CONTRACT 1:

FORMATION
OF
CONTRACT
• Contract is an agreement between two or more parties that
is legally enforceable.
• S.2 of the Contracts Act 1950 put is as “an agreement Law of
enforceable by law”.
Contract
• When one party fails to perform his side of the bargain, he is
said to have “breached” the contract and the other can
bring the action in court.
• Contract be can be made orally or in writing.
• In Malaysia, the law of contract is codified under Contracts
Act 1950.
• In order to form a valid contract, the following elements must
be present :- Elements of
1. Offer a Valid
2. Acceptance Contract
3. Consideration
4. Intention to create legal relations
5. Capacity to contract
6. Certainty
• S. 2 (a) Contracts Act
“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 the act or abstinence, he is said to
make a proposal” (1) OFFER
• The promisor or an offeror must have declared his readiness
to undertake an obligation upon certain terms, leaving the
option of acceptance or refusal to the offeree, the person to
who offer is made.
• Where there is lack of offer or acceptance, an agreement is
void ab initio or void from the very beginning – Affin Credit
(Malaysia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169.
• An offer must be communicated, it is effective when it
comes to the knowledge of the offeree- S. 4 (1) Contracts
Act
Types of Offer
UNILATERAL OFFER BILATERAL OFFER

• An offer made with no • The offeree is

specific person in mind identifiable or a specific
but there is readiness to person.
be bound by his offer • Example : A offers to sell
• Example : A “lost pet B his motorbike for RM
poster” 1000.
• Case : Carlil v Carbolic
Smokeball [1893] 1 QB
256
• Offer is different from Invitation to Treat (ITT).
• ITT is a non-binding statement or conduct that invites interest Offer v
or an invite to invite an offer. Invitation to
• Generally, these are the instances of ITT – Treat (ITT)
• Auctions
• Advertisement – Partridge v Crittenden [1968] 2 All ER 421
• Catalogues
• Price lists
• A restaurant menu
• Request of information/quotation – Harvey v Facey [1893]
AC 552
• Goods displayed in shop window – Pharmaceutical Society
of Great Britain v Boots Cash Chemist Ltd [1953] 1 QB 401
 CASES ON I.T.T.
Harvey v Facey [1893] AC 552
• The P attempted to buy piece of land called
Bumper Hall Pen.
• The P telegraphed the D asking “Will you sell us
Bumper Hall Pen? Telegraph lowest cash price”
• The D replied “Lowest price from Bumper Hall Pen
$900”
• The P telegraphed again saying he accepted the
“offer” but D didn’t reply.
• Held : The D’s reply was not an offer. It is a mere
statement of minimum price.
Pharmaceutical Society of Great Britain v Boots Cash
Chemists Ltd [1953] 1 QB 401
• The issue was whether Boots has committed an
offence under a law that prohibits the sale of
medicine without the presence of a pharmacist.
• Boots operates a self-service system where
customers select items from the shelves and bring
them to the cashier.
• At the cashier’s desk, there was a pharmacist on
duty.
• If the sale was committed the moment the
customer picks the item from the shelves, then
Boots will be considered to commit the offence.
• But if the sale took place at the cashier’s counter,
Boots will not be liable.
• Held : A display of goods on the shelves is an ITT. A
customer who brings an item to the cashier makes
an offer to buy the item. Therefore, sale only takes
place at the cashier counter where a pharmacist is
present.
CASE ON UNILATERAL OFFER
Carlill V Carbolic Smoke Ball [1893] 1 QB 256
• The D was a manufacturer of a medicinal smoke ball.
• The D claimed that the smoke ball could prevent influenza and must be used
three times daily for two weeks according with the given instructions.
• The D was so confident that the smoke ball would work that they promised in
their advertisement to pay $100 to anyone who caught influenza after using the
smoke ball after following the instruction.
• The advertisement even stated that $1000 was deposited with the bank as
evidence of their sincerity.
• The P, used the smoke ball in accordance with the instruction but still caught
influenza at the same time so she went and claimed the $100 as per the
advertisement.
• The D argued that the advertisement was a mere boast and not an offer. Thus
they are under no obligation to pay the $100 to the P.
• Held : The advertisement was a unilateral offer made to the world at large. It
cannot be said to be an ITT because the D had shown his commitment to be
bound by his words through the $1000 deposit to the bank. The P had accepted
the offer by acting on it, namely, she used to smoke ball in accordance with
instruction.
• When an offeror changes his mind and withdraw his offer, he
can do so by revoking it.
• A withdrawal of an offer is called ‘revocation of offer”. Revocation
• An offer can only be revoked provided it has not been of Offer
accepted.
• An offeror must give notice of revocation to the offeree for it
to be effective – S. 6 (a) Contracts Act 1950
• A revocation can also happen in the following
circumstances :-
• Lapse of time – S. 6 Contracts Act 1950 , Ramsgate Victoria
Hotel v Montefiore
• Offeree’s failure to fulfil the conditions of the offer – S. 6 (c)
Contracts Act
• Death or mental disorder – S. 6 (d) Contracts Act
• S. 2 (b) Contracts Act 1950
“when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted: a
proposal, when accepted, becomes a promise”.
(2)
ACCEPTANCE
• Acceptance must be absolute and unqualified (S. 7 (a)
Contracts Act) to show a complete consensus.
• It is agreeing or accepting to the offer without any more
negotiation or amendment to the terms or else it is a counter-
offer.
Case on Acceptance
Hyde v Wrench (1840) 3 Beav 334
• The D offered to sell his farm to the P for $1000.
• The P replied with a counter offer that he would buy the
farm for $950.
• The D refused to sell his fam at the reduced price.
• The P turned around and said that he would buy the farm
for $1000.
• The D still refused to sell
• Held : The D is not liable to the P. This is because the $1000
offer is no longer open. The P’s reply to buy the farm for
$950 was a counteroffer which amounted to the rejection
of the original offer.
• Acceptance must be communicated or brought to the
notice of the offeror - S. 4 (2) Contracts Act 1950
• Acceptance can be made through words or conduct. (2)
• For acceptance using letters or telegrams, the acceptance ACCEPTANCE
is deemed to be communicated at the time the letter was
posted. This is called the Postal Rule.
• The offeror may specified the method of acceptance and
the offeree must communicate his acceptance through the
specified method – S. 7(b) Contracts Act .
• An offeree can withdraw his acceptance only if the
acceptance has not been communicated to the offeror – s.
5 (2) Contracts Act
• A consideration is a value for a promise. When someone is
willing to give value for a promise, it shows that he takes the
deal seriously and intends to be bound by it.
• Considerations comes in many forms. It doesn’t necessarily be (3)
of monetary value. Your willing ness to abstain (stop) for doing CONSIDERATION
something or forego something can constitute consideration.
• It is an exchange for something for some other thing.
• General rule : An agreement made without consideration is
void. However, there are a few exceptions :-
• S. 26 (a) CA – An agreement made without consideration
and made on account of love and affection is not void
(usually in land transfer matters between family members)
• S. 26 (b) CA – A promise to compensate a person for
something he has already voluntary done is not void for lack
of consideration.
• S. 26 (c) CA – A promise made in writing to pay debt barred
by limitation law is enforceable despite lack of
consideration.
• Past consideration is good consideration
• The usual promise comes before the act that constitutes
the act of consideration for example Ali promises to pay
Bakti RM 100 if he agrees to clean his house. (3)
• However, past consideration is when the act that
CONSIDERATION
constitutes the consideration comes before the promise.
For example, Cinta rescues Ah Chee’s dog from the big
drain near her house. Ah Chee later promise Cinta RM 100
for saving his dog. The act of saving Ah Chee’s dog is past
consideration
• Consideration can move from a third party
• S. 2(d) Contracts Act allows consideration to come from a
third party
• For example, Dino promise Ellen RM 500 for cleaning his
house’s pool. Mrs. Felicia, Dino’s mother who later paid RM
500 to Ellen for cleaning the pool.
• Consideration need not be adequate
• Consideration must be sufficient but need not be
adequate. This means that so long as the consideration is
of value in the eyes of law, it is irrelevant that it appears (3)
trivial to others. CONSIDERATION
• Chappel v Nestle Co Ltd [1960] AC 87
• Nestle has a promotion that sells the record of as song
‘Rockin’ Shoes’ for 1s 6d if a buyer presents three
wrappers from their 6d chocolate bars.
(3)
CONSIDERATION
• The P was the copyright owner of the song.
• The P claimed that for the purpose of calculating his
royalty, the price of the chocolate bars forms part of the
consideration.
• Nestle argues that the chocolate wrappers were not
part of the consideration since they had no use for them
and threw them away.
• Held : The chocolate wrappers were [art of the
consideration. The court will not question whether the
value was adequate. In any event, Nestle benefitted
form the increased sale of the chocolates from the
promotion.
• Consideration need not be adequate – part payment of
debt can discharge the whole debt
Kepa Singh v Bariam Singh [1966] 1 MLJ 38
• A father incurred debts. His son negotiated with the
(3)
creditor and agreed to pay part of the debt if the
CONSIDERATION
collector would release the father from the whole debt.
• The creditor agreed and so the son made part payment of
the debt.
• The creditor later sued for the balance.
• Held : The creditor willingness to accept the part payment
had discharged the debtor from his remaining debts.
• When we say that two parties have the intention to create (4) INTENTION
legal relations, it means they intend to be legally bound by
the agreement.
TO CREATE
LEGAL
• Thus, if one party fails to fulfil his contractual obligation, the
other party can enforce the contract in court.
RELATIONS
• To determine parties’ intention, we apply an objective test
i.e. whether a reasonable person looking at the parties' words
and conduct, would consider the to be an intention top
create legal relations.
• As a general rule, social or domestic agreements (those (4) INTENTION
entered between spouse, siblings, relatives) are not
considered to be legally binding UNLESS the P can show
TO CREATE
evidence to prove the domestic arrangement is intended to LEGAL
be legally enforceable. RELATIONS
Balfour v Balfour [1919] 2 KB 571
• The husband, Mr Balfour promises to pay allowance of
$30 per month to his wife Mrs. Balfour and later failed to
pay the allowance.
• Held : The arrangement was unenforceable as Mr. and
Mrs. Balfour never intended it to have legal force.
• Exception For Social Or Domestic Agreement (4) INTENTION
Merrit v Merrit [1970] 1 WLR 1121
TO CREATE
• Husband agreed to transfer the house to his wife
provided she pays the mortgage instalments. The LEGAL
agreement was put in writing. RELATIONS
• Wife paid the instalments, but husband refused to
transfer the house to her.
• Held : The agreement was binding on the husband
because the act of formalising the agreement in writing
showed that there was an intention to create legal
relations.

• General Rule for Commercial Agreements

• For all commercial agreements, intention to create legal
relations is presumed to exist but this presumption is
rebuttable for example MoU.
• When we say that a person has legal capacity to contract, it means
that he has the ability to understand the terms of the contract and
give his free consent. (5)
• A person who lacks contractual capacity is someone who does not CAPACITY TO
have the power to enter into contracts.
CONTRACT
• Minors and persons of unsound mind lack the capacity to contract –
S. 11 Contracts Act
• Persons of Unsound Mind – Person who is incapable of
understanding the agreement and cannot rationally judge the
effect of the agreement on his interest - S.12 Contracts Act – for
example a mental person or a drunk person.
• A minor – is a person below 18 years old – contracts entered into by
a minor is void . However, a minor can contract for the “necessaries”
for example food, clothing, medical treatment and education – S.
69 Contracts Act
• How about employment ? ‘Young person’ who is above 15 and
below 18 years old can enter into employment contracts – Children
and Young Persons (Employment) Act 1966.
• The terms of an agreement cannot be vague but must be
certain. An agreement which is uncertain or is not capable
of being made certain is VOID.
(6)
• For example, Kim agrees to sell her house to John if he could
stay loyal with her forever. Or, Siti agrees to buy the silk cloth
CERTAINTY
from a silk factory for RM 9.00 per meter without specifying
what type of silk she wanted. Or, you go to your mamak shop
and ordered “Satu minuman yang sedap” leaving the waiter
or anney confused as to what kind of drinks you really like to
order.
• Agreement must be clear in terms of its subject matter,
parties and other relevant terms.
• In Karuppan Chetty and Suah Thian, the requirement of
certainty was not met when the parties agreed upon a lease
“at RM35.00 per month for as long as he likes”. What is
uncertain here?
• This principle states that a person who are not a parties to the
contract cannot be bound by its terms.
• The general rule is a contract is only binding between the PRIVITY OF
offeror and offeree i.e. it is only binding to the parties.
CONTRACT
• A third party cannot enforce the contracts if the terms are
broken.
• There are EXCEPTIONS to the privity of contract like in the
case of Jackson v Horizon Holidays [1975] 3 ALL ER 92 where
a hospitality business maybe required to compensate
persons whom it did not contract with :- PRIVITY OF
• The P booked a holiday for himself, his wife and their two CONTRACT
children to Ceylon.
• The holiday failed to provide important facilities and
services promised in the booking contract.
• The P sued the D for his own personal disappointment and
that of his wife and children.
• The trial judge held that the P could only claim for personal
disappointment. The P appealed.
• Held : Under the privity of contracts, the P’s wife and family
could not sue upon the booking contract. After all, they
were not parties to the booking contract. However, the
contract was made partly for their benefit. Therefore, the P
could receive damages for the disappointment of his wife
and family.
Express and Implied Terms
Contents are made up of terms - expressed or implied CONTENTS
1. Express terms - has been specifically agreed upon by the OF A
parties -orally, in writing or both. CONTRACT
• Express terms are straightforward and can be identified
just by looking at the contract document.
2. Implied terms - term that is read into the contract by the
court.
• Form an integral part of the contract though not expressly
provided - necessary to give business efficacy to the
contract
Terms may be implied by :
a) Custom and usage pertaining to a particular transaction. CONTENTS
Preston Corporation v Edward Leong [1982] 2 MLJ 22 OF A
• The appellants (A) were a company carrying on the business CONTRACT
of publishing books and the respondents (R) were a firm of
printers.
• The R sued the A for the sum of $500 which they alleged was
the balance of printing charges and a further sum of $28,052
as extra charges for reproducing the film positives. The R is
also claiming for the ownership of the film positives as R
argued that according to custom, the ownership of the film
positives belongs to the printers i.e, the R.
• Held : A custom must satisfy these 3 conditions of notoriety,
certainty and reasonableness. The custom argued by R is
unreasonable as the owner of the film positives must also pay
for the film reproduction and lose the ownership.
b) Statutory Provision
Statutes that imply terms into a contract: CONTENTS
• Sales of Goods Act 19572 (SOGA) OF A
• Hire - Purchase Act 1967 CONTRACT
• Consumer Protection Act 1999
• Strata Titles Act 1985
• Housing Development (Control and Licensing) Act 1966
• Covid-19 Act 2020
c) The courts , based by the intention of the parties
Yong Ung Kai v. Enting [1965] 2 MLJ 98 CONTENTS
• The defendant entered into a written agreement with the OF A
plaintiff for the sale of timber on land in which a tribe had CONTRACT
communal customary rights.
• In order to cut the timber, a license from the forests
department was required. The written agreement did not
refer to the necessity of obtaining a license.
• The defendant did his best to get a license, but this was
refused. On a claim for breach of contract:-
• Held: There was an implied term that the sale of the timber
was to be subject to the obtaining of the necessary license
as it is so plain and obvious that the agreement is made for
the sale of timber.
CONDITIONS AND WARRANTIES
1. Another classification/type of terms CONTENTS
2. Definition of both terms - given by Sales of Goods Act 1957 OF A
3. Sec 12 (2) SOGA - condition - ‘a stipulation essential to the CONTRACT
main purpose of the contract, the breach of which gives
rise to a right to treat the contract as repudiated’.
4. Sec 12 (3) SOGA - warranty - ‘ a stipulation collateral to the
main purpose of the contract, the breach of which gives
rise to claim for damages but not a right to reject the
goods or repudiate the contract.’
5. Whether a term is a condition or warranty - depends on
the intention of the parties - the court will help to
determine.
EXCLUSION CLAUSE
1. Another type of term. CONTENTS
2. Exclusion clause is a term that limits or excludes a party’s OF A
liability for breach of contract. CONTRACT
3. For e.g. – The tour operator will not be responsible for
activities that are cancelled due to bad weather and act
of God.
4. Requirements :-
a) Must be incorporated into the contract – must be
brought into attention of parties
b) Must be clear and unambiguous
c) Cannot contain unfair terms under s. 24 of Consumer
Protection Act
THE END.
ANY QUESTIONS?