A Problem Question on Contract Law

Introduction

A contract refers to an agreement between two or more parties which is legally binding in the eyes of the law. Based on Contract Act 1950, section 2 (h), an agreement that is enforceable by law is a contract. Any other agreements that is not enforceable by law is said to be void, section 2 (g). Therefore, section 2 (j) a contract which is ceases to be enforceable by the law becomes void when it ceases to be enforceable.

A contract consists of 6 elements which is proposal (section 2) and acceptance (section 7). The agreement made must be certain and lawful to fulfill the requirement of entering a contract. The consideration (section 26) of a contract have to be in price theory or the benefit and detriment theory. Next, certainty (section 30) said that the terms and agreements of a contract need to be certain and clear. Besides that, all party in the contract have to be free consent, section 10. Lastly, section 11 capacity said that minors, person that disqualified from contracting by any law and unsound mind are not competent to enter a contract.

Ah Beng

Ah Beng wished to sell his 3-year old motorcycle. He have the intention to create legal relations, commercial contract. In a business contract the presumption is that there is an intention to create legal relations. Unlike domestic contract where agreement made between parties are stated as no intention to create such a legal relations. For example, agreement between spouses, between parent and child and agreements between friends. Case law Balfour v. Balfour. The husband promised to pay a monthly allowance as maintenance to his wife. The court held that it was not a legally enforceable agreement, the parties should be attended by legal consequences.

According to section 2 (a), when one signifies to another his willingness to do said to make a proposal, Ah Beng is the offeror before he advertised the sale in a local newspaper. After the advertisement,he becomes an acceptor. Advertisement consist of two types of offer, Bilateral and Unilateral offer.

Unilateral offer is a party (X) undertakes to do something is another party (Y) decides to accept by performing some lawful act specified by X. For instance, Carlill v. Carbolic Smoke Ball Co. Carbolic Smoke Ball company made an offer to the pubic by issuing an advertisement saying that whoever still suffered from influenza after taking their product (a drug) will get £ 100 in a specified manner and for a specified period of time. Mrs Carlill sued the company for the promise reward. The court held that the advertisement is an offer to the world.

Referring to the Bilateral case law Majumder v. Attorney General of Sarawak 1967, a newspaper advertisement stated a medical officer war required and set out the salary scale. The Federal Court held that the advertisement in the newspaper for the post of a medical officer was an invitation to treat.

Therefore the advertisement by Ah Beng is a Bilateral Contracts, where both parties make promises to one another, a mutual exchange of promise and this leads to invitation to treat. For example, a job advertisement is not an offer but an Invitation to Treat. The applicant is the offeror for the job and if it is accepted, the promisor is obligated to perform by giving the applicant a position and remuneration in accordance with the advertisement, a promise for a promise.

Ah Beng and Ahmad

Ah Beng called his colleague Ahmad who had previously told him that he is looking for a used motorcycle for his son for RM 2,500.00 in cash. As they discussed, Ahmad asked Ah Beng to hold the offer till end of the month and Ah Beng did not give an affirmative answer. Based on section 2 (a) , when one signifies to another his willingness to do said to make a proposal. Therefore Ah Beng is the offeror and Ahmad is the acceptor.

However, the contract is not valid. There are components under Contracts Act 1950 to determine whether a contract is valid or invalid. When Ah Beng offered Ahmad at the first place, Ahmad request for extension, “until the end of the month”, setting a new request to Ah Beng. According to section 7 (a), conditional acceptance is no acceptance. Case law Branca v. Cobarro. Ahmad’s act has caused the contract to be invalid. Moreover, at the end of the conversation Ah Beng did not give an affirmative answer to Ahmad , section 7 (a) Acceptance must be absolute as referring to case law of Kam Mah Theatre Sdn. Bhd. v. Tan Lay Soon 1994. The acceptance given by Ahmad must be absolute and unqualified in order to make the contract between him and Ah Beng valid.

After two days, Ahmad rang up Ah Beng’s house to inform that he is interested to buy the motorcycle and will go over the next day to make the payment of RM 2,500.00 after seeing Ah Beng has advertised to sell the motorcycle for RM 2,800.00 on the local newspaper. Unfortunately Ah Beng was not in and Ah Beng’s wife is the person who was answering the call. Based on section 4 (1) , a communication is complete when it comes to the knowledge of the person to whom it is made. Refers to case law, R v. Clarke. Clarke was an accomplice to the murder of two policeman, the Australian published a notice granting pardon and a reward of A$ 1,000. Clark supplied the information but he admitted that at the time he gave the information he had forgotten about the reward money. The court held that he was not entitled to the reward as he was not aware of the reward at all. The contract is therefore invalid as Ahmad did not deliver his messages and offers to Ah Beng’s knowledge and not conforming to Section 4(2)(b). However, the contract can still be valid if Ah Beng give authorization to his wife to accept the offer on behalf of Ah Beng. This is illustrated in the case law Powell n Lee, the court held that there was no authorized communication made by the acceptor.

Ah Beng and Maniam

Maniam read the advertisement and went over Ah Beng’s house to look for the motorcycle. Maniam’s act is to inquire more information about the motorcycle. The conversation between Maniam and Ah Beng signifies that the advertisement made by Ah Beng regarding the motorcycle is uncertain as there are informations about the motorcycle that Ah Beng did not mention clearly in the advertisement such as the model of the motorcycle, colour of the motorcycle, accident free and current condition of the motorcycle have not been told from the advertisement. This have caused uncertainty for the consideration of an agreement, therefore invalid contract based on section 30. This scenario can be referred to the case law, Karuppan Chetty v. Suah Thian 1916, “lease at $35.00 per month as long as he like” is unacceptable by the court therefore declared void for uncertainty.

Maniam noticed that the battery was weak and both of the tyres were worn off during the inspection of the motorcycle. Ah Beng immediately offered the price to RM 2,700.00 and has become the new offeror, on the other hand Maniam become the new acceptor. As the negotiation going on, case law Lau Brothers & Co v. China Pacific Navigation Co. Ltd 1965, no agreement will be formed under negotiation. However Maniam agreed to bring the cash on the next day expecting Ah Beng to replace the two tyres with the new ones. It is a new condition set by Maniam, leading to a counter offer. Based on section 7 (a), the acceptance made must be absolute and unqualified. Therefore the contract is not valid as Maniam’s counter offer is a rejection of the initial contract, contracts subject to contract. The contract would only be valid if it is free consent from both parties. Refers to case law Hyde v. Wrench 1840, the defendant offered to sell his estate to the plaintiff on 6^th of Jun for £1,000. On 8^th of June the plaintiff made a counter proposal, 27^th of June the defendant refused to accept his offer. Two days later the plaintiff wrote to the defendant that he was prepare to pay £1,000, the defendant refused. The court held that there was no acceptance as by rejecting the original offer the plaintiff had destroyed the offer. In effect the plaintiff is now making a new offer.

By asking Ah Beng to replace the worn off tyres with new ones, Maniam has become the offeror again whereas Ah Beng as the acceptor of this new agreement. At the end of the day, Ah Beng did not give response to Maniam’s further request. Based on section 7 (b), Mental acceptance is no acceptance, silence will not amount to acceptance. Refers to case law Felthouse v. Bindley, plaintif’s uncle offered to buy a horse from plaintiff for £30 adding “If i hear no more about him, i consider the horse mine at the price”. The court held that the plaintiff’s silence did not amount to acceptance of the offer. In this case, Ah Beng’s reaction towards Maniam is not an acceptance to the contract, therefore the agreements between Ah Beng and Maniam is invalid.

Ah Beng and Jack

A classmate of Ah Beng’s 16 year old son, also came to know about the advertisement. Jack immediately went over to Ah Beng’s house and gave five hundred ringgit in cash to Ah Beng’s son with a promise that he will pay the balance the next day after he gets it from his parents. Section 10 (1) states that if the agreements are made by free consent of parties for a lawful consideration are not hereby expressly declared to be void. Jack is willing to enter the contract by offering his money Ah Beng without being forced.

Based on section 11 Capacity as per Age of Majority Act 1971, said that the age of majority to enter a contract is at the age of 18 and above. Case law Tan Hee Juan v. Teh Boon Keat, a minor entered into a contract of transferring land. The court held that the contract was void. Jack is a minor, 16 years old and incapable of entering a contract. Moreover, section 69 said that the necessaries suited to his condition in life is not valid. Case law Nash Vs. Inman (1908) a minor, who was already having sufficient supply of clothing suitable to his position, was supplied further clothing by a tailor. Unlike case law Scarborough v. Sturzaker 1905 where the minor needs a motorcycle to travel to work for 12 miles (19 km ) distance everyday. In this case, a motorcycle is necessaries suited to the condition in life.

However, there are few exception for necessity which is valid contract. Such as marriage contract, case law Rajeswary v. Balakrishnan 1958. Case law Government of Malaysia v. Gurcharan Singh 1971 stated that scholarship contract is valid for a minor as education is a necessity nowadays. Insurance is also a valid contract for a minor. Based on Insurance Act 1963, a minor can enter an insurance contract if he is above ten years old.

According to section 66, obligation of person who has received advantage under void agreement or contract that becomes void. When a contract becomes void, any person who has received any advantage under the agreement is bound to restore it, or make compensation for it to the person from whom he received it. Therefore, Ah Beng is obligated to restore balance, return the five hundred ringgit to Jack. Referring to case law, Thong Foo Ching & Ors v. Shigenori Ono 1998.

Conclusion

In conclusion, non of the person above have a valid contract with Ah Beng. First, the communication is yet to be complete between Ah Beng and Ahmad as Ahmad called and Ah Beng’s wife is the person who answered the call (section 4 (1) Communication). Next, being silence did not amount to acceptance of the offer (section 7 (a). Therefore invalid contract with Maniam as Ah Beng remain silence. Next, the capacity of both parties must be competent to enter a contract in order to make it legal, section 11 Competent to contract. In this case the contract between Ah Beng and Jack is invalid due to the age of Jack, minor (16 years old) .