CASE STUDY ON CONTRACT LAW

FACTS OF THE CASE:

Zafirah runs an antique furniture shop and has been in business for twenty years. On the 1st of May while walking in her neighborhood, she saw at a garage sale held at her neighbor Nettys house, an old dining table which looked like an antique. She told Netty that she was interested in buying the table and took pictures of it. She said she would ask her staff to send a formal offer. On the 5 of May, Netty walked to Zafirahs house and delivered a letter stating that she was willing to sell the table at a very affordable price of RM3, 000. Zafirah immediately posted a letter of acceptance on the same day (5th of May) to Netty. However, Netty only read Zafirahs letter of acceptance on the 8th May.
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On the 6 of May Ateera, a regular customer, came into the antique shop and Zafirah showed her the pictures of the table. Zafirah said the table was available for sale at the price of RM5, 000. Ateera said she was interested to buy the table but would like to discuss the matter with her husband first.

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On the 7 of May, Ateera mailed a letter accepting the offer. Zafirah received this letter on the 9 May. However, on the 7th of May, Zafirah received a fax from Netty revoking her offer to sell the table.

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On the 8th of May Zafirah received a call from Ateera saying that she did not wish to buy the table as her husband had just ordered a new full dining set. She apologized and asked Zafirah to ignore her letter of acceptance that she had posted on the 7 of May.
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CASE DISCUSSION:

Netty was putting up a garage sale. All the things that she displayed would constitute, as in a retailer shop, an Invitation to Treat. Invitation to treat comes from the Latin phrase invitatio ad offerendum and it means "inviting an offer". It is an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed." (Andrew Burrows 2007). This is to be distinguished from a binding offer, which can be accepted to form a contract (subject to conditions being met). Invitations to treat include the display of goods, the advertisement of a price or an auction and an invitation for tenders. The general rule is that unlike an actual offer, an invitation to treat is not binding. The "inviter" can change his or her mind. An invitation to treat is not an offer or a sale.

Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd. [1953] is a famous English contract law decision on the nature of an offer. The Court distinguished the display of a product in a store with a price attached is not sufficient to be considered an offer, but rather is an invitation to treat. The case revolved around the Boots Cash Chemists store that sold drugs which the customer chose and put in a basket rather than asking a qualified pharmacist. The Pharmaceutical Society of Great Britain, a society representing the pharmacist profession, took issue with this new practice and brought an action against Boots Cash Chemist as a test case to enforce the Pharmacy and Poisons Act 1933 which made it illegal to sell a listed "poison" without supervision of a registered pharmacist. The Pharmaceutical Society argued that the display of goods was an offer to sell which was accepted by the customer upon placing the drugs in the basket, at which moment the contract of sale was formed. As a result, the Society argued, the provisions of the Act prohibiting the sale of "poison" without supervision were breached. The question was--when did the actual sale take place? Was it when the customer took the goods off the shelf, or was it when the goods were presented at the cash desk? Both the Queen's Bench Division of the High Court and the Court of Appeal sided with Boots. They held that the display of goods was not an offer. Rather, by placing the goods into the basket, it was the customer that made the offer to buy the goods. This offer could be either accepted or rejected by the pharmacist at the cash desk. "In the case of an ordinary shop, although goods are displayed and it is intended that customers should go ahead and choose what they want, the contract is not completed until, the customer having indicated the articles which he needs, the shopkeeper, or someone on his behalf, accepts that offer. Then the contract is completed." The moment of the completion of contract was at the cash desk, in the presence of the supervising pharmacist. Therefore, there was no violation of the Act.

The basic elements constituting an Agreement are the Offer and Acceptance. An offer or proposal is necessary for the formation of an agreement.

It is up to the potential buyer (offeror) to make an Offer or Proposal to the offeree (Netty) to purchase the items on display at Nettys place.

Section 2(a) of the Contracts Act 1950, states: 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. If there is no offer the potential agreement cannot occur.

An offer, or proposal, is capable of being converted to an agreement by its acceptance, subject to predetermined terms and conditions. The offeror will have to declare a readiness to undertake an obligation upon certain terms, leaving the option to the offeree to either accept or reject the offer.

In the Federal Court case of Affin Credit (M) Sdn. Bhd. V. Yap Yuen Fui where there was a lack of offer and acceptance, the purported hire-purchase agreement was declared void ab initio, that is, the agreement was void from the beginning.

Zafirah had shown interest in an old dining table on display at Nettys garage sale. She took pictures of it, probably to show it to potential customers at her Antique shop. So far she had only shown an interest in purchasing the dining table. She had not made an offer. She did make it clear to Netty that she would make a formal offer. It can be assumed that this formal offer will be in writing, as the medium of communication.

The offer has to be communicated by the offeror to the offeree, in order for the offer to be effective and complete. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made Section 4(1), Contracts Act 1950.

Before Zafirah had made an offer to purchase the table, Netty, seeing the interest shown by Zafirah, made an offer of sale of the table at a price of RM3, 000. Netty communicated this in writing, and delivered it by hand to Zafirah on the 5th of May; thus, fulfilling Section 4(1) Contracts Act 1950.

To reach an agreement Zafirah must now accept the offer, or reject it outright. She decided to accept the offer, in writing. However, she decided to send it by post, and she did this on the same day, 5 of May.
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Contract Act 1950, Section 2(b) states: when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted: a proposal, when accepted, becomes a promise, an agreement.

Contract Act 1950, Section 3 states: The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting, or revoking, by which he intends to communicate the proposal, acceptance, or revocation, or which has the effect of communicating it.

The communication of an offer or acceptance by post has its own problems. There is bound to be a gap from the day the letter is posted in the post box by the writer, until the day it reaches the addressee. The letter once posted is out of jurisdiction of the person who posted it, and therefore he cannot alter it. The addressee cannot know of the contents of the letter until he receives it.

Section 4, Contracts Act 1950: (1) The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. (2) The communication of an acceptance is complete

(a) as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; and (b) as against the acceptor, when it comes to the knowledge of the proposer. (3) The communication of a revocation is complete (a) as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; and (b) as against the person to whom it is made, when it comes to his knowledge.

ILLUSTRATIONS (a) A proposes, by letter, to sell a house to B at a certain price. The communication of the proposal is complete when B receives the letter. (b) B accepts As proposal by a letter sent by post. The communication of the acceptance is complete as against A, when the letter is posted; as against B, when the letter is received by A. (c) A revokes his proposal by telegram. The revocation is complete as against A when the telegram is dispatched. It is complete as against B when B receives it. (d) B revokes his acceptance by telegram. Bs revocation is complete as against B when the telegram is dispatched, and as against A when it reaches him.

Using the same illustrations above, and replacing A with Netty, and replacing B with Zafirah, while replacing telegram with fax, let us try out what the Act holds for Netty and Zafirah: (a) Netty proposes, by letter, to sell a table to Zafirah at a certain price. The communication of the proposal is complete when Zafirah receives the letter. (b) Zafirah accepts Nettys proposal by a letter sent by post.

The communication of the acceptance is complete as against Netty, when the letter is posted; as against Zafirah, when the letter is received by Netty. (c) Netty revokes her proposal by fax.

(Section 6, Contracts Act 1950. A proposal is revoked by the communication of notice of revocation by the proposer to the other party.)

The revocation is complete as against Netty when the fax is dispatched. It is complete as against Zafirah when Zafirah receives it. (d) Zafirah revokes her acceptance by fax. (If that had been the case) Zafirahs revocation is complete as against Zafirah when the fax is dispatched and as against Netty when it reaches her.

Looking at the case at hand, with reference to the illustration above: (a) Netty had proposed a sale in writing on the 5th of May, and this was received by Zafirah on the same day. The communication of the proposal is complete and effective. (b) Zafirah accepted Nettys proposal by a letter sent by post on the 5th of May. As far as Zafirah is concerned the acceptance has taken place, and Netty is now bound by it. But Zafirah is only bound when Netty receives it. Netty received it on the 8th of May. Zafirah can alter her acceptance until it is received by Netty, but Netty cannot revoke her offer in whatever way. (c) Therefore the letter of revocation sent by Netty by fax, which should have been received almost instantly by zafirah on the 7th of May (before Netty received zafirahs letter), will not be valid because Netty is still held by the letter sent by Zafirah which is still in the post. The judgement should be in favour of Zafirah. She should be allowed to purchase the table from Netty at RM3, 000.

Also referring to Section 5 of the Contracts Act 1950 on revocations: (1) A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. (2) An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

ILLUSTRATION A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards. B may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A, but not afterwards.

Again, using the above illustration, replacing A with Netty and replacing B with Zafirah: y y y Netty has proposed, by a letter handed to zafirah, to sell a table at a certain price. Zafirah has accepted the proposal by a letter sent by post. Netty may revoke her proposal at any time before or at the moment when Zafirah posts her letter of acceptance, but not afterwards. Netty did not revoke her proposal within that time, but instead tried to revoke it afterwards, before she received the letter from Zafirah NOT ALLOWED. y Therefore by challenging the case with Section 5 of the Contracts Act, the case is still in favor of Zafirah.

Referring to the other part of the case, Zafirah v. Ateera:

Ateera come to Zafirahs shop on the 6th of May, a day after the latter had posted the letter of acceptance to Netty. Zafirah showed pictures of the table to Ateera and is now offering the table for sale at a price. The offer has been made and communicated verbally to Ateera. The offer is effective and complete.

Ateera did not initially accepted the offer, but said she will discuss it with her husband first. Ateera finally decided to accepted the offer and communication was via a letter sent by post on the 7th of May. This was received by Zafirah of the 9th of May. However, on the 8th of May, Ateera called (via telephone; instant communication) Zafirah revoking her acceptance, and asked the Zafirah to ignore the letter sent to by post which the latter had yet to receive.

Referring to section 5, of the Contracts Act 1950, replacing A with Zafirah and B with Ateera: y y y Zafirah has proposed, verbally, to sell a table to Ateera at a certain price. Ateera has accepted the proposal to purchase the same via a letter sent by post. Ateera may revoke her acceptance at any time before or at the moment when the letter communicating it reaches Zafirah, but not afterwards. This Ateera did via a phone call, before her letter of acceptance was received by Zafirah. y Therefore Ateera has successfully revoked her acceptance of Zafirahs proposal.

CONCLUSION: From the above discussion, Zafirah will win the case against Netty, and Netty will have to sell the table as agreed to Zafirah. Against Ateera, Zafirah will have to concede that sale will not take place. So, as legal adviser to Zafirah, I have to put forward to Zafirah that she will now have purchase a table from Netty at a cost of RM3, 000, for which she has no buyer. I will therefore advise Zafirah to accept Nettys and Ateeras revocations peacefully, even though it is legally unacceptable, and at the same time maintain good relations with a neighbor, and keep a regular customer.