BUSINESS LAW

Law of Contract
 ELEMENTS OF CONTRACT

2. ACCEPTANCE
 DEFINITION OF ACCEPTANCE

Section 2(b)
CA

When the person to whom the proposal is made signifies his

assent thereto, the proposal is said to have been accepted.a n b e
n ce c
e pt a li e dly
A – acc or imp
S. 9 C expressly
S. 2(c) CA made
Person accepting the
proposal =
promisee/offeree
Offeror: I
want to sell
my car to you Offeree: OK I
for RM55 555. agree to buy
your car for
RM55 555.

ACCEPTANCE
 OFFER

ACCEPTANCE

PROMISE

5
CONDITIONS OF ACCEPTANCE

1. An acceptance must be absolute and unqualified

Section 7 (a) CA

 Acceptance must exactly fit the proposal.

 The other party cannot put any condition to his
acceptance (change of terms, bargaining, counter-
offer)

Example: A offers B to buy 1 kg of Ajwa Kurma for

RM60 but B agree to guy it only for RM 50.
Low Kar Yit & Ors v Mohd Isa & Anor [1963]
MLJ 165

FACTS

 D gave an option to the agent of P to buy a piece of land

subject to:
i. A formal contract to be drawn up and agreed upon
by the parties
ii. The approval of the sale and of the said contract by
the High Court of KL.
 P’s agent duly exercised the option.
 D failed to sign the agreement.
 P sued for specific performance and damages for breach
of contract.
Low Kar Yit & Ors v Mohd Isa & Anor [1963]
MLJ 165

DECISION/PRINCIPLES

 On the construction of the document the option was

conditional upon and subject to formal contract to
be drawn up and agreed upon by the parties.
 The exercise of the option amounted to nothing
more than an agreement to enter into an
agreement.
 Accordingly there was no contract concluded
between the parties.
COUNTER-OFFER
 A purported acceptance which is qualified by
the introduction of a new term.
 It destroys the original offer.

HYDE V WRENCH [1840] 3 BEAV 344 ER 132

 Facts: Df offered to sell his estate to Pf for
£1000. Pf replied that he wanted to purchase
at £950. Df refused and demanded the
original sum.
 Held: No contract, Pf rejected the original
offer so that he was no longer capable of
accepting it later.
Effects of counter proposal

1) A’s original proposal is destroyed and it can no longer be accepted

2) A has become the acceptor while B become the proposer
3) A has the choice whether to accept or reject B’s proposal

Nevertheless, this should be distinguished with situation, which is

merely a request for information.
2. An acceptance must be made within a reasonable
time

Section 6 (b) CA

a proposal is revoked by the lapse of the time

prescribed in the proposal for its acceptance or if no
time is so prescribed by the lapse of a reasonable time
without communication of the acceptance.
Acceptance must be made
within a reasonable time
 MACON WORKS & TRADING SDN BHD V PHANG
HON CHIN & ANOR [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
a time to lapse before accepting”.
 Ramsgate Victoria Hotel Co. V Montefiore
M applied for shares in the company and had paid deposit
to the company’s bank. The company sent him an
acceptance by the issue of a letter of allotment five
months later. M contended that the period of five
months for acceptance was too long and thus
acceptance was not made within a reasonable time.
 3. An acceptance must be expressed in some usual
and reasonable manner
An acceptance must 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 in which it is to be accepted, and
the acceptance is not made in that manner, the proposer 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.

Section 7(b) CA
 Exception: if the proposer has prescribed certain manner,
the acceptance must be done in that manner.
Eliason v Henshaw
Eliason offered to buy flour from Henshaw, requesting thet the acceptance to
the offer should be sent to eliason at Harper’s ferry by the wagon, which
brought the offer latter. Henshaw sent a letter of acceptance by mail,
thinking that the letter would reach Eliason more speedily. Hanshaw was
wrong. The letter arrived after the due date. It was held that Eliason was
entitled to reject the acceptance made by Henshaw
 4. Acceptance can only be made by the
person to whom a proposal is made and
has knowledge of the proposal at the time
of acceptance

Azhar promises to sell his motorcycle to Joe for Rm 5000 only. Only Joe can
accept the proposal. The proposal must be completely communicated to
Joe before he can accept the proposal
5. The acceptance must be communicated

 Section 2(b) & 7 (b) CA

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- S.2(b)

In order to convert a proposal into a promise the acceptance must be

expressed in some usual and reasonable manner- S. 7(b)
 In order to amount to an acceptance, it must be
communicated. Thus, acceptance requires a positive
act. Silence does not amount to acceptance

 Felthouse V Bindley
Plaintiff, the uncle wrote to his nephew offering to buy his
horse and said ‘ if I hear no more about him, I consider
the horse is mine at 30 pound ad 15s. The nephew
didn’t reply. Subsequently, the horse was sold by an
auctioneer. The Plaintiff sued the auctioneer. The
court held that there was no acceptance by remaining
silence. So there was no contract between parties.
 Acceptance is only effective when it has been
communicated
 Nevertheless, there are exceptions to this rule:
a) The offeree has himself make it clear that his silence
would be taken as indication of acceptance unless he
notifies to the proposer to the contrary
b) The proposer allows the party to whom the proposal is
made to perform ‘the conditions of a proposal’ i.e
acceptance taking the form of performance of an act
stated in the proposal
Case: Carlil v Carbolic Smoke Ball
c) The term ‘ reciprocal promise’ is defined in section
2(f) as ‘ promise which form the consideration or part of
the consideration for each other
Example: where X sends B cheque for RM 500 with the
proposal that it will be the consideration for B’s agreemnt
to sell his motorcycle, B will be deemed to have accepted
the proposal if he cashes the cheque even though he has
not communicated his acceptance to X. B has accepted a
consideration for a reciprocal promise offered with a
proposal
 COMMUNICATION OF AN
ACCEPTANCE
 There must be some external manifestation
of assent (either by word or by act).
Section 4(a) CA
When complete?

a) As against the proposer – when

put in a course of transmission to
him so as to be out of power of
the acceptor.
b) As against the acceptor – when it
come to the knowledge of the
proposer.
 COMMUNICATION OF ACCEPTANCE

Acceptance will not be effective until comes to the knowledge of the

offeror.
Eg: phone calls

Entores Ltd v. Miles Far East Corp [1955] 3 WLR 48

Acceptance for instantaneous communication taken place where it is
received
REVOCATION OF ACCEPTANCE
Acceptance may be revoked before the acceptance is
complete.

o f an s
Section 5(2) ni ca tio n
e (b)a
CA c o mmu complet hen it
The nce is t or ,w t he
pt a c e p e o f
acce st the ac owledg
n n
agai to the k oser
es pr o p
Section 4(2) com
CA

This means that the acceptance may be revoked before the proposer has
knowledge of the acceptance
 Example: Jula proposes to sell her computer to Juli. Juli
may revoke her acceptance at any time before the
acceptance reaches Jula, but not afterwards.
 ELEMENTS OF CONTRACT

3. INTENTION TO CREATE LEGAL RELATION

The Contracts Act is silent on the issue of intention to
create legal relation as an element of contract.

The position in Malaysia is the same as under

common law that a contract cannot come into
existence if the circumstances of the case indicate that
there is no intention to be legally bound.
 PRESUMPTION OF LAW
PRESUMPATIO CASE REBUTTABLE CASE
N OF LAW

There would be Merrit v Merrit

an intention to [1970] 2 AER
create legal 760
relation by
adducing
Balfour v evidence
DOMESTIC The parties do
Balfour [1919] 2
& FAMILY not have the
KB 571
ARRANGE intention to create
MENT legal relation.
 Balfour v Balfour
The defendant who was a civil servant in Ceylon returned to England with his wife. Before
he left for Ceylon, he promised to pay his wife a monthly allowance of 30 pounds a
month until he returned. The Plaintiff and defendant were separated. The plaintiff
claimed for the monthly allowance. The court held that there was no contract as there
was no intention to create legal relation.
Rebuttable
Merrit v Merrit
The husband left his wife. Then, the husband promised orally to pay his wife 40 pounds per
month, out of which she would pay the outstanding mortgage payments. The oral
promise was put in writing, signed and dated. The promise provided that ‘ in
consideration that you pay all the charges in connection with the house until the
mortgage repayment has been completed, I will agree to transfer the property to you’.
The wife paid the mortgage but the husband refused to transfer the house to her. The
court held that based on the acts of parties, they had intention to create legal relation.
So, the house was to be transferred to the wife.
 PRESUMPTION OF LAW
PRESUMPATION CASE REBUTTABL CASE
OF LAW E

There would Rose & Frank

Business, The parties have the Edward v be no intention Co v J R
Commercial or intention to create Skyways Ltd to create legal Crompton &
trade legal relation. relation by Bros
agreement adducing an
evidence
 Edward v Skyways Ltd
The defendant declared the Plaintiff, one of the pilots to be redundant and
ultimately to pay all pilots who were made redundant, an ex gratia sum.
Then, the defendant refused to pay. The court held that in business
relation, the presumption is that the parties intend to create legal
relation. The use of the word ‘ex gratia’ was not enough to rebut the
presumption
REBUTTABLE
Rose & Frank Co v J R Crompton & Bros
Appellant, an American film was appointed by a British manufacturer to be its
distributor. The document concluded that ‘ this agreement is not entered
as a formal or legal agreement’. The respondent terminated the
agreement without giving notice and refused to deliver the goods ordered.
The court held that the agreement was not legally binding because the
general presumption was clearly rebutted.
Thank you for
your kind
attention