General Principles of Law 1 Part 1 : Contract law Br. Mahyuddin Daud Department of Laws Centre for Foundation Studies International Islamic University Malaysia Br. Mahyuddin Daud 1
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Br. Mahyuddin Daud Department of Laws Centre for Foundation Studies International Islamic University Malaysia Br. Mahyuddin Daud1.
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Slide 1
Br. Mahyuddin Daud Department of Laws Centre for Foundation
Studies International Islamic University Malaysia Br. Mahyuddin
Daud1
Slide 2
Why do we need contract law? 1. Ensure the parties to a
contract / agreement keep to their promises 2. The keeping of
promises reinforces the social bonds of mutual confidence and
security amongst the parties 3. Moral obligation to keep promises
4. It forms part of the principle of fairness as enshrined in the
theory of law Br. Mahyuddin Daud2
Slide 3
FORMATION OF CONTRACT Br. Mahyuddin Daud3
Slide 4
What is a Contract? An agreement Between 2 or more parties
Intention to be bound by such agreement Consideration is provided
Br. Mahyuddin Daud4
Slide 5
Other definitions John Salmond A contract is an agreement
creating and defining the obligations between 2 or more parties
Economics: Principles in action. Upper Saddle River, New Jersey
07458: Pearson Prentice Hall. 2003. pp. 523. Economics: Principles
in action A contract is an agreement between 2 or more parties,
that if it contains the elements of a valid legal agreement, is
enforceable by law Br. Mahyuddin Daud5
Slide 6
Differences between Unilateral & Bilateral Contracts
Unilateral Only 1 party assumes obligation, the other does not
promise anything in return Bilateral Both parties assume obligation
& exchange promises Br. Mahyuddin Daud6
Slide 7
Unilateral contract Ahmad promised to pay Murad RM 1,000 if
Murad found Ahmads lost kitten: Ahmad assumes the obligation to pay
if Murad found his lost kitten Murad does not promise anything in
return This is a unilateral contract! E.g. Carlill v. Carbolic
Smoke Ball Co. where the Court upheld that the company made a valid
unilateral offer to the whole world at large Br. Mahyuddin
Daud7
Slide 8
Bilateral contract Ahmad promises to pay Murad RM 1,000 and
Murad promises to find Ahmads lost kitten. Both parties promised to
do something / assume obligation This is a bilateral contract! Br.
Mahyuddin Daud8
Slide 9
Elements of a valid contract Contract
OfferAcceptanceIntentionConsideration Capacity to contract Br.
Mahyuddin Daud9
Slide 10
OFFER Br. Mahyuddin Daud10
Slide 11
1.Offer What does an offer means? An expression of willingness
by the offeror to enter into an agreement with the offeree. Prof.
Treitel: Offer is an expression of willingness to contract, on
certain terms, made with the intention that it shall become binding
as soon as it is accepted by the person to whom it is addressed,
the offeree. Br. Mahyuddin Daud11
Slide 12
OFFEROR OFFEREE OFFER Br. Mahyuddin Daud12
Slide 13
Termination of an offer Offer can be terminated by several
ways: 1. When the terms of the offer allows it to be open for
certain time, and upon expiry of that time, the offer will lapse 2.
Offer will lapse after a reasonable length of time has passed
Ramsgate Victoria Hotel v. Montefiore -A 5 months of time gap
lapses the offer to buy shares because the price of shares could
fluctuate quickly Br. Mahyuddin Daud13
Slide 14
Cont 3. If the offeror, makes an offer, with certain
preconditions to be fulfilled, by the offeror before acceptance,
upon failure to fulfill such preconditions, shall make the offer
lapses Financings Ltd v. Stimson 4. An offer will lapse upon its
rejection Br. Mahyuddin Daud14
Slide 15
Cont 5. An offer will lapse once it is being countered
(counter-offer) 6. Death of the offeror & offeree 7. Withdrawal
of an offer Once an offeror withdraws an offer, the offer will be
terminated However, withdrawal of an offer will take effect upon
its communication to the offeree Ex: Byrne & Co v. Leon Van
Tienhoven Withdrawal must be communicated to the offeree Br.
Mahyuddin Daud15
Slide 16
Cont Withdrawal of an offer (unilateral contracts) The legal
principle: Once the offeree has started to perform (Dahlia Ltds
case) or had partially performed (Errington v. Errington) on a
unilateral contract, offeror cannot revoke his offer. But, there is
an exception to this principle, i.e. unilateral offer entered into
between an estate agent & landowner. Landowner can revoke his
offer at any time before the sale is completed although the agent
had made extensive efforts to find a buyer. (Luxors case) Br.
Mahyuddin Daud16
Slide 17
Ignorance of an offer Principle: If the offeree knows about the
offer, then he is entitled for the reward Williams v. Carwardine :
D offered $20 to anyone who provided D with information that lead
to the discovery of a murderer. P provided such information not
with the intention to get the reward, but to help. The court held
that she was entitled to the reward since she was aware about the
offer Exception: If the offeree knows about the offer, but forgets,
he is deemed to have ignored the offer, and he is not entitled for
the reward R v. Clarke Br. Mahyuddin Daud17
Slide 18
INVITATION TO TREAT Br. Mahyuddin Daud18
Slide 19
Invitation to Treat Definition: It is an indication of a
persons willingness to negotiate a contract It is a contractual
process which does not bring any legal implication, unlike offer.
Once an offer is made, it is subject to acceptance by the other
party. ITT means that the party shows his willingness to negotiate
a contract But, offer shows willingness of an offeror to enter into
contract ITTOffer Acceptanc e Contract Br. Mahyuddin Daud19
Slide 20
What would be considered as ITT? Invitatio n to Treat Advertise
ments Others Display of Goods Br. Mahyuddin Daud20
Slide 21
Display of Goods Legal principle: Goods which are displayed on
shelves or in the windows of shops are generally regarded as
invitation to treat. Ex: 1. Fisher v. Bell : display of flick
knives only amount to ITT, therefore, no offer was made. 2.
Pharmaceutical Society v. Boots Cash Chemist : display of medicine
on shelves only amounted to ITT. Br. Mahyuddin Daud21
Slide 22
Advertisements 1. Unilateral contracts : advertisements will be
treated as an offer due to minimum possibility of negotiation to
happen (ex: Carlills case) 2.Bilateral contracts : advertisements
will be treated as ITT due to higher possibility of negotiation to
happen Br. Mahyuddin Daud22
Slide 23
Others Gibson v. Manchester City Council the letter informing
of the price was only one step in the negotiations, therefore it
was not an offer, but only an ITT Harvey v. Facey The Privy Council
held that indication of lowest acceptable price does not constitute
an offer to sell. Rather, it is considered an invitation to treat
(i.e., to enter into negotiations). Br. Mahyuddin Daud23
Slide 24
Cont Auction the advertisement of an auction is a mere
declaration of intention and not offer The auctioneers request for
bids is an ITT, and each bid is an offer Tender - request for
tenders is regarded as ITT Br. Mahyuddin Daud24
Slide 25
ACCEPTANCE Br. Mahyuddin Daud25
Slide 26
Definitions Acceptance is an unconditional agreement to all the
terms of that offer. It also signifies a final and unqualified
expression of assent to the terms of an offer Br. Mahyuddin
Daud26
1.Verbal / Express acceptance The most common method of
acceptance It is where the offeree accepts the offer
straightforwardly / directly. The offeree may use any technology to
communicate his acceptance, i.e. telephone, fax, letters, e-mail as
long as the acceptance is in a direct form. Br. Mahyuddin
Daud28
Slide 29
2. Acceptance by conduct The offeree signifies his acceptance
by doing something that conform to the offerors offer Ex: Brogden v
Metropolitan Rail Co where the act of Brogden supplying the new
order of coal amounted to acceptance of the railway companys offer
by conduct Br. Mahyuddin Daud29
Slide 30
3. Acceptance by silence General rule: Silence does not amount
to acceptance unless it is otherwise agreed by both parties.
Felthouse v. Bindley : (the sale of horse) the act of nephew not
responding to the uncles offer letter was an act of silence. The
court was uncertain whether he was accepting the uncles offer or
not. Br. Mahyuddin Daud30
Slide 31
Communication Acceptance will only take effect upon its
communicated to the offeror. If acceptance is not communicated,
then there will be no contract Br. Mahyuddin Daud31
Slide 32
Exceptions to the communication rule In these situations,
acceptance need not to be communicated: 1. When the terms of the
offer states that acceptance need not to be communicated to the
offeror Ex: Carlill v. Carbolic where the advertisement (offer)
stated that the offeree only need to perform the required act
(consumption of the medicine). Br. Mahyuddin Daud32
Slide 33
Cont 2. Offeror fails to take notify of the acceptance by
offeree i.e. (conduct of the offeror) 3. Postal rule (Ordinary
post) Principle: If acceptance is made by post, acceptance will
take effect as soon as the letter is posted, not when it is
communicated. (automatic acceptance) This rule was laid down in the
case of Adams v. Lindsell (sale of sheep fleeces) Br. Mahyuddin
Daud33
Slide 34
Exceptions to the postal rule The postal rule (automatic
acceptance) will not apply in these circumstances: 1. The terms of
an offer requires acceptance to be communicated 2. Instantaneous
communication Communication will take effect immediately See
Entoress case Br. Mahyuddin Daud34
Slide 35
Entores v. Miles Far East Corp Facts: P = London co. D = US
(based in Amsterdam). They contracted through telex. Later, P
alleged that D breached their contract. The procedural rule was
that if they wanted to brought the matter in English court, the
contract must be made in England Issue: Whether the court had the
jurisdiction to hear the matter? Held: In order to answer this
issue, the court need to decide where was the contract concluded,
whether at London or Amsterdam? Br. Mahyuddin Daud35
Slide 36
Cont Offeree AcceptanceOfferor Offer Br. Mahyuddin Daud36
Amsterdam London
Slide 37
Cont Since instantaneous rule applied, the contract was
concluded at London. Therefore, the court has the jurisdiction to
hear the case. Br. Mahyuddin Daud37
Slide 38
METHODS TO APPROACH PROBLEMATIC QUESTIONS Br. Mahyuddin
Daud38