Exam 21 July 2020, questions and answers PDF

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Warning: TT: undefined function: 32LAW 436: FINAL ASSESSMENTLAW OF CONTRACT 1 (40%)AL AINA AL MARDHIAH BINTI ROSELY2020984473LWB01EQUESTION 1The issue is whether Suhaila is obliged to proceed with the purchase of Eric Chew’s house.Section 2(a) of Contract Act 1950 stated that a proposal is made when...

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LAW 436: FINAL ASSESSMENT LAW OF CONTRACT 1 (40%)

AL AINA AL MARDHIAH BINTI ROSELY 2020984473 LWB01E

QUESTION 1 The issue is whether Suhaila is obliged to proceed with the purchase of Eric Chew’s house. Section 2(a) of Contract Act 1950 stated that a proposal is made when one person signifies to another his willingness to do or abstain from doing anything, with a view of obtaining the assent of that other to such act or abstinence. Section 2(b) provides that 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. Section 7(a) of the Contracts Act 1950 provides that in order to convert a proposal into a promise the acceptance must be absolute and unqualified. Acceptance on ‘subject to contract’ means that the offeree is agreeable to the terms of the offer but proposes that the parties should negotiate a formal usually a written contract on the basis of the offer. Neither party is bound until the formal agreement is signed, therefore the acceptance is qualified. An acceptance must be absolute and unqualified so that there is complete consensus or agreements between the offeror and the offeree. If the parties are still negotiating, an agreement has not yet formed. In the case of Ayer Itam Tin Dredging Malaysia Berhad v. YC Chin Enterprise Sdn Bhd1 the learned Judge in deciding whether there was a concluded contract between the parties, dealt with both the nature of letters of intent and quantum meruit. It was held that the arrangement made ‘subject to contract’ or ‘subject to the preparation and approval of a formal contract’ or in similar terms would mean that the parties were still negotiating and did not intend to be bound until a formal contract was made. In Lau Brothers & Co. v China Pacific Navigation Co.Ltd 2, the parties conducted the negotiations for the delivery of logs through a series of telegrams and letters. However, the defendants withdrew the offer while the parties were still in the stage of negotiation. The plaintiffs argued that the parties had by the exchange of five telegrams effected a binding contract. However, the defendants denied that there was a contract in existence and therefore they were under no obligation to take delivery of the logs. The court held that where a contract is to be found in letters, it is necessary to take the whole of the correspondence into consideration to ascertain whether the parties have come to binding agreement. In this case, the parties were still in state of negotiation and the defendants were justified in withdrawing their offer.

1 2

[1994] 2 MLJ 754 [1965] 1 MLJ 1

Another case that illustrates that state of negotiation does not constitute a formation of agreement is the case of MN Guha Mujumder v RE Donough3, A purchaser went to view a house twice and discussions took place between the parties but no agreement was signed. It was held that it is true that negotiations ensued but the evidence seems to indicate that the parties do not intend to be immediately bound. What passed was only a negotiations from beginning to end. By applying the case Ayer Itam Tin Dredging Malaysia Berhad v YC Chin Enterprise Sdn Bhd, and MN Guha Mujumder v RE Donough when agreement is made ‘subject to contract’ similar expressions, it will be generally interpreted that the parties are still in the state of negotiation and do not intend to be bound unless and until both parties signed a formal contract. In Suhaila and Eric’s situation, both of them were in the state of negotiation as they a re discussing the price of the house and therefore it is also construed that they do not intend it to be bound. There was no formal contract signed by both of them therefore the contract was not intended to be bound. In relating to the case of Lau Brothers & Co. v China Pacific Navigation Co. Ltd, the court held that the defendant is allowed to withdraw the offer made by the plaintiff because they were in the state of negotiation. Therefore, in this situation, Suhaila can also withdraw the offer because both she and Eric were in the state of negotiation and there is no binding contract between them. Based on section 7(a) of the Contracts Act 1950, an acceptance is a final and unqualified expression of assent to the terms of offer. An offer made in response to a previous offer by the other party during negotiations for a final contract is a counter offer. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract. In Hyde v Wrench4, the defendant offered to sell the farm which he owned to the plaintiff for £1,200 but was refused by the plaintiff. The defendant decided to write with another offer, this time to sell him the farm for £1,000, and made it clear that that would be his final offer concerning the sale of property. The plaintiff wrote a letter offering £950 for the farm but the defendant refused this, and he checked it with the plaintiff. The plaintiff then agreed to buy the farm for £1,000 but was rejected by the defendant. The plaintiff then sued for specific performance. The court held that there was no binding contract for the farm between them because the plaintiff rejected the original offer of £1,000 by the counter-offer of £950. When a counter-offer is made, this destroys the original offer. Thus, the claim was dismissed A counter-offer is contrary to Section 7(a) of the Contracts Act 1950 that an acceptance must be absolute and unqualified. By applying Hyde v Wrench 5there was no binding contract between the parties because there was a counter-offer by the plaintiff that destroyed the original offer. In this situation, there was a counter offer 3

[1974] 2 MLJ 114. [1840] EWHC Ch J90 5 Ibid. 4

involved when Eric rejected Suhaila’s original offer of RM600,000.00 by the counteroffer of RM625,000.00. Therefore, there was no binding contract between them as the counter-offer by Eric destroyed the original offer because it introduced a new term which is RM625,000.00. To conclude, when there is no valid acceptance, there is no contract between Eric Chew and Suhaila. Thus, Suhaila is not obliged to proceed with the purchase of Eric Chew’s house.

QUESTION 2 The issue is whether Suhaila is obliged to accept the first application she receives. Section 2(a) of the Contracts Act 1950 provides that when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal. However, an offer should be distinguished with an invitation to treat since an invitation to treat is merely an invitation to the interested parties to make an offer. Therefore, it is not intended to be binding. The examples of invitations to treat consist of advertisements, display of goods in a shop window, tenders, auctions, as well as auctions and applications for club membership. Advertisements will generally constitute invitations to treat. In Partridge v. Crittenden6, the plaintiff placed an ad in Cage and Aviary Birds which stated "Bramblefinch cocks and hens, 25s each. He was convicted of the offence of offering for sale a live wild bird. His conviction was quashed on appeal, where the court held that advertisements were merely invitations to treat so that he could not have committed the offence of "offering for sale". Though as a general rule advertisements merely constitute invitations to treat, it is possible for an advertisement to be construed as an offer, if the court feels that it displays a definite intention to be bound as such in the case of Carlill v Carbolic Smoke Ball Co7, in this case, it is an example of advertisements of unilateral contracts which will usually be held as offers. In this case, the advertisement promising a reward of $100 if a person contracted influenza after using the smoke balls was a promise in return for an act. Such a contract, when made, is called a unilateral contract. The outstanding obligation is on one side only. In this case, the plaintiff having performed used to smoke ball and contracted influenza, the only outstanding obligation was on the defendants to perform their promise to pay $100. Advertisements of bilateral contracts, however, are not usually offers. A bilateral contract is one where the outstanding obligations remain on both sides. In this situation, an offeror makes a promise in return for a promise by the offeree. Bilateral contracts is when the parties exchange mutual promises and negotiation. It starts with the negotiating process between the seller to whoever responded to the advertisement. The law treat it as an invitation to treat which is illustrated in Coelho v. The Public Services Commission8 , the respondent advertised in the Malay Mail to invite the applications for the post of an Assistant Passport Officer in the Federation of Malaya Government Oversea Missions. Consequently, the applicant made an application and subsequently, the application 6

[1968] 2 All ER 421 [1892] EWCA Civ 1 8 [1964] MLJ 12 7

was accepted. He was posted to the Immigration Office, Kuala Lumpur after undergoing training. However, after that he was informed that his appointment was on probation and was terminated immediately by one month’s salary in lieu of notice. The applicant applied for certiorari to quash the respondent’s decision. The court held that the advertisement was an invitation to qualified persons to apply and the resulting applications were the offers. Since the respondent’s acceptance of the application was unqualified, there was no question that the applicant’s appointment was on probation. Therefore, the respondent was wrong in terminating the employment of the applicant in the manner applicable to officers on probation. Based from the case of Patridge, advertisement is considered as an invitation to treat. Therefore, Suhaila’s advertisement for the job application is an invitation to treat and not an offer. In the case of Carlill, we have to distinguish between whats a unilateral and bilateral contract to constitute between an invitation to treat or an offer. In the present case, Suhaila’s advertisement is a bilateral contract because the obligation is on both sides. This may be distinguished from the case of Carlill where the defendant intended and promised to give €100 if a person contracted influenza after using the smoke balls in return for an act. By applying the case of Coelho, Suhaila’s advertisement for the kindergarden is an invitation for qualified persons to apply and the job applications that Suhaila received are considered as an offer. Therefore, she has the choice to accept which job application that is offered by the applicants. As a conclusion, the applications submitted by the applicants are merely an invitation to treat and not a valid offer. Therefore, suhaila is not obliged to accept the first application she receives....