LAW OF CONTRACT :

ACCEPTANCE

By: Mohd Syahril Ibrahim

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Edited by : Dr. Anie Farahida Omar
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 ESSENTIAL ELEMENTS
OF A CONTRACT

1. Proposal/Offer 4. Intention to Create

1. Proposal/Offer 4. Intention to Create
Legal Relations
The main elements Legal Relations
of a
valid contract are:
2. Acceptance 5. Certainty
2. Acceptance 5. Certainty
6. Formalities
6. Formalities

3. Consideration 8. Free Consent 7. Legal Capacity

3. Consideration 8. Free Consent 7. Legal Capacity

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 OBJECTIVES
At the end of this lesson the students should be
able to:

– Understand the definition of contract

– List the essential elements of a valid legal contract
– Understand the definition of proposal &
acceptance and their relevant rules
– Able distinguished a proposal from an invitation to
treat

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• Section 2(b), ‘when the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted’.

• Upon such acceptance of the application by the person, an

agreement between the parties is created.
• The proposal become a ‘promise’ & the party making the proposal
is referred to as the ‘promisor’ & the party stating the proposal, is
known as the ‘promisee’.

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Offeror v Offeree

Promisor v Promisee

Proposer v Acceptor

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 RULESOF
RULES OFACCEPTANCE
ACCEPTANCE

1. Absolute and unqualified acceptance

2. Made within a reasonable time

3. Acceptance must be communicated

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 1.Absolute & Unqualified
Acceptance

• The acceptance must be absolute and unqualified.

Section 7(a) of the CA provides that in order to
convert a proposal into a promise the acceptance
must be absolute and unqualified.

• What is an absolute and unqualified acceptance?

– It means it must be made on exactly the same terms as
proposed without any modifications or variations. Any
modifications or variations of the proposal does not
constitute an acceptance, but may amount to a counter
proposal/offer.

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 Counter offer

• When A makes a proposal to B, B has the

choice to accept or to reject it.

• But if B makes a new proposal by changing

or modify the offer eg: price of the goods,
B is said to have made a counter offer.

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 Effect Of The Counter Offer

• A’s original proposal of offer is destroyed

and it can no longer be accepted.

• A has become the acceptor while B has

become the proposer.

• A has the choice either to accept or to

reject B’s proposal (counter offer)

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 Hyde v. Wrench [1840]
• Facts:
– The defendant offered to sell his estate to the plaintiff on June 6
for 1000 pound. On June 8 in reply, plaintiff made a counter
proposal to purchase the estate at 950 pound. On June 27, the
defendant refused to accept this offer. Two days later, the
plaintiff wrote to the defendant that he was prepared to pay
1000 pound. The defendant refused and the plaintiff sued for
specific performance.

• Held:
– The Court ruled that there’s no acceptance because the plaintiff’s
letter on 8th June had rejected the original proposal, which could
not be revived.

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 Stevenson v. Mclean (1880)
• Facts:
The Df offered to sell iron at 40s per ton. Pf
sent a telegram to Df requesting to know
whether the Df would accept 40s to be paid
over two months or if not, the longest limit
the defendant would give. There was no
response from the Df and Df then sold to
the 3rd party thinking that the Pf had
rejected the offer.
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 • The plaintiffs sued for breach of contract. The defendant
pleaded in defense that the telegram sent by the plaintiffs on
Monday morning was a rejection of the defendant’s offer and
constitute a new proposal on the plaintiffs’ part.

• Held:
The court held that the plaintiffs’ telegram on Monday morning
was meant only as an inquiry and was not a counter proposal.
There was no rejection of the offer and therefore there was a
valid binding contract between the parties when the plaintiffs
accepted the offer of the defendant in the 1.34 pm telegram.

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 2.Made Within a Reasonable Time

• Section 6 (b) of the CA reads, ‘a proposal is

revoked… by the lapse of the time prescribed, or if
no time is so prescribed, by the lapse of reasonable
time, without communication of the acceptance…

• What amounts to ‘reasonable time’?

– It is a question of fact depending on the circumstances of
each case, e.g. the nature of the subject matter or the
method by which the offer is communicated.

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 Macon Works & Trading Sdn Bhd v.
Phang Hon Chin

• Hashim Yeop A.Sani J. in this, relates the rationale of this

rule:
o ‘An offer lapses after a reasonable time not because
this must be implied in the offer but because failure
to accept within a reasonable time implies rejection
by the offeree. As a consequence, the Court can take
into account the conduct of the parties after the
offer was made in deciding whether the offeree has
allowed too long a time to lapse before accepting.’

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 Case: Fraser v Everett

Facts: In this case, there was a contract for sale

and purchase of certain shares whereby the
acceptance was expected to be mailed at about
the end of March and would have arrived by 23 rd
April. However, it was mailed only in early of April
and reached the Def on 15th May.

Held: the acceptance was not made within a

reasonable time because shares were of fluctuate
in nature, and hence, time is of essence.

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3. Acceptance Must Be Communicated

• Acceptance must be communicated

to the proposer or offerer for there
to be a binding contracts.

• While communication of an acceptance may be

waived, it will still be necessary for the
addressee to do something positive to accept
such as actual performance of the conditions of
the proposal or express his acceptance in an
acceptable manner.
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• Section 2(b) requires the person to whom the proposal
is made to signify his assent thereto to a proposal.
‘Signifies his assent thereto’ implies a positive act of
acceptance on the part of the addressee.

• Silence, absence of response or

just total disregard of the proposal
is not acceptance as there is no
positive act that can be related to
the proposal.

• [Find Felthouse v. Bindley (1862) 142 ER 1037]

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• Section 3 of the Contracts Act provides that
communication of the acceptance is deemed to be
made by – any act; or omission – of the party
accepting, by which he intends to communicate the
acceptance & which has the effect of communicating
it.

• Manner and Mode of Communication:

– Section 7 (b) of the Act, an acceptance must also be
ordinarily communicated & made in some usual
manner if no method of acceptance is prescribed.

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• If the proposer/offeror specifies a particular mode of
acceptance, then it must be made in accordance to
the prescribed mode.

• If it is not made in such a manner, the

proposer/offeror may within a reasonable time insist
that the proposal to be accepted in the prescribe
manner.

• An acceptance can be made:

– in writing/ orally/ by conduct; or by combination of
these method.
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 Whenisisthe
When theCommunication
CommunicationOf
Of
Acceptance‘Complete’?
Acceptance ‘Complete’?

• General Rule:
o An acceptance is completely communicated
when it is actually brought to the notice or
comes to the actual knowledge of the offeror.

• Exception:
o THE POSTAL RULE COMMUNICATION.

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 The Postal Rule
• Section 4 (2) of the CA provides
an exception to the general rule of
communication of acceptance where the
parties have intended the use of the post
as a means of communication.

• According to the subsection:

o The communication of an acceptance is complete –
o 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; &
o as against the acceptor, when it comes to the knowledge of the
proposer.(see illustration)
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• See illustration (b) of Section 4:

o B accepts A’s proposal by a letter sent by post.

o The communication is complete:

o as against A, when the letter is posted;
o as against B, when the letter is received by A.

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 Effect of the Postal Rule
• The proposer is bound when the offeree/acceptor
posts the letter of acceptance even though the
proposer has no knowledge of the acceptance.

• When the letter is posted, the acceptor has put it ‘in a

course of transmission’ in such a way that he no
longer has any control over it.

• The transaction becomes binding upon the proposer

irrespective of any delay or disappearance of the letter
of acceptance in the course of transit/transmission.
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• Whereas, acceptance is complete as against the
acceptor only when the letter of acceptance reaches
and comes to the knowledge of the proposer.

• This means that while the proposer is bound upon

dispatch of acceptance by the acceptor, the acceptor
himself is not bound until it is actually received by the
proposer.

• First case: Adams v. Lindsell (1818)

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Adams v. Lindsell (1818)
• Facts:
o The defendant wrote to the plaintiff offering to sell wool on
certain terms. The defendant however, misdirected the letter
and it reached the plaintiff later than usual. Upon receiving the
letter of offer, the plaintiff immediately posted his acceptance.

o Meanwhile, the defendant (thinking that the plaintiff was not

interested in the offer) had already sold the wool to a third
party.

• Held:
o It was held by the court that acceptance was complete upon
posting.
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 The Rationale of the Rule

• Evolved from reasons of practical

convenience arising from delay that is
inevitable in delivering letters.

• On the ground that the offeror who

chooses to start negotiations by post takes
the risk of delay and accidents in the post.

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 Ignatius v. Bell (1913)
• Facts:
The Defendant (Bell) gave an option to the Plaintiff to
purchase a piece of land on the condition that the option
must be exercised on or before 20 August 1912 by a notice
in writing. The plaintiff exercised the option by posting a
letter on 16 August. The defendant only received the letter
on 25 August. The plaintiff sued for specific performance.

• Held:
The Court of Appeal held that the parties had decided on
the usage of the post service as a means of
communication and thus Sec 4 of the Contracts
Enactment applies.

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 Scope of the Rule
• The rule also applies to telegram sent through post.

• Instantaneous communication such as telephone

and telex are governed by the general rule.

• This fact had been stressed in:

o Case: Entores Ltd. V. Miles Far East Corp.
Held: In this case, the English Court of Appeal classified
communications by telex with instantaneous
communications.
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 Exclusion from
the Effect of the Rule

• Generally, in present time, it is wise for proposer

who wanted to use letters sent through post as a
means of acceptance to provide adequate
protection for themselves.

• For instance by stipulating in the proposal that

acceptance is only complete upon receipt of the
letter. That would exclude the postal rule by
express terms of the proposal.
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 RECAP DISCUSSION
OFFER & ACCEPTANCE
Job Advertisement – The Company is actually
Accountant Aya Needle Co. inviting offers of job
Sdn Bhd. applications from
Minimum Wages RM 1500 the public.
Working Hours 9 a.m.-5 p.m. Ads -a form of Invitation to
treat

Bad Apply for the Job Bad is actually making an offer

to work with Aya Needle Co.
with salary RM 1500 & working
hours from 9 a.m.-5p.m.
Aya Needle Co. Sdn Bhd
Considered Bad Suitable
Candidate for the job
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Agree to accept Bad Agree to accept Bad but
with additional Conditions:
Minimum wages is RM 1000
Additional Working Hours

Acceptance of the offer The Co. is actually making

made by Bad another offer/Counter-Offer

A contract (agreement) is The Co must wait for Bad’s

created Acceptance for there to be a
contract (agreement)

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• The company is inviting applicants to work with the
company through the advertisement & since the
company is not bound to accept the offers made by
the applicants, then the advertisement is only a
form of invitation to treat.

• Thus, Bad in the above e.g. by offering to work for

Aya Needle Co. in the hope that the company will
accept his application, is making a proposal.

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• If the company agrees to accept Bad’s offer,
then there is an acceptance on the part of the
company.

• The company’s acceptance of Bad’s offer to

work with them establishes an agreement or
promise. Bad is the promisor and the company
the promisee and an agreement is created.

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• If the company agrees to accept Bad with
additional conditions, then the company
modifications or variations of the proposal does
not constitute an acceptance, but amount to a
counter proposal/offer.

• The company now has become the offeror, & Bad

the offeree. It is up to Bad whether he is willing
to accept the offer. If he does, then he becomes
the promisee and the company the promisor and
an agreement is also created.

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Time For A Break

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 REVOCATION OF
PROPOSAL

• Once a proposal is
communicated, it remains open until it lapses
or is withdrawn. A proposal may be revoked at
any time before acceptance is communicated.

• Section 5(1) of the CA provides that, “a

proposal may be revoked at any time before
communication of its acceptance is complete
as against the proposer, but not afterwards”. 39
• There are a few ways by which a proposal may be
revoked. Section 6 states amongst others:

a) By communication of notice of revocation

b) By lapse of the time prescribed/ by lapse of reasonable

time

c) By failure of the acceptor to fulfill the condition of the

proposal

d) By death /mental disorder of the proposer, if the fact

of his death or mental disorder comes to the knowledge
of the acceptor before acceptance.
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a. Communication of Notice of Revocation

• Under subsection (a) the revocation of the

proposal must be communicated by the proposer
to the other party before it accepts.

• In the event of acceptance by post or telegram, the

acceptance is complete as against the proposer
upon posting or delivery of the telegram to the
appropriate telegraph office. Therefore, withdrawal
of the proposal must necessarily be communicated
by the proposer to the offeree before such posting
or delivery.
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• The application of this rule is found in the Illustration
to Sec. 5:

o A proposes, by a letter sent by post, to sell his house to B.

o B accepts the proposal by a letter sent by post.
o A may revoke his proposal at any time before or at the
moment when B posts his letter of acceptance, but not
afterwards.

• There appears to be no local case with respect to this

rule but it had been determined in England in Byrne v.
Tienhoven (1880), and the law appears to be similar.

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 Byrne v. Tienhoven (1880)

• Facts:
In this case the defendant offered to sell 1,000 boxes of
tinplates to the plaintiff. The following communications took
place:

• 1 October: Defendant posted letter of offer in Cardiff to the

plaintiff in New York.

• 8 October: Defendant posted a letter revoking the offer of

October 1.

• 11 October: Plaintiff received the letter of offer posted on

October 1 and sent acceptance by telegram the same day. It also
followed up with letter of acceptance on 15 October.

• 20 October: Defendant’s letter of revocation received by plaintiff.

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• Held:
The court ruled that there was a contract between
the parties because the revocation of the offer
posted on 8 October was not effective till 20
October when it was received by the plaintiff but
in the meantime, the latter had already accepted
the offer on 11 October when the telegram was
sent.

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 b. Lapse of The Time Prescribed/ Lapse of
Reasonable Time

• Subsection (b) deals with revocation by lapse of

time and provides for 2 situations:

i. Lapse of time occurring upon the expiration of the time

prescribed in the proposal for its acceptance; &
ii. Where no time is prescribed, by the lapse of a reasonable
time.

• What a reasonable time is depends on the facts

and circumstances of each case.
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 Ramsgate Victoria Hotel Co. v Montefiore (1866)

• Facts: The defendant applied for shares in the

company in June and paid a deposit into the company
bank. It was not till November that the company
informed the defendant that shares had been allotted to
him and that the balance of the purchase price should
be paid. The defendant refused to accept the shares.

• Held: The refusal was

justified because such a
proposal should have
been accepted within a
reasonable time.

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 c. Failure of the Acceptor to fulfill the
Condition of the Proposer

• Subsection (c) provides that a proposal may be

revoked where the acceptor fails to fulfill a
condition precedent to acceptance.

• For instance, a company offers to employ an

applicant on condition that he passes a skills test. If
the applicant fails the test, the proposal is
obviously revoked because the applicant has failed
to fulfill a condition precedent.
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 Death /Mental Disorder of the Proposer

• Subsection (d) deals with death or mental disorder of the

proposer subsequent/after to the communication of the
proposal.

• The two events does not

automatically result in the
demise of the proposal. The fact
of the death or mental
disorder must be known to
the acceptor before acceptance.
Only then the proposal is no longer
available for acceptance.

• Acceptance without prior knowledge of the death or

mental disorder of the proposer is nevertheless, a good
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acceptance.
 REVOCATION OF ACCEPTANCE

• It may seem strange that an acceptance can

be revoked but that is the law with respect to
those acceptance which is not complete as
against the acceptor.

• Section 5(2) states: ‘An acceptance may be

revoked at any time before the communication
of the acceptance is complete as against the
acceptor, but not afterwards’.
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• The Illustration to section 5 provides an example
of revocation of acceptance made by post:

o A proposes by a letter sent by post, to sell his house to

B.

o B accepts the proposal by letter sent by post.

o B may revoke his acceptance at any time before or at

the moment when the letter communicating it reaches
A, but not afterwards

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Thank you!

Anie Farahida Omar