Business and Company Law

Business firms enter into contracts with clients, merchants, employees
among other bodies frequently. This makes it needful for the firms to be
knowledgeable of the constituents of a valid formal contract. In every
contract, there must be an offer made, and acceptance applied for the
contract to be enforceable in a court of law. There are however, several
guidelines, which describe the rules, conditions, communication and
qualifications of rules and offers. This paper clarifies some of these
rules, as cited by the Contract Act 1950 (Malaysia). In a buyer and
seller situation, an offer is made the moment an individual signifies to
another his or her willingness to sell an item or merchandise (Collins
2003). This implication can be made in words, making it an express
proposal, or be intercepted through other means, thus, implied.
Using this analysis, the offeror (Sue) had made an express proposal
addressed to any interested party who might satisfy the stipulated terms
and conditions (general proposal). The situation is described as a
proposal owing to the offeror’s use of the phrase “the first person
to agree the price will get the car”. This shows that the instance the
offeror reached an agreement with the first offeree, the offeror would
be bound after an acceptance (Stone 2011). Three people made a response
(acceptance) to Sue’s offer: Rose, Ryan and Ramesh. The most vital
aspect of acceptance is the offeree’s communication to the offeror or
an authorized person working on behalf of the offeror. In addition, an
acceptance is only valid once it is communicated to the offeree by the
offeror. When Rose saw Sue’s advertisement, she communicated to the
offeror (Sue) of her acceptance to the offer. However, the offeror did
not confirm to offeree (Rose) of the acceptance, and instead said that
she would communicate when she reached a decision. So far, there was no
valid contract between the two (Chen-Wishart 2012).
Further, Rose presumed that the contract would be binding if the offeror
did not revoke the acceptance by 9.00 p.m. On the contrary, an
acceptance cannot be implied by silence but instead has to be express
and concise. In Felthouse v. Blindley, the plaintiff showed interest in
buying his nephew’s horse and communicated so to the nephew who had
expressed that he wanted to sell the horse to him. Further, the
plaintiff wrote to his nephew stating that if there were no further
communication concerning the horse, the plaintiff would consider the
horse as his property. Subsequently, the nephew did not communicate back
concerning the horse. During the nephew’s auction of his livestock,
the nephew told the auctioneer not to auction the horse. However, the
auctioneer mistakenly auctioned the horse and it was sold to another
person. The plaintiff thus sued the auctioneer in tort for conversion of
action, which the court ruled sued against since the plaintiff could
not provide evidence of ownership (Stone 2011).
Therefore, as long as the plaintiff did not communicate as to the
completeness of the sale, there was no communication of that intention.
Finally, Rose posts a letter of acceptance to the offeree, but until the
offeree receives the communication, the offeror is not bound (Andrews
2011). Afterwards, the offeror communicates to the offeree that she
would like to revoke the acceptance. Although communication for
revocation is done after that of the acceptance, the offeree receives
the invocation before the acceptance. In other circumstance, such
situation would have nullified the contract. Just to mention, the
initial contract was made the moment the offeror posted the acceptance.
According to the offeror’s message, the first person to agree the
price, Sue, was guaranteed to get the car. This is to mean, that after
the offeror agreed to sell the car to the first offeree, there would be
no further considerations from other offerees (Mulcahy & Tillotson
2004). The next offeree is Ryan, who made an offer to the offeror
through the offeror’s representative (daughter Rita). In addition,
Ryan leaves a cheque for the money. Ryan, so far, has communicated with
the offeror (although through a representative), but the contract is not
yet binding since the offeror has not communicated back to the offeree.
It is also safe to say that the offeree (Ryan) has a right to assume
that he was the “first” person to communicate to the offeror since
the offeror’s representative did not tell him otherwise.
The offeror decides to take Ryan’s offer after having already
considered Sues offer. The moment Sue communicates to Ryan of her
acceptance, a valid contract is formed. The final offeree, Ramesh,
accepts the offer by sending a letter of acceptance along with a cheque.
However, acceptance to the offer is not legitimate since the offeree
failed to use the correct postal address. According to Section 4(2) of
the Contracts Act 1950, acceptance by post takes effect the moment the
offeree puts a letter into an official letterbox confirming his or her
acceptance (Collins 2003). However, where the offeror does not stipulate
communication of acceptance to the offeree, the offeree is supposed to
assume that there was either a non-delivery or a mis-delivery and
therefore not hold the offeror liable (Cheong 2006). Conversely, the
above rule does not apply where the offeree fails to post the letter of
acceptance in the appropriate way. In addition, the rule fails to apply
where the offeree does not address the letter of acceptance properly.
Finally, the acceptance is not valid where the offeror had expressed the
terms of acceptance to exclude the use of post (Collins). For instance,
Adams v. Lindsell shows that in use of the postal system, the offeror
should bear the risk of an acceptance getting lost or displaced
(Campbell 2007).
Again, using the three offerees, the legal positions of Rose, Ryan and
Ramesh, their legal positions are as follows. Rose has a valid case
against the offeror, seeing as she was guaranteed of purchasing the car,
the moment the offeror confirmed the acceptance by post. Ryan’s case
however is dependent on a number of factors. Should the offeror decide
to take Ramesh’s acceptance, Ryan does not have a valid case against
the offeror since he did not communicate his acceptance to the offeror
but to a representative. In this case, the offeror may argue that the
representative (her daughter) was not authorized to make any
transactions on behalf of the offeror (Cavendish, 2006). In addition,
had the offeror decided to consider the first offeree’s acceptance,
Ryan would still not have a case against the offeror since the offeror
has not communicated back. Whereas in the case of Ramesh, he does not
have a case against the offeror should the offer fail to acknowledge his
acceptance owing to the postal rules provisioned by the Contract Act
1950. Therefore, Andrews (2011) advices that given the various media
developments in present times, it is advisable for businesspersons to
use the most reliable and convenient means of communication. In fact, it
is better for persons in a business transaction to use at least two
methods of communication, such as emailing an acceptance letter, then
calling to confirm by phone (McKendrick 2012).
To further clarify about offer and acceptance in any agreement or
contract, it is prudent to provide additional examples. In a case where
person A enters into a shopping mall containing different items, it has
to be understood that person A or the client to be precise is the
offeree while the business or its agent such as a cashier is the
offeror. An offer is made when then client picks up an item from the
shelves and offers to pay. The entity or its agent completes a sale
contract through acceptance by means of receiving payment for the item/s
in question from the client. In a case where a passenger wishes to use a
public vehicle or means or transport, he or she is deemed to be the
offeree while the entity controlling the means of transport, say a bus
company or its agents, is the offeror. Acceptance of the offer is
completed when the bus company accepts to receive payment from the
passenger thus completing an enforceable contact.
Andrews, N 2011, Contract Law, Cambridge University, New York.
Abdurrahaman, S 2010, Principles of the Law of Contract in Malaysia.
Campbell, D 2007, International Agency and Distribution Law,
Chen-Wishart, M 2012, Contract Law, Oxford University, New York.
Cheong, FM 2010, Contract Law of Malaysia, Sweet & Maxwell Asia.
Collins, H 2003, The Law of Contract, Cambridge University Press, New
Cavendish, R, Contract Law, Routledge, New Jersey.
Mulcahy, L & Tillotson PJ 2004, Contract Law in Perspective, Routledge,
New York.
McKendrick, E 2012, Contract Law: Text Cases and Materials, Oxford
University, New York.
Stone, R 2011, The Modern Law of Contract, Taylor & Francis. New York.