PK504

BUSINESS LAW
LAW OF CONTRACT

WEEK 2
LEARNING OUTCOME
At the end of this
topic, you should
be able to:
Explain clearly the
position of law
regarding contract
especially on
essential elements
of contract
INTRODUCTION
STATUTE:
CONTRACTS ACT
1950
1. ESSENTIAL
ELEMENT OF A
VALID CONTRACT
2. DISCHARGE OF
CONTRACT
3. REMEDIES FOR
BREACH OF
CONTRACT
DEFINITION

Contract is an agreement between 2 or more

persons that is legally binding them.
S2(h) states that a contract is an agreement
which can be enforced by law. (once
contract exist, the parties to the contract can
legally e force their rights under the contract)
all contracts are agreement but not all
agreements are contracts.
ESSENTIAL ELEMENT OF
CONTRACTS
PROPOSAL
ACCEPTANCE
CONSIDERATION
CAPACITY
INTENTION TO CREATE
LEGAL RELATION
CERTAINTY
FREE CONSENT
LEGALITY OF THE OBJECTS
REQUIRED FORMALITIES
PROPOSAL
DEFINITION
- S2(a) when a person (offeror)
promises or proposes
something to another party
(offeree) with the intention that
his promise/proposal would be
accepted by the offeree, offeror
is said to make an offer.
PROPOSAL
HOW AN OFFER COULD BE
MADE
S9 an offer can either be :
1. Express: in writing @ verbally
(i.e. made in words)
2. Implied: implied from the
conducts of the parties (i.e.
other than in words)
PROPOSAL
TYPES OF OFFER (To whom?)
1. Specific Order
. Specific/particular person
. Only the addressee may accept
the offer S2(b)
. Any other person, who is not the
addressee, cannot make the
acceptance to such offer.
PROPOSAL
REFERENCE CASE
BOULTON v JONES (1857)
Facts : Jones (D) normally deal business with
Brocklehurst(B). He offered to buy some
goods from B, but on the day the order
sent, B sold his company to Boulton (P).P
accept offer. When D knew the good is
not from B, he refused to pay. P sued D
for the price
Court Decision: Defendant not liable to pay.
Conclusion: There was no contract between
P & D. P had no right to accept the offer,
which was not addressed to him.
PROPOSAL

GENERAL OFFER
-Address generally to any one who may satisfy all
the terms @ conditions of the offer stipulated
by the offeror.
- Any one who meets or satisfies all the terms of
the offer is considered as making the
acceptance to such offer.
- Once the stipulation of the offer is satisfied by a
person, the offeror is bound to the contract with
that person.
PROPOSAL

REFERENCE CASE
CARLILL v CARBOLIC SMOKE BALL CO (1893)
Facts: Defendant advertised they would reward 100 to
anyone who would still suffering influenza after using their
product, on condition buyer use according to instructions.
Plaintiff bought and still suffering influenza, so he claimed
the reward but defendant refuse to pay, on the ground the
offer was not addressed to the plaintiff.
Court Decision:Defendant is liable to pay the reward to plaintiff.
Conclusion:The offer was addressed to the general public at
large and whoever read the stipulation is regarded as
making acceptance to offer.
PROPOSAL

CONDITION OF AN OFFER
1. An offer must be certain
. certain, clear, complete, final & detail to avoid any obscurity or
doubt
. If offer is not clear, its not regard as a valid offer.
Case: Guthing v Lynn (1831)
L offered to buy a horse from G on condition that if the horse bring
luck to him, he will pay another 5 extra.
Held: The offer was not final & incomplete. Invalid.
PROPOSAL
b. An Offer Must be Communicated
S2(a) when one person
signifies to another Signifies
here indicates that the offer must
be communicated (reach the
knowledge of the offeree)
S4(1) the communication is
complete when the offer comes to
the knowledge of the offeree, if
offeree doesnt know the offer is
not valid no binding contract.
PROPOSAL
CASE REFERENCE
TAYLOR v LAIRD(1856)
Fact: T resigned from being the captain of a
ship owned by L during a voyage. T
assisted to sail the ship back without
knowledge of T. T claimed remuneration.
Court Decision: L is not liable to pay T
Conclusion: T did not communicate to L his
offer to give his service to sail the ship
back. So L did not know the offer &
doesnt have chance to accept or reject.
PROPOSAL

If a person has done something, which

coincides with the offer, without being aware of
the offer, whatever was done by that person
may not be assumed as an acceptance to the
offer and does not bring a contract.
Case Reference : R v Clarke(1927)
-reward offered for capturing murderer of 2 police.
Clarke was arrested and in order to clear
himself, he than give information to the
capturing of both murderer. Clarke later heard
about the reward and claim it.
- Held: His claimed failed. The information given
was only to release himself & not in response
to the offer.
PROPOSAL
OFFER DISTINGUISHED FROM
INVITATION TO TREAT (ITT)
Offer must be distinguished from
ITT in order to ascertain when is the
actual offer takes place.
If a person does something with the
intention to make an offer, then such
act may bind the offeror (if there is
acceptance by another person)
However, if a person does something
with the intention of ITT, then such act
by others, is only an offer
Thus, no binding contract until there
is acceptance.
PROPOSAL
Definition of ITT
Sort of preliminary
communication,
which passes
between parties at
the stage of
negotiation that might
lead to an offer.
An invitation
Early stage before an
offer could be made.
PROPOSAL

EXAMPLE OF ITT
1. ADVERTISMENT
. Is only invitation to attract people to make an
offer
. Advertiser is not an offeror
. Person who read/saw/noticed the
advertisement and make offer is an offeror
. Acceptance made by advertiser/seller
PROPOSAL
HARRIS v NICKERSON (1873)
Facts: N advertised in newspaper, a sale
of certain goods, including certain
office accessories on certain date at
particular place. H attended sale with
intention to buy office accessories.
However, N withdraw the sale of
office accessories. H sought
damages and claimed N breaching
the contract
Court Decision: H was not entitle for any
damages from N.
Conclusion: An advertisement is only
ITT, not an offer.
 PROPOSAL

COELHO v THE PUBLIC SERVICES COMMISSION (1964) MLJ

12
Facts: C applied for a position in response to a newspaper
advertisement. The application had been accepted then
undergoing to training and posted to a position. Subsequently,
PSC tried to terminate C in basis that his appointment is on
probation.
Court decision: there was a valid contract and the termination was
invalid
Conclusion: issue is whether there is binding contract?
Advertisement was an invitation to any qualified person, C
application is an offer and accepted by PSC. (nothing in
appointment letter mentioned about on probation condition.
PROPOSAL
EXCEPTION
Not all advertisement is an ITT.
Sometimes it can becomes an
offer (depending on the
intention)
Referred to case of CARLILL v
CARBOLIC SMOKE BALL
CO(1893) (the offer was
intended to be sincere since
1000 had been deposited to
meet any claims)
PROPOSAL
2. Display of goods in a self-
service shop
Act of the seller displaying the
goods with the price tags, in a
self service shop is an ITT.
Customer make the offer when
they selected the desired goods
and bring it to the counter for
payment.
The seller/cashier at the counter
will make the acceptance.
PROPOSAL

Due to the principal, even though the goods

displayed been tagged at certain price, seller is
not bound to sell at that price to the customer.
The price might be changed
Seller is not bound to sell it all
Up to seller whether to accept or not the offer
made by customer
Once the seller accepted the offer of the
customer, then the contract Is binding.
PROPOSAL
On the other hand, as long
as the seller has not make
any acceptance to the
customers offer, the
customer is not bound to
the contract.
The customer can withdraw
his offer at any time before
the seller make his
acceptance.
PROPOSAL

PHARMACEUTICAL SOCIETY OF GREAT

BRITAIN v BOOTS CASH CHEMIST LTD (19530
Facts: B introduce a new method for its customers to
buy certain medicines. The company would let
shoppers pick drugs off the shelves in the chemist
and then pay for them at the till. P said its against
the law.
Court Decision: There was no violation of the Act by B
Conclusion: The display of goods was not an offer.
Rather, by placing the goods into the basket, it was
the customer that made the offer to buy the goods.
This offer could be either accepted or rejected by
the pharmacist at the cash desk. The moment of the
completion of contract was at the cash desk, in the
presence of the supervising pharmacist.
PROPOSAL

FISHER v BELL
Facts: The Defendant displayed a flick knife in the window of his
shop next to a ticket bearing the words "Ejector knife 4s."
Under the Restriction of Offensive Weapons Act 1959, section
1(1), it was illegal to manufacture, sell, hire, or offer for sale or
hire, or lend to any other person, amongst other things, any knife
"which has a blade which opens automatically by hand pressure
applied to a button, spring or other device in or attached to the
handle of the knife".
Court Decision: No violation on the act
Conclusion: display goods in a glass shop window is an ITT. It
depend on discretion of the shop owner to sell or not.
PROPOSAL
3. TENDER
The
notice/announcem
ent inviting tenders
Party who read it
will make an offer
Party who produce
notice have right to
accept or reject.
PROPOSAL
SPENCER v HARDING (1870)
Facts: H made an announcement
inviting tenders for the sale of
certain goods. The offer by S
was highest but H did not accept
it.
Court Decision: H is not liable to
any contract to S
Conclusion: H has the right to
reject offer because no any valid
contract as the announcement
inviting tenders is only ITT
PROPOSAL
4. PRICE LIST/QUOTATION
Purpose to give an opportunity
to the buyers to choose the best
price
Not an offer, just early information
Sellers entitled to accept@reject
However, sellers also have the
right to make a counter-offer (new
price), up to buyer to accept@
reject.
PROPOSAL

HARVEY v FACEY (1893)

Facts: Telegraph messages exchanged between
the parties. F telegraphed H, Will you sell us
Bumper Hall Pen (plot of land)? H replied
The lowest price for BHP is 900. F
telegraphed, I agreed to buy BHP for 900
asked by you. H did not reply. F claimed
there was contract binding.
Court: There was no contract between them.
Conclusion: H stating the lowest price as a
quotation. The final message by F could not
be considered as acceptance.
PROPOSAL
5. AUCTIONEER INVITING BIDS
When an auctioneer request bids, he is
actually inviting the assembly of bidders
to make offers to him
The bidders who make the bids are
making the offers.
The auctioneer may accept@reject.
Once the hammer falls, acceptance
takes place and contract exists.
S.10 Auction Sales Act:
A sale by public auction shall be complete
when the auctioneer announces its
completion by the fall of the hammer
ACCEPTANCE
Definition
S2(b) explains that, if the offeree
agrees or accepts the offer
made by the offeror, there is
acceptance to such offer.
Once accepted, an agreement
between the parties is created.
(contract exist and binding them)
ACCEPTANCE

CONDITIONS/REQUIREMENTS OF AN
ACCEPTANCE
1. Acceptance must be Absolute & Unqualified
S7(a)
. The acceptance must be made without any
condition or qualification
. Must be made exactly on the same term of the
offer (without modification)
. If any, counter offer (treated as a rejection to
the original offer) occur. If exists, no valid
acceptance that can make the contracts
binding.
ACCEPTANCE
HYDE v WRENCH (1840)
Facts:- June 6, W offered to sell his farm
to H for 1000. June 8, H made a
counter offer to purchase at 950. W
refused. June 27, H accepting the
original offer. However, the defendant
refuse to adhere to original offer.
Courts: No contract had come into
existence.
Conclusion: no acceptance because H
letter of June 8 had rejected the
original offer. H made counter offer to
the original price so no contract exist.
ACCEPTANCE
Exception :If the counter offer is
accepted by the offeror, the
terms in the original offer
become void and new term
exists.
A distinction needs to be drawn
between the counter offer and a
request for further information.
An inquiry does not reject the
original offer. The original offer
still open.
ACCEPTANCE

STEVENSON JAQUES v McLEAN

Facts: M offered to sell iron at 40s nett cash per ton. S sent a telegram to
M saying Please answer whether you would accept payment for
delivery over 2 months, if not, the longest limit that you would give.
M did not response, then sold the iron to another purchases thinking
S had rejected the original offer. S sued M for breaking the contract.
Court: The contract exist and M is liable to S claims.
Conclusion: S did not making any counter offer. The telegram is just an
inquiry, which should be answered by M.
ACCEPTANCE
2. Acceptance Must be
Communicated in Some Usual &
Reasonable Manner
S7(b) explain that the
communication must be usual &
reasonable (so long as the mode
which he used did not cause
delay and brought the acceptance
to the knowledge of the offeror.
However, if there is mode of
acceptance prescribed by the
offeror, offeree must follow.
ACCEPTANCE

ELIASON v HENSHAW (1819)

Facts: Eliason offered to buy flour from Henshaw.
He requesting that acceptance should be sent
to him at Harpers Ferry by the wagon. H sent
by mail and the letter arrived after due date.
Court: H has breach the contract by not following
prescribed by E.
Conclusion: Eliason was entitled to reject the
acceptance by Henshaw.
ACCEPTANCE
MODE OF
ACCEPTANCE
General rule
acceptance must
be communicated
s.2(b)
1. Offeror must have
knowledge that
offeree accepting
the offer.
2. Offeree signifies
his intention to
accept. s.3
ACCEPTANCE
SILENCE IS NOT AN ACCEPTANCE
Felthouse v Bindley
Facts: F offered by letter to buy a horse
and said if I hear no more about
him(nephew), I shall consider the
horse is mine. The nephew dont
give answer and told B to keep the
horse out of the auction as he intend
to reserved it to his uncle. B however
sold by mistake.
Court Held: No contract between F and
his nephew because silence doesnt
constitute a contract.
ACCEPTANCE
Exception : to General Rule.
1. When the offeror dispensed the
need of communication of
acceptance.
2 situations:
1. There must be an express @implied
stipulation from the offeror with
sufficient mode of acceptance
(Refer Carlill v Carbolic Smoke Ball)
2. Must be positive conduct on the part
of the offeree (refer Errington v
Errington)
ACCEPTANCE
2. When there is an offer to the public
(refer Case Carlill v Carbolic)
3. Reciprocal Promises
Promises which form the consideration
for the promises of each other party
to the contract.
4. Acceptance through post.
ACCEPTANCE
Effective when it has been
communicated by word of mouth
or by recorded message.
In England, the communication
of acceptance is complete upon
posting, however in Malaysia,
the Contract Act stipulates
different times when
communication of an
acceptance is complete.
ACCEPTANCE
S4(2)(a) Communication of
acceptance is complete against the
proposer when it is put in a course
of transmission to him.
S4(2)(b) Communication of
acceptance is complete against the
acceptor when it comes to the
knowledge of the proposer.
ACCEPTANCE

IGNATIUS v BELL
Facts: B offered to sell his land to I on condition that if he would like to
accept it, he must make the acceptance on @ before 20 th August 1912. I
sent an acceptance by registered post on 16th August 1912 but the letter
did not reach until 25th August, because B was away
Court: Bell was bound to contract
Conclusion: The acceptance was exercised by I when the letter was posted
on 16th Aug.
ACCEPTANCE

By virtue of S4(2)(a) & (b), the offeror severely disadvantaged.

To avoid this offeror is allowed to provide adequate protection for him by
stipulating certain terms in the offer (time when the offeror really bound
to the contract)
 ACCEPTANCE
HOLWELL SECURITIES LTD v
HUGHES (1974)
Facts: Defendant offered to Plaintiff an
option to purchase certain property.
The offer provides the said option
shall be exercisable by notice in writing
to the defendant. P posted his
acceptance but it never reached D. P
claimed there is already valid
acceptance.
Court: No valid contract exist.
Conclusion:The acceptance must be
communicated or notified by the offeror
(when it comes to the knowledge of the
D)
REVOCATION OF OFFER &
ACCEPTANCE
Section 5(1) provides that
a proposal may be
revoked at any time
before communication of
its acceptance is complete
as against the proposer,
but not afterwards.
REVOCATION OF OFFER

A proposal may be withdrawn in any of

following circumstances:
1. Communication of Notice of Revocation s6(a)
- Only be done by offeror
- Byrne & Co V Van Tienhoven & Co (1880)
b. Revocation By Lapse of time S6(b)
. When acceptance has not been made within
time prescribed
. If no time prescribed, the acceptance has not
been made within a reasonable time.
. Fraser v Everett (1889)
REVOCATION OF OFFER
c. Revocation By Failure of The
Offeree to Fulfill Condition
Precedent to the Acceptance
S6(c)
PYM v CAMPBELL(1856)
d. Revocation By The Death @
mental Disorder of The Offeror
S6(d)
- If offeree aware of the fact,
otherwise acceptance is valid &
binding
Bradbury v Morgan (1862)
REVOCATION OF
ACCEPTANCE
WHEN?
S5(2) Offeree could revoke his
acceptance at any time before
communication of acceptance is
complete as against the
acceptor (before acceptance
comes to the knowledge of the
offeror)
REVOCATION OF
ACCEPTANCE
HOW TO REVOKE ACCEPTANCE?
Must be notified to the offeror.
S3 only be complete/effective if it is
communicated to the offeror
Can be made in any mode of
communication as long as it comes to
the knowledge of the offeror.
REVOCATION OF
ACCEPTANCE
WHEN COMMUNICATION
EFFECTIVE?
S4(3)(a) & (b) Communication of a
revocation is complete /effective
when it comes to the knowledge of
the offeror
Thus, offeree must make sure his
notice reach offeror before his
communication of acceptance
reaches the offeror.
If notice of revocation accept by
offeror after he has knowledge of
acceptance then revocation will not
effective.
 REVOCATION OF ACCEPTANCE

Revocation of acceptance under the Postal Rule

In the case of acceptance by the post, the offeree can revoke his
acceptance at any time before or at the moment the letter of
acceptance reaches the offeror.
Therefore if the offeree wants to revoke his acceptance, he must
ensure the notice reaches the offeror before or at the moment his
acceptance letter reached the offeror
DUNMORE v ALEXANDER(1830)
Letter of acceptance and revoking were received simultaneously.
Held: the acceptance had been effectively revoked by the offeree.
Therefore, there was no contract.
ACCEPTANCE
Conclusion
Acceptance is effective as
against the acceptor only when
it comes to the knowledge of the
proposer
Acceptor can therefore revoke
his acceptance before it comes
to the knowledge of the
proposer. (able to revoke by
some speedier means of
communication)
CONSIDERATION
S.2(d) defines that,
consideration is an act or
abstinence or promise by
the promisee or any other
person, as required by the
promisor in return for his
promise.
Has a value in the eyes of
law and basis of the
contract.
CONSIDERATION

CATEGORIES
1. Executory Consideration
. When a person promises to do, given in return for another persons promise.
K.MURUGESU v NADARAJAH
Fact: The appellant agreed to sell, and respondent agreed to buy, a house from
the appellant. Agreement in writing. Later, A refused to perform the contract
as there was no consideration in the agreement
Court: R has the right to continue contract as promise.
Conclusion: the agreement must be seen to be a case of executory
consideration. A promise in return of promise.
CONSIDERATION
2. Executed Consideration
Contract arises upon executed
consideration
A consideration is executed
when an act is performed in
return to a promise.
Refer Carlill v Carbolic Smoke
Ball Co. (1893) case.
CONSIDERATION

3. Past Consideration
Consideration which has been done before
promise is made.
One promise is made subsequent to and in
return for an act that has already been
performed before the promise is made.
LAMPLEIGH v BRATHWAIT(1615)
KEPONG PROSPECTING LTD v A.E.
SCHMIDT(1968)
CONSIDERATION
RULES GOVERNING
CONSIDERATION
1. Adequacy of Consideration
. If the promisor gets whatever he asks
for, in return for his promise, he is
said to have received sufficient
consideration (bound to contract)
. Adequacy of consideration is not
important to form a valid contract(S26
Explanation 2) even though
consideration is not adequate, the
contract is valid & binding
. Phang Swee Kim v Beh I Hock (1964)
CONSIDERATION

2. Consideration Need Not Come From The

Promise
A party to an agreement can enforce a contract
even though he has given no consideration so
long as someone else has done so.
S.2(d) consideration may move from a party
who is not necessarily the promisee.(3rd party)
VENKATA CHINNAYA v VERIKATARAMAYA
CONSIDERATION
3. Waiver of Perfomance
General Rule of Common Law
payment of a smaller sum is not a
satisfaction(discharge) of an obligation
to pay a larger sum
The creditor may enforce his full rights
under the agreement, even though he
waived earlier.
This rule of law was first established in
1602 in Pinnels Case
CONSIDERATION

Methods of waiver of performance

S.64 provides several ways of waiver of
performance.
1. Payment of a smaller sum in discharge of a
larger sum(ilustration(b) S64
2. Part payment by a 3rd party in discharge of a
debt. (case Kerpa Singh v Bariam Singh,1966)
3. If a person accepts an agreed sum in
satisfaction of an unascertained debt, that debt
is discharged (illustration(d))
4. Composition with creditors for the payment of a
smaller sum
CONSIDERATION

REQUIREMENT OF CONSIDERATION
(exception to rule that an agreement without
consideration is void)
1. Contract made on Account of Natural Love &
Affection s 26(a)
Requirements
2. Expressed in writing
2. Registered
3. On account of natural love and affection
between parties standing in near relation to
each other.
Case: Re Tan Soh Sim(1951)
CONSIDERATION
b. A promise to compensate for
something done under section
26(b) (1st Limb) Ilustration (c )
1. Promise to compensate the
promisee; wholly@in part;
2. The promisee has voluntarily
done something for the promisor
CONSIDERATION
c. A promise to compensate for
something done under section
26(b) (2nd Limb) (illustration d)
3 conditions:
1. There is agreement to
compensate, wholly@in part, for
an act
2. The promisee has done the act
voluntarily
3. Something which the promisor
was legally compellable to do.
CONSIDERATION
d. Contract to Pay A Statute-
Barred Debt 26(c)
(Illustration e)
Statute Barred Debt debt which
cannot be recovered through
legal action because of lapse of
time fixed by law.
Limitation Ordinance 1953 time
limit 6 years.
CAPACITY

S.11 the parties entering into a contract should

be competent to contract according to the law
which is subject and of sound mind.
Age of Majority Act, 1971, 18 years old is
stated as the age of a major.
Tan Hee Juan V The Boon Keat (1934)
Fact: THJ (a minor) contracted to transfer his land
to TBK.TBK applied to court for an order
setting aside the contract.
Conclusion: The contract was void. The court
ordered the restoration to THJ.
CAPACITY
EXCEPTION
1. Contract for necessaries (s69)
. If a minor is supplied with
necessaries by another person,
such person is entitled to be
reimbursed from the property of
the infant (reasonable sum)
. Govt of Malaysia v Gurcharan
Singh (1971)
CAPACITY

b. Contracts of Scholarship (S4(a) of

the Contracts (Amendment) Act.
- A scholarship agreement entered
into by an infant is valid when the
scholarship/loan/sponsorship is
granted by the Federal@ State
Government.
 CAPACITY
University Malaya v Lee Ming Chong
(FC) 1986
Facts: Lee was given a scholarship to
study in Canada on one condition that
he must work for the University for 2.5
years. Upon Lees return, he left the
University and argued that he had not
provided consideration and hence there
is no contract between Lee and UM.
Held: Federal court held that there is still
valid contract as s 4(c) Contracts
(Amendment) Act 1976 provides that a
scholarship agreement is not void by
absence of consideration.
CAPACITY
c. Contracts of insurance
Section 153(1) and (2) of the
Insurance Act, 1996 provides
that an infant over the age of
10 may enter into a contract
of insurance.
However, if he is below the
age of 16, he can only do so
with the written consent of
his parents or guardian.
CAPACITY
d. Contract of service/apprenticeship
A minor is bound by a contract of
employment so as to provide
himself with the means of self-
support or beneficial contracts
under which he obtains education,
or training for a trade or profession,
or beneficial experience in a trade to
fit himself to earn his living at a
suitable trade or profession.
In other word, if a contract is giving
beneficial to the minors, then he is
bound to it.
CAPACITY

DOYLE v WHITE CITY STADIUM LTD (1935)

Facts: D, an infant professional boxer, made contract
with the British Boxing Board of Control in
consideration of his receiving license from the
board. Under contract, it was agreed that if D were
disqualified for certain reasons, the prize money
would be withheld. D later disqualified and the
Board withheld the prize money. D sued the Board
to recover the money, claiming that he is minor and
not bound to such contract.
Court: Doyles claim failed.
Conclusion: The agreement was a contract of
employment and it was on the whole for his benefit
to be a professional boxer.
CAPACITY
In Malaysia, 2 legislation used
1. Employment Act, 1955
2. Children & Young Persons
(Employment) Act 1966 S.13 any
child or young person shall be
competent to enter into a contract of
service
Child below age 14
Young Person 14 16
3. No damages & no indemnity can
be recovered from a child or young
person for the breach of any
contract of service.
CAPACITY
CONTRACTS BY INSANE OR
DRUNKEN PERSON
What is sound mind?
s.12 covers contract entered into
by a mentally disordered person
as well as persons incapacitated
through sickness, alcohol or
other drugs.
Contracts made by insane or
drunken persons are void s.10 &
s.11 (contract by incompetent
person are void)
INTENTION TO CREATE LEGAL
RELATION
Without intention to create legal
relation, there is no contract.
To determine whether intention
exists or not, law divides
agreement into
1. commercial/business agreement
2. Social, domestic & family
agreement.
INTENTION TO CREATE LEGAL
RELATION
COMMERCIAL AGREEMENT
Law presumed that common
intention exists between the
parties to have legal relation.
The contract is binding on the
parties.
However, if any party wishes not
to bind the agreement, he must
rebut the presumption by
evidence.
Usage of term subject to
contract in the agreement.
INTENTION TO CREATE LEGAL
RELATION
Low Kar Yit v Mohd Isa
Fact: Defendant gave an option to
Plaintiff to buy a parcel of land
subject to a formal contract to be
made & agreed by both. P exercised
the option but D refused to sign
Court: No legally contract binding
between P & D
Conclusion: there was conditional upon
construction of document that is
formal contract to be made later and
agreed by both. P action amounted to
nothing more than an agreement to
enter into another agreement.
INTENTION TO CREATE LEGAL RELATION

Lim Keng Seong v Yeo Ah Tee

Facts: Respondent claimed that there was a
complete contract arising from a number of
letters exchanged between them. Appellant
defended that the sale was subject to a formal
contract and he had informed R solicitors that
he didnt want to proceed with sale.
Court: Appellant has intention to come to a definite
and complete agreement. Contract legal.
Conclusion: The number of letter exchanged
showed the interest of both parties to create
legal document.
INTENTION TO CREATE LEGAL
RELATION
2. Social, Domestic & Family Agreement
Law presumed that there is no intention to create
legal relation.
The contract is not binding on the parties
INTENTION TO CREATE LEGAL
RELATION
BALFOUR v BALFOUR
Fact: D was a civil servant stationed in Sri
Lanka. He promised to pay his wife
monthly allowance as maintenance.
His wife had to stay in England because
of poor health. D failed to keep his
promise. Therefore, his wife sued him
for breaching contract.
Court : It is presumed D did not intend the
promise to be legally binding contract.
Conclusion: The promise is a family and
domestic agreement that the intention is
not to bind the parties.
INTENTION TO CREATE LEGAL RELATION

MERRIT v MERRIT
Fact : Husband & wife decide to divorce. H left house (joint name).
The house is subject to mortgage. H agreed to pay wife
$40/month(including paying outstanding mortgage payment)
After payment complete, husband agreed to give sole ownership
to his W. The agreement recorded in writing and signed by
husband. After payment completion, H refuse to give the house
to W.
Court : House must be transferred to the wife.
Conclusion: there is binding contract because parties intended to
create a legal relation by making writing and signed document.
CERTAINTY
The terms of contract must
be certain and definite
If the terms are vague or
uncertain, the contract is
invalid
However, if the terms
capable being made certain
later, then the contract is
valid.
 CERTAINTY
S.30 Illustration
(a)The contract is void due to
uncertainty of the description of oil
(b) contract valid since the description
of oil is specified
(e) no uncertainty. Valid because the
price of the rice is capable of being
made certain.
(f) contract void due to uncertainty of
the price.
KARUPPAN CHETTY v SUAH THIAN
Held: Contract void. Uncertainty because
the parties agreed to a lease of $35 per
month for as long as he likes
FREE CONSENT
S10(1) All agreement are
contracts if they are made by the
free consent of parties competent to
contract
The consent of the parties to the
contract must be given freely and
voluntarily.
FREE CONSENT
What constitutes consent
S13 two or more persons are
said to consent when they agree
upon the same thing in the
same sense
What constitutes free consent
S14 Consent is said to be free
when its not cause by coercion,
undue influence, fraud,
misrepresentation and mistake.
Contract may become void or
voidable
FREE CONSENT
Void
S2(g) agreement not enforceable
by law
- No rights given to the parties, and
no obligation imposed on them.
- Contract cannot be enforced at all
(even by the
Court)
FREE CONSENT
Voidable
S2(i) enforceable by law at the option
by one or more parties but not at the
option of the others
One of the parties is given a choice to
continue the contract or not
Agreement is valid & binding until the
party who entitled to rescind choose to
rescind.
FREE CONSENT
COERCION
S15 committing, or threatening to
commit any act forbidden by the
Penal Code, the unlawful
detaining or threatening to
detaining, any property with the
intention of causing any person
to enter into an agreement.
FREE CONSENT

What is the effect?

The effect of the contract is voidable S19(1)
Chin Nam Bee Development Sdn Bhd v Tai Kim
Choo & 4 ors
Facts: Respondent purchased houses to be
constructed by the appellant. Each respondent had
signed a contract to purchase at $29500. however
R were force later to pay additional $4000 under a
threat by appellant to cancel the bookings.
Court Held : The payment was not voluntary but had
been made under threat. Thus, there was coercion
in the agreement of paying the additional amount.
Kesarmal s/o Letchman Das v Valiappa Chettiar (also
refer)
FREE CONSENT

UNDUE INFLUENCE
Happen when one of the parties to a contract,
entered into such contract by the influence of
the other party who was able to influence him
S16(1) there are 2 essential ingredients in
order to claim that there is undue influence
1. Domination of the will by one party over other
party
2. Domination party obtains an unfair advantage
in the contract
FREE CONSENT
Conditions to be fulfilled in order
to rescind a contract due to undue
influence
Plaintiff must establish that the
agreement was being
unconscionable, by proving:
i. There is relation between the
contract parties; where one of
them naturally relied upon the
other for advice, help etc. and the
other party was in a position to
dominate the will of the first party
FREE CONSENT
ii. The person in the position of
domination has used that
position to obtain an unfair
advantage for himself and
causing loss or injury to other
party
iii. When those 2 abovementioned
have been proved, the dominant
party (defendant) has to prove
that no domination was done.
if defendant failed, the contract
may be rescind.
FREE CONSENT
Presumption of Domination
A person is deemed to be in a position
to dominate the will of another when
S16(2) a he holds a real or apparent
authority over the other @ fiduciary
relation to other
S16(2)b he makes contract with a
person whose mental capacity is
temporarily
- With this, plaintiff does not have to
prove contract being
unconscionable.
FREE CONSENT
SALWATH HANEEM v HADJEE
ABDULLAH
Facts: Ps husband made a conveyance
of property belong to himself & P, to his
brothers B&C. P initially agreed but
after his husband death, she seeking to
set aside the agreement.
Court held: A confidential relation exist
between P, B & C. So its on B & C to
show that the P was understand the
agreement and agreed it. B & C failed,
so the contract was set aside.
FREE CONSENT

FRAUD
S17 where one of the parties to the contract
does an act with the intention to deceive the
other party to induce him to enter into a
contract
Deek v Peek
Held: Fraud is proved when its shown that false
representation has been made either
1. knowingly, or
2. Without belief in its truth or
3. Recklessly, careless whether it be true or false
FREE CONSENT
Element of Fraud
1. There must be false statement
2. The representee must have
relied on the statement
3. Otherwise, the
misrepresentation is irrelevant.
FREE CONSENT
KHENG CHWEE
LIAN v WONG TAK
THONG
Fact?
Court Held?
LETCHEMY
ARUMUGAN v
ANNAMALAY
Fact?
Court Held?
FREE CONSENT
FREE CONSENT

Does silence constitute Fraud?

Mere silence as to facts likely to affect the
willingness of a person to enter into a contract
is not fraud.
The general rule is, silence does not constitute
fraud
However in certain circumstances, silence may
constitute fraud.
FREE CONSENT
FREE CONSENT

Element of Misrepresentation
1. Must be a false representation (through a
positive statement or some conduct)
2. Representation must be one of fact, not a mere
expression of opinion
3. The statement was addressed to the party
misled.
4. The representation must induce the misled
party to enter into contract
FREE CONSENT

Otherwise,
It does not make the contract voidable
Refer Explanation s19
Party misled must prove that he was induced by the
representation
However, he cant said been induced, if the representation
did not influence his mind at the time of entering or aware
that the statement was untrue.
FREE CONSENT
Duty of Misled Party To Exercise
Diligence
The misrepresentation does not make
the contract voidable if the misled party
had the opportunity to investigate and
ascertain the truth of the
representation.
FREE CONSENT

Tan Chye Chew v Eastern Mining Metals Co. Ltd

Facts: Respondent entered into 2 contracts.
1st appellant assignment of rights to prospect certain mining land included in
an approved application for permit
2nd appellant payment of commission for his part in bringing about the 1 st
contract
Respondent alleged 2nd appellant had shown some land that was later
discovered not included in the approved application.
Court Held: There had been misrepresentation, however respondent had means
of discovering the truth and entered the contract without checking the truth.
Contract was not voidable.
FREE CONSENT
FREE CONSENT
FREE CONSENT
WHAT IS MISTAKE OF FACT
ESSENTIAL TO THE AGREEMENT
May occur in the following
circumstances:
Mistake as to the existence of the
subject matter of the contract
(illustrations (a), (b) & (c ) S21
Mistake as to the identity of the
subject matter
- Both parties are at cross purposes
FREE CONSENT
RAFFLES v WICHELHAUS
Facts: 2 parties contracted for a sale of a cargo of cotton
arriving in London by a ship called The Peerless sailing
from Bombay without knowing there were 2 ships of the
same name leaving from Bombay at different times. Both
parties negotiating under a mistake and had in mind
different ships
Court Held: The contract was void for mutual mistake
FREE CONSENT
Mistake as to the possibility of performing the contract
SHEIKH BROS v OCHSNER
Facts: The appellant granted to the respondent, licence &
authority to cut and manufacture all sisal growing on 5000
acres of land in Kenya, and to deliver them 50 tons per
month of sisal fiber for sale. Respondent unable to do so as
the leaf potential of the sisal was not sufficient to produce
that much
Court Held: It was a mistake as to the possibility of performing
the contract. Contract void.
FREE CONSENT
Effect of Mutual Mistake in a
Contract
S21 void, therefore it cannot
be enforced at all
If any parties has received any
advantage through the
agreement, he is bound to
restore it or to make
compensation to whom he
received the advantage. (S66
illustration (a)
FREE CONSENT
Unilateral Mistake (s23)
Mistake by one party
Does not affect the validity of a
contract because a person is
expected to take reasonable
care to ascertain what he is
contracting about
Therefore, contract is void
 LEGALITY OF THE OBJECT

S10(1) a contract must be made by the free consent of competent

parties for a lawful consideration and with lawful object
S25 an agreement is void if the consideration for one or more object is
part unlawful;
S24 the consideration or object an agreement is lawful unless
It is forbidden by law;
It is of such a nature that, if permitted, it would defeat any law;
It is fraudulent;
It involves or implies injury to person or property or another; or
The court regards it as immoral/opposed to public policy
LEGALITY OF THE OBJECT
1. FORBIDDEN BY LAW
Menaka v Lum Kum Chum (1977)
Facts: Appelant (registered
moneylender) and through Attorney
lent money to Respondent (on
security of a charge of certain land
belong by R).
Moneylenders Ordinance 1951 must
entering the contract using the
name of the firm.(with license)
Court Held:A contravened the
Ordinance so that contract was
void.
LEGALITY OF THE OBJECT
It is of such a nature that, if permitted,
it would defeat any law
Hee Cheng v Krishnan(1955)
Facts: Agreement to sell land under
Temporary Occupancy License fall
within 24(b) of Contract Act. The
agreement to transfer land was in
contravention of Rules 41 of the Land
Rules 1930 state that no license for
the temporary occupancy of state
land shall be transferable
Court Held : the agreemetn is void by
reason of section 24 of Contract Act.
LEGALITY OF THE OBJECT
It is fraudulent
Illustration (e) & (g)
It involves or implies injury to person
or property or another
Syed Ahamed Alhabshee v Puteh binte
Sabtu (1922)
Facts: D agreed to sell a property of
the P in which an infant had an
interest.
Court Held: The dealing was
detrimental to the infants interest
and consequently, it was struck
down by the court
LEGALITY OF THE OBJECT
The court regards it as
immoral/opposed to
public policy
Immorality
Illustration (j) & (k)
Pearce v Brooks(1861)
LEGALITY OF THE OBJECT

Public policy
1. Contracts prejudicial to public service
2. Contracts that impede the course of justice
3. Contracts against the interest of the state
4. Contracts prejudicial to the freedom & stability of marriage
. S27 every agreement in restraint of the marriage of any person,
other than a minor during his or her minority, is void
. Marriage brokerage contract also void; Alang Kangkong Bin Kulop
Brahim v Pandak Brahim
LEGALITY OF THE OBJECT
Effects of legality
General rule no party may
claim on illegal contract
Ex turpi causa non oritur action
Court will not assist anything.
 REQUIRED FORMALITIES
There is no requirement at common law
that a contract should be in any
particular form.
The general rule is that a contract can
be made orally, in writing or by conduct.
DIAMOND PEEK S/B & ANOR v D.R.
TWEEDIE
Court Held : under law as in India, an oral
contract for the sale of immovable
property is valid & enforceable. Mere
fact that the parties desired to have
written and drawn up in proper form
does not effect its validity.
REQUIRED FORMALITIES

Exception to:
Contracts of Marine Insurance
Bill of Exchange and promissory notes
Hire-Purchase agreement
Transfer of shares of a registered company
Agreement to pay a statute barred debts etc
THE END OF ESSENTIAL ELEMENTS OF A
CONTRACT
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