LAW OF CONTRACT-I

THE CONTRACT ACT OF 1872

Prepared by
Ms. Charu Srivastava
Assistant Professor
CoLS, UPES.
CONTENTS
• History
• Applicability and scope of the Indian contract Act, 1872
• Nature of contract
• Intention to create legal obligation
• Offer and Acceptance
NEED FOR LAW OF CONTRACT….?
HISTORICAL BACKGROUD
Prevalent system was barter system. (Indus valley civilization)
Vedic and the Medieval Period
• Sources of Contract of Hindu Law vedas, Dharmashashtras, Smritis etc
• Who could not minors, dependents, sanyasi etc
• Who could contract kings, Head of the family, teacher
• Liability failure to pay debt  rebirth as a slave, servant in the house of creditor.
• Chandragupta Muarays rule free consent and consensus
• Contracts held to be void entered in secret place, forest, at night, by women etc.
Islamic Law
• During Mughals – Mohammedan Law of Contract.
• Contract in Arabic – Aqd (Conjunction)
• Conjunction Proposal (Ijab) + Acceptance (Qabul)
• Agency (vakalat), Guarantee (Zamanat), Partnership (Shirkat)
• Marriage (Nikah) is considered as a contract
England: Early Law of Contract
• More advanced than any other primitive society.
• Assumption—”Mere promise does not given rise to a contract”
15TH and 16th Century
• Two forms of action
1) Action on debt claims for the price of goods sold
2) Action on covenant breach of agreement for service like building or for sales or
lease of land remedy was performance/damage
Dependent upon receipt and not merely on promise so defendant use to avoid liability by
a procedure called “wager of law” (oath- he is telling the truth)
• Development of ASSUMPIT Latin Assumere (Defendant undertook) Action on
recovery of damages by reason of the breach or non performance either express or
implied contract.
• Liability for both Misfeasance (wrongful exercise of lawful authority) and Nonfeasance
(failure to perform an act that is required by law).
• During this period the term consideration was devised.
17TH AND 18TH Century
• Law of Contract immensely changes- rise in economic activities.
English Law in India and the subsequent Enactment
• Application of English law to Hindus and Muslims caused inconvenience.
• Presidency towns madras, Bombay and Calcutta ( statute of 1781 and 1797)--?
Usages and customs of Hindus and Muslims will be applicable.
• In case one party is Muslim and other is Hindu, usage of defendant will be applicable.
• Act of parliament– usage of country—law of defendant--Justice Equity and Good
Conscious Bengal Regulation act 1793
• Prior to ICA, other laws dealing with some contracts were there like:
-Workmen’s breach of contract 1854
-Merchant shipping act 1854
-Carriers Act 1865
Drafting of the Act
• The Indian Contract Act, 1872, primarily drafted by the Third Law Commission of India, is
primarily a codification of English Law subject to certain changes.
COMMENCEMENT AND APPLICABILITY
Short Title: The Indian Contract
Act 1872

Applicable to whole of India except

J&K

Enacted on 25th April 1872,

Enforced on 1st September 1872
• When J & K merged with India- J & K was made a autonomous body. Central
Government have control only on matters like defence, external affairs, finance etc.
Contract Act of Jammu and Kashmir 1977 deals with contractual obligations in J & K.
• Savings Nothing herein contained shall affect
 the provisions of any Statute, Act or Regulation not hereby expressly repealed,
 nor any usage or custom of trade,
 nor any incident of any contract,
not inconsistent with the provisions of this Act. (Sec 1)
RIGHT IN PERSONAM
• Law of contract creates jus in personem and not in jus in rem. (Tort is right in rem
whereas contract is right in personem)
(1) A owns a plot of land. He has a right to have quiet possession and enjoyment of the
same. In other words every member of the public is under obligation not to disturb his
quiet possession and enjoyment. This right of A against the whole world is known as
right in rem.
(2) A is indebted to B for Rs. 100. It is the right of B to recover the amount from A. This
right of B against A is known as right in personam. It may be noted that no one else
(except B) has a right to recover the amount from A.
• The Indian Contract Act consists of the following two parts.

●
Sec 1 to 75 Applies to all kind of contract irrespective of the
General Principles
nature.

●
Sec 124- 238 Indemnity, Guarantee, Pledge, Bailment and
Special Contracts
Agency.
ESSENTIALS OF A CONTRACT
• Agreement.
• Intention to create a legal relationship.
• Free and genuine consent.
• Parties competent to contract.
• Lawful consideration.
• Lawful object
• Agreements not declared void or illegal
• Certainty of meaning
• Possibility of performance
WHAT IS CONTRACT?
• Contracts are promises that the law will enforce
• Contract can be as simple as the agreement with the milkman to deliver the milk and your
obligation to pay for it.
• Mutuality ( equal amount of right to enforce) and Meeting of minds (consensus ad idem)
For example if minor enters into a contract there is no mutuality.
• Principles and rules which regulate a valid and an enforceable contract.
• Law of Contract making of the contract and abiding of the contract.
• Rights and liabilities are decided by the parties themselves
• Law of contract deals with voluntary created civil obligations only.
• Contract  Agreement + Intention to create Legal obligation + all essential elements of
Sec 10 of the Act.

• When two parties enter into an agreement with an intention to hold other party liable in
case of non performance, the agreement becomes a contract.
 Contracts as Defined by Eminent Jurists:

10 December 1845 – 18 January 1937) was an English jurist best known for his History of
Pollock English Law. ( wrote a series of text books)

●
“Every agreement and promise enforceable at law is
a contract.”
Halsbury English Jurist, politician, barrister

“A contract is an agreement between two or more persons which is intended to be

●

enforceable at law and is contracted by the acceptance by one party of an offer

made to him by the other party to do or abstain from doing some act.”
Born ion England, 3 December 1862 – 19 September 1924) was a legal scholar, public servant,
Salmond judge.

●
“A contract is an agreement creating and defining
obligation between the parties.”
• According to section 2(h) which defines Contracts, “An agreement enforceable by law is a
contract.”  (based on Pollock’s)

• According to the words of section 2(e) Of The Indian Contract Act, 1872 which defines an
agreement, “Every promise and every set of promises, forming the consideration for each
other, is an agreement.”

• Section 2(b) defines promise in these words: “When the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be accepted. A proposal when
accepted, becomes a promise.”
 Acceptanc
Offer Promise
e

Promise forming the consideration is an agreement.

Agreement + Intention to create legal obligation ( English Law)+ other essentials
of sec 10 = Contract
1) AGREEMENT

• Consensus ad Idem
• An agreement is an accepted proposal.
• The two elements of an agreement are:
(i) offer or a proposal; and
(ii) an acceptance of that offer or proposal
 The party making the offer is known as the offeror. (Proposer)
 The party to whom the offer is made is known as the offeree. (Acceptor)
 Thus, there are essentially to be two parties to an agreement. They both must be thinking
of the same thing in the same sense. In other words, there must be consensus-ad-idem
Example
• ‘A’ who owns 2 cars x and y wishes to sell car ‘x’ for Rs. 30,000.
• ‘B’, an acquaintance of ‘A’ does not know that ‘A’ owns car ‘x’ also.
• He thinks that ‘A’ owns only car ‘y’ and is offering to sell the same for the stated price.
• He gives his acceptance to buy the same.
• Is there a contract?
Answer: There is no contract because the contracting parties have not agreed on the same thing
at the same time, ‘A’ offering to sell his car ‘x’ and ‘B’ agreeing to buy car ‘y’. There is no
consensus-ad-idem.
• Agreement is a promise or a set of promises.
• A promise comes into existence when a proposal is made by one
and accepted by another. These exchanged promises must form
consideration (something in return) to each other.
• An agreement is a promise and promise is an accepted proposal.
• Every contract is an agreement but every agreement is not a
contract. (Every agreement is not legally enforceable)
• Moral duties cannot ne enforced. (Exceptions)
• Every party owes some performance to other
EXAMPLE
• X offers to Y to sell his car for Rs 50,000
• Y accepts the offer
• With the acceptance of the proposal, promise comes into being, that is X has made a
promise to Y to sell his car to him and Y has promised to pay Rs 50,000 for X’s car.
• Every promise is forming a consideration (something in return) for each other, say the
consideration which X will receive is Rs 50,000 and the consideration which Y will receive
for his Rs 50,000 is car.
• Proposal + Acceptance = Promise
• Promise + Consideration = Agreement
• Agreement + Enforceability = Contract
DIFFERENCE BETWEEN CONTRACT AND
AGREEMENT
AGREEEMENT CONTRACT

Offer + Acceptance = Promise Agreement + Enforceability = Contract

Promise + Consideration = Agreement

An agreement may or may not create a legal A contract necessarily creates a legal
obligation. obligation.

Every agreement need not be a contract. All contracts are agreement.

May or may not be binding. Binding on parties.
 2) INTENTION TO CREATE LEGAL OBLIGATION- ENGLISH
PRINCIPLE
• Dispute with respect to applicability in Indian Law?
• Intention to create legal relations is defined as an intention to enter a legally binding
agreement or contract (serious about consequences)
• When you wish to take the other party to the court because of non performance of the
contract.
• Expressly or Impliedly
• Ex.
 Ram invites shyam for dinner and shyam accepts it.
 Ram books a table in restaurant owned by Sachin.
 Shyam does not come for dinner.
Q. Can Ram tale shaym to court? Can Sachin compel Ram to pay?
Answer: Ram cannot do anything about it( No Intention to create legal obligation) but sachin
can compel ram to pay for the booked table.
(Personal/social agreements and professional lives)
EFFECT OF NO INTENTION

• If there is no intention to create legal relations the contract would not

be enforceable, legal and binding
• Without intention to create legal relations, the parties cannot sue each
other
• Without intention to create legal relations the contract may become a
mere promise
INTERPRETATION OF INTENT

• Intention should be expressed in unambiguous words and/ or actions by a

party, which should be understood by the other party in the same sense
which the former party had meant to, convey their message in, but this is
not always so.
• There might be some sort of miscommunication caused due various factors,
such as, erroneous selection of words/ actions, differently comprehended or
misapprehended materialization of intent, or deliberately kept secret
reservations.
• Due to this imperfect communication there might be a conflict regarding the
enforceability of the contract or challenging the validity of terms in the
contract.
To find out whether there was intention to be legally bound or not, the court applies the test of
contractual intent:
There are two types of intent.
1) Subjective Intent theory
2) Objective Intent theory
Intent is a state of Mind.

1) Subjective intent
In simple terms, a subjective intent can be defined:
• when a third party does not understand the intention of the party offering,
• but the party or promisor knows that there is an intention to make an offer or the formation of a
contract, subjective intent comes.
• In the Subjective theory of intent, there is an implied expression of intention; but not the expressed
intent of the contracts. Subjective intent addresses the party's personal intent.
2) Objective Intent
• Objective intent exists if a reasonable person would understand from a party's words or
actions that he intended to form a contract.  
• Objective theory of intent looks at the external manifestation of the intent of the parties.
• According to this theory, it does not take care as to whether there was an intention to
enter into a contract, but a Reasonable Person” or a third party should understand that
there was expressly intent to form a contract.
• This principle states that the existence of a contract is determined by the legal
significance of the external acts of a party to a purported agreement, and not by the
actual intent of the parties.
• Generally assumed that social and domestic do not give rise to legal
relations. But trade contracts do give rise to legal relations.
• Doctrine -- public policy--as a matter of policy, the law of contract ought not
to intervene in domestic situations because the courts would be burdened
by trifling domestic disputes.
Ex You promise to pay your sister Rs 50 if she will type the manuscript of a
chapter of your book. My sister agrees.
Does this agreement create a legally enforceable contract?
On the face of it there appears to be no reason why it should not. We have
reached agreement and the agreement is supported by consideration.
But we cannot conclude that we had entered into a legally binding contract
because we lacked an ‘an intention to create legal relations’, which has been
held to be an essential element in any contract.
• It could be said that the doctrine is based on the intention of the parties, that
is to say, your sister and you did not intend that your agreement would have
legal consequences .
• CAN BE DIVIDED INTO:
A) Commercial and business Contracts
B) Social and Domestic relations
A) COMMERCIAL BUSINESS

• Very strong Presumption of Intention to create legal obligation unless

expressly ruled out.
• This is often done through the use of honour clauses, letters of intent,
memoranda of understanding and other similar devices, although the
ultimate conclusion would depend, not on the label attached to the
document, but on an objective assessment of the language used and
on all the attendant facts.
Rose and Frank Co. v J.R. Crompton & Bros Ltd
FACTS-
• The defendant manufactured carbon paper in England.
• The plaintiff bought the defendant’s paper and sold it in New York.
• After dealing with each other for a number of years they entered into a written agreement as to
the plaintiff having exclusive rights to buy and sell the defendant’s goods. The agreement said
inter alia:
• “this agreement is not a formal or legal agreement. It will not be subject to the jurisdiction of
either the British or American courts. It is a record of the intention of the parties to which they
honourably pledge themselves and is to be carried out with mutual loyalty and friendly co-
operation.”

Held- The Court held that there was no legal contract. The clause had the effect of negating any
other objective evidence of intention to create legal relations. Justice Vaisey, writing for the Court,
reasoned that it was a gentlemen’s agreement, “which is not an agreement entered into between
two persons, neither of whom is a gentleman, with each expecting the other to be strictly bound,
while he himself has no intention of being bound at all.”
 
• Masters v Cameron (1954) 91 CLR 353, High Court
FACTS
• An agreement was reached to sell a property. 
• This agreement is made subject to the preparation of a formal contract of sale which
shall be acceptable to the solicitors on some terms and conditions. 
• On the same day a deposit was paid to the vendor's agent.
• When the purchaser refused to proceed with the sale, both parties claimed the deposit. 
• The purchaser said there was no contract and that the money paid should be returned.
• The vendor said there was a contract and the failure to proceed meant that the money
was forfeited.
• At trial, it was held there was a contract. 
On appeal it was said there were 3 possibilities:
1. The parties have finalized their agreement and intend to be bound straight away - just want to
be more precise.
2. They have agreed all the terms, but have made performance of one or more terms
conditional upon the execution of a formal document.
3. The parties do not want to be bound until they have completed the formal document. Here,
the parties may wish to retain the right to withdraw, if agreement cannot be reached on
outstanding matters.
• In the first two cases we have a binding contract. In the third case we merely have a record
of the terms which are intended to form the basis of a contract to be finalized.
HELD If subject to contract means there are terms to be agreed, or conditions to be fulfilled,
then there is no contract until those things have been done. When not expressly stated to be so,
then it is a matter of construction. We conclude that no contract has been formed here.
2) DOMESTIC AND SOCIAL RELATIONS- Rebuttable presumption
 NO BINDING EFFECT
Balfour v Balfour
• Facts  –
1. Mr Balfour was a civil engineer, and worked for the Government as the Director of Irrigation
in Ceylon
2. Mrs Balfour was living with him. In 1915, they both came back to England during Mr Balfour’s
leave.
3. But Mrs Balfour got rheumatic arthritis. Her doctor advised her to stay, because a jungle climate
was not conducive to her health.
4. As Mr Balfour’s boat was about to set sail, he promised her £30 a month until she came back to
Ceylon.
5. They drifted apart, and Mr Balfour wrote saying it was better that they remain apart. In March
1918,
6. Mrs Balfour sued him to keep up with the monthly £30 payments. In July she got a decree and
in December she obtained an order for alimony.
The Court of Appeal unanimously held that there was no enforceable agreement. No intention to
create legal obligation.
• Jones v. Padavatton
FACTS

1. The mother lived in London and her daughter lived in the USA.
2. She well-educated working intelligent woman and had a son.
3. The mother (P) said that if daughter (D) went to London to take her Bar exams she
would pay her a monthly allowance.
4. Defendant in fact went to England and mother paid tuition fees plus the monthly
allowance.
5. Mother then bought a large house for defendant to live in with rooms to be let to tenants.
6. Defendant collected the rents but did not pass them on to mother. Defendant remarried
in 1965, and in 1967 Mother sought possession of the house.
7. Defendant counterclaimed for £1655-00 which she had spent on the house.
Judgment- The Court held that there was no binding contract. Although there would
have been a contract if it was not the domestic parties related, there was insufficient
evidence to rebut the presumption against domestic arrangements.
That the present case is one of those family arrangements which depend on the
good faith of the promises which are made and are not intended to be rigid, binding
agreements. Balfour v. Balfour was a case of husband and wife, but there is no
doubt that the same principles apply to dealings between other relations, such as
father and son and daughter and mother. 
One Judge These situations might look like a contract with obligations on one
side only. Such a contract, he thought, would only run for a reasonable time to allow
the daughter to completer her studies (say 5 years) - that would take her up to
1967. She cannot then be expected to gain anything further under the contract in
1968.
 BINDIGN EFFECT
However the presumption is rebuttable:
• Where the relationship between the parties is approaching the point of
break down the courts are more likely to conclude that there was an
intention to create legal relations.
• Secondly, the presumption may be rebutted where the parties have
acted to their detriment in reliance upon the agreement that has been
concluded between the parties
• Parker v Clark (1960)
FACTS
(In this case the arrangement had a significant effect on the lives of the affected
parties, and some would have been significantly disadvantaged if the arrangement
had not been enforced.)
• Mrs and Mrs C invited their niece and her husband (Mr and Mrs P) to live in
their house free of rent, in return for domestic support.
• The Ps sold their house and moved in.
• Later, the Cs tried to evict the Ps, and the Ps took legal action to prevent this.
• The court held that in this case the severity of the situation allowed the
agreement between the Ps and the Cs as a contract.
• Merrit v. Merrit
FACTS

• The husband and wife were married in 1941 and had three children.
• In 1966, the husband became attached to another woman and left the matrimonial home to
live with her.
• At that time, the matrimonial home, a freehold house, was in the joint names of the husband
and wife, and was subject to an outstanding mortgage of some £ 180.
• The wife pressed the husband to make arrangements for the future, and on 25th May 1966,
they met and talked the matter over .
• The husband said that he would pay the wife £ 40 a month out of which she must make the
outstanding mortgage payments on the house
• The wife insisted that the husband should put down in writing a further agreement, and on
a piece of paper he wrote: ‘In consideration of the fact that you will pay all charges in
connection with the house… until such time as the mortgage repayment has been
completed, when the mortgage has been completed I will agree to transfer the property in
to your sole ownership.’
• The husband signed and dated that agreement, and the wife took the piece of paper
away with her.
• In the following months she paid off the mortgage, partly out of the husband’s monthly
payment to her and partly out of her own earnings.
• When the mortgage was paid off the husband refused to transfer the house to the wife.
Judgment –
• The written agreement of 25th May 1966, was intended to create legal relations between
the parties because the presumption of fact against such an intention where
arrangements were made by a husband and wife living in amity did not apply to
arrangements made when they were not living in amity but were separated or about to
separate, when (per Lord Denning MR at p 762 a, post) it might safely be presumed that
they intended to create legal relations.
• The surrounding circumstances in the present case showed that the parties did so intend;
accordingly, the wife was entitled to sue on the agreement, and it being sufficiently
certain and there being good consideration by the wife paying off the mortgage, she was
entitled to a declaration that she was the sole owner of the house and to an order that the
husband joining in transferring it to her.
• McGregor v. McGregor husband and a wife withdrew their
complaints under an agreement by which husband promised to
pay her an allowance and she to refrain from pledging his credit.
What obligations are contractual in nature?
• the law of contracts is not the whole law of agreements. Similarly, all legal obligations are
not contractual in nature
• All legal obligations are not contractual in nature. A legal obligation having its source in
an agreement only will give rise to a contract.
A agrees to sell his motor bicycle to B for Rs. 5,000. The agreement gives rise to a legal
obligation on the part of A to deliver the motor bicycle to B and on the part of B to pay Rs.
5,000 to A. The agreement is a contract. If A does not deliver the motor bicycle, then B can
go to a court of law and file a suit against A for non-performance of the promise on the part of
A.
An obligation which does not have its origin in an agreement does not give rise to a contract.
Some of such obligations are
1. Torts or civil wrongs;
2. Quasi-contract;
3. Relationship between husband and wife, i.e., status obligations.
These obligations are not contractual in nature, but are enforceable in a court of law . Thus,
Salmond has rightly observed: “The law of Contracts is not the whole law of agreements nor
is it the whole law of obligations. It is the law of those agreements which create obligations,
and those obligations which have, their source in agreements.”
• Similarly, agreements to do an unlawful, immoral or illegal act,
for example, smuggling or murdering a person, cannot be
enforceable at law.
• Besides, certain agreements have been specifically declared
void or unenforceable under the Indian Contract Act. For
instance, an agreement to bet (Wagering agreement) (S. 30), an
agreement in restraint of trade (S. 27), an agreement to do an
impossible act (S. 56).
• Legal obligation arises when parties want to make
themselves legally bound to perform the duties. (Ex
employment contract, timely delivery of urgent courier)
• To determine intention is a tough task, it is gathered from
the nature of contract and circumstances. As a general rule
social nature agreements are not made with an intention to
create legal obligation but trade agreements are.
• The apex court of India has expressed its reservation about the
need of this separate requirement of “intention to contract”
under the contract act.
OFFER
OFFER
 MEANING
Offer in England
Proposal in India
Sec 2(a) defines proposal
1) One person signifies to another
2) His willingness to do or to abstain from doing anything (offer can be positive or offer can be negative)
3) With a view to obtaining the assent of that other.
4) To such act or abstinence,
5) He is said to make a proposal
Person who makes the proposal promisor/ offer
Person to whom it is made is known as proposee /offeree.
When the proposee/offeree accepts the offer, he is called the promisee
• First part pf definition lays emphasis on requirement that the
willingness should be signified. Signified means to declare to indicate.

• That is the desire by one party to another party to do something or to

abstain from doing something. ( Ex. A asks B not to file suit against C.
A will pay to B Rs 5000.)

• The second essential characteristic is this expression is done with the

view to get the assent. Offer is given by one party to another party
with then object of getting the accent of another party.
• The process of making a proposal is completed by act of communicating it to the
other party. (Sec 3: Communication )
• Sec 3 –”to signify” means the proposal must be communicated to the other party.
• Sec 9 - valid proposal may be made by words (written or spoken) or by conduct.
Example– taking a taxi, eating dinner in restaurant– implied contract
Preliminary negotiations don’t constitute an offer/acceptance. Leeds v. First Allied
Conn. Corp.
ESSENTIALS
 Offer must be communicated to the offeree: The offer is completed only
when it has been communicated to the offeree. Until the offer is
communicated, it cannot be accepted. Thus, an offer accepted without its
knowledge, does not confer any legal rights on the acceptor .
 The offer must be certain definite and not vague unambiguous and certain.
Example: A offered to sell to B. ‘a hundred tons of oil’. The offer is uncertain as there is nothing
to show what kind of oil is intended to be sold.
• Certainty and definiteness of terms
a. Identify offeree or class of offerees
Must be clear:
1 Real Estate-land and price
2. Sale of Goods-quantity must be capable of being made certain
3. Employment-duration must be specified
b. Even if one of these are missing, if evidence shows intent to conclude a bargain, can still be
considered offer.
c. Certain missing terms may be reasonably inferred
Guthing v Lynn (1831) 2B & AD 232

Lynn offered to buy a horse from Guthing. He was to pay 5

pounds extra if the horse brought him good luck. The
condition laid was held by the court to be too vague to
constitute a binding contract.

 The offer must be capable of creating legal relation. A social invitation is not create legal
relation.
Example: A invited B to a dinner and B accepted the invitation. It is a mere social invitation. And
A will not be liable if he fails to provide dinner to B
 Offer may be express and implied
The offer may be express or implied; An offer may be express as well as implied. An offer which is
expressed by words, written or spoken, is called an express offer. The offer which is expressed by
conduct, is called an implied offer [Section 9].

• Bigg v. Boyd Gibbins Ltd. 1971

• FACTS-- One party wrote: "For a quick sale I would accept L26.000". The other replied: "I
accept your offer".
• The one party replied: "I'm putting this matter in the hands of my solicitors. My wife and I are
both pleased that you are purchasing the property".
P claimed a valid contract and brought an action for a specific performance.
• HELD-- There was a binding contract.
• It doesn't matter if the plaintiff uses the word "accept".
The other party said: "that you ARE purchasing the property", so it was also clear to her.
• In these circumstances, you can imply a quick sale "to you".

• In order to become legally binding an offer must be clear and unequivocal.

 An offer is not a request for the supply of information
Harvey v Facey [1893] AC

Facts-
• Plaintiff telegraphed Defendant - "will you sell us Bumper Hall Pen? ”
“Telegraph lowest cash price" .
• Defendant replied "Lowest price £900" . Plaintiff then said, "we agree to
buy at £900 - send deeds."
HELD–
An offer is not a request for the supply of information
“the mere statement of the lowest price at which the vendor would sell
contains no implied contract to sell at the lowest price.”--Lord Morris
• McPherson v Appanna (AIR 1951 SC 184), the owner of the
property said he would not accept less than Rs 6000, not held to
be an offer but an invitation to an offer.
 Communication of complete offer
Sec 3 : Communication, acceptance and revocation of proposal.
• Made by an act or omission of the party by which he intends to
communicate such proposal which has the effect of communicating it to the
other party.
Sec 4 : Knowledge of an offer is must before the offer can be accepted.
• The communication of the offer is complete when it comes to the knowledge
of the person to whom it is made.
• Lalman Shukla v Gauri Dutt
Facts—
In this case, G (defendant) sent his servant (plaintiff) in search of his missing
nephew. G afterwards announced a reward for information concerning the missing
boy. It traced the boy in ignorance of any such announcement. subsequently when  he
came to know of this reward, he claimed it.
HELD—
It was held that since the plaintiff was ignorant of the offer of reward, his Act of
bringing the lost boy didn’t amount to the acceptance of offer and therefore he was
not entitled to claim the reward.
• R v Clarke (Australian case)

One knew of the offer but forgot completely- no knowledge.

Facts
• The Australian Government offered a reward for information leading to an arrest
and conviction of persons responsible for the murder of Two Police officers.
• X and Clarke were arrested and charged with murder but later Clarke gave
information leading to arrest of Y. X & Y were later convicted and Clarke
claimed for the reward.
• Clarke failed to claim the reward as the information he gave was to clear
himself and not in reliance of the offer to reward.
• It is necessary to act in reliance of an offer.
 Mere expression of willingness does not constitute an offer.
A tells B’ that be desires to marry by the end of 2008, it does not constitute an offer
of marriage by A’ to B’ A further adds will you marry me. Then it become offer.

 Counter offer
A counter offer amounts to rejection of the original offer .
Example: A offered to sell his pen to B for Rs.1,000. B replied, “I am ready to pay
Rs.950”. On A’s refusal to sell at this price, B agreed to pay Rs.1,000. held, there
was not contract at the acceptance to buy it for Rs.950 was a counter offer, i.e.
rejection of the offer of A. Subsequent acceptance to pay Rs.1,000 is a fresh offer
from B to which A was not bound go give his acceptance.
 Communication of offer must reach to offeree.

Thomson v. L.M. & S Rly. (1930)– railway ticket see conditions at

the back. ( reasonable efforts to communicate)
Henderson v. Stevenson (1875)  Dublin to whitehaven 
conditions were written at the back, no indication that they were
written at the back.
P’s luggage was lost on the way because of the negligence of the
company’s servants.
They were held liable to pay for the loss.
They did not make proper to efforts to convey the terms.
Analysis actual communication of the terms is not required in
all cases. If a court feels that party has made reasonable efforts,
under the circumstances to call the terms of the offer to the
offeree’s attention, then a legal communication has occurred.
 Offer must be distinguished from invitation to offer.
• An offer is final expression of willingness by the offeror to be
bound by his offer. Sec 2(a)
• Where a party, without expressing his final willingness, proposes
certain terms on which he is willing to negotiate, he does not make
an offer but merely invites the other party to make an offer on
those terms.
• The test is to see the intention, if the person is bound by as soon
as the other accepts, he is said to make an offer, but if intends
some other act to be followed, he is making invitation to an offer.
Example

• Menu card of restaurant is an invitation to put an offer.

• Price – tags attached with the goods displayed in any showroom or supermarket
is also an invitation to proposal. If the salesman or the cashier does not accept
the price, the or the cashier does not accept the price, the interested buyer
cannot compel him to sell, if he wants to buy it, he must make a proposal.
• Job or tender advertisement inviting applications for a job or inviting tenders is
an invitation to an offer.
• Prospectus issued by a college.
• Prospectus issued by a company.
• Price-catalogues, price lists, quotations
OFEER INVITATION TO AN OFFER

Show his readiness to enter into a contract, it Person invites offer to make an offer to him.
is called as an offer

Purpose of entering contract Purpose of enter offer

Results in a contract Results in offer.

Example Application filled in by a prospective Example Issue of prospectus by a Company,
applicable to the Institution, a student seeking an education Institution
admission in educational Institution.
• An advertisement for auction sale is merely an invitation to
make an offer and not an offer for sale. Therefore, an
advertisement of an auction can be withdrawn without any
notice. The persons going to the auction cannot claim for loss of
time and expenses if the advertisement for auction is withdrawn .
• However not all advertisements are invitation to an offer,
intention is to be seen. ( Carlill v Carbolic case)
• Offeror should have an intention to obtain the consent of the
offeree.
Pharmaceutical Society of GB v. Boots Cash Chemist Ltd (1953) 1 ALL ER
• ISSUE: In a self-service shop, is the sale completed at the shelf when the goods are
selected, or at the cash desk?
• The judge in this case said that the usual view has been that customers (say in a
bookshop) select the item they wish to purchase, and then take it to the assistant, who
accepts it and completes the contract.
• The plaintiff contends that the defendant has offered to sell the goods by displaying them
on the shelves, and that the plaintiff accepts the offer by taking them from the shelf. If this
is correct, then a person who takes something from the shelves cannot then replace the
item if they see something which they would prefer more. It seems clear that the sale
takes place at the cash register.
• A retailer who displays goods for the purposes of sale is not making an offer of sale.
• Spencer v Harding (1870) LR 5 CP 561
The defendant had sent out letters of tender for a said article. The Plaintiff’s
tender was the highest but the defendant did not accept it. The Court held that
the defendant was right to refuse the offer because no contract had existed
between them. A letter of tender is only an invitation to treat .
• Begin Negotiation or bargain are you interested, would you give, I would
consider etc
• Words that suggest offer I will sell, I will buy, I offer, I bid etc
 An offer may be conditional
Sec 7
• An Offer must be Distinguished from

-An invitation to an offer

-A mere statement of intention: e.g., an announcement of a coming
auction sale. Thus a person who attended the advertised place of
auction could not sue for breach of contact if the auction was
cancelled (Harris v. Nickerson (1873) L.A. 8 QB 286).
-A mere communication of information in the course of negotiation:
e.g., a statement of the price at which one is prepared to
consider( negotiating the sale of piece of land (Harvey v. Facey
(1893) A.C. 552).
 KINDS OF OFFER
1. Express and Implied
2. General and Specific
3. Cross offer
4. Counter offer
5. Standing open and continuous offer
1. Express offer - When the offeror expressly communicates the offer the offer
is said to be an express offer, the express communication of the offer may be
made by Spoken word Written word.
2. Implied offer – when the offer is not communicated expressly. An offer may
be implied from:- The conduct of the parties or The circumstances of the case .
Ex When A says to the B on papers that he would like to sell his horse to him in
10,000/- rupees, it’s an offer which is expressed.
Sec 9 : Implied offer or Express offer
Ex: A bid in an auction is an implied offer to buy, boarding a bus, eating in
restaurants etc. (Implied offers) which means implied promises to pay for the
services availed.
• Implied thing is a thing which can be governed by the behaviour
of the one party. We can make an offer by implied manner also.
Implied means which goes without saying.
• Ex A says to the B that I would like to buy your horse in 10,000/-
rupees. B does not say anything to the A but in the evening, B
expressing anything sends his horse at A’s place. It’s implied
that B has accepted the offer of the A.
• Upton Rural District Council v. Powell
Facts Fire broke out in defendants farm. Believing that he was entitled to services by
upton fire services (which he was not), he called them. Upton claimed compensation.
Held the services were rendered on an implied promise to pay for them.
Ex Ship for loading
Sometimes offer and acceptance are based on circumstances and are not discernable.
• Clarke v. Earl of Dunraven (1897) AC 59
Yacht club- competitors would be liable for damage done by fouling, they were held bound
to each other by the rules and where one of them fouled and sank a yacht, he was held
liable.
Lord Esher if you want to sail in any of our matches you have to submit yourself to the
conditions which are laid down. ( Binding contract)
• Haji Ishaq v. Mohd Iqbal (1978) 2 SCC 493 in the course of trade, goods
were accepted by the defendants  implied contract.
• Ramji Dayawala & Sons v. Invest Import (1981) 1 SCC 80 – objection to
arbitration clause.
3. Specific:- It means an offer made to
(a) a particular person or
(b) a group of person: It can be accepted only by that person to whom it is made
communication of acceptance is necessary in case of specific off er.
Boulton v Jones (1857)
Defendant had business dealing with a shopkeeper named Brocklehurst.
• The defendant had ordered some stocks from B but on the day of the order B had
sold his business to the Plaintiff.
• The Plaintiff delivered the goods without informing the Defendant of the change of
ownership.;
• The Defendant then refused to make any payments. It was held that the plaintiff had
no rights to accept an offer not made to him.
Shipton v Cardiff Corporation (1917)
Cardiff offered to their employees that whoever will join the forces,
will be paid extra amount, was held to be bound.
4. General offer: - It means on offer which is made to the public in
general.
• General offer can be accepted by anyone.
• If offeree fulfill the term and condition which is given in offer then
offer is accepted.
• Communication of acceptance is not necessary is case of general
offer.
Contract is made with that person who performs the
conditions of the proposal as such performance amounts
to acceptance of proposal. (Sec 8) (person is not
required to notify his acceptance. )
• Anson said: An offer need not be made to an
ascertained person, but no contract can arise until it
has been accepted by an ascertained person.
Sec 8: Acceptance by performing conditions, or receiving
consideration
• Har Bhajan Lal v. Harcharan Lal AIR (1925) ALL 539- boy
was missing- reward of Rs 500- Plaintiff saw the boy,
overheard part of the conversation, realized that the boy
was missing and took him to the railway station and sent a
telegram to the boy’s father. And claimed the money.
It was held that offer was made by father and was
substantially performed by plaintiff and hence contract.
• Carlill v Carbolic Smoke Ball Co.- general offer
FACTS
• Carbolic Smoke Ball Co. (D) manufactured and sold The Carbolic Smoke Ball.
• The company placed ads in various newspapers offering a reward of 100 pounds to any
person who used the smoke ball three times per day as directed and contracted
influenza, colds, or any other disease.
• After seeing the ad Carlill (P) purchased a ball and used it as directed. Carlill contracted
influenza and made a claim for the reward. Carbolic Smoke Ball refused to pay and Carlill
sued for damages arising from breach of contract.
• Judgment for 100 pounds was entered for Carlill and Carbolic Smoke Ball appealed.
Issue
• Does one who makes a offer for the sale of goods by means of an advertisement impliedly
waive notification of acceptance?
HELD
• Yes. One who makes a offer for the sale of goods by means of an advertisement impliedly
waives notification of acceptance if his purpose is to sell as much product as possible.
• The court held that a person who makes an offer may decline to require notice of acceptance
if he or she wishes.
• One who makes an offer dispenses with the requirement of notice of acceptance if the form of
the offer shows that notice of acceptance is not required.
• To accept an offer, a person need only follow the indicated method of acceptance. If the
offeror either expressly or impliedly intimates in his offer that it will be sufficient to act without
giving notice of acceptance, performance is sufficient acceptance without notification.
• The court held that an advertisement is considered to be an offer when it
specifies the quantity of persons who are eligible to accept its terms. If such
an advertisement requires performance, the offeree is not required to give
notice of his performance.
• The court addressed the issue of whether the ad was intended to be a
promise or whether it was merely “puffing”. The court pointed to Carbolic
Smoke Ball’s claim in the advertisement that it had deposited 1000 pounds
with Alliance Bank, which the court decided was intended to demonstrate the
company’s sincerity in paying the reward
Bowen)
• Notification of acceptance is required under our law. The person who makes the offer
may dispense with notice to himself if he thinks it desirable to do so. He may expressly or
impliedly create any method of acceptance for his offer. An offeree need only follow the
method indicated for acceptance. The requirement of notice of acceptance to the offeror
must be determined by an objective reasonable person standard.
• In the advertisement case, it seems to me that an inference may be drawn from the
transaction itself that a person is not to notify his acceptance of the offer before he
performs the condition, but that if he performs the condition notification is dispensed with.
We must look to the essence of the transaction and what the offeror is bargaining for
under the circumstances. Under these facts, the defendant impliedly indicated that it did
not require notification of acceptance of the offer.
Certain points to be kept in mind:
1. Giving an offer to the public at large does not constitute a
contract with the public.
2. If the offer is a continuing offer then whosoever performs the
offer will arise between them.
3. If the offer is for finding something or reward then then it can
be accepted by one person only.
5. Cross offer:- When two parties exchange identical offers in ignorance at the time
of each other’s offer the offer’s are called cross offer. Two cross offer does not
conclude a contract. Two offer are said to be cross offer if
1. They are made by the same parties to one another
2. Each offer made in ignorance of the offer made by the
3. The terms and conditions contained in both the offers’ are same.

Example : A offers by a letter to sell 100 tons of steel at Rs.1,000 per ton. On the
same day, B also writes to A offering to buy 100 tons of steel at Rs.1,000 per ton.
When does a contract come into existence? - A contract comes into existence when
any of the parties, accept the cross offer made by the other party.
• When two parties make identical offers to each other, in ignorance of
each other’s offer, the offer are “cross offers’.
• Such offers do not constitute acceptance of one’s offer by the other
and as such there is no completed agreement. (Tinn v Hofman)
• Example: A wrote to B offering to sell him some goods. On the same
day, B wrote to A offering to buy the same goods. The letters crossed
in the post. There is no concluded contract between A and B.
6. Counter offer :- when the offeree give qualified acceptance of the offer subject
to modified and variations in the terms of original offer. Counter offer amounts to
rejection of the original offer.
Legal effect of counter offer:-
(1) Rejection of original offer
(2) The original offer is lapsed
(3) A counter offer result is a new offer. In other words an offer made by the
offeree in return of the original offer is called as a counter offer.
Hyde v Wrench (1840) 3 Beav 33
FACTS
• D offered to sell his estate to the P for £ 1000/- on 6th June.
• On 8th June in reply the P made a counter – proposal to purchase at £950/-.
• When D refused to accept proposal on 27th June, the P wrote to accept the original proposal.
HELD
• The court held that there were no acceptance because P’s letter dated 8th June
had rejected the original proposal which could not be revived.
• Subsequent acceptance to pay Rs.1,000 is a fresh offer from B to which A was not
bound to give his acceptance
• However further communication between the parties subsequent to the original
proposal is permissible. It is important to distinguish between counter proposal
and request for further information.
7. Standing/ continuous offer:-
Open for a particular period of time.
Bengal Coal Co. Vs. Homie Wadia & Co.
To supply certain commodity for a certain period of time for a certain price.
An offer is allowed to remain open for acceptance over a period of time is known as
standing, open or continually offer. Tender for supply of goods is a kind of standing offer.

Example: A offers R to supply coal to him at Rs 500 per ton up to 10,000 tons for the
period of one year. The offer is open for one year. R may order A for coal at Rs 500 per
ton up to 10,000 tons a number of times in a year. Each time an order is given,
acceptance is said to be made to the standing offer, and a separate contract is created.
Till the time no order is made, no contract is created and no party is bound.
Different legal results are obtained to the wordings of the invitation to offer.
Consider following two cases:
a) Tenders are invited for the supply of 10,000 tons of coal to B & C., delivery
to take place as demanded between January and December 1998
b) Tenders are invited for the supply of coal not exceeding 10,000 tons to B &
C., if and when demanded between January and December 1998
• Standing offer can be revoked like any other offer, i.e. before its acceptance.
• If A revokes his offer before placing of the order by R, the offer no longer
exists and when R places order for coal , say 50 tons, A is not bound to
supply.
• But if A has not revoked his offer before receiving the order for 50 tons of
coal, then A becomes bound to supply that.
8. An offer may be conditional. Sec 7
A gave an offer to B to sell his car for Rs 50,000 if he sends his
acceptance by telegram immediately on receiving the offer. B ends a
letter instead of telegram. No contract. ( It is the duty of A to convey B
that his acceptance will not hold good because he has not sent his
acceptance by telegram. In case he does not communicate to this effect
to the offree, he becomes bound by the acceptance.)
However if A chooses to consider the letter of acceptance as valid, a
contract will come into existence.
9. Offer need not to be certain with respect to all terms
• Nicolene v. Simmonds  S agreed to sell 3000 tons of steel bars at 45
pounds per ton, and added that he assumes that the usual condition of
acceptance apply.
• If the parties have had previous dealings similar to the present
transaction, the courts can use these matters to ascertain the terms of
contract.
Ex For the last 10 years, A, a retailer of jewelry used to buy gold from Y at
the rates fixed by the wholesale market jewelers’ association. When A
agrees to buy 50 kg of Gold from B without having a mention of rates in the
agreement.
10. An offer must not thrust the burden of acceptance on the offeree.
The offeror cannot say that if the communication is not communicated within a
fixed time period, the offer would be considered as accepted.
Ex A writes to B “ I will sell you my horse for Rs 500. If I do not receive a reply
by Sunday next, I shall assume you have accepted the offer.” There is no
contract.
ANALYSIS

• Distinguish offer from invitation to treat by looking at intention of

offeror
• Offer can be made to world at large
• Unilateral contract – communication of acceptance not required
11. Advertisements -> not regarded as offer. These are simply attempts to make public
aware of what is available, and will in any case not be enough to make an offer.
Patridge v Crittenden , bird for sale at Rs 25 shillings. Held to be invitation to an offer.
But if advertisement would have been “The first 100 replies enclosing 25 shillings will
secure a bird, then it will be an offer”

12. Declaration of Intention does not amount to an offer.

Harris v. Nickenson An auctioner advertised sale of furniture would take place at St.
Edmunds at a particular date. One person travelled from london to attend the sale.
Sale was cancelled he claimed damages for loss of time and expenses. It was held
advertisement was mere declaration of intention and not an offer.
LAPSE OF AN OFFER SEC 6
An offer should be accepted before it lapses (i.e. comes to an end). An offer may come to
an end in any of the following ways stated in Section 6 of the Indian Contract Act:
1. By communication of notice of revocation:
Anson has explained the effect of an acceptance, “ Acceptance is to an offer what a lighted
match is to a train of gunpowder.”
Offer is gunpowder and lighted match is acceptance.
An offer may come to an end by communication of notice of revocation by the offeror. It may
be noted that an offer can be revoked only before its acceptance is complete for the offeror .
In other words, an offeror can revoke his offer at any time before he becomes before bound
Thus, the communication of revocation of offer should reach
by it.
the offeree before the acceptance is communicated.
Sec 5 : A proposal may be revoked at any time before the communication of its
acceptance is complete against the proposer, but not afterwards.
Sec 6: A proposal is revoked by the communication of notice of revocation by
the proposer to the other party.
Offeror may revoke his offer at any time before the offeree has communicated
his acceptance. And that, to be effective, such revocation must be
communicated (actually brought to the attention of) the offeree, by the offeror
himself or his duly authorized agent.
Example: Revocation before the offeree communicates his acceptance.
1. At an auction sale A makes the highest bid but withdraws it before
the fall of the hammer, no contract is concluded because the offer
has been revoked before acceptance.
2. A offered to sell his house to B for Rs 2 lac and told him to reply
within two days. On the very next day, he got a buyer C who was
ready to pay Rs 2.25 lac. A sold the house to him. B came to know
about the deal from some D. B’s contention is that he was ready to
accept A’s offer for Rs 2 lac. But A has committed breach of
contract.
In this case selling of house is not considered as breach of contract because A can
revoke his offer any time before acceptance. But A should have given notice of
revocation of his offer to B, either himself or through his authorized person. Therefore
notice of revocation not given properly.
But if the offeror has promised to keep the offer open for a consideration (i.e.
something in return) a separate contract is formed which is technically known as
“option”. In such a case the offeror cannot revoke the offer before the expiry of the
agreed period.
Mountford v. Scott
O in consideration of the payment of $1, granted in writing an option to A to purchase
O’s house for $10000 exercisable within six months. O purported to withdraw his offer
before the expiry of six months. A went to the court. It was held that the offer continued
in existence and O’s withdrawal of offer has no effect.
2. By lapse of time: Sec 6(2)
Where time is fixed for the acceptance of the offer, and it is not acceptance within
the fixed time, the offer comes to an end automatically on the expiry of fixed time.
Where no time for acceptance is prescribed, the offer has to be accepted within
reasonable time. The offer lapses if it is not accepted within that time. The term
‘reasonable time’ will depend upon the facts and circumstances of each case.
If offeror mentions reply required urgently then, a delay of even one day can effect
the offer, offer may lapse.
Ramsgate Victoria v. Monfiore (1866) M by letter dated 8 th June offered to buy
shares in a company. The shares were allotted on November 23 rd . It was held that
the offer to take shares had lapsed through an unreasonable delay in accepting.
3. By failure to accept condition precedent: Where, the offer requires that some
condition must, be fulfilled before the acceptance of the offer, the offer lapses, if
it is accepted without fulfilling the condition.
Ex payment of agreed price on a certain date.
4. By the death or insanity of the offeror:
Where, the offeror dies or becomes, insane, the offer comes to an end if the fact
of his death or insanity comes to the knowledge of the acceptor before he
makes his acceptance.
But if the offer is accepted in ignorance of the fact of death or insanity of the
offeror, the acceptance is valid. This will result in a valid contract, and legal
representatives of the deceased offeror shall be bound by the contract.
However if offer is of personal nature- then it comes to an end even if no
knowledge.
5. Destruction of contract’s subject matter and Subsequent illegality
Ex an offer to provide cement at Rs x. Afterwards law was passed which said
cement cannot be sold by private companies. The offer becomes illegal and
stands lapsed.
Ex ship wrecks – subject matter is destroyed.
6. By counter – offer by the offeree
7. By not accepting the offer, according to the prescribed or usual mode : Where
some manner of acceptance is prescribed in the offer, the offeror can revoke the
offer if it is not accepted according to the prescribed manner.
Ex Elliason v. Henshaw A offered to buy flour from B requesting that the
acceptance should be sent by the messenger who brought the order. B sent his
acceptance by post thinking it would reach earlier. Held A was not bound by
acceptance.
Sec 6 If the offeree does not accept the offer according to the mode
prescribed, the offer does not lapse automatically. It is the duty of the offeror to
reject such acceptance within reasonable time period. Thus if acceptance is not
in the mode prescribed and the offeror does not reject acceptance or gives no
answer, he is deemed to have accepted the acceptance.
8. By rejection of offer by the offeree: Where, the offeree rejects the offer, the
offer comes to an end. Once the offeree rejects the offer, he cannot revive the
offer by subsequently attempting to accept it. The rejection of offer may be
express or implied.

9. By change in law: Sometimes, there is a change in law which makes the offer
illegal or incapable of performance. In such cases also, the offer comes to an
end.
ACCEPTANCE
ACCEPTANCE
Acceptance 2(b):- When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.

• The person to whom the offer was addressed or if in the class to whom
addressed has power of acceptance.

Acceptance is an expression, by words or conduct, which clearly indicates that

the person making it agrees to be bound by the terms of the offer.
ESSENTIALS
1. Acceptance must be absolute and unqualified (sec 7) Example:
Examples:
• A offers to sell his house to B for Rs. two lakhs in one instalment. B accepts
the offer and promises to pay the price in four installments. This is not the
acceptance as the acceptance is with variation in the terms of the offer.
• R offered to purchase D’s house with vacant possession from 25 th July. D
sent an acceptance letter suggesting acceptance from 1 st August. Held, it
was no acceptance of R’s offer- Routledge v Grant
• M offered land to N for 280 pounds, N accepted and enclosed 80 pounds
with a promise to pay balance by monthly instalments of 50 pounds each.
Contract not formed because it is qualified. Neale v. Merrett.
2. Acceptance must be made by the party to whom the offer is made.
3. Usual or reasonable Manner of acceptance Sec 7
General rule say that it must be as per the manner prescribed by offeror. If no mode is
prescribed in which it can be accepted, then it must be in some usual and reasonable
manner.
If there is deviation in communication of an acceptance of offer, offeror may reject such
acceptance by sending notice within reasonable time. If the offeror doesn’t send notice
or rejection, he accepted acceptance of offer.

Example: A offers B and indicates that the acceptance be given by telegram. B sends
his acceptance by ordinary post. It is a valid acceptance unless A insists for
acceptance in the prescribed manner.
Surender Nath v. Kedar Nath  seller wrote to purchaser I intent to sell my
house for Rs 10,000. If you are willing to have it, write to F at his address.
Instead of writing to F, the purchaser sent an agent to F and agreed to
purchase. It was held invalid acceptance .
5. Acceptance must be given within reasonable time period.
6. Acceptance cannot be given in ignorance of offer.
7. Acceptance must be given before the offer lapses or revoked
• Acceptance must be given within a reasonable time and before the offer
lapses or is revoked. An offer becomes irrevocable by acceptance.
4. Acceptance must be communicated to the offeror:
a) By words spoken
b) By words written
c) By conduct
V Rao v. A Rao  A widow promised to settle some immovable property on her
neice if the niece stayed with her at her residence. The niece stayed till her
death. Held that there was acceptance on the part of niece by performance of
condition of staying with her hence property will be passed to her.
Where the offeree merely intended to accept but does not communicate his
intention to the offeror, there is no contract. Mere mental acceptance is not enough.

Mere mental acceptance is no acceptance, But there is no requirement of

communication of acceptance of general offer.
Brodgen v. Metropolitan Rly Co.
The manager of Railway Company received a draft agreement relating to the supply
of coal. The manager marked the draft with the words “Approved” and put the same
in the drawer of his table and forgot all about it.
Held, there was no contract between the parties as the acceptance was not
communicated.
5. Mere silence on the part of the offeree does not amount to acceptance.
Ordinarily, the offeror cannot frame his offer in such a way as to make the
silence or inaction of the offeree as an acceptance.
In Felthouse v. Bindley (1865), F offered by letter to buy his nephew's horse for
£ 30 saying: "If I hear no more about him I shall consider the horse is mine at £
30". The nephew did not reply, but he told an auctioneer who was selling his
horses not to sell that particular horse because it was sold to his uncle. The
auctioneer inadvertently sold the horse.
Held: F had no claim against the auctioneer because the horse had not been
sold to him, his offer of £ 30 not having been accepted.
However, following are the two exceptions to the above rule. It
means silence amounts as acceptance of offer.
• Where offeree agrees that non – refusal by him within specified
time shall amount to acceptance of offer.
• When there is custom or usage of trade which specified that
silence shall amount to acceptance.
6. Acceptance of offer must be made by offeree
Example : A applied for the headmastership of a school. He was selected by the
appointing authority but the decision was not communicated to him. However,
one of members in his individual capacity informed him about the selection.
Subsequently, the appointing authority cancelled its decision. A sued the school
for breach of contract. The Court rejected the A’s action and held that there was
no notice of acceptance. “Information by unauthorized person is as insufficient
as overhearing from behind the door”.
7. Time limit for acceptance
• If the offer prescribes the time limit, it must be accepted within specified time.
• If the offer does not prescribe the time limit, it must be accepted within
reasonable time.
Example : A applied (offered) for shares in a company in early June. The
allotment (Acceptance) was made in late November. A refused to take the
shares. Held, A was entitled to do so as the reasonable time for acceptance had
elapsed.
COMMUNICATION
GENERAL RULES AS TO COMMUNICATION OF
PROPOSAL/ACCEPTANCE /REVOCATION

Communication is the most critical aspect in the making of a

contract.
1. By post
2. Instantaneous mode
3. Electronic contracts
POST
• Communication of proposal and revocation of proposal
• Communication of Acceptance and revocation of acceptance
SECTION 4 SPECIFIES WHEN A COMMUNICATION IS
COMPLETE

1. Communication of a proposal is complete when it comes to

the knowledge of the party to whom the proposal is made.
• For example, if A sends a proposal in the post to B and if
the post is lost, it can be held that the communication of the
proposal is not complete.
2. Communication of the acceptance is complete,

 as against the promisor, when it is put in course of

transmission to the  promisor so as to be out of the
power of the acceptor,
 as against the acceptor, when it comes to the
knowledge of the promisor.
For example,
 As soon as B drops a letter of acceptance in Post back to A,
 A is bound by the promise.
 However, B is not bound by it unless A receives the acceptance letter.
3. Communication of a revocation is complete

 as against the party who makes it when it is put in course of transmission to the party to whom it is
made, so as to be out of the power of the party who makes it;
 as against the party to whom it is made, when it comes to the knowledge of the party to whom it is
made.

For example,
 if A sends a letter revoking his proposal, it will be complete against A as soon as the letter is dropped in
the mailbox and is out of his control.
 However, the revocation will be held complete against B only when B receives the letter.
 Further, if B revokes his acceptance by telegram, it will he deemed complete against B as soon as he
dispatches the telegram.
 It will be held complete against A, when A receives the telegram.
SECTION 5 SPECIFIES WHEN A PROPOSAL AND
ACCEPTANCE CAN BE REVOKED:
• A proposal can be revoked anytime before the communication of its
acceptance is complete as against the proposer but not afterwards.
• For example,
 if A propose to B through a letter, A can revoke the proposal as long as
B has not posted a letter of acceptance to A.
In the case of Henthorn vs Fraser 1862,
 an offer to sell a property was made to a person.
 this person was to reply to it within 14 days.  
 He lived in another town and he posted an acceptance at 3.50PM, which
reached the offerer at 8.30 PM.
 Meanwhile, the offerer posted the revocation letter at 1 PM, which
reached the person at 5.30PM.
• An acceptance may be revoked anytime before its communication is
complete as against the acceptor.
For example,
 B can revoke his acceptance that was sent by letter, by a telegram that
reaches A before the acceptance letter.  
PLACE OF CONTRACT: In case of acceptance by the post, the place where the
letter is posted is the place of contract.
5. The time of Contract
In case of acceptance by post, the time of posting the letter of acceptance is the
time of contract.
But in case of acceptance by instantaneous means of communication, the time
of contract is the time when the offeror gets the communication, the time of
contract is the time when offeror gets the communication of acceptance.
6. Communication of acceptance in case of an agent.
Where the offer has been made through an agent, the communication of
acceptance is completed when the acceptance is given either to the agent or to
the principal. In such a case, if the agent fails to convey the acceptance received
from offeree, still the principal is bound by the acceptance.
Particulars Offer Acceptance
When Communication is • Communication of a • As against the offerer/
complete [Sec.4] proposal is complete Proposer: When it is put
when it comes to the in a course of
knowledge of the person transmission to him so as
to whom it is made. to be out of the power of
Example : the Acceptor.
• A proposes by letter, to • As against the
sell his Tonga to B at Offeree/Acceptor: When it
Rs.10,000. comes to the knowledge
Communication of the of the Proposer.
proposal is complete
when B receives the
letter.
Particulars Offer
When Revocation can be • Offer/proposal may be
made [Sec.5] revoked at any time before the
communication of its
acceptance is complete, as
against the proposer, but not
afterwards.
Example:
• U sends a letter to Y
proposing to sell his land.
Y sends his acceptance by
post. U can revoke the
offer at any time before or
at the moment when Y
posts his letter of
acceptance, but not
afterwards
Acceptance
• Acceptance may be
revoked at any time before
the communication of
acceptance is complete as
against the acceptor but
not afterwards
Example:
• T sends to S by post, an
offer to sell his cycle. S
sends his acceptance via
post, S could revoke his
acceptance, upto any time
before or at the moment
when his letter of
acceptance reaches
proposer but not
afterwards.
Particulars
When communication of
revocation is complete [Sec.4]
Offer
• As against the offeror:
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.
Example :
• S proposes to H by letter.
H sends his acceptance by
letter. Suddenly, S sends a
telegram revoking his offer.
Revocation is complete as
against S when the
telegram is dispatched; H’s
revocation of acceptance is
complete when S receives
such telegram
Acceptance
• As against the Offeree:
When it comes to his
knowledge
Example :
• Communication of
revocation is complete only
when H receives the
telegram.
• When H revokes his
acceptance, it is complete
when he dispatches the
telegram
EXERCISE
1. Case
A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter
sent by post.
1. When is the Communication of proposal is complete as against A and B?
2. When is the Communication of acceptance is complete as against A and B?
3. When can proposal and acceptance be revoked?
4. When is the communication of proposal and acceptance is complete as against A and B?
2. Case
A offers to sell his car to B by a letter dated 1 st January. B receives the letter on 2 nd January
at 1p.m. B posts the letter of acceptance on 3 rd January at 11 a.m. The letter reaches A on 4 th
January at 4 p.m.
Communication of offer
Communication of acceptance
Communi9cation of revokation
3. Case
June 2 –X  posts offer to Y
June 3 – Y  receives offer at noon
June 3 – X  posts letter of revocation at 2 p.m.
June 3 – Y  posts acceptance at 5 p.m.
June 4 – Y  receives the revocation
June 5- X  receives Y’s acceptance
Result?
4. Case
June 2 – X  posts offer to y
June 3 – Y  receives offer at noon
June 3 – Y  posts letter of rejection at 5 p.m.
June 4 – Y  changes his mind and at 10 a.m. posts a letter of acceptance which X receives
on June 6
June 5 – X  receives letter of rejection
Result?
5. Case
June 2 – X  posts offer to Y
June 3 – Y  receives offer at noon
June 3 – Y  posts letter of rejection at 5 p.m.
June 4 – Y  changes his mind and at 10 a.m. calls X on the telephone accepts the offer,
telling X to disregard the letter of rejection
June 5 – X  receives letter of rejection
Result?
INSTANT MODE
Where the acceptance is given by instantaneous means of communication (telephone, fax,
tele-printer, telex etc.), the contract is made at the place where the acceptance is received.
ELECTRONIC CONTRACTS
• Messages in electronic form (called electronic record in Information
Technology Act, 2000).
• The Information Technology Act (IT Act) solves some of the peculiar issues
that arise in the formation and authentication of electronic contracts.
• An offer and the acceptance of an offer, or either of them, can be expressed
by means of data messages or electronic records.
• VALIDITY OF ELECTRONIC CONTRACTS Where electronic records are
used in the formation of a contract, that contract shall not be denied validity
or enforceability on the sole ground that data messages was used for that
purpose according to provisions of Section 10 A of Information Technology
Act, 2000.
• With respect to website acceptances since there is no actual space in time between the
sending and the acceptance of the offer. -- as instantaneous communication.
• But, contracting through email messages is not an instantaneous communication.
• There are two main methods: click wrap and e-mail.
A. Click-wrap:  Communications will be treated as instantaneous.
The usual formation of such a contract begins with the web vendor placing information about
a product on the web.
This information could be in the form of an advertisement, an invitation to offer, or an offer of
a product or service for the due consideration.
There is usually a hypertext order form within close electronic proximity which the consumer
fills out and this form will contain a button labeled ‘I Accept’, ‘Submit’, ‘Purchase’ or some
such phrase.
When the computer clicks on this button, the order is sent to the vendor, who usually reserves
the right to proceed or not to proceed with the transaction.
In many instances, however, the order will be a processed automatically and in this respect, it
is similar to a purchase in real world. Communications in the manner described above, will be
treated as instantaneous.
B. E-mail:
The text of email messages is the digital equivalent of a letter.
It can be used to send offers and acceptances.
However, because of some technical reasons e-mail delivery systems is different from
standard mail delivery system and this creates complications for e-contracting.
• According to section 11 of the IT Act .
An electronic record shall be attributed to the originator—
(a) if it was sent by the originator himself;
(b) by a person who had the authority to act on behalf of the originator in respect of that
electronic record; or
(c) by an information system programmed by or on behalf of the originator to operate
automatically.

According to section 2(1)(b) of the IT Act, Addressee means a person who is intended by the
originator to receive the electronic record but does not include any intermediary.
Electronic form (Sec 2 (1) (r)  information
Electronic record (Sec (1) 2 (t)  data
• According to section 2(1)(za) of the IT Act, originator is a person who:
1. sends, generates, stores or transmits any electronic message or
2. causes any electronic message to be sent, generated, stored or transmitted to any other
person.
The term originator does not include an intermediary.
Illustration X uses her gmail.com email account to send an email to Y. X is the originator of
the email. Gmail.com is the intermediary.
Illustration 1
X logs in to her web-based gmail.com email account. She composes an email and presses
the “Send” button, thereby sending the email to Y. The electronic record (email in this case)
will be attributed to X (the originator in this case) as herself has sent it.
Illustration 2
X instructs her assistant Siddharth to send the above-mentioned email. In this case also, the
email will be attributed to X (and not her assistant Siddharth). The email has been sent by a
person (Siddharth) who had the authority to act on behalf of the originator X of the electronic
record (email)
Illustration 3
X goes on vacation for a week. She configures her gmail.com account to automatically reply
to all incoming email messages with the following message:
“Thanks for your email. I am on vacation for a week and will reply to your email as soon as I
get back”.
Now every time that gmail.com replies to an incoming email on behalf of X, the automatically
generated email will be attributed to X as it has been sent by an information system
programmed on behalf of the originator X to operate automatically.
This automated communication will serve as an acknowledgement that X has received
messages sent by others.
• Acknowledgment of Receipt
According to section 12(1) of the IT Act  when not agreed in a particular way by originator
Where the originator has not agreed with the addressee that the acknowledgment of receipt
of electronic record be given in a particular form or by a particular method, an
acknowledgment may be given by—
(a) any communication by the addressee, automated or otherwise; or
(b) any conduct of the addressee, sufficient to indicate to the originator that the electronic
record has been received.
Illustration
P sends an email to Q informing her that he would like to purchase a car from
her and would like to know the prices of the cars available for sale. Q
subsequently sends the catalogue of prices of the cars available for sale.
It can now be concluded that Q has received P’s electronic record. This is
because such a conduct on the part of Q (i.e. sending the catalogue) is sufficient
to indicate to P (the originator) that his email (i.e. the electronic record) has
been received by the addressee Q.
• According to section 12(2) of the IT Act
Where the originator has stipulated that the electronic record shall be binding
only on receipt of an acknowledgment of such electronic record by him, then
unless acknowledgment has been so received, the electronic record shall be
deemed to have been never sent by the originator.
Illustration
X wants to sell a car to Z. She sends him an offer to buy the car. In her email, X
asked Z to send her an acknowledgement that he has received her email. Z
does not send her an acknowledgement. In such a situation it shall be assumed
that the email sent by X was never sent.
• According to section 12(3) of the IT Act
 Where the originator has not stipulated that the electronic record shall be
binding only on receipt of such acknowledgment, and the acknowledgment
has not been received by the originator within the time specified or agreed
or, if no time has been specified or agreed to within a reasonable time,
 then the originator may give notice to the addressee stating that no
acknowledgment has been received by him and specifying a reasonable time
by which the acknowledgment must be received by him and if no
acknowledgment is received within the aforesaid time limit he may after
giving notice to the addressee, treat the electronic record as though it has
never been sent.
Illustration
• Rohit sends the following email to Sameer:
• Further to our discussion, I am ready to pay Rs 25 lakh for the source code for the
PKI software developed by you. Let me know as soon as you receive this email.
• Sameer does not acknowledge receipt of this email.
• Rohit sends him another email as follows:
• I am resending you my earlier email in which I had offered to pay Rs 25 lakh for the
source code for the PKI software developed by you. Please acknowledge receipt of
my email latest by next week.
• Sameer does not acknowledge the email even after a week. The initial email sent
by Rohit will be treated to have never been sent.
• Time and place of dispatch and receipt
According to section 13(1) of the IT Act  time of dispatch
Save as otherwise agreed to between the originator and the addressee,
• the dispatch of an electronic record occurs when it enters a computer resource
outside the control of the originator.
Illustration
• Pooja composes a message for Rohit at 11.56 a.m.
• At exactly 12.00 noon she presses the “Submit” or “Send” button.
• When she does that the message leaves her computer and begins its journey across
the Internet. It is now no longer in Pooja’s control.
• The time of dispatch of this message will be 12.00 noon.
According to section 13(2) of the IT Act – time of receipt
Save as otherwise agreed between the originator and the addressee,
the time of receipt of an electronic record shall be determined as follows, namely:—
(a) if the addressee has designated a computer resource for the purpose of receiving
electronic records,—
(i) receipt occurs at the time when the electronic record enters the designated
computer resource; or
(ii) if the electronic record is sent to a computer resource of the addressee that is
not the designated computer resource, receipt occurs at the time when the
electronic record is retrieved by the addressee;
(i) if the addressee has not designated a computer resource, receipt occurs when the
electronic record enters the computer resource of the addressee.
Illustration:
• The marketing department of a company claims that it would make the delivery of any
order within 48 hours of receipt of the order.
• For this purpose they have created an order form on their website.
• The customer only has to fill in the form and press submit and the message reaches
the designated email address of the marketing department.
POSSIBILITIES:
1. Now Suresh, a customer, fills in this order form and presses submit. The moment the
message reaches the company’s server, the order is deemed to have been received.
2. Karan, on the other hand, emails his order to the information division of the
company. One Mr. Sharma, who is out on vacation, checks this account once a
week. Mr. Sharma comes back two weeks later and logs in to the account at 11.30
a.m. This is the time of receipt of the message although it was sent two weeks
earlier.
3. Now suppose the company had not specified any address to which orders can be
sent by email. Had Karan then sent the order to the information division, the time of
receipt of the message would have been the time when it reached the server of the
company.
According to section 13(3) of the IT Act  Place of dispatch and receive
Save as otherwise agreed to between the originator and the addressee, an
electronic record is deemed
• to be dispatched at the place where the originator has his place of business,
• and is deemed to be received at the place where the addressee has his
place of business.
Illustration Sameer is a businessman operating from his home in Pune, India.
Sameer sent an order by email to a company having its head office in New York,
USA. The place of dispatch of the order would be Sameer’s home and the place
of receipt of the order would be the company’s office
According to section 13(4) of the IT Act The provisions of sub-section (2) shall
apply notwithstanding that the place where the computer resource is located
may be different from the place where the electronic record is deemed to have
been received under sub-section (3).
Illustration Let us consider the illustration mentioned above of Sameer and the
New York based company. Even if the company has its mail server located
physically at Canada, the place of receipt of the order would be the company’s
office in New York USA.
According to section 13(5) of the IT Act For the purposes of this section,—
(a) if the originator or the addressee has more than one place of business, the
principal place of business, shall be the place of business;
(b) if the originator or the addressee does not have a place of business, his usual
place of residence shall be deemed to be the place of business;
(c) "usual place of residence", in relation to a body corporate, means the place
where it is registered.
Illustration Sameer sent an order by email to a company having its head office in
New York, USA. The company has offices in 12 countries. The place of business
will be the principal place of business (New York in this case). Sameer is a
businessman operating from his home in Pune, India. He does not have a separate
place of business. Sameer’s residence will be deemed to be the place of business.
• Further section 13 of the Information Technology provides the framework for
understanding the principles of contract formation in the cases of electronic contracts.
However the section does not provide anything else than the when dispatch and receipt
of electronic records takes place.
• Therefore we need to refer to contract Act for the purpose of communication which is laid
down under section 4. Therefore for the purpose of knowing the full law applicable to e
commerce transaction, we need to look for the combine effect of Contract law and
Information Technology act.
• To sum up, a binding contract would take place once the acceptor dispatches the
electronic record such that it enters a computer resource outside the control of the
acceptor, unless the acceptor intends to revoke his acceptance.
It lays down inter alia, that, unless otherwise agreed:
(1) the despatch of an electronic record occurs when it enters a computer resource outside
the control of the originator;
(2) the time of receipt of an electronic record is the time when record enters the designated
computer resource (if the addressee has a designated computer resource);
(3) if the electronic record is sent to a computer resource of the addressee that is not the
designated computer resource, receipt occurs at the time when the electronic record is
retrieved by the addressee;
(4) if the addressee has not designated a computer resource along with specified timings, if
any, receipt occurs when the electronic record enters the computer resource of the
addressee.
 
• For more details refer to section 13 of the Information Technology Act and Section 4, 5 of
the Contract act.  
• combined application of Section 4 of the Contract Act and Section 13 of the IT Act would
reveal the following law for contract formation in the case of electronic contracts in the
event that nothing contrary has been agreed to between the parties in their contract:
(a) The communication of an offer becomes complete at the time when the electronic offer
enters any information system designated by the offeree for the purpose, or, if no system is
designated for the purpose, when the electronic offer enters the information system of the
offeree, or, if any information system has been designated, but the electronic offer is sent to
some other information system, when the offeree retrieves such electronic record.
(b) The communication of an acceptance is complete — as against the offeror when the
electronic acceptance is dispatched such that it enters a computer resource outside the control
of the acceptor.
(c) As against the acceptor, the communication of acceptance would be complete when the
electronic acceptance enters any information system designated by the offeror for the purpose,
or, if no system is designated for the purpose, when the acceptance enters the information
system of the offeror, or, if any information system has been designated, but the electronic
record is sent to some other information system, when the offeror retrieves such electronic
acceptance.
(d) The communication of revocation (of an offer or acceptance) is complete as against the
person who makes it when the electronic record is dispatched such that it enters a computer
resource outside the control of the person making such offer or acceptance.
(e) As against the person to whom it is made, such revocation is complete when it comes to his
knowledge i.e. Rule (2), (3) or (4) of Section 13 enunciated above would apply
P.R. TRANSPORT AGENCY VS. UNION OF INDIA &
OTHERS AIR2006ALL23, 2006(1)AWC504
Background of the case
Bharat Coking Coal Ltd (BCC) held an e-auction for coal in different lots. P.R. Transport
Agency’s (PRTA) bid was accepted for 4000 metric tons of coal from Dobari Colliery. The
acceptance letter was issued on 19th July 2005 by e-mail to PRTA’s e-mail address. Acting
upon this acceptance, PRTA deposited the full amount of Rs. 81.12 lakh through a cheque in
favour of BCC. This cheque was accepted and encashed by BCC. BCC did not deliver the
coal to PRTA. Instead it e-mailed PRTA saying that the sale as well as the e-auction in favour
of PRTA stood cancelled "due to some technical and unavoidable reasons".
The only reason for this cancellation was that there was some other person whose bid for the
same coal was slightly higher than that of PRTA. Due to some flaw in the computer or its
programme or feeding of data the higher bid had not been considered earlier. This
communication was challenged by PRTA in the High Court of Allahabad. [Note: Allahabad is
in the state of Uttar Pradesh (UP)] BCC objected to the “territorial jurisdiction” of the Court on
the grounds that no part of the cause of action had arisen within U.P.
Issue raised by BCC
The High Court at Allahabad (in U.P.) had no jurisdiction as no part of the cause of action
had arisen within U.P.
Issues raised by PRTA
1. The communication of the acceptance of the tender was received by the petitioner by e-
mail at Chandauli (U.P.). Hence, the contract (from which the dispute arose) was completed
at Chandauli (U.P). The completion of the contract is a part of the “cause of action”. 2. The
place where the contract was completed by receipt of communication of acceptance is a place
where 'part of cause of action' arises.
Points considered by the court
1. With reference to contracts made by telephone, telex or fax, the contract is complete
when and where the acceptance is received. However, this principle can apply only
where the transmitting terminal and the receiving terminal are at fixed points.
2. In case of e-mail, the data (in this case acceptance) can be transmitted from anywhere by
the e-mail account holder. It goes to the memory of a 'server' which may be located
anywhere and can be retrieved by the addressee account holder from anywhere in the
world. Therefore, there is no fixed point either of transmission or of receipt
3. Section 13(3) of the Information Technology Act has covered this difficulty of “no fixed point
either of transmission or of receipt”. According to this section “...an electronic record is
deemed to be received at the place where the addressee has his place of business."
4. The acceptance of the tender will be deemed to be received by PRTA at the places where
it has place of business. In this case it is Varanasi and Chandauli (both in U.P.)
Decision of the court
1. The acceptance was received by PRTA at Chandauli / Varanasi. The contract became
complete by receipt of such acceptance.
2. Both these places were within the territorial jurisdiction of the High Court of Allahabad.
Therefore, a part of the cause of action had arisen in U.P. and the court had territorial
jurisdiction.