Business expanding

Introduction

Itua wants to expand his business to include costume hire, so he visits two supplier outlets namely Baju Murah Sdn Bhd (hereinafter referred as BM) and Baju Lagi Murah Sdn Bhd (hereinafter referred as BLM) on the same day. BM was the first outlet Itua visited on that day morning and the manager of BM told Itua they might consider selling the costumes stored in their back closet. After inspection of the costumes, Itua sends a fax to BM late morning on that day stating he is interested in buying the collection of costumes in their back closet and the highest price he would pay for the lot is RM5000.00.

Later on the same day, Itua visited his good friend Sylvester, the manager of BLM and Itua asks whether BLM will accept RM3000.00 for their costumes collection, and whether BLM provide delivery for the costumes the following Monday. Sylvester replies that he would need to check with the Board of Directors and will reply Itua later. Sylvester also mentioned that they are not able to deliver the costumes but Itua insist on having it delivered and is willing to pay for the delivery charges.

During dinner that night, Itua came to learned about his business competitor Wong, from his friend Sunil. Wong's costumes hire shop has complete with a make-up and hair salon and add on services like fancy desserts and party decorations to order, both of which he delivers. Learning all the facts about Wong, Itua somehow alarmed and he revoked his earlier proposal to both BM and BLM. Itua quickly dashed off a notice to both BM and BLM. To BLM, Itua posts it in the post-box outside the door of BLM stating that he does not want to purchase their costumes and on the way home, he slides it under the door at BM also stating that he is no longer interested in their costumes.

However later that night, Itua's friend, Sunil talked to the manager of BM about Itua plan of calling off the purchase of costumes, the manager of BM immediately telephoned Itua's shop and leaves a voicemail message stating that BM accept his offer to purchase the costumes for RM5000.00 and that they will delilver the costumes on Friday. Itua only came to learn about the voicemail message the next day when he goes to his shop. He also received a fax from BLM stating his offer to purchase their costumes has accepted and will be expecting them to be pick up on Monday.

Having the lack of Law knowledge, Itua is seeking for legal advice about his contractual relationship with Wong, BM and BLM to justify his legal obligation. The following given advice will be based on the references to the Malaysian Contract Act 1950 (Act 136) (Revised 1974) and its decided cases.

Elements of a Contract

First, we have to understand the basic elements constituting a contract before we can discuss and study in depth of Itua's situation and later gives a conclusion advices base on it.

There are six basic elements constituting a contract and there are as follows:

  1. Offer

An offer is an indication by one party to another party of his willingness to enter into a legally binding contract, on certain specified terms. The statement amounting to an offer must be such that, on acceptance, without further negotiations as to the terms, a binding contract comes into effect. A statement made by one party to another containing no terms, cannot amount to an offer - Preston Corp Sdn Bhd v. Edward Leong & Ors [1982] 2 MLJ 22, FC case referred.

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 statement is usually referred to as an invitation to treat (Sinnadurai 2003, 33).

  1. Acceptance of the offer

Section 2(b), Contract Act 1950 provides that when the person to whom the proposal is made signifies his assent thereto, the proposal is said to have been accepted. A proposal, when accepted, becomes a promise.

For a proposal to be converted into a promise, the acceptance of that proposal must be absolute and unqualified. This is provided for in Section 7, Contract Act 1950.

Therefore, a purported acceptance which is qualified by the introduction of a new term may be considered by the courts as a counter-offer destroying the original offer - Hyde v. Wrench [1840] 3 Beav. 344-49 E.R. 132 case referred.

In general, when a proposal is accepted, a contract is formed so that there can be no revocation. However, under Section 6(a) of the Contract Act 1950 which provide a revocation is possible by the communication of notice of revocation by the proposer to the other party.

To ascertain when the communication is complete both as against the person who makes it and as against the person to whom it is made, section 4(3)(a) and (b) of the Contract Act 1950 referred. As against the person who makes the revocation, the communication is complete when it is put in a course of transmission to the person to whom it is made. The addressee of a revocation is effected by it only when it comes to his knowledge.

Again, under section 5(1) provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

  1. Intention to create legal relations

Although the Contracts Act does not emphasis of this to have a valid contract however there are cases that can be referred - Yap Eng Thong & Anor v. Faber Union Ltd [1973] 1 MLJ 191, HC, whereby it was held that there is a lack of intention to create legal relations and therefore was no legal binding among the parties involves.

  1. Consideration

One of the very important element of a contract is provided under Section 26 of the Contracts Act 1950, which states that, an agreement without consideration is void - Guthrie Waugh Bhd. v. Malaippan Muthucumaru [1972] 1 MLJ 35 case was referred.

  1. Certainty

This is meaning to say the term of a contract have to be specific and cannot be vague. Failure of meeting this condition is a void contract and Section 30 of the Contracts Act is providing this - Karuppan Chetty v. Suah Thian [1916] FMSLR 300 case was referred.

  1. Capacity

Any person who is of the age of majority according to the law and who is also of sound mind and is not disqualified from contracting by any law to which he is subject (Section 11 of Contracts Act 1950).

After understanding the above mentioned six important elements constituting a contract, now let us further discuss of Itua contractual relationship with each of the followings parties.

a) Contractual relationship with Wong

To begin with, Itua only came to learned about Wong is from his friends Sunil. Wong is seeing as a strong competitor by Itua regarding his business expansion to include costume hire whereby Wong is providing a complete one stop centre for their customers.

From this facts, what was transpire is only a flow of information from Sunil to Itua about his competitor namely Wong. Further to the facts shows no sign or any elements of contract exist between them as defined in the Contracts Act 1950. Besides that, Itua has never come to contact with Wong or any kind of direct communication. Therefore, by this finding it is safe to advice Itua that he has no legal obligation owe to Wong and more importantly there is no contractual relationship between them.

b) Contractual relationship with Baju Murah Sdn Bhd

One of the fact been held against Itua is, he has sent out a fax to BM stating he is interested in buying the collection of costumes in their back closet and the highest price he would pay for the lot is RM5000.00.

It sounds like Itua is making an offer but is actually not because Itua fax message was meant as an offer for an invitation to treat or in simple word, offers made to invite proposal. By this, what Itua has done is actually invite BM to offer him for the back closet costumes that he is interested and the maximum offer Itua is willing to accept for the lot is RM5000.00. An invitation to treat is not an offer and therefore there is no legal obligations owe by Itua to BM at this point of time.

Regarding the revocation notice, Itua has slides under the door at BM stating that he is no longer interested in their costumes does no damages to cost Itua any legal case as Section 6(a) of the Contract Act 1950 which provide, a revocation is possible by the communication of notice of revocation by the proposer to the other party. If BM were to bring it to the court to decide whether it is an offer or an invitation to treat, Itua is protected by revocation rules under Section 5(1) which provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. It was assumed that BM cannot be contacted and it was after office hours, so, Itua is using the speedier means of communication to let BM know about his intention to revoke of earlier proposal by sliding a note under the door at BM.

On the fact that BM has left a voicemail message stating that they accept Itua offer and will deliver the costumes on Friday and from this point, BM is actually making an offer instead of acceptance as what BM thought from the very beginning.

Therefore there is no contractual relationship between Itua and BM, thus no legal obligation owe by Itua to BM.

c) Contractual relationship with Baju Lagi Murah Sdn Bhd

Referring to the facts that Itua did make an offer to BM stating that he is interested in their costumes and will pay RM3000.00 and with a term that he want it to be deliver on the following Monday. From this statement we are certain that there is an offer been made by Itua as refer to Section 2(a) of Contracts Act 1950 which states; An offer is an indication by one party to another party of his willingness to enter into a legally binding contract, on certain specified terms.

However, there is a counter offer during their negotiation of terms and that is to have it delivered. BLM said that they are not providing delivery for the costumes but Itua insist to BLM to have the costumes delivered by counter offering that he will pay for the delivery charges. By now, the term has change and BLM is still unable to confirm and needed the Board of Director approval. Up until this stage, there is an offer but no acceptance and therefore no contract exist yet.

As Itua still haven't get any acceptance calls from BLM, later that night Itua change his plan of purchasing the costumes and then write a revocation note and post it in the post-box of BLM after office hours. As there has been silence form BLM therefore no contract, exist yet at this stage as Section 7(b) of the Contracts Act 1950 provides that acceptance must be expressed in some usual and reasonable manner, unless the proposer prescribes the manner in which it is to be accepted. However, the proposer cannot prescribes silence as a manner of acceptance - Fraser v. Everett [1889] 4 Ky 512 case was referred.

Itua received a fax from BLM stating that they accept his offer and is expecting the costumes to be picked up on Monday. By this piece of evidence, Itua offer is said to be revocable because under Section 7(a) of Contracts Act which states; in order to convert a proposal into a promise the acceptance must be absolute and unqualified. Itua is offering to buy the costumes from BLM at RM3000.00 with a term attached, that is to have it delivered, and BLM does not satisfy the term by having the costumes to be picked up by Itua. Therefore, the offer is revocable and thus Itua would have no contractual relationship with BLM and owe no legal obligation to BLM as well.

Conclusion

By referring to the Malaysian Law of Contracts Act 1950 as a guide and the facts presented above has lead to the summary that Itua does not has any contractual relationship with Wong, BM and also BLM. Therefore, it is seen to have no legal obligation owes.

References

Sinnadurai, V. 2003. Law of Contract. Malaysia: LexisNexis Butterworths