Introduction Contract are an integral part of our daily lives. They are constantly being entered into by individual with other individual or businesses , as well as businesses with other businesses, to sell or transfers property, to provide and receive services and other rights and obligations created. To sale and purchase of goods is based on sale contract, the hiring of employees is based on employment contracts; the lease of property or house is based on a rental or lease contract; and so the list goes on.
Business cannot exist without enforceable contracts. Although the terms ‘contract’ and ‘ agreement’ are often used to mean the same thing, actually the term ‘contract’ can be distinguished from the term ‘agreement’. Every contract involes an element of agreement but not every agreement will result in a contract recognizable by law. This is because sometimes the parties to an agreement may not intend to create legal relations; for example, agreements on social arrangement.
Some agreement also do not result in contract because one or more of the principle governing contractual relations may not have been satisfied; for example, when the purpose of the agreement is illegal, or there is a lack of consideration.
The word ‘contract’ may be defined as ‘an agreement’ enforceable by law’. In other words, a contract is an agreement which is legally binding between the parties. The legislation in Malaysia governing contract is the contract act 1950 (act 136) (revised 1974).
However, when there are no provisions in the contract act 1950 to deal with a particular subject concerning the law of contract or if a particular subject is covered by the act but the provision relating to that subject are not exhaustive, English law applies by virtue of the civil law act 1956. Element of contract The basic elements of a contract are the following: a) Offer b) Acceptance of the offer c) Intention to create legal relations d) Consideration e) Certainty f) Capacity * Offer Proposal is necessary for the formation of an agreement.
Section 2(a) of the contract act 1950 provides that ‘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 the act or abstinence, he is said to make a proposal. The first limb of section 2(c) of the contract act 1950 calls the person making the proposal the ‘promisor’ . Under the contract act 1950 and English law, a proposal or offer is something which is capable of being converted into an agreement by its acceptance. A proposal must be definite promise to be bound provided certain specified terms are accepted.
The promisor (sometimes also known as the ‘offeror’) must have declared his readiness to undertake an obligation upon certains terms, leaving the option to its acceptance or refusal to the offeree, the person to whom the offer is made. In the federal court case of affin credit (Malaysia )sdnbhd v yap yuenfui where there was a lack of offer and acceptance, the purported hire-purchace agreement was declared void ab initio , or void from the beginning. The communication of a proposal as complete when it comes to the knowledges of the person to whom it is made section 4(1) of the contract act 1950.
This means that an offer or proposal is effective once it is communicated to the offeree by the offeror. The communication of an offer or a proposal is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal or which has the effect of coomunicating it—section 3 of the contract act 1950. A proposal made in words (oral or written), it is said to be implied (see section 9 of the contract act 1950). * Carlill v carbolic smoke ball co. ltd  1 QB 256 Facts : carbolic smoke ball co. ltd. dvertised that they would offer ? 1,000 to anyone who still succumbed to influence after using a certain remedy for a fixed period. The plantiff duly used it but, nevertheless, contract influence. Thwplantiff then sued for the money. Held: the plantiff was entitled to the ? 1,000 as she had accepted the offer made to the world at large. To summarize, an offer must be distinguished from an individual to treat. An invitation to treat is not an offer, but rather to consider offers. Instances which are generally regarded as invitation to treat include: I. Auctions
II. Advertisement of tenders III. Catalogues IV. Price list V. Goods displayed in shop window VI. Shelves The advertisement of an auction is not an offer to hold it but invitation to treat. * Harrison v Nickerson  LR8 QB 286 Facts: an auctioneer advertised an auction in a newspaper. Harris saw the advertisement and trevelled to the sale only to find that the items on which he was interested in building had been withdrawn. The issue was whether the advertisement to hold the auction was a declaration to hold the sale or an offer that was accepted by attending.
Held : the advertisement of the auction was not a guarantee that it would be held but simply a declaration of information or an invitation to treat. There was, therefore, no contract. Generally, an announcement that goods are to be sold by tender is usually an attempt by the vendor (the seller) to ascertain whether an acceptable offer ban be obtained for the goods and is an invitation to treat. * Acceptance Section 2(b) of the contract act 1950 provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to have been accepted.
A proposal, when accepted, becomes a promise. Section 2( c ) of the contract act 1950 calls the person accepting the proposal the ‘promisee’. Section 9 of the said act provides that so far as the acceptances of any promise is made in words, the acceptance is said to be expressed. If the acceptance is made other than in word, the acceptance said to be implied. For a proposal to be converted into a promise, the acceptance of that proposal must be absolute and unqualitified. This is provided for in section 7 of the contract act 1950 which read: Acceptance must be absolute
In order convert a proposal into a promise the acceptance must : a) Be absolute and unqualified b) Be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in that manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insits that his proposal shall be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts the acceptance.
Acceptance must be absolute and unqualifield so that there is complete consensus. If the parties are still negotiating, an agreement is not yet formed (see lau brothers & co v china pacific navigation co. ltd) in the case, negotiations for the delivery of logs were conducted through a series of telegrams and letters. Whilst still in the negotiating stage, the defendants withdrew. Was there a binding contract between the two parties? The court held that the parties were still in a state of negotiation and no agreement was formed. Therefore, the defendants were justified in withdrawing.
If acceptance is not absolute or unconditional, that is, it does not follow the conditions-if any-stated by the offered, it will amount to a counter-offer. A conditional assent is not an acceptance. For example, if a document contains a clause to the effect that it is ‘subject to a formal contract to be drawn up by our solicitors’, a contract does not come into existence until a formal document has been drawn up and accepted by the parties. The first document is merely a proposal to enter into a contract, aattentive agreement that may be disregarded by either party.
The rule that acceptance must be made within a reasonable time is so embodied in section 5(b) of the contract act 1950 which read: 6. a proposal is revoked: a) 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. Section 7(b) of the contract act 1950 provides that acceptance must be expressed in some usual and reasonable manner, unless the proposer prescribes the manner in which it is to be accepted.
However, the proposer cannot prescribed silence as a manner of a acceptance (see fraser v Everett and the English case of felthouse v bindley) * Felthouse v Bindley (1862) 142 ER 1037 Fact :felthouse wrote to his nephew offering to buy his horse, adding ‘if I hear no more about him I shall the horse mine at ? 40’. His nephew intended to sell the horse to his uncle but did not to reply to the letter. He told bindley, who was auctioning his farm, not to include the horse in the auction as it was already sold.
Bindley sold the horse by mistake and felthouse tried to sue bindley for conversion of his property. The issue was whether the offer could have been accepted by the offeror stating by the offeree would be deemed to be consent. Held : the nephew acceptance had not been communication to the uncle. The horse did not therefore belong to him. Acceptance may be made by performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal (section 8 of the contract act 1950 and carlill v carbolic smoke ball co. td) * Revocation of offer and acceptance A revocation of an offer must be communicated in order to be effective. This is provided for under section 6(a) of the contract act 1950 . proposal is revoked by the communication of notice by the proposer to the other party. * Intention to create legal relations. Although the contract act 1950 is silent on the intention to create legal relations as one of the requirements of a valid contract, case-law clearly dictates the necessity of this requirement.
There are, however, case where no intention to enter into legal relations can be imputed, e. g. in case where the agreements merely represent family arrangements (see chootionghin&ors v choo hock swee and phiongkhon v chonh chai fah), and in a case where concessions were made in the course of business negotiations (see yap eng thong &anor v faber union ltd, where there was a ‘subject to contract’ clause in the agreement), it was held there where no valid contracts.
Circumstances and conduct of parties may also indicate lack of intention (see yap eng thong &anor v faber union ltd and guhamajumder v donough) In domestic arreangements there is presumption against the existence of an intention to create legal relations whilst in commercial arrangements the rebuttable presumption is that legal relationship are intended-esso petroleum co ltd v customs & excise commissioner. Generally, it is up to the court to ascertain the intentions of the parties from the language used and the context in which they are used. Merritt V Merritt ( 1970 ) 1 WLR 1211 Facts: a husband left her wife and went to live eith another woman . There was ? 180 left owing on the house which was jointly owned by the couple . The husband signed an agreement whereby he would pay the wife ? 40 per month to enable her to meet mortgage payments and if she paid all the charges in connection with the mortgage until it was paid off he would transferhis share of the house to her . When the mortgage was fully paid she brought an action for a declaration that the house belonged to her .
The issue is wheather the parties hae intention to create legal relation . Held :The agreement was binding . The Court of Appeal distinguished the case of Balfour v Balfour on the grounds that the pasties were separated . Where spouses have separated it is generally considered that they so intend to be bound by their agreement . The written agreement signed was further evidence of an intention to be bound . * Consideration Sections 26 of the contracts act 1950 provides that, as a generally rule, an agreement without consideration is void.
The word ‘consideration’ is defined in section 2(d) of the said act as follow: When, at the desire of the promisor, the promises or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something such act or abstinence or promises is called a consideration for the promise. In Guthrie Waugh bhd v malaippanmuthucumaruthe high court held that there was no cause of action in the statement of claims as the claim was based was a deed of arrangement for which there was no consideration.
The court held that deed was executed by the defendant neither for any past consideration, nor in respect of any forbearance to sue him for the supplies made to the estates, nor in consideration of any promise to supply him goods on credit in future. The deed was made without consideration and all that the defendant could be said to have undertaken was a moral obligation. In this case, Sharma j made the following observations on ‘consideration’ . * PROVISION OF CONSIDERATION
It can be implied from section 2(d) of the Contracts Act 1950 that consideration may move from a person who is not the promise. It may move from ‘the promisee or any other person’. * PAST CONSIDERATION IS GOOD CONSIDERATION As a general rule,English law does not recognize past consideration. However,one of the exceptions to this rule is laid down in the English case of Lampleigh v Brathwait where it was held that an act originally done at the request of the promisor,a promise made subsequent to the doing of that act,was deemed binding since the act constituted consideration.
The definition of the word ‘consideration’ in section 2(d) appears extensive enough to cover the aforementioned rule. It provides that if the act done was at the desire of the promisor,then such an act would constitute consideration. The phrase ‘has done or abstained from doing ‘ implies that even if the act done was prior to the promise,such an act would constitute consideration as long as it was done at the desire of the promisor.
In other words,a claim may be founded on act done prior to the promise. Such as claim would be valid so long as the promise had done or abstained from doing something pursuant to the desire of the promisor and not necessarily in pursuance of a promise to be made by the promisor. * KEPONG PROSPECTING LTD & ORS V SCHMIDT  1 MLJ 170 Facts: In 1953 Tan applied to the Government of the States of Johore for a prospecting permit for iron ore.
He was assisted in the negotiation by Schmidt,a consulting engineer. A prospecting permit was granted to Tan in November 1953,and in December 1953 Tan wrote to Schmidt stating that Schmidt was to be paid 1 per cent of the selling price of all ore that might be sold from any portion of the said land and this was in payment for the work Schmidt had done in assisting to obtain the prospecting permit and for any work that Schmidt might do in assisting to have mining operations started up.
Tan then executed a power of attorney in favour of Schmidt which conferred upon Schmidt widely expressed powers to contract for the disposal of any of Tan’s mining properties on such consideration and subject to such conditions as Schmidt thought proper. In September 1955,an agreement was made between the company and Schmidt.
Under Clause 1 of the agreement the company inter alia agreed to pay Schmidt 1 percent of all ore that might be won from any land comprised in the 1954 agreement in ‘consideration of the services by the consulting engineer for and on behalf of the company prior to its formation,after incorporations and for future services’. Dispute arose between these originally interested in the company and the persons who were subsequently interested. Schmidt commenced the present proceedings in July 1959 claiming inter alia an account of all monies payable to him under the 1955 agreement.
Held: Clause 1 of the 1955 agreement established that a legally sufficient consideration had move from Schmidt. Services prior to the company’s formation could not amount to consideration as they could not be rendered to a non-existent company,nor could the company bind itself to pay for services claimed to have been rendered before its incorporation. But the inclusion of that ineffective element did not prevent the other two elements. Though section 2(d) may not cover all cases of past consideration,one of the exceptions to the general doctrine of consideration,as provided in section 26,appears to cover most of other such cases.
Section 26(b)provides that an agreement made without consideration is void unless it is a promise to compensate a person who has already voluntarily done something for the promisor. The supreme Court in South East Asia Insurance Bhd v Nasir Ibrahim held that the essence of consideration is that the promiseetaken upon itself some kind of burden or detriment. In deciding whether consideration is past,the Court should not take a strictly chronological view. If the consideration and the promise are substantially one transaction,it should no matter in what order they are given.
In this case where a performance bond was signed by the appellant on 9 August 1986 and where the third party indemnity was executed by the respondent on 19 December 1986,the Supreme Court allowed the appellant’s appeal and held that the third party indemnity was not invalid on the ground of past consideration . * CONSIDERATION NEED NOT MOVE FROM THE PROMISEE Under the Contracts Act 1950 a party to an agreement can enforce the promise even if he himself has given no consideration as long as somebody has done so. The relevant part of section 2(d) of the Contracts Act 1950 reads: ……. hen …the promise or any other person has done…. something ,such act…is called a consideration for the promise…. * VENKATA CHINNAYA V VERIKATARA MA’YA 1 LR 4 Facts: A sister agreed to pay an annuity of Rs653 to her brothers who provided no consideration for the promise. But on the same day their mother had given the sister some land,stipulating that she must pay the annuity to her brothers. The sister subsequently failed to pay the annuity and was sued by her brothers. Held:She was liable to pay the annuity. There was good consideration for the promise even though it did not move from her brothers. CERTAINTY The terms of an agreement cannot be vague but must be certain. An agreement which is uncertain or is not capable of being made certain is viod. Forexample,if Ali agrees to sell to Mary a hundred crates of toys without specifying what kind they are,such an agreements is viod on the ground of uncertainty. Similarly if Ali agress to sell to Mary his house for RM200,000 or RM300,000,such an agreement is laso void. On the other hand,if Ali is a dealer in plastic toy soldiers only and he agress to sell ‘a hundreds crates of toys’,the types of toys dealt with by Ali indicates the meaning of the words’toys’.
Similarly,if Ali is agrees to sell to Mary his house at a price to be fixed by his wife,there is no uncertainty as the price is capable of being made certain . In KaruppanChetty V SuahThian. the requirement of certainty was not met when the parties agreed upon the granting of a lease at’ RM35. 00 per month for as long as he likes. ’ * CAPACITY The parties entering into a contract should also be competent to contract. i. e. theymust have the legal capacity to do so. Capacity refers to the ability of the parties to a contract to fully understand its terms and obligations.
Section 11 of the Contracts Act 1950 reads:In Malaysia,the age of majority is eighteen years(Age of Majority Act 1971). In MohoriBibee v DharmodasGhose,the Privy Council held that an infant cannot make any valid contracts. In Tan Hee Juan v The Boon Keat,the court held that the transfers of land executed by an infant were viod. Thus,the general rule in Malaysia is that contracts made by infants are void. However,there are some exceptions to thusrule. These are the following: I. Contracts for necessaries * Sec. 69 of CA 1960 , things essential to the existence and reasonable comfort of the minor .
The test for necessaries is nature of good , minor’s actual needs at the time of contract and minor’s station in life . II. Contracts of scholarships * Sec 4 (a) Contracts ( amendment ) Act 1976 provided that’s : * No scholarship agreements shall be invalidated on the ground that the scholar entering into such agreement is not of the age of majority III. Contracts of insurance * Sec 153 (1) and (2)of the insurance Act 1963 states that : * An infant over the age of 10 may enter into a contract of insurance * If below 16 , can do so with the written consent of his parent/guardin
Cite this Introduction to Law
Introduction to Law. (2016, Sep 30). Retrieved from https://graduateway.com/introduction-to-law/