Contract Law I Mid Term Notes (acceptance) PDF

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The issue was whether the acceptance was valid.An acceptance is the clear expression of assent to the terms of a proposal by the offeree in the manner specified by the offeror. S. 2(b) of the Contracts Act 1950 (CA 1950) stipulates that when the acceptor signifies his assent to the offer, an accepta...

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The issue was whether the acceptance was valid. An acceptance is the clear expression of assent to the terms of a proposal by the offeree in the manner specified by the offeror. S. 2(b) of the Contracts Act 1950 (CA 1950) stipulates that when the acceptor signifies his assent to the offer, an acceptance is said to have been made, resulting in the formation of a promise. The acceptance can be communicated by any act or omission of the parties making it as stated in S. 3 of CA 1950. An acceptance must be absolute and unqualified S. 7(a) of the CA 1950 stipulates that an acceptance must be absolute and unqualified in order to convert a proposal into a promise. This means that an acceptance must be an unconditional assent to the terms proposed in the offer in order to render the acceptance valid. i. Counter offer In The Ka Wah Bank Ltd v Nadinusa Sdn Bhd and Anor [1998] 2 MLJ 350, the Federal Court held that “According to Chitty on Contracts, 26th Ed (1989) Vol 1, para 54, p 44, ‘an acceptance is a final and unqualified expression of assent to the terms of the offer’. But, where the reply is qualified or attempts to vary the terms of the offer or attempts to accept an offer on new terms (not contained in the offer), then such a reply is not a communication of an acceptance but may be a rejection accompanied by a counter-offer which the original offeror can accept or reject.” This means that refusing a term in the original proposal or adding a new term with a new condition will have the effect of qualifying the acceptance. If the purported acceptance is conditional or qualified, it does not create a contractual relationship. Instead, it becomes a counter proposal. A counter proposal is a rejection of the original proposal. The original proposal is thus terminated or comes to an end and is cannot be accepted afterwards. In the English case of Hyde v Wrench (1840) 3 Beav 334, the defendant made a written offer to sell his farm for £1,000 to the plaintiff on 6 June. The defendant instantly paid a call on the defendant and offered to buy the farm for £950. On 27 June, the defendant made a reply to the plaintiff that he was unable to accept the plaintiff’s offer. Upon receipt of the letter on 29 June, the plaintiff quickly wrote to the defendant making acceptance to the defendant’s earlier offer of £1,000. The issue arose as to whether there had been a contract concluded between the parties. The Court held that there was no binding contract on the basis that the plaintiff did not absolutely and unconditionally accept the defendant’s offer price of £1000. By proposing a different amount of £950, the plaintiff was said to have rejected the defendant’s offer and now made a new offer, which is known as a counter-offer. The counteroffer destroyed the original offer and the plaintiff could not revive it by making a subsequent acceptance. These principles have been applied in the Malaysian case of Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the estate of Saw Cheng Chor, deceased) & Anor [1997] 1 MLJ 763, where the court noted that “In deciding whether there is a concluded contract in a given case, the court will have to examine all the circumstances to see if a party may be assumed to have made a firm offer and if the other may likewise be taken to have

accepted that offer - a situation often referred to as a meeting of the mind upon a common purpose or consensus ad idem. In as much as an offer must consist of a definite promise to be bound on the terms specified, the acceptance must be communicated to the offerer by ‘an external manifestation of assent, some word spoken or act done by the offeree or by his authorized agent which the law can regard as the communication of acceptance to the offerer’.” This suggested that when the acceptance by each party is conditional, no meeting of mind or consensus ad idem has been reached between the parties. Consequently, there is no valid contract between them. Therefore, a counter-offer by the offeree not only fails as an acceptance but generally constitutes a rejection of the original offer which cannot subsequently be accepted. If one party rejects the last counter proposal and calls off the negotiation, that would be the end of their legal relationship. In Jones v Daniel [1894] 2 Ch 332, in response to a written offer by the defendant to buy the plaintiff’s property for £1,450, the plaintiff’s solicitors made a written acceptance to the offer, and continued: “We enclose contract for your signature. On receipt of this signed by you across the stamp and deposit we will send you copy signed by him”. The enclosure was a contract with the normal conditions of sale issuing a deposit of 10%, specifying a date for completion, and restricting the period of the defendant’s title. The Court held that adding a new document (the enclosed contract) rendered the acceptance to be not absolute and constituted a counter-offer which was never accepted by the defendant. A counter-offer needs be distinguished from a mere request of information In Stevenson, Jaques and Co v McLean (1879-1880) 5 QBD 346 , the parties were having a negotiation for the sale of iron and eventually the defendant wrote to the plaintiffs fixing 40s, per ton, net cash, as the lowest price for the sale, and stating that he would hold the offer open until the following Monday. The plaintiffs on Monday at 9.42 a.m. telegraphed the defendant stating that “Please wire whether you would accept forty for delivery over two months, or if not, longest limit you could give”. The defendant did not make any reply and on the same day he sold the iron to someone else and telegraphed the plaintiffs at 1.25 p.m. informing that he had done so. Before the arrival of the defendant’s telegram, the plaintiffs, having at 1 p.m. found a purchaser for the iron, sent a telegram at 1.34 p.m. to the defendant stating that they had secured his price. However, the defendant’s refused to make delivery of the iron, thus the plaintiffs filed a suit against him for non-delivery of the same. Lush J held that “Here there is no counter proposal. The words are, ‘Please wire whether you would accept forty for delivery over two months, or, if not, the longest limit you would give.’ There is nothing specific by way of offer or rejection, but a mere inquiry, which should have been answered and not treated as a rejection of the offer.” ii. Terms of offer amended at time of acceptance In The Ka Wah Bank Ltd v Nadinusa Sdn Bhd and Anor [1998] 2 MLJ 350, the Federal Court held that “According to Chitty on Contracts, 26th Ed (1989) Vol 1, para 54, p 44, ‘an acceptance is a final and unqualified expression of assent to the terms of the offer’. But, where the reply is qualified or attempts to vary the terms of the offer or attempts to accept an offer on new terms (not contained in the offer), then such a reply is not a communication of

an acceptance but may be a rejection accompanied by a counter-offer which the original offeror can accept or reject.” This means that if the acceptance contains clauses adding on or amending the terms of the offer, it is not absolute and unconditional and there is no valid acceptance. In Jones v Daniel [1894] 2 Ch 332, in response to a written offer by the defendant to buy the plaintiff’s property for £1,450, the plaintiff’s solicitors made a written acceptance to the offer, and continued: “We enclose contract for your signature. On receipt of this signed by you across the stamp and deposit we will send you copy signed by him”. The enclosure was a contract with the normal conditions of sale issuing a deposit of 10%, specifying a date for completion, and restricting the period of the defendant’s title. The Court held that adding a new document (the enclosed contract) rendered the acceptance to be not absolute and constituted a counter-offer which was never accepted by the defendant. iii. Acceptance made ‘subject to contract’ or to fulfil condition precedent It is common to notice commercial documents comprising phrases such as “subject to contract”, “without prejudice” or “a formal agreement would be prepared and executed”. The issue arises as to whether these qualified statements amount to a valid acceptance creating legal obligations to the parties. There are two approaches to this matter. The first view is that there is no contract and the court will interpret such words in order to postpone liability until the formal document is signed. The second view is that the parties have already entered into a legally binding contract and the execution and signing of the document is a mere formality. In Daiman Development Sdn Bhd v Mathew Lui Chin Teck and Anor Appeal [1978] 2 MLJ 239, the Privy Council analysed the effect of the phrase “subject to contract” observing that “The purpose of the construction is to determine whether the parties intend presently to be bound to each other or whether, no matter how complete their arrangements might appear to be, they do not so intend until the occurrence of some further event, including the signature of some further document or the making of some further arrangement.” The Privy Council held that the express terms of the purchase included in the booking pro forma were not made “subject to contract”. The clauses strongly indicated obligations presently accepted rather than to a suspension of obligations until some further event or agreement had taken place or been made. In Kam Mah Theatre Sdn Bhd v Tan Lay Soon [1994] 1 MLJ 108, the purported contract comprised a proviso that the sale and purchase agreement shall include “other usual terms and conditions”. In the situations, the Supreme Court opined that the proviso would have the same effect as if the formula “subject to contract” had been in the document. The Court held that the formula “subject to contract” produces a strong presumption of the requirement of a further formal contract. Cogent evidence is needed to override this strong presumption. On the facts, the Court held that no contract was formed at all and that the document was conditional on the signing of a formal contract to be further negotiated and approved by both parties.

Similarly, in Lim Chia Min v Cheah Sang Ngeow and Anor [1997] 2 CLJ 337, the Federal Court held that when the parties “proposed that a formal agreement would be prepared and executed”, they must have meant what they said. However, there are cases where the court held that the execution and signing of the agreement is a mere formality. In Prism Leisure Sdn Bhd v Lumut Marine Resort Bhd [2002] 5 CLJ 391, Abdul Malik Ishak J noted that “Even in the absence of a ‘formal agreement’, ... the courts have on numerous occasions found that the parties were at consensus ad idem even though the formal agreements have yet to be executed … In the context of the present case, it was my judgment that the requirement of a ‘formal agreement’ was merely intended as a solemn record of an already complete, valid, legal and binding contract …”. The Court held that the execution and signing of the agreement is a mere formality as consensus ad idem existed between the parties. Therefore, there was a valid and legally binding contract between the parties and the defendant was liable for the breach of the concluded contract. In Charles Grenier Sdn Bhd v Lao Wing Hong [1996] 3 MLJ 327 , the decision in Lim Keng Siong and Anor v Yea Ah Tee [1982] 2 MLJ 39 was followed on this point. The Federal Court held that the phrase “subject to the sale and purchase agreement” concerning two shophouses did not indicate an intention that no contract was to exist until a formal sale and purchase agreement had been prepared and executed. Rather, when read in the context of correspondence and the objective purpose of the transaction, it suggested an intention to merely formalise the agreement that had been concluded between the parties. In this case, the parties to the transaction, the property, the price and the essential terms had all been recognized with adequate clarity. Acceptance must correspond to offer S. 7(a) of the CA 1950 stipulates that an acceptance must be absolute and unqualified in order to convert a proposal into a promise. This means that an acceptance must be an unconditional assent to the terms proposed in the offer in order to render the acceptance valid. This is part of the wider requirement that an acceptance must correspond and is made in response to the offer itself. i. Cross offer not an acceptance There can be no valid acceptance if there are two cross offers. In Tinn v Hoffman and Co (1873) 29 LT 271, the House of Lords discussed the effect of two offers, identical in terms, which had crossed in the post. Blackburn J held that “The promise or offer being made upon each side in ignorance of the promise or the offer made on the other side neither of them can be construed as an acceptance of the other.” ii. Knowledge of offer before acceptance There are two conflicting decisions whether acceptance can occur if the acceptor is not aware of the offer.

In Gibbons v Proctor (1891) 64 LT 594, although the claimant was not aware of the offer of a reward, the Court allowed the claim for the reward. In this case, the defendant put out a handbill on 29 May offering to reward £25 to any individual who could provide information leading to the conviction of an offender of a specified crime, and such information was to be provided to a superintendent of the police named Penn. The plaintiff who was a police officer and in the early morning of 29 May, prior to the publication of the bill, communicated to a fellow policeman named Coppin crucial information which led to the conviction of the criminal. This information was ultimately imparted to Superintendent Penn the following morning of 30 May, after the time when the said handbills had been sent out to and had been distributed to the neighbouring police stations. The defendant’s counsel argued that the plaintiff was not entitled to the reward since he knew nothing of any promise, nor was any in existence at the time he provided the information. The Court held that the plaintiff was entitled to the reward on the basis that the information had reached Penn after the handbill was published and the announcement therein included the defendant’s offer of the reward to the informer. A different decision was given in a similar case in Fitch and Anor v Snedaker (1868) 38 NY 248. In this case, the sheriff of a county made an offer to reward those who managed to provide information leading to the apprehension and conviction of the murderers related in an offence. The informants (the plaintiffs) gave information relating to the murder, but failed to acquire the reward from the sheriff. As regards the first informant, he was not entitled on the basis that his information was provided prior to the announcement of the offer of the reward made by the sheriff. With reference to the second informer, he was not entitled on the ground that his information was provided before he was aware of the sheriff’s offer of a reward. Woodruff J stated that “The defendant is proceeded against as upon his contract to pay, and the first question is, was there a contract between the parties? To the existence of a contract there must be mutual assent, or in another form offer and consent to the offer. The motive inducing consent may be immaterial, but the consent is vital. Without that there is no contract. How then can there be consent or assent to that of which the party has never heard?” iii. Motive of acceptor at time of acceptance In Williams v Carwardine 5 C&P 566, the plaintiff was aware of a reward and provided the information leading to the discovery of the murderers. However, she did so not for the reward, but to “ease her own conscience and in hopes of forgiveness”. The Court held that her motive was immaterial, it was sufficient as long as she came within the terms of the handbill. A different decision was given by the Australian Court in R v Clarke (1927) 40 CLR 227 . In this case, the Government of Western Australia offered a reward “for such information as shall lead to the arrest and conviction of the person or persons who committed the murders” of two police officers. Clarke who had seen the offer, provided information that led to the arrest of one person, and the conviction of that person and another person. When providing that information, he was under arrest on a charge of murder. He subsequently claimed payment of the reward. The Court held that the government was under no contractual obligation to pay him the reward on the ground that “… in giving the information he was not

acting on or in pursuance of or in reliance upon or in return for the consideration contained in the proclamation, but exclusively in order to clear himself from a false charge of murder... he has, in my opinion, neither a legal nor a moral claim to the reward.” The issue was whether the communication of acceptance was valid and complete. An acceptance is the clear expression of assent to the terms of a proposal by the offeree in the manner specified by the offeror. In order to make an acceptance effective, it must be communicated to the offeror. S. 2(b) of the Contracts Act 1950 (CA 1950) stipulates that “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.” The acceptance can be communicated by any act or omission of the parties making it as stated in S. 3 of CA 1950 that “The communication of proposals, the acceptance of proposals, 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.” Therefore, mental assent is insufficient to constitute an acceptance but there must be some external manifestation of acceptance by doing something to signify his intention to accept, particularly communicate his acceptance to the offeror. According to S. 9 of the CA 1950, when the acceptance is made in words, the promise is said to be express, and the promise is said to be implied when the acceptance is made otherwise than in words, such as conduct. S. 4(2) of the CA 1950 provides that “the communication of an acceptance is complete 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 as against the acceptor, when it comes to the knowledge of the proposer.” This means the communication of an acceptance is complete as against the acceptor, when he has sent out his acceptance to the offeror. Nevertheless, it will only be complete as against the offeror, when he receives the acceptance. Therefore, the general rule is that the acceptance has no effect unless it is brought to the notice of the offeror. In Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 , the defendants had for several years provided the plaintiffs with coals. The defendants came out with a suggestion that a contract should be entered into between them. After the meeting of their agents, the plaintiffs’ agent prepared the terms of the agreement and delivered to the defendants. The head of the defendants’ firm filled up some parts of the agreement which had been left blank, entered the name of the proposed arbitrator, wrote “approved” at the end of the page, and inserted the signature of his own name. The defendants’ agent returned the document to the plaintiffs’ agent by placing it on his desk. Nothing further was done to execute the agreement. For some time, both parties acted according to the arrangements stipulated in the document. Later, the defendants refused to continue supplying the coals in this manner. The plaintiffs initiated a legal action for damages on the ground of breach of contract. The defendants argued that there was no contract between them for the supply of coals. In this case, the House of Lords held that there was no acceptance of the offer. There may be mental assent, but the act of the plaintiff’s agent placing the document onto his desk would not constitute communication of the acceptance. Nevertheless, in this case, the House of Lords ruled that on

account of the course ...