1 Offer and Acceptance

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Introduction Everyday in our life we enter into contracts We enter into contracts when : we buy groceries in the supermarket we eat in a restaurant we get into a bus to travel we get a can of coca cola from the vending machine

Strictly speaking contracts need not be in writing or even verbal as it can be inferred from the conduct of parties A contract need not be formally written down and need not involve documents with complicated rules and regulations A contract need not involve millions or billions of dollars

What is a contractA contract is an agreement between 2 or more parties that is legally binding between them. Under Section 2(h) of the CA 1950, a contract is an agreement enforceable by law The principal legislation for the law of contract is the Contracts Act 1950

Continue The basis of all contracts is an agreement, that is to say, all contracts must be built upon an agreement. But not all agreements are automatically contracts.


Agreements are contracts if they fulfill the essential elements of a contract.

Essential elements of a contract The main elements of a valid contract are: 1. Offer and acceptance 2. Consideration 3. Intention to create legal relation 4. Certainty 5. Legal capacity 6. Free consent 7. Objects 8. Required formalities

What is a proposal? An agreement between 2 or more parties is constituted by a proposal and an acceptance The word proposal in the Contracts Act 1950 bears the same meaning as offer in English law. A proposal is made 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 such act or abstinence (S2(a) CA 1950).

Eg A by offering to buy Bs car for RM10,000.00 in the hope that B will accept is making a proposal Then according to S2(b), when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Upon such acceptance by B an agreement between the parties is created. The proposal has become a promise & the party making the proposal is now referred to as the promisor & the party accepting the proposal, is known as the promisee.

Thus from the example Bs acceptance of As proposal to buy the car establishes an agreement or promise A is the promisor B is the promisee

Invitation to Treat (ITT)A proposal must be distinguished from an ITT The CA does not contain any provision with respect to ITT thus English Law is applicable An ITT is not a proposal but a sort of preliminary communication which passes between the parties at the stage of negotiation ITT is only an invitation to induce offers or to instigate negotiations Thus upon the customer making an offer it is up to the person making the ITT to accept or reject the offer

Examples of ITT 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

Why isnt ITT a proposal? Auction If an auctioneer is considered making a proposal (not an ITT) when inviting bids then when a bidder makes a bid he is accepting the proposal and an agreement comes into being at that stage This defeats the very purpose of an auction ie to get the highest price for the auctioned article

Thus the actual state of law is that the auctioneer is only making an invitation to treat ie merely inviting bidders to make proposal which the auctioneer may accept or decline

Continue Display of goods in a shop Generally do not constitute a proposal to sell The shop owner merely holds himself prepared to consider proposals made to him at the suggested prices The invitation is not capable of being accepted as it is not a proposal The proposal is in fact made by the customer when he selects the desired goods

Continue This well established rule was clearly determined by the celebrated case of Pharmaceutical Society of Great Britain v Boots Cash Chemist Ltd [1953]

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 selfservice shop when a customer selected articles, which he desired to purchase and placed them in a wire basket. 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.

Continue Held: 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 cashiers desk. That being the principle, the shop owners had not made an unlawful sale.

Rationale of ITT Common sense and realities of commercial transactions If selecting an article from the display shelf constitutes a sale ownership will have passed to the customer at the point of selection though he has not paid for it and the customer will not be able to change his mind about the purchase

Advertisement Similar problems would arise in advertisement if they were treated as a proposal to be accepted by readers Items for sale may have been completely sold out and sellers would be liable for breach if they could not supply all the items offered

Partridge v Crittenden (1968) Facts : appellant had inserted in a periodical entitled Cage and Aviary Birds a notice Bramblefinch cocks and hens, 25s each. It appeared under the general heading of Classified Advertisement and the words offer for sale was not used. He was charged with unlawfully offering for sale a wild live bird contrary to the provision of the Protection of Birds Act 1954 and was convicted. He appealed. Held (by Lord Parker) quashing the conviction : when one is dealing with advertisements and circulars, unless they indeed come from manufacturers, there is business sense in their being construed as invitations to treat and not offers for sale

Harris v Nickerson (1873) Facts : the defendant, acting in good faith, advertised that certain furniture would be auctioned on a particular day. The plaintiff travelled to the auction with a commission to buy the furniture but it was withdrawn from the sale. The plaintiff failed to recover damages for loss suffered in travelling to the advertised place of the auction sale as the court held that the advertisement was an invitation to treat and not an offer.

To whom can A proposal be made? A proposal can either be made to 1. a particular person or 2. to the general public Proposal made to a particular person, may only be accepted by that person. This is based on the wordings of Section 2(b) of the CA, which provides when the person to whom the proposal is made If proposal is made to the general public, then anyone who meets all the terms of the proposal may accept.

Carlill v Carbolic Smoke Ball Co. [1893] Facts:

The defendants company advertised that they would offer 1000 pound to anyone who still succumbs to influenza after using the companys 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 world at large and is therefore entitled for the money.

Similarly, as a general rule, an advertisement of reward for the return of lost property would be treated as an offer to the general public

WARNING! An advertisement could be an invitation to treat or a proposal. Whether an advertisement is a proposal or an invitation to treat depends on the intention of the parties in each case.

The courts have held that advertisements of bilateral contracts (like job advertisement) are not offers/proposals, whereas advertisements of unilateral contracts (like Carlills case and advertisements of rewards for returning lost things) are construed to be proposal/offers.

Bilateral Contracts In bilateral contracts, all parties promise to do something for one another; bilateral contracts bind all parties and are enforceable against all parties. For instance, in a job advertisement, the job advertisement itself is not an offer but an ITT, the applicant is actually making an offer to work for the advertiser when he applies for the job and the advertiser, if they accept the applicants offer, promise to give the applicant a position and remuneration in accordance with the advertisement. (a promise for a promise)

Majunder v AG of Sarawak (1967) The Federal Court held that an advertisement in the newspaper for the post of a doctor was an invitation to treat.

Unilateral Contracts In unilateral contracts, one party promises to do something to induce the other party to do something; unilateral contracts are binding on and enforceable against only one party, i.e. the party that makes the promise. For instance, an advertisement to pay a reward for returning lost pets. ( a promise for an act). This advertisement is an offer.

Communication of proposal Unless there is communication of the proposal as suggested in S2(a) ie when one person signifies to another his willingness to do or abstain from doing anything.. there can be no acceptance to form an agreement Likewise a party accepting a proposal must be aware of the existence of the proposal

The fact that the person accepting the offer has done something which coincides with the proposal without being aware of the proposal does not bring an agreement into being Eg a party who casually returns a lost p