GROUP ASSIGNMENT LAW 3112

A friend of yours, Roy, works as self-employed painter and decorator. Roy has heard

that materials can often be bought cheaply at auction than from wholesalers. Roy asked

you to write a brief report, indicating the following matters:

a) The way in which a contract is made by the process of offer and acceptance.

b) How an offer differs from an invitation to treat.

c) How offer and acceptance are made when goods are bought at auction.

d) What is meant by an intention to create legal relations?

e) What is meant by consideration?

Instruction:

1. Pages, minimum:8; maximum: 12.

2. Font:12, Arial.

3. Type-written, Double-spacing.

4. The cover must contain all the names of the group members.

5. Submit during third lecture.

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(A) The way in which a contract is made by the process of offer and acceptance

Section 2(a) of the Contracts Act 1950 provides that ‘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. The person making the proposal is called the ‘promisor’ or is also referred to

as the ‘proposer’. The word ‘proposal’ is synonymous with the English terminology of

‘offer’ and the person who makes the offer is called the ‘offeror’. In the case of Preston

Corporation Sdn Bhd v Edward Leong1, the federal court has stated that

“an offer is an intimation of willingness by an offerror to enter into a legally binding

contract. Its term whether expressly or impliedly must indicate that it is to become

binding on the offeror as soon as it has been accepted by the offeree.”

Generally, a person may make a proposal in any form, that is to say it can be

made orally, in writing, by conduct or by a combination of these methods. Section 9 of

the Contracts Act 1950 provide that so far as the proposal or acceptance of any

promise is made in words, the promise is said to be expressed. Where the proposal or

acceptance is made otherwise than in words, the promise is implied.

After having the intention to make an offer, the offer or proposal needs to be

communicated to the parties concerned. Under Section 3 of the Contracts Act 1950 ,the

communication of proposal is deemed to be made by any act or omission of the party

proposing by which he intends to communicate the proposal, or which has the effect of

communicating it. The word ‘or’ in the last clause should be replaced by the word ‘and’

to read ‘and which has the effect of communicating it’ to give the section its proper

effect. The communication of a proposal is complete when it comes to the knowledge of

1 (1982) 2 MLJ 22

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the person to whom it is made2. A proposes, by letter, to sell a house to B at a certain

price. The communication of the proposal is complete when B received the letter.

The proposal or agreement entered into between the parties must not be vague,

indefinite or uncertain. The parties must express themselves so that their meaning can

be determined with a reasonable degree of certainty. Otherwise, it would not be

possible for the court to hold that there was an agreement between them.

However, not all statements made by a party to initiate a contract will amount to

an offer. A person may make a statement of his willingness to enter into a contract by

inviting other parties to make an offer. Such statements are usually referred to as an

invitation to treat which would be discussed in detail under the next question. Whether a

statement made is an offer or an invitation to treat depends on the intention of the

parties making the statement, and the manner in which the person or persons to whom

it is made interprets it. This then become a question of interpretation.

After an offeror has fulfilled all such requirements to make a valid offer, it is then

the turn of the acceptor to make signify their acceptance to the terms of the offer. An

acceptance is the final expression of assent to the terms of a proposal. Section 2(b) of

the Contracts Act 1950 provides:-

When a person to whom the proposal is made signifies his assent thereto, the proposal

is said to be accepted:, a proposal when accepted, becomes a promise. The person

accepting the proposal is called the promisee or the acceptor3.

A acceptance must exactly fit the proposal Section 7(a) of the Contracts Act 1950

provides that in order to convert a proposal into a promise, the acceptance must be

2 Section 4(1) Contracts Act3 Section 4(2) Contracts Act

pg. 3

absolute and unqualified. If A makes a proposal to B on term x, y and z and B accepts

on term x and y only or on terms w, x, y and z, then B’s purported acceptance to A’s

proposal is not absolute. Therefore, a reply to a proposal is effective if it accepts all the

terms of the proposal without qualification or addition. Where a party had offered to sell

at £1000, the other party, by proposing to buy it at £950, had introduced a new term and

thus his purported ‘acceptance’ did not exactly fit the proposal4

The promisee may have decided in his own mind that he accepts the proposer

but that decision in itself does not amount in law to acceptance. There must be an

external manifestation of assent, some words spoken or act done by the promisee or by

his authorized agent, which the law can regard as the communication of acceptance to

the proposal. An acceptance that only remains in the breast of the acceptor without

being actually and by legal implication communicated to the proposer is not binding

acceptance. Therefore, the promisee must communicate his acceptance to the

proposer. Section 3 of the Contracts Act provides that the communication of the

acceptance of proposal is deemed to be made by any act or omission of the party

accepting by which he intends to communicate the acceptance and which has the effect

of communicating it. Like the proposer, an acceptance can be made in writing, or orally

or by conduct or by a combination of these methods.

The general rule is that an acceptance has no effect unless it is communicated to

the proposer. An acceptance is communicated when it is actually brought to the notice

of the proposer.

As a conclusion, a contract is concluded when an offer is made and accepted

through legal means which then will have a legally binding effects. These two elements

4 Hyde v Wrench (1840) 3 Beav 334.

pg. 4

though may seems easy to comprehend but may in times prove to be a tedious issue to

dealt with in court as it form the very essence of a valid contract.

B) How an offer differs from an invitation to treat.

The distinction between a ‘proposal’ properly so called and a mere request for

the other party to negotiate or to make a proposal has been expressed in judicial

language by the contrast of an offer with an invitation to treat. An invitation to treat is an

offer to negotiate, an offer to receive offers or an offer to chaffer.

This distinction was neatly illustrated in the case of Gibson v Manchester City

Council5. The Manchester City Council wrote to Mr. Gibson stating that the Council

‘may be prepared to sell’ the council house to him at £2,180 and invited him ‘to make

formal application to buy.’ Mr. Gibson made a formal application as requested in the

letter. Before the process of preparation and exchange of contracts, the control of the

council changed hands from the Conservative Party to the Labour Party and the new

Council refused to complete the sale. The House of Lords held that the Council’s letter

was the contractual offer, capable of being converted into a legally enforceable contract

for the sale of land by Mr. Gibson’s written acceptance of it. Mr. Gibson’s letter was an

offer and not an acceptance.

In Abdul Rashid Abdul Majid v Island Golf and Properties Sdn Bhd,6 the

plaintiff applied to become a member of the defendants’ golf club known as Bukit

Jambul Golf Club in Penang. He submitted the application form and duly executed a

declaration that gives the defendants the power to levy any additional charges to meet

5 (1979) 1 All ER 972.6 (1998) 3 MLJ 376.

pg. 5

expenditure. The defendants levied a fee known as the development fee payable by

members. The plaintiff challenged the defendants’ power to do so. On the preliminary

issue as to whether the defendants are entitled to levy and collect such fees. Wan

Adnan J held that the plaintiff’s application for membership was only a preliminary step.

The offer for memberships came from the defendants after the defendants had

considered the plaintiff’s application. A contract only came into existence between the

plaintiff and the defendants when the plaintiff and the defendants accepted the offer by

making the payment of the entrance fee and the first subscription. Therefore the

declaration in the application form was not part of the contract. It was just an antecedent

communication. The only contract between the plaintiff and the defendants was the

rules of the club. In Leisure Complex Sdn Bhd v Malaysia Credit Finance Bhd,7 the

plaintiff charged certain properties to the defendant and later subleased part of the

charged property without the defendant prior consent. The plaintiff alleged that at the

meeting, the defendant’s representative propose to consent to the subleased on

conditions that the rental receivable from the subleased are assigned to the defendant.

The plaintiff further alleged that the plaintiff accepted this proposal to the later dated 15 th

April 1993 with the result that give its consent to the plaintiff. The defendant refuse to

consent to the subleased and the plaintiff sued the defendant.

Richard Malanjum JC held that the contents of the letter dated 15 th April 1993

showed that the defendant made no offer t the plaintiff. Even if the defendant made the

alleged proposal and the plaintiff accepted it, such and acceptance could not result in a

binding contractual relationship between the parties. The plaintiff’s letter clearly

indicated that the defendant’s representative had made the following proposal for

7 (1994) 1 CLJ 185.

pg. 6

recommendation to your (defendant’s board). Thus this is obvious there was no

proposal made as the defendant’s board of directors would still have to decide whether

to consent subleased or not.

Example of invitation to treat are display of goods in a shop window, an

auctioneer’s invitation of bids, circulation and advertisement, tenders, supply of

information and statement of intention.

(C) How offer and acceptance are made when goods are bought at auction.

There are no specific provisions under the Contracts Act which governs the

method in which an offer and acceptance is to be carried out in cases involving auction.

Therefore, when disputes arises in cases of auction as to the nature of bids at an

auction and the nature of a tender, the Malaysian court’s would rely on decided cases,

mostly from their English counterparts as precedents.

An auctioneer who puts property out for sale is not making an offer but merely

an invitation to request for bids. Therefore the advertisement for sale was a mere

statement of intention to hold a sale and not an offer that could be accepted to form a

binding contract.8 At this point the auctioneer is merely making an invitation to treat.

Being the nature of an invitation to treat, it is the bidder who would offer while it is at the

discretion of the auctioneer to accept the offer, signifies through the fall of the hammer.

However in the recent case of Barry v Heathcote Ball & Co ( Commercial

Auctions) Ltd9, it has been held that the auctioneer was liable for damages to the

8 Harris v Nickerson (1873) LR 8 QB 2869 (2001) 1 All ER 944

pg. 7

bidder when the auctioneer had put up for auction certain machinery ‘without reserved’

and refuse to accept the highest and only bid.

As on the part of the bidder, when he made the highest bid and withdrew it

before the fall of the hammer, the court held that the bid itself constituted the proposal

or the offer and that the auctioneer was free to accept it by the fall of the hammer or

reject it. If the bidder withdrew the offer before the fall of the hammer there was no

contract between the parties.10 To put it in a simple sense, the bidder could revoke his

offer at anytime before the fall of the hammer and not afterwards.

In the case of M & J Frozen Food Sdn Bhd v Siland Sdn Bhd11, the issue

arose before the supreme court as to whether in the sale of land in an public auction,

the sale is completed at the fall of the auctioneer’s hammer? Wan Yahya SCJ stated

that the sale at the juncture where the fall of the hammer occurred, it only means that

the good would no longer be offered for sale to prospective buyers and the successful

bidder could not be permitted to retract his acceptance. Thereafter, each party to the

contract of sale must perform his part of the obligation and until then, no executed or

actual sale has been concluded. Therefore, a reference to a sale being concluded at the

fall of the auctioneer’s hammer could only refer to that stage of the transaction of sale

when there was concluded an agreement between the vendor and the highest bidder,

the former to sell and the latter to purchase the goods.

In the case of Roy wanting to purchase goods through an auction, he would be

put in a position of a proposer. The auctioneer would merely advertise an invitation to

10 Payne v Cave (1789) 3 Term Rep 148, 100 ER 50211 (1994) 1 MLJ 303

pg. 8

treat. However it should also be noted that in light of the decided cases referred to by

the court, it is up to the discretion of the auctioneer to accept his bid in any situation

provided that the auctioneer has inserted a ‘reserved’ clause in the advertisement. Roy

on the other hand could revoke his bid if he wishes to, before the fall of the hammer

which signifies the conclusion of the pre-contractual stage.

(D) What is meant by an intention to create legal relations.

Though the Contracts Act is silent on the question of intention to create legal

relationship, there seems to be no doubt a vital requirement for a valid contract is that

the parties must have the intention to enter into such a relationship. Intention may be

either express or implied from the circumstances. Basically, intention to create legal

relation could be classified into two classes. The first of its kind takes the form of a

domestic agreement while the other involve commercial agreement. The fundamental

differences between this two kind of agreement is that domestic agreement is assumed

to be lack of an intention to have any legal binding force while commercial agreement is

assumed to be legally binding. In cases of domestic agreement, the onus to rebut such

presumption is on the party who wishes the court to believe that the in fact exist an

intention to create a legally binding contract and vice versa for commercial agreement.

This could not be better illustrated through the judgment delivered by Whyatt CJ

the case of Choo Tiong Hin & Ors v Choo Hock Swee12 where his lordship held that:-

“The question remains whether an agreement of this character is one which creates

legal relation which the parties have a right to enforce in the courts. It is of course

elementary that an agreement is not a contract in the strict sense of the words, unless it

12 (1959) MLJ 67

pg. 9

is the common intention of the parties that it shall be legally enforceable. Such an

intention is normally inferred from the nature of the agreement. For instance in the case

of agreements regulating commerce or business it is obvious that the parties intends

legal consequences to follow.

However, in the case of agreements relating to social engagement, it is inferred

as a matter of course that there is no common intention to create legal obligations.

Between these two extremes, there are agreements where it cannot be so readily

determined whether there create legal obligations or not. If an agreement is made

between members of a family in a course of family life as was the case in Balfour v

Balfour13, the law will ordinarily imply from the circumstances of the case that the party

did not intend their agreement to have legal consequences.

As stated earlier, the general rule is that parties intends the agreement to have

legal consequences. However there are exceptions to this general rule. While in the

case of commercial agreements there is a presumptions that the parties intends to

create legal relations, that presumptions may be expressly negatived. For instance the

agreements may be made ‘subject to contract’, or include an ‘honour clause’ such as is

frequently the case in respect of football pools, or letters of comfort or intent.14

Sometimes disputes may arise between the parties as to whether in fact a

legally binding contract had been concluded between the parties. The task of so

determining whether a contract is fully binding is then left to the court to determine. In

arriving in its conclusion, the paramount factor that the court take into consideration is

13 (1919) 2 KB 57114 9 Halsbury’s Laws of England, 4th Edition Reissue 1998 para 721

pg. 10

the intention of the parties as evidenced in the written contract or from other relevant

facts.

In the case of Carlill v Carbolic Smoke Ball Company15, the presumption of

intention was upheld despite the offeror’s argument that the advertisement was a mere

puff or alternatively a promise in honour only. The court found that the deposit by offeror

of £1000 with its bankers to show its sincerity in the matter provided strong evidence

support the presumption that it intended to be legally bound by the promises it has

made to the public in its advertisement.

In the case of Roy, an auction has always been recognizing to be a commercial

activity which any contract out of it would be intended to have a legally binding effect.

(E) What is meant by consideration?

The court will not enforce a contract unless it is supported by consideration. The

law enforces bargains to which both parties contribute, not gratuitous promises.

Section 2(d) of the Contracts Act 1950 gives the following definition of consideration:

When, at the desire of the promisor, the promisee or any other person has done or

abstained from doing, or does or obtains 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.In short, the promise must give something in return for the promise made

by the promisor.

In South East Asia Insurance Bhd v Nasir Ibrahim,16 Gunn Chit Tuan SCJ,

delivering the judgment of the Supreme Court, stated that ‘the essence of consideration

15 (1983) 1 QB 25616 (1992) 2 MLJ 355.

pg. 11

is that the promisee has taken upon himself some kind of burden or detriment’.17 In

Macon Works & Trading Sdn Bhd v Phang Hon Chin,18 Hashim Yeop A Sani J relied

on the definition that:

“A valuable consideration in the sense of the law may consist either in some right,

interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or

responsibility given, suffered or under taken by the other”.19

The court further stated that alternative approach is to define consideration in

terms of purchase and sale, the consideration being the price of the promise:

An act or forbearance of the one party, or the promise thereof, is the price for which the

promise of the other is bought, and the promise thus given for value is enforceable20.

In University of Malaya v Lee Ming Chong,21 the University of Malaya

appointed the defendant to a scholarship offered by the Canadian government under

the Colombo Plan, to pursue a course of study in Canada for the degree of Master of

Business Administration and Accounting. The parties entered a scholarship agreement

that provided for the defendant to serve the University for a period of not less than 5

years and a breach of this term will render him liable to pay the University on demand a

sum of $5000. The defendant breached the term and contended that the scholarship

agreement was void as it was made without consideration.

Wan Hamzah SCJ held that it was clear that there was consideration on the part

of the University. The scholarship agreement stated the University agreed to appoint

the defendant to the scholarship. If the University had not appointed him to the

17 Ibid, at p 362.18 (1976) 2 MLJ 177.19 Curie v Misa (1875) LR 10 Exch 153.20 Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd (1915) AC 847, at p 855.21 (1986) 2 MLJ 148.

pg. 12

scholarship, he would not be able to enjoy it. The fact that the University appointed him

to the scholarship was the consideration on its part for Lee’s promise to serve it for 5

years after completing the course, which he would not be able to take without the

appointment by the University.22

22 Ibid, at p 152.

pg. 13

BIBLOGRAPHY

STATUTES:

Contracts Act 1950

BOOKS:

Beatrix Vohrah, & Wu Min Aun (2000).The Commercial Law of Malaysia.

Kuala Lumpur: Longman.

Lee Mei Pheng (2005).General Principles of Malaysian Law.5th Edition.

Kuala Lumpur: Penerbit Fajar Bakti Sdn Bhd.

Syed Ahmad S A Alsagoff (1996).Principles of the Law of Contract in Malaysia.

Kuala Lumpur: Malayan Law Journal.

Dato’ Seri Visu Sinnadurai (2003).Law of Contract, Third Edition.

LexisNexis Butterworths

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