topic3 contract law 2015

BT20403/Topic3

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LAW OF CONTRACTLAW OF CONTRACT

BT20403 COMMERCIAL LAWBT20403 COMMERCIAL LAW

TOPIC 3TOPIC 3

OutlineOutline

IntroductionIntroduction

The doctrine of freedom of contractThe doctrine of freedom of contract

Elements of a valid contractElements of a valid contract

Terms of a contractTerms of a contract

Exemption ClausesExemption Clauses

Doctrine of Doctrine of PrivityPrivity

Discharge of contractDischarge of contract

RemediesRemedies

ismk/B20403/Topic3 2

LAW OF CONTRACT

ELEMENT

Offer

Acceptance Consideration

Capacity

Intention Certainty

Consent

Legality

DISCHARGE

Performance

Agreement Frustration

Breach

REMEDIES

Rescission

Damages Specific Performance

Injunction

Quantum Meruit


INTRODUCTIONINTRODUCTION

Contract law is a Contract law is a collective body of legal rulescollective body of legal rulesrelating to legally binding agreements made relating to legally binding agreements made between personsbetween persons in society.in society.

Contracts in Malaysia are governed by Contracts in Malaysia are governed by Contracts Act 1950Contracts Act 1950 and the common law.and the common law.

In interpreting the provisions of the Contracts In interpreting the provisions of the Contracts Act, English law may also be relied upon when Act, English law may also be relied upon when there is there is lacunaelacunae in the law, and limited to that in the law, and limited to that part of English law which ispart of English law which is suited to local suited to local circumstances circumstances ((s.3s.3 and and s.5 s.5 of theof the Civil Law Act Civil Law Act 19561956) ) refer to refer to JM JM WeatherspoonWeatherspoon Ltd v Henry Ltd v Henry Agency House Agency House [1962][1962]


CONT.CONT. It is important to note that though reference It is important to note that though reference is made to the English law, it will only be is made to the English law, it will only be applicable as applicable as guidance or persuasive guidance or persuasive authority authority and will not bind the decisions of and will not bind the decisions of the courts in Malaysia.the courts in Malaysia.

There are times decisions of the court in There are times decisions of the court in India may be referred to since some of the India may be referred to since some of the provisions of the Indian Contracts Act are in provisions of the Indian Contracts Act are in paripari materiamateria with our Malaysian Contracts with our Malaysian Contracts Act. Act.

However, it will be regarded as a However, it will be regarded as a source of source of reference reference only.only.


CONT.CONT.

Contract law forms the basis of Contract law forms the basis of understanding many other legal subjects i.e. understanding many other legal subjects i.e. employment law, consumer law, property employment law, consumer law, property law, banking law etc .law, banking law etc .

The modern law of contract developed from The modern law of contract developed from the old the old law merchantlaw merchant or or lexlex mercatoriamercatoria, , i.e. the customs and rules established over i.e. the customs and rules established over the centuries and adhered to by early the centuries and adhered to by early traders and business people. traders and business people.


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CONT.CONT.

During 19During 19thth century, expansion of trade and century, expansion of trade and the impact of the Industrial Revolution led the impact of the Industrial Revolution led to a vast increase in the number of contracts to a vast increase in the number of contracts made made the emergence of consumer society.the emergence of consumer society.

laissezlaissez-- fairefaire, which depends heavily on , which depends heavily on the freedom of the individual.the freedom of the individual.


CONT.CONT.

Thus, when persons Thus, when persons freely enterfreely enter into a into a contract by contract by which they intendwhich they intend to be bound, to be bound, then they are then they are strictly boundstrictly bound. .

A court will not interfere in that agreement A court will not interfere in that agreement if it was made freely.if it was made freely.

This approach is known as the This approach is known as the doctrine of doctrine of freedom of contractfreedom of contract and it forms the basis and it forms the basis of modern contract law.of modern contract law.


What is a Contract?What is a Contract?

A contract is:A contract is:

.. an .. an agreement, enforceable at lawagreement, enforceable at law, , between two or more persons between two or more persons to do or to do or refrain from doing some act or actsrefrain from doing some act or acts; the ; the parties must parties must intend to create legal intend to create legal relationsrelations and must have given something or and must have given something or promised to give something of value as promised to give something of value as consideration consideration in return for any benefit in return for any benefit derived from the agreement.derived from the agreement.


Cont.Cont.

Contract has been defined as a Contract has been defined as a legally legally enforceable agreementenforceable agreement..

According to According to s.2(h) s.2(h) of the Contracts Act of the Contracts Act 1950 1950 An agreement enforceable by law is An agreement enforceable by law is a contract.a contract.

There is an implied assumption that not all There is an implied assumption that not all agreements are contracts.agreements are contracts.

Thus, there must be a legal body of rules Thus, there must be a legal body of rules a a yardstick, by which to decide whether an yardstick, by which to decide whether an agreement is a contract or not.agreement is a contract or not.


Cont.Cont.

S.10 S.10 of the Contracts Act provides some of of the Contracts Act provides some of the basic elements for the basic elements for a valid a valid contract.contract.

According to According to s.10s.10 -- All agreements are All agreements are contracts contracts if they are made by the if they are made by the free free consent consent of of parties competentparties competent to contract, to contract, for a for a lawful consideration lawful consideration and with a and with a lawful lawful objectobject, and are , and are not hereby expressly not hereby expressly declared to be voiddeclared to be void..


ELEMENTS OF ELEMENTS OF A VALID A VALID CONTRACTCONTRACT

The basic elements constituting a contract The basic elements constituting a contract are as follows:are as follows:

1.1. Agreement (offer and acceptance);Agreement (offer and acceptance);2.2. Intention to create legal relations;Intention to create legal relations;3.3. Consideration;Consideration;4.4. Certainty;Certainty;5.5. Capacity;Capacity;6.6. LegalityLegality; and; and7.7. ConsentConsent


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Elements of Elements of a Valid a Valid ContractContract

ESSENTIAL ESSENTIAL

ELEMENTS ELEMENTS

FOR A FOR A

CONTRACTCONTRACT

FREE CONSENTFREE CONSENT CAPACITYCAPACITY

INTENTION INTENTION

TO CREATE TO CREATE

LEGAL LEGAL

RELATIONSRELATIONS

CONSIDERATIONCONSIDERATION

ACCEPTANCEACCEPTANCE

OFFER/OFFER/

PROPOSALPROPOSAL

LEGALITYLEGALITY

CERTAINTYCERTAINTY


Cont..Cont..Elements of Elements of ContractContract

ExplanationExplanation

Offer/Proposal When you signifies your willingness to be bound by a contract with the other party.

Acceptance When you agree to accept the offer or proposal made by the other party who makes the proposal.

Offeror/Proposer

A person who makes the offer.

Acceptor A person who accepts the offer.

Consideration A value to be paid for a promise made.

Intention to create legal relations

Every party to a contract must have the intention to create legal relation.


Cont..Cont..

Elements of Elements of ContractContract

ExplanationExplanation

Capacity to contract

Every party to a contract must have the capacity to enter into a contract namely, must be of age of majority, of sound mind and not prohibited from contracting.

Free consent Every party must enter into a contract with free consent and not secured through means of fraud, coercion, undue influence, misrepresentation or mistake.

Certainty The contract must be certain, i.e. not ambiguous or vague.

Legality The contract must be legal.


CONTCONTImportant!!!Important!!!

In the absence of one/ more of these In the absence of one/ more of these essentials, a contract may be essentials, a contract may be voidvoid, , voidablevoidableor or unenforceableunenforceable..

Void :Void : A void contract has no legal effect at all. A void contract has no legal effect at all. A void contract is often described as A void contract is often described as void void ababinitioinitio (void from the outset).(void from the outset).

Voidable :Voidable : A voidable contract is legally A voidable contract is legally binding, but one of the parties has the option binding, but one of the parties has the option to set is aside if he so chooses.to set is aside if he so chooses.

Unenforceable :Unenforceable : An unenforceable contract An unenforceable contract is is valid valid in all respects except that it cannot be in all respects except that it cannot be enforced in a court of law.enforced in a court of law.


contcont

It is also important to distinguish a It is also important to distinguish a unilateral contractunilateral contract and a and a bilateral bilateral contractcontract..

Unilateral contract Unilateral contract e.g. X promises to so e.g. X promises to so something in return for an act by Y. Y is not something in return for an act by Y. Y is not bound to do anything at all. Xs promise bound to do anything at all. Xs promise becomes enforceable only if Y carries out becomes enforceable only if Y carries out the act. the act.

Bilateral contract Bilateral contract e.g. X promises to do e.g. X promises to do something for Y if Y will promise to do something for Y if Y will promise to do something for X in return.something for X in return.


Element No. 1: AgreementElement No. 1: Agreement

A contract is a A contract is a legally enforceable legally enforceable agreementagreement ((s.2(h)s.2(h)) creating rights and ) creating rights and obligations for the parties to it.obligations for the parties to it.

Agreement is often described as requiring Agreement is often described as requiring consensus ad idemconsensus ad idem (a meeting of minds) (a meeting of minds) --Sri Sri KajangKajang Rock Products Rock Products SdnSdn BhdBhd v v MaybankMaybank Finance Finance BhdBhd [1992][1992]

All contracts must be built upon an All contracts must be built upon an agreement, agreement, but not all agreements are but not all agreements are contracts!contracts!


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...cont...cont

Thus, social and domestic agreements are Thus, social and domestic agreements are not generally enforceable, unless there is a not generally enforceable, unless there is a clear evidence of an clear evidence of an intention to create intention to create legal relations.legal relations.

Underlying the idea of agreement is, Underlying the idea of agreement is, Offer Offer and and AcceptanceAcceptance, one party , one party proposes or proposes or offers or makes a offer, and if the other offers or makes a offer, and if the other party accepts the offer in its entirety then party accepts the offer in its entirety then the parties have agreed.the parties have agreed.


OFFER/ PROPOSAL

Definition

Revocation

Condition

ITT


((ii) Offer/Proposal) Offer/Proposal

What is an offer or a proposal?What is an offer or a proposal?

S.2(a)S.2(a) -- When one person signifies to another When one person signifies to another his willingness to do or to abstain from doing his willingness to do or to abstain from doing anything, with a view to obtaining the assent of anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to that other to the act or abstinence, he is said to make a proposal.make a proposal.

It is an It is an intimation by words or conduct, of a intimation by words or conduct, of a willingness to enter into a legally binding willingness to enter into a legally binding contractcontract, specifying the terms of the binding , specifying the terms of the binding agreement which will be formed should the agreement which will be formed should the offer be accepted by the party to whom it is offer be accepted by the party to whom it is addressed.addressed.


Introduction

Sect. 2(a)

Specific offer and general offer

Condition

Clear

Communicated

s.4(1)

Acceptor aware

Revocation

Sect. 5(1)

Effective revocation

sect.4(3)(a) &(b)

Types of revocation

Notice

Lapse of timeNot fulfill condition

Unsound mind/death

ITTRule of ITT

Guideline

Advertisement

Display of goodsTender

Quotation

auction


...cont...cont

For an offer to be valid there must be:For an offer to be valid there must be:i.i. An An offerorofferor / / promissorpromissor -- the person the person making the offer making the offer -- s.2(c)s.2(c)

ii.ii. An An offereeofferee -- the person accepting the the person accepting the offer.offer.

If these two are absent, then the agreement If these two are absent, then the agreement is is void void abab initioinitio (no effect from the (no effect from the beginning) beginning) -- AffinAffin Credit (Malaysia) Credit (Malaysia) SdnSdnBhdBhd v Yap Yuen v Yap Yuen FuiFui [1984].[1984].

An offer can either be An offer can either be expressedexpressed (words (words oral or writing) or oral or writing) or impliedimplied (other than (other than words) words) -- s.9. s.9.


An offer must be distinguished An offer must be distinguished from an invitation to treatfrom an invitation to treat

An offer once accepted creates an An offer once accepted creates an agreement.agreement.

An offer can be contrasted with an invitation An offer can be contrasted with an invitation to treat.to treat.

An invitation to treat is an invitation to enter An invitation to treat is an invitation to enter negotiations. The acceptance of an negotiations. The acceptance of an invitation to treat does NOT create an invitation to treat does NOT create an agreement .agreement .

It is not always easy to distinguish between It is not always easy to distinguish between an offer and an invitation to treat.an offer and an invitation to treat.


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Offer or Invitation to Treat?Offer or Invitation to Treat?

What is an What is an invitation to treatinvitation to treat??

An invitation to treat is An invitation to treat is not an offernot an offer. It is an . It is an expression of willingness to negotiateexpression of willingness to negotiate. .

A person making an invitation to treat does A person making an invitation to treat does not intend to be bound as soon as it is not intend to be bound as soon as it is accepted by the person to whom the accepted by the person to whom the statement is addressed.statement is addressed.


Offer or Invitation to Treat (ITT)?Offer or Invitation to Treat (ITT)?

In certain types of standard transactions In certain types of standard transactions (e.g. display of goods, advertisements).(e.g. display of goods, advertisements).

There are some general rules that apply as There are some general rules that apply as to whether or not an offer has been made to whether or not an offer has been made (can be rebutted).(can be rebutted).


...cont...cont

The negotiation stageThe negotiation stage:: A statement/ information as of price is not an A statement/ information as of price is not an offer.offer.

Harvey v Harvey v FaceyFacey [1893] AC [1893] AC -- The appellantsThe appellantstelegraphed the respondent telegraphed the respondent Will you sell us Will you sell us Bumper Hall Pen (a property in Jamaica)? Bumper Hall Pen (a property in Jamaica)? Telegraph lowest cash price. The respondent Telegraph lowest cash price. The respondent replied, Lowest price for Bumper Hall Pen is replied, Lowest price for Bumper Hall Pen is 900. The appellants then replied in the 900. The appellants then replied in the following words: "We agree to buy Bumper following words: "We agree to buy Bumper Hall Pen for the sum of 900 asked by you. Hall Pen for the sum of 900 asked by you. Please send us your title deed in order that we Please send us your title deed in order that we may get early possession. The respondent may get early possession. The respondent however refused to sell at that price. He however refused to sell at that price. He denied his reply was an offer.denied his reply was an offer.


...cont...cont

Harvey v Harvey v FaceyFacey (cont.)(cont.) The Privy Council held that The Privy Council held that no contract no contract existed between the 2 parties. The first existed between the 2 parties. The first telegram was simply a request for telegram was simply a request for information, so at no stage did the respondent information, so at no stage did the respondent make a definite offer that could be accepted. make a definite offer that could be accepted. The statement of price was merely the The statement of price was merely the provision of information.provision of information.

In its judgment, the court pointed out that had In its judgment, the court pointed out that had asked 2 questions in the first telegram asked 2 questions in the first telegram -- as to as to the respondent's willingness to sell and the the respondent's willingness to sell and the lowest price. The respondent only answered lowest price. The respondent only answered the 2the 2ndnd question and did not reply as to his question and did not reply as to his willingness to sell. Thus he had made no offer. willingness to sell. Thus he had made no offer. The last telegram of the appellants was an The last telegram of the appellants was an offer to buy but was never accepted by the offer to buy but was never accepted by the respondent. respondent.


Shop and self service situationsShop and self service situations: : Display of goods on shelves in a self service shop Display of goods on shelves in a self service shop is not an offer but merely an invitation to treat. is not an offer but merely an invitation to treat.

The offer is made by the customers when they The offer is made by the customers when they take the goods to the counter at which point the take the goods to the counter at which point the seller decides whether to accept the offer or not. seller decides whether to accept the offer or not.

Fisher v BellFisher v Bell [1960] [1960] The display of knife in The display of knife in shop window, is not an offer. It was held that shop window, is not an offer. It was held that where goods are displayed in a shop together where goods are displayed in a shop together with a price label, such display is treated as an with a price label, such display is treated as an invitation to treat by the seller, and not an invitation to treat by the seller, and not an offer. The offer is instead made when the offer. The offer is instead made when the customer presents the item to the cashier customer presents the item to the cashier together with payment. Acceptance occurs at together with payment. Acceptance occurs at the point the cashier takes payment.the point the cashier takes payment.

...cont...cont


Pharmaceutical Society of Great Britain v Pharmaceutical Society of Great Britain v Boots Cash ChemistsBoots Cash Chemists [1953] [1953] The display of The display of goods on shelves in a selfgoods on shelves in a self--service store is not service store is not an offer to sell the goods. No contract was an offer to sell the goods. No contract was formed merely by customer taking goods off formed merely by customer taking goods off the shelf. the shelf.

Held: Customers select the item they wish Held: Customers select the item they wish to purchase, and then take it to the assistant, to purchase, and then take it to the assistant, who accepts it and completes the contract.... who accepts it and completes the contract.... The plaintiff contends that the defendant has The plaintiff contends that the defendant has offered to sell the goods by displaying them offered to sell the goods by displaying them on the shelves, and that the plaintiff accepts on the shelves, and that the plaintiff accepts the offer by taking them from the shelf. If this the offer by taking them from the shelf. If this is correct, then a person who takes something is correct, then a person who takes something from the shelves cannot then replace the item from the shelves cannot then replace the item if they see something which they would prefer if they see something which they would prefer more. It seems clear that the sale takes place more. It seems clear that the sale takes place at the cash register. at the cash register.

...cont...cont


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Advertisement and circularsAdvertisement and circulars: : Advertisements are generally regarded as Advertisements are generally regarded as invitations to treat, especially if the invitations to treat, especially if the advertisement occurs in a newspaper or advertisement occurs in a newspaper or catalogues. catalogues.

ReReasonason: No one could ever offer to supply an : No one could ever offer to supply an infinite quantity of a product to everyone.infinite quantity of a product to everyone.

PatridgePatridge v Crittendenv Crittenden [1968][1968] The def was The def was charged with unlawfully offering certain wild charged with unlawfully offering certain wild birds, the birds, the bramblefinchbramblefinch, for sale. He placed , for sale. He placed the advertisement in a bird magazine. Held: the advertisement in a bird magazine. Held: The advertisement did not constitute an offer, The advertisement did not constitute an offer, but was merely an invitation to treat. but was merely an invitation to treat.

...cont...cont


...cont...cont

Coelho v the Public Services Commission Coelho v the Public Services Commission [1964] [1964] Held: The advertisement in the Held: The advertisement in the newspaper was an invitation to qualified newspaper was an invitation to qualified persons to apply for the post and the persons to apply for the post and the resulting applications were offers.resulting applications were offers.

This view was supported in This view was supported in MajumderMajumder v AG v AG of Sarawak of Sarawak [1967] [1967] Held: Held: An advertisement An advertisement in the newspaper of a vacancy for the in the newspaper of a vacancy for the position of a doctor was an invitation to treat.position of a doctor was an invitation to treat.

However, advertisement may also amount to However, advertisement may also amount to an offer an offer -- see see CarlillCarlill v Carbolic Smoke Ball v Carbolic Smoke Ball Co Ltd Co Ltd [1893] [1893] 1 QB 256 Court of Appeal.1 QB 256 Court of Appeal.


CarlillCarlill v Carbolic Smoke Ball Co. v Carbolic Smoke Ball Co. [1893][1893]

Facts: Facts: The def company The def company claimed that the claimed that the smoke balls which smoke balls which they manufactured they manufactured cured many illnesses cured many illnesses and made it and made it impossible to catch impossible to catch flu. flu.

They advertised thThey advertised that at if anyone could show if anyone could show that they have that they have correctly used a correctly used a smoke ball yet still smoke ball yet still caught flu, they would caught flu, they would be paid 100 reward. be paid 100 reward.


The advert also stated that the def had The advert also stated that the def had deposited 1000 in a bank to show their deposited 1000 in a bank to show their sincerity in the matter. sincerity in the matter.

The plaintiff bought one of the smoke balls The plaintiff bought one of the smoke balls and despite using the smoke ball properly, she and despite using the smoke ball properly, she still caught flu. She claimed the reward but the still caught flu. She claimed the reward but the def refused to pay. def refused to pay.

Held: There was Held: There was a a valid valid contract contract between the between the plaintiff and the def. plaintiff and the def. The deposit showed a The deposit showed a willingness to be bound by terms willingness to be bound by terms of the of the advertisement, making it an offer. advertisement, making it an offer.

CarlillCarlill v Carbolic Smoke Ball Co. v Carbolic Smoke Ball Co. (cont.)(cont.)


...cont...cont

Auction salesAuction sales:: In an auction, the auctioneer makes the In an auction, the auctioneer makes the invitation to the bidders who come to the invitation to the bidders who come to the public auction to make a proposal. The public auction to make a proposal. The proposal to bid at a certain price will come proposal to bid at a certain price will come from the bidders.from the bidders.

Payne v Cave Payne v Cave (1789) (1789) -- The defendant made The defendant made the highest bid for the plaintiff's goods at the highest bid for the plaintiff's goods at an auction sale, but he withdrew his bid an auction sale, but he withdrew his bid before the fall of the auctioneer's hammer. before the fall of the auctioneer's hammer. Held: The defendant was not bound to Held: The defendant was not bound to purchase the goods. His bid amounted to purchase the goods. His bid amounted to an offer which he was entitled to withdraw an offer which he was entitled to withdraw at any time before the auctioneer signified at any time before the auctioneer signified acceptance by knocking down the hammer.acceptance by knocking down the hammer.


...cont...cont

TendersTenders::

HarvelaHarvela Investments v Royal Trust Co. of Investments v Royal Trust Co. of CanadaCanada [1985] [1985] -- Held: Goods advertised for Held: Goods advertised for tender is an invitation to treat because the tender is an invitation to treat because the owners of the goods request for offers to owners of the goods request for offers to purchase the goods.purchase the goods.

Spencer v Harding Spencer v Harding (1870)(1870)


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Rewards are often offersRewards are often offers

Gibbons v Proctor Gibbons v Proctor (1891)(1891)

Fitch v Fitch v SnedakerSnedaker (1868)(1868)

Taylor v Taylor v AllonAllon [1966][1966]

R v Clarke R v Clarke (1927)(1927)

Williams v Williams v CawardineCawardine(1833)(1833)


Example 1:Example 1:

Zack entered into a shoe store, Happy Feet, in Zack entered into a shoe store, Happy Feet, in IBorneoIBorneo. He wanted to buy a leather shoe for . He wanted to buy a leather shoe for himself. He saw an array of various types, himself. He saw an array of various types, colourscolours, , brands as well as sizes of shoes. He tried 3 pairs of brands as well as sizes of shoes. He tried 3 pairs of shoes before he decided not to buy any shoes at all. shoes before he decided not to buy any shoes at all. The shop attendant was not happy and he asked The shop attendant was not happy and he asked Zack to pay for the shoes that he has tried on. Zack to pay for the shoes that he has tried on.

Here, contract has yet to exist between Zack and Here, contract has yet to exist between Zack and Happy Feet. The display of shoes the shelves in the Happy Feet. The display of shoes the shelves in the store is merely an store is merely an invitation to treat invitation to treat (the store is (the store is inviting potential buyer(s) to make an offer to buy inviting potential buyer(s) to make an offer to buy the shoe(s)). Offer will be made by Zack when he the shoe(s)). Offer will be made by Zack when he take the shoes to the counter and prepare to pay for take the shoes to the counter and prepare to pay for them. Here, offer is yet to be made as Zack was them. Here, offer is yet to be made as Zack was merely trying the shoes (in order to check its merely trying the shoes (in order to check its suitability etc).suitability etc).

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Communication of OfferCommunication of Offer

The offer must be The offer must be communicated to the communicated to the offereeofferee before an acceptance can be made.before an acceptance can be made.

Thus, an action without the knowledge of the Thus, an action without the knowledge of the offer is no acceptance. offer is no acceptance.

Hence, acceptance cannot be made unless Hence, acceptance cannot be made unless the the offereeofferee knew about the existence of knew about the existence of the offer the offer -- Fitch v Fitch v SnedakerSnedaker (1868).(1868).

In In LalmanLalman ShuklaShukla v v GauriGauri DattDatt (1913), the (1913), the plaintiffs claim was unsuccessful although plaintiffs claim was unsuccessful although he fulfilled the requirement for acceptance as he fulfilled the requirement for acceptance as he had no knowledge of the offer.he had no knowledge of the offer.


Communication of Offer (2)Communication of Offer (2)

It is a requirement that an acceptance is made It is a requirement that an acceptance is made in reliance or pursuance of an offer in reliance or pursuance of an offer -- R v R v ClarkeClarke (1927).(1927).

The communication of an offer is complete The communication of an offer is complete when it comes to the knowledge of the person when it comes to the knowledge of the person to whom it is made (to whom it is made (promiseepromisee//offereeofferee))-- s.4(1).s.4(1).


Example 2:Example 2: Nina lost her purse and she placed an advertisement Nina lost her purse and she placed an advertisement in the daily newspaper offering a reward of RM300 to in the daily newspaper offering a reward of RM300 to anyone who can find her purse and return it to her. anyone who can find her purse and return it to her. Alex found the purse, recognising it as Ninas purse Alex found the purse, recognising it as Ninas purse as it contains her identity card and her driving as it contains her identity card and her driving licence. When he returned the purse to Nina, she is licence. When he returned the purse to Nina, she is delighted but said nothing. The next day, Alex read delighted but said nothing. The next day, Alex read the advertisement in the newspaper about the the advertisement in the newspaper about the reward. Alex then asked Nina about the reward. Nina reward. Alex then asked Nina about the reward. Nina now refused to pay the reward. now refused to pay the reward.

Here the advertisement constitute an offer as Here the advertisement constitute an offer as rewards are often held to be offers (see rewards are often held to be offers (see Gibbons v Gibbons v ProctorProctor). However, for an offer to be effective, it ). However, for an offer to be effective, it must be must be communicatedcommunicated to the intended recipient to the intended recipient (potential (potential offereeofferee) () (s.4(1)s.4(1)).Although, Alex found and ).Although, Alex found and returned the purse to Nina (constituting an returned the purse to Nina (constituting an acceptance), it is not effective as Alex has no acceptance), it is not effective as Alex has no knowledge about the offer at the time he made the knowledge about the offer at the time he made the purported acceptance.purported acceptance.

41

...cont...cont

An offer has to be communicated:An offer has to be communicated:

Expressed in writing Expressed in writing or verballyor verbally

Implied through Implied through conductconduct


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To whom an offer may be made?To whom an offer may be made?

An An offer may be made to:offer may be made to:

specific person(s)specific person(s)

BoultonBoulton v Jonesv Jones[1957][1957]

the world at largethe world at large

CarlillCarlill v Carbolic Smoke v Carbolic Smoke Ball Co Ltd Ball Co Ltd [1893][1893]

...cont...cont


...cont...cont

BoultonBoulton v Jones v Jones [1957] [1957] A sold his steel pipe A sold his steel pipe business to B. Actually A owed a debt to J. J business to B. Actually A owed a debt to J. J made an offer to book steel pipes from A. B made an offer to book steel pipes from A. B accepted Js offer and supplied the pipes to J. J accepted Js offer and supplied the pipes to J. J refused to pay for the pipes. Held: There was no refused to pay for the pipes. Held: There was no contract between B and J. Js offer (i.e. to buy contract between B and J. Js offer (i.e. to buy the steel pipes) was intended for A and not B.the steel pipes) was intended for A and not B.

CarlillCarlill v Carbolic Smoke Ball Co Ltd v Carbolic Smoke Ball Co Ltd [1893] [1893] A A company advertised that it will give 100 to company advertised that it will give 100 to anyone who catch flu after consume its anyone who catch flu after consume its medicine. C took the medicine according to the medicine. C took the medicine according to the instruction prescribed but she still caught flu. instruction prescribed but she still caught flu. Held: There is a valid offer made generally to Held: There is a valid offer made generally to the world at large.the world at large.


When offer lapses?When offer lapses?

An offer is An offer is effective for a specific period effective for a specific period only.only.

An offer will An offer will lapse once an acceptance lapse once an acceptance is is made.made.

An offer will An offer will lapse once it is revoked lapse once it is revoked by by the the offerorofferor -- s.5 and s.6s.5 and s.6


S.5 & S.6 S.5 & S.6 -- Revocation of OfferRevocation of Offer

General ruleGeneral rule: : The The offerorofferor may revoke his offer at any time may revoke his offer at any time before acceptance.before acceptance.

According to According to s.5(1)s.5(1), the offer may be , the offer may be revoked at any time before revoked at any time before communication of its acceptance is communication of its acceptance is complete as against the complete as against the offerorofferor..

However, suchHowever, such revocation is ineffective revocation is ineffective until communicated to the until communicated to the offereeofferee ((s.6s.6).).


...cont....cont.

Offer can be revoked:Offer can be revoked:

1.1. S.6(a)S.6(a): by : by communication of notice of communication of notice of revocation revocation by the by the offerorofferor to to offereeofferee..

RoutledgeRoutledge v Grantv Grant [1828]: Def offered to [1828]: Def offered to take a lease of the pls premises, and take a lease of the pls premises, and promised to keep the offer open for 6 promised to keep the offer open for 6 weeks. After 3 weeks, the def purported weeks. After 3 weeks, the def purported to revoke his offer, while at the end of six to revoke his offer, while at the end of six weeks, the pl purported to accept it.weeks, the pl purported to accept it.

Byrne v Van Byrne v Van TienhovenTienhoven (1880)(1880)


UnderUnder s.6(a)s.6(a), communication of revocation , communication of revocation of offer of offer must come from the must come from the offerorofferor or his or his agent.agent.

However, the position under common law is However, the position under common law is provided in the case of provided in the case of Dickinson v Dickinson v DoddsDodds(1876)(1876)

In this case, the Court of Appeal held that In this case, the Court of Appeal held that the manner of communication was the manner of communication was irrelevant provided that claimant knewirrelevant provided that claimant knewwithout doubt that the def no longer without doubt that the def no longer intended to sell his property to him by the intended to sell his property to him by the time the purported acceptance was made.time the purported acceptance was made.

...cont....cont.


BT20403/Topic3

9

2.2. S.6(b)S.6(b): : OffereeOfferee did not response within the did not response within the time stipulated, or if there is no time time stipulated, or if there is no time stipulation, the offer lapses after a reasonable stipulation, the offer lapses after a reasonable time.time.

Ramsgate Victoria Hotel Co v Ramsgate Victoria Hotel Co v MontefioreMontefiore(1866) (1866) -- The def offered to take shares in The def offered to take shares in the company by a letter dated 8 June 1864. the company by a letter dated 8 June 1864. The company did not reply until 23 The company did not reply until 23 November 1864, when it allotted shares to November 1864, when it allotted shares to the def. The def refused to take up the the def. The def refused to take up the shares. The court held that the shares. The court held that the defsdefs refusal refusal was justified because the offer had lapsed was justified because the offer had lapsed due to the companys delay in accepting due to the companys delay in accepting the offer within a reasonable time.the offer within a reasonable time.

...cont....cont.


3.3. S.6(c)S.6(c): By the failure of the : By the failure of the offereeofferee to fulfil a to fulfil a condition precedent to acceptance. E.g. An condition precedent to acceptance. E.g. An employer offers to employ an applicant on employer offers to employ an applicant on the condition that he passes certain test. If the condition that he passes certain test. If the applicant fails the test, then the offer is the applicant fails the test, then the offer is revoked.revoked.

4.4. S.6(d): S.6(d): By the death or mental disorder of By the death or mental disorder of the the offerorofferor, if the fact of his death or , if the fact of his death or mental disorder comes to the knowledge of mental disorder comes to the knowledge of the the offereeofferee before acceptancebefore acceptance Bradbury v Morgan Bradbury v Morgan (1862)(1862) Re Whelan Re Whelan (1897)(1897)

...cont....cont.


Acceptance

Definition

Revocation

Condition

Exceptions to

communication


Definition Sect. 2(b)

Condition Sect. 7(a)

Absolute and unqualifiedCOUNTER OFFER exception

Sect. 7(b)

Usual way and reasonable mannercommunication

Time

Manner

Exceptions to

communication

No need to communicate

Reciprocal promisePostal rule Revocation

Sect. 5(2)

Effective revocation

sect.4(3)(a) &(b)


(ii) Acceptance(ii) Acceptance

What is an acceptance?What is an acceptance?

According to According to s.2(b)s.2(b): When : When the person to the person to whom the offer is madewhom the offer is made signifies his signifies his assent theretoassent thereto, the offer is said to have , the offer is said to have been accepted.been accepted.

Person accepting the offer is called the Person accepting the offer is called the promiseepromisee (or (or offereeofferee) ) -- s.2(c)s.2(c)

Acceptance can either be expressed (made Acceptance can either be expressed (made in words) or implied, in words) or implied, s.9s.9..


Cont.Cont.

There must be a There must be a meeting of mindmeeting of mind between between the the offerorofferor and and offereeofferee ((consensus ad idemconsensus ad idem).).

If parties are still negotiating, thus an If parties are still negotiating, thus an agreement is not yet formed agreement is not yet formed -- Lau Brothers Lau Brothers & Co v China Pacific Navigation Co. Ltd. & Co v China Pacific Navigation Co. Ltd. [1965] 1 MLJ 1.[1965] 1 MLJ 1.

Another situation where a contract is not yet Another situation where a contract is not yet concluded is when there is a conditional concluded is when there is a conditional acceptance. It happens when the acceptance acceptance. It happens when the acceptance is qualified by the term is qualified by the term subject to a subject to a contractcontract or or subject to a formal contract subject to a formal contract being drawn up by the solicitorsbeing drawn up by the solicitors Low Low KarKarYitYit & Ors v & Ors v MohdMohd Isa & Isa & AnorAnor [1963].[1963].


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Principles of AcceptancePrinciples of Acceptance

1)1) The acceptance must be made within the The acceptance must be made within the specified time, or within reasonable time specified time, or within reasonable time ((s.6(b)s.6(b)););

2)2) The acceptance must be absolute and The acceptance must be absolute and unqualified (unqualified (s.7(a)s.7(a)););

3)3) The acceptance must be expressed in some The acceptance must be expressed in some usual and reasonable manner, unless the usual and reasonable manner, unless the proposal prescribes the manner in which it proposal prescribes the manner in which it is to be accepted (is to be accepted (s.7(b)s.7(b)););

4)4) Acceptance can be made by performing Acceptance can be made by performing conditions or receiving consideration (conditions or receiving consideration (s.8s.8); ); andand

5)5) Acceptance must be communicated to the Acceptance must be communicated to the offerorofferor..


1.1.Acceptance must be made Acceptance must be made within the within the specified time, or within reasonable timespecified time, or within reasonable time. .

S.6(b) S.6(b) provides that:provides that: An offer is revoked:An offer is revoked:... by the ... by the lapse of the time prescribed in lapse of the time prescribed in the offer for its acceptancethe offer for its acceptance, or, if no time , or, if no time is so prescribed, by the lapse of a is so prescribed, by the lapse of a reasonable time, without communication of reasonable time, without communication of the acceptance the acceptance

Ramsgate Victoria Hotel Co v Ramsgate Victoria Hotel Co v MontefioreMontefiore(1866)(1866)

Fraser v EverettFraser v Everett (1889)(1889) Macon Works and Trading Macon Works and Trading SdnSdn BhdBhd v v PhangPhang Hon ChinHon Chin (1976)(1976)

...cont....cont.


2.2. S.7(a):S.7(a): The acceptance must be The acceptance must be absoluteabsolute and and unqualifiedunqualified..

Mirror image ruleMirror image rule. Any modification or . Any modification or variation of the offer amounts to variation of the offer amounts to counter counter offeroffer..

Counter offer amounts to a Counter offer amounts to a rejection of rejection of the original offerthe original offer: : Hyde v Wrench Hyde v Wrench (1840)(1840)..

Counter offer differs from Counter offer differs from request for request for further informationfurther information: : Stevenson, Jacques Stevenson, Jacques & Co v McLean & Co v McLean (1880)(1880)

...cont....cont.


Hyde v Wrench Hyde v Wrench [1840[1840]]FARM

1,000

OFFEROR

OFFER

NOT ACCEPTANCE

- COUNTER OFFERNO ACCEPTANCE BY OFFEREENO CONTRACT CREATED

SOLD TO ANOTHER

OFFEREE


Hyde v Wrench Hyde v Wrench (1840) (1840) Wrench offered to sell Wrench offered to sell his farm in his farm in LuddenhamLuddenham to Hyde for 1200, an to Hyde for 1200, an offer which Hyde declined. On 6 June 1840 offer which Hyde declined. On 6 June 1840 Wrench wrote to Hyde's agent offering to sell the Wrench wrote to Hyde's agent offering to sell the farm for 1000, stating that it was the final offer farm for 1000, stating that it was the final offer and that he would not alter from it. Hyde offered and that he would not alter from it. Hyde offered 950 in his letter by 8 June, and after examining 950 in his letter by 8 June, and after examining the offer Wrench refused to accept, and informed the offer Wrench refused to accept, and informed Hyde of this on 27 June. On the 29th Hyde Hyde of this on 27 June. On the 29th Hyde agreed to buy the farm for 1000 without any agreed to buy the farm for 1000 without any additional agreement from Wrench, and after additional agreement from Wrench, and after Wrench refused to sell the farm to him he sued Wrench refused to sell the farm to him he sued for breach of contract.for breach of contract.

Held: There was Held: There was no contractno contract between them. The between them. The plaintiff had rejected the original offer on 8 June plaintiff had rejected the original offer on 8 June that he was no longer capable of accepting it that he was no longer capable of accepting it later.later.

...cont....cont.


3.3. S.7(b)S.7(b) the acceptance must be the acceptance must be expressed expressed in some usual and reasonable mannerin some usual and reasonable manner, , unless the offer prescribes the manner in unless the offer prescribes the manner in which it is to be acceptedwhich it is to be accepted.. If the offer If the offer prescribes the manner in which it is to be prescribes the manner in which it is to be accepted, and the acceptance is not made accepted, and the acceptance is not made in that manner, the in that manner, the offerorofferor may, within a may, within a reasonable time after the acceptance is reasonable time after the acceptance is communicated to him, insist that his offer communicated to him, insist that his offer shall be accepted in the prescribed manner, shall be accepted in the prescribed manner, and not otherwise, but if he fails to do so, and not otherwise, but if he fails to do so, he accepts the acceptance.he accepts the acceptance.

...cont....cont.


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What is the position if the What is the position if the offereeofferee deviates deviates from the prescribed method?from the prescribed method? Acceptance may be made in a different Acceptance may be made in a different method may be effective if there is method may be effective if there is no no prejudice to the prejudice to the offerorofferor,, as where the as where the method used is as quick and as suitable as method used is as quick and as suitable as the method prescribed.the method prescribed.

Yates Building Co v RJ Yates Building Co v RJ PulleynPulleyn & Son & Son (1975)(1975)

OfferorOfferor cannot prescribe cannot prescribe silence silence as a manner as a manner of acceptance. of acceptance.

The general rule that the The general rule that the offerorofferor cannot bind cannot bind the the offereeofferee by stating that if he does nothing by stating that if he does nothing he well be bound to a contract.he well be bound to a contract.

...cont....cont.


FelthouseFelthouse v Bindley v Bindley (1862) (1862) The court held The court held that silent acceptance was not that silent acceptance was not communicated to the communicated to the offerorofferor, and as such, , and as such, such acceptance cannot be treated as an such acceptance cannot be treated as an agreement. It was held not binding upon agreement. It was held not binding upon either parties.either parties.

Fraser v Everett Fraser v Everett (1889) (1889) the court held the court held that that there was no such phrase in law there was no such phrase in law that silence means agreement.that silence means agreement.

...cont....cont.


However there may be exceptions to this rule.However there may be exceptions to this rule.

1.1. If an If an offereeofferee himself stipulate that his himself stipulate that his silence shall constitute an acceptance .silence shall constitute an acceptance .

2.2. Silence may also amount to an acceptance Silence may also amount to an acceptance if there are other facts like the conduct of if there are other facts like the conduct of the the offereeofferee to indicate acceptance.to indicate acceptance. WeatherbyWeatherby v v BanhamBanham [1832] [1832] it was it was held that the receipt and reading of a held that the receipt and reading of a periodical after the expiry of a periodical after the expiry of a subscription amounted to an subscription amounted to an acceptance. However, there may be acceptance. However, there may be exceptions to this rule.exceptions to this rule.

...cont....cont.


4.4. S.8: S.8: Acceptance can be made by Acceptance can be made by performing performing conditions of a proposal conditions of a proposal or the aor the acceptance cceptance of any considerationof any consideration for a reciprocal for a reciprocal promise.promise.

CarlillCarlill v Carbolic v Carbolic SmokeballSmokeball (1893) (1893) -- it it was held that a valid contract existed was held that a valid contract existed between the parties and that satisfying between the parties and that satisfying conditions for using the smoke ball conditions for using the smoke ball constituted acceptance of the offer. Her constituted acceptance of the offer. Her communication of acceptance of the offer communication of acceptance of the offer was ruled to be not necessary.was ruled to be not necessary.

LalmanLalman ShuklaShukla v v GauriGauri DattDatt (1913)(1913) Fitch v Fitch v SnedakerSnedaker (1868)(1868)

...cont....cont.


5.5. Acceptance must be Acceptance must be communicated to the communicated to the offerorofferor. . In some cases, however, the In some cases, however, the communication of acceptance may not be communication of acceptance may not be necessary necessary see see CarlillCarlill v Carbolic Smoke Ball v Carbolic Smoke Ball CoCo. [1893]. [1893]

General Rule: General Rule: Acceptance has no effect until Acceptance has no effect until it is communicated to the it is communicated to the offerorofferor -- s.4(2)s.4(2)::

ExpressedExpressed ImpliedImplied

However, there is an exception to the general However, there is an exception to the general rule, whereby the acceptance is made in rule, whereby the acceptance is made in writing and using the postal system (writing and using the postal system (Postal Postal rule).rule).

...cont....cont.


Postal RulePostal Rule

Postal rulePostal rule (also known as the (also known as the mailbox rule, is an exception to the mailbox rule, is an exception to the general rule.general rule.

Under the English law, if the post is a Under the English law, if the post is a proper and reasonable method of proper and reasonable method of communication between the parties, communication between the parties, then then acceptance is deemed complete acceptance is deemed complete immediately the letter of acceptance immediately the letter of acceptance is postedis posted, even if it is delayed or is , even if it is delayed or is lost or destroyed in the post so that it lost or destroyed in the post so that it never reaches the never reaches the offerorofferor. .

The acceptance cannot be recalled The acceptance cannot be recalled once it has been posted, even though once it has been posted, even though it has not reached the it has not reached the offerorofferor at the at the time of recall.time of recall.


BT20403/Topic3

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Cont.Cont.

Adams v Adams v LindsellLindsell (1818): T(1818): The he defsdefs wrote to the wrote to the plaintiffs on 2 Sept, offering to sell them some plaintiffs on 2 Sept, offering to sell them some wool and requested that the plaintiffs reply in wool and requested that the plaintiffs reply in course of post. The offer letter was wrongly course of post. The offer letter was wrongly addressed and therefore the plaintiffs did not addressed and therefore the plaintiffs did not receive it until 5 Sept. As a result, the letter of receive it until 5 Sept. As a result, the letter of acceptance was not received until 9 Sept by the acceptance was not received until 9 Sept by the defsdefs, and this was 2 days later than the , and this was 2 days later than the defsdefswould have expected to receive it. Because of would have expected to receive it. Because of this, on 8 Sept the this, on 8 Sept the defsdefs had sold the wool to a 3had sold the wool to a 3rdrdperson.person.

Held: The Held: The offer had been accepted as soon as offer had been accepted as soon as the letter had been postedthe letter had been posted. Thus, there was . Thus, there was indeed a contract in existence before the sale of indeed a contract in existence before the sale of the wool to the 3the wool to the 3rdrd party, although the letter had party, although the letter had not actually been received by the not actually been received by the defsdefs. The . The defsdefswere therefore liable in breach of contract. were therefore liable in breach of contract.


Cont.Cont.

However, it was not until However, it was not until HenthornHenthorn v Fraserv Fraser[1892] that the court determined the precise [1892] that the court determined the precise timing of the acceptance, i.e. the moment the timing of the acceptance, i.e. the moment the letter of acceptance is posted.letter of acceptance is posted.

The postal rule in The postal rule in Adams v Adams v LindsellLindsell has since has since been confirmed in many cases including in:been confirmed in many cases including in:

Dunlop v Higgins Dunlop v Higgins (1848)(1848) Household Fire & Carriage Accident Household Fire & Carriage Accident Insurance Co v Grant Insurance Co v Grant (1879)(1879)

Byrne v Van Tienhoven Byrne v Van Tienhoven (1880)(1880)


Cont.Cont.

In In Household Fire & Carriage Accident Household Fire & Carriage Accident Insurance Co v Grant Insurance Co v Grant (1879) (1879) Def applied Def applied for shares in the plaintiffs co. The company for shares in the plaintiffs co. The company allotted the shares to the def, and duly allotted the shares to the def, and duly addressed to him, posting a letter containing addressed to him, posting a letter containing the notice of allotment. The letter was lost in the notice of allotment. The letter was lost in the post. Later, the company went bankrupt, the post. Later, the company went bankrupt, and asked the def for the outstanding and asked the def for the outstanding payments on the shares, which he refused payments on the shares, which he refused saying there was no binding contract. saying there was no binding contract.

It was held that there was a valid contract, It was held that there was a valid contract, because the rule for the post is that because the rule for the post is that acceptance is effective even if the letter never acceptance is effective even if the letter never arrives.arrives.


Cont.Cont.

However, the postal rule only applies when, However, the postal rule only applies when, impliedly or explicitly, the parties have in impliedly or explicitly, the parties have in contemplation contemplation post as a means of post as a means of acceptanceacceptance..

It excludes contracts involving land, letters It excludes contracts involving land, letters incorrectly addressed and instantaneous incorrectly addressed and instantaneous modes of communication.modes of communication.


Cont.Cont.

The Malaysian position differs from the UK The Malaysian position differs from the UK position. This is provided in position. This is provided in s.4(2)(a) s.4(2)(a) andand (b) (b) of the of the Contracts Act 1950.Contracts Act 1950.

S.4(2)(a):S.4(2)(a): The communication of an The communication of an acceptance is complete acceptance is complete as against the as against the offerorofferor when it is put in a when it is put in a course of course of transmission to himtransmission to him so as to be out of the so as to be out of the power of the acceptor.power of the acceptor.

S.4(2)(b):S.4(2)(b): The communication of an The communication of an acceptance is complete acceptance is complete as against the as against the acceptoracceptor when it when it comes to the knowledge comes to the knowledge of the of the offerorofferor..


Cont.Cont.

The The Contract Act 1950 Contract Act 1950 provides that the provides that the offerorofferor and the and the offereeofferee are bound by the are bound by the acceptance at different times.acceptance at different times.

Ignatius v Bell Ignatius v Bell [1913] [1913] -- The court applying The court applying s.4s.4 of the Contracts Act held that of the Contracts Act held that communication of acceptance was communication of acceptance was complete when the notice of acceptance complete when the notice of acceptance was posted on 16 August 1912 although was posted on 16 August 1912 although the def did not know about the acceptance.the def did not know about the acceptance.


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Example 3:Example 3: Allen wrote to Jim on 1 October 2013 and offered Allen wrote to Jim on 1 October 2013 and offered to sell his land for RM100,000. Jim received to sell his land for RM100,000. Jim received Allens letter on 3 October 2013. Since Allen did Allens letter on 3 October 2013. Since Allen did not receive any reply from Jim, on 28 October not receive any reply from Jim, on 28 October 2013, he signed a contract to sell the land to Chan. 2013, he signed a contract to sell the land to Chan. Unknown to Allen, Jim had posted a letter of Unknown to Allen, Jim had posted a letter of acceptance on 25 October 2013. Allen only acceptance on 25 October 2013. Allen only received Jims letter on 30 October 2013. received Jims letter on 30 October 2013.

To apply the postal rule, the parties must have in To apply the postal rule, the parties must have in contemplation of using post as a means of contemplation of using post as a means of acceptance. Under acceptance. Under s.4(2)(a) s.4(2)(a) Allen is bound since Allen is bound since the letter of acceptance is already put in the course the letter of acceptance is already put in the course of transmission to him (the moment it is of transmission to him (the moment it is posted/put into the mailbox on 25/10). As for Jim, posted/put into the mailbox on 25/10). As for Jim, he is bound the moment the letter reached Allen he is bound the moment the letter reached Allen (s.4(2)(b). (s.4(2)(b). As such, Allen may be sued for breach of As such, Allen may be sued for breach of contract as the contract between Allen and Jim is contract as the contract between Allen and Jim is already concluded on 25 October 2013.already concluded on 25 October 2013.

73

Cont.Cont.

However, the rule that acceptance is complete However, the rule that acceptance is complete upon posting may be upon posting may be excluded by the excluded by the express terms of the offerexpress terms of the offer..

HoliwellHoliwell Securities Ltd v Hughes Securities Ltd v Hughes [1974] [1974] where the offer prescribed that the where the offer prescribed that the acceptance must be by notice in writing to acceptance must be by notice in writing to the intending vendor. Thus, it was held that the intending vendor. Thus, it was held that in such a case, the mere posting of the in such a case, the mere posting of the letter of acceptance was not sufficient.letter of acceptance was not sufficient.


Section

Offer Sect.2(a) When one person signifies his willingness

Communication of

offer (effective/ complete)

Sect.4(1) When the offer comes to the knowledge of

an acceptor (or offeree)

Acceptance Sect.2(b) When one person accepts the offer

Communication of

acceptance (complete/ effective)

Sect.4(2)

(a)(b)

When the acceptor posts the letter of

acceptance

Revocation of offer Sect.5(1) Can be made at any time before the

acceptance is complete

Effective of

revocation of offer

Sect.4(3)

(a)(b)

Notice of revocation of offer must come to

the knowledge of the acceptor before the acceptance if complete as against the

offeror

Postal RulePostal Rule


Postal Rule

Offer

Revocation of

offer

Acceptance

Revocation of

acceptance

Sect.2(a)

Sect.4(1)

Sect.2(b)

Sect.4(2)(a)(b)

Sect.5(1)

Sect.4(3)(a)(b)

Sect.5(2)

Sect.4(3)(a)(b)


Instantaneous CommunicationInstantaneous Communication

Another exception to the general rule as Another exception to the general rule as regards to acceptance through the post lies in regards to acceptance through the post lies in cases of instantaneous communication e.g. cases of instantaneous communication e.g. telephone, telex and fax.telephone, telex and fax.

EntoresEntores Ltd v Miles Far East Corporation Ltd v Miles Far East Corporation [1955] [1955] -- the Court held that the posting rule the Court held that the posting rule did not apply to an acceptance by telex as the did not apply to an acceptance by telex as the Court regarded it as an instantaneous form of Court regarded it as an instantaneous form of communication. The general principle that communication. The general principle that acceptance takes place when communicated acceptance takes place when communicated applies to instantaneous forms of applies to instantaneous forms of communication. communication.

TenaxTenax Steamship Ltd v The Steamship Ltd v The BrimmesBrimmes [1973][1973]


Instantaneous CommunicationInstantaneous Communication

The courts are yet to decide whether eThe courts are yet to decide whether e--mail mail should be regarded as an instantaneous should be regarded as an instantaneous form of communication. form of communication.

If the If the offereeofferee were to convey acceptance by were to convey acceptance by commercially unreasonable means commercially unreasonable means e.g. by e.g. by crosscross--country pony express, the acceptance country pony express, the acceptance would not be effective until it had actually would not be effective until it had actually been received.been received.


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Revocation of AcceptanceRevocation of Acceptance

An An acceptance may be revoked at any time acceptance may be revoked at any time before the communication of its acceptance before the communication of its acceptance is complete as against the acceptoris complete as against the acceptor, but not , but not afterwardsafterwards-- s.5(2).s.5(2).

The communication of a revocation is dealt with The communication of a revocation is dealt with under under s.4(3):s.4(3):The communication of a revocation is complete:The communication of a revocation is complete:(a)(a) as against the person as against the person who makes itwho makes it when it when it

is is put into a course of transmission to the put into a course of transmission to the person to whom it is madeperson to whom it is made, so as to be out , so as to be out of the power of the person who makes it; of the power of the person who makes it; andand

(b)(b) as against the person as against the person to whom it is madeto whom it is made, , when when it comes to his knowledgeit comes to his knowledge..


Element No. 2: Intention to Element No. 2: Intention to Create Legal Relations Create Legal Relations

An agreement in itself does not create a An agreement in itself does not create a contract. For a valid and binding contract to contract. For a valid and binding contract to exist, the parties must have the intention to exist, the parties must have the intention to create legal relations.create legal relations.

Although the Contracts Act 1950 is silent on Although the Contracts Act 1950 is silent on the intention to create legal relations as one of the intention to create legal relations as one of the requirements of a valid contract, casethe requirements of a valid contract, case--law law clearly dictates the necessity of this clearly dictates the necessity of this requirement requirement -- VisuVisu SinnaduraiSinnadurai (1979).(1979).

The words used in The words used in s.2 s.2 impliedly provides the impliedly provides the requirement for intention for a valid contract.requirement for intention for a valid contract.


Cont.Cont.

Contract requires evidence that parties to an Contract requires evidence that parties to an agreement agreement implicitly or explicitly intendimplicitly or explicitly intend that that the agreement to be legally enforceable.the agreement to be legally enforceable.

Weeks v Weeks v TybaldTybald [1605] [1605] -- AA perfectly precise perfectly precise statement may nevertheless not be binding if statement may nevertheless not be binding if the court thinks it was not seriously the court thinks it was not seriously intended.intended.

Express exclusion of ITCLR:Express exclusion of ITCLR: Rose & Frank Co Rose & Frank Co v Crompton Bros Ltd v Crompton Bros Ltd [1925] AC: The [1925] AC: The agreement expressly provided that ...This agreement expressly provided that ...This arrangement is not entered into as a arrangement is not entered into as a formal legal arrangement, and shall not be formal legal arrangement, and shall not be subject to a legal jurisdiction in the law subject to a legal jurisdiction in the law courts. As such, there is courts. As such, there is no contractual no contractual relationship relationship between them.between them.


Cont.Cont.

In In business agreementsbusiness agreements, the parties are , the parties are presumed to have the intention to create legal presumed to have the intention to create legal relations, unless the parties specify otherwise.relations, unless the parties specify otherwise.

EssoEsso Petroleum Co Ltd v Customs & Excise Petroleum Co Ltd v Customs & Excise Commissioner Commissioner [1946][1946]

KohKoh Kia Hong v Kia Hong v GuoGuo Enterprise Pte LtdEnterprise Pte Ltd


Cont.Cont.

In In social, domestic or family agreementssocial, domestic or family agreements, it , it is implied that no legal relations are is implied that no legal relations are contemplated, but such presumption may be contemplated, but such presumption may be rebutted. rebutted.

Balfour v Balfour Balfour v Balfour [1919]:[1919]: H promised to pay H promised to pay W allowance but then defaulted. Court said W allowance but then defaulted. Court said agreement not legally enforceable, since agreement not legally enforceable, since parties did not intendparties did not intend to be legally bound.to be legally bound.

Merritt v Merritt Merritt v Merritt [1970]: H put in writing to [1970]: H put in writing to give money to W for mortgage payment & give money to W for mortgage payment & transfer house to W upon completion of transfer house to W upon completion of payments. He then refused. It was held that in payments. He then refused. It was held that in light of all surrounding circumstances, parties light of all surrounding circumstances, parties intended to create legal relations.intended to create legal relations.


Element No. 3: ConsiderationElement No. 3: Consideration

General rule: An agreement without General rule: An agreement without consideration is consideration is void void s.26s.26..

S.2(d): S.2(d): Definition ofDefinition of consideration:consideration:

When, at the desire of the When, at the desire of the promissorpromissor, the , the promiseepromisee or any other person has done or or any other person has done or abstained from doing, or does or abstains abstained from doing, or does or abstains from doing , or promises to or to abstain from doing , or promises to or to abstain from doing, something, such act or from doing, something, such act or abstinence or promise is called a abstinence or promise is called a consideration of promise. consideration of promise.


BT20403/Topic3

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Consideration

Definition

Rules

Exceptions

Categories


Definition

Sect.2(d)

Categories

Past

[act/promise]

Executed

[promise/act]

Executory

(promise/promise

Exceptions

Natural love

Compensate past voluntary act

Legally compellable to do

Statute barred debt

Sect.2(d) and 26General rule

Rules

Need not be adequate

Need not come from the promisee

Waiver performance


CATEGORIES OF CONSIDERATIONCATEGORIES OF CONSIDERATION

EXECUTORYEXECUTED

PAST

PROMISE IS MADE

IN RETURN FORANOTHER PROMISE

PROMISE IS MADE

IN RETURN FORTHE PERFORMANCE

OF AN ACT

PROMISE MADE

IN RETURN FORAN ACT WHICH

HAS BEEN

PERFORMED


Cont.Cont.

ConsiderationConsideration waswas defineddefined byby Lush,Lush, JJ ininCurrieCurrie vv MisaMisa ((18751875))::

A valuable consideration, in the sense of A valuable consideration, in the sense of the law, may consist in some right, the law, may consist in some right, interest, profit or benefit accruing to the interest, profit or benefit accruing to the one party, or some forbearance, one party, or some forbearance, detriment, loss or responsibility given detriment, loss or responsibility given suffered, or undertaken by the other. suffered, or undertaken by the other.


Principles of ConsiderationPrinciples of Consideration

1.1. An agreement made without consideration An agreement made without consideration is voidis void;;

2.2. Only lawful consideration can make the Only lawful consideration can make the contract lawful and valid;contract lawful and valid;

3.3. ConsiderationConsideration must must bebe of value but of value but itit need need not be adequate; andnot be adequate; and

4.4. Consideration need not move from the Consideration need not move from the promiseepromisee/ / offereeofferee..


Cont.Cont.

1. An agreement made without consideration 1. An agreement made without consideration is void.is void. S.26S.26 -- An agreement made without An agreement made without consideration is voidconsideration is void unless it is in writing unless it is in writing and registered, or is a promise to compensate and registered, or is a promise to compensate for something done, or is a promise to pay a for something done, or is a promise to pay a debt barred by limitation law.debt barred by limitation law.

2. Only lawful consideration can make the 2. Only lawful consideration can make the contract lawful and valid.contract lawful and valid. S.10(1) S.10(1) All agreements are contractsAll agreements are contracts if if they are made by the free consent of parties they are made by the free consent of parties competent to contract, competent to contract, for a lawful for a lawful considerationconsideration and with a lawful object, and and with a lawful object, and are not hereby expressly declared to be void.are not hereby expressly declared to be void.


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Cont.Cont.

S.24S.24 The consideration or object of an The consideration or object of an agreement is lawful agreement is lawful unlessunless::a)a) It is forbidden by a law (It is forbidden by a law (ManangManang Lim Lim Native Native SdnSdn BhdBhd v v ManangManang SelamanSelaman[1986]);[1986]);

b)b) It is of such a nature that, if permitted, it It is of such a nature that, if permitted, it would defeat any law (would defeat any law (HeeHee Cheng v Cheng v KrishnanKrishnan [1955][1955]););

c)c) It is fraudulent;It is fraudulent;d)d) It involves or implies injury to the person or It involves or implies injury to the person or property of another (property of another (SyedSyed AlhamedAlhamedAlhabsheeAlhabshee v v PutehPuteh btbt SabtuSabtu (1922)(1922)); or); or

e)e) The court regards it as immoral, or opposed The court regards it as immoral, or opposed to public policy (to public policy (Pearce v Brooks Pearce v Brooks [1861][1861]).).


Cont.Cont.

3. Consideration must be of value but it nee3. Consideration must be of value but it need d not be adequatenot be adequate; and; and Under the Under the MsianMsian Law, consideration must Law, consideration must be of value but need not be adequate. be of value but need not be adequate.

E.g. A agrees to sell a horse worth E.g. A agrees to sell a horse worth RM1000 for RM10. As consent to the RM1000 for RM10. As consent to the agreement is freely given. The agreement agreement is freely given. The agreement is a contract despite the inadequacy of the is a contract despite the inadequacy of the consideration.consideration.

Explanation 2Explanation 2 to to s.26s.26 : An agreement is : An agreement is not void merely because the consideration not void merely because the consideration is inadequate.is inadequate.

PhangPhang SweeSwee Kim v Kim v BehBeh I HockI Hock [1964][1964] ChapellChapell & Co Ltd v Nestle Co Ltd& Co Ltd v Nestle Co Ltd [1960][1960]


Cont.Cont.

4. Consideration need not move from the 4. Consideration need not move from the promiseepromisee //offereeofferee.. Consideration need not move from Consideration need not move from promiseepromisee (which differs from English Law)(which differs from English Law)

Under the Contracts Act 1950, a party to an Under the Contracts Act 1950, a party to an agreement can enforce the promise even if agreement can enforce the promise even if he himself has given no consideration as he himself has given no consideration as long as someone else has done so.long as someone else has done so.

S.2(d)S.2(d) reads: reads: when..the when..the promiseepromisee or or any other any other personperson has done.something..is called has done.something..is called a consideration for the promise.a consideration for the promise.

VenkataVenkata ChinnayaChinnaya v v VerikataraVerikatara MayaMaya[1881][1881]


Exceptions to the rules of Exceptions to the rules of considerationconsideration

There are There are 3 exceptions3 exceptions to the general rule to the general rule that an agreement without consideration is that an agreement without consideration is void, namely:void, namely:

1)1) Agreement made in writing and registered Agreement made in writing and registered under the law on account of natural love under the law on account of natural love and affection;and affection;E.g. A, for natural love and affection, E.g. A, for natural love and affection, promises to give his son, B RM1000 and he promises to give his son, B RM1000 and he puts his promise to B in writing. This is a puts his promise to B in writing. This is a contract.contract.

Re Tan Re Tan SohSoh SimSim [1951][1951]


Cont.Cont.2)2) Agreement to compensate a past voluntary Agreement to compensate a past voluntary act done for the act done for the promissorpromissor, or something , or something which the which the promissorpromissor was legally was legally compellable to do.compellable to do.E.g. A supports Bs son for his education. B E.g. A supports Bs son for his education. B promises to pay As expenses in so doing. promises to pay As expenses in so doing. This is a contract and A can enforce Bs This is a contract and A can enforce Bs promise.promise.

See See Illustration (c) to s.26 Illustration (c) to s.26 : A finds Bs : A finds Bs purse and gives it to him. B promises to purse and gives it to him. B promises to give A RM50. This is a contract.give A RM50. This is a contract. J.M J.M WotherspoonWotherspoon & Co Ltd v Henry & Co Ltd v Henry Agency House Agency House [1962][1962]

Kepong Prospecting & Ors v A.E. Schmidt Kepong Prospecting & Ors v A.E. Schmidt & Marjorie Schmidt& Marjorie Schmidt [1968][1968]


Cont.Cont.

3)3) Written agreement to pay a statuteWritten agreement to pay a statute--barred barred debt.debt.E.g. A owes B RM1000 but the debt is E.g. A owes B RM1000 but the debt is barred by limitation. A signs a written barred by limitation. A signs a written promise to pay B RM500 on account of the promise to pay B RM500 on account of the debt. This is a contract.debt. This is a contract.


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Element No. 4: CertaintyElement No. 4: Certainty

The terms of the contract cannot be vague The terms of the contract cannot be vague but must be certain.but must be certain.

If the terms are vague and ambiguousIf the terms are vague and ambiguous--contract is contract is voidvoid s.30s.30..

KaruppanKaruppan ChettyChetty v v SuahSuah ThianThian [1916] [1916] the requirement of certainty was not met the requirement of certainty was not met when the parties agreed upon the granting when the parties agreed upon the granting of a lease at RM35 per month for as long as of a lease at RM35 per month for as long as he likes....he likes....


...cont....cont.

E.g. see illustrations in E.g. see illustrations in s.30s.30::

1.1. A agrees to sell to B A agrees to sell to B a hundred tons of oil. a hundred tons of oil. There is nothing whatever to show what There is nothing whatever to show what kind of oil was intended. The agreement is kind of oil was intended. The agreement is void for uncertainty (see void for uncertainty (see Illustration (a)Illustration (a)). ).

2.2. A agrees to sell to B A agrees to sell to B my white horse for my white horse for five hundred ringgit or one thousand five hundred ringgit or one thousand ringgitringgit. There is nothing to show which of . There is nothing to show which of the 2 prices was to be given. The the 2 prices was to be given. The agreement is void. (see agreement is void. (see Illustration (f)Illustration (f)).).


Element No. 5: CapacityElement No. 5: Capacity

The parties entering into a contract should also The parties entering into a contract should also be competent to contract i.e. they must have be competent to contract i.e. they must have the legal capacity to do so.the legal capacity to do so.

It refers to the ability of a party to fully It refers to the ability of a party to fully understand the rights and obligations of an understand the rights and obligations of an agreement he/she has made. Lacking capacityagreement he/she has made. Lacking capacity--not bound by the contract.not bound by the contract.

S.10 S.10 reads:reads:All agreements are contracts if they are made All agreements are contracts if they are made by the free consent of by the free consent of parties competent to parties competent to contractcontract, for a lawful consideration and with a , for a lawful consideration and with a lawful object, and are not hereby expressly lawful object, and are not hereby expressly declared to be void.declared to be void.


...cont....cont.

S.11S.11: Every person is competent to contract : Every person is competent to contract who is who is of the age of majority according to of the age of majority according to the law to which he is subjectthe law to which he is subject, who is of , who is of sound mindsound mind, and , and is not disqualified from is not disqualified from contracting by any law to which he is contracting by any law to which he is subjectsubject..

According to the According to the Age of Majority Act 1971Age of Majority Act 1971, , the age of majority in Malaysia is 18 years. the age of majority in Malaysia is 18 years.

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(i) Minors(i) Minors

With regards to the minors contractual With regards to the minors contractual capacity, the general rule is that all contracts capacity, the general rule is that all contracts entered into by a minor is not merely entered into by a minor is not merely void void butbutvoid void abab initio initio (void from the outset).(void from the outset).

MohoriMohori BibeeBibee v v DhurmodasDhurmodas GhoseGhose [1903] [1903] The Privy Council held that the combined The Privy Council held that the combined effects of s.10 and s.11 of the Indian effects of s.10 and s.11 of the Indian Contracts Act (which is similar to the Contracts Act (which is similar to the Malaysian Contracts Act 1950), rendered Malaysian Contracts Act 1950), rendered the contracts void.the contracts void.

The local case that applied the decision in The local case that applied the decision in MohoriMohori BibeesBibees case was the case of case was the case of Tan Tan HeeHee Juan v Juan v TehTeh Boon Boon KeatKeat [1934].[1934].

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MohoriMohori BibeeBibee v v DharmodasDharmodas GhoseGhose(1903) ILR 30 Cal 539(1903) ILR 30 Cal 539

The Appellant lent the Respondent (Infant) the sum of 20,000 rupees at 12% interest and secured the loan by way of mortgage executed by the infant in favour of the Appellant.

Later the mother of the children claim that the mortgage was void for lack of capacity.

The court held that the contract was void and so as to the mortgage and the A cannot recover the money from the infant.

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ContCont

If there is a contract between minor & adult:

A minor who had transferred his property on receipt of the purchase money, may get the contract declared void and at the same time, have the advantage of not returning the

moneys received.

Tan Tan HeeHee Juan v Juan v TehTeh Boon Boon KeatKeat[[1934] MLJ 961934] MLJ 96

The Plaintiff (an infant) executed transfer of land in favour of the Defendant. The transfer were witnessed and subsequently registered.

The Plaintiff later, by his representatives, applied to the court for an order setting aside the transfer.

The court rule that the transactions were voidand ordered restoration of the land to the minor and have the advantage of not returning the moneys received.

ContCont

If there is a contract between minor & adult:

A minor who paid the money to an adult, can recover the money upon returning the

property transferred to him.

Cont.Cont. Normally, when a contract is discovered to be Normally, when a contract is discovered to be void or becomes void, under void or becomes void, under s.66s.66 of the of the Contracts Act 1950Contracts Act 1950, any person who has , any person who has received any advantage under the agreement or received any advantage under the agreement or contract is bound to restore it, or to make contract is bound to restore it, or to make compensation for it, to the person to whom he compensation for it, to the person to whom he received it.received it.

However, the Privy Council in However, the Privy Council in MohoriMohori BibeesBibeescase (followed in case (followed in Tan Tan HeeHee Juans Juans case) held that case) held that a party who is a minor cannot be compelled to a party who is a minor cannot be compelled to repay any moneys which he has received in the repay any moneys which he has received in the contract.contract.

Distinguish the decision in Distinguish the decision in Tan Tan HeeHee Juan Juan from from the decision in the decision in LehaLeha btbt JusohJusoh v v AwangAwang JohariJoharibin bin HashimHashim ..

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Exceptions to Minor Exceptions to Minor (valid (valid contracts)contracts)

Certain exceptions available to contracts Certain exceptions available to contracts entered into by a minor including those entered into by a minor including those exceptions under the:exceptions under the: Age of Majority Act 1971 Age of Majority Act 1971 (including (including matters relating to marriage, divorce, matters relating to marriage, divorce, dower, adoption, religion and religious dower, adoption, religion and religious rites and usage of any class of persons);rites and usage of any class of persons);

Contracts Act 1950 Contracts Act 1950 (contract for (contract for necessaries);necessaries);

Contracts (Amendment) Act 1976Contracts (Amendment) Act 1976(contract for scholarships);(contract for scholarships);

Insurance Act 1963 (Revised 1972)Insurance Act 1963 (Revised 1972)(contract of insurance).(contract of insurance).

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Cont.Cont.

1)1) Contract or promise to marry Contract or promise to marry RajeswaryRajeswary & & AnorAnor v v BalakrishnanBalakrishnan & Ors& Ors[1958] [1958] -- The plaintiff (minor) brought an The plaintiff (minor) brought an action against the def for breach of promise action against the def for breach of promise of marriage. The def claimed that the of marriage. The def claimed that the plaintiff lacked contractual capacity and plaintiff lacked contractual capacity and thus no valid contract existed. Ct held: such thus no valid contract existed. Ct held: such contract is valid.contract is valid.

2)2)Contracts for necessariesContracts for necessaries A minor who enters into a contract for A minor who enters into a contract for necessaries is liable for the contract.necessaries is liable for the contract.

S.69 Contracts Act 1950S.69 Contracts Act 1950 allows a person allows a person who has supplied necessaries to the minor who has supplied necessaries to the minor to receive reimbursement from the property to receive reimbursement from the property of the minor.of the minor.


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Cont.Cont.

2)2) Contracts for necessaries (cont.)Contracts for necessaries (cont.) S.69 S.69 reads:reads:If a person, incapable of entering into a If a person, incapable of entering into a contract, or anyone whom he is legally contract, or anyone whom he is legally bound to support, is supplied by another bound to support, is supplied by a

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