Where a party makes a claim against the other party on the basis of an oral agreement, it often requires the Court to determine whether a contract has been concluded between the parties.
- Elements to constitute a Contract: The elements required to constitute a contract has been reiterated in the recent Federal Court case of Lai Fee & Anor v Wong Yu Vee & Ors [2023] 3 MLJ 503:
“[58] There are, in law, several essential ingredients present in a valid contract. First, there must be an offer (‘proposal’) which is communicated to the other party (ss 2(a), 3 and 4(1), Contracts Act). Second, the party accepting the offer must also have communicated his acceptance to the proposer (ss 4(2), 7 and 8, Contracts Act). Third, the contract must be for a lawful consideration (s 10, Contracts Act), in the sense that the consideration of a contract must be lawful within the meaning of ss 24 and 25, Contracts Act. Fourth, all contracts must be made by the free consent of the parties (s 10, Contracts Act). The parties to a contract are said to consent ‘when they agree upon the same thing in the same sense’ (s 13, Contracts Act); this is also known by the Latin phrase ‘consensus ad idem’ — which has been defined in the Australian Legal Dictionary as ‘Agreement to do the same thing. The common consent necessary for a binding contract’. Consent is said to be only free within the meaning of s 14 of the Contracts Act (this requires a more detailed discussion and will be dealt with below). Fifth, the parties to the contract must be legally competent or have legal capacity to enter into a contract (ss 10, 11 and 12, Contracts Act). Sixth, all contracts must have certainty— contracts which are vague or where the meaning of which is not certain, or capable of being made certain, are void (s 30, Contracts Act). Lastly, contracts must be for a lawful object (ss 10, 24 and 25 Contracts Act).
- Existence of Agreement: The existence of an oral agreement depends upon the intention of the parties who must be ad idem and this can be inferred from the language used, the conduct of the parties, the object of the contract and its surrounding circumstances as a whole1. The evidence adduced must be further tested against the contemporaneous documentary evidence.2
- Unqualified Acceptance to Offer: It is important to understand that despite there may be an offer; to constitute an acceptance, it shall be a final and unqualified expression of assent to the terms of the offer.
Where a reply to that offer is qualified or attempts to vary the terms of the offer or attempts to accept an offer on new terms, then such a reply is not a communication of an acceptance but may be a rejection accompanied by a counter-offer which the original offeror can accept or reject.3
- Certainty: Pursuant to Section 30 Contracts Act 1950, “Agreements, the meaning of which is not certain, or capable of being made certain, are void”.
ILLUSTRATIONS
- 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.
- 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.
- 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.
- A agrees to sell to B “all the grain in my granary at Ipoh”. There is no uncertainty here to make the agreement void.
- A agrees to sell to B “one thousand gantangs 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.
- A agrees to sell to B “my white horse for five hundred ringgit or one thousand ringgit”. There is nothing to show which of the two prices was to be given. The agreement is void.
- The position of law is trite that in the absence of a concluded contract, contractual jurisprudence does not permit the Court to rewrite the agreement between the parties.4
- In Oon Brothers Electrical Trading Co Sdn Bhd v Uniperkasa Sdn Bhd [2016] MLJU 1520, there was uncertainty as to the amount purportedly agreed to be paid to the Respondent, and the High Court held as follows:-
[13]… As submitted by the learned counsel for the Petitioner to which this court agrees, for a contract to be enforceable, it must be definite. There were uncertainties in the alleged oral agreement. One obvious uncertainty is as to the amount of RM5000 to be paid monthly by the Respondent… It must be borne in mind that the court is not to rewrite the agreement when there is no agreement at all to begin with.
- In Tan Poh Yee v Tan Boon Thien and other appeals [2017] 3 MLJ 244, the Court of Appeal emphasized the significance of the date an oral agreement is said to be formed:-
[22] It ought to be emphasised that the date for the conclusion of a valid contract, especially an oral one as in this instant appeal, is pertinent and must be specific to achieve certainty. It does indeed go without saying that a party intending to rely on the oral agreement cannot make an assumption of any date and failure to provide the precise date necessarily means that the plaintiff has failed to prove the existence of the same (Keongco Malaysia Sdn Bhd v Ng Seah Hai [2012] 7 MLJ 288). The respondent therefore had failed to plead and provide the material particulars as to the exact date of the purported 2004 agreement at this preliminary stage which was highly prejudicial to the appellants and fatal to the respondent’s case.