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Law of Contract: Proposal and Acceptance
Law of Contract: Proposal and Acceptance
proposal. The opening words of section 2 (b) which provides when the person to
whom the proposal is made lends support to this view. On the other hand, where
it is made to the general public, then anyone who meets all the terms of the
proposal may accept. In an English case, Carlill v. Carbolic Smoke Ball Co.
[1893]1 QB 256, the defendants advertised that they would offer a sum of money
to anyone who would still succumb to influenza after using a certain product
according to the instructions for a fixed period. The plaintaiff duly used the product
advertised but, nevertheless, became ill. The plaintiff, upon refusal of the
defendants to honour their promise, proceeded to sue them. The Court of Appeal
held that the plaintiff had accepted the offer of the company made to the world at
large and is, therefore entitled to the money. Similarly, an advertisement of reward
for the return of lost property would, as a general rule, be treated in the same
manner in the absence of other terms attached to the offer.
Facts: Carbolic Smoke Ball Co. Ltd. advertised that they would offered $1,000 to
anyone who still succumbed to influenza after using a certain remedy for a fixed
period. The plaintiff duly used it but, nevertheless, contracted influenza. The plaintiff
then sued for the money.
Held: The plaintiff was entitled to the $1,000 as she had accepted the offer made to
the world at large.
COMMUNICATION OF PROPOSAL
A corollary to the rule that only an addressee may accept the proposal is the
principle of communication of the proposal. Unless there is communication of the
proposal as suggested by section 2(a) which reads when one person signifies to
another his willingness to do or to abstain from doing anything, there can
be no acceptance to form an agreement. The fact that the other party has done
something which coincides with the proposal without being aware of the proposal
does not bring an agreement into being. Likewise, a party accepting a proposal
must be aware of its existence. A party who casually returns a lost property to its
owner cannot legally claim a reward if he is unaware of it at the time but
subsequently discovers the existence of an offer of reward for its return.
In R. v. Clarke (1927) 40 C.L.R. 227, an Australian case, the western Australian
Government offered a reward for information leading to the arrest and conviction of
persons responsible for the murder of two police officers. X and Clarke were
arrested and charged with the murders but shortly after, the latter gave information
which lead to the arrest of another person, Y. X and Y were later convicted for the
offence and Clarke who did not commit the murders claimed the reward. His claim
failed on the grounds that the information was given to clear himself and not in
reliance on the offer of reward. In the words of Higgins J
Clarke has seen the offer, indeed; but it was not present to his mind he had
forgotten it, and gave no consideration to it, in his intense excitement as to his
own danger. There cannot be assent without knowledge of the offer, and
ignorance of the offer is the same thing, whether is its due to never hearing or it
or to forgetting it after hearing.
M N Guha Majumder v R E Donough [1974] 2 MLJ 114
Facts: Property owned by the defendant was advertised for sale, and written offers
to purchase were invited. The plaintiff viewed the property on two occasions. During
the interval between the two occasions the plaintiff was in communication with the
defendants agent, and it was alleged that the defendant had accepted the
plaintiffs offer to purchase the property for RM70, 000. There had been on the
occasion of the second visit to the property some discussion on the mode of
payment. There was also no clear agreement on the sale of orchid plants which the
defendant wished to sell separately, although the matter was discussed between
the parties. The defendant denied that he had decided to go on with the sale. The
defendant was anxious, however, to effect a quick sale as he was desirous of
leaving Kuching permanently for Johore Bahru. The question for determination was a
contract in existence between the plaintiff and the defendant at the material time.
Held: 1. The law does not impute an intention to enter such a legal relationship as
that of vendor and purchaser where the circumstances and the conduct of the
parties negative any intention of the kind.
2. the evidence indicated that the parties did not intend to be immediately bound.
They had not the necessary animus contrahendi. What passed was only a
negotiation from beginning to end.
plaintiffs letter of June 8 had rejected the original proposal which could not be
revived.
COMMUNICATION OF ACCEPTANCE
The general rule is that acceptance of a proposal must be communicated to the
proposer for there be a binding contract between the parties. This acceptance may
be expressed in some usual and reasonable manner, unless the proposal
prescribes a manner in which it is to be accepted. If the proposal prescribed a
manner in which it is to be accepted, and the acceptance is not made in such
manner, the proposer may, within a reasonable time after the acceptance is
communicated to him, insist that his proposal shall be accepted in the prescribed
manner, and not otherwise; but if he fails to do so, he accepts the acceptance.
Hence acceptance must ordinarily be communicated and made in some usual and
reasonable manner if no method of acceptance is prescribed. But if the proposal
specifies a particular mode of acceptance and it is not followed, the proposer is
entitled to insist on it. It is necessary that the proposer act within a reasonable
time after the communication of the acceptance. If he does nothing, he would be
deemed to have accepted. The duty to object lies with the proposer. The law in this
respect is different from English contract law which does not require such positive
objection to deviation from the prescribed manner of acceptance.
To the general rule that acceptance must be communicated, there are a number of
exceptions:
1. The proposer has dispended with the need for it.
2. The proposer allows the party to whom the proposal is made to perform the
conditions of a proposal. i.e. acceptance taking the form of performance of
an act stated in the proposal.
3. The proposer allows the acceptance of any consideration for a reciprocal
promise which may be offered with a proposal.
The second exception falls within the rule established in the English case, Carlill v.
Carbolic Smoke Ball Co., cited earlier in the chapter. In this case, it was contended,
inter alia, by the defendants that the plaintiff should have notified them of her
acceptance of their proposal. This argument was rejected by the court. It held that
performance was sufficient to constitute acceptance if that was the intention of the
proposer.
the defendant on 15 May. The fact that the mining shares were a very fluctuating
character was a significant factor in determining the issue of time. It should be
noted that what constitutes a reasonable time is a question of fact depending on
the circumstances such as the nature of the subject matter, and in this case, it was
shares of a fluctuating character so that one would expect their prompt delivery.
The rule that acceptance must be within a reasonable time is really embodied in
section 6(b) which provides that a proposal is revoked:
by the lapse of the time prescribed in the proposal for its acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without communication
of the acceptance;
When a contract is made by post it is clear law throughout the common law
countries that acceptance is complete as soon as the letter is put into the post box,
and that is the place where the contract is made.
The postal rule has evolved from reasons of practical convenience, arising from the
delay that is inevitable in delivering letters. The Court of Appeal decision in the
Selangor case Ignatius v. Bell (1913) 2 FMSLR 115 is the local authority for the
principle that acceptance is complete upon posting where communication by post is
the method contemplated by the parties. In this case, the plaintiff sued for specific
performance of an option agreement which purported to give him the option of
purchasing the defendants rights over a piece of land. The option was to be
exercised on or before the 20th day of August, 1912. The parties had contemplated
the use of the post as means of communication. The plaintiff sent a notice of
acceptance by registered post in Klang on August 16, 1912 but it was not delivered
till the evening of August 25 because the plaintiff was away. The letter had
remained in the post office at Kuala Selangor until picked up by the defendant. The
Court, applying section 4, held that the option was duly exercised by the plaintiff
when the letter was posted on August 16.
On the other hand, acceptance is complete as against acceptor, when it comes to
the knowledge of the proposer. This implies that while the proposer is bound upon
dispatch of acceptance by the acceptor, the latter is not bound until it is actually
received by the proposer. Therefore if X proposes by the letter to sell his house to Y
and Y accepts it in the same manner, X is bound at the moment Y dispatches the
letter through the post but he himself is not bound until it actually reaches X.
This state of the law is rather unsatisfactory for two principal reasons. First, whether
there is a binding agreement at a given time is by reference to the parties. Second,
there appears to be no common moment during the period between transmission
by the acceptor and receipt by the proposer when the agreement is said to be
mutually binding. The binding moment for both parties occurs only when the
proposer actually receives the acceptance and not before. Hence, where there is a
delay in the post or the letter of acceptance is misplaced by the postal authority,
the proposer is bound irrespective of his knowledge of the acceptance, while in the
other hand, the acceptor remains free till actual receipt by the proposer. This
necessarily implies that in the meantime, the acceptor may also withdraw his
acceptance. The proposer is severely disadvantaged by the rule and is placed in an
unequal position.
Proposers who contemplate the use of letters sent through the post as a means of
acceptance should provide adequate protection for themselves by, for instance,
stipulating in a proposal that acceptance is complete only upon receipt. That would
exclude the postal rule by express terms of proposal.
The postal rule also applies to telegram sent through the post office. Instantaneous
communications such as telephone and telex are governed by the general rule. In
Entores Ltd v. Miles Far East Corp., supra, the English Court of Appeal classified
communications by telex with instantaneous communications. Parker L.J. noted:
So far as Telex messages are concerned, through the dispatch and receipt of a
message are not completely instantaneous, the parties are to all intents and
purposes in each others presence just as if they were in telephonic
communication, and I can see no reason for departing from the general rule that
there is no binding contract until notice of the acceptance is received by the
offeror.
REVOCATION OF PROPOSAL
A proposal, once communicated, remains open until it lapses or is withdrawn, under
normal circumstances, there is no obligation for the proposer to keep his proposal
open indefinitely. He may revoke it any time before acceptance. Section 5(1) of the
Act provides
A proposal may be revoked at any time before the communication of its acceptance
is complete as against the proposer, but not afterwards.
Section 6 states that a proposal is revoked:
(a) By the communication of notice or revocation by the proposer to the other
party;
(b) By the lapse of the time prescribed in the proposal for its acceptance, or, if no
time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance;
(c) By the failure of the acceptor to fulfil a condition precedent to acceptance; or
(d) By the death or mental disorder of the proposer, if the fact of his death or
mental disorder comes to the knowledge of the acceptor before acceptance.
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 telegrapgh office. Therefore, withdrawal
of the proposal must necessarily be communicated by the proposer to the offeree
before such posting or delivery. The application of this rule is found in the
Illustration to section 5.
A proposes, by a letter sent by post, to sell his house to B.
parties after the offer was made in deciding whether the offeree has allowed too
long a time lapse before accepting.
Subsection provides that a proposal may be revoked where the acceptor fails to
fulfil 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 fulfil a
condition precedent.
Finally, subsection 9(d) deals with the death or mental disorder of proposer
subsequent to the communication of the proposal. The happening of these 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. It is
only upon such knowledge that the proposal is no longer available for acceptance.
The necessary implication from the subsection, therefore, is that acceptance
without prior knowledge of the death or mental disorder of the proposer is a good
acceptance.
REVOCATION OF ACCEPTANCE
Is may seem strange that an acceptance can be revoked but that is the law with
respect to those acceptance which is nit complete as against the acceptor.
Subsection (2) of section 5 states:
An acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards.
The Illustration to section % 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.
CONSIDERATION
Exceptions to the general rule that an agreement without consideration is void are
provided in section 26 and these may be summarized as follows:
(a) An agreement made on account of natural love and affection between parties
standing in near relation to each other.
(b) An agreement to compensate for a past voluntary act.
(c) An agreement to compensate a person who did an act which the promisor
was legally compellable to do.
(d) An agreement to pay a statute-barred debt.
An Agreement on Account of Natural Love and Affection 26(a)
The validity of this agreement is dependant upon the following conditions,
1. It is expressed in writing which may be in any reasonable form;
2. It must be registered where a law exists requiring such registration; and
3. It is made on account of natural love and affection between parties standing
in near relation to each other.
Natural love and affection are not recognized as valid consideration under English
law. Under subsection 29(a), it is a valid consideration provided the condition of
near relation between the parties is also met. Unfortunately, near relation is not
defined in the Act. While members of the immediate family will ordinarily constitute
near relation, there will be exceptions and any extension outside that group
presents some real difficulties. Personal law with respect to family matters are still
applicable to various ethnic groups, and consequently, what constitutes near
relation can vary with each social group, depending on its customs and social
organization.
In Re Tan Soh Sim [1951] MLJ 21, attempt made to define near relation. The Court
of Appeal considered the validity of an agreement between members of a Chinese
family governed by their personal laws. The principal issues were whether an
agreement was made on account of natural love and affection and three sisters and
seven half-sisters and brothers stood in near relationship to their adopted nephews
and nieces. The deceased Tan Soh Sim, in her last illness, had expressed a wish that
her estate should be divided amongst the two adopted sons and two adopted
daughters. The legal next-of-kin, respecting this wish, drew up an agreement
renouncing all rights in favour of the four adopted children who were their nephews
and nieces. The Court, in its judgement, said that relationship and near must be
applied and interpreted in each case according to the mores of the group to which
they the parties belong and with regard to their circumstances of the family
concerned. While the Court conceded that Chinese adopted children are related to
the adoptive parents and brothers, it held that they were not nearly related to the
family of their adoptive mother. Thus the uncles and aunties of the adoptive mother
in this instance did not stand in near relation to their nephews and nieces. The
Court further ruled that there was no natural love and affection between the
signatories and donees. In the opinion of Justice Briggs, natural meant reasonably
to be expected, having regard to the normal emotional feelings of a human being.
This emotional feeling was of a special type ordinarily expected to spring from the
fact of near relation. If either the feelings or the relation were lacking, the
agreement could not stand under this subsection.
ADEQUACY OF CONSIDERATION
If X promises to sell his car worth $20,000 for ten ringgit, is the amount of ten
ringgit sufficient consideration for the promise? The sum of money is obviously not
adequate for his promise but the court will not assess whether a promisor has
received adequate consideration. It appears that the adequate consideration. It
appears that the adequacy of consideration s immaterial. This state of the law is
borne out by Explanation 2 of section 26 which reads:
An agreement to which the consent of the promisor is freely given is not void
merely the consideration is inadequate; but the inadequacy of the consideration
may be taken into account by the court in determining the question whether the
consent of the promisor was freely given.
Illustration (f) of the section provides the example:
A agrees to sell horse worth $1,000 for $10. As consent to the agreement was
freely given. The agreement is a contract notwithstanding the inadequacy of the
consideration.
The legal view is that parties to a contract are capable of appreciating their own
interests so that in the absence of such events as fraud, misrepresentation and
other vitiating factors, a person may do as he pleases with regard to the value he
places on his property. It is only when the issue of consent not being freely given is
raised that the fact of adequacy of consideration would be taken into account by the
court.
CERTAINTY
Section 30
Agrements, the meaning of which is not certain, or capable of being made certain,
are void
Karuppan Chetty v Suah Thian, the requirement of certainty was not met when
the parties agreed upon the granting of a lease at RM 35 per month for as long as
he likes
CAPACITY TO CONTRACT
At common law, it is presumed that a person who enters into a contract has the full
capacity to do so. But where one or more parties to a contract lacks such capacity in
certain instances, the contract may be invalid. According to section 11 of the Act,
Every person is competent to contract who is of the age of majority according to the
law to which he is subject, and who is of sound mind, and is not disqualified from
contracting, by any law to which he is subject.
Mohori Bibee v Dhamados Ghose, the privy Council held that an infant cannot
make any valid contracts.
However, there are some exceptions to this rules. These are the following:
1 Contracts for necessaries
2 Contracts of scholarship
3 Contracts of insurance
Minors
A minor is a person who has not reached the age of majority. The common law
established 21 years as the age of majority for most purposes and those persons
under the age of majority were referred to, quite inappropriately, as infants.
Insofar as it affects contractual capacity, the age of majority is 18 years as provided
in the Age of Majority Act 1971. Prior to this Act, the repealed Age of Majority Act
1961 had fixed the age of majority for Muslims at 18 years and non-Muslims at 21
years. This change in the age of majority followed developments in England and
other countries where a climate of opinion had developed in favour of lowering the
age of majority from the traditional 21 which, it was felt, was no longer necessarily
desirable.
Section 69
CONSENT OF PARTIES
CONSENT
Free consent is the basis of a contractual relationship. There must be a meeting of
the minds as to the nature and scope of the contract, a consensus ad idem. Section
10(1), among other things, provides that all agreements are contracts if they are
made by the free consent of parties competent to contract . Two or more persons
are said to consent when they agree upon the same thing in the same sense.
Consent must be free and not secured through such means as fraud, coercion,
undue influence or misrepresentation. Section 14 provides:
Consent is said to be free when it is not caused by
(a) Coercion, as defined in section 15;
(b) Undue influence, as defined in section16;
(c) Fraud, ad defined in section 17;
(d) Misrepresentation, as defined in section 18; or
(e) Mistake, subject to section 21, 22 and23
Consent is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation or
mistake.
UNDUE INFLUENCE
Allcard v.Skinner (1887) Ch D 145 observed that the doctrine
to protect people from being forced, tricked or misled in any way by others into
parting with their property is one of the most legitimate objects of laws; and the
equitable doctrine of undue influence has grown out of and been developed by the
necessity of grappling with insidious forms of spiritual tyranny and with the infinite
varieties of fraud.
Datuk Jagindar Singh & Ors v Tara Rajanratnam the Federal Court held that as
there was a solicitor-client relationship, the presumption of undue influence has to
be rebutted.1
1
dipatahkan
COERCION2
Kesarmal s/o Letchman Das v Valiappa Chettiar [1954] MLJ 119 where there
court held invalid a transfer executed under the orders of the Sultan, issued in the
ominous presence of two Japanese officers during the Japanese Occupation of
Malaysia. In the instant case, consent was not free and, therefore, the transfer
become voidable at the will of the party whose consent was so caused.
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