BUSINESS LAW (Spring Term ‘20)

Instructor: Misha Zaheer

OFFER & ACCEPTANCE

Relevant Law: The Contract Act, 1872

1. WHAT IS A CONTRACT?

To say that we have a contract means that two parties have voluntarily assumed liabilities with
regard to each other.

A contract is defined in Section 2 (h) of the Contract Act,1872, as follows:

An agreement enforceable by law is a contract

In order to be ‘enforceable by law’, a particular contract must entail the following salients:

 Offer & Acceptance

 Consideration
 Intention to create legal relations, certainty of meaning, free consent, lawful
consideration, lawful object, capacity of the parties, compliance with formalities (please
refer to Section 10)

Note: It is not the subjective intentions of the parties that determine the legal effect of their
words or actions but the objective inference of them i.e. the offer is interpreted according to an
objective intention – the interpretation that a reasonable person in the position of the offeree
would place upon the statement or action of the offeror.

2. OFFER

An offer is an expression of willingness to contract on certain terms.

Section 2 (a) of the Act defines an offer as follows:

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…

An offer can be express or implied. Additionally, it can be ‘specific’ i.e. one made to a definite
person or group of people, or ‘general’ i.e. one made to the world at large or the public in
general.

An offer must be made with the intention that it will become binding upon acceptance.
Generally, in case of social and domestic arrangements, the presumption is that the parties do not
intend to create legal relations. For example if your father promises to buy you a new car if you
get straight A’s, will that be an offer that could have legal repercussions?

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The terms of an offer must be certain and unambiguous. If it is unclear as to what the parties
intended to do, no contract will be formed. E.g. where X is a supplier of different kinds of oil and
Y enters into a contract with him for the ‘supply of 100 liters of oil’, such a contract is uncertain
because it is unclear as to which kind of oil is to be supplied.

An offer must be complete i.e. further negotiations or discussions must not be required. In
Gibson v. Manchester City Council (1979) the Council sent Gibson a document which asked him
to make a formal invitation to buy and stated that the Council ‘may be prepared to sell’ the house
to him. Gibson signed the document and returned it. It was held that a contract had not been
concluded because the Council had not made an offer capable of being accepted. It was not a
complete offer, important terms (price etc.) still needed to be determined.

It is important to note however that not all communications will be offers. Some may be:

2.1. Statement of intention

In this instance, one party states that he intends to do something, not that he will do
something e.g. an auctioneers’ advertisement.

2.2. Supply of information

In this instance, one party provides information to another party. The statement is not
one that was intended to be acted upon e.g. where the offeror responds to a query stating
what the lowest price acceptable for his product may be.

2.3. Invitation to treat

This is an expression of willingness to enter into negotiations, which may at a later date
lead to conclusion of a contract.

The difference between an offer and an invitation to treat is essentially one of intention.
Did the maker of the statement intend to be bound by acceptance of his terms or did he
merely intend his statement to be a part of a continuing negotiation process?

Examples follow:

2.3.1. Display of goods for sale

A display constitutes an invitation to treat. An offer is made by the customer when

he presents the goods at the cash counter – this offer may or may not be accepted by

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the shop keeper. See Pharmaceutical Society of GB v. Boots Cash Chemists (1953)
and Fisher v. Bell (1961).

2.3.2. Advertisements

The general rule is that advertisements are invitations to treat. The exception to this
rule is where a unilateral offer is made such as in Carlill v. Carbolic Smoke Ball Co.
(1893).

2.3.3. Requests for tenders/bids

The request itself is an invitation to treat. The tender/bid will be the offer which in
turn may or may not be accepted

3. COMMUNICATION OF AN OFFER

Section 4 of the Act reads:

The communication of an offer is complete when it comes to the knowledge of the person
to whom it is made…

One cannot accept an offer that he does not know about. E.g. if X sends his servant Y to go look
for his missing dog and once Y has left, declares that anybody who traces the dog will be
rewarded with Rs. 5000, Y upon finding the dog cannot claim the reward because he had
not known about the offer when he had found the dog.

Communication of ‘Special Terms’:

Any ‘special terms’ must be communicated along with the offer. If they are not communicated
the offeree will not be bound by those terms. The question of ‘special terms’ usually arises in
standard form of contracts e.g. those made with big companies like dry cleaning, insurance, hotel
companies. Such companies are in the position to exploit the weakness of the general public by
limiting their liabilities; hence, it is provided that any special terms should be brought to the
notice of the general public.

In Handerson v. Stevenson, X purchased a steamer ticket. On the back of the ticket were printed
certain conditions which excluded the liability of the company for loss, injury or delay to the
passengers or their luggage. There was nothing to draw X’s attention to the back of the ticket. X
lost his luggage and sued the company. It was held that he was entitled to claim compensation
because the special terms had not been brought to his notice. In Parker v. S.E. Rail Co., it was
held that the words ‘see back’ on the receipt were reasonable sufficient notice as to the existence
of the special terms.

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Such ‘special terms’ must be brought to the knowledge of the offeree before the contract is
concluded. For instance, a couple is checking into a hotel. Once they have entered the room they
see a notice on the wall disclaiming the owners liability for damages, loss or theft of articles.
Some of the couple’s things are stolen. The owner of the hotel will be held liable because the
notice was not part of the contract; it had come to notice of the customer after the contract had
already been concluded (Olley v. Marlborough Court Ltd.).

Note: If the special terms are printed in a foreign language, it is the offeree’s duty to ask for a
translation, if he does not ask for a translation it shall be presumed that he knows them and will
be bound by them.

4. ACCEPTANCE

Section 2 (b) of the Act defines acceptance in the following terms:

When the person to whom the offer is made signifies his assent thereto…

The acceptance may be made by words or by conduct. Acceptance occurs when the offeree’s
words or conduct give rise to the objective inference that the offeree assents to the offeror’s
terms. For instance in Day Morris Associates v. Voyce (2003) it was held that an estate agents
offer to market a property had been accepted by the conduct of the client. The client’s conduct
was allowing the agent to advertise the property and show large numbers of people around it.

According to Section 7(1) of the Act:

…acceptance must be absolute and unqualified.

The acceptance must be an agreement to each of the terms of the offer i.e. it must be a ‘mirror
image’ of the offer. If the offeree attempts to add new terms when accepting, this is a counter-
offer and not an acceptance. A counter-offer implies a rejection of the original offer, which is
thereby destroyed and cannot subsequently be accepted (Hyde v. Wrench (1840)).

Where the offeree queries the offer and seeks more information, this is neither an acceptance nor
a rejection and the original offer stands.

5. COMMUNICATION OF ACCEPTANCE

According to Section 7(2) of the Act, if the offer does not prescribe the manner in which it is to
be accepted, it must be accepted in ‘some usual and reasonable manner’. Where the offer
prescribes the manner, the offer must be accepted in the prescribed manner.

Acceptance must be communicated to the offeror. A mere mental determination to accept is no

acceptance in the eyes of law. E.g. where X makes an offer to Y for the supply of coal. Y accepts
the offer and puts it in his desk drawer. In such a case no contract will exist because the
acceptance was never communicated (Brogden v. Metropolitan Railway Co.).
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Acceptance must be communicated by the offeree or some authorized person. E.g. I am given a
job by LSE and this is communicated to me by a student who overhears Romana Noor telling
another faculty member. If tomorrow, Romana refuses that I had ever been given a job, I cannot
bring a claim against her or LSE.

Acceptance must be given before the offer lapses or is withdrawn.

Communication of Acceptance When Valid (Section 4)

When it is put in the course of transmission.

Where acceptance by post, as soon as the
As against the offeror properly addressed and stamped letter is
posted, the acceptance is deemed complete i.e.
the offeror will be bound by such acceptance
even if the letter is lost/delayed.

When it comes to the knowledge of the offeror.

Where acceptance by post, the offeree will
As against the offeree become bound once the letter of acceptance is
received by the offeror.

Example: X from London, sends a letter by post to Y of Lahore offering to sell his apartment for
Rs. 3 million. The letter is posted on 1 January and this letter reaches Y on the 7 January. Y
sends his acceptance by post on the 10 January but X receives this letter of acceptance on the 15
January. The legal position relating to the communication of offer and acceptance will be as
follows:

Date of valid Principle

Communication

Communication of offer 7 January Communication of offer is

deemed complete when it
reaches the offeree

Communication of acceptance 10 January Communication of acceptance

as against the offeror is deemed complete when it is
put into course of transmission
to the offeror

Communication of acceptance 15 January Communication of acceptance

as against the offeree is deemed complete when the
acceptance is received by the

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offeror

What happens where the offeree 1 posts his letter of acceptance and in the meantime somebody
else, offeree 2, accepts the offer by a speedier mode of communication? This is unfair to the
offeree 1 which is why the offeror is deemed bound by the acceptance of offeree 1 as soon as it
is put in the course of transmission to him. So, even if the offeror enters into a contract with
offeree 2, because that acceptance reached him sooner, that contract will be invalid; the offeror
will be bound to sell his product to the offeree 1.

The time gap between the date on which the letter of acceptance is posted and the date on which
the letter of acceptance is received by the offeror can be utilized by the offeree to withdraw his
acceptance by a speedier mode of communication. E..g. if the offeree has posted his letter of
acceptance but he changes his mind, he can make a phone call to the offeror revoking his
acceptance.

Face to Face Contracts & Contracts over Telephone/Telex/Fax : The contract will be complete
only when the acceptance is received by the offeror. The offeree must ensure that his acceptance
is properly received. E.g. if the phone line goes dead at the time the acceptance is being made, no
contract is formed.

6. REVOCATION OF OFFER & ACCEPTANCE

Revocation is the taking back or withdrawal of the offer/acceptance.

Section 5 of the Act prescribes that an offer may be revoked at any time before the
communication of its acceptance is complete as against the offeror, but not after that. We know
that communication of acceptance is complete as against the offeror when a properly addressed
and stamped letter of acceptance is posted, hence the offer may be revoked at any time before the
letter or acceptance is posted.

Section 5 also prescribes that an acceptance may be revoked at any time before the
communication of the acceptance is complete as against the offeree, but not after that. We know
that the communication of acceptance is complete as against the offeree when the letter of
acceptance is received by the offeror. Hence, acceptance can be revoked at any time before such
letter is received by the offeror.

There can be no revocation in the case of face to face contracts or contracts over
telephone/telex/fax because there is instantaneous acceptance to the offer made.

7. TERMINATION OF OFFER

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Instructor: Misha Zaheer

There are 5 situations in which an offer is deemed terminated:

7.1. Withdrawal/revocation of the offer by the offeror

Such withdrawal must take place before acceptance (See Section 5 of the Act), it must
be brought to the notice of the offeree and it may be done by way of an agent/third-party.

7.2. Rejection of the offer by the offeree

7.3. Lapse of time

7.4. Happening of an event mentioned in the offer

7.5. Death of the offeree

7.6. Subsequent illegality or destruction of subject matter of the offer