Element of Contract

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Element of Contract by Mind Map: Element of Contract

1. Offer

1.1. Definition

1.1.1. When a person promise or proposes something to another party with the intention that his promise or proposal would be accepted by that other party.

1.1.2. Section 2(a) CA 1950: "When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other... he said to make a proposal."

1.2. How to make an offer

1.2.1. Express: The offer made in word clearly in writing or verbally.

1.2.2. Implied: The offer implied from the conduct of the parties and no word being used in the offer.

1.2.3. Section 9 CA 1950: "So far as the proposal is made in words, the promise is said to be express. So far as the proposal is made otherwise than in words, the promise is implied. "

1.3. Types of offer

1.3.1. A) Specific Offer: The offer is addressed to specific or particular person. The person is known as offeror.

1.3.2. A) CASE : BOULTON v JONES (1857)

1.3.3. B) General Offer: The offer is addressed to the public large.


1.3.5. Section 2(b) CA 1950

1.4. Condition of vallid offer

1.4.1. A) An offer must be ceertain CASE: GUTHING v LYNN(1831)

1.4.2. B) An offer must be communicated Section 2(a) CA 1950 and Section 4(1) CA 1950 : "The communication of proposal is complete when it comes to the knowledge of the person to whom it is made." CASE : TAYLOR v LAIRD (1856) CASE: R v CLARKE (1927)

1.5. Offer distinguished from ITT



1.5.3. Tender CASE: SPENCER v HARDING (1870)


1.5.5. Auctioneer Inviting Bids Section 10 of the Auction Sales Act: "A sale bu public auction shall be complete when the auctioneer announces its completion by the fall of the hammer..."

1.6. Revocation of offer

1.6.1. Section 5(1) CA 1950: "A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer." CASE: PAYNE v CAVE (1789)

1.6.2. Modes of revocation 1. By communication of notice of revocation a. Revocation of offer under the postal rule Section 6(a) 1950 CASE: HENTHORN v FRASER (1892) 2. Revocation by lapse of time Section 6(b) 1950 CASE: FRASER v EVERETT (1889) 3. Revocation by failure of the offeree to fulfill a condition acceptance. Section 6(c) 1950 CASE: PYM v CAMPBELL (1856) 4. Revocation by death or mental disorder of the offeror. Section 6(d) 1950 CASE: BRADBURY v MORGAN (1862)

2. Capacity

2.1. Requirement as to capacity

2.1.1. Competent 1. An adult 2. Sound mind 3. Not disqualified from contracting by any law.

2.1.2. Not Competent 1. Minor or children Valid contract for minor fall under following exception: 2. Insane or drunken person Section 11 CA 1950: "Every person is competent to contract who is .. of sound mind.. " 3. Bankrupts or insolvents

2.2. Section 10(1) CA 1950: "All agreements are contract if they are made by parties competent to contract."

3. Consideration

3.1. Definition

3.1.1. Consideration is act or promise that done by one party as required by the other party in return for his promise.

3.1.2. Section 2(d) CA 1950: "When, at the desire of promisor, the promisee or any other person has done or abstained from doing or does or promises something, such act is called consideration,"

3.2. Categories of consideration

3.2.1. 1. Executory Consideration Promise in return to a promise : it is when a person promise to do something in return for his promise the other party promises to do something. Section 24 CA 1950 CASE: K.MURUGESU v NADARAJAH

3.2.2. 2. Executed Consideration Performance of an act in return to a promise: It is when the other party performs the act as required by promisor. CASE: CARLILL v CARBOLIC SMOKE BALL CO (1893)

3.2.3. 3. Past Consideration Past act in return to a promise: Consideration complete before the promise is made. CASE: LAMPLEIGH v BRATHWAT (1615) CASE: KEPONG PROSPECTING LTD v A.E.SCHMIDT (1968)

3.3. Requirement of Consideration

3.3.1. 1. Contract made on account of natural love and affection. Section 26 CA 1950 CASE: RE TAN SOH SIM (1951)

3.3.2. 2. Contract to compensate a past voluntary Act. CASE: J.M.WOTHERSPOON & CO LTD v HENRY AGENCY HOUSE (1962)

3.3.3. 3. Contract to compensate for act, which promisor was legally compellable to do.

3.3.4. 4. Contract to pay a statute-barred debt

3.4. Rules governing consideration

3.4.1. 1. Adequacy of consideration CASE: PHANG SWEE KIM v BEH I HOCK (1964) CASE: BOLTON v MADDEN (1873)

3.4.2. 2. Consideration not necessarily must come from the promisee CASE: VENKATA CHINNAYA v VERIKATARAMAYA

3.4.3. 3. Waiver of performance A. English Law CASE: PINNEL'S CASE (1602) B. Malaysian Law CASE: PAN AH BA & ANOR v NANYANG CONSTRUCTION SDN BHD (1969) Methods of Waiver of Performance 1. Payment of smaller sum in discharge of a larger sum. 2 Part payment by a 3rd party in discharge of a debt. 3. If a person accepts an agreed sum in satisfaction of an unascertained debt, that debt is discharge. 4. Composition with creditors for the payment of a smaller sum.

4. Acceptance

4.1. Definition: When offeree agrees or accepts the offer made by the offeror.

4.1.1. Section 2(b) CA 1950: "When the person to whom the proposal is made signifies his assent... the proposal is said to be accepted."

4.2. Conditions of a valid acceptance

4.2.1. Acceptance must be absolute and unqualified. Section 7(a) CA 1950: "The acceptance must be absolute and unqualified." CASE: HYDE v WRENCH (1840) CASE exceptions: STEVENSON JAQUES v MCLEAN (1880)

4.2.2. Acceptance must be communicated in some ' usual & reasonable manner' Section 7(b) CA 1950: "... the acceptance must be expressd in some usual and reasonable manner, unless the proposal prescribes the manner in whhich it is to be accepted... " ; "... if the proposal prescribes a manner and the acceptance is not made in that manner, the proposer may, within a reasonable time.., insists the prescribes manner bbut if he fails to do so, he accepts the acceptance." CASE: ELIASON v HENSHAW (1819) CASE: WETTERN ELECTRIC v WELSH DEVELOPMENT AGENCY (1983)

4.3. Mode of accceptance

4.3.1. Acceptance must be communicated Section 3 CA 1950: "The communication of acceptance are deemed to be made by any act of the party , which he intends to communicate the acceptance." CASE: POWELL v LEE (1908)

4.3.2. Silence is not an acceptance CASE: FRASER v EVERETT (1889) CASE: FELTHOUSE v BINDLEY (1862)

4.3.3. EXCEPTIONS: Unilateral Contract: When offeror dispensed with or waived the need of communication of acceptance. CASE: ERRINGTON v ERRINGTON General Offer: When there is an offer to the public Reciprocal Promises: Form the consideration for the promises each other party to the contract Section 2(f) CA 1950: "Promises which form the consideration for each other are called reciprocal promises." Section 8 CA 1950: "... the acceptance of any consideration for a reciprocal promise is acceptance of the proposal." Acceptance through post: Acceptance through post complete when the letter of acceptance is posed, even though it not come to the actual knowledge by the offeror. Section 4(2) CA 1950: "The communication of an acceptance is complete as against the proposer, when it is put in a course of transmission to him." CASE: ENTORES LLTD v MILES FAR EAST CORP. (1955) CASE: IGNATIUS v BELL (1913)

5. Intention to Create Legal Relation

5.1. 1. Commercial or Business agreement.

5.1.1. Concerns with profit making and making money out of something. For example; selling/ hiring/ renting something.

5.1.2. CASE: LOW KAR YIT v MOHD ISA (1963)


5.2. 2. Social, Domestic and Family agreement.

5.2.1. Not involving any business or profit making activities which normally between family members or friend.

5.2.2. CASE: BALFOUR v BAL8FOUR (1919)

5.2.3. CASE: MERRITT v MERRITT (1970)

5.3. The Act is silent on this matter.

6. Certainty

6.1. Section 30 CA 1950: "Agreements, the meaning of which is not certain, or capable of being made certain, are void."

6.2. Element of making valid contracts is contract must be certain, definite, clear and detail.


7. Free Consent

7.1. Elements that may affect the free consent.

7.1.1. 1. Coercion Section 15 CA 1950: "Coercion is the committing or threatening to commit any act forbidden by Penal Code, or unlawful detaining any property, with the intention of causing any person to enter into an agreement." CASE: KESARMAL s/o LETCHMAS DAS v VALIAPPA CHETTIAR (1954)

7.1.2. 2. Undue Influence Section 16(1) CA 1950: "A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in position to dominate the will of the other and uses that position to obtain an unfair advantage over the other" Elements of undue influence 1. Presumption of domination 2. Effect of undue influence in a contract

7.1.3. 3. Fraud Elements of fraud 1. There must be a false representation or statement. 2. It was given by one party to another with intention to deceive. 3. The representee must have relied on the representation. CASE: KHENG CHWEE LIAN v WONG TAK THONG (1983) CASE: LETCHEMY ARUMUGAM v ANNAMALAY (1982) Effect of fraud in contract Section 19(1) CA 1950: "When consent is caused by fraud, the agreement is voidable." Section 17 CA 1950: "Fraud include any following acts committed by a party to a contract with intent to deceived other party: a) the suggestion as to a fact, which is not true; b) the active concealment of a fact; c) a promise made without any intention of performing it; d) any other act fitted to deceive; e) any such act the law specially declares to be fraudulent." CASE: DERRY v PEEK (1889)

7.1.4. 4. Misrepresentation Elements of misrepresentation: 1. There must be a false represeentation, either through a positive statement or some conduct. 2. The representor was innoncent to deceive. 3. The representation must be one of fact , not mere expression of opinion. 4. The statement was addressed to party misled. 5. The representation must induce the misled party to enter into the contract. Section 18 CA 1950: "Misrepresentation includes: a) The positive assertion, which is not true, though he believes it to be true; b) any breach of duty which, without an intent to deceive by misleading another to his prejudice; c) causing , however innocently, a party to an agreement to make a mistake as to the substance which is subject of the agreement."

7.1.5. 5. Mistake Elements of mistake 1. Mistake as to the existence of the subject matter of the contract. 2. Mistake as to the identity of the subject matter, both parties at cross-purposes. 3. Mistake as to the possibility of performing the contract. Effect of mutual mistake in contract Section 66 CA 1950: "When an agreement is discovered to be void, any person who received any advantage is bound to restore it or to make compensation for it to the person from whom he received it." Unilateral mistake Section 23 CA 1950: "A contract is not voidable merely because it was caused by one of the parties to it begin under a mistake as to a matter of fact." Section 21 CA 1950: "Where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void."