Johnson wrote to Kelly, offering to sell her three blocks of shares in Pony A. Ltd. In the letter, which arrived on Friday, 1st November 2014, Johnson specifically mentioned the following, “I wish to sell my three blocks of shares at RM3,000 per block. Kelly this is a fast sale, I need fast reply, please notify me by 4th November (next Monday) if you are interested to purchase the shares”. On 1st November, Kelly posted a letter accepting the offer. The letter states “yes I accept this offer”. The letter was lost in post and did not arrive until 16 th November. However, Johnson on the 7th of November had already sole the shares to Norman.

You are required to:

(a) Advice Kelly if a contract has been concluded. (40 marks)

(b) Explain if your advice differs (if any) if Kelly’s reply reads “I will buy it at RM2,500 per block”. (10 marks)

Suggested answer

In order to answer this question, students need to examine the problem scenario from the perspective of contract law paying particular regards to the rules relating to: offers, counter offers, the postal rule of acceptance. The scenario involves two different cases which should be dealt with in turn in applying the following rules of contract law.

A contract is an agreement made between Johnson and Kelly, supported by consideration, with the intention to create legal relationship. The first requisite of any contract is an agreement (consisting of an offer and acceptance). At least two parties are required; one of them, the offeror, makes an offer which the other, the offeree, accepts.

An offer is an expression of willingness to contract made with the intention that it shall become binding on the offeror as soon as it is accepted by the offeree.

In one case, Storer v Manchester City Council (1974), the Court of Appeal found thatthere was a binding contract. The Council had sent Storer a communication that theyintended would be binding upon his acceptance. All Storer had to do to bind himselfto the later sale was to sign the document and return it.

A counter-offer arises where the offeree tries to change the terms of an original offer. If in his reply to an offer, the offeree introduces a new term or varies the terms of the offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as a "counter offer", which the original offeror is free to accept or reject (Hyde v Wrench (1840)) and as a result the offeree cannot subsequently accept the original offer.

An acceptance is a final and unqualified acceptance of the terms of an offer. To make a binding contract the acceptance must exactly match the offer. The offeree must accept all the terms of the offer. The general rule is that an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence:

Lord Denning in Entores v Miles Far East Corp (1955)

If a man shouts an offer to a man across a river but the reply is not heard because of a plane flying overhead, there is no contract. The offeree must wait and then shout back his acceptance so that the offeror can hear it. The acceptance must be communicated by the offeree or someone authorised by the offeree. If someone accepts on behalf of the offeree, without authorisation, this will not be a valid acceptance Powell v Lee (1908) 99 LT 284. However the exception is postal rule . Under the postal rule, where acceptance by post has been requested or where it is an appropriate and reasonable means of communication between the parties, then acceptance is complete as soon as the letter of acceptance is posted, even if the letter is delayed, destroyed or lost in the post so that it never reaches the offeror. ( Adams v Lindsell). It is further argued that the letter must be properly addressed and stamp. (Household v Grant (1879)

a) According to the facts of the question, Johnson was making an offer to Kelly offering to sell her three blocks of shares in Pony A, because Johnson had a strong willingness to be bound by an agreement provided Kelly accepts the terms of the offer. In order to have a valid acceptance, it is important that Kelly communicates her acceptance to Johnson. However it may be argues that the postal rule will not apply, Where the express terms of the offer exclude the postal rule, ie if the offer specifies that the acceptance must reach the offeror. In Holwell Securities v Hughes (1974, below), the postal rule was held not to apply where the offer was to be accepted by "notice in writing". Actual communication was required. According to the facts of the question, Johnson has requested that the knowledge of the acceptance be brought to his attention. Since the letter has lost in the post, there is no communication of acceptance. Thus there is no agreement between Johnson and Kelly.

b) If Kelly’s reply reads “I will buy it at RM2,500 per block”, It amounts to counter offer because Kelly has rejected the originally offer and made a new offer, which Johnson is at the liberty to accepts or not. Since Johnson, did not accepts the counter-offer, there is no agreement between Johnson and Kelly.

In spite of its wording the sign in the window does not constitute a legal offer, it is merely an invitation to treat. As such it is not an offer to sell but merely an invitation to others to make offers. The point of this is that the person extending the invitation is not bound to accept any offers made to them as may be seen in Fisher v Bell (1961) in which it was held that having switch-blade knives in the window of a shop was not the same as offering them for sale.A counter-offer arises where the offeree tries to change the terms of an original offer. The counter-offer has the same effect as an express rejection of an offer (Hyde v Wrench (1840)) and as a result the offeree cannot subsequently accept the original offer.Where acceptance is made through the postal service, it is complete as soon as the letter, properly addressed and stamped, is posted. The contract is concluded even if the letter subsequently fails to reach the offeror (Adams v Lindsell (1818)).A contract may be entered into through the exchange of executory consideration; i.e. a promise for a promise. Although the actual exchange of concrete consideration may not take place until a later time, the agreement is none the less binding from the time of the exchange of promises.