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 Kellys 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 that
there was a binding contract. The Council had sent Storer a communication that they
intended would be binding upon his acceptance. All Storer had to do to bind himself
to 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 Kellys 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.