LAW OF CONTRACT

The relevant statute on contract in Malaysia is the Contracts Act 1950. Section 2(h) of the Contracts Act
1950 states that “An agreement enforceable by law is a contract.”

Based on the above definition, it is clear that all contracts are agreements as every contract must be built
upon an agreement, but not all agreements are contracts. An agreement can only be considered as a
contract if it is accompanied by other elements such as consideration and intention to create legal
relation. Hence, agreements which may be lacking in certain elements would not amount to a valid
contract which is enforceable by the law.

The law does not impose formal requirements – the contract does not have to be put into writing or signed
nor does any particular form of words have to be used. Hence, the party can forma contract either verbally
or in writing or the contract can also be implied from the circumstances of the case. Although it would be
safer to have contracts reduced into writing there should be any disputes in future between the
contracting parties, it does not mean that the law would not recognize an oral contract. A contract may
be inferred from conduct alone; the intention of the parties is a matter of inference from their conduct
and the inference is more or less easily drawn according to the circumstances of the case e.g. a person
who boards a bus or hires a taxi cab undertakes to pay the fare to his destination even though he makes
no expressed promise to do so.

OFFER

Section 2(a) defines an offer or a proposal as:

“when one person signifies to another his willingness to do or not to do anything, while obtaining the
assent of that other to the act, he is said to make a proposal.”

Section 2(b) states that:

“when the person to whom the proposal is made signifies his assent, the proposal is said to be accepted.”

HOW AN OFFER CAN BE MADE

Section 9 provides that:

“So far as the proposal or acceptance of any promise is made in words, the promise is said to be expressed.
So far as the proposal or acceptance is made otherwise than in words, the promise is said to be implied.”

TO WHOM AN OFFER CAN BE MADE

- To one person
- To the world at large
 a) SPECIFIC OFFER: It is an offer made to a particular person or to a particular group of people. When
the offer is made specifically to a person to whom it is addressed, only that person can accept the
offer and no one else can take their place to accept the offer. For example, in BOULTON v JONES,
Boulton had taken over the business of one Brocklehurst, with whom Jones had previous dealings
with. Jones sent an order for goods to Brocklehurst, which Boulton supplied without informing
Jones that the business had changed hands. When Jones found out that the goods had not come
from Brocklehurst, he refused to pay for them and was sued by Boulton for the price. The Court
held that Jones was not liable to pay for the goods. It is a rule that if a person intends to with A,
then B cannot give himself any right under it.

b) GENERAL OFFER: It is an offer made to the public at large and is addressed to anyone who can
and would satisfy all the terms or conditions of the offer stipulated by the offeror. Anyone may
accept the offer as long as he or she fulfills the terms and conditions of the offer. The relevant
case is CARLILL v CARBOLIC SMOKE BALL CO. The manufacturers of a “smoke ball” published an
advertisement at the time of an influenza epidemic, proclaiming that their smoke ball cure all
kinds of ailments. In addition, they stated anybody who bought one of their smoke balls, used it
as directed and still suffered from influenza, would be paid 100 pounds. The advertisement had
stated that 1,000 pounds is deposited with Alliance Bank, showing their sincerity in this matter.
Mrs. Carlill, having bought and used the smoke ball, but still had influenza, claimed 100 pounds
from the company. The company argued that the advertisement does not amount to an offer
which could turn into a contract by acceptance. However, the Court held that the statement in
the advertisement created a binding obligation. It was an offer addressed to the public at large
which could be accepted by anyone who fulfills the conditions attached to the offer.

Similarly, an advertisement to give reward for the return of lost goods or property would be
considered as an offer to the public at large or a general offer.

OFFER MUST BE CLEAR

The offer must be clear, complete, final and detailed to avoid doubt. If the terms are not clear, then it is
not regarded as a valid offer. This is because the law cannot enforce a contract based on ambiguous or
indefinite terms. In GUTHING v LYNN, Lynn offered to buy a horse from Guthing on condition that if the
horse brings luck to him, he will pay another 5 pounds extra. A dispute arose and the issue is whether
there was a valid offer. The Court held that the offer was not final and complete. Hence, it was not valid.

COMMUNICATION OF OFFER

- Must be made known by the offeree

- Be aware/ knows/ gets knowledge

Section 4(1) states:

The communication of a proposal is complete when it comes to the knowledge of the person to whom it
is made.” If an offer is made but it has not come to the knowledge of the offeree, the offer is not effective
yet. It becomes effective and complete when the offeree gets to know about it. Without knowing, the
offeree cannot make an acceptance. The offeree should be given an opportunity to consider the offer and
decide either to reject or approve it. If there is no acceptance to the offer, there cannot be a valid contract
created.

In TAYLOR v LAIRD, T was engaged to command L’s ship and conduct certain explorers on an expedition.
He quit in the course of the expedition but helped to work the vessel home, without L’s knowledge. He
then claimed to be paid for the services rendered. It was held that he could not recover, L never had the
opportunity of accepting and refusing the services while they were being rendered. T’s offer, being not
communicated, could not be accepted and could not give him any contractual rights against L.

On the same basis, if an offer is made but the offeree does not know and the offeree happens to do an
act which coincides with the offer without being aware of it, the act done cannot amount to an
acceptance. A party accepting the proposal or offer must be or offer must be aware of its existence. In R
v CLARKE, the Australian Government made an offer to pay a reward for any information leading to arrest
and conviction of a person’s responsible for the murder of two police officers. Mr. A and Mr. Clarke were
arrested for the crime. Clarke then gave information which led to the arrest of another person, Mr. B. Mr.
A and Mr. B were later convicted for the crime. Clarke was released as he was not found guilty. Clarke
then brought an action to claim for the reward. It was held that Clarke failed in his action because Clarke
gave the information only to release himself and not in response to the offer of reward. Although Clarke
has seen the offer, but at the time of giving the information, that reward was not present to his mind, he
had forgotten it, as he was so excited to be released.

Similarly, in FITCH v SNEDAKER, it was held that a reward cannot be claimed by one who did not know it
had been offered. A person who does an act for which a reward has been offered in ignorance of the offer
cannot say that the act was done in return or in reliance on the reward offered.

However, if the offeree knows of the offer but is inspired to perform by a motive other than claiming the
reward, such a motive is immaterial. In WILLIAMS v CARWARDINE, the plaintiff, with the knowledge of
the reward, supplied information leading to the conviction of an assailant for murder, but only did this to
‘ease her conscience, in hopes of forgiveness hereafter’. She was held entitled to claim the 20 pounds
offered as she has knowledge of the offer at the time she made the acceptance by supplying the
information.

OFFER MUST BE DISTINGUISHED FROM INVITATION TO TREAT

Once a statement or action becomes an offer, the offeror becomes legally bound by the offer when the
offeree accepts the offer. Sometimes a person may wish to open negotiations rather than to make an
offer. The Court refers this preliminary communication as an invitation to treat. An offer must be
distinguished from invitation to treat as a response to it would not form a binding contract. An invitation
to treat is not an offer but merely an invitation to make an offer. It is important to distinguish because its
consequences but sometimes it is not easy to draw such a distinction.
a) Advertisement – newspapers, periodicals, television commercial, web advertisement, and
trading online services
The advertiser merely invites the readers or the public to respond with an offer. When the reader
responds with an offer, it is entirely up to the advertiser whether to accept or reject the offer. A
contract would only be created if the advertiser accepts it. In HARRIS v NICKERSON, the defendant
made an advertisement for a sale of certain goods, including certain office accessories on a certain
date at a particular place. The plaintiff traveled to the location and discovered that the accessories
had been withdrawn from the sale. The plaintiff brought an action to claim damages and alleged
that the defendant had breached the contract since the advertisement was an offer and his
presence at the sale was an acceptance to the offer. The Court rejected his claim and held that
the advertisement was merely an invitation to treat.

In PARTRIDGE v CRITTENDEN, the defendant put an advertisement in the ‘classified’ section of a

periodical, advertising bramblefinches for sale at 25s each. Due to that, he was charged under the
Protection of Birds Act 1954 with ‘offering for sale’ a live wild bird which was an offence under
the Act. It was held that he had not committed any offence under the Act, because the
advertisement was an invitation to treat and not an offer.

However, if subsequent to the advertisement, the offer in response to the advertisement was
accepted, it would create a valid contract. In COELHO v PUBLIC SERVICES COMMISION, the
plaintiff applied for a position is response to a newspaper advertisement placed by the defendant.
He was later informed that his application was accepted. Subsequently, the defendant tried to
terminate his employment on the basis that the plaintiff was appointed on probation. The plaintiff
sued the defendant for breach of contract. It was held that the job advertisement was an
invitation to any qualified person to apply. The applications from applicants were offers and such
offers could either be accepted with or without conditions. In this case, the appointment letter
was given to the plaintiff was an unconditional acceptance. Therefore, there was a valid contract
between the plaintiff and the defendant. Consequently, the purposed termination of the
plaintiff’s employment was not valid.

In M.N. GUHA MAJUNDER v R.E. DONOUGH which involved an advertisement of the sale of
certain property and it was held that the advertisement did not have any binding effect. It is
merely an invitation to treat. Similarly, in MAJUNDER v ATTORNEY-GENERAL OF SARAWAK, a
news advertisement for the post of a doctor was held to be an invitation to treat.

Another relevant case is ECKHART MARINE GMBH v SHERIFF, HIGH COURT OF MALAYA,
SEREMBAN & ORS. In this case, Sheriff of the Seremban High Court had arrested a motor vessel
at Port Dickson and later put it up in an advertisement for sale. The appellant sent an offer to the
sheriff together with a letter and a banker’s draft for 10% of the purchase price which was lower
than the advertised price. The sheriff, however, accepted the appellant’s offer. Then the appellant
failed to pay the balance of the purchase price within the stipulated time. As a result, the deposit
was forfeited. The appellant then applied to the judge for the release of the deposit, alleging that
no binding contract was concluded between the parties. The question was whether there was a
 valid and binding contract between the appellant and the sheriff. It was held that the sheriff’s
advertisement amounted to an invitation to treat, and it was the appellant who made a
conditional offer by way of its letter in question. The sheriff had clearly accepted the appellant’s
offer by word and by conduct. Therefore, the appellant was bound by the contract.

Although generally an advertisement is an invitation to treat, there is an exception if the

advertisement is accompanied with conditions attached to an offer or a reward, it becomes an
offer. So, anyone who fulfills the conditions would amount to an acceptance. In CARLILL v SMOKE
BALL CO. as we have seen earlier, although the defendant placed an advertisement, it amounted
to an offer because the nature of the advertisement that contains conditions, the fulfillment of
which amounts to acceptance. Hence, there was a valid contract. Similarly, an advertisement to
pay a reward to anyone who and return lost goods. This type of advertisement is an offer.

b) Display of goods in a self-service shop or shop window display

It is quite common for people to say that supermarkets or self-service shops in having a sale are
putting the goods “on offer” or that certain goods are marked with label “special offer”. However,
looking at the legal aspect, such statements or labels do not amount to an offer, which if accepted,
would form a contract. This is because when goods are displayed on the shelves with price tags
on or at the window display, the shop owner is actually making an invitation to treat. In other
words, he invites people from the public to make an offer to him. The offer is made when
customers select the desired goods and bring them to the counter for payment. Hence, the offer
comes from the customers and not from the shop/supermarket. When the offer is made by the
customers, it is entirely up to the cashier to make an acceptance or refuse the customer’s offer.
A contract only concluded when the cashier accepts the offer by the customers.

PHARMACEUTICAL SOCIETY OF GREAT BRITAIN v BOOTS CASH CHEMISTS (SOUTHERN) LTD

Under Section 18(1) of the Pharmacy and Poisons Act 1933, it is an offense to sell certain
medicines unless ‘the sale is effected by, or under the supervision of a registered pharmacist’. The
defendant introduced a system where some of these medicines were made available to
customers on a self-service basis. There was no supervision until the customer went to the cashier
where a registered pharmacist would supervise the transaction, and could intervene, if necessary.
The defendant was charged under the said Act as the plaintiff claims that this was an offense
because it was argued that the sale was complete when the customer took an article from the
shelves and put it into their basket. The Court of Appeal disagreed and held that the sale was
made at the cash desk where the customer made an offer to buy, which could be accepted or
rejected by the cashier. The display of goods is, therefore, an invitation to treat and not an offer.

FISHER v BELLI
The defendant displayed a flick knife with the price attached. He was charged with an offense
under Section 1(1) of the Restriction of Offensive Weapons Act 1959 for ‘offering for sale’ a flick
knife. The Court held that no offense had been committed because the display of the knife was
an invitation to treat, not an offer.

MELLA v MONAHAN
 A charge of ‘offering for sale’ some obscene articles, contrary to the Obscene Publications Act
1959 failed the terms were simply displayed in a shop window and hence, it is merely an invitation
to treat and not an offer.

c) Tender
Notice inviting tenders are also invitation to treat. Companies, government bodies or
organizations may decide to put work out to tender (e.g. construction of buildings, renovation of
premises, operation of canteen/cafeteria) or seeks offers for certain goods to be purchased in
bulks. This means that potential contractors or suppliers are invited to submit quotations. The
invitation may be issued to the world or to specific parties. Such a request only amounts to an
invitation to treat and not an offer. Hence, the person making the notice/announcement of tender
will be free to accept or reject any responses. If he accept a certain response, a contract would be
concluded.

SPENCER v HARDING
The defendant made an announcement inviting tenders for the sale of certain goods. The offer
for tender made by plaintiff was the highest but the defendant did not accept it. The plaintiff
alleged that the defendant has breached the contract. It was held that there was no breach of
contract because a circular offering stock for sale by tender, was simply a proclamation that the
defendants were ready to negotiate for the sale of the goods and to receive of offers for the
purchase for them. There was no obligation to sell to the highest bidder or to any bidder at all. It
would be different, however, if the invitation states that the highest bid or the lowest quotation
will definitely be accepted.

d) Price List or Quotation

Its purpose is to give opportunity to the buyers to choose the best price. It is not an offer but an
early information which invites prospective buyers to make an offer. The sellers are entitled to
accept or reject the offers of buyers. If the sellers accept any of the offers, then a contract is made.
The sellers also have the right to make a counter-offer with a new price.

HARVEY v FACEY
A telegraphed to B: Will you sell us Bumper Hall Pen? Telegraph lowest cash price, answer paid.
B replied by telegram: Lowest price by the bumper hall pen is 900 pounds.
A then telegraphed: We agree to buy Bumper Hall Pen for 900 pounds asked by you.
Bumper Hall Pen was a plot of land, then A claimed that this exchange of telegrams constituted a
valid offer and acceptance. It was held by the Court that there was no contract because when B
stated the lowest price for the property, he was not making an offer but merely supplying
information.

PRESTON CORPORATIONS SDN BHD v EDWARD LEONG & ORS

The appellant (publishers) asked for quotations from the respondent (printers). The respondent
gave the quotation to the appellant. The appellant then made some printing orders based on the
quotation. It was that the quotation was only a supply of information which was an invitation to
 enter into a contract. The printing orders made by the appellant were offers subject to acceptance
by the respondent.

e) Auctioneer inviting bids in an auction sale

In an auction the auctioneer is merely making an invitation to treat to get response from the
bidders. A bid at an auction is an offer which can be accepted or refused by the auctioneer. The
auctioneer will be deemed to make an acceptance at the fall of the hammer. Section 56 of the
English Sales of Goods Act 1979 (Amended 1993) provides that in an auction sale, a sale is
complete when the auctioneer announces its completion by the fall of a hammer or in any other
customary manner, and until such announcement is made, any bidder may retract his, her or its
bid.

This means that the acceptance must be made exactly on the same terms of the offer without any
modifications or variations. The intention of the offeree to accept must be expressed without
leaving room for doubt as to whether an acceptance was made. The requirement that the
acceptance must be in line with the conditions of offer is known as mirror image rule. If an offeree
accepts with modification to the offer, it would amount to a counter-offer and it does not
constitute to an acceptance. A counter-offer is treated as a rejection of the original offer and it
destroys the structure of the offer. Therefore, there is no valid acceptance which creates a binding
contract when the offeree responds with a counter-offer. However, if the offeree agrees and
accepts the counter-offer, the agreement can be concluded.

HYDE v WRENCH
The defendant offered to sell a farm to the plaintiff for 1000 pounds. The plaintiff said that he
would give 950 pounds for the farm. The defendant refused and later, the plaintiff said that he
would agree to pay 1000 pounds. The defendant refused to maintain his original offer and the
plaintiff tried to obtain specific performance for the alleged breach of contract. The Court held
that the plaintiff’s response to the offer was a counter-offer which rejected the original offer so
there is no contract created.

However, a distinction must be made between a counter-offer and a mere request for further
information. An inquiry does not reject the original offer and hence, the offer still stands.

STEVENSON, JACQUES & CO v MCLEAN

The defendant offered to sell iron at 40s per ton. The plaintiff sent a telegram to the defendant
saying “Please answer whether you would accept payment for delivery over 2 months or if not,
the longest limit that you would give.” There was no response from the defendant and the
defendant then sold the iron to another purchaser thinking that the plaintiff had rejected the
offer. The Court held that the plaintiff did not make a counter-offer. The telegram was only an
inquiry which should have been answered by the defendant and could not be treated as a
rejection to the offer.

Where the offeree introduces terms which either varies the offer or which is not included in the
offer, it also amounts to a counter-offer.
JONES v DANIEL
A offered to buy a property belonging to B for 1450 pounds. In accepting the offer, B enclosed
with the letter of acceptance a contract for the signature of A. This document contained various
terms as to payment of deposit, date of completion and requirement of title which had never
been suggested in the offer. The Court held that there was no contract, B had not accepted A’s
offer but made a counter-offer of his own, which was never accepted by A.

HOW AND WHEN AN ACCEPTANCE CAN BE MADE

Acceptance must be expressed in some usual and reasonable manner. Section 7(b) provides that
in order to convert a proposal into a promise, the acceptance must be expressed in some usual
and reasonable manner unless the proposal prescribes the manner in which it is to be accepted…

This concerns the mode of acceptance and the time of acceptance. If a particular mode of
acceptance is prescribed in the offer, then the offeree must follow the prescribed mode of
acceptance. Otherwise, the offeree can insist on the prescribed mode of acceptance and refuse
the acceptance made not in accordance with the prescribed mode. However, if the offeror does
not specify any mode of acceptance, then the offeree in making acceptance must do so in a usual
and reasonable manner depending on the circumstances and norm of practice.

ELIASON v HENSHAW
The appellant offered to buy flour from the respondent, requesting that acceptance to the offer
should be sent to the appellant at Harper’s Ferry by the wagon which brought the offer letter. The
respondent sent the letter of acceptance by mail thinking that it would reach the appellant faster.
Unfortunately, the letter arrived after the prescribed date. The issue was whether there was a
valid acceptance to form a valid contract. It was held by the Court that the appellant was entitled
to reject the acceptance made by the respondent as it did not follow the prescribed mode of
acceptance.

However, if the offer lay down the prescribed mode of acceptance which was not followed by the
offeree and the offeror did not refuse the acceptance, the offeror is deemed to have approved
such acceptance made by the offeree. The contract is binding between them even if the
acceptance did not follow the prescribed mode and the offeror cannot subsequently deny the
existence of the contract by insisting such mode of acceptance to be compiled with.

WESTERN ELECTRIC v WELSH DEVELOPMENT AGENCY

The defendants offered to let go of their factory to the plaintiff on the condition that the
acceptance must be made by filling in certain forms. The plaintiffs did not comply with such mode
of acceptance but occupied the factory and paid the monthly rent to the defendants.
Subsequently, a dispute arose between them regarding the condition of the factory. The plaintiffs
alleged that the factory was not suitable for their usage and caused some loss to them. The
plaintiffs sued the defendants for damages but the defendants alleged that there was no contract
between them because the plaintiffs originally did not comply with the prescribed mode of
acceptance. Hence, the defendants contended that they are not liable to pay damages to the
plaintiffs. The Court held that there was a binding contract between the plaintiffs and the
defendants because even though there was initially a prescribed mode of acceptance, the
defendants did not refuse the different mode of acceptance by the plaintiffs by occupying the
premises and paying monthly rental. The defendants were deemed to have accepted such
acceptance as there was no refusal from them.

If the offer prescribes a specific time limit within which an acceptance must be made, the
acceptance must be made within the time limit. Otherwise, if the acceptance was made after the
prescribed time, there would be a valid acceptance and the offeror is entitled to refuse the said
acceptance. On the other hand, if there is no prescription of time, then the acceptance should be
made within reasonable time. What is reasonable would depend on the circumstances of the case.

FRASER v EVERETT
There was a contract for sale and purchase of certain shares whereby the acceptance was
expected to be mailed at about the end of March and would have arrived by 23 rd of April.
However, it was mailed only in early April and reached the defendant on the 15th of May. It was
held that the acceptance was not made within reasonable time because shares were of fluctuating
nature, and hence, time is of essence.

Communication of acceptance
The general rule is that an acceptance must be communicated to the offeror. From the definition
of acceptance in section 2(b), “when the person to whom the offer is made signifies his assent
thereto…” The word signifies convey the meaning that the acceptance must be put forward or
made known to the offeror in order to be effective. Mere intention to accept without
communicating does not form a valid contract. Acceptance means, in general, communicated
acceptance which must be something more than mere mental assent. Hence, if the person intends
to accept the offer by them, they must actually inform the offeror that they agree to accept the
offer. Keeping silent or accepting it in their heart or mind without actually making the effort of
conveying the acceptance to the offeror does not amount to an acceptance.

FRASER v EVERETT
It was held that there is no rule of law saying that “silence gives consent” which is applicable to
mercantile contracts.

POWELL v LEE
The plaintiff applied for the post of headmaster of a school. The board of managers passed a
resolution selecting the plaintiff for the post. However, this resolution was not communicated to
the plaintiff. One of the managers, acting in his individual capacity, informed the plaintiff about
the selection but the plaintiff did not receive any appointment letter. Subsequently, the resolution
was rescinded and the plaintiff was not appointed. The plaintiff claimed that there already a
binding contract and sued the board of managers to enforce the contract. The Court held that in
the absence of authorized communication of acceptance from the whole board of managers,
there was no valid contract between them.
FELTHOUSE v BINDLEY
The plaintiff offered by letter to buy his nephew’s horse and said: “If I hear no more about it, I
shall consider the horse is mine.” The nephew did not give any answer but told B, the auctioneer,
to keep the horse out of the auction sale. However, B sold the horse to someone by mistake. The
plaintiff sued B claiming that he should not have sold the horse to someone else as there was
already a binding contract between him and his nephew. The Court disagreed and held that there
was no contract because there was no communication of acceptance by the nephew. Silence does
not amount to acceptance and hence, there is no contract created.

Hence, the acceptance will only be effective when the offeror gets to know of the acceptance. If
an acceptance is made but it has yet come to the knowledge of the offeror, the acceptance is not
complete.

Exceptions to the general rule on communication of acceptance

Although acceptance must generally be communicated to the offeror, in certain circumstances,
actual communication is not required. Hence, even though the acceptance has yet come to the
knowledge of the offeror or the acceptance was not physically made, a contract can still be
created.
The following are exceptional situations