CHAPTER THREE

OFFER AND ACCEPTANCE

OFFER (PROPOSAL)
A contract begins with an offer. But the law of contract has used the term proposal instead of
offer. In legal parlance both are used synonymous and interchangeably. Section 2(a) has defined
a proposal as follows:
When one person signifies to another his willingness to do or to abstain from doing anything
with a view to obtain the assent of that other to such act or abstinence, he is said to make a
proposal.
An offer contains an expression of willingness to contract on specified terms without further
negotiation. On its acceptance, a legally binding contract will be formed. While the person
making the proposal is called the promisor or offeror, the person to whom the proposal is made is
called the promisee or offeree.

Example:
A writes to B, I offer to sell you my house for Rs. 20 lakhs. A is an offerer and B is the offeree.

How is an Offer Made [Section 3]

An offer can be either (a) express i.e., made in spoken or written words, or (b) implied from
conduct or circumstances.
Example:
When a public transport company runs buses on a particular route, there is an implied offer by it
to take any person on the route in return for the prescribed fare.
Offer can also be made by omission to do something, e.g., forbearance on the part of a person so
that the other takes it as his willingness.

Essentials of a Valid Offer

1. It must intend to create legal relations:

An offer to perform social, moral or religious acts is not aimed at creating any legal relations.
For instance, A invited B for dinner. B failed to arrive. A sued him for the price of food. The
court dismissed the suit on the ground that an invitation for dinner does not create any legal
relationship [Kalai Haldar vs. Sheikh 23, W.R. 217].

2. The terms of the offer must be definite and certain and not loose or ambiguous:
In Tayor vs. Portington (1855), an agreement to take a lease of a house for three years at £85 per
annum if the house was put into thorough repair and the drawing rooms handsomely decorated
according to the present style could not be enforced, as its terms were vague.

3. Offer may be of different types as follows:

i. Specific Offer
A specific offer is made to a specific individual or group of individuals.

ii. General Offer

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Also known as Unilateral offer, it is directed to the public at large. A general offer can be
accepted by any person by doing what is required under the offer. In other words, an offer need
not be made to a definite person but it must be accepted by a definite person. The principle
underlying the general offer has been underscored in the case of Carllil vs. Carbolic Smoke Ball
Co. (1893) 1QB 256.

Case: Carllil v Carbolic Smoke Ball Company (1853):

In it, a company advertised that it would pay £ 100 to anyone who catches influenza even after
taking the smoke balls manufactured by it. Mrs. Carllil used the smoke balls as per printed
instructions but still caught influenza. She was held entitled to recover the promised reward.
Where a reward is offered for information or for tracing missing persons, the offer can be
accepted only by one individual who fulfils the conditions of the offer, first of all. As soon as the
condition is first performed, the offer is closed. On the other hand, general offer is of a
continuing nature. It can be accepted by a number of persons who fullfil the conditions of offer.
It may be noted that offers of reward are considered unilateral in which there is an implied
waiver of notice of communication of acceptance.

iii. Standing Offer

In a Standing Offer, there is an undertaking to supply goods periodically as per the requirements
of the offeree. Separate acceptance is given to each of the offers leading to as many contracts as
there are acceptances [Chatturbhuj Vithaldas v Mareshwar Prashra, AIR 1954 SC 236]

Case : Bengal Coal Co. Ltd v. Honee Wadia & Co., ILR (1899) 24 Bom 97,
In it, the terms of a tender provided as follows:
To supply for 12 months with such quantities of specified articles as the company may order
from time to time. The offer in the tender was accepted. The supplier executed the orders placed
from time to time. Subsequently, he refused to execute a particular order. Held, W was bound to
supply goods within the period of tender at the agreed terms.

4. Offer must be communicated:

The first part of the definition of proposal requires it to be communicated to the person to whom
it is made. Acceptance is not possible unless offer is brought to the knowledge of the offeree.
Acceptance in ignorance of offer confers no right

Example:
In Lalman Shukla vs. Gauri Dutt (1913) 11 All LJ 489, an employer sent his servant in search of
his missing nephew. Subsequently, the employer issued hand bills offering a reward of Rs. 501
to anyone who might trace the boy. The servant brought the boy back. After some time, the
servant was dismissed. He filed a suit claiming the reward. Held, there can be no acceptance
without knowledge of the offer. Hence, B was not entitled to the reward.

5. An offer is different from the following:

(a) Answer to a question:

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When a party provides some information on the request of another, it is not intended to be acted
upon to lead to a contract.
Example:
In Harvey vs. Facey (1893) AC 522, H. telegraphed F; Will you sell us Bumper Hall Penn?
Telegraph lowest cash price. F telegraphed saying, Lowest price for Bumper Hall Penn is £ 900.
H telegraphed, We agree to buy Bumper Hall Penn for £900 asked by you. To this, H received
no reply. Held, there was no contract because F had simply quoted the lowest price. It has not
made any offer.
(b) Invitation to make offer:
The invitation is aimed at inducing the other party to conduct business by making an offer to the
inviter. Price lists, catalogues, brochures, display in show window, tenders, advertisements,
prospectus of a company, an auctioneers request for bids, goods sold on self service basis etc.,
are instances of invitation to make offer. These are not offers. The person responding to such
invitation is said to make the offer. For instance, a display of goods gives the shopkeeper the
freedom to contract so that unfortunate consequences may follow if display is held to constitute
an offer
Example:
In Pharmaceutical Society of Great Britain vs. Boots Cash Chemists (1953) 1 Q.B.401, certain
drugs (poisons) were displayed on the shelf. Under the Pharmacy and Poisons Act, no person
could sell poison without supervision of pharmacist. Issue was whether display amounted to
offer. The court held that before the customer could leave, he had to pay to the cashier where
pharmacist was standing. The display was merely an invitation to make offers. The offer comes
from the customer not from the shop and hence there was no violation of the law.
(c) Statement of intention:
A declaration of intention by a person does not give a right of action to another. For instance, an
advertisement for a concert or an auction sale is a statement of intention. If advertised action fails
to take place or the lots advertised for sale are withdrawn from sale, no legal consequences shall
arise [Harris vs. Nickerson (1873) L.R.8.Q.B. 286]. However, auction without reserve price
offering to sell to the highest bidder will amount to unilateral offer [Warlow v Harrison (1859) 1
E & E 309]

Case: Col D. I. MacPherson v M.N.Appanna and Another AIR 1951 SC 184

On receiving an offer from an intending buyer A for the purchase of a lodge owned by B, the
manager of the lodge named Y informed the owner that there was an offer of Rs. 6,000 for the
house. The owner B sent a cable in reply on the 5th August, 1944 stating that he would not
accept less than Rs. 10,000. Manager Y conveyed this fact to A on the 9th. On the 14th, A wrote
to Y confirming the oral offer of Rs. 10,000 which A had made to Y on the 11th. On the 26th
Y cabled to B as follows: "Offered Rs. 10,000. May I sell". On the same day W, another
buyer with whom B was already in correspondence, sent an offer for Rs. 11,000. B accepted it.
A sued for specific performance alleging that B's cable of the 5th was a counter-offer and as he
had accepted it on the 14th, there was a concluded contract for sale in his favour on that day.
Held, that the cable sent by B on the 5th was a mere statement of the lowest price at which he
would sell and contained no implied contract to sell at that price. A's letter of the 14th was
only a fresh offer; and as B had not accepted it there was no concluded contract in favour of A.

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6. Special conditions attached to the offer must be communicated:
Special terms attaching to the offer must be brought to the notice of the other party to be binding
on the the offeree else he will not be bound [Henderson vs. Stevenson (1875) 32 LT 709].
However, when the other party fails to read the conditions despite his attention having been
drawn towards the conditions, he would be bound.
Example:
In Parker vs. South East Railway Co. (1877) 2 C.P.D. 416, a passenger deposited a bag in the
cloakroom of a railway company. He was issued a ticket in exchange with the words see back
printed on the front side. One of these printed conditions limited the liability of the company to
£10 unless extra charge was paid. The plaintiff did not read these conditions. On the loss of his
bag, he wanted to claim the amount of actual loss. However, he was held bound by the
conditions printed at the back of the ticket.
(i) Notice of special conditions must be contemporaneous with the contract
Example: In Olley vs. Marlborough Court Ltd. (1949) 1KB 532, a couple hired a hotel room and
paid a weeks advance for boarding and lodging. When the couple went to occupy the room, they
found a notice on one of the walls. The notice provided that the hotel will not be liable for any
article stolen or lost unless handed over to manager for safe custody. Owing to negligence of
hotel staff, the couple lost some property. Held, the notice on the wall did not form part of the
contract since the couple could not see it until after the contract was made.

7. Offer must not contain any term, the non-compliance of which could lead to acceptance:

Example:
A offers by post to sell his horse to B for Rs. 2000. He writes, If you do not reply, I shall assume
you have accepted the offer. There would be no contract even if B does not reply [Felthouse vs.
Bindley (1862) 142 ER 1037].

8. Offer differs from the following:

(a) Counter offer:

It is a new offer substituting the original offer. It amounts to rejection of the original offer. For
instance, a person offered to sell his farm for £1000 to B. B offered £950. The offeror rejected it
and thereupon B agreed to pay £1000. Held, A is not bound because original offer had been
rejected by making a counter offer [Hyde vs. Wrench (1840) EWHC Ch J 90]. It may be noted
that a request for further information does not amount to counter offer

Example:
In Stevenson, Jacques & Co v McLean (1880) 5 QB 346, the defendant offered to sell at a
particular price, open till Monday. The plaintiff sent a telegram Monday stating whether the
defendant would accept at the price offered by the defendant for delivery over two months or if
not, the longest limit you could allow. Defendant did not give any reply but in the afternoon at 1.
25 pm, defendant telegraphed to the plaintiff that he had sold the stock to another party. On
Monday at 1.34 pm, the plaintiff telegraphed his acceptance to the defendant.
Issue was whether the plaintiffs telegram amounted to a counter offer to the defendant?

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The court held that the plaintiffs telegram was not a counter offer but an inquiry whether the
terms could be modified.

(b) Cross offer:

Where two identical offers are made by parties in ignorance of each other and both letters cross
in the post, the offers are said to be cross offers. In such a case, the court will not construe one of
the letters as offer and the other as an acceptance [Tinn vs. Hoffman (1873) 29 LT (271)].

Standard Form Contracts (SFCs)

Standard Form Contracts (SFC) known as adhesion contracts are widely used in several fields
by housing companies, courier companies, credit card firms, insurance and banking companies.
These are pre-printed and may impose harsh or onerous conditions on the other party without
any negotiations. Such contracts do not involve negotiations and the customer has to sign the
same on a take it or leave it basis. Most of the SFC clauses may be written in fine print in a
complicated legal language. Ordinary parties cannot have prior knowledge of various terms of
the contract for lack of access to relevant document. There is a possibility that due to unequal
bargaining position between the parties, an unfair contract may ensue. It may be exploitative of
the weaker parties since contracts are private legislation and binding. On the signing of a SFC, it
would be binding against the party which has signed it while being fully conscious of the terms
thereof except for unreasonable terms.

Case: Bharathi Knitting Company vs. DHL Worldwide Express Courier 1996 SC

Facts:
The appellant had sent certain export documents through the respondent based on a pre-printed
contract which limited latters liability to only one hundred dollars and also excluded any indirect
or special damages arising from delay or non-delivery of consignment. Due to undue delay in
delivery by the respondent, the German consignee paid a lower price. The appellant
consequently sought the recovery of loss.
Issue: Would the appellant succeed in recovery of the loss?
Judgment:
Where the appellant has accepted the terms which limit the liability of the courier, a binding
contract comes into existence and courts cannot award compensation beyond the specified limit.
It lies on the party disputing the binding nature of the signed document to prove the
circumstances under which he signed the document. In the impugned case, both the parties
enjoyed an equal bargaining position. The courier has brought the limit on his liability to the
notice of appellant and has advised it to seek insurance cover to protect his interest. Courts can
do little except to enforce the contract as finalized between the parties

Exceptions to Standard Form Contracts

1. Breach of the Fundamental Conditions.

Example:

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In Davies vs. Collins (1945) 1 All ER 247, the receipt given by a drycleaner, limited the liability
of the drycleaner to ten times the cost of dry-cleaning. The uniform given for dry-cleaning by the
customer was never returned, because it had been lost by the sub-contractor. Held, the loss has
occurred due to breach of certain fundamental condition. Hence the customer was not bound by
that condition [Also in Lilywhite v Mannuswami AIR1966 Mad 13].

In Firestone Tyre & Rubber Co. Ltd v Vokins & Co Ltd (1951) 1 Lloyds Rep 32 the contract
contained the following clause:
We will deliver your goods at such and such place in the condition in which we receive them but
we will not be liable if they are lost or damaged for any cause whatsoever. Since the breach goes
to the root of the contract, it was held to be a fundamental breach and hence not allowed

2. Exclusion of Unreasonable Terms from the contract

In LIC vs. Customer Education & Research Centre AIR 1995 SC1811, it has been held that an
unfair and untenable or irrational clause in a contract is unjust and amenable to judicial review.

3. Notice Theory:
The party issuing the standard form document must give notice of the onerous conditions
contemporaneously with its issue and before the execution of contract (Siddalingappa v T.
Nataraj AIR 1970 Mys. 154

4. Contra Proferentem Rule:

The term contra proferentem means against the offeror. It provides that an ambiguous clause in
the contract must be interested against the person who had drafted the contract. Its object is to
encourage parties to negotiate fair terms. According to the rule of strict interpretation, any
ambiguity in a widely expressed contract shall be resolved in favour of the weaker party.
However the rule will not apply when parties are of equal standing.

5. Unconscionability and Opposed to public policy:

Supreme Court has held that an unfair and unreasonable contract between parties of unequal
bargaining power is void on the ground of its being unconscionable [Central Inland Water
Transport Corporation v BrajoNath Ganguly 1986 AIR 1571
CASE:
In Superintendence Company of India (P) Ltd v. Sh. Krishan Murgai,1980 AIR 1717, the
Supreme Court held that "It is well settled that employees covenants should be carefully
scrutinized because there is inequality of bargaining power between the parties; indeed no
bargaining power may occur because the employee is presented with a standard form of contract
to accepts or reject. At the time of the agreement, the employee may have given little thought to
the restriction because of his eagerness for a job; such contracts "tempt improvident persons, for
the sake of present gain, to deprive themselves of the power to make future acquisitions, and
expose them to imposition and oppression."

6. Relief under Section 31(1) of Specific Relief Act 1963

The court may direct cancellation or modification of a document to prevent injury to the
applicant

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 ACCEPTANCE

For a contract to be formed there must be an acceptance of the offer. Moreover, the acceptance
must be mirror image of the offer. Acceptance occurs when the words or conduct of the offeree
give rise to an objective inference of his having assented to the terms of the offer.
Under Section 2(b), acceptance is made:
When the person to whom the offer is made signifies his assent thereto, the proposal is said to be
accepted. A proposal when accepted becomes a promise.
Acceptance transforms a proposal into a contract. For this reason, Anson has remarked that,
acceptance is to an offer what a lighted match is to a train of gunpowder. It produces something
which cannot be recalled or undone. But the powder may be damp or the man who laid the train
may withdraw it before the lighted matchstick could touch it.
Rules as to Acceptance
1. It must be given by the person to whom the offer has been made:

No third person can interpose himself in place of the offeree.

Example:
In Boulton vs. Jones (1857) 157 ER 232, B sold his business to his manager without disclosing
this fact to his customer J. The customer had a running account with B and had the right of set
off. J sent an order addressed to B. The new owner executed the order. J came to know of the
change of ownership after he had consumed the goods. He set off his debt against B and refused
to pay. Held, the new owner could not recover. The rule is that if you propose to make a contract
with A, then B cannot substitute himself.
2. It may be expressed or implied:
Acceptance given by words is known as express acceptance. But an acceptance given by conduct
is said to be implied. Implied acceptance may arise from (a) doing of a particular act as
prescribed in the offer, and (b) by accepting a benefit offered by the offeror.
Example:
n V. Rao vs. A. Rao (1916), a lady invited her niece to stay with her in the same house and
promised to settle on her certain immovable property. The niece stayed with her till her death.
Held, she is entitled to the property because she has accepted the offer by her conduct.

3. It must be absolute and unqualified:

Acceptance must correspond with all the terms of the offer. It must be a mirror image of the offer
. A conditional acceptance is no acceptance.

Example:
In Neal vs. Meritt (1930), an offer of land by M for £280 was accepted by N who enclosed £80
with his letter of acceptance, and promised to pay the balance by monthly instalment of £50.
Since the acceptance is conditional, there is no contract.

4. It must be in the mode prescribed:

Section 7(2) provides that unless the proposal prescribes a particular mode of acceptance, it must
be expressed in some usual and reasonable manner. In case the acceptance is made in a manner
different from that prescribed but no objection is raised thereto by the offeror within a reasonable

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time, the acceptance will become binding.
Example:
An offeror has required the communication of acceptance to be made by means of a telegram. In
case, the offeree conveys his acceptance by a letter, A can insist on the prescribed mode. If A
does not convey his objection to the offeree within a reasonable time, the acceptance shall be
deemed to be valid.
5. It must be communicated:
Mental acceptance, not accompanied by words or conduct, is no acceptance. There must be some
external manifestation of the assent.
Example:
In Brogden vs. Metropolitan Rly. Co. (1877), the manager of a railway company received a draft
agreement relating to the supply of coal. He wrote the word approved on it and kept it in his
drawer. Held, there is no contract as the acceptance has not been communicated. Moreover,
acceptance must be by the person who is authorized to accept.
Example:
In Powel vs. Lee (1908) 24 TLR 606, A was a candidate for the post of headmaster of a school.
He was told of his selection by a member of the selection board in his private capacity. Later on,
some other person was found to have been appointed. In a suit by A, it was held that there was
no authorized communication from the board. Information from an unauthorized person is
insufficient to constitute a contract.

5. It must be communicated within the stipulated time, or within a reasonable time, if no

time has been stipulated.
However, it must be given before the offer lapses, or is revoked.
Example:
In Ramsgate Victoria Hotel Co. Ltd. vs. Montefiore (1866) LRI Ex ch 109, M applied for the
shares of R Co. on 8th June. But the company did not intimate allotment until November. M
refused to take the shares. Held, the offer has lapsed by unreasonable deley.

6. Provisional acceptance is no acceptance:

Where acceptance is given subject to contract, it will not be binding being provisional.In fact. A
provisional acceptance is a conditional acceptance and in violation of Section 7.

Case: UOI v Bhimsen Walaiti Ram AIR 1971 SC 2295

Facts:
In the auction, the respondent was the highest bidder. The bid was subject to fulfillment of
following conditions which inter alia provided for the deposit of one-sixth of annual fee within
six days of auction (Clause 21); enquiry by the government about the financial position of bidder
and if necessary, obliging the bidder to furnish security for observance of terms of license (cl. 31
); confirmation of bid by Chief Commissioner who may dispose it by tender or otherwise if no
bid is accepted (Clause 33). On cancellation of license, the Commissioner could resell by public
auction subject to obligation of the defaulting party to pay the deficiency in deficiency in price as
well as the expenses incurred on resale (Clause 22).
The firm did not deposit one-sixth of license fees within seven days of completion of auction
whereupon the Commissioner did not confirm the bid and a resale was ordered. On resale, the
Excise Department got a lower price and consequently required the respondent to pay the

13
deficiency in price in the subsequent sale.

Issue: Whether the respondent firm is liable to pay the amount of deficiency?

Judgment:
The answer depends on whether there has come about a concluded contract between the state and
the respondent in the form of completed sale. It is important to note that the bid has not been
confirmed by the Commissioner and till then the bid has been only provisionally accepted. There
is no concluded contract since an essential pre-requisite of completed sale is missing. The bidder
is therefore not liable to pay any damages on account of breach or for deficiency in price in
subsequent sale.

7. Acceptance cannot precede an offer:

An acceptance given in ignorance of offer will not be valid.

RULES OF COMMUNICATION OF OFFER AND ACCEPTANCE

The rules of communication are important to determine the time and place of making of contract.
This has a bearing on issue of jurisdiction, and whether or not contract has been formed with its
impact on the respective rights and duties of contracting parties. In modern times, there can be
the following two categories of the mode in which offer and acceptance may be made by the
contracting parties:

1: Instantaneous Communication
This mode takes within its purview, the communications made face to face, by telephone or
online through internet The rules of time and place of making of a contract are as follows:

(a). Face to face Contracts

When parties are face to face, the time and place at which the acceptance has been heard by the
offeror shall be the time and place of making of contract.
Example:
A, the offeror is standing in a place which falls within the territory of NCR- Delhi from where he
speaks out his offer. The offerree B heard the offer and immediately gave his acceptance
standing at a place which is in Haryana. His acceptance is heard by A at 11 am in NCR Delhi.
Held, the contract has been made in NCR Delhi at 11 am. Such a contract cannot be revoked.
The same rule will apply in case of telephonic communication since telephone is an
instantaneous mode of communication.
(b). Contract on Telephone
Telephone is an instantaneous means of communication. The same principles as in a face-to-face
contract are applicable to contracts on phone. No contract can arise until the offeror actually
receives notification of acceptance. If the acceptance cannot be heard due to disturbances in the
telephone instrument or in the surrounding circumstances such as mechanical noise or
disturbance in sound waves due to overflying aircraft, no contract can arise until the acceptance
is repeated and distinctly heard by the offeror.

Example:

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In Bhagwandas Goverdhan Das Kedia vs. Girdhari Lal Parshotam Das & Co. AIR 1966
SC543, A made an offer from Ahmedabad by telephone to B at Khairgaon, to purchase certain
goods. B accepted the offer by telephone. B failed to supply the goods. A filed the case against B
at Ahmedabad. The Supreme Court, on the basis of the decision in Entores Ltd. vs. Miles Far
East Corporation(1955) 2 All ER 493, did not extend the post office rule to telephonic
conversations. It was held that in case of contract by phone (telex), the contract is completed at
the place where acceptance is received.

(c ) Website Contracts
There are various methods of forming e- contracts.

(i) Click-wrap Contract

This kind of contracting is mostly used in software licensing though not necessarily to it. There
may be both offer of goods or services involving this type of contracting. A party must perform a
positive and conscious act to proceed with the purchase or installation of software by clicking on
an icon I agree or I like. Under the Uniform Commercial Code of USA, there is a rebuttable
presumption that the offer in case of case of click-wrap. The law in India on this subject is not
very clear though the buyer is traditionally considered to be the offeror and the vendor the
offeree. Thus the contract is concluded the moment offeree assents to the terms by ticking the
button with remark I agree. Click-wrap contracts belong to the category of standard form
contracts (adhesion contracts) since the buyer has opportunity to negotiate except using the mode
prescribed by the vendor.

(ii) Browse-wrap Contract

It arises from the very browsing of the website rather than clicking on an icon. No affirmative
action is required on the part of the offeree to manifest assent to the contract, other than the
actions the offeree would have taken anyway, whether or not she intended to assent to any
contract thereby. There is no explicit declaration of consent. The website includes a statement
that the continued user of website will manifest assent to the terms and conditions commonly
posted on another website which may be perused by opening a hyperlink. But the hyperlinks are
usually situated at the bottom of the page and are rarely conspicuous. Some scholars have
suggested that for a valid browse-wrap contract to be formed, it must be necessary to provide the
user an adequate notice of proposed terms, a meaningful opportunity to review them, and a
notice that the taking of specified actions will manifest acceptance [Christina L. Kunz, Browse-
Wrap Agreements: Validity of Implied Assent in Electronic Form Agreements, The Business
Lawyer (Vol. 59, No. 1, November 2003) p. 311-312].

(iii) Shrink - wrap 

These agreements generally consist of license agreements terms whereof are printed on the
wrapper in which the CD, DVD or software is contained. It warns the user that opening of the
wrapper will make the contract binding on him.

2. Non Instantaneous Communication

The following types of contract belong to this category of communication

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(a) E-mail Contracts

E-mail message have been bracketed with postal message except for the difference that such
messages are created electronically and then sent through an electronic medium. Once the send
key is pressed, the message is out of the senders control. The sent message travels across
international network of computer before landing in the intended recipients ISP. The recipient
then retrieves the message and then downloads it. Transmission of message entirely depends on
the viability of the ISP for both the offeror and the offeree. There may be a delay in transmission,
the email may bounce back due to errors in address, the message may be received in
incomprehensible form due to differences in protocols, the recipient may not read the message.
For all such reasons, email is put into the category of non-instantaneous communication.
Consequently, the receipt rule is applied to acceptance by Uniform Computer information
Transactions Act, 199 of the USA. Accordingly, receipt of electronic acceptance leads to
formation of contract. This rule is applied to eliminate uncertainty even if it may cause
inconvenience to the contracting parties.

(b) Contracts by Post

The following rules shall apply in case the contract is made by post.
(i) Communication of Offer (Sec. 4)
According to first para of Section 4, the communication of a proposal is compete when it comes
to the knowledge of the person to whom it is made.
Example:
A proposes, by a letter to sell her washing machine to B. The communication of offer is
complete when the proposal comes to the knowledge of B.

Time of Revocation of Offer

According to Section 5, an offer may be revoked at any time before its acceptance is complete as
against the proposer but not afterwards, i.e., before the letter of acceptance is posted.

Agreement to keep the offer open for a specified period: Such an offer is void unless supported
by consideration. In the absence of consideration to keep the offer open, the offeror may
withdraw the offer at any time before acceptance [Mountford vs. Scott (1975) 1 All ER 198].

Methods of Revocation of Offer (Section 6)

1. By communication of notice of revocation - at any time before the acceptance of offer is
complete as against the offeror.

2. By lapse of prescribed time or reasonable time if no time for acceptance has been
prescribed [Ramsgate Victoria Hotel Co. vs. Montefiore]  

3. Non-fulfilment of a condition precedent

 
Example:

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A offered to sell goods to B on the condition that agreed price shall be paid before a certain date.
B fails to pay by specified date. Held, the offer stands revoked.

4.  Death or insanity of offeror  before acceptance by the offree.

5.  Counter offer 
If original offer has been accepted with modification, it shall amount to qualified acceptance and
result in revocation of offer [Tinn vs. Hoffman ]. 

6.  Failure to accept according to prescribed or usual mode provided the offeror gives notice
thereof to the offeree else he will be deemed to have accepted the acceptance.
7. Subsequent illegality of the contemplated contract or its incapability from performance.
8.  Rejection of offer by the offeree whether express or implied. An offer once rejected cannot
subsequently be accepted.
9. Subsequent illegality or destruction of subject matter of contract

(ii) Communication of Acceptance

According to Section 4, communication of acceptance is complete:
as against the proposer when it is put into a course of transmission to him so as to be out of the
power of the acceptor, and
as against the acceptor, when it comes to the knowledge of the proposer.

Example:
B accepts As proposal by a latter sent through post. The communication of acceptance is
complete as against A when the letter is posted and as against B when the letter is received by A.
The contract is complete, the moment the letter of acceptance is posted. It is immaterial whether
the letter is lost in post, or there is late delivery or other miscarriage, etc. [Houseful Fire
Insurance Co. vs. Grant (1879) LR 4 Ex D 216]. In this case, A had applied for the shares of a
company. The letter of allotment sent to him by the company was never received by him. During
liquidation of the company, A was held liable as a shareholder. The mere posting of letter of
allotment by the company amounted to acceptance.
It may be noted that the contract is deemed to have been made at the place where the letter of
acceptance is posted [Baroda Oil Cake Traders vs. Parshottam (1954) Bom 491].

Time of Revocation of Acceptance [Section 5]

An acceptance may be revoked at any time before the communication of acceptance is complete
as against the acceptor, but not afterwards.
Example:
A proposes by a letter sent by post, to sell his house to B. B accepts the proposal by a letter sent
by post. B may revoke his acceptance at any time before the letter communicating it reaches A,
but not afterwards (Illustration to Sec. 5).

Communication of Revocation of offer and Acceptance (Section 4)

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The communication of revocation is complete 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; as against the person to whom it is made, when it comes to his knowledge.
Example:
A revokes his proposal by telegram. The revocation is complete as against A when the telegram
is dispatched. It is complete as against B when B receives it.
B revokes his acceptance by telegram. B's revocation is complete as against B when the telegram
is dispatched, and as against A when it reaches him.
Therefore, if a proposal is to be revoked, notice of revocation must reach the offeree before he
posts his acceptance. Similarly, if acceptance is to be revoked, notice of revocation must reach
before the receipt of letter of acceptance by the offeror. If both the letter of acceptance and letter
of revocation reach together, it would be a case of revocation as they both cancel each other [
Counters of Dunmore vs. Alexander (1830) 9 Court of Sessions 190].

QUESTIONS
1. Discuss the rules regarding communication of:
(i) Proposal (ii) Acceptance, and (iii) Revocation of offer and acceptance.
2. (a) How is an offer made, revoked and accepted?
(b) What rules apply when an offer is made through the post and over the telephone.
3. Define offer. How is a proposal revoked?
4. Define and distinguish between an offer and an invitation to offer.
5. An acceptance to be valid must be communicated. Explain.
6. In a number of cases, an acceptance is effective although it is not brought to the notice of
the offerer. Discuss this statement with reference to Indian Contract Act.
PROBLEMS
1. A offers B to sell his car for Rs. 8000. B says to A that he will buy the car for Rs. 6000. It
is an acceptance of the offer? Give reasons for your answer.
Ans.Section 2(b) requires acceptance to be consensus ad idem with the proposal. What B has
given is not acceptance. Rather it is a counter offer. There is no contract. [Hyde vs.
Wrench].
2. F offered by letter to buy Bs horse for Rs. 1000, adding if I hear no more from you. I
shall consider the horse mine at Rs. 1000. No answer was given by B. Is there any
contract?
Ans. The words signifies his assent thereto, occurring in Section 2(b) require an external
manifestation of acceptance. The communication of acceptance need not be in writing or
spoken. It may be implied from the conduct of the acceptor. However, acceptance cannot
be inferred from silence. This would be so even where the offeror says that silence shall
be construed as acceptance. The given problem is based on Felthouse vs. Bindley (1862)
where it was held that mental acceptance is no acceptance.
3. A duly posts a letter of acceptance to B. But the letter is lost in transit by the negligence
of the post office. What effect does it have on the formation of the contract?
Ans. In the case of communication by post, Section 4 provides that communication of
acceptance is complete as against the proposer when a duly addressed letter of acceptance

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 is put into a course of transmission. A contract is made irrespective that letter is lost in the
course of transit and the proposer thereby remains ignorant thereof [Household Fire and
Accident Insurance Co. vs. Grant (1879)] LR4 Ex Div 26.
4. A & Co., through a newspaper advertisement, announces a reduction sale of ready-made
woollen garments and exhibits articles in its showroom with the original and reduced
prices marked on them. B who has read the advertisement, picks up a woollen suit
marked Rs. 500 as the original price, and Rs. 200 as the reduced price. B then offers Rs.
200 to the salesman of A & Co., who refuses to accept the amount and hand over the suit
to B. Discuss the rights of B against A & Co.
Ans. Price tags attached to goods are invitations to make offers. When B picks up the garment
and gives Rs. 200 to the salesman, he is making the offer. It is upto the salesman of A & Co. to
accept the same. In this case, the salesman has refused to accept Bs offer. Hence B has no
remedy [Pharmaceutical Society of Great Britain vs. Boots Cash Chemists].
5. It is a rule of law that if a person intends to contract with A, B cannot give himself any
right under it. Discuss.
Ans. A specific offer can be accepted only by the person to whom it is made as may be
evident from a reading of Section 2(b). This principle has been accepted in the case of
Boulton vs. Jones on the facts of which the present problem is based. Thus, a man cannot
give himself a contractual right by interposing in an offer which was not intended for him.

6. A proposes, by a letter, to sell a house to B at a certain price and B accepts As proposal

by a letter sent by post. When is the communication complete?
Ans. Sections 4 and 5 of the Contract Act deal with communication of offer and acceptance
in case these are made by post.
Accordingly, the communication of a proposal is complete when it comes to the knowledge of
the person to whom it is made.
The communication of acceptance is complete: as against the proposer, when it is put into a
course of transmission to him so as to be out of the power of acceptor; and as against the
acceptor when it comes to the knowledge of the proposer.
The contract will be made, if a duly addressed letter of acceptance is put into the mail, even if
it gets lost in the course of transit.

7. A offered to sell a two-in-one set to B for Rs. 1000 but B was willing to pay Rs. 900. A
refused. B offered Rs. 1000 which A refused. Was it a valid contract?
Ans. No. Acceptance must be of the offer as a whole as well as absolute and unqualified. If
any condition is attached to acceptance, it amounts to a fresh offer or what is called a counter
offer. By offering Rs. 900 instead of Rs. 1000 as demanded by A, B has rejected As offer. Bs
latter offer amounts to a counter offer. Thus there is no contract.

8. F told B if you do not reply my letter; I will take it that my offer has been accepted. B
remained silent after receiving the letter. Does Bs silence amount to acceptance?
Ans. The rule of law regarding valid acceptance requires it to be communicated.
Acceptance cannot be implied from silence. Similar views had been given in the case of
Felthouse vs. Bindley.
9. A seeing a watch in Bs shop, marked for sale for Rs. 200 enters the shop, places Rs. 200
on the counter and asks for the watch. Is B bound to sell the watch? Give reasons.

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 Ans. Please see solution to Problem No. 4.
10. A letter of allotment of shares was claimed to have been posted by a company but the
applicant denied to have received it. State if the contract is validly concluded in this case.
Give reasons.
Ans.With regard to postal communication, Section 4 provides that, communication of
acceptance is complete as against the proposer when a duly addressed letter of a acceptance
is put into a course of transmission notwithstanding that it has been lost in the course of
transit. [Household Fire and Accident Insurance Co. vs. Grant (1879)]. Thus, the contract is
validly made and the applicant is bound to accept shares.
11. The father of a missing boy offers through a newspaper advertisement a reward to any
one who brings the boy home. The plaintiff who had read the advertisement comes across
the missing boy and takes him to his father. The father refuses to pay the reward money
on the ground that there was no formal contract between him and the plaintiff. Decide.
Ans. In the case of general offers such as in the present case, the acceptance can be
given by complying with the terms of the offer. No formal contract or communication is
required. Thus, the father of the missing boy is liable to pay the reward to the plaintiff [
Lalman Shukla vs. Gauri Dutt].
12. Some crop is put to public auction with reserve price of Rs. 100,000. As bid was the
highest at Rs. 80,000. Being below the reserve price, the auctioneer accepted the bid subject
to confirmation by the Divisional Forest Officer. The DFO accepted the offer, but it was not
communicated to A. Later, the offer of B for Rs. 1,00,000 was accepted. A seeks specific
performance. Decide.
Ans. There is no contract with A because the acceptance has not been communicated.

13. A offered to buy Bs house for Rs. One lakh. A wrote to Bs agent whether his offer has
been accepted and A also expressed his willingness to pay a higher price if found reasonable.
Bs agent replied that B will not accept anything less than rupees two lakhs. A, then, wrote
that he is willing to pay rupees two lakhs. B then sold his house to C for rupees two lakhs.
Can A bring an action against B?
Ans. No, Refer to McPherson vs. Appanna.

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