HOW TO FORM CONTRACTS

THROUGH VALID OFFER AND

ACCEPTANCE
TOPIC 1
Monday 11 October 2021
 HOW TO FORM CONTRACTS THROUGH VALID
OFFER AND ACCEPTANCE

Contents:
Sources of Malaysian contract law and its historical
background
Underpinning principles of Malaysian contract law
Are offer and acceptance all you need to form a
contract?
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SOURCES OF MALAYSIAN CONTRACT LAW
AND ITS HISTORICAL BACKGROUND
CONTRACTS ACT 1950 (Though REVISION OF LAWS
ACT 1968)
Applicable to the whole of Malaysia
CONTRACT ORDINANCE (MALAY STATES) 1950
Johor, Kedah, Kelantan, Negeri Sembilan, Pahang, Perak, Perlis,
Selangor and Terengganu
CONTRACTS ENACMENT 1899
Indian Contracts Act 1872 was incorporated with minor
revision and extended to the Federated Malay States

INDIAN CONTRACTS ACT 1872

Canonised the English common
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SOURCES OF MALAYSIAN CONTRACT LAW
AND ITS HISTORICAL BACKGROUND
Before After
1974 1974
CONTRACT ORDINANCE
(MALAY STATES) 1950 CONTRACTS ACT 1950
Johor, Kedah, Kelantan, (Though REVISION OF LAWS ACT 1968)
Negeri Sembilan, Pahang, Applicable to the whole of Malaysia
Perak, Perlis, Selangor and
Terengganu

ENGLISH COMMON LAW

(According to SECTIONS 3 & 5 CIVIL LAW ACT 1956)
Melaka, Pulau Pinang, Sabah and Sarawak
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SOURCES OF MALAYSIAN CONTRACT LAW
AND ITS HISTORICAL BACKGROUND
 Contracts Act 1950 – applicable to the whole of Malaysia; came into force in the
Malay States on 23 May 1950; and in Melaka, Pulau Pinang, Sabah and Sarawak
on 1 July 1974.
 Contracts Act 1950 was revised in 1974 and amended in 1976 through Contracts
Act (Amendment) 1976.
 Contracts Act 1950 has 191 sections and in 10 chapters.

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SOURCES OF MALAYSIAN CONTRACT LAW
AND ITS HISTORICAL BACKGROUND

With the coming into force of the

Contracts Act 1950, can reference
still be made to English common
law in contractual dealings in
Malaysia?

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SOURCES OF MALAYSIAN CONTRACT LAW
AND ITS HISTORICAL BACKGROUND
Section 3 Civil Law Act 1956
Allows the use of English common law where there
is a lacunae in the law

?: But Malaysia has a written contracts Act…

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 USAGE OF ENGLISH COMMON LAW

English common law can be applicable where there is no

provision. Eg. The element of intention to create legal relations.
Even if there is a provision but there is a lacunae, English
common law can be applied.
Where there no terminologies or definition eg. ‘necessaries’ in
a contract involving minors, common law can be referred to.
In instances of inconsistencies, provisions in the Contracts Act
1950 will supersede the English common law.
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SOURCES OF MALAYSIAN LAW AND ITS
HISTORICAL BACKGROUND

Trivia question:

1. Is there an English Contracts Act?

2. Singapore was once part of Malaysia. Is there a Singapore

Contracts Act?

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UNDERPINNING PRINCIPLES OF MALAYSIAN
CONTRACT LAW

https://youtu.be/u7ZvQmJ2GGU SMI FUU UKM 10

UNDERPINNING PRINCIPLES OF MALAYSIAN
CONTRACT LAW
 The principles that form the basis of Malaysian
contract law came from laissez-faire, ie the concept of
non-governmental intervention.
 At that time, many (eg. Adam Smith, Thomas
Hobbes, John Locke) were of the opinion that
government intervention on free market should be
abolished.
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UNDERPINNING PRINCIPLES OF MALAYSIAN
CONTRACT LAW
 FREEDOM OF CONTRACT
 SANCTITY OF CONTRACT
Everyone is free to:
Enter a contract
Contract with anyone What has been agreed in the
they wish contract will be enforced
Determine the terms
of their contract

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 Atiyah (1979):

The golden age of freedom of contract was

between 1770 and 1870.
Even though this ideology is an aspiration, in
reality it has eroded and now buried.

?: What do you think? Does it still exist today?

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Are offer and acceptance all you need to form a contract?
Section10(1)
Section 2(a) All agreements
Section 2(b) are contracts if
When a person
When a person Section 2(e) they are made
signifies to
to whom a by the free
another his Every promise
proposal is made consent of
willingness to do and every set of
signifies his Section 2(h) parties
or abstain from promises,
assent thereto, competent to
doing anything, forming the An agreement
the proposal is contract, for a
with a view of consideration of enforceable by
said to be lawful
obtaining the each other, is an law is a contract
accepted: a consideration
assent of that agreement
proposal, when and with a lawful
other to the act
accepted, object, and are
or abstinence, he
becomes a not hereby
is said to make a
promise expressly
proposal
declared to be
void
FORMATION OF CONTRACT
Agreement v Contract
Are offer and acceptance all you need to
form a contract?

Do the rules that determine whether parties have reached an

agreement respect the intentions of the parties?

How does the court ascertain the parties’ intention?

Does the court examine the actual, subjective state of mind of the
parties OR looks at the outward manifestation of their intention?
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Are offer and acceptance all you need to
form a contract?
If O makes an offer which can reasonably bear only one meaning and A
accepts, can O escape liability by saying that he intended it to mean
something else?

INTERPRETATION OF CONTRACT
OBJECTIVE APPROACH SUBJECTIVE APPROACH

 The intention of the parties are generally  The question is the parties’ state of mind.
judged by their words and conduct an
objective meaning ~ Visible assent  How can inner thoughts be proven?

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 THE APPROACH TAKEN BY ENGLISH COURTS
(Commonwealth Courts generally)
RTS FLEXIBLE SYSTEMS LTD. v MOLKEREI LORD STEYN in Contract Law: Fulfilling the
ALOIS MÜLLER GmbH & Co. KG (UK Reasonable Expectations of Honest Men (1997) 113 LQR
PRODUCTION) [2010] UKSC 14 433
Per Lord Clarke: “It is a defensible position for a legal system to give
“..whether there is a binding contract between the predominance to the subjective intentions of the parties.
parties and, if so, upon what terms depends upon Such a policy can claim to be committed to the ideal of
what they have agreed. It depends not their perfect individualized justice. But that is not the English
subjective state of mind, but upon a consideration way. Our law is generally based on an objective theory of
of what was communicated between them by contract. This involves adopting an external standard
words and conduct, and whether that leads given life by using the concept of the reasonable man.
objectively to a conclusion that they intended to The commercial advantage of the English approach is
create legal relations and had agreed upon all the that it promotes certainty and predictability in the
terms which they regarded or the law requires as resolution of contractual disputes. And, as a matter of
essential for the formation of legally binding principle, it is not unfair to impute to the contracting
relations.” parties the intention that in the event of a dispute a
neutral
SMI FUU UKM judge should decide the case 17applying an
objective standard of reasonableness.”
OBJECTIVE THEORY:
TAMPLIN v JAMES (1880) 15 Ch.D 215
FACTS:
Def. attended an auction to buy ‘The Ship’ inn which was put up for sale as ‘Lot 1’. The
auctioneer drew bidders’ attention to the particulars of sale and the plan, which made
absolutely clear the extent of the property. Lot 1 was not sold at the auction. However,
immediately after the auction, the Def. made an offer for it which was accepted. Later, it
emerged that the Def. made the offer under the mistaken belief that Lot 1 included 2 adjacent
plots of land. The Def. had known the property way back when he was a boy and had
observed that these adjacent plots had always been occupied by the occupier of the inn. The
Def. was set on acquiring these adjacent plots, so declined to complete unless these two plots
were also conveyed to him. Pl. brought an action for specific performance.
Applying the objective test: The contract was for Lot 1 as described in the auction. What was
missing was information regarding the Def’s secret thoughts (which were irrelevant to the
objective test).
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OBJECTIVE THEORY: OFFER DOES NOT REPRESENT REAL INTENTION
HARTOG v COLIN & SHIELDS [1939] 2 All ER 566 QB
FACTS:
Def. offered to sell 30,000 Argentinian hare skins to Pl. at prices per pound. In previous
negotiations, the price was per piece. It is customary in this trade to refer the price per
piece. Here, the value per piece was about 1/3 that of a pound; an absurdly low price
which was snapped up by the Pl. The Def. argued they had obviously made a mistake in
writing ‘pound’ instead of ‘piece’ and they were not obliged to sell the skins to the Pl. at
a price per pound. Singleton J held that the Pl. could not enforce any contract.
Objective test: The Pl. knew or ought to have known the Def. did not really mean to say
what he had in fact said. The Pl. cannot ‘snap up’ an offer that is obviously made by
mistake, since the Pl. could not in good faith say that he thought the Def. intended to be
bound by that offer.
?: What if the Pl. reasonably believed that the Def. was mistaken only as to the value of the skins? Can the
Pl. enforce the contract?
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OBJECTIVE THEORY: AMBIGUOUS OBJECTIVE FACTS
FALCK v WILLIAMS [1900] AC 176 Privy Council

FACTS:
The Pl., Falck, sent an offer in code by telegram. Since he did not use many words, the
offer was ambiguous: the offer might have been taken to refer to one or other of two
contemplated transactions. Falck intended a contract for the carriage of copra from Fiji
to the UK. Williams accepted, intending to contract for the carriage of coal from Sydney
to Barcelona. Both were plausible, objective interpretations of the offer. The court held
that Falck’s action to enforced the contract in the sense that he understood it failed
since he created the ambiguity and could not subsequently enforced the interpretation
of the offer which he preferred.
Objective test: There 2 plausible interpretations of the contract. Since there is ambiguity
created by one party (ie. Pl.), he could not enforce the contract according to his
preferred interpretation.
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OBJECTIVE THEORY: AMBIGUOUS OBJECTIVE FACTS
RAFFLES V WICHELHAUS (1864) 2 H & C 908
FACTS:
There was a written agreement for the sale by the Pl.s to the Def. of 125 bales of cotton, ‘to arrive
ex Peerless from Bombay. Unknown to both parties, there were two ships called Peerless, one
leaving Bombay in October and the other leaving Bombay in December. The seller’s cotton was on
the December Peerless but the Def. thought it was in the October Peerless. The Def. refused to
accepted the cargo of the December ship and the seller sued. Pl.s argued that it did not matter
whether the goods came from the December Peerless or the October Peerless. The court disagreed.
It is reasonable for the buyer to insist it was important for him to know when to expect delivery.
Objective test: The contract was for a specific cargo and not simply a contract for the sale of 125
bales of cotton of a particular description. Thus, it was essential to determine which cargo was the
subject matter of the contract. As this was impossible to determine since both cargoes fitted the
contract description equally well, and it was unclear who was responsible for the ambiguity,
neither party could enforce their own interpretation of any ‘agreement’.
?: Difference between Falck v Williams and Raffles v Wichelhaus?
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 OBJECTIVE THEORY: MISTAKEN AS TO TERMS OF CONTRACT
SMITH v HUGHES (1871) LR 6 QB 597
FACTS:
The Pl. was a farmer; Def. a race horse trainer. Pl. had some good winter oats to sell, so he
asked the Def’s manager if he wanted to buy. Upon receiving a positive response, Pl.
provided a sample saying he had the same oats for sale at 35s per quarter. The manager
wrote the following day stating that he would take the whole quantity for 34s per quarter.
When the Pl. provided oats that were new, the Def. refused to pay as the new oats were
useless to him. There was a conflict of evidence as to the subject of the oats being old. Def.
claimed that he said he was ready to buy old oats; to which the Pl. replied the oats were old.
Pl. denied that any reference was made as to the oats being old or new.
The court found for the Def.
The judgement has been criticised as unsatisfactory and difficult because there were
unresolved questions of fact. Thus, it is necessary to consider these following hypotheses:
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 OBJECTIVE THEORY: MISTAKEN AS TO TERMS OF CONTRACT
SMITH v HUGHES (1871) LR 6 QB 597
(i) The word ‘old’ was used in the discussion leading to the oral contract of sale
-> Then the decision was right because it was a contract for the sale of old oats. Thus the seller
could not perform by delivering new oats.

(ii) The word ‘old’ was not used but the seller knew that the buyer believed that the oats were in fact
old.
-> Then the verdict was wrong. So long as the seller did nothing to induce or encourage it, the law
allowed the seller to take advantage of the buyer’s mistake of fact. (Cockburn CJ: “The passive
acquiescence of the seller in the self-deception of the buyer did not entitle the latter to avoid the
contract.” (caveat emptor – buyer beware).

(iii) The word ‘old’ was not used but the seller knew that the buyer believed that the seller was
contracting to sell old oats.
-> Then the verdict was right.
(?: Difference between (ii) and (iii)?) SMI FUU UKM 23
 OBJECTIVE THEORY AND SIGNED CONTRACTS

L’Estrange v Groucob [1934] 2 KB 394

Facts:
Pl. signed a contract to buy a slot machine for selling cigarettes without reading the
contract. The Def. knew the Pl. had not read the contract. The contract contained terms
(in small print) that effectively excluded liability in cases where the machine did work
properly.
The court held that in the Pl. was not induced by any misrepresentation, thus the Pl. was
bound by her signature.
Per Scrutton LJ: “When a document containing contractual terms is signed, then, in the
absence of fraud or…misrepresentation, the party signing it is bound and it is wholly
immaterial whether he has read the document or not.”
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OBJECTIVE THEORY: SOME OPINION

O.W. Holmes Howarth (1984)

(1897) • There are 3 varieties of
J.R. Spencer [1973] Mindy Chen-
• …the making objectivities:
• …words or conduct Wishart (2009)
of a contract • i. Promisor objectivity: the
promise to be understood by a are given the • …the law must take
depends not
on the
reasonable person in the meaning that would the perspective of the
promisor’s position
agreement of • ii. Promisee objectivity: the
be assigned by a ‘observer’ rather than
two minds in promise to be understood by a reasonable person in the ‘actor’.
one reasonable person in the the position to whom
intention, promisee’s position
but on their • iii. Detached objectivity: the they were addressed.
having said promise to be understood by a
the same reasonable person independent of
thing. the two parties in the contract.
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OBJECTIVITY THEORY
Some suggested reading

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1. J.R. Spencer. Singanture. Consent and the Rule in
L’Estrange v. Groucob [1973] CLJ 104.
2. W. Howarth, The Meaning of Objectivity in
Contract (1984) 100 LQR 265.
3. J.P. Voster, A Comment on the Meaning of
Objectivity in Contract (1987) 104 LQR 274.
4. M. Chen-Wishart, Objectivity and Mistake: The
Oxymoron of Smith v Hughes in J. Neyers, R.
Bronough and S.G.A. Pitel (eds) Exploring Contract
Law, Hart Publishing, 2009.

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