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Acceptance
INTRODUCTION
MEANING OF "ACCEPTANCE"
◦ Section 2(b) of the Contracts Act defines an acceptance as follows:
“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.”
Section 7 of the Contracts Act provides:
◦ In order to convert a proposal into a promise the acceptance must -
◦ (a) be absolute and unqualified;.
◦ (b) be expressed in some usual and reasonable manner,
Thus, an acceptance is an unequivocal expression of assent to the terms of the offer and
must be absolute and unqualified. An acceptance must also be expressed in some usual and
reasonable manner and it must be communicated.
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REQUIREMENTS OF ACCEPTANCE
◦ An acceptance, to be valid, must be absolute and unqualified - must
correspond and is made in response to the offer.
◦ The effect of s 7(a) of the Contracts Act is that an acceptance must be an
unconditional assent to the terms proposed in the offer.
This principle was stated in The Ka Wah Bank Ltd v Nadinusa
Sdn Bhd & Anor [1998] 2 MLJ 350, FC. 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 (paras 56, 95, pp 46,
72).2
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There are 3 situations, the acceptance is not absolute and
unqualified.
1. Counter-offer by offeree
A classic case to illustrate this point is Hyde v Wrench (1840) 3
Beav 334.
In this case, the defendant wrote to the plaintiff on June 6 offering to
sell his farm for £1,000. The defendant immediately called on the
defendant and offered to purchase the farm for £950. On June 27, the
defendant replied to the plaintiff that he was unable to accept the
plaintiff's offer. Upon receipt of the letter on June 29, the plaintiff
immediately wrote to the defendant accepting the defendant's earlier
offer of £1,000. The question was whether a contract had been
concluded between the parties. The Court held that there was
no binding contract.
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Lord Langdale MR stated:
… there exists no valid binding contract between the parties for the
purchase of the property. The defendant offered to sell it for £1000,
and if that had been at once unconditionally accepted, there would
undoubtedly have been a perfect binding contract; instead of that,
the plaintiff made an offer of his own, to purchase the property for
£950, and he thereby rejected the offer previously made by the
defendant. I think that it was not afterwards competent for him to
revive the proposal of the defendant, by tendering an acceptance of
it; and that, therefore, there exists no obligation of any sort between
the parties ...
In this case, the plaintiff did not absolutely and unconditionally
accept the defendant's offer price of £1000. By proposing a
different figure of £950, the plaintiff had rejected the
defendant's offer and now makes a new offer (a counter-
offer). This counter-offer destroys the original offer and he
cannot now revive it by tendering a subsequent acceptance.
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These principles have been applied by the Malaysian courts in
Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the
estate of Saw Cheng Chor, deceased) & Anor [1997] 1 MLJ 763
wherein the relevant portions have been reproduced as follows:
◦ 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 authorised agent which the law can regard as the communication of
acceptance to the offerer'.
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What constitutes an effective communication of acceptance
must necessarily depend on the circumstances of the case.
Similarly, in Lim Chia Min v Cheah Sang Ngeow & Anor [1997] 2
CLJ 337, FC 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.
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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 16 [2002]5 CLJ 391 , Abdul Malik Ishak
J stated:
◦ 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 … I have earlier reproduced passages from the judgment of Edgar
Joseph Jr. SCJ. in the case of Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin
Enterprises Sdn Bhd [1994] 3 CLJ 133 which showed that even though the
parties contemplated the execution of a formal contract that would not prevent a
binding contract from being in force. 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 … I reiterate that from the available evidence the intention of
the parties can clearly be seen to mean that the execution of a 'formal agreement'
was merely an expression of the desire of the parties as to the manner in which the
transaction which was already agreed upon will go through…
The Court held that there was a valid, legal and binding
contract between the parties and that the defendant had
breached that concluded contract.
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• In Charles Grenier Sdn Bhd v Lao Wing Hong [1996] 3 MLJ 327,
FC. the Court followed the earlier Federal Court decision, Lim Keng
Siong & Anor v Yea Ah Tee [1982] 2 MLJ 39 on this point.
• The Federal Court held that the phrase "subject to the sale and purchase
agreement" relating to two shophouses did not point to an intention that
no contract was to come into existence until a formal sale and purchase
agreement had been prepared and executed. Rather, when read in the context
of correspondence and the objective aim of the transaction, it was indicative of an
intention to merely formalise the agreement already concluded between
the parties. In this case, the parties to the transaction, the property, the price and the
essential terms had all been identified with sufficient clarity.
Section 7(b) of the Contracts Act provides that where the mode of
acceptance is specified in the offer, the acceptor must communicate
his acceptance in that mode. If no mode is specified, acceptance by any
usual and reasonable manner which shows the acceptor's intention to
accept is sufficient.
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Acceptance by post/telegram
◦ Communication of acceptance has posed difficulties where there is a
time lag between sending and receiving and in situations where the
acceptance is not received by the offeror without the fault of either
party.
◦ Thus, while the general rule at common law is that acceptance is
complete when it is brought to the notice of the offeror, an exception is
the postal acceptance rule. This rule stipulates that acceptance is complete
when the letter containing such acceptance is posted, or when the telegram
containing such acceptance is handed in.
◦ In Household Fire and Carriage Accident Insurance v Grant (1879) 4 EX D
216; 41 LT 298, CA, the defendant made an application for shares in the plaintiff's
company under circumstances from which it must be implied that he authorised
the company, in the event of their allotting to him the shares applied for, to send
the notice of allotment by post. The company did allot him the shares, and posted a
letter duly addressed to him containing the notice of allotment, but it was found as
a fact that the letter never reached its destination.
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• The defendant never paid the price of the shares as stated in the
application. Subsequently, the company went into liquidation and the
official liquidator applied for the unpaid price of the shares from the
defendant. The defendant declined to pay on the ground that he was
not a shareholder.
• The Court of Appeal affirmed the judgment of Lopes J and
held that the defendant was liable as a shareholder. In this
case, the Court applied the postal rule. Thus, the communication
of the company's acceptance of the defendant's application for, and
allotment of shares which was sent by post was complete once it was
posted. Thesiger J explained the rationale of the postal rule as
follows:
• “I see no better mode than that of treating the post office as the
agent of both parties ... But if the post office be such common agent,
then it seems to me to follow that, as soon as the letter of acceptance
is delivered to the post office, the contract is made as complete and
final and absolutely binding as if the acceptor had put his letter into
the hands of a messenger sent by the offerer himself as his agent to
deliver the offer and receive the acceptance . . .
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I am not prepared to admit that the implication in question will lead
to any great or general inconvenience or hardship. An offerer, if he
chooses, may always make the formation of the contract which he
proposes dependent upon the actual communication to himself of the
acceptance. If he trusts to the post he trusts to a means of
communication which, as a rule, does not fail, and if no answer to his
offer is received by him, and the matter is of importance to him, he
can make inquiries of the person to whom his offer was addressed.
On the other hand, if the contract is not finally concluded, except in
the event of the acceptance actually reaching the offerer, the door
would be opened to the perpetration of much fraud, and, putting aside
this consideration, considerable delay in commercial transactions, in
which despatch is, as a rule, of the greatest consequence, would be
occasioned; for the acceptor would never be entirely safe in acting
upon his acceptance until he had received notice that his letter of
acceptance had reached its destination” at 301.
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The postal rule has also been applied in Adams v Lindsell
(1818) 1B & Ald 681. In this case, the defendants, who were dealers
of wool, had on September 2, written to the plaintiffs, woollen
manufacturers, offering to sell to them a number of fleeces. They
required an answer "in course of post". The letter was misdirected by
the defendants, and consequently was not received by the plaintiffs
until September 5. On the same evening, the plaintiffs wrote an
answer, agreeing to accept the offer on the terms proposed. The
acceptance did not reach the defendants until September 9. On
September 8, the defendants, not having received an answer on
September 7, as they had expected (which they would have, if their
letter had not been misdirected), sold the wool to a third party.
The Court applied the postal rule of acceptance and held
that the acceptance was complete as against the defendants
on September, 5 ,i.e., prior to the revocation of their offer
through the sale of the wool to the third party on
September 8.
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• The Court held that if the rule was that no contract could be formed
until the acceptance was actually received, no contract could ever be
completed; for if the defendants were not bound by their offer till the
answer was received, the plaintiffs ought not to be bound till after
they had received the notification that the defendants had received
their answer and assented to it, and so it might go on ad infinitum.
• In the above case, the defendants specified that the
acceptance be made via the post. Where it is not specified,
an acceptance is to be made in the usual and reasonable manner.
• In Henthorn v Fraser [1892] 2 Ch 27, CA the Court of Appeal
inferred that both parties would have contemplated that the letter be
sent by post.
.
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In this case which involved the offer of an option to purchase some
houses, Lord Herschell stated:
“In the present case an authority to accept by post must be
implied. Although the Plaintiff received the offer at the
Defendants' office in Liverpool, he resided in another town, and
it must have been in contemplation that he would take the offer,
which by its terms was to remain open for some days, with him
to his place of residence, and those who made the offer must
have known that it would be according to the ordinary usages of
mankind that if he accepted it he should communicate his
acceptance by means of the post... Where the circumstances are
such the acceptance is complete as soon as it is posted” at 35.
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However, in Holwell Securities Ltd v Hughes [1974] 1 WLR 155, CA,
also a case of an option to purchase property, the Court of Appeal had
refused to make a similar inference. In this case, the defendant granted
the plaintiffs an option to purchase certain property. The option
provided that it "shall be exercisable by notice in writing to the
[defendant]". The plaintiff's solicitor sent a written notice exercising the
option by ordinary post to the defendant but it never reached the
defendant.
Lawton Lj referred to the postal rule and to Henthorn's
case above but held that it would not apply if the offer
expressly specifies that the acceptance must reach the
offeror and if application of the rule causes "manifest
inconvenience and absurdity".
The Court placed much emphasis on the meaning of notice which must
mean that it must be known or intimated to the vendor who never was
since the letter carrying the information went astray.
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In Lee Seng Heng & Ors v Guardian Assurance Co Ltd [1932]
MLJ17, the plaintiffs insured their stock in trade with the defendants
against fire. Subsequently, a fire broke out on the insured premises and
the plaintiffs made a claim under the policy. The defendants' solicitors
wrote to the plaintiffs saying that on the date of the fire, the policy
had ceased to exist as they had previously written to the plaintiffs
cancelling the policy. This letter was never received by the plaintiffs as
there was no post office at Buloh Kasap (where the insured property
was situated). The nearest post office was at the town of Segamat and
the practice at Segamat was to send a postman to Buloh Kasap only
when the amount of correspondence justified a special journey. The
letter in question had been kept at Segamat and had only been
brought to Buloh Kasap by the postman after the fire. As the plaintiffs'
premises had been burnt down, the addressee could not be found.
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• Munson CJ stated:
• “The only point, therefore, left for me to decide is whether the post was properly
used here as an agent by the Defendants in sending their letter of the 27th March.
The Plaintiffs acted from Buloh Kasap five miles from Segamat which is some 125
miles from Singapore and some 50 miles from Malacca. It is difficult to see how they
were ordinarily to communicate if not by post ...I hold as Farwell J. did in Bruner v.
Moore, that "the parties in this case contemplate that the post might be
used as a means of communicating on all subjects connected with the
contract." In these circumstances it is clear that the sender of the letter is not
responsible for any delay in the post I hold, therefore, that the rescission of the
policy was effected at the moment that the letter of the 27th March was posted,
that is on the 27th March, 1931, and that the policy was non-existent at the date of
the fire…”
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Acceptance by telex/telephone
◦ Communications through the telex and telephone are different from
posting and the postal acceptance rule does not apply.
◦ They are considered instantaneous communication where parties are
regarded to be in each other's presence and is complete only when it is received.
◦ The leading case on this is the English Court of Appeal's decision in Entores Ltd
v Miles Far East Corporation [1955] 2 QB 327, CA. In this case, the plaintiffs
were an English company and the defendants were an American corporation with
agents all over the world, including a Dutch company in Amsterdam. The plaintiffs
wished to make a contract with the defendants' Dutch agents for the purchase of
copper cathodes from the defendants. A series of communications passed by telex
between the plaintiffs and the Dutch company, the material one being a counter-
offer made by the plaintiffs on September 8, 1954, and an acceptance of that offer
by the Dutch agents on behalf of the defendants received by the plaintiffs in
London by telex on September 10, 1954.
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The plaintiffs later alleged that there had been a breach of contract
by the defendants. They applied for leave to serve notice of a writ
on the defendants in New York on the ground that the contract
was made in England and, therefore, fell within the Rules of the
Supreme Court. The defendants contended that the contract was
made in Holland. The Court ruled that the communication
through telex in this case was instantaneous and the
contract was made at the place where acceptance was
received, in this case, in London.
In this case, Denning LJ considered the matter in stages:
◦ When a contract is made by post it is clear law throughout the common law
countries that the acceptance is complete as soon as the letter is put into the
post box, and that is the place where the contract is made. But there is no clear
rule about contracts made by telephone or by telex.
◦ Communications by these means are virtually instantaneous and stand on a
different footing. The problem can only be solved by going in stages. Let me first
consider a case where two people make a contract by word of mouth in the
presence of one another.
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• Suppose, for instance, that I shout an offer to a man across a river or a
courtyard but I do not hear his reply because it is drowned by an aircraft
flying overhead. There is no contract at that moment. If he wishes to
make a contract, he must wait till the aircraft is gone and then shout back
his acceptance so that I can hear what he says. Not until I have his answer
am I bound…
• Now take a case where two people make a contract by telephone.
Suppose, for instance, that I make an offer to a man by telephone and, in
the middle of his reply, the line goes 'dead' so that I do not hear his words
of acceptance. There is no contract at that moment. The other man may
not know the precise moment when the line failed. But he will know that
the telephone conversation was abruptly broken off: because people
usually say something to signify the end of the conversation. If he wishes
to make a contract, he must therefore get through again so as to make
sure that I heard. Suppose next, that the line does not go dead, but it is
nevertheless so indistinct that I do not catch what he says and I ask him
to repeat it. He then repeats it and I hear his acceptance. The contract is
made, not on the first time when I do not hear, but only the second time
when I do hear. If he does not repeat it, there is no contract. The contract
is only complete when I have his answer accepting the offer.
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• Lastly, take the Telex. Suppose a clerk in a London office taps out on
the teleprinter an offer which is immediately recorded on a teleprinter
in a Manchester office, and a clerk at that end taps out an acceptance.
If the line goes dead in the middle of the sentence of acceptance, the
teleprinter motor will stop. There is then obviously no contract. The
clerk at Manchester must get through again and send his complete
sentence. But it may happen that the line does not go dead, yet the
message does not get through to London. Thus the clerk at
Manchester may tap out his message of acceptance and it will not be
recorded in London because the ink at the London end fails, or
something of that kind. In that case, the Manchester clerk will not
know of the failure but the London clerk will know of it and will
immediately send back a message "not receiving." Then, when the fault
is rectified, the Manchester clerk will repeat his message. Only then is
there a contract. If he does not repeat it, there is no contract. It is not
until his message is received that the contract is complete.
• My conclusion is, that the rule about instantaneous communications
between the parties is different from the rule about the post. The
contract is only complete when the acceptance is received by the
offeror and the contract is made at the place where the acceptance is
received” at 332-334.
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• This rule on instantaneous communication of telex acceptances was
also applied in Brinkibon Ltd v Stuhag Stahl [1983] 2 AC 34, HL.
In this case, where an offer was made by telex in Vienna and was
accepted by a telex message from London to Vienna. The House of
Lords held that the contract was made in Vienna.
• Acceptance by conduct
• An acceptor may by his conduct indicate his intention whether he has or has not
accepted an offer. In Taylor v Allon [1966] 1 QB 304 the appellant's motorcar
had been insured by an insurance company called "The Federated Employers
Insurance Association Ltd", the policy expiring on April 5, 1964. He obtained a
temporary cover note for 30 days from a new insurance company on April 16. It
was found as a fact that on the expiration of the old policy he never intended to
renew it with the old insurance company. His old insurance company sent him a
temporary cover note for 15 days from April 6.
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The appellant was convicted of using a motorcar on the road without
insurance against third party risks. He argued that he was covered by the
cover note which was offered to him on April 6 and that he had
accepted it by conduct. The Court rejected his argument as he had not
shown that "he knew of the temporary cover, that he acted in reliance
on it, and thereby had accepted the offer contained in it“ at 312.
In this case, when the appellant was stopped by the police and was
asked to produce his insurance certificate, he produce the expired
certificate of insurance and the cover note from the new insurance
company which commenced on April 16. When the police pointed out
that, therefore, on April 15 he was not covered, he did not refer to the
temporary cover note, but said that he had been negotiating a change of
insurance companies, and did not realise that the original certificate had
run out.
Where parties conduct themselves in a manner which
indicates that they consider themselves bound by an
agreement between them, a contract will be held to have come
into existence.
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Two Malaysian cases also illustrate acceptance through conduct. In
Woon Yoke Lin (Berniaga sebagai Syarikat Ceritaku) v United
Estate-Projects Berhad [1998] 4 AMR 4052, the High Court
held that the defendants, by their conduct, had accepted the
plaintiff's offer to rent a kiosk in Subang Parade which was owned
by the defendants. The Court referred to the following five
expressions of conduct of the defendants: first, they did not reply
within 14 days (the booking form stated that if the plainitif's
application was not accepted the deposit would be refunded within
14 days); secondly, they accepted the booking fees and paid this
sum into their own account; thirdly, they did not return this sum of
money within 14 days as provided in the booking form; fourthly,
they could have rejected the tenancy agreement and the money
which accompanied it upon receipt of these items, but they kept it;
and fifthly, instead of rejecting the plaintiff's offer, they negotiated
with the plaintiff to relocate.
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• In EMS Bowe (M) Sdn Bhd v KFC Holdings (M) Bhd & Anor [2000]
1 AMR 677, the plaintiffs submitted a tender for some works to the
defendants. Subsequently, the second defendant issued to the plaintiffs a
draft letter of award for the works and had also instructed the plaintiffs
to order in advance materials for the works. The plaintiffs ordered the
materials but the award was given to another contractor. The High
Court held that a draft offer acted upon by one party with the
knowledge and concurrence of the other party has converted it into a
written agreement and thus there was a valid and binding contract in
this case.