Chapter 2: Elements of
Contract
1. Meaning of Contract
2. Offer
3. Acceptance
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By the end of this lecture, students
will be able to:
• Explain meaning of contract, offer and
acceptance
• Interpret the relevant provision under
Contract Act 1950
• Express and apply the concept of contract,
offer and acceptance
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Chapter 2: Elements of
Contract
Scope of Contract and Meaning of Contract
• The word ‘contract’ is defined as ‘an agreement
enforceable by law’. A contract is an agreement
which is legally binding between the parties.
- Section 2(h) Contract Act, 1950 (CA 1950)
• The legislative in Malaysia governing contracts is
the Contracts Act, 1950.
• The English law applies by virtue of the Civil Law
Act,1956. Where the Contract Acts makes certain
provisions which differ from English law, the
provisions of the Contracts Act must prevail –
Song Bok Yoong v. Ho Kim Poui.
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ELEMENTS OF CONTRACT
Offer /
Proposal
Legality
Acceptance
CONTRACT
Consideration
Intention To
Create Legal
Relation
Free Consent
Capacity
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Offer – Section 2(a) CA 1950
• An offer or proposal is necessary for the formation of an
•
•
•
•
•
•
agreement.
Offeror – the person who makes the offer.
Offeree – the person to whom the offer is made.
The definition of proposal/ offer can be expressed
according to Section 2 (a) of Contracts Act.
The communication of a proposal is complete when it
comes to the knowledge of the person to whom it is madeSection 4(1) Contracts Act. This mean that an offer is
effective once it is communicated to the offeree by the
offeror.
A proposal made in words (oral or written) is said to be
expressed.
If a proposal is made other than in words (example by
conduct) is said to be implied – Section 9 Contracts Act.
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Then What is Offer???
Situation :
A
Sir, here is my Membership
Application Form…..
Ok, we agreed your entry and
please pay RMXXX…..
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• Bilateral contracts – one of mutual
exchange and negotiation. (Patridge v
Crittenden 1968).
• Unilateral contracts - moves away from
the exchange of promises to one of
performance, therefore if only performance
is required for acceptance then the
advertisement may well be construed as an
offer. (Carlill v Carbolic Smoke Ball Co.
1983).
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Invitation to Treat
• An invitation to treat - has been defined as
‘offers to negotiate…receive offers’. The
crucial distinction between an offer and an
invitation to treat is that an offer once
accepted creates a valid contracts, whereas
purporting to accept an invitation to treat
does not create legal relations.
• There are several types of invitation to treat
including items on shelf, auction,
advertisement or catalogue and information
providing.
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Invitation to treat
Item on shelf
•
•
Items/ goods put on the shelf of a shop or department
store
Pharmaceutical Society of Great Britain v Boots Cash
Chemists Ltd (1953) Qb 401.
Auction
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•
•
The auctionor (chairman) will set a price, and this is not
the offer.
Offer is made by the buyer when he offer the price and
acceptance made when the hammer being hit to mark
the end of offer.
Payne v Cave (1789) Term Rep 148
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Invitation to treat
Advertisement / Products in Catalogue
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•
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Products are not shown to the buyer but instead it is
shown in picture or graphics.
There is slightly different if the advertisement with
conditions to fulfilled and normal advertisement.
Coelho v Suruhanjaya Perkhidmatan Awam
Information Providing / Preliminary communication
•
•
The seller provide the buyer with some information on
the goods is consider as ITT not offer because seller
had no intention to enter contract.
Harvey v Facey [1893] AC 552
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Termination of offer
• An offer, once communicated, remains open until it
lapses or is withdrawn.
• An offer may be revoked at any time before the
communication of its acceptance is complete as
against the offerer.
• Section 6 states that a proposal is revoked:
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• Refuse of offer
• Acceptance
• By the communication of notice of revocation by the
proposer to the other party
• By the lapse of the time prescribed in the proposal for its
acceptance
• By the failure of the acceptor to fulfill a condition precedent
to acceptance / cross- offer
• By the death or mental disorder of the proposer
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Acceptance – Section 2(b) CA 1950
• Fit the proposal
• Acceptance must be unconditional and final (S.
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•
•
7 Contracts Act)
An implied condition that the seller has the right
to sell the goods or will have the right at the time
property is to pass.
An implied warranty that goods are free from any
change in favour of a third party unknown to the
buyer at the time the contract is made.
An implied warranty that the buyer will enjoy
quiet possession of good acquired under the
contract
Sales of Goods Act and Trade Practice Act 1979.
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Communication of offer and acceptance
• Communication of offer can be differentiate into two
way thus (a) direct communication and (b) through
postal. – Section 4 CA 1950
• A direct communication as a general rule that it mean
complete when the message being conveyed to the
other party.
• A corollary to the rule that only an addresses may
accept the proposal is the principal of communication
of the proposal. Under 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.
• Communication through postal depends on the mode
and type of the message and the effect will be slightly
different as accordance to Section 4 of Contracts Act.
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Communication of Acceptance
• The general rule is that acceptance of a proposal must be
communicated to the proposer for there to be a binding
contract between the parties.
• To the general rule that acceptance must be
communicated
– The proposer has dispensed with the need for it
– The proposer allows the party to whom the proposal is
made to perform ‘the conditions of a proposal’
– The proposer allows ‘the acceptance of any
consideration for a reciprocal promise which may be
offered with a proposal’.
– Refer to Carlill v. Carbolic Smoke Ball Co. case.
– Refer to Entores Ltd v Miles Far East Corporation
(1955)
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Silence Acceptance
• Silence does not generally constitute acceptance.
• When a person makes an offer he or she cannot demand
of the person receiving the offer ‘unless I shall assume
that you have accepted my offer’.
• Failure to respond to an offer may occur due to any
number of reasons apart from an intention not to accept
the offer, for example the person may simply forget about
it. The person receiving the offer must not be placed in
the position of having to contact the other party to signify
his or her refusal of the offer.
• Refer to Felthouse v Bindley (1862) 11CB (NS) 869 case.
• Refer to Waltons Stores (Interstate) Ltd v Maher (1988)
164 CLR 387 case.
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Exception to the communication
• There are two exceptions to the general rule about having
to communicate acceptance
– Where the offeror does not require it (for unilateral contract)
• Carlill v Carbolic Smoke Ball Company.
– The postal rule
• The use of the mail, telegram, telephone or modern
electronic communication to communicate acceptance
creates problems.
• It states that where acceptance by mail is contemplated
by the parties, acceptance will have taken place and will
be deemed to have been completed the moment that
the letter of acceptance has been properly posted.
• Adams v Lindsell (1818) 106 ER 250 case.
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Means of communication
• 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.
• Acceptance through post – is effective or complete only
when it comes to the actual knowledge of the proposer.
• The communication of 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.
– Refer to Entores Ltd v Miles Far East Corporation (1955) 2
QB 327 case.
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