Notes on the Law of Contract

LAW OF CONTRACT

WHAT IS A CONTRACT

  • Definition: Per Section 2(h) of the Contracts Act 1950, a contract is defined as an agreement enforceable by law.

FORMATION OF A CONTRACT

Elements Required:

  1. Proposal (Offer): An offer must be made for a contract to exist.
  2. Acceptance: The proposal must be accepted by the offeree.
  3. Intention to Create Legal Relations: Parties must intend for the agreement to have legal consequences.
  4. Consideration: Each party must provide something of value.
  5. Competency (Capacity): Parties must have the legal capacity to enter a contract.
  6. Certainty: Terms of the contract must be clear and definite.

OFFER

  • Definition: A proposal is necessary for the formation of a contract. As per Section 2(a), an offer signifies a person's willingness to do or refrain from doing something to obtain the assent of another.
  • Parties Involved:
    • Promisor/Offeror: The person making the offer.
    • Offeree: The person to whom the offer is made.

TO WHOM CAN A PROPOSAL BE MADE

  • Options: A proposal can be made to:
    • An individual
    • A class of persons
    • The public at large (e.g., Carlill v Carbolic Smoke Ball Co.)

FORM OF THE PROPOSAL

  • Formats: Proposals can be made in different forms:
    • Writing
    • Oral
    • Conduct or a combination thereof
  • Proposals must be:
    • Clear
    • Complete
    • Final

COMMUNICATION OF THE PROPOSAL

  • Requirement: A proposal must be communicated to be valid.
  • Completion of Communication: As per Section 4, communication is complete when it comes to the knowledge of the offeree.

STATEMENTS NOT CONSIDERED PROPOSALS

  • Distinction: Some statements do not amount to proposals; they are not intended to create binding obligations. Examples include:
    1. Inquiries & Supply of Information:
      • Asking for or providing information is not a valid offer.
      • E.g., asking "What is the price of the car?" or stating "The price of the car is RM10k" does not constitute an offer.
    2. Invitation to Treat:
      • An invitation for others to make an offer. It is not a valid offer.

INVITATION TO TREAT

  1. Display of Goods:

    • A display in a shop is merely an invitation to treat.
    • Example: In Pharmaceutical Society of Great Britain v. Boots Cash Chemists Ltd, the display was ruled as an invitation to treat, where the offer occurs when the customer presents items at the cashier.

  2. Auction:

    • In Payne v Cave, bids are offers made by the bidder, while the auctioneer can accept or reject them, treating the call for bids as an invitation to treat.

  3. Advertisements:

    • Generally regarded as invitations to treat, not offers. For instance, in Harris v Nickerson, the advertisement was ruled a declaration of intention without creating a binding contract.