Free Consent of the Parties Competent to Contract

A contract or an agreement is usually reached by the process of offer and acceptance and the law requires an offer on ascertainable terms which receives an unqualified acceptance from the person to whom it is made (Halsbury Laws of England, 4th edition, Reissue 1998, para 632).

In Malaysia, an offer in the context of the Contract Act 1950 is known as a ‘proposal’, which is defined in S. 2(a) of the Act and a contract is made when there is an acceptance, this had been stated in S. 2(b) the Act. When both offer and acceptance obtained, a promise had formed. According to S. 2(e) of the Act, every promise and every set of promises, forming the consideration for each other, is an agreement, and by referring to S. 2(h) of the Act, agreement enforcement by law is a contract. By referring to S. 10 of the Act, agreement are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

In current case, Ah Chong had decided to sell his car that was bought in the year 2000, and he is the first owner. Ah Chong had placed an advertisement in the local newspaper with reads: ‘FOR SALE: 1 UNIT CAR FOR SALE – RM 30, 000.00’.

The question arise whereby is the advertisement made by Ah Chong is an offer?

One must noted that not all statements made by a party to initiate a contract will amount to an offer. Some of the statement made by party who initiate a contract might refer as invitation to treat, and it is not an offer statement.

According to Eckhardt Marine GMBH v Sheriff, High Court of Malaya, Seremban & Ors [1974] 2 MLJ 114, advertisement generally is only an attempt to induce offers and is not an offer in itself. There are, however, certain exceptions to this general principle as is illustrated in the notable case of Carlil v Carbolic Smoke Ball Co [1893] 1 QB 256.

Basically, advertisement can be divided into two categories, namely Advertisement of bilateral contract and advertisement of unilateral. An advertisement which is bilateral in nature, does not amount to an offer but a mere invitation to create an offer. There are two reasons why such bilateral advertisement does not amount to an offer, firstly it may lead to further bargaining; and secondly that the seller of the goods may make sure whether the purchaser has the ability to pay the price of the goods before entering into the contract. This principle has been explained in Partridge v Crittenden [1968] 1 WLR 1204 and Grainger & Son v Gough [1896] AC 325, whereby in Partridge’s case, the appellant had placed an advertisement in the newspaper stating that he has some wild birds to sell. The issue here is whether such advertisement amounts to an offer or an invitation to treat. It was held by the Court of Appeal that an advertisement which is bilateral in nature does not amount to an offer but only a mere invitation to create an offer.

An advertisement which is unilateral in nature, which clearly states the price or reward has been held by the common law to be an offer, and is enforceable in the court of law. In Carlill’s case, the defendant advertised in a newspaper promising a reward of £100 deposited in the bank for anyone who could not recover from influenza after consuming the medicine manufactured by the defendant’s company. The Court, in this case, held that such an advertisement constitutes an offer since the defendant had indicated his intention clearly in the advertisement.

Whether a statement made is an offer or an invitation to treat depends on the intention of the party making the statement, and the manner in which the person or persons to whom it is made interprets it.

Muthu had seen the advertisement and had visit Ah Chong, Ah Chong had told Muthu that the car was bought by Ah Chong in year 2000 and he is the first owner. Muthu told Ah Chong that he had to consult his wife, who will only be back from India in a week’s wife, if she is agreeable to the terms of the purchase of the car. On the following week, Muthu accepted the purchase price of the car for RM 30,000.00 by calling Ah Chong directly.

The question arise whereby is a contract forms between Ah Chong and Muthu?

If such advertisement is amount to an offer, such communication of acceptance by Muthu via calling Ah Chong is amount to acceptance to such offer. According to S. 4(1) of the Act provided that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made the communication of an acceptance is complete. Communication of Muthu to accept the said offer is complete when it is put in a course of transmission to him, so as to be out of the power of the acceptor (S. 4(2)(b) the Act). When the communication of acceptance is complete, the agreement had formed.

However, as been stated above, advertisement can be treated either as an invitation to treat or a contract, it is depends on the circumstances of the case. However, a general rule had been laid down in case of Eckhardt Marine GMBH v Sheriff by Gopal Sri Ram JCA “an advertisement is considered by courts to be not an offer but a mere invitation to treat, that is to say, an offer to make offer”. Therefore, generally, the statement make by Ah Chong is amount to invitation to treat, not an offer.

Besides that, in current case, Ah Chong only have one car available to sell, it is unreasonable to expect Ah Chong to have more than one car to sale. By referring to case of Crawley v R [1909] Transvaal 1105, 1108, the court hold that it is unreasonable to expect a seller to have sufficient goods for sale, hence, goods advertised for sale in newspaper is held to be invitations to treat rather than offers.

In the case of MN Guha Majumder v RE Donough [1974] 2 MLJ 114 , the court had hold that the sale of house through an advertisement in the newspaper is amount to invitation to treat; and in case of Eckhardt Marine GMBH v Sheriff, the court of appeal hold that an advertisement for the sale of a motor vessel by a sheriff was an invitation to treat and not an offer.

By supported of the above authorities, such advertisement made by Ah Chong is an invitation to treat, not an offer. Therefore, although Muthu accepted the purchase price of the car for RM 30,000.00 by calling Ah Chong directly, there is not contract form between Muthu and Ah Chong. By calling Ah Chong, Muthu is merely making an offer to Ah Chong, and it is depends on Ah Chong to accept the offer or refuse it.

Such communication of Muthu via calling Ah Chong is amount to instantaneous communications. Communication of offer made by Muthu is complete when such communication come into knowledge of Ah Chong (S. 4(1) and S. 4(2)(a) of the Act). By calling Ah Chong, communication of offer by Muthu is completed, and now its depends on Ah Chong to accept the offer; if Ah Chong wants to accept the offer, Ah Chong should communicate such acceptance to Muthu according to S. 4 of the Act.

Ah Chong offered to sell the vehicle to his ex-colleague, Ali via an email for a reduced price of RM 28,000.00. Ali agrees to purchase the vehicle but on condition that it be given a new coat of paintwork.

In Ah Chong’s case, Ah Chong had made an offer to sell his car via an email to Ali, according to S. 7 the Act, acceptance must be unqualified and in case of Low Kar Yit v Mohamed Isa [1963] MLJ 165, the court hold that acceptance must be absolute and unqualified, hence, when Ah Chong made an offer to Ali to buy the car, Ali should made an unqualified and absolute acceptance. However, Ali had made a conditional acceptance, whereby Ali agrees to purchase the vehicle but on condition that it is given a new coat of paintwork.

In case of Tan Chee Hoe & Anor v. Ram Jethmal Punjabi [1983] 2 MLJ 31, in delivering the judgment, Wee Chong Jin CJ had referred to Vol. 8 Halsbury’s Laws of England, 3rd Ed. at page 75 which stated that: “In order to constitute acceptance the assent to the terms of an offer must be absolute and unqualified … If the acceptance is conditional, or any fresh term is introduced by the person to whom the offer is made, his expression of assent amounts to a counter-offer, which in turn requires to be accepted by the person who made the original offer.”

According to the above authorities, the offeree must unreservedly assent to the exact terms proposed by the offeror. If, while purporting to accept the offer as a whole, he introduces a new term which the offeror has not had the chance of examining, he is in fact merely making a counter offer.

In Ali’s case, Ali had made a conditional acceptance towards Ah Chong’s offer. This means that Ali had made a counter offer towards the original offer by Ah Chong. This again had supported by the case of Malayan Flour Mills Bhd v Saw Eng Chee [1997] 1 MLJ 763, the acceptor had added new terms to his acceptance, the acceptance was not valid as it merely amounted to a counter-offer.

By referring to Hyde v Wrench (1840) 49 ER 132, counter offer destroying the original offer. In Malayan Flour Mills Bhd’s case, Kang J had hold in this case: “if while purporting to accept the offer as a whole, he introduces a new term which the offeror has not the chance of examining, he is in fact making a counter-offer. The effect of this in the eyes of law is to destroy the original offer”. Therefore, with the counter offer made by Ali, the original offer by Ah Chong had destroyed, and now, it is the right of Ah Chong whether to accept the counter offer of Ali. If Ah Chong accepts the counter offer, Ah Chong shall communicate his will to Ali and when communication of acceptance complete, an agreement formed.

John, an expatriate who has also seen the advertisement posted his acceptance to buy the vehicle for the price as advertised to Ah Chong.

If such advertisement of Ah Chong is amount to an offer, a contract had form when John had accepted the offer. Once John posting his acceptance, communication of acceptance is completed and the contract formed. This had been held in the case of Ignatius v Bell (1913) 2 FMSLR 115, whereby the court had hold that as it was within the contemplation of the parties that the post be utilized, the postal acceptance rule applied, with acceptance taking place at the point of posting.

As been stated above, advertisement posted by Ah Chong is amount to invitation to treat and not an offer, hence, although John agreed to buy the vehicle, there are no agreement form between John and Ah Chong. According to Adams v Lindsell (1818) 1 B & Add 681, offer can be made via post, hence, in current case, John had made an offer to buy the car from Ah Chong via posting, and now, it is depends on Ah Chong whether to accept such an offer made by John. If Ah Chong accept John’s offer to buy the said car, then car purchase agreement bind both of these parties.

CONCLUSION:

At this stage, there is no contract bound Ah Chong with any of these three person. However, there are offers made by Muthu, Ali and John toward Ah Chong. According to S. 4(1) of the Act, the communication of offer made by Muthu, Ali and John is complete when it comes to the knowledge of the Ah Chong. If Ah Chong would like to accept any of these three offers made by these parties, Ah Chong shall communicate his will to the said party. Even if the Ah Chong has made up his mind to a final acceptance, the agreement is not yet complete. There must be an external manifestation of assent, some word spoken or act done by Ah Chong or by his authorized agent which the law can regard as the communication of the acceptance to the offeror. Ah Chong shall communicate his acceptance in expressed and reasonable manner and in a reasonable time period (S. 7(b) of the Act). Besides, according to S. 7(a) of the Act, in order to form an agreement, the acceptance made by Ah Chong must be absolute and unqualified; if Ah Chong had made a conditional acceptance, there is no agreement form and no legal contract binding between Ah Chong and the offeror. If an agreemend succeed to form between Ah Chong and either of the offeror, if S. 10 of the Act had fulfilled.