1. 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

2. Why do we need contract law?
Ensure the parties to a contract / agreement keep to their promises
The keeping of promises reinforces the social bonds of mutual confidence and security amongst the parties
Moral obligation to keep promises
It forms part of the principle of fairness as enshrined in the theory of law
Br. Mahyuddin Daud

3. General Principles of Law 1 Contract law
FORMATION OF CONTRACT
Br. Mahyuddin Daud

4. What is a Contract? An agreement Between 2 or more parties
Intention to be bound by such agreement
Consideration is provided
Br. Mahyuddin Daud

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 pp. 523.
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 Daud

6. Differences between Unilateral & Bilateral Contracts
Only 1 party assumes obligation, the other does not promise anything in return
Unilateral
Both parties assume obligation & exchange promises
Bilateral
Br. Mahyuddin Daud

7. Unilateral contract
Ahmad promised to pay Murad RM 1,000 if Murad found Ahmad’s 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 Daud

8. Bilateral contract
Ahmad promises to pay Murad RM 1,000 and Murad promises to find Ahmad’s lost kitten.
Both parties promised to do something / assume obligation
This is a bilateral contract!
Br. Mahyuddin Daud

9. Elements of a valid contract
Offer
Acceptance
Intention
Consideration
Capacity to contract
Br. Mahyuddin Daud

10. General Principles of Law 1 Contract law
OFFER
Br. Mahyuddin Daud

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 Daud

12. OFFER
OFFEROR
OFFEREE
Br. Mahyuddin Daud

13. Termination of an offer
Offer can be terminated by several ways:
When the terms of the offer allows it to be open for certain time, and upon expiry of that time, the offer will lapse
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 Daud

14. Cont…
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
An offer will lapse upon its rejection
Br. Mahyuddin Daud

15. Cont… An offer will lapse once it is being countered (counter-offer)
Death of the offeror & offeree
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 Daud

16. Cont… Withdrawal of an offer (unilateral contracts)
The legal principle: Once the offeree has started to perform (Dahlia Ltd’s 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. (Luxor’s case)
Br. Mahyuddin Daud

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 Daud

18. General Principles of Law 1 Contract law
INVITATION TO TREAT
Br. Mahyuddin Daud

19. Invitation to Treat ITT Offer
Definition: It is an indication of a person’s 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
ITT
Offer
Acceptance
Contract
Br. Mahyuddin Daud

20. What would be considered as ITT?
Invitation to Treat
Advertisements
Others
Display of Goods
Br. Mahyuddin Daud

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:
Fisher v. Bell : display of flick knives only amount to ITT, therefore, no offer was made.
Pharmaceutical Society v. Boots Cash Chemist : display of medicine on shelves only amounted to ITT.
Br. Mahyuddin Daud

22. Advertisements
Unilateral contracts : advertisements will be treated as an offer due to minimum possibility of negotiation to happen (ex: Carlill’s case)
2. Bilateral contracts : advertisements will be treated as ITT due to higher possibility of negotiation to happen
Br. Mahyuddin Daud

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 Daud

24. Cont…
Auction – the advertisement of an auction is a mere declaration of intention and not offer
The auctioneer’s request for bids is an ITT, and each bid is an offer
Tender - request for tenders is regarded as ITT
Br. Mahyuddin Daud

25. General Principles of Law 1 Contract law
ACCEPTANCE
Br. Mahyuddin Daud

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 Daud

27. Methods of Acceptance Verbal / Express Acceptance
Conduct / Implied Acceptance
Silence
Br. Mahyuddin Daud

28. 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, as long as the acceptance is in a direct form.
Br. Mahyuddin Daud

29. 2. Acceptance by conduct
The offeree signifies his acceptance by doing something that conform to the offeror’s offer
Ex: Brogden v Metropolitan Rail Co where the act of Brogden supplying the new order of coal amounted to acceptance of the railway company’s offer by conduct
Br. Mahyuddin Daud

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 uncle’s offer letter was an act of silence. The court was uncertain whether he was accepting the uncle’s offer or not.
Br. Mahyuddin Daud

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 Daud

32. Exceptions to the communication rule…
In these situations, acceptance need not to be communicated:
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 Daud

33. Cont…
2. Offeror fails to take notify of the acceptance by offeree i.e. (conduct of the offeror)
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 Daud

34. Exceptions to the postal rule
The postal rule (automatic acceptance) will not apply in these circumstances:
The terms of an offer requires acceptance to be communicated
Instantaneous communication
Communication will take effect immediately
See Entores’s case
Br. Mahyuddin Daud

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 Daud

36. Cont… Offeree Acceptance Offeror Offer Amsterdam London
Br. Mahyuddin Daud

37. Cont…
Since instantaneous rule applied, the contract was concluded at London. Therefore, the court has the jurisdiction to hear the case.
Br. Mahyuddin Daud

38. General Principles of Law 1 Contract law
METHODS TO APPROACH PROBLEMATIC QUESTIONS
Br. Mahyuddin Daud

39. Br. Mahyuddin Daud