Legal Analysis of Contract Formation in Business Law Assignment

This assignment analyzes the legal aspects of contract formation in business law, specifically whether a valid contract has been established between Emily and Kleencare Sdn Bhd for the RM500 promised in their advertisement. The Contract Law 1950 governs the contractual relationships in Malaysia, and certain elements must be established to form a contract. The advertisement posted by Kleencare Sdn Bhd is considered as a unilateral contract, and Emily can legally claim an RM500 from Kleencare Sdn Bhd because a valid contract has established between parties.

Business Law
Assignment
2018

Issue
The key issue, in this case, is whether Emily can legally demand from Kleencare Sdn Bhd an
RM500 as promised by them in the advertisement and whether a valid contract has
established between parties?
Rule
The Contract Law 1950 (the Act) governs the contractual relationships in Malaysia. Section
38 (1) provides that partiers have to perform their legal obligations given under the contract
unless such performance is illegal or against the law (AGC, 2018). There are a number of
elements which are necessary to be established between parties in order to form a contract.
Section 2 (a) provides that a proposal or offer is made by a party, promisor, when such party
signifies to another person, promisee, regarding his/her willingness to do or not do anything
in order to obtain his/her approval. Subsection (b) provides that when the person to whom
a proposal is made signifies his/her assent, a promise is made between parties. A proposal
must have an intention to bind the promisor into a legal relationship after receiving the
acceptance from the promisee (Harvey v Facey [1893] UKPC 1) (Hough and Kuhnel-Fitchen,
2017). Section 7 provides that the acceptance of the promisee must be absolute it should be
unqualified (a) and expressed in a reasonable manner and within a reasonable time (b).
In case the acceptance is not given in reasonable time, or the terms are changed then an
offer cannot be considered as valid (Hyde v Wrench [1840] 49 ER 132). Generally,
advertisements are considered as an invitation to treat rather than a proposal based on
which a contract cannot be formed between parties (Partridge v Crittenden [1968] 2 All ER
425) (Denoncourt, 2009). However, an exception is given in the case of Carlill v Carbolic
Smoke Ball Co [1893] 1 QB 256 in which the court held that in some instances an advert
could be considered as a valid offer. In this case, a company published an advert in the
paper by stating that it will pay a reward of £100 to anyone who contracts influenza after
using their product. The advertisement also provided a number of instructions which are
required to be followed by parties. The company also deposited £1000 in the bank to show
its sincerity. Mrs Carlill used the product and caught flu after which she demanded £100 for

the corporation (Amin and Mohd Nor, 2011). The company rejected the claim by giving
following arguments:
 Advert was a sales puff
 A proposal cannot be made to the world
 No acceptance was available
 Wordings were vague
 No consideration was available
The Court of Appeal rejected the arguments of the defendant by stating that it was a
unilateral contract based on which Mrs Carlill can claim £100 from the company. The court
provided following arguments (Ayub, Yusoff and Halim, 2009).
 The company deposited the amount in the bank; therefore, it was not a sales puff.
 In a unilateral contract, an offer can be made to the world.
 In a unilateral contract, communication of acceptance is not required.
 Although words were ambiguous, however, it was capable of resolving that the
company will pay an award to any person who caught the flu after using its product.
 The company was receiving value even when people were to purchase the product
directly from it.
Furthermore, consideration is a key element of a contract which is referred to a gain and
detriment received by each party of the contract; it must have value as per the law ( Thomas
v Thomas [1842] 2 QB 851). Parties must have the intention to form a legal relationship due
to which social and domestic agreements are not legally enforceable (Jones v Padavatton
[1969] 1 WLR 328). The consent of the party must be free and without any external
influence (Lim Yoh v Astana Strategi (M) SDN BHD & Anor [1998] 3 M.L.J 117) (HBA, 2018).
Capacity of parties is another key element because a minor, insolvent or an unsound person
cannot form a legal contract. Contracts which are formed based on coercion (section 15),
undue influence (section 16), fraud (section 17) or misrepresentation (section 18) are
considered as voidable which could be terminated or validated based on the will of the
promisee (AGC, 2018).

Application
The advertisement posted by Kleencare Sdn Bhd is considered as a unilateral contract
because the company ‘guaranteed’ an RM500 to people who are not able to remove all ink
stains; the company’s offer was made to the world which can be accepted by parties by
complying with the instructions (Carlill v Carbolic Smoke Ball Co). The acceptance of parties
is not necessary for a unilateral contract, and other elements of a contract are fulfilled in
this case as well. The contract was not based on coercion, fraud, misrepresentation or
undue influence. Emily followed the instructions based on which a valid contract has formed
between her and the company.
Conclusion
Thus, Emily can legally claim an RM500 from Kleencare Sdn Bhd because a valid contract has
established between parties.

References
AGC. (2018) Contracts Act 1950. [Online] AGC. Available at:
http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%20136.pdf
[Accessed on 28th May 2018].
Amin, N. and Mohd Nor, R. (2011) Issues on essential elements of formation of e-contract in
Malaysia: e-consumers' perspective. Journal of Applied Sciences Research, 7(13), pp.2219-
2229.
Ayub, Z.A., Yusoff, Z.M. and Halim, F. (2009) Marketing and online advertisement: An
overview of legal implication in Malaysia. International Journal of Business and
Society, 10(2), p.83.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
Denoncourt, J. (2009) Q&A Business Law 2009-2010. Abingdon-on-Thames: Routledge.
Harvey v Facey [1893] UKPC 1
HBA. (2018) Lim Yoh v Astana Strategi (M) SDN BHD & Anor. [Online] HBA. Available at:
https://www.hba.org.my/laws/CourtCases/1998/lim_yoh.htm [Accessed on 28th May 2018].
Hough, T. and Kuhnel-Fitchen, K. (2017) Optimize Contract Law. Abingdon-on-Thames:
Routledge.
Hyde v Wrench [1840] 49 ER 132
Jones v Padavatton [1969] 1 WLR 328
Lim You v Astana Strategi (M) SDN. BHD. & Anor [1998] 3 M.L.J 117
Partridge v Critenden [1968] 2 All ER 425
Thomas v Thomas [1842] 2 QB 851