BUSINESS LAW

LAW OF CONTRACT
 DEFINITION

• Contract can be defined as “Legally enforceable or

binding agreement made between at least two parties.

• Section 2(h) of the Contract Act 1950, provides the

authoritative definition of a contract, ―an agreement
enforceable by law is a contract”
• Agreements which are not legally enforceable are not
contracts.
• ‘Legally enforceable’ means that disputes relating to
the agreement may be referred to a court for
settlement.

• “All contracts are agreements, But all agrements are not

contracts.”
•Example:
• When A offers to sell his horse to B for RM.5000.00 and B
accepted it, there is an obligation on A to sell and on B to
buy the horse at the stipulated price. Such an agreement is
therefore, enforceable by law.
• Form of Contracts
• 1) Written
• 2) Oral
• 3) Partly oral and written
 TYPES OF CONTRACT

Contracts depending on the mode of Creation

• Express contract
• Implied contract
Contracts as regards the mood of time of performance
• Executed contract
• Executory contract
Contracts as regards the number of parties
• Bilateral contract
• Unilateral contract
Contracts as regards the mood of enforceability and validity
• Valid contract
• Voidable contract
• Void contract
CONTRACTS DEPENDING ON THE MODE OF CREATION

1. Express Contract
Contracts formed with the words spoken or
written, is an express contract.
Eg- A tells B on phone that he wants to buy
his car for RM 80,000 and B accepts the offer
on phone, this is an express contract
• 2. Implied Contract
• When the offer and acceptance is made by acts or conducts of
the parties, it is an implied contract.
• For eg- A, a coolie in uniform takes up the luggage of B at
Railway Station and B allows him to do so, then the law
implies that B will have to pay for the services of A. This is an
implied contract.
 CONTRACTS AS REGARDS THE MOOD OF TIME OF
PERFORMANCE

1. Executed Contract
• A contract is said to be executed contract when both the
parties to a contract have performed their obligations.
• For eg- When A sells the books to B, A has given the books to
B and B has made the payment, it is an executed contract
because both the parties have done what they were to do in a
contract.
• 2. EXECUTORY CONTRACT
• When either both the parties to a contract have still to perform
their share of obligation, then it is executory contract.
• For eg- A buys a car from B for RM 100,000. Now, A has
made the payment but B has not transferred the car , it is an
executory contract as the parties have to meet the obligation.
 CONTRACTS AS REGARDS THE NUMBER OF PARTIES

1. Bilateral contracts
• A promise by one party in exchanged for a promise by another party

Offeror
The person who
make the offer Offeree
The person to whom
• the contract was made

Example : Sale of goods contract

• The Buyer promises to pay the price
• The Seller promises to deliver the goods
2. Unilateral contracts
• A promise by one party in exchanged for an action by another party

• 1 Offeror
• Many Offerees

Example :
• X promises a reward to anyone who will find his lost wallet.
• X bound himself to the promise, but no one is bound to search for the lost
wallet. But if Y, having seen the offer, recovers the wallet and returns it, he is
entitled to the reward.
 CONTRACTS AS REGARDS THE MOOD OF
ENFORCEABILITY AND VALIDITY

1. Valid Contract
• An agreement enforceable by law when all the essential
features of a valid contract are present.
2. Voidable Contract
• A contract becomes voidable when the consent is not free.
Usually a contract becomes voidable when the consent of one
of the parties to the contract is not free.
• Eg- A, threatens to shoot B if he does not sell
his bike to A. B agrees. This contract is
voidable at the option of B
3. Void Contract
• A void contract is the contract that has no legal effect at all.
 ELEMENTS OF CONTRACT

• Offer
• Acceptance
• Consideration
• Intention to create legal relations
• Certainty
• Lawful object
• Free consent
• capacity
 PROPOSAL/ OFFER

Definition
• sec 2(a) of Contract Act 1950-- 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;
• Although the word proposal is used in the act, it carry’s the same meaning
as “offer” in the English law.

It can be inferred that the proposal has become a promise and then he is
called the promisor and the person accepting the promise is called the
promisee. 

• Section 2(c) of the Contract Act 1950 states that ‘the person making the
proposal is called the “promisor” and the person accepting the proposal is
called the “promisee”;

• Eg: Azizul offers to buy Samdan’s car for RM10,000/-. Azizul is making a
proposal, hoping that Samdan will accept. When Samdan accepts the offer,
an agreement or promise between them is created.

In the above situation Azizul is the promisor/offeror and Samdan is the

promisee/ offeree.
 CHARACTERISTICS

1 . A proposal must be certain.

Guthing v Lynn (1831) 2B & AD 232

Lynn offered to buy a horse from Guthing. He was to pay 5

pounds extra if the horse brought him good luck. The condition
laid was held by the court to be too vague to constitute a binding
contract.
2. A proposal can be an act or abstinence
An act is something to be done by a person. It is positive in
nature.
E.g: wafa’ offers to buy Aishah’s necklace for RM 2000.00.
Abstinence is something that will not be done or negative in
nature.
E.g: Bentong breaches a contract with Kali. By right, kali is
entitled to sue Bentong for the breach. Kali promises not to sue
Bentong if he pays Kali RM 1000.00 for damages. This is a
contract
3. The proposal must be made with the voluntary consent of
the proposer or promisor
This is shown in section 2(a) of the contract act from the words
‘his willingness’ and section 10(1) of the contract act from the
words ‘ free consent of parties to contract’
4. The proposal must be communicated from the proposer to
another person to get the assent of that person
Section 4(1) Contracts Act 1950

The communication of a proposal is complete when it come to

the knowledge of the person to whom it is made.

This is also shown in section 2(a) of the contract act from the
word ‘signifies’. Signifies means conveys, express or
communicates.
 TO WHOM CAN A PROPOSAL BE MADE

1) A particular person
e.g: nana proposes to sell her car to Nani
2) Class of person
e.g: amirul proposes to sell his motorcycle to any of his classmates
3) The world at large
e.g: reward for anyone who gives information of a murderer
Azizul offered RM 100/- for the safe return of his cat at an address
advertised. Azizul’s offer is to the general public and those who read
or knew of the offer may accept the offer and claim for the reward
Carlil v Carbolic Smoke Ball Co

The defendant’s advertised that they would offer a sum of 100 pounds to
anyone who would still succumb to influenza after using a certain product
according to the instructions for a fixed period. The plaintiff read the
advertisement and used the product accordingly but still contracted with
influenza. He claimed the 100 pounds from the defendants. The court held
that the advertisement was an offer to the world at large and those who were
willing to use the product as instructed had then accepted the offer.
Acceptance need not be communicated to the Defendants. The defendants
had in fact deposited 100 pounds into a bank account for any claims.
IGNORANCE OF PROPOSAL DISABLES A PERSON FROM ACCEPTING IT

The fact that the other party has done something which coincides with proposal without
being aware of the proposal does not bring an agreement into being. A party accepting
the proposal must be aware of its existence.

In one sense a proposal cannot take effect until it is received, for until the offeree
knows about it, he can take no action in reliance on it.

Eg. A party who usually returns a lost property to its owner cannot legally claim a
reward if he is unaware of it at the time but subsequently discovers the existence of an
offer of rewards for its return.

R v Clarke (1927) 40 C.L.R

The Australian Government offered a reward for information leading to an arrest and
conviction of persons responsible for the murder of Two Police officers. X and Clarke
were arrested and charged with murder but later Clarke gave information leading to
arrest of Y. X & Y were later convicted and Clarke claimed for the reward. Clarke
failed to claim the reward as the information he gave was to clear himself and not in
reliance of the offer to reward.
 INVITATION TO TREAT

What is an Invitation to treat? An invitation to treat is not a

proposal. When parties negotiate with the view of making a
contract, many preliminary communications may pass between
them before the definite proposal is made. One party may simply
respond to a request for information (eg. By stating the price at
which he might be prepared to sell his house) That party is then
said to make an “invitation to treat”. In this situation he does not
himself make an offer but invites the other party to do so.
1) Display of goods for sale

The general rule is that a display of price marked goods in a shop window is not an offer to sell
goods but is an invitation to treat to customers to make offer to buy.[3]

Pharmaceutical Society of GB v Boots Cash Chemist Ltd (1953) 1 QB 401

Article was wrapped and had a price tags displayed to the customers. Sale for such articles are
governed by the Pharmacy and Poisons Act 1933 (UK). The Act specifies that it is unlawful to
sell certain poisons unless such sale was supervised by a registered Pharmacist.

Was the display of such articles an offer or an invitation to treat? The court ruled that the display
was only an invitation to treat. A proposal to buy occurred only when the customer placed the
articles in the basket and brought them to the cashiers. The proposal may be accepted or denied.
The contract of sale would only be made at the cashier’s desk.
2) Advertisement.

The general rule is that an advertisement is only an

invitation to treat.

Majumder v Attorney General Of Sarawak (1967)

The federal court held that advertisement in a newspaper
for the post of a doctor was an invitation to treat, not a
proposal
But, if an advertisement requires performance of an act
(unilateral contract), the advertisement itself is a proposal.
e.g: Sue advertised in a newspaper for a reward of RM 1000 to
anyone who returned her lost cat and returned the cat to Sue.
Here, Sue is bound to pay Sam RM 1000 because her
advertisement is not an invitation to treat, but a proposal. The act
of Sam by returning the cat is an acceptance of the proposal.
Case: Carlill v Carbolic Smoke Ball Co. Ltd (1893)
3) Tender

Tender is also an invitation to treat and the person who announced the tender
may accept or refuse the offer made by the readers of the said tender.

Spencer v Harding (1870) LR 5 CP 561

The defendant had sent out letters of tender for a said article. The Plaintiff’s
tender was the highest but the defendant did not accept it. The Court held that
the defendant was right to refuse the offer because no contract had existed
between them. A letter of tender is only an invitation to treat.
4) Auction sales
• When an auctioneer invites a bid to be made, he is making an invitation
to treat. He is only inviting the people present to make a proposal
• Payne v Cave [1789]
• Calling for bids is usually an invitation to treat and when someone
make a bid that person is making an offer, which the auctioneer can
either accept or reject.
• S.10 of the Auctions Act provides – a sale by public shall be complete
when the auctioneer announces its completion by the fall of the
hammer’
• After the fall of the hammer, the successful bidder could not be
permitted to retract his proposal
• COUNTER OFFER AND ACCEPTANCE

Section 2 (b) of 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.

The acceptance must be made on exactly the same terms proposed without modifications or
variations – must be as provided in section 7(a) Contract Act – absolute and unqualified.

Any modifications or variations amounts to a counter proposal by the party to whom the
original proposal was made. (A counter offer is treated as a rejection of the original
proposal).
• Hyde v Wrench (1840) 3 Beav 33

D offered to sell his estate to the P for £ 1000/- on 6th June. On 8th
June in reply the P made a counter – proposal to purchase at £950/-.
When D refused to accept proposal on 27th June, the P wrote to accept
the original proposal. The court held that there were no acceptance
because P’s letter dated 8th June had rejected the original proposal
which could not be revived.

** However further communication between the parties subsequent to

the original proposal is permissible. It is important to distinguish
between counter proposal and request for further information.
 EFFECTS OF COUNTER PROPOSAL

1) A’s original proposal is destroyed and it can no longer be

accepted
2) A has become the acceptor while B become the proposer
3) A has the choice whether to accept or reject B’s proposal
 TERMINATION OF A PROPOSAL
• How can an offer come to an end?
• Termination of an offer can occur in the following ways:-
1. Acceptance
Errington v Errington and Woods [1952] - Once acceptance (by conduct) begins, cannot revoke original
offer.

2. Revocation before acceptance. S. 6(a) of the Contract Act.

Routledge v Grant (1828)- Grant offered to buy Routledge’s house, requiring acceptance within six weeks.
Before acceptance within six weeks, Grant withdrew his offer. It was held that Grant could revoke his offer at
any time before acceptance

3. Lapse of Time (e.g. where an offer states a time when it will lapse, the offer will lapse (i.e. end) at that time).
If an express time is not stated, the offer will lapse after a reasonable time. S.6(b) of the Contract Act

Ramsgate Victoria Hotel Co v Montefiore- M applied for shares in the company and had paid deposit to the
company’s bank. The company sent him an acceptance by the issue of a letter of allotment five months later. M
contended that the period of five months for acceptance was too long and thus acceptance was not made within
a reasonable time
4. Failure of a condition precedent. S. 6(c) of the Contract Act
Aberfoyle Plantations Ltd v Khaw Bian Cheng- clause 4 of the agreement provided that the
purchase was conditional on the vendor obtaining a renewal of the seven leases so as to be in a
position to transfer the same to the purchaser. The vendor failed to obtain the renewal. The purchaser
was entitled to the return of the deposit because the vendor failed to fulfill the condition of clause 4.

5. The death of offeree. S.6(d) of the Contract Act

Bradbury v Morgan- Leight wrote to the Plaintiffs, requesting them to give credit to his son and
guaranteeing payment of the running balance of the account up to certain amount. The plaintiffs
extended credit on that basis. Leight died but the Plaintiffs continued giving the son credit. When the
son defaulted in payment the Plaintiffs sued Leight’s executer, Morgan on the guarantee. It was held
that the estate was liable. The guarantee could exist after death, at least until the plaintiff had notice of
it.

6. Counter-offer (i.e. making a new offer)/Qualified acceptance (i.e. not accepting the terms in their
entirety)
Hyde v Wrench