TOPIC 3

OFFER AND ACCEPTANCE

OFFER / PROPOSAL:
According to Section 2(a) of Contract Act, 1872,
When one person signifies to another his willingness to do or to abstain from doing anything,
with a view to obtaining the assent of that other to such act or abstinence, he is said to make a
proposal.
Thus, an offer is a proposal by one person to another for entering into a legally binding
agreement with him. The person who makes an offer is called “Offerer” or “Promiser” and the
person to whom the offer is made is called the “Offeree” or “Promisee”.
Example: Mr. A says to Mr. B, “Will you purchase my car for Rs.1,00,000?” In this case, Mr. A
is making an offer to Mr. B. Here A is the offeror and B is the offeree.

Essentials of a valid offer

The essentials of an offer are discussed below:
1. At least two persons
2. Certain and definite
3. Contractual intention
4. Communication
5. Objective of obtaining consent
6. It can be conditional
7. Negative confirmation not allowed
8. It is different from invitation of offer
9. Communication of special conditions

1. Two persons
For a valid offer there needs to be two persons. A person cannot make an offer to himself. The
person making the proposal is called offeror and the person to whom offer is made is called
offeree.
Example: Amjad offers to sell his Suzuki Mehran 2008 model to Habib for Rs. 450,000/-. It is a
valid offer. Amjad is offeror and Habib is offeree.
2. Certain and definite
A valid offer is one which is certain and definite. Thus, no contract can come into existence if
offer is uncertain. Knowledge of the Intention of the parties is very essential as without this the
courts will not be able to decide what the parties want to do. Therefore, the terms of the offer
must be clear and definite and not vague and loose.
Example 1: Salman purchased a horse from Irfan and promised to buy another, if the first one
proves lucky. Salman refused to buy the second horse. Irfan could not enforce the agreement, it
being loose and vague.
Example 2: Ali offers Saad to sell fruits worth Rs 600/-. This is not a valid offer since what
kinds of fruits or their specific quantities are not mentioned.
3. Contractual intention
An offer must be made with an intention to create a contract. It is essential for a valid proposal
that it must be made with the intention of creating a legal relationship otherwise it will only be an
invitation. A social invitation may not create a social relationship. An offer must lead to a
contract which creates legal obligations and legal consequences in the case of non-performance
of the contract.
Example 1: Adeel invites Babar to dinner. It does not create legal relations, so there is no valid
offer.
Example 2: Three friends agreed to enter a newspaper competition and share any winnings. It
was held that they intended to create legal relations so there was a contract.
4. Communication [Section 4]
The offer must be communicated to the offeree. The communication is complete when it comes
to the knowledge of the person to whom it is made. In case an offer is made by post, its
communication will complete when the letter reaches the offeree. An offer can be made by
words spoken or written or through conduct of the person.
Example 1: Mohsin says to Noor that he is willing to sell his motor cycle to him for Rs. 20,000.
This is an offer communicated expressly.
Example 2: A shoe shiner starts shinning one’s shoes, without being asked to do so, in such
circumstances that any reasonable man could guess that he expects to be paid for this, this is an
offer communicated impliedly.
5. Objective of consent
An offer must be made with a view to obtain the consent of the other person to proposed act or
abstinence. When a person is making an offer, it means that he is making it with a view to obtain
the consent of the offeree. As soon as the offeree accepts it, the offeror is bound by it.
Example: Mohsin says to Noor that he is willing to sell his motor cycle to him for Rs. 20,000.
This is an offer with a view to obtain the consent of the other person to proposed act of selling
the motor cycle.
6. Conditional
An offer may be subject to some condition. It is on the sole discretion of the person to whom
such offer is made to either accept or reject it. A conditional offer lapses when condition is not
accepted.
Example: Arslan offers to sell his furniture to Amjad for Rs. 250,000/- on the condition that
advance payment is made within three days of the offer. If Amjad does not pay within three
days, he cannot accept the offer.
7. Negative confirmation
An offer cannot be in the form of negative confirmation i.e. if it is not accepted within a specific
time then it will be presumed to have been accepted.
Example: Azam wrote to Babar to sell his book adding that if he did not reply within 5 days, the
offer would be considered accepted. There is no contract.
8. Invitation of an offer
An offer is different from an invitation of an offer. The intention in invitation of an offer is to
circulate information of his readiness to do the transaction. Such intentions are not offers and do
not tantamount to promise on acceptance.
In other words, an invitation of an offer means an intention of a person to invite others with a
view to enter into an agreement.
Example 1: Iqbal displays goods for an auction sale. It is not an offer. Offer will come from
buyer in form of bid.
Example 2: Goods were displayed in a departmental store for sale and self-service system was
there. One customer selected an item. Here the display of goods is an invitation to offer and
selection by the customer is an offer to buy.
9. Communication of special conditions
When there are special terms and conditions in an offer these must be specifically communicated
to the other party.
Example 1: Adeel asks Mohsin to send the reply of his offer by email but Mohsin sends reply by
letter. Adeel may reject such acceptance.
Example 2: Azam was expecting reply by email but did not prescribe any method of
communication of acceptance and Babar sends acceptance by letter being customary practice in
their trade. The acceptance is valid.

Types of offer:
Following are the different types of offer:
a. Specific Offer
If an offer is made to definite or a particular person or specific group of persons it is said to be
specific offer. Such offer can be accepted only by that definite person or that specific group of
persons.
Example: Azam offers to buy bike from Babar for Rs.50,000. This is specific offer and only
Babar can accept it.
b. General offer
If an offer is made to the world or public then it is said to be general offer. Such offer can be
accepted by any person. The contract is made with person who having the knowledge of the offer
comes forward and acts according to the conditions of the offer.
Example: Azam advertised in the newspaper that he would pay Rs. 50,000 to anyone who traces
his dog. Babar, who knew about the reward traced that dog and sent a message to Azam that he
had found his dog. It was held that Babar was entitled to receive the amount of reward.
c. Cross offers
If two parties ignorant of each other’s offer made similar offers to each other they are called
cross offers. Cross offers are not equal to acceptance.
Example: Adeel of Karachi sends by post to Naeem of Lahore offering to sell his bike for Rs.
50,000. The letter is posted on 1st December and on same day, Naeem of Lahore sends a letter
by post to Adeel of Karachi offering to buy Adeel’s bike for Rs.50,000. These two are cross
offers and there is no contract unless one of these offers is accepted by the other party.
d. Standing / Open /Continuing offer /Tender
If an offer is of on-going nature it is said to be a standing offer. A contract is entered only when
the person signifies his acceptance on the basis of the tender.
Example: Sajid required a large quantity of certain goods during a year and offered this by an
advertisement. Adeel supplied those goods at a specific rate. Every supply of Adeel is an
acceptance of the standing offer of Sajid.
e. Counter offer
Counter offer by the offeree terminates the original offer. When in place of accepting the terms
of an offer as they are, the offeree accepts the same subject to certain condition or qualification,
then a counter offer is said to be made.
Example: A seller wants to sell a vehicle for $20,000. A buyer arrives and offers $15,000 for the
vehicle. The offeror provides a counteroffer, asking for $16,000 with the objective of obtaining a
higher price. If the offeree declines, the offeror cannot force the buyer to purchase the vehicle at
$15,000, even though the buyer suggested that price.

Lapse of an offer
1. Revocation by offeror before acceptance
 2. Lapse of fixed time or reasonable time
3. Death or insanity of offeror (when offeree becomes aware)
4. Non-fulfillment of condition precedent
5. Non-acceptance / Rejection by offeree
6. Counter offer
7. Non-acceptance according to requirement
8. Subsequent illegality or destruction

1. Revocation [Section 5]
An offer may be revoked before its acceptance by the offeree.
Example: Revocation Azam, at an auction gives the highest bid to buy Babar’s goods. He
withdraws the bid before the fall of hammer. The offer is revoked and cannot be accepted.
2. Lapse of time [Section 6(2)]
An offer will come to an end if it is not accepted within the time specified or within a reasonable
time where no time is specified. “What is the reasonable time?” is a question of fact depending
upon the subject matter and circumstances.
Example: Lapse of time Maria applied for shares of a company in June but allotment was made
in November. Maria refused to accept the shares. It was held that Maria could refuse to take
shares because the offer had lapsed after the expiry of a reasonable time.
3. Death or insanity
An offer comes to an end by the death or insanity of the offeror if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance.
Example: Death or insanity Zain requested Dawood, to give credit to Yasir and guaranteed
payment up to Rs. 100,000. Zain died and Dawood in ignorance of this fact continued to give
credit to Yasir, Dawood sued Zain’s legal representatives on the guarantee. Held, that the legal
representatives were liable.
4. Non-fulfilment of condition precedent
An offer comes to an end when the acceptor fails to fulfil the conditions precedent to the offer.
Example: Non-fulfilment of condition precedent Jazib offers to sell his scooter to Babar, for Rs.
40,000 if Babar joins the ABC Club within a week. Babar did not join the Club within a week,
the offer stands terminated.
5. Non-acceptance / Rejection
An offer comes to an end if it is not accepted by the offeree. An offer is said to be rejected if the
offeree expressly rejects.
Example: Non-acceptance / Rejection Ameer offers to sell his cycle to Ghalib and keeps the
offer open for ten days. Ghalib refuses after three days. The offer terminates although the period
of ten days has not yet expired.
6. Counter offer
An offer comes to an end if the counter offer is made.
Example: Counter offer Wajid offered to sell a farm to Hamid for Rs. 1,000. Hamid offered Rs.
950. Wajid refused the offer. Subsequently Hamid offered Rs. 1,000. Held, there was no contract
as Hamid by offering Rs. 950 had rejected the original offer.
7. Non-acceptance according to requirement
An offer comes to an end if it is not accepted according to the requirement (if any) of the offeror.
Example: Non-acceptance according to requirement Azam offers to sell his car to Babar. Azam
requests Babar to give acceptance by telephone. Babar sends acceptance by letter. The offer
terminates.
8. Subsequent illegality or destruction
An offer comes to an end if it becomes illegal or the subject matter is destroyed before its
acceptance.
Example: Subsequent illegality or destruction  Akmal offers to sell 10 bags of rice to Babar
for Rs. 2,000. Before its acceptance, a law banned the sale of rice. The offer terminates.  Asif
offers to sell his horse to Zahid. The horse dies before the acceptance of offer by Zahid. The
offer terminates.
ACCEPTANCE AND RULES OF REVOCATION

Acceptance:
According to Section 2(b) of Contract Act 1872;
When the person to whom the proposal is made signifies his assent to it, the proposal is said to
be accepted. Thus, an acceptance means assenting to an offer made. An offer when accepted
becomes a promise.
So as the definition states, when the offeree to whom the proposal is made, unconditionally
accepts the offer it will amount to acceptance. After such an offer is accepted the offer becomes a
promise.
Example: A offers to buy B’s car for rupees two lacs and B accepts such an offer. Now, this has
become a promise.
When the proposal is accepted and it becomes a proposal it also becomes irrevocable. An offer
does not create any legal obligations, but after the offer is accepted it becomes a promise. And a
promise is irrevocable because it creates legal obligations between parties. An offer can be
revoked before it is accepted. But once acceptance is communicated it cannot be revoked or
withdrawn.

Essentials of Acceptance
For a successful contract, there must be a valid offer followed by the offer being accepted. There
are few essentials of a valid acceptance.
1. Absolute and unconditional
2. Communication
3. Reasonable time
4. Reasonable mode
5. Awareness of proposal
6. It must be before lapse of an offer
7. Negative confirmation not allowed

1. Absolute and unconditional [Section 7]

An offer should be accepted without any condition. If any condition is imposed on an offer then
it turns out to be counter offer instead of acceptance.
Example: Laila offered to Maria her scooter for cash of Rs. 40,000. Maria accepted the offer and
tendered Rs. 39,000 cash down, promising to pay Rs. 1,000 by the evening. There is no contract,
as the acceptance was not absolute and unqualified.
2. Communication
The acceptance may be complete when it is communicated to the offeror. An offer can be
accepted by words spoken or written or through conduct of the person. Further, a valid
acceptance is communicated either by the offeree himself or any person authorized by him to
communicate to the offeror.
Example 1: Adeel offered to sell his house to Saima. Anum who was aware of such offer said
that she is ready to buy Adeel’s house. There is no contract with Anum.
Example 2: Azam sold his business to Babar without informing his customers. Jazib sent an
order for the supply of goods to Azam by name. Babar received the order and supplied the
goods. It was held that there was no contract because Jazib never made any offer to Babar.
For further understanding, see the postal rule in the later part.
3. Reasonable time
A valid acceptance is when it is accepted within the time specified or within a reasonable time
where no time is specified.
Example: Reasonable time Maria applied for shares of a company in June but allotment was
made in November. Maria refused to accept the shares. It was held that Maria could refuse to
take shares because the offer had lapsed after the expiry of a reasonable time.
4. Reasonable mode
Acceptance should be made in the manner specified or in a usual manner where no mode is
specified.
If the proposal prescribes a manner in which offer is to be accepted and the acceptance is not
made in that manner. The offeror shall, in this case, when the acceptance is communicated to
him, insist that his proposal shall be accepted in the prescribed manner and not otherwise. If the
offeror fails to insist within a reasonable time it is deemed that he has accepted the performance.
Example: Reasonable mode Azam makes an offer to Babar and asks him to accept the offer by
telegram. Babar sends his acceptance by post. It is not a valid acceptance as acceptance was not
made in prescribed manner.
5. Awareness of proposal
The acceptor must be aware of the proposal at the time of acceptance of the proposal.
Example: Awareness of proposal Azam offered a reward for anyone who finds his lost dog.
Babar, in ignorance of the offer, finds and returns the dog. Babar cannot claim the reward.
6. Before lapse of an offer
The acceptance must be given before the offer lapses or is withdrawn.
Example 1: Azam, at an auction gives the highest bid to buy Babar’s goods. He withdraws the
bid before the fall of hammer. The offer is revoked and cannot be accepted.
Example 2: Azam offers to sell 10 bags of rice to Babar for Rs. 2,000. Before its acceptance, a
law banned the sale of rice. The offer terminates and cannot be accepted.
7. Negative confirmation
A proposal is not considered accepted if the offeree remains silent. It cannot be in the form of
negative confirmation i.e. if it is not accepted within a specific time then it will be presumed to
have been accepted.
Example: Negative confirmation Azam wrote to Babar to sell his book adding that if he did not
reply within 5 days, the offer would be considered accepted. Babar did not reply and a week has
passed. There is no contract as silence cannot be considered as acceptance.
Postal rule:
The communication of acceptance by post is complete as against the proposer when it is put in a
course of transmission. In case of acceptance made by post, the proposer becomes bound as soon
as the letter of acceptance is posted even if such letter is lost or delay. The communication is
complete as against the acceptor when it comes to the knowledge of the proposer. In case of
acceptance by post, the acceptor becomes bound when the letter of acceptance is actually
received, before that acceptor may revoke his acceptance.
Example: Adeel offers, by letter, to sell a van to Kashif for Rs. 100,000. The letter reaches
Kashif on 8th March. Kashif accepts by a letter sent by post on 9th March. The letter reaches
Adeel on 11th March. The communication of the acceptance is complete:
 As against Adeel, when the letter is posted i.e. on 9th March
 As against Kashif, when the letter is received by Adeel i.e. on 11th March
Contracts over telephone / telex / fax
A contract by telephone / telex / fax is treated on the same principle as an oral agreement made
between two parties when they are face to face with each other. In such cases, the contract will
complete only when the acceptance is received by the proposer and not when it is transmitted by
the acceptor.
The offeree must make sure that his acceptance is received, heard and understood by the offeror;
otherwise there is no contract.
REVOCATION:

Timing of revocation [Section 5]:

Timing of revocation of an offer
A proposal may be revoked at any time before acceptance or the communication of its
acceptance is complete as against the proposer, but not afterwards.
Timing of revocation of an acceptance
An acceptance can be revoked at any time before the communication of the acceptance is
complete as against the acceptor i.e. when acceptance comes to the knowledge of the offeror, but
not afterwards.
Example: Adeel offers by letter to sell his house to Kashif. Kashif accepts the offer by a letter
posted on 4th May. The letter reaches Adeel on 6th May.
 Adeel may revoke his offer before Kashif posts his letter of acceptance, i.e. 4th May but
not afterwards.
 Kashif may revoke his acceptance before the letter of acceptance reaches Adeel, i.e. 6th
May but not afterwards

Communication of revocation [Section 4]

The rules regarding the communication of revocation are as under:
As against the person who makes it:
When it is put in a course of transmission so as to be out of the power of the sender of the
revocation.
As against the person to whom it is made:
When it comes to the knowledge of the receiver of revocation.
Example: Talal offered by a letter on October 1st, to sell goods to Bilal in Multan. Bilal
received the offer on 11th October and gave his acceptance. On 18th October Talal wrote a letter
revoking his offer. The letter was received by Bilal on 20th October. Held, the revocation was of
no effect until it reached Bilal. A contract was made on 11th October when Bilal accepted the
offer.

Revocation How Made [Section 6]

Section 6 of Contract Act 1872 says when revocation is made. The following are the condition
when an offer is revoked:
 By the communication of the notice of revocation by the proposer to the other party.
 By the lapse of the time prescribed in such proposal for its acceptance, or, if no time
prescribed, by the lapse of reasonable time, without communication of the acceptance.
 By the failure of the acceptor to fulfill the condition precedent to acceptance.
 By the death or insanity of the proposer, if the fact of his death or insanity comes to the
knowledge of acceptor before acceptance.