ACCEPTANCE IN LAW OF CONTRACT

ACCEPTANCE

Definition

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

s.2 (c) calls the person accepting the proposal the ‘promisee’

Mirror principle

Acceptance must be accepted on exactly the same terms as the offer without any variation or modification – it must be absolute and unqualified (s.7)

If the parties are still negotiating, an agreement is not yet formed:

LAU BROTHERS & CO v CHINA PACIFIC NAVIGATION CO LTD [1965] 1 MLJ 1

In this case, negotiations for the delivery of logs were conducted through a series of telegrams and letters. Whilst still in negotiating stage, the defendants withdrew. Was there a binding contract between two parties?

The court held that the parties were still in a state of negotiation and no agreement was formed. Therefore, the defendants were justified in withdrawing.

Any modification / variation to the offer is a counter-proposal and is equivalent to rejection.

HYDE v WRENCH (1840) 3 Beav. 334

The defendant offered to sell his estate to the plaintiff on 6 June for 1000. On 8 June, in reply, the plaintiff made a counter proposal to purchase at 950. When the defendant refused to accept this pffer on 27 June, the plaintiff wrote again that he was prepared to pay the original sum demanded.

The court held that no contract existed between them. The plaintiff had rejected the original proposal on 8 June so that he was no longer capable of accepting it later.

Request for additional information is not a counter-offer.

STEVENSON v MC LEAN (1880) 5 QBD 346

The defendants wrote to the Plaintiffs offering to sell them iron at 40s, nett cash, and indicating that he would hold the offer open till Monday. On Monday morning at 9.42, the plaintiffs sent a telegram to the defendant saying:’ Please wire whether you would accept forty for delivery over two months, or if not, longest limit you would give.’ No response to this telegram was received from the defendant, but after receiving it, he sold the iron to another purchaser and then at 1.25 pm sent a telegram to the plaintiffs advising them of the sale. At 1.34 pm before the defendant’s telegram was received, the plaintiff sent the defendant a further telegram accepting the original offer. The plaintiffs claimed that the last telegram was an acceptance of the defendant’s offer.

Held – the court agreed with the plaintiffs’ claim and held also that the principle in Hyde v wrench could not be applied in this case.

Acceptance must be communicated with some positive action – silence cannot be imposed as acceptance

FELTHOUSE V. BINDLEY (1862), 11 Cb (NS) 869

Is the leading English case in contract law where the long-standing maxim that "silence does not amount to acceptance" was first expressed. Mr. Felthouse wanted to buy one of his nephew's horses. Felthouse wrote to his nephew who wanted to sell the horse to him, stating that "If I hear no more about him, I consider the horse mine..." Subsequently, there was no notice from his nephew and Felthouse considered the horse his own. The horse was not delivered to uncle Felthouse and later there was an auction at the nephew's property for the other livestock. The nephew told the auctioneer, Mr. Bindley, not to sell the horse at the auction. By accident Bindley sold it anyway. Felthouse sued the auctioneer in the tort of conversion however the action could only succeed if it could be shown that Felthouse actually owned the horse. The court ruled that Felthouse did not have ownership of the horse as there was no acceptance of the contract. Acceptance must be communicated clearly and cannot be imposed due to silence of one of the parties. The uncle had no right to impose a sale through silence whereby the contract would only fail by repudiation. Though the nephew expressed interest in completing the sale there was no communication of that intention.

Acceptance must be within reasonable time

s. 6(b) :

What amounts to ‘reasonable time’ is a question of fact depending on the circumstances of each case.

Acceptance through Post

It is an exception of the general rule that acceptance must be communicated.

s.4 : Communication of acceptance is complete:

i. 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.

ii. As against the acceptor, when it comes to the knowledge of the proposer.

Illustration:

B accepts A’s proposal by a letter sent by post. The communication is complete:

As against A, when the letter is posted

As against b, when the letter is received by A

Acceptance through Telex, Phone and e-mail

For acceptance through telex, fax and telephone, the same principle as that of instantaneous communication applies i.e. it must be communicated to the offeror to be valid

ENTORES LTD V. MILES FAR EAST CORP [1955] 2 QB 327, CA.

Is a landmark English decision in contract law on the moment of acceptance of a contract over telex. Lord Denning found that the regular postal rule did not apply for instantaneous means of communications such as a telex. Instead, acceptance occurs where the message of acceptance is read. Entores was a London-based trading company that sent an offer for the purchase of copper cathodes by telex from a company based in Amsterdam. The Dutch company sent an acceptance by telex. The contract was not fulfilled and so Entores attempted to sue the owner of the Dutch company for damages. The controlling company, Miles Far East Corp., was based in the U.S. and so Entores could only bring the action in the U.S. if it could be found that the contract was formed in London rather than Amsterdam. Lord Denning found that the contract was formed in London. He noted that the instantaneous nature of telex meant that regular rules of acceptance by post did not apply. Similar to a contract formed over the telephone, if the line goes dead before acceptance is communicated the offeror will never know but the offeree would be able to tell. As such, the offeror should not be bound.

BRINKIBON V. STAHLUND STAHL MBH

Facts: This is a conflict of laws case, in which Brinkibon wants to sue, in English jurisdiction, an Austrian company for breach of an alleged contract for the supply of steel. Brinkibon received a telex from the Austrian company which constituted a counter offer. Brinkibon then sent a telex to the Austrian company which constituted acceptance. Brinkibon alleged a breach of contract, and wanted to sue. The issue was whether the contract was made in England (in which case Brinkibon could sue) or in Austria (Brinkibon could not sue). It was held that no contract existed. The contract was made in Austria. Brinkibon failed to show that that the contract was made in the English jurisdiction, because the court applied the reception rule, and held that acceptance was made when the telex reached Austria, and from this, that the contract was created in Austria -- hence Austrian jurisdiction applies. The general rule “is that a contract is formed when acceptance of an offer is communicated by the offeree to the offeror. And if it is necessary to determine where a contract is formed it appears logical that this should be at the place where acceptance is communicated to the offeror.” Brinkibon’s conduct (opening a bank account for payment) is seen as acceptance as well.

Ratio: A contract which is brought into existence by an acceptance communicated by telex is deemed to be mad e at the place at which the telex was received. This is an exception to the "postal rule." So the "postal rule" does not apply to fax transmissions.

For communication through e-mail – the main issue that needs to be addressed is whether acceptance through e-mail constitutes instantaneous communication or delayed communication.

If it is non-instantaneous, then the postal rule will apply that is acceptance is deemed complete once the acceptor click the SEND button with his mouse.

This is looking at the nature of the e-mail itself where any message send will be channeled to a service provider before it reaches the intended recipient – similar to that of using postal service

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