONTRACT Definition of a contract : >Section 2(h) Contract Act 1950 “an agreement enforceable by law is a contract” ELEMENTS OF A VALID CONTRACT Elements required for the formation of a contract 1. 2. 3. 4. 5. 6. Proposal Acceptance Consideration Intention Capacity Free Consent 1. PROPOSAL 1.1 Definition >Section 2 (a) Contracts Act 1950 “when one person signifies to another his willingness to do or abstain from doing anything with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal” Preston Corp Sdn Bhd v. YEdward Leong & Ors [1982] 2MLJ 22 FC Gibson v. Manchester City Council [1979] 1 All ER 972 Affin Credit (M’sia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169 FC 1.2 Features of a valid proposal The form of proposal Section 9 Contracts Act 1950 “so far as proposal is made in words, the promise is said to be express…,otherwise in words, the promise is said to be implied. The proposal must be clear and certain Sou Yong v. Yuzin bte Abdullah @ Ho Yuzin [1999] 5 MLJ 696 1 Facey [1893] AC 552 Goods on display >Pharmaceutical Society of Great Britain v. Wichelhaus(1864) H & C 906 The proposal must be communicated Section 3 & 4 Contracts Act 1950 Must be made known to the offeree/ must have knowledge Carlill v. Grant(1828) Section 6 Contracts Act 1950 6(a) – By Notice of revocation 6(b).LAW OF CONTRACT (1) LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW.By failure of condition precedent 2 .By Lapse of time 6(c). The Public Services Commission Eckhardt Marine GMBH v Sheriff. Clarke (1927) 40 CLR 227 >>The proposal must be distinguished from an invitation to treat Preliminary negotiations >Harvey v. Boots Cash Chemists Advertisement Partridge v.UiTM SHAH ALAM The proposal and acceptance must correspond Meeting of minds. Siland Sdn Bhd [1994] 1 MLJ 303 > Revocation of Proposal > Section 5 & 6 Contracts Act 1950 > Routledge v.consensus ad idem Raffles v. Cave Harris v. Carbolic Smoke Ball [1893] 1QB 256 R v. High Court of Malaya. Seremban & Ors [2001] 4 MLJ 49 CA Auctions Paynev. Crittenden Coelho v. Nickerson M & J Frozen Food Sdn Bhd v. ST Ramakrishnan [1949] MLJ 206 Acceptance must be made within a reasonable time Sec 6 (b) Acceptance must be a positive act Felthouse v. the proposal is said to be accepted.By death or mental disorder of offeror LAW OF CONTRACT (1) LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW. becomes a promise”. Bindley Fraser v.UiTM SHAH ALAM 2. Wrench a counter-offer must be distinguish from an inquiry or request by the offeree for further information.3 Other requirements Acceptance must be absolute and unqualified Section 7 (a) Hyde v. a proposal when accepted. Before there is acceptance in law. there must be both the fact of acceptance as well as communication of the acceptance Section 3. 3 . Eg. Everett 2. Acceptance must be expressed in some usual and reasonable manner Unless the proposal prescribe the manner in which it is to be accepted. Asia Corp Ltd v. Section 8 Section 7 (b). 2. ACCEPTANCE 2.1 Definition Sec 2(b) Contracts Act 1950 “ when the person to whom the proposal is made signifies his assent thereto.2 Method of acceptance There must be proper acceptance of an offer. Section 7 (b). 6(d). .4 > Acceptance must be communicated Section 3 .offer is not an acceptance Tinn v Hoffman 2.” Sec 3 Revocation must be communicated. a meeting of minds. must correspond. when complete? Instantaneous mode of communication Entores Ltd v Miles Far East Corp Brinkibon Ltd v Stahag Stahl MBH Sec 4 (2) (a) (b) Adams v. A contract is the voluntary consent of parties. Section 4 (1). Bell 2. If the offeree has no prior knowledge of the offer there is no way he can accept.5 Revocation of Acceptance > Sec 5 (2) Contracts Act 1950 > When can it be made ?“Any time before acceptance is complete…. Stevenson Jacques & Co v. R v. 4 (2)(a)(b) Contract Act 1950 Communication of acceptance. Mc Lean LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW. Hence acceptance must relate to the offer.UiTM SHAH ALAM A contract cannot come into existence by mere accident or coincidence. Lindsell Ignatius v. Sec 4 (3) (a) (b) 4 . Clarke Cross. consensus. It is sufficient if the promisee does some act from which a third person benefits and which he would not have done but for the promise. it need not be adequate but it must be of some value. and it must move from the promise”. Communication of revocation must be complete. detriment. It is not necessary that the promisor should benefit by the consideration. On the other hand. Furthermore. loss or responsibility given. interest. Thus consideration for a promise may consist in either some benefit conferred on the promisor or detriment suffered by the promise or both. profit or benefit accruing to the one party. at the desire of the promisor. something. suffered or undertaken by the other” 5 . > Section 2 (d) Contract Act 1950 “when. interest. or promises to do or to abstain from doing.UiTM SHAH ALAM 3. the promise or any other person has done or abstained from doing. loss or responsibility given. LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW. such act or abstinence or promise is called a consideration for the promise” Currie v. profit or benefit accruing to the one party or some forbearance. detriment. CONSIDERATION Definition 9(1) Halbury’ Laws of England Meaning of consideration “Valuable consideration has been defined as some right. consideration must be distinguished from both a motive and a condition. that benefit or detriment can only amount to a consideration sufficient to support a binding promise where it is causally linked to that promise. Misa [1874-80] All ER 686 Lush J defines consideration as “some right. or some forbearance. or does or abstains from doing. Consideration may be executed or executory. suffered or undertaken by the other at his request. but it may not be past. Read cases : Lampleigh v. Read : Wong Hon Leong David v. Carbolic Smoke Ball Co Limited The offer made by the company in the advertisement remained open until Mrs Carlill bought the smoke ball. Past Consideration Under English law. Braithwait Hunt v.LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW.UiTM SHAH ALAM Rules Governing Consideration Executed consideration Executory consideration Past consideration Consideration may move from the promise or a third party What is executed consideration? Consideration which has been completed by a party at the time of the contract. “ the act done at the request of the promisor”. However in limited cases. CA In Carlill v. past consideration has been recognized as good consideration. What is executory consideration? Consideration which is yet to be given or performed. Noorazman bin Adnan[1995] 3 MLJ 283. This act of performance was the consideration and it remained executory until the performance is completed. used it and contracted influenza. generally past consideration is no consideration . Bate Re Mc Ardle 6 . the exception being that . void. See Section 2 (d) Contracts Act 1950 Read cases : -Guthrie Waugh Bhd v. The performance of the act was not made in response to the promise.Raja of Venpatagiri v. Sri Krishnayya AIR [1948] .UiTM SHAH ALAM In Malaysia. Schmidt [1968] 1MLJ 170. Read cases: Re Tan Soh Sim [1951] MLJ 21 (b) a promise to compensate for something done Read cases: -on past consideration(c ) a promise to pay a debt barred by limitation law Read cases : Kapaleeswarar Temple v. T Tirunavukarasu (illustration (e) Sec 26 Adequacy of consideration Consideration need not be adequate. past consideration is good consideration. (1967) 2PCC 465. Consideration that consists of something wholly performed before the promise was made. Illustration (f) Sec 26 7 .LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW. unless – (a) it is in writing and registered under the law and is made on account of natural love and affection between parties standing in a near relation to each other.Kepong Prospecting Ltd & Ors v.JM Wotherspoon and Co Ltd v Henry Agency House Section 26 Contracts Act 1950 “ Agreement without consideration. Malaippan Muthucumaru [1972] 2 MLJ 62 FC .PC . Seremban Securities Sdn Bhd [1996] 1 MLJ 701 CA. 8 . Read cases : Central London Property Trust Ltd. Read cases : Guthrie Waugh Bhd v Malaippan Muthuchumaru [1972] 2 MLJ 62 Phang Swee Kim v. High Trees House Ltd. Payment of a lesser sum/ waiver of performance Section 64 Contracts Act 1950 Read Cases : Kerpa Singh v Bariam Singh [1966] Position in England Read Cases : Pinnel’s case Foakes v. [1947} Hughes v.However. v.UiTM SHAH ALAM Performance of existing duty. FC The Poh Wah v. Beh I Hock [1964] MLJ 383 FC LAW 436 TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW. unless he has given reasonable notice of his intention to revert to the original position. Beer Doctrine of Promissory Estoppel “ a party who has represented that he will not insist upon his strict rights under the contract will not be allowed to resile from that position. Arab Malaysian Merchant Bank Bhd [1995] 3 MLJ 331. The adequacy of the consideration may be an issue in cases where the position is taken that there was no free consent given to the agreement. Metropolitan Railway (1884) Boustead Trading (1985) v. Performance of an existing public duty Performance of an existing contractual duty owed to the promisor Performance of an existing duty imposed by contract with a third party. per contra in the case of agreements relating to social agreement. family and domestic agreements where the presences or absence of intention to create legal relations depends upon the inference to be drawn by the court from the language used by the parties and the circumstances in which they use it.” Whyatt CJ in Choo Tiong Hin & Ors v. cases in this area are divided into two classes : i) Social. MONDAY 11 AUGUST 2008 4. INTENTION TO CREATE LEGAL RELATIONS Definition There is no statutory definition for intention to create legal relations in the Contracts Act 1950. 4th Ed Reissue 1998.UiTM SHAH ALAM Lecture OUTLINE. 9 . in the case of agreements regulating commerce or business. it is inferred as a matter of course that there is no common intention to create legal obligations. “An agreement is not a contract in the strict sense of the word unless it is the common intention of the parties that it should be legally enforced. it is obvious that the parties intend legal consequences to follow. Choo Hock Swee [1959]MLJ67 Generally. ii) Commercial agreements where the intention to create legal relations is presumed and must be rebutted by the party seeking to deny it. Such an intention is normally inferred from the nature of the agreement. For instance.See also : 9 (1) Halsbury’s Laws of England. LAW 436 LECTURER PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW. the general rule is that parties intend the agreement to have legal consequences. it can be said that in commercial agreements. there are exceptions to this general rule. 3. i.Hence. However. 5.e the agreement is made ‘subject to contract” or there would be an ‘honour clause. JR Crompton & Bros Kleinwort Benson Ltd v Malaysian Mining Corp Bhd [1989] All ER 785 10 . 7. Choo Hock Swee Wakeling v Ripley (1951) 51 SR (NSW) 183 Rose & Frank v. 6. 4.’ Cases on Intention to create legal relations : 1. Balfour v Balfour Merritt v Merritt Jones v Padavatton Phiong Khon v. Chonh Chai Fah Choo Tiong Hin & Ors v. 2. 8. UiTM SHAH ALAM 11 .TUTOR PUAN RAHIMAH BEE MOHD YUSOF FACULTY OF LAW.