Monday, July 12, 2010

Proposal and Acceptance (law 416)

PROPOSAL AND ACCEPTANCE


The first requisite of a contract is that the parties should have reached agreement. Generally speaking, an agreement is made when one party accepts an offer made by the other party.


Store v Manchester CC [1974] W.L.R 1403

A proposal is an expression of willingness to do contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the other person to whom it is addressed.

An agreement between two or more parties is constituted by a proposal and an acceptance of it

Section 2(a) Contracts Act 1950 –

A proposal is made
… When one person signifies to another his willingness to do or abstain from doing, with the view to obtaining the assent of that to the act or abstinence, he is said to make a proposal’

Although the word proposal is used in the act, it carry’s the same meaning as “offer” in the English law.

It can be inferred that the proposal has become a promise and then he is called the promisor and the person accepting the promise is called the promisee.

eg Azizul offers to buy Samdan’s car for RM10,000/-. Azizul is making a proposal, hoping that Samdan will accept. When Samdan accepts the offer, an agreement or promise between them is created.

In the above situation Azizul is the offeror and Samdan is the offeree.

An offer must be clear, complete, final and specific to avoid any vagueness.


Guthing v Lynn (1831) 2B & AD 232

Lynn offered to buy a horse from Guthing. He was to pay 5 pounds extra if the horse brought him good luck. The condition laid was held by the court to be too vague to constitute a binding contract.

Tan Geok Khoon & Gerald Francis Robless v Pava Terubong Estate Sdn Bhd [1988] 2 MLJ 672

Plaintiff were executors and trustees of deceased’s estate. They claimed various correspondence between the deceased and the defendant constituted a contract. The court agreed because the deceased had agreed to and accepted a counter offer from the defendant and paid the balance of the price. Defendant had accepted payment by issuing a receipt signed by a director.

TO WHOM CAN A PROPOSAL BE MADE

A proposal may be addressed either to an individual, or to a group of persons, or to the world at large, and may be made expressly or by conduct.

See Carlill v Carbolic Smoke Ball Co.

a) a particular person

X went to Y’s shop and offered to buy a pair of shoes. X’s offer cannot be accepted by Z who owns a shoe shop nearby because he overheard X’s offer.


Section 2(b) Contracts Act provides that

… when a person to whom the proposal is made” which appears to say that only the addressee may accept the proposal.

Boulton v Jones (1857) 2H & N 564

Defendant had business dealing with a shopkeeper named Brocklehurst. The defendant had ordered some stocks from B but on the day of the order B had sold his business to the Plaintiff. The Plaintiff delivered the goods without informing the Defendant of the change of ownership.; The Defendant then refused to make any payments. It was held that the plaintiff had no rights to accept an offer not made to him.

b) To the General Public

Here anyone who meets all the terms of the proposal may accept the proposal.

Eg. Azizul offered RM 100/- for the safe return of his cat at an address advertised. Azizul’s offer is to the general public and those who read or knew of the offer may accept the offer and claim for the reward

Carlil v Carbolic Smoke Ball Co

The defendant’s advertised that they would offer a sum of 100 pounds to anyone who would still succumb to influenza after using a certain product according to the instructions for a fixed period. The plaintiff read the advertisement and used the product accordingly but still contracted with influenza. He claimed the 100 pounds from the defendants. The court held that the advertisement was an offer to the world at large and those who were willing to use the product as instructed had then accepted the offer. Acceptance need not be communicated to the Defendants. The defendants had in fact deposited 100 pounds into a bank account for any claims.





COMMUNICATION OF PROPOSAL

Section 4(1) Contracts Act 1950

The communication of a proposal is complete when it come to the knowledge of the person to whom it is made.

Unless there is a communication of the proposal there can be no acceptance to form an agreement.
[1] The fact that the other party has done something which coincides with proposal without being aware of the proposal does not bring an agreement into being. A party accepting the proposal must be aware of its existence.

In one sense a proposal cannot take effect until it is received, for until the offeree knows about it, he can take no action in reliance on it.

Eg. A party who usually returns a lost property to its owner cannot legally claim a reward if he is unaware of it at the time but subsequently discovers the existence of an offer of rewards for its return.

R v Clarke (1927) 40 C.L.R

The Australian Government offered a reward for information leading to an arrest and conviction of persons responsible for the murder of Two Police officers. X and Clarke were arrested and charged with murder but later Clarke gave information leading to arrest of Y. X & Y were later convicted and Clarke claimed for the reward. Clarke failed to claim the reward as the information he gave was to clear himself and not in reliance of the offer to reward.

Taylor v Laird (1856) 25 LJ Ex 329

T resigned as a skipper of L’s ship in the middle of a voyage. T however assisted to sail the ship home. The court held T cannot claim for fees due as he had failed to make known his offer to sail the ship home and L had no opportunity either to accept or refuse the offer. No contract existed.


Invitation to Treat

What is an Invitation to treat? An invitation to treat is not a proposal. There can be no acceptance as to constitute a binding contract. When parties negotiate with the view of making a contract, many preliminary communications may pass between them before the definite proposal is made. One party may simply respond to a request for information (eg. By stating the price at which he might be prepared to sell his house
[2]) That party is then said to make an “invitation to treat”. In this situation he does not himself make an offer but invites the other party to do so.

Patridge v Crittenden

Invitation to treat is an offer to make an offer.

Example: display of goods with price tags in a self service supermarket, an advertisement or an auction inviting bids for a particular article.

Harts v Mills (1846) 15 Lj Ex 200

“………… you offer to negotiate, or you issue advertisement that you have got a stock of books to sell or houses to let, in which case there is no offer to be bound by any contract. Such advertisements are offers to negotiate …. Offer to receive offers …..”

Display of goods for sale

The general rule is that a display of price marked goods in a shop window is not an offer to sell goods but is an invitation to treat to customers to make offer to buy.
[3]


Pharmaceutical Society of GB v Boots Cash Chemist Ltd (1953) 1 QB 401

Article was wrapped and had a price tags displayed to the customers. Sale for such articles are governed by the Pharmacy and Poisons Act 1933 (UK). The Act specifies that it is unlawful to sell certain poisons unless such sale was supervised by a registered Pharmacist.

Was the display of such articles an offer or an invitation to treat? The court ruled that the display was only an invitation to treat. A proposal to buy occurred only when the customer placed the articles in the basket and brought them to the cashiers. The proposal may be accepted or denied. The contract of sale would only be made at the cashier’s desk.

Advertisement.

The general rule is that an advertisement is only an invitation to treat.

Eckhardt Marine GMBH v Sheriff Mahkamah Tinggi Malaya [2001] 3 CLJ 864

Gopal Sri Ram JCA held:

“Advertisement amounted to an invitation to treat and the appellant made a conditional offer by way of its letter and the offer was in fact accepted. There was therefore a binding contract between the parties. Furthermore the appellant through his authorized agent has acknowledged that its offer had been accepted by the sheriff and was therefore estopped from denying that there was a valid and binding contract between the parties.”

It is essential to note that not all advertisements is an invitation to treat. It can be an offer to which another party can accept. In order to decide whether it is an invitation to treat or a proposal, we have to look at the intention of the parties involved.



Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256

The defendant’s advertised that they would offer a sum of 100 pounds to anyone who would still succumb to influenza after using a certain product according to the instructions for a fixed period. The plaintiff read the advertisement and used the product accordingly but still contracted with influenza. He claimed the 100 pounds from the defendants. The court held that the advertisement was an offer to the world at large and those who were willing to use the product as instructed had then accepted the offer. Acceptance need not be communicated to the Defendants. The defendants had in fact deposited 100 pounds into a bank account for any claims.

TENDER

Tender is also an invitation to treat and the person who announced the tender may accept or refuse the offer made by the readers of the said tender.

Spencer v Harding (1870) LR 5 CP 561

The defendant had sent out letters of tender for a said article. The Plaintiff’s tender was the highest but the defendant did not accept it. The Court held that the defendant was right to refuse the offer because no contract had existed between them. A letter of tender is only an invitation to treat.



COUNTER OFFER AND ACCEPTANCE

Section 2 (b) Contracts Act 1950

“ When the 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 acceptance must be made on exactly the same terms proposed without modifications or variations – must be as provided in section 7(a) Contract Act – absolute and unqualified.

Any modifications or variations amounts to a counter proposal by the party to whom the original proposal was made. (A counter offer is treated as a rejection of the original proposal).


Hyde v Wrench (1840) 3 Beav 33

D offered to sell his estate to the P for £ 1000/- on 6th June. On 8th June in reply the P made a counter – proposal to purchase at £950/-. When D refused to accept proposal on 27th June, the P wrote to accept the original proposal. The court held that there were no acceptance because P’s letter dated 8th June had rejected the original proposal which could not be revived.

** However further communication between the parties subsequent to the original proposal is permissible. It is important to distinguish between counter proposal and request for further information.

ACCEPTANCE

An Acceptance is final and unqualified expression of assent to the terms of an offer. A mere acknowledgement of an offer would not be an acceptance, nor is there an acceptance where a person who has received an offer to sell goods merely relies that it is his intention to place an order
[4]

The main reason for the rule is that it could cause hardship to an offeror if he is bound without knowing that his offer had been accepted.

However take note that it was discussed Bloxhami’s case that there can be a contract if the offeror knows about the acceptance although it was not brought to his notice by the offeree.

However, there will be no contract if the communication is made by the third party without the authority of the offeree – see Powell v Lee

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.
[5]

For an acceptance to be communicated it must normally be brought to the notice of the offeror.

Section 4(2) Contracts Act 1950

The Communication of an acceptance is complete –

a) 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, and
b) as against the acceptor, when it comes to the knowledge of the proposer.


Section 7 (b) Contracts Act 1950

Be expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner which it is to be accepted, and the acceptance is not made in that manner, the proposal may within a reasonable time after the acceptance is communicated to him insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.


Acceptance must ordinarily be communicated and made in some usual and reasonable manner if no method of acceptance is prescribed. However, if the proposal specifies a particular mode of acceptance and it is not followed, the proposer is entitled to insist on it. It is essential that the proposer act within a reasonable time after the communication of acceptance. If he does nothing, he would have been deemed to have accepted. The duty to object lies with the proposer. Note that the English law differs from our position, as it does not require such positive objection.

Eliason v Henshaw (1819) 4 Wheaton 225

E offered to purchase flour from H. E specified that acceptance of offer be made by mail coach to Harper’s Ferry. H sent the acceptance by post to Georgetown on the assumption that it would reach E faster. Unfortunately the mail was late and the Court held E was justified to refuse H’s acceptance.

The exceptions to the rule that acceptance must be communicated are as follows:-

i. The proposer has dispensed with the need for it.
ii. The proposer allows the party to whom the proposal is made to perform the condition of a proposal i.e acceptance taking the form of performance of an act stated in the proposal. A common sense approach to the law.

E.g. Carlil v Carbolic Smoke Ball

D argued that the P should have communicated acceptance to them. This was rejected by the court. Performance was sufficient to constitute acceptance if that was the intention of the proposer.

iii. The proposer allows ‘ the acceptance of any consideration for a reciprocal promise which may be offered with a proposal.

What is reciprocal promise? Section 2(f) CA defines it as promise which form the consideration or part of the consideration for each other.

Eg. A sends B a cheque for RM 1000/- with the proposal that it will the consideration for B’s agreement to sell his motorbike. If B cashes the cheque even though he has yet to communicate to A of his acceptance. B is deemed to have accepted the proposal. B has accepted a consideration for a reciprocal promise offered with a proposal.


POSITIVE ACT OF ACCEPTANCE

Section 2(b) requires the person to whom the proposal is made to signify his assent thereto to a proposal. This implies a positive act of acceptance. 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.


Felthouse v Bindley (1862) 142 ER 1037

D was an auctioneer for the sale of F’s property and farm. F’s uncle was interested in buying a horse, which was up for sale. He wrote F a letter stating his willingness to buy the horse and said if he did not receive any answer from F, he would take it that the horse was his. D however sold the horse to another. The court held that there was no contract as F failed to give reply – silence is not acceptance.

Acceptance must be made within a reasonable time. In Fraser v Everett the court held that acceptance for sale of shares had to be made within reasonable time, taking into view the nature of the mining shares involved, which fluctuates the nature.

The rationale for this rule can be found in Macon’s case [1976] 2 MLJ 177

“…. An offer lapses after a reasonable time not because this must be implied in the offer but because failure to accept within a reasonable time implies rejection by the offeree. As a consequence, the court can take into account the conduct of the parties after the offer was made in deciding whether the offeree has allowed too long time laps before accepting’ per Hashim Yeop Sani J.

ACCEPTANCE THROUGH POST

Section 4(2) Contracts Act provides for the exceptions that acceptance is only by communication.

The Communication of an acceptance is complete –

c) 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, and
d) as against the acceptor, when it comes to the knowledge of the proposer.


The proposer is bound when the offeree posts the letter even though the proposer has no knowledge of the acceptance. When the letter is posted the acceptor has put in a course of transmission in such a way that he no longer has any control over it. The transaction becomes binding irrespective of any delay or disappearance in the course of transit. This was clearly stated in Entores Ltd v Miles Far East Corp [1955] 2 QB per Lord Denning

“……..when a contract is made by post it is clear law throughout the common law countries that acceptance is complete as soon as the letter is put into the post box and that is the place where the contract is made ….”

Ignatius v Bell (1913) 2 FMSLR 115

P sued for specific performance over his rights to purchase D’s land. The option was to be exercised on or before 20th August 1912. the parties had contemplated the use of post as means of communication. P sent a notice of acceptance by registered post in Klang on 16th August 1912 but was not delivered until 25th August 1912 because P was away. The letter was at the Post Office until picked up by D. The court applied Section 4 Contracts Act and held that the option was duly exercised by the P when the letter was posted on 16th August 1912.

On the other hand, acceptance is complete as against the acceptor, when it comes to the knowledge of the proposer. While the proposer is bound upon dispatch of acceptance by the acceptor, the acceptor is not bound until it was actually received by the proposer.

Eg Azizul proposes by letter to sell his house to Samdan and Samdan accepts it in the same manner. Azizul is bound at the moment Samdan dispatches the letter through the post but he himself is not bound until it actually reaches Azizul.

** Proposer may protect themselves by stipulating in a proposal that acceptance is complete only upon receipt.

The postal rule also applies to telegram sent through the post office. Instantaneously communications such as telephone, telex and fax are governed by the general rule. The case of Brinkibon (1983) 2 AC 34 affirms the rule in Entores with regards to communication by telex. The court held that it is sound general rule that “ where the conditions of simultaneity are met and where it appears to be within the mutual intention of the parties that contractual exchanges would take place in this way”

Reference always be made to the intention of the parties and sound business practice.


REVOCATION OF PROPOSAL

A proposal, once communicated, remains open until it lapses or is withdrawn. The proposer may revoke it at any time before acceptance.

Section 5(1) Contracts Act 1950..

“ A proposal may be revoked at any time before the communication of its acceptance is complete against the proposer but not afterwards”


Section 6 Contract Acts states that a proposal is revoked:-
a. by the communication of notice of revocation by the proposer to the other party.
b. By the lapse of the time prescribed in the proposal for its acceptance, or , if no time is prescribed, by the lapse of reasonable time, without the communication of the acceptance.
c. By the failure of the acceptor to fulfill a condition precedent to acceptance, or
d. By the death or mental disorder of the proposer. If the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance.

Where it is by way of subsection (a) the revocation must be communicated by the proposer to the other party before it accepts. If acceptance is set by post or telegram, the acceptance is complete as against the proposer upon posting or delivery of the telegram to the appropriate telegraph office. Withdrawal must necessarily be communicated by the proposer to the offeree before such posting or delivery.

Eg Azizul proposes by letter sent by post to sell his house to Samdan. Samdan accepts by a letter sent by post. Azizul may revoke his proposal at any time before or at the moment when B puts his letter of acceptance but not afterwards
[6]

Byrne v Van Tienhoven (1880) 5 CPD 334

D offered to sell 1000 boxes of tinplates to P. upon receipt of the offer letter, P sent his acceptance by telegram on 11th October. On 8th October D wrote to P revoking his offer made on 1st October. The letter of revocation by D was no effect because at the time the P received the letter and he had already made an acceptance.

** Must the communication of revocation be made by the proposer personally? NB the English position differs from the local rule. Our law is clearer and avoids this difficulty.


Dickson v Dobbs (1876) Ch D 468

Revocation of offer need not be communicated by the offeror personally as long as the offeree becomes aware that the proposer has withdrawn the proposal or changed his mind.


Section (b) deals with revocation by lapse of time; by way of expiration of time prescribed in the proposal or if no time is prescribed by the lapse of reasonable time.


Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Ex 109

In June M offered to buy R company’s share. In November, the company allotted the share to M who had by then refused to accept on the grounds that the proposal should have been accepted within reasonable time. The period between June and November was clearly not reasonable.


Section (c) provides that a proposal may be revoked where the acceptor fails to fulfill a condition precedent to acceptance.

Financing Ltd v Simson (1962) 1WLR 1184

The Court held that an offer by a hirer under Hire Purchase agreement to the finance company is subject to a condition precedent that the car be in good condition. Here, the car was stolen and damaged before the company received the offer from the Hirer. The hirer was not bound by the agreement.

Section (d) deals with the condition when the proposer died or became mentally disordered subsequent to the communication of proposal. What happens when the acceptance was made without knowing that the offeror has since died or become mentally unsound?

Re Whelan (1897) 11 R 575

The offer lapsed when the offeree had knowledge of the offeror’s death.

Bradbury v Morgan (1862) 1 H&C 249

The court held that if the offeror’s death is not known, acceptance may still be made and effective for a valid contract.

REVOCATION OF ACCEPTANCE

Section 5(2) Contracts Act 1950:-

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

Illustrations

A proposes by letter sent by post, to sell his house to B. B accepts the proposal by letter sent by post. B may revoke his acceptance at any time before or at the moment when the letter communicating A, but not afterwards.
[1] Section 2(a) Contracts Act
[2] Harvey v Facey [1893] AC 552
[3] Fisher v Bell [1961] 1QB
[4] OTM Ltd v Hydranautic [1981] 2 Llyods Rep 211.214
[5] Great Northern Railway v Withan [1873] L.R 9 CR
[6] see illustration Section 5

1 comment:

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