Topic 1 - Contract (ITT, Proposal and

Acceptance)(summary)
Use during lecture only 1
UKML 1013
Corporate and Business Law
Law of Contract
Invitation to Treat, Proposal
(Offer) and Acceptance
Topic 1
(Summary Slides)
Week 3, 29/1/2013 2/2/2013
Bachelor of International Business (Hons)
1
What is a CONTRACT?
We can make
agreement on
just anything
But for there to be a
contract, ingredients
are required.
2
Agreement
Contract
Proposal and Acceptance
Consideration
Intention to Create Legal
Relations
Legal Capacity of parties
Certainty of terms
Required formalities
Free Consent
No vitiating factors
No unlawful objects or
unlawful consideration
2
WHAT IS A CONTRACT?
A contract consists of
An agreement
That is legally bindingon the parties
If a contract is breached by a party in default
The innocent party can enforce the agreement
in a court of law
Form of contract is not important
Contract can be made orally, in writingor by
conduct of the parties.
As long as the essential elements are there.
3
2 different kinds of contract
Bilateral contract
Unilateral contract
LOST KITTY
Male house cat
Height: 25 cm
Weight: 3.5kg
Colour: White with
black patches
Name Adamasalah
RM500 for safe
return to Syaripa
4
PROPOSAL / OFFER
Proposal =s.2(a) Contracts Act as 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
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The person making proposal
Proposer / offeror
The person to whom a
proposal is made =Offeree
If the person accepts the
proposal =Acceptor
Syaripa
Pavani
Rules Regarding A Proposal
(1) Proposal must be distinguished
from an Invitation to Treat
(2) Proposals can be made to
Individuals or the world at large
(general public)
(3) Proposal must be communicated
(4) How a Proposal is terminated
(5) If an Option is given, a proposal
cannot be revoked.
6
Topic 1 - Contract (ITT, Proposal and
Acceptance)(summary)
Use during lecture only 2
(1) Proposal must be distinguished from
an Invitation to Treat
Before making contract =negotiations first.
Preliminary communications=Invitation to treat (ITT).
Inviting others to make a proposal or negotiate further
7
Textbook not
highlighted/writings
All books wrapped
PM for price
How much statute
book
RM50 for statute book
RM50 for textbook
Proposal: when clear and definite that he is ready
and willing to be bound (tied, must follow) by the
terms of his own proposal if the other party were to
accept his proposal.
Clear and unambiguous (not vague) words must be
used to evince (show) intention to enter contract.
To distinguish an ITT & proposal, must look at the
INTENTION of the party making a statement:
did the maker of the statement intend to be
bound by the acceptance of his statement without
further negotiations
(statement =Proposal/ Offer) or
did he intend his statement to be part of the
continuing negotiation process?
(statement =Invitation To Treat)
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Distinguish the terminologies!
Invitation to Treat: Inviting other parties to
make proposals or offers.
Intention to be Bound: Has intention to enter
into a contract. This intention differentiates an
ITT from a Proposal/Offer.
Intention to create legal relations
(under Topic 3): Parties have an intention that
their agreement shall be legally-binding.
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Examples or Situations of ITT or Proposal
The display of goods for sale at shop windows or
on supermarket shelves
Display =ITT, Customer: proposal
Cashier =acceptance or counter-
proposal (rejection of proposal)
Pharmaceutical Society,
Fisher v. Bell (1961)
Reasons for this rule? If display
amounts to a proposal:
Ownership would have passed on
to Customer the moment he takes
the item, cannot change his mind.
Shop must sell at that price even if
wrong price tag.
Business sense
10 10
Advertisements
Generally =ITT
Coelho - J ob advertisements =
ITT, J ob applications =proposals.
J ob offer =counter-proposal
Applicant =acceptance
Today: J ob advertisements /
applications =ITT
Co =offers, Applicant =accept
Others: Advertisement of auction,
sign at roadside, Facebook post
Reason? Business sense. If not,
once advertised, seller has to sell
even though no stock, wrong
price tag.
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Interview
J ob offer
Application
Acceptance
Advertisements (where considered a proposal)
Such advertisements are often for unilateral contract.
LOST KITTY
Male house cat
RM500 for safe
return to Syaripa
12
Topic 1 - Contract (ITT, Proposal and
Acceptance)(summary)
Use during lecture only 3
Price quotations, invitation for tenders and
supply of information
Invitation for tenders =ITT.
Proposal: Person who
submits Acceptance: Person
who invites tenders
Price quotations: ITT
Proposal =Customer
Acceptance =Seller
Preston Corporation
Supply of information =ITT
Those who send in quotations
or supply info =not bound to
sell at price quoted.
Invite Tender
Tender
Award of contract
Quotation
Print Order
Confirmation
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Auction Sales
ITT: Auctioneer
Reason: Get highest bid
Offers: Bidders.Can retract bid
Auctioneer: acceptance by fall
of hammer.
Bidder cannot retract bid.
S. 10 Auction Sales Enactment
M & J Frozen Food Sdn Bhd
Warlow v Harrison Auction
without reserve=the highest
bidmust be accepted.
Ebay or Lelong auctions:
Non-paying bid.
Proclamation of sales: ITT
Advertisement of auctions: ITT
Proclamation of sales
Advertisement of
Auctions
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Application for shares
Public offering (e.g. an IPO):
Prospectus invitation =ITT
Share application form:
Proposal
Co =Acceptance (allotment)
Rights issue: Co makes a
proposal, shareholder accepts
Automatic vending machine &
automated car park
Thornton v. Shoe Lane
Parking
ITT=Proprietor of machine
Offer: User/customer
Acceptance: Money accepted
and ticket issued
Parimala toll ticket
Prospectus
Share application form
Notice of Allotment
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(2) Proposals can be made to Individuals
or the world at large (general public)
If proposal is addressed to a particular person, only the
that person can accept s. 2(b).
If Syaripa offers to sell her Samsung Galaxy Note II to
Pavani, can Ampika just cut in and say she wants buy?
If proposal is made to the world at large & not directed
to anyone in particular =anyone who performs/fulfills
terms & conditions is considered to accept - s. 8.
Carlill v. Carbolic Smoke Ball
Advertisers had the intention to be legally bound: They
offered reward money, they deposit money (1000)
ready with a bank.
Acceptance was to be by conduct, thus no need for
any customer to inform the Advertiser.
Advertisement was an Offer (Proposal)
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(3) Proposal must be communicated
Proposal must be communicated (made known) to
the offeree.
When communicated? Comes to knowledge of the
offeree =when the offeree has actual knowledge of
proposal.
If Offeree does not know & what he does is just a
coincidence of what was offered by the Proposer, it
is considered no proposal and no acceptance.
What if Pavani found Syaripas cat without knowing
about the advertisement? Can she claim the reward?
R v. Clarke [927]
Even if Pavani saw the advertisement in the
newspaper, is it sufficient for her to accept the offer
by just calling Syaripa to say shell look for the cat?
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(4) How a Proposal is terminated
a) Proposer communicating notice of revocation.
Must be before the other party accepts. S.5(1)
Can it be by 3
rd
party? Dickinson v Dodds
Unilateral contract =cannot. Errington, Soulsbury
b)lapse of time: (time expires) If theres time provided. If
no, it terminates within a reasonable time.
c) Offeree fails to perform a condition precedent.
(Condition that must be fulfilled before contract is
formed). Pavani did not bank in money by 2pm
d)death/mental disorder of Proposer.
e) Rejection by Offeree
Counterproposal by offeree: Hyde v. Wrench [1840]
E.g. if there is some price bargaining by Pavani.
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Topic 1 - Contract (ITT, Proposal and
Acceptance)(summary)
Use during lecture only 4
(5) If Option i s given, proposal cannot be revoked
Where Proposer promises to keep proposal open for
some time, he needs not wait for offerees reply.
He can still revoke proposal even before expiry of time,
as long as Offeree has not accepted.
Syaripa only needs to tell Pavani theres no more deal,
and she can sell to Namawak.
If Offereepays some money or consideration(return)
to Proposer in return for the promise to keep proposal,
then Proposer cannot revoke before expiry of duration.
If Pavani wants Syaripa to wait for her answer, she
could have paid her a small deposit.
Option contract : Offereemust exercise his right to
accept within the stated duration. If not, offer lapses.
If Proposer sell to others within the duration & offeree
makes acceptance, apply for specific performance.
Real life application: Property, shares
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ACCEPTANCE
The person to whom the proposal is made must
signify his assent, only then a proposal is accepted
s. 2(b) Contracts Act 1950.
Agreement
Promise
Promisor
Promisee
Promise to sell
SGN II for RM2299
Promise to pay
rm2299 for SGN II
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Rules on Acceptance
(1) The acceptance must be absolute and
unqualified based exactly on same terms and
conditions of the proposal s.7(a).
Some things to consider:
a. Offerees reply must not be a counter-proposal
(counter-offer), because it ends original proposal.
b. A request for further information does not terminate
the original proposal.
c. If parties are still negotiating, no agreement.
c. If there is a subject to contract clause, there is no
legally-binding agreement until the condition(s)
stated are fulfilled.
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a. Offerees reply must not be a counter-proposal
Effect: a rejection of the original proposal which
cannot be subsequently accepted again.
Hyde v. Wrench [1840]
Syaripa offers to sell Samsung GN II for RM2299 to
Pavani. Pavani says How about RM1399?
b. A request for further information does not terminate
the original proposal.
does not end the offer, which can still be accepted
after the new information provided.
Stevenson Jacques v. McLean [1880]
Pavani wants to know if she can pay by Paypal
instead of direct bank-in to Syaripas account.
c. If parties are still negotiating, no agreement
Lau Bros & Co v China Pacific Navigation
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d. If there is a subject to contract clause, there is no
legally-binding agreement, until the condition(s)
stated are fulfilled.
- If a document is claimed to be a contract but
requires the execution of a further contract in order
to bind the parties, then it is not a contract because
the condition is not fulfilled.
- If this condition is merely showing the parties wish
to have a proper contract is drawn up, then the first
document is still a legally-binding contract since the
transaction is already agreed to.
Ok, weve agreed on the selling price. My lawyer
will send you the contract next few days.
Ok, youll hear from my lawyer soon. Once you
agree to the terms, then we have a deal. If not, no
deal.
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Rules on Acceptance
(2) Acceptance must be communicated to the
Proposer
a. Mode of Acceptance must be
reasonable. Different rules:
- instantaneous communication
- Post or Telegram.
b. Silence does not amount to acceptance.
c. If acceptance is to be made by performing
some conditions or some acts, then
acceptance needs not be communicated.
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Topic 1 - Contract (ITT, Proposal and
Acceptance)(summary)
Use during lecture only 5
General Rule: must be communicated to proposer
Made in a usual and reasonable mode (method).
E.g. Syaripa asks Pavani to post letter to her as she
would be outstation. But Pavani chooses to send
SMS.
Proposer can insists or does not object.
Real life applications: Job applications and contract
tenders
Communication of acceptance is complete
(considered made) = when Proposer actually knows
about the acceptance.
Instantaneous communication (tel, sms, face2face)
No acceptance if cannot hear or transmission fail
a. Mode of Acceptance
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(ii) Acceptance by post/telegram
Postal Rule: when Offeree uses post to accept
Conditions for this rule to apply:
Parties contemplate the use of post. Syaripa
specifically asks Pavani to use post.
Reasonable to use post If same location?
Letter properly addressed, proper postal authority.
If wrongly addressed, rule does not apply.
S. 4(2): communication of an acceptance is complete
(a) as against the proposer, when it is put in a course
of transmission to him, so as to be out of the
power of the acceptor; and
(b) as against the acceptor, when it comes to the
knowledge of the proposer.
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Explanation on the workings of
S.4(2)(a):
Proposer: bound (by the agreement) the moment
offeree posts letter of acceptance
regardless of whether delayed or lost in transit.
Proposer can no longer withdraw his proposal.
27
Explanation on the workings of
S.4(2)(a): S.4(2)(b):
Even though Proposer is bound,
Acceptor: bound only when the Proposer has
received the letter of acceptance.
Meanwhile, still free to revoke acceptance, use a
speedier method to inform the Proposer.
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Byrne v. Van Tienhoven (1880):
11/10 - Buyer sent his telegram of acceptance.
Seller was bound by an agreement that came into
existence on that day.
Sellers letter of revocation of the offer (posted on
8/10) was not effective to withdraw the offer.
It would only be effective when received by the Buyer
on 20/10.
Why is the Proposer in a disadvantageous position if
the post is used? Offeree can have the best
advantage whenever circumstances change.
How can a Proposer protect himself?
Do not allow the use of post
Oust the application of postal rule: Howell Securities
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(ii) Acceptance by post/telegram
Postal rule of acceptance =only when Offeree is
posting letter to accept proposal.
NOT apply if:
1. Proposer posts letter of proposal =
Proposal made: when Offeree receives letter
2. Proposer posts letter to revoke proposal
Proposal revoked: when Offeree receives letter of
revocation of proposal.
3. Offeree posts letter to revoke acceptance.
Acceptance revoked: when Proposer receives
letter of revocation of acceptance.
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Topic 1 - Contract (ITT, Proposal and
Acceptance)(summary)
Use during lecture only 6
(b) Silence does not amount to acceptance
Offeree must signify his assent - s. 2(b).
Proposer cannot make offeree do the act of rejecting
Felthouse v. Bindley, Fraser v. Everret
Real life application: Free magazines sent to house
(c) Acceptance by performi ng conditions or acts
- Section 8 CA 1950
Proposer expressly or impliedly waiving the
requirement for Offeree to communicate acceptance
Usually seen in unilateral contracts.
Proposer makes promise made in return for the
Offeree performing an act.
Reward cases, product-testing, option contract.
Syaripa requires Pavani to bank into her PBB
account.
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REVOCATION OF
PROPOSAL AND ACCEPTANCE
Proposal: revoked any time before communication
of acceptance is complete as against the proposer
s. 5(1), Byrne v Van Ti enhoven
Acceptance: revoked any time before
communication of acceptance is complete as
against the acceptor s. 5(2).
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