BBBL2033 Business Law

BL1: Suggested answers

Tutorial 3 - Week 4: Acceptance, Counter Offer, Revocation of Acceptance & ICLR

1. State the law that defines acceptance.

Ans: Section 2(b) defines acceptance as ‘when the person to whom the proposal is made
give his consent, the proposal is said to have been accepted.

2. Briefly explain four (4) rules acceptance.

Ans: The 2 requirements or rules are:

i. The offeree must signify his acceptance . Section 2(b) CA 1950 states that ‘when the
person to whom the proposal is made signifies his assent…the proposal is said to be
accepted’.
ii. Acceptance must be in reliance of the offer or the person who wants to accept the
offer must be aware of the offer as in the case of R v Clarke.
iii. Acceptance must be absolute and unqualified – as stated in Section 7 (a) for a
proposal to become a promise, the acceptance must be absolute and unqualified.
iv. Acceptance in only effective when it is communicated to the offeror or brought to
the notice of the offeror. The proposee must communicate his acceptance of the
proposal to the proposer for there to be a binding contract between the parties.

Counter Offer
3. In his Face book, Vincent offered for sale of his latest iphone for RM1,500. Lee knew
that this was a real bargain as the iphone is worth much more. Lee replied that he
agrees to buy it for RM1200. Vincent answered, ‘No way’. Lee then stated that he
will accept for RM1,500. Vincent did not reply to Lee. Advise Lee.

Answering question using the ILAC method:

Issue:
The issue here is whether Lee’s reply to Vincent for RM1200 constitute acceptance and
whether his subsequent reply accepting the original price of RM1500 also constitute
acceptance.

Law:
a. In contract law, an acceptance which is qualified by the introduction of a new
term or condition is a ‘counter offer’– as in the case of Hyde v Wrench.
b. A counter offer is not an acceptance. The effect of a counter offer is that it rejects
or destroys the original offer and replaces it with a new offer, this time, from the
other party who was offered originally.
c. An offer once rejected it cannot be subsequently revived.

Apply & Conclude:

a. Vincent’s original offer was for RM1500. Therefore when Lee replied he agrees to
buy for RM1200, this is not an acceptance but a counter offer.

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b. Lee has just change the term of the offer from RM1500 to his term of RM1200
and by doing so he has effectively rejected Vincent’s offer and made a new offer
to Vincent.

c. When Vincent replied ‘no way’ he has rejected Lee’s offer to buy at RM1200.

d. Later when Lee agrees to buy back at the original offer price of RM1500, this is
not acceptance. This is because an original offer once rejected cannot be revived.
Lee is actually making a new offer to Vincent to buy at RM1500.

e. Thus the fact that Vincent did not reply to Lee showed that he did not accept Lee’s
latest offer to buy at RM1500.

Manner of Acceptance
4. A tells B that acceptance of his offer is subject to a formal contract being drawn up.
B text (sms) to A that he accepts A’s offer. Is there a contract?
Ans:
a. The issue here is whether B can accept the proposal by text messaging (sms) when
the proposer has prescribed the manner of acceptance i.e. by a formal contract
being drawn up.
b. Under S7 (b), if the proposal prescribed the manner of acceptance, then the
proposee must comply with the prescribe manner of acceptance.
c. In the case of Low Kar Yit & Ors V Mohd Isa & Anor – the court held that there
was no binding agreement because acceptance of the contract was clearly
conditional upon a formal contract being drawn up between the parties.
d. In this case B had accepted A’s proposal by sms and not in compliance with the
prescribe manner required by A. Therefore there is no contract.
e. But S7(b) further provides that if the acceptance is not made in the manner
prescribe, the proposer may within a reasonable time insist that the proposal be
accepted in the prescribe manner i.e. by a formal contract, and if the proposer fails
to do so he is said to have accepted the acceptance.
f. Here B accepted A’s proposal by sms. If A did not insist that B must accept in the
prescribe manner then after a reasonable time has lapse, A is said to have accepted
B’s acceptance by sms, resulting in a contract between A and B.

5. X wrote to Y proposing to sell his car for RM20k, and also stated in his letter that
the acceptance of the offer must by in writing by post. Y wrote back accepting the
offer. Advise X the legal consequence of using this mode of communication.

Ans: X will be advised on the legal consequences as follows:-

i. The issue here is X is invoking the postal rule. This is the non-instantaneous mode of
communicating acceptance.

ii. Under the postal rule, acceptance is complete when Y puts the letter in the post box.
In Entores Ltd v Miles Far East Corporation the court held that where the parties

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chose the postal mode, acceptance is completed as soon as the letter is put into the
post box as this is the place the contract is made.

iii. The legal consequence of using this mode is that the moment Y put his letter of
acceptance in the post box acceptance has taken place and X is bound even though
the letter has not reach X.

iv. On the other hand, if the letter is not delivered or gets lost in the process, X is still
bound as acceptance has taken place the moment Y puts the letter in the post box.
This is the risk X takes when using the postal mode.

6. Ben email to his friend Zoe offering to sell his laptop for RM1000.00. In his email he
stated a condition that if he does not get Zoe’s reply in 3 days he considers it sold.
Zoe only read her email on the 4th day. Advise Zoe.

Ans: Ben is advised as follows:

a) The issue here is whether Ben can prescribe silence as a manner or condition of
acceptance.

b) Under Section 7(b), the proposer may prescribe the manner of acceptance to his
proposal but under the principle of common law in Fraser v Everett the offeror
cannot prescribe silence as a manner of acceptance.

In the case of Felthouse v Bindley P’s uncle had made an offer to buy P’s horse
and wrote that if he does not here from P he considered the horse sold to him. The
court held that P’s silence did not amount to acceptance.

c) Therefore Ben is advise that he cannot prescribe silence as a condition for

acceptance in his offer to Zoe as this would be invalid.

Revocation of Acceptance

7. Alice proposes, by a letter sent by post, to sell her house to Ben. Ben accepts the
proposal by a letter sent by post. Later, Ben has a change of mind and now wants to
revoke his acceptance. Advise Ben his rights under the law.
Ans:
a) The issue here is about revocation of acceptance i.e. whether Ben can revoke his
acceptance after having posted his letter of acceptance.

b) The law in S5(2) states that revocation of acceptance must be made before the
communication of acceptance is complete against the proposer but not afterwards.
See illustration to section 5 - A proposes, by letter sent by post, to sell his house to B. B
accepts the proposal by a letter sent by post. B may revoke his acceptance at any time
before or at the moment when the letter communicating it reaches A, but not afterwards.

c) S4(2) (b) states that the communication of acceptance is complete as against the acceptor
(Ben), when it comes to the knowledge of the proposer (Alice).

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d) Following s5(2) if Ben wants to withdraw his acceptance he must do so before his
communication of acceptance i.e. before his letter of acceptance reaches Alice.

e) One possible method would be for Ben to intercept his letter of *acceptance (see note
below), which he sent by post, before it reaches Alice. Ben must use a mode that is faster
than the postal mode to communicate his revocation of acceptance to Alice so that the
communication of acceptance is not complete as against the proposer Alice.

f) If Ben’s communication to revoke his acceptance reached Alice after Alice has received
and read his letter of acceptance, then Ben’s revocation is ineffective and Ben is bound
because acceptance has already come to the knowledge of Alice.
*If this is possible .e.g. today by phone or sms. In the old days we use telegram. Note – students
today do not know what is a telegram or a telex.)

8. Briefly explain the two (2) legal presumptions of intention to create legal relations in
respect of commercial and non-commercial agreements.

The two (2) rebuttable presumptions of intention to create legal relations are -

a. In commercial and business agreements the presumption is that there is always the
presence of intention to create legal relations - Esso Petroleum Co. Ltd v Customs and
Excise Commissioner.

b. In social, domestic and family agreements, the presumption is that there is no intention
to create legal relations – Balfour v Balfour.

9. Max promises his wife Celine, that he will give her a diamond studded gold bracelet for
their wedding anniversary next month. Celine replied, “Are you serious about it?” Max
wrote his promise on a piece of paper, signed it and placed it on his wife’s dressing
table. In response, Celine promise Max that she will hold a grand dinner for the family
and friends to celebrate the occasion. She will engage a famous caterer to prepare the
dinner at her own expense. Analyse the legal impact of the above arrangement.

a. The issue here is whether Max’s promise in a family arrangement which was put in
writing constitutes a valid contract.

b. In Balfour v Balfour it was held that an agreement between a husband and his wife was
not binding because in social, domestic and family agreements, the presumption is that
there is no intention to create legal relations.

c. But this was proven otherwise in the case of Meritt v Meritt where the husband agreed to
pay the wife a monthly maintenance and in return for the wife paying for the charges to
their matrimonial home he wrote and signed a document that he would transfer the said
property to her. He later failed to transfer the property to the wife.

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It was held that there was a valid agreement because the parties had the intention to create
a legal relation when the matter was put in writing and the wife had provided
consideration by agreeing to pay for the mortgage to the house.

d. In this case, Max’s letter to Celine showed an intention to create legal relations and that
Celine by agreeing to hold a grand dinner at her own expense can amount to
consideration, then there is a valid contract between them as in Meritt v Meritt.