LAW OF CONTRACT
INTRODUCTION
We enter into contracts every day. These contracts are made orally eg boarding a bus, buying coffee at a shop,
buying a reload phone card. However sometimes written contracts are required, such as when buying a house or a
car. .
A contract means that there is an agreement between two parties which is enforceable by law. Offer and acceptance
analysis is a traditional approach in contract law used to determine whether an agreement exists between two parties.
The Law of Contract in Malaysia is governed by the Contracts Act 1950.
S2(h) Contracts Act 1950 states that an agreement enforceable by law is a contract.
ELEMENTS OF A VALID CONTRACT
1.
OFFER / PROPOSAL
i)
Definition
An offer is an expression of willingness to contract on certain terms, made with the intention that it shall
become binding as soon as it is accepted by the person to whom it is addressed. S2 (a) & s2(b)
CA 1950
- an agreement between 2 or more parties
- expression of willingness to enter into a contract
- made with a legal intention that it shall be binding
- legally enforceable by law
s2(c) CA 1950
Person making the offer / proposal is the "offeror"
Person accepting the offer/proposal is the “offeree”
Eg. A offers his Lamborghini to B for the price of RM250000. B accepts the offer by buying the car.
A is the offeror and B is the offeree
ii)
How is an offer made?
s 9 CA 1950
a)
Expressly ie in writing
b)
Impliedly ie by conduct , oral
iii)
Types of offer
a)
Unilateral
In a unilateral contract, only one party to the contract makes a promise and the offeree accepts the offer by
performing a certain act .
The offer can be made to one party or to the world at large thruough an advertisement. . The offer is
accepted once the act is performed. Only one person makes the promise. There is no obligation for the
other party to make any promise
Eg. A promises to pay a reward to B if B finds A's dog. In this situation there can be only B can perform
the act and once that act is performed A is obliged to pay the reward. The finding of the dog is a condition
precedent to the reward which means you get the money after the dog is found.
Carlill v Carbolic Smoke Ball Company [1893] QC
Facts: The Carbolic Smoke Ball Company made a product called a smoke ball that it claimed could
protect the user from getting influenza (flu). The Company published advertisements claiming
that it
would pay £100 to anyone who still got sick with influenza after using its product..The
company even
deposited £1000 with the Bank, to show their genuine intention in the matter.
Mrs Carlill bought one of the balls and used it in the manner specified, yet still managed to get
influenza. When she asked for the reward the Carbolic Company claimed that there was no enforceable
contract between it and the user of the smoke ball on the grounds that there was no acceptance of the
offer,because Mrs Carlill had never notified the Company that she accepted its offer, nor furnished any
consideration.
Q:. Is there a valid and binding contract between Mrs Carlill and the company?
The court held that in unilateral offers, the advertisement is an offer which was accepted by Mrs Carlill.
The
courts also looked at the parties intention, ie the fact that 1000 pounds were deposited in the Bank
showed a
genuine intention to create a legal relationship.There was consideration furnished by Mrs
carlill when she
purchased the smoke balls. Hence there was a binding contract
b) Bilateral
A bilateral contract is an agreement in which both parties make a promise or promises to the other party.
For example A offers to sell his house to B for RM250000 . B accepts the offer by promising to
pay A.
iv)
Offer must be distinguished with an invitation to treat (ITT)
What is an invitation to treat? It is not an offer. It is willingness to negotiate a contract. If the negotiations
are successful then it becomes an offer hence an agreement enforceable by law.
Caselaw
Harvey v Facey
Plaintiffs: Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid"
Def: "Lowest price for Bumper Hall Pen £900." (ITT)
P: We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you.Pls send us your
title deed to get early possession.(offer)
D: refused to sell at that price
Q: Is there a valid and binding contract between P and D
HELD: Is there a binding contract between P and D? No because D only answered the price for the
property but did not reply as to his willingness to sell. Thus he had made no offer. It is an ITT.
The last
telegram of the plaintiffs was an offer to buy but D never accepted.
Fisher v Bell
Where goods are displayed in a shop together with a price label, such display is treated as an ITT by the
seller, and not an offer. The offer is made when the customer presents the item to the cashier
together
with payment. Acceptance occurs at the point the cashier takes payment.
Partridge v. Crittenden
It was held that the advertisement constituted in law an ITT and not an offer to sell.
v)
Termination of offer
An offeror may revoke an offer before it has been accepted, but the revocation must be communicated to
the offeree. s 5(1) CA1950 & s 6(a) CA 1950
If the offer was made to the entire world, such as in Carlill's case, the revocation must take a form that is
similar to the offer.
s 6 CA states that an offer can be revoked by
a)
revocation / rejection
- rejection - notice of revocation - must be communicated to the offeree before acceptance
s6 (b) - lapse of time. if the offeror stipulates a specific time to accept the offer.
s6(c)- failure to fulfill a condition precedent to the acceptance
s6(d) - death of offeror or the offeree or mental incapacity- The offer cannot be accepted if the offeree
knows of the death of the offeror.
- counter offer
Acceptance
i)
Definition
S2(b) CA - defines acceptance - when accepted it becomes a promise
Acceptance is a final and unqualified expression of assent to the terms of an offer - s7 CA 1950
s7(a) CA - absolute and unqualified
S7(b) CA - be expressed in some usual and reasonable manner unless the offeror expressly provides
for the manner of acceptance.
U must accept the offer exactly within the terms , you cannot modify the terms of offer, unless it is a
counter offer.
ii)
Acceptance must be distinguished with a counter offer
If the offeree rejects the offer or changes the terms of the offer, the offer has been destroyed and cannot be
accepted at a future time.
Caselaw:
Hyde v Wrench
A offers to sell an estate at a certain price. B made an offer to buy at a lower price. This offer was refused
and subsequently, B sought to accept the initial offer. It was held that no contract was made as
the initial
offer did not exist at the time B tried to accept it, the offer having been
terminated by the counter offer.
However a mere inquiry about terms of an offer is not a counter offer and leaves the offer intact
iii)
Principles/ Rules of acceptance
a)
Acceptance must be communicated
Communication of acceptance
General rule
s 4(1) CA 1950 provides that the communication of proposal is complete when it comes to the
knowledge of the offeree. Communication of acceptance is complete when it is communicated to
offeror.
the
There are several rules dealing with the communication of acceptance:

The acceptance must be communicated: Depending on the construction of the contract, the acceptance
may not have to come until the notification of the performance of the conditions in the offer as in Carlill's
case, but nonetheless the acceptance must be communicated..

An offer can only be accepted by the proposee/offeree, that is, the person to whom the offer is made.

An offeree/ proposee is not bound if another person accepts the offer on his behalf without his
authorisation:

If the offer specifies a method of acceptance eg post/ fax, you must accept it using a method that is no
less effective than the method specified. exception to the postal rule

Silence cannot be construed as acceptance:
Felthouse v Bindley (1862) 142 ER 1037
The offeror cannot write the words ” If i hear no more from you, it means that you have accepted the
offer”
Silence does not constitute as an acceptance. (refer to slides)
b)
Acceptance by post
s 4(2) CA 1950 provides an exception when the parties use post as a means of communication.
The offeror is bound when the offeree posts the letter even though tthe offeror has no knowledge of the
acceptance. When the letter is posted the offeree has put it in a course of transmission in such a
way that he
no longer has control over it. The transaction becomes binding irrespective of
any delay or lost in mail
This rule is known as the postal rule enunciated in the English case of Entores Ltd v Miles Far East Corp.
In Malaysia, the authority for postal rule is the case of Ignatious v Bell
Eg :A makes an offer to B on January 1; A then decides to revoke the offer on January 2 and puts a letter
in the mail to B revoking the offer; however, B puts a letter accepting the offer in the mail on
January 3,
and does not receive A's revocation letter until January 4. The letter of
revocation can be effective only
when received, that is January 4. However, a contract was
formed on January 3 when the letter of
acceptance was posted. It is too late to revoke the
offer.
iv)
Revocation of acceptance
s5(2) CA 1950 - provides that an acceptance may be revoked any time before the communication of
acceptance is complete.