Chapter 2: Elements of Contract REV 01 Chapter 2: Elements of Contract Scope of Contract and Meaning of Contract The word ‘contract’ is defined as ‘an agreement enforceable by law’. A contract is an agreement which is legally binding between the parties. The legislative in Malaysia governing contracts is the Contracts Act, 1950. The English law applies by virtue of the Civil Law Act,1956. Where the Contract Acts makes certain provisions which differ from English law, the provisions of the Contracts Act must prevail – Song Bok Yoong v. Ho Kim Poui. DDW2263 - BUSINESS LAW

Intention To Create Legal Relation ELEMENTS OF CONTRACT Offer / Proposal Acceptance Consideration CONTRACT Intention To Create Legal Relation Legality Free Consent Capacity DDW2263 - BUSINESS LAW

REV 01 Offer An offer or proposal is necessary for the formation of an agreement. Offeror – the person who makes the offer. Offeree – the person to whom the offer is made. The definition of proposal/ offer can be expressed according to Section 2 (a) of Contracts Act. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made- Section 4(1) Contracts Act. This mean that an offer is effective once it is communicated to the offeree by the offeror. A proposal made in words (oral or written) is said to be expressed. If a proposal is made other than in words (example by conduct) is said to be implied – Section 9 Contracts Act. DDW2263 - BUSINESS LAW

Sir, here is my Membership Application Form….. Then What is Offer??? Situation : Sir, here is my Membership Application Form….. A Ok, we agreed your entry and please pay RMXXX….. B DDW2263 - BUSINESS LAW

REV 01 Bilateral contracts – one of mutual exchange and negotiation. (Patridge v Crittenden 1968). Unilateral contracts - moves away from the exchange of promises to one of performance, therefore if only performance is required for acceptance then the advertisement may well be construed as an offer. (Carlill v Carbolic Smoke Ball Co. 1983). DDW2263 - BUSINESS LAW

REV 01 Invitation to Treat An invitation to treat - has been defined as ‘offers to negotiate…receive offers’. The crucial distinction between an offer and an invitation to treat is that an offer once accepted creates a valid contracts, whereas purporting to accept an invitation to treat does not create legal relations. There are several types of invitation to treat including items on shelf, auction, advertisement or catalogue and information providing. DDW2263 - BUSINESS LAW

Invitation to treat Item on shelf Auction Items/ goods put on the shelf of a shop or department store Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd (1953) Qb 401. Auction The auctionor (chairman) will set a price, and this is not the offer. Offer is made by the buyer when he offer the price and acceptance made when the hammer being hit to mark the end of offer. Payne v Cave (1789) Term Rep 148 DDW2263 - BUSINESS LAW

Invitation to treat Advertisement / Products in Catalogue Products are not shown to the buyer but instead it is shown in picture or graphics. There is slightly different if the advertisement with conditions to fulfilled and normal advertisement. Coelho v Suruhanjaya Perkhidmatan Awam Information Providing / Preliminary communication The seller provide the buyer with some information on the goods is consider as ITT not offer because seller had no intention to enter contract. Harvey v Facey [1893] AC 552 DDW2263 - BUSINESS LAW

Section 6 states that a proposal is revoked: Termination of offer An offer, once communicated, remains open until it lapses or is withdrawn. An offer may be revoked at any time before the communication of its acceptance is complete as against the offerer. Section 6 states that a proposal is revoked: Refuse of offer Acceptance By the communication of notice of revocation by the proposer to the other party By the lapse of the time prescribed in the proposal for its acceptance By the failure of the acceptor to fulfill a condition precedent to acceptance / cross- offer By the death or mental disorder of the proposer DDW2263 - BUSINESS LAW

Acceptance Fit the proposal REV 01 Acceptance Fit the proposal Acceptance must be unconditional and final (S. 7 Contracts Act) An implied condition that the seller has the right to sell the goods or will have the right at the time property is to pass. An implied warranty that goods are free from any change in favour of a third party unknown to the buyer at the time the contract is made. An implied warranty that the buyer will enjoy quiet possession of good acquired under the contract Sales of Goods Act and Trade Practice Act 1979. DDW2263 - BUSINESS LAW

Communication of offer and acceptance REV 01 Communication of offer and acceptance Communication of offer can be differentiate into two way thus (a) direct communication and (b) through postal. A direct communication as a general rule that it mean complete when the message being conveyed to the other party. A corollary to the rule that only an addresses may accept the proposal is the principal of communication of the proposal. Under section 2(a) which reads ‘when one person signifies to another his willingness to do or to abstain from doing anything’ there can be no acceptance to form an agreement. Communication through postal depends on the mode and type of the message and the effect will be slightly different as accordance to Section 4 of Contracts Act. DDW2263 - BUSINESS LAW

Communication of Acceptance REV 01 Communication of Acceptance The general rule is that acceptance of a proposal must be communicated to the proposer for there to be a binding contract between the parties. To the general rule that acceptance must be communicated The proposer has dispensed with the need for it The proposer allows the party to whom the proposal is made to perform ‘the conditions of a proposal’ The proposer allows ‘the acceptance of any consideration for a reciprocal promise which may be offered with a proposal’. Refer to Carlill v. Carbolic Smoke Ball Co. case. Refer to Entores Ltd v Miles Far East Corporation (1955) DDW2263 - BUSINESS LAW

Silence Acceptance Silence does not generally constitute acceptance. REV 01 Silence Acceptance Silence does not generally constitute acceptance. When a person makes an offer he or she cannot demand of the person receiving the offer ‘unless I shall assume that you have accepted my offer’. Failure to respond to an offer may occur due to any number of reasons apart from an intention not to accept the offer, for example the person may simply forget about it. The person receiving the offer must not be placed in the position of having to contact the other party to signify his or her refusal of the offer. Refer to Felthouse v Bindley (1862) 11CB (NS) 869 case. Refer to Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 case. DDW2263 - BUSINESS LAW

Exception to the communication REV 01 Exception to the communication There are two exceptions to the general rule about having to communicate acceptance Where the offeror does not require it (for unilateral contract) Carlill v Carbolic Smoke Ball Company. The postal rule The use of the mail, telegram, telephone or modern electronic communication to communicate acceptance creates problems. It states that where acceptance by mail is contemplated by the parties, acceptance will have taken place and will be deemed to have been completed the moment that the letter of acceptance has been properly posted. Adams v Lindsell (1818) 106 ER 250 case. DDW2263 - BUSINESS LAW

Means of communication REV 01 Means of communication Silence, absence of response or just total disregard of the proposal is not acceptance as there is no positive act that can be related to the proposal. Acceptance through post – is effective or complete only when it comes to the actual knowledge of the proposer. The communication of acceptance is complete: As against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor. As against the acceptor, when it comes to the knowledge of the proposer. Refer to Entores Ltd v Miles Far East Corporation (1955) 2 QB 327 case. DDW2263 - BUSINESS LAW