The Legal Issues Report: Yacht's Case

The question states that Johari offered Ben to purchase his yacht, Thunder for RM2 million by posting a letter to Ben but Johari wanted to revoke the offer that he made. Meantime, Ben immediately posted a letter of acceptance to Johari that he wanted to purchase the yacht. The issue in the given question is that whether there is a binding contract between Ben and Johari and whether Ben can institute legal action if Johari refuses to sell his yacht.

An offer is a promise in exchanging any performance or something of value between two parties. Referred to Section 2(a) of the Contracts Act 1950 ‘when one people signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to the act or abstinence, he is said to make a proposal’ (Lee & Detta, 2011). An offer can be made orally or in written (Lee & Detta, 2011). The offeror is the person who proposes to present the offer. Offered is the person who accepts the offer. An offer can be made to a specific person or to the public. Bilateral offer is an offer that made to a specific person or to a group of persons (Krishnan, Rajoo & Vergis, 2009). The offeror has to present certain terms in the offer and leaving the decision of its acceptance or refusal to the offeree. The offer and the terms which include the offer must be stated precisely and clearly.

In the question given, Johari is the offeror while Ben is the offeree. The letter stated clearly that Johari is willing to sell his yacht, Thunder to Ben for RM2 million. The yacht is known as something of value in the offer between Johari and Ben.

The offeror must communicate the offer to the offeree and the offeree must have the actual knowledge of the offer otherwise the offer is invalid. Section 4(1) of the Contracts Act states that ‘the communication of the proposal is complete when it comes to the knowledge of the person to whom it is made.’ (Krishan, Rajoo & Vergis, 2009). This is illustrated in the case of Taylor v Laird (1856). Where in that case, the plaintiff was employed to work as a captain of a ship that owned by the defendant. During the course of the voyage, the plaintiff voluntarily stopped working as the captain and helped to work the ship back to Britain as a normal crew member without informing the defendant about the changes of his working position and he wanted to claim the wages for his work. The court held that the plaintiff could not do so as he did not communicate the offer of changing his working position to the defendant and the defendant has no option to accept or refuse the offer. Therefore, there was no binding agreement between the plaintiff and the defendant (Krishan, Rajoo & Vergis, 2009). Section 3 of Contracts Act 1950 states that ‘the communication of an offer or a proposal is deemed to have been made by any act or omission of the party proposing by which he intends to communicate the proposal or which has the effect of such communication.’

In the given question, the communication mode of the offer between Ben and Johari is by posting a letter. Johari made an offer to sell his yacht to Ben and posted a letter to Ben on 3 March. Effective communication is done once Ben received the offer letter from Johari.

Section 2(b) of Contracts Act 1950 states that ‘when the person to whom the proposal is made signifies his assent to the offer, the proposal is said to be accepted: a proposal, when accepted, becomes a promise.’ (Krishnan, Rajoo & Vergis, 2009). There must be an acceptance made by an offeree in order to validate a contract. Acceptance must be “absolute” and “unqualified” stated under Section 7(a) of Contracts Act 1950. The offeree must accept and has the actual knowledge of the offer. An acceptance must be an agreement that assents to all the terms which include in the offer or else it will be a counteroffer. (Krishan, Rajoo & Vergis, 2009). An acceptance can be made in oral or in writing. Section 7(b) of Contracts Act 1950 states that “be expressed in some usual and reasonable manner unless the proposal prescribes the manner in which it is to be accepted (Lee & Detta, 2009). If the proposal prescribes a manner which it is to be accepted, and the acceptance is not made in that manner, the proposal 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.” Acceptance must be communicated and silence cannot amount to acceptance. Section 9 of Contracts Act states that ‘So far as the proposal or acceptance of any promise is made in words, the promise is said to be express. So far as the proposal or acceptance is made otherwise than in words, the promise is said to be implied.’ (Krishan, Rajoo & Vergis, 2009). This can be illustrated in the case of Felthouse v Bindley (1862).

Where in the case, the plaintiff wanted to buy a horse from his nephew but there was a negotiation with the price of the horse. After the discussion, the plaintiff posted a letter to the nephew stated that the horse will be him if he did not hear more from the nephew. His nephew did not reply but wishing to sell the horse to him and asked the defendant, the auctioneer who is in charge to sell the farm stock for the nephew, to keep the horse. However, the defendant accidentally sold the horse to the third party. The court held that there was no contract between the plaintiff and his nephew as there was no communication for acceptance of the offer has been made although his nephew has the intention to sell the horse (Richards, 1995). However, Postal Rule can be applied if the acceptance is made by letter. Section 4(2) (a) of Contracts Act 1950 stated that, an exception to the general rule where the parties have contemplated the use of the post as a means of communication (Lee & Detta, 2011). Effective acceptance is done once the letter is properly addressed, stamped, put into the letterbox and submitted to the post office. The valid contract exists even the letter of acceptance is delayed, lost in the post or the offeror may not know the acceptance. This can illustrate in the case of Household Fire Insurance Company v Grant (1879). Where in the case, the defendant posted a written application for shares in the plaintiff’s company. After that, the company posted a letter of allotment of shares to the defendant but the letter never reached to the defendant. The company went bankrupt after three years and the liquidator asked the defendant to pay for the shares. The court held that Postal Rule can be applied, the defendant was liable for the payment of shares as the acceptance took place when the letter was posted and the valid contract exists even the defendant did not receive the letter (Keenan, 2000).

In the given question, Ben sent a letter of acceptance on 10 March and the letter arrived Johari on 12 March. Ben used the reasonable mode of communication which is by posting the letter that same as the mode used by Johari. Postal Rule can be applied because the acceptance of the offer is made by letter, acceptance takes place once the letter is properly addressed, stamped, put in the post box and submitted to the post office. Thus, the actual date of acceptance is on 10 March.

Revocation of offer means canceling or withdrawal of offer that has been made. There are two conditions need to be compiled in order to revoke or withdraw the offer. First, revocation of the offer must be noticed at any time before the offer has been accepted by the offeree. The second condition which is the offeror must communicate the revocation of the offer to the offeree, therefore, the offeree has the actual knowledge of the offer has been revoked. Section 5(1) of Contracts Act provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposal but not afterward (Krishan, Rajoo & Vergis, 2009). This can be illustrated in the case of Routledge v Grant (1828). Where in that case, the defendant wrote a letter that offered to buy a house from the plaintiff and he will keep the offer up to six weeks. During the period before the end of six weeks, the defendant posted a letter to revoke his offer. After receiving the second letter from the defendant, the plaintiff accepted the defendant’s offer within the six weeks. The court held that there was no binding contract between two parties as there was no valid acceptance before the revocation of the offer.

Furthermore, the defendant can sell the house to the third party as the plaintiff did not give valuable consideration to keep the offer open for that period (Card & James, 2002). Section 6(a) states that a proposal may be revoked by the communication of notice of revocation by the proposer to the other party (Krishan, Rajoo & Vergis, 2009). This can be illustrated in the case of Dickinson V Dodds (1875). Where in that case, the defendant offered the plaintiff to buy his house and the defendant promised the plaintiff that he will keep the order until Friday but he sold the house to the third party. The plaintiff was going to accept the offer but he has not informed the defendant that he will buy the house because he knew that the defendant will keep the offer until Friday. The defendant told the plaintiff that the revocation of the offer has been made through a friend Mr. Berry to the plaintiff. The plaintiff took legal action for breach of contract against the defendant. The court held that there was no binding contract between two parties as the offer can be revoked at any time before accepted by the plaintiff. Thus, there was no deposit or valuable consideration has been given to keep the offer open to the defendant can revoke the offer at any time before acceptance (Keenan, 2006).

In the given question, Johari posted a letter to Ben to revoke the offer that he made on 9 March 2016. However, the letter of revocation reached Ben on 11 March 2016. Therefore, the actual date of revocation is on 11 March 2016 which is the date that the effective revocation has been done when Ben has the actual knowledge that the offer has been revoked.
In conclusion, revocation of the offer made by Johari is invalid as the acceptance made by Ben is done before revocation which is on 10 March while the date of revocation is on 11 March. Thus, there is a binding contract to sell the yacht between Johari and Ben. Ben is advised that he can institute legal action against Johari if Johari refuses to sell the yacht.