ELEMENTS OF LAW OF CONTRACTS Offer In order to determine whether in any given case, it is reasonable to infer the existence of an agreement,

it has long been usual to employ the language of offer and acceptance. In other words, the court examines all the circumstances to see if the one party may be assumed to have made a firm offer and if the other may likewise be taken to have accepted that offer. The complementary ideas present a convenient method of analyzing a situation, provided that they not applied too literally and that facts are not sacrificed to phrases. It must be emphasized however that there are cases where the courts will certainty hold that there is a contract even though it is difficult or impossible to analyze the transaction in terms of offer and acceptance. An offer, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound provided that certain specified terms are accepted. The offerer must have completed his share in the information of a contract by finally declaring his readiness to undertake an obligation upon certain condition, leaving to the offerer the option of acceptance or refusal. He must not merely have been feeling his way towards an agreement, not merely initiating negotiating from which an agreement might or might not in time result. He must be prepared to implement his promise, if such is the wish of the party. The distinction is sometimes expressed in judicial language by the contrast of an offer with that of an invitation to treat. Section 2(a) of the Contracts Act 1950 relates to offer and is as follows: 2(a) when one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal; The person making the proposal is called the promisor while the person accepting the proposal is called the promisee : s 2(c). Consequently, the promisor will be referred to as the offeror while the person to whom it is addressed, the promisee, will be referred to as the offeree . An offer or proposal is necessary for the formation of an agreement. Section 2 (a) of the contract act 1950 provides that 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 the act or abstinence, he said to make a proposal. A proposal must be define promise to be bound provided certain specified terms are accepted. The promisor (also known as the offeror ) must have declared his readiness to undertake an obligation upon certain terms, leaving the option of its acceptance or refusal to the offeree, the person to whom the offer is made. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made Section 4 (1) of the contract act 19501

The communication of an offer or a proposal is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal or which has the effect of such communication Section 3 of the contracts act 19502 A proposal made in words (oral or written) is said to be expressed. If a proposal is made other than in words (e.g. by conduct), it is said to be implied (section 9 of the contract act 1950). An offer should be contrasted with an option an advertisement. An option is merely an undertaking to keep the offer open for a certain period of time. The purpose of an option is usually to give the offeree time to consider whether he in fact wishes to buy the item under consideration, or to give him time to raise the necessary finance. An option arises when the offeror promises to keep the offer open for a specified period. CARLILL V CARBOLIC SMOKE BALL CO.LTD [1893] 1 QB 256 Facts: Carbolic Smoke Ball Co. Ltd advertised that they would offer 1000 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 1000 as she had accepted the offer made to the world at large. Thus, an offer must be distinguished from an invitation to treat. An invitation to treat is not an offer, but rather is an offer to consider offers. Instances which are generally regarded as invitations to treat included: y y y y y Auctions; Advertisement of tenders; Catalogues; Price lists; and Goods displayed in shop windows and shelves.

Rules Pertaining To Offer There are several rules pertaining to the operation of offer. These include the following: 1. Offer must be communicated to the offeree; a person other than the offeree cannot accept the offer In line with the sommon law position, an offer is effective only when it is communicated to the offeree: s 4(1) of the Contracts Act 1950.On the face of it, the rules appears superflous. However, the point of the rule is that if an offer is not
2

communicated to the offeree the purported acceptance of the offer by the latter is not an acceptance in law. Unless the offer is brought to the notice of the offeree there is no question of his accepting it and therefore a contract cannot come into existence.This rule fortifies the basic principle of contract law that a contract can come into existance only by voluntary consent or assent of the parties thereto and not by sheer accident or coincidence. For example, assumes A loses his cat and offers a reward Rm100 to any person who finds and returns it. The offer displayed on a supermarket notice board. B does not read the notice. He finds A cat and returns to him. After the return B reads the notice and demands the Rm100 from A. A refuse to pay. There is nothing in law that B can do as there is no contract between him and A. This is because B accepts the offer (by finding A cat and return it), he had no knowledge of the offer of the reward and was, therefore, not responding by reference to the offer. 2. Offer and acceptance must correspond-consensus ad idem Agreement in the basis of contract. For agreement to be manifested between two or more persons there must be meeting of minds- consensus ad idem. This consensus is reached by the offeree accepting the offeror s offer on the same terms as stated in the offer. If the purported acceptance is in different terms from those stipulated in the offer, a contract would not come into existance because there would be no consensus-no meeting in minds-between the parties. This often happens when parties make a mutual mistake as to the other intention. The parties are said to be at cross purposed and, as consent is negative, a contract cannot come into existence. In these circumstances, it is arguable if there is any consensus at all even if there is consensus, it would nullify the consent if the mistake goes to the basis of the transaction, An example of this is to be found in the case of Raffles v Wichelhaus (1964) H & C 906. In this case, a contract was made to buy certain cargo on called the Peerless sailing out of Bombay. However, unknown to both parties, there were two ships by the same name sailing out of Bombay, though on different dates. The plaintiff intended to sell the cargo form the other. The plaintiff s action, therefore, failed. The requirement of consensus , however, may have to be considered in the context section 4 of the Contracts Act which states the rules as to when communication of acceptance is complete different points of time being prescribed for the completion as against the offeror and the offerece.

3. Offer must be distinguished from an option An offer must also be distinguished from an option (sometimes reffered to as an option contract). An option is a legal device which commits the offeror to keep his or her offer open for a specified time in return for a price (consideration). As the transaction is supported by consideration, the agreement to keep open the offer for the specified period is itself a contract. Consequently, the disposal of the subject

matter of the option by the offeror to another person within the period specified in the option would amount to a breach of the option contract. For example, on 1 Aug A makes an offer to B to sell his car for RM30,000, such offer to be open for ten days from the date of the offer, provided B agrees to pay RM10, B agrees. On 6 Aug A sells the car to C and inform B of the sale. This would be a breach of the option contract and B would have a cause of action against A. 4. Offer may be revoked at will before acceptance An offer may be revoked by the offeror,that is, withdrawn, at will at any time before the offeree accepts. This is obvious as, although an offer confers the power on the offeree to convert the offer into a contract by proper acceptance, there are no legal consequences merely at the stage of an offer. The case of Routledge v Grant, below, illustrates the point Routledge v Grant (1828) 4 Bing 653 Facts: Grant offered to purchase a house of Routledge. He gave Routledge 6 weeks in which to decide on the offer. Before the 6 weeks were up, Grant withdrew his offer Held: Grant was entitled to withdraw his offer. As offeror can withdraw an offer at any time before it is accepted. It is true that the defendant in the above gave plaintiff 6 weeks to think about the offer that is, to keep the offer open for 6 weeks. However, this is a bare option and does not bind the offeror. If the plaintiff wanted to bind the defendant to 6 week period,. In the latter case, it would be an option contract . Otherwise, the rule is that an offer may be revoked at any time before the offeree accepts. Once the offeree accepts, of course, a contract will result and it would be too late for the offeror to withdrawn, as there would then be no outstanding offer such as to withdraw. 5. Offer must be distinguished from preliminary negotiations In the course of negotiations parties make all sorts of statements to each other. Not all of these can be taken as a proper offer that can be accepted to bring about a contract.an offer must be distinguished , for instance, from a mere supply of information. The respondent refused to through with the sale. The appellant sued. Held: There was no contract. The second telegram was not an offer, merely a supply of information the price at which the respondent might be prepared to deal if he were made an appropriate offer. Consequently, the third telegram was not an acceptance but an offer to buy. That offer was never accepted and, thus, there was no contract.

6. Offer must be distinguished from an invitation to treat

An invitation to treat, is an invitation to make an offer, negotiate or deal and hence has no legal consequences and cannot be accepted to bring about a contract. An offer must be distinguished from an invitation to treat. As already explained above, an offer is capable of being accepted by the offeree, thereby bringing about contractual relation between the parties. An invitation to treat, on the other hand, is an invitation to make an offer, negotiate or deal and, hence has no legal consequences and cannot be accepted to bring about a contract. The question whether a statement is an offer or merely an invitation to treat, falling short of an offer, is sometimes difficult to decide. All the circumstances of the case have to be considered to see whether there is a definite intention of the party making the statement and how a reasonable person to who the statement is made, perceives it. Several contexts are ordinary taken as mere invitations to treat, unless there is strong evidence to the contrary. Of these, the following may be noted. Goods on display Generally, goods on display are with or without price tags, are not offers but merely invitations to treat. The customer is the offeror. For example, if A want to buy an item displayed in the shop, he makes the offer to purchase, and the shopkeeper becomes the offeree, who has the option of accepting or rejecting A s offer. The displayed item is not an offer by the shop to sell all the market price or to sell at all, and consequently cannot be accepted by an potential customer. The point arose in the case of Pharmaceutical Society, which followers. Though this is a criminal case, court had to resort to contract law principles to resolve the liability. Advertisements Likewise, advertisements for sale in newspaper and the magazines and price list sent out circular and catalogues are usually mere invitations to treat and not offers. The following cases illustrate the point. Fisher v Bell (1961) 1 QB 394 Facts: The offering for sale of such weapons was prohibited by the Offensive Weapons Act 1939 (UK). He was charged with offering for sale the offending weapon under Act. Held: He was not guilty as he had not offered the knife for sale as the display was merely an invitation to treat and not an offer. Application for shares

An invitation to purchases share, until trust or other securities based on a prospectus, is not an offer. The applicant for the shares is the offeror and the company is the offeree. Upon an allotment of shares to the applicant the comp[any said to accept the offer to purchase. This again is the more sensible course, since companies issue a limited number of shares or other securities and if they are oversubscribed, it would be impossible for the company to allot them to all applicants,. If a prospectus is treated as an offer then each applicant for securities would be an acceptance bringing about a contract and this would place the company in an impossible position. Tenders Is a call for person to put in offers to do something or supply goods. A tender is merely an invitation to treat and not to offer. In Spencer v Harding (1870) LR 5 CP 561, for instance, a circular sent out by the defendants to the effect that they were instructed to offer to the wholesale trade for sale by tender some stock-in trade, was held by the court to be merely a declaration of intention to deal and not an offer. Assume that a university wants to put up a new building. The university would then advertise for suitable qualified builders to send in their tenders (offers). The university would then examine theses tenders and decide whether to accept any of them. Upon acceptance of, say the tenders by ABC Co Ltd, A contract would come into existence. This is an instance of a tender to do a single thing, namely to put up a building. The tender then is a single offer that is converted into a contract by acceptance. Termination of Offer An offer, once made, does not last forever. It may be revoked or come to an end by one of the following ways: 1. Acceptance It is not surprising that the Act does not refer to the termination of an offer by acceptance as this is obvious. Upon the ofer being accepted by the offeree, a contract comes into existences. Hence, it is said that the offer is at an end. Thus,an offer which is met by a valid acceptance would have the consequence that there is no longer offer as such, it having merged with acceptance to result in a contract. For example, if A offer to sell his car to B for RM100,000 and B accepts, there is a contract and the separate issues of offer and acceptance disappear and are usually no longer relevant. This way of an offer coming to an end is perhaps to state the obvious. However, there may be complications when an offer is made simultaneously to more than one offeree. 2. Rejection

If an offer is rejected,it comes to an end. For example, A offers to sell his car to B, B indicates to A that he does not want to buy the car. This is direct refusal, a rejection of the offer. Once an offer is rejected, it is destroyed forever and cannot be revived as such. It is of course entirely open to A to make fresh offer or repeat his offer. In any case, the repeated offer, though exactly on the same terms as the earlier offer, is not a revival of the first offer, but a new one. Once an offer is rejected,it is destroyed foreverand cannot be revived as such.There is no way the offeree can change his mind and try to accept the offer , since, at the point in time, there is no subsisting offer which can be accepted. 3. Revocation Section 5 and 6 of the Contracts Act contain provision relating to the revocation of an offer. Section 5(1) states; A proposal may be revoked at any time before the communication of its acceptance is complete as against the acceptor, but not afterwards. Section 6 deals with revocation and sets out four specific circumstances under which an offer ( proposal ) comes to an end, and these are; y y by the communication of notice of revocation by the offeror to the offeree; by the lapse of time prescribed in the offer for its acceptance, or if no time is prescribed, by the lapse of a reasonable time, without communication of the acceptance; by the failure of the offeree to fulfill a condition precedent to acceptance; or by the death or mental disorder of the offeror, if the fact of his death or mental disorder comes to the knowledge of the offeree before acceptance.

y y

4. Lapse An offer, once made, does not go on forever even if it is not revoked. It may lapse by the passage of time. If an offer is expressed to be open for a limited period of time, the offer will lapse at the expiry of the stipulated time. If no time is stipulated, it will lapse within a reasonable time. The question as to what is a reasonable time is one of fact for the court to decide in case of dispute, having regard to all the circumstances of the particular case. Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR I Exch 109 Facts: Montefiore applied for shares in the plaintiff company in June. He heard nothing until November when the company informed him that shares had been allotted and that the balance subscription money, alleging that his offer to buy had lapsed through expiry of time. Held:

In the circumstances, his refusal to accept the allotment was justified. As an acceptance of his offer, the notification was too late; the delay of some five months between the offer must be accepted, they must be accepted within a reasonable time.

Acceptance Proof of an offer to enter into legal relations upon definite terms must be followed by the production of evidence from which the courts may infer an intention by the offerer to accept that offer. It must again be emphasized that the phrase offer and acceptance though hallowed by a century and a half of judicial usage is not to be applied as a talisman, revealing by a species of esoteric art the presence of a contract. It would be ludicrous to suppose that business couch their communication in the form of a catechism or reduce their negotiations to such a species of interrogatory as was formulated in the Roman stipulation. The rules which the judges have elaborated from the premise of offer and acceptance are neither the rigid deductions of logic nor the inspiration of natural justice. Section 2 (b) of the contract act 1950 provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to have been accepted. A proposal, when accepted, when accepted, becomes a promise. Section 2 (c) of the Contract Act 1950 calls the person accepting the proposal the promisee . Section 9 of the said Act provides that so far the acceptance of any promise is made in words, the acceptance is said to be implied. For a proposal to be converted into a promise, the acceptance of that proposal must be absolute and unqualified. This is provided for in section 7 of the Contract Act 1950 which reads: Acceptance must be absolute. (7). In order to convert a proposal into a promise the acceptance must(a) Be absolute and unqualified; (b) Be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in that 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. LOW KAR YITT & ORS V MOHAMED ISA & ANOR [1963] MLJ 165 Facts: The defendants gave an option to the agent of the plaintiff to buy a price of land subject to (1) a formal contract to be drawn up and agreed upon by the parties, and (2) the approval of the sale and of the said contract by the High Court at Kuala Lumpur. The plaintiffs agent duly exercised the option and, on the defendants failing to sign the agreement of sale, the plaintiffs instituted the present proceedings for specific performance or damages for breach of contract. Held: 1. On the construction of the document sued upon, the option was conditional upon and subject to a formal contract to be drawn up and agreed upon between the parties, so that the exercise of the option amounted to nothing more than an agreement to enter into an agreement.

2. Accordingly, there was no concluded contract between the parties. Revocation of offer and acceptance 1. Communication of the notice of revocation by the proposer to the party to whom the proposal was made. 2. The time prescribed in the proposal for its acceptance elapses, or if no time is prescribed for acceptance by the lapse of a reasonable time. 3. The failure of the acceptor to fulfil a condition precedent to an acceptance. 4. The death or mental disorder of the proposer if the fact of the proposer s death or mental disorder comes to the knowledge of the acceptor before acceptance.

Elements Of Acceptance Is the exercise of this power by the offeree indicating his assent to the transaction in response to the offer. In as much as the transaction is to bring about binding obligation between the parties, there must be proper acceptance of the offer. Before there is an acceptance in law, there must be both the fact of acceptance as well as communication of such acceptance. Further, only the person to whom the offer is made may accept; section 2(b) of the Contracts Act 1950. The main rules as to acceptance are to be found in section 2,4,5,7 and 8 of the Contracts Act. Fact of acceptance There are 2 element of acceptance; its must be complete and unqualified: section 7; and it must be in reliance of the offer: this common law rule is apparent from section 2(a) and (b) and section 10(1). The relevant parts of these provisions are as follows: 2 (a) when one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal: 2 (b) 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; 7. In order to convert a proposal into the promise the acceptance must a) be absolute and unqualified; b) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in that 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. 10 (1) All agreements are contacts if they are made by the free consent of parties competent to contract

Acceptance must be complete and unqualified In order to bring about a concluded contract must be established that the offer has been accepted as a matter of fact. This means that there must be a complete and unqualified acceptance in terms of the offer. A purported acceptance in terms different from those stipulated in the offer would not be an acceptance in law and may amount to an counter offer. For example, if A offers to sell his car to B and B responds by saying he will take the car more cheaper, B is not making an acceptance in terms of the offer. B is in fact making a counter-offer which has the legal effect of destroying the original offer. Acceptance must be made in reliance on the offer The common law rule is that an acceptance, to be valid, must be made in reliance on the offer. The cumulative effect of Section 2(a) and (b) and 10 (1) of the Contract Act appears to be the statutory recognition of the rule. In as much as the basis of contract is the voluntary consent of parties and consensus, a contract cannot come into existence by mere accident or coincidence. That is, a contract cannot come into existence just because factually the offer and acceptance see, to correspond. The acceptance must relate to the offer. Consequently, if the offeree has no prior knowledge of the offer there is no way her or she can accept by merely doing what is required by the offer. Communication must be acceptance Communication is effective only if made by an authorised person. y Cases : Powell V Lee (1908) - The claimant was notified that his job application had been successful by a member of an appointment board which then decided to give the job to someone else.

Acceptance may be communicated by speech, writing or conduct. y Cases : Entores Ltd V Miles Far East Corp. (1955, CA) - The court of Appeal made it clear that acceptance by telex should be treated like acceptance by telephone: instantaneous and effective on being received.

Communication by post. Communication by post is an exception to the usual communication rule. In the nineteenth and early twentieth centuries the only method of communication for parties contracting at a distance from each other was the post. y Cases : Adams V Lindsell (1818) - It was held that once a letter of acceptance is posted, a contract comes into existence immediately.

The offeror cannot waive the communication rule. Offerors cannot bind offerees by saying that they will assume acceptance unless the offerees tell them differently. The communication rule ensures that an offerees is not pressurised into acceptance.3 The offeror may expressly require a particular method of communication. The court will usually be prepared to treat any reasonable method of communication as effective. Where no mode is specifically requested, the mode of offer and the nature of the subject matter of the contract may indicate suitable methods of response. Several rules may be posited for an effective acceptance to occur. These include: y The acceptance must be manifest Acceptance must be indicated either by words or conduct or a combination of both. Section 2(a) of the Contract Act makes it clear that communication of acceptance is a requirement in contract as it states that an offer is said to be accepted when the offeree signifies his assent to the offer. Consequently, like the common law position, a mere mental resolve on the part of the offeree is insufficient. y The offeror stipulating that silence will amount to acceptance; Similarly, the offeror cannot impose terms on the offeree or stipulate that silence will amount to acceptance. For example, A cannot make an offer to B and stipulate that if A does not hear from B within seven days he would take it that B has accepted his offer. This rule significant in that it precludes parties from making self-serving contracts. The offeror prescribing manner of acceptance Under section 7(b) of the Contracts Act, an acceptance must be expressed in usual and reasonable manner. What is usual and reasonable would be a question of fact depending on the circumstances of a particular case. Sometimes, when making the offer, may prescribes the manner in which he requires it to be accepted. The offeror waiving right to communication of acceptance The general rule is that acceptance must be actually communicated to the offeror by the offeree or his duty authorized agent. The Contracts Act does not mention anything especially about waiver of communication of acceptance. However, in as much as parties can contract out of the Act, it is possible for the offeree to waive the necessity of communication of acceptance. In some compelling circumstances the courts may hold that the need for communication has been waived by the offeror. The acceptance must be communicated by offeree The acceptance must be signified by the offeree: section2(b) of the Contracts Act. It follows that a duty authorized agents of the offeree may signify such acceptance on behalf of the offeree. This is important as no unauthorized third party purported acceptance can be valid to bring about a contract.

1 .Pages 57, Third Edition By Alix Adams (Law for Business Student) BLUE (azman)

The acceptance effective from the moment of actual communication It may sometimes be necessary to ascertain where a contract is made for jurisdiction purposes, and this may pose a problem where a mode of instantaneous communication is adopted by the parties. There are no specific provisions in the Contracts Act on instantaneous communication. Hence, reliance must be placed on the general provision of the Act as well as common law principles.

Intention to create legal relations Although the Contract Act 1950 is silent on the intention to create legal relations as one of the requirement of a valid contract, case law clearly dictates the necessity for this requirement. There are, however, cases where no intention to enter into legal relations can be imputed. Example Cases: y Concession made in the course of business negotiations Yap Eng Thong & Anor V Faber Union Ltd [1973] 1 MLJ 191, where there was a subject to contract' clause in the agreement, it was held that there were no valid contract.

In domestic arrangements there is a presumptions against the existence on an intention to create legal relations whilst on commercial arrangements the rebuttable presumptions that legal relationships are intended Esso Petroleum Co Ltd V Customs Excise Commissioner. Generally, it is up to the courts to ascertain the intention of the parties from the language used and the context in which it was used. The question now to be discussed is whether a contract necessarily results once the court has ruled that parties must be taken to have made an agreement and that it is supported by consideration. This conclusion is commonly denied. The law it is said, does not proclaim the existence of a contract merely because of the presence of mutual promise. Agreement are made every day in domestic and in social life, where the parties do not intend to invoke the assistance of the courts should the engagement not be honoured. To offer a friend a meal is not to invite litigation. It is therefore contended that, in addition to the phenomena of agreement and the presence of consideration, a third contractual element is required, the intention of the parties to create legal relation. The cases in which a contract is denied on the ground that there is no intention to involve legal liability may be divided into two classes. On the one hand there are social, family or other domestic agreements, where the presence or absence of an intention to create legal relations depends upon the inference to be drawn by the court from the language used by the parties and the circumstances in which they use it. On the other hand there are commercial agreements where this intention is presumed and must be rebutted by the party seeking to deny it. The common law position that, even if the elements offer, acceptance and consideration are present, the transaction might still not be an enforceable agreement if the parties did not have the intention to be legally bound. Usually when parties negotiate a contract there is no express reference to the parties intention. In case dispute, the courts use the objective test to construe the words and conduct of the parties to ascertain the position. A contract cannot come into existence if the circumstances of the case indicate that there is no intention to be legally bound.The basic principle is that in the case of commercial transaction there is a proving otherwise is on the party who asserts the contrary.

One of the basic rules underlying the exposition and application of contract law is that effect is to be given to the presumed intention of the parties to the contract that is, the common intention of the parties viewed objectively, their actual irrelevant. In other word, what is significant are outward appearances . The test of intention then is the view of the hypothetical reasonable person as to what the parties intended. Where the contract is said to be formed through correspondence, the courts will view the entire correspondence to ascertain whether all the elements, including intention, are complied with. The question is essentially one of fact, to be decided on the circumstances of a particular case. The court are guided by two presumptions : i. Domestic and social agreements : The court believe that the family member do not generally intend agreement such as mutual convenience and legally enforceable. Cases : Merrit v Merrit (1919, CA) A contractual relationship was held to arise from a post-separation maintenance agreement. ii. Business agreements : The global business, an explicit indication of lack of intention to create legal relations is generally necessary. Cases : Rose & Frank Co. v J R Crompton & Bros (1925, HL) The wording of an agreement stated thet it was not a formal legal agreementand should not be factor to became legal jurisdiction in the law court and excluded any intention to be legally bound . Subject to contract clause The task of the courts to ascertain intention become the more difficult when the parties have made the agreement subject to contract , as such a device, or other similar phase, is not conclusive of the issue of whether there is a concluded contract..It is ultimately a question of fact to be decided on the facts and circumstance of a particular case. Consequently, the task of ascertaining the true intention of the parties to a transaction is not an easy one. However, there are two presumptions which aid the courts in this endeavor. These depend on whether the transaction is categorized as a social agreement or a business transaction. Both the presumptions are rebuttable.
Pages 67-68, Third Edition By Alix Adams (Law for Business Student)-BLUE(azman)

Social or domestic arrangements In transaction which may be categorized as social arrangements, the presumptions is that the parties do not have the intention to create legal relations. Thus, transactions between friends and close relatives are presumed to have no legal consequences. In Phiong Khong v Chonch Chai Fah (1970) 2 MLJ114 FC, the respondent had executed a document which the appellant alleged was transfer of the land in dispute to him, but which the respondent claimed was intended to give only a life interest in the land. In dismissing the appeal, the court held that in view of the terms in the document being so vague and uncertain, there was serious doubt as to whether there was any intention to create legal relationship thereby, Business arrangements In business agreements, the presumption is the other way round that the parties do have the intention to be legally bound. If a party assert otherwise, it is open to him to adduce evidence in rebuttal, though the presumption is not easily rebutted. The courts would consider the presumptions rebutted only where the evidence is cogent and sufficiently strong inference could be drawn to the contrary. Comfort Letter Is a letter written usually by a parent company or a government to a lender giving comfort to the lender about a loan made to its subsidiary or a public entity in circumstance where the parent company or government is not willing to accept a legal commitment. The device often used in place of a guarantee. However, it appears that the term comfort letter has not acquired a technical meaning. Hence, whether or not such a device has any legal consequences would generally depend on the actual words used in the document.

Consideration Few legal systems treat all agreements as enforceable contracts. In early system the distinction between unenforceable and enforceable agreements is often one of form and signs of that can be found in English law in the survival of the rule that a promise by deed is legally binding. In developing English law that is since the sixteenth century the crucial factor is the presence or the absence of consideration. It is natural to assume that the adoption of this test is related to some underlying theory about why agreements are enforced. It has therefore been forcefully argued that consideration is a ward long rooted in the language of English law and denotes its century, the law evolved, through the action of assumpsit, a general contractual remedy, they decided at the same time that it would not avail to redress the breach of any and every promise, whatever its nature. In particular, it has been said that it was decided that assumpsit was not to be used to enforce a gratuitous promise so that the plaintiff must show that the defendant s promise, upon which he was suing, was part of a bargain to which he himself had contributed. So it has been persuasively argued that the doctrine of consideration represents the adoption by English law of the nation that only bargains should be enforced. This view has not gone challenged. The history of consideration is still not completely clear but it seems inherently unlikely that sixteenth century English judges would ever have asked themselves a highly abstract question. Element of consideration A transaction must be supported by consideration in order for it to be a contract. The term valuable consideration as understood in common law parlance is some consideration acceptable in law. The common law does not recognize bare promises and neither does it enforce purely moral obligations. It emphasizes the element of bargain in commercial transactions and hence the need for quid pro quo, something in exchange for something . Broadly stated, consideration is the price of a promise or an exchange of promises. Consideration defined consideration has been broadly defined by Lush J in the celebrated case of Currie v Misa [1874-1880] All ER 686 as some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other . However, the definition of consideration under the contracts Act 1950 is much wider than the common law version. Sec2 (d) defines consideration while s 26 provides that an agreement without consideration is void unless it comes within one of the exceptions stated therein. Section 26 of the Contract Act 1950 provides that, as a general rule, an agreement without consideration is void. The word consideration is defined in section 2 (d) of the said Act as follow:

When, at desire of the promisor, the promisee 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. Example of cases: HERCULES MOTORS PTY LTD V SCHUBERT [1953] 53 SR (NWS) 301 Facts: Schubert purchased a new car from Hercules motors, and shortly afterwards found that the paintwork was faulty. Hercules motors acknowledge that something would have to be done, and it was agreed that Hercules Motors would repaint the car and restore it to as new a condition as possible. It was also agreed that the work would be supervised by paint company representative, who would determine if the work was satisfactory. His report was unfavourable. Held: There was a genuine dispute between the parties. The agreement to repaint the car was a compromise of that dispute. The compromise was good consideration of a new contract. There are 4 major in consideration that is: y Consideration Need Not to be Adequate. Explanation 2 to section 26 of the Contract Act 1950 provides that an agreement is not void merely because the consideration is inadequate. Past Consideration Is Good Consideration. As general rule, English law does not recognize past consideration. The definition of the word consideration is section 2 (d) appears extensive enough to cover the aforementioned rule. It provides that if the act done was at the desire of the promisor, then such an act would constitute consideration. Nature Love and Affection is Valid Consideration English Law does not recognize nature love and affection as valid consideration. On the other hand, the Contract Act 1950 in Malaysia recognize it if certain pre-requites are complied with section 26 (a) that is expressed in writing, it is registered (if applicable) and the parties stand in a near relation to each other. Consideration Need Not Move from The Promisee. Under the Contract Act 1950 a party to an agreement can enforce the promise event if he himself has given no consideration as long as somebody has done so. The relevant part of section 2 (d) of the Contract Act 1950 reads; ...when ... the promisee or any other person has done ... something, such act ... is called a consideration for the promise.

Consideration has been defined by the court in different factors. The Currie v Misa (1875) it was held to constitute a benefit to one party or a detriment to the other . In Dunlop v Selfridge (1915, HL) the house of lords has been defined consideration in terms of price by one party who bought other party s some act or promises.

Executory and executed consideration : Executory consideration :  The binding contract has formed by the exchange of the promises that will be carried out on later date. If the order goods then will be pay for a delivery on other hand a binding contract will be see on your order being accepted. Executed consideration :  In some business party, no obligation to pay arise unless or until that party s have promise to pay and must not precede the promise, or it will be treated as a past consideration and the promise will become merely gratuitous. The rules governing consideration Consideration must not be past : The act claimed to represent consideration for another party s promise to pay must not precede that promise or it can cause treated as a past consideration and the promise will be merely gratuitous. Cases : Re McArdle (1951, CA) A house was left by Mr McArdle to his wife fo life. On her death it was to be sold and the proceeds divided equally between the children of the marriage. The wife paid home improvements at cost dollar 488. After Mrs died the validity of agreement was disputed and Court of Appeal held that no valid contract existed the home improvements were past consideration had been carried out before promise to pay had been made. Consideration must move from the promise : This commom law have prevents a party from enforcing a contract unless he or she has contributed consideration. Consideration must be sufficient : Consideration must be of material value, capable of assessment in financial terms. The financial nature of consideration is obvious such goods, land and money. Settling a case out of court involved a contract which one party agrees not to sue other provided that the other pays an agreed sum of compensation. y Cases : Alliance Bank v Broome (1864) A bank provided consideration for the defendant s promise to give security for a loan by promising not to take action to recover it.
Pages 59, Third Edition By Alix Adams (Law for Business Student) BLUE (azman)

Part payment of debt is not sufficient consideration : y Cases : Pinnel s Case (1602) A promise by a creditor to accept less than the full sum owed does not discharge the debtor from the legal obligation to pay the balance. The debt will be discharge by three way: i. ii. iii. Promissory estoppels This equitable defence which may be relevant in part-payment situations. This principle telling us that parties who gratuitously promise that they will not enforce existing contractual right may lose their entitlement to do so if it would be unfair to allow them to go back on their promise. This principle is more to prevented the parties to breaking their promises each other. y Cases : Tool Metal Manufacturing Co. Ltd v Tungsten (1955) A gratuitous promise, to suspend right to royalty payments on a patent during the war, was held to be a good defence to a subsequent claim for such payments. Unlawful consideration The Contract Act 1950 also had specific provisions on the issues of what considerations and objects are lawful and what are not. Agreements are also void if part of the consideration is unlawful. These provisions are in ss 24 and 25, which are as follows: 24. The consideration or object of an agreement is lawful, unlessa) It is forbidden by law b) It is 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 e) The court regards it is as immoral, or opposed to public policy In each of above cases, the consideration for one or more objects, of an agreement is said to be unlawful. Every agreement of which the object or consideration is lawful is void. Part-payment an earlier date Different place Some goods or other material benefit.

Pages 65, Third Edition By Alix Adams (Law for Business Student)-BLUE (azman)

25. If any part of a single consideration for one or more object, or any one of any part of any one of several considerations for a single object is unlawful, the agreement is void.

Adequacy of consideration Inasmuch as the parties may take their own bargains, the rule has emerged that whilst consideration must be of some value in the eyes of the law, the quantum or relative value is of no concern. In other words, consideration must be sufficient (acceptable) in law, but it need not be adequate. Both under the common law and under the contract act 1950, the law does not concern itself with relative values, unless a party alleges duress, fraud or some such vitiating element. For instance, if Ali is minded to sell his Proton Wira to babu for 2 ringgit, it will be perfectly valid contract, unless Ali subsequently alleges and proves some element vitiating his free consent. The following cases can be found in Thomas v Thomas [1842] 114 ER 330, [1843-1860] ALL ER 688. Scholarship agreement It may be noted that scholarship agreement is not invalid by reason of absent of consideration, notwithstanding anything in the Contract Act 1950. S 4 stated that, Notwithstanding anything to contrary contained in the principal Act, not scholarship agreement shall be invalidated on the ground that(a) Such agreement lacks of consideration. Rules governing consideration The several rules governing consideration and related aspects may be considered under the following heads: 1) 2) 3) 4) 5) 6) 7) Executed , executor and the past consideration Consideration for guarantees Bills of exchange Consideration may move from the Promisee or a third party Privity of contract Consideration must be sufficient Estoppels

Executed , executor and the past consideration Both executed and executor consideration are good in law and there is no legal significance whether it is the one or the other, except perhaps that in the case of executor consideration the right to sue might not arise until the party concerned has either performed his part or is ready, able and willing to do so but is prevented by the other party from performing.

Executed consideration is consideration which has been complete by a party at the time of the contract. The term executory is used to indicate that consideration which is been yet to be given or performed. Executed consideration is distinguished from executor consideration primary because there is tendency to confuse past consideration with executed consideration, the former being generally no good in common law. past consideration on the other hand is where the promise is given in return for an act which was performed before the promise was given and independently of it. Consequently, the promise and the act in question are not in response to each other or in exchange. The act in question having been done before the promise was made, is not good consideration to support the promise which in point of time came later and not in direct exchange for the act. Consideration for guarantees The contract act 1950 contains specific provisions respect of consideration in contracts of guarantee in s 80 Bills of exchange act 1949 Past consideration is also a good consideration for the purposes of negotiable instruments. This is statutorily recognized. Under s 27 (1)(b) of the bills of exchange act 1949, negotiable instruments such as cheques and promissory notes, are valid despite the consideration is being past. This position is base on the establish mercantile practice that any antecedent debt for liability (past consideration) is valuable consideration. Consideration may move from the Promisee or a third party Under sec 2 (c) contract acts 1950, the person making the offer is called the promisor while the person to whom it is made is referred to as promisee. However, inasmuch as parties to a contract exchange promises, in reality each is at once a promissory as well as a promisee. Under contract act 1950, however, there is clear departure from this rule as there is extended definition of consideration: consideration is valid even when it moves from a third, as the word of any other person follows the term promisee in sec 2 (d). Thus a promisee who not he has given consideration may able to enforce the transaction as a contract so long as he can established that some third party has furnished the consideration for it. Privity of contract The common law rule that consideration must move from the promisee distinct from another connected rule, namely, the privity of contract rule. This rule state that if person is not a partly to a contract he does not have any right or obligations under it. he is said to be a stranger or a third party to the contract. Example of cases, in Dunlop Pneumatic Tyre co v Selfridge Co Ltd [1915]. Consideration must be sufficient As to the question of what is and is not sufficient consideration in the eyes of the la, the following matters, including the concept of estoppels, may be looked at more closely: 1) Mutual promises 2) Act and forbearance

3) 4) 5) 6) 7)

Burden and detriment Natural love and affection Debt barred by limitation Payment of a lesser sum Estoppel

Mutual promises an exchange of promises between the parties amounts to good consideration. S 24 of the contract act 1950 makes it clear that unless the consideration comes within the ambit of provisions (a) to (e), thereof, the consideration is lawful. In the case K Murugesu v Nadarajah [1980] 2 MLJ 82,FC for the point stated. Act and forbearance An act or forebareance may constitude good consideration. Under the contract act 1950, if there is an act or abstinence on the part of the promisee, such act or abstinence will amount to consideration so long as it occurs in pursuance of the promise of the promisor. Consequently, a forbearance to sue will be a good consideration. Wigan v Edward [1973] 47 AJLR 586. Burden and detriment Following the board of consideration in the leading case of Currie v Misa, the assumption of burden or detriment has been held to be the essence of consideration. Natural love and affection Unlike the position under common law, natural love and affection is good consideration under contract act 1950; section 26(a) is as follows: 26. An agreement made without consideration is void, unlessa) It is written and registered it is expressed in writing and registered under the law for the being in force for the registration of such document, and is made on account of natural love and affection between parties standing in a near relation to each other. Debt barred by limitation Under common law, the acknowledgement of a time-barred debt revives the debt. However, under s 26 (c) of the contract act, an acknowledgement in writing of a time-barred debt will create a new contract. Payment of a lesser sum The general rule at common law is that the acceptance of a smaller sum in full satisfaction in support of the promise to forgo the balance. This was established in Pinnel s case [1602] 77 ER 237; [1558-1774] ALL ER 672, and come to be known as Pinnel s case.

Failure of consideration On the issues of total failure of consideration, the following cases are instructive: Lee Chuie Siang v Public Finance Bhd [2006] 5 MLJ 651 (hire-purchase vehicle already used for almost three years- no total failure of consideration).

Estoppel The doctrine of esstopel is a principle of equity and when it is successfully invoked, there is no necessity for consideration. The principle as established in the case of Hughes v Metropolitan Railway co [1877] 2 APP Case 439 (HL).

Certainty The cases discussed in the preceding few pages are all examples of the tensions created by the law s demands for a minimal degree of certainty before it will classify agreements as a contract. Since most contracts are not negotiated by lawyers, it is all too easy for contract makers to fail this test, particularly as legal and commercial perceptions of certainty may well diverge. So a lawyer would regard an agreement that goods are to be supplied at a reasonable price as prima facie sufficiently certain but would have much more doubt about an agreement for a price to be agreed between us. Many businessmen would be much happier with the second agreement than the first. Although it is not possible to discover perfect consistency in this area, it is possible to identify commonly recurrent types of difficulty. First the parties may have agreed to postpone the creation of the contact to some future date, which may never arise. The subjects to contract cases are one example of this. Another is the letter of intent. This is a very commonly employed commercial device by which one party indicates to another that he is very likely to place a contract with him. A typical situation would involve a contractor who is proposing to tender for a large building contract and who would need to sub-contact, for example the plumbing and electrical work. He would need to obtain estimates from the sub-contractors on which his own tender would, in part be based but he would not which to enter into a firm contract with them unless and until his tender was successful. Often he would send a letter of intent to his chosen sub-contractors to tell them of their selection. More often than not such letters are so worded as not to create any obligation on either side but some cases they may contain an invitation to commerce preliminary work which at least creates an obligation to pay for that work. There are no doubt exceptional cases where the circumstances in which the letter of intent is to flower into a contract are expressed with sufficient precision to amount to a conditional contract. The terms of an agreement cannot be vague but must certain. An agreement which is uncertain or is not capable of being maid certain is void. Section 30 Contract Acts 1950 Example of Cases: KARUPPAN CHETTY V SUAH THIAN48. The requirement of certainty was not met when the parties agreed upon the granting of a lease at RM35.00 per month for as long as he likes .

Capacity The parties entering into a contract should also be competent to contract. They must have the legal capacity to do so. Capacity refers to the ability of the parties to a contract to fully understand its terms and obligations. Section 11 of the Contract Act 1950 reads: (11). 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, that is; y Contracts for necessaries Section 69 of the Contract Act 1950 and Scarborough v Sturzaker (1905) and Government of Malaysia v Gurcharam Singh & Ors [1971] 1MLJ 211. y Contracts of scholarship Contracts (Amendment) Act 1972. y Contract of insurance Insurance Act 1963 (Revised 1972). SCARBOROUGH v STURZAKER (1905) 1 TAS LR 117 Facts: Sturzaker, a minor, periodically rode his bike to work for a distance of about 15 km. He bought a new bike and traded his old one as part payment before the delivery of the new one. He then attempted to avoid the contract. Held: The bike was a class of goods that could be classified as a necessary. In this case, it was in fact a necessary.

METHOD TO DISCHARGE A CONTRACT

Contractual obligations do not last forever and will discharged by : 1) Performance - Contract is discharged when its term been performed. 2) Agreement - The parties may agree not go ahead with the contract which is discharged by provided is, itself and valid contract. 3) Frustration - If the contract became impossible or futile to perform during the events outside the parties control, this defeates parties intention and end of contract. 4) Breach - Not every breach of contract is capable to ending the contract, but there is a major term(condition) may influence the effects. Discharge By Frustration If a party promises to carry out a particular act, the law will hold them to their promise. This principle is commonly known as the doctrine of absolute liability. The harshness of this doctrine was demonstrated in Cutter v Powell [1795] 101 ER 573. Generally, the doctrine of frustration applies where the following situations occur: y y y y y Physical impossibility because of destruction of subject matter Taylor v Caldwell [1863] 122 ER 309. Physical impossibility under contract of personal service. Change in the law rendering performance impossible Horlock v Beal [1916] AC 486. Impossibility due to non-occurrence of event basic to contract Krell v Henry [1903] 2 KB 740. Where the particular state of affairs ceases to exist Codelfa Construction Pty Ltd v State Rail Authority (NWS) [1982] 149 CLR 337.

A contract is frustrated when there is a change in the circumstances which renders a contract legally or physically impossible of performance Section 57 (2) of the Contract Act 1950 provides: Contract to do act afterwards becoming impossible or unlawful. (2) A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Pages 117 ,Third Edition By Alix Adams (Law for Business Student)-BLUE(azman)

There are two instances of frustration, i.e. when a contract to do an act becomes impossible or unlawful. However, the frustration should be supervening and subsequent to the formation of the contract. It should be some event which the promisor could not prevent, as a self-induced frustration does not discharge a party of his contractual obligations Maritime National Fish, Ltd v Ocean Trawlers, Ltd and Yee Seng Plantation Sdn Bhd v Kerajaan Negeri Terengganu & Ors. If the formation and performance of the contract , events outside the parties control render further performance impossible or futile, the contract also may be discharged. Frustration may discharge in the situations : 1. 2. 3. 4. 5. Destruction of subject matter, Death or illness of one the parties, Supervening illegality, Governing intervention, Contract is fails to occur.

Upon proof that the continuing availability of a physical thing or a given person is essential to the attainment of the fundamental object which the parties had in view, the contract is discharged if, owning to some extraneous cause such thing or person is no longer available. Taylor vs Caldwell sufficiently illustrates the case of a physical thing, but the rule laid down in that a person should remain available. Thus, a contract to perform services which can be rendered only by the promisor personally necessarily contemplates that his state of health, which at present is substantially unchanged, and if this ceases to be so owing of his death or illness, the court decrees that both parties shall be discharged from further liability. A similar decree may be made if in time of vided that the interruption in performance is likely to be so long as to defeat the purpose of the contract. Contracts liable to discharge on this ground include an agreement to act as the agent of a music hall artiste, to perform at a concert, not to remove a child from school without a term notice and a contract of apprenticeship. Also knows by discharge by impossibility. Sec 57 (2) consign that if the contract to perform a deed that after the contract was made, becomes impossible, or because of an event that cannot be prevented by the promisor to be no legitimate, its mean that the contract is became impossible or been voided. There are some conditions that the court has recognized as discharge by frustration: a) There had been a changes in law b) When the important thing in the contract had destroy c) When the contract depend on a particular matter or incident in the future d) When there is death or disability happen to party in the contract e) When there is a important changes in circumstances

Pages 120-121, Third Edition By Alix Adams (Law for Business Student)-BLUE (azman)

Effects of frustration The effect of frustrating event is to discharge a contract immediately, but only as to the future. The contract is not void ab initio, but only void from the time of the frustrating event. For the period that the contract is valid, any obligations that arise must be fulfilled. Money paid under the terms of the contract. A total failure of consideration would need to be established in order that the money be recovered Fibrosa Spolka Akcyjna v Fairburn Lawson Combe Barbour Ltd. Thus, when a contract is discharge by frustration, the contract does not become merely voidable but is brought to an end forthwith and automatically Hirji Mulji v Cheong Yue Steamship Co Ltd [1962] AC 497. Section 57 (2) of the Contracts Act 1950 states that such a contract becomes void . In such cases, section 57 (3) and 66 of the Contract Act 1950 provide restitutionary remedies.

Discharge By Performance If all parties have fully met their responsibility and their right in the contract so the contract can be discharge. If one of the parties is not fulfill their responsibility, the contract cannot be discharge. In sec 38, all parties are compulsory to fulfill their promises in the contract. Several other matters related to the discharge by performance described as follows, y If stated in the contract the person that applicable to that matters, so only the applicable person that had authority to do so. If the promisee agreed that other person to do the task in the contract, so it is been allowed. The specific time and place is the important to the contract. If the time or place is stated it is important to follow the time and place that had in the contract.

As a general rule, performance of a contract must be exact and precise and should be in accordance with what the parties had promise. Section 38 (1) of the Contract Act 1950 provides that parties to a contract must either perform or offer to perform their respective promises, unless such performance has been dispensed with by any law. Performance may be form a third party and not necessarily from the promisor. Section 42 of the Contract Act 1950 provides that when a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor . In Re Krishnan Rengasamy, ex.p. Arab Malaysian Credit Bhd [2001] for section 42 of the said act to apply, an agreement must have been achieved between the promisee and the promisor, and there must have been complete performance by the third party. Section 56 of the Contract Act 1950, regulates the position when time is of the essence of a contract Tan Ah Kian v Haji Hasnan [1968] MLJ 400. Section 51 of the Contract Act 1950 provides that the performance of any promise may be made in a manner, of at any time, which the promisee prescribe or sanctions. Therefore, the effect of both sections 51 and sections 56 is that a promise must be performed at the time agreed by the parties. Section 48 of the Contract Act 1950 provide that when a promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on the day and at the place at which the promise ought to be performed. The general rule : A party s failure to perform may make him or her vulnerable to an action for breach of contract by the other party, who may also be entitled to withhold payment. y Cases : Cutter v Powell (1795)

The defendant, Captain Powell, engaged Lieuteneant Cutter as a part of his crew for a voyage from Jamaica to Liverpool. The contract stated that payment due to completion of voyage but the Lieutenant died 19 days before ship reached Liverpool.

By entering into a contract, each party acquires rights as well as obligations. Every contractual right carries with it a corresponding obligation. The discharge or performance of the mutual obligations assumed by the parties under the contract discharges or terminates the contract. Part V of the Contract Act 1950, is headed Of the Performance of Contracts . The sections which comprise V are themselves grouped as follows; Sections 38-40 Contracts which must be performed 41-46 By whom contract must be performed 47-51 Time and place of performance 52-59 Performance of reciprocal promises 60-62 Appropriation of payments 63-68 Contracts which need not be performed Contracts which must be performed Section 38(1) requires the parties to a contract to perform or to offer to perform their respective promises. Where a promisor dies before performance, section 38(2) binds the representatives of the promisor unless a contrary intention appears from the contract. Section 39(1) provides that where an offer of performance by a promisor is not accepted by a promise, the promisor is not responsible for the non performance nor does he thereby lose his rights unter the contract. In amplification of the foregoing, section 39(2) sets out requirement that must be satisfied for an offer of performance to be valid. Such an offer a) Must be unconditional b) Must be made at a proper time and place and in circumstance in which the promise can reasonably ascertain that the promisor is able and willing then and there to perform the whole of his promise c) If it is to deliver anything, the promise must have reasonable opportunity of ascertaining that the thing offered is the thing that has been promised to the promise Section 39(3) states that an offer of performance to one of several joint promises has the same legal consequences as an offer to all of them By whom contracts must be performed Section 41 provides that if it appears to be the intention of the parties that the promises in the contract be performed by the promisor himself, then the obligation must be performed by the promisor. In the other case, the promise may be performed by competent third party employed by the promisor or his representative. If performance of the promise is tendered by a third party and accepted by the promise, section 42 provides that the promise cannot subsequently enforce it against the promisor.
Pages 118, Third Edition By Alix Adams (Law for Business Student)-BLUE (azman)

The time and place for performance Section 47 to 50 deal with the time and place of performance. Performance should take place within the time and the place specified in the contract or, if no time is specified, within reasonable time: section 47. Where no place is fixed for the performance of a contractual obligation, section 50 requires the promisor to apply to the promise a appoint a reasonable place for such performance. Section 51 provides that a promise may be performend in any manner or at any time prescribed by the promise. Nyup Kui Fah v Len On Contractor (1978) 1 MLJ 208, FC. Performance of reciprocal promises Section 52 to 52 deal with the performance of reciprocal promises. Section 52 enacts that where a contract provides for the stimultaneous performance of reciprocal promises, a promisor need not perform his promise unless the promise is ready and willing to perform his reciprocal promise. Case operation section 52 shows in the case of Shigenori Ono v Thong Foo Ching & Ors (1992) 1 MLJ 117, HC. Appropriation of payments Section 60 of the Contract Act 1950 deals with the situation in which a debtor who owes different debts to the same person makes a payment to him. If the debtor specifies the debt to which the payment is to be applied, the payment if accepted must be applied to that debt. However, there are circumstances in which the payments tendered may themselves indicate or imply the debts to which they should applied as the following illustration to section 60 shows. a) A owes B, among others debt, Rm1,000 upon a promissory note, which falls due on the 1st June. He owes B no other debt of that amount. On the 1st of June A pays to B RM1,000. The payment is to be applied to the discharge of the promissory note. b) A owes B, among other debts, the sum of RM567. B writes to A and demands the payment of this sum. A send to B RM567. This payment is no to be applied to the discharge of the debt of which B had demanded payment. A Contracts Act 1950, by section 61, provides that where a debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force the time being as to the limitation of suits. Section 62 of the Contracts Act 1950 also deals with a situation where a debtor who owes a number of debts to the same creditor makes a payment. It provides that where neither party makes any appropriation the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law relating to the limitation of suits. If the

debts are of equal standing, the payment shall be applied in discharge of each proportionately.

Performance by other than payment of money Where the contract calls for performance by other than the payment of money, performance will consist of doing or having done that which the promisor has promised to do. The strict or exact performance rule The general rule is that performance of a contract must be exactly as specified in the contract. This is illustrated by cases Sampter v Hedges (1898) 1 QB 673 Exceptions to the exact performance rule The rule requiring strict or exact performance can result in injustice especially when the failure of exact performance is due to circumstances beyond the control of the party in breach. The harshness of the exact performance rule is mitigated by five exceptions. y Entire and divisible contract y Substantial performance y The de minimis rule y Acceptance of partial performance y Complete performance prevented by the other party The time for performance Section 56 of the Contract Act, which has three subsections, deals with the issue of the time at which a contract must be performed. It would perhaps be more accurate to say that 56 deals with the effect of the failure to perform a contract on time as follows, 1) Section 56(1): the effect of a failure to perform at or before a fixed time, in contract in which time is essential 2) Section 56(2): the effect of a failure to perform at or before a fixed time, in contracts in which time is not essential 3) Section 56(3): the effect acceptance of performance at a time other than that agreed upon. Attempt performance Where the contract calls for payment, a tender of payment may be rejected,. The rejection of a tender of money by the creditor does not distinguish the obligation to pay. It does, however, release the debtor from the duty to seek out the payee again. If sued, the debtor can defeat the claim by putting up the defence of tender and, if such a defence succeeds, the creditor will be penalized in cost, is no cost will be awarded to the creditor.

Where the contract calls for the supply of goods or service, the party entitled to the goods or services may refuse to accept the tendered performance. In such a situation, the refusal releases the other party from the need of tender performance again. If sued breach of contract, the party who had attempted to perform his obligations will have an absolute defence in the plea of attempted performance. The party who attempted performance will aso be able to bring a successful actions for breach of contract.

Discharge By Breach Meaning that if the other person is refused to do what is been agreed in the contract, the other person or parties can discharge the contract. Where a party fails to perform their obligations as agreed, they are in breach of contract. A breach can occur in some ways including: y y y A failure to comply with a term of the contract. By a party announcing to the other party that there are no longer interested in carrying out their obligations prior to the time for performance (anticipatory breach). A delay in the performance where time is of the essence in the contract.

Where one of the parties indicates to the other either by conduct or in clear terms an intention not to go on with the contract, the party is said to have repudiated or renounced the contract. A refusal to perform a contract may occur before the time for performance is due (anticipatory breach), or during the time of performance itself. A refusal to perform a contract when performance is due would amount to amount to a discharge. Like refusal to perform, a party may put an end to the contract if the other party has disabled him from performing the contract either before the time due for performance or during the time of performance. A contract is discharged only if the disability to perform is brought about through the fault of the party concerned. If the disability is caused through the occurrence of some other events, beyond the control of the parties, the contract may be discharged through frustration. Not every breach of contract is capable of resulting in this discharge. The distinction between conditions and warranties is importance : I. Breach of warranty : - The innocent party has the right to claims damages if he has suffered any actionable damage or loss. Breach of condition : - The terms that have status of condition,therefore is crucial to the contract , the innocent parties is entitled to refuse further performance of his obligations, and may have recover any property transferred under the contract and obtain damages.

II.

Anticipatory breach So-called anticipatory breach of a contract occurs where one party indicates, before the time for performance is due, either he not intend to perform in different set out of contract. Actual breach This occurs when performance is due, or in the course of performance. It takes one of two forms; a failure tender any form of performance , or which is inadequate that is largely destroys the purpose of the contract.
Pages 129-129, Third Edition By Alix Adams (Law for Business Student) BLUE (azman)

It must be observed that, even if one of the parties wrongfully repudiates all further liability or has been guilty of a fundamental breach, the contract will not automatically come to an end. Since its termination is the converse of its creation, principle demands that it should not be recognized unless this is what both parties intend. The familiar test of offer and acceptance serves to determine their common intention. Where A and B are parties to an execratory contact and A indicates that he is no longer able or willing to perform his outstanding obligation, he in effect makes an offer to B that the contract shall be discharged. Therefore B is presented with an option. He may either refuse or accept the offer. More precisely, he may either affirm the contract by treating it as still in force, or the other hand he may treat it as finally and conclusive discharged. The consequences vary according to the choice that he prefers. y y The innocent party treats the contract as still in force The innocent party treats the contract as at an end

Effects of breach If one party fails to perform the obligations under the contract or breaches a condition, the innocent party is entitled to treat the contract as ended from the time of the terminating event and may be able to recover damages. The contract is not treated as void ab initio. Any rights and obligations that have already arisen from the partial performance of the contract will remain unaffected. The parties are only relieved of the obligation to perform after the date on which the contract was discharged. On the other hand, if a party breaches a less important term (a warranty), then there is a partial breach and while the innocent party is still going to have to carry out the obligations under the contract, they may sue for damages. If one party indicates that they will not be performing their part of the contract prior to the time of performance, the innocent party can immediately treat the contract as at an end and sue for breach. There is no need to wait until actual breach occurs. The effect of an innocent party putting an end to the contract is that he must restore the other party to the position he was in before the breach occurred i.e. the innocent party must return to that other party any benefits which he may have received from him (section 65 of the Contract Act 1950). If the innocent party has rendered services or had supplied goods, he may recover a reasonable sum for such services or goods rendered. If the innocent party has paid money under the contract, he may be entitled to recover the sum paid. On the other hand, as a general rule, the party in default cannot terminate the contract which he himself had broken.

Discharge By Agreement Because both parties made the contract by mutual agreement, so by mutual agreement also can help to discharge the contract. Under sec 63 of contract act 1950, state that if both parties agree to make a new contract or cancel the contract, the real contract is not needed to be follow. There are two possibility the contract been discharge by mutual agreement. First is because of 1 party is not doing their responsibility yet. Meaning that, there is a new agreement between parties to relinquish their right and their responsibility. Or parties may also make a new contract, with the new right and responsibility will be placed to place to replace the old contact right and responsibility. Second possibility is because the partially executor. Which are the parties may relinquish their rights and responsibility absolutely and completely. Formed a contract, the parties may agree not to go through with it because the agreement(effect a secondary contract) will binding as long of necessary requirements of a valid contract are satisfied. y Bilateral discharge : - The first contract is still wholly or partially executor, consideration will consist of each party s promise not to insist on party performance in this obligations. Unilateral discharge : accord and satisfaction : - When one party has completely performed his obligations under the original contract, and other party want to be releases from their obligation, a promise by first party to allow this is binding only if the other party promise some material benefit in return.

Pages 120 ,Third Edition By Alix Adams (Law for Business Student) BLUE (azman)

Discharge By Dispensation or Remission Section 64 of the Contracts Act 1950 provides that a promise may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit. The following illustration form part of this section. a) A promises to paint for B. B afterwards forbids him to do so. A is no longer bound to perform the promise. b) A owes B RM5,000. A pays B and B accepts, in satisfaction of the whole debt, RM2,000 paid at the time and place at which the RM5,000 were payable. The whole debt is discharged. c) A owes B RM5,000. C pays to B RM1.000 and B accepts them in satisfaction of his claims on A. This payment is a discharge of the whole claim. d) A owes B under a contract, a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts the sum of RM2,000. This is a discharge of the whole debt, whatever may be its amount. e) A owes B RM2,000 and is also indebted to other creditors. A makes arrangements with his creditors, including B, tp pay them a composition of fifty cent the ringgit upon their demands. Payment to B of Rm1,000 is a discharge of B s demand.