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Law.element

Law.element

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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 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 email) 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 email) 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 completed at the time of revocation. 5. Revocation of acceptance The general rule is that acceptance must be communicated to the offeror before its effective. Leaving aside acceptance sent by post, it follows that, Prima facie, the offeree may revoke his acceptance at any time before it's communicated to the offeror; but there are some exceptional cases. First, where the offeror of a bilateral contract expressly or impliedly dispenses with communication of acceptance, there

can be no question of revocation of acceptance. Secondly, where the offeror of a unilateral contract exceptionally requires communication of acceptance; the issue of revocation of acceptance may be relevant where he 'offers' an act in return for a promise in so far as that promise may under the general rule be revoked before it's communicated; but where he offers a promise in return for an act, the rules for revocation of acceptance are irrelevant because the offeree will never make any promise.

CONSIDERATION 1. Consideration

Consideration means each party to the contract must receive something of value. Section 26 of the Contracts Act 1950 provides that, as general rule, an agreement without consideration is void. The word ‘consideration’ is defined in Section 2(d) of the said Act as follows: When, at the desire of the promisor, the promise or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.

This is best illustrated by an example: suppose I promise to give you my watch, but you don’t give me anything in return. If I break my promise and keep my watch, you can’t then go to court and make me give it to you. The contract isn’t legally binding: you didn’t give me any consideration for my promise. So put simply, consideration is the price paid for the other’s promise. There are four legal maxims that apply to consideration:
1) Consideration must move from the promisor;

2) Consideration need not move to the promisee; 3) Past consideration is not good consideration;
4) The consideration given must be sufficient, but it need not be adequate.

The detail isn’t necessary here, but there is a separate note on them if you’re interested. 1. Provision of Consideration

It can be implied from Section 2(d) of the Contracts Act 1950 that consideration may move from a person who is not the promise. It may move from ‘the promise or any other person’.

2.

Consideration need not be adequate

For consideration to be good consideration, it must be of some value, even if it is minimal value. There is no requirement that the consideration be commensurate in economic terms to the original promise. Nominal consideration will suffice as good consideration for a contract, Courts will not measure the adequacy of the consideration as it is up to the parties to decide the subjective worth of each promise.
3. Past Consideration is a Good Consideration

A promise cannot be based upon consideration that was provided before the promise was made. For example, if X promises to reward Y for an act that Y had already performed, the performance of that act, while good consideration for the promise to be rewarded for it, is past consideration and therefore not good consideration.

In Eastwood v Kenyon, the guardian of a young girl raised a loan to educate the girl and to improve her marriage prospects. After her marriage, her husband promised to pay off the loan. It was held that the guardian could not enforce the promise as taking out the loan to raise and educate the girl was past consideration, because it was completed before the husband promised to repay it. Furthermore, where a contract exists between two parties and one party, subsequent to formation, promises to confer an additional benefit on the other party to the contract, that promise is not binding because the promisee's consideration, which is his entry into the original contract, had already been completed (or "used") at the time the next promise is made. In Roscorla v Thomas, Roscorla and Thomas contracted to buy a horse for £30. After the sale, Thomas promised Roscorla that the horse was sound; the horse turned out to be vicious. It was held that Roscorla could not enforce the promise, as the consideration given for entering into the contract to buy the horse had been completed by the time the promise was made; in a sense, the consideration was "used up". The rule that past consideration is not good consideration is subject to the exception discussed by the Privy Council in Pao On v Lau Yiu Long (1980) AC 614. In that case, their Lordships held that past consideration can be good consideration where: 1. The promisee performed the original act at the request of the promisor; 2. It was clearly understood or implied between the parties that the promisee would be rewarded for the performance of the act;
3. The actual promise made, if made before the promisee provided the consideration,

must be capable of being enforced, in other words giving rise to a legally binding contract.

5.

An Agreement on Account of Natural Love and Affection, Section 26(a) The validity of this agreement is dependent upon the following conditions, viz. a) It is expressed in writing which may be in any reasonable form, b) It must be registered where a law exists requiring such registration, and

c) It is made on account of love and affection between parties standing in near relation to each other. Natural love and affection are not recognized as valid consideration under English law. Under subsection 29(a), it is a valid consideration provided the condition of ‘near relation’ between the parties is also met. Unfortunately, ‘near relation’ is not defined in Act. While members of the immediate family will ordinarily constitute ‘near relation’, there will be exceptions and any extension outside that group presents some real difficulties. Personal law with respect to family matters are still applicable to various ethnic groups and consequently, what constitutes near relation can vary with each social group, depending on its customs and social organization.

6.

An Agreement to Pay a Statue-Barred Debt, Section 26(c) A statue-barred debt refers to a debt which cannot be recovered through legal action because of a lapse of time fixed by law. The time within which a party must commence legal action to enforce its rights is limited by statue. Such a law is intended to protect a party from being compelled to defend a legal action brought against it after an unnecessarily long period of time. To allow otherwise could lead to a level of injustice on the party sued, because it may not be able to conduct a proper defence on account of circumstances such as the loss of evidence, inability to remember crucial facts and even death of witnesses. The time limit for an action in contract under the Limitation Ordinance 1953 applicable to Peninsular Malaysia is 6 years from the time of the cause of action arises. This is usually calculated from the moment of the breach of contract. Where more than 6 years have elapsed from the cause of action, the action is ‘statue-barred’, the aggrieved party cannot sue. Section 26(c) creates an exception to this rule but subject to several conditions; a) The debtor made a fresh promise to pay the statue-barred debt. For example a promise to this effect, ‘I know I still owe you $400 which I borrowed 7 years ago. I shall pay within two months’. b) The promise is in writing and signed by the person to be charged or his authorized agent in that behalf.

Illustration (e) to section 26 provides: Abu owes Badrul $1000, but the debt is barred by limitation. Abu signs a written promise to pay Badrul $500 on account of the debt. This is a contract. There is distinction between an acknowledgement of statue-barred debt under section 26 of the Limitation Ordinance and a promise to pay within section 26(c). If a debtor should make a written acknowledgment of a debt after the statue has run, the debt itself is said to be revived and a new period of limitation begins to run. In contrast, a promise to pay statue-barred debt creates an independent cause of action without consideration and not a revival of the original debt. This also implies that the promisor will only liable according to the terms and conditions of the fresh promise. Consequently, where the promise is to pay previous debt by monthly installments although the amount was due as lump sum, the promisor is only liable to pay by monthly instalments.

INTENTION TO CREATE LEGAL RELATIONS 1. Intention to Create Legal Relations One of the essential elements in the creation of a binding contract, this intention is implied by the fact that it is not expressly denied. If expressly denied (as in a so-called gentlemen's agreement) the contract may not be enforceable. Clarke and Tucker v Tucker (1961) 4 W.I.R. 44 An agreement, though supported by consideration, is not binding as a contract if it was made without any intention of creating legal relations. The requirement of intention to create legal relations in contract law is aimed at sifting out cases which are not really appropriate for court action. Not every agreement leads to a binding contract which can be enforced through the courts. For example you may have an agreement to meet a friend at a pub. You may have a moral duty to honour that agreement but not a legal duty to do so. This is because in general the parties to such agreements do not intend to be legally bound and the law seeks to mirror the party's wishes. In order to

determine which agreements are legally binding and subject to an intention to create legal relations, the law draws a distinction between social and domestic agreements and agreements made in a commercial context.

2. The Need for Intention to Create Legal Relations in Contract Law An agreement supported by consideration is not enough to create a legally binding contract, the parties must also have an intention to create legal relations. Often, the intention to create legal relations is expressly stated by the contracting parties. In other situations, the law will readily imply the intention, because of the nature of the commercial dealings between the parties. The presence of consideration is often indicative of the intention to create legal relations, though there are situations where the presumption of the intention can be rebutted, thus determining that there is no contract and no legal liability. In many domestic agreements, for example those made between husbands and wives and parents and children, there is no intention to create legal relations and no intention that the agreement should be subject to litigation. Familial relationships do not preclude the formation of a binding contract, though to create contractual relations, there must be a clear intention on either party to be bound. While there are conflicting legal authorities on whether specific facts involving familial relations result in binding and enforceable agreements, it seems settled that in domestic agreements there is a rebuttable presumption that the parties do not have intention to create legal relations. In commercial agreements, there is a rebuttable presumption that parties intend to create legal relations and conclude a contract. In determining

whether parties have created legal relations, courts will look at the intentions of the parties. If in the course of business transactions, the parties clearly and expressly make an agreement stating that it ought not be binding in law, then a court will uphold those wishes. However, if a court is of the view that there is any ambiguity of intention, or that such intention is unilateral, such contract will be voided. The burden of rebutting the presumption of legal relations in commercial agreements lies on the party seeking to deny the contract. In terms of commercial contracts involving large sums of money, case law has determined that it is a heavy burden. It has been decided in the UK, which so called “Letters of Comfort”, which express a parties intention on business dealings can amount to an intention to create legal relations and so bind a party in contract, but that it will depend on the nature of the specific wording used. Agreements between companies and trade unions have also raised the question of the intention to create legal relations. Collective agreements are generally not intended to be legally binding. It has been held that specific provisions of collective agreements can be incorporated into individual contracts of employment and thus legally binding.

The intention to create legal relations is an essential feature of contract law, and the existence of the intention will depend on the nature and form of the contract and the contracting parties. From the reading guide that there are four areas dealt with: 1) In ordinary commercial contracts, there is a strong presumption that intention is present. It is possible to displace this presumption, but it is very difficult to do so. 2) In domestic and family arrangements there is a weak presumption that there is no intention to create legal relations. This presumption can be easily displaced.

3) Certain types of government arrangements, of which the wool subsidy scheme in the Australian Woollen Mills case is an example, do not generate contractual relations. But, of course, ordinary government contracts are just contracts in the usual sense. 4) There is a bit of a problem in analysing what goes on when a club or other voluntary association makes a contract. A voluntary association which has not incorporated is not a legal entity. It is a collection of individuals. There are problems of contractual analysis when this collection of individuals deals with the outside world and when they make rules for the conduct of their own, joint enterprise.

CERTAINTY If the terms of the contract are uncertain or incomplete, the parties cannot have reached an agreement in the eyes of the law. An agreement to agree does not constitute a contract, and an inability to agree on key issues, which may include such things as price or safety, may cause the entire contract to fail. However, a court will attempt to give effect to commercial contracts where possible, by construing a reasonable construction of the contract. Courts may also look to external standards, which are either mentioned explicitly in the contract or implied by common practice in a certain field. In addition, the court may also imply a term; if price is excluded, the court may imply a reasonable price, with the exception of land, and second-hand goods, which are unique.

If there are uncertain or incomplete clauses in the contract and all options in resolving its true meaning have failed, it may be possible to sever and void just those affected clauses if the contract includes a severability clause. The test of whether a clause is severable is an objective test, whether a reasonable person would see the contract standing even without the clauses. For example, if Daniel agrees to sell to Mariam a hundred crates of vase without specifying what kind they are, such an agreement is void on the grounds of uncertainty. In Karuppan Chetty v. Suah Thian (1916) 1 F.M.S.L.R. 300, the contract was declared void for uncertainty because the parties agreed to a lease of $35 per month ‘for as long as he likes’. The court is often in an unenviable position when it is called upon to construe an agreement whose terms are somewhat uncertain. On the other hand, it does not wish to impose terms not intended by the parties and on the other, it tries to imply certain terms to uphold a loosely worded agreement, bearing in mind that people do not always work out the terms of their agreements in meticulous detail.

CAPACITY After the offer, acceptance, consideration, intention to create legal relations and certainty have been established to firm up a contract, the next element of a contract is the capacity to contract. 1. Capacity Under section 11 of the Contracts Act 1950 read: Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject. However, there are some exceptions to this rule: a) Contracts for necessities b) Contracts of scholarship c) Contracts of insurance All sane and sober adults can form contracts, but there are laws to protect people from being exploited in contract situations.

Contracts are not legally binding for: • • • minors people with mental disability people with impaired judgment ○ illness ○ disability ○ hypnosis ○ alcohol/drugs The intent is to protect individuals who may not have the ability to make decisions in their own best interest. Across Canada the age of majority varies. In Saskatchewan it is 18. In the other Canadian provinces and territories it varies between 18 and 19 years of age.

a)

Contract for Necessities An exception to this rule is for the necessities of life (food, clothing, shelter). In such

cases a contract with a minor can be enforced or businesses would not want to deal with minors. There are times when a good or service is necessary for a minor to have. A teenager may need to rent or purchase a tuxedo to attend his graduation or to be a groomsman at a family wedding. Normally teens do not have need for a tuxedo. The business should enter into contract with the teenager because of the social need. Just like for a adult, with contracts for necessities, a minor may not be forced to pay the contract price if it is not in their best interest. A "reasonable" exchange must occur. For example if Shereen purchases athletic shoes for $120 at one store, then sees them selling for $90 at another store, the store of purchase should match the better price. Legally in this case Shereen has the same right to "reasonable" price as an adult. People with Disability or Impaired Judgment are treated much the same as minors, through protection. As with minors, people with impaired judgement are obligated to pay only a "reasonable" price for necessaries.

CONTENT

NO

ITEMS

PAGE

1.

INTRODUCTION ELEMENT OF CONTRACT

1

2.

OFFER

2-6

3.

ACCEPTANCE

7-11

4.

CONSIDERATION

12-15

5.

INTENTION TO CREAT LEGAL RELATION

16-18

6.

CERTAINTY

19

7.

LEGAL CAPACITY

20-22

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