Contract Law - Types of Contract PDF

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Contracts may be bilateral or unilateral. The more common of the two, a bilateral contract, is an agreement in which each of the parties to the contract makes a promise or promises to the other party. In a unilateral contract, only one party to the contract makes a promise. Discuss critically the difference between unilateral contract and bilateral contract. Deliberate, with reference to case law the importance of this distinction, and the problems that may occur in relation to unilateral contract.

In order to form a valid contract in both English and Malaysian Contract Law is that one of the essential ingredients of it is the concept of offer1. Offer does not necessarily have to be made to just an individual but it may also be addressed to a group or the world at large. 2 If an offer is made, the other party needs to either accept it or reject is. The general rule of acceptance is that it must be very clear and unambiguous to the parties involved and there must be “a meeting of mind” or “concencus ad idem”. The idea of this concept had been demonstrated in the case of Entores Ltd v Miles Far East Corporation, where it was held by Lord Denning that an acceptance will only be valid once it reaches the knowledge of the offeror. 3 Contract can come in two forms which are the bilateral and unilateral. In Bilateral contract, it is generally understood that acceptance must be communicated with with the offeror or the promisor and must be in his knowledge – be it impliedly or expressly communicated. This type of contract emerges from the exchange of common and reciprocal promises between the parties and there must be a sufficient consideration in the promise made by the other party in order for the 1 Adnan Trakic “An Offer Vis-A-Vis An Invitation to Treat: A Comparative Analysis with Reference to Malaysia” (2012) 5 MLJ i 2 Williams v Cawardine (1835)5 C & P 566 3 Entores Ltd v Miles Far East Corporation [1955] 2 QB 327

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contract to be valid and enforceable. On the side, unilateral contract can be different from bilateral contract. Before we look at the difference between these two types of contract in a greater detail, we need to briefly touch a point or two about unilateral law as well. In contract law, unilateral contract only allows one party to make the promise or simply a one-sided contract. In a unilateral contract, the offer can be made to the world at large. In the following essay, I am going to elaborate more on the difference of the two forms of contract, namely the bilateral and unilateral contracts and the issues and problems arising from unilateral form of contract. The main point to distinguish bilateral contract from unilateral contract is by looking at the parties involved. In a unilateral contract, like mentioned in the introduction above, only one party makes the promise or the offer. This can be put in an illustration to be easily understood like, if A promises B a reward of $100 if B could find A’s cat, B is not in any way obliged to find the cat, but if B successfully did, then A must fulfill their promise to give the reward. So here, it can be see that only A makes the promise and it is not obligatory for the other party to fulfill the duty or the promise. This can be seen in the case of Williams v Cawardine (1835) where the defendant had put an advertisement trying to find anyone who has information leading to the discovery or sentencing of the murderer of his brother by giving monetary rewards of £20. What was held in this case was that anyone who successfully fulfilled the requirements – has information which leads to sentencing of the murderer, is entitled to claim for the monetary reward. There was a contract with the person who successfully did so.4 On the other side, in a bilateral contract, it requires both parties to make or agree to make a certain promise. This is 4 Ibid [2]

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what the term “contract” is usually being understood by a layman – where one makes a promise in exchange for another duty or performance, and these based on mutual agreements and the contract will only be fully carried out once both parties do their respective duties. If the offeror makes an offer and the offeree accepts the terms and agreement after some careful consideration, then it will make a binding and enforceable bilateral contract. 5 The case of Carlill v Carbolic Smoke Balls is one of the famous examples of a unilateral offer, where offer is made to the whole world at large. In this case, the defendant had put up an advertisement stating that anyone, who used their product and contracts influenza after having used their smoke balls for three times according to the directions given, will be rewarded with £100 and the company had also additionally deposited a total amount of £1000 with the Alliance Bank in order to show their sincerity and seriousness of their offer. The plaintiff, Mrs. Carlill had contracted the influenza in the directions given within a specific amount of time and sought to claim the £100 reward. But what was claimed and argued by the defendant’s side was that there was no valid and enforceable contract and it was just a mere “invitation to treat” and not an offer. But what was concluded and held by the Court of Appeal was that contract may be impossible to be held to the whole world but offer is possible and can be made to the world at large and this is a unilateral contract.6 However, it is to be note down that, it is important to distinguish offer and invitation to treat. Invitation to treat may seem like an offer at the first instance, but it was just a mere invitation capable of the offer being accepted.7 One of the examples of invitation to treat is the display of goods in shop with a price tag to it. This can be 5 Adnan Trakic, “Offer and its Significance For Formation of Contracts: The Malaysian Persepective” (2012) 5 MLJ cxlvii 6 Carlill v Carbolic Smoke Balls [1893] 1 QB 256 7 Ibid [5]

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seen in the case of Pharmaceutical Society of Great Britain v Boots Cash Chemist, the prosecution of the defendant was due to the fact that the defendant was selling drugs without any supervisor in a registered pharmacy. The issue here was that whether the fact that the customer had put the drugs in her basket can amount to accepting the offer from the invitation to treat and amount to a binding contract? However, it was held by the Court of Appeal that, drugs being displayed on the shelves of the pharmacy do not amount to offer and the fact that the customer had put drugs in her basket that is an offer and by bringing it to the counter, it is up to the cashier to accept the offer or not8. Advertisement is also generally known and considered as an invitation to treat and the Malaysian Law has adopted these principles in some of the cases. Those who put up the advertisements are inviting people to make an offer and it is either bound to be accepted or ignored. For instance, in the case of Majumder v Attorney General of Sarawak, the Federal Court of Malaysia has held that newspaper advertisement for post of being doctor is a mere invitation to treat and not an offer9. Basically the standing of Malaysian Contract Law is similar to the principles laid down in English cases. However, if we look it into the detail on the issues surrounding unilateral offers, many have argued that unilateral contracts should not be enforceable due to the fact that there are quite a number of underlying issues within it. Firstly, let us focus on the mode and way of acceptance in a unilateral contract. In Malaysian contract law, acceptance in unilateral contracts must be made by performance similar to the standing of English contract law. However, that is not the case in Carlill v Carbolic Smoke Balls where the offeror has waived the need and requirement that the

8 Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401 9 Majmunder v Attorney General of Sarawak (1967) 1 MLJ 101

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acceptance must be made through communicating, but this only causes further issue. If this rule is to be applied, if we take the case of Carlill v Carbolic Smoke Balls as an example, here, Mrs. Carlill did not have to actually communicate or tell the company that she had bought their smoke balls or in other words accepting their “offer”. Another issue that needs to be considered is, when can and should the offeror revoke or withdraw his offer? What time does the offeror loses his right to revoke his offer? Can there also be acceptance in ignorance of an offer? If we look at the latter, the general rule is that the performing party needs to do the act or accept the offer with the knowledge of the offeror. If not, the offeror would be caught in a terms of contract that he does not even know or aware if he is breaching the contract and that would be very unfair for the side of the offeror. If we look at the case of Gibbons v Proctor, although it is not fully resolved, but the principles had been laid down in this case, which covers offers via advertisement. The issue here is that whether those who are unaware of the existence of the contract can actually accept the offer if he or she completes the condition. What happened in this case was that, there was a reward of £25 to those who give leading information of a criminal leading to his arrest to the superintendent. A police offer that was unaware of the existence of the offer, directed his colleague to give some useful information, and before the information reached the superintendent, only then the police offer knew of the offer. It was held that the police offer is eligible for the monetary reward10. Next, is looking at whether or not whether the offeree has the intention to actually accept the offer. The principle has been laid down that any act that is totally motivated by external factors other than the actual existence of the offer does not constitute an acceptance.11 But, this has 10 Gibbons v Proctor[1891] 64 LT 594 11 Chitty on Contracts (32nd edition, Sweet & Maxwell, 2015)

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been argued in the case of Williams v Cawardine, that in the English Contract Law context, motive is not questioned when carrying out the conditions of the offer, so this means that as long as the offeree is aware of the offer whilst carrying out the conditions of the offer may constitute an offer. Therefore, in conclusion, to summarize the distinction between the two forms of contract bilateral and unilateral contracts, one of the most obvious differences between these two contracts is by looking at the parties where in unilateral contract, only one party do or carry out the promise and in bilateral contract, one party makes the promise or offer in exchange for a duty or performance by the other party engaged in the contract. Other than that, we can also look at the offers of reward. In a unilateral contract, the offer of reward will only come from the offeror in the contract. Whereas in bilateral contract, it is not applicable in this sense as here, both parties agree to carry out a duty. The final distinction is by looking at the time factor. In a unilateral contract, the offeror need to specify how long the offer is open or good and for bilateral contracts, usually both parties would agree on a specific timeline or timeframe to carry out their respective duties or performance. Lastly, by looking at the issues arising from unilateral contracts, we need to look at the mode of acceptance in unilateral contracts, the issues on invitation to treat and when can the offeree revoke or withdraw his offer. To summarise this part, first of all, in both Malaysian and English contract law contexts, mode of acceptance must be made through performance and that the offeree or those who carried out the duties must have knowledge of the offer. Additionally, acceptance by performance in ignorance is not applicable and applied in both United Kingdom and Malaysia. For the Malaysian context, it may follow closely to the case of Inland Revenue Commissioners v Fry in that in the 6

Malaysian Contract Act 1950, there is no Malaysian case law in this but under S. 4(1) CA 1950 impliedly states that communication of the proposal or offer will only be complete once it comes to the attention or knowledge of the offeror.12 Hence, this suggest that acceptance by ignorance of offer is not permissible in Malaysia as well as in the United Kingdom. Last but not least, looking at the revocation of offer and also acceptance in the Malaysian perspectives, referring to S. 5(2) CA 1950,13 it implies that the offeror may revoke his offer or proposal at any time before or at the time where the offeree post his letter of acceptance (postal) but not afterwards; whereas the offeree or the promise may revoke his acceptance at any time prior or at the moment when the letter of communication of acceptance reaches the offeror or the promisor. On the other hand, the general rule for the English perspective is that the promisor or the offeror can never revoke his offer or proposal while the offeree/promisee is still performing or carrying out their duties. It may be questioned on how can the offeror revoke his offer or proposal in a unilateral offer. Although there is no decided English cases yet, but if we apply the American case of Shuey v United States 92 US 73 (1875), it has been laid down that if the offer is made through an advert, then the notice of revocation may also be made through an advert. It was also held that such revocation was permissible and effective. It is already enough if the offeror makes reasonable steps to publicize his revocation in order to gain the attention of the public although in reality it may not even reach the attention of the people. But as long as he takes the reasonable steps to do so, it may already be sufficient14.

12 S. 4(1) Contract Act 1950 13 S. 5(2) Contract Act 1950 14 Shuey v United States 92 US 73 (1875)

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