2. OVERVIEW
(1) Introduction
(2) What is a Contract?
(3) Definition of Proposal & Acceptance
(4) Characteristics of Proposal
(5) Proposal to be Distinguished from ITT
(6) Proposal to be Distinguished from Counter Offer
(7) Acceptance
(8) Postal Rule & Instantaneous Communication
(9) Characteristics of Revocation
–Revocation of Proposal
–Revocation of Acceptance
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3. (1) INTRODUCTION
• Everyday in our life we enter into contracts.
• When?
– We buy groceries in the market
– We eat in a restaurant
– We get into a bus travel
– We get a can of coca cola from the vending
machine
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4. • Compare ‘contract’ with ‘agreement’
–Contract involves an element of agreement
BUT not every agreement will result in a
contract recognizable by law.
–Contract is an agreement enforceable by
law.
–Contract is an agreement which is legally
binding between them parties.
–The agreements are contracts IF they fulfill
the essential elements of a contract.
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5. 5
Basically:
A contract is an agreement
between two or more parties
that is legally binding between
the them.
• Where they agree to perform
or avoid performing certain
acts
Section 2(h) of the CA 1950:
A contract is ‘an agreement
enforceable by law’.
Section 10(1) :
all agreements are contracts if they
are made by the free consent of
parties competent to the contract,
for a lawful consideration and with a
lawful object, and are not hereby
expressly declared to be void
A contract can be formed either:
i) Verbally
ii) In writing
iii) Implied from the conduct of
the parties
(2)
WHAT IS A
CONTRACT?
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6. CONTRACTS ACT 1950
• The principle legislation for the law of contract
is the Contract Act 1950.
• Where there are no provisions in the
Contracts Act 1950, the English law applies by
virtue of the Civil Law Act 1956.
• Where there contradiction between the
English Law and Contracts Act 1950, the
Contracts Act 1950 will prevail.
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7. Eg: Joe offering to buy Mek’s Blackberry Bold with RM 1000
with the hope that Mek will accept it. Upon acceptance by Mek,
a contract between parties created.
• Person who made the offer/proposal is known as
promisor/proposer/offeror : __________
• The person who accepted the proposal is known as
Promisee/acceptor :___________
Every section must be refer to CA 1950. As for the cases, you
should be able to identify the parties involved in the case.
EG: CARLILL V CARBOLIC SMOKE BALL CO.
– PLAINTIFF: party who sues (_____________)
– DEFENDANT: party who being sued (____________)
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PLAINTIFF DEFENDANT
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9. (3) DEFINITION: PROPOSAL & ACCEPTANCE
• General rules
• PROPOSAL
– Statement or other indication made by the individual which
prepared to enter into a contract with another on certain terms
– Section 2(a) of CA 1950: ‘when one person signifies to another
his willingness to do or abstain from doing anything…he is said
to make a proposal’
– The ‘promisor’/ ‘offeror’ must have declared his readiness to
undertake an obligation upon certain terms, leaving the option
of its acceptance or refusal to the “offeree”.
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Proposal Acceptance Agreement
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10. • ACCEPTANCE
– Section 2(b) of CA 1950: ‘when the person to whom the
proposal is made signifies his assent thereto, the proposal
is said to have been accepted.
– If acceptance is made in words- express acceptance
– If the acceptance is made other than in words-
implied acceptance.
• Section 4(1): A proposal is only complete
when it comes to the knowledge of the offeree.
• Example:
– Adam by offering to buy Maya’s iphone for RM1000,
in the hope that Maya will accept, is making a
proposal.
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11. (4) CHARACTERISTICS OF PROPOSAL
• Two types of proposal
(1) Unilateral proposal
-requires acceptance in form of an act or a
performance.
-one party promises to do something to induce the
other party to do something
-are binding and enforceable against only one party
(the party that makes the promise).
-for instance, an advertisement to pay a reward for
returning lost pets. (promise for an act). This
advertisement is an offer.
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12. (2) Bilateral proposal
-requires acceptance of unqualified promise.
-all parties promise to do something for one
another.
-bind all parties and are enforceable against all
parties.
-for instance, in a job advertisement, the job
advertisement itself is not an offer but an ITT, the
applicant is actually making an offer to work for the
advertiser, if they accept the applicant’s offer,
promise to give the applicant a position and
remuneration in accordance with the
advertisement. (a promise for a promise)
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13. An Offer Must Be Certain
• It is a condition that an offer must be certain,
clear, complete, final and detail to avoid any
obscurity or doubt.
• If the offer is not clear, it is not to be regarded as
a valid offer.
• In GUTHING v LYNN (1831), Lynn offered to buy a
horse from Guthing on condition that if the horse
brings luck to him, he will pay another £5 extra. It
was held that the offer was not final &
incomplete. Therefore it was invalid.
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14. An Offer Must Be Communicated
• Unless there is communication of the proposal as suggested
in Section 2(a) of CA 1950, ‘when one person signifies to
another his willingness to do or abstain from doing
anything…’, there can be no acceptance to form an
agreement.
• The communication of offer is complete only when the offer
comes to the knowledge of the offeree- Section 4(1) of CA
1950.
• If the offer has not been communicated to the offeree, there
is no acceptance could be made to form a binding contract.
• A party who casuall Dy returns a lost property to its owner
cannot legally claim a reward if he is unaware of it at the
time but subsequently discovers the existence of an offer of
reward for its return.
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15. • E.g: You found your neighbour's lost cat and returns it to him,
unaware of the fact that your neighbour had advertised in the
newspaper that reward will be given to those who found his cat.
• In this situation, you cannot claim for the reward because there is
no contract between two of you.
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R v CLARK [1927]
• The Australian Gov. offered a reward for the
information leading to the arrest n conviction of the
criminal
• One of the criminal, Clarke gave info which leads to
the arrest of Y.
• Clarke was later acquitted n claimed for the reward
• HELD: he was not entitled for the reward because
he was not aware of the reward when he gave the
info.to the government.
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16. To Whom Can A Proposal Be Made?
• Proposal can be made either to:
a) Particular person or
Eg: Bala offer to sell his car, a Proton Saga, to
Krishnan for RM20,000
a) To the general public
Eg: Ali advertised in the Berita Harian that he will
reward RM500 to anyone who finds his pet, ostrich.
• Proposal made to a particular person, may only be
accepted by that person. This is based on the
wordings of Section 2(b) of the CA 1950, which
provides ‘when the person to whom the proposal is
made…’
• If proposal is made to the general public, then anyone
who meets all the terms of the proposal may accept.
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17. CARLILL V CARBOLIC SMOKE BALL CO. [1893]
• Defendant supplied some kind of
drugs to cure influenza.
• The defendant advertised that
whoever used the product and still
suffer from influenza will be offered
sum of money.
• The plaintiff still suffered from
influenza after using the product
then sued the company for breach of
contract.
• Held:The advertisement was a
proposal. The plaintiff accepted the
offer made to the world at large.
Therefore the defendant has to pay
the money to the plaintiff.
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18. (5) PROPOSAL MUST BE DISTINGUIHED
FROM INVITATION TO TREAT (ITT)
• The CA 1950 does not contain any provision
with respect to ITT thus English Law is
applicable.
• An ITT is not a proposal but a sort of
preliminary communication which passes
between the parties at the stage of negotiations
that might lead to an offer.
• ITT is only an invitation to induce offers.
(merely an invitation from one party to another
party to make an offer)
• Thus upon the customer making an offer it is up
to the person making the ITT to accept or reject
the offer.
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20. Display of Goods in a Shop
• Generally do not constitute a proposal to sell.
• The shop owner merely holds himself
prepared to consider proposals made to him
at the suggested prices.
• The invitation is not capable of being accepted
as it is not a proposal.
• The proposal is in fact made by the customer
when he selects the desired goods.
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21. • This well established rule was clearly determined
by the case of PHARMACEUTICAL SOCIETY OF
GREAT BRITAIN v BOOTS CASH CHEMIST LTD
[1953],
-Customer went into Boots n picked up drugs without
supervision.
-B4 the customer is able to purchase, his action was being
prevented by the chemist.
-The customer was angry with the situation n reported the
matter to the PSGB stating that Boots selling drugs without
supervision.
• Held: Display Of Goods on the shelf is an ITT n
not a proposal. No contract exist between
customer n Boots. Thus Boots has not made
an unlawful sale.
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22. • FISHER v BELL (1960), the court held that the
display of several kinds of flick-knives in a
glass shop window 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.
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23. Advertisement
• An advertisement is only an invitation to
attract people’s interest to make an offer. The
advertiser is not an offeror/promisor.
• The person who read/saw/noticed the
advertisement and make an offer to buy or to
get whatever being advertised is an offer.
• Acceptance would be made by the
advertiser/seller.
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24. • COELHO v THE PUBLIC SERVICES COMMISSION [1964],
Coelho had applied for a position in response to a
newspaper advertisement.
– He was later informed that his application had been
accepted. After undergoing a period of training, he
was posted to a position.
– Subsequently, the PSC tried to terminate his
employment on the basis that Coelho was appointed
on probation.
• It was held that the job advertisement was an invitation
to any qualified persons to apply. The applications from
the applicants were offers and such offers could be
accepted by was of appointment. Therefore, there was a
valid contract between Coelho and the PSC once he was
appointed. Consequently, the termination of Coelho’s
employment was invalid.
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25. Auction Sale
• When an auctioneer requests bids, he is actually
inviting the assembly of bidders to make offers to him.
• The auctioneer is only making an ITT. He invites the
people present to make an offer. The bidders who
make the bids are making the offers.
• The auctioneers may accept or reject the offer. Once
the hammer falls, acceptance takes place and contract
exists.
• Section 10 of the Auction Sales Act:
“A sale by public shall be complete when the
auctioneer announces its completion by the fall of the
hammer…”
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26. • HARRIS v NICKERSON (1873), the Nickerson
acting in good faith, advertised that certain
furniture would be auctioned on a particular day.
– The Harris travelled to the auction with a commission
to buy the furniture but it was withdrawn from the
sale.
– Harris sought for damages and claimed that Nickerson
had breached a contract since the advertisement is an
offer and his presence is an acceptance to such offer.
• It was held that an advertisement is only an ITT,
not an offer. Therefore was no contract and Harris
was not entitled for any damages from Nickerson.
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27. (6) PROPOSAL TO BE DISTINGUISHED
FROM COUNTER OFFER
• Situation whereby after a proposal has been made, suddenly either
one of the party make a new proposal
• If any changes have been made to the proposal, this is also a
counter proposal.
• It is treated as REJECTION of the original proposal.
• Eg: When Lala makes a proposal to Lulu, Lulu has the choice to
accept or to reject it. But if Lulu makes a new proposal by changing
a vital terms of the contract (e.g. price of the goods), Lulu is said to
have made a counter-offer.
• Effect of counter proposal
– Lala’s original proposal or offer is destroyed and it can no longer
be accepted.
– Lala has become the acceptor while Lulu has become the
proposer.
– Lala has the choice either to accept or to reject Lulu’s proposal
(i.e. counter offer)
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28. • In HYDE v WRENCH [1840], the
defendant offered to sell a piece
of land to plaintiff for £1000 on 6th of June.
– The plaintiff then made a counter-offer to purchase at
£950 on 8th of June. However, the defendant refused
to accept the new price.
– The Plaintiff then immediately wrote to the defendant
accepting the original offer of £1000 on 27th of June.
• It was held that there was no acceptance because
the plaintiff’s letter on 8th of June had rejected
the original offer and not to be revived.
Therefore, there was no valid contract.
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29. (7) ACCEPTANCE
• Section 2(b) defines acceptance as “the person
to whom the proposal is made signifies his
assent, the proposal is said to be accepted.
– Once there is an acceptance, an agreement
between the parties is created. A contract exists
and it is binding upon the parties.
• Section 7 (a) CA 1950 “ the acceptance must be
made on exactly the same terms as proposed
without modifications or variation. It should be
absolute and unqualified.
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30. Characteristics of Acceptance
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(a) It must be unconditional, i.e, ‘absolute’ &
‘unqualified’ [s.7(a) of CA 1950]
-it must be accepted according to the terms of the
contract.
-any modification of the terms will destroy the
validity of such acceptance.
(b) It must be accepted within a reasonable time [s.6(b)
of the CA 1950]
-if there is a fixed date given, it must be accepted
before the date lapses.
-if there is no fixed date, it must be accepted
within a reasonable time.
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31. (c) Silence does not constitute a valid acceptance. It
requires a positive act of acceptance. [s.7(b) of
CA 1950]
– FELTHOUSE v BINDLY (1862), the plaintiff, uncle, write to his
nephew offering to buy a horse saying “If I hear no more about
him, I will consider him mine.” the nephew did not reply but told
the auctioneer, the defendant, not to sell the horse. The
defendant sold by mistake and the plaintiff sued the defendant
for conversion.
– It was held that there could no be conversion because there was
no contract between the plaintiff and his nephew since the latter
did communicated to the plaintiff’s offer. Silence is not
acceptance.
(d) It can be made by performance.
– For example, a taxi driver who drives his customer to
specific destination is accepting the proposal made by
the customer in form of performance.
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32. (e) It must be communicated using usual mode
or method [s.7(b) of CA 1950]
–Exceptions;
• Proposer has dispensed the need for it
• Proposer allows acceptance taking the
form of performance of an act stated in
the proposal, or
• Proposer allows ‘the acceptance of any
consideration for a reciprocal promise
which may be offered with a proposal’.
[s.8 of CA 1950]
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33. • The general rule is that acceptance should be communicated to the
proposer in order for a contract to be legally binding.
• Section 4(2) the communication of an acceptance is complete
a) as against the proposer:
– when the letter of acceptance is posted
b) as against the acceptor :
– when it comes to the knowledge of the proposer.
• E.g. : YOU accept MY proposal by letter sent by post. In this
situation, the communication of the acceptance is complete
against ME : when the letter is posted
against YOU : when the letter is received by ME
• By relying on the above mention section, there are two methods of
accepting a proposal. First by using post. Second, by using
instantaneous communication.
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Communication of
Acceptance
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34. (8.1) POSTAL RULE
• Proposer is bound when the acceptor posts the letter
[S.4(2)(A) of CA 1950] even though the proposer has no
knowledge of the acceptance or even the letter is delayed or
disappeared in the course of transit. This is because that once
the letter posted, the acceptor has no longer control over the
letter.
• This rule is known as postal rule. Under common law, the
rule is that acceptance is complete once the letter is put in
the letter box. It is place where the contract is made.
• IGNATIUS v BELL [1913], communication by post is the
method agreed by the parties. Acceptance had been made by
post. However there was a delay in course of transmission.
Court held that acceptance was complete. Contract exist
between the parties.
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35. • Limitations of the rule
– It only applies to acceptance and not other types
of communication such as proposal, counter offer
and revocation.
– It only applies where it was reasonable for the
acceptance to be sent by post.
– The rule can always be displaced by the offeror.
• HENTHOM v FRASER [1892], it only applies where it
was reasonable for the acceptance to be sent by
post.
• HOLWELL SECURITIES LTD v HUGHES [1974], if the
offeror wants to be sure that the postal rule will not
operate, this should be made explicit in the offer.
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36. • Communication such as telephone, answering machine, fax,
email and sms. For this method of acceptance, section 4(2)(b)
applies, whereby acceptance is complete as against the proposer
when the acceptance comes to the knowledge of the proposer.
• It means that if the acceptor is using the method of accepting
as above, the acceptance is complete only if the proposer is
aware of such situation.
• If the acceptor is using the telephone, he must make sure
that he talks to the proposer. If he is using answering machine,
proposer has to listen to the massage. If he is using fax, email
or sms, the proposer must have read the massage.
(8.2) INSTANTANEOUS COMMUNICATION
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37. • In ENTORES LTD v MILES FR EAST
CORPORATION [1955], acceptance for
instantaneous communication takes place
where it is received.
• In BRIMNES [1974], the court held that the
communication was effective when it was
received on the charterer’s telex machine
during office hours although it was not
actually read until the following morning.
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38. (9) CHARACTERISTICS OF REVOCATION
• Revocation refers to withdrawal of proposal by
the proposer or withdrawal of acceptance by the
acceptor.
• Requirements of a valid revocation;
– It must be communicated
• The communication of revocation is complete as against the:
– person who makes it- when it is communicated to the other
person [s.4(3)(a) of CA 1950]
– Person who receives it- when comes to his knowledge
– Time of revocation
• Proposal [s.5(1) of CA 1950]- at any time before the
communication
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39. • Sec. 5(1) CA 1950 provides that “ a proposal can be revoked
anytime before the communication of its acceptance is complete
against the proposer but not afterwards.
• Illustration under Section 5
A proposes by a letter sent by post to sell his house to B
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment
when B posts his letter of acceptance and not afterwards.
• Case: BYRNE v TIENHOVEN [1880]
It involved communication by post. On 8th October the plaintiff had
sent acceptance by telegram. On 20th October the letter of
acceptance reached the plaintiff.
court held; there was a contract between the parties because the
letter of revocation reached the acceptor after the acceptor
accepted the proposal.
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REVOCATION OF PROPOSAL
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40. Method of
Revocation of
the Proposal
Sec 6(a) notice of revocation by
the proposer to the other party
6(b) lapse of time
or lapse of
reasonable time
6(c) failure of the acceptor
to fulfill a condition
precedent to the acceptance
Sec 6(d) death or
mental disorder
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41. • Sec. 5 (2) - An acceptance may be revoked at
any time before the letter of acceptance
reaches the proposer/offeror.
• Sec. 4(3) – The communication of revocation
is complete as against the:-
a) person who makes it, when it is
communicated to the other person.
b) person who receives it, when it comes to
his knowledge.
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Revocation of acceptance
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