General Principles of Law 1 Part 1 : Contract law

1. General Principles of Law 1 Part 1 : Contract law Br. Mahyuddin Daud Department of Laws Centre for Foundation Studies International Islamic University Malaysia Br. Mahyuddin Daud

2. Why do we need contract law? • Ensure the parties to a contract / agreement keep to their promises • The keeping of promises reinforces the social bonds of mutual confidence and security amongst the parties • Moral obligation to keep promises • It forms part of the principle of fairness as enshrined in the theory of law Br. Mahyuddin Daud

3. General Principles of Law 1 Contract law FORMATION OF CONTRACT Br. Mahyuddin Daud

4. What is a Contract? • An agreement • Between 2 or more parties • Intention to be bound by such agreement • Consideration is provided Br. Mahyuddin Daud

5. Other definitions… • John Salmond A contract is an agreement creating and defining the obligations between 2 or more parties • Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. 2003. pp. 523. A contract is an agreement between 2 or more parties, that if it contains the elements of a valid legal agreement, is enforceable by law Br. Mahyuddin Daud

6. Differences between Unilateral & Bilateral Contracts Br. Mahyuddin Daud

7. Unilateral contract • Ahmad promised to pay Murad RM 1,000 if Murad found Ahmad’s lost kitten: • Ahmad assumes the obligation to pay if Murad found his lost kitten • Murad does not promise anything in return • This is a unilateral contract! • E.g. Carlill v. Carbolic Smoke Ball Co.where the Court upheld that the company made a valid unilateral offer to the whole world at large Br. Mahyuddin Daud

8. Bilateral contract • Ahmad promises to pay Murad RM 1,000 and Murad promises to find Ahmad’s lost kitten. • Both parties promised to do something / assume obligation • This is a bilateral contract! Br. Mahyuddin Daud

9. Elements of a valid contract Br. Mahyuddin Daud

10. General Principles of Law 1 Contract law OFFER Br. Mahyuddin Daud

11. 1. Offer • What does an ‘offer’ means? An expression of willingness by the offeror to enter into an agreement with the offeree. • Prof. Treitel: Offer is an expression of willingness to contract, on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed, the offeree. Br. Mahyuddin Daud

12. OFFER OFFEREE OFFEROR Br. Mahyuddin Daud

13. Termination of an offer • Offer can be terminated by several ways: • When the terms of the offer allows it to be open for certain time, and upon expiry of that time, the offer will lapse • Offer will lapse after a reasonable length of time has passed • Ramsgate Victoria Hotel v. Montefiore -A 5 months of time gap lapses the offer to buy shares because the price of shares could fluctuate quickly Br. Mahyuddin Daud

14. Cont… • If the offeror, makes an offer, with certain preconditions to be fulfilled, by the offeror before acceptance, upon failure to fulfill such preconditions, shall make the offer lapses • Financings Ltd v. Stimson • An offer will lapse upon its rejection Br. Mahyuddin Daud

15. Cont… • An offer will lapse once it is being countered (counter-offer) • Death of the offeror & offeree • Withdrawal of an offer • Once an offeror withdraws an offer, the offer will be terminated • However, withdrawal of an offer will take effect upon its communication to the offeree • Ex: Byrne & Co v. Leon Van Tienhoven • Withdrawal must be communicated to the offeree Br. Mahyuddin Daud

16. Cont… • Withdrawal of an offer (unilateral contracts) • The legal principle: Once the offeree has started to perform (Dahlia Ltd’s case) or had partially performed (Errington v. Errington) on a unilateral contract, offeror cannot revoke his offer. • But, there is an exception to this principle, i.e. unilateral offer entered into between an estate agent & landowner. Landowner can revoke his offer at any time before the sale is completed although the agent had made extensive efforts to find a buyer. (Luxor’s case) Br. Mahyuddin Daud

17. Ignorance of an offer Principle: If the offeree knows about the offer, then he is entitled for the reward • Williams v. Carwardine : D offered $20 to anyone who provided D with information that lead to the discovery of a murderer. P provided such information not with the intention to get the reward, but to help. The court held that she was entitled to the reward since she was aware about the offer Exception: If the offeree knows about the offer, but forgets, he is deemed to have ignored the offer, and he is not entitled for the reward • R v. Clarke’ Br. Mahyuddin Daud

18. General Principles of Law 1 Contract law INVITATION TO TREAT Br. Mahyuddin Daud

19. Invitation to Treat • Definition: It is an indication of a person’s willingness to negotiate a contract • It is a contractual process which does not bring any legal implication, unlike offer. Once an offer is made, it is subject to acceptance by the other party. • ITT means that the party shows his willingness to negotiate a contract • But, offer shows willingness of an offeror to enter into contract Br. Mahyuddin Daud

20. What would be considered as ITT? Br. Mahyuddin Daud

21. Display of Goods • Legal principle: Goods which are displayed on shelves or in the windows of shops are generally regarded as invitation to treat. Ex: • Fisher v. Bell : display of flick knives only amount to ITT, therefore, no offer was made. • Pharmaceutical Society v. Boots Cash Chemist : display of medicine on shelves only amounted to ITT. Br. Mahyuddin Daud

22. Advertisements • Unilateral contracts : advertisements will be treated as an offer due to minimum possibility of negotiation to happen (ex: Carlill’s case) 2. Bilateral contracts : advertisements will be treated as ITT due to higher possibility of negotiation to happen Br. Mahyuddin Daud

23. Others • Gibson v. Manchester City Council – the letter informing of the price was only one step in the negotiations, therefore it was not an offer, but only an ITT • Harvey v. Facey – The Privy Council held that indication of lowest acceptable price does not constitute an offer to sell. Rather, it is considered an invitation to treat (i.e., to enter into negotiations). Br. Mahyuddin Daud

24. Cont… • Auction – the advertisement of an auction is a mere declaration of intention and not offer • The auctioneer’s request for bids is an ITT, and each bid is an offer • Tender - request for tenders is regarded as ITT Br. Mahyuddin Daud

25. General Principles of Law 1 Contract law ACCEPTANCE Br. Mahyuddin Daud

26. Definitions… • Acceptance is an unconditional agreement to all the terms of that offer. • It also signifies a final and unqualified expression of assent to the terms of an offer Br. Mahyuddin Daud

27. Methods of Acceptance • Verbal / Express Acceptance • Conduct / Implied Acceptance • Silence Br. Mahyuddin Daud

28. 1.Verbal / Express acceptance • The most common method of acceptance • It is where the offeree accepts the offer straightforwardly / directly. • The offeree may use any technology to communicate his acceptance, i.e. telephone, fax, letters, e-mail as long as the acceptance is in a direct form. Br. Mahyuddin Daud

29. 2. Acceptance by conduct • The offeree signifies his acceptance by doing something that conform to the offeror’s offer Ex: Brogden v Metropolitan Rail Co where the act of Brogden supplying the new order of coal amounted to acceptance of the railway company’s offer by conduct Br. Mahyuddin Daud

30. 3. Acceptance by silence • General rule: Silence does not amount to acceptance unless it is otherwise agreed by both parties. Felthouse v. Bindley : (the sale of horse) the act of nephew not responding to the uncle’s offer letter was an act of silence. The court was uncertain whether he was accepting the uncle’s offer or not. Br. Mahyuddin Daud

31. Communication • Acceptance will only take effect upon its communicated to the offeror. • If acceptance is not communicated, then there will be no contract Br. Mahyuddin Daud

32. Exceptions to the communication rule… In these situations, acceptance need not to be communicated: • When the terms of the offer states that acceptance need not to be communicated to the offeror Ex: Carlill v. Carbolic where the advertisement (offer) stated that the offeree only need to perform the required act (consumption of the medicine). Br. Mahyuddin Daud

33. Cont… 2. Offeror fails to take notify of the acceptance by offereei.e. (conduct of the offeror) • Postal rule (Ordinary post) Principle: If acceptance is made by post, acceptance will take effect as soon as the letter is posted, not when it is communicated. (automatic acceptance) This rule was laid down in the case of Adams v. Lindsell (sale of sheep fleeces) Br. Mahyuddin Daud

34. Exceptions to the postal rule The postal rule (automatic acceptance) will not apply in these circumstances: • The terms of an offer requires acceptance to be communicated • Instantaneous communication • Communication will take effect immediately • See Entores’s case Br. Mahyuddin Daud

35. Entores v. Miles Far East Corp Facts: P = London co. D = US (based in Amsterdam). They contracted through telex. Later, P alleged that D breached their contract. The procedural rule was that if they wanted to brought the matter in English court, the contract must be made in England Issue: Whether the court had the jurisdiction to hear the matter? Held: In order to answer this issue, the court need to decide where was the contract concluded, whether at London or Amsterdam? Br. Mahyuddin Daud

36. Amsterdam Cont… Br. Mahyuddin Daud London

37. Cont… • Since instantaneous rule applied, the contract was concluded at London. Therefore, the court has the jurisdiction to hear the case. Br. Mahyuddin Daud

38. General Principles of Law 1 Contract law METHODS TO APPROACH PROBLEMATIC QUESTIONS Br. MahyuddinDaud

39. Br. Mahyuddin Daud