Formation Q1

It seems that the formation of a contract is critical in understanding contractual issues. This makes perfect sense since it is important to first determine whether a contract exists or not. If there isn’t a contract, the issue is no longer a contractual one. As part of my learning, I was asked to do some past year questions.

This is question 1.

Invitation to Treat
The first issue is that of C, who picked up an item off the display window and goes to pay for it. However, H told C that the item is not for sale as it is reserved for N. C gets angry and insist that he has the right to the item (reminds me of a situation that I was once in).

This is a clear case of an ITT as determined in the case Fisher v Bell. This case clearly established that goods on display in a shop are not an offer to sell but an ITT. The offer to buy comes from C and a contract is only present when the cashier takes payment for the item.

Therefore, in this situation, C has no right to the item as there was no contract and C has no right to initiate action against H.

Request for Information, Revocation, Communication
The next issue is that of N. H sent a letter to N offering to sell him the item for RM4000 and the offer would remain open until 6pm on a certain date. N called up to enquire if it was possible to make payment in RM500 monthly instalments. H was not agreeable but before he could answer, the line went dead. The next day, H sold the item off to M who bought it at the store. Then, at 5.30pm of the last day, N calls up to accept H’s offer. H informs N that the item is no longer available as it has been sold off.

In this case, there is a case for contract. The offer from H was clear and ‘came to the knowledge’ of N. N called to enquire for more information but failed to get it. Then, N accepted the contract by action using a phone call – calling up before the deadline to accept it. This is a clear illustration of Stevenson v McLean. This case established the rules for acceptance by phone, which is when H hears the acceptance.

Now the trouble is that H had already sold off the item to M, in clear breach of the contract with N. What H should have done was to hold onto the item until after the deadline before selling it off to M.

In this scenario, N has a contract in place. The request for information does not constitute a counter offer and the original offer is still in place. H could have revoked the offer at any time after selling it to M but failed to do this. H could have done this up until just before N called up to accept the offer.

Past Consideration
However, this question has one niggling problem with it – the dates. According to the question, the offer from H to N was made on the 20th via post and it only reached N on the 22nd. However, N called H up on the 20th to enquire about the payment terms. It makes no sense that N could have called up regarding the terms before even receiving the offer. The item was sold off on the 21st, before the letter reached N.

This may be designed to confuse us with the issue of past-consideration, which is sufficient under S.2(d) of our Contract Act. However, regardless of this complication, there is still a valid contract between H and N because there was no revocation of the original offer at any time.

Therefore, N has cause to initiate action against H.

Postal Rule
If the letter had reached N only after the deadline had expired, is there still an offer and acceptance? The question is a clear Yes and No. In Gibbons v Proctor, the court allowed the claimant to claim a reward even though the claimant was not aware of the reward i.e. there was acceptance without knowledge of the offer – still forming a contract.

But in the case of Fitch v Snedaker the court decided in the opposite – as the action was not an assent to the offer but done with other intentions in mind. Therefore, there was no contract even though the offer arrived after the action of acceptance was performed.

But in our case of H and N, there would still be a contract because the act of N accepting the offer as a clear assent is similar to that of Gibbons v Proctor even if the offer was only communicated after the deadline.

The question of how N even knew enough about the offer to call H up to accept it, is the only niggling problem.

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Shawn Tan

Chip Doctor, Chartered Engineer, Entrepreneur, Law Graduate.

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