CONTRACT LAW LECTURE 3

INTERPRETATION- CONTRACT ACTS 1950 Definition: What is contract? S 2(h) – contract is an agreement enforceable by law S 2 (g) – an agreement which is not enforceable by law is considered void

S 2 (b) – promise is when a person to whom the promise is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise. S 2(C) - the person making the proposal is called the promisor / offeror and the person who accepts the proposal is called the promisee/acceptor/offerree

ELEMENTS OF CONTRACT Offer and acceptance Consideration Intention to create legal relations Capacity to contract Consent Certainty

OFFER AND ACCEPTANCE Proposal – S 2(a) – when a person signifies to another his willingness to do or to abstain from doing anything, with a view of abstaining his ascent of that other to the act of abstinence, he is said to make proposal Proposal should be distinguished from ‘an invitation to treat’ (an attempt to induce another party to make an offer. It is not an offer by itself)

Come on, the cheapest strawberry in the world!!! ITT is a preliminary communication at the stage of negotiation and a person who makes an invitation does not want to be bound by the law. It is an invitation to another person to make an offer. Come on, the cheapest strawberry in the world!!!

EXAMPLES OF AN INVITATION TO TREAT Display of goods in a self service supermarket – it is an invitation to treat - the proposal is made when the customer select the goods and brought it to the counter for payment. When payment is made, offer is said to be accepted and the contract is concluded. Auctioneer inviting bids for a particular article – auctioneer invites people who present to bid for the price. The highest bid will be accepted and the contract of sale is concluded. Advertisement and quotation

OFFER – WHEN IT IS EFFECTIVE? S 4 – offer/proposal is only effective if it is communicated to the acceptor

ACCEPTANCE S 2(b) – when a person to whom the promise is made signifies his assent thereto, the proposal is said to be accepted

COMMUNICATION OF ACCEPTANCE Acceptance must be communicated / make known to the offeror It is said to be communicated if it reaches the offeror

ACCEPTANCE BY POST S 4(2)(a) & (b): Communication of acceptance by post is complete as against the offeror, when it is put in the course of transmission to him, so as to be out of the course of the acceptor as against the acceptor, when it comes to the knowledge of the offeror

The offeror is bound by a contract made through post even though he does not know about the acceptance The acceptor is bound by the contract only when the acceptance has reached the knowledge of the offeror

REVOCATION OF OFFER AND ACCEPTANCE S 5(1) – a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards

EXAMPLES A-offerror B-acceptor 1 Jan post letter of offer Pos letter of acceptance 5 Jan (put the letter into a letter box) A cannot cancel the contract –s.4(2)(a) - Acceptance is completed against A when the letter is posted 8 Jan receives letter of acceptance from B - S.4(2)(b) – acceptance completed against B

S.5(2) B-acceptor A-offerror Post LO to B 1 Jan 5 Jan Post LA to A (s.4(2)(a)- contract concluded) B cannot revoke his acceptance on 8 Jan, contract completed against B. (S 5(2)) 8 Jan : receive LA from B

CONSIDERATIONS The price which one party pays to buy the promise or act of the other need not be adequate – the price suit with the goods PANG SWEE KIM V. BEH I HOCK

INTENTION TO CREATE LEGAL RELATIONS Intention relates to somebody’s state of mind Law cannot read the mind – use presumption In business agreement, there is a presumption that the parties intend to enter into contractual relationship/ to enforce the contract In social agreement, it is implied that no legal relation are contemplated, but this presumption can be rebutted

CAPACITY TO CONTRACT S 11 – person who is competent to enter into contract is the one who attain the age of majority, who is of sound mind, and not disqualified from contracting from any law to which he is subject

CONTRACT BY MINOR Age of Majority Act 1971 – 18 years Effect of contract by minor – VOID Mohori Bibee v. Dharmodas Ghouse Hereford J: ‘The privy council have held that the effect of sections 10 and 11 of the Contract Act of India is that an infant cannot make a contract within the meaning of the Act, and that the contract made by infant is not only voidable but void…the decision of the Privy Council is binding on this court, and therefore there can be no doubt whatever that these transfers are void.’

Exceptions: s 4 – matters relating to marriage, divorce, dower and adoption Any other written law which fix the age of majority Case: Rajeswary v. Balakrishnan& Ors (1958) 3 MC 178 Held: The age of majority for entering into a marriage contract differed from other contracts entered into by a minor and consequently, such contracts were not affected by the general rule.

Contracts by minor are valid under certain circumstances Contract for necessaries – s 69 – “if a person incapable of entering into a contract or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person”

Scholarships – s 4 Contracts (Amendment) Act 1976 – “no scholarship agreement shall be invalidated on the ground that the scholar entering into such agreement is not of the age of majority Insurance – Insurance Act 1963 – “A minor over the age of 10 may enter into a contract of insurance but if he is under 16, the written consent of parent and guardian is needed” Apprenticeship – The Children and Young Persons (Employment) Act 1966 Child is a person below the age of 14, young person between the age of 14 and 16

CERTAINTY Terms in the contract must be certain If the terms is uncertain or not capable of being made certain, the agreement is void Unenforceable Ali pleases to sell his house for RM50,000 or RM70,000

SOUND MIND S 12 Contract Act 1950 A person is said to be of sound mind for the purpose of making the contract, if at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interest A person usually suffering from mental disorder may make a contract during those periods when he is sound

LEGAL EFFECT OF CONTRACTUAL RELATIONSHIP Valid contract – obligation to perform the contract, legal remedies in case of breach Voidable contract – contract which can be affirmed or repudiated Void contracts –cannot be enforced in the court of law

VALID CONTRACTS If it fulfilled all the elements of contract that is offer, acceptance, considerations, legal capacity of parties, intention to create legal relations and certainty

VOIDABLE CONTRACT S 10 – all agreement are contracts if they are made by the free consent of the parties S 14 – consent is said to be free when it is not caused by one or more of the following: Coercion (threat) Undue influence Fraud (any act to induce another party to enter into contract) Misrepresentation (true/false statement) Mistake

VOID AND ILLEGAL CONTRACTS Not enforceable by law S 24 – the consideration or object of an agreement is lawful unless: forbidden by law if permitted, would defeat any law fraudulent implies injury to a person or property of another court regard it as immoral or opposed to public policy

REMEDIES Remedies from the court: Damages Specific performance Injunction

DAMAGES REMEDIES SPECIFIC PERFORMANCE INJUNCTION

Remedies granted by the court can be divided into two types:- 1. Legal remedy i.e damages 2. Equitable remedy i.e specific performance, injunction and quantum meruit. Available to the innocent party but the grant of these remedies is subject to the discretion of the court.

DAMAGES S 75 - A party who has a right to rescind the contract can seek legal redress (damages) Damages are granted to compensate the innocent party for losses suffered as result of the contract being breached by the party in breach.

The right to sue for damages is available as of right to the innocent party when the contract has been breached. If the plaintiff can establish that the defendant has breached the contract, the plaintiff is automatically entitled to claim whatever losses which he can prove that he has suffered due to that breach of contract.

Two type of losses: pecuniary and non pecuniary losses Pecuniary losses – losses which can be quantified in financial terms. Eg: loss of profit, expenses incurred. Non pecuniary losses – losses which cannot be precisely stated in financial terms. Eg: pain and suffering,disappointment, embarrassment

SPECIFIC PERFORMANCE A decree directing a contract or certain act should be performed specifically according to its original terms Where the court grants an order of SP, the contracting party who in breach of the contract refuses to perform his obligation under the contract, will be compelled to perform the obligation.

Failure to do so will render him liable for contempt of court for non-compliance with an order of court. (CASE: JOHNSON V. AGNEW [1980] 1 MLJ 367) Chapter II of the Specific Relief Act 1950 lays down the principles governing the remedy of SP.

INJUNCTION An order of court requiring the party to whom it is addressed to do a specified act to refrain from doing a specified act. Equitable remedy available for breach of contract. Granting of injunctions as at the discretion of the court. Not available to a ptf as of right.

TYPES OF INJUNCTION Can be divided into temporary and perpetual injunction. (S 50 of the Specific Relief Act 1950) 1. Temporary injunction Granted before the trial of the case. Granted as a provisional measure at an early stage of the proceedings before the court has had the opportunity of hearing and considering the merits of the case.

S 51(1) SPA 1950- temporary injunction is to continue until a specific time, or until further order of the court. - preserve status quo of the parties Can be granted at any time

Perpetual Injunction Given after the trial as a final judgment. Permanent order S 51(2) SPA 1950 – a perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the suit; the def is thereby perpetually enjoined from the assertion of right, or from the commission of an act, which would be contrary to the rights of the ptf.Granted by the degree made at hearing

Eg: Mareva Injunction – preventing the defendant from removing asset from within the jurisdiction.