Professional Documents
Culture Documents
CONTRACT
Introduction
Everyday in our life we enter into contracts
We enter into contracts when :
we buy groceries in the supermarket
we eat in a restaurant
we get into a bus to travel
we get a can of coca cola from the vending
machine
What is a contract?
A contract is an agreement between 2 or
more parties that is legally binding
between them.
Under Section 2(h) of the CA 1950, a
contract is an agreement enforceable by
law
The principal legislation for the law of
contract is the Contracts Act 1950
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The basis of all contracts is an agreement, that is to say, all
contracts must be built upon an agreement.
But not all agreements are automatically contracts.
Contracts
Agreements
Essential elements
of a contract
PROPOSAL
AND
ACCEPTANCE
What is a proposal?
A PROPOSAL IS NOT AN AGREEMENT
An agreement between 2 or more parties is
constituted by a proposal and an acceptance
(proposal + acceptance = agreement)
The word proposal in the Contracts Act 1950 bears
the same meaning as offer in English law (i.e
proposal = offer)
Examples of ITT
A price list
A display of goods with price tags in a
self-service supermarket
An advertisement (of bilateral contract)
A tender
An auctioneer inviting bids for a
particular article
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Display of goods in a shop
Generally a display of goods in a shop does not
constitute a proposal to sell.
The shop owner merely holds himself prepared to
consider proposals made to him at the suggested
prices.
The invitation is not capable of being accepted
[and thereafter turned into an agreement] as it is
not a proposal.
The proposal is in fact made by the customer
when he selects the desired goods.
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This well established rule was
clearly determined by the
celebrated case of
Pharmaceutical Society of Great
Britain v Boots Cash Chemist
Ltd [1953] .
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Held: the display was only an invitation to
treat. A proposal to buy was made when the
customer placed the articles in the basket.
Hence the contract of sale would only be
made at the cashiers desk. That being the
principle, the shop owners had not made an
unlawful sale.
Rationale of ITT
Common sense and realities of commercial
transactions
If selecting an article from the display shelf
constitutes a sale ownership will have passed
to the customer at the point of selection
though he has not paid for it and the customer
will not be able to change his mind about the
purchase.
Advertisement
Similar problems would arise in advertisement
if they were treated as a proposal to be
accepted by readers.
Items for sale may have been completely sold
out and sellers would be liable for breach if
they could not supply all the items offered.
To whom can
A proposal be made?
A proposal can either be made to
1. a particular person or
2. to the general public
Proposal made to a particular person, may only be
accepted by that person. This is based on the
wordings of Section 2(b) of the CA, which provides
when the person to whom the proposal is made
WARNING!
An advertisement could be an invitation to treat
or a proposal.
Whether an advertisement is a proposal or an invitation to treat
depends on the intention of the parties in each case.
Bilateral Contracts
In bilateral contracts, all parties promise to do
something for one another; bilateral contracts bind all
parties and are enforceable against all parties.
For instance, in a job advertisement, the job
advertisement itself is not an offer but an ITT, the
applicant is actually making an offer to work for
the advertiser when he applies for the job and the
advertiser, if they accept the applicants offer,
promise to give the applicant a position and
remuneration in accordance with the
advertisement. (a promise for a promise)
Unilateral Contracts
In unilateral contracts, one party promises to
do something to induce the other party to do
something; unilateral contracts are binding on
and enforceable against only one party, i.e. the
party that makes the promise.
For instance, an advertisement to pay a
reward for returning lost pets. (a promise
for an act). This advertisement is an offer.
Communication of proposal
S4(1) the communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made.
Unless there is communication of the proposal as
suggested in S2(a) ie when one person signifies to
another his willingness to do or abstain from doing
anything.. there can be no acceptance to form an
agreement.
In other words, a party accepting a proposal must be
aware of the existence of the proposal.
R v Clarke (1927)
Facts:
The Western Australian Government offered a reward for information
leading to the arrest and conviction of persons responsible for the
murder of 2 police officers. X and Clarke were arrested and charged
with murders but shortly after, Clarke gave information, which led to
the arrest of another person, Y. X & Y were later convicted for the
offence and Clarke who did not commit the murders claimed the
reward.
Held:
The court refused to grant his claim. It failed on the grounds that the
information was given to clear himself from the murder charge and not
in reliance on the offer of reward.
What is an acceptance?
S2(b) of the Contracts Act 1950
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; (proposal + acceptance =
promise/agreement).
Rules of acceptance
1. acceptance must be absolute and
unqualified
2. acceptance must be made within reasonable
time
3. acceptance must be expressed in some usual
and reasonable manner
4. acceptance must be made in positive
manner
5. acceptance must be communicated
Low Kar Yit & Ors v Mohd Isa & Anor (1963)
The defendants gave an option to the agent of the
plaintiffs to buy a piece of land subject to a formal
contract to be drawn up and agreed upon by the
parties. The plaintiffs agent duly exercised the
option. On the defendants failing to sign the
agreement of sale, the plaintiffs claimed specific
performance and damages for breach of contract.
Rule 4 :
When is communication of
acceptance complete?
General Rule:
An acceptance is completely
communicated when it is actually
brought to the notice or comes to the
actual knowledge of the offeror.
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See illustration (b) of Section 4:
B accepts As proposal by a letter sent by
post.
The communication is complete:
as against A, when the letter is posted;
as against B, when the letter is received
by A.
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On the other hand, acceptance is complete as
against the acceptor only when the letter of
acceptance reaches and comes to the
knowledge of the proposer.
This means that while the proposer is bound
upon dispatch of acceptance by the acceptor,
the acceptor himself is not bound until it is
actually received by the proposer.
Protection of proposers
Stipulate in proposal that
acceptance is complete only upon
receipt not upon posting
This would exclude the postal
rule by express terms of proposal
Revocation of proposal
Once a proposal is communicated, it remains
open until it lapses or is withdrawn. A
proposal may be revoked at any time before
acceptance.
Section 5(1) of the CA provides that a
proposal may be revoked at any time before
the communication of its acceptance is
complete as against the proposer, but not
afterwards.
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There are a few ways by which a proposal may be revoked.
Section 6 states that a proposal is revoked:
a) By communication of notice of revocation
b) By lapse of the time prescribed/ by lapse of reasonable
time
c) By failure of the acceptor to fulfill the condition of the
proposal
d) By death /mental disorder of the proposer, if the fact of
his death or mental disorder comes to the knowledge of
the acceptor before acceptance.
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The application of this rule is found in the
Illustration to Sec. 5:
A proposes, by a letter sent by post, to sell his house
to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the
moment when B posts his letter of acceptance, but not
afterwards.
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Held:
The court ruled that there was a contract
between the parties because the revocation
of the offer posted on 8 October was not
effective till 20 October when it was
received by the plaintiff who had already
accepted the offer on 11 October when the
telegram was sent.
Revocation of acceptance
It may seem strange that an acceptance can be
revoked but that is the law with respect to those
acceptance which is not complete as against the
acceptor.
Section 5(2) states An acceptance may be
revoked at any time before the communication
of the acceptance is complete as against the
acceptor, but not afterwards.
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The Illustration to section 5 provides an example of
revocation of acceptance made by post:
A proposes by a letter sent by post, to sell his
house to B.
B accepts the proposal by letter sent by post.
B may revoke his acceptance at any time before or
at the moment when the letter communicating it
reaches A, but not afterwards
Communication of Revocation
Section 3(a) the communication of a
revocation is complete as against the person
who makes it when it is put into a course of
transmission to the person to whom it is made
so as to be out of the power of the person who
makes it.
Section 3(b) the communication of a
revocation is complete as against the person to
whom it is made when it comes to his
knowledge
Illustration
A proposes by letter to sell a house to B at
a certain price.
B accepts As proposal by a letter sent by
post.
The communication of the acceptance is
complete as against A when the letter is
posted and as against B when the letter is
received by A.