UNIVERSITY OF MALAYA FACULTY OF ENGINEERING SEMESTER II SESSION 2011/2012 KXEX 2166 LAW AND ENGINEER

LECTURER: MR. LIM ENG HOE

CHUA SIEW SEAN LOW KE XIN TAN TAI PANG YAP MENG WEI

KEK 090007 KEK 090018 KEK 090052 KEK 090058

SUBMISSION DATE: 18th APRIL 2012

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TOPIC 1: Agreement and contract

Nowadays, we all can see that everyday everybody enter into agreement or contract without realizing that what they have done is in fact that they have reached an understanding of what they promised to do for each other. For example, Ahmad is inviting Ali to go for a house warming party at his own house and Ali agrees to accept that invitation. In another example, Choong promise to sell a car to Tan for RM50k and Tan agrees to pay him the amount when he receives car from Choong. From the two examples given, both examples have offeror and offeree. However, the two examples will lead them to different consequences.

The former case, let say case A, is actually an agreement made by among Ahmad and Ali which Ali agrees to go for the house warming party offered by Ahmad. The latter case, let say case B, is actually a contract made by among Choong and Tan where Choong agrees to sell the car to Tan and Tan agrees to pay Choong for RM50k.

In case A, the promises made by both Ali and Ahmad to each other ended in an agreement but not end in a contract. This is because if either of the parties failed to turn for the appointment as they promised to each other, neither of them can take action to enforce what they had promised. This is due to the parties were went into a friendly agreement without any intention to create legal relation or an intention to be bounded by what they had promised. Simple speaking, the agreement that they made is not enforceable by law. According to the Contracts Act 1950 s 2(g) states: an agreement not enforceable by law is void.

An agreement is a form of cross reference between different parties, which may be written, oral and lies upon the honor of the parties for its fulfillment rather than being in any way enforceable. Agreement refers to meeting of minds at a certain point. Agreement may be on business views, commercial views or domestic views. If the agreement is not legally binding it cannot be enforced by law. Agreements where consent is not genuine are called voidable agreement. An agreement becomes a contract when it is made legally binding and on meeting based on the contracts conditions.
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There are two types of agreement that the court will presume that the parties to such agreement do not intention to create legal relation. They are social agreement and domestic agreement. A social agreement is generally an agreement among friends who, though, might have made promises to each but they do not intend that their promises will be binding in law. A domestic agreement is that made between members of the family who, though, might have made promises to each other, do not intend that their promises will be binding in law: Balfour v Balfour [1919] 2 KB 571, where the court held that a promise made by the husband to his wife was not binding in law on the ground that the parties did not intend that their promise would lead to legal consequences.

Although the social and the domestic agreements are presumed by the court to have no intention to create legal relation, the presumption is rebuttable. In other words, if the agreement can show the parties that get involved indeed did have the intention to create legal relation or an intention to be legally bounded by what they promised, the court would consider that to be so: Merritt v Merritt [1970] 1 WLR 1121 where the parties, though married had been separated and therefore, what they promised to each other would be legally binding.

A contract is a legally binding agreement or relationship that exists between two or more parties to do or prevent from performing certain acts. It can also be defined as a legally binding exchange of promises between two or more parties that the law will enforce. In order for a contract to be formed, an offer must be made with acceptance of which there must be consideration. Parties that get involved must intend to create legal relation on a lawful matter which must be entered into freely and should be possible to perform.

The basic difference between contract and agreement is that the remedies for breach of contract and breach of agreement are way too different. Contract becomes enforceable once the three main conditions of legally binding agreement are met while agreement can be worked upon when two minds meet at a certain point. Contract starts when there is an offer and acceptance, whereas it is not necessary for an agreement to be started from offer and acceptance.

By going through the provision of section 2(e) and 2(h) of the Contract Act 1950, where s 2(e) states: Every promise and every set of promise, forming the consideration for each other, is an agreement while s 2(h) states: An agreement enforceable by law is a contract. The phrase forming consideration for each other relates to the words set of promise and does not qualify every promise. Therefore, a promise is an agreement without consideration. The fact that the consideration is not necessary element for making an agreement is seen from the language of Section 10 and 25 of the Contract act, 1872, though it is necessary for making it enforceable. However, if this agreement is not enforceable by law, then it does not become a contract, instead, it becomes void. There may be many conditions in an agreement, and complied with the conditions prescribed therein, by the parties make the agreement enforceable under the law i.e. a Contract and non-compliance would render the agreement void.

Contract is an agreement made between parties who intend that their agreement will create a legal relation or that they intend to be bounded by what they promised each other. In the event either of them was to breach their promises then the party not in breach will have the option to enforce their promises through legal action in court. The contracts Act 1950 s 2(h) states: an agreement enforceable by law is a contract. In order for an agreement to constitute a contract it must have all the essential elements: offer, acceptance, consideration, intention to create legal relation, capacity, consent, legality and certainty. If any of these elements is absent then it is unlikely a contract is made. Basically there must be an offeror: s 2(c) who makes an offer: s 2(a) to an offeree: s 2(c) and the offeree accepts the offer to conclude a contract: s 2(b). The parties must the intention to create legal relation and that they must have the capacity: s 11 to freely consent: s 10 to make the agreement. The agreement they made must have a consideration: s 26. A consideration is defined in s 2(d) of the Act as: when, at the desire of the offeror, the offeree 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.

The court presumes that the parties to a business or commercial agreement have the intention to create legal relation or that they intend to be bounded by what they agreed. In the
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event of a breach of that agreement by either parties then the party not in breach has the option to enforce the agreement through the court: Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 WLR 1, where the court held the parties intended to create legal relation when Esso gave out one free World Cup coin for every four gallons of petrol purchased from their garage. Business and commercial agreements, though, are presumed to have intention to create legal relation is rebuttable, meaning if the words of the agreement are such that the parties expressly agreed that their agreement will not be legally binding then the court will consider it as such. For instance, the parties may include in the agreement a clause that this agreement is subject to a final contract being made or that this arrangement is not entered into as a formal or legal agreement, and shall not be subject to the jurisdiction of the Law Court.: Rose and Frank Co v J R Crompton and Bros Ltd [1925] AC 445.

Simple speaking, a contract is enforceable by law while an agreement may not be enforceable by law. All contracts are agreement because there must be mutual understanding between two parties for a contract to be formed. All parties should agree and adhere to the terms and conditions of an offer. However, be reminded that all agreements are not contracts.

TOPIC 2: Ali Case

Contractual agreement is traditionally analyzed into two terms which is offer and acceptance. According to Contract Act 1950, s 2(c), the person who making the proposal is called the offeror and the person accepting the proposal is called offeree. Such that to amount to an offer it must be shown that the offeror had the intention to be bound while a binding contract is formed when valid acceptance is been make. The relation between offer and acceptance will lead to a contract or agreement. The key concepts of the relation between offer and acceptance include the distinction between offer and invitation to treat.

For this case, Salleh has advertised in the local newspaper to sell his car for RM10,000 means that Salleh has the attempt to induce offers but this has to be distinguished from an offer since an offer will lead to a binding contract on acceptance, an invitation to treat cannot be accepted it is merely an invitation for offers. Referring to the case study titled Patridge vs. Crittenden (1968), when one dealing with advertisement, unless indeed they come from manufactures, if not there is business sense in their being construed as invitations to treat and not offers for sale.

Since the advertisement published only an invitation to treat, on March 2, Ali who went to Sallehs shop and has intention to buy the car for RM10, 000 is not consider as an acceptance. This is because any acceptance make from invitation of treat does not exist. When Ali wants to pay Rm10, 000 to buy Sallehs car, this is an offer made by Ali to Salleh for purchase his car. Response to his offer, Salleh made a clear cut by rejecting his offer immediately. Hence, there is no acceptance being made from the offer and yet there is no binding contract is being made between these two parties. In this case, Salleh will win the case because there is no valid contract being made and only parties to contact can be sued.

Samy Case

On March 3, Samy saw the car in the shop and on the next day he wrote a letter with cheque enclosed to Salleh to purchase his car is considered as an offer made to Salleh. This is because there is strong evidence of an intention that the letter sent by Samy is an offer made and an offer will lead to a binding contract on acceptance. On March 8, at the point when the letter was received by Salleh then the contract came into existence. By applying The Postal Rule, where it is agreed that the parties will use the post as a means of communication. The postal rule states that where a letter is properly addressed and stamped the acceptance takes place when the letter is placed in the post box. It means that a valid acceptance is established between two parties since the rules that lead to acceptance are clear.

Although Salleh received the letter but he does not accept all the term and conditions of the offer and introduces new terms which only sell his car for RM15, 000, so Salleh strikes a counter-offer. Counter-offer bring a meaning which an offer made in response to a previous offer by other party during the negotiation for a final contract. Since Salleh returned Samys cheque, this means that a counter offer made automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract exist.

On March 12, after a new offer made by Salleh to sell his car for RM15K, Samy wrote a letter enclose with cheque with a firm reply to purchase the car by that amount. At this point, a valid acceptance is established between two parties when the letter by Samy is received by Salleh, same by applying The Postal Rule mentioned above. Since Salleh promise to sell his car for RM15K, it is a consideration for Samys promise to pay RM15K for the car. According to Contract Act 1950, Section 2(e), every promise and every set of promises, forming the consideration for each other, is an agreement. In this case, executor consideration present where a contract is made in the return of an offer. For instance, when there is a mutual exchange of mutual promises. One of the elements
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for a valid contract is that presence of consideration, hence biding contract at this point exists.

Only parties involved in contract can sue or be sued. Since Salleh did not reply and not delivering the car to Samy after received the cheque and letter, sue raised by Samy is valid and for this case Samy will win.

Chong case The promises made by both Chong and Salleh to each other, though ended in an agreement do not end in a contract. The reason that if either of the parties failed to turn for the appointment as they promised to each other neither of them can take action to enforce what they promised. This is because the parties were entering into a friendly agreement without any intention to create legal relation or an intention to be bound by what they promised. In other words, the agreement they made is not enforceable by law. The Contracts Act 1950 s 2(g) states: an agreement not enforceable by law is void: 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 honor 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 have an intention to create legal relations, the law draws a distinction between social and domestic agreements and agreements made in a commercial context. The social and domestic agreements are agreements which do not intent to be bounded by law. There are two types of agreement that the court will presume that the parties to such agreement do not intention to create legal relation. They are social agreement and domestic agreement. In this case, the agreement made between Chong and Salleh is a social agreement, where it is generally an agreement among friends who, though, might have made promises to each but they do not intend that their promises will be binding in law. A domestic agreement is

that made between members of the family who, though, might have made promises to each other, do not intend that their promises will be binding in law: Balfour v Balfour [1919] 2 KB 571. Moreover, there is no consideration appear between Chong and Salleh. The Contracts Act 1950 s 2(d) states : When, at the 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. Basic contract law says if Chong didn't pay Salleh, and Salleh didn't give Chong anything, then there is no consideration, and thus no contract. Chong cannot claim the car from Salleh as Salleh is not liable to the breach of contract.

Peter Case

According to Contract Act 1950, Section 2(a), 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 is said to make a proposal. When Peter told Salleh that he would buy Sallehs car for RM15000 and wished to get Sallehs agreement, Peter is said to make an offer.

According to Contract Act 1950, Section 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. When Peters offer to buy Sallehs car has come to the knowledge of Salleh, but Salleh did not reply the offer, meaning Salleh did not approve Peters offer. The offer is said to be not accepted and thus cannot become a contract. Referring to the case study titled Felthouse v Bindley (1862), silence will not amount to acceptance. Peter did not receive any response from Salleh, he assumed the car to be his and sued Salleh for the breach of contract. Salleh did not reply, did not receive any money and keeping the car in his possession. Therefore, contract has not been completed because no acceptance has been communicated. Silence of Salleh did not

indicate acceptance. Peter cannot claim the car from Salleh as Salleh is not liable to the breach of contract.

Conclusion

In a nutshell, although Salleh is being sued by Ali, Samy, Chong and Peter for the breach of contract in not delivering his car to them, Salleh would be liable to Samy only.

Reference:

1. 2.

The Commisioner of Law Revision, Malaysia: Law of Malaysia Contracts Act 1950. Contractual Agreement- offer and acceptance, n.d. [online] Available at: < http://www.elawresources.co.uk/Offer-and-acceptance.php> [Accessed 12 April 2012 ].

3.

Formation of Contract,n.d.[online] Available at :< http://www.lawteacher.net/contractlaw/lecture-notes/agreement-lecture.php> [Accessed 12 April 2012].

4.

Contract and Agreement, n.d.[online] Available at :<http://www.differencebetween.com/difference-between-contract-and-agreement/> [Accessed 12 April 2012].

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