A situation under the Malaysian Contracts Act 1950

Generally, there are six elements of contract, e.g., offer, acceptance, intention to create legal relations, consideration, certainty and capacity. A contract or agreement is typically reached via the offer and acceptance elements, and the law stipulates that the offer by the offeror be made on terms that may be determined and that the offeree accept it without conditions. In Malaysia, an offer is referred to as a "proposal" in the context of the Contracts Act 1950 (hereinafter referred to as “the Act”); this term is defined in Section 2(a) of the Act which provides that when one person expresses to another, his willingness to do or refrain from doing something in order to obtain that other person's consent to the act or abstinence, he is said to make a proposal. Basically, a contract is created when an offer is accepted, as stated in Section 2(b) of the Act, when the person to whom the proposal is made expresses his approval, the proposal is said to be accepted; when a proposal is accepted, it becomes a promise. A promise was created after an offer and an acceptance were both exchanged.

As a general rule, under Section 26 of the Act, an agreement without consideration is void. According to Section 2(d) of the Act, an act, abstinence, or promise that is performed or made at the request of the promisor, the promisee, or any other person is referred to as a consideration for the promise. According to Currie v Misa (1875) LR 10 Ex 153, it was decided that consideration is any right, benefit, profit, or benefit accruing to one party, or any forbearance, detriment, loss, or responsibility given, suffered, or assumed by the other. Therefore, every promise and every combination of promises that constitute the consideration for one another are considered agreements under Section 2(e) of the Act, and contracts are defined as agreements under Section 2(h) of the Act when an agreement is enforced by law. According to Section 10(1) of the Act, agreements are considered contracts if they are established with the free consent of the parties who are legally capable of entering into a contract, for a legal consideration, and for a legal purpose, and they are not hereby expressly declared void.

Furthermore, as stated above, Section 2(a) of the Act provides that an offer is formed when the offeror makes a clear, unequivocal statement that he and/or she will regard himself and/or herself as legally bound to perform his and/or her promise if the other party accepts his and/or her offer. In accordance with the landmark case of Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1, the fact of the case is that a pharmaceutical company advertised, that its new wonder drug, a smoke ball, would cure people's flu and that if it did not, buyers would receive a £100 refund. When sued, Carbolic claimed that the advertisement should not be interpreted as a serious, legally binding offer. It was just a gimmick and an invitation to treat. However, the court of appeals decided that Carbolic had made a serious offer to a reasonable person. People had shown "consideration" for it by enduring the "distinct inconvenience" of using a defective product.

The court held that while an offer might be made to anyone, it could only result in an agreement once the prospective offeree took steps to accept it. No agreement or contract has been formed if something other than an offer is accepted. In applying to the current case, Suzy had decided to sell a house that she owned in Gombak to someone named Tipah for a price of RM90,000.00. Therefore, the act of Suzy trying to sell off her house to Tipah can be considered as an offer and/or proposal, however, there is no agreement made until acceptance takes place, and either party is free to end the negotiations at any time. A binding contract can only be reached once acceptance has taken place, thus, there is no contract was formed at the material time as there was only one out of six elements of contract that had been fulfilled.

Next, to constitute acceptance, the offeree must state their purpose and consent clearly and in accordance with the offer's terms for it to be considered accepted. This relates to the acceptance fact. It is not sufficient that the parties' wishes just would coincide by sheer happenstance; knowledge is necessary. In the case of Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3, Justice Lord Denning stated that there is no contract if a man yells an offer to a man across a river, but the response is not heard because of an airplane flying overhead. The offeree must wait before responding with a loud shout so the offeror can hear it. The other party's response to the offer must, in other words, amount to a clear, unequivocal, unqualified statement that the latter agrees on exactly the terms of the offeror's offer for it to be considered an acceptance.

According to Section 4(1) of the Act, the communication of an acceptance is complete once it comes to the knowledge of the person to whom it is made, just as the communication of a proposal is when it comes to the knowledge of the person to whom it is made. In Tipah’s case, Tipah was offered to purchase Suzy’s house for a price of RM90,000.00, and in accordance to Section 7 of the Act, acceptance must be unqualified and in the case of Low Kar Yit v Mohamed Isa [1963] MLJ 165, the court hold that acceptance must be absolute and unqualified, hence, when Suzy made an offer to Tipah to sell the house, Tipah should make an unqualified and absolute acceptance. However, Tipah had made a counter-offer to Suzy, whereby she would only agree to buy the house at a reduced price of RM70,000.00. In the case of Tan Chee Hoe & Anor v. Ram Jethmal Punjabi [1983] 2 MLJ 31, in delivering the judgment, Wee Chong Jin CJ had referred to Vol. 8 Halsbury’s Laws of England, 3rd Ed. at page 75 which stated that: “In order to constitute acceptance the assent to the terms of an offer must be absolute and unqualified … If the acceptance is conditional, or any fresh term is introduced by the person to whom the offer is made, his expression of assent amounts to a counter-offer, which in turn requires to be accepted by the person who made the original offer.”

With that, the communication of counter-offer by Tipah is completed, and now it depends on Suzy to accept the counter-offer; if Suzy wants to accept the offer, Suzy should communicate such acceptance to Tipah according to Section 4 of the Act. According to the preceding authorities, the offeree must unconditionally accept the exact terms proposed by the offeror. If, while purporting to accept the offer in its entirety, he introduces a new term that the offeror has not had the opportunity to examine, he is merely making a counter-offer. In Tipah’s case, Tipah had made a conditional acceptance towards Suzy’s offer. This means that Tipah had made a counter-offer towards the original offer by Suzy. This situation is supported by the case of Malayan Flour Mills Bhd v Saw Eng Chee [1997] 1 MLJ 763, the acceptor had added new terms to his acceptance, the acceptance was not valid as it merely amounted to a counter-offer.

Deriving from the case of Hyde v Wrench (1840) 49 ER 132, if the terms of the agreement differ, it was determined that this is essentially a counter-offer and no valid contract will be formed, and that the counter-offer is basically destroying the original offer. In Malayan Flour Mills Bhd’s case, Kang J had hold in this case: “if while purporting to accept the offer as a whole, he introduces a new term which the offeror has not the chance of examining, he is in fact making a counter-offer. The effect of this in the eyes of law is to destroy the original offer”. In the current case, as a result of Tipah's counter-offer, Suzy's original offer was destroyed, and it is now Suzy's choice whether to accept Tipah's counter-offer or not. If Suzy accepts the counter-offer, she must communicate her decision to Tipah, and an agreement will be formed once communication of acceptance is complete. Unfortunately, Suzy was unsatisfied with the counter-offer, and thus she has decided to sell the house to her friend named Amelia.

Suzy is not legally bound to either of those two people during the counter-offer has taken place. Tipah, on the other hand, has made a counter-offer to Suzy. Tipah's communication of offer is complete when it comes to Suzy's knowledge, according to Section 4(1) of the Act. If Suzy wishes to accept Tipah's offer, she must inform Tipah of her decision. Even if Suzy has decided to accept the agreement, it is not yet finalised. Suzy or her authorised agent must make an external manifestation of assent, such as a word spoken or an act performed, which the law recognises as communication of acceptance to the offer. Suzy must express her acceptance in a clear and reasonable manner and within the time frame specified in Section 7(b) of the Act. Furthermore, Section 7(a) of the Act states that in order to form an agreement, Suzy's acceptance must be absolute and unqualified; however, if Suzy made a conditional acceptance, there is no agreement form and no legal contract binding Suzy and the offeror. If Suzy and the offeror reach an agreement, Section 10 of the Act will have been met.

Therefore, in a nutshell, Tipah will not be able to successfully sue Suzy, as there was no valid and binding contract between them. As such, no breach of contract occurred on the part of Suzy, as she has the right to sell the house to other people since the original offer to sell to Tipah has already been destroyed by the counter-offer and the counter-offer from Tipah was never accepted by Suzy.