Historical Background of Indian Contract Act, 1872

The Indian Contract Act is the main source of law regulating contracts in India.
It was enacted by Imperial Legislative Council. It was enacted on 25th April,
1872 and it came into force on 1st September, 1872.

This act was passed by the British India and it is based on the principles of
English Common Law.  It determines the circumstances in which promises
made by the parties to a contract shall be legally binding on them. All of us
enter into a number of contracts everyday knowingly or unknowingly. Each
contract creates some rights and duties on the contracting parties. Hence this
legislation, Indian Contract Act of 1872, being of skeletal nature, deals with the
enforcement of these rights and duties on the parties in India.

Objective of the Indian Contract Act, 1872

The Indian Contract Act, 1872 is a legislation governing the contractual

relationship between two or more parties, individuals, companies, government,
etc. It deals with all aspects of contracts such as formation, performance,
enforceability of contracts and specific contracts.

Major definitions

1. Contract: As stated under the section 2(h) of The Indian Contract Act,
1872, every agreement which is enforceable by law is a Contract. An agreement
consists of reciprocal promises between the two parties. In case of a contract,
each party is legally bound by the promise made by him. Also, before any
contract will be enforced, it is essential that the terms of the contract must be
clear, definite, certain and complete contract must be free from doubt,
vagueness and ambiguity so as to leave nothing to be supplied by the court.

2. Void Agreements: According to the sec. 2(g) of Indian Contract Act,

1872, an agreement not enforceable by law is said to be void. For instance, an
agreement by a minor has been held to be void. Sections 24 to 30 of The Indian
Contract Act, 1872, will discuss about the agreements which are void. Those
agreements include an agreement without consideration, an agreement in
restraint of marriage or of trade. It should be noted that the term “contract” is
never used with “void”. We always use the term “void” with “agreement”, since
these type of agreements are not enforceable by the law, thats why they cannot
be termed as “contract” and same reason goes with Illegal Agreements.
3. Voidable Contracts: According to Section 2(i) of the Indian Contract
Act, 1872, an agreement which is enforceable by law at the option of one or
more of the parties thereto, but not at the option of the other, is a voidable
contract. Thus, a voidable contract is the one which can be avoided by one of
the parties to the contract at his option. If that party doesnot avoid the contract,
it remains valid, but if the same party prefers to avoid the contract, then it
becomes void. For instance, when the consent of the party has been obtained by
coercion, undue influence, fraud or misrepresentation, the contract is voidable at
the option of the party whose consent has been so obtained.

4. Illegal Agreements: There are certain agreements which are illegal in

the sense that the law forbids the very act, the doing of which is contemplated
by the agreement. For example, an agreement to commit a crime or an
agreement which tends to corrupt public life is illegal. Such an agreement is
patently opposed to the public policy. Hence, the law forbids the making of
such agreements.

Difference between Void Agreement and Voidable Contract

A void agreement is a nullity from its inception and no rights to accrue to any
party thereto or his transferee, etc. A voidable contract on the other hand, is a
contract which can be avoided by one of the parties thereto.

Difference between Void Agreement and Illegal Agreement

Void Agreements Illegal Agreements

1. Void agreements may not be 1. It has to oppose the public

opposed to the public policy. For policy. For example, if an
example, an agreement made with agreement is made to commit
a minor is void, although there is crime, it will be termed as illegal
nothing in such an agreement agreement since it opposes the
which is opposed to the public public policy.
policy.

2. In case of a void agreement, a

2. In an illegal agreement, the
collateral transaction may not also
collateral transaction is also held
be void. For example, A gives
void. For example, A gives loan
money to B to enable him to pay
to B to smuggle goods,
his wagering debt. The wager is
smuggling is the main transaction
the main transaction which is
void, but loan given by him is and loan is subsidiary to it. But,
subsidiary to it, which is not void loan transaction is also said to be
and A can recover his money tainted with the same illegality
from B. and A will not be able to recover
his money.
Whether, an agreement can be termed as illegal or not may depends on the
degree to which it is opposed to public policy. For example, an agreement in
restraint of trade is void, but we may not term it is an illegal agreement as we do
when it is an agreement to commit a crime.
Proposal / Offer

A proposal is the starting point of any contract. Article 2(a) of ICA, 1872
defines it as: “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.”

Section 2(c): “The person making the proposal is called the promisor, and the
person accepting the proposal is called a promisee.”

A. Communication of Proposal

Section 3: “The communication of proposal, the acceptance of proposals, and

the revocation of proposals and acceptances, respectively are deemed to be
made by any act or omission of the party proposing, accepting, or revoking, by
which he intends to communicate such proposal, acceptance, or revocation, or
which has the effect of communicating it.”

B. Implied Proposals

Words are not the only medium of expression. Conduct may often convey as
clearly as words a promise, or an assent to a proposed promise.

An offer which is expressed by conduct is called an “implied offer” and the one
which is expressed by words, written or spoken, is called an “expressed offer”.

Section 9: Promises, express and implied – “In so far as the proposal or

acceptance of any promise is made in words, the promise is said to be
expressed. In so far as such proposal or acceptance is made otherwise than in
words, the promise is said to be implied.”

A bid at an auction is an implied offer to buy. Similarly, consuming eatables in

self-serve restaurants create implied promises to pay for the benefits enjoyed.

Case Law: Upton-on-Severn RDC v. Powell, 1942

Afire broke out in the defendant’s farm. He believed that he was entitled to the
free services of Upton Fire Brigade and, therefore, summoned it. The brigade
put out the fire. It then turned out that the defendant’s farm was not within free
service zone of the Upton, which therefore, compensation for the services.
The court said: “The truth of the matter is that the defendant wanted the services
of Upton, in response to that request, provided the service. Hence, the service
was rendered on an implied promise to pay for them.”

Section 9 was also applied by the Supreme Court in the case of: Haji
Mohammed Ishaq v. Mohammed Iqbal and Mohammed Ali & Co., 1978.,
where on the orders of a go between man certain goods were supplied by the
plaintiff on his own account to the defendants. The defendants clearly and
unerringly accepted the goods and never repudiating any of the numerous letters
and telegrams of the plaintiff demanding the money from them, clearly showed
that a direct contract which in law is called an implied contract by conduct was
brought about between them.

C. Communication when complete

Section 4- “The communication of the proposal is complete when it comes to

the knowledge of the person to whom it is made.”

Case Law: Lalman Shukla v. Gauri Dutt, 1913

Defendant’s nephew absconded from home. He sent his servant in search of the
boy. When the servant had left, the defendants by hand bills offered to pay
Rs.501/- to anybody discovering the boy. The servant came to know of this
offer only when he had already traced the missing child. He, however, brought
an action to recover the reward. But this action failed.

It was held that, in order to constitute a contract, there must be an acceptance of

an offer and there can be no acceptance unless there is knowledge of the offer.

This principle has been carried a little further in an Australian Case of R. v.

Clarke, 1927.

The facts of the case were: The Australian Government had offered a reward of
1000 Pounds to anyone giving information about certain murderers. The offer
further added that if the information was given by an accomplice, not being
himself the murderer, he would also be entitled to a free pardon. The plaintiff,
being an accomplice, saw the offer and having been so excited by the hope of
pardon, he gave the information to save himself, completely forgetting the
reward. He therefore, could not recover the reward.
So, even if the acceptor had once known of the offer but had completely
forgotten about it at the time of acceptance, he would be in no better position
than a person who had not heard of the offer at all.

INTENTION TO CONTRACT

There is no provision in the Indian Contract Act requiring that an offer or its
acceptance should be made with the intention of creating legal relationship.

But in English Law it is a settled principle that “to create a contract there must
be a common intention of the parties to enter into legal obligations.”

Case Laws

1. Balfour v. Balfour, 1919

“The defendant and his wife were enjoying leave in England. When the
defendant was due to return to Ceylon, where he was employed, his wife was
advised by a reason of her health, to remain in England. The defendant agreed
to send her an amount of 30 Pounds a month for the probable expenses of
maintenance. He did send the amount for the sometime, but afterwards
differences arose which resulted in their separation and the allowance fell into
the arrears. The wife’s action to recover the arrears was dismissed.”

2. Jones v. Padavatton, 1969

“A divorced woman was living in Washington with her son where she was
employed as an assistant accountant in the Indian Embassy. Her mother was in
Trinidad and wished her daughter to be near her. The mother persuaded her
daughter, much against her will, to leave service, to take legal education in
England and finally to come back to Trinidad as a practising lawyer.
Subsequently, the mother bought a house in England, part of which was allowed
to the daughter and the rest tenanted out. For five long years, the daughter could
not complete her education. She also remarried in the meantime. Differences
arose between them and the mother stopped payments and also commenced
proceedings to evict the daughter and she was successful.”

Also, the mere opening of a joint bank account between a man and his wife or
the man promising to buy her a car in an effort to improve their strained
matrimonial relationship has been held to be a purely domestic arrangement not
resulting in any legal relationship.
3. Meritt v. Meritt, 1970

The husband and the wife were the joint owners of a building which was subject
to a mortgage to a building society. The husband left the matrimonial home to
live with another woman. At that time, at the insistence of the wife, the husband
signed the note saying that the wife will pay all the outstanding amount in
respect of the house and in return the husband will agree to transfer the property
into her sole ownership. It was held that in this case it was clear that the parties
intended to create a legal relationship and therefore, the husband was bound by
the contract.

4. Banwari Lal v. Sukhdarshan Dayal, 1973

In an auction sale, the plots of land, a loudspeaker was spelling out the terms,
etc, for the sale, one of the statements being that a plot of certain dimensions
would be reserved for a Dharamshala (public inn). Subsequently, that plot was
also sold for private purposes. The purchasers sought to restrain this.

It was held that, Microphones have not yet acquired notoriety as carriers of
binding representations. Promises held out over loudspeakers are often claptraps
of politics.

Letters of intent

A letter of intent merely indicates a party’s intention to enter into a contract on

the lines suggested in the letter. It may become a prelude to a contract.

KINDS OF OFFER

There are two types of offer : (a) specific offers, where an offer is made to a
particular individual or a party, and, (b) general offers, where the offer is made
to the public at large.

GENERAL OFFERS

Unlike the other offers, it is an offer made to the public at large. It is not binding
in nature. The person, who accepts this offer, generally by performing the
condition of the proposal, can bind the person making the offer. Although a
general offer is made to the public at large, the contract is concluded only with
that person who acts upon the terms of the offer, viz., who accepts the offer.
Case Laws:

1. Carlill v. Carbolic Smoke Ball Co., 1893

It was the landmark judgement. The defendant advertised their product

“Carbolic Smoke Ball”, a preventive remedy against influenza. In the
advertisement they offered to pay a sum of 100 Pounds as a reward to anyone
who contracted influenza, or any other disease caused by taking cold, after
having used the smoke ball three times a day for two weeks, in accordance with
the printed direction. They also announced that a sum of 100 Pounds had been
deposited with the Alliance Bank to show their sincerety in the matter. The
plaintiff bought the smoke ball, used it according to the directions printed, but
still caught the influenza. She sued the defendants to claim the reward of 100
Pounds.

It was held that this being the general offer had ripened into a contract with the
plaintiff by her act of performance of the required conditions and thus accepting
the offer. She was, therefore, entitled to claim the reward.

Section 8: Acceptance by performing conditions, or receiving

consideration: “Performance of the conditions of a proposal, or the acceptance
of any consideration for a reciprocal promise which may be offered with a
proposal, is an acceptance of the proposal.

Case Law:

1. Har Bhajan Lal v. Har Charan Lal, 1925

A young boy ran away from his father’s home. The father eventually issued a
pamphlet, offering the reward in these terms: “Anybody who finds trace of the
boy and bring him home, will get Rs. 500/-.” The plaintiff was at the
dharamshala of a railway station, there he saw the boy, took him to the police
station and sent a telegram to the boy’s father that he had found his son. The
father refused to give him the reward.

It was held that the handbill was an offer open to the whole world and capable
of acceptance of any person who fulfilled the condition, and that the plaintiff
substantially performed the condition and was entitled to the amount offered.
2. Malraju Lakshmi Venhayyamma v. Venkata Narasimha Appa Rao,
1915-16

Upon the marriage of the appellant, her aunt, Papamma, a wealthy Hindu
widow with whom she resided since childhood, promised that the appellant and
her husband would reside with her, she would purchase immovable property for
the appellant. The appellant and her husband accordingly resided with the aunt.
She did purchase some property but under her name. This dissatisfied the
appellant who with her husband ceased to reside with the aunt. The aunt wrote
to the appellant that the property had been purchased for the appellant and
would be transferred to her upon the aunt’s death. The appellant and her
husband thereafter resided with the aunt until her death. This was held to be a
sufficient acceptance of the promise.

General offer of continuing nature

Where a general offer is of continuing nature, as it was, for example, in the

Smoke Ball case, it will be open for acceptance to any number of persons until
it is retracted. But where an offer requires some information as to a missing
thing, it is closed as soon as the first information comes in.

OFFER AND INVITATION TO TREAT

An offer should be distinguished from an invitation to receive offers. When a
man advertises that he has got a stock of books to sell, or houses to let, there is
no offer to be bound by any contract. “Such advertisements are offers to
negotiate – offers to receive offers.”

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 only invites
the other party to make an offer on those terms. This is perhaps the basic
difference between an “offer” and an “invitation” to receive offers.

Case Laws

1. Harvey v. Facey, 1893

The plaintiffs telegraphed to the defendants, writing: “Will you sell us Bumper
Hall Pen? Telegraph lowest cash price.” The defendants replied, also by the
telegram: “Lowest price for Bumper Hall Pen is 900 Pounds.”
The plaintiffs immediately sent their last telegram stating: “We agree to buy
Bumper Hall Pen for 900 Pounds asked by you.” The defendants, however,
refused to sell the plot of land at that price. The plaintiffs contended that by
quoting their minimum price in response to the enquiry the defendants had
made an offer to sell at that price. But the Judicial Committee turned down the
suggestion. Their Lordship pointed out that in their first telegram, the plaintiffs
had asked two questions, first, as to the willingness to sell and, second, as to the
lowest price. The defendants only answered the second, and gave only the
lowest reply. They reserved their answer as to the willingness to sell. Thus, they
had made no offer. The last telegram of the plaintiffs was an offer to buy, but
that was never accepted by the defendants.

Catalogues and display of goods and announcement to hold auction, all come
under invitation to treat.

Case Law

1. Pharmaceutical Society of Great Britain v. Boots Cash Chemists

Southern Ltd., 1952

The defendants were having the business of retail sale of drugs. Medicines were
displayed on the shelves and their retail prices were also indicated. They had
“self-service” system. On entry into the shop a customer was given a wire
basket. After selecting the articles needed by the customer he could put them in
the basket and take them to the cash desk. The defendants had put a registered
pharmacist near the cash counter, who had been authorised to stop any customer
removing any drug from the premises.

It was held that the display of articles, even on a “self - service” basis was not
an offer but was merely an invitation to treat/offer. When the customer selected
an article and brought the same to the cash desk that amounted to an offer to
buy the goods. The defendants were, therefore, free to accept the offer or not.

2. Harris v. Nickerson, 1873

The defendant advertised a sale by auction. The plaintiff travelled to the

advertised place of auction to find that the defendant had cancelled the auction
sale. He brought an action against the defendant to recover the expenses of his
travel. It was held that he was not entitled to the same as there was yet no
contract between the two parties, which could make the defendant liable.
3. Fisher v. Bell, 1961

The defendant had a flick knife displayed in his shop window with a price tag
on it. Statute made it a criminal offence to ‘offer’ such flick knives for sale. His
conviction was quashed as goods on display in shops are not ‘offers’ in the
technical sense but just an invitation to treat and thus no liability arose.

4. Spencer v. Harding, 1870

The defendants advertised a sale by tender of the stock in trade belonging

Eilback & Co. The advertisement specifies where the goods could be viewed,
the time of opening for tenders and that the goods must be paid for in cash. No
reserve was stated. The claimant submitted the highest tender but the defendant
refused to sell to him.

It was held that unless the advertisement specifies that the highest tender would
be accepted there was no obligation to sell to the person submitting the highest
tender. The advert amounted to an invitation to treat, the tender was an offer,
the defendant could choose whether to accept the offer or not.

TENDERS

Tenders may be of two different types:-

1. Specific Purchase: A government department wants to purchase three new

computers and thus invites tenders in accordance with the specifications. The
advertisement may be seen as invitation to treat, the tender is then an offer
which the department may accept or not.

2. Requirement Contract: The government department wants someone to give

tenders for the supply of PCs. The tenderer puts in a price per unit. I f
department says okay, it is not a completion of contract. It will be a standing
offer.

If an advertisement asks for tenders, that advertisement may be seen as an

invitation to treat. Where a tender is submitted on a required basis, it may be
seen as an offer.

The government department may say that the supplier has a contract. But
actually, there is no contract under law because there is no legally binding
commitment on either side. When the department places an order for a specified
no. of PCs, it amounts to the acceptance of standing offer contained in the
tender and may amount to the completion of contract at that stage.

BILATERAL CONTRACT

The typical model of the bilateral contract arises where ‘A’ promises to sell
goods to ‘B’ in return for ‘B’ promising to pay the purchasing price. In this
situation, the contract is bilateral, because as soon as these promises are
exchanged, there is a contract to which both are bound.

Illustration: ‘A’ says to ‘B’: If you dig my garden next Tuesday, I will pay you
20 pounds. ‘B’ makes no commitment but says: “I am not sure that I shall be
able to do, but if I do, I shall be happy to take 20 pounds.” This arrangement
does not constitute bilateral contract.

‘A’ has committed himself to pay the 20 pounds in certain circumstances but
‘B’ has made no commitment at all. He is totally free to decide whether or not,
he wants to dig ‘A’s’ garden. Because of its one-sided nature, this type of
agreement is known as unilateral contract.

COUNTER OFFER

Where an offer containing certain terms and conditions has been made to a
party, and that party by adding to the conditions makes another offer, it is
known as counter offer and it amounts to the rejection of the original offer made
to him.

Case Law

1. Hyde v. Wrench, 1840

The defendant made an offer to the plaintiff for the sale of a farm for 1,000
Pounds. The plaintiff rejected this offer and said that he will pay only 950
pounds to which the defendant did not agree. Thereupon he said that he was
willing to pay 1,000 pounds to which also defendant did not agree. On bringing
the action against the defendant, it was held that once the plaintiff rejected the
offer by making his counter offer, it made the original offer to lapse, and
therefore, no contract had resulted in the case.

CROSS OFFERS
When the offers made by two persons to each other containing similar terms of
bargain cross each other in post, they are known as Cross Offers. In these cross
offers, even though both the parties intended the same bargain, there would
arise no contract. A contract could arise only if either of the parties, after having
the knowledge of the offer, had accepted the same.

Case Law

1. Tinn v. Hoffman

A wrote to B indicating his willingness to sell 800 tons of iron at 69 shillings

per ton. On the same day, B also wrote to A offering to buy 800 tons of iron at
the same rate of 69 shillings per ton. The two letters crossed each other in post.
B brought an action against A for the supply of iron contending that a valid
contract had been created between the two parties. It was held that there were
only two cross offers and the offer of neither of the parties having been accepted
by the other, there was no contract which could be enforced.

STANDING, OPEN or CONTINUING OFFER

An offer which is allowed to remain open for acceptance over a period of time
is known as a standing, open or a continuing offer. For example, an offer to
supply 1,000 bags of wheat from 1st January to 31st December, in accordance
with the orders which may be placed from time to time, is a standing offer. As
and when the orders are placed illustration if an order for the supply of 100 bags
of wheat is placed on 15th January, there is acceptances of the offer to that extent
and the offeror becomes bound to supply those 100 bags of wheat. So far as the
remaining quantity is concerned, this offer can be revoked just like any other
offer.

Acceptance of a tender for the supply of goods is a kind of standing offer. An

advertisement inviting tenders is merely an invitation for quotations. When the
tender is approved, it becomes a standing offer. As and when an order is placed
on the basis of the tender that amounts to acceptance of the offer and results in a
binding contract. Such an offer may be revoked or withdrawn before the order
has been placed. Even though the offer is generally made open till a particular
time, it may be revoked earlier than that, because the offeror is not bound to
keep the offer subsisting and he may revoke it at any time before its acceptance.
Case Law

1. Bengal Coal Co. v. Homee Wadia & Co., 1899

The defendants (Bengal Coal Co.) agreed to supply coal to the plaintiffs
(Homee Wadia & Co.) up to a certain quantity at an agreed price for a period of
12 months, as may be required by the plaintiffs from time to time. The plaintiffs
placed orders for the supply of some coal and the same were complied with.
Before the expiry of the said period of 12 months, the defendants withdrew their
offer to supply further coal, and refused to comply with the orders placed
thereafter. They were sued for the breach of contract. It was held that there was
no contract between the plaintiff and the defendant and, therefore, there can be
no liability for the breach of contract. There was simply a continuing offer to
supply coal. They were bound to supply coal only as regards orders which had
already been placed, but were free to revoke their offer for the supply of coal
thereafter.

ESSENTIALS OF AN OFFER

Now, after dealing with the above mentioned facts, we can say that there are
four essentials to constitute a valid offer. These are:

1. Offer to obtain the consent of the other party.

2. Must be communicated.

3. Must be specific and clear.

4. Should not be an invitation to treat.

ACCEPTANCE

Definition

Section 2(b) defines acceptance as follows:

“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.”

Communication of Acceptance

Acceptance by external manifestation or overt act

The definition clearly requires that the assent should be signified. It may be
signified or expressed by an act or omission by which the party accepting
intends to communicate his assent or which has the effect of communicating it.
A very common instance of an act amounting to acceptance is the fall of the
hammer in the case of an auction sale. The principle is that there should be
some external manifestation (overt sale) of acceptance. A mere mental
determination to accept unaccompanied by any external indication will not be
sufficient. In the words of Justice Shah: “An agreement does not result from a
mere state of mind: intent to accept an offer or even a mental resolve to accept
an offer does not give rise to a contract. There must be some external
manifestation of that intent by speech, writing or other act.”

Case Law

1. Brogden v. Metropolitan Railway Co., 1877

‘B’ had been supplying coal to a railway company without any formal
agreement. ‘B’ suggested that a formal agreement should be drawn up. The
agents of both the parties met and drew up a draft agreement. It had some
blanks when it was sent to ‘B’ for his approval. He filled up the blanks
including the name of an arbitrator and then returned it to the company. The
agent of the company put the draft in his drawer and it remained there without
final approval having been signified. ‘B’ kept up his supply of coals but on the
new terms and also received payment on the new terms. A dispute having arisen
‘B’ refused to be bound by the agreement.

The conduct of the company’s agent in keeping the agreement in his drawer was
an evidence of the fact that he had mentally accepted it. But he has not
expressed his mental determination and retention of the agreement was not a
sufficient acceptance. But the subsequent conduct of the parties in supplying
and accepting coal on the basis of proposed agreement was a conduct that
manifested their intention.

Acceptance by Conduct

Another common example of acceptance by conduct is an action in terms of the

offer. All cases of general offers, which are a kind of unilateral contract,
demand some act in return for the promise to pay. In express recognition of this
principle Section 8 provides that “performance of the conditions of a proposal,
of the acceptance of any consideration for a reciprocal promise which may be
offered with a proposal, is an acceptance of the proposal.” Such proposals
demand acceptance by performance.”

Position under Indian Law:

We will require help from the decision of the Calcutta High Court in Hindustan
Coop Insurance Society v. Shyam Sunder, 1952.

After an oral understanding to insure and the completion of the medical

examination, the company informed the proposer that if he submitted the
proposal form and deposited the half-yearly premium, his proposal would be
accepted. The company encashed the cheque but had not yet replied to him their
acceptance of proposal that the proposer died. The question was whether by
encashing the cheque the company had accepted the proposal without there
being the formal acceptance. HARRIS CJ referred to the English authorities
and said:

Mere mental assent to an offer does not conclude a contract either under the
Indian Contract Act or in English Law. The offeror may, however, indicate the
mode of communicating acceptance either expressly or by implication both in
Indian and English Law. The deceased indicated clearly the mode of acceptance
of his proposal. The deceased indicated clearly that if the appellant accepted his
proposal the cheque should be appropriated towards the first premium and that
such appropriation would conclude the bargain. The cheque was received on
that implied understanding.

Where, on the other hand, the insurer had received the proposal form along with
the first premium and it was still awaiting acceptance when the proposer died,
no liability to pay arose. It was immaterial that the groundwork for acceptance
was under preparation and the agent had assured that the proposal would be
accepted. Acceptance is completed only when communicated to the offeror.

Whether expressly or impliedly, the fact remains that acceptance has to be

signified. In the other words of BOWEN LJ: “One cannot doubt that, as an
ordinary rule of law, an acceptance of an offer made ought to be notified to the
person who makes the offer in order that the two minds may come together.
Unless this is done the two minds may be apart, and there is not that consensus
which is necessary according to the English Law to make a contract.”

Comunication to offeror himself

Further, acceptance must be communicated to the offeror himself. A

communication to any other pers0on is as ineffectual as if no communication
has been made.

Case law: Felthouse v. Bindley, 1863

The plaintiff offered by means of a letter to purchase his nephew’s horse. The
letter said: “If I hear no more about the horse, I consider the horse mine at 33.15
Pounds.” To this letter no reply was sent. But the nephew told the defendant, his
auctioneer, not to sell the horse as it was already sold to his uncle. The
auctioneer by mistake put up the horse for auction and sold it. The plaintiff sued
the auctioneer on the ground that under the contract the horse had become his
property, and therefore, defendant’s unauthorised sale amounted to conversion.
But the action failed.

The court said: “It is clear that the nephew in his own mind intended the uncle
to have the horse, but he had not communicated his intention to the uncle.” The
case is also an authority for two further propositions. One of them is that the
acceptance of an offer made should be communicated to the offeror himself or
to the person he has authorised to receive the acceptance. A communication to a
stranger, like the auctioneer in this case, will not do.

Offer cannot Impose Burden of Refusal

Secondly, an offeror cannot impose upon the offeree the burden of refusal. The
offeror cannot say that if no answer is received within a certain time, the same
shall be deemed to have accepted. “It is not open to an offeror to stipulate
against an unwilling offeree that the latter’s silence will be regarded as
equivalent to acceptance. He cannot force him to take a positive course of action
under penalty of being contractually bound if he does not.”

Communication by acceptor himself

The natural corollary of this principle is that the communication of acceptance
should be from a person who has the authority to accept. Information received
from an unauthorised person is ineffective.

Case law: Powell v. Lee, 1908

The plaintiff was an applicant for the headmastership of a school. The managers
passed a resolution appointing him, but the decision was not communicated to
him. One of the members, however, in his individual capacity informed him.
The managers cancelled their resolution and the plaintiff sued for breach of
contract.

Rejecting the action the court observed: “There must be notice of acceptance
from the contracting party in some way. Information by an unauthorised person
is as insufficient as overhearing from behind the door.”

When communication not necessary

There may be an offer which impliedly indicates that acting on its terms will be
a sufficient acceptance. Announcement to pay reward for discovering a lost
thing is an offer of this kind. Again, the offeror may have acquiesced in a
certain conduct on the part of the acceptor as equivalent to acceptance. In such a
case also no formal communication of acceptance is necessary.

In a unilateral contract the offer demands an action, e.g., a reward for swimming
across a river. The other party has only to perform the act and not to give a
promise in return. Where the other party has to promise or undertake to do
something, the requirement of the notification of his acceptance should not be
allowed to be dispensed with.

Mode of Communication

Acceptance Should be Made in Prescribed Manner

Acceptance has to be made in the manner prescribed or indicated by the offeror.

An acceptance given in any other manner may not be effective, particularly
where the offeror clearly insists that the acceptance shall be made in the
prescribed manner. An American case illustrates this:
Eliason v. Henshaw, 1819

‘A’ offered to buy flour from ‘B’ requesting that acceptance should be sent by
the wagon which brought the offer. ‘B’ sent his acceptance by post, thinking
that this would reach the offeror more speedily. But the letter arrived after the
time of the wagon. ‘A’ was held to be not bound by the acceptance.

What would have been the result if the mail had reached earlier than the wagon?
According to Winfield and Cheshire and Fifoot, in that case the offeror would
have been bound unless “he had an exclusive preference for reply by wagon.” A
minor departure from the prescribed mode of communication should not upset
the fact of acceptance provided that the communication is made in an equally
expeditious way, “for, in a case where the offeree was told to reply ‘by return of
post’ it was said by the Court of Exchequer Chamber that a reply sent by some
other method equally expeditious would constitute a valid acceptance.”

Where the notice to exercise an option to purchase a building land was required
to be sent by registered or recorded delivery post but it was sent by ordinary
post and received within time, the court was of the opinion that the letter
amounted to binding contract even though it was sent by ordinary post.

Note: This Anglo-American rule has, however, not been strictly followed in the
Indian Contract Act. Section 7 deals with this matter.

7. Acceptance must be absolute – In order to convert a proposal into a

promise, the acceptance must – (1) be absolute and unqualified, (2) be
expressed in some usual and reasonable manner, unless the proposal prescribes
the manner in which it is to be accepted. If the proposal prescribes a manner in
which it is to be accepted, and the acceptance is not made in such manner, the
proposer may, within a reasonable time after the acceptance is communicated to
him, insist that his proposal shall be accepted in the prescribed manner, and not
otherwise; but, if he fails to do so, he accepts the acceptance.

Effect of Departure from Prescribed Manner

The section no doubt requires that acceptance should be made in the manner
prescribed in the proposal. But a departure from that manner does not of itself
invalidate the acceptance. A duty is cast on the offeror to reject such acceptance
within reasonable time and if he fails to do so, the contract is clinched on him
and he becomes bound by the acceptance. The section thus marks a visible
departure from the English Law and should, therefore, be read without reference
to the English Law on the subject.

English law is also now coming partly in line with Section 7. It contains the
following provisions:

1. An acceptance containing additions, limitations, or other modifications shall

be rejection of the offer and shall constitute a counter-offer.

2. However, a reply to an offer which purports to be an acceptance but which

contains additional or different terms which donot materially after the terms of
the offer shall constitute the acceptance unless the offeror promptly objects to
the discrepancy; if he doesnot object, the terms of the contract shall be the terms
of the offer with the modifications contained in the acceptance.

It has been held by the Calcutta High Court in the case of Surendra Nath Roy
v. Kedar Nath Bose, 1936 that where an offeror requires that the acceptance
should be sent to a particular person, it “has to be read in a reasonable and in a
sensible manner” and there was no violation of Section 7 when the offeree,
instead of writing to the particular person, met him personally to communicate
his acceptance. The defendant was bound by the acceptance.

There is however, one advantage to the acceptor in following the prescribed

mode. By giving his acceptance in that mode, he has done all that the offeror
required him to do and he is entitled to the contract, even if the acceptance does
not reach the offeror.

Where no Manner Prescribed: Reasonable and Usual Manner

Where no mode of acceptance is prescribed, acceptance must “be expressed in

some usual and reasonable manner”. Mail is, of course, a very reasonable
manner in such cases. In England the rule is that where an offer is received
through post, acceptance may also be communicated by the post. But in India,
in view of the language of Section 7, post may be used as a mode of
communication in all cases where it is reasonable, except when the offer
requires a particular form of communication.

When contract concluded (Postal Communication)

When the parties are at a distance and are contracting through post or by
messengers, the question arises when is the contract concluded? Does the
contract arise when the acceptance is posted or when it is received. The question
first arose in the case of Adams v. Lindsell, 1818.

On September 2, 1817, the defendants sent a letter offering to sell quantity of

wool to the plaintiffs. The letter added “receiving your answer in course of
post”. The letter reached the plaintiffs on September 5. On that evening the
plaintiffs wrote an answer agreeing to accept the wool. This was received by the
defendants on September 9. The defendants waited for the acceptance up to
September 8 and not having received it, sold the wool to other parties on that
date. They were sued for the breach of contract.

The court held that then according to the actions of defendants, no contract can
ever be completed by post. For if the defendants were not bound by their offer
when accepted by the plaintiffs till the answer was received, then the plaintiffs
ought not to be bound till after they had received the notification that the
defendants had received their answer and assented to it. And so it might go on
ad infinitum (endlessly).

This rule was affirmed by the Court of Appeal in Household Fire & Accident
Insurance Co v. Grant, 1879.

The defendant in this case had applied for the allotment of 100 shares in the
plaintiff company. A letter of allotment addressed to the defendant at his
residence was posted in due time, but it never reached the defendant.
Nevertheless he was held bound by the acceptance.

Thesiger LJ stated the rule thus: “The acceptor, in posting the letter has put it
out of his control and done an extraneous act which clinches the matter, and
shows beyond all doubt that each side is bound. How, then, can a casualty in the
post office, whether resulting in delay, which in commercial transactions is
often as bad as no delivery, or in non-delivery, unbind the party or unmake the
contract.”

The Indian Contract Act, in Section 4 adopts a rather peculiar modification of

the rule. According to the section, when a letter of acceptance is posted and is
out of the power of the acceptor, the proposer becomes bound. But the acceptor
will become bound only when the letter is received by the proposer.

Section 4. Communication when complete – 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; as against the
acceptor, when it comes to the knowledge of the proposer.

Thus the provision makes no difference in the position of the offeror. The
offeror becomes bound when a properly addressed and adequately stamped
letter of acceptance is posted. This aspect was emphasised by the Allahabad
High Court in the case of Ram Das Chakarbarti v. Cotton Ginning Co Ltd.,
1887.

A letter of allotment of shares was claimed to have been posted by a company,

but the applicant denied to have received it.

The high court said: “It follows from this (Sections 4 and 5) that a notice of
allotment, which is the acceptance of the offer to purchase shares, is
communicated to the allotee when it is dispatched, and from that moment there
is a complete contract for him. Whether or not he receives the letter is
absolutely immaterial.” However, the company failed to furnish any evidence of
the posting of the notice of allotment.

The contract is concluded at the place from where the proposal is accepted
and communication of acceptance is despatched, i.e., the address at which
the proposal was sent. The court at that place would have jurisdiction to
entertain a cause of action under the contract.

Difference between English and Indian Laws

In England when a letter of acceptance is posted, both the offeror and the
acceptor become irrevocably bound. But in India, the acceptor does not become
bound by merely posting his acceptance. He becomes bound only when his
acceptance “comes to the knowledge of the proposer.” The gap of time between
the posting and the delivery of the acceptance can be utilised by the acceptor for
revoking his acceptance by a speedier communication which will overtake the
acceptance.

The peculiarity of this rule is that after an acceptance is posted and before it
comes to the knowledge of the offeror, only one party, that is, the offeror, is
bound. The acceptor still has the right to recede from the contract by revoking
his acceptance. A contract, on the other hand, means an agreement which binds
both the parties to it.
When Parties in Direct Communication

Where the parties are in each other’s presence or, though separated in space,
they are in direct communication, as, for example, by telephone, no contract
will arise until the offeror receives the notification of acceptance. Suppose, for ,
instance, that I shout an offer to a man across a river or a courtyard but I do not
hear his reply because it is drowned by an aircraft flying overhead. There is no
contract at that moment. If he wishes to make a contract, he must wait till the
aircraft is gone and then shout back his acceptance so that I can hear what he
says. Now take a case where two people make a contract by telephone. Suppose,
for instance, that I make an offer to a man by telephone and, in the middle of his
reply, the line goes ‘dead’ so that I do not hear his words of acceptance. There is
no contract at the moment.

CASE LAW: Entores Ltd v. Miles Far East Corporation, 1955

The facts of the case were that an offer was made from London by telex to a
party in Holland and it was duly accepted through the telex, the only question
being as to whether the contract was made in Holland or in England. The court
of Appeal held that telex is a method of instantaneous communication and “the
rule about the instantaneous communications between the parties is different
from the rule about the post. The contract is only complete when the acceptance
is received by the offeror; and the contract is made at the place where the
acceptance is received.”

Where, however, the proposal and acceptance are made by letters, the contract
is made at the place where the letter of acceptance is posted.

Where a premium due on a life insurance policy was sent by money order, it
was held that the policy had revived from the date of the money order and not
from the date of its receipt by the company. The assured having died in the
meantime, his widow recovers the proceeds.

Supreme Court Approval of Entores case

The principle of the Entores case has been endorsed by the Supreme Court in
the case of Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas &
Co., 1966.

In this case, the plaintiffs made an offer via fax from Ahmedabad to the
defendants at Khamgaon to purchase certain goods and the defendants accepted
the offer. The question was whether the conversation resulted in a contract at
Khamgaon or at Ahmedabad.

It was held that communication by fax is similar to communication by telex.

Communication by fax is also instantaneous communication. If operates
through telephone connection, the normal rule applies. Fax communication, like
telephonic communication, becomes complete when the acceptance is received
by the offeror.

Absolute and Unqualified

In order to convert a proposal into a promise, the acceptance must be absolute

and unqualified.

Partial Acceptance

Acceptance should be whole of the offer. The offeree cannot accept a part of its
terms which are favourable to him and reject the rest. Such an acceptance is
another kind of counter proposal and does not bind the offeror unless he agrees
to the qualified acceptance. Thus, in a case:

An application for certain shares in a company was made on the condition that
the applicant would be appointed cashier in a new branch of the company. The
company allotted him some shares without fulfilling the condition and claimed
the share money.

It was held “that the petitioner’s application for 100 shares was conditional and
that he had no intention to become a member of the company when he applied
for the shares until he was appointed a cashier in the branch office.”

Inquiry into terms of proposal

A mere inquiry into the terms of a proposal is not the same thing as a counter-
proposal. In a negotiation for the sale of a quantity of iron, the proposal was “I
would now sell for 40s. net cash, open till Monday.” The offeree inquired by
wire whether the offeror would accept 40s. for delivery over two months or less.
The offeror, treating this as a rejection, sold off the goods. He was held liable
for the breach. To seek an explanation of the terms is something different from
introducing new terms. An inquiry about the technical details of a proposal is
not a counter-proposal. On acceptance of the proposal, the contract will be
created on the basis of the terms and conditions of the original proposal
including arbitration clause.

Acceptance with condition subsequent

If an acceptance carries a condition subsequent, it may not have the effect of a

counter-proposal. Thus, where an acceptance said: “terms accepted, remit cash
down Rs 25,000/- by February 5, otherwise acceptance subject to withdrawal”,
this was not a counter-proposal, but an acceptance with a warning that if the
money was not sent the contract would be deemed to have been broken.

Acceptance of counter proposal

When a counter proposal is accepted, a contract arises in terms of the counter-

proposal, and not in terms of the original proposal.

Provisional acceptance

An acceptance is sometimes made subject to final approval. A provisional

acceptance of this kind does not ordinarily bind either party until the final
approval is given. Meanwhile the offeror is at liberty to cancel his offer. The
decision of the Punjab High Court in Union of India v. S. Narain Singh, 1953
is an illustration in point. The court observed as follows:

Where the conditions of auction sale of liquor shop expressly provide that the
acceptance of the bid shall be subject to the confirmation of the Chief
Commissioner, there will be no complete contract till the acceptance of the
highest bid is confirmed by the Chief Commissioner and the person whose bid
has been provisionally accepted is entitled to withdraw his bid.

The bidder will have the right to withdraw his bid even where it is a condition
of the auction sale that a bid which has been provisionally accepted cannot be
withdrawn. “Such a prohibition against withdrawal does not have the force of
law unless there is some consideration to bind him down to the condition.”

When a provisional acceptance is subsequently confirmed, the fact should be

notified to the offeror, for it is only then that he becomes finally bound. An
acceptance is not complete till communicated. A mere noting of acceptance in
the auction file inside the office is not enough. Even if gthe bidder comes to
know of that fact of his own, that will not do.
Acceptance and withdrawal of tenders and bids

A tender is in the same category as a quotation of prices. It is not an offer.

When a tender is approved, it is converted into a standing offer. A contract
arises only when an order is placed on the basis of the tender.

Case law: Bengal Coal Co Ltd v. Homee Wadia & Co, 1899

The defendants signed an agreement which, among other terms, provided: “The
undersigned have this day made a contract with Messrs Homee Wadia for a
period of 12 months for the supply of a kind of coal from time to time as
required by the purchasers.” Certain orders were placed and were complied with
by the defendants. But before the expiry of 12 months they withdrew their offer
and refused to comply with further orders. They were accordingly sued for the
breach of contract. The court observed as follows:

“There is no contract, but simply a continuing offer, and that each successive
order given by the plaintiffs under it was an acceptance of the offer as to the
quantity ordered, and that thus the offer of the defendants and each successive
order of the plaintiff together constituted a series of contracts. The defendants
could not revoke their offer as to orders actually given, but except as to them,
they had full power of revocation.”

No Obligation to Accept Tender or Lowest Tender

A party inviting tenders is not bound to accept any tender, nor it is bound to
accept the lowest tender. But where the party is a Government or any of its
agencies, it should not arbitrarily pick and choose. It should have some rules
and those rules must require reasons for departure from the normal principle to
be recorded in writing. Accordingly, where an authority ignored the claim of the
lowest tenderer because of his bad history and awarded the contract to the next
lowest tenderer, their action is justified.

Case law: Cambatta Aviation Ltd v. Cochin International Airport Ltd., 1999

The evaluation authority considered all the aspects and found the appellant to be
the most competent tenderer to be awarded the contract. The board of Directors
selected another tenderer (the respondent). This decision was taken by the
Board even before taking a decision on the soundness of the other tenderers.
The minutes of the Board meeting did not give any reason as to why the Board
decided to invite the respondent. The respondent was then persuaded to make a
matching offer with that of the appellant. The court declared that the Board of
Directors adopted a procedure which was clearly violative of the principles of
natural justice. The award was accordingly held to be arbitrary and illegal.

Thus summing the Acceptance part, we came to the conclusion that acceptance
has the following essentials:

1. Communication of the acceptance.

2. Mode of acceptance.

3. Absolute and unconditional acceptance.

4. Acceptance before lapse of offer.

Lapse of Offer

Acceptance should be made before the offer lapses. An offer lapses in the
circumstances provided for in Section 6.

Section 6. Revocation how made – A proposal is revoked –

1. by the communication of notice of revocation by the proposer to the other

party;

2. by the lapse of the time prescribed in such proposal for its acceptance or, if
no time is 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; or

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 aceeptance.

1. Notice of revocation

Section 5 provides that “a proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not
afterwards.” It has been already been seen that as against the proposer, the
communication of acceptance is complete “when it is put in a course of
transmission to him, so as to be out of the power of the acceptor.” It means,
therefore, that the communication of revocation to be effective must reach the
offeree before he mails his acceptance and makes it out of his power. A
revocation is effective only when it is brought to the mind of the person to
whom the offer is made. This was laid down in the case of Henthorn v. Fraser,
1892.

The secretary of a building society handed to the plaintiff in the office of the
society an offer to sell a property at 750 pounds giving him the right to accept
within 14 days. The plaintiff resided in a different town and took away with him
the offer to that town. The next day at about 3.50 p.m. he sent by post his letter
of acceptance. This letter was received at the society’s office at 8.30 p.m. But
before that at about 1.00 p.m. the society had posted a letter revoking its offer.
The revocation and the acceptance crossed in the course of post. The plaintiff
received the letter of revocation at 5.30 p.m. The revocation was held to be
ineffective.

Thus the communication of revocation should reach the offeree before the
acceptance is out of his power. An illustration to Section 5 explains the matter.
‘A’ proposes by letter sent by post, to sell his house to ‘B’. ‘B’ accepts the
proposal by a 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.
The provisions relating to communication of proposal, acceptance and
revocation are to be found in Section 4 and 5. These sections are as follows:

Section 4. Communication when complete. – The communication of a

proposal is complete when it comes to the knowledge of the person to whom it
is made.

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;

As against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete, -

as against the person who makes it, 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;

as against the person to whom it is made, when it comes to his knowledge.

Section 5. Revocation of proposals and acceptances. – A proposal may be

revoked at any time before the communication of its acceptance is complete as
against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the

acceptance is complete as against the acceptor, but not afterwards.

Withdrawal before expiry of fixed period

Where an offeror gives the offeree an option to accept within a fixed period, he
may withdraw it even before the expiry of that period. The decision of the
Madras High Court in Alfred Schonlank v. Muthunyna Chetti, 1892 is an
illustration in point. The defendant left an offer to sell a qauantity of indigo at
the plaintiff’s office allowing him eight days’ time to give his answer. On the 4th
day however the defendant revoked his proposal. The plaintiff accepted it on the
5th day.

Holding the acceptance to be useless, the court said: “Both on principle and on
authority it is clear that in the absence of consideration for the promise to keep
the offer open for a time, the promise is mere nudum pactum.”

Notice of revocation shall be deemed to have been served when it reaches the
offeree’s address. A notice for the withdrawal of a ship from the charterers’
services was sent by telex and was received by the plaintiff’s telex machine
during normal business hours, but the plaintiff read the message the next day.
He was, however, held bound by the notice when his machine received it. The
court said: “If a notice arrives at the address of a person to be notified, at such a
time and by such a means of communication that it would in the natural course
of business come to the attention of that person on its arrival, that person cannot
rely on some failure of himself or his servants to act in a normal businesslike
manner in respect of talking cognizance of the communication, so as to
postpone the effective time of the notice until some later time when it in fact
came to his attention.”

Where the question was whether the notice for withdrawal of a ship under a
charterer-party for default in payment of hire was effective when it was
recorded on the telex machine of the charterer or on the opening of the office on
the next working day when the message was actually read, the court upheld the
decision of the arbitral tribunal that the message was deemed to have been
delivered when it was read on the machine on the next working day.

Agreement to keep Offer open for Special Period

Where the agreement to keep the offer open for a certain period of time is for
some consideration, the offeror cannot cancel it before the expiry of that period.
The owner of the house agreed, in consideration of the sum of one pound, to
give the plaintiff an option to purchase the house for ten thousand pounds
within a stated period. He was not allowed to revoke the proposal within that
time.

Communication of Revocation should be from Offerer Himself

It is, of course, necessary that the communication of revocation should be from

the offeror or from his duly authorized agent. But it has been held in England in
the case of Dickinson v. Dodds, 1876 that it is enough if the offeree knows
reliably that the offer has been withdrawn. The facts were:

The defendant signed and delivered to the plaintiff an offer to sell a property at
a price fixed and added a postscript saying: ‘This offer to be left open until
Friday 9 o’clock, a.m., 12th June.’ A day before the expiry of this period the
plaintiff was informed by a third person that the property had already been sold
to another. However, the plaintiff, before 9 a.m. of 12th June, found defendant
entering a railway carriage and handed him the notice of acceptance.

The court held “that the document amounted only to an offer, which might be
withdrawn at any time before the acceptance, and that a sale to a thirdperson
which came to the knowledge of the person to whom the offer was made was an
effectual withdrawal of the offer.”

Revocation of General Offers

Where an offer of a general nature is published through newspapers, it can be

withdrawn by the same media and the revocation will be effective even if a
particular person, subsequent to the withdrawal, happened to perform its terms
in ignorance of the withdrawal. In an American case, the announcement through
newspapers of a reward for reporting certain criminals was withdrawn by a
subsequent notification. But a person who was working on the track of the
criminals detected and reported them. He was absolutely unaware of the
revocation. He could not recover. “It was withdrawn through the same channel
in which it was made. The same notoriety was given to the revocation that was
given to the offer.”

Superseding Proposal by Fresh Proposal

Where, before acceptance, a proposal is renewed in some parts of it and not in

its entirety as proposed earlier and the letter purports to supersede the earlier
communication, such proposal is no longer available for acceptance. The
acceptance can be only for the renewed part.

Revocation of Bid

In the case of an auction, “the assent is signified on the part of the seller by
knocking down the hammer.” “A bid may be retracted before the hammer is
down.” In a Madras Case:
The appellant made a bid at an auction (the highest bid was made) but before
the property was knocked down, he discovered that the property was subject to
a mortgage and retracted his bid. But even so the auctioneer knocked down the
property to him. The owner of the property sued him.

The court held that “the plaintiff’s bid was no more than an offer and he was
entitled to withdraw the same before it was accepted by the property being
knocked down to him by the auctioneer.

2. Lapse of time

An offer lapses on the expiry of the time, if any, fixed for acceptance. Where an
offer says that it shall remain open for acceptance upto a certain date, it has to
be accepted within that date. It has been suggested by the Calcutta High Court
that in such a case it is enough if the acceptor has “posted the acceptance within
the stipulated time”, even if it reaches the offeror after the stipulated date. The
court said, “that an effective date on which the option of acceptance is exercised
by a party is to be ascertained from the date when the acceptance is put in
transmission and the letter is posted.”

Where an offer was to last until the end of March and the offeree sent a
telegram accepting the offer on 28th March which was received by the offeror on
30th March, it was held that the option was duly exercised.

Where an application for admission to an institution had to be filed within the

prescribed time by sending it either by registered post or in person and the
candidate sent it by registered post some four days before the last date but it
reached after the expiry of time, it was held that the application was too late. A
majority of two judges were of the view that where delivery can be made at the
option of the sender, the agency through whom delivery is made acts as the
agent of the sender, whereas if the delivery is made in a mode prescribed by the
addressee, the agency acts as the agent of the addressee. In the first case,
delivery to the agency is not delivery to the addressee, but in the later case it is.
The dissenting judge was of the view that if the candidate selected one of the
two modes prescribed by the addressee, the prescribed agency, i.e., post office,
would be agent of the addressee.

Where no time for acceptance is prescribed, the offer has to be accepted within
a reasonable period of time. What is “reasonable time” will depend upon the
facts and circumstances of each case. The definition of “a reasonable period” is
a question of fact depending on the surrounding circumstances in which the
agreement was made. Where the subject-matter of the contract is an article, like
gold, the prices of which rapidly fluctuate in the market, very short period will
be regarded as reasonable, but not so in reference to land.

An offer for sale of shares allowed a month in which to accept, but both the
parties agreed that a reasonable period for acceptance was an implied term. The
offeree felt that he could not make an informed decision within one-month time
and argued that a reasonable period in this context would be one that would
allow an informed decision as to whether the acceptance was in their best
financial interest. The court did not agree with this contention. The offer was
made at an uncertain time. Yet the offeree wanted that he should be allowed to
accept after the uncertainties were over. This would be unusual in this type of
commercial agreement.

3. By failure to accept condition precedent

Where the offer is subject to a condition precedent, it lapses if it is accepted

without fulfilling the condition. Where a salt lake was offered by way of lease
on deposit of a sum of money within a specified period, and the intended lessee
did not deposit the amount for 3 long years, it was held that this entailed
cancellation of the allotment.

4. By death or insanity of offeror

An offer lapses on the death or insanity of the offeror, provided that the fact
comes to the knowledge of the offeree before he makes his acceptance.

In England it was felt at one time that an offer terminates at once on the death of
the offeror, whether or not the fact has come to the notice of the offeree. Melish
LJ suggested that an offer cannot be accepted after the death of the offeror. But
in an earlier case, where a creditor continued to act on guarantee without the
knowledge of the surety’s death, the court pointed out that an offer is not
necessarily terminated with the death of the offeror. It may remain open until
the offeree comes to know of death.

There is no provision in the Act about the effect of the death of an offeree. But
as an offer can be accepted only by an offeree and not by any other person, it
should not be capable of being accepted by the offeree’s executor also.
Revocation of Acceptance

According to English law an acceptance once made is irrevocable. This rule is

obviously confined in its operation only to postal acceptance. It is suggested
that an acceptance can be revoked at any time before acceptance is complete,
provided, of course, that the revocation itself is communicated before the
acceptance arrives.

In India, on the other hand, acceptance is generally revocable. An acceptor may

cancel his acceptance by a speedier mode of communication which will reach
earlier than the acceptance itself. Section 5 is the relevant position:

An acceptance can be revoked at any time before the communication of the

acceptance is complete as against the acceptor, but not afterwards.

Now, what will be the result if both, the acceptance and the revocation of the
acceptance, will reach together. The following illustration will explain this:

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

Case law: Countess of Dunmore v. Alexander, 1830

A proposal of service made by a letter was sent through an agent. The agent
received the acceptance and forwarded it to the principal, but the principal was
away that day. The next day the agent received the revocation and forwarded it
to the principal, who received the two letters together.

The revocation was held to be effective, the court saying that “the admission
that the two letters were received together puts an end to the case.”

Jurisdiction

In a suit for recovery of damages on account of breach of contract, the notice

terminating the contract was received by the plaintiff at a place in Hyderabad. It
was held that a part of the cause of action could be said to have arisen at that
place. The suit filed at that place was maintainable.