a) Explain what are the essential elements of a contract. (10 marks)
b) Ali offered to sell his house to Sufian by letter. Sufian accepted the offer by posting a registered letter to Ali on 23-02-2017. On 25-02-2017, Ali telephones Sufian informing him that his house is no longer for sale and that he wished to revoke the offer.
Advise Sufian as to whether there is a valid contract or not. (10 marks)
(20 marks, 2017 Q1)
a) Elements of a contract
The general way to answer the question is to go through the elements of the contract -
- Offer v Invitation to treat
- Intention to create legal relationship
More elaboration required, and refer to link for further reading.
b) Acceptance and revocation of proposal
Ali made an offer to Suffian by letter. When received, Suffian made an acceptance by registered mail on 23-2-2017, however before the letter reached Ali, Ali telephoned to revoke the offer on 25-2-2017.
S.4 of Contracts Act 1950 spells out the rules on communication of offer, acceptance and revocation.
(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.
The example provided by the Illustration:
(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 A's 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.
[When Ali sent the letter of offer to Suffian, this offer became complete when Suffian received the letter of offer. ... S.4(1)
When Suffian sent out the acceptance by post, the communication of acceptance was complete against Ali, as it was put in a course of transmission to Ali, so as to be out of the power of Suffian; ... S.4(2)(a).
Therefore, there was offer and acceptance for the proposal. Hence, a contract was formed, assuming all other elements were subsequently completed. This includes booking fee (earnest deposit), certainty of details of contract, etc.
Suffian has accepted the offer. Despite Ali not having received the registered mail by the time of making phone call to revoke the offer earlier, the intensity of the agreement was valid.
This contract, however was breached when Ali made phone call to Suffian on 25-2-2017 to inform him he NO MORE wanted to sell the house to Suffian.
If Ali insisted that he does not wish to sell the house to Suffian, Ali has to compensate Suffian for turning down the contract.
THEN, when is revocation possible?
Revocation is only possible if by the time Ali made phone call to Suffian, Suffian has not sent the letter of acceptance. In such case, Suffian has not accepted the offer. Therefore, there was in fact, no contract. So, Ali could revoke the earlier offer to Suffian.
This is illustrated in the example (c) when Ali could revoke his proposal by telephone.
The revocation is complete as against Ali when the telephone call is made to inform Suffian that Ali is no more interested to sell his house to Suffian. Having received the telephone call from Ali, the communication of revocation is complete against Suffian when he heard it.
In such scenario, Suffian although heard the revocation, could always claim that he had already accepted the offer and hence it had form a contract. The process of acceptance becomes the onus of Suffian to prove.
If Suffian could not prove that he sent out the acceptance by registered mail, then there was no contract. However, if he instead sent an email on acceptance but email was stored in draft folder, then it was never mailed out - so no contract. On the vague part is if the email was indeed sent but never reach Ali, then it became a dispute between these two parties trying to prove evidence of acceptance.]
S.4 Contracts Act 1950.
[X] Own account.