An agreement giving rise to obligations

Question 1

Ah Chong has just retired as a school Principle and has decided to move to stay with one of his children in Kuala Lumpur. In April 2010, Ah Chong decided to sell his only car and placed an advertisement in the local newspaper with reads:

‘FOR SALE: 1 UNIT CAR FOR SALE- RM30,000.00’

Muthu saw the advertisement and decided to visit Ah Chong at the address stated. During the visit Ah Chong stated that his car was bought in the year 2000 and he is the first owner. Just before he left the meeting, Muthu told Ah Chong that he has to consult his wife, who will only be back from India in a week’s time, if she is agreeable to the terms of the purchase of the car.

Two days later, Ah Chong offered to sell the vehicle to his ex-colleague, Ali via email for a reduced price of RM28,000.00. Ali agrees to purchase the vehicle but on condition that it be given a new coat of paintwork.

The following week, Muthu accepted the purchase price of the car for RM30,000.00 by calling Ah Chong directly.

In the meantime, John, an expatriate who has also seen the advertisement, posted his acceptance to buy the vehicle for the price as advertised to Ah Chong.

All the three parties believe that they have a contract with Ah Chong for the sale of the car.

Advise Ah Chong whether or not he has a contract with any of the three parties.

INTRODUCTION

A contract is an agreement giving rise to obligations which are enforced or recognized by law. Agreement is usually reached between the parties by one of them making an ‘offer’ to the other and that other indicating his or her unqualified ‘acceptance’.

Pursuant to the Contracts Act 1950 Malaysia (the “Act"), an offer is considered as a ‘proposal’ of which is necessary for the formation of an agreement: Section 2(a) of the Act, where the person making the ‘proposal’ is called the ‘promisor’ while the person accepting the proposal is called the ‘promisee’: Section 2(c) of the Act. An agreement is made when one party accepts an offer made by the other: Section 2(b) of the Act, inter alia, that an agreement enforceable by law is a contract and that one is not enforceable is void: Section 2(h) of the Act, and where all agreements are contracts if they are made by the free consent of parties competent to contract: Section 10 of the Act.

The question whether a statement is an offer or merely an invitation of treat would lead to the question of interpretation of the intention of the party making the statement and how a reasonable person to whom the statement is made and perceives it.

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Advertisement consists of advertisement of bilateral contract and advertisement of unilateral. Advertisement of bilateral contracts are not often held to be offers since such advertisements do often lead to further bargaining, and since the advertiser may legitimately wish, before becoming bound, to assure himself that the other party is able to perform his part of any contract which may result. Thus, it can be illustrated in the case of Partridge v. Crittenden [1968] 1 W.L.R. 1204 whereby it was held that a newspaper advertisement that goods are for sale which is bilateral in nature is not an offer but only a mere invitation to treat.

However, this does not mean that an offer can never be made by way of an advertisement. It can be illustrated in the case of Carlill v. Carbolic Smoke Ball Co. [1893] 2 Q.B. 49, an advertising promising to pay £100 to any user of a carbolic smoke ball who caught influenza was held to be an offer. The intention to be bound was made particularly clear by the statement that the advertisers had deposited £1,000 in their bank showing their sincerity. The situation in Carlill’s case is often referred to as a unilateral contract which is invariably treated as offer whereby the intention to be bound is inferred from the fact that no further bargaining is expected to result from them.

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Whether there is a contract formed between Ah Chong and Muthu?

Advertisements in newspapers or periodicals that the advertiser has goods for sale are usually mere invitations to treat and not offer. Neither are catalogues or price lists whereby it can be illustrated by the case of Eckhardt Marine GMBH v. Sheriff, High Court of Malaya, Seremban & Ors [2001] 4 MLJ 49 CA.

As aforementioned, advertisements for sale in newspapers and magazines and price lists sent out in circulars and catalogues are usually mere invitations to treat and not offer where it leads to Ah Chong’s case, whereby the advertisement placed by Ah Chong is thus an invitation to treat, not an offer.

Furthermore, in Ah Chong’s case, he has only one car available to sell and it does not amount to an offer to sell an unlimited quantity of car described in the advertisement. For instance, if several people agree and intend to buy Ah Chong’s car for the stated price in the advertisement, and if Ah Chong is indeed the offeror, there would be multiple sale contracts with several people for the single car. As having only one car, Ah Chong would be in breach of contract with all but one. Hence, in the case of Grainger & Sons v. Gough [1896] A.C. 325 whereby it was held that the rule that the potential purchaser is the offeror who is making the offer to buy and the person advertising is the offeree who has the choice of accepting or rejecting the offer.

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Given the aforesaid, although Muthu had offered the purchase price of the car of RM30,000.00 by calling Ah Chong directly where the instantaneous communication of offer was made by Muthu is complete when it comes into knowledge of Ah Chong: Section 4(1) of the Act. However, there is still no contract formed between Muthu and Ah Chong in view that Muthu as offeror who is making the offer to buy to Ah Chong, and Ah Chong as the offeree who has the choice to accept or reject the offer by communicating his decision to Muthu: Section 4(2)(b) of the Act.

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Whether there is a contract formed between Ah Chong and Ali?

Ah Chong had made an offer to sell the vehicle to his ex-colleague, Ali via an e-mail for a reduced price of RM28,000.00. Pursuant to Section 7(a) of the Act, Ali should have made an absolute and unqualified acceptance in reliance on the offer with no conditional in order to bring about a concluded contract. It can be illustrated in the case of Kam Mah Theatre Sdn. Bhd. v. Tan Lay Soon [1994] 1 M.L.J. 108, SC, whereby the Court held that acceptance must be absolute and unqualified so that there is complete consensus, if the parties are still negotiating, an agreement is not yet formed.

However, Ali had made a conditional acceptance to purchase the vehicle but on condition that it is be given a new coat of paintwork.

In the case of Hyde v. Wrench [1840] 3 Beav.334, the Court held that an attempt to accept an offer on new terms, not contained in the offer, may be a rejection of the offer accompanied by a counter-offer whereby an offeree who makes such attempt cannot later accept the original offer. A communication from the offeree may be construed as a counter-offer even though it takes the form of a question as to the offeror’s willingness to vary the terms of the offer.

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In Ah Chong’s case, Ali had made a conditional acceptance of which is an essential term of this transaction whereby Ali would in fact have made a counter-offer to Ah Chong. This counter-offer destroys the initial offer by Ah Chong. Consequently, the original offer ceases to exist and what is left is a new offer made by Ali to purchase the vehicle but on condition that it is be given a new coat of paintwork. Ah Chong then becomes the offeree and may accept or reject the counter-offer as he chooses. An agreement would only be formed when if they are made by the free consent of parties competent to contract: Section 10 of the Act.

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Whether there is a contract formed between Ah Chong and John?

As mentioned earlier, advertisements for sale in newspapers and magazines and price lists sent out in circulars and catalogues are usually mere invitations to treat and not offer whereby the advertisement placed by Ah Chong is thus, generally an invitation to treat, not an offer.

It also can be illustrated in the case of Coelho v. The Public Services Commission [1964] M.L.J. 12, HC, the Court held that an advertisement calling for applications for a job is merely an invitation to treat and not an offer; and in the case of M. N. Guha Majumder v. R. E. Donough [1974] 2 M.L.J. 114, the Court held that the sale of house via an advertisement in the newspaper was an invitation to treat and not an offer.

Hence, although John as the offeror and agreed to buy the vehicle for the price as advertised by posting his offer to Ah Chong who is offeree, there is no contract is formed between them.

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Pursuant to Section 4(1) of the Act, the communication of the offer made by John is complete and effective when it comes to the knowledge of Ah Chong in view of the said offer was made by John expressly in words via posting to Ah Chong: Section 9 of the Act. The communication of the said offer via posting is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal: Section 3 of the Act.

Given the aforesaid, it can be concluded that John now becomes an offeror who is making the offer to Ah Chong to buy the vehicle via posting, and Ah Chong now becomes the offeree who has the choice to accept or reject the offer by communicating his decision to John: Section 4(2)(b) of the Act.

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CONCLUSION

In conclusion, there is no contract bound between Ah Chong and all the three parties. However, there are offers made by Muthu, Ali and John toward Ah Chong in which the offers are effective once it is communicated to Ah Chong: Section 4(1) of the Act.

If Ah Chong would like to accept either of the offers made by the three parties, Ah Chong shall then communicate of his acceptance to the offeror either by words or conduct or a combination of both in some usual and reasonable manner: Section 7(b) of the Act.

Also, acceptance made by Ah Chong must be absolute and unqualified so that there is complete consensus: Section 7(a) & (b) of the Act. Finally, there is only a contract formed between Ah Chong and any of the three parties if it is made by the free consent of parties competent to contract: Section 10 of the Act.

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REFERENCES

Abdul Majid bin Nabi Baksh and Krishnan Arjunan, (2007) Business Law in Malaysia, Malaysia, MLJ

J. Beatson, QC, (1998) Anson’s Law of Contract, 27th Edition, United States, Oxford University Press

Lee Mei Pheng, (2002) General Principles of Malaysian Law, Fourth Edition, Malaysia, Penerbit Fajar Bakti Sdn. Bhd.

Sir Guenter Treitel, (1999) The Law of Contract, Tenth Edition, London, Sweet & Maxwell Limited

IV