BUSINESS &

CORPORATE LAW
OFFER & ACCEPTANCE
COMPETENCY OF PARTIES
CONSIDERATION
Offer & Acceptance
OFFER:
• An offer is a promise or commitment to do or refrain from doing some
specified action in the future

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Competency, Consideration
Essentials of an offer
• Two Persons:
• There must be at least 2 persons for a valid offer
• Offeror: person making the offer
• Offeree: person to whom the offer is made

• Objective of Consent: an offer must be made with a view to obtain

the consent of the other person to a proposed act or abstinence

• Communications of Special Conditions: any special terms & conditions

in an offer must be specifically communicated to the other party
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Competency, Consideration
Essentials of an offer
• Communication:
• Offer must be communicated to the offeree
• Communication is complete when it comes to the knowledge of offeree
• In case of an offer being made by postal service, the communication will
complete when the letter reaches the offeree
• Offer can be made by words spoken or written (express) or conduct (implied)

• Invitation of an offer:
• An intention of a person to invite others with a view to enter into an
agreement
• Such intentions are not offers & do not create a contract on acceptance
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Competency, Consideration
Essentials of an offer
• Certain & Definite:
• a valid offer must have certain & definite terms
• a contract must include the following terms:
• Identification of the parties
• Identification of the object or subject matter of the contract, including the work to be
performed, with specific identifications of such items as goods, services, property etc.
• Consideration to be paid
• Time of payment, delivery, or performance

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Competency, Consideration
Essentials of an offer
• Contractual intention:
• an offer must be made with a serious intention to create a contract
• offers made in obvious anger, jest, or undue excitement do not meet the
criteria of offeror having a serious intention to create a contract
• Examples where there is no intention & hence no offers are made:
• Expressions of opinion
• Statements of Future Intent
• Preliminary Negotiations

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Competency, Consideration
Essentials of an offer
• Conditional:
• There might be some conditions in the offer
• Sole discretion of the offeree to either accept or reject the offer due to
attached conditions
• Conditional offer lapses when the attached conditions are not accepted

• Negative Confirmation: an offer cannot be in the form of negative

confirmation i.e. the offeree has to be either expressly confirm or
deny the offer

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Competency, Consideration
Types of offers
• Specific Offer:
• Offer is made to a particular person or a particular group of people
• Offer can only be accepted by that particular person or that particular group
of people

• General Offer:
• Offer is made not to a particular person but to the world or general public
• Such offers can be accepted by any one
• Contract comes into existence only when a person, having knowledge of the
offer, comes forward & acts according to the conditions of the offer

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Competency, Consideration
Acceptance
• Acceptance of an offer is the unconditional agreement to all the
terms of the offer.

• When the person to whom the offer is made agrees to it, the offer is
said to be accepted

• An offer when accepted becomes a promise

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Competency, Consideration
Essentials of an Acceptance
• Absolute & Unconditional: an offer must be accepted without any
condition imposed upon it by the offeree.

• Reasonable Time: offer should be accepted within the time specified

in the offer or within a reasonable time where no time is specified

• Reasonable Mode: acceptance must be made in the manner specified

in the offer or in a reasonable mode where no mode is specified

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Competency, Consideration
Essentials of an Acceptance
• Communication:
• Acceptance might be considered complete when it is communicated back to
the offeror
• Offer can be accepted, expressly (spoken or written words) or implicitly
(conduct of the person)
• Communicating by Post:
• An offer is considered accepted, & hence, the offeror is bound by the promise, as soon
as the letter is mailed back to him / her (even if the letter is lost or delayed)
• The acceptor / offeree is bound by the promise as soon as the letter is received by the
offeror. The acceptance can be revoked before the letter is received by the offeror.
• Communicating by Telephone / Telex / Fax:
• Treated as an oral agreement between 2 parties when they are meeting in person

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Competency, Consideration
Essentials of an Acceptance
• Awareness of Proposal: Offeree / Acceptor has to know the offer to
accept the offer

• Acceptance before offer lapses: offer must be accepted before the

offer lapses or is withdrawn

• Negative Confirmation: Offeree / Acceptor must accept the offer

through active communication, & cannot remain silent to show
acceptance of the offer

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Competency, Consideration
Revocation of Offer and Acceptance
• Revocation of Offer: offer to make a contract is withdrawn
• Revocation of Acceptance: acceptance to an offer is withdrawn

• Timing of Revocation:
• Offer: can be revoked at any time before acceptance, but not afterwards
• Acceptance: can be revoked at any time before acceptance comes to the knowledge of
the offeror, but not afterwards

• Communication of Revocation:
• Revocation of an offer or acceptance is considered to be communicated when it is
either put in a course of transmission OR comes to the knowledge of the offeror /
acceptee or offeree / acceptor
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Competency, Consideration
Revocation of Offer and Acceptance
• Lapse of an Offer or Acceptance:
• Revocation: - revoked before their acceptance by either party

• Time Lapsed: - lapsed if not accepted within the time specified or within a
reasonable time limit where no time is specified

• Death or Incompetence: - lapsed due to the death or incompetency of the offeror

or offeree IF the offeror or offeree comes to know of this BEFORE the offer is
accepted or acceptance is received by offeror

• Supervening Illegality: - offer lapses when a statute or court decision makes the
proposed contract / offer illegal
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Competency, Consideration
Revocation of Offer and Acceptance
• Lapse of an Offer or Acceptance:
• Counter Offer: - usually an offer made in reply to an offer, where one party
makes an offer & the other party suggests different terms

• Non-Acceptance according to Requirement: - offer lapses if it is not accepted

according to the requirement (if any) of the offeror

• Rejection: - offer ceases to exist if it is clearly rejected by the offeree

• Destruction of the subject matter: - offer lapses when the specific subject
matter of the offer is destroyed before the offer is even accepted
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Competency, Consideration
Offer and Acceptance in Internet
age
• Electronic contracts must meet the same basic requirements as paper
contracts

• Online Offers: offer contract must be clearly visible on website

• Online Acceptances:
• Click-on agreements: act of clicking on a box indicating “I accept” or “I agree”
results into an agreement
• Shrink-wrap agreements: act of tearing the shrink-wrap off of the software
DVD or CD results into an agreement

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Competency, Consideration
Individuals Competent to Contract
• Everyone is competent to contract:
• Who is age of majority, i.e. not a minor
• Who is of sound mind, i.e. not an insane person
• Who is not disqualified from contracting, i.e. not a convict, bankrupt, alien
enemies or foreign ambassadors

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Competency, Consideration
Agreements with a Minor
• Minor is anyone who is under the age of:
• 21 years where a guardian of a minor’s person or property is appointed by the
court of law under the Guardians & Wards Act 1890
• 18 years (Majority Act 1875, section 3)

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Competency, Consideration
Agreements with a Minor
• Position of agreements by a minor:
• An agreement with a minor is void

• Where a minor misrepresents his age & induces another person to enter into a
contract, he will not be liable

• Minor must be competent to contract at the time when the contract is being
entered into, & hence, even when she becomes an adult (over 18 years), the
contract would still be void

• If a minor enters into a contract with a person of majority age (over 18), then that
contract is enforceable against the adult who has jointly promised to perform
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Competency, Consideration
Agreements with a Minor
• Position of agreements by a minor:
• A minor can enter into a partnership, with the consent of all partners, but she
will only be getting the benefits of partnership & cannot be an actual partner
until she becomes an adult

• A minor can be an agent but cannot be a principal & if anyone acts on behalf
of a minor principal, then he will be personally liable (Contract Act 1872, sec. 184)

• A minor can file a lawsuit but cannot be sued

• A minor cannot be declared insolvent / bankrupt (Contract Act 1872, section 68)
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Competency, Consideration
Agreements with a Minor
• Position of agreements by a minor:
• A parent / guardian of a minor can enter into a contract on behalf of a minor
as long as it is being within the scope of the authority & for the benefit of the
minor and then such agreements can be enforced by or against the minor

• Anyone supplying necessaries (food, clothing, shelter, medical services) to a

minor is entitled to be reimbursed from the property of such minor, since such
claim is against the property of the minor & not the minor personally (Contract
Act 1872, section 68)

• A minor is usually cannot be compelled to pay back the money received by her
under an agreement
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Competency, Consideration
Agreements with a Minor
• Position of agreements by a minor:
• Minor can be a payee, promisee or beneficiary, since any contract which is for the
benefit of a minor & without any obligation for the minor is valid

• A minor can be a shareholder of a company as long as the shares are already fully
paid up when they are transferred to the minor.

• Parents of a minor cannot be held liable for the agreements made by a minor

• Certain contracts are voidable by a minor, which include, partnership agreements,

leases of property, & contracts to buy shares in a company
• Minor can ratify these contracts after reaching the age of majority & hence, become bind by
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Competency, Consideration
Agreements with a Minor
• Validity of Contracts made with minors:

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Competency, Consideration
Agreements by persons of unsound
mind
• A person is of a sound mind for the purpose of making a contract, if,
at the time when he makes it:
• He is capable to understand the terms of the contract, &
• He is capable to form a rational judgement as to its effect upon his interests
(i.e. he understands his rights & obligations being created from that contract)
(Contract Act 1872, sec. 12)

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Competency, Consideration
Agreements by persons of unsound
mind
• Examples of people of unsound mind:
• Specific person / Idiot: - mentally & permanently deficient by birth
• Lunatic / Insane person: - becoming lunatic or insane during life (may have
lucid / sane intervals)
• Intoxicated person: - drunk or drug-induced intoxicated person (temporarily
incapacitated)
• Hypnotised person: - temporarily incapacitated until the person is under the
effect of hypnotism
• Mental decay: - usually senior people whose mental capacity is decaying due
to their age

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Competency, Consideration
Agreements by persons of unsound
mind
• Position of agreements with a person of unsound mind:
• Agreement is void if an insane person enters into it while being insane
• Agreement is valid if an insane person enters into it while sane
• Agreement with a specific person (or an “idiot”) is always void
• Agreement is void if an intoxicated person enters into it while intoxicated
• A person of unsound mind can enforce a contract for his benefits, though
• Anyone supplying necessaries (food, clothing, shelter, medical services) to a
person of unsound mind is entitled to be reimbursed from the property of
such persons, since such claim is against the property of the persons of
unsound mind & not that individual personally

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Competency, Consideration
Agreements with persons
disqualified by law
• A person is not disqualified by law for the purpose of making a
contract, if at the time when he / she makes it, he / she is not a(n):
• Alien Enemy
• Foreign sovereigns & ambassadors
• Convict
• Insolvent

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Competency, Consideration
Consideration
• Value given in exchange for a promise

• Can be any of the following:

• An act i.e. doing of something (in a unilateral contract)
• An abstinence or forbearance i.e. abstaining from doing something legal
• A return promise (in a bilateral contract)

• Contract cannot be formed without sufficient consideration

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Competency, Consideration
Essentials of Consideration
• Desire of the Promisor: an act or abstinence of promise constituting
consideration must have been done or made at the promisor’s
request

• From Promisee or any other person: consideration can be from the

promisee herself or any other person

• Past, Present, Future:

• Past Consideration: consideration moved before the formation of agreement
• Present Consideration: consideration moves simultaneously with the promise
• Future Consideration: consideration moves after the formation of agreement
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Competency, Consideration
Essentials of Consideration
• Value: there must be some value to the consideration (something
must move on both sides)

• Preexisting Duty: consideration is non-existent if one is either by law

or by contract is already bound to do something

• Real & not illusory: consideration must not be:

• physically impossible &
• uncertain

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Competency, Consideration
Essentials of Consideration
• Lawful: consideration must be lawful & not against public policy

• Need not be adequate:

• Concerns with the fairness of the bargain or transaction
• consideration does not need to be adequate to the promise, BUT courts may
examine adequacy of consideration in some cases

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Competency, Consideration
Agreements without Consideration
• Agreements without consideration are void, BUT section 25 of
Contract Act gives some exceptions to this rule:
• Time-barred Debt
• Gifts
• Gratuitous Contract of Bailment
• Charitable Subscription
• Contract of Guarantee

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Competency, Consideration
Agreements without Consideration
• Gifts:
• Offered & accepted gifts are valid & require no consideration
• There does not need to be any natural love & affection or relationship
between the parties who are exchanging gifts

• Contract of Bailment: no consideration is required for a gratuitous

contract of bailment

• Charitable Subscription: a promise to contribute to charity, though

gratuitous, would be enforceable
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Competency, Consideration
Agreements without Consideration
• Time-barred Debt: - these are valid contracts if:
• In writing
• Signed by the debtor or his agent,
• Promisor himself must be liable for the debt,
• There must be an express promise to pay a time-barred debt, &
• Relates to a debt which could not be enforced by a creditor because of law of
limitation

• Contract of Guarantee: consideration received by the principal debtor

is sufficient for the surety / guarantor & it is not necessary for the
guarantor to receive some consideration, too
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Competency, Consideration