II.

FORMATION OF A CONTRACT

1. "Proposal" - s. 2(a) CA 1950

In this Act the following words and expressions are used in the following senses, unless a contrary intention
appears from the context -

(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.

(a) cf. English law "offer"

• Preston Corp Sdn Bhd v Edward Leong [1982] 2 MLJ 22

The starting point in the formation of contracts between the parties was the printing orders because these
orders were offers, their confirmation by the respondents constituted acceptance and therefore brought into
existence the contracts between them. Consequently the film ownership clause contained in the quotations was
completely irrelevant and as such formed no part of the contracts at all. The parties must have been taken to
enter into contracts on the terms of the printing orders and not on the terms of the quotations submitted by
the respondents.

(b) Auctioneers's invitation for bids

• M & J Frozen Food Sdn Bhd & Anor v Siland Sdn Bhd & Anor [1994] 1 MLJ 303

• Sinar Wang Sdn Bhd v Ng Kee Seng [2005] 2 MLJ 42 (CA)

• Eckhardt Marine GMBH v Sheriff, High Court of Malaysia, Seremban & Ors [2001] 4 MLJ 49
2. Manner of acceptance – s. 7 CA

s. 7 - Acceptance must be absolute

In order to convert a proposal into a promise the acceptance must -
(a) be absolute and unqualified;
(b) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it
is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is
not made in that 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.

• Brogden v Metropolitan Rly Co (1877) 2 App Cas 666

• s. 7(b) - if acceptor deviates from form prescribed by proposer, proposer to protest.

• Low Kar Yit & Ors v Mohd Isa & Anor [1963] MLJ 165

• cf. English Law: Manchester Diocesan Council of Education v Commercial & General Investments [1970] 1 WLR
241, 246

o Inter Diam Pte Ltd v PJ Diamond Centre Sdn Bhd [2002] 4 CLJ 715 (HC)

o TT Martech Sdn Bhd v Wing Construction (M) Sdn Bhd [2005] 2 MLJ 463

o Seni Jaya Sdn Bhd & Anor v Dato’ Hj Ahmad Tarmizi bin Hj Puteh & Anor [2019] 2 MLJ 154 (FC)

The appellants sued the respondents in the High Court for breach of an alleged agreement to privatise
exclusively to them for a period of 15-20 years, the right to manage all outdoor advertising sites
(‘billboards’) in the city of Petaling Jaya (‘PJ’) through the agency of the second respondent’s sports club
(‘the sports club’). The second respondent (‘R2’) was the local authority for PJ while the first respondent
(‘R1’) was its president at the material time. R2 initially decided to raise funds for the sports club by giving
it the sole right to manage the billboards so that revenue from billboard licensing fees and other payments
from advertisers could be received by the club. However, when that move did not work, R2 called for
tenders to privatise the management of the billboards. One of the parties who submitted tenders was the
appellants who contended that by a letter dated 16 December 2005 (‘the 16 December 2005 letter’) R1, on
R2’s behalf, agreed in principle to give the appellants the right to exclusively manage and operate the
billboards in several areas under R2’s jurisdiction (‘the concession’). The appellants claimed that on the
strength of that letter they paid RM2.1m to the sports club. Contending that they had a concluded
 agreement with R2 with regard to the concession, the appellants sought specific performance of the
agreement or damages in lieu thereof. The High Court dismissed the appellants’ suit after finding that there
was no concluded contract between them and R2 and that the sports club could not in law act as an agent
for the licensing functions of R2. The Court of Appeal affirmed the High Court’s decision resulting in the
instant appeal.

Held, dismissing the appeal:

(1) Although the words ‘agreed in principle’ were used in the 16 December 2005 letter, they had to be
considered in the context of the entire letter. The proposal made by the appellants was not short
in details and it was glaring in R2’s response that there was no reference to any of the terms the
appellants had proposed. In fact, R2 stated in no uncertain terms that important terms and
conditions had to be discussed. There was no absolute and unqualified acceptance of the appellants’
proposal but, at best, a qualified or conditional acceptance which in law was effectively a rejection.

(2) There was no merit to the contention that despite the lack of a formal executed agreement, the
factual matrix gave rise to a binding contract. The proposal by the appellants envisaged a 15-20
years’ monopoly over the management of the advertising sites and contained onerous and complex
terms and conditions which no reasonable enterprise would agree to unless and until their full
ramifications were known. The contention that R2 had agreed to all the terms was not only bereft
of any evidence but bereft of any commercial sense. The first appellant’s letter dated 26 May 2006
protesting against R2’s failure to reply to the proposed changes further showed the absence of any
concluded contract.

(3) The appellants’ payment of RM2.1m to the sports club was a matter between them and the sports
club as there was no evidence to link that payment to an alleged concluded contract between the
appellants and R2. If that payment was part of the consideration for the proposed agreement,
surely mention should have been made of that fact in the proposed agreement itself. The appellants
had also made the fatal risk of not naming the sports club as a party to the suit to advance their
contention that the sports club was R2’s agent.

3. Communication of acceptance and revocation

(a) ss. 4(2) and 4(3) CA - Different times when communication is complete

s. 4 - Communication, when complete

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

(2) The communication of an acceptance is complete -

(a) 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; and
(b) as against the acceptor, when it comes to the knowledge of the proposer.

(3) The communication of a revocation is complete -

(a) as against the person who makes it, when it is put into a course of transmission to the person to
whom it is made, so as to be out of the power of the person who makes it; and
 (b) as against the person to whom it is made, when it comes to his knowledge.

• Ignatius v Bell [1913] 2 FMSLR 115

• Dunmore (Countess of) v Alexander (1830) 9 Shaw 190 (Scotland)

• Lim Keng Siong & Anor v Yeoh Ah Tee [1983] 2 MLJ 39

• Lee Chin Kok v Jasmin Arunthuthu Allegakoen & Ors [2000] 4 MLJ 481

(b) Section 6 CA - Failure to fulfil a condition precedent:

s. 6 - Revocation how made

A proposal is revoked -

(a) by the communication of notice of 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.

• Aberfoyle Plantations Ltd v Khaw Bian Cheng [1960] MLJ 47

• Acceptance 'subject to contract':

• Charles Grenier Sdn Bhd v Lau Wing Hong (FC) [1997] 1 CLJ 625

(c) 'a formal agreement will be executed':

• Lim Chia Min v Chean Sang Ngeow & Anor [1997] 2 CLJ 337

• Ayer Hitam Tin Dredging Malaysia Bhd v. Y C Chin Enterprises (SC) [1994] 3 CLJ 133

• Kam Mah Theatre Sdn Bhd v. Tan Lay Soon (SC) [1994] 1 CLJ 9

4. Consideration - Section 2(d) and Section 26 CA

(a) Need not be adequate

(i) Section 26 CA, Explanation 2, Illus. (f)

 s. 26 - Agreement without consideration, void, unless -
An agreement made without consideration is void, unless -
it is in writing and registered
(a) it is expressed in writing and registered under the law (if any) for the time being in force for the
registration of such documents, and is made on account of natural love and affection between parties
standing in a near relation to each other;
or is a promise to compensate for something done
(b) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for
the promisor, or something which the promisor was legally compellable to do; or
or is a promise to pay a debt barred by limitation law
(c) it is a promise, made in writing and signed by the person to be charged therewith, or by his agent
generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might
have enforced payment but for the law for the limitation of suits.

In any of these cases, such an agreement is a contract.

Explanation 1 - Nothing in this section shall affect the validity, as between the donor and donee, of any gift
actually made.
Explanation 2 - An agreement to which the consent of the promisor is freely given is not void merely
because 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.

• Phang Swee Kim v Beh I Hock [1964] MLJ 383

• Sandrifarm Sdn Bhd v Pegawai Pemegang Harta Malaysia [2000] 2 MLJ 535

• David Wong Hon Leong v Norazman bin Adnan (COA) [1995] 4 CLJ 155

(ii) Section 4(c) Contracts (Amendment) Act 1976

• Universiti Malaya v Lee Ming Chong [1986] 2 MLJ 148

(iii) Section 27(a) Specific Relief Act 1950

(b) Unilateral declaration insufficient to make contract - no contract under seal

• Guthrie Waugh Bhd v Malaippan Muthucumaru [1972] 1 MLJ 35, 39

(c) Consideration may move from third party

• Section 2(d) CA: "the promisee or any other person"

when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or
promise is called a consideration for the promise;

• cf. English Law - consideration must move from promisee Currie v Misa (1875) L.R. 10 Ex. 153

(d) Past consideration

(i) Section 2(d) CA: "at the desire of the promisor, the promisee or any other person has done or abstained
from doing ..."

when, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or
promise is called a consideration for the promise;

(ii) Section 26(b) CA: "... a person who has already voluntarily done something for the promisor ..."

(b) it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the
promisor, or something which the promisor was legally compellable to do; or

(iii) "voluntarily done”:

• Wotherspoon JM & Co Ltd v Henry Agency House [1962] MLJ 86

• Leong Huat Sawmill (Pte) Ltd v Lee Man See (FC) [1985] 1 MLJ 47

(iv) cf. English law

• General rule that consideration must not be past

o Roscorla v Thomas (1842) 114 ER 496; exception - act done at the request of promisor Lampleigh v Brathwait
(1615) 80 ER 255

o South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355

(e) Natural love and affection

• Section 26(a) CA

(a) it is expressed in writing and registered under the law (if any) for the time being in force for the
registration of such documents, and is made on account of natural love and affection between parties standing
in a near relation to each other;
• Re Tan Soh Sim [1951] MLJ 21

• cf. English law Bret v J.S. & His Wife [1600] 78 ER 987

(f) Payment of lesser sum in satisfaction of obligation to pay larger sum.

• s. 64 CA - Promisee may dispense with or remit performance of promise

Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him,
or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks
fit.

ILLUSTRATIONS
(a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform
the promise.
(b) A owes B RM5,000. A pays to B, and B accepts, in satisfaction of the whole debt, RM2,000 paid at the
time and place at which the RM5,000 were payable. The whole debt is discharged.
(c) A owes B RM5,000. C pays to B RM1,000 and B accepts them, in satisfaction of his claim on A. This
payment is a discharge of the whole claim.
(d) A owes B under a contract, a sum of money, the amount of which has not been ascertained. A, without
ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts the sum of RM2,000. This is a
discharge of the whole debt, whatever may be its amount.
(e) A owes B RM2,000, and is also indebted to other creditors. A makes an arrangement with his creditors,
including B, to pay them a composition of fifty cents in the dollar upon their respective demands. Payment to
B of RM1,000 is a discharge of B's demand.

• Kerpa Singh v Bariam Singh (FC) [1966] 1 MLJ 38

• "section materially alters the English doctrine of accord and satisfaction"

• cf. English Law Pinnel's Case 77 ER 237 and Foakes v Beer [1884] 9 App Cas 605

(g) Compromise agreement

• See Tan Chiw Thoo v Tee Kim Kuay [1997] 1 CLJ 541

• Solid Kitchen Sdn Bhd v Aman Teguh - WICC JV Sdn Bhd & Anor [2003] 5 MLJ 412 (HC)

(h) Exchange of mutual promises - whether good consideration - Section 2(d) and (e) CA

• Ahmad Zaini bin Japar v TL Offshore Sdn Bhd [2002] 1 AMR 369 (HC)
5. Privity of contract

• English principle that non-party cannot sue on a contract applicable

o Kepong Prospecting Ltd v Schmidt [1968] 1 MLJ 170

o Emar Sdn Bhd v Aidigi Sdn Bhd [1992] 2 MLJ 734

o Badiaddin bin Mohd Mahidin & Anor v Arab Malaysian Finance Bhd [1998] 1 MLJ 393

o Boustead Naval Shipyard Sdn Bhd v Dynaforce Corp Sdn Bhd (COA) [2015] 1 MLJ 284

o Lembaga Kumpulan Wang Simpanan Pekerja v Kesatuan Kakitangan Lembaga Kumpulan Wang Simpanan Pekerja
(FC) [2000] 3 CLJ 81