LAW

OF
CONTRACT
Prepared by,
Ms. Sharvina Binti Shajahan
Faculty of Business

1
What is Contract?

2
• Contacts Act 1950 (CA)
• Section 2(h) CA define Contract as
'an agreement enforceable by law.'
• an agreement between 2 or more
parties
• an agreement which is legally binding
between the parties

3
Essential Elements of the Contract:

1. Offer
2. Acceptance
3. Consideration
4. Intention to create legal relation
5. Certainty
6. Legal capacity
7. Free Consent

4
 OFFER /
PROPOSAL

5
 Offer

Definition
Section 2(a) CA Communication of
offer
Section 4(1) of CA

ITT Revocation of
offer
6
 • An offer is a proposal

• Once it is accepted, it creates a legally

binding agreement between the parties
• A person who makes an offer is called
an offeror or promisor

• A person to whom the offer is made is

called an offeree or promisee

7
 Definition of an Offer
Section 2(a) of CA 1950

Section 2(a)
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, he is said to make a
proposal.
8
 Definition of an offer
Example:

A, by offering to buy B’s car for

RM 20,000 in the hope that B will accept

MAKING OFFER/ PROPOSAL

Types of Offer
1. Express - Verbally / Writing : Agreement
2. Implied - act / behavior
9
 Types of Offer

• Section 9 of CA:

• If an offer is made in word or writing it is

said to express.
• If an offer is made by one act or
behavoiur it is said to be implied.
10
To Whom Offer can be made ?

1) Specific

2) General/ Public

11
 1) Specific

Addressed to specific person

Only the addressee may accept the
offer
Who is not addressee, may not
make the acceptance

12
 Boulton v Jones
• Jones (D) normally had some business deal with
Brocklehurst. D offered to buy some goods from
Brocklehurst, but on the day the order was sent,
Brocklehurst had sold his company to P.
• The P did not inform the D that the business had
changed hands. When D knew the goods had not
come from Brocklehurst , he refused to pay for the
goods.

Held:
• D was not liable to pay for the goods.
• No contract between the P and the D. Because the P
had no right to accept the offer which is not
addressed to him. 13
 2) General / Public

Addressed generally to any one who may

satisfy all the terms or conditions
stipulated by the offeror.
One who satisfies all the terms of the
offer is considered as making acceptance.
Then, the offeror is bound to the
contract.
14
 Carlill v Carbolic Smoke Ball
 the D issued an advertisement in which they
offered to pay 100pound to any person who
suffered from influenza after having used one of
their smoke balls.
 The P bought and used the smoke ball and
caught influenza. She sued the company for the
promised reward.
 The D refused to pay because he argued that
one cannot make an offer with entire world.
15
  The court held that:

the D has to pay the reward to P as an offer can

be made to the entire world.

16
17
Condition of an offer

1. Certain
2. Communicated

18
 1. certain

• Certain, clear, complete, final &

detail to avoid any doubt

Case : Guthing v Lynn (1831)

Lynn offered to buy a horse from

Guthing on condition that if the
horse brings luck to him. Then only
he pay another 5 pound extra.
Held:
The offer was not final & incomplete. 19
Therefore, NOT VALID.
 • 2. Communicated

• Section 2 (a)
"when one person signifies to
another"

20
 Communication of an Proposal

• Section 4(1) – the communication of

proposal is complete when it comes to
the knowledge of the person to whom it
is made

21
 R v Clarke
Australian government offered a reward for
information leading arrest of persons
responsible for the murder of two policeman.
X and Clarke were arrested and charged with
murder. During investigation, Clarke gave
information which lead to the arrest of Y (the
real culprit).
X and Y later convicted for murder and Clarke
was discharged.
22
 R v Clarke
Clarke then Claimed for the reward.
Clarke’s claim was rejected by the court
because he has no knowledge with
regard to the offer by Australian
government. He gave the info not
because he knows about the reward
but to release himself.

23
 DISTINCTION BETWEEN
OFFER
&
INVITATION TO TREAT (ITT)

24
 ITT

• It merely invitation from 1 party to

another party to make an offer.
• No element of offer as Section 2(a)
….with a view of obtaining the assents of
act / abstinent

25
Categories of ITT

1. Advertisement
2. Display of Goods
3. Auction
4. Price Quotation

26
 a. Advertisement
An advertisement is only an invitation to
applicants to make an offer.

27
 Harris v Nickerson (1873)
The D advertised a sale of certain goods including certain office
accessories of a certain date at a particular place.
The P then travelled to the said location and he discovered that
the office accessories had been withdrawn from the sale.
The P sought damages because the D had breached the contract
based on the argument that the advertisement was an offer
and his presence at the sale was an acceptance.

Court :
Rejected his claim
Advertisement = ITT
28
 However,

Coelho v The Public Services Commission

[ 1964] MLJ 12

The R advertised in the Malay Mail inviting applications for the

post of an assistant Passport Officer. (ITT)
The applicant made an application and was subsequently
accepted for permanent post and letter of appointment is
given based on the unconditional condition.
Subsequently, the R tried to terminate the A based on the
reason that the A was appointed on probation.

Then A sued R for breach of the contract. 29

.
 The court held that:

 the advertisement was an invitation to treat.

But
 The application made by the applicant was
considered as an offer.
 And the appointment of the applicant was considered
as an acceptance
 Thus, there was a valid contract of employment.
 The termination of the applicant on probation is
illegal.(unconditional offer) 30
 B. Display of Goods
• Self service shop / shop window display
• Do not constitute a proposal to sell=ITT
• The proposal /OFFER:

• when the customer selects the desired goods for

payments at the counter
• Offer comes from the customer, not from the
shop/supermarket
31
 B. Display of Goods
When the offer is made by the customer

• It is entirely up to the cashier at the counter

to make acceptance (scan the goods) or to
refuse the offer.

32
 Fisher v Bell
• The D displayed a flick knife in the window of
his shop.
• Under the Restrictive Weapon Act, it was
illegal to manufacture, sell, hire or offer for
sale or hire or lend to any other person any
flick knife.
• Because of that display act, the D then was
charged for contravened the Act by offering
the flick knife for sale.
• The D submitted that this was not sufficient
33
to constitute an offer.
 Fisher v Bell

The court held that

• displaying the knife was merely an ITT,

not an offer
• thus no liability arose.

34
 Pharmaceutical Society of Great
Britain v Boots Cash Chemist.
• The D displayed a poison drugs on the
shelves of self service system. Customers
selected their purchases from the shelves,
put them into basket and took them to the
cashier desk.
• However, the selling of poison drugs by
using the above method is contravened the
law.
• The D then was charged for offering to sell
poison drug without pharmacist
supervision. (Section18(1) of the Pharmacy
& Poison Act 1933.
35
Pharmaceutical Society of Great
Britain v Boots Cash Chemist.

• Argument was made.

Issue: whether Contract is complete at the
moment customer took an article from the
shelves and put in the basket?

36
Pharmaceutical Society of Great
Britain v Boots Cash Chemist.

• COA laid down the principle:

• Sale / contract complete at the cashier

desk (when the payment has been
made/the cashier scan )
not only by putting the things in the basket {
OFFER}

37
 C. Auction

• An auction is only ITT.

• The auctioneer is merely inviting the people
present to make proposals which the auctioneer
may accept or decline to accept.
• Person who bids the price is the offerror.

38
Pharmaceutical Society of Great
Britain v Boots Cash Chemist.
• COA laid down the principle:

The cashier has the right to accept/ reject.

• Thus, The display of goods=ITT
• The shop owner HAD NOT MADE an
unlawful sale.
(Payment was to be made at the exit where a
cashier was stationed and in every case
involving drugs, a pharmacist supervised
the transaction and was authorised to 39

prevent a sale).
 C. Auction
• a public event at which things are sold
to the person who offers the most
money for them.
• when an auctioneer opens a bid, it is
considered as an ITT. binding from
bidders are considered as offers and it
is up to the auctinioneer to accept it.

40
• Acceptance to the offer by the auctioneer is by
knock of hammer
(Section 10 of the Auction Sale Act).

41
 D. Price Quotation
• Not an offer= only ITT.
• As early information to invite the prospective
buyer to make an offer.

42
 D. Price Quotation
• Given opportunity to the buyers to choose the
best price.

• Seller – entitled to reject/accept as well as to

make counter offer with a new price.

43
 D. Price Quotations
Preston Corporation Sdn Bhd v
Edward Leong & Ors
Publisher asked for quotation for printers.
Publisher then placed printing orders based
on the quote.
Held : Quotations are an invitation to treat &
the printing orders were offers subject to
acceptance by the printers.
44
REVOCATION OF OFFER

45
 REVOCATION OF OFFER

A proposal, once communicated, remains open

until it is withdrawn, cancelled, retracted or lapsed.

46
 REVOCATION OF OFFER

• In some situation, offeror changed his mind

to withdraw the offer he has made. If the
offer is validly revoked, there will be no
contract created.
• An offer remains open until it lapses or
withdrawn.
• Section 5(1) CA : Proposal may be revoke
at anytime before the communication of
acceptance is complete.
47
 HOW Revocation can be made
• Section 6 CA : Proposal is revoked :
a) by the communication of notice revocation
to the other party;
b) by the lapse of the time prescribed for
acceptance, or by lapse of reasonable time;
c) failure of acceptor to fulfill a condition
precedent to acceptant;
d) death or mental disorder of proposer, if it
comes to the knowledge of acceptor before
48
acceptance.
 Revocation:

Section 6 of CA:
(a)Communication of notice of revocation by the
proposer to the acceptor;

49
When communication of revocation of
proposal is complete?
 Section 4(3)(a) of CA:

on the part of the offeror, when it is put

into a course of transmission to the
offeree. (A sent the LORO to B)
Section 4(3)(b) of CA:
on the part of the offeree when it
comes to his knowledge. (B received
the LORO from A) 50
 Byrne v Van Tienhoven
(1880) 5 CPD 344
• The D offered to sell 1000 boxes of tinplate to the P.
• 1/10= D posted a LO from Cardiff to the P in New York
• 8/10= D posted a LOR to the P revoking the offer
• 11/10= P received the D's offer letter and at once posted his
acceptance via telegram.
• 15/10= P sent again the LOA to reconfirm his acceptance
that made on 11/10
• 20/10= P received the D's letter of revocation which is
posted on 8/10. 51
 Byrne v Van Tienhoven
(1880) 5 CPD 344
The court held:
There was a contract.
Revocation of offer posted on 8/10 was not
effective till 20/10 ( when the P received
the said LORO)
At the meantime, P had already accepted the
offer on 11/10 (telegram).
52
 Example:
 A offers by letter to sell a house to B. The
communication of offer complete when B receives
the letter.
 A then revokes his offer by telegram.(S.6(a) of CA.
 The revocation is complete (S. 4(3)(a) (b) of CA.
 on the part of A when the telegram is
despatched.
 On the part of B when B receives it.

53
 Revocation :

Section 6 of CA:
(b) Lapse of time prescribed in the proposal or if
no time prescribed, by of lapse of a reasonable
time;

54
Macon Works & Trading Sdn Bhd v
Phang Hon Chin (1976) 2 MLJ 177
 Court laid down the principles:
 An offer lapses after a reasonable time.
Failure to accept the offer within
reasonable time shows rejection by
the offeree.

55
 Ramsgate Victoria Hotel Co v
Montefiore (1866)LR Ex Ch 109
 The D applied for shares in the P
company on 8 June, and had paid a
deposit.
 He received no further news until 23
November when he was informed that
the shares had been alloted to him and
that he should pay the balance due on
them.
 D refused to pay the balance. 56
 Ramsgate Victoria Hotel Co v
Montefiore (1866)LR Ex Ch 109
 The court held:
that there was no valid binding contract
bacause acceptance was not made within
reasonable time.

57
 Revocation :
Section 6 of CA:
( c) Failure of the acceptor fulfill a condition of an
acceptance

Example:
A company offers to employ Iskandar on
condition that he passes a skill test.
If the applicant fails the test, the proposal is
revoked because Iskandar does not fulfill
a condition
58
 Financing Ltd v Stimson
The D offered to buy a car from P’ company if the car
remain in the same conditions.
However, before the D accepted the offer, the said car
was stolen and was subsequently recovered in
damaged condition.

The court held:

The D’s offer to buy the car is only accepted if the car
remained in the same condition when the offer was
made.
Since, the offerree fails to fulfill the condition, offer is
automatically revoked.
59
 Revocation :

Section 6 of CA:
(d) Death or mental disorder of the proposer

60
 Example
 the offer only revoked if the offeree aware
the facts that before he makes acceptance ,
the offeror is death/mental disorder.
The acceptance without prior knowledge
of the death or mental disorder of the
proposer is a good acceptance.

acceptance is valid and binding.

61
 Bradbury v Mogan
 Court laid down the principle:

The death of the offeror WILL NOT

TERMINATE the offer if the acceptance is
made in IGNORANCE of his death.

62
63
 Tutorial
1. Define contract according to Contract
Act.
2. Define offer according to Contract Act.
3. State the seven (7) elements of a valid
contract.
3. Discuss invitation to treat and state the
four (4) categories of Invitation to treat.

64