One Offer, Two Outcomes: Accepted or Revoked?
In any negotiation of an agreement, an offer sits at the heart of the process. But what happens if circumstances change after an offer is made? Not every offer can be revoked on a whim, and conversely, a response that appears to accept an offer may not always constitute valid acceptance. The timing and manner of communication, along with the clarity of the response, are critical in determining whether an offer has been accepted or revoked. This article explores the circumstances under which an offer may lawfully be withdrawn before it crystallises into a binding contract.
Revocation before acceptance1
As a general principle, an offer may be revoked at any time before acceptance is communicated to the offeror. An offer is considered revoked when the offeror communicates a notice of revocation to the offeree.2 However, once acceptance has been communicated and is complete against the offeror, the offer can no longer be revoked, and a binding contract is formed.
In addition to express revocation by the offeror, the law also recognises several circumstances under which an offer may be treated as revoked by operation of law or implication.
Lapse of time3
An offer will lapse and be deemed revoked if it is not accepted within the period specified by the offeror, or, where no time is stated, after a reasonable time has passed without acceptance.
In Ambank (2022)4, the plaintiff offered to restructure the defendant’s banking facilities, requiring the signed offer letter to be returned within 7 days. The defendant did not accept the terms within the stipulated period and instead appealed for a revision of the terms. The court held that the defendant’s failure to accept the offer within the stipulated period, where the defendant had merely requested a revision, rendered the plaintiff’s offer as having lapsed and effectively revoked.
Where no express timeframe is stated, an offer will lapse after a reasonable time. In Macon Works (1976)5, Justice Hashim Yeop Abdullah Sani observed that offers are often made for a limited time, and in the absence of a prescribed period, an offer would lapse upon the expiration of a reasonable time. What constitutes a reasonable time is a question of fact, depending on the circumstances and the nature of the transaction. An offer lapses after a reasonable time not because such a term must be implied into the offer, but because failure to accept within a reasonable time implies rejection by the offeree. Accordingly, the court may take into account the conduct of the parties after the offer is made to determine whether a delay in acceptance was unreasonable.
Failure to fulfil a condition precedent6
An offer may also be revoked where the offeree fails to satisfy a condition precedent to acceptance.
In Kopeks Holdings (2012)7, the appellant brought an action against the respondent bank, claiming losses arising from an alleged breach of a purported agreement, which the appellant argued became binding upon their acceptance of the respondent bank’s offer. The trial court dismissed the claim and found that the parties did not intend to form a concluded agreement until execution of a formal contract, as provided in the conditions precedent. The Court of Appeal upheld the High Court’s decision, reasoning that it was not the intention of the parties to disregard the stipulated conditions precedent. The appellant’s‘ acceptance’ of the letters of offer would only bind the respondent bank once the conditions precedent had been fulfilled.
Death or mental disorder of the offeror8
An offer may be revoked if the offeror dies or becomes mentally incapacitated before acceptance. However, the revocation will only be effective if the offeree is aware of the offeror’s death or mental incapacity at the time of the purported acceptance.
Qualified or conditional acceptance9
An offer may also be revoked, or deemed rejected, where the offeree responds with a qualified or conditional acceptance that alters the terms of the original offer.
In The Ka Wah Bank Ltd (1998)10, the Federal Court clarified that a reply which seeks to vary or impose new terms does not constitute an acceptance but rather a counteroffer. Such a counteroffer effectively rejects the original offer, giving rise to a new offer which the original offeror may choose to accept or decline. This principle was affirmed in PT Vision (2015)11, where it was held that the plaintiff, by introducing new terms and insisting on their compliance, had effectively made a counteroffer. As a result, the original letter of offer had come to an end, and the plaintiff could not claim any rights under it.
Conclusion
The formation of a binding contract hinges not only on what is offered, but also on how and when that offer is responded to. The law of revocation reflects a careful balance between allowing parties the freedom to withdraw from negotiations and ensuring that genuine agreements are upheld. Navigating this balance requires clear communication and an understanding of when an offer remains open or has been effectively revoked, so that parties can avoid being embroiled in disputes over the formation of a contract.
Authors: Calvin Hooi and Jess Chan
- S. 5 (1), Contracts Act 1950 ↩︎
- S. 6 (a), Contracts Act 1950 ↩︎
- S. 6 (b), Contracts Act 1950 ↩︎
- Ambank (M) Berhad v Bina Puri Holdings Bhd [2022] CLJU 398, HC ↩︎
- Macon Works & Trading Sdn Bhd v Phang Hon Chin & Anor [1976] 2 MLJ 177, OCJ ↩︎
- S. 6 (c), Contracts Act 1950 ↩︎
- Kopeks Holdings Sdn Bhd v Bank Islam Malaysia Bhd [2012] 4 MLJ 337, COA ↩︎
- S. 6 (d), Contracts Act 1950 ↩︎
- S. 7 (a), Contracts Act 1950 ↩︎
- The Ka Wah Bank Ltd v Nadinusa Sdn Bhd & Anor [1998] 2 MLJ 350, FC ↩︎
- PT Vision Renewable Fuels v Export-Import Bank of Malaysia Bhd [2015] 8 MLJ 706, HC ↩︎