LAW OF CONTRACT

DR. NUR KHAIRIYAH BINTI BASRI

 OUTLINE

• WHAT IS A CONTRACT?

• HOW TO CREATE A VALID CONTRACT

• OFFER AND ACCEPTANCE

• TERMS OF A CONTRACT

• VITIATING FACTORS

• DISCHARGE OF CONTRACTS
 IMPORTANCE OF LAW OF CONTRACT

• Part of private law so it is concerned with relationships between parties.

- to decide what is a valid contract.

• Part of civil law so it is also concerned with remedies.

- if the other party to a contract does not keep to the agreement.
 DEFINITION OF CONTRACT

• A legally binding agreement between two parties.

- Legally enforceable means that a court will say that an agreement is a contract.

A written contract between the client and contractor.

Both parties are bound to comply with all the details and conditions contained in the contract documents.

For example : The contractor is obligated to do the job perfectly and to achieve the minimum level of work
quality. The employer is responsible for paying the contractor when the job has been completed.
 CREATING A VALID CONTRACT

• In order to create a valid contract, there must be :-

An offer;
An acceptance;
Consideration;
Capacity to contract; and
Intention to create legal relations.
 DEFINITION OF OFFER

• The person making the offer is the offeror. The person who accepts the offer is the offeree.

An offer is a promise by the offeror to be bound in a contract on particular terms if there is a proper
An offer can be made to a particular person, group of people, and the whole world.
acceptance of the offer by the offeree

JOHN JIM
Offeror/ Offeree/
Promisor Promisee

Source: https://seqlegal.com
 Knowledge of Offers
• You have to know about the offer before you can accept it.

For example : Mrs Smith promises to deliver a chair to Mr Jones’ office for RM150
Mr Johnson (Mr Jones’ employee) who is to sit on the chair cannot sue Mrs Smith if she fails to deliver. Only Mr
Jones could sue Mrs Smith for not delivering the chair.

If you find my lost dog and return it without knowing that I had offered to pay RM1000 to the
person who found it, then you cannot later claim the reward when a friend tells you about it
 ACCEPTANCE

• The accaptence must be done during the offer is still open.

• Important element since once there is acceptance, the contract will exist.

Definition
Acceptance is a statement of agreement to the terms contained in the
contract. The acceptance cannot try to introduce new terms.
 Counter-Offers

• The offeree tries to change the terms of the offer in the acceptance - rejects the offer.
• The reversed position - The offeree becomes the offeror and the offeror becomes the
offeree

A purported acceptance which is qualified

by the introduction of a new term may be
considered by the courts as a counter-offer
destroying the original offer
Hyde v Wrench

1. Wrench offered to sell his farm for £1,000. Hyde offered £950.
- Wrench rejected.
2. Hyde then told Wrench he would accept Wrench’s original offer.
The court said there was not contract.
3. The counter-offer of £950 ended the offer of £1,000 so it could no
longer be accepted.
4. Hyde was now making a new offer to buy the farm for £1,000.
- Wrench could choose to accept or reject this.
 A valid contract is made.

CLASSICAL LEGAL MODEL

If the offeree makes a counter-offer
Offeree becoming the offeror and the offeror now becoming the offeree.

If the parties continue negotiating then they could change roles several
times as offers and counter-offers are made.

A contract will be created - an offer will be matched with an acceptance

 TERMS OF CONTRACT

• The terms of a contract express what the parties to the

contract have agreed. 3 types of terms
• A term in a written contract is often called a clause. Conditions
• Different kinds of statements have different remedies
when a party breaches them. Warranties

• A breach of contract occurs when one party does not

Innominate terms
follow an agreed term of the contract
Conditions
• A condition is a basic and important part of the contract.
• According to oxford dictionary of law , condition is a major term of a contract. It
is frequently described as a term that goes to the root of a contract
• If one party breaches a condition then the other party may:-
End the contract;
Refuse to perform their part of the contract;
Claim damages;
Or
Continue with the contract but then sue for damages.
Warranties

• A warranty is not vital to the contract.

• If one party breaches a warranty then the other party can only continue with the
contract and then sue for damages.
Innominate Terms

• These are terms which may be either conditions or warranties.

• It depends how serious the breach of the contract is.
• If the breach is serious the court will say the term was a condition.
• If the breach was less serious then the court will say it was a warranty.
Exclusion Clauses

• Exclusion clauses are terms of a contract which try to limit the liability of one of
the parties if they breach the contract.
• These clauses can create unfair situations where one party is able to insist they
are included in the contract because that party is much stronger than the other
party
• One area where the courts and Parliament have tried to control the effect of
exclusion clauses is in contracts between business and individual consumers.
• This is because the business is usually in a stronger position than the consumer.
Dealing with Exclusion Clauses

• When a court looks at an exclusion clause, it thinks about 3 things:

1. Has the exclusion clause been included in the contract?

2. How should the exclusion clause be interpreted?
3. Does the Unfair Contract Terms Act 1977 apply to the exclusion clause?
Included in the Contract

• An exclusion clause has to be part of the contract or it has no effect.

Ways for exclusion clause in a contract

By signature

By notice

By custom
 VITIATING FACTORS
• is the technical term for the things which make a contract void or voidable.

Mistake

Public Misrepre
Policy sentation
Vitiating
Factors

Undue Duress
Influence
Valid Contracts

• These are agreements which are completely binding and enforceable.

• Parties to valid contracts gain rights and responsibilities.
• The courts will make sure that the parties follow these rights and responsibilities if
there is any argument.
 Void Contracts Voidable Contracts
• Not contracts at all. • Valid unless one of the
• Have no legal effect. parties has it set aside (ie
• Important - you cannot declared void).
enforce a void contract. • This could happen where
one party is tricked into
entering a contract by the
other party (ie a
misrepresentation).
Misrepresentation
• -Is a false statement
whichv persuade/convince
someone to enter into a
contract - is then voidable.
• Misrepresentation has 3
parts :-
• A statement;
• The statement is about a
fact which can be checked;
and
• The statement causes the
party to enter into the
contract.
• -An untrue statement of
fact, made by one party
to the other in the course
of negotiating a contract
 Statement of Fact

• The representation must be a statement about a specific, existing fact or event which can
be checked.
• Not statements of fact :-
Advertising hype;
Statements of law;
Statements of opinion; and
Statements of intention.
Two Types of Misrepresentation

Fraudulent • Are those statements of facts which the

maker known to be false
misrepresentation

Innocent • Are those statements of fact which the

misrepresentation maker believes to be true but are, in
fact false
 DISCHARGE OF CONTRACT
• The parties are released from their obligations in the contract. Ie: they no longer have to do what they agreed.
• The termination of a contractual obligation. discharge may take place by: (1) *performance of contract;
(2)express agreement, (3) *breach of contract; or (4) *frustration of contract. (Oxford Dictionary of law)

• Each party fulfilling completely his obligations under the contract. And The contract is
Performance not discharge for only one party has fulfilled his obligation.

• The mutual release of each party from his obligations under the agreement provides
Agreement the consideration for the agreement to discharge the contract.

• Destruction of specific thing necessary for the performance of the contract

Frustration • Contract depends on the happening of certain event
• Death or personal incapacity and a change in law

• Entitles the injured party to an action in damages. But it may also entitle him to treat
Breach the contract as discharged, provided that the injured party is able to show that the
breach is of the whole contract or ‘goes to the root of’ the contract