OCTOBER 2012 PART B QUESTION 1 Explain the various ways in which acceptance of proposal may be communicated.

Support your answer with reference to the Contracts Act 1950 and relevant cases. (25 marks)

Section 2(b) of the Contracts Act 1950 provides that when the person to whom the proposal is made signifies his assent thereto, the proposal has been accepted. A proposal when accepted, become a promise. Section 2(c) of the Contracts Act 1950 refers to the person accepting the proposal as the promisee. Acceptance is only effective when it is communicated. The communication can be through words or mouth. For example, the communication can be over the telephone, by letter, telex, facsimile or recorder messages. The law recognizes that acceptance may be implied from conduct. Section 3 of the Contracts Act 1950 provides inter alia that the acceptance of proposals is deemed to be made by any act or omission of the party accepting by which he intends to communicate the acceptance or in which has the effect of communicating it. Section 9 provides that there is an expressed acceptance if the acceptance of any promise is made in words and an implied acceptance if the acceptance is made other than in words. One of the rules of acceptance under Section 7(b) of the Contracts Act 1950 stated that the acceptance must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. Simply speaking, if there is a mode of acceptance prescribed by the offeror it must be followed by the offeree in order to make a valid acceptance. There could be no acceptance by silence i.e. the offeror cannot impose acceptance merely because the offeree does not reject the offer. There must be some act on the part of the promisee to indicate acceptance. In the case of Felthouse v. Bindley whereby the plaintiff which is Felthouse offered by letter to buy his nephews horse and said If I heard no more about him, I shall consider the horse is mine. His nephew did give any answer, but the nephew told Bindley which is the auctioner to

keep the horse out of the auction sale as he intended to reserve it for his uncle, the Plaintiff. However Bindley had sold the horse by mistake. Felthouse sued Bindley claiming that defendant should not sell the horse to other person because there was already a contract between him and his nephew. The court held that there was no contract between Felthouse and his nephew because the nephew had never signified to Felthouse his acceptance of the offer before the auction sale took place. Silence does not constitute acceptance. A rule governing acceptance is through the postal rule. It is provided in Section 4(2) of the Contracts Act. It is important to determine the communication of acceptance because it will affect the validity of the revocation either by the proposer or the acceptor. Acceptance through post is complete when the letter of acceptance is posted, even though it is not yet received by the proposer. It is to be said that the proposer has bound to the contract when the acceptor posts the letter of acceptance, even though the proposer has no knowledge of the acceptance. The contract is binding on the acceptor, irrespective of any delay or disappearance of the letter of acceptance. Section 4(2)(a) of the Contracts Act 1950 provides that the communication is complete as against the proposer when it is put in a course of transmission to him as to be out of the power of the acceptor, however in subsection 4(2)(b) of the same Act provides that the communication of acceptance is complete as against the acceptor when it comes to the knowledge of the proposer. This can be seen through the Illustration (b) of Section 4 Contracts Act 1950 whereby B accept As proposal by a letter sent by post. Thus, the communication is complete as against A, when the letter is posted and the communication is complete as against B when the letter received by A. This can be seen through the case of Ignatius v. Bell. The Defendant had offered to sell his land to the Plaintiff on condition that if the Plaintiff would like to accept the offer, he must make the acceptance on or before 20th of August 1912. The Plaintiff sent an acceptance by registered post on 16th August but the letter did not reach the Defendant until 25 th August because the Defendant was away. It was held that the acceptance was exercised by the Plaintiff when his letter was posted on 16th August. Therefore the Defendant was bound to the contract. To conclude, one can generally say that in cases of acceptance through the post, acceptance is complete upon posting. However, this rule that acceptance is complete upon posting may be excluded by the express terms of the offer.

OCTOBER 2012 PART B QUESTION 2 (a) Milli proposed to sell his piano to Vanilla for RM8, 000 to be accepted within one week. Vanilla agreed to buy the piano for RM6,000. Immediately after receiving Vanillas reply, Mili sold the piano to Tim. Vanilla wishes to sue Milli for breach of contract. Advice Milli. (10 marks) The first issue is whether Vanilla may take legal action against Milli for breach of contract. The second issue is whether there is a contract binding between Vanilla and Milli on the grounds that Vanilla has made a counter proposal. The word contract may be define as an agreement enforceable by law. Thus, a contract is an agreement which is legally binding between the parties. An offer or proposal is necessary for the formation of an agreement. Section 2 (a) of the Contracts Act 1950 provides that when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtain the assent of that other to the act or abstinence, he is said to make a proposal. Section 2(b) of the Contracts Act 1950 provides that when a person to whom the proposal is made signifies his assent thereto, the proposal has been accepted. Section 2(c) of the same Act refers to the person who made a proposal is called the promisor whereas the person who accepting proposal known as the promise. For a proposal to be converted into a promise, the acceptance of the proposal must be absolute and unqualified which stated under Section 7(a) of the Contracts Act 1950. Acceptance must be absolute and unqualified so that there is a complete consensus. If the parties are still negotiating, an agreement is not yet formed. If however, acceptance is not absolute and unqualified, that is, it does not complied with the conditions stated by the offeror, it will amount to a counter offer. A conditional assent is not an acceptance.

By referring to the Section 2(a) of the Contracts Act, there is an existence of an offer which is made by Milli. However, there is no acceptance made by Vanilla as stipulated under Section 2(b) of the same Act as he has made a counter proposal which has destroyed the original proposal made by Milli. In a case of Hyde v. Wrench, the defendant offered to sell his estate to the plaintiff for 1,000 pound on 6th of June. On 8th June in reply, the plaintiff made a counter proposal to purchase at 950 pound. When the defendant refused to accept this offer on 27 th June, the plaintiff wrote again that he was prepared to pay the original sum demanded. The court held that no contract existed between them. The plaintiff had rejected the original proposal on 8th June so that he was no longer capable of accepting it later.

In the present case, Milli has proposed to Vanilla to sell his piano for RM8, 000 which is to be accepted within one week. Vanilla agreed to buy the piano for RM6, 000. Milli then sold the piano to Tim soon after he received Vanillas reply. The acceptance of Vanilla to buy the piano at the price of RM6, 000 is not absolute and unqualified which stated under the Section 7(a) of the Contracts Act 1950. Thus, a counter proposal is not an acceptance as Vanilla has modified the price of the piano offered by Milli at first place. In conclusion, Vanilla may not able to take any legal action against Milli for breach of contract as there is no valid contract bound between them due to Vanilla had rejected the original proposal made by Milli.

OCTOBER 2012 PART B QUESTION 2 (b) Malik was forced to enter into a contract to sell his bungalow to Wan for RM 500, 000. The original price of the house was RM 5million. During the execution of the contract Malik was threatened and pressured by Wans very rude and large number of employees. They threatened to use weapon and harm him. Advice Malik as to the validity of the contract. (15marks)

The issue is whether the contract between Malik and Wan which is caused by coercion is valid or not.

The word contract may be define as an agreement enforceable by law. Thus, a contract is an agreement which is legally binding between the parties. Section 10(1) of the Contracts Act 1950 provides inter alia that all agreements are contracts if they are made by the free consent of parties. Section 13 of Contracts Act 1950 stated that two or more person are said to consent when they agree upon the same thing in the same sense. By virtue of Section 14, consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. The word coercion is defined in Section 15 of the Contracts Act 1950 as unlawful act done with the intention of causing the person to enter into an agreement. This means that the definition of coercion under Section 15 applies solely to the consideration of whether there has been free consent to an agreement so as to render it a contract under Section 10 of the Contracts Act 1950. Any contract that is caused by coercion is voidable under Section 19(1) means that one of the parties is given a choice either to continue the contract or to discontinue with the contract. The agreement is valid and binding until the party who is entitled to rescind the contract chooses to

rescind it. If the party chooses to rescind then the contract is no longer valid and binding upon the parties. By reffering to the Section 15 of the Contracts Act 1950, there was a coercion raised in the present case whereby Malik has been forced to enter into a contract to sell his bungalow to Wan for RM500, 000 provided the original price of the house was RM5 million. It can be prove through the elements of coercion which also stated under Section 15 which is committing or threatening to commit any act forbidden by Penal Code. As in the case, Malik was threatened and pressured by Wans very rude and large number of employees. They also threatened to used weapon and harm him during the execution of the contract. The elements proved that there was coercion causing Malik to enter into an agreement of selling his bungalow at the price of RM500, 000. In a case of Chin Nam Bee Development Sdn Bhd v. Tai Kim Choo & Ors, the respondents purchased houses to be constructed by the appellant. Each of the respondents had signed a contract to purchase a house at RM29, 500. However, the respondents were forced later to pay additional RM4, 000 under a threat by the appellant to cancel the respondents booking for their houses. It was held that the payment was not voluntary but had been made under threat. Thus, there was coercion in the agreement of paying the additional RM4, 000 to the appellant. The contract enter by Malik is not a free consent from him under Section 10(1) because he was under the threat and pressured by Wan and the employees which caused by coercion to him to enter into the contract as stated under Section 14 of the Contracts Act 1950. Therefore, Section 19(1) of the Contracts Act 1950 provides that any agreement made without free consent and caused by coercion is a voidable contract. In conclusion, Malik have option either to discontinue or continue with the contract to sell his bungalow to Wan for RM500, 000 under the threat and pressured by Wan and the employees which caused coercion.

OCTOBER 2012 PART B QUESTION 7 Explain the effects of incorporation under Section 16(5) of the Companies Act 1965. Generally, company law is governed by Companies Act 1965. Section 4(1) of the Act defined the word company as a company incorporated pursuant to the Companies Act 1965 or pursuant to any corresponding previous enactment. The effect of incorporation of company is that the company is vested with a corporate personality. This means in the eyes if law, a company is treated as a legal person. A company acquires a personality of its own which is quite different from the personality of the individuals who constitute it or who are its members. A company is a legal person by itself separate and distinct from its shareholders and directors. Section 16(5) of the Companies Act 1965 provides that on and from the date of incorporation, the company shall be a body of corporate by the name contained in the memorandum capable of exercising all the functions of incorporated body and suing and being sued, having perpetual succession and the power to hold land. Upon incorporation, a company will become a body corporate or a corporation. It is recognized at law as having the powers corporate and liabilities like natural human being. Thus, it would acquire personality which separated from those of its members. As from the date of the Certificate of Incorporation, a company becomes a body corporate and assumes legal personality of its own, distinct from its members. It is a separate legal entity, an artificial legal person, unlike a partnership that has no separate entity status. As a body corporate or corporation, it is firmly established that company is a separate entity from its members. This rule is known as Separate Legal Entity Principles or sometimes called the veil of corporation. This rule was established from a landmark case of Solomon v. Solomon & Co. Ltd. In the case, Mr Aron Salomon was a businessman and a sole proprietor of a very successful business. He carried on a business of leather manufacturing and a boot manufacturer. One day he decides to share participation in the business with his family so he incorporated his business into limited company. In order to retain his control on the business, he gave one share to his wife and six children and 20, 001 share to himself. He also appointed himself as one of the director of the company. He later transferred the business to the company and later issued debenture worth 10, 000 pound as part of the calculation of the purchase price of his business.

This made him a secured creditor of the company. However, due to economic depression, strikes and cancellation of contracts, his business failed. The value of his asset only amounted to 6, 000 pound, whilst its liabilities to unsecured creditors were amount more 7, 000 pound and the debentures worth 10, 000 pound must be paid first to Salomon. The company then was put in liquidation. The liquidator refused to pay Salomon because claiming that the issue of debentures was not valid. The House of Lords decided that the incorporation of company created a separate person. Salomon is not liable for the companys debt and the issue of debentures was valid. With this case, the separate legal entity principle was established. Company is a legal person having legal rights like natural person. Salomon and his company are two separate persons even though the company was managed by Salomon solely and nothing change from the way he ran his business as sole proprietor; he was still a separate person from his company. A company can own property in its own name. It may enter into a contract under its own name and will be liable in regards to that contract. Section 16(5) of the Companies Act 1965 only mention land, but there is no doubt that a company may own any other sort of property also. The property of a company is its own and not that of its members, even if the member owns all shares in the company. This consequence of incorporation in terms of ability to own property can be seen in the case of Macaura v. Northern Assurance Co. Ltd. Macaura owned an estate. He sold all the timbers on the estate to a company were owned by him. Macaura insured the timber that he had sold in his own name. Two weeks later, the timber was destroyed in a fire. Macaura put in a claim but the insurance company refused to pay. The court held that when Macaura sold the timber to the company, he gave up his interest in it. Therefore the insurance was void for want of insurable interest. Next, a company has the ability to sue and be sued in its own name. it can sue in respect of rights that it has, and if it has liabilities, others may sue against it. The members of the company cannot take any legal action on behalf of the company. Only the company itself can enforce its rights. This is called the proper plaintiff rule and it was established in the case of Foss v. Harbottle. Two shareholders brought an action against the companys directors for improper use of the companys properties. The court held that in law, the company and its members were not the same. The conducts with which the defendants were charged was not injury to the shareholders exclusively but to the company as a whole. Therefore the members could not maintain such a suit. It was for the company to sue.

Once a company is incorporated it is liable for its own debts and obligations. The members are not responsible for it. From this flows one of the prime advantages of incorporation, members can limit their liability. However, this would depend on the type of the company being established. For instance, in a company limited by guarantee, members are liable to contribute to pay off the companys debt in situation where the company is unable to settle its debt. But his liability would be limited to the amount that he has agreed to contribute in such event. By referring to the case of Re Application by Yee Yut Ee, the Industrial Court of Singapore made a decision that the company had to pay retrenchment benefits to all its retrenched employees. Shortly after the decision was made, the company managing director left Singapore. Yee Yut Ee, the company secretary was appointed as a director in order to handle the situations in the company. The company failed to comply with the courts decision. The court later made an offer for Yee Yut Ee to personally liable to pay. This was a wrong order made by the Industrial Arbitration court. Since this was the debt of the company therefore, the company is liable and nobody else should be responsible for it. So, in the absence of any fraud, breach or other exceptional circumstances, Yee Yut Ee was not liable to pay. A company is immortal. It will continue to exist until it is properly wound up or struck off the register or it is liquidated by law. Even if all the members die, the company survives. In this aspect, a company is said to enjoy perpetual succession and it was established in the case of Re Noel Tedman Holdings Pty Ltd. The company had only two shareholders, a husband and a wife. Both died in a car accident leaving behind an infant. The court held that even though all the directors and members were dead, the company will still exist. In conclusion, all the above effects of incorporation are advantages to make corporation very attractive. The fact the company and its members are separate entities sometimes attracts all sort of abuse. So under certain circumstances, court will lift the veil of incorporation and make the members and the controllers responsible for the debt of the company.