Case Summary
On 25th April 2013, Curry Sdn Bhd sent a fax to sell 2000 kilograms of curry powder to Food Sdn Bhd at RM5 per kilogram. The fax clearly stated “Please telephone or fax an acceptance before 2nd May 2013”. Food Sdn Bhd faxed a letter accepting Curry Sdn Bhd’s proposal at 11 p.m on 30th April 2013. The fax’s report clearly stated that the letter has been sent to Curry Sdn. Bhd. As it was a public holiday on 1st May 2013, the office of Curry Sdn Bhd was closed and nobody knows about the acceptance of Food Sdn Bhd. It was only on the 2nd May 2013 that a staff of Curry Sdn Bhd read the fax.
The validity of the acceptance made by Food Sdn Bhd
It is imperative to note that there are several definitions of acceptance in textbooks and case law. However, the statutory definition is found in Section 2(b) of the Contracts Act, 1950. Section 2 (b) in this case states that consideration is perceived to have taken place when the person a proposal has been directed to assent to the proposal. It, therefore, becomes a promise upon the acceptance of the proposal and a fundamental step towards achieving a valid contract. The agreement by the acceptor to be bound by the terms of the proposal creates a legally binding contract (Chappell, Powell-Smith, & Sims, 2008). The acceptance is made on the terms stipulated in the proposal without any material variations. A positive response to the offer or proposal by the acceptor is a vital step in the making of a valid contract. The silence of the acceptor cannot be interpreted to mean that he or she has accepted the proposal since silence does not amount to acceptance. There are several rules that have been designed by case law and statutory provisions that have the effect of establishing the existence or non-existence of acceptance in a contract (Furmston Cheshire & Fifoot, 2006).
To start with, the acceptance must be made absolute and unqualified for it to be considered valid. Section 7(a) of the Contracts Act, 1950 provides that a valid acceptance must entail the element of absolute and unqualified statuses. In simple terms, the expression of assent should not be coupled with a preceded or subsequent condition. Any form of variations and modifications has the effect of rendering acceptance invalid. In essence, a party accepting a proposal from another party must do so without introducing terms and conditions that were not in the proposal or offer. Any form of modifications and variations introduce a counter-proposal or a counter offer. A counter-proposal has the effect of terminating the initial offer. The above element was considered in the case of Hyde v. Wrench (1840) 3 Beav. 334. An offer of 1,000 Pounds was made by the defendant to the plaintiff. The plaintiff made a counteroffer by proposing to buy the estate in the offer at 950 Pounds. Subsequently, the plaintiff changed his mind and wrote to the defendant, offering to buy according to the first proposal. The defendant refused to sell. The Court was of the opinion that the first offer of 950 Pounds by the plaintiff terminated the initial offer. The Court observed that the counter-proposal was a rejection that could not be revived at a later stage; thus, the defendant was right in failing to sell the estate to the plaintiff. A party has the right to propose another price after the first offer, provided that it is done during the negotiation stage. This position was affirmed in the case of Lau Brothers & Co. v. China Pacific Navigation Co. Ltd [1965] 1 MLJ 1. In this case, the parties conducted negotiations for a contract for the delivery of logs. The communication was made through letters and telegrams. The defendants withdrew from negotiations. The issue before the Court was whether the defendants had breached a contract. Secondly, the question of whether there was a valid contract was considered. The Court held that any party in the contract was free to vary or modify the terms at any stage since it was in negotiations. Closely related to the ongoing scenario is a situation where the contract has not yet been concluded. In such instances, the party accepting the contract may give a conditional acceptance with words implying such a condition. This imposes a condition that states that the parties do not intend to be bound (Furmston Cheshire & Fifoot, 2006).
Secondly, acceptance must be communicated for it to give rise to a valid contract. It is a legal principle of the law of contract that a proposal may be made to any person. The communication of their intentions to be bound is the only indication that a party intends to enter into a legally binding agreement. Section 7(b) of the Contracts Act, 1950 provides that communication of acceptance should be done in a usual way. In some contracts, the party offering the contract may not specify the mode of communication of acceptance. In such cases, the communication should be by way of the usual or any other mode of communication that is reasonable. The party offering the contract may specify the mode of communication in some cases. In such cases, the acceptor must communicate through the specified mode of communication (Koffman & Macdonald, 2007). The proposer may insist on the exact time when acceptance should be deemed to have taken place in given cases. The proposer may prescribe the manner in which the communication would amount to acceptance after communication has been done. The law gives the proposer wide discretion in respect to the communication of acceptance. With a clear understanding of Section 7 (b), the acceptor has the discretion of choosing a usual and reasonable mode of communication depending on the nature of the contract if there is no method prescribed by the proposer. Time is of great essence since the proposer is free to offer to other parties if the communication is delayed. In some contracts, the proposer may give a specific time frame in which one is to respond. Any acceptance communicated beyond the stipulated time is not considered valid. The proposal by Curry Sdn Bhd was made by way of fax. The proposer was clear on the mode of communication of acceptance to be used. The proposer also specified the time limit in which the acceptance should reach him. He stated that the communication should be by fax or telephone. Section 7(b) of the Contracts Act, 1950 states that communication of acceptance should be in the way the proposer states. The acceptance by Food Snd Bhd is invalid since the acceptance was by way of a letter and not telephone or fax as specified by the proposer. On the same note, the communication did not reach the proposer. Thus, there was no valid contract, and the proposer was free to propose to other people. The postal rule does not apply in the given circumstances since there was a specified mode of communication given by the proposer (Sinnadurai, 2011).
The acceptor must do some act that will signify communication or intentions to be bound by the terms in the contract. The general rule with respect to the communication of acceptance is to the effect that silence does not amount to acceptance. In the case of Felthouse v. Bindley (1862) 11 CB (NS) 869, the plaintiff wrote to the defendant offering to buy a horse. The defendant did not respond after the offer. In one of the communication, the plaintiff wrote a statement to the effect that he would consider that he had accepted the offer if the defendant did not reply. The Court held that the silence of the defendant could not amount to acceptance. Thus, there was no contract between the plaintiff and the defendant. The non-existence of communication of acceptance is enough to make a contract null. This is premised on the understanding that a contract cannot exist where the proposal has not been accepted and the acceptance communicated (Ayus, 2011). However, there are exceptions to the general rule that requires that communication should be communicated. The communication of acceptance must be brought to the attention of the proposer. The postal rule with respect to the communication of acceptance states that the time of acceptance is different compared to other modes of communicating acceptance. The postal rule is to the effect that the communication of acceptance is complete once the letter entailing the communication of acceptance is posted. Closely related to the posting of the letter is that the proper address of the letter must be contained in the letter. The letter should be stamped and dated by the attendant at the post office (Chen-Wishart, 2012). Section 4(2) (a) of the Contracts Act 1950 provides that communication of acceptance under the postal rule is considered complete once the acceptor puts the means of transmitting the communication in place. In the case of Ignatius v. Bell (1913) 2 FMSLR 115, the Court applied the provisions of Section 4, indicating that the communication of acceptance was deemed to be complete once the notice of acceptance was posted (Cheong, 2010). The proposer has the freedom to withdraw the proposal before the communication of acceptance. In the given facts, the withdrawal of the proposal by Curry Snd Bhd would be unlawful if the communication of acceptance by Food Snd Bhd was valid. This means that the withdrawal by Curry Snd was justified since no acceptance had taken place at the specific time when the withdrawal was made. The facts state that no one knew of the letter of acceptance sent by Food Sdn Bhd due to the public holiday. Therefore, the answer, in this case, is that there was no communication of acceptance if Curry Sdn Bhd had withdrawn the offer; thus, Food Sdn Bhd being the proposers, had all the rights to withdraw the offer. There was no valid communication of the acceptance up to the stipulated time. Thus, the proposer had all the rights to treat the proposal as rejected and withdraw it. However, the answer would have been different if the acceptance by Food Sdn was valid. This would have meant that Curry Sdn Bhd would withdraw from a valid contract. He would be liable for failure to perform and damages for frustrating the contract. Acceptance was not communicated in this case. Thus, there was no valid contract between Food Snd Bhd and Curry Sdn Bhd.
References
Ayus, A. M. (2011). Law of contract in Malaysia: Formation, volume 1. Petaling Jaya, Selangor: Sweet & Maxwell Asia.
Chappell, D., Powell-Smith, V., & Sims, J. H. M. (2008). Building contract claims. Oxford: John Wiley & Sons.
Chen-Wishart, M. (2012). Contract law. Oxford: Oxford University Press.
Cheong, M. F. (2010). Contract law in Malaysia. Petaling Jaya, Selangor, Malaysia: Sweet & Maxwell Asia.
Furmston, M. P., Cheshire, G. C., & Fifoot, C. H. S. (2006). Cheshire, Fifoot and Furmston’s law of contract, 15th edn. Oxford: Oxford University Press.
Koffman, L., & Macdonald, E. (2007). The law of contract. Oxford: Oxford University Press.
Sinnadurai, V. (2011). Law of contract. Petaling Jaya, Selangor Darul Ehsan, Malaysia: LexisNexis.