BUSINESS LAW

Lecturer: MR. DARNAILU

STUDENTS NAME: KALBE BIN ABD GHANI

MATRIC NO: EMBA-780917145341
IC: 780917-14-5341
PROGRAMME: EXECUTIVE MASTER IN BUSINESS ADMINISTRATION

RIVERBANK ACADEMY SDN BHD

NO 3-3 & 5-3, JALAN PUSAT PERNIAGAAN 1, PUSAT PERNIAGAAN SG.JELOK,
43000 KAJANG SELANGOR
TEL: 03-87375009 FAX: 03-87395418
WEBSITE: www.riverbankacademy.com.my
EMAIL: info@riverbankacademy.com.my

Contents
Purpose
Objective
Methodology
Introduction
Definition of contract
Discussion on factors that can lead to a contract to be legally unenforceable
despite the presence of the three important elements: Offer, Acceptance and Consideration...
Conclusion
References,bibliography

Purpose

Objective

Methodology

Introduction

Definition of contract
A contract is an agreement made up two parties that is binding legally or enforceable by law. In
the other word, an agreement that enforceable by law is a contract. Contracts that are require
bylaw to be in writing for example, the contract to buy and sell land or buy a car and door-todoor sales contracts. However, not all contracts need to be in writing, it is possible to have the
terms agreed between the parties written down and attached to or kept it with as example, the
pamphlets, copies of quotations, brochures etc.
Essential elements of valid contract
1. Proposal and acceptance
As a general proposition of law, the acceptance of the offer made by one party by the
other party is what creates the contract. This acceptance, as a general rule, cannot be
withdrawn, nor can it vary the terms of the offer, or alter it, or modify it. To do so makes
the acceptance a counter-offer. Though this proposition may vary from state to state, the
general rule is that there are no conditional acceptances by law. In fact, by making a
conditional acceptance, the offeree is rejecting the offer. However the offerer, at his
choosing, by act or word which shows acceptance of the counter-offer, can be bound by
the conditions tendered by the offeree. For example, The case of Stevenson, Jacques &
Co v. McLean, Plantiffs telegraphed defendant :"Please wire whether you would accept
forty for delivery over 2 months, or if not, longest limit you would give." regarding
defendant offer to sell the iron and offer open for a period of time.

2. Consideration
Consideration for a contract may be money or may be another right, interest, or benefit,
or it maybe a detriment, loss or responsibility given up to someone else. Consideration is
an absolutely necessary element of a contract. As a word of caution, it should be noted
that consideration has to be expressly agreed upon by both parties to the contract or it
must be expressly implied by the terms of the contract. A potential or accidental benefit
or detriment alone would not be construed as valid consideration. The consideration must
be explicit and sufficient to support the promise to do or not to do, whatever is applicable.
However, it need not be of any particular monetary value. Mutual promises are
adequate and valid consideration as to each party as long as they are binding. This rule
applies to conditional promises as well. As additional clarification, the general rule is that
a promise to act which you are already legally bound to do is not a sufficient
consideration for a contract. The courts determine the application. Example cases is
Braith wait killed someone and then asked Lampleigh to get him a pardon. Lampleigh got
the pardon and gave it to Braithwait who promised to pay Lampleigh 100 for his
trouble. It was held that although Lampleigh's consideration was past (he had got the
pardon) Braithwaite's promise to pay could be linked to Braithwaite's earlier request and
treated as one agreement, so it could be implied at the time of the request that Lampleigh
would be paid.
3. Capacity of parties to contract
The general presumption of the law is that all people have a capacity to contract. A
person who is trying to avoid a contract would have to plead his or her lack of capacity to
contract against the party who is trying to enforce the contract. For example, he would
have to prove that he was a minor, adjudged incompetent or drunk or drugged, and so
forth. Often this is the most difficult burdens of proof to overcome due to the
presumption of one's ability to contract. A agrees to sell his house to B for rupees 10 lack.
B promise to pay a sum of amount is the consideration for A. Capacity of parties: An
agreement is enforceable only if it is entered into by parties who possess contractual
capacity. It means that the parties to an agreement must be competent to contract.

According to section 11 in order to be competent to contract the parties contracting by

any law to which they are subject. A contract by a person of unsound mind is void from
the beginning. So these elements may be considered for the consideration in the contract.

The mere existence of the core elements of offer, acceptance and consideration will not
guarantee a legally enforceable contract. Discuss.

A contract is a voluntary agreement between two or more parties that creates a legal relationship
and it creates legally enforceable obligations upon the parties to a contract. Today, contracts
govern the majority of our everyday dealings and have become a part of our daily life, regardless
of whether it is intentional or unintentional. According to a quote in Pollock Principles of
Contract (13th Edition) 1, a contract is "A promise or set of promises which the law will
enforce". In the eyes of law, an agreement must satisfy certain requirements to be legally
enforceable. There are situations where the parties have reached agreement however nullify
consent due to vitiating factors. Vitiating factors leads to a contract to be legally unenforceable
despite the present of three important elements: Offer, Acceptance and Consideration. To the
contrary, an equitable remedy, the doctrine of promissory estoppel can enforce the promise
although the essential elements of a contract are not present. The court could do this by imposing
obligations on the parties through quasi contract. Essentially, it estops promisors from arguing
that his or her promise should not be upheld as illustrated in Central London Property Trust v
High Trees House Ltd (1947) Promissory estoppel cannot be used as a sword but as a defend,
when the person trying to enforce the promise which he or she actually relied on the promise to
his or her detriment to commence an action.

The Objective Test is imposed by the court to meet the initial test of validity, assessing the
intention of legal obligation. Hence, even though by satisfying the requirements of offer,
acceptance and consideration, it may become invalid if there is any of vitiating factors discussed
below:
Domestic Agreement
Social agreements between family and friends are different matters and not enforced as contract,
it is harder to inflict legality unless there is a clear intention to create legal relations. Promises
between husband and wife promising a one carat diamond ring to his wife that never ever
happened. Under contract law, this is rebuttable and classified as domestic agreement and there is
no contract. This is as illustrated in Balfour v Balfour (1912). In modern days, this can be
rebutted as promissory estoppels instead of contract law if the consequences of the promise
proven to be serious.
Counter Offer
In the law of contracts, the mirror image rule states that an offer must be accepted exactly
without modifications. A counter offer is taken to be a complete rejection of an original offer and
a return offer with new terms. To make a contract legally enforceable, in addition to key element
of offer, acceptance and consideration, there must be a meeting of the minds or mutual assent to
the terms of the contract to constitute a valid contract. There is no contract until everyone
explicitly agreed upon all terms of the contract. For instance, in Hyde v. Wrench (1840) the
seller's original offer was cancelled by the buyer with a counter-offer hence the offer has become
invalid, it can only be revived if the seller is willing to do so.

Time Lapse
Under the common law, a buyer reserves the right to withdraw his or her offer after the expiry of
a reasonable timeframe. For example of an employment offer, rarely an agreement is open with
infinity, there must be a time specified by the offeror, if the offer is accepted after time has lapsed
as agreed or within a reasonable time. If there is a no time specific, it will be considered as void
after a reasonable time depending on the types of goods, shorter timeframe for perishable goods.
Ramsgate Victoria Hotel Co. Ltd v Montefiore (1866) shows that other factors that will lead to a
contract being unenforceable despite having passed the objective test will be due to death by
either parties or failure of condition. For example in personal services, the offer was for a famous
designer to design a wedding gown for $10,000. Unfortunately, due to the death of the designer
the contract is terminated because of the nature of the offer. Some offers were with certain
condition acceptance like a clause or term in the agreement, this is also known as condition
precedent. Another example, in service agreement, failure of condition could occur after the
offer, a condition subsequent clause allows the contract to be terminate if both parties has stated
happening of particular event give them the right not to enforce the contract. In the case of
employment contract, it is often subject to reference check, any unsatisfying conditions will
results in termination.
Statute of Frauds
There has to be some writing in form of either a memorandum or note sufficient signed by the
party to be charged therewith, or some other person thereunto by him lawfully authorized.
Certain contracts must be evidenced in writing, with reference to Englands Statute of Frauds, an
Act passed in 1677. Statute of Frauds stipulates that a contract will not be enforced unless there
is a written agreement that is signed by the persons bound by the contracts terms or their
authorized personnel. These could include any written notes or memorandums to a creditor of
another to pay that individuals debts when they are due, a marriage contract, a real estate
contract, property transfer and a contract that cannot be performed within a year of its formation
and has not been completely performed by any one side. In some jurisdictions, under the

contracts of Sale, it is compulsory for contracts of guarantee to be witnessed by writing and/or in

some cases, for example the contracts for sale of goods for $20 or more are being covered by this
legislation. Statute of Frauds requirements are limitations on what sort of contracts are legally
enforceable, the whole idea is to protect the public and reduce fraud caused by important
contracts produced without paper trail.
What counts as a written agreement has been stretched and argued upon in many instances. The
general statute of frauds forbids a suit upon an agreement that is not to be performed within a
year to be unenforceable unless it is in writing between the parties and signed by the party
against whom enforcement is sought or by his authorized agent or broker. This was affirmed in
the case of Monetti, S.P.A. v. Anchor Hocking Corp. (1991)
Incapacity
Incapacity can be in the form of minority, intoxication or mental illness. In such a situation,
enforcing the contract against the party suffering from incapacity may be filled with difficulties.
The most significant category of persons is called minors. Under common law, a minor is a
person below the age of 21 years old. In the UK, Family Law Reform Act has lowered the age of
majority to 18. With effect from 1 March 2009, statue in Singapore has been amended to
lowering the minimum contractual capacity age from 21 to 18 years old to encourage
entrepreneurship spirits. However, protection of the minor in namely in areas of the following
contracts remained as 21 years old: For example in contracts for sale, purchase, mortgage of any
land, contracts of settlement of legal proceedings, contract of sale, transfer or pledge of a minors
beneficial interest under a trust or when trust is extinguished or the terms of trust are varied.
Minors contracts are divided into three classes; valid contracts are fully enforceable and as it
bind both minor and the other party, referring to the case of Valentini v Canali (1889). The
contract is deemed valid as it benefits the minor as a whole and he has consumed or used what he
paid for and it is a necessity. Contract law provides special protection to minors because of their
immaturity to legal effects. They generally cannot be held liable for contracts that they enter into,
unless the contract is for the necessaries The term necessaries usually include things such as
food, shelter, education and extended to the provision of medical services, but can include a host

of other things, depending on the circumstances and may be expanded to luxurious if it is

appropriate because of their position or background. As illustrated in Peters v Fleming (1840).
Voidable contracts that bind other party but minor include tenancy agreements, partnership
agreements and agreements to purchase shares not fully paid up as illustrated in Davies v
Benyon-Harris (1931). Lastly, ratifiable contracts that bind other party and bind minor only if
minor ratifies, e.g. if a minor subscribes to a mobile phone service and does not pay for usage,
the question could turn on whether the service is a necessity. People who are intoxicated, of an
unsound mind or minors are said to be incapable or not within the capacity to enter into a
contract. It is because its taken that they were incapable of understanding the contract when it
was presented before them. Much in the same way as minors, the law also protects mentally
unsound or intoxicated persons if it can shown that at the time of the contract was made that he
was incapable of understanding the nature of contract and the other party knew or ought to have
known of his incapacity, e.g. illustrated in Che Som bte Yip v Maha Pte Ltd (1989).
Misrepresentation
Misrepresentation is a false or misleading statement made about a present or past agreement. In
the case of a misrepresentation, the affected party may be able to cancel the contract.
Representations are statements, verbal or writing made prior to a contract being formed. For the
false statement to be misrepresented, the statement must induce the representee to enter into a
contract and not a mere statement of some likely future events. As long as the statement is one of
the inducing cause and not the sole inducement, it may also result in misrepresentation Panatron
Pte Ltd v Lee Cheow Lee (2001). In the case of Tan Chin Seng & Others v Raffles Town Club Pte
Ltd (2003), misrepresentation was not based on past or present facts but the statement of
intention and did not hold upon that intention. The implied term became an important factor to
vitiate the contract.

There are three main categories of misrepresentations: Negligent, Fraudulent and Innocent
Misrepresentation.
Negligent Misrepresentation arises when the false statement is made by representor without due
care (Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd (1978) and Sodd
Corp v N.tessis (1977). This type of misrepresentation is relatively new and was introduced to
allow damages in situations where neither a collateral contract nor fraud is found.
Fraudulent Misrepresentation Derry v Peek (1889) arises when one makes representation with
intent to deceive and with the knowledge that a contract is false. An action for fraudulent
misrepresentation allows for a remedy of damages. One can also sue for fraudulent
misrepresentation in a tort law action.
Innocent misrepresentation Redgrave v Hurd (1881) occurs when the represent or had
reasonable grounds for believing that his or her false statement was true. This type of
representation primarily allows for a remedy of rescission, the purpose of which is to put the
parties back into a position as if the contract had never taken place. Section 2(2) of the
Misrepresentation Act 1967, however, allows for damages to be awarded in lieu of rescission if
the court deems it equitable to do so. This is judged on both the nature of the innocent
misrepresentation and the losses suffered by the claimant from it.
Duress
The law requires a contract to be entered by ones own free mind, the fundamental rules of
contract law. In the event that one of the parties is forced into entering a contract against their
will by violence or the threat of violence, the contract will be unenforceable, that is known as
duress. Barton v Armstrong (1976) another form of duress in commercial provision - economic
duress, is where a party is forced by economic pressure to renegotiate the terms of the contract. B
& S Contractors v Victor Green Publications (1984) and Lloyds Bank Ltd v Bundy (1974) Thus,
the plaintiff who entered into a contract as a result of the duress may either confirm the contract
or avoid the contract. With duress, its important to act swiftly, as the courts may doubt the
authentically of a claim of duress made long after the danger has passed.

Mistake and Excuse

Even the contract is valid in the eyes of law, mistake doctrine allows the contract to be void on
the grounds of mistakes if there is any misinterpretation of an existing state of affairs. One claim
to stop a contract arising from a mistake can only be done if the mistake relates to a fundamental
fact, illustrated in Couturier v Hastie (1856) this is known as common mistake. Secondly, parties
could void the contract only if its a mutual mistake and it materially affects the contracts. as
illustrated in Raffles v Wichelhaus (1864) For a mistake to affect the validity of a contract it
cannot be a misjudgment, such as buying a flat in Tiong Bahru area thinking it is worth $800,000
when in fact it is worth $500,000. In English common law, a mistake would have the effect of
making the contract void ab initio, i.e if proven in the beginning, as explained in the case of
McRae v Commonwealth Disposals Commission (1951) the contract never came into existence
therefore no property will pass under it and no obligations can arise under it. And lastly an
unilateral mistake where only one party is mistaken, e.g. illustrated in Smith v Hughes (1871);
non est factum (it is not my deed) where a person signing a document of a fundamentally
different character that which he think, e.g. illustrated in Foster v. Mackinnon (1869)
Undue influence
In the context of a contract, undue influence is the use of ones power or authority over another
to obtain a benefit or achieve a purpose by exerting improper pressure. It usually involves
someone who starts out at a disadvantage, perhaps due to illness, age, or emotional weakness.
Undue influence prevents the person from exercising a free and independent judgment before
entering into a contract as illustrated in Lim Geok Hian v Lim Guan Chin (1994) where a special
relationship is presumed. The doctrine of undue influence guards against the victimisation of
persons by those who exercise dominance or influence over them. When there are no special
relationship, voidable contract is where there was an improper use of a position of influence or
power to exercise influence, as illustrated in the case of recent Lehmans Brothers minibonds
saga. Marketing materials did not explicitly explain the risks associated with minibonds and
under undue influence to purchase the bonds.

Illegality
A contract may be avoided for illegality, both under the both and common law and statute, they
are unenforceable or void as they are specifically prohibited due an immoral or illegal act. In
Singapore, four common illegal contracts that are generally voided are Gaming and wagering,
for example illegal gambling debt, contracts that are contrary to public policy, for example
committing a bribe, crime, fraud or tort, contracts that are illegal in performance, for example
payment for illegal drugs, prostitution and contracts in restraint of trade, for example trading of
prohibited goods. Other contracts that are unenforceable on view of public policy are contracts in
restraint of marriage, contracts in restraint of trade, etc. As seen, the effects of illegality are
usually severe. Hence, a person who has been guilty of an illegal act will not, as a matter of
public policy, be able to claim against the other party for breach of contract.
In conclusion, a contract possessing the core elements of offer, acceptance and consideration, is
not enough to enforce a contract. To guarantee the legal enforcement of a contract, there has to
be an intention to make the contract legally binding with the meeting of minds. That being
satisfied, there has to be an absence of vitiating factors to make a contract legally recognized.
Hence, a contract may not be guaranteed of its validity or legal enforceability even though if the
agreement meets the initial test of validity by satisfying the above requirements of offer,
acceptance and consideration, it may still be declared unenforceable if some other factors
discussed above is present. In reality, there are many contracts tainted by many other vitiating
factors that is well substantiate and considered invalid by the order of court.

Word Count: 2,741

References:
1. Tabalujan, Benny and Du Toit-Low, Valerie. Singapore Business Law Four Edition.
Singapore Business Law
2. http://www.lawteacher.net/contract.php [Accessed 06 February 2010]
3. http://notesapp.internet.gov.sg/__48256DF20015A167.nsf/LookupContentDocsByKey/G
OVI-7NFEDR?OpenDocument [Accessed 13 February 2010]
4. http://www.singaporelaw.sg/content/ContractLaw.html [Accessed 06 February 2010]
5. http://www.australiancontractlaw.com/ [Accessed 20 February 2010]
6. http://altlaw.org/v1/cases/484020 [Accessed 21 February 2010]
7. Woon, W. 2000. Basic Business Law in Singapore Second Edition. Singapore: Prentice
Hall.
8. Gibson, Andy and Fraser Douglas. 2007. Business Law Third Edition. Australia: Pearson
Education.