Certificate

of Estate Agency_CEA 1023

LAW OF CONTRACT:
Elements of a Contract

1) PROPOSAL

Definition: Where 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 the act, or abstinence, he is said
make a proposal - Section 2 (a).

An offer is an proposal which, it accepted by another according to its terms, will create a binding
contract. An offer is made in the form of a promise to do or refrain from doing something.

Note: Party making the proposal is called the promisor and the person accepting the proposal is
called the promisee - Section 2(c).

Example: A proposes to buy B’s bicycle for RM50 hoping that B will accept. A is making a
proposal.

Principles:
1. A proposal can be made in writing, orally or by conduct - Section 9.

2. A proposal can be made to a particular person or to a group of persons, or to the world

at large (general public).
Note:
i. If a proposal is made to a person or a particular body, then only that person or
body can accept the said proposal. This principle was stated in Boulton v Jones
1857.
ii. If a proposal is made generally, any individual may accept that proposal. The
authority for this proposition is Carlill v Carbolic Smoke Ball Co.1893.

3. A proposal must be communicated to the promisee.

Example: If A (promisee) find a purse and returns it to the owner without being aware of
an offer of reward for its return, then A cannot claim the reward. This was stated in R v
Clarke 1927.
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4. Communication of a proposal is complete when the proposal comes to the knowledge of

the person to whom it is made.
Example: A proposes, by letter, to sell a house to B at a certain price. The
communication of the proposal is complete when B receives the letter.

5. A proposal must be distinguished from an invitation to treat.

Note: An invitation to treat is some sort of preliminary communication which passes
between the parties at the stage of negotiation.
Example:
a) An advertisement is only an invitation to make a proposal. This was decided in
Coelho v The Public Service Commission 1964.
b) In an auction, an auctioneer is inviting bids. The auctioneer is only making an
invitation to treat.
c) A statement of price of a thing or article is an invitation to treat. This was stated in
Harvey v Facey 1893.
d) Quotation of price is an invitation to treat. This is the principle from Preston
Corporation Sdn Bhd v Edward Leong Ong 1982.

6. A proposal can be revoked at any time before acceptance. - Section 5 (1).

Example: A revokes his proposal by telegram. The revocation is complete as against A
when the telegram is dispatched. It is complete as against B when B receives it.
Section 6 provides that a proposal is revoked:
a) By the communication of a notice of revocation by the proposer to the other
party.
b) By the lapse of time prescribed in the proposal for its acceptance or it no time is
so prescribed, by the lapse of reasonable time.
Note: The rationale that an offer (proposal) lapse after a reasonable time in
because failure to accept within a reasonable time implies rejection by the
offered (promise).This was stated in Macon Woks & Trading Sdn Bhd v Phang
Hon Chin and Anor 1976.
c) By the failure of the acceptor to fulfill a condition precedent to acceptance.
Example: A make proposal to B to sell his house for RM100,000.00, provides
that B successfully obtains a bank loan from XYZ Bank. A’s proposal is revoked
 Certificate of Estate Agency_CEA 1023

because B failed to fulfill a condition precedent (to obtain a bank loan from XYZ
Bank).
d) By the death or mental disorder of the proposer, if the fact of the death or mental
disorder comes to the knowledge of the acceptor before acceptance.

2) ACCEPTANCE

Definition: When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted: a proposal when accepted become a promise - Section 2 (b).

Principles:
1. Acceptance can be made in writing, orally or by conduct - Section 9.

2. Acceptance must be absolute and unqualified - Section 7 (a).

Note: Acceptance must be made on exactly the same terms as proposed without any
modifications or variations.

3. Any modifications or variations of a proposal are not an acceptance of the proposal. It is

a counter - proposal made by the party to whom the proposal was originally made. This
principle was laid down in Hyde v Wrench 1840.
If it is a counter - proposal, the effect is:
a) It destroys or rejects, the original proposal
b) The counter-proposal become the new proposal
c) The new proposal may be accepted or rejected by the promisor

4. Acceptance must be expressed in some usual and reasonable manner - Section 7 (b).

5. Silence cannot be regarded as acceptance because of an absence of a positive act.

Note:
i. Section 2 (b) states: “person to whom the proposal is made signifies his assent
thereto”. This implies that something positive be done by the promise.
ii. The promisor cannot insist on the promisee to take a positive act to signify
rejection. This was stated in Felthouse v Bindley 1862. E.g. “if I do not receive a
reply from you within a week, I shall treat that you accepted my proposal”.
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6. Performance of the conditions of a proposal or the acceptance of any consideration for a

reciprocal promise which may be offered with a proposal is an acceptance of the
proposal. This principle is found in Section 8.

7. Acceptance must be made within the time fixed in the proposal or if no such time is so
stated, within a reasonable time. See Section 6 (b).

8. Communication of an acceptance is complete when it comes to the knowledge of the

proposer.
Example: B accepts A’s proposal by a letter sent by post. The communication of the
acceptance is complete when A receives the letter.

9. Acceptance can be revoked at any time before the communication of the acceptance is
complete as against the acceptor.
Example: B revoked his acceptance by telegram. B’s revocation is complete as against
B when the telegram is dispatched, and as against A when it reaches him.

3) CONSIDERATION

Definition: When, at the desire of the promisor, the promisee or any other person has done or
does or promise to do, or has abstained from doing or abstains from doing or to abstain from
doing something such act or abstinence or promise is called a consideration of the promise -
Section 2(d).

Note: Consideration may be viewed as sort of bargain or the price which one party pays to buy
the promise or act of the other.

Example: X loses his car and offers a reward of RM1,000. 00 to anyone who finds and returns it
to X. In this scenario, X promises to pay RM1,000. 00 to anyone in return for an act (Finding the
car and returning it. Y pays the price for X’s promise by performing the act, which is the
consideration for the promise).
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There are 3 types of consideration:

a) Executor: when one promise is made for another.
Example: M promised to sell his mobile phone to K for RM550 and K promised to pay
the price upon delivery by M. Here, the promise to sell is in return to promise to buy.

b) Executed: when a promise is made in return for the performance of an act.

Example: M lost his pen and offered RM 200 to anyone who finds and returns the pen to
him. K found M’s pen in response to the offer and returns it to M. By returning the pen, K
has given consideration to M’s promise to pay.

c) Past: when a promise is made subsequent to and in return for an act that has
already been performed.
Example: If K finds and returns M’s pen and in gratitude, M promise to pay K RM200/-.
The promise is made in return for a prior act.

Principles:
1. Agreement made without consideration is void. This is the general rule - Section 26.
Note: There are exceptions to the rule that agreement without consideration is void:
a) An agreement made an account of natural love and affection between parties
standing in near relation to each other (expressed in writing and registered).
Example: A, for natural love and affection, promises to give his son, B, RM1,000.
A puts his promise to B into writing and registers it under a law for the time being
in force for the registration of such documents. This is a contract.
b) An agreement to compensate for a past voluntary act or an agreement to
compensate a person who did an act which the promisor was legally compellable
to do.
Example: A supports B’s infant son. B promises to pay A’s expenses in so doing.
This is a contract.
c) An agreement to pay a statue- barred debt. See Section 26(a), (b) and (c).
Example: A owes B RM1,000, but the debt is barred by limitation. A signs a
written promise to pay B RM500 on account of the debt. This is a contract.
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2. Consideration need not be adequate.

Example: X promises to sell his land worth RM200,000.00 for RM10. The agreement is a
contract notwithstanding the inadequacy of consideration.

3. Consideration must move from the promise and at the desire of the promisor.
Note: The act constituting the consideration must move from the promisee or any other
person and at the desire of the promisor. See section 2(d).
Example: A, B, and C are parties to an agreement. C promise to pay A RM1,000. 00 if B
paint C’s house. B paints C’s house. The consideration has moved from B to A.

4. Only consideration which is lawful will make an agreement valid and enforceable by law.
Note: Section 2(h) provides that “an agreement enforceable by law is a contract”.

5. Consideration of an agreement is lawful, unless:

a) It is forbidden by a law.
Example: A promises to obtain for B an employment in the public service, and B
promises to pay RM1,000 to A. The agreement is void, as the consideration for it
is unlawful.
b) It is such a nature that, if permitted, it would defeat any law;
Example: A’s estate is sold for arrears of revenue under a written law, by which
the defaulter is prohibited from purchasing the estate. B, upon an understanding
with A, becomes the purchaser, and agrees to convey the estate to A upon
receiving from him the price which B has paid. The agreement is void, as it
renders the transaction, in effect, a purchase by the defaulter, and would so
defeat the object of the law.
c) It is fraudulent
Example: A, B and C enter into an agreement for the division among them of
gains acquired, or to be acquired, by them by fraud. The agreement is void, as its
object is unlawful.
d) It involves or implies injury to the person or property of another
e) The court regards it as immoral or apposed public policy.
Example: A agrees to let her daughter to hire to B for concubinage. The
agreement is void, because it is immoral.
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4. INTENTION TO CREATE LEGAL RELATIONS

Definition: There is no definition provided in the Contract Act 1950.

Principles:
1. There must be evidence that the parties to an agreement intend that it be legally
enforceable. Such intention may be express or implied.

2. In a business agreement, there is presumption that the parties intend legal

consequences to follow unless the parties specify otherwise.

3. In social, domestic or family agreement, it is implied as a matter of course that no legal

relations are contemplated.

5. CERTAINTY

Definition: The language used in an agreement may be too vague or the agreement may be
incomplete.

Principles:
1. Every agreement must have terms that are certain.
Example:
a) A agrees to sell to B one hundred tons of oil of a specified description. There is
no uncertainty here to make the agreement void.
b) A agrees to sell to B “all the grain in my granary at Ipoh”. There is no uncertainty
here to make the agreement void.

2. If an agreement has terms that are uncertain or which cannot be ascertained as to its
certainty, then the agreement is void.
Example:
a) A agrees to sell to B “a hundred tons of oil”. There is nothing whatever to show
what kind of oil was intended. The agreement is void for uncertainty.
b) A agrees to sell to B “my white horse for RM500 or RM1,000”. There is nothing to
show which of the two prices was to be given. The agreement is void.
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3. Where the meaning is unclear but is capable of being made certain, the agreement is
not void for uncertainty.

6. CAPACITY

Definition: Competency to contract.

Who are competent to contract:

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. - Section 11.

Exceptions to the general rule:

1. Contracts for necessaries
2. Contracts of scholarship
3. Contracts of insurance

1. Contracts for necessaries:

If a person, incapable of entering into a contact, or anyone whom he is legally bound
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 -
Section 69.
Example:
a) A supplies B, a mentally disordered person, with necessaries suitable to his
condition in life. A is entitled to be reimbursed from B’s property.
b) A supplies the wife and children of B, a mentally disordered person, with
necessaries suitable to their condition in life. A is entitled to be reimbursed from
B’s property.
*Necessaries mean things which are essential to the existence and reasonable
comfort of the infant.
Example: Food and clothing. However, luxurious articles are excluded. Education
was held to be included under necessaries in Government of Malaya v
Gurcharam Singh and others 1971.
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2. Contracts of Scholarship
By virtue of the Contract (Amendment) Act 1976 a scholarship agreement entered into
by an infant is valid when the scholarship, award, bursary, loan or sponsorship is
granted by the Federal or State Government, a Statutory Authority, or an educational
institution as a university.

3. Contracts of Insurance
Under the Insurance Act 1963 (Revised 1972) an infant over the age of 10 may enter
into a contract of insurance. However, if he is below the age of sixteen, he can only do
so with the written consent of his parents or guardian.

A person suffering from mental disability, either permanently or temporarily, at the time
of contract lacks the capacity to enter into contract – Section 12.

A person may be disqualified from contracting. Example: Bankrupt person.

7. CONSENT

Definition: Consent means that the parties agree upon the same thing in the same sense -
Section 13.

Principles:
1. A contract is only valid is made with free consent and there is no pressure or force from
anyone to do so - Section 10(1).

2. Consent is said to be free when it is not caused by - Section 14:

a) Coercion
b) Undue influence
c) Fraud
d) Misrepresentation
e) Mistake
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8. LEGALITY

Definition: The object or subject matter of an agreement must be for a lawful purpose - Section
10(1).

Principles:
1. The object of an agreement is lawful unless - Section 24:
a) It is forbidden by law
b) It is of such nature that, if permitted, it would defeat any law;
c) It is fraudulent
d) It involves or implies injury to the person or property of another; or
e) The court regards it as immoral, or opposed to public policy.

2. Every agreement of which the object is unlawful is void.

9. PERFORMANCE

Definition: Performance means that the agreement can be carried out by the parties.

Principles:
1. Every agreement must be capable of performance.
2. The effect of an agreement that cannot be performed is that it is void.
Example: A, a Hindu, promises to marry B, a Muslim. But A has no intentions to convert
to Islam. The agreement cannot be performed.