Type of Contract

(a) Bilateral contracts

- Both parties make promise to each other
- Mutual exchange of promises

(b) Unilateral contracts

- One party is making the promise whilst the other party accept by merely performing the
acts
- A promise to do something if B performs some specific acts required in A’s proposal

Elements / Formation of Contracts

1. Offer
a) Bilateral offer
- Offer made to a particular person/group of persons
- The identity of the offeror & offeree is known to the parties

b) Unilateral offer
- Offer made to world at large
- Only the offeror is known. (Carlill v Carbolic Smoke Co Ltd)

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

Section 4(1)
The communication of a proposal is complete when it comes to the knowledge of the person to
whom it is made
(a) The subject matter of the proposal must be certain
(b) The proposal must be communicated to the offeree

Carlill v Carbolic Smoke Co Ltd (Excemption of ITT) (Advertisement can be an offer)

Defendant = Carbolic Smoke Ball Company

- He placed an advertisement in a newspaper for their product & claiming that it would pay
£100 to anyone who got sick with influenza after using its product.
- The advertisement also stated that the company had deposited £1000 in a bank account to
show their sincerity.

Plaintiff = Mrs Carlill

- Thus purchased some smoke balls and use it properly

- But still contracted influenza & attempt to claim the £100 from the defendants
- The defendant claimed that the advertisement was merely an invitation to treat (ITT) & they
are not bound by it

Court : the advertisement was a unilateral offer, and the company was fully liable for the £100
for the plaintiff.

Invitation to treat (ITT)

- A preliminary communication
- An effort to induce others to make an offer
- It is not by itself an offer
- One party is making an invitation for the person interest to come forward to make an offer

Example:

(a) Price Tag

= Pharmaceutical Society of GB v Boots Cash Chemist Ltd (1953)
o Article was wrapped and had price tags displayed to the customers
o The defendant was charged for selling a listed poison without the supervision of
registered pharmacist
o Court: the display was an ITT
o : An offer occurred when the customer placed the articles at the cashier and
it may be accepted or denied
: The contract of sale would only be made at the cashier’s desk

(b) Display of goods

= Fisher v Bell 市议会

o The authorities charged the defendant with offering for sale a flick knife in his shop-
window, which was against the law.
o Court: the display of an article with a price on a shop window is merely an ITT but
not an offer for sale

(c) Enquiry of price

= Harvey v Facey
o P sent Telegram to D to ask for the lowest price of Bumper Hall Pen.
o D replied the lowest price is £900.
o P agrees with the price and request for title deeds
o P did not receive any reply from D
o Court:
  No contract since no acceptance
 The replied from D was not an offer but a supply of information of the
minimum price

(d) Advertisement

(e) Auctions
= Payne v Cave
o D made the highest bid and withdrew it before the fail of the hammer
o Court:
 The request for bids is only an ITT
 No contract formed between the parties

Ask you to bid = ITT

You bid = Make offer

NO fall hammer = NO acceptance

2. Acceptance

Section 2(b)
When a person signifies his assent thereto, the proposal is said to be accepted and become a
promise.

Requirement of acceptance

1) Must signified his acceptance (Fenthouse v Bindley)

2) Must communicate
3) Must be absolute & unqualified
o Cannot be counter offer (Hyde v Wrentch)
o Cannot be subject to contract (Low Kar Yit v Mohd Isa)
4) Must be prescribe manner
5) Must be within a reasonable time
6) Must be in reliance to the offer (R v Clarke)

1) Must signified his acceptance (in prescribe manner = cannot be silence)

Fenthouse v Bindley
- P’s uncle offered to buy a horse from P and
- State that if he didn’t hear anymore from P concerning the horse, he would consider this is
an acceptance.
- P did not reply the letter
- It was held that P’s silence did not amount to acceptance of the offer.

2) Must communicate

3) Must be absolute & unqualified

Section 7(a)
to convert a proposal into a promise the acceptance must be absolute and unqualified

o Cannot be counter offer

Hyde v Wrentch
 1st: D offered to sell a land to P at £1,000, but it was declined by P
: P offered to buy at £950 but D refused

 When D refused, P wrote again this time agreeing to pay £1,000

 This is an attempt to revive the original proposal
 No acceptance taken place
 Court: no binding contract
: when a counter offer is made, this supersedes and destroy the
original offer
: the original offer is no longer available and could not back trace
and accept

o Cannot be subject to contract

Low Kar Yit v Mohd Isa
 D gave option to P’s agent to purchase a land SUBJECT to a formal contract
being drawn up agreed by the parties
 P’s agent exercised the option BUT D failed to sign the agreement
 P sued for breach of contract
 Court: no binding contract since the condition of the contract have not be
fulfill

4) Must be prescribe manner

Section 7(b)
The acceptance must be expressed in some usual and reasonable manner, UNLESS
the proposal prescribes the manner in which it is to be accepted
5) Must be within a reasonable time
Section 6(b)
A proposal is revoked by the lapse of time prescribed in the proposal for its
acceptance, or, if no time is so prescribe, by the lapse of a reasonable time, without
communication of acceptance

6) Must be in reliance to the offer

- Offeree must know the offer

R v Clarke
o The Australia government offered a reward of £1,000 & grant a free pardon for
information leading to the arrest of the murderers for the murder of 2 police
officers
o Clarke made a statement and gave evidence in which another 2 person were
convicted for that murder
o The thought of the reward had completely passed out Clarke’s mind
o Court:
 Ignorance of the offer is the same as never hearing it or forgetting it after
hearing it.
 Clarke failed to get the reward

REVOCATION

Revocation of PROPOSAL Revocation of ACCEPTANCE

S 5(1) S 5(2)
A proposal may be revoked at any time An acceptance may be revoked at any time
BEFORE the communication of its acceptance BEFORE the communication of the
is complete against the proposer, BUT not acceptance is complete against the proposer,
afterwards BUT not afterwards

Way of Revocation of PROPOSAL Way of Revocation of ACCEPTANCE

S 6 : A proposal is revoked S 4(3) The communication of a revocation is

(a) By the communication of notice of complete
revocation by the proposer to the (a) As against the person who makes it
other party (b) As against the person to whom it is
(b) By the lapse of time prescribe in the made, when it comes to his
proposal for its acceptance knowledge
(c) By the failure of the acceptor to fulfil
a condition precedent to acceptance
3. Consideration
Section 2(d)
When, at the desire of the promisor, the promisee or any other person has done or abstained
from doing, does or abstains from doing, or promise to do or to abstain from doing something;
such act or abstinence or promise is called consideration for the promise.

CATEORIES OF CONSIDERATION

Executory consideration (Promise – Promise)

- Exchange the promise in future to do an act between 2 parties
- When one promise is made in return to another promise in the future
Eg: X agrees to sell to Y a bicycle and Y’s promise to pay RM200 for the bicycle in return

Executed consideration (Promise – Performance)

- When one party makes a promise in return for the performance of an act by the other party
- When the act is performed by the offeree, the consideration is executed
- Then it is the offeror’s to perform his promise
Eg:
o X offered RM100 to anyone who finds and return his camera
= offeror make a promise for a performance of an act
o Y search & found the camera then return to X = Executed the consideration
o X need to perform his promise = Rewarding RM100 to Y as consideration

Past consideration (Performance – Promise)

- Something performed before the making of promise

- Independent promise where the promise was made subsequently to the act
- Only the past act done at the desire of the promisor is a good consideration
Eg:
o X got into difficulty while swimming, Y passing by and saved X from drowning
o Later X promised to give Y RM500 for saving his life

Section 26
An agreement made without consideration is void, UNLESS it comes to its exception :-

EXCEPTION

S26 (a) – Writing and registered agreement on account of natural love and affection
S26 (b) – A promise to compensate for something done voluntarily
 S26 (c ) - A promise to pay a debt barred by law

S26 (a) – Writing and registered agreement on account of natural love and affection

Re Tan Soh Sim & Ors v Tan Siew Keow [1951]

- A woman on her deathbed expressed her intention to leave all her properties to her four
adopted child
- Court held that the adopted children did not fall under the category of ‘near relation’
- It was contrary to S26(a)

S26 (b) – A promise to compensate for something done voluntarily

- Similar to past consideration (Performance – Promise)
- Valid contract

S26 (c ) - A promise to pay a debt barred by law

- A promise made in writing to pay a debt by law is VALID even though there was no
consideration

Requirement / Rules of consideration

1. Consideration need not be adequate

Phang Swee Kim v Beh I Hock [1964]
- Respondent orally agreed to transfer the land to the plaintiff on payment of RM500
although the land was worth much more
- The respondent later refused to honour the promise stated that the consideration is
inadequate
- Court : inadequacy of consideration is immaterial, the contract is valid

2. Consideration need not move from promise

Chinnaya v Ramayya (1882)
- The sister agreed to pay an annuity to her brother who provided no consideration for the
promise
- On the same day, their mother gave the sister some land stipulating that she must pay the
annuity to her brother
- The sister later failed to fulfill her promise
- Court : she was liable on the promise, there was a valid consideration even though it did not
move from her brothers
4. Intention to create legal relationship

A) Social and Domestic Agreement

Balfour v Balfour

- agreement between spouse not made in writing

- D who worked in Ceylon promised to pay £30 to his wife monthly as maintenance fees
- BUT he failed to keep up the payment when the marriage ended
- Court:
o it was not a contract because
 the plaintiff did not provide consideration &
 there was no intention to create legal relations

Meritt v Meritt

- made in writing
- The husband left his wife & signed an agreement to pay £40 monthly for mortgage payment
- When the mortgage was paid off, he would transfer the house to wife’s name
- BUT he refused to do so
- Court:
o There was an intention to create legal relations (They were not living together)
o The wife has given the consideration
o It was evidence by writing
o The husband needs to transfer the house

B) Business and Commercial Agreements

Esso Petroleum v Customs & Excise

General rule: in commercial or business agreements the presumption is that there is always the
presence of intention to create legal relations

EXCEPTION: ‘Subject to contract’

Low Kar Yit v Mohd Isa

- D gave option to P’s agent to purchase a land SUBJECT to a formal contract being drawn up
agreed by the parties
- P’s agent exercised the option BUT D failed to sign the agreement
- P sued for breach of contract
- Court: no binding contract since the condition of the contract have not be fulfill
5. Capacity

Section 11
Every person is competent to contract who is of the age of majority according to the law, and
who is sound mind, and is not disqualified from contracting by any law.

MINOR
S2 Age of Majority Act 1971
- Age of majority is 18 years old.
- Anyone below 18 years old is regarded as a minor

General rule:
Mohari Bibee v Dhurmodas Ghose
It was held that a minor cannot make a valid contract

EXCEPTIONS
1. CONTRACT FOR NECESSARIES
The test for necessaries depends on:
i) The nature of the goods or services supplied
ii) The minor’s actual needs and his station in life
iii) The minor’s actual requirement at the time he makes the contracts

Section 69
- If a person, incapable of entering into a contract is supplied by another person with
necessaries suited to his condition in life,
- The person who has furnished such supplies is entitled to be reimbursed from the property
of such incapable person

Nash v Inman

- A tailor sued for the price of the clothes sold to a minor on credit.
- The court held that Inman was actually a minor and that he already had enough clothing at
the time of sale
- Thus, there was no evidence that the clothing was a necessaries for Inman at that time

2. CONTRACTS FOR SCHORLARSHIP

Section 4(a) – no scholarship agreement shall be invalidated on the reason that the
scholar is a minor

Government of Malaysia v Gurcharan Singh & Ors

- The government has spent a substantial amount of money in educating the
defendant to be bound for 5 years upon graduation
 - Unfortunately, the defendant left before the full term
- When sued, he claimed that the contract is void as he was a minor during that time
- Court: education = necessary to a minor, he was liable for the contract

3. CONTRACT OF INSURANCE
4. CONTRACT OF SERVICE OF APPRENTICESHIP

UNSOUND MIND
Section 12 (1)
Sound mind = at the time when he makes it, he is capable of understanding it and can form a
rational judgement upon his interest

Section 12 (2)
Usually unsound mind, occasionally sound mind
= may make a contract when he is sound mind

Section 12 (3)
Usually sound mind, occasionally unsound mind (drunk)
= may not make a contract when he is unsound mind

6. Consent
7. Legality

Type of Terms
1) Express term

2) Implied term
a) Implied by Fact
b) Implied by Law
Eg. Sales of Goods Act 1957
S14(a) – provides for the implied CONDITION that a vendor who sells goods must possess
the right to sell

S14(b) – provides an implied WARRANTY that the buyer shall have and enjoy quiet
possession of the goods

S14(c ) – provides an implied WARRANTY that the goods shall be free from any charge in
favor of any third party do not know the buyer before or at the time when the contract is
made
 c) Implied by custom / trade usage

3) Exclusion term

CONDITIONS

- Vital or essential to the main purpose of a contract

S12(2) SOGA 1957

A condition is a stipulation essential to the main purpose of the contract

The breach will give rise to a right to treat the contract as repudiated 否定

WARRANTY

- Minor term
- Only give rise to an action for damages

S12(3) SOGA 1957

A warranty is a stipulation collateral 附属 to the main purpose of the contract

The breach will only give rise to a claim for damages BUT not right to reject the goods and treat the
contract as repudiated

Can Conditions be treated as Warranty?

S13(1) SOGA 1957

The buyer of the contract may waive the CONDITION or elect to treat the breach of condition as a
BREACH OF WARRANTY and not as a ground for treating the contract as repudiated.

Valid, Voidable, Void

Valid

= enforceable in the court of law

= Parties are able to exercise their right and obligations

Voidable

= can be regarded as void or valid at the option of the innocent party

= has legal effect until avoided

Void

= invalid / has no legal effect

= no rights or obligations are created at all

= not enforceable in law – Section 2(g)

FREE CONSENT

S14 = Consent is said to be fee when it is not caused by –

S15 – Coercion

S16 – Undue influence

S17 – Fraud

S18 – Misrepresentation

S21,22,23 – Mistake

VITIATING FACTORS
S19 – When consent is caused by coercion, fraud, or misrepresentation, the agreement is
VOIDABLE at the option of innocent party

S15 – Coercion
= committing, or threatening to commit any act forbidden by the Penal Code, or the unlawful
detaining 非法拘留 with the intention of causing any person to enter into an agreement

S16 – Undue influence

S16 (1) = A relationship between the parties in which one parties is in the position to dominate
the will of the other party & use that position to obtain an unfair advantage over the other
party

S16 (2)
= A person is deemed to be in a position to dominate the will of another
a) He holds a real or apparent authority or stands in a fiduciary relation to the other
 b) Make a contract with a person whose mental capacity is temporarily or permanently
affected

S17 – Fraud
- Must be intention to deceive or to induce the other party to enter into the contract
- Must be reliance on the false statement by the other party

S17 (a) – Suggestion of fact which is not true 明知道错还 suggest

S17 (b) – Concealment (purposely hide something)

S17 (c) – Promise made without any intention to perform it 开空头支票

S17 (d) – Committing any other act fitted to deceive

S17 (e) – Act or omission as the law specifically declares to be fraudulent

S18 – Misrepresentation
S18(a) - Innocent misrepresentation

- The positive assertion, a person makes a statement that is not true, but he believes it to be
true
- No elements of fraud or negligence present
- The maker of the false statement honestly believes that his statement is true, but however
is not true

S18(b) - Negligence misrepresentation

- Any breach of duty, without an intent to deceived, gives an advantage to the person
committing it, or anyone claiming under him, by MISLEADING another to his prejudice
- The maker honestly believes his statement, BUT he failed to take adequate care at the time
of making the statement

Hedley Byrne v Heller & Partners

- P relied on the misleading report provided by D and suffered heavy loss

- D has a duty of care to give the right information when a person would rely on his
judgement
S21,22,23 – Mistake
S21 – Mistake by both parties = VOID

S22 – Contract with mistake is not voidable

S23 – Mistake made by one party only = VALID

DISCHARGE
1) BY PERFORMANCE
S38(1) – BOTH parties finished perform the contract
The parties of the contracts must either perform, or offer to perform, their respective
promises, unless the contract didn’t require to do so.

2) BY CONSENT
S63 – BOTH parties mutually agree to end their contractual relationship

3) BY FRUSTRATION
S57 (1) – an agreement to do an act impossible in itself is VOID

S57(2)
- A contract to do an act which become IMPOSSIBLE TO PERFORM after the contract is
made by reason of the promisor could not prevent or become unlawful
- The contract become VOID
Taylor v Caldwell – Destruction of subject matter
- D agreed to let P to use his music hall and garden for entertainment purpose
- Before the day of the performance, a fire destroyed the music hall
- The D was unable to perform the contract
- Court : the contract was frustrated due to the destruction of subject matter without
the fault of either party

4) BY BREACH
S40
When one party has refused to perform or disabled himself to perform, the innocent party
may rescind the contract