FORMATION OF

CONTRACT PART 1

1) Proposal
2) Invitation To treat

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Formation of Contract

 Contract = an agreement between two

parties

 A proposal by the promisor (proposer) &

acceptance by the promisee
 Previously proposal is synonymous with the
English terminology of ‘offer’

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Proposal

Sec 2(a) : A proposal is made when one person

 1) Signifies to another his willingness, to do

or to abstain from doing anything
 2) with a view to obtain the assent of the
other to such act or abstinence.

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Section 2(c)
 The parties = a promisor and promisee
 The proposal = a promise
 Eg : Ali intends to sell his land. He offers to
Bakar for RM100,000 and Bakar agrees to
accept the offer.
 There is an agreement between them.
 The proposal = a promise, Ali = promisor
Bakar = promisee

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 Form of proposal

-Writing
- Oral

- Conduct

OR
- Combination of all above.

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Proposal -oral
 Syed Jaafar b Syed Ibrahim v Maju Mehar
Singh Travel & Tours Sdn Bhd[1999] 4 MLJ
413
Facts: Plaintiff entered into an oral agreement
with the defendant’s Managing Director that
he will provide the passengers and the
defendant will provide tickets and visas.

Held: The agreement between the plaintiff and

defendant created a binding contract.
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 Automatic Ticket Issuing Machine

1) Machine issued a ticket = proposal

2) Customer paid the money & ticket =
acceptance is completed.

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 Thorton v Shoe Lane Parking
Limited
 Per Lord Denning : “ The offer is made when
the proprietor of the machine holds it out as
being ready to receive money. The
acceptance takes place when the customer
puts his money into the slot.”

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Parimala a/p Muthusamy & Ors v Projek
Lebuhraya Utara Selatan [1997] 5 MLJ
488
 Suriyadi J : “The moment a ticket is extracted
at the tollgate and the highway is used, a
contract is thus struck between the plaintiffs
and highway authority.”

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To whom can a proposal be made

It can be made to:

 - an individual / specific person

 - a class of people

 - a firm or company

 - public at large.

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Eg : specific person
Boulton v Jones
 Defendant made an order to B a trader, whom

later sold the business to the plaintiff. Plaintiff sent

the goods to Defendant without informing the
changing in ownership.
 Defendant refused to pay

 Ct: The plaintiff has no right to receive payment

for an order which was not addressed to him

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Eg: to the public
Carlill v Carbolic Smoke Ball Co [1893] 1 QB
256

COA : An offer can be made to the whole

world. A contract will only be made when a
portion of the public came forward and acted
on the faith of the advertisement.

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 Communication of proposal

 For effective proposal = it must be

communicated.

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Sec 3- Communication …of proposal

 The communication of proposals,… are

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.

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 Sec 4(1) “The communication of proposal is
complete when it comes to the knowledge of
the person to whom it is made.

 Illustration (a) of Section 4

ILLUSTRATIONS
(a) A proposes, by letter, to sell a house to B
at a certain price.
The communication of the proposal is
complete when B receives the letter.

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 If the other party did something coincide with
the proposal but did not aware of the
proposal = no agreement

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R v Clarke (1927) 40 CLR 227
 D supplied information to the police for a

reward but when he supplied the information

he forgot about the reward.
 Held : D cannot claim the reward.

 Ignorance of the offer is as the same as

never know about it or forgetting it after

hearing of it.

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Invitation To Treat

 Where a proposal stands as a mere request

for the other party to make a proposal.
 Known as invitation to treat (IVT)
 No provision on IVT in the Contract Act.
 Follow the English law

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Invitation to treat

 It is not a proposal
 A preliminary communication which passes
between the parties at the stage of
negotiation.

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i) Display of goods with price tags in a
shop window

Pharmaceutical Society of Great Britain v

Boots Cash Chemists (Southern Ltd)
(1952) 2 All ER 456.
 D – an owner of a self-service shop selling

drugs. P charged D for selling listed poison

without supervision of registered pharmacist.

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Court of Appeal

 There is no offence because in this case, the

defendant was not offering to sell drug
without supervision. The defendant was
merely inviting the customer to choose items
from the shelves and there is no sale affected
until the customer’s offer to buy is accepted
by the registered pharmacist at the counter
by accepting the price money.

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Fisher v Bell (1961) 1 QB 394
 - display flick knife in a shop window. It is an
offence to sell dangerous weapon

Lord Parker:
It is clear that, according to the ordinary law of
contract, the display of an article with a price
on it in a shop window is merely an
invitation to treat.

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ii)Advertisement For a Sale

Harris v Nickerson
 The D advertised the sale of certain goods –
office furniture. P went to the sale but the
furniture he was interested were withdrawn
from the sale. He sued for damages for loss
of time and expenses.
 Held : Advertisement of sale = a mere
statement of intention.
Not an offer which could be accepted to form
a binding contract.
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Coelho v The Public Services
Commission (1964) MLJ 12

Facts: Resp made an advertisement, inviting

application of an employment by post.
Appellant applied and accepted. He was later
terminated on the ground that his
appointment was on probation.

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Held:
 Appellants application = offer
 Respondent’s acceptance = acceptance

 Nothing is mentioned in the agreement that

the appointment was subject to probation.It

was wrong for the respondent to terminate
the appellant.

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Exception
*Advertisement by a manufacturer
 Constitute a proposal.
 Partridge v Critittenden [1968] 2 ll ER 421

Per Lord Parker:

"I think that when one is dealing with
advertisement and circulars, unless indeed
they came form the manufacturers, there is
business sense in their being construed as
invitation to treat and not an offer for sale.”

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Carlil v Carbolic Smoke Ball Co.
Held: An advertisement by a manufacturing
company is considered as an offer made to
the whole world.

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iv)Auctioneer’s invitation for Bids
 Auctioneer in an auction is making an invitation to
the public or audience to make offer.
 Acceptance occurred when the auctioneer bang his
hammer for three times.
 Auction Sales Act Cap 81
 Ä sale by public auction shall be completed when
the auctioneer announced it and completion is by
the fall of hammer

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Payne v Care (1789) 3 Term Rep 148

Facts: The defendant made the highest bid but

withdrew it before the fall of hammer.

Held : No contract. The bid was withdrawn

before the fall of hammer.The bid constitutes
an offer which the auctioneer is free to accept
by the fall of the hammer

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v)Tender

 Application for tenders is an offer

 Advertisement for tenders is an invitation to
treat

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vi)Supply of information

 When sellers provide details of things of what

they may sell without intention of making
proposal.
Can this be considered as proposal?
 Based on two examples
i) Harvey v Facey [1983] AC 552
ii) Clifton v Palumbo [1944] 2 All ER 497

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Harvey v Facey [1983] AC 552

 The appellant telegraph the respondent, will

you sell us Bumper Hall Pen? Telegraph
lowest cash price. Respondent replied,
Lowest price 900
 Appellant telegraphed back. We agree to
buy. Please send us your title deed.
 PC : Resp’s reply = a response to the
appellant’s 2nd question
 There was no contract
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Clifton v Palumbo [1944] 2 All ER 497

 The plaintiff and the respondent were

negotiating for the price of a large estate
owned by the plaintiff.
 Held : The letter by the plaintiff about the cost
of the estate was not an offer to sell but only
a preliminary statement as to price.

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