Simba Steel: A Counter-Offer, a Stale Guarantee and a Price Surge
On 5 May Simba Steel Ltd wrote to Jua Builders offering 400 tonnes of steel at KSh 62,000 per tonne, 'open for acceptance until 30 May'. On 18 May Jua replied: 'We accept, provided you deliver in two lots and allow 60 days' credit.' Simba did not reply. On 27 May Jua wrote: 'We confirm acceptance on your original terms.' Simba has refused to deliver. Steel has since risen 14% and Jua had already contracted to resell the 400 tonnes at KSh 70,000 per tonne. Separately, in 2023 Mrs Adhiambo, a Simba director, signed a document reading: 'I guarantee payment of all sums Jua Builders may owe Simba Steel.' It was signed in connection with a contract that has since been paid in full; Simba has made no new advance to Jua on the strength of it. Jua now owes KSh 900,000 on other invoices.
1. Was a binding contract formed by Jua's letter of 27 May? Explain your reasoning step by step.
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Step 1 - Was there a valid offer? Yes. Simba's letter of 5 May was definite (subject matter, quantity, price) and communicated, and it was held open until 30 May.
Step 2 - What did the 18 May letter do? It did not accept. Acceptance must be unqualified; a reply that accepts 'provided' delivery is split and credit is given introduces new terms. That is a counter-offer, and a counter-offer kills the original offer - it cannot be accepted later unless the offeror revives it.
Step 3 - Could Simba's silence revive it? No. Silence is not acceptance, and the counter-offer was never accepted by Simba - no delivery, no unequivocal conduct indicating acceptance.
Step 4 - What is the 27 May letter? It purports to accept an offer that no longer exists. It is at most a fresh offer by Jua, which Simba has refused.
Step 5 - Lapse. Even on Jua's best case the offer expired on 30 May.
Conclusion: No contract. Simba is under no obligation to deliver, and Jua cannot claim the loss of its resale profit. Had a contract existed, Jua's expectation loss would have been 400 × (70,000 − 62,000) = KSh 3,200,000 - which is why the analysis matters commercially, not just technically.
2. Is Mrs Adhiambo personally liable for the KSh 900,000? Advise Simba on what it can and cannot recover from her.
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The formality is satisfied; the substance is not.
- The document is in writing and signed by the guarantor, so the writing requirement for guarantees is met.
- The wording ('all sums Jua may owe') is wide enough on its face to cover the KSh 900,000 - a continuing guarantee is not limited to sums existing at signature.
- But there is no consideration. The guarantee was given in 2023 in respect of a contract that has been fully paid. Past consideration is not good consideration, and Simba has made no new advance or granted no forbearance to Jua on the faith of the guarantee. A guarantee of future sums only becomes enforceable when the creditor actually advances money in reliance on it.
Conclusion: Mrs Adhiambo is not liable on this document as things stand. She is also not liable merely as a director - a company is a separate legal person and directors are not answerable for its debts unless they guarantee them.
What Simba can do
- Recover the KSh 900,000 from Jua Builders as an ordinary debt - that liability is unaffected.
- Obtain fresh, dated guarantees from the directors, supported by a new facility or forbearance (for example, agreeing to accept payment in instalments), which supplies consideration.
- In future, draft guarantees to recite the consideration and state a maximum liability.
Drafting lesson: a guarantee should be signed at or before drawdown, recite the facility it supports, state a financial limit and be dated.
3. Jua's managing director threatens to sue for KSh 3,200,000 loss of profit and argues that Simba 'kept the offer alive' by staying silent in May. Advise Simba on its position and on the commercial options.
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Legal position
- The claim fails on formation: no acceptance of the original offer ever occurred, and the 18 May counter-offer was never accepted. Simba's silence is not acceptance and imposes no duty to speak.
- There is therefore no breach, and no expectation loss of KSh 3,200,000 is recoverable.
- There is no reliance claim either: Jua committed to its resale before any contract existed, at its own risk. Nothing Simba did or said induced Jua to resell.
- A 14% price rise is ordinary market movement and irrelevant to liability; it would only have mattered through a frustration argument, and price volatility of this kind is foreseeable and priced in.
Risks not to overlook
- Any part-performance, delivery or written confirmation by a junior officer after 18 May could be argued as acceptance of Jua's counter-offer. Check the file and warehouse records before replying.
- Reply in writing, calmly, setting out the formation analysis - do not let the dispute drift into a negotiation about damages.
Commercial options
- Refuse the claim but offer a fresh contract at the current market price, since the relationship has future value.
- If Simba wants the volume, accept Jua's delivery-in-two-lots and 60-days-credit terms on a new, properly signed contract - effectively accepting the counter-offer late, which is a fresh agreement.
- Introduce a price-adjustment clause for future contracts so neither party is exposed to a move of this size.