INTRODUCTION ELEMENT OF CONTRACT What is contract? The word contract in a legal sense refers to an agreement between two or more parties that legally binding with them: in the words of section 2(h) of the Contract Act, it is ‘is an agreement enforceable by law’. The nucleus of all contract is an agreement that is to say, all contract must be built upon an agreement although not all agreements are automatically contracts. Some agreements are not contract because they lack certain essential elements. These essential elements are: 1. Offer 2. Acceptance 3. Consideration 4. Intention to create legal relations 5. Certainty 6. Legal capacity Section 10(1), for instance, lays down several of the above elements when it states that an agreement must be made ‘by the free consent of parties competent to contract for a lawful consideration and with a lawful object’. Where one or more of the ingredients mentioned above is missing, the agreement is not a contract which the law will enforce. So, where A agrees
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INTRODUCTIONELEMENT OF CONTRACT
What is contract?
The word contract in a legal sense refers to an agreement between two or more parties that
legally binding with them: in the words of section 2(h) of the Contract Act, it is ‘is an
agreement enforceable by law’. The nucleus of all contract is an agreement that is to say, all
contract must be built upon an agreement although not all agreements are automatically
contracts. Some agreements are not contract because they lack certain essential elements.
These essential elements are:
1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations
5. Certainty
6. Legal capacity
Section 10(1), for instance, lays down several of the above elements when it states that an
agreement must be made ‘by the free consent of parties competent to contract for a lawful
consideration and with a lawful object’. Where one or more of the ingredients mentioned
above is missing, the agreement is not a contract which the law will enforce. So, where A
agrees with B to a dinner a restaurant, the agreement does not give rise to contractual rights
simply because it is a social agreement lacking the element of intention to create legal
relations. The law will not assist in its enforcement.
1
OFFER
1. Offer
An agreement between two or more parties is constituted by offer. An offer is
made ‘when one person signifies to another his willingness to do or to abstain from
doing anything with a view to obtaining the assent of that other to such act or
abstinence. Thus A, by offering to buy B’s car for $10,000 in the hope B will accept,
is making an offer. Then according section 2(b), ‘when the person to whom the offer
is made signifies his assent, the offer is said to be accepted’. Upon such acceptance by
B, an agreement between the parties is created. The offer has become a promise and
the party making the offerer is now referred to as the promisor and the party accepting
the offer, the promise. So, the example given above, B’s acceptance of A’s proposal
to but the car established an agreement or promise. A is the promisor and B the
promise.
Among the issues to be decided in Tan Geok Khoon & Geradd Francis
Robless v. Paya Terubong Estate Sdn Bhd [1988]2 MLJ 672 was whether a counter
offer from the dependent relating to the sale of parcel of land had been accepted by a
deceased so that a contract was concluded. The plaintiffs were executors and trustees
of the estate of the deceased and claimed that through a series of correspondence
made between the deceased and the defendant, a contract was concluded. Edgar
Joseph Jr.J. agreed that there was contract between them, the deceased having
accepted a counter offer from the defendant and paid the balance of the price. He also
found the defendant did accept the payment and issued a receipt on its note paper
signed by one of its directors acknowledging the payment.
2. Invitation to treat
An invitation to treat is not an offer but a sort of preliminary communications
which passes between the parties at the stage of negotiation, for instance, a price list,
and a display of goods with price tags in a self-service supermarket, an advertisement
or an auctioneer inviting bids for a particular article. If an auctioneer is considered
making an offer when inviting bids, then when a bidder makes a bid, he is accepting
the proposal and an agreement comes into being at that stage. This clearly untenable
and defeats the very purpose of an auction. The actual state of the law is that the
auctioneer is only making an invitation to treat. The auction is merely inviting the
people present to make proposals which the former may accept or decline to accept.
According to section 10 of the Auction Sales Act,
‘A sale by public auction shall be complete when the auction announces its
completion by the fall of the hammer...’
The invitation to the people present make bids is a preliminary communication
and not a proposal within the meaning of the Act.
Display on goods in a shop as in advertisement generally does not constitute a
proposal to sell. The shop-owner merely holds himself prepared to consider proposals
made to him at the suggested prices. The invitation is not capable of being accepted as
it is not a proposal. The proposal is in fact made by the customer when he or she
selects the desired goods for payment at the counter. This well-established rule was
clearly determined by the celebrated case of Pharmaceutical Society of Great Britain
v. Booth Cash Chemist Ltd[1953]1 QB 401. The defendants were charged under the
Pharmacy and Poison Act 1933(U.K) which provided that is was unlawful to sell
certain poisons unless such sale was supervised by a registered pharmacist. The case
depend on whether a sale had occurred in the self- service shop when a customer
selected articles which he desired to purchase and placed them in a wire basket.
Payment was to be mad at the exit where cashier was stationed and every case
involving drugs, a pharmacist supervised the transaction and was authorized to
prevent a sale.
Common sense and the realities of commercial transactions prevailed in the
above case. It would be untenable if it were otherwise. If selecting an article from
shelf constitutes a sale, selection even though he or she has not paid for it and the
customer would not be able to change his or her mind about the purchase. Similar
problem would also arise in advertisement say in the classified column, if there were
treated as a proposal to be accepted by readers. Items for sale may have been
completely sold out and sellers would be liable for breach if they could not supply all
the items offered.
The case of Coelho v. The Public Services Commission [1964] MLJ 12
affirms the general rule that an advertisement is only an invitation to applicants to
make an offer and not an offer itself. The applicant had applied for a position in
response to a newspaper advertisement. He was later informed that his application had
been accepted. Subsequently, The Public Services Commission attempted to terminate
his employment on the basis that he was appointed on probation. The applicant then
applied to the court for an order to quash the decision. The High Court ruled, amongst
others, that that advertisement was an invitation to qualified persons to apply and the
resulting application were offers. Such offers could either be accepted simply or with
the imposition of conditions as terms of the contract, additional to those set out in the
advertisement. In the latter case the offers by the applicants would have been met by
counter-offers which the offerors could accept or refuse. The letter to the particular
applicant was in fact an unqualified acceptance of the first category and there was no
question of his appointment being on probation. Therefore the purported termination
applicable to officers on probation was invalid.
3. To who can an offer by made?
A proposal can either be made to a particular person or to the general public.
Where it is made to a particular person, it appears that only the addressee may accept
the offer. The opening words of section 2(b) which provides ‘when the person to
whom the offer is made....’ lends support to this view. On the other hand, where it is
made to the general public, then anyone who meets all the terms of proposal may
accept. In cases, Carlill v. Smoke Ball Co. [1983]1 QB 256, the defendant advertised
that they would offer a sum of money to anyone who would still succumb to influenza
after using certain product according to the instructions for a fixed period. The
plaintiff duly used the product advertised but, nevertheless, became ill. The plaintiff,
upon refusal of the defendants to honour their promise, proceeds to sue them. The
Court of Appeal held that the plaintiff has accepted the offer of the company made to
the world at large and is, therefore, entitled to the money. Similarly, an advertisement
of reward for the return of lost property would, as a general rule, be treated in the
same manner in the absence of other terms attached to the offer.
4. Communication of offer
The general rule is that an acceptance isn't communicated until it's actually
brought to the notice of the offeror: for example, an attempted oral acceptance isn't
communicated if it's 'drowned by an aircraft flying overhead; or if the attempted
acceptance is spoken into a telephone or sent on a teleprinter (or, it's suggested, by e-
mail) after the line has failed. Where, however, the offeror authorises acceptance by
post, acceptance may Prima facie be communicated simply by posting a properly
addressed letter of acceptance; but the offeror may instead stipulate exclusively for a
defined method of communication.
For the formation of a contract, the general rule with regard to the need for
communication of acceptance is that acceptance must in fact be communicated.
Therefore, there's no binding contract where the offeree simply writes his acceptance
on a piece of paper which he keeps; or where a company resolves to allocate shares to
an applicant but doesn't inform him; or a committee resolves to appoint to
employment the applicant/offeror; or the offeree decides to buy the goods offered but
doesn't inform the offeror/seller; or the offeree communicates his acceptance only to
his own agent. However, as the main reason for the rule is said to be that it would be
unjust to hold the offeror bound if he didn't know that his offer had been accepted, it
follows that the offeror may be bound if he knows of the acceptance although it wasn't
communicated to him by the offeree (or the offeree's agent).
Despite the general requirement that communication must be brought to the
notice of the offeror, communication may be deemed to have been made in the
following circumstances:
a) where there's communication by one who is actually authorised to make it
on behalf of the offeree , and/or to one who is actually authorised to receive it on
behalf of the offeror and a fortiori where the agent is the agent of both parties;
b) where either party is estopped from denying a good communication, as
where the offeror confers on his agent apparent authority to receive the acceptance, or
possibly where in negotiations by telephone 'it's his own fault if he did not...' actually
receive the acceptance;
c) where the offer expressly or impliedly dispenses with the requirement that
acceptance be communicated. It would seem that this requirement is merely the
inference that is ordinarily drawn from an offer; the offeror will commonly dispense
with the requirement in the case of a unilateral contract, though he won't necessarily
do so; and he may also dispense with it in the case of bilateral contracts, though there
may be difficulty where the offeree attempts to accept merely by remaining silent.
In R. V Clarke (1927) 40 C.L.R 227, an Australian case, the western
Australian Government offered a reward for information leading to the arrest and
conviction of persons responsible for the murder of two polices. X and Clarke were
arrested and charged with the murders but shortly after, the latter gave information
which lead to the arrest of another person, Y. X and Y were later convicted for the
offence and Clarke who did not commit the murders claims the rewards. His claim
failed on the grounds that the information was given to clear him and not in reliance
on the offer of reward.
ACCEPTANCE
1. Acceptance
In contract law, an acceptance of an offer is an indication, express or implied,
by the offeree made whilst the offer remains open and in the manner requested in that
offer of the offeree's willingness to be bound unconditionally to a contract with the
offeror on the terms stated in the offer.
The offer may request that the declaration by the offeree take the form of a
promise or an act: if the offer requests a promise, no contract is formed unless and
until that promise is given; and, if the offer requests an act, no contract is formed
unless and until that act is performed. Once the offer has been accepted, however, the
offeror cannot revoke the offer, and the offeree cannot withdraw the acceptance.
Where there's a lengthy course of negotiations between the parties, it could be
difficult to decide when they have reached agreement and have concluded a binding
contract. Despite the continuing negotiations, the court may be willing to find a
concluded bargain; and, if so, continuance of the negotiations thereafter won't itself
terminate that agreement, unless evincing a subsequent mutual intention to rescind
that agreement. Moreover, the court may be more willing to infer that the parties have
reached a binding contract where one party to the continuing negotiations renders
partial performance, even to the extent of giving retrospective effect in respect of that
partial performance.
2. Communication of acceptance
The general rule is that an acceptance isn't communicated until it's actually
brought to the notice of the offeror: for example, an attempted oral acceptance isn't
communicated if it's 'drowned by an aircraft flying overhead'; or if the attempted
acceptance is spoken into a telephone or sent on a teleprinter (or, it's suggested, by e-
mail) after the line has failed. Where, however, the offeror authorises acceptance by post,
acceptance may Prima facie be communicated simply by posting a properly addressed
letter of acceptance; but the offeror may instead stipulate exclusively for a defined
method of communication.
For the formation of a contract, the general rule with regard to the need for
communication of acceptance is that acceptance must in fact be communicated.
Therefore, there's no binding contract where the offeree simply writes his acceptance
on a piece of paper which he keeps; or where a company resolves to allocate shares to
an applicant but doesn't inform him; or a committee resolves to appoint to
employment the applicant/offeror; or the offeree decides to buy the goods offered but
doesn't inform the offeror/seller; or the offeree communicates his acceptance only to
his own agent. However, as the main reason for the rule is said to be that it would be
unjust to hold the offeror bound if he didn't know that his offer had been accepted, it
follows that the offeror may be bound if he knows of the acceptance although it wasn't
communicated to him by the offeree (or the offeree's agent).
Despite the general requirement that communication must be brought to the
notice of the offeror, communication may be deemed to have been made in the
following circumstances:
a) Where there's communication by one who is actually authorised to
make it on behalf of the offeree, and/or to one who is actually authorised to receive it
on behalf of the offeror; and a fortiori where the agent is the agent of both parties;
b) Where either party is estopped from denying a good communication,as
where the offeror confers on his agent apparent authority to receive the acceptance, or
possibly where in negotiations by telephone 'it's his own fault if he did not...' actually
receive the acceptance;
c) Where the offer expressly or impliedly dispenses with the requirement
that acceptance be communicated. It would seem that this requirement is merely the
inference that is ordinarily drawn from an offer; the offeror will commonly dispense
with the requirement in the case of a unilateral contract, though he won't necessarily
do so; and he may also dispense with it in the case of bilateral contracts, though there
may be difficulty where the offeree attempts to accept merely by remaining silent.
3. Acceptance through post
In modern times, contracts negotiated at a distance tended to be made by
correspondence exchanged through the post administered by the Post Office. Except
as stated below, all communications with respect to the formation of a contract which
are sent through the medium of the Post Office have the legal effects previously
outlined. However, where such a communication is sent through the medium of the
Post Office, there's said to be a general rule that a properly-addressed postal
acceptance is complete when the letter of acceptance is posted. Ordinarily, a letter
isn't 'posted' until it's put in a Post Office letter box. Therefore, the delivery of a letter
to a postman outside the course of his ordinary duties isn't a posting of the letter, nor
will such a letter be assumed to be in the lawful custody of the Post Office as soon as
the postman enters the office.
The following consequences are said to follow from this 'postal rule:
a) A postal revocation of an offer only takes effect on receipt, provided that
the revocation is communicated, so that an acceptance posted at any time before that
receipt prevails;
b) a postal acceptance takes effect on posting even though accidentally lost or
delayed in the post; and
c) A postal acceptance of an offer relating to title of goods takes effect in
priority to another contract affecting the same subject-matter but made after posting of
the first acceptance.
This analysis leaves undecided two questions, namely the operative time and
effect of a revocation of postal acceptance and of a postal rejection of an offer. What's
more, there are special complications which may arise in the case of communications
by international telegram and international sales. From these postal communications
must be distinguished instantaneous communications.
4. Revocation of proposal
An offer may generally be revoked at any time before it has been accepted,
provided that the revocation is communicated to the offeree. This is so even though
the offeror has indicated that he will keep his offer open for a specified time. Where,
however, the offeror has contracted to keep his offer open, revocation of that offer
will amount to a breach of the contract of option. An offer can't be revoked after
acceptance.
An unaccepted offer will be revoked when the offeror (or his agent)
communicates to the offeree, in any manner, his unequivocal intention to revoke the
offer either expressly or impliedly. However, an offer may also be revoked without
such a direct communication by the offeror to the offeree. First, where an offer is
made to the entire world, it could be revoked by giving the same notoriety to the
revocation regarding the offer. Secondly, any offer will be revoked where the offeree
receives reliable information from any third person that the offeror no longer intends
to contract with him. Thirdly, whilst an offer normally can't be revoked merely by the
offeror acting inconsistently with it, it can be brought to an end by a terminating
condition. Fourthly, where an offer is made to a large organisation, it could be that the
offer is revoked when that revocation is opened in the ordinary course of business.
Fifthly, the offeree may be estopped from denying receipt of revocation.
An offer to enter into a unilateral contract is generally subject to all the above
rules; it could be revoked at any time before the offeree commences the requested act
of acceptance and it can't be revoked after the offeree has completed that act. The
position is more doubtful, however, where the offeree has commenced but not
completed the requested act of acceptance at the time when the offeror attempts to
revoke. On one view, the offer remains revocable until the requested act has been
completed; on a second view, the offeror becomes bound once the offeree
unequivocally commences performance, either because that commencement
constitutes an acceptance (though not a performance), or because there's an implied
collateral contract to keep the offer open; whereas on a third view, there's an implied
promise to pay on a Quantum Meruit basis for the proportion of the requested act