Law of Contract

Elements of Contract

By, 1
Ms. Sharvina Binti Shajahan
 Introduction

An agreement is not a contract if it lacks the elements of

contract, namely:

1. offer/proposal
2. acceptance
3. intention to create legal relation
4. consideration
5. certainty
6. capacity
7. free consent

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 Element : Acceptance
the action of consenting to receive
or
undertake something offered.

3
 Element : Acceptance

• Rule : it must be communicated

Section 2(b)CA :
When the person to whom the proposal is made
signifies his assent thereto, the proposal is said
to be accepted.
• Once offer be accepted, it will become a
promise.

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 Section 9 CA
Acceptance can be express or implied

• Express : it is made through words

spoken/in writing.
• Implied : it is made through other than
words/writing. e.g: conduct.

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• Section 7 CA states, acceptance must be:

a) Absolute and unqualified;

b) Be expressed in some usual &

reasonable manner, unless the proposal
prescribes the manner in which it is to be
accepted.

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 Absolute & Unqualified
• any modification/variation of the offer does
not constitute an acceptance but amounts
to a counter offer.
• made exactly on the same terms as the
offer without any modifications.
• a counter offer is treated as a rejection of
the original offer.
Hyde v Wrench
Held : ruled that no accepted had occured
because plantiff letter had rejected the
original offer which could not be revived. 7
 Expressed in some usual &
reasonable manner
Section 6 CA :
Acceptance must be made within a reasonable
time.

Fraser v Everret
What constitutes a reasonable time is a
question of fact depending on. eg: the nature
of the subject matter.
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 Element :
Intention to Create Legal Relation
• Parties involve shall have intention to create
legal relation - agreement
• agreement does not create a binding contract
• Law requires that parties to an agreement intend
that it to be legally enforceable
• rebuttable presumptions to determine intention :
a) Business Agreement;
b) Social, Domestic or Family Agreements.

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 Business Agreement

• there is a presumption that parties intend

to be legally binding.

Low Kar Yit & Ors v Mohd Isa & Anor

Held : even though it is a business
agreement, since there is a 'subject to
contract' clause, a contract will only come
into existence when parties signed a
formal contract.
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Social, Domestic & Family Agreements
Balfour v Balfour
Husband promise to pay maintenance to wife.
Held : there is a contract

Merrit v Merrit
Husband promise to transfer property to wife.
Agreement between them is in writing and
signed by both.
Held: there is a contract because the parties had
intended to create legal relation by making their
agreement.

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12
 Element : Consideration

Section 26 CA :
An agreement without consideration is void

Consideration = the price which one party

pays

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 Generally, there are 3 types of
considersation :

a) executory consideration;
b) executed consideration;
c) past consideration.

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 Types of Consideration

• Executory : one promise made in return of

another. A goods for goods.
• Executed : a promise made in return for the
performance of an act. Offering something
based on performance.
• Past : a promise be made in return for an act
that has already been performed.

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How Consideration happen?

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 Exceptions to the General Rule
a) Section 26(a) CA : an agreement made on
account of natural love & affection requires
no consideration. Requirements:
i. Agreement must be in writing;
ii. Agreement must be registered;
iii. Agreement must be made on account of
love & affection between parties standing in
near relationship.
b) Section 26(b) CA : an agreement to
compensate for a past voluntary act.
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c) Section 26(b) CA - An agreement to
compensate for an act the promisor was
legally compellable to do. Requirements:
i. Promisee has voluntarily done an act;
ii. The act is one which the promisor is
legally compellable to do;
iii. An agreement to compensate the
promisee for the act.

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d) Section 26(c) CA - An agreement to pay a
statute barred debt.
Condition must be fulfilled :
i. Debtor made a fresh promise to pay;
ii. The promise is in writing & signed by the
debtor.

Rules of Consideration :
i. Consideration need not be adequate if
consent is given freely;
ii. Consideration need not move from the
promisee;
iii. Consideration must be lawful.
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 Element : Capacity
Section 11 CA :
Every person is competent to contract who
is of the age of majority and who is of
sound mind and is not disqualified from
contracting by any law.

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 Mohari Bibee v Dhurmodas Ghose

the appellant lent the respondent the sum

of $Rs20,000. Appellant knew that the
respondent is a minor. Later, respondent
brought an action for a declaration.

Held : Contract entered into by parties not

competent to contract is void

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 Exception to the rule that
minor can enter into a contract by
Age of Majority Act 1971 :

i. Contract of Necessaries
ii. Contract of Scholarship
iii. Contract of Insurance
iv. Contract of Marriage

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 Element : Certainty
• Terms of a contract cannot be vague and
unclear
• it must be certain
• Section 30 CA : an agreement which is
uncertain or is not capaable of being made
certain is void.
• at common law, there is two aspects of
uncertainty :
a) Language used is too vague;
b) Failure to reach an agreement on a vital
term of the contract.
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 Karuppan Chetty v Suah Thian
Held : the contract is void as parties have
agreed to a lease of RM35 per month for
as long as he likes.

The contract is void because of the words

be used in the agreement.

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 Element : Free Consent
• In every contract parties must have a
'consensus ad item'.
• Section 13 CA : two or more persons are
said to consent when they agreed upon the
same thing in the same sense.
• Section 14 CA : consent is said to be free
when it is not caused by:
a. Coercion;
b. Undue Influence;
c. Fraud;
d. Misrepresentation;
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e. Mistake.
 Coercion
• with the intention of causing any person to enter
into an agreement.
• Section 15 CA - Coercion is the committing or
threatening to commit any act forbidden by the
Penal Code or threatening to detain any
property.
• Kesarmal s/o Letchman Das v Valiappa Chettiar
a transfer of property was made under the orders
of the Sultan, issued to 2 Japanese officers
during the Japanese occupation in Malaysia was
held not valid.
Transfer become voidable at the will of the party
whose consent was so caused.
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 Undue Influence
• one parties to a contract entered into such
contract by influence of the other party who
was able to influence him.
• Section 16(1) CA - the relations subsisting
between the parties are such that one of
the parties is in a position to dominate the
will of the other & uses the position to
obtain an unfair advantage over the other.
• Datuk Jaginder Singh v Tara Rajaratnam
Respondent induced by the fraud & undue
influence of the appellant to transfer her
land to the appellant. 27
 Fraud
• Section 17 CA - includes any acts committed by a party to
a contract / to induce him to enter into the contract.
• intention to deceive the other party to induce him to enter
into a contract.
• it was decided in Derry v Peek
Fraud is proven when it shown false representation has
been made either :
knowingly, without belief in its truth or careless whether it
be true or false.
• Element : must be false representation, marely making a
false statement.
• Letchemy Arumugam v Annamalay
Defendant had made a fraudulently represented to plaintiff
the document she was required to sign was for a loan that
she had taken & to free the land from the charge. the
document she signed included a sale agreement of the
land. The agreement was voidable at the option of the
Plaintiff. 28
 Misrepresentation
• False statement made by the representor,
Which such false representation induces the
other party to enter into a contract.
• Section 18 CA
• Elements :
i. there must be a false representation;
ii. the representation must be one of fact;
iii.the statement was addressed to the party
misled;
iv.the representation must induce the misled
party to enter into the contract. 29
 Mistake
• Section 21 CA - where both parties to an
agreement are under a mistake as to the
matter of the fact, the agreement is void.
• Awang B. Omar v Hj Omar
a contract in which the second defendant
guarantees the performance of contract. First
defendant did not know English & was
persuaded to sign in the mistaken belief &
merely witnessing his brother's signature.
Held : there was a mistake as to the nature of
the document signed & the first defendant was
not liable.
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 Void & Voidable Contract
• Section 2(g) CA - an agreement not enforceable
by law is said to be void.
• when an agreement is void, no right are given to
the parties, & no obligations are imposed on
them.
• Section 2(i) CA - an agreement which is
enforceable by law at the option of one more of
the parties, but not at the option of the others, is a
voidable contract.
• voidable contract - parties is given choice either to
continue/discontinue the contract.
• agreement is valid & binding until the party who 31is
entitled to rescind the contract chooses to do so.
 Group Task
This task need to be done in a group.
Find the summary of the case, the Court Held of the case:

1. Boulton v Jones;
2. Carlill v Carbolic Smoke Ball;
3. Guthing v Lynn;
4. Fisher v Bell;
5. Pharmaceutical Society of Great Britain v Boots Cash Chemist;
6. Preston Corporation Sdn Bhd v Edward Leong & Ors;
7. Awang B. Omar v Hj Omar;
8. Karuppan Chetty v Suah Thian;
9. Balfour v Balfour
10. Merrit v Merrit
11. Mohari Bibee v Dhurmodas Ghose
12. Harris v Nickerson
13. Coelho v The Public Services Commission
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14. Financing Ltd v Stimson