Contract Law
Contract Law
Contract Law
INTRODUCTION
A contract may be defined simply as a legally binding agreement between two parties. Contracts are essential to commercial life. Generally in Malaysia, the law of contracts is regulated by the Contracts Act 1950. If a particular subject concerning the law of contract is not dealt with sufficiently or not at all by the Contracts Act or Malaysian decided cases, then the English law may be applied.
ESSENTIAL ELEMENTS
The essential elements or pre-requisites of a valid contract are:
i) offer and acceptance ii) certainty of the terms iii) genuine intention to create legal relations iv) consideration v) capacity
It is important to know which party makes the offer and which accepts. In the case of goods on display in a shop or supermarket, the law has decided that it is the customer who makes the offer by taking the goods and placing them on the shopkeepers or cashiers counter, and the shopkeeper or cashier accepts the offer by accepting the customers money. The price displayed on the goods is not the offer, it is only an invitation for the customer to make an offer; it is only an invitation to treat. The law gives the shopkeeper or cashier the right to accept or reject a customers offer.
The law requires that the sale of certain pharmaceuticals must be carried out under the supervision of a qualified pharmacist. Boots operated a store where the drugs were displayed on a self-service basis and the customers paid at a cash desk for the goods they has selected. A pharmacist was present at the cash desk but not at the shelves where the goods were displayed with a price tag. The Pharmaceutical society claimed that the law was contravened. The court held that the display of goods in the store was not an offer but an invitation to treat. It was the customer who made the offer and Boots could either accept or reject this offer at the cash desk (in the presence of the qualified pharmacist). The act of constituting the acceptance is the ringing up of the price on the till by the cashier and at that moment a binding contract of sale is made.
RELATED CASES
Partridge v Crittenden Harvela Investments v Royal Trust Co of Canada (1985) Blackpool Aero Club v Blackpool Borough Council (1990_ Harvey v Facey (1893) Fisher v Bell (1959)
ACCEPTANCE
It is the unconditional consent to the terms of the offer. In other words, it is a final and unqualified acceptance of the terms of an offer. It is important to note that if an acceptance contains any reservations, any variations to the terms of the offer, etc, then the acceptance will be conditional. Since it will not be an unconditional consent to the terms of the offer, it will not be an acceptance. Conditional accept condisider as a new offer or COUNTER_OFFER. The general rule is that an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence. (See the case of Entores v Miles Far East Corp [1955] 2 All ER 493- where Lord Denning stated that acceptance must be communicated by the offeree or someone authorised by the offeree. If someone accepts on behalf of the offeree, without authorisation, this will not be a valid acceptance.
ACCEPTANCE
The general rule is that an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence. (See the case of Entores v Miles Far East Corp [1955] 2 All ER 493where Lord Denning stated that acceptance must be communicated by the offeree or someone authorised by the offeree. If someone accepts on behalf of the offeree, without authorisation, this will not be a valid acceptance. Since the acceptance must be communicated to the offeror, merely remaining silent cannot amount to acceptance, unless it is absolute clear acceptance was intended. (See the case of Powell v Lee-where the court stated that the offeror cannot impose a contract on the offeree against his wishes by deeming that his silence should amount to an acceptance)
REVOCATION OF OFFER/ACCEPTANCE
Offer and acceptance provide a test to determine the time when an agreement is reached, which is the time when the proposal or offer is accepted by the promisee. After this point in time, the parties cannot legally go back on their agreement, except by mutual consent. Section 5 provides that:A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. an offer may be withdrawn at any time before acceptance is complete, under section 6(a. In general, an offer terminates: i) When rejected by the offeree. ii) When the offeree made a counter-offer. iii) On the death of either the offeror or the offeree before acceptance. iv) By non-acceptance within the time stipulated for acceptance, or within a reasonable time. V) When revoked before acceptance.
GENUINE INTENTION TO CREATE LEGAL RELATIONS Although every contract is an agreement, there are many agreements which are not contracts. For example, if A and B agree to meet at 8 oclock to have dinner together, the agreement is made without intending that there will be legal consequences if either A or B in the end, does not turn up. It is merely a social agreement, and not a contract. In order that an agreement becomes a contract, there must be a genuine intention to create legal relations which has legal implications. For the parties to be bound, they must have finished reaching an agreement, so that it is possible to infer an intention on the part of both of them to be bound immediately: Kwong Kum Sun(s) Pte Ltd v Lian Soon Siew & Ors. [1984].
RELATED CASES
In Rose and Frank Co. v Crompton (1925), a written agreement between the parties stipulated that it was not a formal or legal document and should not be subject to the legal jurisdiction of the court. The House of Lords held that the agreement had no legal effect. Parties usually engage in a process of negotiation before they settle into an agreement. During this process of negotiation, they do not intend to be legally bound yet. Likewise, when the parties include the words subject to contract, it usually means that whatever agreement that seems to have been reached still needs further deliberation, which shows that the parties are not ready to be legally bound. In all these circumstances, there is no contract yet. In Balfour v Balfour (1919), the husband went to work in Ceylon and agreed to pay his wife 30 per month. E did not pay the money and the wife sued. It was held that there was no contract because the parties did not intend to create a legal relationship.
CONSIDERATION
Section 26 provides that an agreement without consideration is void. . The word consideration is defined in section 2(d). It means merely the price in a bargain. The price need not be money, but must have a monetary value. Examples: If A enters a shop and buys a packet of groundnuts, the consideration which A provide is the money, whereas the consideration moving from the shopkeeper is the packet of groundnuts. They have each provided consideration for the business transaction. On the other hand, if a person promises to give you RM500 as a gift on your birthday, this promise would not be enforced by a court, because you have not provided any consideration for the promise, so that it is a promise without consideration and is void as a contract.
Section 25 states that if the consideration or any part of it is unlawful, the agreement is void. Section 24 lists out the circumstances when the consideration or object (i.e. purpose) of an agreement is unlawful. Every agreement of which the object or consideration is unlawful is void.
CAPACITY
Generally, any person may make a contract, but the law sometimes protects certain classes of persons such as minors and mental patients who, because of an inherent weakness or disability, cannot be expected to manage their own affairs adequately. Section 11 states that: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. MINORS- UNSOUND MINDS DISQUALIFIED BY LAW
RELATED CASES
Nash v Inman (1908) : A tailor supplied high-class clothing to an undergraduate at Cambridge University. The clothes include 11 fancy waistcoats. The undergraduates father was a wealthy architect. The clothes could be said to be suitable to the undergraduates station in life. However, his father proved that the infant was already amply supplied with such clothes when the tailor supplied the clothes concerned. The court held that the goods supplied were not necessaries. In Government of Malaysia v Gurcharan Singh & Ors [1971], it was held that education was included under necessaries. ..Under the Contracts [Amendment] Act 1976, for scholarships or loans given by the government or a statutory body or an educational institution, the scholarship agreement entered into by an infant is valid.
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