Law of

Definition of Agreement

Section 2(e) of the Contracts Act provides that

every promise and every set of
promises,
forming the consideration for each
other,
is an agreement.

When does an Agreement become

a Contract?
Section 2(h) of the Contracts Act, 1950 provides that
an agreement enforceable by law is a contract.

All contracts are agreements

But not all agreements are
contracts!!!

9 ELEMENTS OF CONTRACT
1.Offer
2.Acceptance
3.Consideration
4.Capacity to contract
5. Intention to create legal
relations
6. Free consent
7. Certainty of Terms
8. Valid Object
9. Formality

Offer & Acceptance & Revocation-definitions

Definition of proposal-s2(a);
Definition of promise-s2(b);
Who is the promisor and who is the promisee-s2(c);
What is consideration-s2(d);
What is an agreement-s2(e);

Difference between agreement and contract?

 acceptance,
revocation of offer,
revocation of

acceptance

must be
communicated
to other party-s3

ce &
eptan
es
, Acc
ncipl
Offer
n-pri
catio
Revo

offer,

Communication

must be
effective

3 Methods of Communication
Instantaneous

Non

method:direct
conversation, telephone

Instantaneous
method: via post.

Almost

instantaneous:telex and
online internet
conversation &WWW

T he
Prin c
ip le s

The

prin
ciple
were
s
a
p
plied that
illus
trati
ons to the
deri
can
v
be
ed fr
s e ct
om
io

ns 3
5 of , 4 and
the
Con
195 tracts
thos 0.You m Act
e
e sec
ust r
ead
tions
to b
your
e
self
able
appr
ecia
to
te th
em!

Offe
r&A
ccep
tanc
& Re
e
voca
tionprin
ciple
s

Whe
offer n doe
com , comms comm
offer munica unicat unica
revo and co tion of ion of a tion of
efe cation mmun revocat cceptan
knowctive? of acce ication ion of ce,
s4(2 ledge When i ptance of
t
o
)(b)
b
Con f the ot comes ecome
trac
to th
her(i) W
t
s
h
s
e
4(1)
Act
is eff en po
(
1950 3) an
offe ective stal rul
:
d
ree
e
a
ga
ap
p

post
i
(ii) W
s let nst offeplies ac
ter o ror w cept
of off hen p
ance
f ac c
h
o
eptaen
offe er is e stal ru
n ce
acceree befoffective le appli
ptan
re o
if re es re
ff
c
e
e
ree ceived vocati
(iii)
post
on
by
of acWhen p
s
l
e
tter
by o ceptan ostal ru
of
ff
of ac eror b ce is e le appl
cept efore ffecti ies re
an c e
offe ve if r voca
ror r
eceieceivedtion
ve s
lette
r

Offer & Acceptance & Revocationprinciples

When can offer be revoked ;

1. before offeree has knowledge of the offer or

before offeree accepts the offer

2. If postal rule applies, before offeree posts the
letter of acceptance
3. 5(1)&(2) Contracts Act 1950

When can acceptance be revoked?

1. before oferor has knowledge of acceptance

2. If postal rule applies, before offeror receives the
letter of acceptance
3. S5(1) &(2) Contracts Act 1950

Me th
Rev o o ds fo
r
cati
on o
f
Offe
r

Sect
prop ion 6(a
) Co
os a l
i
s
(a)
revontracts
ked Act
revo by the
1950
c
c
o
a
m
.A
t
part
y; ion by thmunica
e pr tion o
(b)
opos
er tof notice
in th by the
of
the
no t e propolapse o
o
ther
of a ime is s sal for f the tim
com reason o presc its acce e pres
mun able
r ib e
ptan cribe
d
i
t
c at i o
, by
ce , o d
ime,
( c) b
t
n
w
h
y
of th
ithou e lap r, if
ditio thefail
e ac
se
t
npre ureo
c
e
ptan
cede fthea
(d )
ce ;
n
c
t to
ce p t
the by the
a c ce
o rt o
p
d
r
e
p
o
a
t
p os e
me n
ance fulflac
th o
on
; or
knowtal diso r, if ther ment
acce ledge rder co fact o al disor
der
m e s f hi s
ptan of th
of
d
e ac
ce .
ceptto the eath or
or b
e for
e

Principles of Postal Rule?

1. Contract binds offeror and offeree at two

different points in time.

Offeror is bound by contract when offeree posts

letter of acceptance

Offeree is bound by contract when offerees letter

of acceptance is received by offeror

2. Revocation of offer by offeror is effective

provided it is received by offeree before offeree

posts letter of acceptance.

3. Revocation of acceptance by offeree is effective

provided it is received by offeror before offeror

receives letter of acceptance posted by offeree.

9 ELEMENTS OF CONTRACT
1.Offer
2.Acceptance
3.Consideration
4.Capacity to contract
5. Intention to create legal
relations
6. Free consent
7. Certainty of Terms
8. Valid Object
9. Formality

Question?
How to avoid the implications of the postal rule?
Determine the mode of acceptance to be used by
offeree-s7(b)
State specifically that acceptance effective only when
comes to notice of offeror
Postal rule will not apply if:
It may cause inconvenience or absurdity: Lord
BramwellBritish and American Telegraph Co. v.
Colson
It is unreasonable to use the post (wrong address,
postal strike)

Catherine Tay Swee Kian and Richard Kau Yong

Meng (2000), E-Commerce Law:What You Need
to Know , published by Times Book International
E-mail acceptances fall under the postal rule. Thus
contracts are immediately formed once the offeree
sends the message on-line. In cyberspace, e-mails can
get lost and garbled. Under the postal rule, if the email acceptance is lost in the post the contract is still
binding and valid. The postal rule can be rebutted by
express terms that acceptance is only effective when
received by the offeree

Authors of Basic Law Book

Acceptance is effective not when you click on the

icon send but rather when the offerors service
providers computer, to which the offeror has entrusted
the transmission of his offer receives the message
When can offer be revoked? When can acceptance be revoked?

always make an express statement in your

offer : acceptance is only effective when
I have received it and not when it posted
or when it is received by the service
providers computer

Elements of
Contract

First Element: Offer

Definition of OFFER
s. 2(a) of the Contracts Act, 1950:
Offer or proposal is an expression of willingness to do or
to abstain from doing anything
with a view to obtaining the assent
of that other to the act or abstinence

Section 3 Contracts Act 1950

orally

in writing

implied from conduct

Types of Offer

Must
communicate
acceptance

Promise
for an act!

No need to
communicate
acceptance
just perform
condition

Promise for
a promise!
offer that can be made to

offer that is made to a

specific person or group
of persons

the world at large (must be

conditional) :

Carlill v. Carbolic Smoke Ball,

Situations that are NOT offers

1. Invitation to Treat

2. Mere answer to a request

for Information

Situations that are Invitation to Treats

1. Invitation to Treat

1. Display of Goods in shops

(Pharmaceutical Society of GB v.
Boots Cash Chemist)
(Fisher v. Bell)
2. Advertisements
(Partridge v. Crittenden )
(Coelho v. Public Service
Commission; job vacancy)
Different from advertisement in
Carlill v. Carbolic S.B.)
3. Auctions (Payne v. Cave)

Situation that is a Mere Answer to a

Request for Information Harvey v. Facey
1.As telegram: Whats the price for
2. Mere answer to a
request
for Information

Bumper Hall Pen.

2.Bs reply: Lowest cash price for

Bumper Hall Pen $900.
3.As telegram: We agree to buy
Bumper Hall Pen for $900 asked by
you .
Is there a contract between A and B?

Cross Offer

I am willing to sell my
handphone to you for
RM500 are you
agreeable? (post)
Jenny
I am willing to buy
your handphone for
RM500 are you
agreeable?(e-mail)
Mark

When is the Offer Terminated?

1)Revocation
1)Revocation
by
by
offeror
offeror
Must be
communicated to
offeree

5 situations

Before offeree has knowledge

Before offeree accepts!
Before offeree posts letter
of acceptance!

When is the Offer Terminated?

Outright rejection

2)Rejection
2)Rejection
by
by
offeree
offeree

Counteroffer/qualified
acceptance
Hyde v. Wrench

When is the Offer Terminated?

3.Lapse
3.Lapse
of
oftime
time

Specific time
frame
Reasonable
time

When is the Offer Terminated?

death
4.Loss
4.Lossof
ofcapacity
capacity
of
ofofferor
offerorknown
known
atatthe
thetime
time
acceptance
acceptancemade
made
by
byofferee
offeree

insanity

When is the Offer Terminated?

5.Failure
5.Failure
to
tomeet
meet
conditions
conditions

Pu t o
n yo
t h in k
ing c ur
ap s!

1. Owner wants to sell Proton

Perdana bearing registration

number UK 2003 (second
hand) for RM50,000.
2. Owner wants to sell Proton
Perdana bearing registration
number UK 2003 (second
hand) for RM80,000. Price
negotiable.
3. Proton saga cars for sale,
priced at RM20000.

Second Element:
Acceptance

f
o
s
t
n
e
m
t
e
c
l
a
E
r
t
n
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C

ACCEPTANCE

5 Conditions to be met

Section 7 of the Contracts Act, 1950 requires the

following conditions to be met:
a. acceptance must be absolute and unqualified. Hyde
v. Wrench (condition 1)
b. be expressed in some usual and reasonable manner,
unless the proposal prescribes the manner in which it
is to
be accepted.
If prescribed manner not
complied with it is effective unless offeror objects
within reasonable time(condition 2)

Illustration
Offeror

Method of
acceptance
not
prescribed

Offeror

Method of
acceptance
prescribed

Usual&reasonable

Method followed
Method not followed

5 Conditions to be met

Section 3 of the Contracts Act, 1950 requires:

acceptance must be communicated to the offerorbrought to offerors knowledge. (condition 3)
There are exceptions:
1) Unilateral offer, where the offeror has waived the
need of communication of acceptance, just perform act
enough-s8CA;
2) Acceptance is via post and postal rule applies
(although letter of acceptance is lost, contract still
exists)

Case: Hyde v. Wrench

1. On 6 June, A said: I am willing to sell my
farm to you for 1000.
2. On 8 June, B replied: I am willing to buy

farm for 950.

A did not respond..
On 29 June, B replied: I am willing to buy farm
at the original price you offered that is 1000
.(B has changed mind and wants to accept
original offer)
Is there a contract in this case?

On 8 June, B replied:
I am willing to buy farm for 950.
Qualified Acceptance
or
Counter-offer

A has an option
whether to accept/reject
Counter offer!

Terminates Original
Offer

5 Conditions to be met

Section 6(b) of the Contracts Act, 1950

requires
the following condition to be met:
acceptance must be made within a specific
time or within a reasonable time (condition 4)

5 Conditions to be met

Silence or inactivity or failure to act on the part

of offeree is not acceptance (Felthouse v. Bindley)
(condition 5)
Exception:
1.When both parties agree that silence would amount
to acceptance

Third Element: Certainty of Terms

f
o
s
t
n
e
m
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l
a
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r
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C

Certainty of Terms

section 30 of the Contracts Act

provides:
that any agreements, the meaning of
which is not certain, or capable of
being made certain, are void

Fourth Element: Lawful

Object

f
o
s
t
n
e
m
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e
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l
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LAWFUL CONSIDERATION &

OBJECT-s24 and 25

Forbidden
by law

Defeat purpose
of law

Causes injury

Fraudulent

Immoral/
Against
Public
policy

Fifth Element: Intention to

Create Legal Relations

f
o
s
t
n
e
m
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a
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INTENTION TO CREATE
LEGAL RELATIONS

Domestic&
Social
Agreement

(Balfour v. Balfour)
(Merrit v. Merrit)

Commercial
Dealings

Sixth Element: Legal

Capacity

f
o
s
t
n
e
m
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e
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l
a
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r
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CAPACITY

Natural Persons
Age (ss 11 & 12)

Sanity
(Agreement
is void)

Corporations
Subject to the provision
of Companies Act, 1965 &
the doctrine of ultra vires

Must be at least 18 (the Age of Majority Act 1971)

Minors contract is void (s. 11 of the Contracts Act 1950)

Illu s
t rati
on

Natural person

1. Age
2. sanity

capacity

Legal person

MA and AA

Agreement with insane person is void

What if someone is usually insane and occasionally

sane?

What if someone is usually sane and occasionally

insane?

Ca se
: Mo
Dha
hor i
rm o
Bi be
das
Cou Gh ose ( e v.
Pr i v y
n ci l
de c i
si on
)

Facts of case:
Minor mortgaged land as
security for loan granted by A.
Court held that :
an agreement with minor is
void.
1. Thus land must be returned
to minor.
2. However, court did not
order that amount
disbursed by A should be
returned because A had
knowledge of the other
persons minority

PROBLEM SOLVING
Facts of case:
Minor mortgaged land as security for loan
granted by A.
A had NO knowledge of the other persons
minority. A did not bother to find out!
How would you decide the case?

W ha
t if
Min
M is
or M
repr
ade
Fra
was
es e
u
nt at
not
d ule
i
o
am
n
inor n th at t
?: L
he
e
sl i e
Sh e
v.
i ll [1
914
]

Fact
s:
Mino
Mino r borro
A th r had f wed m
A ga at he w rauduleoney fro
defa ve min as of a ntly inf m A.
g
o
ulte
d in r a loane of maormed
jo
repa
.
yme Minor rity.
nt o
Held
f loa
:
n.
1.agr
2.if h eement is
still
e
he c still ha
void
an b
d th
.
e
e
l
a
Ho w
sked oan a
e
to re mou
loan ver, i
turn nt
m a k , h e c a f h e ha
it.
d
n
e
n
u
p
se
pres
o
a
ent ymentt be as d up th
k
or f
e
uturfrom h ed to
e re is
so u
r ce s
.

Pro
b le m
Solv
in g

Minor entered into

agreement to buy computer
CDs from vendor.
Minor agrees to pay within 2
weeks.
Minor fails to make payment.

What can CD vendor do?

Advise him/her?

These agreements with minor are valid!

a) agreement for necessaries
-s69 of Contracts Act 1950
b) insurance
agreement
c) betrothal, divorce, dower and adoption
agreement
d) scholarship agreements with government
(since 1976)
e) employment agreement (minor as employee)

A gr e
e men
Ne ce t for
ssa r
ies

A may supply to a B (mentally

unsound person or a minor )
necessaries suited to their condition
in life and

A is entitled to be reimbursed
from the property of such
incapable persons.

Section 69 Contracts Act 1950

Section 69 Contracts Act 1950

food

Religious education

clothing

shelter

bicycle

Illu s
t rati
on

Rich kid

Contract for
necessary

Gourmet food

necessary
Poor kid
suited to
condition in life?

Not Contract
for necessary

Case: Government of Malaysia v. Gurcharan Singh

Government spent RM 11,500 for the

education of a minor.
Minor refused to pay back the money
The court held :
1.that the money given for education
came under necessaries
2.and therefore the government can be
reimbursed from property of minor.

Contracts (Amendment Act) 1976

Minor is bound by scholarship

contract!!!