Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

Universiti Tunku Abdul Rahman

Faculty of Accountancy and Management Bachelor of Accounting (Hons) Academic Year 2012/2013

UKML 1053 BUSINESS LAW

WRITTEN GROUP ASSIGNMENT
Tutor: Mr. Loganathan a/l Krishnan Tutorial group: Tutorial 6 Name Chew Yee Cheng Chu Zhe Feng Han Fei Ting Tan Shee ler Wong Kam Yeng ID number 11 UKB 05674 11 UKB 04406 11 UKB 05195 11 UKB 04409 11 UKB 05802 Course AT AT AT AT AT

Submission Date: 3 August 2012

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

Identification of Issues This question raises the following issue: 1. Is there a valid contract between Azim and Sg Long Natures Club? 2. Can Sg Long Natures Club revoke its offer of giving out the motorcycle to Azim? 3. Can Azim take any legal action against Sg Long Natures Club? 4. Is there is a valid contract between Xavier and Sg. Long Natures Club? 5. Can Xavier take any legal actions against Sg. Long Natures Club? 6. Is the contract need consideration? 7. Is there a valid contract between Datuk Ah Jong and Bakar? 8. Is there a contract between Datuk Ah Jong and Babu? 9. Can Datuk Ah Jong revoke his offer to Bakar? 10. Can Bakar take any legal action against Datuk Ah Jong? 11. Can Babu revoke his offer? 12. What remedy can Babu take against Datuk Ah Jong? Explanation of Law According to S. 10(1) of Contracts Act 1950, all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object. S.2(h) of Contracts Act 1950 states that an agreement enforceable by law is a contract. An offer or proposal is necessary for the formation of an agreement. S.2(a) of the Contracts Act 1950 states that when one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that person, he is said to

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

make a proposal. In Preston Corp Sdn Bhd v Edward Leong & Ors 1 , the plaintiffs were a company carrying on the business of publishing books and the defendants were a firm of printers. There was a relationship between the plaintiffs and the defendants. The plaintiffs paid all the printing charges except the disputed sum of $500 which they claimed was an overcharged by the defendants. They also withheld payment of the extra charges claimed by the defendants for reproducing the film positives used in the printing of the books because the respondents claimed ownership of the films. The defendants sued the plaintiffs for the sum of $500 which they alleged was the balance of printing charges and a further sum of $28,052 as extra charges for reproducing the films positive whose ownership was disputed. The defendants pleaded that they were entitled to the ownership of the film positives because of the express terms of the contract between them to that effect and also because of a trade usage prevalent in the printing industry. The plaintiffs on the other hand denied that the contract contained such terms and alleged trade usage. The Federal Court expressed the view that an offer is an intimation of willingness by an offeror to enter into a legally binding contract and that is terms must either expressly or impliedly indicated that it is to become binding upon acceptance by the offeree. Hence, when the person to whom the proposal is made signified his assent thereto, the proposal is said to be accepted, once the person accepted the proposal, it will become a promise as explains in S.2(b) of Contracts Act 1950. Base on S.2(c) of Contracts Act 1950, the person making the proposal is called the promisor. Under the Contracts Act 1950 and the English law, a proposal or offer is something which is capable of being converted into an agreement by its acceptance. A proposal must be a definite promise to be bound provided certain specified terms are accepted. The promisor (or offeror) must have declared his readiness to undertake an obligation upon certain
1

[1982] 2 MLJ 22 (FC)

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

terms leaving the option of its acceptance or refusal to the promisee (or offeree). As pointed out in the case of Affin Credit (Malaysia) Sdn Bhd v Yap Yuen Fui2, the Federal Court held that where there was a lack of offer and acceptance, the purported hire purchase agreement was declared void ab initio ( void from the very beginning). The communication of an offer or a proposal is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal or which has the effect of communicating it.3 According to S.4(1) of Contracts Act 1950, the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. This means that an offer or proposal is effective once it is communicated to the offeree by the offeror. There are some ways by which acceptance may be made. S.7(a) of Contracts Act 1950 provides that acceptance must be absolute and unqualified. S.7(b) of Contracts Act 1950 also provides that acceptance is communicated by an usual and reasonable manner unless proposer prescribes particular mode. If offeree does not comply, proposer may object and insist that offeree complies with prescribed mode within reasonable time. Proposer deemed to have accepted, if fails to object. According to S.5(1) of Contracts Act 1950 a proposal may be revoked at any time before the communication of its acceptance is complete against the proposer, but not afterwards and S.6 (a) by the communication of notice of revocation by the proposer to the other party. Referred to cases in Routledge v Grant (1828), the defendant offered to purchase a house from the plaintiff. He gave the plaintiff six weeks to decide whether to accept or refuse the offer. Before the end of six weeks, the defendant withdrew his offer. The court held that the defendant was entitled to do so because there was no valid acceptance yet. In addition, since no valuable consideration had been given to keep the offer open for six weeks, the offeror had only a moral obligation and not a legal obligation to keep the offer open for that full period.

An invitation to treat is a sort of preliminary communication which occurs between the parties at the stage of negotiation. An advertisement is considered by courts to be not an offer but

2
3

[1984] 1 CLJ 62 (Rep) Section 3, Contracts Act 1950

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

mere invitations to treat. In Partridge v Critenden4, the defendant placed an advert in a classified section of a magazine offering some bramble finches for sale. S.6 of the Protection of Birds Act 1954 made it an offence to offer such birds for sale. He was charged and convicted of the offence and appealed against his conviction. The court held that the defendant had been convicted wrongly and the advertisement was not an offer but merely an invitation to treat. However, an advertisement may be construed as an offer if an intention to create legal relations can be perceived from the advertisement, as demonstrated in the case of Carlill v Carbolic Smoke Ball co 5 . Carbolic Smoke Ball Co. (D) manufactured and sold The Carbolic Smoke Ball. The company placed ads in various newspapers offering a reward of 100 pounds to any person who used the smoke ball three times per day as directed and contracted influenza, colds, or any other disease. After seeing the ad Carlill (P) purchased a ball and used it as directed. Carlill contracted influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill sued for damages arising from breach of contract. The court held that an advertisement is considered to be an offer when it specifies the quantity of persons who are eligible to accept its terms. If such an advertisement requires performance, the offeree is not required to give notice of his performance. The court also pointed to Carbolic Smoke Balls claim in the advertisement that it had deposited 1000 pounds with Alliance Bank, which the court decided was intended to demonstrate the companys sincerity in paying the reward. Unilateral contract is a contract in which only one party makes an express promise, or undertakes a performance without first securing a reciprocal agreement from the other party. According to S.2 (d) of Contracts Act 1950, when at the desire of the promisor, the promisee or any other person has done or abstained from doing, such act is called a consideration
4 5

[1968] 2 AII ER 421 [1893] 1 QB 256

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

for the promise. Consideration may be viewed as sort of a bargain, a quid pro quo (something done in return or in exchange for something. S.26 of Contracts Act 1950 provides that an agreement made without consideration is void. Thus, consideration is known as an essential element to the formation of a valid contract. S.30 of Contracts Act 1950 mentions that agreements, the meaning of which is not certain or capable of being made certain, are void. In Karuppan Chetty v Suah Thiam 6, the contract was declared void as the phrase to last for as long as he likes carries uncertain definition. Consideration need not be adequate. Under the Malaysian law, the consideration need not be adequate in order for the contract to be valid. Explanation 2 to S.26 of Contracts Act 1950 states that an agreement is not void merely because the consideration is inadequate. As shown in Illustration (f), S.26 of Contracts Act 1950: A agrees to sell a horse worth $1000 for RM10. As consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration. As provided in the case of Phang Swee Kim v. Beh I Hock7, the court held that there was adequate consideration in this case (there being no evidence of fraud or duress) because the respondent agreed to transfer the land to the appellant on payment of $500 when the land was subdivided. S. 5(1) of Contracts Act 1950 states that the proposer may withdraw the proposal at any time before the communication of its acceptance is complete but must before the offeree accepted. This is further supported by Routledge v Grant8, the defendant wrote to the plaintiff offering to purchase the lease of his house and the offer was to remain open for six weeks. Then, the defendant changed his mind about purchasing the lease and withdrew his offer within the six weeks. The court held that the defendant was entitled to do so because there was no valid acceptance yet. In addition, there is no valuable consideration had been given to the plaintiff to keep the offer for six weeks. The plaintiff had only had a moral obligation and not a legal
6

Karuppan Chetty v Suah Thiam (1916) FMSLR 300 [1964] 1 LNS 135 8 (1828) 130 ER 855
7

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

obligation to keep the offer open for that full period. However, there is an option that it is merely an undertaking to keep the offer open for a certain period of time in return for a price. S. 13 of Contracts Act 1950 states that when there are two or more people agree upon the same thing in the same sense, they are said to consent. Although all the elements of formation may be present rendering the contract valid, in certain circumstances if genuine consent is not obtained, then there can be no agreement and no contract between the parties. According to S.74(1) of Contracts Act 1950, the party who suffers by the breach is entitled to compensate any loss or damage when a contract has been broken caused to him from the party who has broken the contract, which naturally arose in the usual course of things from the breach or which the parties knew when they made the contract. In Kabatasan Timber Extracting Co. v Chong Fah Shin9, although there is a breach of contract, the breach party is under a duty to mitigate the loss by taking reasonable step. The phrase mitigation of damages means that the party who suffered losses from a breach of contract must take the reasonable steps available to him to mitigate or reduce the extent of the damages caused by the breach. He cannot claim to be compensated by the party in default for losses that are not really due to the breach but to his own failure to behave reasonably after the breach. If he does not mitigate the damages, his claim will be reduced accordingly. Signature will ordinarily bind a party to the terms even if the signatory has not read or understood the terms set out in the document, unless there is fraud or misrepresentation. This is demonstrated in the case of LEstrange v Graucob [1934] 2 kb 394. The plaintiff bought an electronic slot machine and signed and handed to the defendant an order form which contained

[1969] 2 MLJ 6

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

an exemption clause in small print. The machine didnt work properly, therefore plaintiff claimed damages for breach of warranty that the machine was fit for purpose for which it was sold. The court held that the plaintiff was bound by the terms of the contract and was therefore not entitled to damages due to the exemption clause. When a document containing contractual terms is signed, it is wholly immaterial whether the document was read or not. S.17(b) of Contracts Act 1950 provides that Fraud includes the active concealment of a fact by one having knowledge of belief of the fact. Silence or non-response to a proposal cannot amount to an acceptance of the offer. As pointed out in Felthouse v. Bindley, the plaintiff wrote to his nephew who wanted to sell a horse to him, stating that If I hear no more about him, I consider the horse mine Subsequently there was no notice from his nephew and the plaintiff considered the horse his own. The horse was not delivered to him and later his nephew sold all of his farm stock in an auction, and the horse, despite the nephew's instructions that it be reserved, was sold. Therefore, the plaintiff sued the auctioneer, Bindley. The court held that the plaintiff did not have ownership of the horse as there was no acceptance of the contract. Acceptance must be communicated clearly and cannot be imposed due to silent of one of the parties. However, Explanation to S.17 of Contracts Act 1950 states that mere silence is not fraud unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak or unless his silence is equivalent to speech. According to illustration S.17 (c), B says to A, If you do not deny it, I shall assume that the horse is sound. A says nothing. Here, As silence is equivalent to speech. Application of the laws

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

The advertisement offered by Sg Long Natures Club is a unilateral offer which is made to the world at large. Sg Long Natures Club only stated in its advertisement that the first person who reaches the summit of Bukit Sg Long will get a brand new Suzuki 500 cc motorcycle. Therefore, this proposal is made by Sg Long Natures Club who is the promisor. Azim is the promisee who accepted the proposal. Based on our general knowledge, 250 cc motorcycle driving license is easier to handle compare to 500 cc motorcycle driving license. Therefore, not most of the people owned 500 cc motorcycle driving license. However, there were a total number of 230 contestants participated in this hiking competition, and among of them some may have 500 cc motorcycle driving license or some may not. Moreover, under the rules and regulations of the advertisement, whether or not the contestant must own a 500 cc motorcycle driving license before participating in the competition was not stated. And also the winner who did not have the 500 cc motorcycle driving license will not allowing to redeem the prize of a brand new Suzuki 500 cc motorcycle was not mentioned clearly. Therefore, Sg Long Hikers Club cannot refuse the offer to give Azim the 500 cc motorcycle since he is the first person to reach the summit, even though Azim did not have a driving license for it. At the same time, there is not a valid contract between Xavier and Sg. Long Natures Club. This is because the advertisement stated by Sg. Long Natures Club that anyone who brings 200 unusable car batteries will be given a mountain bike which worth RM5000 is an invitation to treat not an offer. Xavier is an offeror who came to the office of Sg. Long Natures Club with 200 unusable batteries and the Sg. Long Natures Club is an offeree who can choose either accept or reject the offer made by Xavier. Sg. Long Natures Club rejected the offer made by Xavier. Thus, there is no a breach of contract between them. Furthermore, the contract was not enforceable.

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

Besides, the word unusable in this question is not state clearly. The word unusable is different with the word useless. Unusable is cannot make the car move anymore and useless is still can make the car move but the owner already not use it. Thus, the word is not precise and cannot be considered as a contract. In addition, a contract cannot be formed without consideration. Due to consideration is one of the essential element of a valid contract, there must be a sufficient consideration to set aside an agreement. Since the value of 200 unusable car batteries do not commensurate with the value of the mountain bike, hence the unusable car batteries is not considered as a lawful consideration., there is not agreement nor contract are formed. Datuk Ah Jong who is the President of the Sg Long Natures Club offered a membership fee of RM 150 instead of RM 200 to Bakar if he registered before 28th May 2012. So Bakar did not reply immediately as he still has time to consider. But when 26th May 2012, Datuk Ah Jong offered a membership fee of RM 150 to another party, Babu since he did not get any reply from Bakar and at the same time Babu immediately agreed to be a member. On 27th May 2012, when Bakar was on his way to meet Datuk Ah Jong to accept the offer, he was informed by Babu that Datuk Ah Jong has given the offer of RM 150 to him. In this question, Datuk Ah Jong cannot revoke his offer given to Bakar because the due date given to Bakar is before 28th May 2012 and when Bakar wants to reply Datuk Ah Jong, the date is one day before the due date. Besides that, Bakar did not tell Datuk Ah Jong that he did not want the offer and Datuk Ah Jong can offer to others. Bakar was suffered the loss of membership fee of RM 150. Thus, Bakar is entitled to claim for RM 150 as compensation from Datuk Ah Jong who has breach the contract before the date of 28th May 2012.

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

After Babu had signed the registration form, he then only realized that he is required to pay additional fees of RM50 for insurance as the registration form states so. Although the term is written in font size 10, but it was come across to Babu before he signed the contract. Therefore, the contract is valid between Babu and Datuk Ah Jong. However, just before he signed, he asked Datuk Ah Jong whether there is an additional fees to be paid later, but Datuk Ah Jong merely smiled. This means Datuk neither admits or denies to Babus question, and there is no fraud for him to keep silence as to facts likely to affect the willingness of Babu to enter into the contract. Still, Babu also said to Datuk Ah Jong, Well, if you do not say anything I take it as I do not have to pay anything additional. In this situation, it is the duty of him to speak because silence is, in itself, equivalent to speack, but Datuk still remained silence. Therefore, the mens rea of Datuk Ah Jong is proven since he has the intention to deceive, and the fraud was material to the acceptance of the contract by Babu. In short, Babu needs to pay the additional fees of RM50 for insurance, and he cannot revoke the offer but can sue Datuk Ah Jong for damages as fraud.

Concluding Advice 1. There is a valid contract between Azim and Sg Long Natures Club. 2. Sg Long Natures Club cannot revoke its offer of giving out the motorcycle to Azim. 3. Azim can take any legal action against Sg Long Natures Club. 4. There is no valid contract between Xavier and Sg. Long Natures Club. 5. Xavier cannot take any legal action to the Sg. Long Natures Club. 6. The contract needs consideration. 7. There is a valid contract between Datuk Ah Jong and Bakar.

Universiti Tunku Abdul Rahman UKML1053 BUSINESS LAW 2012/05

8. There is a valid contract between Datuk Ah Jong and Babu. 9. Datuk Ah Jong cannot revoke his offer that given to Bakar. 10. Bakar can take any legal action against Datuk Ah Jong. 11. Babu cannot revoke his offer. 12. Babu can sue for damages caused by Datuk Ah Jong under fraud.

However, if the legislature enacted a statutory law on 28 May 2012, that no party can compel a person to buy insurance, then Babu needs not to pay the additional fees of RM50 for insurance since the paid is not voluntary. In this situation, there is coercion because before Babu signed the contract, he did ask whether he should pay any additional fees, but Datuk Ah Jong just smiled which has an intention to cause Babu to enter into contract. Thus, the contract is voidable and only Babu can sue. He can sue under S.73 that any additional money he has paid can be recovered. Therefore, the answer will differ.