LAW OF CONTRACT (1)

LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

January 2008

LAW OF CONTRACT
Definition of a contract :
>Section 2(h) Contract Act 1950
an agreement enforceable by law is a contract
ELEMENTS OF A VALID CONTRACT
Elements required for the formation of a contract
1.
2.
3.
4.
5.
6.

Proposal
Acceptance
Consideration
Intention
Capacity
Free Consent

1.

PROPOSAL
1.1

Definition
>Section 2 (a) Contracts Act 1950
when one person signifies to another his willingness to do or abstain from
doing anything with a view to obtaining the assent of that other to the act
or abstinence, he is said to make a proposal
Preston Corp Sdn Bhd v. YEdward Leong & Ors [1982] 2MLJ 22 FC
Gibson v. Manchester City Council [1979] 1 All ER 972
Affin Credit (Msia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169 FC

1.2

Features of a valid proposal

The form of proposal
Section 9 Contracts Act 1950
so far as proposal is made in words, the promise is said to be
express,otherwise in words, the promise is said to be implied.
The proposal must be clear and certain
Sou Yong v. Yuzin bte Abdullah @ Ho Yuzin [1999] 5 MLJ 696
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LAW OF CONTRACT (1)

LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

The proposal and acceptance must correspond

Meeting of minds- consensus ad idem
Raffles v. Wichelhaus(1864) H & C 906

The proposal must be communicated

Section 3 & 4 Contracts Act 1950
Must be made known to the offeree/ must have knowledge
Carlill v. Carbolic Smoke Ball [1893] 1QB 256
R v. Clarke (1927) 40 CLR 227

>>The proposal must be distinguished from an invitation to treat

Preliminary negotiations
>Harvey v. Facey [1893] AC 552
Goods on display
>Pharmaceutical Society of Great Britain v. Boots Cash Chemists
Advertisement
Partridge v. Crittenden
Coelho v. The Public Services Commission
Eckhardt Marine GMBH v Sheriff, High Court of Malaya, Seremban &
Ors [2001] 4 MLJ 49 CA
Auctions
Paynev. Cave
Harris v. Nickerson
M & J Frozen Food Sdn Bhd v. Siland Sdn Bhd [1994] 1 MLJ 303
>

Revocation of Proposal

> Section 5 & 6 Contracts Act 1950

> Routledge v. Grant(1828)

Section 6 Contracts Act 1950

6(a) By Notice of revocation
6(b)- By Lapse of time
6(c)- By failure of condition precedent
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 6(d)- By death or mental disorder of offeror

LAW OF CONTRACT (1)

LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

2.

ACCEPTANCE
2.1

Definition
Sec 2(b) Contracts Act 1950
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.

2.2

Method of acceptance
There must be proper acceptance of an offer. Before there is acceptance
in law, there must be both the fact of acceptance as well as
communication of the acceptance
Section 3, Section 7 (b), Section 8
Section 7 (b),
Acceptance must be expressed in some usual and reasonable manner
Unless the proposal prescribe the manner in which it is to be accepted.
Eg. Asia Corp Ltd v. ST Ramakrishnan [1949] MLJ 206
Acceptance must be made within a reasonable time
Sec 6 (b)
Acceptance must be a positive act
Felthouse v. Bindley
Fraser v. Everett

2.3

Other requirements
Acceptance must be absolute and unqualified
Section 7 (a)
Hyde v. Wrench
a counter-offer must be distinguish from an inquiry or request by the
offeree for further information.

 Stevenson Jacques & Co v. Mc Lean

LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

A contract cannot come into existence by mere accident or coincidence.

A contract is the voluntary consent of parties, consensus, a meeting of
minds. Hence acceptance must relate to the offer, must correspond. If
the offeree has no prior knowledge of the offer there is no way he can
accept.
R v. Clarke
Cross- offer is not an acceptance
Tinn v Hoffman
2.4
>

Acceptance must be communicated

Section 3 , Section 4 (1),

4 (2)(a)(b) Contract Act 1950

Communication of acceptance, when complete?

Instantaneous mode of communication
Entores Ltd v Miles Far East Corp
Brinkibon Ltd v Stahag Stahl MBH
Sec 4 (2) (a) (b)
Adams v. Lindsell
Ignatius v. Bell
2.5

Revocation of Acceptance
> Sec 5 (2) Contracts Act 1950
> When can it be made ?Any time before acceptance is complete..
Sec 3
Revocation must be communicated.
Sec 4 (3) (a) (b)
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 Communication of revocation must be complete.

LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

3.

CONSIDERATION
Definition
9(1) Halbury Laws of England
Meaning of consideration

Valuable consideration has been defined as some right, interest, profit or benefit
accruing to the one party, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken by the other at his request. It is not necessary that the promisor
should benefit by the consideration. It is sufficient if the promisee does some act from
which a third person benefits and which he would not have done but for the promise.
Thus consideration for a promise may consist in either some benefit conferred on the
promisor or detriment suffered by the promise or both. On the other hand, that benefit or
detriment can only amount to a consideration sufficient to support a binding promise
where it is causally linked to that promise. Furthermore, consideration must be
distinguished from both a motive and a condition.
Consideration may be executed or executory, but it may not be past, it need not be
adequate but it must be of some value, and it must move from the promise.
>

Section 2 (d) Contract Act 1950

when, at the desire of the promisor, the promise 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
Currie v. Misa [1874-80] All ER 686 Lush J defines consideration as
some right, interest, profit or benefit accruing to the one party or some
forbearance, detriment, loss or responsibility given, suffered or undertaken
by the other
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LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

Rules Governing Consideration

Executed consideration
Executory consideration
Past consideration
Consideration may move from the promise or a third party

What is executed consideration?

Consideration which has been completed by a party at the time of the contract.
What is executory consideration?
Consideration which is yet to be given or performed.
Read : Wong Hon Leong David v. Noorazman bin Adnan[1995] 3 MLJ 283, CA
In Carlill v. Carbolic Smoke Ball Co Limited
The offer made by the company in the advertisement remained open until Mrs Carlill
bought the smoke ball, used it and contracted influenza. This act of performance
was the consideration and it remained executory until the performance is completed.
Past Consideration
Under English law, generally past consideration is no consideration . However in
limited cases, past consideration has been recognized as good consideration, the
exception being that , the act done at the request of the promisor.
Read cases : Lampleigh v. Braithwait
Hunt v. Bate
Re Mc Ardle

LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

In Malaysia, past consideration is good consideration. Consideration that consists of

something wholly performed before the promise was made. The performance of the
act was not made in response to the promise. See Section 2 (d) Contracts Act 1950
Read cases : -Guthrie Waugh Bhd v. Malaippan Muthucumaru [1972] 2 MLJ 62 FC
- Kepong Prospecting Ltd & Ors v. Schmidt [1968] 1MLJ 170, (1967)
2PCC 465,PC
- Raja of Venpatagiri v. Sri Krishnayya AIR [1948]
- JM Wotherspoon and Co Ltd v Henry Agency House

Section 26 Contracts Act 1950

Agreement without consideration, void, unless
(a) it is in writing and registered under the law and is made on account of natural love
and affection between parties standing in a near relation to each other.
Read cases: Re Tan Soh Sim [1951] MLJ 21
(b) a promise to compensate for something done
Read cases: -on past consideration(c ) a promise to pay a debt barred by limitation law
Read cases : Kapaleeswarar Temple v. T Tirunavukarasu
(illustration (e) Sec 26
Adequacy of consideration
Consideration need not be adequate. Illustration (f) Sec 26

However. The adequacy of the consideration may be an issue in cases where the position
is taken that there was no free consent given to the agreement.
Read cases : Guthrie Waugh Bhd v Malaippan Muthuchumaru [1972] 2 MLJ 62
Phang Swee Kim v. Beh I Hock [1964] MLJ 383 FC
LAW 436
TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

Performance of existing duty.

Performance of an existing public duty

Performance of an existing contractual duty owed to the promisor
Performance of an existing duty imposed by contract with a third party.

Payment of a lesser sum/ waiver of performance

Section 64 Contracts Act 1950
Read Cases : Kerpa Singh v Bariam Singh [1966]
Position in England
Read Cases : Pinnels case
Foakes v. Beer

Doctrine of Promissory Estoppel

a party who has represented that he will not insist upon his strict rights under the
contract will not be allowed to resile from that position, unless he has given reasonable
notice of his intention to revert to the original position.
Read cases : Central London Property Trust Ltd. v. High Trees House Ltd. [1947}
Hughes v. Metropolitan Railway (1884)
Boustead Trading (1985) v. Arab Malaysian Merchant Bank Bhd [1995] 3
MLJ 331, FC
The Poh Wah v. Seremban Securities Sdn Bhd [1996] 1 MLJ 701 CA.
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See also : 9 (1) Halsburys Laws of England, 4th Ed Reissue 1998.

LAW 436
LECTURER
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

Lecture OUTLINE, MONDAY 11 AUGUST 2008

4.

INTENTION TO CREATE LEGAL RELATIONS

Definition
There is no statutory definition for intention to create legal
relations in the Contracts Act 1950.
An agreement is not a contract in the strict sense of the word
unless it is the common intention of the parties that it should be
legally enforced. Such an intention is normally inferred from the
nature of the agreement. For instance, in the case of agreements
regulating commerce or business, it is obvious that the parties
intend legal consequences to follow; per contra in the case of
agreements relating to social agreement, it is inferred as a matter of
course that there is no common intention to create legal
obligations.
Whyatt CJ in Choo Tiong Hin & Ors v. Choo Hock Swee [1959]MLJ67
Generally, cases in this area are divided into two classes :
i)

Social, family and domestic agreements where the presences or

absence of 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.

ii)

Commercial agreements where the intention to create legal relations is

presumed and must be rebutted by the party seeking to deny it.

Hence, it can be said that in commercial agreements, the general rule is that
parties intend the agreement to have legal consequences. However, there are
exceptions to this general rule, i.e the agreement is made subject to contract
or there would be an honour clause.

Cases on Intention to create legal relations :

1.
2.
3.
4.
5.
6.
7.
8.

Balfour v Balfour
Merritt v Merritt
Jones v Padavatton
Phiong Khon v. Chonh Chai Fah
Choo Tiong Hin & Ors v. Choo Hock Swee
Wakeling v Ripley (1951) 51 SR (NSW) 183
Rose & Frank v. JR Crompton & Bros
Kleinwort Benson Ltd v Malaysian Mining Corp Bhd [1989] All ER 785

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TUTOR
PUAN RAHIMAH BEE MOHD YUSOF
FACULTY OF LAW.UiTM SHAH ALAM

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