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CHAPTER 3

Acceptance
INTRODUCTION

 The principles governing acceptance are:


(i) meaning and requirements of acceptance;
(ii) modes of communication of acceptance;
(iii) revocation of acceptance;
(iv) approach to contract formation; and
(v) offer and acceptance issues in electronic contracts.

 MEANING OF "ACCEPTANCE"
◦ Section 2(b) of the Contracts Act defines an acceptance as follows:
“when the person to whom the proposal is made signifies his assent thereto, the proposal
is said to be accepted: a proposal when accepted, becomes a promise.”
 Section 7 of the Contracts Act provides:
◦ In order to convert a proposal into a promise the acceptance must -
◦ (a) be absolute and unqualified;.
◦ (b) be expressed in some usual and reasonable manner,
Thus, an acceptance is an unequivocal expression of assent to the terms of the offer and
must be absolute and unqualified. An acceptance must also be expressed in some usual and
reasonable manner and it must be communicated.
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 REQUIREMENTS OF ACCEPTANCE
◦ An acceptance, to be valid, must be absolute and unqualified - must
correspond and is made in response to the offer.
◦ The effect of s 7(a) of the Contracts Act is that an acceptance must be an
unconditional assent to the terms proposed in the offer.
 This principle 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 (paras 56, 95, pp 46,
72).2
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There are 3 situations, the acceptance is not absolute and
unqualified.

1. Counter-offer by offeree
 A classic case to illustrate this point is Hyde v Wrench (1840) 3
Beav 334.
 In this case, the defendant wrote to the plaintiff on June 6 offering to
sell his farm for £1,000. The defendant immediately called on the
defendant and offered to purchase the farm for £950. On June 27, the
defendant replied to the plaintiff that he was 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. The question was whether a contract had been
concluded between the parties. The Court held that there was
no binding contract.
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 Lord Langdale MR stated:
… 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. I think that it was not afterwards competent for him to
revive the proposal of the defendant, by tendering an acceptance of
it; and that, therefore, there exists no obligation of any sort between
the parties ...
 In this case, 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 and he
cannot now revive it by tendering a subsequent acceptance.
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 These principles have been applied by the Malaysian courts in
Malayan Flour Mills Bhd v Saw Eng Chee (Administrator of the
estate of Saw Cheng Chor, deceased) & Anor [1997] 1 MLJ 763
wherein the relevant portions have been reproduced as follows:
◦ In deciding whether there is a concluded contract in a given case, the court will
have to examine all the circumstances to see if a party may be assumed to
have made a firm offer and if the other may likewise be taken to have
accepted that offer - a situation often referred to as a meeting of the mind
upon a common purpose or consensus ad idem.
◦ In as much as an offer must consist of a definite promise to be bound on the
terms specified, the acceptance must be communicated to the offerer by 'an
external manifestation of assent, some word spoken or act done by the offeree
or by his authorised agent which the law can regard as the communication of
acceptance to the offerer'.
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 What constitutes an effective communication of acceptance
must necessarily depend on the circumstances of the case.

 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 (see
also s 7 of the Contracts Act 1950).

 A counter-offer by the offeree not only fails as an acceptance. It also


generally amounts to a rejection of the original offer, which
therefore cannot subsequently be accepted.
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 However, a counter-offer needs to be
distinguished from a mere request for
information (which does not reject or destroy an
offer).
◦ In Stevenson, Jaques & Co v McLean (1879-1880) 5 QBD 346, the
parties were negotiating for the sale of iron and ultimately the
defendant wrote to the plaintiffs fixing 40s, per ton, net cash, as the
lowest price for the sale, and stating that he would hold the offer open
till the following Monday. The plaintiffs on Monday morning at
9.42 a.m. 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 did not 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 arrival of the defendant's telegram, the plaintiffs,
having at 1 p.m. found a purchaser for the iron, sent a telegram at 1.34
p.m. to the defendant stating that they had secured his price. Upon the
defendant's refusal to deliver the iron, the plaintiffs brought an action
against him for non-delivery of the same.
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 Lush J held:
◦ “Then, again, the form of the telegram is one of inquiry. It is
not 'I offer forty for delivery over two months,' which would have
likened the case to Hyde v. Wrench (3 Beav 334), where one
party offered his estate for 1000/., and the other answered by
offering 950/.Lord Langdale, in that case, held that after the 950/.
had been refused, the party offering it could not, by then agreeing to
the original proposal, claim the estate, for the negotiation was at an
end by the refusal of his counter proposal. 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.” at 350.
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2.Terms of offer amended at time of acceptance
 If the acceptance contains clauses adding on or amending
the terms of the offer, it is not absolute and unconditional
and there is no valid acceptance.
 In Jones v Daniel [1894] 2 Ch. 332. in reply to a written offer by
the defendant to purchase the plaintiff's property for £1,450, the
plaintiff's solicitors wrote accepting the offer, and continued: "We
enclose contract for your signature. On receipt of this signed by you
across the stamp and deposit we will send you copy signed by him".
 The enclosure was a contract with the usual conditions of sale
providing for a deposit of 10%, fixing a date for completion, and
limiting the period of the defendant's title. The Court held that by
the addition of a new document (the enclosed contract),
the acceptance was not absolute but amounted to a
counter-offer which was never accepted by the defendant.
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3.Acceptance made "subject to contract" or to fulfil condition precedent
• It is not unusual to find commercial documents containing phrases such
as "subject to contract", "without prejudice" or "a formal agreement
would be prepared and executed".
• The question arises whether these qualified statements constitute a valid
acceptance bringing forth legal obligations to the parties. There are two
approaches to this matter:
1. There is no contract and the court will construe such words so
as to postpone liability until the formal document is signed.
2. The parties have already entered into a legally binding
contract and the execution and signing of the document is a
mere formality.
• In Daiman Development Sdn Bhd v Mathew Lui Chin Teck & Anor Appeal,
1978] 2 MLJ 239, FC; [1981] 1 MLJ 56, PC (Appeal from Malaysia), the Privy
Council analysed the effect of the phrase "subject to contract":
“ The purpose of the construction is to determine whether the parties intend
presently to be bound to each other or whether, no matter how complete their
arrangements might appear to be, they do not so intend until the occurrence of
some further event, including the signature of some further document or the
making of some further arrangement.
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• The question is one as to expressed intention and is not to be
answered by the presence or absence of any particular form of words.
But, in general, employment of the formula "subject to contract" as a
condition of their arrangement will preclude the present assumption by
the parties of contractual obligations.”
The Privy Council 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.

• In Art-Is At Work Sdn Bhd v Sony Music Entertainment (M) Sdn


Bhd [2000] 5 CLJ 559 at 571 per Abdul Malik Ishak J: "The paramount
consideration in interpreting the phrase 'subject to contract' and its
variants would be to look for the intentions of the parties. 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".
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 In Kam Mah Theatre Sdn Bhd v Tan Lay Soon, [1994] 1 MLJ 108,
SC, the alleged contract contained a proviso that the sale and
purchase agreement shall incorporate "other usual terms and
conditions".
◦ In the circumstances, the Supreme Court was of the view that the proviso would
have the same effect as if the formula "subject to contract" had been in the
document.
◦ 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.

 Similarly, in Lim Chia Min v Cheah Sang Ngeow & Anor [1997] 2
CLJ 337, FC the Federal Court held that when the parties
"proposed that a formal agreement would be prepared and
executed", they must have meant what they said.
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 There are cases where the court held that the execution and signing
of the agreement is a mere formality. In Prism Leisure Sdn Bhd v
Lumut Marine Resort Bhd 16 [2002]5 CLJ 391 , Abdul Malik Ishak
J stated:
◦ 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 … I have earlier reproduced passages from the judgment of Edgar
Joseph Jr. SCJ. in the case of Ayer Hitam Tin Dredging Malaysia Bhd v YC Chin
Enterprises Sdn Bhd [1994] 3 CLJ 133 which showed that even though the
parties contemplated the execution of a formal contract that would not prevent a
binding contract from being in force. 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 … I reiterate that from the available evidence the intention of
the parties can clearly be seen to mean that the execution of a 'formal agreement'
was merely an expression of the desire of the parties as to the manner in which the
transaction which was already agreed upon will go through…
 The Court held that there was a valid, legal and binding
contract between the parties and that the defendant had
breached that concluded contract.
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• In Charles Grenier Sdn Bhd v Lao Wing Hong [1996] 3 MLJ 327,
FC. the Court followed the earlier Federal Court decision, Lim Keng
Siong & Anor v Yea Ah Tee [1982] 2 MLJ 39 on this point.
• 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. Rather, when read in the context
of correspondence and the objective aim of the transaction, it was indicative of an
intention to merely formalise the agreement already concluded between
the parties. In this case, the parties to the transaction, the property, the price and the
essential terms had all been identified with sufficient clarity.

3.Acceptance must correspond to offer


• The first requirement above that an acceptance must be absolute
and unqualified is part of the wider requirement that an
acceptance must correspond and is made in response to the
offer itself.
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 Cross offers not an acceptance
◦ There can be no valid acceptance if there are two cross offers. In Tinn v Hoffman
& Co (1873) 29 LT 271, the Court discussed the effect of two offers, identical in
terms, which had crossed in the post.
Blackburn J held that:
“The promise or offer being made upon each side in ignorance of the promise or
the offer made on the other side neither of them can be construed as an
acceptance of the other.” at 279.

 Knowledge of offer before acceptance


◦ There are two conflicting decisions whether acceptance can take place if
the acceptor is not aware of the offer. In Gibbons v Proctor, (1891) 64 LT 594,
the Court allowed the claim for a reward even though the claimant was
not aware of the offer of the reward. In this case, the defendant published on
May 29 a handbill for a reward of £25 to any person who could give information
leading to the conviction of a perpetrator of a certain crime, such information to be
given to a superintendent of the police named Penn.
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 The plaintiff was a police officer and in the early morning of May 29,
before the bill was published, communicated to a fellow policeman
named Coppin important information which led to the conviction of
the offender. This information was eventually conveyed to
Superintendent.
 Penn the following morning of May 30, after the time when the said
handbills had been delivered to and had been distributed to the
neighbouring police stations. The defendant's counsel submitted that
the plaintiff was not entitled to the reward since he knew nothing of
any promise, nor was any in existence at the time he gave the
information.
 The Court ruled that the plaintiff was entitled to the reward,
since the information had reached Penn after the publication
of the handbill and the announcement therein contained the
defendant's offer of the reward to the informant.
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 A different decision was given in a similar case in Fitch & Anor v
Snedaker 38 NY 248 (1868). In this case, the sheriff of a county
offered a reward for information leading to the apprehension and
conviction of the murderers associated in a crime. The informers (the
plaintiffs) provided information concerning the murder, but failed to
obtain the reward from the sheriff. With respect to the first informer,
he was not entitled because his information was given before the
sheriff made the offer of a reward. With respect to the second
informer, he was not entitled because his information was given
before he was aware of the sheriff's offer of a reward. Woodruff J
stated:
◦ The defendant is proceeded against as upon his contract to pay, and the first
question is, was there a contract between the parties?
◦ To the existence of a contract there must be mutual assent, or in another form
offer and consent to the offer. The motive inducing consent may be immaterial, but
the consent is vital. Without that there is no contract. How then can there be
consent or assent to that of which the party has never heard?
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 On the 15th day of October, 1859, the murderer, Fee, had, in


consequence of information given by the plaintiffs, been
apprehended and lodged in jail. But the plaintiffs did not, in giving
that information, manifest any assent to the defendant's offer, nor act
in any sense in reliance thereon, they did not know of its existence.
The information was voluntary, and in every sense (material to this
case) gratuitous. The offer could only operate upon the plaintiffs
after they heard of it. It was prospective to those who will, in the
future, give information, etc.

An offer cannot become a contract unless acted upon or assented


to.
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• Motive of acceptor at time of acceptance
• In Williams v Carwardine 5 C7 P 566, the plaintiff knew of a reward but gave
the information leading to the discovery of the murderers, not for the reward, but
to "ease her own conscience and in hopes of forgiveness". The Court held that
her motive was not material; as long as she came within the terms of
the handbill, it was sufficient.
• A different decision was arrived at by the Australian court in R v Clarke (1927)
40 CLR 227. In this case, the Government of Western Australia offered a reward
"for such information as shall lead to the arrest and conviction of the person or
persons who committed the murders" of two police officers. Clarke, who had
seen the offer, gave information that led to the arrest of one person, and the
conviction of that person and one other. When giving that information, he was
under arrest on a charge of murder. He then claimed payment of the reward. The
Court held that the government was under no contractual obligation
to pay him the reward:
“… in giving the information he was not acting on or in pursuance of or in
reliance upon or in return for the consideration contained in the
proclamation, but exclusively in order to clear himself from a false charge
of murder... he has, in my opinion, neither a legal nor a moral claim to the
reward .” at 231.
Modes of Communicating Acceptance

◦ An acceptance to be effective must be communicated. Mental assent is


insufficient but there must be some external manifestation of acceptance. The
acceptor must do something to signify his intention to accept, i.e., he
must communicate his acceptance to the offeror.
◦ In Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, the defendants
had for some years supplied the plaintiffs with coals. It was suggested by the
defendants that a contract should be entered into between them. After their
agents had met, the terms of the agreement were drawn up by the plaintiffs' agent
and sent to the defendants. The head of the defendants' firm filled up certain parts
of the agreement which had been left blank, inserted the name of the proposed
arbitrator, wrote "approved" at the end of the page, and signed his own name. The
defendants' agent sent the document back to the plaintiffs' agent, who put it in his
desk. Nothing further was done to execute the agreement.
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 For some time, both parties acted in accordance with the
arrangements stated in the document. Subsequently, the defendants
declined to continue the supply of coals in this manner. The
plaintiffs brought an action for damages for breach of contract. The
defendants denied the existence of any contract for the supply of
coals.
 In this case, the House of Lords held that there was no acceptance
of the offer. Although there may be mental assent, the act of the
plaintiff's agent putting the document into his desk would not
amount to communication of the acceptance; however, in this case,
the House of Lords held that by virtue of the course of
dealings of the parties in the ordering and supply of the
coals, such conduct amounted to an acceptance.
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• Section 3 of the Contracts Act provides for the communication of
offer and acceptance as follows:
• “The communication of proposals, the acceptance of proposals, and the
revocation of proposals and acceptances, respectively, are deemed to be
made by any act or omission of the party proposing, accepting, or
revoking, by which he intends to communicate the proposal, acceptance,
or revocation, or which has the effect of communicating it.”
• Section 4(2) of the Contracts Act provides that the communication
of an acceptance is complete -
(a) 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; and
(b) as against the acceptor, when it comes to the knowledge of the
proposer.

• This is further explained in Illustration (b) that the


communication of the acceptance is complete as against A,
the proposer, when the letter is posted; and as against B, the
acceptor, when the letter is received by A, the proposer.
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 Section 9 of the Contracts Act provides, inter alia, that as far as an
acceptance is made in words, the promise is said to be express. If the
acceptance is made otherwise than in words, the promise is then said
to be implied.Acceptance may thus be made through conduct.

 Section 8 of the Contracts Act provides for such acceptance where it


is through the performance of conditions in a proposal, as seen in the
case of Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484; [1893]
1 QB 256.

 Section 7(b) of the Contracts Act provides that where the mode of
acceptance is specified in the offer, the acceptor must communicate
his acceptance in that mode. If no mode is specified, acceptance by any
usual and reasonable manner which shows the acceptor's intention to
accept is sufficient.
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 Acceptance by post/telegram
◦ Communication of acceptance has posed difficulties where there is a
time lag between sending and receiving and in situations where the
acceptance is not received by the offeror without the fault of either
party.
◦ Thus, while the general rule at common law is that acceptance is
complete when it is brought to the notice of the offeror, an exception is
the postal acceptance rule. This rule stipulates that acceptance is complete
when the letter containing such acceptance is posted, or when the telegram
containing such acceptance is handed in.
◦ In Household Fire and Carriage Accident Insurance v Grant (1879) 4 EX D
216; 41 LT 298, CA, the defendant made an application for shares in the plaintiff's
company under circumstances from which it must be implied that he authorised
the company, in the event of their allotting to him the shares applied for, to send
the notice of allotment by post. The company did allot him the shares, and posted a
letter duly addressed to him containing the notice of allotment, but it was found as
a fact that the letter never reached its destination.
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• The defendant never paid the price of the shares as stated in the
application. Subsequently, the company went into liquidation and the
official liquidator applied for the unpaid price of the shares from the
defendant. The defendant declined to pay on the ground that he was
not a shareholder.
• The Court of Appeal affirmed the judgment of Lopes J and
held that the defendant was liable as a shareholder. In this
case, the Court applied the postal rule. Thus, the communication
of the company's acceptance of the defendant's application for, and
allotment of shares which was sent by post was complete once it was
posted. Thesiger J explained the rationale of the postal rule as
follows:
• “I see no better mode than that of treating the post office as the
agent of both parties ... But if the post office be such common agent,
then it seems to me to follow that, as soon as the letter of acceptance
is delivered to the post office, the contract is made as complete and
final and absolutely binding as if the acceptor had put his letter into
the hands of a messenger sent by the offerer himself as his agent to
deliver the offer and receive the acceptance . . .
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 I am not prepared to admit that the implication in question will lead
to any great or general inconvenience or hardship. An offerer, if he
chooses, may always make the formation of the contract which he
proposes dependent upon the actual communication to himself of the
acceptance. If he trusts to the post he trusts to a means of
communication which, as a rule, does not fail, and if no answer to his
offer is received by him, and the matter is of importance to him, he
can make inquiries of the person to whom his offer was addressed.
On the other hand, if the contract is not finally concluded, except in
the event of the acceptance actually reaching the offerer, the door
would be opened to the perpetration of much fraud, and, putting aside
this consideration, considerable delay in commercial transactions, in
which despatch is, as a rule, of the greatest consequence, would be
occasioned; for the acceptor would never be entirely safe in acting
upon his acceptance until he had received notice that his letter of
acceptance had reached its destination” at 301.
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 The postal rule has also been applied in Adams v Lindsell
(1818) 1B & Ald 681. In this case, the defendants, who were dealers
of wool, had on September 2, written to the plaintiffs, woollen
manufacturers, offering to sell to them a number of fleeces. They
required an answer "in course of post". The letter was misdirected by
the defendants, and consequently was not received by the plaintiffs
until September 5. On the same evening, the plaintiffs wrote an
answer, agreeing to accept the offer on the terms proposed. The
acceptance did not reach the defendants until September 9. On
September 8, the defendants, not having received an answer on
September 7, as they had expected (which they would have, if their
letter had not been misdirected), sold the wool to a third party.
 The Court applied the postal rule of acceptance and held
that the acceptance was complete as against the defendants
on September, 5 ,i.e., prior to the revocation of their offer
through the sale of the wool to the third party on
September 8.
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• The Court held that if the rule was that no contract could be formed
until the acceptance was actually received, no contract could ever be
completed; for if the defendants were not bound by their offer till the
answer was received, the plaintiffs ought not to be bound till after
they had received the notification that the defendants had received
their answer and assented to it, and so it might go on ad infinitum.
• In the above case, the defendants specified that the
acceptance be made via the post. Where it is not specified,
an acceptance is to be made in the usual and reasonable manner.
• In Henthorn v Fraser [1892] 2 Ch 27, CA the Court of Appeal
inferred that both parties would have contemplated that the letter be
sent by post.
.
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 In this case which involved the offer of an option to purchase some
houses, Lord Herschell stated:
“In the present case an authority to accept by post must be
implied. Although the Plaintiff received the offer at the
Defendants' office in Liverpool, he resided in another town, and
it must have been in contemplation that he would take the offer,
which by its terms was to remain open for some days, with him
to his place of residence, and those who made the offer must
have known that it would be according to the ordinary usages of
mankind that if he accepted it he should communicate his
acceptance by means of the post... Where the circumstances are
such the acceptance is complete as soon as it is posted” at 35.
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 However, in Holwell Securities Ltd v Hughes [1974] 1 WLR 155, CA,
also a case of an option to purchase property, the Court of Appeal had
refused to make a similar inference. In this case, the defendant granted
the plaintiffs an option to purchase certain property. The option
provided that it "shall be exercisable by notice in writing to the
[defendant]". The plaintiff's solicitor sent a written notice exercising the
option by ordinary post to the defendant but it never reached the
defendant.
Lawton Lj referred to the postal rule and to Henthorn's
case above but held that it would not apply if the offer
expressly specifies that the acceptance must reach the
offeror and if application of the rule causes "manifest
inconvenience and absurdity".
 The Court placed much emphasis on the meaning of notice which must
mean that it must be known or intimated to the vendor who never was
since the letter carrying the information went astray.
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 In Lee Seng Heng & Ors v Guardian Assurance Co Ltd [1932]
MLJ17, the plaintiffs insured their stock in trade with the defendants
against fire. Subsequently, a fire broke out on the insured premises and
the plaintiffs made a claim under the policy. The defendants' solicitors
wrote to the plaintiffs saying that on the date of the fire, the policy
had ceased to exist as they had previously written to the plaintiffs
cancelling the policy. This letter was never received by the plaintiffs as
there was no post office at Buloh Kasap (where the insured property
was situated). The nearest post office was at the town of Segamat and
the practice at Segamat was to send a postman to Buloh Kasap only
when the amount of correspondence justified a special journey. The
letter in question had been kept at Segamat and had only been
brought to Buloh Kasap by the postman after the fire. As the plaintiffs'
premises had been burnt down, the addressee could not be found.
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• Munson CJ stated:
• “The only point, therefore, left for me to decide is whether the post was properly
used here as an agent by the Defendants in sending their letter of the 27th March.
The Plaintiffs acted from Buloh Kasap five miles from Segamat which is some 125
miles from Singapore and some 50 miles from Malacca. It is difficult to see how they
were ordinarily to communicate if not by post ...I hold as Farwell J. did in Bruner v.
Moore, that "the parties in this case contemplate that the post might be
used as a means of communicating on all subjects connected with the
contract." In these circumstances it is clear that the sender of the letter is not
responsible for any delay in the post I hold, therefore, that the rescission of the
policy was effected at the moment that the letter of the 27th March was posted,
that is on the 27th March, 1931, and that the policy was non-existent at the date of
the fire…”
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 Acceptance by telex/telephone
◦ Communications through the telex and telephone are different from
posting and the postal acceptance rule does not apply.
◦ They are considered instantaneous communication where parties are
regarded to be in each other's presence and is complete only when it is received.
◦ The leading case on this is the English Court of Appeal's decision in Entores Ltd
v Miles Far East Corporation [1955] 2 QB 327, CA. In this case, the plaintiffs
were an English company and the defendants were an American corporation with
agents all over the world, including a Dutch company in Amsterdam. The plaintiffs
wished to make a contract with the defendants' Dutch agents for the purchase of
copper cathodes from the defendants. A series of communications passed by telex
between the plaintiffs and the Dutch company, the material one being a counter-
offer made by the plaintiffs on September 8, 1954, and an acceptance of that offer
by the Dutch agents on behalf of the defendants received by the plaintiffs in
London by telex on September 10, 1954.
Continue..
 The plaintiffs later alleged that there had been a breach of contract
by the defendants. They applied for leave to serve notice of a writ
on the defendants in New York on the ground that the contract
was made in England and, therefore, fell within the Rules of the
Supreme Court. The defendants contended that the contract was
made in Holland. The Court ruled that the communication
through telex in this case was instantaneous and the
contract was made at the place where acceptance was
received, in this case, in London.
 In this case, Denning LJ considered the matter in stages:
◦ When a contract is made by post it is clear law throughout the common law
countries that the acceptance is complete as soon as the letter is put into the
post box, and that is the place where the contract is made. But there is no clear
rule about contracts made by telephone or by telex.
◦ Communications by these means are virtually instantaneous and stand on a
different footing. The problem can only be solved by going in stages. Let me first
consider a case where two people make a contract by word of mouth in the
presence of one another.
Continue..
• Suppose, for instance, that I shout an offer to a man across a river or a
courtyard but I do not hear his reply because it is drowned by an aircraft
flying overhead. There is no contract at that moment. If he wishes to
make a contract, he must wait till the aircraft is gone and then shout back
his acceptance so that I can hear what he says. Not until I have his answer
am I bound…
• Now take a case where two people make a contract by telephone.
Suppose, for instance, that I make an offer to a man by telephone and, in
the middle of his reply, the line goes 'dead' so that I do not hear his words
of acceptance. There is no contract at that moment. The other man may
not know the precise moment when the line failed. But he will know that
the telephone conversation was abruptly broken off: because people
usually say something to signify the end of the conversation. If he wishes
to make a contract, he must therefore get through again so as to make
sure that I heard. Suppose next, that the line does not go dead, but it is
nevertheless so indistinct that I do not catch what he says and I ask him
to repeat it. He then repeats it and I hear his acceptance. The contract is
made, not on the first time when I do not hear, but only the second time
when I do hear. If he does not repeat it, there is no contract. The contract
is only complete when I have his answer accepting the offer.
Continue..
• Lastly, take the Telex. Suppose a clerk in a London office taps out on
the teleprinter an offer which is immediately recorded on a teleprinter
in a Manchester office, and a clerk at that end taps out an acceptance.
If the line goes dead in the middle of the sentence of acceptance, the
teleprinter motor will stop. There is then obviously no contract. The
clerk at Manchester must get through again and send his complete
sentence. But it may happen that the line does not go dead, yet the
message does not get through to London. Thus the clerk at
Manchester may tap out his message of acceptance and it will not be
recorded in London because the ink at the London end fails, or
something of that kind. In that case, the Manchester clerk will not
know of the failure but the London clerk will know of it and will
immediately send back a message "not receiving." Then, when the fault
is rectified, the Manchester clerk will repeat his message. Only then is
there a contract. If he does not repeat it, there is no contract. It is not
until his message is received that the contract is complete.
• My conclusion is, that the rule about instantaneous communications
between the parties is different from the rule about the post. The
contract is only complete when the acceptance is received by the
offeror and the contract is made at the place where the acceptance is
received” at 332-334.
Continue..
• This rule on instantaneous communication of telex acceptances was
also applied in Brinkibon Ltd v Stuhag Stahl [1983] 2 AC 34, HL.
In this case, where an offer was made by telex in Vienna and was
accepted by a telex message from London to Vienna. The House of
Lords held that the contract was made in Vienna.

• Acceptance by conduct
• An acceptor may by his conduct indicate his intention whether he has or has not
accepted an offer. In Taylor v Allon [1966] 1 QB 304 the appellant's motorcar
had been insured by an insurance company called "The Federated Employers
Insurance Association Ltd", the policy expiring on April 5, 1964. He obtained a
temporary cover note for 30 days from a new insurance company on April 16. It
was found as a fact that on the expiration of the old policy he never intended to
renew it with the old insurance company. His old insurance company sent him a
temporary cover note for 15 days from April 6.
Continue…
 The appellant was convicted of using a motorcar on the road without
insurance against third party risks. He argued that he was covered by the
cover note which was offered to him on April 6 and that he had
accepted it by conduct. The Court rejected his argument as he had not
shown that "he knew of the temporary cover, that he acted in reliance
on it, and thereby had accepted the offer contained in it“ at 312.
 In this case, when the appellant was stopped by the police and was
asked to produce his insurance certificate, he produce the expired
certificate of insurance and the cover note from the new insurance
company which commenced on April 16. When the police pointed out
that, therefore, on April 15 he was not covered, he did not refer to the
temporary cover note, but said that he had been negotiating a change of
insurance companies, and did not realise that the original certificate had
run out.
 Where parties conduct themselves in a manner which
indicates that they consider themselves bound by an
agreement between them, a contract will be held to have come
into existence.
Continue..
 Two Malaysian cases also illustrate acceptance through conduct. In
Woon Yoke Lin (Berniaga sebagai Syarikat Ceritaku) v United
Estate-Projects Berhad [1998] 4 AMR 4052, the High Court
held that the defendants, by their conduct, had accepted the
plaintiff's offer to rent a kiosk in Subang Parade which was owned
by the defendants. The Court referred to the following five
expressions of conduct of the defendants: first, they did not reply
within 14 days (the booking form stated that if the plainitif's
application was not accepted the deposit would be refunded within
14 days); secondly, they accepted the booking fees and paid this
sum into their own account; thirdly, they did not return this sum of
money within 14 days as provided in the booking form; fourthly,
they could have rejected the tenancy agreement and the money
which accompanied it upon receipt of these items, but they kept it;
and fifthly, instead of rejecting the plaintiff's offer, they negotiated
with the plaintiff to relocate.
Continue..
• In EMS Bowe (M) Sdn Bhd v KFC Holdings (M) Bhd & Anor [2000]
1 AMR 677, the plaintiffs submitted a tender for some works to the
defendants. Subsequently, the second defendant issued to the plaintiffs a
draft letter of award for the works and had also instructed the plaintiffs
to order in advance materials for the works. The plaintiffs ordered the
materials but the award was given to another contractor. The High
Court held that a draft offer acted upon by one party with the
knowledge and concurrence of the other party has converted it into a
written agreement and thus there was a valid and binding contract in
this case.

• Acceptance by performing conditions stipulated in offer


• In Carlill v Carbolic Smoke Ball Co [1892] 2 QB 484; [1893] 1 QB 256, the Court
of Appeal held that Mrs Carlill had indicated her acceptance by performing the
conditions set out in the advertisement. In this case, Mrs Carlill had contracted influenza
after using the smoke balls in the manner specified in the advertisement. The defendants'
submission that Mrs Carlill did not inform them of her intention to accept their offer of
the reward was rejected by the Court. It was held that Mrs Carlill had accepted the
offer by performing the conditions stated in the offer. This mode of acceptance is
recognised in s 8 of the Contracts Act that "performance of the conditions of
a proposal ... is an acceptance of the proposal".
Continue..
 Acceptance by silence
◦ An issue that arises is whether silence can amount to an acceptance. In
Fraser v Everett (1899) 2 SLJ 81; (1889) 4 Ky 512, the Court held
that the defendant who had contracted for the transfer of scrip was
entitled to obtain what he had bargained for and could not be
compelled to accept a bearer-warrant. It was the plaintiff's contention
that, by not replying to the broker's letter of April 25 informing him
that the certificates were being exchanged for bearer-warrants, the
defendant must be taken to have waived this objection. In relation to
this submission, the Court held that "... there is rule of law like the
saying "Silence gives consent" applicable to mercantile contracts. In this
case, the omission to reply does not constitute a waiver".
Continue..
 In Felthouse v Bindiey (1862) 11 CBNS 869; 142 ER 1037, the
plaintiff wrote to his nephew offering to buy the nephew's horse and
adding that "If I hear no more about him, I consider the horse is mine
at 301. 15s". The nephew did not reply and no money was paid. The
horse remained in the nephew's possession. Six weeks afterwards, the
defendant, an auctioneer who was employed by the nephew to sell his
farming stock, was directed by the nephew to reserve the horse in
question, as it had already been sold, but by mistake had put it up with
the rest of the stock and sold it. The plaintiff sued for conversion of the
horse and the issue arose whether there was -a concluded contract
between the plaintiff and his nephew for the sale of the horse.
 The Court held that there was none. Although the nephew had
intended to sell the horse to the plaintiff at the price at which the
plaintiff had named, this was not communicated and silence did not
amount to an acceptance. Willes J stated:
“It stood an open offer ... the nephew in his own mind
intended his uncle to have the horse at the price which
he (the uncle) had named 15s but he had not communicated
such intention to his uncle, or done anything to bind himself . .”
Continue..
 The decision in Felthouse v Bindley has been supported on three
grounds:

(1) silence is ambiguous and it is difficult to infer from it an intention


to accept.
(2) acceptance must be communicated to the offeror so that he
knows when a contract binds both parties.
(3)the rule prevents an offeror from exploiting an offeree's inertia by
making him contractually liable unless he takes the trouble to reject
the offer express.
Continue..
 In Weatherby v Banham (1832) 5 C & P 228, "silence" was held
to have legal consequences, especially where reasonable
opportunities exist to reject the offer but the acceptor had
failed to do so.
 In this case, the plaintiffs were the publishers of the Racing Calendar. For
some years, they had supplied a copy of the Racing Calendar to one Mr
Westbrook. Upon the death of Mr Westbrook, the defendant succeeded
to his property and went to live at his house. The plaintiffs, not knowing
of Mr Westbrook's death, continued to send the Racing Calendar, which
was directed to him. They were received by the defendant, and there
was no evidence that the defendant had ever offered to return them.
The plaintiffs subsequently brought an action to recover the price of the
Racing Calendars supplied to the defendant.

Lord Tenterden CJ held that:


If the defendant receive the books, and use them, I think that the
action is maintainable. These books come addressed to the
deceased gentleman, whose estate has come to the defendant,
and he keeps the books. I think that the defendant is clearly liable
...
Continue..
• In Re Selectmove Ltd [1995] 2 All ER 531, CA the Court of
Appeal gave its view that silence could be interpreted as acceptance
in exceptional circumstances. Peter Gibson LJ stated:
• Where the offeree himself indicates that an offer is to be
taken as accepted if he does not indicate to the contrary by
an ascertainable time, he is undertaking to speak if he does
not want an agreement to be concluded. I see no reason in
principle why that should not be an exceptional
circumstance such that the offer can be accepted by silence.
But it is unnecessary to express a concluded view on this
point” at 535-536.
Continue..
• Mode of acceptance stipulated by offeror
• An offeror may prescribe the mode of acceptance. In Manchester Diocesan
Council for Education v Commercial & General Investments Ltd, [1970] 1 WLR241,
Buckley J laid guidelines on this matter :
(i) If an offeror stipulates by the terms of his offer that it may, or that it shall, be accepted in
a particular manner a contract results as soon as the offeree does the stipulated act,
whether it has come to the notice of the offeror or not. In such a case the offeror
conditionally waives either expressly or by implication the normal requirement that
acceptance must be communicated to the offeror to conclude a contract.
(ii) ii) If an offeror, who by the terms of his offer insists on acceptance in a particular manner,
he is entitled to insist that he is not bound unless acceptance is effected or
communicated in that precise way, although if the other party communicates his
acceptance in some other way, the offeror may by conduct or otherwise waive his right
to insist on the prescribed method of acceptance.
(iii) (iii) If the offeror has prescribed a particular method of acceptance, but not in terms
insisting that only acceptance in that mode shall be binding, acceptance communicated to
the offeror by any other mode which is no less advantageous to him will conclude the
contract.
(iv) iv) If an offeror intends that he shall be bound only if his offer is accepted in some
particular manner, it must be for him to make this clear.
Continue…
 In Manchester Diocesan Council of Education was referred to
in Yates Building Co Ltd v RJ Pulleyn & Sons (York) Ltd. The
Times 26th February 1975; (1975) 19 SJ 370. In this case, the
respondents (Pulleyns) granted the appellants (Yates) options to
purchase three portions of land. The option clause "shall be
exercisable by notice in writing ... such notice to be sent by
registered or recorded delivery post to the registered office of
Pulleyns or the offices of their said solicitors".
 However, this notice was sent by ordinary post and not by
registered or recorded delivery post. It arrived before the
expiry date but the respondents' solicitors replied that the
requirement that the notice be sent by registered or recorded
delivery post had not been- fulfilled and returned the cheque.
 Lord Denning MR held that where the offeror has
prescribed a particular method of acceptance, but not in
terms insisting that only acceptance in that mode shall be
binding, acceptance communicated to the offeror by any
other mode which is no less advantageous to him will
conclude the contract.
Continue…
Under the Contracts Act, s 7 provides that an acceptance must
be absolute:
(a) be absolute and unqualified.
(b) be expressed in some usual and reasonable manner, unless the
proposal prescribes the 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.
Under s 7 of the Contracts Act, if the acceptance is not made
in the manner prescribed by the proposer, the onus is on the
proposer to insist that it shall be accepted in the prescribed
manner. If he does not insist, then he is deemed to have
accepted the acceptance.
REVOCATION OF ACCEPTANCE
 Section 5(2) of the Contracts Act provides:
◦ An acceptance may be revoked at any time before the
communication of the acceptance is complete as against
the acceptor, but not afterwards.
 Following s 4(2) of the Contracts Act, the communication
of acceptance is complete as against the acceptor when it
comes to the knowledge of the proposer. Thus, an
acceptance may be revoked at any time before or at the
moment the letter communicating the acceptance reaches
the proposer, but not afterwards (see the last illustration
in s 5).
 If the revocation is made within the time frame allowed, it
is then necessary to determine when the communication
of the revocation is complete.
Continue..
 This is provided in s 4(3) of the Contracts Act as follows:
◦ The communication of a revocation is complete -
(a) as against the person who makes it, when it is put
into a course of transmission to the person to
whom it is made, so as to be out of the power of the
person who makes it; and
(b) as against the person to whom it is made, when it
comes to his knowledge.

 Illustration (d) in s 4 of the Contracts Act provides an


example of when communication of a revocation is
said to be complete, that is, where B revokes his
acceptance by telegram, it is complete as against himself when
he despatches it, and as against the proposer when it reaches
the proposer.
Continue..
 APPROACH TO CONTRACT FORMATION
◦ The traditional analysis of contract formation is to consider whether there is an
invitation to treat, offer, counter-offer or acceptance, and if there is an acceptance,
to determine that the parties are bound from that point of time.
◦ In practical commercial life, matters are not so straightforward and there is much
correspondence going back and forth, with each party insisting on their own
terms. This is commonly referred to as "the battle of the forms". In Butler
Machine Tool Co Ltd v Ex-Cell 0 Corp (England) Ltd [1979] 1 WLR 401
Lord Denning MR addressed this issue as follows:
◦ “In many of these cases our traditional analysis of offer, counter-offer, rejection,
acceptance and so forth is out-of-date ... The better way is to look at all the
documents passing between the parties and glean from them, or from the conduct
of the parties, whether they have reached agreement on all material points, even
though there may be differences between the forms and conditions printed on the
back of them
Continue..
 Applying this guide, it will be found that in most cases when there is a
'battle of forms' there is a contract as soon as the last of the forms is
sent and received without objection being taken to it ... The difficulty
is to decide which form, or which part of which form, is a term or
condition of the contract.
 In some cases the battle is won by the man who fires the last shot.
He is the man who puts forward the latest term and conditions: and,
if they are not objected to by the other party, he may be taken to
have agreed to them ... In some cases, however, the battle is won by
the man who gets the blow in first.
 If he offers to sell at a named price on the terms and conditions
stated on the back and the buyer orders the goods purporting to
accept the offer on an order form with his own different terms and
conditions on the back, then, if the difference is so material that it
would affect the price, the buyer ought not to be allowed to take
advantage of the difference unless he draws it specifically to the
attention of the seller.
Continue..
• There are yet other cases where the battle depends on the shots fired
on both sides. There is a concluded contract but the forms vary. The
terms and conditions of both parties are to be construed together. If
they can be reconciled so as to give a harmonious result, all well and
good. If differences are irreconcilable, so that they are mutually
contradictory, then the conflicting terms may have to be scrapped and
replaced by a reasonable implication. I think that the documents have
to be considered as a whole…
Lord Denning's approach however had not been fully indorsed and was
rejected by Lord in the House of Lords decision in Gibson v Manchester
City Council [1979] 1 WLR 294 at 297 302 .
In Malaysia, while the traditional analysis is still applicable, the courts have
also adopted a broader approach to contract formation. In Floral Trends
Ltd v Li Onn Floral Enterprise (M)Sdn Bhd [2006] 6 CLJ 525 the High
Court applied an objective approach to consider whether a contract
existed. Following this approach, an assessment is made in relation to a
reasonable person in the position of the offeree.
Continue..
 Thus, parties are deemed to have reached an agreement if, viewed
objectively, they appear to have agreed to it. The law is not concerned
with what is in the mind of the parties but what can be inferred from
their conduct .
 The Court also explained that it is usually not possible to ascertain a
person's subjective approach when bargaining for a contract. In Cipta
Cermat Sdn Bhd v Perbandaran Kemajuan Negeri Kedah [2007] 2
MLJ 746 CA. the Cour of Appeal referred to G Percy Trenthan Ltd v
Archital Luxfer Ltd [1993] 1 Llyod’s Rep 2. where Stein LJ applied the
governing criterion of "reasonable expectations of honest men" and the
yardstick of "the reasonable expectation of sensible business men".
 Applying these principles, the Court held that the plaintiff and the
defendant had come to a final agreement even in the absence
of a formal contract. The Court also referred to the objective
approach to take account of the circumstances surrounding the
making of the contract and emphasised that the Court is not
concerned with the subjective intention of the parties.
Continue..
 In Kwek Seow Kee & Anor v KT Packaging Sdn Bhd
(No 1) [1998] 2 CLJ Supp 472 the High Court also
applied these principles.
Abdul Malik Ishak J stated:
◦ I am constrained to say that a contract may be found, as a fact, to
be in existence despite the fact that it cannot be analysed precisely
into an offer and corresponding acceptance provided that the
terms have been fully agreed and executed by the parties.
◦ In this case, the Court found that a contract came into
existence when the first plaintiff handed the bank drafts to
the defendant and eventually the bank drafts were
credited into the defendant's bank account.
Contracts entered into by electric
means
• In Malaysia, the Electronic Commerce Act 2006 (Act 658) was
enacted to address the challenges of electronic contracting.
• This Act is modelled on the United Nations Commission on
International Trade Law (UNCITRAL) Model Law on
Electronic Commerce issued in 1996 which aims to provide a
regime to promote the functional equivalence of electronic contracting
with paper based transactions.
• Electronic contracts are given recognition in s 7 of the Act
which provides as follows:
• (1) In the formation of a contract, the communication of proposals, acceptance of
proposals, and revocation of proposals and acceptances or any related communication
may be expressed by an electronic message.
• (2) A contract shall not be denied legal effect, validity or enforceability on the ground
that an electronic message is used in its formation.
• Part IV of the Act titled "Communication of Electronic Message" sets out the
provisions on attribution of electronic message, time of despatch, time of receipt, place
of receipt and acknowledgement of receipt (ss 17, 20, 21, 22, 23 and 24 respectively).
These sections have to be read with the rele
FORMATION OF ELECTRONIC CONTRACTS

 With the increasing use of electronic contracts, the legal issues


arising in the formation of contract stage are significant to the study
of contract law.
 The main issues arising in the formation of electronic contracts in
the areas of offer and acceptance are examined briefly below.
 A preliminary issue is whether an advertisement on a website (or
“webvertisements") is an offer or merely an invitation to
treat.
 "Webvertisements" have been likened to shop displays due
to the interactivity of websites where a product can be
examined and an offer made to buy the product without
leaving the virtual store.
 Thus, a "webvertisement" is considered as an invitation to
treat unless it clearly indicates that the advertiser intends to
be bound upon acceptance.
Continue..
 An issue of particular importance in electronic contracts
formation is the rules governing acceptance.
 Different rules governing the acceptance of offers, particularly the
rules governing communication of acceptance, apply to different
modes of acceptance.
 For electronic transactions, a prospective purchaser who intends to
purchase an item or service may make the acceptance through
electronic mail (email) or on the web page itself (click wrap
contracts).
Continue..
 An email is considered the digital equivalent of a letter. After typing
the content and the address of the desired recipient, the sender puts
it into his outbox (the digital equivalent of the post box).
 This is then collected by his mail server, which forwards it to the
recipient's mail server, which then delivers it to the recipient's inbox
(the digital equivalent of the recipient's letter box).
 As for click wrap contracts, these are formed using the link between
server and client machines which is in place during data exchanges on
the Web.
 On the web page where "webvertisements" are placed, there is a
hypertext order form which the customer may fill out. At the end of
the form, there is a button with the words, "Submit" or “I accept" or
the equivalent. Once the customer clicks this button, the order is
submitted to the website operator.
Continue..
 For email acceptances, it has been opined that the postal rule applies,as
email communications are non-instantaneous in nature. The email message is
typically routed by an Internet Service Provider (ISP) server to a local
server and then to the recipient's computer terminal. There may also be
delays or the email message may be lost. However, there is a contrary view
that instead of the postal rule, the receipt rule should apply to email
acceptances. The argument is that unlike the post, communication through
email is not as established as emails can get lost, become garbled or rejected
by firewalls. Further, unlike postal communications, email senders can know
quickly if the email does not reach its destination and can take remedial
steps immediately. Whether the postal rule or the receipt rule applies
determines when and where a contract is formed; this is a vital question as
it impacts on the issue of the applicable law and jurisdiction governing the
contract.
(Murray, AD, “Entering into Contracts Electronically: The Real W.W.W.” in
Edwards, L & Waedle, C (eds), Law and the Internet:: A Framework for
Electronic Commerce, 2nd Edn (Oxford: Hart Publishing, 2000) p22.
Continue..
 Most authors agree that the postal rule will not apply to click wrap
contracts that are concluded over the Web.
 Unlike emails, click wrap communication between servers and
clients are considered instantaneous as there is an inbuilt self-
checking mechanism called a "checksum" .
 If the checksum does not arrive or is not confirmed, the
client/server will know within seconds that there is a breakdown of
communication. As the sender of the acceptance is able to know
almost instantaneously whether the message has been successfully
received, the postal rule does not apply.
 Thus, for click wrap acceptances, they need to be received to be
effective and the receipt rule applies.
Continue..

 But, there is a case in UK that state otherwise. That email is an


instantaneous communication and postal rule does not apply.
 In Thomas v BPE Solicitors (2010) EWHC 306 (Ch), the English High
Court held that the general rule in communication of acceptance is
that the acceptance of an offer is not effective until communicated to
the offer. (See Entores Ltd v Miles Far East Corp and Brinkibon Ltd v
Stahahag Stahl and Stalhwarenhandelsgesellschaft mbH). This applies to
acceptance made by some instantaneous menas of communication. The
same principle applies to communication by email, at least where the
parties are conducting matter by email.The postal rule does not apply.