BABL 2413

Business Law
Unit 3:
The Law of Contract

Ms. Noor Zainee Seli

(00763) Inns of Court Malaysia
 Learning outcomes
At the end of the session, student will be able to:

1) Describe the elements of forming a valid and enforceable contract

in commercial transactions
2) Analyse the difference between the formation of a valid offer and
the mere concept of an Invitation to Treat (ITT)
3) Relate the relevant case law and legal provisions with the
principle of offer and its concept.
Examples of contract law
Elements for a valid contract

Offer

Capacity to
enter contract Acceptance
Valid and
enforceable
contract
Certainty
Consideration

Intention
 Sections Explanations
S. 2 (a) Definition When one person signifies to another his willingness to do or
of offer/proposal not to do (abstinence) something, as to get the assent of those,
a proposal is made.
S. 2 (b) Definition When the person to whom the proposal is made signifies his
of acceptance assent, the proposal is said to be accepted and becomes a
promise.
S. 2 (c) Promisor = person making the offer/proposal
Promisee = person accepting the offer/proposal
S. 2 (d) Definition At the desire of Promisor, the Promisee or 3 rd party has done or
of consideration not done anything / promise to do or not to do = consideration
for the promise
S. 2 (e) Definition Every promise or sets of promise made as the consideration =
of agreement agreement for a contract
S. 2 (h) Agreement enforceable by law = contract
S. 2 (g) Agreement not enforceable by law = void
 Terms in contract law

Offer Proposal /promise

Promisor Offeror

Promisee Offeree
 Communication of offer = Knowledge
S. 4 (1) CA 1950
Communication of offer = Knowledge

S. 4 (1) CA 1950
The communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.
R v Clarke

Williams v Cawardine
 S. 9 CA 1950: Promise made express and
implied
Lau Brothers @ Co. v. China Pacific Navigation Co.Ltd

 Fact of the case: negotiations for delivery of logs were conducted

through a series of telegrams and letters. Whilst still in the
negotiating stage, the defendants (China Pacific) withdrew.

 Issue: Was there a binding contract between the two parties?

 Held: court held that the parties were still in a state of negotiating
and no agreement was formed. Therefore, the defendants were
justified in withdrawing.
 Types of contract

Express Implied Abstinence

written
Conduct & non
action, performance,
behavior, failure to
Oral (S. 140 performance perform
Contract Act
1950)

Defined in S. 2 (a) Contract Act 1950

 Implied contract

Implied in law (quasi-contract) Implied in fact

Law / court will enforce the Creates obligation between
contract to another party due to parties based on their behavior in
UNJUST ENRICHMENTS a situation
Both implied contract give rise to a VALID & LEGALLY BINDING
CONTRACT

Parties MUST have “MEETING OF MINDS”

Larry Montz et al vs Pilgrim Films &
Televisions (2011)
 Legally binding agreement:
Bilateral & Unilateral agreement

Specific person/bilateral Boulton v

Jones
[1957]

World at large/unilateral
Carlill v Carbolic
Smoke
Ball Co Ltd [1893]
Difference between offer &
ITT

Invitation to
Offer
treat (ITT)
 Types of Invitation to treat (ITT)

1. display of goods Advertisements

2. Tender/bid
3. Auction
4. Brochure, catalogue and price list
5. Option
Display of goods
Advertisements
Brochure, catalogue or price list

Grainger v Gough
- a wine merchant distributed a circular that
listed the prices of wines.
- The court noted that a price list is not an
offer but an invitation to treat.
Preston Corporation Sdn Bhd v Edward Leong [1982]

• Preston Corp was a company carrying business of publishing books & Edward was firm of
printers. Parties entered into a business relationship regarding the printing of school
textbooks and they exchanged letters which the Edward submit quotations for the printing of
books & Preston issued printing orders. when the respondents sent the appellants two bills:
one bill for printing charges and another bill for extra charges for reproducing the film
positives. It was brought to the courts attention that the film ownership clause was found in
the quotation sent by the respondents. the appellants paid all the printing charges except a
disputed sum of $500 which they claimed to be an overcharge by the respondents. they also
withheld payment of the extra charges for reproducing the film positives because the
respondents claimed ownership of these films. the respondents sued the appellants for the
sum of $500 which they alleged was the balance of printing charges and a further sum of
$28,052 as extra charges for reproducing the films positive whose ownership was disputed.

Issue:  whether a quotation is an offer or not?

Held: quotations were never intended as a binding offer but a mere supply of information that
were in response to Apps inquiry as to the price of the books to be printed and the delivery
dates.
 Court decision

• Harun J : gave judgment in favour of the respondents on both these sums

and therefore ordered the appellants to pay a total sum of $29, 552 at 6%
interest and costs without, at the same time, ordering the delivery of film
positives to the appellants. Hence the appellants appealed against this
decision.

• The Federal court held: no contract between the parties at the moment
when the appellants printing orders were issued, but did soon at the time
when these orders were confirmed or accepted by the respondents.

• The quotation was merely a supply of information or an invitation to enter

into a contract.
• the film ownership clause contained in the quotations was completely
irrelevant as it was not part of the contract at all.
Tender
 Tenders
Harvela Investments vs Royal Trust Co of Canada [1986]

• The first defendant held shares in company.

Fact of • By means of a telex communication they invited the claimant and the second
the case defendant to make an offer to purchase shares by sealed tender.
• They stated in this invitation that they bound themselves to accept the highest
offer.
• The claimant made a bid for a fixed sum; the second defendant made a bid for a
fixed sum or alternatively for ‘$101,000 in excess of any other offer’, whichever
was to be higher.
• The first defendant accepted the bid made by the second defendant, despite the
fact that the fixed sum which they offered was lower than that offered by the
Issue whether the second defendant’s referential bid was invalid, and by extension
whether the first defendant was bound to accept the claimant’s offer as the highest
valid bid
Held • the referential bid was invalid
• the first defendant was bound to accept the claimant’s offer. It would also
undermine the purpose of a sealed tender, which is to prevent a bid being made
based on the sum offered by the competitor.
Auction/ Bid
 Auction
Payne v Cave (1789)

Fact of the case Cave made the highest bid for Payne’s goods at an
auction sale, but he changed his mind and withdrew
his bid before the fall of the auctioneer's hammer.

Issue Whether auctioneer’s request for bid an offer or an

invitation to treat (ITT)?
Held The defendant was not bound to purchase the goods.
His bid amounted to an offer which he was entitled to
withdraw at any time before the auctioneer signified
acceptance by knocking down the hammer.

This case judgement has been codified as legislation in Sales of Goods Act
1979
 ITT is preliminary negotiations / a
mere supply of information

Harvey v Facey [1893]

"Will you sell us Bumper

Hall Pen?

Lowest price for Bumper

Hall Pen £900

Harvey Facey
"We agree to buy Bumper Hall Pen for the sum of 900
pounds asked by you. Please send us your title deed in
order that we may get early possession.

Bumper Hall Pen

is a building
property in
Jamaica
 no contract existed between the two parties.
The first telegram was simply a request for
information, so at no stage did the defendant
make a definite offer that could be accepted.
 Fisher v Bell [1960]

Fisher Bell
Bell displayed a flick knife in the window of his shop
with a privce ticket behind it bearing the words Ejector
knife – 4s, (i.e. four shillings).

Bell, chief inspector of police sued Fisher under section

1 of the Restriction of Offensive Weapons Act 1959 and
alleged Fisher contravened section 1(1) by offering the
flick knife for sale.
Issue: whether the display of the knife constituted an offer for sale or an invitation to
treat

 display of the knife was not an offer of sale but merely an invitation to
treat, and as such the defendant had not offered the knife for sale within
the meaning of s1(1) of the Act.
 It is well established in contract law that the display of an item in a shop
window is an invitation to potential customers to treat. The defendant
was therefore not guilty of the offence with which he had been charged.
 Display of goods
- Pharmaceutical Society of Great Britain v Boots Cash
Chemists [1953]

Fact of the case:

• BCC instituted a new method for its
customers to buy certain medicines.
• The company would let shoppers pick
drugs off the shelves in the chemist
and then pay for them at the cash
register.
• Before, all medicines were stored
behind a counter and an assistant had
to get what was requested.
 Arguments
1. Pharmaceutical Society of Great Britain (PSGB) objected;
2. under the Pharmacy and Poisons Act 1933, that was an unlawful practice.
3. Under s.18(1), a pharmacist needed to supervise at the point where "the
sale is effected" when the product was one listed on the 1933 Act's
schedule of poisons.
4. displays of goods were an "offer" and when a shopper selected and put
the drugs into their shopping basket, that was an "acceptance". Since no
pharmacist had supervised the transaction at this point, Boots was in
breach of the Act.
Display of goods - Shop and self service situations

• The display of goods on shelves in a self-service store is not an offer

to sell the goods (but an invitation to treat).
• No contract was formed merely by customer taking goods off the
shelves.

Cases
Fisher v Bell
Pharmaceutical Society of Great Britain v Boots Cash Chemist
 Lasky v Economy Grocery Stores [ 65 NE 305
(1946)]
Fact of the case • the plaintiff remove a bottle of “tonic” from the
shelf in a self-service shop owned by the
defendant.
• When she was about to place it in the basket ,the
bottle exploded and she was severely injured.

Arguments • It was argued that the goods displayed amount to

offers but “the acceptance took place,not on the
placing of the goods in the basket ,but on the
customer presenting them at the cash desk for
payment.”
• when a customer was injured by an bottle of tonic
water which explodes at the cash desk, he was
able to claim for his damages under the contract
with the shopkeeper.
 Advertisement and circulars - Partridge v
Crittenden [1968]

Partridge Crittenden

Fact of the case: Crittenden was charged

with unlawfully offering certain wild birds,
the bramblefinch, for sale. He placed the
advertisement in a bird magazine.
The advertisement did not
constitute an offer, but was
merely an invitation to treat.
 Job application

Coelho v The Public the appellant applied for the post of Assistant Passport
Services Commission Officer advertised in the Malay mail newspaper and he
(1964) was informed that he was accepted. After being
posted to the Immigration Office, he was informed that
his appointment was terminated. The issue was
whether the application made by the appellant could
be an offer.

The court held that the advertisement is an invitation

to treat and the resulting applications were offers. The
information conveyed to the appellant was an
unqualified acceptance. Therefore, the respondent had
acted ultra vires in purporting to terminate his
appointment in a manner for officers on probation
 Advertisement – Additional cases

Coelho v the Public Held: The advertisement in the

Services Commission newspaper was an invitation to qualified
[1964] – persons to apply for the post and the
resulting applications were offers.

This view was supported Held: An advertisement in the newspaper

in Majumder v AG of of a vacancy for the position of a doctor
Sarawak [1967] – was an invitation to treat.
 Options
Low Kar Yit v Mohamed Isa
Fact of the Defendant gave an option Plaintiff to buy a piece of land
case subject to a formal contract to be drawn up and agreed upon
by the parties.

The Plaintiff’s agent duly exercised the option but the

defendant subsequently failed to sign the agreement for sale.
Plaintiff sued for specific performance or alternatively, damage
for breach of contract.

Held The option was conditional upon and subject to a formal

contract to be drawn up and agreed upon between the
parties.
The exercise of the option amounted to nothing more than an
agreement to enter into an agreement.
EXCEPTION CASE: Carlill v Carbolic
Smoke Ball Co [1893] 1 QB 256 COA
• The Carbolic Smoke Ball Co produced the 'Carbolic Smoke Ball' designed to
prevent users contracting influenza or similar illnesses. The company's
advertised (in part) that:

• “100 pounds reward will be paid by the Carbolic Smoke Ball Company to
any person who contracts the increasing epidemic influenza, colds, or any
disease caused by taking cold, after having used the ball three times daily
for two weeks according to the printed directions supplied with each ball.
1,000 pounds is deposited with the Alliance Bank, Regent Street, showing
our sincerity in the matter”.
 Fact of the case
 After seeing this advertisement Mrs Loiuisa Elizabeth Carlill bought one
of the balls and used it as directed from November 20, 1891, to January
17, 1892, when she contracted influenza.
She claimed the reward however the company refused to pay, even
after receiving letters from her husband, who was a solicitor.
Mrs Carlill was entitled to the reward. There was a unilateral contract
comprising the offer (by advertisement) of the Carbolic Smoke Ball company)
and the acceptance (by performance of conditions stated in the offer) by Mrs
Carlill.
There was a valid offer
An offer can be made to the world
This was not a mere sales puff (as evidenced, in part, by the statement that
the company had deposited £1,000 to demonstrate sincerity)
 Judgement
The language was not too vague to be enforced
Although as a general rule communication of acceptance is required,
the offeror may dispense with the need for notification and had done so
in this case. Here, it was implicit that the offeree (Mrs Carlill) did not
need to communicate an intention to accept; rather acceptance
occurred through performance of the requested acts (using the smoke
ball)
There was consideration; the inconvenience suffered by Mrs Carlill in
using the smokeball as directed was sufficient consideration. In
addition, the Carbolic Smoke Ball received a benefit in having people
use the smoke ball.
 Counter offer

Offer A Offer B
 Hyde v Wrench
• Mr Wrench, offered to sell the farm he owned to Mr Hyde. He
offered to sell the property for £1,200, but this was declined by Mr
Hyde.
• Wrench decided to write to Hyde with another offer; this time to sell
the farm to him for £1,000. He made it clear that this would be his
final offer regarding the property.
• In response, Mr Hyde offered £950 for the farm in his letter. This was
refused by Mr Wrench and he confirmed this with Hyde.
• Later, Mr Hyde then agreed to buy the farm for £1,000, which was
the sum that had previously been offered. However, Mr Wrench
refused to sell his farm.
Hyde v Wrench

It was held that no contract was made

as the initial offer did not exist at the
time Hyde tried to accept it.
Therefore, the offer has been
terminated by the counter offer made
by Hyde.
THANK YOU