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2 INTERPRETATION – CONTRACTS ACT 1950 S 2(h) – contract is an agreement enforceable by law Valid agreement is legally binding the parties Enforceable in the court of law S 2(g) – an agreement not enforceable by law is void


3 ELEMENTS OF CONTRACT Offer and acceptance Consideration Intention to create legal relations Capacity to contract Consent Certainty


4 OFFER AND ACCEPTANCE proposal – s 2(a) – when a person signifies to another his willingness to do or to abstain from doing anything , with a view of abstaining his assent of that other to the act of abstinence, he is said to make proposal Proposal should be distinguished from “invitation to treat” An attempt to induce another party to make an offer. -It is not an offer by itself) not be bound by the law.


5 OFFER – WHEN IT IS EFFECTIVE? S 4 – proposal is only effective if it is communicated to the acceptor


6 PROPOSAL vs INVITATION TO TREAT ‘Proposal/offer’ must be distinguished from an ‘invitation to treat’. Q: What is an ‘invitation to treat’ ?? general rule: An invitation to treat is NOT a proposal/offer but a sort of preliminary communication which passes between the parties at the stage of negotiation.


7 EXAMPLES OF INVITATION TO TREAT Display of goods in a self service supermarket Auctioneer inviting bids for a particular article Advertisement in the newspaper

Think… : 

8 Think… Suppose that you put an ad in the classified section of your local newspaper offering to sell your guitar for RM 150. 7 people called & ‘accepted’ your “offer’ before you can remove your ad from the newspaper. If the ad were truly an “offer”, you would be bound by 7 contracts to sell your guitar. But advertisements are treated as invitations to make offers rather than an offer, thus, you would have 7 offers to choose from, & you could accept the best one without incurring any liability for the 6 you rejected.


9 EXCEPTION TO THE GENERAL RULE: On some occasions, courts have construed advertisements to be offers because the ads contained definite terms that invite acceptance. E.g: deposited an amount of money See Carlill v. Carbolic Smoke Ball


10 TERMINATION OF THE OFFER BY: Revocation of the offer – the offeror can revoke the offer as long as the revocation is communicated to the offeree before the offeree accepts. Rejection of the offer by the offeree – the offer may be rejected by the offeree, in which case the offer is terminated. Counteroffer by the offeree – a counter offer is a rejection of the original offer & the simultaneous making a new offer.


11 TERMINATION OF THE OFFER BY: Lapse of time – an offer terminates automatically by law when the period of time specified in the offer has passed. Destruction of the subject matter – an offer is automatically terminated if the specific subject matter of the offer is destroyed before the offer is accepted. Death or incompetence of the offeror/ offeree – an offeree’s power of acceptance is terminated when the offeror/offeree dies or is deprived of legal capacity to enter into the proposed contract.


12 ACCEPTANCE S 2(b) – when a person to whom the promise is made signifies his assent thereto, the proposal is said to be accepted.


13 COMMUNICATION OF ACCEPTANCE Acceptance must be communicated/ make known Acceptance is said to be communicated if it reaches to the proposer/offeror


14 ACCEPTANCE BY POST S 4(2) communication of acceptance by post is complete as against the proposer when it is put in the course of transmission to him, so as to be out of the course of the acceptor as against the acceptor, when it comes to the knowledge of the offeror The offeror is bound by a contract made through post even though he does not know about the acceptance The acceptor is bound by the contract only when the acceptance has reached the knowledge of the offeror

Slide 15: 

15 REVOCATION OF OFFER AND ACCEPTANCE S 5(1) – A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards S. 5 (2) - An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards

Slide 16: 

16 EXAMPLES A-offerror B-acceptor post letter of offer 5 Jan Pos letter of acceptance (put the letter into a letter box) A cannot cancelthe contract –s.4(2)(a) - Acceptance is completed against A when the letter is posted receives letter of acceptance from B - S.4(2)(b) – acceptance completed against B 1 Jan 8 Jan

Slide 17: 

17 S.5(2) A-offerror B-acceptor 1 Jan Post LO to B 5 Jan Post LA to A (s.4(2)(a)- contract concluded) 8 Jan : receive LA from B B cannot revoke his acceptance on 8 Jan, contract completed against B. (S 5(2))


18 CONSIDERATIONS The price which one party pays to buy the promise or act of the other. No need to be adequate (bungalow = RM500) Pang Swee Kim v. Beh I Hock


19 INTENTION TO CREATE LEGAL RELATIONS Intention relates to somebody’s state of mind Law cannot read the mind – use presumption In business agreement, there is a presumption that the parties intend to enter into contractual relationship/ to enforce the contract In social/ domestic agreement, it is implied that no legal relations are contemplated but these presumptions are rebuttable – proven otherwise


20 CAPACITY TO CONTRACT S 11 – every person is competent to contract who is of the age of majority, who is of sound mind, is not disqualified from contracting from any law to which he is subject

Slide 21: 


Can a minor enter into a contract? : 

Can a minor enter into a contract? 22


23 CONTRACT BY MINOR Age of Majority Act 1971 18 years Effect of contract by minor – VOID Mohori Bibee v. Dharmodas Ghose (contract by an infant is void) Exceptions S 4 – matters relating to marriage, divorce, dower and adoption Religion and religious rites of persons within Malaysia


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

Slide 25: 

25 Scholarships – Insurance – Insurance Act1963 – “A minor over the age of 10 may enter into a contract of insurance but if he is under 16, the written consent of parent or guardian is needed”


26 SOUND MIND S 12 Contracts Act A person is said to be of sound mind for the purpose of making the contract, if at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interest A person usually suffering from mental disorder may make a contract during those periods when he is sound

Slide 27: 

27 A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind


28 CERTAINTY Terms in the contract must be certain if the terms are uncertain, not capable of being made certain - the agreement is void unenforceable Ali offers to sell to B his house for RM50,000 or RM70,000 100 kg of flour (what kind of flour)


29 LEGAL EFFECTS OF CONTRACTUAL RELATIONSHIP Valid contract -Contractual obligations, legal remedies in the case of breach voidable contracts - can affirm or repudiate the contract void contracts - cannot be enforced in the court of law


30 VALID CONTRACTS If fulfill all the elements of contracts offer and acceptance considerations legal capacity of parties intention to create legal obligations certainty


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


32 VOID AND ILLEGAL CONTRACTS Not enforceable by law s 24- the consideration or object of an agreement is lawful unless: forbidden by law if permitted, would defeat any law fraudulent implies injury to a person or property of another court regard it immoral or opposed to public policy


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


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


35 DAMAGES S 75 -a party who has the right to rescind the contract can seek legal redress damages/ compensation for any damage sustained Type of damages pecuniary losses non pecuniary losses


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


37 NON PECUNIARY LOSSES The damages granted for disappointment, distress


38 SPECIFIC PERFORMANCE A decree of the court directing that a contract/ certain act should be performed specifically, according to its terms (original terms) Specific Relief Act 1950 s 11 - When the contract agreed to be done is in the performance, wholly or partly of a trust

illustration : 

39 illustration A holds certain stock in trust for B. A wrongfully disposes of the stock. The law creates an obligation on A to restore the same quantity of stock to B and B may enforce specific performance of this obligation

INJUNCTION - restrain from doing unlawful act : 

40 INJUNCTION - restrain from doing unlawful act Temporary injunction for specified time or until the order of the court to preserve status quo of the parties can be granted at any time by order of court Perpetual injunction permanent order granted by the degree made at hearing upon merits of the suits, defendant perpetually enjoined from the assertion of the right, from commission of an act

examples : 

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

Slide 42: 

DISCUSSION 1: Discuss your experience relating to contract entered by your company/institution. How do you solve the problems relating to the said contract ? 42


DISCUSSION 2: (REFER PAPER) CASE STUDY   Case 1   CARLILL V. CARBOLIC SMOKE BALL CO [1893] 1 QB 256   FACTS: The defendants, who were the proprietors and vendors of a medical preparation called ‘The carbolic Smoke Ball’ inserted in the Pall Mall Gazette of November 13, 1891, and in other newspapers, the following advertisement: ‘100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza, colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks according to the printed directions supplied with each ball. 1000 is deposited with the Alliance Bank, Regent Street, showing our sincerely in the matter.” The plaintiff, a lady, on faith of this advertisement, bought one of the balls at a chemist’s, and used it as directed, three times a day, from November 20, 1891, to January 17, 1892, when she was attacked by influenza. The plaintiff, upon refusal of the defendants to honour their promise, proceeded to sue them.   Consider the above case in relation to offer, acceptance and invitation to treat. 43

Discussion3: ETHICAL ISSUE : 

44 Discussion3: ETHICAL ISSUE A took his son to B, a doctor, and asked B to operate on the son’s hand. B said that the boy would be in the hospital 3 or 4 days & that the hand would probably heal a few days later. The son’s hand did not heal for a month. Q:Would A succeed in the legal suit against B? Is this legal suit ethically brought up?

Slide 45: 

A: B did not make an offer to heal the son’s hand in 3 or 4 days. He merely expressed an opinion as to when the hand would heal. An opinion is not an offer & not a contract term. Goods or services can be ‘perfect’ in one party’s opinion & ‘poor’ in another’s. 45

case 4: ADAMS V. LINDSELL (1818) 1 BE ALD 681 : 

case 4: ADAMS V. LINDSELL (1818) 1 BE ALD 681 FACTS: The plaintiffs were woolen manufacturers in Worcestershire. The defendants were wool dealers in Huntingdon. On 2nd Sept 1817, defs wrote to ptfs offering to supply wool to ptfs and requiring an answer in course of post. This letter was misdirected – with the result that it did not reach the ptfs until 5th Sept. The same evening ptfs posted a letter of acceptance. This letter was delivered to the Defs on 9th Sept. on 8th Sept; the defendants had sold their wool to third parties. 46

Slide 47: 

The vital question was whether a contract for the sale of wool had come into existence before Sept. 8th, the date that the defs had sold the wool to the 3rd party. Three possible options were open to the court. They could say that the defs offer was accepted by the ptfs when: The ptfs posted it on the 5th When the ptfs letter was delivered to the defs address on 9th, or When that letter was brought to the actual notice of the def. 47

case 5: BRYNE V VAN TIENHOVEN (1880) 5 C.P.D. 344 : 

case 5: BRYNE V VAN TIENHOVEN (1880) 5 C.P.D. 344 1 October, def posted letter of offer in Cardiff to the ptf in New York. 8 October, def posted a letter revoking the offer of October 1. 11 Oct, ptf received the letter of offer posted on October 1 and sent acceptance by telegram the same day. It also followed up with letter of acceptance on 15 October. 20 October: defendant’s letter of revocation received by plaintiff. 48

Question: : 

Question: Has a revocation any effect until communicated? Does the posting of a letter of revocation amount to a communication to the person to whom the letter is sent? 49

Slide 50: 

Case 6   THE KODAK CASE   FACTS: Early in 2002, Kodak refused to honour orders for digital camera advertised on their retail website at 100 pounds, denying that an automated response to customers confirming confirmation of their orders constituted an acceptance of their 100 pounds offer. Kodak claimed the price was a mistake and should have been 329 pounds. Several hundred consumers were believed to be affected and had been threatening legal actions against Kodak unless their contract were honoured.   Kodak’s defense: Their standard terms on the site, which were the terms of sale which state Kodak had a right to change the content of the website at any time including prices. The defence of mistake in English Law which makes a contract void The display of price-marked goods wherever the display is, is not an offer to sell goods but, is an invitation to a customer to make an offer to buy an invitation to treat).   How would you decide the above case? 50


DISCUSSION 7 Contracts via internet: - uncertainties? - when? - whether there is an offer + acceptance? - what rules to be applied – instantaneous / postal rule? 51