Buniness Law Unit 2

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LESSON – 2.

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OFFER (PROPOSAL) AND ACCEPTANCE
Introduction
As discussed earlier, a contract is defined as a promise or agreement enforceable by
law. So, two elements namely, agreement and enforceability are essential for a valid
contract. All contracts are made by the process of a lawful offer by one party and the
lawful acceptance of the offer by the other party.

Example: If ‘X’ says to ‘Y’ “will you buy my house for Rs. 5,00,000”? It is an offer. If
‘Y’ says “Yes”, the offer is accepted and a contract is formed.

An ‘offer’ involves the making of a proposal. The term proposal is defined under
Sec 2(a) in the Contract Act as follows: “when one person signifies to another his
willingness to do or to abstain from doing anything with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal”
A proposal is also called an offer. The promisor or the person making the offer is
called the offeror. The person to whom the offer is made is called the offeree.

Promise and Acceptance: Sec.2(b) of the Act defines promise as “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” Promisor and promise are defined under
Sec 2(c) as “The person making the proposal is called the ‘promisor’ and the person
accepting the proposal is called the ‘promisee’ – Sec. 2(c).
A proposal or acceptance may be made in any of the following manners:
 By express words spoken,
 In writing.
 By conduct.
Examples:
1. When A says to B: “will you buy this building for Rs.20 lakhs”? It is an express
oral offer.
2. When A writes to B stating the above offer, then it is an express written offer.
3. When a transport company runs a bus on a particular route, it is termed as an
implied offer or an offer by conduct.

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RULES REGARDING VALID OFFER
1. An offer may be express or may be implied from the circumstances: In so far
as the proposal or acceptance of any promise is made in words, the promise is said
to be express. In so far as such proposal or acceptance is made otherwise in words,
the promise is said to be implied (Sec. 9).

2. An offer may be made to a definite person; to some definite class of persons;


or to the world at large: An offer made to a definite persons or a definite class of
person is called a specific offer. An offer sent to all persons (the world of public at
large) is called a General offer or Public offer.

Examples: Specific offer: ‘X’ offers to sell his motor cycle to ‘Y’ for Rs.10,000. This is a
specific proposal. This proposal is specifically given to ‘Y’. Only ‘Y’ can accept this
proposal.

General offer: Carlill Vs Carbolic Smoke Ball & Co (1893) The patent medicine
company advertises that it would give a reward of $100 to anyone who contacted influenza
after using the medicine namely smoke ball of the company for a certain period according
to the specifications. Mrs. Carlill purchased the smoke ball and contacted influenza in spite
of using it as per the specifications. She claimed the reward of $100. The claim was
refused by the company on the ground that the offer was not made to her and that in any
case she had not communicated her acceptance of the offer. She filed a suit for the
recovery of the reward.
It was held that she could recover the reward as she had accepted the general offer
made by the company after complying with the terms of the offer.

3. Offer must be capable of creating legal relationship: The offer must be one which is
capable of creating a legal relationship. An invitation to a birthday party or an invitation to
play cards will not crate legal relationship. Therefore an offer for such social events will
not constitute a contract.

Example: Balfour Vs Balfour (1919): A husband promised to send money to his wife, so
long as she remained away from him. It was held that if the husband fails to pay, the wife

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could not sue for the amount on the ground that the promise made by the husband was
never intended to give rise to legal consequences.

4. The terms of the offer must be definite and certain: The terms of the offer must be
definite, unambiguous and certain and not loose and vague. To constitute a valid contract,
it is essential that the proposal must be so certain, that the rights and obligations of the
parties arising out of the contract can be exactly fixed. If the terms of an offer are
uncertain, its acceptance cannot create any contractual relationship. According to Sec. 29
of the Act, agreements, the meaning of which is not certain or capable of being made
certain are void.
Example: ‘X’ says to ‘Y’ “I will give you some money if you marry ‘Z’”. This is not an
offer which can be accepted because the amount of money to be paid is not certain.

5. A mere statement of intention is not an offer: Every expression of willingness to


enter into a contract may not amount to an offer in the legal sense. It may be only a first
and preliminary step in the formation of a contract. Thus it becomes necessary to
distinguish between the offer on the one hand and (i) a mere declaration of intention (ii) an
invitation to make an offer, and (iii) auction sale, on the other hand.

A distinction is usually made between an ‘offer’ and “a statement of intention”.


Price lists and catalogues and enquiries from customers are merely statements of intention.
They are not regarded as offers but as invitation to others to make offers.
Harvey Vs Facey: Harvey telegraphed to Facey asking to inform him whether he would
sell Bumper Hall pen and if so at what price? Facey informed Harvey that the lowest price
was $900 but did not say that he was willing to sell at that price. Harvey telegraphed that
he would buy at that price. Facey gave no reply to the telegram. Held, there was no
contract because facey did not say that he was willing to sell or not. Mere mentioning of
price is not an offer.
Similarly, in an auction sale, articles displayed in auction sale are displayed with an
intention that the bidders present during the auction sale may bid for them. i.e. may make
an offer for them. In an auction sale, a bid is an offer. It can therefore, be taken back at any
time before acceptance is made by the auctioneer is effected by the fall of the hammer.

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6. An offer must be communicated to the offeree: A person cannot accept an offer
unless he knows of the existence of the offer.
Example: ‘P’ offers a reward to anyone who finds his lost dog. ‘Q’ on finding the dog
brings it to ‘P’ without having heard of the offer. Held he was not entitled to the reward.
Lalman Vs Gauri Dutt: ‘G’ sent his servant ‘L’ in search of his missing nephew,
subsequently ‘G’ announced a reward for information concerning the boy. ‘L’ brought
back the missing boy, without having the knowledge of the reward. Held, there was no
contract between L and G and the reward cannot be claimed.
7. An offer may have certain conditions: A proposer is at liberty to make an offer subject
to certain conditions. It is immaterial if the terms are hard or ridiculous. Conditions
attached to the offer must clearly be communicated to the offeree. The offeree must fulfil
all the conditions mentioned in the offer.
8. Offer must not thrust the burden of acceptance: Offer should not contain the term
“the non-compliance of which may be assumed to amount to acceptance”. Thus a man
cannot say that if he fails to hear from the other party within a week he would consider the
offer as being accepted. Similarly, if ‘A’ writes to ‘B’. “I will sell you my house for Rs.5
lakhs. If you do not reply. I shall assume that you have accepted the same. There is no
contract even if ‘B’ does not reply.

LEGAL RULES AS TO ACCEPTANCE

An offer unless accepted cannot become an agreement. Acceptance is essential to


convert an offer into an agreement. The acceptance of an offer to be legally effective must
satisfy the following requirements:

1. It must be absolute and unqualified: An acceptance to be effective must be absolute


and unqualified of all the terms of the offer. A conditional acceptance is not an
acceptance at all. If there is any variation, even of an unimportant point, there is no
contract. An acceptance with a variation is no acceptance but is a mere “counter offer”
which is for the original offeror to accept or not.

Example: Mr.’X’ informed ‘Y’ his willingness to buy ‘Y’s’car for Rs.75,000. On receipt
of the offer ‘Y’ informed ‘X’ that he is willing to sell his car for Rs.1,00,000. In this

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example, ‘Y’s’ acceptance is not unconditional or unqualified. This is not an acceptance. It
is only a counter offer. If ‘X’ accepts for Rs.1,00,000, then it will become a contract.

2. The mode of acceptance must be in some usual manner: Except where the offer
prescribed a particular mode of acceptance, the acceptance must be made in such
manner that it may come to the knowledge of the proposer. If the proposer prescribes a
mode of acceptance, the acceptance must be given accordingly.

Example: If the proposer says “Telephonic reply” and the reply was sent by post, then
there is no acceptance of the offer.

If the offeree fails to follow the prescribed mode of acceptance, the offeror may,
within a reasonable time alter the acceptance as communicated to him, insist that the
proposal be accepted in the prescribed manner. If he does not inform the offeree he is
deemed to have accepted the acceptance although it is not in the desired manner [Sec.
7.(2)].

3. Acceptance must be by the party named in the offer: An offer made to a particular
person is to be accepted by him only. It cannot be assigned to anybody else. It cannot be
accepted by another without the consent of the offeror. However, in case of general
offer, any member of the public may accept it.

4. An acceptance must be communicated to the offeror: Just as the offer should be


communicated to the acceptor should do something to inform his intention to accept.
In certain cases the offeror may prescribe a particular mode of acceptance, then all that
the acceptor has to do is to follow that mode.

5. Acceptance must be within a reasonable time: The acceptance must be made while
offer is still in force. (i.e) before the offer lapses. Acceptance made after the offer has
been withdrawn is invalid. If any time limit is prescribed in the offer, it should be
accepted within that time. But if no time is prescribed it must be accepted within “a
reasonable time”. What is a ‘reasonable time’ depends upon the circumstances of each
case.

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6. Acceptance cannot be made in ignorance of the offer: Acceptance cannot precede the
offer nor does an acceptance in total ignorance of an offer result in a contract.

7. Clarification: The seeking of clarification of offer neither amounts to the acceptance of


the offer nor to the making of a counter offer.

8. Mental acceptance or uncommunicated assent does not result in a contract: No


contract is formed if the offeree remains silent and does nothing to show that he has
accepted the offer.
Example: F offered to buy ‘B’s horse for $30 saying. “If I hear no more from you, I shall
consider the horse as mine at $30.” ‘B’ did not reply. Held there was no contract because
the other party was not informed (Felthouse Vs Bindley)

9. When acceptance is complete: Sec. 4 of the contract act lays down that the
communication of an acceptance is complete as against the proposer, when it is put in a
course of transmission to him; so as to be out of the power of the acceptor; and as against
the acceptor, when it comes to the knowledge of the proposer.
Examples
(i) ‘A’ proposes by letter to sell a house to ‘B’ at a certain prince. The
communication of the proposal is complete when ‘B’ receives the letter.
(ii) ‘B’ accepts ‘A’s proposal by a letter sent by post. The communication of
the acceptance is complete as against ‘A’. When the letter is posted, as
against ‘B’, when the letter is received by ‘A’.
COMMUNICATION OF OFFER AND ACCEPTANCE

An offer may be communicated to the offeree or offerees by word of mouth, by


writing or by conduct. A written offer may be contained in a letter or a telegram.

Sec. 4 states: “The communication of a proposal is complete when it comes to the


knowledge of the person to whom it is made.”
The acceptance must be expressed in some usual or reasonable manner. The offeree
may express his acceptance by word of mouth, telephone, telegram or by post.

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Mr. G applied for shares in a company. A letter of allotment was posted but the
letter did not reach ‘G’. held there was a binding contract and ‘G’ was shareholder of the
company (Household Fire Co. Vs. Grant)

REVOCATION OF OFFER AND ACCEPTANCE


Revocation of an offer: An offer comes to an end and is no longer open to acceptance
under the following cases-Sec.6
1. Lapse of time.
2. After expiry of reasonable time.
3. An offer lapses by the failure of the acceptor to fulfil a condition precedent to
acceptance, where such a condition has been prescribed.
4. An offer lapses 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.
5. When the counter-offer is given, the original offer lapses.
6. A proposal once refused is dead and cannot be revived by its subsequent
acceptance.

Example: ‘A’ offers to sell his farm to ‘B’ for Rs.1,00,000.’B’ replies offering to pay
Rs.90,000. ‘A’ refuses. Subsequently ‘B’ writes accepting the original offer. There is no
contract because the original offer has lapsed.

7. By notice: If the offeror gives notice of revocation to the other party, an offer may be
revoked anytime before acceptance but not afterwards. Once an offer is accepted there is a
binding contract.
The acceptance of an offer becomes binding on the offeror as soon as the
acceptance is put in course of communication to the offeror so as to be out of the power of
the acceptor. But anytime before this happens, the offer may be revoked.
Example: A proposal is sent by ‘X’ to ‘Y’ and accepted by ‘Y’ by letter. The proposal
might have been revoked anytime before the letter of acceptance was posted but it cannot
be revoked after the letter is posted.
The notice of revocation does not take effect until it comes within the knowledge
of the offeree.

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Revocation of Acceptance: An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor but not afterwards.

Example: ‘A’ proposes by a letter sent by post to sell his house to ‘B’. ‘B’ accepts the
proposal by letter sent by post. ‘A’ may revoke his proposal at any time before or at the
moment when ‘B’ posts his letter of acceptance but not afterwards. ‘B’ may revoke his
acceptance at any time before or at the moment when the letter communicating it reaches
‘A’ but not afterwards.

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