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UNIVERSITY OF MALAYA

COURSEWORK COVER PAGE


_____________________________________________________________________________
FACULTY: Engineering

PROGRAMME: Bachelor of Engineering (Hons)

MODULE TITLE: Law and Engineers CODE: KXEX2166

SEMESTER: 2 YEAR: 2015-2016

We, the undersigned students, confirm that this group coursework is our own work and in our
own words. We authorize the Faculty to verify our work for plagiarism and we are aware that in
the event plagiarism is detected our coursework will not be given any mark and that the Faculty
is at liberty to take appropriate action against us.

No. Name of Student Student No. Signature

1 AW ZHE YI KEM130009

2 CHIA YI MENG KEM130013

3 HO KYE WENN KEM130021

4 HOH BOON KEAT KEM130022

Date: ………………………
ASSIGNMENT TOPIC
‘An agreement is not a contract but a contract is an agreement.’
Discuss and support your discussion with relevant law and case law.

1.0 INTRODUCTION
In our daily life, we may enter hundreds of agreements and actually we might not realize that
some of the agreements have been made without our awareness. However, not all the agreements
that have been made are contracts. An agreement can be explained as a form of cross reference
between two different parties in which this agreement can be carried out in either oral or written
form. It also lies upon the honor of the parties for the completion of the agreement rather than
being in any way enforceable. To be more official, according to section 2 (e) of Contracts Act
1950, it is stated that every promise and every set of promises, forming the consideration for
each other, is an agreement.

On the other hand, a contract is a legally binding agreement or relationship and can be defined as
an agreement that has been made between two or more persons to do or abstain from doing an
act. Besides, a contract can also be defined as the legally binding exchange of promises between
two or more parties that the law will enforce. Both parties involved must intend to create a legal
relation based on a lawful matter and it must be entered into freely and possible to be performed.
According to Section 2 (h) of Contracts Act 1950, it is stated that an agreement enforceable by
law is a contract. While in Section 10 of the same Contracts Act, 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.

Since a contract is defined as an agreement that is enforceable by law thus, there are certain
essential elements to constitute a valid contract:

a) Offer:
Offer is defined as an act of the willingness to enter into a bargain so made to justify another
person in understanding that his assent to the bargain is invited and will conclude it. The offer
must be a lawful offer such that the offer must satisfy the requirement of the contract act in
relation thereto.

b) Acceptance:

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The acceptance of an offer can be occurred in several ways. The acceptance of offer is an act of
assent to the terms thereof made by the offeree in a manner invited or required by the offeror.
However the acceptance must not change the terms of the offer.

c) Consideration:
Consideration can be described as the price paid by the party for the promise of the other party.
Consideration may be an act or forbearance or a promise of not doing something but only with a
condition such that those considerations are lawful.

d) Intention to create legal relation:


An intention is necessary to be existed among the parties that the agreement should be adhered
by legal consequences and to create legal obligations.

e) Capacity of persons:
The person to the agreement must be competent and authorized to enter into the contract.

f) Legal:
The objective of the particular contract must for legal purpose. For example, a contract of the
distribution of drug is a void contract as it is for illegal purpose.

g) Certain:
Generally, a contract is considered as legally binding only if the terms are sufficient defined for a
court to understand the obligations.

h) Consent:
Consent is important for both the parties to agree upon the same things in the same sense as
stated in section 10 of Contract Act. The consent is said to be free when it is not caused by:
coercion, under influence, fraud, misinterpretation, and mistake.

2.0 SIMILARITIES BETWEEN CONTRACT AND AGREEMENT


All contracts are agreement for some reasons: It exists a mutual understanding between the
parties that involved for the particular contract to be formed; all parties should agree and comply
with the terms and condition of the offers. An agreement implies that there are consideration
from both parties in the formation of promises where a promise simply means when the person to
whom the proposal (offer) is made signifies is assent thereto, the proposal is said to be accepted,
therefore a proposal when accepted it becomes a promise (contract).

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In order to illustrate the mutual understanding between two or more parties, let us look through
some examples for agreement i.e. A and B (considered as two parties) have decided to go and
watch movie on Sunday. This involves the domestic agreement between both of them but this
agreement is not a contract since either one of them does not have the right to sue the other one
for not following the agreement due to the fact that agreement is made merely upon the honour
of parties for its fulfilment. Apart of that, example of contract can be seen when C promises to
sell his house to D at a price of RM200 000 and their agreement is in writing as well as
registered. In this case, this agreement between both parties is also a contract because the selling
of house is supported with legal relation.

In addition, free consent (which is not caused by coercion, undue influence, fraud,
misrepresentation and mistake) of all the parties to a contract is also essential of a valid contract
as per requirement of section 10 in Contracts Act 1950 where this element is also necessary for
an agreement. Thus, if a signing party of an agreement puts his or her signature without free
consent, the agreement is not established and the contract is void. E.g. in the case of Lloyds Bank
v Waterhouse (1990), a father acted as a guarantor to his son’s debt when purchasing a farm.
During that time, the father was illiterate and signed the bank document in which he was told that
he would be acting as the guarantor for the farm only. However, this contract actually included
all the debt accumulated by the son. Since the father was illiterate, this was a mistake during the
signing of document and thus, the father was successfully in claiming non est factum.

As stated in section 10 (1) in Contracts Act 1950 as well, all agreements are contracts if they are
made by parties who are competent to contract and the competency of a party is written in
section 11 where 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. E.g. in the case of Mohiri Bibi v Dharamdass
Ghosh (1903), Mr. Dharamdass Ghosh who was minor has executed a mortgage documents for
Rs. 20000.00 in favour of a money lender Sh. Brahmo Dutt whose attorney had informed him
that Dharamdass is minor. Later, minor Dharamdass Ghosh intended to set aside the mortgage
but it was opposed by the money lender that the previous contract is voidable and he as the right
to receive the amount of loan under section 64 and 65 of Contracts Act. Minor had to return back
the amount of money (which is actually Rs. 8000 received from the money lender).

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Besides that, all contracts are also agreements when both have offer and acceptance. The
definition of offer and acceptance has been discussed in previous part. To demonstrate offer and
acceptance, we share discuss on this circumstance i.e. A proposes by letter to sell a car to B at a
price of RM20 000. In this case, A is making an offer to B. Then, when B accepts A’s offer to
buy the car at RM20 000 by sending a reply letter back to A, B is said to make an acceptance.
Then, the agreement is established and can be enforced by law. However, if B tries to accept A’s
offer by stating that he or she would buy the car at RM19 000, B is said to making a counter
offer but not an acceptance and agreement is still not yet established. Agreement will only
achieve when A replies to B again that he or she is willing to accept the offer by B of selling the
car at RM19000. The above paragraphs explain that why contract can be an agreement. But why
not all agreements are contract?

3.0 DIFFERENCES BETWEEN CONTRACT AND AGREEMENT


Agreements are different from contract from several criteria,

3.1 Intention to create legal relation


Offeror and offeree need to have intention to be bound by law (intention to create legal relation)
in making contract but not in agreement, where agreement without legal intent is merely an
agreement which is not enforceable by law. To define intention to create legal relation in law, it
is presumed that any agreement made by two parties in a family, social or domestic relationship
i.e. mother and daughter, couples, spouses and etc. has no intention to be legally bound by law
but this presumption is rebuttable.

This presumption is understandable since there are numerous agreements made between two
parties of a relationship i.e. vows made between couples, promises made by parents to children.
E.g. mother promised daughter to buy her a watch as present if daughter got a straight A’s in her
exam, however mother didn’t do so after the daughter got straight A’s in her exam. In this case,
the daughter had no right to sue the mother in court because this is merely a domestic agreement.
E.g. in the case of Balfour v Balfour [1919], Mr. Balfour the husband promised to pay his Mrs.
Balfour the wife £30 per month where wife stayed in England due to illness. The spouses then
divorced and issue came as to whether the promise should be continued. According to the Lord
Justice Atkin, that this kind of promise was merely a domestic agreement and was not a contract,
because the “parties did not intend that they should be attended by legal consequences.”

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These bargains or domestic agreements that were made between spouses were not intended to be
bound by law and attended by legal consequences. If all these most usual forms of agreement
were to be permitted to be enforced in law, then it would burden the small courts with
uncountable numerous claims every day. However, the presumption of requisite legal intention is
absent in a domestic agreement is rebuttable, if the agreement is made between two parties of a
domestic relationship, which is not in amity or is going to separate. E.g. in the case of Merritt v
Merritt [1970], Mr. Merritt the husband left his wife to live with another woman. The husband
signed an agreement where written on the agreement “when the mortgage has been completed
the husband will agree to transfer the property into the wife’s sole ownership.” In this case, the
agreement was done when the spouse were not living in amity and were separated, therefore the
presumption that the two parties had no intention to be bound by law was rebutted when there
was evidence that the two parties were not relationship, were not in amity and were not living
together. In addition, a written contract was signed and given by the husband to the wife.

On the other hand, it is presumed that agreement made in business and commercial has the
intention to create legal relation, where this situation is totally different from presumption made
in a family or couples relationships, as e.g. in the case of Esso Petroleum Ltd v Commissioners
of Customs and Excise [1976], as part of a promotion, Esso offered a world cup coin as “free gift”
to every customer who purchased four gallons of petrol. The issue was that whether these coins
were produced for resale and whether purchase tax should be charged. Before deciding this issue,
their Lordships needed to decide whether customers and the company had entered a legal
relationship, i.e. intention to be bound by law. On the question of intention to create legal
relation, three of the majority Law Lords (Lords Wilberforce, Simon of Glaisdale and Fraser of
Tullybelton) decided there was an intention to create legal relations.

However this presumption is rebuttable as in the case of Rose and Frank Co v J R Crompton and
Bros Ltd [1925], the claimants and defendants entered an agreement for the supply of some
carbonised tissue paper. Under the agreement the claimants were to be the defendant's sole
agents in the US until March 1920. In the contract contained a pledge clause which stated the
agreement was not a formal or legal agreement and shall not be subject to the jurisdiction of the
courts in neither England nor the US. The issue arose as the defendants terminated the agreement
early and the claimants brought an action for breach. In this case the pledge clause successfully

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rebutted the presumption of legal intention in commercial agreement. This agreement therefore
didn’t have legal intention and was not enforceable by law.

3.2 Capacity
In a contract, all parties i.e. offeror and offeree must have legal capacity to enter into contract, i.e.
all parties in a contract must have competent to enter the contract, however capacity is not a
necessary element in an agreement. This element of contract can be found in Section 10 of
Contract Act 1950, where all agreements are contracts if made by:

a. Free consent of parties


b. Parties are competent
c. Consideration and object are lawful
d. Agreement not declared void

On the other hand, parties of an agreement do not necessary to have capacity to fulfil the
agreement, e.g. boyfriend promised his girlfriend to buy them a bungalow in one year but he was
only a student who didn’t have any capability to earn money. In this instance, the girlfriend
cannot sue the boyfriend because it is merely a domestic agreement where the boyfriend is not
capable of completing the promise, therefore not competent to enter the contract.

To define the term “competent”, in Section 11 of Contract Act 1950, it stated that, “those
competent to enter into contract are:
a. Persons of sound mind
b. Reached age of majority (18 years old)
Age of Majority Act 1971
c. Persons not disqualified by law

However, there are exceptions in the second term of being competent i.e. Reached age of
majority (18 years old). According to (Contracts (Amendment) Act 1976, the exceptions include
the scholarship or skills training, the insurance and the necessaries. For first exception,
scholarship and skills training, we can refer to the case Govt of Malaysia v Gurcharan Singh &
Ors [1971].

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For second exception, man below age of 18 can enter a contract when the contract is to fulfil his
or her necessary. To define the term necessary, we shall look into the case of Nash v Inman
[1908], Nash the tailor entered a contract to provide Inman the student with 11 waistcoats.
However, the student had already had the required waistcoat provided by the parents. The issue
arose when the student refused to pay for the items and Nash took this case to the court.

According to the Lord Justice Buckley:


“An infant may contract for the supply at a reasonable price of articles reasonably necessary for
his support in his station in life if he has not already a sufficient supply. To render an infant’s
contract for necessaries an enforceable contract two conditions must be satisfied, namely, (1.)
the contract must be for goods reasonably necessary for his support in his station in life, and (2.)
he must not have already a sufficient supply of these necessaries.”

This means that to fulfil the term necessary “the contract must be for goods reasonably
necessary for his support in his station in life”, and “he must not have already a sufficient supply
of these necessaries.” In addition, the burden of prove whether the contract is made for a
necessity lies upon the plaintiff. We can notice that it may be difficult to prove that something is
a necessary by minor in actuality.

For third exception, under the Insurance Act 1963 (Rev. 1972), a minor below 16 years old can
enter into contract for insurance with consent of parents or guardian.

3.3 Consideration
In contract, consideration is one of the necessary elements that constitute to a valid contract. On
the other hand, the case of agreement needs not to have the element of consideration. The mere
fact of agreement alone does not constitute to become a contract. Both parties (offeror and
offeree) must provide consideration if they wish to sue on the contract.

As given in Section 2(d) from Contract Law 1950, it is stated that 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. Consideration is a sort of bargain, quid pro quo,

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or something that is done in exchange or return for something. This means that each party will
have to promise to do or give something in return for the other.

To give a clearer picture, an example between A (the promisor) and B (promise) is illustrated. A
promises to mow the lawn of B, A’s promise will be enforceable by B as a contract if and only if
B has provided sufficient consideration. The consideration provided by B might usually take the
form of service or the form of monetary payment to which A might agree. Furthermore, the
promise of a monetary payment or service in the future time is just as sufficient a consideration
as payment itself or the actual rendering of the service. Hence, the promise in this case, B has to
give something in return or exchange for the promise of the promisor, A in order to convert a
bare promise made in his favour in to binging contract.

It is also provided in Section 26 from Contract Act 1950 which stated that an agreement made
without consideration is void, unless
a. it is in writing and registered
b. or is a promise to compensate for something done
c. or is a promise to pay a debt barred by limitation law

Several examples are given in order to give illustration such as A, promises to give his son, B,
RM1 000 under natural love and affection. A puts his promise to B into writing and registers it
under a law for the time being in force for the registration of such documents. Hence this is a
contract. Another example would be A finds B’s personal belongings and gives it to him. B
promises to give A RM50. This is a contract.

According to the Explanation 2 of Section 26, an agreement to which the consent of the promisor
is freely given is not void merely because the consideration is inadequate; but the inadequacy of
the consideration may be taken into account by the court in determining the question whether the
consent of the promisor was freely given. For example, A agrees to sell his house worth RM1000
000 for RM100. A’s consent to the agreement was freely given. Hence, the agreement is a
contract despite of the inadequacy of the consideration. However, the inadequacy of the
consideration is a fact which the court should take into account in considering whether or not A’s
consent was freely given. Consideration must be sufficient but need not be adequate. This
statement means that the courts will not investigate its adequate provided that the consideration

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has some value in it. Considerations which are recognized by the law as having some values are
usually described as “real” or “sufficient” considerations. The courts will not investigate
contracts to see if the parties have got equal value.

3.4 Consent
The element of consent, free will and proper understanding of what each of the parties (offeror
and offeree) is doing is required as to enter into a contract. This element is also required for the
case of an agreement, but however, the consent of offeror need not be freely given. In another
way of saying it, the consent to an agreement could be caused by coercion, fraud, silence, or
misrepresentation. As long as they is consent from the offeror, the agreement is said to be valid
regardless of whether the consent was given freely. The consent of each of the parties to the
contract must be genuine. In the process of drawing up a contract, there must be no threats of
physical danger (i.e. a party cannot be forced by the other party to enter into a contract).
Otherwise, the contract may be voidable, in which the party who acquire protection may seek to
avoid contractual liability.

In order for a contract to be enforceable, the parties (offeror and offeree) must mutually assent to
the proposed terms and objectives of a contract. Manifestation of the common intention of the
parties involved is discerned from the conduct or verbal exchanges. If the conduct of one party
appears to demonstrate agreement, then it is irrelevant for what he or she secretly intended.
Without the real consent of the parties, there will be no binding contract. The proper and
apparent consent may be vitiated due to the following matters:

 False statement;
 Duress;
 Unconscionability or undue influence; and
 Mistakes.

I. False statements
A misrepresentation of fact made by one party towards another party, which at the same time not
being a term of the contract, induces another party to enter into the contract. An actionable
misrepresentation must be a false statement of fact and it has the effect of making a contract

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voidable, granting the innocent party to have the authority to rescind the contract and/or claim
damages. It is not an opinion or future intention or law.

II. Duress
A wrongful threat or act by one party that compels or force another party to perform some act,
for instance, signing of a contract, which he or she would not have done voluntarily. As a
consequence, there is no true meeting of minds of the parties involved, and hence, there is no
legally enforceable contract. Other examples would be blackmail, threats to institute legal
proceedings in an abusive manner or threats of physical violence can constitute duress.

III. Unconscionability or undue influence


An unlawful control practised by one party over another with the aim of substituting the first
person’s will for that of the other. This can be occurred in two different types of situations. The
first situation is that one party takes advantage of another person’s physical weakness, in order to
influence the person to agree or perform an act, under normal circumstances, he or she would not
otherwise consent. The second situations would be the case where one party influence the other
party based on a fiduciary relationship that exists between them, such as familial or professional-
client relationships. This usually happens where one party occupies a position of trust and
confidence in relation to the other party.

IV. Mistakes
An inappropriate or incorrect understanding by one or more parties that are entitled to a contract
and may be used as ground to invalidate the agreement.

3.5 Certainty
A contract must consist of the element of certainty in order for it to be valid. However, it is not
necessary for the case of agreement to consist such element. This is provided in the Section 30
which stated that agreements, the meaning of which is not certain, or capable of being made
certain, are void. To define certainty, it means that the terms and regulations being established in
a contract should be stated clearly, precisely and are not ambiguous. In other word, the terms and
regulations of a contract should be clear and must not be vague. This is necessary as to ensure
the terms and regulations can be understood by the parties involved in the contract. The contract
would no longer be valid if the contract is vague and not certain.

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For example, if a guest check in a hotel and want to stay in the hotel, he or she will need to
inform the type of room preferred, how many days he or she is going to stay at the hotel, and also
the date for him or her to check out from the hotel. Another example would be where person A
agrees to rent a room from person B without him knowing the type of rooms that was being
offered. The contract is then considered void according to the basis of uncertainty. In the real
case study of Karuppan Chetty v Suah Thian [1916], the parties agreed to lease at a rent of $35 a
month for ‘as long as he likes’. As a result, the court held that the agreement was void.

4.0 CONCLUSION

Aspects Agreement Contract

Definition A negotiated arrangement made A negotiated arrangement made


between two or more parties as to a between two or more parties as to a
course of action, which is not course of action, which is intended to
enforceable by law. be enforceable by law.

Is it a must to be Not necessary. Not necessary, unless for the specific


in written form cases of contract such as those
involving land or which cannot be
completed within a year.

Is consideration No. Yes.


required?

Legal effect An agreement has no legal effect if A contract has legal effects as it is
it is inadequate of the required legally bound by law and its terms
elements that constitute a valid may be enforceable in a court of law.
contract.

In the nutshell, based on the discussion above, an agreement is an arrangement or understanding


achieved between two or more parties while a contract is a type of agreement that is specified by
its elements and terms which is legally binding and enforceable by law.

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5.0 REFERENCE

1. LawTeacher, UK. (November 2013). Consideration Lecture. Retrieved from


http://www.lawteacher.net/lecture-notes/contract-law/consideration-lecture.php?cref=1
2. Diffen. (December 2014). Agreement vs Contract. Retrieved from
http://www.diffen.com/difference/Agreement_vs_Contract
3. The Law Handbook. (8th April 2016). Elements of a contract. Retrieved from
http://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/
4. Surbhi S. (23rd March 2015). Difference between agreement and contract. Retreived
from http://keydifferences.com/difference-between-agreement-and-contract.html
5. Siti Suhaidah. (January 2014). Elements of Contract (Part II). Retrieved from
https://issuu.com/sitisuhaidah/docs/chapter_4
6. David Swarbrick. (10th July 2015). Contract-Foster-V-Mackinnon;1869. Retrieved 16
April 2016 from http://swarb.co.uk/foster-v-mackinnon-1869/
7. David Swarbrick. (20th November 2015). Contract-Lloyds Bank PLC-V-Waterhouse;
CA1993. Retrieved 15 April 2016 from http://swarb.co.uk/lloyds-bank-plc-v-waterhouse-
ca-1993/
8. Kanchi. (22nd October 2015). Mohori Bibee v. Dharmodas Ghose. Retrieved 15 April
2016 from http://www.lawctopus.com/academike/mohiri-bibee-minor/

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