MARA UNIVERSITY OF TECHNOLOGY

Faculty of Architecture, Planning and Surveying

Shah Alam

JSB 676 ARCHITECTURAL PRACTICE AND MANAGEMENT VIII

ASSIGNMENT 1
STATE BRIEFLY THE ESSENTIAL ELEMENTS OF A VALID CONTRACT

PREPARED BY:
MUHAMMAD HARITH MUHAIMIN MARTYR 2006121183
BACHELOR OF ARCHITECTURE (HONS) AP223 / SEMESTER 04 / 2008

PREPARED FOR:
MR. K. MANOHARAN

Stated briefly the essential elements of a valid contract.

Contract is the foundation or base of all commercial transactions. A contract is a
bargain, a deal from which both parties expect to benefit. In world of business, in which
is built upon agreement making and to know that it will be carried out or that some
remedy will be obtained instead. Distinguishing those agreement which are contract is
essential and legally enforce from those which are not.

Definition
The word contract may be defined as an agreement enforceable by the law. Example,
a contract is an agreement which is legally binding between parties. As in Malaysia
Contract Act 1950, clause 2 (a),(b),(c),..(j), the interpretation of the following words and
expression are used in the following senses;
1. 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;
2. 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;
3. The person making the proposal is called the "promisor" and the person accepting
the proposal is called the "promisee";
4. 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;
5. Every promise and every set of promises, forming the consideration for each
other, is an agreement;
6. Promises which form the consideration or part of the consideration for each other
are called reciprocal promises;
7. An agreement not enforceable by law is said to be void;
8. An agreement enforceable by law is a contract;
9. An agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable contract;
and
10. A contract which ceases to be enforceable by law becomes void when it ceases to
be enforceable.
In many cases, it is important to determine whether or not there is a contract, and if so,
when it was formed and what terms it contains. In principle, a contract comes into
existence when the following requirements are met:
1. The parties have reached an agreement
2. The parties intend their agreement to be legally enforceable.

Essentials Elements of a Valid Contract

All contracts are agreement, but not all agreement is contract. In order for an agreement
to become a contract, there are 8 elements to be fulfilled:
1. Proposal(offer) and acceptance
2. Consideration lawful consideration with a lawful object
3. Intention to create legal relations
4. Certainty

5. Legal relationship
6. Free consent
7. Legality of the objects
8. Required formalities.
1. PROPOSAL AND ACCEPTANCE
Where the agreement is reduced to writing there is usually little doubt about the
existence and content of the agreement. On other occasions, there may be doubt about
whether, when and, if so, what agreement was reach. In order to investigate such a
situation, the law uses two-stage analysis; proposal(offer), and acceptance.
Proposal is made 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 such act
or abstinence.
When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted.
The first step towards creating a contract is that one person shall signify or make a
proposal or offer to the other, with a view to obtaining the acceptance of that another
person to whom the offer is made. A proposal when accepted becomes a promise.
When the person to whom the proposal is made signifies his assent there of the
proposal is said to be accepted. A proposal when accepted becomes a promise. When
there is a proposal and acceptance, there is an agreement made between these parties.
The offer

Must be communicated.
Must be definition/clear statement.
Can be revoked at any time prior to acceptance.
Can be individual or all people.
Must be reach to other person.
Must be distinguished from an invitation to treat which is where a party
communicates that it is prepared to enter negotiations with a view to forming a
contract.

The acceptance

Must be communicated.
Unconditional and absolute
The process made with reasonable time.
Must be of the offer made, otherwise it could be a counter offer.
If posted, occurs on the date posted, if by phone, fax, or email, it occurs when

received.
Example:
You propose to give Ali a bicycle and Ali accepted your proposal.
The proposal has now become a promise. The person who made the proposal is known as
Promisor. The person accepted the proposal is known as promisee.
You : Promisor.
Ali : Promisee.

Communication of proposal.
Proposal can be made either to:
1. Particular person
2. General public

A proposal is said to have been communicated only if the party who accepts it knew
about the proposal.
If a party accepting a proposal is not aware about the proposal, then there is no
contract.
Case Example:
R v Clarke (1927) 40 C.L.R. 227.
An Australia government offered a reward for information in regards of a murder of 2 police
officers.
X and Clarke were later arrested and charged with the murders. Clarke later gave some
information to the police which resulted in the arrest of another person Y. Clarke was later found
not guilty. Clarke later claimed for the reward.
Held: his claim failed because although he has seen the offer, it was no present to his mind when
he gave the information to the police.

Communication of Acceptance
Acceptance of a proposal must be communicated to the proposer for there to be a
binding contract between the parties.
This acceptance may be expressed in some usual and reasonable manner, unless the
proposal prescribes a manner in which it is to be accepted, and the acceptance is not
made in such of manner, the proposer may, within a reasonable time after the
acceptance is communicated to him, insist that his proposal shall be accepted in the
prescribed manner, and not otherwise; but if he fail to do so, he accept the acceptance.

Case Example:
Carbill v. Carbolic Smoke Bail Co. (1893) 1 OB 256.
The Defendant made an advertisement in the newspaper that they would offer a sum of money to
anyone who would still suffer from influenza (flu) after using their product, according to the
instructions.
The Plaintiff used the product according to the instructions, but still became ill.
The Plaintiff asked for the sum of money that the Defendant has promised but the Defendant
refused to pay. Defendant argued that there was no valid contract because the Plaintiff did not
communicate his acceptance to them.
Held: The Plaintiff had accepted the offer the company has made to the world at large and
therefore is entitled to the money.

Acceptance through Post

It is communicated when it comes to actual knowledge of the proposer. This is the legal
position under English Law and it appears to the similar under local law. According to
the sub-section:
The communication of an acceptance is complete:1. as against the proposer, when it is put in a course of transmission to him, so as to

be out of the power of the acceptor, and

2. As against the acceptor, when it comes to the knowledge of the proposer.
Case Example:
Entores Ltd v. Miles Far East Corporation (1955) 2 QB 327.

When a contract is made by post, it is clear law throughout the common law countries that
acceptance in complete as soon as the letter is put into the post box, and that is the place where
the contract is made.

Invitation to Treat
Sometimes when a person offers something to you, it may not always that it is a
proposal. This may happen when the offer is actually inviting you to make the proposal.
When this situation happens, the offer is kwon as an invitation to treat.
Invitation to treat must be distinguished from proposal. This is because when there is a
proposal and the proposal is accepted, it constitutes an agreement. On the other hand
when there is an invitation to treat, it is not yet a proposal. The person who accepts the
invitation to treat is actually the person making the proposal. When the person who is
making the invitation to treat, accept the proposal, the there is an agreement.
Case Example:

Pharmaceutical Society of Great Britain v. Boot Cash Chemist Ltd (1953) 1 QB 401.
The defendants were charge under the Pharmacy and Poisons Act 1933 (U.K). This is because,
under the Act, it is provide that it is unlawful to sell certain poison unless such sale was
supervised by a registered pharmacist. The issue in this case was whether a sale had occurred
when the shopper put the displayed item into his basket. The court held that when the goods are
displayed, that was merely an invitation to treat. When the shopper took it off the display, and put
it in a basket, that is a proposal. Acceptance of this sale is only made when the cashier receives
the money from the shopper.
In this case, since there was a registered pharmacist at the cashier, the defendant was not liable.

Revocation of Offer
A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards.
Revocation must take place before acceptance. There are 4 ways for revocation.
1. Communication of notice of revocation by the proposer to the other party.
2. Revocation by lapse of time or if there is no time provided, lapse of

reasonable time.
3. Proposal may be revoked where the acceptor fails to fulfill a condition

precedent to acceptance.
4. Death or mental disorder of the proposer.

Revocation of Proposal
An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
2. CONSIDERATION
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 of
the promise."
Example:
You promise to give Ahmad, your friend a car. Ahmad agrees to have the car. Later, you change your
mind and refused to give your car to Ahmad. In this situation, Ahmad cannot take any action against you
because there was no consideration from Ahmad.

There are 4 exceptions to this general rule. Under these exceptions, absence of
consideration will not make the agreement void. They are:
1. An agreement that is made out of Love and Affection,

2. Agreement to compensate for Past Voluntary Act,

3. Agreement to compensate for an Act the promisor was Legally Compelled To Do,
4. Agreement to pay a Statute Barred Debt.

Agreement on Account of Natural Love and Affection

Under this exception, an agreement is valid although there is no consideration being
exchange between the parties of the contract.

Example:
You promise to give your brother a car. Your brother accepted the promise but did not promise to give you
anything in return. In the event that you breach the promise, he can bring an action against you for
breach of promise.

In order for an agreement to be valid under this exception, it must be made according to
this conditions:
1. The agreement must be made in writing
2. The agreement must be registered
3. It must be made because of natural love and affection between parties attending

in near relation to each other. Example, members of your immediate family, i.e.,
your mother, father, son, sister (blood relationship).
An Agreement to Compensate for a Past Voluntary Act s, 26(b)
Under this exception, the promisor promised to give the promisee something because
the promisee has done something voluntarily before the promise was made.
When this happens, the promise made by the promisor is valid although there was no
consideration on the promises part. In the event that the promisor did not do what he
has promised, the promisee can sue him for breach of promise.
Example:
Ali your neighbor had watered your garden while you were on holiday in Bahamas. When you returned,
you promised Ali to give him a crystal vase for his trouble. In the event that you have failed to give the
crystal vase to him, he can bring an action against you, because the promise that you gave is valid,
although Ali did not give any consideration AFTER you have made the promise.

Agreement to Compensate an Act the Promisor was legally Compelled to do

In order to use this exception, there are 3 conditions to fulfill:

The promisee has voluntarily done an act

The act that was done by the promisee was actually an act that the promisor

himself was legally bound to do: and

The agreement must be to compensate the promisee either wholly or partly, for
what the promisee had done.
An Agreement to Pat, A Statute - Barred Debt
A debt which cannot be recovered by the creditor through Legal action because there is
a lapse of time which has been determined by the law
For contract matters, you can take matter to the court within 6 years from the time the
causes of action arise. -This is provided by the Limitation Ordinance 1953.
Nevertheless, according to S.26(c) although a debt cannot be recovered if it is statute
barred, a creditor can do so if it falls under these 2 conditions:
1. There is a promise made by the debtor to pay the statute barred debt, after the

lapse of 6 years, either wholly or in part of the debt.

2. The promise is made in writing and signed by the person to be charged or his

authorized agent acting on his behalf.

Case Example:
Case: Phang Swee Kim v. Beh 1 HOCK (1964) MLJ 383.
The Appellant agreed to buy a land for from the respondent for the price of $500, although the
land was worth much more.
The Respondent later refused to honour the promise, arguing that the promise was
unenforceable because of the inadequacy of consideration.
FC held: The consideration was adequate because the respondent has agreed to transfer the
land to the appellant for $500. There was a valid contract

3. INTENTION TO CREATE LEGAL RELATION

An agreement does not always mean contract. For agreement to be a contract, there
must be intention between the parties that they want to enter into a legal relationship
between n them.
There are two types of relationship:
1. Business/ Commercial Agreements
2. Domestic/ social/ Family Agreements.
Business/ Commercial Agreements
Under the agreement made in Business transaction, it is always presumed that the
parties have the intention to create legal relations, unless proven otherwise.
Case: Lim Keng Siong 8 Anor v. Yeo Ah Tee (1983) 2 MLT 39.

In this case the respondent claimed that there was a contract entered into between him and the appellant.
This is based on the fad that there are few letters that have been exchanged between appellant and the
defendant.
The appellant on the other hand stated that the sale was subject to contract. Furthermore, the appellant
had informed the respondent's solicitor that they did not wish to proceed with the sale.
The Federal Court held that there is a contract made between the two and ordered the agreement of sate
be specifically performed.
The court said that it was the intention of the parties to come to a definite and complete agreement on the
subject of the sale and the mere fad that a written contract had to be drawn up and executed by them did
not necessarily mean that there was not legally binding and enforceable agreement.'

Domestic Agreement
Domestic agreement normally does not constitute a legally binding agreement. This is
because parties have no intention to create legal relation.
4. CERTAINTY
Agreements, the meaning of which is not certain, or capable of being made certain, are
void.
(a) A agrees to sell to B " a hundred tons of oil. There is nothing whatever to show what kind of oil was
intended. The agreement is void for uncertainty
(b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article of
commerce. There is no uncertainty here to make the agreement void.
(c) A who is a dealer in coconut oil only, agrees to sell to B 'one hundred tons of oil.' The nature of A's
trade affords an indication of the meaning of the words and A has entered into a contract for the sale of
one hundred tons of coconut oil.
(d) A agrees to sell B all the grain in my granary at ipoh. There is no uncertainty here to make the
agreement.
(e) A agrees to sell to B `one thousand gantang of rice at a price to be fixed by C" As the price is capable
of being made certain, there is no uncertainty here to make the agreement void.
(f) A agrees to sell to B `my white horse for ringgit five hundred or ringgit one thousand. There is nothing
to show which of the two prices was to be given The agreement is void.

5. LEGAL CAPACITY
All agreements are contract if they are made by the free consent of parties competent to
contract, for a lawful consideration and With a lawful object and are not hereby
expressly declared void.

Who are competent to contract?

Every person is competent to contract who is of the age of majority according to the law
to which he is subject and who is of sound mind, and is not disqualified from contracting
by any law to which he is subject.
The age of majority is 18 years old. This is provided by the Age of Majority Act 1971.
those below 18 are known as minor.
Although only those who are 18 years and above can enter into a contract, there are
two situations when minors are bound by the contract they have entered into.
These are:

Necessaries
scholarship

Necessaries
If a minor enters into a contract of necessaries, he would be bound by the contract the
he made.
What are necessaries?
Necessaries include, food, shelter, clothing, medical services, education.
If a person, incapable of entering into a contract, or anyone whom he is legally bound to
support, is supplied by another person with necessaries suited to his condition in life,
the person who has furnished such supplies is entitled to be reimbursed from the
property of such incapable person.
Case: Government of Malaysia - Gurcharan Singh (1971) 1 MLJ 211.
"A infant, like a lunatic, is incapable of making a contract of purchase in the strict sense of the words, but
if a man satisfies the needs of the infant or lunatic by supplying to him necessaries, the law will imply an
obligation to repay him for the services so rendered and will enforce that obligation against the estate of
the infant or lunatic. The consequence in that the basis of the action is hardly contract. The real
foundation is an obligation which the law imposes on the infant to make a fair payment in respect of
needs satisfied."

Scholarship
Notwithstanding anything to the contrary contained in the principal act, no scholarship
agreement shall be invalidated on the ground that,
(a) the scholar entering into such agreement is not of the age of majority
(b) such agreement is contrary to any provisions of any law in force relating to money
lenders, or

(c) such agreement lacks consideration.

What is scholarship agreement?
Any contract or agreement between the appropriate authority and any person, with
respect to any scholarship, award, bursary, loan, sponsorship or appointment to a
course of study, the provision of leave with or without pay or 'any other facility for the
purpose of education or learning.' (Beatrix Vohrah and Wu Min Ann, The Commercial
Law of Malaysia.)
6. FREE CONSENT
All agreement are contract if they are made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby
expressly declared to be void.
Consent is said to be free, when it is not caused by:
5.
6.
7.
8.
9.

coercion,
undue influence,
fraud,
misrepresentation,
mistake.

7. LEGALITY OF THE OBJECTS

The object or consideration of a contract must be that which is permitted by the law. If
the object is not permitted, it is said to be unlawful. A contract which contain an unlawful,
object is void.
The consideration or object of an agreement in lawful, unless a) it is forbidden by a law
b) it is of such a nature, that, if permitted, it would defeat any law
c) it is fraudulent
d) it involves or implies injury to the person or property of another or
e) the court regards it as immoral, or opposed to public policy.
In each of the above cases, the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful is void.
8. REQUIRED FORMALITIES

A contract can be made either:

Orally
Writing
Both orally and in writing,

Sometimes, certain law would require that the agreement be made in writing. If this is
the provision, therefore the agreement has to be in writing so that it would be a valid
contract.
Example
Example would be under the Hire-Purchase Act 1967 which requires the purchase agreement to be in
writing, If it is not in writing the agreement shall not be enforceable by the owner of the good.

REFERENCES

Book sources:
1. Tunku Intan Mainura Tunku Makmar, Introduction To Commercial Law, EDC

UITM.
2. M. OReilly & Thomas Telford Limited 1999, Civil Engineering Construction
Contract , Book Craft (Bath) Ltd.
3. Vincent Powell. S, The Malaysian Standard Form of The Building Contract,
Malaysia Law Journal.
4. Contracts Act 1950 (Act 136), Contracts (Amendment) Act 1976 (A 329) &
Government Contracts Act 1949 (Act 120), International Law Book Services, Laws
Of Malaysia.