LAW OF CONTRACT

OFFER AND ACCEPTANCE

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 OFFER AND ACCEPTANCE

The first essential of a valid contract is an agreement, i.e. offer and

acceptance. An agreement arises when one party makes an offer and the other

party accepts it.

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OFFER

Section 2(a) defines a offer as, “When one person signifies to another his
willingness to do or to abstain from doing any thing, with a view to obtaining
the assent of that other to such act or abstinence, he is said to make a
proposal.”

It means that when a person shows his willingness to do or not to do

something to obtain the consent of other person, it is considered an offer.

The word offer in English Law is similar to the word proposal in Pakistani law
but the word offer is usually used in our practical life.

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 OFFER AND ACCEPTANCE
The person making the offer is called the offeror or promisor. The person to
whom the offer is made is called the offeree. The person accepting the offer is
called the promisee or acceptor.

Example
a)A offers to sell his watch to B for £100. A makes an offer to B.
b)A promises to sell his car to B for Rs. £500. A makes an offer to B.

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Essential of a Valid Offer

1. It May be Express or Implied

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

spoken or written is called an express offer. The implied offer appears from the
actions, conduct of parties, course of dealings or circumstances of the case.

a)M says to N that he will sell his motorcycle to him for £400. It is an express
offer.

b)A railway coolie carries the luggage of B without asking to do so. B allows him
to do so. It is an implied offer.

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2. It Must Create Legal Relation

The offer must be made to create legal relations otherwise there will be no
agreement. If an offer does not give rise to legal obligations between the
parties, it is not a valid offer. In business transactions there is a presumption
that the parties intend to create legal relations.

Examples
a)A invites B to dinner and B accepts the invitation. It does not create legal
relations, so there is no agreement.
b)A offers to sell his watch to B for £200 and B agrees. There is an agreement
because the parties intend to create legal relations.

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3. It Must be Definite & Clear
An offer must be definite and clear. If the terms of an offer are not definite
and clear. It cannot be called a valid offer. If such offer is accepted, it cannot
create a binding contract. An agreement to agree in future is not a contract
because the terms of an agreement are not clear.
Examples
a)A has two motorcycles. He offers B to sell one motorcycle for £500. It is a
not a valid offer because it is not clear which motor cycle A wants to sell.
b)X purchased a horse from Y and promised to buy another, if the first one
proved lucky. X refused to buy the second horse. Y could not enforce the
agreement, as it is unclear.

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4. It is Different from Invitation to Offer
An offer is different from an invitation to offer. In an invitation to offer, the
person making the invitation does not make an offer but only invites the other
party to make an offer. His object is to inform that he is willing to deal with
anybody who is willing to deal with him.
Examples
a)X displays goods for an auction sale. It is not an offer. The offer will come
from the buyer in the form of bid.
b)N advertised to sell his furniture at Bury on specified day. H came from
London to attend the auction but all furniture was withdrawn from sale. H
sued N for loss of time and expenses. Held, H could not recover expenses
because the advertisement was an invitation to offer. (Haris vs. Nickerson)

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5. It May be Specific or General

When an offer is made to a specific person or group of persons, it is called specific offer.

Such an offer can be accepted only by the person or persons to whom it is made. A

general offer is one which is made to public in general and it may be accepted by

any person who fulfills the conditions mentioned in it.

a) M makes an offer to N to sell his bicycle for £100. It is a specific offer hence only
N can accept it.
b) The CSB Co. advertised to pay $100 to any person who contracts flue after using
their medicine. Mrs. Carlill used the medicine but suffered from flue. She sued for
the reward. The company was held liable. (Carlill vs Carbolic Smoke Co)

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6. It must be communicated to the Offeree

An offer is effective only when it is communicated to the offeree. If an offer is not communicated to the

offeree, it cannot be accepted. An acceptance of offer, in ignorance of it is not a valid acceptance and

does not create any legal obligations. Thus, an offer which is not communicated is not a valid offer.

G’s nephew was missing from home. He sent his servant Lalman, in search of the boy. When the servant

left, G announced a reward of Rs. 501 for anyone who gives information about the boy. The servant

before the announcement found the boy and informed G. later, he claimed for the reward. He failed on

the grounds that he could not accept the offer unless he had the knowledge of it. (Lalman vs. Gauri Datt)

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7. It should not Contain Negative Condition

An offer cannot specify the condition that if acceptance is not communicated

up to a certain date, the offer would be considered as accepted. If the offeree
does not reply, there is no contract because no obligation to reply can be
imposed on him on the grounds of justice.

Examples

A wrote to B to sell his book adding that if he did not reply within 5 days, the
offer would be considered as accepted. The is not contract.

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8. It may be Subject to any Conditions

An offeror may include any condition in his offer. There is no contract

unless all the conditions of the offer are accepted. If the offeror prescribes a
specific mode of acceptance, the offeror must adopt the same mode of
acceptance. The offeror must inform the offeree regarding the rejection, if the
offeree has not followed the prescribed mode; otherwise he is considered to
have accepted the acceptance.

Example

A asks B to send the reply of his offer by telegram but B sends reply be letter.
A may reject such acceptance.
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9. It must not Contain Cross Offers

When two parties make similar offers to each other, in ignorance of each
other’s offer, the offers are called cross offer. The acceptance of cross offers
do not result in complete agreement.

Example

A wrote to B to sell him 1 ton of iron for £1500. On the same day B wrote to
A to buy 1 ton of iron for £1500. There is no contract.

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Revocation of Offer

Section 6 of the Contract Act: “an offer may be revoked”:

1.by the communication of notice of revocation by the proposer to the other party;
2.by the laps of the time prescribed in such proposal for its acceptance, or, if no time
is so prescribed, by the lapse of a reasonable time, without communication of the
acceptance;
3.by the failure of the acceptor to fulfil a condition precedent to acceptance;
4.by the death or insanity of the proposer, if the fact of his death or insanity comes to
the knowledge of the acceptor before acceptance.”

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1. Notice of Revocation

An offer can be revoked by sending a notice of revocation to the other party. It means
that the offeror may revoke his offer at any time before party. It means that the offeror
may revoke his offer at any time before acceptance, even though the period for which
the offer was kept open has not yet expired. In this way the offeree cannot create a
contract by accepting the revoked offer.

Example

A at an auction gives the highest bid to buy B’s goods. He withdraws the bid before the

fall of gavel. The offer is revoked.

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2. Lapse of Time

When the offer is kept open until a specified time, it terminates if it is not
accepted by that time. If the offer does not specify the time, it terminates after
the lapse of a reasonable time. The reasonable time depends upon the
circumstances of each case. If the commodity is perishable, the reasonable
time will be relatively shorter.

Example

M offered to buy shares of a company R, on 8th June. R allotted shares to M on

23rd November, M refused to accept them. Held, that the offer had lapsed by
delay in accepting. (R.V. Hotel Co)
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3. Failure to Fulfill Condition

An offer is revoked if the offeree fails to fulfill the conditions mentioned in it.
If an offer contains some conditions and the offeree fails to fulfill such
conditions, the offer terminates.

Example

A offers to sell his scooter to B, for Rs. 50,000 if B gets admission in medical
college. B fails to get admission, the offer is revoked.

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4. Death or Insanity of the Offeror

An offer is revoked by the death or insanity of the offeror if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance. If the offeree does not know that
the offeror has died or become insane and gives his acceptance, it is valid acceptance. It
will result in a valid contract and legal representatives of the deceased offeror shall be
bound by the contract.

Example

X requested D, to give credit to Y and guaranteed payment up to Rs. 1 Lac. X died and D in
ignorance of this fact continued to give credit to Y. D sued X’s legal representatives on the
guarantee. Held, that the legal representatives were liable.

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5. Revocation by Offeree
(Offeree rejects the offer)

6. Counter Offer
(Offeree makes a counter offer to Offerer)

7. Death or Insanity of Offeree

(Offeree dies before accepting the offer or becomes insane)

8. Subsequent illegality
(Govt bans such contract)

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ACCEPTANCE

Section 2(b) defines acceptance as:

“When the person to whom the proposal is made signifies his assent

thereto, the proposal is said to be accepted.”

Example

A offers to sell his house to B for Rs. 5 Lac. B accepts the offer. This is an

acceptance.

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Essentials of Valid Acceptance

Section 7 & 8 of the Contract Act.

1. It must be given by the Offeree

An offer can be accepted only by the person to whom it is made. It cannot be

accepted by another person without the consent of offeror. When an offer is
made to a particular group, it can be accepted by any member of that group. If
the offer is made to a general public, it can be accepted by any person who has
knowledge of the offer.

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Examples

a)X offered to sell his house to Y. Z who was aware of such offer said that he is ready

to buy X house. There is no contract with Z.

b)A sold his business to B without informing his customers. J sent an order for the

supply of goods to A by name. B received the order and supplied the goods. It was held

that there was no contract because J never made any offer to B (Boulton vs Jones)

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2. It must be Absolute & Unconditional

For a valid agreement, the acceptance must be absolute and unconditional. If

the offeree imposes any condition in his acceptance, it is not a valid
acceptance but a counter offer. There will be no contract until the counter
offer is accepted by the original offeror.
Examples
a)A offers to sell his watch to B for £500. B replies that he can buy it for
£300. There is no acceptance on the part of A.
b)M offered to sell land to N for $280. N accepted and enclosed $80 with a
promise to pay the balance by monthly installments of $50 each. Held, there
was no contract as the acceptance was conditional (Neale vs Merret)

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3. It must be in a Prescribed Manner
If the offeror has prescribed any particular manner of acceptance. It must be
given according to that particular manner. If no particular manner is
prescribed in the offer then acceptance should be made in a reasonable
manner. If acceptance is not made according to the prescribed manner, the
offeror may reject it.
Examples
a)A offers to B and asks to accept the offer by telegram. B sends his
acceptance by post. It is not a valid acceptance.
b)A offered to buy flour from B and requested to send acceptance by
messenger who had brought the order, B sent his acceptance by post thinking
that this would reach A earlier than messenger. Held, A was not bound by the
acceptance. (Eliason vs Henshaw)

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4. It must be Communicated to the Offeror
The acceptance must be communicated to the offeror in a clear manner by the
offeree or his agent. Mere expression of intention to accept an offer is not a valid
acceptance. If the offeree does not show that he has accepted the offer, no contract
is formed. When a person accepts an offer but fails to clearly communicate, it is not
an acceptance.
Examples
a)A offers to B and asks to accept the offer by telegram. B sends his acceptance by
post. It is not a valid acceptance.
b)A offered to buy flour from B and requested to send acceptance by messenger
who had brought the order, B sent his acceptance by post thinking that this would
reach A earlier than messenger. Held, A was not bound by the acceptance.
(Eliason vs Henshaw)

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