INTRODUCTIONELEMENT OF CONTRACT

What is contract?

The word contract in a legal sense refers to an agreement between two or more parties that

legally binding with them: in the words of section 2(h) of the Contract Act, it is ‘is an

agreement enforceable by law’. The nucleus of all contract is an agreement that is to say, all

contract must be built upon an agreement although not all agreements are automatically

contracts. Some agreements are not contract because they lack certain essential elements.

These essential elements are:

1. Offer

2. Acceptance

3. Consideration

4. Intention to create legal relations

5. Certainty

6. Legal capacity

Section 10(1), for instance, lays down several of the above elements when it states that an

agreement must be made ‘by the free consent of parties competent to contract for a lawful

consideration and with a lawful object’. Where one or more of the ingredients mentioned

above is missing, the agreement is not a contract which the law will enforce. So, where A

agrees with B to a dinner a restaurant, the agreement does not give rise to contractual rights

simply because it is a social agreement lacking the element of intention to create legal

relations. The law will not assist in its enforcement.

1

OFFER

1. Offer

An agreement between two or more parties is constituted by offer. An offer 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 B will accept,

is making an offer. Then according section 2(b), ‘when the person to whom the offer

is made signifies his assent, the offer is said to be accepted’. Upon such acceptance by

B, an agreement between the parties is created. The offer has become a promise and

the party making the offerer is now referred to as the promisor and the party accepting

the offer, the promise. So, the example given above, B’s acceptance of A’s proposal

to but the car established an agreement or promise. A is the promisor and B the

promise.

Among the issues to be decided in Tan Geok Khoon & Geradd Francis

Robless v. Paya Terubong Estate Sdn Bhd [1988]2 MLJ 672 was whether a counter

offer from the dependent relating to the sale of parcel of land had been accepted by a

deceased so that a contract was concluded. The plaintiffs were executors and trustees

of the estate of the deceased and claimed that through a series of correspondence

made between the deceased and the defendant, a contract was concluded. Edgar

Joseph Jr.J. agreed that there was contract between them, the deceased having

accepted a counter offer from the defendant and paid the balance of the price. He also

found the defendant did accept the payment and issued a receipt on its note paper

signed by one of its directors acknowledging the payment.

2. Invitation to treat

An invitation to treat is not an offer but a sort of preliminary communications

which passes between the parties at the stage of negotiation, for instance, a price list,

and 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 an offer when inviting bids, then when a bidder makes a bid, he is accepting

the proposal and an agreement comes into being at that stage. This 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 auction 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 auction announces its

completion by the fall of the hammer...’

The invitation to the people present make bids is a preliminary communication

and not a proposal within the meaning of the Act.

Display on goods in a shop as in advertisement generally does not constitute a

proposal to 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. Booth Cash Chemist Ltd[1953]1 QB 401. The defendants were charged under the

Pharmacy and Poison Act 1933(U.K) which provided that is was unlawful to sell

certain poisons unless such sale was supervised by a registered pharmacist. The case

depend 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 mad at the exit where cashier was stationed and every case

involving drugs, a pharmacist supervised the transaction and was authorized to

prevent a sale.

Common sense and the realities of commercial transactions prevailed in the

above case. It would be untenable if it were otherwise. If selecting an article from

shelf constitutes a sale, selection even though he or she has not paid for it and the

customer would not be able to change his or her mind about the purchase. Similar

problem would also arise in advertisement say in the classified column, if there were

treated as a proposal to be accepted by readers. Items for sale may have been

completely sold out and sellers would be liable for breach if they could not supply all

the items offered.

The case of Coelho v. The Public Services Commission [1964] MLJ 12

affirms the general rule that an advertisement is only an invitation to applicants to

make an offer and not an offer itself. The applicant had applied for a position in

response to a newspaper advertisement. He was later informed that his application had

been accepted. Subsequently, The Public Services Commission attempted to terminate

his employment on the basis that he was appointed on probation. The applicant then

applied to the court for an order to quash the decision. The High Court ruled, amongst

others, that that advertisement was an invitation to qualified persons to apply and the

resulting application were offers. Such offers could either be accepted simply or with

the imposition of conditions as terms of the contract, additional to those set out in the

advertisement. In the latter case the offers by the applicants would have been met by

counter-offers which the offerors could accept or refuse. The letter to the particular

applicant was in fact an unqualified acceptance of the first category and there was no

question of his appointment being on probation. Therefore the purported termination

applicable to officers on probation was invalid.

3. To who can an offer 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 offer. The opening words of section 2(b) which provides ‘when the person to

whom the offer 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 proposal may

accept. In cases, Carlill v. Smoke Ball Co. [1983]1 QB 256, the defendant advertised

that they would offer a sum of money to anyone who would still succumb to influenza

after using certain product according to the instructions for a fixed period. The

plaintiff duly used the product advertised but, nevertheless, became ill. The plaintiff,

upon refusal of the defendants to honour their promise, proceeds to sue them. The

Court of Appeal held that the plaintiff has 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.

4. Communication of offer

The general rule is that an acceptance isn't communicated until it's actually

brought to the notice of the offeror: for example, an attempted oral acceptance isn't

communicated if it's 'drowned by an aircraft flying overhead; or if the attempted

acceptance is spoken into a telephone or sent on a teleprinter (or, it's suggested, by e-

mail) after the line has failed. Where, however, the offeror authorises acceptance by

post, acceptance may Prima facie be communicated simply by posting a properly

addressed letter of acceptance; but the offeror may instead stipulate exclusively for a

defined method of communication.

For the formation of a contract, the general rule with regard to the need for

communication of acceptance is that acceptance must in fact be communicated.

Therefore, there's no binding contract where the offeree simply writes his acceptance

on a piece of paper which he keeps; or where a company resolves to allocate shares to

an applicant but doesn't inform him; or a committee resolves to appoint to

employment the applicant/offeror; or the offeree decides to buy the goods offered but

doesn't inform the offeror/seller; or the offeree communicates his acceptance only to

his own agent. However, as the main reason for the rule is said to be that it would be

unjust to hold the offeror bound if he didn't know that his offer had been accepted, it

follows that the offeror may be bound if he knows of the acceptance although it wasn't

communicated to him by the offeree (or the offeree's agent).

Despite the general requirement that communication must be brought to the

notice of the offeror, communication may be deemed to have been made in the

following circumstances:

a) where there's communication by one who is actually authorised to make it

on behalf of the offeree , and/or to one who is actually authorised to receive it on

behalf of the offeror and a fortiori where the agent is the agent of both parties; 

b) where either party is estopped from denying a good communication, as

where the offeror confers on his agent apparent authority to receive the acceptance, or

possibly where in negotiations by telephone 'it's his own fault if he did not...' actually

receive the acceptance;

c) where the offer expressly or impliedly dispenses with the requirement that

acceptance be communicated. It would seem that this requirement is merely the

inference that is ordinarily drawn from an offer; the offeror will commonly dispense

with the requirement in the case of a unilateral contract, though he won't necessarily

do so; and he may also dispense with it in the case of bilateral contracts, though there

may be difficulty where the offeree attempts to accept merely by remaining silent.

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 polices. 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 claims the rewards. His claim

failed on the grounds that the information was given to clear him and not in reliance

on the offer of reward.

ACCEPTANCE

1. Acceptance

In contract law, an acceptance of an offer is an indication, express or implied,

by the offeree made whilst the offer remains open and in the manner requested in that

offer of the offeree's willingness to be bound unconditionally to a contract with the

offeror on the terms stated in the offer.

The offer may request that the declaration by the offeree take the form of a

promise or an act: if the offer requests a promise, no contract is formed unless and

until that promise is given; and, if the offer requests an act, no contract is formed

unless and until that act is performed. Once the offer has been accepted, however, the

offeror cannot revoke the offer, and the offeree cannot withdraw the acceptance.

Where there's a lengthy course of negotiations between the parties, it could be

difficult to decide when they have reached agreement and have concluded a binding

contract. Despite the continuing negotiations, the court may be willing to find a

concluded bargain; and, if so, continuance of the negotiations thereafter won't itself

terminate that agreement, unless evincing a subsequent mutual intention to rescind

that agreement. Moreover, the court may be more willing to infer that the parties have

reached a binding contract where one party to the continuing negotiations renders

partial performance, even to the extent of giving retrospective effect in respect of that

partial performance.

2. Communication of acceptance

The general rule is that an acceptance isn't communicated until it's actually

brought to the notice of the offeror: for example, an attempted oral acceptance isn't

communicated if it's 'drowned by an aircraft flying overhead'; or if the attempted

acceptance is spoken into a telephone or sent on a teleprinter (or, it's suggested, by e-

mail) after the line has failed. Where, however, the offeror authorises acceptance by post,

acceptance may Prima facie be communicated simply by posting a properly addressed

letter of acceptance; but the offeror may instead stipulate exclusively for a defined

method of communication.

For the formation of a contract, the general rule with regard to the need for

communication of acceptance is that acceptance must in fact be communicated.

Therefore, there's no binding contract where the offeree simply writes his acceptance

on a piece of paper which he keeps; or where a company resolves to allocate shares to

an applicant but doesn't inform him; or a committee resolves to appoint to

employment the applicant/offeror; or the offeree decides to buy the goods offered but

doesn't inform the offeror/seller; or the offeree communicates his acceptance only to

his own agent. However, as the main reason for the rule is said to be that it would be

unjust to hold the offeror bound if he didn't know that his offer had been accepted, it

follows that the offeror may be bound if he knows of the acceptance although it wasn't

communicated to him by the offeree (or the offeree's agent).

Despite the general requirement that communication must be brought to the

notice of the offeror, communication may be deemed to have been made in the

following circumstances:

a) Where there's communication by one who is actually authorised to

make it on behalf of the offeree, and/or to one who is actually authorised to receive it

on behalf of the offeror; and a fortiori where the agent is the agent of both parties; 

b) Where either party is estopped from denying a good communication,as

where the offeror confers on his agent apparent authority to receive the acceptance, or

possibly where in negotiations by telephone 'it's his own fault if he did not...' actually

receive the acceptance; 

c) Where the offer expressly or impliedly dispenses with the requirement

that acceptance be communicated. It would seem that this requirement is merely the

inference that is ordinarily drawn from an offer; the offeror will commonly dispense

with the requirement in the case of a unilateral contract, though he won't necessarily

do so; and he may also dispense with it in the case of bilateral contracts, though there

may be difficulty where the offeree attempts to accept merely by remaining silent.

3. Acceptance through post

In modern times, contracts negotiated at a distance tended to be made by

correspondence exchanged through the post administered by the Post Office. Except

as stated below, all communications with respect to the formation of a contract which

are sent through the medium of the Post Office have the legal effects previously

outlined. However, where such a communication is sent through the medium of the

Post Office, there's said to be a general rule that a properly-addressed postal

acceptance is complete when the letter of acceptance is posted. Ordinarily, a letter

isn't 'posted' until it's put in a Post Office letter box. Therefore, the delivery of a letter

to a postman outside the course of his ordinary duties isn't a posting of the letter, nor

will such a letter be assumed to be in the lawful custody of the Post Office as soon as

the postman enters the office.

The following consequences are said to follow from this 'postal rule:

a) A postal revocation of an offer only takes effect on receipt, provided that

the revocation is communicated, so that an acceptance posted at any time before that

receipt prevails;

b) a postal acceptance takes effect on posting even though accidentally lost or

delayed in the post; and

c) A postal acceptance of an offer relating to title of goods takes effect in

priority to another contract affecting the same subject-matter but made after posting of

the first acceptance.

This analysis leaves undecided two questions, namely the operative time and

effect of a revocation of postal acceptance and of a postal rejection of an offer. What's

more, there are special complications which may arise in the case of communications

by international telegram and international sales. From these postal communications

must be distinguished instantaneous communications.

4. Revocation of proposal

An offer may generally be revoked at any time before it has been accepted,

provided that the revocation is communicated to the offeree. This is so even though

the offeror has indicated that he will keep his offer open for a specified time. Where,

however, the offeror has contracted to keep his offer open, revocation of that offer

will amount to a breach of the contract of option. An offer can't be revoked after

acceptance.

An unaccepted offer will be revoked when the offeror (or his agent)

communicates to the offeree, in any manner, his unequivocal intention to revoke the

offer either expressly or impliedly. However, an offer may also be revoked without

such a direct communication by the offeror to the offeree. First, where an offer is

made to the entire world, it could be revoked by giving the same notoriety to the

revocation regarding the offer. Secondly, any offer will be revoked where the offeree

receives reliable information from any third person that the offeror no longer intends

to contract with him. Thirdly, whilst an offer normally can't be revoked merely by the

offeror acting inconsistently with it, it can be brought to an end by a terminating

condition. Fourthly, where an offer is made to a large organisation, it could be that the

offer is revoked when that revocation is opened in the ordinary course of business.

Fifthly, the offeree may be estopped from denying receipt of revocation.

An offer to enter into a unilateral contract is generally subject to all the above

rules; it could be revoked at any time before the offeree commences the requested act

of acceptance and it can't be revoked after the offeree has completed that act. The

position is more doubtful, however, where the offeree has commenced but not

completed the requested act of acceptance at the time when the offeror attempts to

revoke. On one view, the offer remains revocable until the requested act has been

completed; on a second view, the offeror becomes bound once the offeree

unequivocally commences performance, either because that commencement

constitutes an acceptance (though not a performance), or because there's an implied

collateral contract to keep the offer open; whereas on a third view, there's an implied

promise to pay on a Quantum Meruit basis for the proportion of the requested act

completed at the time of revocation.

5. Revocation of acceptance

The general rule is that acceptance must be communicated to the offeror

before its effective. Leaving aside acceptance sent by post, it follows that, Prima

facie, the offeree may revoke his acceptance at any time before it's communicated to

the offeror; but there are some exceptional cases. First, where the offeror of a bilateral

contract expressly or impliedly dispenses with communication of acceptance, there

can be no question of revocation of acceptance. Secondly, where the offeror of a

unilateral contract exceptionally requires communication of acceptance; the issue of

revocation of acceptance may be relevant where he 'offers' an act in return for a

promise in so far as that promise may under the general rule be revoked before it's

communicated; but where he offers a promise in return for an act, the rules for

revocation of acceptance are irrelevant because the offeree will never make any

promise.

CONSIDERATION

1. Consideration

Consideration means each party to the contract must receive something of value. Section 26

of the Contracts Act 1950 provides that, as general rule, an agreement without consideration

is void. The word ‘consideration’ is defined in Section 2(d) of the said Act as follows:

When, at the desire of the promisor, the promise or any other person has done or

abstained from doing, or does or abstains from doing, or promises to do or to abstain

from doing, something, such act or abstinence or promise is called a consideration for the

promise.

This is best illustrated by an example: suppose I promise to give you my watch, but you don’t

give me anything in return. If I break my promise and keep my watch, you can’t then go to

court and make me give it to you. The contract isn’t legally binding: you didn’t give me any

consideration for my promise.

So put simply, consideration is the price paid for the other’s promise.

There are four legal maxims that apply to consideration:

1) Consideration must move from the promisor;

2) Consideration need not move to the promisee;

3) Past consideration is not good consideration;

4) The consideration given must be sufficient, but it need not be adequate.

The detail isn’t necessary here, but there is a separate note on them if you’re interested.

2. Provision of Consideration

It can be implied from Section 2(d) of the Contracts Act 1950 that consideration may move

from a person who is not the promise. It may move from ‘the promise or any other person’.

3. Consideration need not be adequate

For consideration to be good consideration, it must be of some value, even if it is minimal

value. There is no requirement that the consideration be commensurate in economic terms to

the original promise.

Nominal consideration will suffice as good consideration for a contract, Courts will not

measure the adequacy of the consideration as it is up to the parties to decide the subjective

worth of each promise.

4. Past Consideration is a Good Consideration

A promise cannot be based upon consideration that was provided before the promise was

made. For example, if X promises to reward Y for an act that Y had already performed, the

performance of that act, while good consideration for the promise to be rewarded for it, is

past consideration and therefore not good consideration.

In Eastwood v Kenyon, the guardian of a young girl raised a loan to educate the girl and to

improve her marriage prospects. After her marriage, her husband promised to pay off the

loan. It was held that the guardian could not enforce the promise as taking out the loan to

raise and educate the girl was past consideration, because it was completed before the

husband promised to repay it.

Furthermore, where a contract exists between two parties and one party, subsequent to

formation, promises to confer an additional benefit on the other party to the contract, that

promise is not binding because the promisee's consideration, which is his entry into the

original contract, had already been completed (or "used") at the time the next promise is

made.

In Roscorla v Thomas, Roscorla and Thomas contracted to buy a horse for £30. After the

sale, Thomas promised Roscorla that the horse was sound; the horse turned out to be vicious.

It was held that Roscorla could not enforce the promise, as the consideration given for

entering into the contract to buy the horse had been completed by the time the promise was

made; in a sense, the consideration was "used up".

The rule that past consideration is not good consideration is subject to the exception

discussed by the Privy Council in Pao On v Lau Yiu Long (1980) AC 614. In that case, their

Lordships held that past consideration can be good consideration where:

1. The promisee performed the original act at the request of the promisor;

2. It was clearly understood or implied between the parties that the promisee would be

rewarded for the performance of the act;

3. The actual promise made, if made before the promisee provided the consideration,

must be capable of being enforced, in other words giving rise to a legally binding

contract.

5. An Agreement on Account of Natural Love and Affection, Section 26(a)

The validity of this agreement is dependent upon the following conditions, viz.

a) It is expressed in writing which may be in any reasonable form,

b) It must be registered where a law exists requiring such registration, and

c) It is made on account of 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 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.

6. An Agreement to Pay a Statue-Barred Debt, Section 26(c)

A statue-barred debt refers to a debt which cannot be recovered through legal action

because of a lapse of time fixed by law. The time within which a party must commence

legal action to enforce its rights is limited by statue. Such a law is intended to protect a

party from being compelled to defend a legal action brought against it after an

unnecessarily long period of time. To allow otherwise could lead to a level of injustice

on the party sued, because it may not be able to conduct a proper defence on account of

circumstances such as the loss of evidence, inability to remember crucial facts and even

death of witnesses.

The time limit for an action in contract under the Limitation Ordinance 1953

applicable to Peninsular Malaysia is 6 years from the time of the cause of action arises.

This is usually calculated from the moment of the breach of contract. Where more than 6

years have elapsed from the cause of action, the action is ‘statue-barred’, the aggrieved

party cannot sue. Section 26(c) creates an exception to this rule but subject to several

conditions;

a) The debtor made a fresh promise to pay the statue-barred debt. For example a

promise to this effect, ‘I know I still owe you $400 which I borrowed 7 years ago. I

shall pay within two months’.

b) The promise is in writing and signed by the person to be charged or his

authorized agent in that behalf.

Illustration (e) to section 26 provides:

Abu owes Badrul $1000, but the debt is barred by limitation. Abu signs a written

promise to pay Badrul $500 on account of the debt. This is a contract.

There is distinction between an acknowledgement of statue-barred debt under section 26

of the Limitation Ordinance and a promise to pay within section 26(c). If a debtor should

make a written acknowledgment of a debt after the statue has run, the debt itself is said to

be revived and a new period of limitation begins to run. In contrast, a promise to pay

statue-barred debt creates an independent cause of action without consideration and not a

revival of the original debt. This also implies that the promisor will only liable according

to the terms and conditions of the fresh promise. Consequently, where the promise is to

pay previous debt by monthly installments although the amount was due as lump sum,

the promisor is only liable to pay by monthly instalments.

INTENTION TO CREATE LEGAL RELATIONS

1. Intention to Create Legal Relations

One of the essential elements in the creation of a binding contract, this intention is implied by

the fact that it is not expressly denied. If expressly denied (as in a so-called gentlemen's

agreement) the contract may not be enforceable.

Clarke and Tucker v Tucker   (1961) 4 W.I.R. 44  

An agreement, though supported by consideration, is not binding as a contract if it

was made without any intention of creating legal relations.

The requirement of intention to create legal relations in contract law is aimed at

sifting out cases which are not really appropriate for court action. Not every agreement leads

to a binding contract which can be enforced through the courts. For example you may have

an agreement to meet a friend at a pub. You may have a moral duty to honour that agreement

but not a legal duty to do so. This is because in general the parties to such agreements do not

intend to be legally bound and the law seeks to mirror the party's wishes. In order to

determine which agreements are legally binding and subject to an intention to create legal

relations, the law draws a distinction between social and domestic

agreements and agreements made in a commercial context.

2. The Need for Intention to Create Legal Relations in Contract Law

An agreement supported by consideration is not enough to create a legally binding contract,

the parties must also have an intention to create legal relations. Often, the intention to

create legal relations is expressly stated by the contracting parties. In other situations, the

law will readily imply the intention, because of the nature of the commercial dealings

between the parties.

The presence of consideration is often indicative of the intention to create legal relations,

though there are situations where the presumption of the intention can be rebutted, thus

determining that there is no contract and no legal liability.

In many domestic agreements, for example those made between husbands and wives and

parents and children, there is no intention to create legal relations and no intention that the

agreement should be subject to litigation. Familial relationships do not preclude the

formation of a binding contract, though to create contractual relations, there must be a

clear intention on either party to be bound.

While there are conflicting legal authorities on whether specific facts involving familial

relations result in binding and enforceable agreements, it seems settled that in domestic

agreements there is a rebuttable presumption that the parties do not have intention to

create legal relations.

In commercial agreements, there is a rebuttable presumption that parties intend to create

legal relations and conclude a contract. In determining whether parties have created legal

relations, courts will look at the intentions of the parties. If in the course of business

transactions, the parties clearly and expressly make an agreement stating that it ought not

be binding in law, then a court will uphold those wishes. However, if a court is of the view

that there is any ambiguity of intention, or that such intention is unilateral, such contract

will be voided. The burden of rebutting the presumption of legal relations in commercial

agreements lies on the party seeking to deny the contract. In terms of commercial contracts

involving large sums of money, case law has determined that it is a heavy burden.

It has been decided in the UK, which so called “Letters of Comfort”, which express a parties

intention on business dealings can amount to an intention to create legal relations and so

bind a party in contract, but that it will depend on the nature of the specific wording used.

Agreements between companies and trade unions have also raised the question of the

intention to create legal relations. Collective agreements are generally not intended to be

legally binding. It has been held that specific provisions of collective agreements can be

incorporated into individual contracts of employment and thus legally binding.

The intention to create legal relations is an essential feature of contract law, and the

existence of the intention will depend on the nature and form of the contract and the

contracting parties.

From the reading guide that there are four areas dealt with:

1) In ordinary commercial contracts, there is a strong presumption that intention is present. It

is possible to displace this presumption, but it is very difficult to do so.

2) In domestic and family arrangements there is a weak presumption that there is no intention

to create legal relations. This presumption can be easily displaced.

3) Certain types of government arrangements, of which the wool subsidy scheme in

the Australian Woollen Mills case is an example, do not generate contractual relations. But,

of course, ordinary government contracts are just contracts in the usual sense.

4) There is a bit of a problem in analysing what goes on when a club or other voluntary

association makes a contract. A voluntary association which has not incorporated is not a

legal entity. It is a collection of individuals. There are problems of contractual analysis when

this collection of individuals deals with the outside world and when they make rules for the

conduct of their own, joint enterprise.

CERTAINTY

If the terms of the contract are uncertain or incomplete, the parties cannot have reached an

agreement in the eyes of the law. An agreement to agree does not constitute a contract, and an

inability to agree on key issues, which may include such things as price or safety, may cause

the entire contract to fail. However, a court will attempt to give effect to commercial

contracts where possible, by construing a reasonable construction of the contract.

Courts may also look to external standards, which are either mentioned explicitly in

the contract or implied by common practice in a certain field. In addition, the court may also

imply a term; if price is excluded, the court may imply a reasonable price, with the exception

of land, and second-hand goods, which are unique.

If there are uncertain or incomplete clauses in the contract and all options in resolving

its true meaning have failed, it may be possible to sever and void just those affected clauses if

the contract includes a severability clause. The test of whether a clause is severable is an

objective test, whether a reasonable person would see the contract standing even without the

clauses.

For example, if Daniel agrees to sell to Mariam a hundred crates of vase without

specifying what kind they are, such an agreement is void on the grounds of uncertainty.

In Karuppan Chetty v. Suah Thian (1916) 1 F.M.S.L.R. 300, the contract was declared

void for uncertainty because the parties agreed to a lease of $35 per month ‘for as long as he

likes’.

The court is often in an unenviable position when it is called upon to construe an

agreement whose terms are somewhat uncertain. On the other hand, it does not wish to

impose terms not intended by the parties and on the other, it tries to imply certain terms to

uphold a loosely worded agreement, bearing in mind that people do not always work out the

terms of their agreements in meticulous detail.

CAPACITY

After the offer, acceptance, consideration, intention to create legal relations and certainty

have been established to firm up a contract, the next element of a contract is the  capacity to

contract.

1. Capacity

Under section 11 of the Contracts Act 1950 read: 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.

However, there are some exceptions to this rule:

a) Contracts for necessities

b) Contracts of scholarship

c) Contracts of insurance

All sane and sober adults can form contracts, but there are laws to protect people

from being exploited in contract situations.

Contracts are not legally binding for:  

minors

people with mental disability

people with impaired judgment

o illness

o disability

o hypnosis

o alcohol/drugs

The intent is to protect individuals who may not have the ability to make decisions in

their own best interest. Across Canada the age of majority varies. In Saskatchewan it is 18. In

the other Canadian provinces and territories it varies between 18 and 19 years of age.

a) Contract for Necessities

An exception to this rule is for the necessities of life (food, clothing, shelter). In such

cases a contract with a minor can be enforced or businesses would not want to deal with

minors. There are times when a good or service is necessary for a minor to have.

A teenager may need to rent or purchase a tuxedo to attend his

graduation or to be a groomsman at a family wedding. Normally

teens do not have need for a tuxedo. The business should enter

into contract with the teenager because of the social need.

Just like for a adult, with contracts for necessities, a minor may not be forced to pay

the contract price if it is not in their best interest. A "reasonable" exchange must occur.

For example if Shereen purchases athletic shoes for $120 at one store, then sees them

selling for $90 at another store, the store of purchase should match the better price.

Legally in this case Shereen has the same right to "reasonable" price as an adult.

People with Disability or Impaired Judgment are treated much the same as minors,

through protection. As with minors, people with impaired judgement are obligated to pay

only a "reasonable" price for necessaries.

CONTENT

 

NO ITEMS PAGE

1. INTRODUCTION ELEMENT OF CONTRACT 1

2. OFFER 2-6

3. ACCEPTANCE 7-11

4. CONSIDERATION 12-15

5. INTENTION TO CREAT LEGAL RELATION 16-18

6. CERTAINTY 19

7. LEGAL CAPACITY 20-22