2. OBJECTIVES
At the end of this lesson the students should be
able to:
• Understand the definition of contract
• List the essential elements of a valid legal contract
• Understand the definition of proposal & acceptance
and their relevant rules
• Able distinguished a proposal from an invitation to
treat
3. WHAT IS A CONTRACT?
• A contract is an agreement between 2 or more
parties that is legally binding between them.
• The principal legislation for the law of
contract is the Contracts Act 1950 (hereinafter
referred to as CA)
• Under the CA 1950, Section 2(h), it is referred
to as ‘an agreement enforceable by law’
4. Continue…
• The basis of all contracts is an agreement, that
is to say that all contracts must be built upon
an agreement. But not all agreements are
automatically a legal binding contract.
Contract
Agreement
• Agreements are contracts if they fulfilled the
essential elements of a contract.
5. ESSENTIAL ELEMENTS
OF A CONTRACT
• The main elements of a valid contract are:
1. Proposal/Offer
2. Acceptance
3. Consideration
4. Intention to create legal relations
5. Certainty
6. Legal Capacity
7. Free Consent
6. WHAT IS A PROPOSAL?
• proposal = offer
• Section 2(a) of the CA, a proposal is made ‘when one
person signifies to another his willingness to do or
abstain from doing anything, with a view of obtaining
the assent of that other to such act or abstinence.
• Meaning:
When an offeror communicates his willingness to
offer something to the offeree with an intention to get
consent from the offeree to accept the offer, then it
becomes an offer.
7. Continue…
• Section 2(b), ‘when the person to whom the
proposal is made signifies his assent thereto,
the proposal is said to be accepted’.
• Upon such acceptance of the application by the
person, an agreement between the parties is
created.
• The proposal become a ‘promise’ & the party
making the proposal is referred to as the
‘promisor’ & the party accepting the proposal,
is known as the ‘promisee’.
8. Continue…
•HOWEVER, some statements or acts are
not a proposal.
•They are usually termed as ‘Invitation to
treat’ (hereinafter referred to as ITT).
•A proposal must be distinguished from an
ITT, due to the fact that acceptance of
an ITT does not create an agreement.
9. WHAT IS
‘INVITATION TO TREAT’?
• ITT is not a proposal, but a sort of preliminary
communication, which passes between the parties
at the stage of negotiation, for instance:
• a price list
• a display of goods with price tags in a self-
service supermarket
• an advertisement
• a tender
• an auctioneer inviting bids for a particular
article
10. THE RATIONALES OF ITT
• Based on common sense and the practicalities &
realities of commercial transactions.
• e.g. An Auction
• In an auction, articles are listed to be
auctioned to the highest bidder. Let say an
auctioneer is considered making a proposal
when inviting bids, then when a bidder
makes a bid, the bidder is considered
accepting the proposal, and an agreement
comes into being at that stage.
11. Continue…
• This defeat the very purpose of auction,
i.e. to get the highest bid for a particular
article. If the auctioneer is making a
proposal when he invites bid to auction an
article, then the first person to bid is
considered accepting the proposal to buy
that article, regardless of whether the
bidder is bidding the highest price or not.
12. Continue…
• In other words, once that happen, there’s
an agreement and the auctioneer can no
longer calls for other bidder to bid.
• Hence, the actual state of law is that in an
auction, the auctioneer is only making an
invitation to treat or invitation of offers of
the highest price from bidder.
13. Continue…
• e.g. A Display of goods
• Same state of law applies for display of
goods in a shop. If selecting an article from
the shelf constitutes a sale agreement,
ownership will have passed to the customer
at the point of selection, i.e. by putting the
goods in the basket or trolley, even though
he or she has not paid for it. Worst the
customer would not be able to change his or
her mind about the purchase.
14. Continue…
• Hence, displays of goods in a shop is only
an invitation to treat as decided by the
following case.
• Pharmaceutical Society of Great Britain v
Boots Cash Chemist Ltd [1953]
15. Pharmaceutical Society of Great
Britain v Boots Cash Chemist Ltd
[1953]
• Facts:
• The defendants were charged under the Pharmacy
and Poisons Act 1933 (U.K.) which provided that it
was unlawful to sell certain poisons unless such sale
was supervised by a registered pharmacist. The case
depended on whether a sale had occurred in the
self-service shop when a customer selected articles,
that he desired to purchase and placed them in a
wire basket. The 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 authorized to prevent a sale.
16. Continue…
• Held: (Judgement)
• The Court ruled that the display was only an
invitation to treat. A proposal to buy was
made when the customer placed the articles
in the basket. Hence the contract of sale
would only be made at the cashier’s desk.
That being the principle, the shop owners
had not made an unlawful sale.
17. • Another e.g. of ITT is advertisement as
decided in the following case which, affirms
the general rule that an advertisement is
only an invitation to applicants to make an
offer and not an offer itself
18. • Advertisement
• When a person advertises in a newspaper or on social media, he
is not making an offer but merely invites the public/netizen to
make an offer.The advertiser has no obligation to accept the
offer. A contract is concluded when he agrees to accept the offer
made by the public/netizen.
• Case: Harris v Nickerson (1873)
• ●The defendant advertised for a sale of goods on certain dates
at a particular place.The plaintiff traveled to the location and
discovered that the goods had been withdrawn from the sale.
The plaintiff sued the defendant claiming damages as he alleged
that the defendant had breached the contract.
• ● Held:The claim was rejected by the court since the
advertisement was merely an ITT.
19. • **Exception**
• ❖When the advertiser promises to pay some amount in
the advertisement, it is not an ITT but an offer because
there is a binding obligation on the part of the advertiser to
fulfill the promise.When the public/netizen accepts the
offer, a contract is concluded.
• ❖ Refer to Carlill v. Carbolic Smoke Ball Co. (under general
offer
20. To Whom Can
A Proposal Be Made?
1) A particular person
2) General public
• If made to a particular person, only that person may
accept the proposal. This is based on the wordings
of Section 2(b) of the CA, which provides ‘when the
person to whom the proposal is made signifies his
assent thereto …’
• If it is made to the general public, then anyone who
meets all the terms of the proposal may accept.
21. Carlill v Carbolic Smoke Ball
Co. [1893]
• Facts:
• The defendants’ company offered that they would offer 1000
pounds to anyone who still succumbs to influenza after using
the company’s medicine according to the instructions for a
fixed period.The plaintiff duly used the product, but
nevertheless contracted influenza.The plaintiff then sued for
the money.
• Held:
• The Court of Appeal decided that the plaintiff had accepted
the offer of the company made to the whole world at large and
is therefore entitled to the money.
22. COMMUNICATION OF PROPOSAL
• S4(a): Proposals must be communicated to the other
party to the extent that the party accepting the proposal
is aware of the existence of such proposal in the first
place.
• The fact that the other party has done something, which
coincidentally appear as if he is accepting the proposal
without being actually aware of the proposal does not
bring an agreement into being.
• R v Clarke (1927)
23. R v Clarke (1927)
• Clarke was arrested and charged with murder. Clarke gave
information to the police which led to the arrest of another
culprit, without knowing that there was a reward by the
government. Later, Clarke claimed the reward but failed.
● Held: Clarke was not entitled to claim the reward since he
did not know about the reward at the time he gave the
information to the police.
24. WHAT IS AN ACCEPTANCE?
• Accepts offer as it is being made
• Section 2(b) of the CA provides that when the person
to whom the proposal is made, signifies his assent
thereto, the proposal is said to be accepted.
• A proposal once accepted becomes a promise, and
the agreement comes into being.
• Section 2(c) calls the person accepting the proposal
the promisee.
25. RULES OF ACCEPTANCE
• Absolute and unqualified acceptance
• Made within a reasonable time
• Acceptance must be communicated
26. 1.Absolute & Unqualified
Acceptance
• The acceptance must be absolute and unqualified.
Section 7(a) of the CA provides that in order to
convert a proposal into a promise the acceptance
must be absolute and unqualified.
• What is an absolute and unqualified acceptance?
• It means it must be made on exactly the same terms as proposed
without any modifications or variations.Any modifications or
variations of the proposal does not constitute an acceptance, but
may amount to a counter proposal/offer.
27. Counter offer…..
• When A makes a proposal to B, B has the choice to accept
or to reject it.
• But if B makes a new proposal by changing or modify the
offer eg: price of the goods, B is said to have made a
counter offer
28. Effect of the counter offer…
• A’s original proposal of offer is destroyed and it can no
longer be accepted.
• A has become the acceptor while B has become the
proposer.
• A has the choice either to accept or to reject B’s proposal
(counter offer)
29. Hyde v. Wrench [1840]
• Facts:
• The defendant offered to sell his estate to the plaintiff on June
6 for 1000 pound. On June 8 in reply, plaintiff made a counter
proposal to purchase the estate at 950 pound. On June 27, the
defendant refused to accept this offer.Two days later, the
plaintiff wrote to the defendant that he was prepared to pay
1000 pound.The defendant refused and the plaintiff sued for
specific performance.
• Held:
• The Court ruled that there’s no acceptance because the
plaintiff’s letter on 8th June had rejected the original proposal,
which could not be revived.
30. Stevenson v. Mclean (1880)
• Facts:
• The plaintiffs and the defendant were negotiating about the
sale of a quantity of iron.The sequence of events were as
follows:
• Saturday: The defendant wrote to the plaintiffs offering
to sell the iron at 40s per tonne nett cash. Offer open till
Monday.
• Monday: The plaintiffs telegraphed to the defendant in
the morning requesting to know whether the defendant
would accept 40s to be paid over two months or if not, the
longest limit the defendant would give.
31. Continue…
• 10.01 am - The defendant received the plaintiffs’ telegram
and subsequently sold the iron to a third party.
• 1.00 pm - The plaintiffs, while waiting for the reply sold
the iron to a third party,Walker before 1.00 pm.
• 1.25 pm - The defendant telegraphed to the plaintiffs
that he had sold the iron.
• 1.34 pm - The plaintiffs having had no reply from the
defendant, telegraphed again accepting the
defendant’s offer at 40s cash.
• 1.46 pm - The defendant’s 1.25 pm telegram revoking
the offer arrived at the plaintiff premises.
32. Continue…
• The plaintiffs sued for breach of contract.The defendant
pleaded in defense that the telegram sent by the plaintiffs on
Monday morning was a rejection of the defendant’s offer and
constitute a new proposal on the plaintiffs’ part.
• Held:
• The court held that the plaintiffs’ telegram on Monday morning
was meant only as an inquiry and was not a counter proposal.
There was no rejection of the offer and therefore there was a
valid binding contract between the parties when the plaintiffs
accepted the offer of the defendant in the 1.34 pm telegram.
33. 2. Made Within a Reasonable
Time
• Section 6(b) of the CA reads, ‘a proposal is revoked…
by the lapse of the time prescribed, or if no time is so
prescribed, by the lapse of reasonable time, without
communication of the acceptance…
• What amounts to ‘reasonable time’?
• It is a question of fact depending on the circumstances of each
case, e.g. the nature of the subject matter or the method by
which the offer is communicated.
34. Continue…
• HashimYeop A.Sani J. in the case Macon Works &
Trading Sdn Bhd v. Phang Hon Chin, relates the
rationale of this rule:
• ‘An offer lapses after a reasonable time not because this must
be implied in the offer but because failure to accept within a
reasonable time implies rejection by the offeree. As a
consequence, the Court can take into account the conduct of
the parties after the offer was made in deciding whether the
offeree has allowed too long a time to lapse before accepting.’
35. 3. Acceptance Must Be
Communicated
• Acceptance must be communicated to the proposer
or offeror for there to be binding Contracts.
• While the communication of an acceptance may be
waived, it will still be necessary for the addressee to
do something positive to accept such as actual
performance of the conditions of the proposal or
express his acceptance in an acceptable manner.
36. Continue…
• Section 2(b) requires the person to whom the
proposal is made to signify his assent thereto to a
proposal. ‘Signifies his assent thereto’ implies a
positive act of acceptance on the part of the
addressee.
• Silence, absence of response or just total disregard
of the proposal is not acceptance as there is no
positive act that can be related to the proposal. [Find
Felthouse v. Bindley (1862) 142 ER 1037]
37. Case: Felthouse v Blindly
• ●The plaintiff offered by letter to buy his nephew’s horse and
said “If I hear no more about it, it 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. Plaintiff sued B.
• ● Held:There was no contract between the plaintiff and his
nephew because there was no communication of acceptance
by his nephew. Silence does not amount to acceptance.
38. Continue…
• Section 3 of the Contracts Act provides that
communication of the acceptance is deemed to be
made by – any act; or omission – of the party
accepting, by which he intends to communicate the
acceptance & which has the effect of
communicating it.
• Manner and Mode of Communication:
• Section 7 (b) of the Act, an acceptance must also be
ordinarily communicated & made in some usual manner if
no method of acceptance is prescribed.
39. Continue…
• If the proposer/offeror specifies a particular mode of
acceptance, then it must be made in accordance to
the prescribed mode.
• If it is not made in such a manner, the
proposer/offeror may within a reasonable time insist
that the proposal to be accepted in the prescribe
manner.
• An acceptance can be made:
• in writing/ orally/ by conduct; or by combination of these
method.
40. When is the Communication Of
Acceptance ‘Complete’?
• General Rule:
• An acceptance is completely communicated when
it is actually brought to the notice or comes to
the actual knowledge of the offeror. (f2f, by
calling, by fax)
• Exception:
• The Postal Rule Communication. (by post, email,
WhatsUp etc)
41. The Postal Rule
• Section 4(2) of the CA provides an exception to the
general rule of communication of acceptance where
the parties have intended the use of the post as a
means of communication.
• According to the subsection:
• The communication of an acceptance is complete –
• as against the proposer, when it is put in a course of transmission
to him, so as to be out of the power of the acceptor; &
• as against the acceptor, when it comes to the knowledge of the
proposer.
42. Continue…
• See illustration (b) of Section 4:
• B accepts A’s proposal by a letter sent by post.
• The communication is complete:
• as against A, when the letter is posted;
• as against B, when the letter is received by
A.
43. Effect of the Postal Rule
• The proposer is bound when the offeree/acceptor
posts the letter of acceptance even though the
proposer has no knowledge of the acceptance.
• When the letter is posted, the acceptor has put it ‘in
a course of transmission’ in such a way that he no
longer has any control over it.
• The transaction becomes binding upon the proposer
irrespective of any delay or disappearance of the
letter of acceptance in the course of
transit/transmission.
44. Continue…
• Whereas, acceptance is complete as against the
acceptor only when the letter of acceptance reaches
and comes to the knowledge of the proposer.
• This means that while the proposer is bound upon
dispatch of acceptance by the acceptor, the acceptor
himself is not bound until it is actually received by
the proposer.
• First case: Adams v. Lindsell (1818)
45. Adams v. Lindsell (1818)
• Facts:
• The defendant wrote to the plaintiff offering to sell wool on
certain terms.The defendant however, misdirected the letter
and it reached the plaintiff later than usual. Upon receiving the
letter of offer, the plaintiff immediately posted his acceptance.
• Meanwhile, the defendant (thinking that the plaintiff was not
interested in the offer) had already sold the wool to a third
party.
• Held:
• It was held by the court that acceptance was complete upon
posting.
46. The Rationale of the Rule
• Evolved from reasons of practical convenience arising from
the delay that is inevitable in delivering letters.
• On the ground that the offeror who chooses to start
negotiations by post takes the risk of delay and accidents in
the post.
47. Ignatius v. Bell (1913)
• Facts:
• The defendant (Bell) gave an option to the plaintiff to purchase
a piece of land on the condition that the option must be
exercised on or before 20 August 1912 by a notice in writing.
The plaintiff exercised the option by posting a letter on 16
august.The defendant only received the letter on 25 August.
The plaintiff sued for specific performance.
• Held:
• The Court of Appeal, Selangor held that the parties had
decided on the usage of the post service as a means of
communication and thus s. 4 of the Contracts Enactment
applies.
48. Scope of the Rule
• The rule also applies to telegram sent through post.
• Instantaneous communication such as telephone and
telex are governed by the general rule.
• This fact had been stressed in:
• Case: Entores Ltd. V. Miles Far East Corp.
• In this case the EnglishCourt ofAppeal classified
communications by telex with instantaneous communications
49. Exclusion from
the Effect of the Rule
• Generally, in present time, it is wise for proposer
who wanted to use letters sent through post as a
means of acceptance to provide adequate
protection for themselves.
• For instance by stipulating in the proposal that
acceptance is only complete upon receipt of the
letter.That would exclude the postal rule by express
terms of the proposal
50. RECAP DISCUSSION
OFFER & ACCEPTANCE
Job Advertisement – Accountant
Aya Needle Co. Sdn Bhd.
Minimum Wages RM 1500
Working Hours 9 a.m.-5 p.m.
The Company is actually inviting
offers of job applications from
the public.
Ads -a form of Invitation to treat
Bad Apply for the Job Bad is actually making an offer
to work with Aya Needle Co. with
salary RM 1500 & working hours
from 9 a.m.-5p.m.
Aya Needle Co. Sdn Bhd
Considered Bad Suitable
Candidate for the job
51. Continue…
Agree to accept Bad Agree to accept Bad but
with additional Conditions:
Minimum wages is RM 1000
Additional Working Hours
Acceptance of the offer made
by Bad
The Co. is actually making another
offer/Counter-Offer
A contract (agreement) is
created
The Co must wait for Bad’s
Acceptance for there to be a
contract (agreement)
52. Continue…
• The company is inviting applicants to work with the
company through the advertisement & since the
company is not bound to accept the offers made by
the applicants, then the advertisement is only a form
of invitation to treat.
• Thus, Bad in the above e.g. by offering to work for
Aya Needle Co. in the hope that the company will
accept his application, is making a proposal.
53. Continue…
• If the company agrees to accept Bad’s offer, then
there is an acceptance on the part of the
company.
• The company’s acceptance of Bad’s offer to work
with them establishes an agreement or promise.
Bad is the promisor and the company the
promisee and an agreement is created.
54. Continue…
• If the company agrees to accept Bad with additional
conditions, then the company modifications or
variations of the proposal does not constitute an
acceptance, but amount to a counter proposal/offer.
• The company now has become the offeror, & Bad the
offeree. It is up to Bad whether he is willing to accept
the offer. If he does, then he becomes the promisee
and the company the promisor and an agreement is
also created.
55. REVOCATION OF PROPOSAL
• Once a proposal is communicated, it remains open until it
lapses or is withdrawn. A proposal may be revoked at any
time before acceptance is communicated.
• Section 5(1) of the CA provides that a proposal may be
revoked at any time before the communication of its
acceptance is complete as against the proposer, but not
afterward.
56. Continue…
• There are a few ways by which a proposal may be
revoked. Section 6 states amongst others:
a) By communication of notice of revocation
b) By lapse of the time prescribed/ by lapse of reasonable
time
c) By failure of the acceptor to fulfill the condition of the
proposal
d) By death /mental disorder of the proposer, if the fact of
his death or mental disorder comes to the knowledge of
the acceptor before acceptance.
57. Communication of
Notice of Revocation
• Under subsection (a) the revocation of the proposal
must be communicated by the proposer to the other
party before it accepts.
• In the event of acceptance by post or telegram, the
acceptance is complete as against the proposer upon
posting or delivery of the telegram to the
appropriate telegraph office.Therefore, withdrawal
of the proposal must necessarily be communicated
by the proposer to the offeree before such posting or
delivery.
58. Continue…
• The application of this rule is found in the Illustration
to Sec. 5:
• A proposes, by a letter sent by post, to sell his house to B.
• B accepts the proposal by a letter sent by post.
• A may revoke his proposal at any time before or at the
moment when B posts his letter of acceptance, but not
afterwards.
• There appears to be no local case with respect to this
rule but it had been determined in England in Byrne v.
Tienhoven (1880), and the law appears to be similar.
59. Byrne v. Tienhoven (1880)
• Facts:
• In this case the defendant offered to sell 1,000 boxes of
tinplates to the plaintiff.The following communications
took place:
• 1 October: Defendant posted letter of offer in Cardiff to the
plaintiff in NewYork.
• 8 October: Defendant posted a letter revoking the offer of
October 1.
• 11 October: Plaintiff received the letter of offer posted on
October 1 and
sent acceptance by telegram the same day. It also followed up
with letter of acceptance on 15 October.
• 20 October: Defendant’s letter of revocation received by
plaintiff.
60. Continue…
• Held:
• The court ruled that there was a contract between the parties
because the revocation of the offer posted on 8 October was not
effective till 20 October when it was received by the plaintiff but
in the meantime, the latter had already accepted the offer on 11
October when the telegram was sent.
61. Lapse of the Time prescribed/
Lapse of Reasonable Time
• Subsection (b) deals with revocation by lapse of
time and provides for two situations:
i. Lapse of time occurring upon the expiration of the time
prescribed in the proposal for its acceptance; &
ii. Where no time is prescribed, by the lapse of a reasonable
time.
• What a reasonable time is depends on the facts
and circumstances of each case.
62. Ramsgate Victoria Hotel Co. v
Montefiore (1866)
• Facts:
• The defendant applied for shares in the company in June and
paid a deposit into the company bank. It was not till November
that the company informed the defendant that shares had
been allotted to him and that the balance of the purchase price
should be paid.The defendant refused to accept the shares.
• Held:
• The refusal was justified because such a proposal should have
been accepted within a reasonable time.The period between
June and November was clearly not reasonable.The rationale
for this rule, was stated by HashimYeop A Sani J. in Macon
Works &Trading Sdn Bhd v. Phang Hon Chin & Anor. [1976] 2
MLJ 177. {Refer above}
63. Failure of the Acceptor to
fulfill the Condition of the
Proposer
• Subsection (c) provides that a proposal may be
revoked where the acceptor fails to fulfill a condition
precedent to acceptance.
• For instance, a company offers to employ an
applicant on condition that he passes a skills test. If
the applicant fails the test, the proposal is obviously
revoked because the applicant has failed to fulfill a
condition precedent.
64. Death /Mental Disorder
of the Proposer
• Subsection (d) deals with death or mental disorder of
the proposer subsequent/after to the communication
of the proposal.
• The two events does not automatically result in the
demise of the proposal.The fact of the death or
mental disorder must be known to the acceptor
before acceptance. Only then the proposal is no
longer available for acceptance.
• Acceptance without prior knowledge of the death or
mental disorder of the proposer is nevertheless, a
good acceptance.
65. REVOCATION OF ACCEPTANCE
• It may seem strange that an acceptance can be revoked
but that is the law with respect to that acceptance which
is not complete as against the acceptor.
• Section 5(2) states ‘An acceptance may be revoked at any
time before the communication of the acceptance is
complete as against the acceptor, but not afterward.
66. Continue…
• The Illustration to section 5 provides an example of
revocation of acceptance made by post:
• A proposes by a letter sent by post, to sell his house to B.
• B accepts the proposal by letter sent by post.
• B may revoke his acceptance at any time before or at the
moment when the letter communicating it reaches A, but not
afterwards
67. Case: Dunmore v Alexander
●When the letter of acceptance and the letter of
revoking the acceptance reached the offeror
simultaneously, the acceptance was revoked
effectively.
