Business Law – Chapter 2: Contracts

Flashcards covering key definitions, rules, cases and principles from Chapter 2 of Business Law: Contracts, including offer, acceptance, invitation to treat, revocation, postal rule and consideration.

Someone is drafting a contract in Malaysia. What legal framework should they primarily consult?

They should refer primarily to the Contracts Act 1950, which governs contracts in Malaysia.

A lawyer is explaining to a client what makes an agreement legally binding in Malaysia. How would they define a contract under the Contracts Act 1950?

According to s 2(h) of the Contracts Act 1950, a contract is defined as an agreement enforceable by law.

What are the two key additional elements that turn an agreement into a contract in Malaysia?

Beyond mere agreement, the two crucial elements that must exist for an agreement to become a legally recognized contract are consideration and intention to create legal relations.

Two friends make an oral agreement to sell a car. Is this agreement automatically invalid because it's not written down?

No. Contracts can be written, oral, or implied from conduct unless a specific statute requires them to be in writing.

A person gets on a public bus. What contractual obligation is implied by their action?

By boarding the bus, the passenger implicitly undertakes to pay the fare, creating an implied contract binding both parties to their expected actions.

John sends an email to Mary stating he wants to sell his car at a certain price to obtain her agreement. How does the Contracts Act 1950 define John's communication?

According to s 2(a) Contracts Act 1950, John's communication is a proposal made when he signifies his willingness to do something (sell his car) with a view to obtaining Mary's assent.

In an agreement where Alex offers to sell his laptop to Bryan, identify Alex's and Bryan's roles in the potential contract.

Alex is the offeror (the person making the offer), and Bryan is the offeree (the person to whom the offer is made).

Sarah receives a proposal from David. What must Sarah do for David's proposal to be considered accepted under the Contracts Act 1950?

For David's proposal to be considered accepted under the Contracts Act 1950, Sarah must signify her assent to the proposal, as per s 2(b).

A company wants to make an offer. What are the two main ways they can communicate this offer, as described by the Contracts Act 1950?

According to s 9 Contracts Act 1950, an offer can be made expressly (using words, spoken or written) or impliedly (through conduct).

Emily offers to sell her painting specifically to Ben. What type of offer has Emily made, and who can accept it?

Emily has made a specific offer, which is an offer made to a particular person (Ben) or group that only they may accept.

A pet store advertises a reward for anyone who finds their lost cat. What type of offer is this, and who can accept it?

This is a general offer, which is an offer made to the public at large, capable of acceptance by anyone who fulfills its terms.

Emily offered her painting specifically to Ben. Could someone else named Charlie accept that offer?

No, as illustrated by Boulton v Jones, only the person to whom the offer is addressed can accept a specific offer. Charlie cannot accept an offer made only to Ben.

A company advertises a product, promising a reward to anyone who uses it as prescribed and still gets sick. What famous case demonstrates that such an advertisement can be a binding general offer?

Carlill v Carbolic Smoke Ball Co illustrates that such an advertisement, especially with a reward and intent to be bound, can constitute a valid general offer to the world.

If an offer to sell a car states 'price negotiable,' is this a valid offer for a contract?

No. An offer must be clear and definite, because ambiguous or incomplete terms cannot be enforced. 'Price negotiable' lacks the certainty required to form a contract, as shown in Guthing v Lynn.

Mark sends a proposal to Lisa via email. When does the Contracts Act 1950 consider Mark's proposal to be complete?

Section 4(1) Contracts Act 1950 states that communication of a proposal is complete when it comes to the offeree's knowledge.

A person performs services for another without ever having communicated their offer to do so. In what situation would this typically prevent a contract from forming?

As seen in Taylor v Laird, if services are rendered without the offer being communicated and known by the other party, no contractual rights arise, meaning no contract was formed.

Someone finds a lost dog for which a reward was offered, but they were unaware of the reward at the time they found the dog. Can they claim the reward?

No, knowledge of the reward matters for acceptance. As illustrated by Fitch v Snedaker, if there's no knowledge of the offer, there can be no valid acceptance, and thus the reward cannot be claimed.

A person provides information leading to an arrest, knowing there's a reward, but their primary motive was to clear their own name, not to claim the reward. Does their motive invalidate their claim to the reward?

No; as per Williams v Carwardine, knowledge of the offer is sufficient for acceptance, even if the offeree had an ulterior motive for performing the act mentioned in the offer.

A shop displays items with price tags. What is the legal classification of this display?

This is an invitation to treat, which is a preliminary communication inviting others to make an offer, rather than being an offer itself.

An advertisement for a house for sale is published in a newspaper. Is this generally considered an offer that can be immediately accepted by a reader?

Generally, advertisements are invitations to treat, not offers that can be immediately accepted. This is established in cases like Harris v Nickerson and Partridge v Crittenden.

A company advertises a product saying 'First 100 customers get it free upon purchase of another item!' What kind of advertisement could this be, making it an offer?

An exception is where an advertisement contains a reward or specific conditions that demonstrate an intention to be bound, making it a binding offer, like in Carlill v Carbolic Smoke Ball Co.

Nalia saw a product listed at 65 Ringgit in a shop. When she went to the counter, the cashier stated it was a mistake and the actual price was 165 Ringgit. Can Nalia legally force the shop to sell her the product for 65 Ringgit?

No. The display of goods in a self-service shop is an invitation to treat, not an offer. Nalia makes the offer when she presents the product at the counter, which the shop is free to accept or reject, or to counter-offer with the correct price. This is consistent with cases like Pharmaceutical Society v Boots.

A shop displays a knife in its window with a price tag. Would this be considered a direct offer to sell?

No, a shop-window display is legally an invitation to treat, not an offer. It merely invites customers to make an offer to buy, as confirmed in Fisher v Bell.

A construction company issues a tender notice asking for bids for a project. Is this notice considered an offer to the contractors who might bid?

No, tender notices are generally invitations to treat, as established in Spencer v Harding. The parties submitting bids make the offers, which the company can then accept or reject.

If a tender notice states, 'The lowest bid will be definitively accepted,' what impact does this specific wording have on the legal classification of the tender?

Stating that the highest (or lowest) bid will definitely be accepted turns a tender invitation into a binding offer because it demonstrates a clear intent to be bound by the outcome.

A supplier sends a potential buyer a document listing prices for various items. Is this document typically considered an offer ready for acceptance?

Usually not; a price quotation is generally mere information provided upon inquiry, not a binding offer ready for acceptance, as seen in Harvey v Facey.

During an auction, a bidder makes the highest bid. When does a binding contract for the sale of the auctioned item typically form?

In auctions, a binding contract for the sale of the auctioned item typically forms at the fall of the hammer, signifying the auctioneer's acceptance of the highest bid, as per Sale of Goods Act s 56.

An offer is made to purchase a house. What legal action from the offeree would define acceptance under Malaysian law?

Under s 2(b) of the Contracts Act 1950, acceptance is defined as the assent by the offeree to the terms of the offer, which transforms the offer into a legally binding promise.

A buyer offers to buy a car for 20,000. The seller responds, 'I accept, but only if you also buy the car's spare tires for an additional $$200$.' Has the buyer's offer been accepted?

No. According to the 'mirror image' rule, acceptance must be absolute and unqualified, matching the offer exactly. The seller's response is a counter-offer, effectively rejecting the original offer (Hyde v Wrench).

If an offeree asks, 'Would you consider a slightly lower price?' after receiving an offer, is this a counter-offer or something else?

This is typically a request for information. A counter-offer rejects the original offer and proposes new terms, while an inquiry merely seeks clarification and does not terminate the original offer (Stevenson v McLean).

An offer states, 'Please accept this offer by replying via registered mail only.' If the offeree sends an email instead, is their acceptance valid?

The offeree must follow that prescribed mode or risk the offeror rejecting the acceptance. If an alternative mode is used, it may not constitute a valid acceptance unless the offeror agrees (Eliason v Henshaw).

Liam's offer stipulated acceptance by phone call. Mia sent an email accepting, and Liam proceeded with the transaction without protest. Is Mia's acceptance valid?

Yes, the offeror can waive a prescribed mode of acceptance by unequivocally accepting a different mode without objection, thereby affirming the contract, as shown in Western Electric v WDA.

An offer to sell rare comic books is made without specifying an acceptance deadline. If the offeree tries to accept months later after the market value has changed drastically, is this acceptance valid?

No. If no time is fixed for acceptance, it must be given within a reasonable time, which depends on the circumstances of the case, as seen in Fraser v Everett. Months later would likely be considered unreasonable.

A seller tells a potential buyer, 'If I don't hear from you by Friday, I'll assume you agree to buy the item.' Does the buyer's silence constitute acceptance?

Generally no, silence does not amount to acceptance. The offeror cannot impose a condition that silence will be deemed acceptance, as established in Felthouse v Bindley.

In what specific situations, besides direct notification, might an acceptance of an offer be considered valid without explicit communication from the offeree?

Communication of acceptance may be unnecessary in these situations:

1. The offeror explicitly dispenses with communication.
2. Performance of conditions in a unilateral contract (e.g., Carlill v Carbolic Smoke Ball Co).
3. Acceptance by conduct of a reciprocal promise (e.g., cashing a cheque indicating acceptance of terms).
4. When the Postal Rule applies.

Mary mails her acceptance of an offer to John. When is the acceptance legally complete according to the postal rule under Malaysian law?

According to s 4(2) of the Contracts Act 1950, acceptance is complete against the proposer (John) when the acceptance is posted (by Mary); and complete against the acceptor (Mary) when it comes to the knowledge of the proposer (John).

An acceptance letter is properly posted but gets lost in transit and never reaches the offeror. In a jurisdiction applying the postal rule, would the offeror still be bound?

Yes, as demonstrated by Household Fire Insurance v Grant, acceptance sent by post can bind the offeror even if it is never received, provided the postal rule applies.

An offer states, 'Acceptance must be made by post within 7 days.' The offeree posts their acceptance on the 7th day, but it only reaches the offeror on the 10th day, after the 7-day period has passed. Is the acceptance still valid, assuming the postal rule applies?

Yes, if acceptance by post was authorized and posted within the given timeframe. Because acceptance is complete when posted under the postal rule, it can still bind the offeror even if it arrives after a deadline for receipt (Ignatius v Bell).

Liam makes an offer to sell his car to Noah. When can Liam legally take back or withdraw his offer according to the Contracts Act 1950?

An offer can be legally withdrawn (revoked) at any time before its acceptance is complete as against the proposer, as per s 5(1) Contracts Act 1950.

In an auction, a bidder makes a bid but then immediately wants to withdraw it before the auctioneer drops the hammer. Is this withdrawal permissible?

Yes, an auction bid can be revoked before acceptance of that bid is complete, which typically occurs at the fall of the hammer, as demonstrated in Payne v Cave.

An offeror states, 'This offer will remain open for one week.' Can the offeror still withdraw the offer before the week is over if it hasn't been accepted?

Yes, even if a period is stated for the offer to remain open, the offeror can still withdraw the offer before it is accepted, unless there is a separate binding agreement (consideration) to keep the offer open, as seen in Routledge v Grant.

An offeror sends a letter revoking their offer. When does this revocation legally become effective according to the Contracts Act 1950?

The revocation of an offer is effective only when it comes to the offeree's knowledge, meaning they must be aware of the withdrawal, as per s 4(3) Contracts Act 1950.

An offeree sends an acceptance letter by post. When can they legally revoke this acceptance according to the Contracts Act 1950?

Under s 5(2) Contracts Act 1950, an acceptance can be revoked at any time before it is complete as against the acceptor (i.e., before the letter or communication of acceptance reaches the offeror).

An offeree sends an acceptance, and then quickly sends a revocation of that acceptance. If both communications arrive (or are capable of arriving) at the same time, what is the likely legal outcome?

If the communications arrive simultaneously, the revocation is generally considered effective, because the offeror became aware of the revocation at the same time or before the acceptance, as seen in Dunmore v Alexander.

What essential element, as defined in Malaysian contract law (s 2(d)), signifies something of value exchanged between parties to support a promise?

As defined in s 2(d) Contracts Act 1950, consideration signifies something of value done, abstained from, or promised at the promisor’s desire, forming the price for the promise.

If two parties make an agreement but nothing of value is exchanged for the promise, what is the default legal status of that agreement under the Contracts Act 1950?

The general rule, stated in s 26 Contracts Act 1950, is that an agreement made without consideration is void, meaning it is not legally enforceable.

A father promises to give his car to his daughter out of natural love and affection, formalizing it in a written and registered agreement. Is this agreement valid despite lacking traditional consideration?

Yes, such an agreement is valid under s 26(a) Contracts Act 1950, which provides an exception for written and registered agreements made on account of natural love and affection between near relations.

Besides natural love and affection, what are two other circumstances under the Contracts Act 1950 where an agreement can be valid even without consideration?

The other two s 26 exceptions are:

1. A promise to compensate for a past voluntary act or for something the promisor was legally compelled to do (s 26(b)).
2. A promise in writing to pay a debt barred by limitation law (s 26(c)).

Someone agrees to sell a valuable painting for only 1$ because they genuinely want to. Can the contract be challenged on the grounds that the 1$ consideration is too small for a valuable painting?

No; consideration does not need to be adequate. Inadequacy is generally irrelevant to the validity of the contract, as explained in Explanation 2 to s 26 and demonstrated in Phang Swee Kim v Beh I Hock.

A promises to pay B $$100$ if C (a third party) does a certain act for A. If C performs the act, can B enforce A's promise, even though B did not provide consideration themselves?

Yes, in Malaysia, consideration can move from a third party. It may come from the promisee or any other person, as illustrated by Venkata Chinnaya v Venkataramaya.

How did Justice Lush of Currie v Misa famously describe what constitutes 'valuable consideration' in contract law?

Justice Lush famously described valuable consideration as 'A right, interest, profit or benefit accruing to one party, or forbearance, detriment, loss or responsibility given by the other' (Currie v Misa).

While inadequacy of consideration generally doesn't invalidate a contract, in what specific circumstances might a court still consider it relevant?

While inadequacy of consideration generally doesn't invalidate a contract, a court might consider it as evidence that consent was not freely given, for example, if there was duress, fraud, or undue influence involved, which could then render the contract voidable.

An offeror wants to

An offeror can protect themselves by prescribing another mode of acceptance that requires actual receipt (e.g., stating 'acceptance must be received to be valid') or by specifying that acceptance is only effective upon an action that confirms receipt, thus overriding the postal rule.