Business Law

Offer & Acceptance

 Offer

“When one person signifies to another his willingness to do

Or to abstain from doing anything, with a view to obtaining
The assent of that other to such act or abstinence, he is said
To make a proposal.”
 Offer

For example

1. “A offers to sell his watch to B for Rs.100. A is making an

Offer to B.”
2. A says to B “I am willing to sell my car for Rs.3 lakhs. Are
You interested to buy it.” A makes an offer to B.
Example:
Mr.Ali offers to sell his Car to
Mr.Hasnain at Rs.2,000,000 Mr.Hasnain
accepts his offer.

Mr. Hasnain Mr. Ali

 Parties

Offeror
Mr.Ali

Offeree
Mr.Hasnain
 Who can Offer

Person
Owner of the Authorized by
Goods The Owner

Such authorized
Person is
Called Agent
 Offer

Essentials of a valid offer

1.It may be express or implied
2.It must create legal relations
3.It must be definite & clear
4.It is different from invitation to offer
5.It may be specific or general
6.It must be communicated to the offeree
7.It should not contain negative condition
8.It may be subject to any terms & conditions
9.It must not contain cross offers
 Offer
Essentials of a valid offer
1.It may be express or implied

An offer may be made by words or by conduct. An offer is

made by words or written is called an express offer.
Offer

Expressed Implied

Oral By Conduct

No Words
Written
 Offer
• Essentials of a valid offer
1. It may be express or implied
• For example
1.M says to N that he will sell his motorcycle
to him for Rs.40,000. It is an express offer.

2.The New Khan Transport Company runs

buses on different routes to carry
passengers at the scheduled fares. This is
an Implied offer by the company.
 Offer
Essentials of a valid offer
2.It must create legal relations

The offer must be made in order to create legal relations

Otherwise there will be no agreement.

Ms.X offers to
Mr.Y accepts Mr.Y at dinner
her offer

Not Valid offer

 Offer
Essentials of a valid offer
2.It must create legal relations
• For example
1. A invites B to dinner and B accepts the
invitation. It does not create any legal
relations, so there is no agreement.

2. A offers to sell his watch to B for Rs.200

and B agrees. There is an agreement
because here the parties intend to create
legal relations.
 Offer
Essentials of a valid offer
3. It must be definite & clear

Mr.Ali offers to sell his Car to

Mr.Hasnain at Rs.2,000,000
Mr.Hasnain accepts his offer.

Not definite and clear

offer. It doesn’t make
contract
 Offer
Essentials of a valid offer
3. It must be definite & clear

• For example

1.A has two motorcycles. He offers B to sell

one motorcycle for Rs.27,000. It is not a
valid offer because it is not clear that
which motorcycle A wanted to sell.
 Offer
Essentials of a valid offer
4.It is different from invitation to offer

For example

a. Quotations, catalogues of prices, display of goods with

Prices, issue of prospectus by companies are examples of
Invitation of invitation to offer.

b. Display of goods in an auction sale is not an offer rather

It is an invitation to offer. The offer will come from the buyer
In the form of bids.
 Offer
Essentials of a valid offer
General
5. It may be specific or general offer
Specific offer

Mr.Ali announces in a
Mr. Ali offers to sell his Car
news paper a reward of
to Mr. Hasnain at
Rs.3,000 for any one
Rs.2,000,000 Mr. Hasnain
who will find and return
accepts his offer.
his Suitcase
 Essentials of a valid offer
5. It may be specific or general

• Example:
• M makes and offer to N to sell his bicycle
Rs.800, it is specific Offer. In this case
only N can accept it.

• A announces in a newspaper a reward of

Rs.1,000 for any one Who will return his
lost radio. It is a general offer.
 Offer
Essentials of a valid offer
6. It must be communicated to the offeree

A, without knowing that a reward has been offered for

the catch of a particular criminal, catches the criminal
and informs the Police. A cannot recover the reward as
he was not aware of It.
 Offer
Essentials of a valid offer
7.It should not contain negative condition

A wrote to B offering to sell his book for Rs.500 adding that if

He did not reply within 5 days, the offer would be considered
As accepted. There is no agreement because such condition
Cannot be imposed on the offeree. It is only a one sided offer.

Offeror Offeree

Expressly : by mouth, by phone, letter, email, Fax,

news paper, agent
Impliedly: by Actions or conduct
 Offer
Essentials of a valid offer
8.It may be subject to any conditions

A asks B to send the reply of his offer by telegram

but B sends Reply by letter. A may reject each
acceptance, because it is opposed to the prescribed
mode of communication.

Mr. Haider offers to purchase a washing

machine which has dryer also.
 Offer
Essentials of a valid offer
9.It must not contain cross offers

A wrote to b to sell him 100 tons of iron at Rs.10,000 per ton.

On the same day B wrote to A to buy 100 tons of iron
at Rs100,000. There is no contract between A & B because
The offers were similar and made in ignorance of the other
and So there is no acceptance of each other’s offer.
 Offer
Revocation or Termination of offer
1. Notice of Revocation
2. Lapse of time
3. Failure to fulfill condition
4. Death or insanity of the offeror
5. Revocation of offer by offeree
6. Counter offer by the offeree
7. Death or insanity of the offeree
8. Subsequent illegality
9. Destruction of subject matter
10.Failure to accept according to prescribed
mode
 Offer
Revocation or Termination of offer
1. Notice of Revocation

A, at an auction sale makes the highest bid to buy B’s goods.

He withdraws the bid before the fall of the hammer. The offer
Has been revoked before its acceptance.
 Offer
Revocation or Termination of offer
2. Lapse of time

M offered to purchase shares of R Company on 8th June.

R allotted him shares on 23rd November. M refused to accept
Them. It was held that the offer had lapsed by due to delay in
Accepting.
 Offer
Revocation or Termination of offer
3. Failure to fulfill condition

A offers to sell his scooter to B, for Rs.50,000 if B gets

Admission in medical college. If B fails to get admission, the
Offer will stand revoked, as he fails to fulfill the conditions.
 Offer
Revocation or Termination of offer
4. Death or insanity of the offeror

X requested D, to give credit to Y and guaranteed payment

Up to Rs.100. D gave credit to Y. X then died and D in
Ignorance of this fact of death continued the credit to Y. D sued
X’s executors on the guarantee. It was held that the defendants
Were liable.
 Offer
Revocation or Termination of offer
5. Revocation of offer by offeree

A offered to sell his cycle to B and kept the offer open for ten
Days. B rejected the offer after three days. It terminates
Although the period of offer has not yet expired.
 Offer
Revocation or Termination of offer
6. Counter offer by the offeree

W offered to sell a farm to H for $1,000. H offered $950.

W refused the offer. Subsequently H offered to purchase for
$1,000. Held, there was no contract as H by offering $950 had
Rejected the original offer.
 Offer
Revocation or Termination of offer
7. Death or insanity of the offeree

X offers to sell his camera to Y. Y dies before acceptance of

Offer. The offer terminates.
 Offer
Revocation or Termination of offer
8. Subsequent illegality

An offer is made to sell 10 bags of rice of Rs.2000 and before

It is accepted, a law bans the sale of rice by private individuals.
The offer comes to an end, as sale is illegal.
 Offer
Revocation or Termination of offer
9. Destruction of subject matter

A offers to sell his horse to B. The horse dies before the

Acceptance of offer by B. The offer terminates.
 Offer
Revocation or Termination of offer
10. Failure to accept according to prescribed mode

A offers to sell his car to B. A requests B to give acceptance on

Telephone. B sends acceptance by letter. An offer terminates.
 Acceptance
• Definition
– “When the person to whom the proposal is
made signifies his assent thereto, the
proposal is said to be accepted. A proposal,
when accepted, it becomes a promise”.
• Example
– A offers to sell his house to B for Rs. 5 lac. B
accepts the offer to purchase the house for
Rs.5 lac. This is an acceptance.
• Essentials of a valid Acceptance
– It must be given by the offeree
– It must be absolute & unconditional
– It must be in a prescribed manner
– It must be communicated to the offeror
– It may be express or implied
– It must follow the offer
– It must be given within reasonable time
• Essentials of a valid Acceptance
– It must be given by the offeree

Example
X offered to sell his house to Y. Z who was
aware of such offer said that he is ready to
buy X’s house. There is no contract with Z.
• Essentials of a valid Acceptance
– It must be absolute & unconditional

Example
A offers to sell his watch to B Rs. 500 and B
Replies that he can buy it only for Rs.300, there
Is a material variation in the acceptance.
Therefore, there is no agreement as the
Acceptance is not absolute and unconditional.
• Essentials of a valid Acceptance
– It must be in a prescribed manner

Example
A offers to B and writes “if you accept the
offer Send your acceptance by telegram.” B
sends his acceptance by post. It is not a valid
Acceptance. But A must inform B that it is
Rejected because it not in the prescribed
Manner.
• Essentials of a valid Acceptance
– It must be communicated to the offeror

Example
A offers by letter to purchase B’s house. B
Expresses his intention to sell it but does not
Reply. B sells to C. A has no legal remedy
Against B.
• Essentials of a valid Acceptance
– It may be express or implied

Example
A wrote a letter to B to sell his cycle for
Rs.2,000. B accepted his offer and sent a letter
Of acceptance. It is an express acceptance.
• Essentials of a valid Acceptance
– It must follow the offer
Example
A company allotted some shares to the person
Who had not applied for them. Subsequently he
Applied for shares being unaware of the
Previous allotment. It was held that the previous
Allotment of shares was invalid.
• Essentials of a valid Acceptance
– It must be given within reasonable time
Example
M applied certain shares in a company in June
But allotment was made in November. M
Refused to accept the shares. It was held that
M could refuse to take shares because offer
Lapsed after the expiry of a reasonable time.
 Communication of Offer,
Acceptance and Revocation
• Communication of an offer
– The communication of a proposal is complete
when it comes to the knowledge of the person
to whom it is made.
• Examples
– A offers, by letter, to sell a van to B for
Rs.50,000. The letter is posted on 6th March.
The reaches B on 8th March. The
communication of the offer is complete when
B, the offeree, receives the letter, i.e. on 8th
March.
– X sends a letter Y offering to sell his
motorcycle for Rs.4,000. The letter never
reaches Y. the offer is not complete.
• Communication of an Acceptance
– “Communication of an acceptance is
complete when letter of acceptance is posted
to the offeror out of control of acceptor.
• Example
– B accepts A’s proposal, in the above case, by
a letter sent by post on 9th March. The letter
reaches A on 11th March. The communication
of the acceptance is complete.
• Communication of a Revocation
– The communication of revocation is complete,
as against the person who makes it, when it is
put in course of transmission to the person to
whom it is made, so as to be out of the power
of person who makes it.
• Example
– A revokes his offer by letter on 8th March. The
letter reaches B on 10th March. The revocation
is complete as A on 8th, when the letter of
revocation is posted, and it is complete as
against B on 10th, when the letter of
revocation reaches him.
• Time of revocation of offer and acceptance
– Time for revocation of proposal
• A proposal may be revoked at any time before the
communication of its acceptance is complete as
against the proposer, but not afterwards.
– Time of revocation of acceptance
• An acceptance may be revoked at any time before
the communication of the acceptance is compete
as against the acceptor, but not afterwards.
• Effect of delay or loss of letter of
Acceptance
– Position of an offeror
– Position of acceptor
– Accidental formation of contract
– Contracts over the telephone
• Effect of delay or loss of letter of Acceptance
– Position of an offeror

• The moment, the letter of acceptance is posted, the offeror is

bound by that acceptance. The contract would be binding
although the letter of acceptance was delayed or lost.

• But in order to bind the offeror, the letter must be properly

stamped, correctly addressed and properly posted. If letter of
acceptance is not correctly addressed, there would be no
communication of acceptance. If the wrong address is given
by offeror himself, he would be bound.
• Effect of delay or loss of letter of
Acceptance
– Position of acceptor
• So far as the acceptor is concerned, he is not
bound by the letter of acceptance till it reaches the
offeror. Until the letters of acceptance reaches the
offeror, the contract remains voidable at option of
acceptor. He can compel the offeror to enforce the
contract or he may revoke his acceptance by
communicating his revocation at any time before
the letter reaches the offeror.
• Effect of delay or loss of letter of
Acceptance
– Accidental formation of contract
• Where both the ‘letter of acceptance’ and ‘telegram
of revocation of acceptance’ are received at the
same time by the offeror; the formation of a
contract will depend upon a matter of chance. If
the offeror reads the letters of acceptance first, a
binding contract will arise. But if he reads the
telegram of revocation of acceptance first, then no
contract would arise because the communication
of revocation has reached first to the offeror.
• Effect of delay or loss of letter of Acceptance
– Contracts over the telephone
• In case of contract over the telephone each contracting party
is able to hear the voice of the other. There is immediate
communication of offer and acceptance, rejection and
counter-offer. The rules, which apply to the contracts made
orally by the parties physically present present, also apply to
the contract made over the telephone. If the acceptance is
not in fact communicated to the offeror because the
telephone suddenly goes dead there will be no contract.
• The offeree, therefore, must make sure that his acceptance
is received (heard & understood) by the offeror, otherwise
there is no binding contract. When the parties make a
contract over the telephone the question of revocation does
not arise because a definite offer is made and accepted at
the same time. An offer when accepted becomes a contract
and cannot be revoked.