LAW OF CONTRACT PREPARED BY NORAZLA ABDUL WAHAB

LAW OF CONTRACT PREPARED BY: NORAZLA ABDUL WAHAB

What is Contract?

• Agreement between 2 or more parties that legally binding between them. • S. 2 (h) of the Contracts Act 1950 -…. “An agreement enforceable by law”

• Essential Elements of the Contract: 1. Offer & Acceptance 2. Consideration 3. Intention to create legal relation 4. Certainty 5. Legal capacity 6. Free Consent 7. Legality of the Objects 8. Required Formalities.

1. OFFER

Offer Definition s 2(a) CA Communication of offer s. 4 (1) of CA ITT Revocation of offer

• An offer is a proposal • Once it is accepted, it creates a legally binding agreement • A person who makes an offer is called an offeror or promisor • A person to whom the offer is made is called an offeree or promisee

Definition of an offer • Section 2 (a) of CA 1950 S. 2(a) – 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.

Definition of an offer • Example: A, by offering to buy B’s car for RM 20, 000 in the hope that B will accept MAKING OFFER/ PROPOSAL

Types of Offer • An offer maybe: q express (verbally or in writing i. e. : agreement). q implied (one's act or behaviour).

Types of Offer • Section 9 of CA: • If an offer is made in word or writing it is said to express. • If an offer is made by one act or behavoiur it is said to be implied.

To Whom Offer can be made ? 1) Specific 2) General/ Public

1) Specific üAddressed to specific person üOnly the addressee may accept the offer üWho is not addressee, cannot make the acceptance

Boulton v Jones • Jones (D) normally had some business deal with Brocklehurst. D offered to buy some goods from Brocklehurst, but on the day the order was sent, Brocklehurst had sold his company to P. • The P did not inform the D that the business had changed hands. When the D knew the goods had not come from Brocklehurst , he refused to pay for the goods.

• Held: • D was not liable to pay for the goods. • No contract between the P and the D. Because the P had no right to accept the offer which is not addressed to him.

1) Public/General üAddressed generally to any one who may satisfy all the terms or conditions stipulated by the offeror. üOne who satisfies all the terms of the offer is considered as making acceptance. üThen, the offeror is bound to the contract.

Carlill v Carbolic Smoke Ball the D issued an advertisement in which they offered to pay 100 pound to any person who suffered from influenza after having used one of their smoke balls. The P bought and used the smoke ball and caught influenza. She sued the company for the promised reward. The D refused to pay because he argued that one cannot make an offer with entire world.

The court held that: the D has to pay the reward to P as an offer can be made to the entire world.

Condition of an offer • 1. certain • 2. communicated

• 1. certain • Certain, clear, complete, final and detail to avoid any doubt

• Guthing v Lynn (1831) • Lynn offered to buy a horse from Guthing on condition that if the horse brings luck to him. Then only he pay another 5 pound extra. Held: • The offer was not final & incomplete. Therefore, NOT VALID.

• 2. communicated • S. 2 (a) “ when one person signifies to another

Communication of an Proposal • S. 4(1) – the communication of proposal is complete when it comes to the knowledge of the person to whom it is made

R v Clarke Australian government offered a reward for information leading arrest of persons responsible for the murder of two policeman. X and Clarke were arrested and charged with murder. During investigation, Clarke gave information which lead to the arrest of Y (the real culprit). X and Y later convicted for murder and Clarke was discharged.

R v Clarke then Claimed for the reward. Clarke’s claim was rejected by the court because he has no knowledge with regard to the offer by Australian government. He gave the info not because he knows about the reward but to release himself.

DISTINCTION BETWEEN OFFER & INVITATION TO TREAT (ITT)

ITT • Can’t form a contract • Thus, NO BINDING • It merely invitation from 1 party to another party to make an offer. • No element of offer as S. 2(a) …. with a view of obtaining the assents of act/ abstinent

advertisement Display of goods tender Price List/ Quotations Auction

a. Advertisement • An advertisement is only an invitation to applicants to make an offer.

Harris v Nickerson (1873) The D advertised a sale of certain goods including certain office accessories of a certain date at a particular place. The P then travelled to the said location and he discovered that the office accessories had been withdrawn from the sale.

Harris v Nickerson (1873) The P sought damages because the D had breached the contract based on the argument that the advertisement was an offer and his presence at the sale was an acceptance. Court : Rejected his claim Advertisement= ITT

However, Coelho v The Public Services Commission [ 1964] MLJ 12 The R advertised in the Malay Mail inviting applications for the post of an assistant Passport Officer. (ITT) The applicant made an application and was subsequently accepted for permanent post and letter of appointment is given based on the unconditional condition. .

Coelho v The Public Services Commission [ 1964] MLJ 12 Subsequently, the R tried to terminate the A based on the reason that the A was appointed on probation. Then A sued R for breach of the contract.

The court held that: Ø the advertisement was an invitation to treat. Ø But Ø The application made by the applicant was considered as an offer. Ø And the appointment of the applicant was considered as an acceptance Ø Thus, there was a valid contract of employment. Ø The termination of the applicant on probation is illegal. (unconditional offer)

However, Coelho v The Public Services Commission [ 1964] MLJ 12 The R advertised in the Malay Mail inviting applications for the post of an assistant Passport Officer. {ITT} The applicant made an application { offer} and was subsequently accepted for permanent post { acceptance} and letter of appointment is given based on the unconditional condition. .

B. Display of Goods • Self service shop/ shop window display • Do not constitute a proposal to sell=ITT • The proposal /OFFER: • when the customer selects the desired goods for payments at the counter. . • Offer comes from the customer, not from the shop/supermarket

B. Display of Goods When the offer is made by the customer • It is entirely up to the cashier at the counter to make acceptance (scan the goods) or to refuse the offer.

Fisher v Bell • The D displayed a flick knife in the window of his shop. • Under the Restrictive Weapon Act, it was illegal to manufacture, sell, hire or offer for sale or hire or lend to any other person any flick knife. • Because of that display act, the D then was charged for contravened the Act by offering the flick knife for sale. • The D submitted that this was not sufficient to constitute an offer.

Fisher v Bell • • The court held that displaying the knife was merely an ITT, not an offer • thus no liability arose.

Pharmaceutical Society of Great Britain v Boots Cash Chemist. • The D displayed a poison drugs on the shelves of self service system. Customers selected their purchases from the shelves, put them into basket and took them to the cashier desk. • However, the selling of poison drugs by using the above method is contravened the law. • The D then was charged for offering to sell poison drug without pharmacist supervision. (S. 18(1) of the Pharmacy & Poison Act 1933.

Pharmaceutical Society of Great Britain v Boots Cash Chemist. • Argument was made. Issue: whether Contract is complete at the moment customer took an article from the shelves and put in the basket?

Pharmaceutical Society of Great Britain v Boots Cash Chemist. • • COA laid down the principle: Sale /contract complete at the cashier desk (when the payment has been made/the cashier scan ) not only by putting the things in the basket { OFFER}

Pharmaceutical Society of Great Britain v Boots Cash Chemist. • COA laid down the principle: The cashier has the right to accept/ reject. • • Thus, The display of goods=ITT The shop owner HAD NOT MADE an unlawful sale. (Payment was to be made at the exit where a cashier was stationed and in every case involving drugs, a pharmacist supervised the transaction and was authorised to prevent a sale).

C. Tender • A tender is only ITT. • X invites a supplier to tender a quotation for goods or services. • An action taken by X is not an offer, therefore X is not bind to accept the bid.

C. Tender • An offer is actually made by the supplier to X. • A person who make a notice of tender/announcement all FREE to ACCEPT/REJECT.

Spencer v Harding • The D made announcement inviting tenders for sale of certain goods. • The offer made by the P is the highest but the D did not accepted that. • The P alleged that the D had breached the contract.

Spencer v Harding • The Court: • A circular offering stock for sale by tender was simply a proclamation that the D were already to negotiate for sale of goods and it merely ITT. • No obligation to sell to the highest bidder

Spencer v Harding • The Court: • HOWEVER… • It is different if stated that “ the highest bid/low quotation will be definitely be accepted.

D. Auction • An auction is only ITT. • The auctioneer is merely inviting the people present to make proposals which the auctioneer may accept or decline to accept. • Person who bids the price is the offerror.

D. Auction • Acceptance to the offer by the auctioneer is by knock of hammer (S. 10 of the Auction Sale Act).

E. Price List/ Quotation • Not an offer= only ITT. • As early information to invite the prospective buyer to make an offer.

E. Price List/ Quotation • Given opportunity to the buyers to choose the best price. • Seller – entitled to reject/accept as well as to make counter offer with a new price.

Preston Corporation Sdn Bhd v Edward Leong & Others [1982] 2 MLJ 22 • The Publisher asked for quotation from the Printers • The (R ) gave quotation to the A. • A then made some printing orders based on the quotation given.

• The Court laid down the principles: • The quotation were only supply of information which was an invitation to the A to make an offer /ITT in order to get the R’s service. • The printing orders made by the A=Offer which was subject to the acceptance by the R.

• Explanation : The printing orders made by the A=Offer which was subject to the acceptance by the R. Date of order { offer} & date of confirmation { acceptance} i. e. confirm- invoice.

• Salleh Abas F. J “in our view, the date of confirmation was the date on which contractual relationship between the parties began because the offer in the context of offer & acceptance necessary for the formation of a contract was the printing order and not the quotation. ”

REVOCATION OF OFFER

REVOCATION OF OFFER A proposal, once communicated, remains open until it is withdrawn, cancelled, retracted or lapsed.

REVOCATION OF OFFER • S. 5(1) of the CA : “ a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards”

Communication of Acceptance s. 4(2) of the Contracts Act 1950 Ø (a) against the OFFEROR : put in the course of transmission to him. • i. e. : Offeree post the LOA to Offeror.

Communication of Acceptance • Illustration (b) of s 4 stated : – B accepts A’s proposal by a letter sent by post. The communication of the acceptance is complete as against A, when the letter is posted. 62

REVOCATION OF OFFER • S. 5(1) of the CA : “ a proposal may be revoked at any time before the acceptor send letter of acceptance, but not afterwards”

Routledge v Grant • The D offered to sell a house to P and the acceptance was to be made within 6 weeks. • Issue: Whether the D could revoke the offer before 6 weeks is lapsed?

Routledge v Grant • Court laid down the principle : “the Offeror can revoke his offer at any time provided that NO acceptance be made by the Offerree during that time “.

HOW Revocation can be made Section 6 of CA: A Proposal is revoked: (a) Communication of notice of revocation by the proposer to the acceptor; (b) Lapse of time prescribed in the proposal or if no time prescribed, by of lapse of a reasonable time; (c) Failure of the acceptor fulfill a condition of an acceptance; (d) Death or mental disorder of the proposer.

how Revocation can be made – S 6 Death, mental Disorder (d) By communication of notice of revocation (a) Failure of the acceptor to fulfil the condition (c ) Lapse of the time Prescribed (b) (Ramsgate’s Case)

Revocation : Section 6 of CA: (a) Communication of notice of revocation by the proposer to the acceptor;

When communication of revocation of proposal is complete? Section 4(3)(a) of CA: on the part of the offeror, when it is put into a course of transmission to the offeree. (A sent the LORO to B) Section 4(3)(b) of CA: on the part of the offeree when it comes to his knowledge. (B received the LORO from A)

Byrne v Van Tienhoven (1880) 5 CPD 344 • The D offered to sell 1000 boxes of tinplate to the P. • 1/10= D posted a LO from Cardiff to the P in New York • 8/10= D posted a LOR to the P revoking the offer • 11/10= P received the D's offer letter and at once posted his acceptance via telegram.

Byrne v Van Tienhoven (1880) 5 CPD 344 • 15/10= P sent again the LOA to reconfirm his acceptance that made on 11/10 • 20/10= P received the D's letter of revocation which is posted on 8/10.

Byrne v Van Tienhoven (1880) 5 CPD 344 The court held: There was a contract. Revocation of offer posted on 8/10 was not effective till 20/10 ( when the P received the said LORO) At the meantime, P had already accepted the offer on 11/10 (telegram).

Example: A offers by letter to sell a house to B. The communication of offer complete when B receives the letter. A then revokes his offer by telegram. (S. 6(a) of CA. The revocation is complete (S. 4(3)(a) (b) of CA. on the part of A when the telegram is despatched. On the part of B when B receives it.

Revocation : Section 6 of CA: (b) Lapse of time prescribed in the proposal or if no time prescribed, by of lapse of a reasonable time;

Macon Works & Trading Sdn Bhd v Phang Hon Chin (1976) 2 MLJ 177 Court laid down the principles: An offer lapses after a reasonable time. Failure to accept the offer within reasonable time shows rejection by the offeree.

Ramsgate Victoria Hotel Co v Montefiore (1866)LR Ex Ch 109 The D applied for shares in the P company on 8 June, and had paid a deposit. He received no further news until 23 November when he was informed that the shares had been alloted to him and that he should pay the balance due on them. D refused to pay the balance.

Ramsgate Victoria Hotel Co v Montefiore (1866)LR Ex Ch 109 The court held: that there was no valid binding contract bacause acceptance was not made within reasonable time.

Revocation : Section 6 of CA: ( c) Failure of the acceptor fulfill a condition of an acceptance;

Example: A company offers to employ Iskandar on condition that he passes a skill test. If the applicant fails the test, the proposal is revoked because Iskandar does not fulfill a condition

Financing Ltd v Stimson The D offered to buy a car from P’ company if the car remain in the same conditions. However, before the D accepted the offer, the said car was stolen and was subsequently recovered in damaged condition.

Financing Ltd v Stimson The court held: The D’s offer to buy the car is only accepted if the car remained in the same condition when the offer was made. Since, the offerree fails to fulfill the condition, offer is automatically revoked.

Revocation : Section 6 of CA: (d) Death or mental disorder of the proposer;

Example v the offer only revoked if the offeree aware the facts that before he makes acceptance , the offeror is death/mental disorder. v The acceptance without prior knowledge of the death or mental disorder of the proposer is a good acceptance is valid and binding.

Bradbury v Mogan v Court laid down the principle: The death of the offeror WILL NOT TERMINATE the offer if the acceptance is made in IGNORANCE of his death.

Note: This Notes and Copyright therein is the property of Madam Norazla Abdul Wahab and is prepared for the benefit of her students enrolled in the MGM 3351 course for their individual study. Any other use or reproduction by any person WITHOUT CONSENT IS 86 PROHIBITED.