Offer or proposal is always the first step before entering into a contract.
If there is no offer, one cannot proceed to form any kind of agreement.
According to Section 2 (a) of the Contracts Act 1950:
"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"
The person making the proposal is called the offeror/promisor
The party accepting the proposal is referred to as the offeree/promisee
How an offer can be made?
It is not compulsory for a contract (offer and acceptance) to be put in writing, unless it is required to do so. Section 9 of the Contracts Act 1950 provides:
"So far as the proposal or acceptance of any promise is made in words, the promise is said to be express. So far as the proposal or acceptance is made otherwise than in words, the promise is said to be implied".
A proposal can be made in the following ways:
a) In Writing : a well-known method in forming a contract (offer and acceptance). This includes electronic methods and mobile applications such as e-mail, Whatsapp, Facebook Messenger, etc. Can be a good reference in case of any dispute between the parties.
b) Verbally : informal way of making an offer which is allowed by the law. If there is any dispute between the parties, the claimant needs to support his/her claim by tendering evidences, proof and witnesses.
c) By Conduct : People do not realize that they are making a proposal by conduct. They are not saying it nor put it into a written document. All done by their action / conduct. For example, buying groceries at a supermarket. We choose goods that we want and put it into the basket/ trolley. Then, we go to the cashier and put all the goods onto the counter. By doing this, we are in the process of making a proposal towards the cashier.
Carlill v Carbolic Smoke Ball Co. (1893) IQB 256
A good illustration of an offer made to the public.
The defendant issued an advertisement in which they offered to pay 100 to any person who succumbed to influenza after having used one of their smoke balls in a specified period. To show their seriousness on this matter, they had deposited 1,000 in a special account. The plaintiff Mrs. Carlill bought and used the smokes ball as prescribed and caught influenza.
She sued the company for the promised reward. The defendants contended that the contract was made with the entire world, that is with everybody, and that one can’t contract with everybody.
It was held that an offer could be made to the entire world because the contract will only be made with that limited portion of that public who came forward and performed the condition on the faith of the advertisement.
The communication of offer is complete when it comes to the knowledge of the proposee / offeree. Once the offer is there, it is up to the offeree to accept the offer or not.
Section 4(1) of the Contracts Act 1950 states that "the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made"
Based on the above provision, if an offer is made but has not come to the knowledge of the offeree, the offer will be considered as an ineffective offer. As a consequence, the offeree will not be able to accept the offer as he has no knowledge about the offer.
The offer is only effective and complete once the offeree receives the offer or the offer comes to his / her knowledge. If this happen, then the offeree could decide either to reject the offer or to accept it and be bound by its acceptance.
R v. Clarke (1927) 4 C.L.R. 227 (Australia)
The Australian Government made an offer to pay a reward for any information leading to the arrest and conviction of persons responsible for the murder of two police officers.
Mr. A and Mr. Clarke were arrested for the crime. Mr. Clarke then gave information which led to the arrest of another person, Mr. B. Later, Mr. A and Mr. B were convicted for the crime.
As he was not found guilty, Mr. Clarke was released. Knowing the reward offered, Mr. Clarke then brought an action to claim for it from the government.
Mr. Clarke failed in his action. The information given by him was to clear himself and not in reliance to the offer of reward.
INVITATION TO TREAT
An offer must be distinguished from an invitation to treat. unlike an offer, a response to invitation to treat would not form a binding contract.
Invitation to treat is not an offer but a sort of preliminary communication which passes between the parties at the stage of negotiation.
Based on decided cases, the Courts have formulated certain guidelines in distinguishing between an offer and an invitation to treat.
A) Display of goods in a shop window or on shelves
The above situation is not an offer to sell. It is an invitation for customers to make an offer to buy.
Fisher v. Bell [1961] 1 QB 394
The Defendant (Bell) displayed a flick knife in a window of his shop. He was charged under the Restriction of Offensive Weapons Act 1959 for offering to sell dangerous weapon. Under the act, it was an offense to sell or hire or offer for sale to any other person certain offensive weapons such as flick knife.
The judge in this case, Lord Parker acquitted him. Placing an item on display is not the same thing as offering it for sale.
B) Advertisements, Catalogues, Brochures
It is an attempts from one party to persuade another party to make an offer. There were few cases whereby the courts decided that advertisements of bilateral contracts were held not to be offers.
Partridge v. Crittenden [1968] 2 All ER 421
Partridge advertised live wild birds for sale in a periodical bird magazine as 'Quality British ABCR ... Bramblefinch cocks, Bramblefinch hens, £25 each'
The advertisement appeared in the classified advertisements section of the magazine. Partridge was charged with offering live wild birds for sale
The court decided that the advertisement made was only an invitation to treat. There was no indication of any expression of intention to be bound.
However, if the party could prove their intention to be bound or intends their words or conduct to constitute an offer, it will be construed as a valid offer. This situation is based on decided cases. One of the best example which illustrates this matter is in the case of Carlill v. Carbolic Smoke Ball Co Ltd [1893] 1 QB 256.
C) Auction
Based on decided cases, the advertisement of an auction is not an offer to hold it but an invitation to treat. Anyone who is interested, will make an offer to buy by putting the highest bid during the auction.
Harrison v. Nickerson [1873] LR8 QB 286
An auctioneer advertised an auction in a newspaper. Harris saw the advertisement and travelled to the sale only to find that the items he was interested in bidding for had been withdrawn.
The issue in this case was whether the advertisement to hold the auction was a declaration of intention to hold the sale or an offer that was accepted by attending the auction.
The court decided that the advertisement of the auction was not an offer to be accepted but simply a declaration of intention or an invitation to treat. Those who are interested, may come to the auction and join the bidding process. The real offer come from the highest bidder. There was, therefore, no contract.
D) Price List / Quotation / Supply of information
A list of a price gives an opportunity to the prospective buyers to compare and chose the best price for the goods.
While a quotation acts as an early information - to let the prospective buyers know the details of the goods including the price before making any decision to buy the goods or not.
If the prospective buyers are interested in buying the goods, they are the one who make the offer to buy. It is up to the seller to accept or reject them.
Harvey v. Facey [1893] AC 552
Harvey sent a Telegram to Facey which stated: "Will you sell us Bumper Hall Pen? Telegraph lowest cash price ...".
Facey replied by telegram: "The lowest price for Bumper Hall Pen £900."
Harvey then replied: "We agree to buy Bumper Hall Pen for the sum of £900 asked by you. Please send us your title deed in order that we may get early possession."
Bumper Hall Pen was a plot of land, and Harvey claimed that the exchange of telegram constituted a valid offer and acceptance.
The Privy Council held that there was no contract concluded between the parties. Facey had not directly answered the first question as to whether they would sell and the lowest price stated was merely responding to a request for information not an offer. There was thus no evidence of an intention that the telegram sent by Facey was to be an offer.
Preston Corporation Sdn Bhd v. Edward Leong & Ors [1982] 2 MLJ 22
The Appellant asked for quotation from the Respondent. The Respondent sent a quotation to the Appellant as requested. The Appellant then made some printing orders based on the quotation.
The court held that the quotation was mere a supply of information. It acts as invitation for the others to make an offer. Therefore, the printing orders made by the Appellant were offers. The contract between them was subject to acceptance by the Respondent.
REVOCATION OF OFFER
If the offeror intends to change his mind and withdraw the offer, is it allowed?
The answer is, YES. Someone who makes an offer, may withdraw or retract or cancel the offer made. If the offer is validly revoked, there will be no contract created between the parties.
Section 5 (1) of the Contracts Act 1950 states that: "A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards".
Therefore, the offeror may revoke the offer as long as no acceptance has been made by the offeree.
Routledge v. Grant (1829) 4 Bing. 653; 130 E.R. 920
The Defendant made an offer to sell a house to the Plaintiff. The acceptance should be made within 6 weeks after the completion of the offer. The question in this case was whether the Defendant may revoke the offer before the 6 weeks lapses.
The court decided that, the Defendant has a right to revoke the offer before the expiration of the 6 weeks duration on condition that the Plaintiff has not make any acceptance towards the offer.
METHODS OF REVOKING THE PROPOSAL
(a) Notice of revocation
In Section 6 (a) of the Contracts Act 1950 states that a proposal is revoked "by the communication of notice of revocation by the proposer to the other party"
The notice of revocation must be handed over to the other party before the acceptance of the proposal. If the communication is by post, the notice of revocation must be communicated before the proposee dispatches his acceptance at the post box or post office because it is the place where the contract completes even though the proposer does not know anything of the acceptance.
Byrne v. Tienhoven (1880)
On 1 October, the defendant, who was in Cardiff, sent a letter, offering to sell 1,000 boxes of tinplate to the plaintiff in New York.
However, on 8 October, the defendant posted a letter revoking the proposal made earlier.
The plaintiff received the letter of offer on 11 October and replied his acceptance through telegram on the same day. It was followed up with a letter of acceptance on 15 October.
On 20 October, the plaintiff received the revocation letter sent by the defendant.
The Court held that, there was a contract between the parties. The revocation letter that was posted on 8 October was not effective until 20 October, the day the plaintiff received the letter. The plaintiff had dispatched his acceptance through telegram on 11 October. The acceptance was effective on that date, regardless the knowledge of the defendant.
(b) Lapse of time / Lapse of reasonable time
Section 6 (b) of the Contracts Act 1950 reads A proposal is revoked by the lapse of the time prescribed in the proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance.
If a time or duration of time is fixed by the proposer, the proposee must accept the offer within the fixed time or duration. Upon the expiration of the fixed time or duration, the proposal is terminated by the lapse of time and can no longer be accepted afterwards.
Ramsgate Victoria Hotel Co. v Montefiore (1866)
The defendant applied for shares in the company in June and paid a deposit into the company bank. It was not until November that the company informed the defendant that shares had been allotted to him and that the balance of the purchase price should be paid. The defendant refused to accept the shares.
The Court held that the refusal was justified because such a proposal should have been accepted within a reasonable time.
(c) Failure to fulfill condition of the proposal
Section 6 (c) of the Contracts Act states, "A proposal is revoked by the failure of the acceptor to fulfill a condition precedent to acceptance".
If there is condition or requirement to be fulfilled by the acceptor before the completion of the acceptance, the party must do so. Otherwise, the acceptance made will not be considered as a binding contract between both parties.
Pym v. Campbell (1856)
The parties entered into a contract for the sale and purchase of an invention on the condition that the invention must be approved by the third party.
It was held by the court that, since there was no approval from the third party which acts as the condition precedent to acceptance, the contract does not exist between them.
(d) Death or mental disorder
It is stated in Section 6 (d) of the Contracts Act, A proposal is revoked by the death or mental disorder of the proposer, if the fact of his death or mental disorder comes to the knowledge of the acceptor before acceptance.
If a proposer makes a proposal to proposee and dies before the proposee accepts the proposal, automatically the proposal will be revoked by the death of the proposee.
The fact of the death must be made known to the proposee before he dispatches his acceptance. Acceptance without prior knowledge of the death or mental disorder of the proposer is, nevertheless, a good acceptance.