What is contract?

 General definition- 2 or more parties

entered into an agreement
 S.2(h) of the Contracts Act defines
contract as an agreement enforceable by
law
 Elements of Contract
 Offer/proposal and acceptance
 Consideration
 Intention to create legal relations
 Free Consent
 Capacity
 Certainty
 Legality
 Formalities
 * if one of the above elements is missing, there
is no contract.
 Definition of proposal
 S.2(a) of the Contracts Act defines
proposal as “ when one person signifies to
another his willingness to do or to abstain
from doing anything with a view or by
hoping to get the assent from the
acceptor”
 Types of Proposal
 Offer to an individual- the offer is
addressed to a particular person
 Offer to the world at large- it refers to
anybody but provided that he fulfills the
conditions of offer
 Case: Carlill v Carbolic Smoke Ball Co.p.12
and 13
 Communication of Proposal
 General rule says that proposal is only
effective when it is communicated to the
acceptor
 S.4(1) says a communication of proposal
is complete when it comes to the
knowledge of the acceptor
 Cases: R v Clarke p.13
Williams v Cawardine
 Rights and obligations

 Once you have entered into agreement, law

recognises rights and obligations
 For Example; A agrees to sell his car to B for
RM10,000
 A is under an obligation to sell or deliver a car to
B
 B has right to receive it
 A has right to receive the money from B
 B is under an obligation to pay to A
 Invitation to treat
 Invitation is a process of negotiation. The
maker of invitation is the one who invites
anyone (the public) to make a proposal.
Then it is up to the maker of ITT to accept
or reject. If it is accepted, then there is
contract
 Examples of ITT; display of goods,
advertisements or circulars, tenders and
auctions sales
 Revocation of Proposal
 General Rule- a proposal may be revoked at
anytime before acceptance
 S.5(1) provides a proposal may be revoked at
any time before valid acceptance made by the
acceptor
 For example 1/7/07 A makes a proposal by
sending a letter to B
 4/7 B accepts a proposal by sending a letter
 A can revoke his proposal at anytime( before
4/7) before acceptance made by B on 4/7.
 How proposal can be revoked?

 The revocation of proposal must be communicated to the acceptor- s.6(a)the

1.
acceptor must know about the revocation

Case: Byrne v Tienhovern-p.22&23

- S.4(3)(a) which provides the communication of revocation of proposal is effective
against the proposer when she posts the letter of revocation

AND
- S.4(3)(b)- the communication of revocation of proposal is complete against the
acceptor at the moment it comes to the knowledge of the acceptor

So according to 4(3)(b) the communication of revocation of proposal is complete

against B when he receives and knows about it

- S.5(1), s.6(a) and s. 4(3) (b) must be read together

 According to s.6(a) also the revocation of
offer can be communicated either by the
offeror or the third party who is appointed
as his agent. If the third party is not his
agent the revocation of offer is not
complete
 But it is different from English law. The
offeror or any third party can
communicate the revocation of offer
 Dickinson v Dobbs p. 23
 Continued

 2) By the lapse of time prescribed- s6(b)

If a proposal is stated for a fixed time then
it cannot be accepted after that time. If no
time is fixed it can be accepted within
reasonable time
Case: Ramsgate Victoria Hotel Co Ltd v
Montefiore p.23 & 24
 Continued
 3) By failure of the acceptor to fulfill the
conditions of proposal- s.6(c)
If the proposer makes his proposal subject to the
fulfillment of a condition, failure on the part of
the acceptor to fulfill such condition will
terminate a proposal. Then no acceptance
happen.
For example: an offer to buy goods may
terminate if the goods offered for sale are
seriously damaged before acceptance.
Case: Financings Ltd v Stimson
 Continued
 4)S.6(d)- dealing with death or mental
disorder of the proposer
The fact of the death and mental disorder must
be known or notified to the acceptor before
acceptance taken place. If the acceptance taken
place before the acceptor knows about these
facts, the acceptance is valid
For Example- if the acceptor does not know that
the proposer has died, an acceptance will be
valid if the nature of contract can be performed
by the personal representatives
 2) ACCEPTANCE

 Definition of acceptance is stated in s.2(b)

where it provides an acceptance happens
when the acceptor signifies his assent
i) Characteristics of acceptance
 According to s. 2(b)- only the acceptor can accept the
proposal
 According to s.7(a)- the acceptance must be absolute
and unqualified ( counter proposal)
 S.7(b)- generally the acceptor may decide the manner of
acceptance. But if the proposer fixed the mode of
acceptance then it must be followed
 Acceptance must be in positive form. Silence does not
mean consent. This is because s.2(b) says the acceptor
must signify his assent
 Case: Fraser v Everett p.18
Felthouse v Bindley
 Continued
 Although the general rule stated that the
acceptance must be communicated but there is
an exception rule that the acceptor need not
communicate his acceptance. These situations
are:
 (a) when there is offer to the world at large. It is
sufficient if the acceptor fulfills the conditions of
proposal Case: Carlill v Carbolic Smoke Ball Co
 (b) When there is postal rule. An acceptance
happens at the moment the acceptor posts the
letter of acceptance Case: Adams v Lindsell
 Communication of Acceptance
 General Rule of COA- acceptance is
effective only when it is communicated to
the proposer
 S.4(2)(b) says the COA is complete
against the acceptor when it comes to the
knowledge of the proposer
 Fraser v Everett p18
 Felthouse v Bindley
 Postal Rule( Exception Rule)
 There is an exception to the general rule of COA
when an acceptance is made by post or
telegram. This exception rule is known as postal
rule
 According to this postal rule, once the letter is
posted or the telegram is dispatched, the
proposer is bound by the contract even though
the letter is lost, delayed or destroyed or the
proposer does not know about the acceptance
 S.4(2)(a) says COA is complete against the
proposer when it is on the way to him and out
of the control of the acceptor
 Continued
 Cases: Adams v Lindsell
Ignatius v Bell p.20
Entores Ltd v Miles Far East Corporation p.19
For example: 1/7 A posts letter of proposal
to B
3/7 B posts letter of
acceptance to A

According to s.4(2)(a) COA is complete against A at the

moment B posts a letter of acceptance on 3/7 regardless
whether the letter is lost, destroyed or A has no
knowledge about the acceptance
 Revocation of Acceptance
 S.5(2) provides that an acceptance may be revoked at anytime before the
acceptance comes to the knowledge of the proposer(even after the
acceptor has posted the letter of acceptance)

For Example

1/9- A offers by letter to sell his house to B

2/9- B accepts and sends by post.
2/9- under s.4(2)(a) A is bound by contract with B
10/9- A receives the letter of acceptance made by B. Under s.4(2)(b), B is
bound by a contract when the letter of acceptance comes to his knowledge
If B wishes to revoke his acceptance he can do so at anytime but before the
letter of acceptance reaches A that is before 10/9

Case: Dunmore v Alexander

 Counter Proposal
 If there is any addition or modification of the original terms of
proposal to the new terms, there is no acceptance but merely a
counter proposal

 Counter proposal is a rejection of the original proposal. Once it is

rejected, the original proposal is terminated then it cannot be
subsequently accepted

 For Example: A offers to sell his bungalow to B for RM100,000

B tells A that he wishes to buy that house for RM80,000
A rejects and later B wants to buy the house at the original price
B is making a counter proposal. Once he rejects the original price he
cannot accept it later

Case: Hyde v Wrench p 14 and 15