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Published: Fri, 02 Feb 2018
Proposal must be definite promise to be bound provided specified terms
Richard Chong made an advertisement in the local newspaper, The Star, to reward RM 1000 to anyone who can find and return his lost dog to him, on 1st of October. Under section 2(a) of the contract ACT 1950, Richard Chong is making an offer. An offer is defined as “when a 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 proposal of offer is something which is capable of being converted into agreement by its acceptance according to the Contracts Act 1950 and English law. A proposal must be definite promise to be bound provided certain specified terms are accepted.
Whereas, an invitation to treat is merely to invite offers which when accepted by the offered becomes a contract. Here, in this situation, advertisement made by Richard is not an invitation to treat because anyone who find the dog and return to him would be making offers to Richard and he would be deciding which offers to accept. For example, Fisher v Bell (1961) 1 QB394, were the court held “according to a literal interpretation of the words, Bell had not committed an offence because the display of goods in a shop window only amounted to an invitation to treat and not a sale”.
Therefore, this advertisement made is an offer because when a person finds and returns the dog to him, he will be accepting his offer and cannot refuse to reward as he promised. Just as the Carlil v. Carbolic Smoke Ball Company (1893) 1 Q.3 256, where the court the Diplock Lord Justice in the house of Lord said, “where the court the £1000 as she had accepted the offer made to the world at large”.
On 2nd of October, Bernard has response to the advertisement and became the “promisee”The person making the proposal are called as the “promisor” or sometimes known as the “offeror” and “promisee” refers to the person accepting the proposal according to the section 2(c) of the Contracts Act 1950. And here in this case, Bernard spend RM200 to buy equipment to find the dog. However. Bernard cannot claim the spent expenses because the reward offered is not for the preparation of the act but for the finding and returning the dog to Richard. He did not complete the acceptance because he did not return the dog to Richard.
On 5th of October, Charles Soh found the dog in his farm. But he was not aware of the offer. And therefore, he cannot claim the reward too. However, he can claim the reward after the wholesaler acknowledges him about the offer if he returns the dog to Richard.
When Charles went to claim his reward, Richard claim that he has revoke the offer by putting a notice at a local convenience store and refuse to give him the reward. A revocation of an offer must be communicated in order to be effective. A communication of a revocation is dealt with under section 4(3) of the said Act which states “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 as against the person to whom it is made, when it comes to his knowledge”.
Richard has only made his revocation by putting on a notice on a local convenience store, where only local people or small groups of people are able to see it and not everybody. Therefore, the revocation is not valid because he made an offer through the newspaper where everyone gets to see it but only revoke through a notice on a local convenience store.
Where the court held in the case of Shuey v. United States (1875) 92 U.S 73 states that the offer is only effective revoke if is published as prominently as the offer itself even if an individual does not see the revoked notice. Therefore, Charles Soh can Claim the reward if he returns the dog to Richard because the revocation made is not valid.
Conclusion, Bernard Koh will not be able to claim the expenses incurred because he did not complete the acceptance of the offer when he did not return the dog to Richard. However, if Richard refuse to pay Charles Soh his reward for returning the dog, he would most probably be sue and lose the case because his revocation of offer is invalid. Therefore, Charles would get the reward.
a) Type of Business appropriate for David Chew and his wife, Juliet chen
There are many type of business organization in Malaysia which are appropriate to David Chew and his wife Juliet Chen’s business. Examples are such as Sole Proprietorship, Partnership, and Companies.In sole proprietor, the owner is entitled to all profits generated from the business since the sole proprietor is not a legal entity. However, the owner’s liability is unlimited even if the business is facing financial difficulty or bankruptcy. Hence, creditors may sue him for debts incurred or obtain a court order to claim again his personal assets including house. Since there are 2 of them, it is not advisable to take sole proprietorship as it can only be owned by one person.
A partnership may be more suitable as partnership can be owned by 2 or more people according to section 3(1) of the partnership act 1961. Unlike sole proprietorship, partnership are entities legally separate from the partner themselves. The Income is split between the partners and each must report his share of income on his personal income tax share. Each partner have unlimited liability for the debts of the business partnership.
They may incorporate a private or public company under the Companies Act 1965 if they do not wish to expose themselves to such unlimited liability. They may initially consider forming a private company as it is a new venture without track record. A private held company or close corporation is a business company owned by non governmental organizations or by a relatively small number of shareholders or relatively small number of shareholders.
A private limited company may be the best type of business structure or organization that suits them. A company can have between two to fifty members among the characteristic of a private company as stated in section 15 of the Companies Act 1965. Under Section 4(1) in the companies act, a private company is “any company which immediately prior to the commencement of the companies act was a private company under the repealed written law, a company incorporated as a private company pursuant to section 15 and any company converted into private company pursuant to section 26(1) The members of the company have limited liability: Salomon v Salomon & Co (1897) AC 22. Under Section 14 of the Companies Act, a procedure for forming the company is set out.
David and Juliet only have $50,000 but the company requires $500,000. And since they have expressed a desire to have control over the management of the company, they may issue two types of shares, which are ordinary shares and preference shares as provided under Article2 of table A to the Companies Act. At this case, they will not have voting right for the preference share holders but decision making of the company.
b) Liability for the company Debts
David and Juliet will be the shareholders of the company and as shareholders, they will have limited liability to the amount they subscribed to the company. But because they are also directors of the company since they want to have full control of the management, they are liable for the debts of the company that they formed under certain condition stated in Companies Act of Common Law. The court may order the veil of incorporation to be lifted to ascertain wrong doings by the directors when such condition happens.
They should be aware of the condition provided under the Companies Act that they can be liable for the company’s debt are such as:
When the members of the company reduce to below two and carry on for more than six months or more, the sole member will be personally liable for all the debts of the company contracted after those six months and may be sued under Companies Act – section 36.
When company is being converted to a public company, David and Juliet must ensure that the company prospectus and information are true and not misleading or they can be sued for issuing untrue or misleading prospectus and information by the shareholders under Companies Act – Section 46.
David and Juliet shall not give any financial assistance which includes loan, guarantee or the provision of security or otherwise for the purpose of any dealing by a company in its own shares, (Section 67), or incur any debts on behalf of the company knowing or ought to know that the company cannot repay its debts (Section 303), and are prohibited from obtaining loan for themselves or for persons connected with them from the company (Section 133) under Companies Act.
Under Companies Act – Section 121, they must ensure that all company correspondences bear the company name in correct form.
They are not allow to enter into fraudulent trading (section 304) and can only distribute dividends from the company’s profit (section 365) under Companies Act.
In addition, David and Juliet can be liable for the debts of the company that they formed under common law as follows:
Gilford Motor Company v Hone (1933) All ER 109, this law will not permit an individual to evade his obligation by using a company which he controls to do what he himself prevented from doing. In other words, do not use company to evade legal obligations or commit fraud.
Smith, Stone and Knights Ltd v Birmingham Corp (1939) 4 All ER 116 states that they cannot allow the company to employ as agent when in fact, they are of the same entity.
They cannot allow the company to be used as a sham or façade : RE: FG (Films) ltd (1953) 1 WLR 483
Court’s Discretion to treat enterprise one economic unit: Hotel Jaya Puri Sdn Bhd v National Union Bar and Restaurant Workers & Anor (1980) 1 MLJ 109.
c) Expansion of business
In the situation, David and Juliet may consider obtaining loan or financial facility from financial institution like banks, and etc, when they wish to expand the business. Or they may consider converting the private to a public company under S22 of the Companies Act and then issue more shares to the members.
Conclusion, David and Juliet advise to consider forming a private company. They should beware of the conditions they can be liable for the company’s debts under the statute and common law. At last, they can obtain financial facility from the bank or increase the company’s share capital or convert the company to a public company to invite members of the public to subscribe share in the company if they wish to expand the business, although they may eventually lose control of the company.
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