Week 2 & 3 Subtopic 1&2

RANACO EDUCATION & TRAINING
INSTITUTE
CHAPTER 2
LAW OF CONTRACT
2.1
2.2
2.3
2.4
2.5
What is contract?
Elements of contract
Free consent
Illegal contracts
Discharge and remedies
LAW 243 COMMERCIAL LAW

INSTITUTE
LESSON OUTCOME
By the end of this chapter, students should be able to describe the
basic principles of the law governing contracts.

INSTITUTE
SUBTOPIC 1:
WHAT IS CONTRACT

INSTITUTE
2.1
What is contract?
Contracts are govern by Contract Act 1950

Section 2 (b) Contract Act 1950: A contract means that there
is an agreement between two parties which is enforceable by
law.
A contract is an agreement but not all agreements are contract.
Why? Because a contract must have some elements
Example: agreement to have dinner
- not contract
- because no intention to create legal relations
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005; Contract Act 1950.

INSTITUTE
CONTINUE
A contract may be made:
wholly by word of mouth (oral contract) or
wholly in writing (written contract) or
partly by word of mouth and partly in writing
Contra
ct
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.

INSTITUTE
SUBTOPIC 2:
ELEMENTS OF CONTRACT

INSTITUTE
2.2
Elements of contract

INSTITUTE
FIRST ELEMENT OF CONTRACT:

OFFER
1.
2.
3.
4.
5.
6.
Definition of offer
Types of offer
To whom offer can be made
Communication of offer
Revocation of offer
Issues:
- Counter offer
- Invitation to treat
- Automatic vending machines/ticket machines

INSTITUTE
1.
DEFINITION OF OFFER
S. 2(a) CA 1950:
when one person signifies to another his willingness to
do/abstain from doing anything, with a view to obtaining the
assent of that other to the act/abstinence, he is said to make a
proposal.
E.g.
A offers to buy Bs car for RM 15,000 with a hope that B
will accept
Source: Contract Act 1950

INSTITUTE
2.
TYPES OF OFFER
S. 9 CA 1950:
There are 2 types offer:1.Express offer:
Oral
writing
2.Implied Offer:
Conduct
10

INSTITUTE
3.
TO WHOM OFFER CAN BE MADE
To individual:
If A offers
to B to
buy Bs caronly B
can accept
A offer.
Source: S
To
ToWhom
Whom
Offer
Offer
Can
Can Be
Be
Made?
Made?
To general/
public:
Anyone
who
meets all
the
terms of
offer
can
accept it
Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.
11

INSTITUTE
CONTINUE
Carlill v. Carbolic Smoke Ball Co. Ltd [1983]
Facts: Defendant advertised their products & offered money
to anyone who would still suffer from influenza after using the
products according to instructions for a fixed period
(guarantee that the user will be OK after using the products).
Plaintiff used the product but still ill- claim the money.
Defendant refused.
Held: Plaintiff has accepted the offer made to the world
(public), thus entitled to the money.
12

INSTITUTE
4.
COMMUNICATION OF OFFER
S. 4(1) CA 1950:
complete when offeree knows about the offer
13

INSTITUTE
5.
REVOCATION OF OFFER
S. 5(1) CA 1950:
anytime before communication of
acceptance is complete
Example:
Ali telephones Abu and proposes to
sell his car. Ali may revoke his offer
at any time before Abu communicates
his acceptance. (before Abu reply)

14

INSTITUTE
CONTINUE
How to revoke?
1. S. 6(a) by notice of revocation
2. S. 6(b) by lapse of time prescribed in the
proposal for its acceptance, or if no time
prescribed, by the lapse of a
reasonable
time, without communication of
the acceptance.
3. S. 6(c) by failure to fulfill conditions
4. S. 6(d) by the death or mental disorder of the
proposer, if the fact of his death or mental
disorder comes to the knowledge of the
acceptor
before acceptance.

15

INSTITUTE
6.
ISSUES
1. Counter offer:
- modification of the original
offer
- the acceptor change a vital
terms of a contract
- counter offer operates as
a
rejection of the original offer.
Thus, the original offer is
destroyed and it can no longer be
accepted.
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia,
Lexis Nexis, 2005.
16

INSTITUTE
CONTINUE
2. Invitation to treat:
- invitation to treat is a sort of a preliminary communication at the
stage of negotiation.
- it is not an offer, it is mere an invitation by one
party to the other
party to make an offer.
Examples of invitation to treat:
1. display of goods in a shop window/shelves
2. price lists
3. an advertisement
4. an auction
17

INSTITUTE
CONTINUE
Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern)
Ltd [1952]
Facts: The defendant adapted one of their shops into a self-service shop. A
customer on entering was given a basket and can select items displayed on the
shelves, put them in the basket and take the to the cash counter. At the counter,
there was a registered pharmacist who was authorized if necessary to stop a
customer from removing any drug from the shop. The defendant was charged
for selling a poison without the supervision of a registered pharmacist. The vital
question in this case was when the contract was made and this in turn depended
on whether the display of the goods on the shelves was an offer or an invitation
to treat.
Held: the display of goods on shelf was only an invitation to treat. Proposal was
made by the buyer when she placed the item into the basket. Thus, the contract
would only be made at the cashiers desk. The defendants had not made an
unlawful sale.

18

INSTITUTE
CONTINUE
Fisher v. Bell [1961]
Facts: Defendant displayed in his shop window a flick knife and
was charged with offering for sale a flick knife contrary to the
provisions of the Restriction of Offensive Act.
Held: the displaying of the flick was merely an invitation to treat.
Hence there was no offer for sale and defendant could not be
guilty of an offence.

19

INSTITUTE
CONTINUE
3. Automatic vending machines/ticket machines:
Automatic vending machines/ticket machines
contract exists when customer inserts his money
into the slot.
Thorton v. Shoe Lane Parking Ltd [1971]
The offer is made when the proprietor of the
machine holds it out as being ready to receive
money. The acceptance takes place when the
customer puts his money into the slot. The terms
of the offer are contained in the notice placed on
or near the machine stating what is sufficiently
brought to his notice before hand.
20

INSTITUTE
SECOND ELEMENT OF CONTRACT:

ACCEPTANCE
1.
2.
3.
4.
Definition of acceptance
Types of acceptance
Communication of acceptance
Conditions of acceptance
21

INSTITUTE
1.
DEFINITION OF ACCEPTANCE
S. 2(b) CA 1950:
when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted
22

INSTITUTE
2.
TYPES OF ACCEPTANCE
S. 9 CA 1950:
1. Express - oral, writing
2. Implied - conduct, sign
23

INSTITUTE
2.3
COMMUNICATION OF ACCEPTANCE
S. 4 CA 1950: complete when it comes to the offerors attention

If posted, occurs on the date posted, if by phone, fax, or email, it occurs when
received.
Example: Ali proposes by letter to sell a house to Abu at certain price. The
communication of the proposal is complete when Abu receives the letter.
Entores v. Miles Far East Corp [1955] :
Oral acceptance is drawn out by an overflying aircraft that the offeror
cannot hear the acceptance
no contract
unless the acceptor repeats his acceptance one the aircraft has passed over
How to express acceptance? - S. 7(b) CA 1950:
1. Usual/reasonable way or
2. Prescribed by offeror
Sources: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005; Contract Act 1950
24

INSTITUTE
CONTINUE
Issue: Whether silence shall amount to acceptance?
The offeror cannot without the offerees consent, put a condition in his proposal
that the offerees silence shall amount to acceptance.
Felthouse v. Bindley [1826]
The plaintiff had discussed with his nephew on the purchase of the nephews
horse and wrote to him offering to buy the horse and added If I hear no more
about him, I consider the horse is mine at 30 15s." The nephew did not reply. Six
week later, whilst selling his farming stock, the nephew told the auctioneer to
keep the horse out of sale. The auctioneer sold it by mistake and the plaintiff sued
the auctioneer. The court held that there was no acceptance of the plaintiffs
proposal by the nephew and that the plaintiff had no right to impose upon his new
a sale of his horse by silence.
25

INSTITUTE
4.
CONDITIONS OF ACCEPTANCE
1. Acceptance must be while offer still in force - not terminated yet

2. Made by offeree
3. An acceptance must be absolute and unqualified (exactly match
the term of offer) - S. 7(a) CA 1950. For example, if A makes a
proposal to B on terms x, y and z. B accepts on terms x and y only
or on terms x and y only or on terms w,x,y, and z. In this situation,
Bs purported acceptance to As proposal is not absolute.
Sources: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005; Contract Act 1950.
26

INSTITUTE
THIRD ELEMENT OF CONTRACT:

CONSIDERATION
1. Meaning of consideration
2. Functions of consideration
3. Types of consideration
4. Exceptions to invalidity of
agreement without consideration
5. Issues:
- Past Consideration
- Adequacy
- Need not move from
promisee or other
27

INSTITUTE
1.
MEANING OF CONSIDERATION
S. 2(d) CA 1950
In short, consideration means that the offeree must give something in return
for the promise made by the offeror.
Macon Works & Trading Sdn Bhd v. Phang Hon Chin [1976]
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.
Sources: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005; Law of Contract 1950
28

INSTITUTE
CONTINUE
Consideration must be valuable.
Something must be supplied in return for the promise made by
the offeror, e.g. money.
Must not be unlawful or gratuitous.
Sources: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.
29

INSTITUTE
CONTINUE
Example:
RM10
Ali
Abu
cut grass
Consideration provides by Abu - Cutting of grass

Consideration provides by Ali - pay RM 10
30

INSTITUTE
2.
FUNCTIONS OF CONSIDERATION
A badge of enforceability
A basis for enforcing a promise
- only promise which has a valid consideration can be

enforced
Courts will not enforce a contract unless it is supported by
consideration
Both parties have consideration
If not, will become gratuitous promise
31

INSTITUTE
3.
TYPES OF CONSIDERATION
1.
EXECUTORY:
A promise to do or to abstain from doing something in the future.
2.
EXECUTED:
Consideration executed by doing an act
3.
PAST:
A promise made after an act is done wholly
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005
32

INSTITUTE
CONTINUE
1. Executory consideration:
Example:
A promises to supply books in the future to B who agrees to pay.
A promise for a promise in the future.
K. Murugesu v. Nadarajah [1980]
Appellant promised to sell house to respondent within 3 months from the
date of the agreement - but later refused to sell and the respondent sued
for specific performance. The appellant contended agreement was void
because no consideration. The former Federal Court held that the
agreement was a case of executory consideration.
33

INSTITUTE
CONTINUE
2. Executed Consideration:
Consideration is executed by an act of an individual
E.g.
Ali offers to give RM10 to anyone who
find his lost cat
Abu found the cat
Alis consideration is executed by Abus act
# Refer case Carlill v. Carbolic Smoke Ball
LAW 243 COMMERCIALSource:

LAW Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005.
34
CONTINUE

INSTITUTE
3.
Past Consideration:
Promise made after an act is wholly done
Generally, past consideration is not good consideration.
However, if the act done was at desire of the promisor, then it is
good consideration.
E.g. - Ali is drowning & crying for help
- Bala hears & saves Ali
- Ali promises to give RM100 for saving his life
Roscorla v. Thomas [1842]

Plaintiff bought Defendants horse
After sale, Defendant promised that horse free from vice
But the horse was vicious
Held: Ds promise was made after sale
not supported by fresh consideration
Plaintiff failed in claim
35

INSTITUTE
4.
EXCEPTION TO INVALIDITY OF
AGREEMENT WITHOUT CNSIDERATION
General Rule: Agreement without consideration = void
Exceptions:
(a) Natural love & affection:
- it is expressed in writing
- it is registered (if applicable)
- the parties stand in a near relation to each other
E.g. Father promises to give his son RM 10000. Father puts his promise
to his son in writing and registers it under a law for the time being
in force for the registration of such documents. This is a contract.
36

INSTITUTE
CONTINUE
(b) Debt barred by limitation of law:
- A promise to pay a debt barred by law is valid eventhough there
was no consideration, provided that the promise is in writing and
signed by the promisee or his agent who is generally or specially
authorized in that behalf.
- E.g. Ali owes Abu RM 1000 but the debt is barred by limitation.
Ali signs a written promise to pay RM 500 on account of the debt.
This is a contract.
Source: Syed Ahmad Alsagoff, Principles of the law of contract in Malaysia, Lexis Nexis, 2005; Law of contract 1950
37

INSTITUTE
FOURTH ELEMENT OF CONTRACT:

INTENTION TO CREATE LEGAL RELATION
Not all agreement can be enforceable

The parties must intend to be bound by the contract
Requires parties to have intention to create legal relation
Legal relation?
38

INSTITUTE
CONTINUE
Legal relations divided into two classes:1.
Commercial & Business agreement:

Intention to create legal relation is presumed
Intention can be rebutted by one who seeks to deny it
2. Social & Domestic Agreement:
- where the presence or absence of an intention to create
legal relations depends upon the inference to be drawn by
the court from the language used by the parties and the
circumstances in which they use it.
39

INSTITUTE
CONTINUE
Commercial & business agreement:
Example:
Carlill v. Carbolic Smoke Ball
Defendant claimed that product can prevent influenza
Support claim with promise to pay 100 to whom using it &
yet caught influenza within a given time
To show sincerity, they deposited 1,000 in bank
Defendant contended that advertisement not intended to create
legal relation
Held: The bank deposit was strong evidence that defendant
had contemplated legal liability when they issued their
advertisement.
40

INSTITUTE
CONTINUE
Social & Domestic Agreement:
i.
Agreement between husband and wife:
Balfour v. Balfour
Husband promised 30 a month
Later separated. Wife sued on the promise
Held: not contract- because they have no intention that
agreement should have legal consequence.
Merritt v. Merritt
Agreement made while about to separate
Held: agreement as a bargain with intention of being
legally enforceable.
41

INSTITUTE
CONTINUE
ii.
Agreement between parent and child:
Jones v. Padavaton
Mrs Jones offered monthly allowance if her daughter come to
England & study law. Her daughter agreed.
A little later, Mrs Jones offered n addition to provide a house for her
daughter.
Her daughter then became so uncooperative > Mrs Jones claimed
possession of the house.
Her daughter resisted on the round that her mother was contractually
bound to the agreement.
Held - agreement motivated by mums desire for daughter to
succeed.
- no intention to enter into contractual arrangement.
42

INSTITUTE
CONTINUE
iii.
Other close relations:
Uncle & Niece:
Parker v. Clarke
Mr. Clarke and Mrs. Carke invited Parker (niece) to stay with them.
Promised her if she sold her house & live with them, their house
will be hers on their death
After 2 years, asked her to leave
Parker sued & succeeded
Held: had intention to create a contract, particularly cogent evidence
of which was that the Clarkes promises had induced Parker to sell
her house and move with them.
43

INSTITUTE
FIFTH ELEMENT OF CONTRACT:

CERTAINTY
There must be certainty as to the parties, subject matter, and
price.
An agreement which is uncertain or is not capable of being
made certain is void.
Wording of the agreement must be clear and not uncertain or
vague.
Example:
Suppose Ali agrees to sell 500 tones of oil to Mail. But, what
kind of oil is not mentioned clearly. So on the ground of
uncertainty, this agreement stands void.
44

INSTITUTE
SIXTH ELEMENT OF CONTRACT:

LEGAL CAPACITY
The parties entering into a contract should also be competent
to contract, i.e. they must have the legal capacity to do so.
S. 11 CA 1950: Who is competent?
Age of majority
Sound mind
not disqualified e.g. bankrupt
45

INSTITUTE
CONTINUE
Age majority:
Person attaining age of Majority can affect a valid contract

S. 2 of Age of Majority Act 1971: 18 yrs
Below 18 = Minor
Contract made by minor is void
46
Source: Age of Majority Act 1971

INSTITUTE
CONTINUE
Sound mind:
S.12 CA 1950: defines sound mind

Can understand the nature & effects of contract
at the time of contract
Temporary sound mind can make contract
47

INSTITUTE
CONTINUE
Issue of minor:
General Rule: Contracts made by minor are void
Mohori Bibee v. Dhurmodas Ghose (1903)

Minor X make a valid contract
Tan Hee Juan v. The Boon Keat (1934)
Transfer of land by minor was void
Exceptions:
1. Contracts for Necessaries
2. Contract of scholarship
3. Contract of Insurance
48

INSTITUTE
QUIZ
1. The basic elements of a contract are:
a) Offer, acceptance, consideration, and intention to create legal
relations.
b) Offer, acceptance, certainty, practicality, and intention to
create legal relations.
c) Offer, acceptance, certainty, consideration, and reasonableness.
d) Offer, acceptance, certainty, consideration, capacity and
intention to create legal relations.
2. The word contract may be defined as an agreement
enforceable by law (True/False)
49

INSTITUTE
CONTINUE
3. Which ONE of the following usually amounts to an offer?
a) Goods sold through a machine.
b) Advertisements.
c) Displays of goods.
d) An auction.
4. The legislation in Malaysia governing contracts is the
Contracts Act 1950 (True/False)
5. Invitation to treat is an offer (True/False)
50

INSTITUTE
CONTINUE
6. All agreements are contract (True/False)
7. An offer can be terminated in a number of ways. Which ONE
of the following is NOT an effective way to terminate an
offer?
a) Rejection by the offeree.
b) Failure of a condition precedent.
c) Revoking the offer following acceptance.
d) Lapse of a reasonable time.
8. An agreement without consideration is void (True/False)
51

INSTITUTE
CONT.
9. Which ONE of the following statements regarding acceptance
is true?
a) Silence does not constitute valid acceptance.
b) An offeree can accept an offer of which he was not aware.
c) Generally, there is no need for an offeree to communicate his
acceptance to the offeror.
d) Generally, acceptance need not precisely match the terms of
the offer.
10. Besides being of the age of majority, a person competent to
contract must be mentally sound mind (True/False)
52

INSTITUTE
End of subtopic 1 & 2 under chapter 2: law of

contract.
Answer all the questions provided above and then
proceed with next subtopics under chapter 2.
Thank you!

Week 2 & 3 Subtopic 1&2

Caricato da

Informazioni sul documento

Descrizione originale:

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Week 2 & 3 Subtopic 1&2

Caricato da

Copyright:

Formati disponibili

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

Contracts are govern by Contract Act 1950

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

FIRST ELEMENT OF CONTRACT:

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

Source: Contract Act 1950

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

Source: Contract Act 1950

RANACO EDUCATION & TRAINING

TO WHOM OFFER CAN BE MADE

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

Source: Contract Act 1950

RANACO EDUCATION & TRAINING

Source: Contract Act 1950

RANACO EDUCATION & TRAINING

Source: Contract Act 1950

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

RANACO EDUCATION & TRAINING

SECOND ELEMENT OF CONTRACT:

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

S. 4 CA 1950: complete when it comes to the offerors attention

RANACO EDUCATION & TRAINING

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING

1. Acceptance must be while offer still in force - not terminated yet

RANACO EDUCATION & TRAINING

THIRD ELEMENT OF CONTRACT:

LAW 243 COMMERCIAL LAW

RANACO EDUCATION & TRAINING