The law of contract is the collection of legal rules which govern contracts. These rules, in turn, are part of the law of obligations, a subdivision of the law of property which is traditionally regarded as part of private law. Private law governs the persons (legal subject) in their personal or private capacity before the law in relation to other legal subjects. In other word, private law can be defined as balance and protect legitimate individual interests. Traditionally private law, being concerned with individual values and the private activities of individuals, is contrasted with public law.
Public law consists of the rules governing subjects in their relations with the organized authority in a society. The focus of public law therefore is on the promotion and protection of collective interests. This system or division of the rules of the law is by no means logically compelling or jurisprudentially indefeasible; other distinctions exist. Any emphasis on the law of contract as an aspect of private law cannot deny the increasing degree to which certain traditional area of private and public law have come to overlap. DEFINITION OF CONTRACT AND AGREEMENT
A contract is generally called on obligationary agreement. In other word, contract is an agreement which actually creates legal obligation. The agreement will be a contract if only the parties intended to create an obligations, and if, in addition, the agreement comply with all other requirements which the law sets for the creation of obligations by agreement (such as the contractual capacity of the parties. , possibility of performance, legality of the agreement, and prescribed formalities). A contract also merely defined as an agreement made with the intention of creating an obligation.
If this intention is present, the agreement is said to be a contract in the eyes of the law. Contract is made by the parties while they buy or sell goods. Contracts can be done by two ways which are by writing or verbally. The writing contract needs to be signed by the parties while the verbal or oral contract must be proved by the witnesses. Section 2(h) of the Contracts Act 1950 (Malaysia) provide the define contract as an agreement enforceable by law. Thus, to be a contract there must be an agreement first. The agreement by definition is when two or more persons agree to do something or abstain from doing something.
The valid agreement which is free from illegality will become a contract. Accordingly, should any of the latter requirements not be met, there may be an agreement, but not a contract. ELEMENTS OF A VALID CONTRACT There are some elements that need to be available to hold a contract valid which are offer, acceptance, consideration, intention to create legal relation, the purpose of the contract should be legal and enforceable by law, certainty, capacity, and formalities. In order to actually create an obligation, the contract must be valid in the sense that it meets all the requirements mentioned.
According to this approach the parties may agree on the creation of obligations but their contract may be invalid because it does not meet all the requirements for validity. Basically there are 8 elements of valid contracts which are: 1)OFFER Offer is the main element exists in a valid contract. In its strict contractual sense, an offer is a clear statement of the terms upon which an offeror is prepared to be contractually bound. An offer can be oral or written as long as it is not required to be written by law. It is also known as a proposal. An offer must be distinguished from simple willingness to deal or negotiate.
For example, X offers to make and sell to Y calendars featuring Australian paintings. Before any agreement is reached on size, quality, style or price, Y decides not to continue. At this stage, there is no legally binding contract between X and Y because there is no definite offer for Y to accept until the essential terms of the bargain has been decided. Section 2(a) of the contracts Act 1950 provides a definition of a proposal stating that: “When a 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”.
There are two types of offer: a)Bilateral offer This is an offer made to a specific person. The offeror and offeree is visible in this type of offer. It requires agreement and performance from both parties to the contract. b)Unilateral offer In contrast a unilateral contract occurs where the offer is not made specifically to any person. It is one sided contract in which the offerer is visible but the offeree is invisible. This contract is openly made to the public. The classic example of a unilateral contract is a newspaper notice offering a reward for the return of a lost dog.
The offeree is under no obligation to look for the dog, but if he or she does in fact return the dog, then the offeror owes him or her reward money. Invitation to treat Offer and invitation to treat are different. An invitation to treat is a mere declaration of willingness to enter into negotiations. It is a statement of intention which cannot and are not intended to result in any binding obligation. In order for the invitation to treat to become a formal offer, the person who is making the invitation to treat must accepts the offer made by any interested person.
The simple example of the offer can be shown in Carlil v.the carbolic smoke ball company ltd. There are several occasions whereby the invitation to treat is mistakenly believed to be an offer: 1. Displaying of goods in shops with price tag A shop owner displaying their goods for sale is generally making an invitation to treat. They are not obliged to sell the good to anyone who is willing to pay for them. If a person interested in buying the goods, they need to make a formal offer to the seller and if the seller agrees to sale the goods, a binding contract will be made. 2. Advertisement in newspaper, magazine and internet Advertising is not an offer, but rather an effort to encourage offers.
Only when the customer offers to pay for the goods at the advertised price has an offer been made. However, if the advertisement includes a promise to all potential customers it can be considered as an offer. 3. Reply to enquiry If a seller reply an inquiry from a customer it is not categories in making an offer. This is because the seller has no intention to make a contract. They are just responding to the enquiries. Unless, if there is an intention expressed to bind a contract made by the seller. 4. Auction sale An auctioneer’s call for bids is only an invitation to treat.
When the buyer makes a bid, that bid is an offer to buy at that price. It is then up to the auctioneer to either accept or reject the bid. Exception is when auction sale expressly states that particular goods will be auctioned without reserve price, it is considered as an offer. 5. Tender The request for tenders represents an invitation to treat because the party tendering out services is not obliged to sign a contract with the first party who submits a tender proposal. Anyone can be invited to submit the highest price for the tender but the company will decide which tender they will accept.
However there is situation when the tender is recognise as an offer. When there is expressly stated in the invitation for tenders (call for tenders) that the tender will be given to those whoever offers the highest price. It is detailed process that gives the bidders the assurance that if they put forward the best bid, judged according to the criteria set out in the tender, they must, in accordance with the law, be awarded the job. In this situation the case such as referential bid will occur. Referential bid is submitted by one party who attempts to win the tender by reference to other bids submitted by other parties.
Though, it is not acceptable in English law on public interest and policy ground. Communication of offer To make an effective offer, it must be communicate to the offeree. Section 4(1), Contracts Act 1950 states that: “The communication of proposal is complete when it comes to the knowledge of the person to whom it is made” Revocation of offer Revocation of offer can be done before the communication of its acceptance. It is stated under rules section 5(1) of the contracts Act 1950: “A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards”.
2)ACCEPTANCE Under section 2(b) of the contract Act 1950 provides a definition of acceptance as follows: “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 meaning is the acceptance of an offer is the act which completes the formation of the contract. It can occur orally, in writing or, occasionally, it may be implied from the offeree’s conduct. Mode of acceptance In order to be effective, it must be absolute and unqualified acceptance of all the terms of the offer.
Even the slightest difference from the terms of the offer makes the acceptance invalid. In effect of invalid acceptance is regarded as a counter offer in law. Counter offer is an offer made in response to a previous offer by the other party during negotiations for a final contract. This somehow will automatically reject the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract. Communication of acceptance Acceptance is only effective when it has been communicated. Communication of an acceptance is complete as against: i.
The proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor. ii. The acceptor, when it comes to the knowledge of the proposer -section 4 (2) of the Contracts Act. Postal rule Acceptance by letter, telegram, telex, and fax: the acceptance is recognise at the moment the acceptor (offeree) puts the letter inside the mailbox. Regardless the offeror receives the letter or not. Instantaneous rule Acceptance by email: if the email is already in the mailbox of the offerer means that the acceptance cannot be revoke because the acceptance is already received by the oferrer.
The reason behind this rule is because email is instantaneous. Revocation of acceptance The acceptor (offeree) can revoke the acceptance at any time before the communication of acceptance comes to the knowledge of the offerer. The rules stated under section 5(2) of the Contracts Act 1950: “An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards”. 3)CONSIDERATION In contract law consideration is very important. Otherwise the contract will be invalid. A contract is based on an exchange of promises.
Each party to a contract must be both a promisor and a promisee. They must each receive a benefit and each suffers a loss. This benefit or loss is referred to as consideration. Consideration must be something of value in the eyes of the law. There are three types of consideration which are: a)Executory consideration It’s a promise to do or abstain from doing something. This is when both parties promise to perform acts in the future. For example, supply of goods whereby A promises to deliver goods to B at a future date and B promises to pay on delivery. If A does not deliver them, this is a breach of contract and B can sue.
If A delivers the goods his consideration then becomes executed. b)Executed consideration It is promise made in exchange for an act when that act is performed. For example, A offers ? 50 reward for the return of her lost handbag, if B finds the bag and returns it, B’s consideration is executed. c)Past consideration If a party voluntarily acts and then the other party makes a promise, the act is said to be past consideration. If one party voluntarily performs an act, and the other party then makes a promise, the consideration for the promise is said to be in the past.
The rule is that past consideration is no consideration, so it is not valid and cannot be used to sue on a contract. For example, A gives B a lift home in his car. On arrival B promises to give A ? 5 towards the petrol. A cannot enforce this promise as his consideration, giving B a lift, is past. Agreement without consideration The agreement will be invalid under section 26 of Contract Act 1950: “An agreement without consideration is void” But there is an exception when the following conditions are fulfilled: •It is expressed in writing •Registered (if required under law).
•Is made on account of natural love and affection between parties standing in a near relation to each other. Inadequacy of consideration It does not matter if it is illogical as long as the consent is freely given. 4)INTENTION TO CREATE LEGAL RELATION The intention to create legal relation can be divided into two types: a)Social, family or other domestic agreements For example are agreement between husband and wife, agreement between parents and child, and purely social agreements. There is a presumption of fact that this parties did not intend to create legal relations.
Meaning that, their agreement is not to be legally enforceable. b)Commercial agreements With commercial agreements there is presumption that the parties did intend to create legal relations. Therefore, the courts will enforce such agreements unless there is very clear evidence that is not what was intended. 5)THE PURPOSE OF THE CONTRACT SHOULD BE LEGAL The objective of the contract must be for a legal purpose. If the contract is made for an illegal purpose, the contract will be invalid. For example, a contract for illegal distribution of drugs is not a binding contract because the purpose for which it exists is not legal.
6)CAPACITY OF CONTRACT Under section 11 of the Contract Act 1950, “ every person is competent to contract who is of the age of majority according to law to which he subject , and who is of sound mind and is not disqualified from contracting by any law he is subject “ . In Malaysia based on section 2 of the Law of Majority Act (Malaysia), the age of majority is 18 years old and above. Thus this concludes that, a valid contract is when the parties involves is aged 18 years and above and not a minor. However, there are three exceptions for the minor to conclude a contract. The first one is contract for necessaries.
Under section 69 of the Contract Act 1950 ( Malaysia) , a seller may supply to a mentally disordered person or minor necessaries that suited to the condition in life that the person entitled to be paid by the property of the minor person. Necessaries are things that are essential for living a reasonable comfort life. Examples of necessaries are food, water and cloths. Luxurious cars and hand phones are not included in necessaries. Second is the contract of scholarship or loan. An appropriate authority may make an agreement with minor to provide him with scholarship or other facilities.
It is valid under section 4 of Contract (Amendment) Act 1976. Thirdly is contract of insurance. Under insurance Act 1963 (revised 1972), a minor person can take insurance from insurance company by his own if he is aged of sixteen and above. However if he is below sixteen, he needs to have written consent from his parents or guardian before enter into the contract. 7)CERTAINTY In order for a contract to be valid it must be clear and certain on all the terms in the agreement. A contract may be fail because a particular term is vague and imprecise that the court cannot attribute the meaning to it.
The courts cannot enforce a contract if they cannot identify the obligations of the parties with some degree of precision. Incompleteness is also likely to affect the contract to be wholly executor. Under section 30 of the Contract Act, “agreements, the meaning of which is not certain, or capable of being made certain, are void” Example of the situation where the contract is considered as void is when A agrees to sell to B, 50 crates of toys, but the kind and type are not specifically mentioned. This contract is uncertain and vague, thus it is void. 8)FORMALITIES OF CONTRACT Formality refers to writing and signing requirement in a contract.
Although oral contract is still valid and enforced by law, it is always recommended to write it down as it is better for both parties and act as a prove for the terms agreed upon the contract. Some contracts such as real property and hire purchase contract requires written agreement to conclude the contract, if not it is considered as void. This is stated in Hire purchase Act 1967. There are two important characters arising in determining whether a particular document or memorandum satisfy the statute. First is the amount of details a document must contain in order to be regarded as a memorandum of contract.
The memorandum must contain all the terms or at least all the essential terms of the contract other than those the law may imply. This means the parties; the subject matter and the consideration must be identified in the document along with any other essential provision such as the terms of payment. Secondly is when the document must come into existence in order to satisfy the statue. A memorandum must generally come into existence after the contract has been made. Any document made earlier cannot establish the contract that was mad, but can only indicate the probability that the contract would be made.
An exception is made in a case of a written offer made by one party which is subsequently accepted by the other party. A written agreement, on the other hand, does record terms on which the offeror is prepared to be bound immediately upon acceptance. TERMS OF CONTRACT There are two terms that is condition and warranty. Condition is a stipulation essential to the main purpose of the contract. If it is broken by one party the other party can cancel the contract. Illustration for condition: A will buy from B 40 bags that meet the quality standard approved by C. after the inspection from C, it found that 30 bags does not meet the standard.
Therefore, A can cancel the contract. Meanwhile warranty is a stipulation collateral to the main purpose of the contract. It is more to promise made by the seller to the buyer regarding the products condition after sale. If warranty is broken or breached, the contract cannot be canceled, however you can claim damage from the party that broke the contract. Illustration for warranty: The seller claims that the computer can lasts for 2 years. However within one year and a half, it is already stop functioning. Thus, buyer can claim the warranty from the seller. MISREPRESENTATION.
A misrepresentation is a false statement made by one party which induces the other to enter into a contract. Case with v. O’Flanagan is one of the cases related to misrepresentation. The defendant who was a doctor wanted to sell his medical practice. At that time the practice was worth ? 2,000. After negotiation but before the conclusion of the sale the defendant fell ill the business was reduced to ? 5 per week. This is not disclosed to the plaintiff at the time of sale. The non-disclosure of the change between initial negotiation and the conclusion was a misrepresentation.
There are three types of misrepresentation. First is fraudulent misrepresentation, when the statement made without honest belief that its truth. This happens when the seller intentionally lie to the customers about to truth of the product in order to sell the product. This type of misrepresentation falls under fraud. Example: A selling apple that is rotten inside by telling a lie to customers that the apples are in good condition and fresh. Second is innocent misrepresentation, when the statement made is honest and with reasonable grounds for believing that it is true.
Example: Seller market a computer as “good as new” when in fact it may be several years old and some internal defects. Thirdly is negligent misrepresentation, when the statement made is honest but without reasonable grounds for believing that it is true. Examples: Seller telling the phone is practically new so customer buys it when in fact it is 2 years old and heavily used. DIFFERENCE BETWEEN VOID AND VOIDABLE CONTRACT Void contract is an invalid contract which is not enforceable in the court. However voidable contract is a contract that can be made valid, but it is avoidable by the affected party.
MISTAKE There are two types of mistakes. First is mistake regarding to matter of fact. If the fact mistake is essential to the agreement, then the agreement is considered void under section 21. If one of the parties in a contract makes a mistake as to a matter of fact , that contract is valid and enforceable under section 23. Second type of mistake is regarding to law. If the law in force in Malaysia, any mistakes made by one party or both parties will still results to a valid contract. However, if it is a foreign law, only mistake made by one party is valid.
In situation where both parties made mistakes, the contract is considered as invalid, because there are no excuses on breaking the foreign law. Example: when A and B make a contract grounded on the erroneous belief that a particular debt is barred by limitation, the contract is valid. COERCION OR DURESS Coercion is forcing someone to commit any forbidden act or threatening to detain any property and caused any harm to the person if she or he refuses. This action is done with intention of causing the person to enter into an agreement. (Section 15) Case: Kesaemal v. Valiappa Chettiar.
There was a sale of land. The transaction was executed in the presence of the sultan and 2 Japanese officers during Japanese occupation. The court cancelled this transaction because the presence of Sultan and the officer caused fear of life. Therefore consent was not freely given. UNDUE INFLUENCE A contract is considered as “undue influence” when a person uses his or her position to obtain unfair advantage over other. There are two types of undue influence. First is fiduciary relation, it exists due to respect and love between the parties, such as relation between doctor and patient, uncle and nephew etc.
Second is apparent authority, it exists due to fear and wants to obtain advantage agreeing to the contract. This happens between boss and lower officers. Example: a plaintiff let go all her properties to a spiritual organization after she became member. This was done with the advice from the spiritual director. After she left that community she sued all the transaction under undue influence. There are 5 elements that the plaintiff must prove to consider the case as undue influence. First, she must prove that the other party is in position to influence her. Second the influence was exercise. Third the influence exercise was undue.
Forth, the exercise of undue influence had brought the transaction, and lastly by exercising undue influence the other party had obtained an unfair advantage over him. FRAUD Fraud operates whenever a person causes another to act on a false representation that he himself does not believe to be true (section 17) When a seller telling a lie about the product he sells, knowing the truth it is not good, this is considered as fraud. Mere silence that likely to affect the willingness of a person to enter into a contract is not fraud, unless if the person that keeping silence is accounted or in duty to speak.
Difference between fraud and misrepresentation is fraud need high standard of proof to set aside the contract, but in case of misrepresentation a lower standard of proof is requires. On top of that, fraud is when the party making a false statement does not himself believe in its truth, whereas in case of misrepresentation the party believes that the false statement to be true. ILLEGALITY Contract is void when the object consideration is unlawful. This falls under the Contracts Act 1950: “Every agreement of which the object or consideration is unlawful is void “ Example: A makes a contract with B that if B kills Z m he will pay B RM10, 000.
This contract is void, because killing people is unlawful. DISCHARGE OF CONTRACTS In the main, obligations are terminated by the conduct of the parties or by the operation of law. To the former category belong the discharges of an obligation by performance in terms of it and the termination of the obligation by an agreement of release, novation or compromise. A contract may be discharged in three ways which are discharge by performance, discharge by frustration and discharge by Breach of Contract.
Firstly, discharge by performance is where the parties had performed their respective promises in the contract in accordance with the term of the agreement or in other words when the obligation is fulfilled. Performance of fulfillment is a juristic act, requiring, in most cases, the participation of both the creditor and the performer. Apart from an objective element – the giving and receiving of the performance due in term of the obligation – the parties must intend to extinguish the obligation by performance.
Performance is a unilateral act when it pertains to obligationes non faceindi and obligationes faceindi permitting performance without the co-operation of the creditor. Next, a contract is discharge by frustration if it is legally or physically become impossible to perform for subsequent change of circumstances. A contract may be frustrated where there exists a change in circumstances, after the contract was made, which is not the fault of either of the parties, which renders the contract either impossible to perform or deprives the contract of its commercial purpose.
Where a contract is found to be frustrated, each party is discharged from future obligations under the contract and neither party may sue for breach. The allocation of loss is decided by the Law Reform (Frustrated Contracts) Act 1943. Lastly, when one of the parties refuses to perform his promise, it can be said that the contract is discharge by breach of contract. Traditionally, breach of contract is described as malperformance. Malperformance is the strict sense of the word consists in a breach of a promise to perform timeously and properly, as undertaken in the contract.
So for example, a contractant who has undertaken to deliver on the first of the month may fail to deliver in time, thereby breaching his promise by way of negative malperformance. Similarly, a contractant who undertakes to deliver first grade wheat, but deliver second grade wheat, breaches his promise by way of positive malperformance. REMEDIES FOR BREACH OF CONTRACTS The four remedies for breach of contract are damages, specific performance, injunction and Quantum Meruit. Firstly, the party which is affected by the breach may claim damages from the party who has breach the contact.
A plaintiff who wishes to claim damages for breach of contract must prove the following; breach of contract committed by the other contractant, damages, a factual causal connection between the breach and the damage, and if the purpose of the law the damages is close enough to the breach, in that it was reasonably foreseeable or agreed to by the contractants. A plaintiff need not prove the exact extent of his loss – if he has proved damage by the best evidence available, he is entitled to an award on the available evidence. The affected party will receive compensation for his loss when the contact is breached.
Next, court may also order the party which breaches the contract to perform his promise by doing a specific duty. Specific performance is performance of that which has been agreed upon by the contractants. A claim for specific performance in term of a reciprocal obligation will be maintained only if the contractants who claims performance has him performed or at least offered to perform in terms of the contract, unless in terms of the contract the other contractant is bound to perform first. However, the specific performance is a discretionary remedy.
The court may refuse to grant specific performance to the injured party if he may get damages that worth an adequate remedy. Thirdly, the court may grant interlocutory injunction to the affected party to maintain status quo of the subject-matter in a pending suit. An injunction commands an act that the court regards as essential to justice, or it prohibits an act that is deemed to be contrary to good conscience. It is an extraordinary remedy, reserved for special circumstances in which the temporary preservation of the status quo is necessary.
An injunction is ordinarily and properly elicited from other proceedings. For example, a landlord might bring an action against a tenant for waste, in which the right to protect the land-lord’s interest in the ownership of the premises is at issue. The landlord might apply to the court for an injunction against the tenant’s continuing harmful use of the property. The injunction is an ancillary remedy in the action against the tenant. Injunctive relief is not a matter of right, but its denial is within the discretion of the court.
Whether or not an injunction will be granted varies with the facts of each case. The courts exercise their power to issue injunctions judiciously, and only when necessity exists. An injunction is usually issued only in cases where irreparable injury to the rights of an individual would result otherwise. It must be readily apparent to the court that some act has been performed, or is threatened, that will produce irreparable injury to the party seeking the injunction. An injury is considered irreparable when it cannot be adequately compensated by an award of damages.
The pecuniary damage that would be incurred from the threatened action need not be great, however. If a loss can be calculated in terms of money, there is no irreparable injury. The consequent refusal by a court to grant an injunction is, therefore, proper. Loss of profits alone is insufficient to establish irreparable injury. The potential destruction of property is sufficient. Injunctive relief is not a remedy that is liberally granted, and, therefore, a court will always consider any hardship that the parties will sustain by the granting or refusal of an injunction.
The court that issues an injunction may, in exercise of its discretion, modify or dissolve it at a later date if the circumstances so warrant. Lastly, in quantum meruit if one of the party breaches the contract, the other party cam claim other than that for damages. Quantum meruit, a Latin phrase which can be roughly translated as “as much as deserved,” refers to the compensation which someone is entitled to for providing goods and services with an expectation of payment. If someone is not compensat