LAW OF Contract - Lecture notes 1-4 PDF

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LAW OFCONTRACTPERSONAL NOTESLAW OF CONTRACTCHAPTER CONTENT AND OVERVIEWA. ESSEENTIAL ELEMENTS TO FORM A VALID CONTRACT Offer  Acceptance  Intention to create legal relations  Consideration  Legal Capacity  Certainty  Free ConsentB. DISCHARGE OF CONTRACT By performance  By agreement  By fru...

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LAW OF CONTRACT PERSONAL NOTES

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LAW OF CONTRACT

CHAPTER CONTENT AND OVERVIEW

A. ESSEENTIAL ELEMENTS TO FORM A VALID CONTRACT 

Offer

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Acceptance

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Intention to create legal relations

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Consideration



Legal Capacity

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Certainty



Free Consent

B. DISCHARGE OF CONTRACT 

By performance

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By agreement

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By frustration or impossibility

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By breach of contract

C. REMEDIES FOR BREACH OF CONTRACT 

Rescission

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Damages

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Specific Performance

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Injunction

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Quantum Meruit

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CONTRACT 

The word ‘contract’ is synonymous to ‘agreement’.

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A contract may be defined as an agreement, which is either; enforced by the law or recognized by law as affecting the legal rights or duties of the parties.

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A contract also regarded as “a promise or set of promises for the breach of which the law gives a remedy” or “the performance of which the law in some way recognizes as a duty.”

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A contract consists of an actionable promise or promises.

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Every such promise involves at least 2 parties. A contract is “an agreement between 2 or more persons that it legally binding between them”. Section 2 (h) of the Contracts Act 1950.

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OFFER PERSONAL NOTES

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1.0 OFFER 1.1 DEFINITION 

Section 2 (a) of the Contracts Act 1950

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“an indication by one person (offeror) that he or she is prepared to contract with one or more others (offeree) on certain terms, which are fixed or capable of being fixed, at the time the offer is made.”

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also regarded as “a promise or proposal by one person to another person with the intention to create a legally binding relationship”.

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Section 2 (b) of the Contracts Act 1950

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“When the person to whom the proposal is made signifies his assent , the proposal is said to be accepted.”

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Section 2 (c) of the Contracts Act 1950

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“An offer must be clear, definite and equivocal. It must indicate the intention of the offeror.”

3 REQUIREMENTS OF AN OFFER 1. A present intent to contract (by offeror) - Intention to enter into a contract upon acceptance willingly (not joking / haggling / equivocating) 2. Specific / Definiteness of terms - To indicate an intent to contract 3. Communication (to offeree) - Objectively indicates an intent to be bound by those terms.

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1.2 HOW AN OFFER CAN BE FORMED 

Section 9 of the Contracts Act 1950.

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An offer can be made either; expressly (verbally or in writing) or impliedly (conduct or based on the circumstances of the case).

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It can also be made through a mixture of words and conduct. (SMS, Letter, e-mail)

1.2.1 CASES 1. Offer by Oral 

SYED JAAFAR B SYED IBRAHIM V MAJU MEHAR SINGH TRAVEL & TOURS SDN. BHD. (1994)

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Facts: The plaintiff (offeree) entered into an oral agreement with the defendant’s Managing Director (offeror) that he will provide the passengers and the defendant will provide tickets and visas.

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Court’s held: The oral agreement made between them had created a binding contract.

2. Offer by Conduct 

THORTON V SHOE LANE PARKING LIMITED (1971)

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Per Lord Denning: - “The offer is made when the proprietor of the machine holds it out as being ready to receive money. The acceptance takes place when the customer puts his money into the slot”.

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1.3 TO WHOM CAN OFFER BE MADE 

To a particular person (specific)

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To the public at large (general)

1. To a particular person (specific) 

When the offer is made specifically to a person to whom it is addressed.

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Thus, only that particular person can accept the offer and no one else can replace him or her.

2. To the public at large (general) 

The offer is addressed to anyone who could and would satisfy all the terms and conditions of the offer as stipulated by the offeror.

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Anyone who fulfils the terms and conditions of the offer may accept the offer.

1.3.1 CASES 1. To a particular person (specific) 

BOULTON V JONES (1857)

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Facts: Boulton had taken over the business of one Brocklehurst, with whom Jones had previous dealings. Jones sent an order for goods to Brocklehurst, which Boulton supplied without informing Jones that the business had changed hands. When Jones found out that the goods had not come from Brocklehurst, he refused to pay for them and was sued by Boulton for the price.

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Court’s held: Jones was not liable to pay for the goods. It is a rule of law that if a person intends to contract with A, then B cannot give himself any right under it.

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2. To the public at large (general) 

CARLILL V CARBOLIC SMOKE BALL CO (1893)

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Facts: The manufacturers of a ‘smoke ball’ published an advertisement at the time of an influenza epidemic. They proclaimed that their medicine could cure all kinds of ailments. In addition, they stated that anybody who bought one of their smoke balls and used it as directed but still suffered from influenza , would be paid 100 pounds. The advertisement also had stated that 1,000 pounds was deposited with Alliance Bank, in order ‘to show their sincerity in this matter’. Mrs. Carlill, having bought and consumed the medicine but still suffered from the flu, had claimed 100 pounds from the company. Conversely, the company argued that ‘the advertisement did not amount to an offer which could turn into a contract by acceptance’.

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Court’s held: The statement in the advertisement created a binding obligation (offer). It was an offer as addressed to the public at large which could be accepted by anyone who fulfils the conditions attached to the offer.

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1.4 OFFER MUST BE CLEAR 

Being as an indication of willingness to be legally bound by certain terms, the offer must be: clear, complete, final, and detailed.

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If not, the offer is not valid (void offer).

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The reason is, the law cannot enforce such contract based on the ambiguous or indefinite terms (unclear).

1.4.1 CASES 

GUTHING V LYNN (1831)

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Facts: Lynn offered to buy a horse from Guthing on the condition that; if the horse brings a luck to him, he will pay another 5-pound sterling extra. Later, there was a dispute arose. The issue was; whether there was a valid offer or not between the parties.

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Court’s held: There was no offer as it was incomplete and not final.

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1.5 OFFER MUST BE COMMUNICATED 

Section 2 (a) of the Contracts Act 1950, “indication prepared to make contract.”

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Section 4 (1) of the Contracts Act 1950

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If an offer is made but it has not come to the knowledge of the offeree , the offer is not effective yet.

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It only becomes effective and complete when the offeree gets to know about it or when the offer comes to his or her knowledge.

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If there is no communication of an offer, the offeree cannot make any acceptance. If there no acceptance to the offer, there cannot be a valid contract established.

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If an offer is made but has not come to the knowledge of the offeree and the offeree happens to do an act which coincides with the offer without being aware of the offer, the act done cannot amount to an acceptance. In fact, the party who is going to accept the offer must be aware of its existence.

1.5.1 CASES 1. No communication 

TAYLOR V LAIRD (1856)

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Facts: Taylor was assigned to command Laird’s ship and to drive certain explorers on an expedition up the River Niger. He quitted in the course of the expedition but helped to work the vessel home, without Laird’s knowledge. Taylor claimed for a payment of the services rendered by him.

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Court’s held: Taylor could not claim for the payment. Laird never had the opportunity to accept or refuse the services as there was no communication of offer between them.

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R V CLARKE (1927)

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Facts: The Australian Government offered a reward for any information leading to the arrest and conviction of persons who were responsible for the murder of 2 police officers. Mr. X and Mr. Clarke were arrested for the crime. Clarke later gave information which led to the arrest of another person, Mr. Y. Mr. X and Y were later convicted for the crime, Clarke pleaded not guilty was released. Mr. Clarke then claimed for the reward after he was released and came to know of the reward.

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Court’s held: His claim failed on the ground that the information was given only to release himself and not in response to the offer of reward.

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FITCH V SNEDAKER (1868)

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Court’s held: A reward cannot be claimed by one who did not know that it had been offered. A person who does an act for which a reward has been offered in ignorance of the offer cannot say that the act was done in return for or in reliance on the promise offered.

2. Communication is present 

WILLIAMS V CARWARDINE (1833)

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Facts: The plaintiff, with the knowledge of the reward , supplied the information which led to the conviction of an assailant for murder, but only did this ‘to ease her conscience, and in hopes of forgiveness hereafter’.

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Held: She was entitled to claim the 20-pound sterling offered as her acceptance is valid.

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If the offeree knows of the offer but is inspired to perform by a motive other than that of claiming the reward, such a motive is immaterial (not important).

1.6 OFFER MUST BE DISTINGUISHED FROM “INVITATION TO OFFER (ITT)” 10

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Sometimes, a person may wish to open negotiations rather than to make an offer. It is regarded as ‘preliminary communication’.

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It exists when a proposal stands as a mere request for the other party to make an offer.

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No provision under Contracts Act 1950, BUT Common Law applies.

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An invitation to treat is not an offer. It is regarded as ‘an invitation from one party to another party to make an offer’.

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It does not constitute valid and binding contract. The courts have drawn certain formulated guidelines in order to distinguish between an offer and an invitation to treat.

1.6.1 ITEMS UNDER “INVITATION TO TREAT” 

Advertisement

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Display of goods with price tag attached

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Tender

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Price list / Quotation / Supply of information

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An auctioneer inviting bids in an auction sale.

1.6.1(a) ADVERTISEMENT 

General rule: Any advertisements in newspapers or periodicals or television commercial are not count as offer.

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The advertisers merely invite the readers or public at large to respond with the ‘offer’ made. It depends on the advertisers whether to accept or reject due to the ‘offer’.

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However, if subsequent to the advertisement , the offer in response to the advertisement made was accepted, it would create a valid contract.

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Exception: If the advertisement is accompanied by another offer or reward, it is regarded as an offer (by a manufacturer) See, CARLILL V CARBOLIC SMOKE BALL CO.

1.6.1(a) CASES 11

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HARRIS V NICKERSON (1873)

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Facts: The defendant advertised a sale of certain goods, including certain office accessories on a particular place. The plaintiff travelled to the location only to discover that the office accessories had been withdrawn from the sale. The plaintiff sought damages and alleged that the defendant had breached the contract since the advertisement was an offer and his presence at the sale was an acceptance to the offer.

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Court’s held: His claim was rejected. It was just a mere statement of intention (advertisement of sale).

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PARTRIDGE V CRITITTENDEN (1968)

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Facts: The defendant put an advertisement in the ‘classified’ section of a periodical, advertising bramble finches for sale at 25 cent each . He was later charged under the Protection of Birds Act 1954 with ‘offering for sale’ alive bird which was an offence under Section 6 (1) of the said Act.

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Court’s held: No offence was committed by him. The advertisement was merely an invitation to treat and not offer.

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COELHO V THE PUBLIC SERVICES COMMISSION (1964)

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Facts: The plaintiff applied for a position in response to a newspaper advertisement placed by the defendant. His application was accepted. Subsequently, the defendant tried to terminate his employment because the plaintiff was appointed on probation. The plaintiff later sued the defendant for breach of contract.

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Court’s held: the appointment letter given to the plaintiff was an ‘unconditional acceptance’. The termination was not valid.

1.6.1(b) DISPLAY OF GOODS WITH PRICE TAG

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Such statements or labels like “on offer”, “special offer” etc. does not amount to an offer which; if accepted, would form a contract.

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The offer is made by the customer when they select the desired goods and bring them to the counter for payment . The offer is made by the customers and not from the shops / supermarkets.

1.6.1(b) CASES 

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN V BOOTS CASH CHEMISTS (SOUTHERN LTD) (1952)

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Facts: The defendant was charged by the plaintiff for selling listed poisons without supervision of registered pharmacist.

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Held: Court of Appeal decided that there was no offence because; in this case, the defendant was not offering to sell drug without supervision . The defendant was merely inviting the customer to choose items from the shelves and there is no sale affected until the customer’s offer to buy is accepted by the registered pharmacist at the counter by accepting the money.

1.6.1(c) TENDER

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Notice to invite tenders are also an invitation to treat.

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The person making the notice or announcement of tender (ITT) will be free to accept or reject any responses, as they invite anybody to make an offer. The application for tenders is an offer.

1.6.1(c) CASES 

SPENCER V HARDING (1870)

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Court’s held: There was no breach of contract because “a circular ‘offering’ stock for sale by tender, was simply a ‘proclamation’ that the defendants were ready to negotiate for the sale of the goods and to receive offers for the purchase for them”.

1.6.1(d) PRICE LIST / QUOTATION / SUPPLY OF INFORMATION 

The purpose is to give an opportunity to the buyers / customers to choose the best price (without intention of making proposal).

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It is regarded as an ‘early information which invites prospective buyers to make an offer. ‘

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The sellers are entitled to accept or reject the offers of the buyers. Thus, they can make a counter – offer with the buyers for a new price.

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When the customer is comparing the prices, it is an ITT . When customer has decided on what to buy and communicate with the seller, only then it’s an offer.

1.6.1(d) CASES 14

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HARVEY V FACEY (1893)

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Facts: A telegraphed to B: “Will you sell us Bumper Hall Pen (farm)? Telegraph lowest cash price”. B replied by telegram: “Lowest price 900 pounds”. A telegraphed back: “We agree to buy. Please send us your title deed”. A claimed that this exchange of telegrams constituted a valid offer and acceptance.

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Court’s held: Privy Council held that there was no contract between them. The reason is, when B stated the lowest price for the property, he was not making an offer but merely supplying information (a response to A’s 2nd question).

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PRESTON CORP. SDN. BHD. V EDWARD LEONG & ORS (1982)

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Held: The quotation was only a supply of information which was an invitation to enter into a contract (the quotations of prices by the respondent).

1.6.1(e) AUCTIONEER INVITING BIDS IN AN AUCTION SALE

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The auctioneer is merely making an invitation to treat in getting any responses from the bidders (public / audience).

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Acceptance occurred when the auctioneer bangs his hammer for three times (becomes an offer). Section 56 of the English Sales of Goods Act 1979 (Amended 1993).

1.6.1(e) CASES 

PAYNE V CAVE (1789)

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Facts: The defendant made the highest bid for the plaintiff’s goods at an auction sale but withdrew it before the fall of hammer.

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Held: There was no contract. The bid was withdrawn before the fall of the hammer.

1.7 CONDITIONAL OFFER 

Making offer with some conditions before it could be accepted. 16

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Section 6 (c) of the Contracts Act 1950.

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Section 8 of the Contracts Act 1950.

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Section 32 of the Contracts Act 1950.

1.7.1 CASES 

ABERFOYLE PLANTATIONS LTD V KHAW BIAN CHENG

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Facts: There was a sale of plantation where 7 leases were about to expire. Clause 4 of the agreement: “The purchase is conditional on the vendor obtaining a renewal of the 7 leases”. If unable to fulfil the condition, this agreement shall be null and void.

1.8 COMMUNICATION OF OFFER 

The offer must be communicated in order to be effective.

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Section 3 of the Contracts Act 1950.

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It is complete when it comes to the knowledge of the person to whom it is made.

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Section 4 (1) of the Contracts Act 1950. - Illustration (a) of Section 4.

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Refer CASES: TAYLOR V LAIRD & R V CLARKE

1.9 REVOCATION OF OFFER

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Revocation means to retract / to withdraw / to terminate / to cancel. If the offer is revoked or cancelled, the contract is void and cannot be enforced.

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Section 5 (1) of the Contracts Act 1950. “offer may be revoked at any time before the communication of acceptance is complete.”

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Section 4 (2) (a) of the Contracts Act 1950.

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Section 6 (a) of the Contracts Act 1950.

1.9.1 CASES 