LAW OF CONTRACT

PROPOSAL AND ACCEPTANCE

PROPOSAL

An agreement between two or more parties is constituted by a proposal and an acceptance of it. A proposal is made ‘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 to such act or abstinence’. Thus A, by offering to buy B‘s car for $10,000 in the hope that B will accept, is making a proposal. Then, according to section 2(b), ‘when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted’. Upon such acceptance by B, an agreement between the parties is created. The proposal has become a ‘promise’ and the party making the proposal (proposer or offeror) is now referred to as the ‘promisor’ and the party accepting the proposal, the ‘promisee’. Therefore in the example given above, B’s acceptance of A’s proposal to buy the car establishes an agreement or promise. A is the promisor and B the promisee.

INVITATION TO TREAT

A proposal must be distinguished from an invitation to treat. The Contract Act does not contain any provision respecting this aspect of contract. An invitation to treat is not a proposal but a sort of preliminary communication which passes between the parties at the stage of negotiation, for instance, a price list, a display of goods with price tags in a self-service supermarket, an advertisement or an auctioneer inviting bids for a particular article. If an auctioneer is considered making a proposal when inviting bids, then when an bidders makes a bid, he is accepting the proposal and an agreement comes into being at that stage. This is clearly untenable and defeats the very purpose of an auction. The actual state of the law is that the auctioneer is only making an invitation to treat. The auctioneer is merely inviting the people present to make proposals which the former may accept or decline to accept. According to section 10 of the Auction Sales Act,

‘ A sale by public auction shall be complete when the auctioneer announces its completion by the fall of the hammer…’

The invitation to the people present to make bids is a preliminary communication and not a proposal within the meaning of the Act. Therefore, the legal expression ‘invitation to treat’ refers to those instances in which

‘… you offer to negotiate, or you issue advertisement that you have got a stock of books to sell, of houses to let, in which case there is no offer to be bound by any contract. Such advertisement are offers to negotiaste – offers to receive offers – offers to chaffer…’

Display of goods in a shop as in advertisements generally do not constitute a proposal sell. The shop-owner merely holds himself prepared to consider proposals made to him at the suggested prices. The invitation is not capable of being accepted as it is not a proposal. The proposal is in fact made by the

customer when he or she selects the desired goods for payment at the counter. This well-established rule was clearly determined by the celebrated case of Pharmaceutical Society of Great Britain v. Boots Cash Chemist Ltd [1953] 1 QB 401. The defendants were charged under the Pharmacy and Poisons Act 1933 (U.K.) which provided that it was unlawful to sell certain poisons unless such sale was supervised by a registered pharmacist. The case depended on whether a sale had occurred in the self-service shop when a customer selected articles which he desired to purchase and placed them in a wire basket. Payment was to be made at the exit where a cashier was stationed and in every case involving drugs, a pharmacist supervised the transaction and was authorized to prevent a sale. The Court ruled that the display was only an invitation to treat. A proposal to buy was made when the customer placed the articles in the basket. Hence the contract of sale would only be made at the cashier’s desk. That being the principle, the shop owners had not made an unlawful sale.

Automatic vending machines and automatic ticket machines in parking areas do present some legal difficulties. Does a contract come into being the moment a coin is inserted or is the user merely making a proposal at that stage? What happens if the coin is inserted and the machine fails to deliver because it is empty and the coin is not returned? Lord Denning in Thornton v. Shoe Lane Parking Ltd [1971] 2 QB 163 attempted to resolve the issue by the following analysis with particular reference to an automatic ticket machine in a parking lot:

‘ … The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he puts his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice beforehand, but not otherwise…’

TO WHOM CAN A PROPOSAL BY MADE?

A proposal can either be made to a particular person or to the general public. Where it is made to a particular person, it appears that only the addressee may accept the proposal. The opening words of section 2 (b) which provides ‘when the person to whom the proposal is made …’ lends support to this view. On the other hand, where it is made to the general public, then anyone who meets all the terms of the proposal may accept. In an English case, Carlill v. Carbolic Smoke Ball Co. [1893]1 QB 256, the defendants advertised that they would offer a sum of money to anyone who would still succumb to influenza after using a certain product according to the instructions for a fixed period. The plaintaiff duly used the product advertised but, nevertheless, became ill. The plaintiff, upon refusal of the defendants to honour their promise, proceeded to sue them. The Court of Appeal held that the plaintiff had accepted the offer of the company made to the world at large and is, therefore entitled to the money.

Similarly, an advertisement of reward for the return of lost property would, as a general rule, be treated in the same manner in the absence of other terms attached to the offer.

Facts: Carbolic Smoke Ball Co. Ltd. advertised that they would offered $1,000 to anyone who still succumbed to influenza after using a certain remedy for a fixed period. The plaintiff duly used it but, nevertheless, contracted influenza. The plaintiff then sued for the money.

Held: The plaintiff was entitled to the $1,000 as she had accepted the offer made to the world at large.

COMMUNICATION OF PROPOSAL

A corollary to the rule that only an addressee may accept the proposal is the principle of communication of the proposal. Unless there is communication of the proposal as suggested by section 2(a) which reads ‘when one person signifies to another his willingness to do or to abstain from doing anything …’, there can be no acceptance to form an agreement. The fact that the other party has done something which coincides with the proposal without being aware of the proposal does not bring an agreement into being. Likewise, a party accepting a proposal must be aware of its existence. A party who casually returns a lost property to its owner cannot legally claim a reward if he is unaware of it at the time but subsequently discovers the existence of an offer of reward for its return.

In R. v. Clarke (1927) 40 C.L.R. 227, an Australian case, the western Australian Government offered a reward for information leading to the arrest and conviction of persons responsible for the murder of two police officers. X and Clarke were arrested and charged with the murders but shortly after, the latter gave information which lead to the arrest of another person, Y. X and Y were later convicted for the offence and Clarke who did not commit the murders claimed the reward. His claim failed on the grounds that the information was given to clear himself and not in reliance on the offer of reward. In the words of Higgins J

‘Clarke has seen the offer, indeed; but it was not present to his mind – he had forgotten it, and gave no consideration to it, in his intense excitement as to his own danger. There cannot be assent without knowledge of the offer, and ignorance of the offer is the same thing, whether is its due to never hearing or it or to forgetting it after hearing.’

M N Guha Majumder v R E Donough [1974] 2 MLJ 114

Facts: Property owned by the defendant was advertised for sale, and written offers to purchase were invited. The plaintiff viewed the property on two occasions. During the interval between the two occasions the plaintiff was in communication with the defendant’s agent, and it was alleged that the defendant had accepted the plaintiff’s offer to purchase the property for RM70, 000. There had been on the occasion of the second visit to the property some discussion on the mode of payment. There was also no clear agreement on the sale of orchid plants which the defendant wished to sell separately, although the matter was discussed between the parties. The defendant denied that he had decided to go on with the sale. The defendant was anxious, however, to effect a quick sale as he was desirous of

leaving Kuching permanently for Johore Bahru. The question for determination was a contract in existence between the plaintiff and the defendant at the material time.

Held: 1. The law does not impute an intention to enter such a legal relationship as that of vendor and purchaser where the circumstances and the conduct of the parties negative any intention of the kind.

2. the evidence indicated that the parties did not intend to be immediately bound. They had not the necessary animus contrahendi. What passed was only a negotiation from beginning to end.

COUNTER-PROPOSAL AND ACCEPTANCE

When ‘the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted a proposal, when accepted, becomes a promise. The acceptance must be made on exactly the same terms as proposed without modifications or variations. In other words, an acceptance must be ‘absolute and unqualified’ as provided in section 7(a). Any modifications or variation of the proposal does not constitute an acceptance but amounts to a counter-proposal by the party to whom the original proposal was made. A counter-proposal is treated as a rejection of the original proposal.

This rule was determined in the English case of Hyde v. Wrench (1840) 3 Beav. 334. The defendant offered to sell his estate to the plaintiff on June 6 for 1,000 pounds. On June 8 in reply, the plaintiff wrote again purportedly accepting the original proposal. The Court ruled that no acceptance had occurred because the plaintiff’s letter of June 8 had rejected the original proposal which could not be revived.

Ramsgate Victoria Hotel Co Ltd v Montefiore [1866] LR 1 EXCH 109

Facts: Montefiore applied for shares on 8 June but he was not told until 23 November that his offer had been accepted and that the shares had been allotted to him and that the balance owing on the shares was now due. Montefiore refused to pay and the company threatened to sue, alleging breach of contract. The issue was whether the offer lapsed through passage of time.

Held: The offer to purchase shares had not been accepted within a reasonable time and the offer had therefore lapsed. There was no contract created.

COMMUNICATION OF ACCEPTANCE

The general rule is that acceptance of a proposal must be communicated to the proposer for there be a binding contract between the parties. This acceptance may

be expressed in some usual and reasonable manner, unless the proposal prescribes a manner in which it is to be accepted. If the proposal prescribed a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

Hence acceptance must ordinarily be communicated and made in some usual and reasonable manner if no method of acceptance is prescribed. But if the proposal specifies a particular mode of acceptance and it is not followed, the proposer is entitled to insist on it. It is necessary that the proposer act ‘within a reasonable time’ after the communication of the acceptance. If he does nothing, he would be deemed to have accepted. The duty to object lies with the proposer. The law in this respect is different from English contract law which does not require such positive objection to deviation from the prescribed manner of acceptance.

To the general rule that acceptance must be communicated, there are a number of exceptions:

1. The proposer has dispended with the need for it.

2. The proposer allows the party to whom the proposal is made to perform ‘the conditions of a proposal’. i.e. acceptance taking the form of performance of an act stated in the proposal.

3. The proposer allows ‘the acceptance of any consideration for a reciprocal promise which may be offered with a proposal’.

The second exception falls within the rule established in the English case, Carlill v. Carbolic Smoke Ball Co., cited earlier in the chapter. In this case, it was contended, inter alia, by the defendants that the plaintiff should have notified them of her acceptance of their proposal. This argument was rejected by the court. It held that performance was sufficient to constitute acceptance if that was the intention of the proposer.

POSITIVE ACT OF ACCEPTANCE

While communication of an acceptance may be waived, it will still be necessary for the addressee to do something positive to accept such as actual performance of the conditions of the proposal or alternatively, express his acceptance in an acceptable manner. Section 2(b) requires the person to whom the proposal is made to signify his assent thereto to a proposal. ‘Signifies his assent thereto’ implies a positive act of acceptance on the part of the addressee. Silence, absence of response or just total disregard of the proposal is not acceptance as there is no positive act that can be related to the proposal. The proposer may not throw the burden on the addressee to a positive act rejection by saying

for instance, ‘if I do not hear from you within a week, I shall assume that you have accepted may proposal’. The addressee may safely ignore such a statement. If the law were otherwise, we shall all be in untenable position. All manners of proposals would rain upon us, obliging us to reject them on penalty of legal liabilities.

In Fraser v. Everett (1889) 4 Ky. 512, a case decided in the former Straits settlements, wood A.C.J. held that there was no rule of law saying that ‘Silence gives consent’ applicable to mercantile contracts. The defendant, in this instance, had contracted for the purchase of ‘transfer and scrip’ shares but were tendered bearer-warrant shares. His Lordship held that the defendant could not be treated as a waiver of objection. His silence did not constitute consent.

Fraser v. Everett also laid down the rule that an acceptance of a proposal must be made within a reasonable time. In that case, the contract was for shares ‘expected to be mailed would have arrived on 23 April. The court held that it was not a delivery within a reasonable time to have scripts mailed early in April and offered to the defendant on 15 May. The fact that the mining shares were a very fluctuating character was a significant factor in determining the issue of time. It should be noted that what constitutes a reasonable time is a question of fact depending on the circumstances such as the nature of the subject matter, and in this case, it was shares of a fluctuating character so that one would expect their prompt delivery.

The rule that acceptance must be within a reasonable time is really embodied in section 6(b) which provides that a proposal is revoked:

‘by the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance; …’

ACCEPTANCE THROUGH POST

The general rule, as mentioned earlier, is that acceptance is effective or completely only when it is communicated to the proposer. It is communicated when it comes to the actual knowledge of the proposer. This is the legal position under English law and it appears to be similar under local law. But section 4(2) of the Contracts Act provides an exception to the general rule where the parties have contemplated the use of the post as a means of communication. According to the sub-section

The communication of an acceptance is complete –

(a) As against the proposer, when it is put in a course of transmission to him, so as to be of the power of the acceptor; and

(b) As against the acceptor, when it comes to the knowledge of the proposer.

Illustration (b) of section 4 gives the following example:

B accepts A’s proposal by a letter sent by post

The communication of the acceptance is complete:

as against A, when the letter is posted;

as against B, when the letter is received by A.

According to paragraph (a) and supported by Illustration (b), the proposer is bound when the offeree posts the letter even though the former has no knowledge of the acceptance. When the letter is posted the acceptor has put it ‘in a course of transmission’ is such a way that he no longer has any control over it. The transaction becomes binding irrespective of any delay or disappearance in the course of transit. Denning L.J. in Entores Ltd v. Miles Far East Corporation [1955] stated as follows:

‘When a contract is made by post it is clear law throughout the common law countries that acceptance is complete as soon as the letter is put into the post box, and that is the place where the contract is made.’

The postal rule has evolved from reasons of practical convenience, arising from the delay that is inevitable in delivering letters. The Court of Appeal decision in the Selangor case Ignatius v. Bell (1913) 2 FMSLR 115 is the local authority for the principle that acceptance is complete upon posting where communication by post is the method contemplated by the parties. In this case, the plaintiff sued for specific performance of an option agreement which purported to give him the option of purchasing the defendant’s rights over a piece of land. The option was to be exercised on or before the 20 th day of August, 1912. The parties had contemplated the use of the post as means of communication. The plaintiff sent a notice of acceptance by registered post in Klang on August 16, 1912 but it was not delivered till the evening of August 25 because the plaintiff was away. The letter had remained in the post office at Kuala Selangor until picked up by the defendant. The Court, applying section 4, held that the option was duly exercised by the plaintiff when the letter was posted on August 16.

On the other hand, acceptance is complete ‘as against acceptor, when it comes to the knowledge of the proposer’. This implies that while the proposer is bound upon dispatch of acceptance by the acceptor, the latter is not bound until it is actually received by the proposer. Therefore if X proposes by the letter to sell his house to Y and Y accepts it in the same manner, X is bound at the moment Y dispatches the letter through the post but he himself is not bound until it actually reaches X.

This state of the law is rather unsatisfactory for two principal reasons. First, whether there is a binding agreement at a given time is by reference to the parties. Second, there appears to be no common moment during the period between transmission by the acceptor and receipt by the proposer when the agreement is said to be mutually binding. The binding moment for both parties occurs only when the proposer actually receives the acceptance and not before. Hence, where there is a delay in the post or the letter of acceptance is misplaced by the postal authority, the proposer is bound irrespective of his knowledge of the acceptance, while in the other hand, the acceptor remains free till actual receipt by the proposer. This necessarily implies that in the meantime, the acceptor may also withdraw his acceptance. The proposer is severely disadvantaged by the rule and is placed in an unequal position.

Proposers who contemplate the use of letters sent through the post as a means of acceptance should provide adequate protection for themselves by, for instance, stipulating in a proposal that acceptance is complete only upon receipt. That would exclude the postal rule by express terms of proposal.

The postal rule also applies to telegram sent through the post office. Instantaneous communications such as telephone and telex are governed by the general rule. In Entores Ltd v. Miles Far East Corp., supra, the English Court of Appeal classified communications by telex with instantaneous communications. Parker L.J. noted:

‘So far as Telex messages are concerned, through the dispatch and receipt of a message are not completely instantaneous, the parties are to all intents and purposes in each other’s presence just as if they were in telephonic communication, and I can see no reason for departing from the general rule that there is no binding contract until notice of the acceptance is received by the offeror.’

REVOCATION OF PROPOSAL

A proposal, once communicated, remains open until it lapses or is withdrawn, under normal circumstances, there is no obligation for the proposer to keep his proposal open indefinitely. He may revoke it any time before acceptance. Section 5(1) of the Act provides

A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

Section 6 states that a proposal is revoked:

(a) By the communication of notice or revocation by the proposer to the other party;

(b) By the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;

(c) By the failure of the acceptor to fulfil a condition precedent to acceptance; or

(d) By the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance.

Under subsection (a), the revocation of the proposal must be communicated by the proposer to the other party before it accepts. In the event of acceptance by post or telegram, the acceptance is complete as against the proposer upon posting or delivery of the telegram to the appropriate telegrapgh office. Therefore, withdrawal of the proposal must necessarily be communicated by the proposer to the offeree before such posting or delivery. The application of this rule is found in the Illustration to section 5.

A proposes, by a letter sent by post, to sell his house to B.

B accept the proposal by a letter sent by post.

A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.

In Byrne v. Tienhoven (1880) 5 C.P.D. 344, and the law appears to be similar. In this case the defendant offered to sell 1,000 boxes of tinplates to the plaintiff. The following communications took place:

1 October: Defendant posted letter of offer in Cardiff to the plaintiff in New York.

8 October: defendant posted a letter revoking the offer of October 1.

11 October: Plaintiff received the letter of offer posted on October 1 and sent acceptance by telegram the same day. It also followed up with letter of acceptance on 15 October.

20 October: Defendant’s letter of revocation received by plaintiff.

The court ruled that there was a contract between the parties because the revocation of the offer posted on 8 October was not effective till 20 October when it was received by the plaintiff but in the meantime, the latter had already accepted the offer on 11 October when the telegram was sent.

Subsection (b) deals with revocation by lapse of time and provides for two situations: lapse of time occurring upon the expiration of the time prescribed in the proposal for its acceptance and where no time is prescribed, by the lapse of a reasonable time. What a reasonable time is depends on the facts and circumstances of each case. In Fraser v. Everett, supra, in addition to deciding that ‘Silence is not acceptance’, the Supreme Court of the Straits Settlements also ruled that the acceptance of the plaintiff was not made within a reasonable time. The document of title to shares should have been delivered much earlier, taking into consideration that ‘the shares in question were mining shares of a very fluctuating character’.

In the English case of Ramsgate Victoria Hotel Co. v. Montefiore (1866) L.R. 1 Ex. Ch. 109, the defendant applied for shares in the company in June and paid a deposit into the company bank. It was not till November that the company informed the defendant that shares had been allotted to him and that the balance of the purchase price should be paid. The defendant refused to accept the shares and the court held the refusal justified because such a proposal should have been accepted within a reasonable time. The period between June and November was clearly not reasonable. The rationale for this rule, in the words of Hashim Yeop A Sani J

‘An offer lapses after a reasonable time not because this must be implied in the offer but because failure to accept within a reasonable time implies rejection by the offeree. As a consequence, the court can take into account the conduct of the parties after the offer was made in deciding whether the offeree has allowed too long a time lapse before accepting.’

Subsection © provides that a proposal may be revoked where the acceptor fails to fulfil a condition precedent to acceptance. For instance, a company offers to employ an applicant on condition that he passes a skills test. If the applicant fails the test, the proposal is obviously revoked because the applicant has failed to fulfil a condition precedent.

Finally, subsection 9(d) deals with the death or mental disorder of proposer subsequent to the communication of the proposal. The happening of these two events does not automatically result in the demise of the proposal. The fact of the death or mental disorder must be known to the acceptor before acceptance. It is only upon such knowledge that the proposal is no longer available for acceptance. The necessary implication from the subsection, therefore, is that acceptance without prior knowledge of the death or mental disorder of the proposer is a good acceptance.

REVOCATION OF ACCEPTANCE

Is may seem strange that an acceptance can be revoked but that is the law with respect to those acceptance which is nit complete as against the acceptor. Subsection (2) of section 5 states:

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

The Illustration to section % provides an example of revocation of acceptance made by post.

A proposes by a letter sent by post, to sell his house to B.

B accepts the proposal by letter sent by post.

B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

CONSIDERATION

Section 26 provides that an ‘agreement made without consideration is void’ unless they belong to one of these categories of agreements listed in the same section as being exempted from the rule. Consideration is defined in section 2(d) as

when, at the desire of the promisor, the promise or any other person has done or abstained from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration of the promise;

Consideration may be viewed as a sort of bargain, a quid pro quo or the price which one party pays to buy the promise or act of the other. When a promisor promise to do or to abstain from doing something, the promise must pay a price for it. This price to be paid may be an act or an abstinence or a promise to perform a future act or abstinence.

EXECUTORY, EXECUTED AND PAST CONSIDERATION

Consideration may be classified as executory, executed or past. It is executory when one promise is made in return for another i.e. a promise in return for a promise. For example, X agrees to sell Y a motor-cycle and Y promises to pay $2000 for it. The Act provides an example in Illustration (a) section 24.

A agrees to sell his house to B for $10,000. Here, B’s promise to pay the sum of $10,000 is the consideration for A’s promise to sell the house, and A’s promise to sell the house is the consideration for B’s promise to pay $10,000. These are lawful consideration.

A consideration is executed when a promise is made in return for the performance of an act. For example, X offers $100 to anyone who finds and returns his camera which he has earlier lost. Y finds and returns the camera is response to the offer. Y’s consideration for X’s promise is executed, and only X’s liability remains outstanding.

Finally, where promise is made subsequent to and in return for an act that has already been performed, the promise is made on account of a past consideration. So if Y finds and return X’s camera an din gratitude, X promises to reward him with $100, the promise is made in return for a prior act. Under English law, the general rule is that past consideration is insufficient to support a contract. In a real sense, Y’s action is gratuitous because he has acted without reference to X’s. this English rule is of some antiquity and a number of exceptions have since developed.

EXCEPTIONS TO GENERAL RULE

Exceptions to the general rule that an agreement without consideration is void are provided in section 26 and these may be summarized as follows:

(a) An agreement made on account of natural love and affection between parties standing in near relation to each other.

(b) An agreement to compensate for a past voluntary act.

(c) An agreement to compensate a person who did an act which the promisor was legally compellable to do.

(d) An agreement to pay a statute-barred debt.

An Agreement on Account of Natural Love and Affection 26(a)

The validity of this agreement is dependant upon the following conditions,

1. It is expressed in writing which may be in any reasonable form;

2. It must be registered where a law exists requiring such registration; and

3. It is made on account of natural love and affection between parties standing in near relation to each other.

Natural love and affection are not recognized as valid consideration under English law. Under subsection 29(a), it is a valid consideration provided the condition of ‘near relation’ between the parties is also met. Unfortunately, ‘near relation’ is not defined in the Act. While members of the immediate family will ordinarily constitute ‘near relation’, there will be exceptions and any extension outside that group presents some real difficulties. Personal law with respect to family matters are still applicable to various ethnic groups, and consequently, what constitutes near relation can vary with each social group, depending on its customs and social organization.

In Re Tan Soh Sim [1951] MLJ 21, attempt made to define ‘near relation’. The Court of Appeal considered the validity of an agreement between members of a Chinese family governed by their personal laws. The principal issues were whether an agreement was made on account of natural love and affection and three sisters and seven half-sisters and brothers stood in near relationship to their adopted nephews and nieces. The deceased Tan Soh Sim, in her last illness, had expressed a wish that her estate should be divided amongst the two adopted sons and two adopted daughters. The legal next-of-kin, respecting this wish, drew up an agreement renouncing all rights in favour of the four adopted children who were their nephews and nieces. The Court, in its judgement, said that ‘relationship’ and ‘near’ must be applied and interpreted in each case according to the mores of the group to which they the parties belong and with regard to their circumstances of the family concerned. While the Court conceded that Chinese adopted children are related to the adoptive parents and brothers, it held that they were not nearly related to the family of their adoptive mother. Thus the uncles and aunties of the adoptive mother in this instance did not stand in near relation to their nephews and nieces. The Court further ruled that there was no natural love and affection between the signatories and donees. In the opinion of Justice Briggs, ‘natural’ meant ‘reasonably to be expected, having regard to the normal emotional feelings of a human being’. This emotional feeling was of a special type ordinarily expected to spring from the fact of ‘near relation’. If either the feelings or the relation were lacking, the agreement could not stand under this subsection.

ADEQUACY OF CONSIDERATION

If X promises to sell his car worth $20,000 for ten ringgit, is the amount of ten ringgit sufficient consideration for the promise? The sum of money is obviously not adequate for his promise but the court will not assess whether a promisor has received adequate consideration. It appears that the adequate consideration. It appears that the adequacy of consideration s immaterial. This state of the law is borne out by Explanation 2 of section 26 which reads:

An agreement to which the consent of the promisor is freely given is not void merely the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given.

Illustration (f) of the section provides the example:

A agrees to sell horse worth $1,000 for $10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

The legal view is that parties to a contract are capable of appreciating their own interests so that in the absence of such events as fraud, misrepresentation and other vitiating factors, a person may do as he pleases with regard to the value he places on his property. It is only when the issue of consent not being freely given is raised that the fact of adequacy of consideration would be taken into account by the court.

OTHER ESSENTIALS OF A CONTRACT

INTENTION TO CREATE LEGAL RELATIONS

The mere fact of an agreement does not of itself create a binding legal contract. The law requires evidence that the parties to an agreement intend that it be legally enforceable, such intention may be either express or implied from the circumstances.

The Contracts Act is silent on the subject of informal agreements no intended by the parties to have legal effects. Since the Act is not a code and it is silent on the question, it appears that English common law principles will apply. Two presumptions, though rebuttable, have developed in the determination of intention with respect to agreement.

1. In business agreements, there is a presumption that the parties intend legal consequences to follow unless the parties specify otherwise.

2. In social, domestic or family agreements, it is implied as a matter of course that no legal relations are contemplated, but such presumption may be rebuttable.

Social, Domestic and Family Agreements

Agreements are made every day is social and family life, where parties would be horrified if they could be taken to court for such arrangements. Parties do no contemplate legal action where an invitation to a dinner is accepted or an arrangement made between spouses for the maintenance and upkeep of the home. There is a body of case law in England and other common law countries establishing the principle

that parties to such agreements are presumed not to have intended legal consequences to flow from them.

There appears to be no local authority on this point. So the English case of Balfour v. Balfour [1919] 2 KB 571 is an appropriate starting point in the discussion of domestic agreement. In that case, the defendant was a civil servant stationed in what was then Ceylon (Sri Lanka) and while on leave in English, he had promised to pay his wife and monthly allowance as maintenance. The wife was unable to accompany the defendant abroad on account of her poor health. He defaulted and the wife sued for breach of contract. The court held it was not a legally enforceable agreement because the parties did not intend that they should be attended by legal consequences.

CERTAINTY

Section 30

Agrements, the meaning of which is not certain, or capable of being made certain, are void

Karuppan Chetty v Suah Thian, the requirement of certainty was not met when the parties agreed upon the granting of a lease ‘at RM 35 per month for as long as he likes’

CAPACITY TO CONTRACT

At common law, it is presumed that a person who enters into a contract has the full capacity to do so. But where one or more parties to a contract lacks such capacity in certain instances, the contract may be invalid. According to section 11 of the Act,

Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting, by any law to which he is subject.

Mohori Bibee v Dhamados Ghose, the privy Council held that an infant cannot make any valid contracts.

However, there are some exceptions to this rules. These are the following:

1 Contracts for necessaries

2 Contracts of scholarship

3 Contracts of insurance

Minors

A minor is a person who has not reached the age of majority. The common law established 21 years as the age of majority for most purposes and those persons under the age of majority were referred to, quite inappropriately, as ‘infants’. Insofar as it affects contractual capacity, the age of majority is 18 years as provided in the Age of Majority Act 1971. Prior to this Act, the repealed Age of Majority Act 1961 had fixed the age of majority for Muslims at 18 years and non-Muslims at 21 years. This change in the age of majority followed developments in England and other countries where a climate of opinion had developed in favour of lowering the age of majority from the traditional 21 which, it was felt, was no longer necessarily desirable.

Section 69

CONSENT OF PARTIES

CONSENT

Free consent is the basis of a contractual relationship. There must be a meeting of the minds as to the nature and scope of the contract, a consensus ad idem. Section 10(1), among other things, provides that all ‘agreements are contracts if they are made by the free consent of parties competent to contract … ‘. Two or more persons are said to consent when they agree upon the same thing in the same sense. Consent must be free and not secured through such means as fraud, coercion, undue influence or misrepresentation. Section 14 provides:

Consent is said to be free when it is not caused by –

(a) Coercion, as defined in section 15;

(b) Undue influence, as defined in section16;

(c) Fraud, ad defined in section 17;

(d) Misrepresentation, as defined in section 18; or

(e) Mistake, subject to section 21, 22 and23

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake.

UNDUE INFLUENCE

Allcard v.Skinner (1887) Ch D 145 observed that the doctrine

‘ to protect people from being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate objects of laws; and the equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and with the infinite varieties of fraud’.

Datuk Jagindar Singh & Ors v Tara Rajanratnam the Federal Court held that as there was a solicitor-client relationship, the presumption of undue influence has to be rebutted.1

Inche Noriah v Shaik Allie Bin Omar [1929]

Facts: An old and illiterate Malay woman executed a deed of gift of a landed property in Singapore in favour of her nephew who had been managing her affairs. Before executing the deed the donor had independent advice from a lawyer who acted in good faith. However, he was unaware that the gift constituted practically the whole of her property and did not impress upon her that she could prudently, and equally effectively, have benefited the done by bestowing the property upon him by a will.

Held: The gift should be set aside as the presumption of undue influence, which is raised by the relationship proved to have been in existence between the parties, was not rebutted.

COERCION2

Kesarmal s/o Letchman Das v Valiappa Chettiar [1954] MLJ 119 where there court held invalid a transfer executed under the orders of the Sultan, issued in the ominous presence of two Japanese officers during the Japanese Occupation of Malaysia. In the instant case, consent was not free and, therefore, the transfer become voidable at the will of the party whose consent was so caused.

UNLAWFUL AND VOID CONTRACTS

A contract may be void through illegality or other reasons such as the lack of consideration or operative mistake. English law makes a distinction between contracts that are merely void and those that are void through illegality either at common law or by statue. Contracts void through illegality either at common law or by statute. Contracts void through illegality are treated more strictly by the law, and the general rule is that the court will refuse its aid to a person who founds his or her cause of action upon an immortal or illegal act; the policy is encapsulated in the maxim ex dolo malo non oritur action.

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The Contracts Act 1950 does not seem to distinguish between the class of contracts that are merely void without the character of illegality from those contracts which are void through illegality as understood in English law. Section 2(g) merely provides that ‘an agreement not enforceable by law is said to be void’. Other relevant provisions are section 10(1) which states that a contract must be made by the free consent of competent parties, ‘for a lawful consideration and with a lawful object’, and section 24 which provides:

The consideration or object of an agreement is lawful unless –

(a) It is forbidden by a law;

(b) It is of such a nature that, if permitted, it would defeat any law;

(c) It is fraudulent;

(d) It involves or implies injury to the person or property of another; or

(e) The court regards it is immoral, or opposed to public policy.

In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

The foregoing section 24 is then illustrated by four examples of lawful considerations and seven examples of agreements that are unlawful. It is then followed by several other provisions under the heading ‘Void Agreements’ providing further categories of contracts that would be considered void at common law but not necessarily illegal, namely:

(1) Section 25 which provides that an agreement is void if the consideration for one or more objects is in part unlawful

(2) Section 26 which provides that an agreement made without consideration is void except in the circumstances provided

(3) Section 27 which provides that an agreement in restraint3 of marriage of a person other than a minor is void

(4) Section 28 which provides that an agreement in restraint of trade, profession or business is void except in certain limited circumstances

(5) Section 29 which provides that an agreement in restraint of legal proceedings is void except contracts to refer a dispute to arbitration and certain written agreements relating to award of scholarships by the Government

(6) Section 30 which provides that agreements that are uncertain are void

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(7) Section 31 which provides that an agreements by way of wager is void except a subscription or contribution made in favour of certain prizes for horse-racing

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