Formation of Contract Part 1

04/11/23 LAW OF CONTRACT I

FORMATION OF CONTRACT PART 1

1) Proposal

2) Invitation To treat


Formation of Contract

Contract = an agreement between two parties

A proposal by the promisor (proposer) & acceptance by the promisee

Previously proposal is synonymous with the English terminology of ‘offer’


Proposal

Sec 2(a) : A proposal is made when one person

1) Signifies to another his willingness, to do or to abstain from doing anything

2) with a view to obtain the assent of the other to such act or abstinence.


Section 2(c)

The parties = a promisor and promisee The proposal = a promise Eg : Ali intends to sell his land. He offers to

Bakar for RM100,000 and Bakar agrees to accept the offer.

There is an agreement between them. The proposal = a promise, Ali = promisor

Bakar = promisee


Form of proposal

-Writing- Oral

- Conduct

OR- Combination of all above.


Proposal -oral

Syed Jaafar b Syed Ibrahim v Maju Mehar Singh Travel & Tours Sdn Bhd[1999] 4 MLJ 413

Facts: Plaintiff entered into an oral agreement with the defendant’s Managing Director that he will provide the passengers and the defendant will provide tickets and visas.

Held: The agreement between the plaintiff and defendant created a binding contract.


Automatic Ticket Issuing Machine

1) Machine issued a ticket = proposal

2) Customer paid the money & ticket = acceptance is completed.


Thorton v Shoe Lane Parking Limited

Per Lord Denning : “ The offer is made when the proprietor of the machine holds it out as being ready to receive money. The acceptance takes place when the customer puts his money into the slot.”


Parimala a/p Muthusamy & Ors v Projek Lebuhraya Utara Selatan [1997] 5 MLJ 488 Suriyadi J : “The moment a ticket is extracted

at the tollgate and the highway is used, a contract is thus struck between the plaintiffs and highway authority.”


To whom can a proposal be madeIt can be made to: - an individual / specific person - a class of people - a firm or company - public at large.


Eg : specific person

Boulton v Jones Defendant made an order to B a trader, whom

later sold the business to the plaintiff. Plaintiff sent the goods to Defendant without informing the changing in ownership.

Defendant refused to pay Ct: The plaintiff has no right to receive payment

for an order which was not addressed to him


Eg: to the publicCarlill v Carbolic Smoke Ball Co [1893] 1 QB

256

COA : An offer can be made to the whole world. A contract will only be made when a portion of the public came forward and acted on the faith of the advertisement.


Communication of proposal

For effective proposal = it must be communicated.


Sec 3- Communication …of proposal

The communication of proposals,… are deemed to be made by any act or omission of the party proposing, … by which he intends to communicate the proposal, or which has the effect of communicating it.


Sec 4(1) “The communication of proposal is complete when it comes to the knowledge of the person to whom it is made.

Illustration (a) of Section 4 ILLUSTRATIONS (a) A proposes, by letter, to sell a house to B

at a certain price. The communication of the proposal is

complete when B receives the letter.


If the other party did something coincide with the proposal but did not aware of the proposal = no agreement


R v Clarke (1927) 40 CLR 227 D supplied information to the police for a

reward but when he supplied the information he forgot about the reward.

Held : D cannot claim the reward. Ignorance of the offer is as the same as

never know about it or forgetting it after hearing of it.


Invitation To Treat

Where a proposal stands as a mere request for the other party to make a proposal.

Known as invitation to treat (IVT) No provision on IVT in the Contract Act. Follow the English law


Invitation to treat

It is not a proposal A preliminary communication which passes

between the parties at the stage of negotiation.


i) Display of goods with price tags in a shop window

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern Ltd) (1952) 2 All ER 456.

D – an owner of a self-service shop selling drugs. P charged D for selling listed poison without supervision of registered pharmacist.


Court of Appeal

There is no offence because in this case, the defendant was not offering to sell drug without supervision. The defendant was merely inviting the customer to choose items from the shelves and there is no sale affected until the customer’s offer to buy is accepted by the registered pharmacist at the counter by accepting the price money.


Fisher v Bell (1961) 1 QB 394 - display flick knife in a shop window. It is an

offence to sell dangerous weapon

Lord Parker:It is clear that, according to the ordinary law of

contract, the display of an article with a price on it in a shop window is merely an invitation to treat.


ii)Advertisement For a Sale

Harris v Nickerson The D advertised the sale of certain goods –

office furniture. P went to the sale but the furniture he was interested were withdrawn from the sale. He sued for damages for loss of time and expenses.

Held : Advertisement of sale = a mere statement of intention.

Not an offer which could be accepted to form a binding contract.


Coelho v The Public Services Commission (1964) MLJ 12

Facts: Resp made an advertisement, inviting application of an employment by post. Appellant applied and accepted. He was later terminated on the ground that his appointment was on probation.


Held: Appellants application = offer Respondent’s acceptance = acceptance Nothing is mentioned in the agreement that

the appointment was subject to probation.It was wrong for the respondent to terminate the appellant.


Exception*Advertisement by a manufacturer Constitute a proposal. Partridge v Critittenden [1968] 2 ll ER 421

Per Lord Parker:

"I think that when one is dealing with advertisement and circulars, unless indeed they came form the manufacturers, there is business sense in their being construed as invitation to treat and not an offer for sale.”


Carlil v Carbolic Smoke Ball Co.

Held: An advertisement by a manufacturing company is considered as an offer made to the whole world.


iv)Auctioneer’s invitation for Bids Auctioneer in an auction is making an invitation to

the public or audience to make offer. Acceptance occurred when the auctioneer bang his

hammer for three times. Auction Sales Act Cap 81 Ä sale by public auction shall be completed when

the auctioneer announced it and completion is by the fall of hammer


Payne v Care (1789) 3 Term Rep 148Facts: The defendant made the highest bid but

withdrew it before the fall of hammer.

Held : No contract. The bid was withdrawn before the fall of hammer.The bid constitutes an offer which the auctioneer is free to accept by the fall of the hammer


v)Tender

Application for tenders is an offer Advertisement for tenders is an invitation to

treat


vi)Supply of information

When sellers provide details of things of what they may sell without intention of making proposal.

Can this be considered as proposal? Based on two examples

i) Harvey v Facey [1983] AC 552

ii) Clifton v Palumbo [1944] 2 All ER 497


Harvey v Facey [1983] AC 552

The appellant telegraph the respondent, will you sell us Bumper Hall Pen? Telegraph lowest cash price. Respondent replied, Lowest price 900

Appellant telegraphed back. We agree to buy. Please send us your title deed.

PC : Resp’s reply = a response to the appellant’s 2nd question

There was no contract


Clifton v Palumbo [1944] 2 All ER 497 The plaintiff and the respondent were

negotiating for the price of a large estate owned by the plaintiff.

Held : The letter by the plaintiff about the cost of the estate was not an offer to sell but only a preliminary statement as to price.

Formation of Contract Part 1

Documents

Transcript of Formation of Contract Part 1