1 OUTCOME 1: PRINCIPLES OF LAW 2 Test your understanding. Analyse the following transactions in terms of offer and acceptance Filling a job vacancy Filling.

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OUTCOME 1:OUTCOME 1:PRINCIPLES OF LAWPRINCIPLES OF LAW

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Test your understanding.Test your understanding.

Analyse the following transactions in terms Analyse the following transactions in terms of offer and acceptanceof offer and acceptance Filling a job vacancyFilling a job vacancy Parking a car in a multi-storey car parkParking a car in a multi-storey car park Taking a bus rideTaking a bus ride Buying a cup of coffee from an automatic Buying a cup of coffee from an automatic

vending machinevending machine Buying a packet of soap powder from a Buying a packet of soap powder from a

supermarketsupermarket Buying an antique dresser at an auctionBuying an antique dresser at an auction Acquiring shares in a privatisation issueAcquiring shares in a privatisation issue Buying a book via internetBuying a book via internet

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THE THE LAW OF CONTRACTLAW OF CONTRACT

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WHAT IS CONTRACT?WHAT IS CONTRACT?

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Think about the agreements you have Think about the agreements you have made over the past week:made over the past week:

buying a newspaper;buying a newspaper; taking the bus into work or college;taking the bus into work or college; agreeing to complete an assignment agreeing to complete an assignment

by a; particular date;by a; particular date; getting a cup of coffee at breaktime;getting a cup of coffee at breaktime; arranging to meet a friend for luncharranging to meet a friend for lunch

Can all these transactions be classed Can all these transactions be classed as contracts?as contracts?

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IntroductionIntroduction

Definition of Contract: An agreement made Definition of Contract: An agreement made between two or more parties, which the between two or more parties, which the law will enforce.law will enforce.

S. 2(h) of CA 1950S. 2(h) of CA 1950 - - it is an agreement it is an agreement enforceable by law.enforceable by law.

A contract is different from all other forms A contract is different from all other forms of agreement because the parties to a of agreement because the parties to a contract acquire as a result of the contract acquire as a result of the agreement certain rights and obligations agreement certain rights and obligations which are legally enforceable.which are legally enforceable.

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If a party breaks his promise and If a party breaks his promise and persists with his refusal to act as persists with his refusal to act as agreed, the other party may well wish to agreed, the other party may well wish to enforce performance.enforce performance.

Generally, the law will only compel a Generally, the law will only compel a person to carry out his promise if that person to carry out his promise if that promise is embodied in a valid contract.promise is embodied in a valid contract.

If a valid contract exists then a party to If a valid contract exists then a party to the contract can sue the other for failure the contract can sue the other for failure to carry it out.to carry it out.

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Types of Contracts Types of Contracts

Bilateral and Unilateral ContractsBilateral and Unilateral Contracts BilateralBilateral: both parties make a promise.: both parties make a promise. UnilateralUnilateral: one party makes a promise that : one party makes a promise that

the other party can accept only by doing the other party can accept only by doing something.something.

Bilateral vs. Unilateral Express vs. Implied

Executory vs. Executed

Valid vs. Unenforceable vs. Voidable vs. Void

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Types of Contracts Types of Contracts (cont’d)(cont’d) Express and Implied ContractsExpress and Implied Contracts

ExpressExpress: the two parties explicitly state : the two parties explicitly state all important terms of their agreement.all important terms of their agreement.

ImpliedImplied: the words and conduct indicate : the words and conduct indicate that the parties intended an agreement.that the parties intended an agreement.

Executory and Executed ContractsExecutory and Executed Contracts ExecutoryExecutory: when one or more parties has : when one or more parties has

not fulfilled its obligations.not fulfilled its obligations. ExecutedExecuted: when all parties have fulfilled : when all parties have fulfilled

their obligations.their obligations.

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Types of Contracts Types of Contracts (cont’d)(cont’d) Valid, Unenforceable, Voidable, and Valid, Unenforceable, Voidable, and

Void AgreementsVoid Agreements ValidValid: satisfies the law’s requirements.: satisfies the law’s requirements. UnenforceableUnenforceable: when the parties intend : when the parties intend

to form a valid bargain but some rule of to form a valid bargain but some rule of law prevents enforcement.law prevents enforcement.

VoidableVoidable: when the law permits one party : when the law permits one party to terminate the agreement.to terminate the agreement.

VoidVoid: one that neither party can enforce, : one that neither party can enforce, usually because the purpose is illegal or usually because the purpose is illegal or one of the parties had no legal authority.one of the parties had no legal authority.

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Essentials for a valid contractEssentials for a valid contract Proposal/OfferProposal/Offer Acceptance Acceptance Intention to create legal obligationIntention to create legal obligation ConsiderationConsideration Certainty Certainty Legal capacityLegal capacity Free consentFree consent Legality of the objectsLegality of the objects Required formalitiesRequired formalities

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PROPOSALPROPOSAL S.2(a)S.2(a) of the Contract Act 1950 of the Contract Act 1950

provides that:provides that: When one person signifies to another When one person signifies to another

his willingness to do or to abstain from his willingness to do or to abstain from doing anything, with a view to doing anything, with a view to obtaining the assent of that other to obtaining the assent of that other to the act or abstinence, he is said to the act or abstinence, he is said to make a proposal.make a proposal.

Example: Mr. Squidward wrote offering Example: Mr. Squidward wrote offering to sell his car to Mr. Crab for to sell his car to Mr. Crab for RM50,000.RM50,000.

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The person making the proposal is The person making the proposal is called the promisor/proposer/offeror. called the promisor/proposer/offeror. The party accepting the proposal is The party accepting the proposal is referred to as the promisee. referred to as the promisee.

Based on the above example, Mr. Crab Based on the above example, Mr. Crab acceptance of Mr. Squidward’s proposal acceptance of Mr. Squidward’s proposal to buy the car establishes an to buy the car establishes an agreement.agreement.

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A proposal can be made to an A proposal can be made to an individual, a class of persons, a firm, individual, a class of persons, a firm, a company or to the public at large.a company or to the public at large.

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Carlill v Carbolic Smoke Ball Carlill v Carbolic Smoke Ball Co. (1893) IQB 256Co. (1893) IQB 256

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Carlill v Carbolic Smoke Ball Co. Carlill v Carbolic Smoke Ball Co. (1893) IQB 256(1893) IQB 256, is a good illustration , is a good illustration of an offer made to the public. of an offer made to the public.

The defendant issued an advertisement The defendant issued an advertisement in which they offered to pay 100 to any in which they offered to pay 100 to any person who succumbed to influenza person who succumbed to influenza after having used one of their smoke after having used one of their smoke balls in a specified period. The plaintiff balls in a specified period. The plaintiff Mrs. Carlill bought and used the smokes Mrs. Carlill bought and used the smokes ball as prescribed and caught influenza. ball as prescribed and caught influenza.

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She sued the company for the promised She sued the company for the promised reward. The defendants contended that the reward. The defendants contended that the contract was made with the entire world, that contract was made with the entire world, that is with everybody, and that one can’t contract is with everybody, and that one can’t contract with everybody. It was held that an offer could with everybody. It was held that an offer could be made to the entire world because the be made to the entire world because the contract will only be made with that limited contract will only be made with that limited portion of that public who came forward and portion of that public who came forward and performed the condition on the faith of the performed the condition on the faith of the advertisement.advertisement.

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A proposal can be made in any form; A proposal can be made in any form; it can be made in writing, orally, by it can be made in writing, orally, by conduct or by combination of these.conduct or by combination of these.

The communication of the proposal The communication of the proposal is complete when it comes to the is complete when it comes to the knowledge of the person to whom it knowledge of the person to whom it is made.is made.

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Invitation to TreatInvitation to Treat Invitation to treat is not a proposal but a Invitation to treat is not a proposal but a

sort of preliminary communication which sort of preliminary communication which passes between the parties at the stage of passes between the parties at the stage of negotiation. negotiation. Examples of invitation to Examples of invitation to treattreat::

1)1) The display of goods with a price ticket The display of goods with a price ticket attached in a shop window or on a attached in a shop window or on a supermarket.supermarket.

This is not an offer to sell but an invitation This is not an offer to sell but an invitation for customers to make an offer to buy.for customers to make an offer to buy.

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FISHER v BELL [1960]FISHER v BELL [1960]

Shopkeeper- flick knife on display in Shopkeeper- flick knife on display in his shop window-charged with offering his shop window-charged with offering weapon contrary to the provisions of weapon contrary to the provisions of the Restriction of Offensive Weapon the Restriction of Offensive Weapon Act 1959.Act 1959.

Held: the display of goods with a price Held: the display of goods with a price ticket attached in a shop window is an ticket attached in a shop window is an ITT ( not an offer to sell)ITT ( not an offer to sell)

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PHARMACEUTICAL SOCIETY OF GREAT PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v BOOTS CASH CHEMISTS Ltd BRITAIN v BOOTS CASH CHEMISTS Ltd

[1953][1953] Defendant – charged under Pharmacy and Defendant – charged under Pharmacy and

Poisons Act 1933-unlawful to sell certain Poisons Act 1933-unlawful to sell certain poisons unless such sale was supervised by poisons unless such sale was supervised by a registered pharmacist.a registered pharmacist.

Held: the display was only and ITT (Payment Held: the display was only and ITT (Payment was to be made at the exit where a cashier was to be made at the exit where a cashier was stationed and in every case involving was stationed and in every case involving drugs, a pharmacist supervised the drugs, a pharmacist supervised the transaction and authorized to prevent a transaction and authorized to prevent a sale.)sale.)

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2)2) Advertisements, catalogues and Advertisements, catalogues and brochuresbrochures. .

PARTRIDGE v CRITTENDEN [1968]PARTRIDGE v CRITTENDEN [1968] Advertisement-”Bramblefinch cocks, Advertisement-”Bramblefinch cocks,

Bramblefinch hen, 25s each.”Bramblefinch hen, 25s each.” Held: the advertisement was an ITT ( the Held: the advertisement was an ITT ( the

word ’offer’ did not appear in the word ’offer’ did not appear in the advertisement.)advertisement.)

However, there are some situations However, there are some situations where an advertisement may be where an advertisement may be regarded as a definite offer: Carlill’s regarded as a definite offer: Carlill’s casecase

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3)3) AuctionsAuctionsPAYNE v CAVE [1789]PAYNE v CAVE [1789]-Df made the highest bid (offer) at an -Df made the highest bid (offer) at an auction sale but withdrew his bid before auction sale but withdrew his bid before the fall of the auctioneer’s hammer the fall of the auctioneer’s hammer (acceptance).(acceptance).-Df was not bound to purchase the -Df was not bound to purchase the goods.goods.

HARRIS v NICKERSON [1873]HARRIS v NICKERSON [1873] -Advertisement a forthcoming auction -Advertisement a forthcoming auction

sale does not amount to an offer to hold sale does not amount to an offer to hold it.it.

4)4) TenderTender5)5) Company prospectusCompany prospectus

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5)5) Statements of price in negotiations Statements of price in negotiations for the sale of land.for the sale of land.

HARVEY v FARCEY [1893]HARVEY v FARCEY [1893]

H sent telegram to F: Will u sell us H sent telegram to F: Will u sell us

Bumper Hall Pen? Telegraph lowest Bumper Hall Pen? Telegraph lowest

cash price… cash price…

H telegraphed his response: We agree H telegraphed his response: We agree

to buy BHP for to buy BHP for ££900 asked by u.900 asked by u.

Held: there was no contractHeld: there was no contract

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COMMUNICATION OF OFFERCOMMUNICATION OF OFFER Rule: Only an addressee may accept the Rule: Only an addressee may accept the

proposalproposal A party accepting a proposal must be A party accepting a proposal must be

aware of its existence.aware of its existence. A party who casually returns a lost A party who casually returns a lost

property to its owner cannot legally claim property to its owner cannot legally claim a reward if he is unaware of it at the time a reward if he is unaware of it at the time but subsequently discovers the existence but subsequently discovers the existence of an offer of rewards for its return.of an offer of rewards for its return.

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R v CLARKE [1927]R v CLARKE [1927] The Western Australian Gov. offered a The Western Australian Gov. offered a

reward for information leading to the reward for information leading to the arrest and conviction of persons arrest and conviction of persons responsible for the murder of two police responsible for the murder of two police officers.officers.

Held: The claimed failed on the grounds Held: The claimed failed on the grounds that the information was given to clear that the information was given to clear himself and not in reliance on the offer of himself and not in reliance on the offer of rewards. rewards.

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2.2. ACCEPTANCEACCEPTANCE S.2 (b)S.2 (b) CA provides that CA provides that

“ “when a person to whom the proposal is when a person to whom the proposal is made signifies his assert thereto, the made signifies his assert thereto, the proposal is said to be accepted, a proposal is said to be accepted, a proposal when accepted becomes a proposal when accepted becomes a promise.”promise.”

S.9S.9 CA provides that, ”where the CA provides that, ”where the acceptance is made in words, the acceptance is made in words, the acceptance is expressed, where the acceptance is expressed, where the acceptance is made other than in words, acceptance is made other than in words, it is implied.”it is implied.”

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S.7(a)S.7(a) CA provides that, ” acceptance CA provides that, ” acceptance must be absolute and unqualified.”must be absolute and unqualified.”

The acceptance must be made on exactly The acceptance must be made on exactly the same terms as proposed the same terms as proposed without without modifications or variations.modifications or variations.Any modifications or variations of the Any modifications or variations of the proposal does not constitute an acceptance proposal does not constitute an acceptance but amounts to a but amounts to a counter-offercounter-offer. It is treated . It is treated as a as a rejection of the offerrejection of the offer..

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In the case of In the case of Hyde v Wrench (1840)Hyde v Wrench (1840)::June 6-defendant offered to sell his estate June 6-defendant offered to sell his estate to the Plaintiff for 1,000.to the Plaintiff for 1,000.June 8–plaintiff replied stating he was June 8–plaintiff replied stating he was willing to buy at 950, defendant refused to willing to buy at 950, defendant refused to sell.sell.June 27 –plaintiff wrote again offering to June 27 –plaintiff wrote again offering to pay 1,000 as there was no contract pay 1,000 as there was no contract formed.formed.By making the counter offer the plaintiff By making the counter offer the plaintiff had rejected the original offer on June 8, had rejected the original offer on June 8, and is no longer able to accept it later.and is no longer able to accept it later.

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However, a distinction needs to be However, a distinction needs to be drawn between a counter-offer and a drawn between a counter-offer and a request for further information.request for further information.

STEVENSON JAQUES & CO v MCLEAN STEVENSON JAQUES & CO v MCLEAN [1880][1880]

HELD: there is no counter-offer but a HELD: there is no counter-offer but a mere inquiry which should have been mere inquiry which should have been answered and not treated as a answered and not treated as a rejection of the offer.rejection of the offer.

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Acceptance-Subject to ContractAcceptance-Subject to Contract

it often happen that acceptance may be it often happen that acceptance may be qualified by such common term as” qualified by such common term as” subject to contract” or “subject to a subject to contract” or “subject to a formal contract being drawn up by our formal contract being drawn up by our solicitors.” Under such circumstances solicitors.” Under such circumstances the court is inclined to determine that the court is inclined to determine that there is no binding agreement until the there is no binding agreement until the contract as stipulatedcontract as stipulated

LOW KAR YIT v MOHD ISA [1963]LOW KAR YIT v MOHD ISA [1963]

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COMMUNICATION OF ACCEPTANCECOMMUNICATION OF ACCEPTANCE

S.7 (b) CAS.7 (b) CA: The acceptance may : The acceptance may “ “ be expressed in some be expressed in some usual and reasonableusual and reasonable

mannermanner, unless the proposal prescribes a , unless the proposal prescribes a manner in which it is to be accepted. If the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in accepted, and the acceptance is not made in such manner, the proposer may within a such manner, the proposer may within a reasonable time after the acceptance is reasonable time after the acceptance is communicated to him, insist that his proposal communicated to him, insist that his proposal shall be accepted in the prescribed manner, and shall be accepted in the prescribed manner, and not otherwise, but if he fails to do so, he accepts not otherwise, but if he fails to do so, he accepts the acceptance.”the acceptance.”

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Silence, absence of response or just Silence, absence of response or just total disregard of the proposal is not total disregard of the proposal is not acceptance as there is no positive act acceptance as there is no positive act that can be related to the proposal.that can be related to the proposal.

The proposer may not throw the The proposer may not throw the burden on the addressee to a positive burden on the addressee to a positive act of rejection by saying for instance: act of rejection by saying for instance: “ if I do not hear from U within a “ if I do not hear from U within a week, I shall assume that U have week, I shall assume that U have accepted my proposal.”accepted my proposal.”

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FRASER v EVERETT FRASER v EVERETT [1889][1889]

Held: there was no rule of law saying Held: there was no rule of law saying that “silence gives consent” that “silence gives consent” applicable to mercantile contracts.”applicable to mercantile contracts.”

FELTHOUSE v BINDLEY [1862]FELTHOUSE v BINDLEY [1862]““If I hear no more about him, I shall If I hear no more about him, I shall

consider the horse is mine at £30.” consider the horse is mine at £30.”

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ACCEPTANCE THROUGH POSTACCEPTANCE THROUGH POST

General Rule: acceptance is effective General Rule: acceptance is effective or complete only when it is or complete only when it is communicated to the proposer.communicated to the proposer.

( comes to the actual knowledge of ( comes to the actual knowledge of the proposer)the proposer)

Exception: S.4(2) CA, where the Exception: S.4(2) CA, where the parties have contemplated the used parties have contemplated the used of the post as means of of the post as means of communication :communication :

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The communication of an acceptance The communication of an acceptance

is complete: is complete:

a)a) As against the As against the proposerproposer, when it is , when it is put in a course of transmission him, put in a course of transmission him, so as to be out of the power of the so as to be out of the power of the acceptor; andacceptor; and

b)b) As against the As against the acceptoracceptor, when it , when it comes to the knowledge of the comes to the knowledge of the proposer.proposer.

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Illustration (b) of s.4Illustration (b) of s.4

B accepts A’s proposal by a letter sent B accepts A’s proposal by a letter sent by post.by post.

The communication of the acceptance is The communication of the acceptance is complete:complete:

As against AAs against A, when the letter is posted;, when the letter is posted;

As against BAs against B, when the letter is received , when the letter is received

by Aby A

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CASE LAWCASE LAW

1.1. ADAMS v LINDSELL [1818]ADAMS v LINDSELL [1818]2.2. HOUSEHOLD FIRE INSURANCE CO v GRANT (1879)HOUSEHOLD FIRE INSURANCE CO v GRANT (1879)

3.3. ENTORES LTD v MILES FAR EAST ENTORES LTD v MILES FAR EAST CORPORATION [1955]CORPORATION [1955]

4.4. IGNATIUS v BELL (1913)IGNATIUS v BELL (1913)

5.5. BRINKIBON v STAHAG STAHL UND BRINKIBON v STAHAG STAHL UND STAHLWARENHANDELSGESELLSCHAFT [1983]STAHLWARENHANDELSGESELLSCHAFT [1983]

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ADAMS v LINDSELLADAMS v LINDSELL 2 Sept- Df wrote to the claimants-offering to sell 2 Sept- Df wrote to the claimants-offering to sell

them some wool and asking for an answer ‘in them some wool and asking for an answer ‘in course of post’. The letter was wrongly addressed course of post’. The letter was wrongly addressed & reached the claimant on 5 Sept.& reached the claimant on 5 Sept.

5 Sept-the claimants posted a letter of 5 Sept-the claimants posted a letter of acceptance-reached the Df on 9 Sept.acceptance-reached the Df on 9 Sept.

8 Sept-the Df sold the wool to someone else8 Sept-the Df sold the wool to someone else Held: There was a contract between the Df and Held: There was a contract between the Df and

the claimants.the claimants.

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HOUSEHOLD FIRE INSURANCE CO v HOUSEHOLD FIRE INSURANCE CO v GRANT (1879)GRANT (1879)

Grant applied for shares in the claimant company.Grant applied for shares in the claimant company. A letter of allotment was posted but Grant never A letter of allotment was posted but Grant never

received it.received it. When the company went into liquidation, Grant When the company went into liquidation, Grant

was asked as a shareholder, to contribute the was asked as a shareholder, to contribute the amount still outstanding on the shares he held.amount still outstanding on the shares he held.

Held: Grant was a shareholder of the company. Held: Grant was a shareholder of the company. The contract to buy shares was formed when the The contract to buy shares was formed when the letter of allotment ( acceptance) was posted.letter of allotment ( acceptance) was posted.

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ENTORES LTD v MILES FAR EAST ENTORES LTD v MILES FAR EAST CORPORATION [1955] CORPORATION [1955]

Denning LJ stated as follows:Denning LJ stated as follows:

“ “ when a contract is made by post it is when a contract is made by post it is clear law throughout the common clear law throughout the common law countries that acceptance is law countries that acceptance is complete as soon as the letter is put complete as soon as the letter is put into the post box, and that is the into the post box, and that is the place where the contract is made.”place where the contract is made.”

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IGNATIUS v BELL (1913)IGNATIUS v BELL (1913)

In the case, the parties had contemplated In the case, the parties had contemplated the use of the post as a means of the use of the post as a means of communication. The plaintiff sent a notice communication. The plaintiff sent a notice of acceptance by registered post in Klang of acceptance by registered post in Klang on August 16, 1912 but it was not on August 16, 1912 but it was not delivered till the evening of August 25 delivered till the evening of August 25 because the Plaintiff was away. The letter because the Plaintiff was away. The letter had remained in the post office at Kuala had remained in the post office at Kuala Selangor until picked up by the Defendant. Selangor until picked up by the Defendant. Held: the option was duly exercised by the Held: the option was duly exercised by the Pf when the letter was posted on August Pf when the letter was posted on August 1616

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BRINKIBON v STAHAG STAHL UND BRINKIBON v STAHAG STAHL UND STAHLWARENHANDELSGESELLSCHAFT STAHLWARENHANDELSGESELLSCHAFT

[1983][1983]

The House of Lords affirmed the rule with The House of Lords affirmed the rule with Respect to communications by telex established Respect to communications by telex established in the Entores case. According to the court no in the Entores case. According to the court no universal rule can cover all such cases and they universal rule can cover all such cases and they must be resolved by reference to the intentions must be resolved by reference to the intentions of the parties, by sound business practice and in of the parties, by sound business practice and in some instances, by a judgement where the risks some instances, by a judgement where the risks should lie.should lie.

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Notes: Notes:

1.1. Where there is a delay in the post or the Where there is a delay in the post or the letter of acceptance is misplaced by the letter of acceptance is misplaced by the postal authority, the proposer is bound postal authority, the proposer is bound irrespective of his knowledge of the irrespective of his knowledge of the acceptance, while on the other hand, the acceptance, while on the other hand, the acceptor remains free till actual receipt acceptor remains free till actual receipt by the proposer. This implies that in the by the proposer. This implies that in the meantime, the acceptor may also meantime, the acceptor may also withdraw his acceptance.withdraw his acceptance.

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2.2. Therefore, a proposer should stipulate in Therefore, a proposer should stipulate in a proposal that acceptance is complete a proposal that acceptance is complete only upon receipt. That would exclude only upon receipt. That would exclude the postal rule by express terms of the the postal rule by express terms of the proposal.proposal.

3.3. The postal rule also applies to telegram The postal rule also applies to telegram sent through the post office but not to sent through the post office but not to more instantaneous methods of more instantaneous methods of communication such as telex and communication such as telex and telephone.telephone.

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TERMINATION OF TERMINATION OF PROPOSALPROPOSAL

S.5(1) CA:S.5(1) CA:

““A proposal may be revoked at any time A proposal may be revoked at any time before the communication of its before the communication of its acceptance is complete as against the acceptance is complete as against the proposer, but not afterwards.”proposer, but not afterwards.”

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S. 6S. 6 states that a proposal is states that a proposal is revoked:revoked:

a.a. By notice of revocationBy notice of revocation

b.b. By the lapse of timeBy the lapse of time

c.c. By the failure of acceptor to By the failure of acceptor to fulfil a condition precedentfulfil a condition precedent

d.d. By the death or mental By the death or mental disorder of the partydisorder of the party

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REJECTIONREJECTION

An offer is rejected if:An offer is rejected if:

1.1. The offeree notifies the offeror to The offeree notifies the offeror to that he does not wish to accept the that he does not wish to accept the offer;offer;

2.2. The offer attempts to accept The offer attempts to accept subject to certain conditions;subject to certain conditions;

3.3. The offeree makes a counter-offer.The offeree makes a counter-offer.

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HYDE v WRENCHHYDE v WRENCH

Wrench-offered to sell his farm to Wrench-offered to sell his farm to Hyde for £1,000.Hyde for £1,000.

Hyde replied with a counter-offer of Hyde replied with a counter-offer of £950 which was refused.£950 which was refused.

Then Hyde was prepared to meet the Then Hyde was prepared to meet the original of offer of £1,000.original of offer of £1,000.

Held: No contract had been formedHeld: No contract had been formed

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Illustration- S. 5Illustration- S. 5

A proposes by a letter sent by post to A proposes by a letter sent by post to sell his house to Bsell his house to B

B accepts the proposal by a letter B accepts the proposal by a letter sent by postsent by post

A may revoke his proposal at any A may revoke his proposal at any time before or at the moment when time before or at the moment when B posts his letter of acceptance, but B posts his letter of acceptance, but not afterwardsnot afterwards

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BYRNE v TIENHOVEN [1880]BYRNE v TIENHOVEN [1880]The Df offered to sell 1,000 boxes of tinplates to The Df offered to sell 1,000 boxes of tinplates to

the Pf. the Pf. The following communication took place:The following communication took place: 1 Oct1 Oct: Df posted letter of offer in Cardiff to the : Df posted letter of offer in Cardiff to the

Pf in New York.Pf in New York. 8 Oct8 Oct: Df posted a letter revoking the offer of : Df posted a letter revoking the offer of

Oct 1.Oct 1. 11 Oct11 Oct: Pf received the letter of offer posted on : Pf received the letter of offer posted on

Oct 1 and sent acceptance by telegram the Oct 1 and sent acceptance by telegram the same day. It also followed up with letter of same day. It also followed up with letter of acceptance on 15 Oct.acceptance on 15 Oct.

20 Oct20 Oct: Df’s letter of revocation received by the : Df’s letter of revocation received by the Pf.Pf.

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The court ruled that : The court ruled that :

There was a contract between the partiesThere was a contract between the parties

because the revocation of the offer posted because the revocation of the offer posted

on 8 October was not effective till 20 on 8 October was not effective till 20

October when it was received by the Pf but October when it was received by the Pf but

in the meantime, the latter had already in the meantime, the latter had already

accepted the offer on 11 October when the accepted the offer on 11 October when the

telegram was sent.telegram was sent.

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REVOCATION OF ACCEPTANCE REVOCATION OF ACCEPTANCE S.5(2) states:S.5(2) states: “ “ An acceptance may be revoked at any time An acceptance may be revoked at any time

before the communication of the acceptance is before the communication of the acceptance is complete as against the acceptor, but not complete as against the acceptor, but not afterwards.”afterwards.”

Illustration to S.5: on Revocation of acceptance Illustration to S.5: on Revocation of acceptance made by post:made by post: A proposes by a letter sent by post to sell his A proposes by a letter sent by post to sell his

house to Bhouse to B B accepts the proposal by a letter sent by postB accepts the proposal by a letter sent by post B may revoke his acceptance at any time before B may revoke his acceptance at any time before

or at the moment when the letter communicating or at the moment when the letter communicating it reaches A, but not afterwards.it reaches A, but not afterwards.

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CONSIDERATIONCONSIDERATION Section 26 of CASection 26 of CA provides that: provides that:

““An agreement made without consideration is void”An agreement made without consideration is void” Section 2(d) of CASection 2(d) of CA defines consideration as “when, at defines consideration as “when, at

the desire of the promisor, the promisee or any other the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain abstain from doing, or promises to do or to abstain from doing something such an act or abstinence or from doing something such an act or abstinence or promise is called a consideration for the promise.”promise is called a consideration for the promise.”

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Consideration may be viewed as a sort of Consideration may be viewed as a sort of bargain, a bargain, a quid pro quoquid pro quo or the price which or the price which one party pays to buy the promise or act one party pays to buy the promise or act of the other. When a promisor promises to of the other. When a promisor promises to do or abstain from doing something, the do or abstain from doing something, the promisee must pay a price for it. This price promisee must pay a price for it. This price to be paid may be an act or an abstinence to be paid may be an act or an abstinence or a promise to perform a future act or or a promise to perform a future act or abstinence.abstinence.

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Example: Example: X has lost his camera while travelling X has lost his camera while travelling on a train and he offers a reward of $50 to on a train and he offers a reward of $50 to anyone who finds and returns it to him. Y finds anyone who finds and returns it to him. Y finds and returns it to himand returns it to him. .

In this simple illustration, X promises to pay In this simple illustration, X promises to pay RM50 to anyone in return for an act i.e. finding RM50 to anyone in return for an act i.e. finding the camera and returning it. Y pays the price the camera and returning it. Y pays the price for X’s promise by performing the act which, by for X’s promise by performing the act which, by section 2(d) is the consideration for the section 2(d) is the consideration for the promise.promise.

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TYPES OF CONSIDERATIONTYPES OF CONSIDERATIONEXECUTORY CONSIDERATIONEXECUTORY CONSIDERATION when one promise is made in return for another. when one promise is made in return for another.

( a promise in return for a promise)( a promise in return for a promise) eg: X agrees to sell Y a motorcycle and Y eg: X agrees to sell Y a motorcycle and Y

promises to pay RM 2000 for it.promises to pay RM 2000 for it. Illustration (a) of S.24:Illustration (a) of S.24:A agrees to sell his house to B for RM10,000. A agrees to sell his house to B for RM10,000. Here, B’s promise to pay the sum of RM10,000 is the Here, B’s promise to pay the sum of RM10,000 is the consideration for A’s promise to sell the house, and consideration for A’s promise to sell the house, and

A’s A’s promise to sell the house is the consideration for B’s promise to sell the house is the consideration for B’s promise to pay RM10,000. These are lawful promise to pay RM10,000. These are lawful consideration.consideration.

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EXECUTED CONSIDERATIONEXECUTED CONSIDERATION When a promise is made in return for the When a promise is made in return for the

performance of an act. performance of an act. For example: For example:

X offers RM100 to anyone who finds and returns X offers RM100 to anyone who finds and returns

his camera which he has earlier lost. Y finds and his camera which he has earlier lost. Y finds and

returns the camera in response to the offer. Y’s returns the camera in response to the offer. Y’s

consideration for X’s promise is executed, and consideration for X’s promise is executed, and

only X’s liability remains outstanding.only X’s liability remains outstanding.

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PAST CONSIDERATIONPAST CONSIDERATION Where a promise is made subsequent to Where a promise is made subsequent to

and in and in return for an act that has already been return for an act that has already been performed.performed.

So, if Y finds and returns X’s camera and in So, if Y finds and returns X’s camera and in gratitute, X promises to reward him with gratitute, X promises to reward him with RM100, the promise is made in return for a RM100, the promise is made in return for a prior act.prior act.

Illustration (c) of S.26: Illustration (c) of S.26: A finds B’s purse and gives him. B promise A finds B’s purse and gives him. B promise to give A RM 50. This is a contract.to give A RM 50. This is a contract.

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Past Consideration: Past consideration may be good Past consideration may be good

consideration. consideration. Section Section 2(d)2(d) provides that if the act done provides that if the act done were at the desire of the promisor, then were at the desire of the promisor, then such an act would constitute such an act would constitute consideration. The phrase ‘has done or consideration. The phrase ‘has done or abstained from doing’ implies that even if abstained from doing’ implies that even if the act done was prior to the promise, the act done was prior to the promise, such an act would constitute consideration such an act would constitute consideration as long as it was done at the desire of the as long as it was done at the desire of the promisor.promisor.

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Kepong Prospecting Ltd v A.E Kepong Prospecting Ltd v A.E Schmidt & Marjorie Schmidt [1968]Schmidt & Marjorie Schmidt [1968]Schmidt, a consulting engineer had assisted Schmidt, a consulting engineer had assisted another in obtaining a prospecting permit for another in obtaining a prospecting permit for mining iron ore in the State of Johore. He also helped in mining iron ore in the State of Johore. He also helped in the subsequent formation of the company, Kepong the subsequent formation of the company, Kepong Prospecting Ltd, and was appointed Managing Director. Prospecting Ltd, and was appointed Managing Director. After the company was formed, an agreement was After the company was formed, an agreement was entered into between them under which the company entered into between them under which the company undertook to pay him one percent of the value of all ore undertook to pay him one percent of the value of all ore sold from the mining land. Held: It did constitute a valid sold from the mining land. Held: It did constitute a valid consideration so that Schmidt was entitled to his claim on consideration so that Schmidt was entitled to his claim on the amount.the amount.

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Under English Law, the general rule is Under English Law, the general rule is that past consideration is insufficient to that past consideration is insufficient to support a contract. support a contract. Re McArdle [1951]Re McArdle [1951]Held: a promise pay Held: a promise pay ££488 to the wife 488 to the wife was made after the improvement had was made after the improvement had been completed and was therefore, not been completed and was therefore, not binding.binding.

However, if a person is asked to However, if a person is asked to perform a service, which he duly perform a service, which he duly carries out, and later a promise to pay carries out, and later a promise to pay is made, the promise will be binding. is made, the promise will be binding.

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A person who promises to carry out a A person who promises to carry out a duty which he is already obliged to duty which he is already obliged to perform is in reality offering nothing perform is in reality offering nothing of value. However, if a person does of value. However, if a person does more than he is bound to do, there more than he is bound to do, there may be sufficient considerationmay be sufficient consideration

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Consideration needs not be adequate. Consideration needs not be adequate. For exampleFor example, illustration (f) to , illustration (f) to section 26 section 26 states: “A agrees to sell a states: “A agrees to sell a horse worth RM1,000 for RM10. The horse worth RM1,000 for RM10. The agreement is a contract agreement is a contract notwithstanding the inadequacy of the notwithstanding the inadequacy of the consideration.” consideration.”

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Under Common Law, consideration must Under Common Law, consideration must move from the promisee. move from the promisee.

Under Local law, a party to an agreement can Under Local law, a party to an agreement can enforce the promise, even if he himself has enforce the promise, even if he himself has given no consideration, so long as somebody given no consideration, so long as somebody else has done so.else has done so.

A,B and C are parties to an agreement in A,B and C are parties to an agreement in which C promises to pay A RM1000 if B will which C promises to pay A RM1000 if B will repair C’s house. B repairs C’s house and C repair C’s house. B repairs C’s house and C does not pay A anything. Although A has not does not pay A anything. Although A has not given any consideration for C’s promise, he given any consideration for C’s promise, he may sue C on the promise because may sue C on the promise because consideration has moved from B. consideration has moved from B.

CASE: Venkata Chinnaya v Verikatara CASE: Venkata Chinnaya v Verikatara ’ma’ya (1881)’ma’ya (1881)

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INTENTION TO CREATE INTENTION TO CREATE LEGAL RELATIONLEGAL RELATION

A valid contract requires an intention to A valid contract requires an intention to create legal relations. The court create legal relations. The court determines where there is such an determines where there is such an intention from the language used and the intention from the language used and the context in which it is used. There are 2 context in which it is used. There are 2 presumptions have developed in the presumptions have developed in the determination of intention with respect to determination of intention with respect to agreements:agreements:

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In business agreement, there is an In business agreement, there is an agreement that the parties intend legal agreement that the parties intend legal consequences to follow unless the consequences to follow unless the parties specify otherwise.parties specify otherwise.

In social domestic or family agreement, In social domestic or family agreement, it is implied as a matter of course that it is implied as a matter of course that no legal relations are contemplated, but no legal relations are contemplated, but such presumption may be rebuttable.such presumption may be rebuttable.