Contract Law Case Study: Evaluating Ben and Johari's Yacht Agreement

This case study examines a contract law dispute between Ben and Johari regarding the sale of a yacht. The analysis focuses on whether a valid contract was formed, considering the essential elements such as offer, acceptance, and revocation, as governed by the Contracts Act 1950. The discussion applies relevant sections of the Act and established case laws, including Felthouse v Bindley and Ignatius v. Bell, to determine if Johari's offer was effectively revoked before Ben's acceptance. The study concludes that no contract was formed due to the lack of valid acceptance, emphasizing the importance of postal rules and the timing of revocation in contract law. Desklib provides students with access to this case study and other solved assignments.

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Contract Law
Case Study
06-Feb-18
(Student Details: )

Contract Law
Introduction
A contract can be best put as a promise made between two or more parties, where each party
promises to undertake the made promise, which is usually in form of one party paying the
consideration and the other party carrying out the work stated in the contract. The provisions of
contract law are more or less the same in every jurisdiction, but at times it is found under the
common law, and at others, it is found under the statutory law (Latimer, 2012). In Malaysia,
contract law is governed by the Contracts Act, 1950. Under this act, for a contract to be created,
there is a need for the presence of six elements, which include the offer, acceptance,
consideration, capacity to contract, free consent, and the intention to create legal relations (Chen-
Wishart, Loke and Ong, 2016). This discussion revolves around these very elements present in
the case study, to decide if a contract had been formed.
Issue
The main issue based on the facts of the case study comes to be the presence of essential
elements of contract for creating a valid contract between Ben and Johari for the sale and
purchase of the yacht.
Rule
The first step in formation of contract is for an offer to be made. Based on section 2(a) of the
Contracts Act, 1950, a proposal shows the willingness of the party to be bound by the made
promise, and with a view of obtaining assent on the same by another person. This section also
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provides that an offer must show that the promise would be fulfilled, where the same is accepted
by the other party. It is important to differentiate the offer from an enquiry and also from intent
to trade. There are stages when the contract is being built up, where different kind of negotiatons
takes place. It is important to note that this is not an offer phase and merely shows the intent to
trade. Examples of it include the advertisements in newspapers and magazines (Harris and
Croese, 2014).
The next step for holding a valid contract to be formed is the acceptance. Under section 2(b) of
this act, the proposal is deemed to be accepted when the person making the offer gives their
assent to it. The acceptance could be expressed in a written or an oral manner, and can also be
implied from the offering party’s conduct. Under section 7(a) of this act, the acceptance has to be
unqualified and absolute, which means that the intention of the offering party needs to be
understood clear without any kind of doubt from their conduct (CommonLii, 2006).
Section 4 of this act provides when thee commendation is deemed to be complete. Section 4(1)
provides that the communication of proposal is completed only when the same comes in the
knowledge of the person to whom the proposal had been made. Under section 4(2) (b), the
communication of acceptance is completed as against the accepting party, when the same comes
to the proposer’s knowledge. Section 4(3) provides that communication of revocation is
completed (a) by the making party when it is put in course of transmission to the individual to
whom this has been made; and (b) against the person to whom the same has been made, when
this communication comes to their knowledge. Under section 5(1) of this act, a proposal can be
revoked, at any movement before the acceptance communication is completed against the
proposing party but not after it. Under section 6(a), it is stated that a proposal is revoked when
the revocation notice is communicated to the other party by the proposer (CommonLii, 2006).
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Contract Law
Apart from the statutory law, there are certain provisions given under the established case laws,
which also have to be kept in mind (Stone and Devenney, 2017). For instance, Felthouse v
Bindley (1862) EWHC CP J 35 provides that merely silence cannot be deemed as a mode of
acceptance. This is aligned with the aforementioned statutory law. So the statement made in this
case that where the nephew did not rely, it would be deemed as his acceptance by the uncle
would be deemed as invalid acceptance (Poole, 2016).
Another important concept in this regard is the postal rules of acceptance. As a general rule, the
acceptance date is the date when the other party gets the communication of acceptance.
However, the postal rules are an exception to this rule and provide that the date of acceptance, in
cases where the letters are posted for giving the acceptance, is the date on which the letter is
posted (Clarke and Clarke, 2016). In Ignatius v. Bell (1913) 2 FMSLR 115, the parties had
agreed to make use of the post as the manner of their communication. A proposal had been made
by the defendant for selling the land held by him to the plaintiff and this option had to be
exercised before August 20th 1912. On August 16th 1912, the plaintiff sent their acceptance
through registered post but the same could not be delivered till August 25th 1912. Applying
section 4 of the Contract Act, the court stated that the acceptance communication was completed
upon the acceptance notice being completed on August 16th 1912 even when this acceptance was
not known to the defendant (Intellectual Property, 2010).
The other required elements for creation of a valid contract include consideration. Section 2(d) of
this act provides that consideration is paid for the act done, or from not doing any task. The next
element is for the parties to have the “intention to create legal relations”. Even though the act
does not specifically cover any provisions on this requirement, it continues to be a crucial
requirement for creating an enforceable contract. The next requirement is for the parties to have
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Contract Law
the capacity to enter in a contract, which as per section 11 are the age of majority and the sound
mind of a person. The last requirement is for free consent to be given for the drawn agreement,
which is covered under section 10 of this act (CommonLii, 2006).
Application
The discussed law now has to be applied on the given case study. In this case, an offer had been
made by Johari on March 03rrd 2016 to sell his yacht for a price of RM2million. This value is
the value of consideration satisfying the requirement of consideration in this transaction. The
proposal or the offer made in this case was very clear and shows the willingness of Johari to go
forward with the sale, in case this proposal is accepted by Ben. And it is also clear that as per the
quoted sections, Johari is awaiting the assent of Ben on the made proposal. However, this letter
stated silence would be taken as an acceptance of Ben. Based on the case of Felthouse v Bindley,
this would not be deemed as applicable as the silence can never be deemed as acceptance. This is
also due to the applicability of section 2(b) where the acceptance would only have been attained
when Ben gave his assent to the offer.
The revocation letter sent by Johari would be taken to be one March 09th only as the same was
sent through post and the postal rules become applicable on this communication. The acceptance
of offer of Johari by Ben came after the offer had already been revoked by Johari. Section 4(2)
(b) provides the communication of acceptance is completed as against the accepting party, when
the same comes to the proposer’s knowledge. This acceptance would be completed here when
the acceptance letter reached Johari on March 12th 2016, by which time not only the offer had
been revoked, but also had crossed the stipulated timeframe for acceptance.
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Contract Law
It can be claimed that the revocation letter of Johari reached Ben after he had already posted the
acceptance letter, resulting in a contract being formed. However, applying the case of Ignatius v.
Bell, it becomes clear that the date of posting the letter has to be taken as the date of
communication. So here the offer was made on March 03rd, which was revoked on March 09th.
Thus, the acceptance of March 10th is not valid as the offer was properly revoked before the same
could be accepted. Even with presence of intention between parties, consent, and capacity
between the parties, there was a lack of valid acceptance in this matter.
Conclusion
Thus, from the discussion carried in the previous segment, it can be concluded that there was no
contract formed between Johari and Ben due to the lack of valid acceptance for the proposal
made by Johari. This was due to the fact that the offer made by Johari had been effectively
revoked before Ben could accept the offer, and in this regard, the postal rules played a major
role. Thus, this discussion highlighted the role played by the governing legislation of the nation
in deciding on the presence of a contract between two or more parties, and brings forth the clarity
on different elements of contract along with the manner in which they have to be applied.
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References
Chen-Wishart, M., Loke, A., and Ong, B. (2016) Studies in the Contract Laws of Asia: Remedies
for Breach of Contract. Oxford: Oxford University Press.
Clarke, P., and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3rd ed.
South Melbourne: Oxford University Press.
CommonLii. (2006) Contracts Act 1950 (Revised 1974). [Online] CommonLii. Available from:
http://www.commonlii.org/my/legis/consol_act/ca19501974200/ [Accessed on: 06/02/18]
Harris, J., and Croese, C. (2014) Contract Law in Context. Sydney, NSW: CCH Australia
Limited.
Intellectual Property. (2010) Law Notes. [Online] Graguraman. Available from:
http://graguraman1.blogspot.in/2010/07/proposal-and-acceptance-law-416.html [Accessed on:
06/02/18]
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia
Limited.
Poole, J. (2016) Textbook on Contract Law. 13th ed. Oxford: Oxford University Press.
Stone, R., and Devenney, J. (2017) The Modern Law of Contract. 12th ed. Oxon: Routledge.
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