Law of Contract Study Guide

Definition>Section 2 (a) Contracts Act 1950

“when one person signifies to another his willingness to do or 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”

➢ Preston Corp Sdn Bhd v. YEdward Leong & Ors [1982] 2MLJ 22 FC ➢ Gibson v. Manchester City Council [1979] 1 All ER 972 ➢ Affin Credit (M’sia) Sdn Bhd v Yap Yuen Fui [1984] 1 MLJ 169 FC

2. Features of a valid proposal

➢ The form of proposal➢ Section 9 Contracts Act 1950

“so far as proposal is made in words, the promise is said to be express…,otherwise in words, the promise is said to be implied.

➢ The proposal must be clear and certain➢ Sou Yong v. Yuzin bte Abdullah @ Ho Yuzin [1999] 5 MLJ 696 LAW OF CONTRACT (1)LAW 436


➢ The proposal and acceptance must correspond➢ Meeting of minds- consensus ad idem➢ Raffles v. Wichelhaus(1864) H & C 906

➢ The proposal must be communicated➢ Section 3 & 4 Contracts Act 1950➢ Must be made known to the offeree/ must have knowledge ➢ Carlill v. Carbolic Smoke Ball [1893] 1QB 256➢ R v. Clarke (1927) 40 CLR 227

>>The proposal must be distinguished from an invitation to treat

Preliminary negotiations>Harvey v. Facey [1893] AC 552

Goods on display>Pharmaceutical Society of Great Britain v. Boots Cash Chemists

Advertisement➢ Partridge v. Crittenden➢ Coelho v. The Public Services Commission➢ Eckhardt Marine GMBH v Sheriff, High Court of Malaya, Seremban & Ors [2001] 4 MLJ 49 CA

Auctions➢ Paynev. Cave➢ Harris v. Nickerson➢ M & J Frozen Food Sdn Bhd v. Siland Sdn Bhd [1994] 1 MLJ 303

> Revocation of Proposal

> Section 5 & 6 Contracts Act 1950> Routledge v. Grant(1828)

➢ Section 6 Contracts Act 1950➢ 6(a) – By Notice of revocation➢ 6(b)- By Lapse of time➢ 6(c)- By failure of condition precedent➢ 6(d)- By death or mental disorder of offeror➢LAW OF CONTRACT (1)LAW 436



1. Definition

➢ Sec 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. Method of acceptance

There must be proper acceptance of an offer. Before there is acceptance in law, there must be both the fact of acceptance as well as communication of the acceptance

➢ Section 3, Section 7 (b), Section 8➢ Section 7 (b),➢ Acceptance must be expressed in some usual and reasonable manner Unless the proposal prescribe the manner in which it is to be accepted.

Eg. Asia Corp Ltd v. ST Ramakrishnan [1949] MLJ 206

➢ Acceptance must be made within a reasonable time ➢ Sec 6 (b)

➢ Acceptance must be a positive act➢ Felthouse v. Bindley➢ Fraser v. Everett

3. Other requirements

➢ Acceptance must be absolute and unqualified➢ Section 7 (a)➢ Hyde v. Wrench

➢ a counter-offer must be distinguish from an inquiry or request by the offeree for further information.

➢ Stevenson Jacques & Co v. Mc Lean

LAW 436


➢ A contract cannot come into existence by mere accident or coincidence. ➢ A contract is the voluntary consent of parties, consensus, a meeting of minds. Hence acceptance must relate to the offer, must correspond. If the offeree has no prior knowledge of the offer there is no way he can accept.

➢ R v. Clarke

➢ Cross- offer is not an acceptance➢ Tinn v Hoffman

4. Acceptance must be communicated

> Section 3 , Section 4 (1), 4 (2)(a)(b) Contract Act 1950

➢ Communication of acceptance, when complete?

➢ Instantaneous mode of communication➢ Entores Ltd v Miles Far East Corp➢ Brinkibon Ltd v Stahag Stahl MBH

➢ Sec 4 (2) (a) (b)

➢ Adams v. Lindsell➢ Ignatius v. Bell

5. Revocation of Acceptance

>Sec 5 (2) Contracts Act 1950> When can it be made ?“Any time before acceptance is complete…..”

➢ Sec 3➢ Revocation must be communicated.

➢ Sec 4 (3) (a) (b)➢ Communication of revocation must be complete.

LAW 436




➢ 9(1) Halbury’ Laws of England

Meaning of consideration

“Valuable consideration has been defined as some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other at his request. It is not necessary that the promisor should benefit by the consideration. It is sufficient if the promisee does some act from which a third person benefits and which he would not have done but for the promise.

Thus consideration for a promise may consist in either some benefit conferred on the promisor or detriment suffered by the promise or both. On the other hand, that benefit or detriment can only amount to a consideration sufficient to support a binding promise where it is causally linked to thatpromise. Furthermore, consideration must be distinguished from both a motive and a condition.

Consideration may be executed or executory, but it may not be past, it need not be adequate but it must be of some value, and it must move from the promise”.

> Section 2 (d) Contract Act 1950

“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”

Currie v. Misa [1874-80] All ER 686 Lush J defines consideration as

“some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other”

LAW 436


Rules Governing Consideration

• Executed consideration• Executory consideration• Past consideration• Consideration may move from the promise or a third party

What is executed consideration?Consideration which has been completed by a party at the time of thecontract.

What is executory consideration?

Consideration which is yet to be given or performed.

Read : Wong Hon Leong David v. Noorazman bin Adnan[1995] 3 MLJ 283, CA

In Carlill v. Carbolic Smoke Ball Co Limited

The offer made by the company in the advertisement remained open until Mrs Carlill bought the smoke ball, used it and contracted influenza. This act of performance was the consideration and it remained executory until the performance is completed.

Past Consideration

Under English law, generally past consideration is no consideration . However in limited cases, past consideration has been recognized as good consideration, the exception being that , “ the act done at the request of the promisor”.

Read cases : Lampleigh v. BraithwaitHunt v. BateRe Mc Ardle

In Malaysia, past consideration is good consideration. Consideration that consists of something wholly performed before the promise was made. The performance of the act was not made in response to the promise. See Section 2 (d) Contracts Act 1950

Read cases : -Guthrie Waugh Bhd v. Malaippan Muthucumaru [1972] 2 MLJ 62 FC – Kepong Prospecting Ltd & Ors v. Schmidt [1968] 1MLJ 170, (1967) 2PCC 465,PC – Raja of Venpatagiri v. Sri Krishnayya AIR [1948] – JMWotherspoon and Co Ltd v Henry Agency House

Section 26 Contracts Act 1950

“ Agreement without consideration, void, unless –

a) it is in writing and registered under the law and is made on account of natural love and affection between parties standing in a near relation to each other.

Read cases: Re Tan Soh Sim [1951] MLJ 21

b) a promise to compensate for something done

Read cases: -on past consideration-

(c ) a promise to pay a debt barred by limitation law

Read cases : Kapaleeswarar Temple v. T Tirunavukarasu (illustration (e) Sec 26

Adequacy of consideration

Consideration need not be adequate. Illustration (f) Sec 26

However. The adequacy of the consideration may be an issue in cases where the position is taken that there was no free consent given to the agreement.

Read cases : Guthrie Waugh Bhd v Malaippan Muthuchumaru [1972] 2 MLJ 62 Phang Swee Kim v. Beh I Hock [1964] MLJ 383 FC

LAW 436

Performance of existing duty.

• Performance of an existing public duty• Performance of an existing contractual duty owed to the promisor • Performance of an existing duty imposed by contract with a third party.

Payment of a lesser sum/ waiver of performance

Section 64 Contracts Act 1950

Read Cases : Kerpa Singh v Bariam Singh [1966]

Position in England

Read Cases : Pinnel’s caseFoakes v. Beer

Doctrine of Promissory Estoppel

“ a party who has represented that he will not insist upon his strict rights under the contract will not be allowed to resile from that position, unless he has given reasonable notice of his intention to revert to the original position.

Read cases : Central London Property Trust Ltd. v. High Trees House Ltd. [1947} Hughes v. Metropolitan Railway (1884)Boustead Trading (1985) v. Arab Malaysian Merchant Bank Bhd [1995] 3 MLJ 331, FCThe Poh Wah v. Seremban Securities Sdn Bhd [1996] 1 MLJ 701 CA.

See also : 9 (1) Halsbury’s Laws of England, 4th Ed Reissue 1998.




There is no statutory definition for intention to create legal relations in the Contracts Act 1950.

“An agreement is not a contract in the strict sense of the word unless it is the common intention of the parties that it should be legally enforced. Such an intention is normally inferred from the nature of the agreement. For instance, in the case of agreements regulating commerce or business, it is obvious that the parties intend legal consequences to follow; per contra in the case of agreements relating to social agreement, it is inferred as a matter of course that there is no common intention to create legal obligations.”

Whyatt CJ in Choo Tiong Hin & Ors v. Choo Hock Swee [1959]MLJ67

Generally, cases in this area are divided into two classes :

i) Social, family and domestic agreements where the presences or absence of intention to create legal relations depends upon the inference to be drawn by the court from the language used by the parties and the circumstances in which they use it.

ii) Commercial agreements where the intention to create legal relations is presumed and must be rebutted by the party seeking to deny it.

Hence, it can be said that in commercial agreements, the general rule is that parties intend the agreement to have legal consequences. However, there are exceptions to this general rule, i.e the agreement is made ‘subject to contract” or there would be an ‘honour clause.’

Cases on Intention to create legal relations :

1. Balfour v Balfour2. Merritt v Merritt3. Jones v Padavatton4. Phiong Khon v. Chonh Chai Fah5. Choo Tiong Hin & Ors v. Choo Hock Swee6. Wakeling v Ripley (1951) 51 SR (NSW) 1837. Rose & Frank v. JR Crompton & Bros8. Kleinwort Benson Ltd v Malaysian Mining Corp Bhd [1989] All ER 785