Section 7(a) of the Contracts Act that “in order to convert a proposal into a promise the acceptance must be absolute and unqualified”
In section 7(b) of the same Act, the acceptance must “be expressed in some usual and reasonable manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in that manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but, if he fails to do so, he accepts the acceptance”
This principle of acceptance 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.
1. Counter offer by the offeree
Hyde v Wrench [1840] 3 Beav 334
Facts: the defendant on June 6 wrote to the plaintiff offering to sell his farm for 1,000 pounds. The plaintiff immediately called and offered the defendant 950 pounds for the purchase of the farm. On June 27, the defendant replied to the plaintiff, 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 pounds. The issue was whether a contract has been concluded between the parties.
The court held that there was no binding contract. 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
Lord Langdale MR: “… 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.”
Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the estate of Saw Cheng Chor, deceased) & Anor [1997] 1 MLJ 763.
Facts: In the instant case, by proposing to purchase all the four lots, the plaintiff's managing director Teh Liang Teik had in fact taken upon himself not only to vary the term but also subject matter of the original offer.
The court held that the offeree's intention to accept must be conclusive and he must not treat the negotiation between the parties as still open to the process of bargaining. He must unreservedly assent to the exact terms of the offerer. If while purporting to accept the offer as a whole, he introduces a new term which the offeror has not the chance of examining, he is in fact making a counter-offer. The effect of this in the eyes of the law is to destroy the original offer.
Stevenson, Jaques & Co v McLean (1879-1880) 5 QBD 346
Facts: the parties were negotiating for the sale of iron and ultimately the defendant wrote to the plaintiff fixing 40s, per ton, net cash, as the lowest price, and stating that he would hold the offer open till the following Monday. The plaintiffs on Monday morning telegraphed to the defendant: "Please wire whether you would accept forty for delivery over two months, or if not, longest limit you could give". The defendant didn’t reply and on the same day he sold the iron to someone else and telegraphed the plaintiffs at 1.25 p.m. that he had done so. Before the telegram arrived, the plaintiffs found a purchaser for the iron at 1p.m. and sent a telegram at 1.34 p.m. to the defendant saying that they had secured his price.
Lush J: “...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.”
3. Acceptance made “subject to contract” or to fulfil condition precedent
In commercial documents, phrases such as ‘subject to contract’, ‘without prejudice’ or ‘a formal agreement would be prepared and executed’ are commonly found. The issue is whether those statements constitute a valid acceptance bringing forth legal obligation to the parties. There are two main approaches to this issue. Firstly, that there is no contract and the court will construe such words as to postpone liability until the formal document is signed. The second approach is that the parties have already entered into a legally binding contract and the execution and signing of the document is a mere formality.
Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor Appeal, 1978] 2 MLJ 239, FC; [1981] 1 MLJ 56, PC
It was held that “the express terms of the purchase contained in the booking pro forma were not made "subject to contract". The clauses pointed strongly towards obligations presently accepted rather than to a suspension of obligations until some further event or agreement had occurred or been made”.
Art-Is At Work Sdn Bhd v Sony Music Entertainment (M) Sdn Bhd [2000] 5 CLJ 559
Abdul Malik Ishak J: "...The court must determine whether the parties had already entered into a legally binding contract where the execution of the written contract is merely a formality or whether the parties intended that their rights and obligations under the contract should be suspended until the formal and legally binding contract is finalised and executed".
Kam Mah Theatre Sdn Bhd v Tan Lay Soon, [1994] 1 MLJ 108, SC
Facts: the alleged contract contained a proviso that the agreement shall incorporate ‘other usual terms and conditions’.
The Court held that the formula "subject to contract" gives rise to a strong presumption of the necessity of a further formal contract. Cogent evidence is required to displace this strong presumption. On the facts, the Court held that there was no contract at all and that the document was dependent on the signing of a formal contract to be further negotiated and approved by both parties.
Lim Chia Min v Cheah Sang Ngeow & Anor [1997] 2 CLJ 337, FC
Federal Court held that when the parties "proposed that a formal agreement would be prepared and executed", they must have meant what they said.
Pengurusan Projek Daya Sdn Bhd & Anor v. Konsortium Lapangan Terjaya Sdn Bhd [2011] 1 LNS 210
The issue of this case is whether for the purpose of submitting a proposal to the Government on the Privatisation Project there was an oral agreement between the plaintiffs and the defendant that the work done by the plaintiffs would be carried out on a 'success bid' basis in the terms as pleaded.
The court held that “…the parties were still negotiating the terms of the appointments of the Plaintiffs. The appointments of the plaintiffs were subjected to a final and formal agreement between the parties…”
Prism Leisure Sdn Bhd v Lumut Marine Resort Bhd 16 [2002]5 CLJ 391
Abdul Malik Ishak J: “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 there was a valid, legal and binding contract between the parties and that the defendant had breached that concluded contract.
Charles Grenier Sdn Bhd v Lao Wing Hong [1996] 3 MLJ 327, FC
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.
Diamond Peak Sdn Bhd & Anor v Dr Tweedie [1982] 1 MLJ 97
The court held that “I found on the evidence, both oral and documentary, that there was an offer by the defendant and a definite acceptance by the plaintiffs constituting a binding agreement.”…and the use of the words "the technical details I leave to my lawyers" were in my judgment and I so found, to use the oft-quoted words of Parker J…"a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through".
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