Chapter 7 - Law of Contract: Offer

& Acceptance
 Introduction
What is a contract?
Refers to an agreement between 2 or more
persons that is legally binding between them.
Section 2(h) of the Contracts Act 1950
provides that: “an agreement enforceable by
law is a contract”.
 Types of Contract
a) Unilateral contract
 A type of contract where only 1 party is legally
obliged to uphold the terms of the contract.
 E.g: advertisement in the newspaper –
offering RM 200 as a reward to anyone who
return your missing cat. In this situation,
you’re obliged to pay the reward if the item is
indeed returned.
 b) Bilateral Contract
 It is a contract which involves an exchange of
promises between 2 or more specific people/parties.
 E.g.: A seller offers to sell a machine to a buyer for
RM 1000. The buyer accepts the offer.
 The buyer has promised to purchase the machine for
RM 1000 and the seller has promised to deliver the
machine upon his receipt of the purchase price.
 The buyer and the seller have created a bilateral
contract because they have exchanged promises.
Essential Elements of A Valid
Contract
✓ Offer
✓ Acceptance
✓ Consideration
✓ Capacity
✓ Intention
✓ Certainty
✓ Free consent
 1st Element of A Valid Contract
1. Offer
❖ Definition of offer: Section 2(a) of the Contracts Act
1950 provides that “when a person signifies to
another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent
of that other…he is said to make a proposal”.
❖ It relates to a situation when a person (offeror)
promises or proposes something to another party
(offeree) with the intention that his
promise/proposal would be accepted by the offeree.
❖ Offer = proposal
 How An Offer Could Be Made?
➢Refer to Section 9 of the Contracts Act 1950
➢“ So far as the proposal…is made in words,
the promise is said to be express. So far as
the proposal is made otherwise than in
words, the promise is…implied”.
➢Express – writing/verbally
➢Implied – from the conducts/acts of the
parties.
 Types of Offer
1. Specific Offer – addressed to a specific/particular person (addressee).
Therefore, only the addressee may accept the offer.
✓ Case: Boulton v Jones (1857)
✓ The defendant (Jones) normally had some business deal with
Brocklehurst.
✓ Defendant offered to buy some goods from Brocklehurst but on the day
the order was sent, Brocklehurst had sold his company to the plaintiff
(Boulton).
✓ Plaintiff then accepted the offer of the defendant by sending the goods
to the defendant. However, the plaintiff did not inform the defendant
that the business had changed hands.
✓ When the defendant knew that the goods had not come from
Brocklehurst, he refused to pay for the goods. Plaintiff sued the
defendant for the price.
✓ The court held that the defendant was not liable to pay for the goods.
There was no contract between the plaintiff and the defendant. Plaintiff
had no right to accept the offer, which was not addressed to him.
2. General Offer – addressed generally to everyone.
Once the stipulation of the offer is satisfied by a
person, the offeror is bound to the contract with that
person.
 Case: Carlill v Carbolic Smoke Ball Co
 Carbolic Smoke Ball Co. Ltd advertised that they
would offer £1000 to anyone who still suffered with
influenza after using a certain medicine for a fixed
period.
 The plaintiff used the medicine but still contracted
influenza.
 He then sued the company to get the money.
 Held: the plaintiff was entitled to the £1000 as she
had accepted the offer made to the public.
 Conditions of A Valid Offer
❖ An offer must be certain/clear/complete/detail/final. Otherwise – the offer is not
valid.
✓ Case: Guthing v Lynn
✓ Lynn offered to buy a house from Guthing on condition that if the house brings luck
to him, he will pay another ₤5 extra.
✓ The court held that the offer was not final & incomplete. Therefore, it was invalid.

❖ An offer must be communicated. The ‘communication’ of a proposal is complete

when it comes to the knowledge of the person to whom it is made.
✓ Case: Taylor v Laird
✓ Taylor resigned from being the captain of a ship owned by Laird during a voyage.
✓ Taylor then assisted to sail the ship back, without the knowledge of Laird.
✓ After that, Taylor claimed remuneration from Laird for sailing the ship home.
✓ The court held that Taylor did not communicate to Laird his offer to give his service
to sail the ship back. Therefore, Laird did not know about the offer and did not have
the opportunity either to accept or reject the offer.
✓ Thus, Laird is not liable to pay the remuneration to Taylor.
 Invitation to Treat (ITT)
Definition of ITT
➢A sort of preliminary communication which
passes between the parties at the stage of
negotiation that might lead to an offer.
➢Merely an invitation from one party to
another party to make an offer. It is merely
an invitation and not an offer.
 Common Examples of ITT
1. Advertisement
▪ Case: Harris v Nickerson - an advertisement
is only an ITT, not an offer.
• Exception: the advertisement may become
an offer if the advertisement is
accompanied with another
offer/promise/reward.
✓ Case: Carlill v Carbolic Smoke Ball
2. Display of Goods in A Self-Service Shop
✓ Case: Pharmaceutical Society of Great Britain v Boots Cash
Chemist Ltd
▪ The display of good was only an ITT.
▪ An offer is made when the customer placed the goods into the
basket and brings them to the counter for payment.
▪ An acceptance would only be made when the cashier accepted
the payment made by the customer.
3. Tender
✓ Case: Spencer v Harding
4. Price-list/Quotation
✓ Case: Preston Corporation Sdn Bhd v Edward Leong & Others
5. Auctioneer Inviting Bids
Section 10 of the Auction Sales Act – a sale by public auction shall be
complete when the auctioneer announces its completion by the
fall of the hammer.
Display of Goods - ITT
Tender - ITT
Price-List/Quotation
 Distinction Between Offer and Invitation To Treat

If a person does something with the

intention to make an offer, then such act may
bind the offeror if there is an acceptance by
another person to such offer.
However, if a person does something with
the intention to make an invitation to treat,
then anything done by another person in
response to such invitation to treat is only an
offer.
 2nd Element: Acceptance

Definition of Acceptance
Section 2(b) of the Contracts Act 1950 –
“when the person to whom the proposal is
made signifies his assent, the proposal is
said to be accepted; a proposal when
accepted, becomes a promise.
 Conditions/Requirements of A Valid Acceptance
1. Acceptance Must Be ‘Absolute & Unqualified’
➢ Section 7(a) of the Contracts Act 1950 – “…the
acceptance must be…absolute and unqualified”.
➢ Any modification of the terms of the offer amounts to
‘counter offer’.
➢ Case: Hyde v Wrench
✓ The defendant offered to sell his estate to the plaintiff for
£1000.
✓ In reply, the plaintiff made a counter offer to purchase at
£950.
✓ When the defendant refused to accept this counter offer,
the plaintiff wrote again to accept the original offer.
✓ The court held that no acceptance occurred because the
plaintiff’s 1st reply had rejected the original offer.
2. Acceptance Must Be Communicated In Some Usual & Reasonable
Manner
 Section 7(b) –”the acceptance must…be expressed in some usual and
reasonable manner, unless the proposal prescribes the manner in
which it is to be accepted.”
 It means that the offeree can communicate his acceptance in any usual
& reasonable mode or method, so long as the mode which he used is
the one which did not cause delay and which brought the acceptance
to the knowledge of the offeror.
 However if there is a ‘mode of acceptance prescribed by the offeror,’ it
must be followed by the offeree in order to make a valid acceptance.
 Case: Eliason v Henshaw
 Eliason offered to buy flour from Henshaw, requesting that the
acceptance to the offer should be sent to Eliason at Harper’s Ferry by
the wagon, which brought the offer letter.
 Henshaw sent a letter of acceptance by mail, thinking that the letter
would reach Eliason more speedily.
 Henshaw was wrong. The letter arrived after the due date.
 The court held that Eliason was entitled to reject the acceptance made
by Henshaw.
❖Sometimes, an acceptance may be qualified
by certain terms such as “subject to contract”
or “subject to a formal contract”.
❖Under such situation and in the absence of
other provisions to indicate otherwise, the
court will determine that there is no binding
contract until the contract is completed.
❖Case: Low Kar Yit & Ors v Mohd Isa
 Mode of Acceptance
1. Acceptance must be communicated.
➢ Silence is not an acceptance.
➢ Case: Fraser v Everett
2. Acceptance through post (Postal Rule)
➢ Acceptance through post is complete when the letter of acceptance is
posted even though it has not come to the actual knowledge by the
offeror.
➢ The offeror is bound to the contract even though he/she has no
knowledge of the acceptance.
➢ Refer to Section 4(2)(a) of the Contracts Act 1950.
➢ Case: Ignatius v Bell
 The defendant offered to sell his land to the plaintiff on condition that if
the plaintiff would like to accept the offer, he must make the acceptance
on OR before 20th August 1912.
 The plaintiff sent an acceptance by post on 16th August but the letter only
reached to the defendant on 25th August.
 The court held that the acceptance was exercised by the plaintiff when the
letter was posted on 16th August. Therefore, the defendant was bound to
the contract.
➢ Under the postal rule, even though the offeror is
already bound to the contract at the time when the
offeree posted his letter of acceptance, the offeree on
the other hand is not yet bound to the contract.
➢ Once the offeror received the letter of acceptance,
then only the offeree is bound to the contract.
➢ Refer to Section 4(2)(b) of the Contracts Act 1950.
❖ However, the postal rule will not apply in cases
involving telephone, telex, fax and email. The normal
rule will apply here that acceptance must be received
by the offeror in order for it to be effective.
❖ It is not necessary for any of these forms of
communication to be physically read by the offeror
for the acceptance to be effective. Once they have
received the acceptance is effective from that
moment.
 Revocation of Offer & Acceptance
1) Revocation of Offer
 An offer remains open until it lapses or is
withdrawn/revoked by the offeror.
 An offeror may revoke the offer at any time before
the acceptance is made.
 Section 5(1) of the Contracts Act 1950 – “a proposal
may be revoked at any time before the
communication of its acceptance is complete as
against the proposer”.
 Case: Payne v Cave
➢ The bid at an auction sale can be revoked at any time
before the fall of the hammer.
 Modes of Revocation of Offer
• Revocation of offer can be made/occurs in several ways. The modes are:
(a) Communication of Notice of Revocation – only the offeror or his
representative who is acting on his behalf may revoke an offer.
✓ Case: Byrne & Co v Van Tienhoven & Co (revocation by postal rule)
• 1st Oct: the defendant posted a letter of offer to the plaintiff.
• 8th Oct: the defendant posted a letter to revoke the offer.
• 11th Oct: the plaintiff received the letter of offer and sent the acceptance letter
on the same day.
• 20th Oct: the plaintiff received the defendant’s letter of revocation.
• Held: there was a contract between the parties – revocation was not effective.

(b) Revocation by lapse of time

✓ Case: Fraser v Everett
(c) Revocation by failure of the offeree to fulfill condition precedent to the
acceptance.
✓ Case: Pym v Campbell
(d) Revocation by the death or mental disorder of the offeror (offeree must aware)
✓ Case: Bradbury v Morgan
 Revocation of Acceptance
❖When the offeree can revoke his acceptance?
- The offeree could revoke his acceptance at any
time before the communication of acceptance is
complete.
❖How to revoke the acceptance?
- It must be notified/communicated to the
offeror.
- Can be made in any mode of communication so
long as it comes to the knowledge of the offeror.
❖ When communication of revocation of acceptance
effective?
- It is only effective when it comes to the knowledge of
the offeror.
❖ Revocation of acceptance under the postal rule.
- The offeree can revoke his acceptance at any time
before or at the moment the letter of acceptance
reaches the offeror.
✓ Case: Dunmore v Alexander
✓ The letter of acceptance and the revocation letter of
acceptance were received by the offeror
simultaneously.
✓ Held: the acceptance had been effectively revoked by
the offeree. Thus, there was no contract.
• Thank You.