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2.1. Offer
An offer is necessary for the formation of an agreement. In Malaysia, an offer is also
known as a proposal by virtue of the Contracts Act (1950). According to section 2(a), an
offer can be in the form of a promise, an act, or an abstinence. Most important, the person
who makes an offer (i.e., the offeror) is willingly making the offer. A proposal can be made
to a specific legal entity or to the public at large. The case of Carlill vs. Carbolic Smoke Ball
Co. (1893) illustrates that a proposal was made to the public at large through an
advertisement.
A valid offer must be communicated. Section 3 also specifies that communication can be
made in words, either spoken or written, or by conduct. Once communication comes to the
knowledge of the person to whom it is made, the offer is complete [section 4(1)]. For
example, in R vs. Clarke (1927) the respondent was not aware of the reward when he
provided an information leading to the arrest of a criminal. As he was arrested together with
another person by the police, the information he provided was meant to clear himself.
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An offer should also be distinguished from an invitation to treat and a counter-offer. An
invitation to treat is a preliminary communication, usually takes place during the negotiation
process. Pharmaceutical Society of GB vs. Boots Cash Chemists (1953) is a famous case
illustrating that displaying of goods on shelves constitute an invitation to treat. Similarly, in
situation involving job advertisement as found in Coelho vs. The Public Services
Commission (1964), the court has ruled that it was a mere invitation to treat, and not an offer.
Counter-offer, on the other hand, refers to a rejection of an original offer by a person to
whom the offer is made. For example, Hyde vs. Wrench (1840) illustrated that the original
offer made by the defendant to sell a piece of land to a plaintiff for £1000 was no longer valid
when the plaintiff made a counter-offer to purchase the said land at £950.
2.2. Acceptance
An offer must be accepted by the person to whom the offer is made (i.e., acceptor).
Similar to offer, acceptance must be communicated. A silence from the acceptor, as ruled by
the court in Felthouse vs. Bindley (1862), does not constitute a valid acceptance.
Communication of acceptance can be made in words or by conduct. A performance of a
certain action is an example of conduct. Although S.7(b) requires communication to take
place using usual mode or method, there are several exceptions. First, if an offeror has
dispensed the need for it. Second, when an offeror allows for acceptance or take the form of a
performance of an act. Third, an offeror follows the provision found in S.8, whereby the
acceptance of any consideration for a reciprocal promise which may be offered with an offer.
A failure to accept within a reasonable time, if time is an essence, also implies rejection
by the offeree as found S.6(b) and in Macon Works & Trading Sdn. Bhd. vs. Phang Hon Chin
& Anor (1976). S.7(a) specifies that acceptance must be unconditional. This means that
acceptance must be absolute and unqualified, which follows to the terms of the contract. The
validity of acceptance is destroyed when modification is made to the terms.
2.4. Consideration
In general, any agreement made without consideration is void (S.26). S.2(d) defines
consideration as the price of which one party pays to buy the promise or act of the other.
Price here does not imply money but something which is valued by both parties. This
includes an act, an abstinence, and a promise to perform a future act or abstinence.
There are six rules on consideration. First, consideration must have some value. If a
person offers a consideration to someone who must actually undertake that action, it is not a
valid consideration. In Collins vs. Godefroy (1831), a promise was made to pay a witness for
a certain amount of money, who was under an order to attend the court as subpoena. It was
held by the court that the duty to attend was a duty imposed by law. Therefore, the promise
was unenforceable because there was no consideration for it. Second, consideration need not
be adequate but sufficient. For example, the Federal court reversed the decision made by the
judge of a lower court in the case Phang Swee Kim vs. Beh I Hock (1964). Specifically, an
agreement to transfer a parcel of land for $500 when the land was subdivided and worth
much more was valid because the consent for the agreement was freely given and the amount
did not matter. The Federal Court judge also referred to Illustration (f) in S.26, which
illustrates that a consent that is freely given is good to form a contract despite the inadequacy
of the consideration.
Third, consideration can move from the promisee or other person [S.2(d)]. In Venkata
Chinnaya vs. Verikatara’ma’ya (1881), it was held by the court that a sister was liable for the
promise she made to her brothers because there was a valid consideration for the promise
even though the consideration did not come from the brothers. Fourth, a consideration must
not be illegal. A consideration to allow a man to marry a daughter aged ten years old is
considered illegal. Fifth, a consideration must not be vague. In Scammell & Nephew vs.
Oustin (1941), the term “on the understanding that the balance of the purchase price van be
had on hire purchase terms over a period of two years” was ruled to be vague because it has
no definite meaning. Sixth, a consideration must be possible of performance. A consideration
in which a person promises to go to the moon is considered to be impossible.
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2.5. Certainty
This element refers to certainty of terms. According to S.30, an agreement that stipulates
terms that are uncertain destroys an agreement. For example, a hundred tons of oil is
considered uncertain because the types of oil is questionable. Uncertainty covers two aspects;
language used too vague and failure for incompleteness. The first aspect refers to a situation
in which usually there is no concluded agreement. The second aspect refers to a situation in
which failure to reach agreement on a vital or fundamental term of an agreement. One
celebrated case is Karuppan Chetty vs. Suah Thian (1916). The term “as long as he likes” was
held by the court to be uncertain.
2.6. Capacity
Only person who has full capacity can enter into a contract. Capacity is defined in S.11,
which emphasizes on three important requirements. First, a person must be someone who is
of the age of majority. A minor, who is below 18 years old according to the Age of Majority
Act (1971), cannot make a contract. There are several exceptions such as contract of
necessities, scholarship, and apprenticeship. For example, in Government of Malaysia vs.
Gurcharan Singh & Ors (1971), it was held by the court that education was necessaries.
Therefore, the defendant was liable to repay a reasonable sum spent on him.
Second, a person must be of sound mind. Therefore, any person who suffers from mental
disability, either permanently or temporarily, at the time of contract lacks the capacity. S.11
and S.12(1) provide the legal provisions on sound mind. S.12 further specifies that mental
disability includes persons of mentally disorder and persons who are incapacitated through
sickness, and abuse of alcohol and drugs. Overall, the basic of incapacity is a person’s
inability to understand what he is doing. However, the burden of proof to set aside a contract
on the basis of unsound mind is on the defendant as specified by the court in Imperial Loan
Co, vs Stone (1892).
Third, as long as a person is not disqualified from contracting by any law to which he is
subject, he is capable of making a contract. For example, a businessman who has been
declared bankrupt cannot enter into a contract to purchase a piece of land to set up a new
business. With reference to capacity, a company can enter into a contract because it is a legal
entity.
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2.7. Consent of Parties
Although consent of parties is not one of the essential elements in forming a contract, the
contractual parties must have entered into the contract with free consent as specified in
S.10(1). Free consent is defined in S.13 as “when two or more parties agree upon the same
thing in the same sense”. S.14 further defines that consent is said not to be free is consent is
given due to coercion, undue influence, fraud, misrepresentation, and mistake. By virtue of
S.19(1) and S.20, contracts that are due to coercion, fraud, misrepresentation, and fraud are
voidable. That is, only one of the contractual parties has the choice to affirm or to reject an
agreement but not at the option of the other party. Only mistake renders a contract void as
specified in S.21, but the mistake must be essential to the agreement.
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3. Discharge of Contract
In certain cases, contractual parties can be discharged from their obligations as a result of
a contract termination. According to the law of contract, there are four ways in which a
contract may be discharged.
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3.4. Discharge by Breach
The last type of discharge is discharge by breach, which refers to a failure to perform or
to offer performance that may amount to breach of contract. S.40 identifies “putting an end to
a contract” as a refusal by the promisor to perform, and the disability to perform. In this
situation, a party not in breach can continue with the contract and claim damages, or
repudiate the contract. In Ban Hong Joo Mine Ltd vs. Chen & Yap Ltd, the appellant’s
refusal to pay the respondent for excavation works which was specified as a condition in the
contract allowed the respondent to cease work for breach of condition. As a result, the
respondent was discharged of the contract.
However, there are several issues surrounding discharge of breach. First, when does a
party be considered to have refused to perform? In Choo Yin Loo vs. Visunalingam Pillay
(1930), the plaintiff contracted to perform certain work on the defendant’s land. The work
was agreed to be executed expeditiously by having 30 workers on the land at all times. The
defendant later ceased to make payment on the allegation that there was a shortage of the
stipulated number of workers provided by the plaintiff. The plaintiff sued the defendant for
damages on the ground that he had been prevented by the defendant’s default from
completing the contract. The court held that the defendant was entitled to put the contract to
an end because the plaintiff failed to employ sufficient number of employees to execute the
work, which was agreed to be executed expeditiously. Second, is the refusal refers to a
promise in its entirety? This issue is important to be addressed because the right to repudiate
or put a contract to an end is allowed only if a breach goes to the root of the contract, a breach
of an essential part of the contract, or a breach of fundamental term. In Tan Hock Chan vs.
Kho Teck Seng (1980), the defendant, who was employed by the appellant to build certain
shop houses, could not complete his work on a final lot because of a claim by an occupier of
the land to the tenancy right. It was held that the failure of the appellant to give effective
possession of the land to the respondent constituted a breach that entitled the latter to rescind
the contract. If time is the essence of a contract, the party who was not in default when the
contract was breach has the right to either repudiate the contract or to treat it as still
subsisting. This principle was established in Sim Chio Huat v Wong Ted Fui (1983).
In the event of anticipatory breach, in which it happens when a contract is repudiated
before the time performance is due either because the promisor does an act which makes the
performance impossible or the promisor expressly renounces the contract before the due date,
the innocent party has several options to choose. The innocent party may repudiate the
contract immediately and sue for damages, or disregard it so that the contract is kept alive,
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the rights and obligations will remain the same, it enables the other party to change his mind
and complete the contract, and the other party may excuse himself for non-performance
before the due date. However, the disability to perform should not be the result of the
occurrence beyond the control of the party in default. That is, he/she/they must be the cause
to the disability to perform.
4. Remedies
There are several remedies available in contract law, which include damages, quantum
meruit, specific performance and injunction.
4.1. Damages
Damages is intended to compensate a contractual party who does not earn his proper
benefits from the contract he has made. Instead, he suffers losses, or deprivation and injuries
caused by the breach of contract. The legal provisions for damages are specified in S.74 to
S.76. The English principles of damages that were established in Hadley vs. Baxendale
(1854) are now embedded in S.74. According to S.74(1), an injured party is entitled to
damages arising naturally according to the normal course of things resulting from the breach.
In addition, both parties know, at the time they made the contract, that the loss or damage
would be the likely consequence of the breach of contract. Referring to Hadley vs. Baxendale
(1854), the court held that the delay on delivery of the machine part by the defendant did not
contribute the loss suffered by the plaintiff. It is because the plaintiff could have another
machine as replacement under emergency or it could be caused by other defects. The
defendant was only informed that he was carrying a broken machine part. As such, the loss
did not arise naturally from the defendant’s delay and none of the parties contemplated that
the delay would cause the loss.
It is also important to note that the case of Hadley vs. Baxendale (1854) indicates that
knowledge, either actual or imputed, and information available to the parties is important
element in assessing damages. The same principle can be found in S.74(2), which specifies
that the plaintiff must prove that the loss or damage are contemplated and are caused by
breach of contract. In Tham Cheow Toh vs. Associated Metal Smelters Ltd (1972), the
defendant-appellant knew about the requirement to deliver a melting furnace capable of
producing a temperature not lower than 2600⁰F urgently. However, they failed to deliver it
according to the specification. Therefore, they were liable to pay for the loss of profits
suffered by the respondent.
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4.2. Quantum Meruit
In situations where the plaintiff, who has supplied or delivered some benefits according to
the contract to the defendant, chooses to discharge the contract following the defendant’s
breach of contract, quantum meruit could be awarded by the court. However, the amount of
claim will be determined by the court, which is a reasonable sum deemed as just.
5. Summary
A contract is formed when contractual parties agree to the same subject matter of the
contract. The basic elements required in forming an enforceable contract according to the
Contracts Act 1950 are offer, acceptance, intention to create legal relations, consideration,
capacity, certainty, and consent of parties. Clearly all the elements were presence in the case
study when Petronas Carigali Sdn Bhd hired MHS Aviation Bhd to provide five EC225
helicopters for use in its oil and gas exploration and production operations in consideration
for RM3.1 billion of pay for a period of 10 years from April 1, 2011 to March 31, 2021.
However, following two forced landings in the North Sea on May and October 2012
involving EC225 helicopters, Petronas Carigali suspended the contract and, soon after issue a
termination notice to MHS. Such act constitutes a discharge by breach. In particular, this
breach had discharged MHS from performing its legal obligations. In addition, the breach
was an anticipatory breach because Petronas Carigali put the contract to an end before the
time performance was due.
Although several remedies could be opted by MHS in the event of this breach, a
careful examination of the case shows that only damages. The types of damages that MHS
was entitled to include liquidated damages as specified in their contract, and unliquidated
damages. The liquidated damages consist of substantial damages and nominal damages.
5553 words
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6. References
Adam Aziz (2018). Bousted reaches settlement with Petronas Carigali, 3 others over
helicopter contract termination. The Edge Markets. Retrieved from
http://www.theedgemarkets.com/article/boustead-reaches-settlement-petronas-carigali-3-
others-over-helicopter-contract-termination
Adela Megan Willy (2017). Petronas Carigali gives Boustead’s MHS Aviation 90 days’
notice to terminate contract. The Edge Market. Retrieved from
http://www.theedgemarkets.com/article/petronas-carigali-gives-bousteads-mhs-aviation-
90-days-notice-terminate-contract
M. Hafidz Mahpar (2017). Petronas explains termination of contract given to MHS Aviation.
The Star Online. Retrieved from https://www.thestar.com.my/business/business-
news/2017/06/18/petronas -explains-why-it-terminates-contract-with-mhs-aviation
The Sun Daily (2017). Petronas: We have right to terminate contract with MHS Aviation
over safety concerns. The Sun Daily.
http://www.thesundaily.my/news/2017/06/19/petronas-we-have-right-terminate-contract-
mhs-aviation-over-safety-concerns.
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