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All Contracts are Agreement, But Not All Agreement are Contract.

In Malaysia, the Contracts Act 1950 ( referred to as CA 1950) governs the formation of a contract.
The Sale of Goods Act 1957 governs contracts for the sale of goods, whereas hire-purchase
contracts are governed by the Hire-Purchase Act 1967.

All contracts are agreement but not all agreement are contracts can be defined as mutual agreement
between both parties with or without a person realizing it that goes around with a binding contract
almost daily. The definition of Contract is under,
Section 2(h) : an agreement enforceable by law is a contract.

A person need to ensure that any agreement made is valid for it to be enforceable in law as a
binding contract. If any agreement made is not enforceable, the parties involved will not obtain
any redress from the court for any damages suffered. This is based on

Section 2(g): an agreement not enforceable by law is said to be void.

But a person needs to refer the elements where an agreement becomes an enforceable contract in
law falls under Section 10(1): all agreements are contracts if they were made by the free
consent of parties competent to contract, for a lawful consideration and with a lawful
object, and are not hereby expressly declared to be void.

Before any Contract formed, there are basic elements needed for the formation of a contract. The
elements shown in Table below are necessary for a valid and enforceable contract under the law.

ELEMENTS EXPLANATION
Offer When a person signifies his willingness to enter into a contract with
another person
Acceptance When a person to whom an offer has been made, makes an acceptance to
the offer made.
Consideration A price that needs to be paid for the promise made.
Capacity Each contracting party must have the capacity to enter into a contract.
Such person must have reached the age of majority according to the Age
of Majority Act 1971 and be of sound mind at the time when the contract
is made.
Intention Each party which enters into a contract must have the intention to create
legal relations - that is that they are to be bound by the obligations under
the contract.
Free Consent A person is deemed not to freely consent to enter into a contract if he is
influenced by coercion, undue influence, fraud, misrepresentation and
mistake when entering into the contract.
Certainty A contract must contain conditions which are clear in meaning and not
vague
Valid Object A contract made must be for matters which are not against the law.

A) OFFER

The term offer is also referred to as proposal. It is defined under,

Section 2(a) CA 1950: When one person signifies to another his willingness to do or to
abstain from doing anything, with a view to obtaining the assent of that other person to the
act or abstinence, he is said to make a proposal.

Must be communicated.

Must be definition/clear statement.

Can be revoked at any time prior to acceptance.

Can be individual or all people.


Must be reach to other person.

Must be distinguished from an invitation to treat which is where a party

communicates that it is prepared to enter negotiations with a view to forming a

contract.

Any statement made for the purpose of giving information cannot be deemed as

an offer. This is clarified in the case of Harvey V. Facey [1893].

In this case, A telegraphed B Will you sell us Bumper Hall Pen? Telegraph lowest

cash price. B replied by telegram Lowest price for Bumper Hall Pen is of 900. A

telegraph B We agree to buy Bumper Hall Pen for a price of 900 as you wish.

A claimed that a contract existed because there was an offer and an acceptance.

But the Court decided that in the telegram, B only supplied information and did

not make an offer. A however in his second telegraph had made the offer. It

therefore did not constitute a contract.

B) ACCEPTANCE

Acceptance is defined in Section 2(b) of the CA 1950 as:

Definition:

When the person to whom the proposal is made signifies his assent thereto,

the proposal is said to be accepted: a proposal, when accepted, becomes a

promise.
Must be communicated.

Unconditional and absolute

The process made with reasonable time.

Must be of the offer made, otherwise it could be a counter offer.

If posted, occurs on the date posted, if by phone, fax, or email, it occurs when

received.

Communication of proposal.

Proposal can be made either to:

1. Particular person

2. General public

A proposal is said to have been communicated only if the party who accepts it knew

about the proposal. If a party accepting a proposal is not aware about the proposal, then there is
no

contract.

Case Example:

R v Clarke (1927) 40 C.L.R. 227.


An Australia government offered a reward for information in regards of a murder of 2 police
officers. X and Clarke were later arrested and charged with the murders. Clarke later gave some
informationto the police which resulted in the arrest of another person Y. Clarke was later found
not guilty. Clarke later claimed for the reward.

Held: his claim failed because although he has seen the offer, it was no present to his mind when

he gave the information to the police.

Communication of Acceptance

Acceptance of a proposal must be communicated to the proposer for there to be a binding


contract between the parties.

This acceptance may be expressed in some usual and reasonable manner, unless the

proposal prescribes a manner in which it is to be accepted, and the acceptance is not

made in such of manner, the proposer may, within a reasonable time after the

acceptance is communicated to him, insist that his proposal shall be accepted in the

prescribed manner, and not otherwise but if he fail to do so, he accept the acceptance.

Case Example:

Carbill v. Carbolic Smoke Bail Co. (1893) 1 OB 256.

The Defendant made an advertisement in the newspaper that they would offer a sum of money to

anyone who would still suffer from influenza (flu) after using their product, according to the

instructions.

The Plaintiff used the product according to the instructions, but still became ill.
The Plaintiff asked for the sum of money that the Defendant has promised but the Defendant

refused to pay. Defendant argued that there was no valid contract because the Plaintiff did not

communicate his acceptance to them.

Held: The Plaintiff had accepted the offer the company has made to the world at large and

therefore is entitled to the money.

Acceptance through Post

It is communicated when it comes to actual knowledge of the proposer. This is the legal

position under English Law and it appears to the similar under local law. According to the
subsection:

The communication of an acceptance is complete:

1. As against the proposer, when it is put in a course of transmission to him, so as to be out of the
power of the acceptor, and

2. As against the acceptor, when it comes to the knowledge of the proposer.

Case Example:

Entores Ltd v. Miles Far East Corporation (1955) 2 QB 327.

W hen a contract is made by post, it is clear law throughout the common law countries that

acceptance in complete as soon as the letter is put into the post box, and that is the place where

the contract is made.


Invitation to Treat

Sometimes when a person offers something to you, it may not always that it is a proposal. This
may happen when the offer is actually inviting you to make the proposal.When this situation
happens, the offer is kwon as an invitation to treat. Invitation to treat must be distinguished from
proposal. This is because when there is a proposal and the proposal is accepted, it constitutes an
agreement. On the other hand when there is an invitation to treat, it is not yet a proposal. The
person who accepts the invitation to treat is actually the person making the proposal. When the
person who is making the invitation to treat, accept the proposal, the there is an agreement.

Case Example:

Pharmaceutical Society of Great Britain v. Boot Cash Chemist Ltd (1953) 1 QB 401.

The defendants were charge under the Pharmacy and Poisons Act 1933 (U.K). This is because,

under the Act, it is provide that it is unlawful to sell certain poison unless such sale was

supervised by a registered pharmacist. The issue in this case was whether a sale had occurred

when the shopper put the displayed item into his basket. The court held that when the goods are
displayed, that was merely an invitation to treat. When the shopper took it off the display, and
put it in a basket, that is a proposal. Acceptance of this sale is only made when the cashier
receives the money from the shopper.

In this case, since there was a registered pharmacist at the cashier, the defendant was not liable.

Revocation of Offer

A proposal may be revoked at any time before the communication of its acceptance is

complete as against the proposer, but not afterwards.

Revocation must take place before acceptance. There are 4 ways for revocation.

1. Communication of notice of revocation by the proposer to the other party.

2. Revocation by lapse of time or if there is no time provided, lapse of

reasonable time.

3. Proposal may be revoked where the acceptor fails to fulfill a condition

precedent to acceptance.

4. Death or mental disorder of the proposer.

Revocation of Proposal
An acceptance may be revoked at any time before the communication of the

acceptance is complete as against the acceptor, but not afterwards.

C) CONSIDERATION

When, at the desire of the promisor, the promisee or any other person has done or

abstained from doing, or does or abstains from doing, or promises to do or to abstain

from doing, something, such act or abstinence or promise is called a consideration of the
promise.

Consideration is an important element for the formation of a valid and binding

contract. It is defined in Section 2(d) of the CA 1950.

"When, at the desire of the promisor, the promisee or any other person has

done or abstained from doing, or does or abstains from doing, or promises to

do or to abstain from doing, something, such act or abstinence or promise is

called a consideration for the promise."

The definition clearly shows that consideration must exist in each and every contract and is of
value according to the offerors wishes. It may consist of a conduct, or a price to be paid in
return for the promise made by, or the conduct

of, the promisor. The conduct need not necessarily to be of a positive nature. In fact it can also be
in the form of an abstinence from doing something.

The court in Curie v. Misa (1875) held that a valuable consideration in the sense

of the law may consist either in some right, interest, profit or benefit accruing to
one party, or some forbearance, detriment, loss or responsibility given, suffered

or undertaken by the other.

D) CAPACITY TO CONTRACT

Section 10 of the CA 1950 provides:

Provision

All agreements are contracts if they are made by the free consent of parties

competent to contract, for a lawful consideration and with a lawful object,

and are not hereby expressly declared to be void.

Provision

Section 11 provides explanation on who are competent to contract.

Provision

Every person is competent to contract who is of the age of majority according

to the law to which he is subject, and who is of sound mind, and is not

disqualified from contracting by any law to which he is subject.

Section 11 of the CA 1950 states three groups of persons capable of entering into a contract; that
is,

(a) Be of the age of majority.

(b) Be of sound mind.

(c) Not disqualified from contracting by any laws to which he is subjected to.
E) INTENTION TO CREATE LEGAL RELATIONS

Under English Law, there is no binding contract unless the involved parties in the agreement
have the intention to enter into such relationship under the law. This was decided in Weeks v.
Tybald (1605).

The test used is an objective test, that is what is the the opinion of a reasonable man. Even if the
promisor did not intend to create legal relations, the court would still presumed an intention
exists if a reasonable man is of the opinion that intention existed to bind the promisor. The
promisors real intention is immaterial. This rule was decided in Carlill v. Carbolic Smoke
Balls Co. (1893).

The court would usually look at the types of contracts made in determining whether there was
intention or not. This presumption could be set aside if it could be proven otherwise by the
contracting parties.

An agreement does not always mean contract. For agreement to be a contract, theremust be
intention between the parties that they want to enter into a legal relationship between n them.

There are two types of relationship:


1. Business/ Commercial Agreements

2. Domestic/ social/ Family Agreements.

Business/ Commercial Agreements

Under the agreement made in Business transaction, it is always presumed that the parties have
the intention to create legal relations, unless proven otherwise.

Case: Lim Keng Siong 8 Anor v. Yeo Ah Tee (1983) 2 MLT 39 .

In this case the respondent claimed that there was a contract entered into between him and the
appellant. This is based on the fad that there are few letters that have been exchanged between
appellant and the defendant.

The appellant on the other hand stated that the sale was subject to contract. Furthermore, the
appellant had informed the respondent's solicitor that they did not wish to proceed with the sale.

The Federal Court held that there is a contract made between the two and ordered the agreement
of sate be specifically performed.

The court said that it was the intention of the parties to come to a definite and complete
agreement on the subject of the sale and the mere fad that a written contract had to be drawn up
and executed by them did not necessarily mean that there was not legally binding and
enforceable agreement.'

F) CERTAINTY

An agreement can sometimes be defective due to the inability of the court to


determine what are the real terms agreed by the parties. Every term or condition

in the contract must therefore be clear and its meaning ascertainable.

Section 30 of the CA 1950 provides:

Provision

Agreements, the meaning of which is not certain, or capable of being made

certain, are void.

Agreements, the meaning of which is not certain, or capable of being made certain, are void.

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

(b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article of

commerce. There is no uncertainty here to make the agreement void.

(c) A who is a dealer in coconut oil only, agrees to sell to B 'one hundred tons of oil.' The nature
of A's trade affords an indication of the meaning of the words and A has entered into a contract
for the sale of one hundred tons of coconut oil.

(d) A agrees to sell B all the grain in my granary at ipoh. There is no uncertainty here to make
the agreement.

(e) A agrees to sell to B `one thousand gantang of rice at a price to be fixed by C" As the price is
capable of being made certain, there is no uncertainty here to make the agreement void.

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