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 1950Person 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 rules 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 the offeror.

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.