LAW 240 Commercial Law Assignment

LAW 240 FINAL ASSESMENT
COURSE NAME: COMMERCIAL LAW
COURSE CODE: LAW 240
GROUP: AC 110 3A
LECTURER IN CHARGE: MADAM FADHILAH MD FAZIL
STUDENT’S NAME: IZZAH YUSRA BINTI ISMAIL
MATRIX NUMBER: 2019224216
DATE: 1 FEBRUARY 2021 – 2 FEBRUARY 2021

PART A
‘An agreement is not a contract unless it is the common intention of the parties that it should be
legally enforceable.’ Discuss the above statement and support the answer with relevant law and
decided cases.
Contract means an agreement enforceable by law based on Section 2(h) of Contract Act 1950.
Thus, a contract is an agreement which is legally binding between the parties. According to Section
2(g) of Contract Act 1950, it stated that an agreement not enforceable by law is said to be void.
Intention to create legal relations is part of elements in contract. Intention to create legal relations
can be defined as an intention to enter a legally binding agreement or contract and it is one of the
necessary elements to form a contract. Although the Contracts Act 1950 is silent on the intention to
create legal relations as one of the requirements of a valid contract, case law clearly dictates the
necessity for this requirement. The general rule stated that the presumptions used by the court to
determine intention. Therefore, the law divides agreements into two groups which are social, family,
and domestic agreements, and business agreements.
Social, family, and other domestic agreements are presumed not to have legal effect as it is not
intended by the parties to be legally binding. Take Balfour v. Balfour case as an example, where the
defendant, which is the husband, agreed to pay his wife 30£ per month for her support whilst he
resided in Ceylon, Sri Lanka. He failed to keep up the payments when the marriage broke up. The
wife sued him on the promise. Court of Appeal held that the agreement was not enforceable because
the parties did not intend to create legal relations when they made promises to one another. Similarly,
in Jones v. Padavatton, the court applied based on Balfour v. Balfour, and declared that a mother’s
promise, Mrs Jones, to give her daughter, Mrs Padavatton an allowance and provide her a house if she
would return to England to study for the Bar was not an enforceable contract and Mrs Jones was
entitled to possession.
In Choo Tiong Hin v. Choo Hock Swee, the plaintiff (respondent) and his first wife went to live in
a farm in Singapore. They had two daughters and adopted five sons living together on the premises.
Those old enough worked in the farm and in other business enterprises. In 1953, the wife died, and the
respondent remarried in 1955, following numerous family quarrels. The husband left the family home
and sued three of his sons and two of his grandsons for possession of the farm and the family house
and as well as damages for the trespass. The defendants alleged that there was a contract between the
plaintiff and the defendants whereby the defendants agreed to be adopted and to work on the farm
and, having helped to acquire wealth, were entitled equally with the plaintiff to possession of the farm
and the other property. They claimed that having been adopted and having helped in the farm there
was an intention to create legal relations. The Court of Appeal held that the agreements were not
intended to create legal relations and was therefore not binding in law as a contract.
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However, this general rule can be an exception if the agreement is intended to be legally binding.
This rule can be seen in Merritt v. Merritt’s case, where the husband left his wife and went off to
live with another woman. The wife pressed the husband to make arrangements for the future. He
wrote and signed a document to transfer the tittle of their house to the wife when the mortgage has
been paid off. The wife paid the mortgage, but the husband refused to transfer the house to her. Thus,
the wife sued for a declaration and the Court of Appeal made a declaration that the wife was now the
sole beneficial owner of the matrimonial home. There is a contract between them because they are
about to separate when the agreement is made.
While in business or commercial agreements, there is a presumption that the parties do intend to
make a legally binding contract. The rebuttable presumption is that legal relationships are intended. In
Esso Petroleum Co Ltd v. Customs & Excise Commissioner, Esso, a petrol company, by which
customers would receive one free World Cup coin for every four gallons of petrol purchased. The
World Cup coins were manufactured coins with the head of a 1970 World Cup English footballer on
one side and the word ‘Esso’ on another for a sales promotion. Esso ran advertisements The Customs
and Excise Commissioners claimed that the coins were liable to purchase tax as goods “produced in
quantity for general sale”. Esso claimed that the coins were free gifts and, thus, there was no sale with
the intention to create legal relations and produce a legal effect. The Court held that there was an
intention to create a legal obligation by Esso to supply the coins.
Meanwhile, there is an exception to the general rule where an agreement is not intended to be
legally binding. The parties may include a clause or term in the business agreement to the effect that
‘no legal relations were intended’. In Winn v. Bull, an agreement was made between the plaintiff and
the defendant for a lease of a house ‘subject to the formation of formal contract’. Since, in this case no
further formal contract was entered into the court held that there was no enforceable contract.
In conclusion, social, family, and other domestic agreements are presumed to not have legal effect
as there is no legal relations was intended whereas commercial and business agreements are presumed
to have legal effect as it is intends to have legal relations which makes a contract existed.
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Part B
Redha went shopping at Suka Suki Hypermarket and was interested to buy a VCD 'Kal Ho Na
Ho' displayed on the shelves. Redha looked at the price tag of the VCD and saw that it cost
RM25. Redha took the VCD ‘Kal Ho Na Ho’ and then she went to the cashier's counter to pay
for the VCD. The cashier informed her that the actual price of the item was RM55, not RM25 .
Redha alleged that Suka Suki Hypermarket had to sell the VCD to her at RM25 as there was a
contract between them especially since there was a banner on the top of the displayed shelf
which stated, ‘BELIEVE YOUR EYES – PRICE CRASH’.
Advise Redha.
The issue in the situation given is whether the display of goods on the shelves is considered as
Invitation to Treat or offer? Is there an offer in this case? Whether Redha is liable to pay the price of
actual goods or not? Is there a contract between Redha and the cashier of Suka Suki Hypermarket?
The relevant principles of law related is Contracts Act 1950. Contract is an agreement
enforceable by law according to Section 2(h) of Contract Act 1950 meanwhile an agreement not
enforceable by law is said to be void based on Section 2(g) of Contract Act 1950. According to
Section 2(a) of Contract Act 1950, when one person signifies to another his willingness to do or
abstain from doing anything, with a view to obtaining the assent of that other to the act of abstinence,
he is said to make a proposal. While in Section 2(b) of Contract Act 1950, it is stated when the
person to whom the proposal is made signifies the assent thereto, the proposal is said to be accepted.
A proposal when accepted, becomes a promise.
Invitation to treat is a preliminary communication at the stage of negotiation, which passes
between the parties at the stage of negotiation. It is made before the offer takes place and it is just an
invitation to make an offer. It is to encourage the public to make an offer and thus to enter. There will
be a contract with him and a legal relationship thereafter. Thus, invitation to treat such as display of
goods is not an offer and should be distinguish from offer. The difference is the situation when the
actual offer is made. The offer takes place when someone communicates his willingness to do
something or to perform something with the intention that the offeree will accept his offer. The offer
will happen once the offeree has knowledge that the offeror is making the offer. Meanwhile in
invitation to treat, the offer will take place as to respond the invitation to treat. It begins when the
advertiser makes an invitation to public by inviting the public to make an offer to him. Once public
see the advertisement, he may make an offer and offer is happened. The advertiser may respond the
offer by making an acceptance.
An advertisement is an attempt to induce an offer. Whether an advertisement is an offer or
invitation to treat depends on the intention of the parties in each case. In Majumder v. Attorney-
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General of Sarawak, it is an invitation to treat because the promise is not taken by the Steven in
advertisement. Display of goods of a self-service shop are one of the invitations to treat. The goods
displayed must include the price tags. The act of seller by putting the goods in self service shop is
considered as invitation to treat. When the customer picks up the goods to the counter and makes
payment, he is said to make an offer. Once the cashier accepts the payment, the acceptance is
occurred.
In Pharmaceutical Society of Great Britain v. Boots Cash Chemist Ltd, the defendants, who
ran a self-service chemist shop, were charged under the Pharmacy and Poisons Act 1933 which made
it unlawful to sell certain poisons unless such sale was supervised by a registered pharmacist. The
case depended on whether there was a sale when a customer selected items as he wished to buy and
placed them in his basket. Payment was to be made at the exit where a cashier stationed and, in every
case involving drugs, a pharmacist supervised the transaction and was authorized to prevent a sale.
Court held that the display, even with prices marked, was only an invitation to treat. A proposal to buy
was made when the customers put the articles in the basket. Hence, the contract is made at the
cashier’s counter. If the cashier did not accept the payment, there will be no contract held.
Another similar case to Pharmaceutical Society of Great Britain v. Boots Cash Chemist Ltd is
Fisher v. Bell. In this case, the authorities charged the defendant with offering for sale a flick-knife in
his shop-window that was against the law. The Court held that display of several kinds of flick-knives
is not an offer but only an invitation to the customers to make an offer to buy. Whether the offer is to
be accepted or not, it depends on the discretion of the shop owner.
Section 10(1) of Contract Act 1950 requires all agreements to be made by “the free consent” of
the parties. Section 13 of Contract Act 1950 defined consent as two or more persons are said to
consent when they agree upon the same thing in the same sense meanwhile Section 14 of Contract
Act 1950 stated that consent is said to be free when it is not caused by coercion, undue influence,
fraud, misrepresentation, and mistake. Under Section 21 of Contract Act 1950, it provides that when
both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement,
the agreement is void. A mistake of fact can only occur when it is essential to the agreement. So, if the
mistake is about the existence of the subject of matter or its title, quality, quantity, identity, and price,
then it would be a void contract. In the case of Raffles v. Wichelhaus, the parties had agreed to sell
and buy a consignment of cotton cargo due to “ex Peerless” from Bombay. Unknown to both parties,
there were in fact two ships by the name Peerless sailing from Bombay, one in October and the other
one in December cargo while the buyer had October in mind. The Court concluded there was no
“binding contract”. Since the parties meant different ships and there was a mistake, the buyer was not
entitled to accept the December cargo as it caused the agreement to be void.
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As we refer to the case of Redha, a VCD 'Kal Ho Na Ho' displayed on the shelves was an
invitation to treat. An offer to buy is made when the customer put the goods in their basket provided
or takes the item off the shelf. The contract is only made at the cashier’s counter when the customer
pays for the items as shown in Pharmaceutical Society of Great Britain v. Boots Cash Chemist
Ltd. After Redha checks the price of the VCD which costs RM 25, she took it off from the shelf to
pay for it at the cashier’s counter. This shows Redha made an offer to buy the VCD. However, the
cashier informed Redha the actual price of the VCD is RM55 instead of RM25. This may show that
the cashier does not accept her offer to buy the VCD. Redha alleged that Suka Suki Hypermarket had
to sell the VCD to her at RM25 as there was a contract between them especially since there was a
banner on the top of the displayed shelf which stated, ‘BELIEVE YOUR EYES – PRICE CRASH’.
The banner displayed on the shelf which advertised that the customer should believe their eyes and
the VCD has a price tag of RM25 instead of RM55. This clearly shows a mistake of fact occurred in
this situation as it involves the price of goods which is essential to the agreement. This has caused the
agreement was held to be void as there is a mistake in the price of VCD by RM30 based on the
decision of the case of Raffles v. Wichelhaus. Therefore, there is no contract between Redha and the
cashier and Redha is not liable to pay the actual price of goods. It is because there was no offer
accepted in her situation as only invitation to treat done by the seller.
To conclude this case, Redha does not need to pay the actual price of RM55 since there is a
mistake of fact and there was no contract made between Redha and the cashier of Suka Suki
Hypermarket as the contact is void and only invitation to treat happened, and no acceptance of the
offer to buy the VCD.
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