Contract Act 1950 of Malaysia

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Journal of Politics and Law

Vol. 4, No. 1; March 2011

Clarification of Rules of Acceptance in Making Business Contracts Dr. Md. Abdul Jalil Associate Professor of Law Department of Business Administration, Faculty of Economics and Management International Islamic University Malaysia (IIUM) E-mail:, Abstract Business firms and Business corporations enter into thousands of contracts everyday. Making a formal and written contract is very important for business corporations and firms although oral contracts are accepted and recognized by law. There are certain rules on making a valid formal contract. If the business firms do not have knowledge of those contract formation rules and they make contracts in ignorance of those rules, their contracts would be liable to be declared as null and void by the court of law if it is referred to it to determine its validity or to get a remedy for breach of contracts by one of the parties in the contract. In this paper I have not discussed all the elements of a valid contract. I have discussed only one of the fundamental elements of a valid contract that is ‘acceptance’. In a business contract, there must have be an ‘offer’ and an ‘acceptance’, to make a valid contract, if not the contract will not be valid, recognized and enforceable in the court of law. The objective of this paper is to clarify the rules of making a valid ‘acceptance’ which may lead to making a binding contract between the parties. Keywords: Offer, Acceptance, Rules of acceptance, Communication of acceptance, Unqualified acceptance, Revocation of acceptance 1. Introduction ‘Acceptance’ is one of the fundamental elements for making a binding contract. It is essential to determine when an acceptance is complete and a binding contract emerges. At the beginning of a business contract, the parties negotiate among themselves to buy certain goods or real property. When this negotiation takws a long time, it becomes difficult to determine when an effective acceptance has taken place (Mulcahy and Tillotson, 2004; Ball, 1983). To accept an offer, it must come to the knowledge of the offeree. In other words, the offeror must communicate the offer to the offeree. If the offer is communicated by letter through the post office but does not reach the offeree, the offer does not come to the knowledge of the offeror. Therefore, the offeree cannot accept it as he has no knowledge about the offer. How he (offeree) can accept the offer which has not brought to his knowledge (Hudson, 1968). Hence, to accept an offer it must be communicated to the offeree. To communicate the offer, the offeror may utilize any one of different communication media available at present time. It is not essential that the offeror himself has to communicate the offer to the offeree; an authorized person on behalf of the offeror may effectively communicate the offer to the offeree and in that case the offeree can accept the offer and the acceptance will be valid and binding. To make a valid contract acceptance is pertinent. Similarly, the acceptance must be communicated to the offeror. An acceptance is effectively communicated to the offeree when it comes to the knowledge of the offeree. If it does not come to the knowledge of the offeree, as a general rule, the acceptance would not be valid (Pheng and Detta, 2009; Coote, 1974). After sending the acceptance, if the offeree thinks that he has made a mistake and he wants to revoke the acceptance, he is allowed to do that under law but he needs to follow a specific rule. The rule is that he can only effectively revoke the acceptance before it comes to the knowledge of the offeror. If the acceptance has already reached the knowledge of the offeror, the offeree cannot revoke the acceptance. In that case the revocation would not be effective and enforceable against the offeror. Under postal rule, it is not necessary to bring the acceptance to the...
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