MODULE-I

OFFER AND ACCEPTANCE

OFFER
Meaning and Definition of Offer
The primary element of a valid contract is an agreement between the parties to
the contract. An agreement comes into existence by a lawful offer by one party
and lawful acceptance by the other party. An offer is a proposal by one party
to another to enter into a legally binding agreement with him. According to
Section 2 (c), “the person making the proposal is called the ‘promisor’ or
offeror or proposer; the person to whom it is made is called the offeree or
proposee and the person accepting the proposal is called the ‘promisee’ or
acceptor. “The British refer to it as ‘offer’ but in the Indian Contract Act, it is
called a ‘proposal’.
According to Section 2 (a) of the Indian Contract Act, “when one person
signifies to another his willingness to do, or to abstain from doing, anything
with a view to obtaining the assent of the other to such act or abstinence, he is
said to make a proposal”.
A person making the proposal expresses that he is willing to contract on the
terms stated in it provided the other party to whom the proposal is made will
likewise express his assent to the same terms. Section 2 (a) reveals three
essential elements in an offer:
i) Expression of willingness to do or not to do something,
ii) made to another person i.e., a person cannot make an offer to himself,
iii) with the object of gaining the consent of the other person to such act or
abstinence.
Types of Offer
Offers or proposals may be classified on the basis of —
1) How an offer is made?
2) To whom an offer is made?
1. How an Offer is made: An offer may be either express or implied from the

conduct of the parties.

a) Express Offer: An express offer is one which may be made by words
spoken or written such as letter, telegram, telex, fax message, e-mail
or through internet. For example, when A offers to sell his dissection
box to B for Rs. 400, it is an express offer.
b) Implied offer: An implied offer is one which may be gathered from the
conduct of the party or the circumstances of the case. Stepping into a
local bus, consuming eatables at a restaurant, shining shoes by a shoe
shiner, without being asked to do so etc. create implied promises to pay
for the benefits enjoyed.
2. To Whom an Offer is made: An offer may be made to —
a) a particular person or a particular group or body of persons,
b) the public at large i.e., the whole world.
a) Specific Offer: An offer made to a definite person or a body of persons

is called a specific offer. A specific offer can usually be accepted only by

the person or persons to whom it is made.
b) General Offer: When an offer is addressed to the whole world, it is

called a general offer. A general offer is accepted by any one.

For example, where A promises to give Rs. 100 to B if he brings back his
missing horse, this is a specific offer and can only be accepted by B; but if
A issues a public advertisement to the effect that he would give Rs. 500 to
anyone who brings back his missing horse, such an advertisement amounts
to a general offer and member of the public can accept the said offer by
 searching for and bringing back A’s missing horse.
3. Positive and Negative Offers: A person may express his willingness to do

something or to abstain from doing something e.g., it may be an offer to

construct a wall to provide privacy or not to construct a wall so that free
passage of light and air may not be obstructed.

4. Cross Offers: When two parties make identical offers to each other, in

ignorance of each other’s offer, such offers are known as cross offers. They
shall not constitute acceptance of one’s offer by the other.
Essentials of a Valid Offer
An offer becomes legally valid when it satisfies the following essential
conditions:
1. Offer must be Capable of Creating Legal Relations: While making the

offer, the aim of the offeror should be to primarily create a legal obligation.
An offer that creates only social or moral obligation does not constitute a
valid agreement or contract. A proposal to go to picnic or to play a cricket
match does not create a legal obligation – it is not legally binding on the
person making the proposal or the one who is accepting it. For example, if
A invites B for lunch but, for some reason, is not at home when b comes for
lunch, it does not have any legal obligation for A and b cannot sue A for not
keeping his commitment because an invitation to lunch is a social affair and
does not create a legal obligation for either party. An offer, therefore, must
be such as would result in a valid contract when it is accepted.
2. Offer must be Certain, Definite and not Vague: No contract can come

into existence if the terms of the offer are vague or loose and indefinite.
Both the parties should be clear about the legal consequences arising out of
contract. An indefinite or vague proposal is not a proposal from the legal
 point of view and its acceptance cannot create any contractual relationship.
If a offers to B to take his building on a two-year lease if B repairs it
thoroughly and ‘furnishes it according to the latest style’, it cannot be said
to constitute an offer because it is too vague to result in a contractual
relationship.
3. Offer must be communicated to the Offeree: There can be no offer by a

person to himself. An offer, to be complete, must be communicated to the

person to whom it is made so
that he can accept or not accept the offer. Unless the offer is communicated
by the offeror (or by his agent) to the offered, there can be no acceptance of
the offer and as such, no agreement can be reached. An acceptance of an
offer, in ignorance of the offer, is no acceptance and does not confer any
right on the acceptor. If M has announced a reward to anyone who returned
his lost dog. P brought the dog to M without having heard of the offer. Held
P was not entitled to the reward [Fitch v. Snedaker, (1868) 38N.Y.288]
4. Offer must be made with a view to obtaining the assent: An offer must

be distinguished from mere expression of intention. The offer to do or not to

do something must be made with a view to obtaining the assent of the other
party addressed and not merely with a view to disclosing the intention of
making an offer.
5. Offer should not contain a term the non-compliance of which may be

assumed to amount to acceptance: One cannot say while making the offer
that if the offer is not accepted before a certain date, it will be presumed
to have been accepted. For example, where S writes to P, “I will sell you
my horse for Rs. 4,000and if you do not reply, I shall assume you have
accepted the offer”, there is no contract if P does not reply. However, if P is
in possession of S’ horse at the time the offer is made and he continues to
 use the horse thereafter, P’s silence and his continued use of the horse
amount to acceptance on his part of the terms of S’s offer.
6. An Offer may be Conditional: An offer can be made subject to a

condition. In that case, it can be accepted only subject to that condition. A

conditional offer lapses when the condition is not accepted. Thus, a
conditional offer by the management of a company to the trade union to pay
a certain amount lapses when the condition is not accepted. A contract
formed on a conditional offer is valid. In recent times, however, the courts
have adopted certain protective measures for the aggrieved persons.
Conditional offers are invalid where the terms are unreasonable or the
offeree is unaware of the terms.

7. Lapse of an Offer: An offer lapses

a) if either offeror or offeree dies before acceptance.
b) if it is not accepted within i) the specified time or (ii) a reasonable

time, if no time is specified.

c) if the offeree does not make a valid acceptance, for example makes a

counter offer or conditional acceptance or if a particular manner of

acceptance has been requested, he accepts in some other manner for
example by sending a letter by mail when a reply by hand was requested.
d) an offer can also lapse by revocation. A person who makes an offer can

withdraw it at any time before acceptance. A proposal may be made for

a fixed period. The offer will automatically expire if it has not been
accepted till then. Where no time limit has been specified, the offer will
lapse after a reasonable time.
8. An invitation to offer is not an offer: An offer must be distinguished from

an invitation to offer. In the case of an invitation to offer the aim is merely

to circulate information of readiness to negotiate business with anybody
who on such information comes to the person sending it. Such invitations
are not offers in the eyes of law and do not become promises on acceptance.
A price list is not an offer to sell the goods at the listed prices. It is an
attempt to induce offers and not an offer in itself.
9. Communication of Special Conditions: When special terms and
conditions are to be attached in a contract, they must not only be
specifically stated but also communicated to the concerned party. It is the
duty of the person who delivers a document to give adequate notice to the
offeree of the terms and conditions contained in the document. When this is
not done, the acceptor will not be bound by such terms. For example, a
transport company accepts goods of A for being carried without any
conditions. Subsequently it issues a circular to the consignors limiting its
liability for the goods damaged or lost in transit. G is not bound by this
condition since it is not communicated to him prior to the date of contract.
ACCEPTANCE
Meaning and Definition of Acceptance
Acceptance of an offer is of primary importance for a valid agreement. When
the offeree or the person to whom the offer is made, gives his acceptance, the
offer is said to be accepted. An offer becomes a promise or an agreement only
after its acceptance.
According to Section 2 (b) of the Indian Contract Act, “when the person to
whom the offer is made signifies his assent thereto, the offer is said to be
accepted. An accepted proposal is called a promise or an agreement”.
According to Sir William Anson, “An acceptance is to an offer what a lighted
match is to a train of gun-powder. Just as a lighted match will blast a train load
with gunpowder, an offer becomes an agreement after its acceptance”.
Except where a proposal prescribes a particular mode of acceptance, the
acceptance may be made in several different ways. Acceptance may be
express or implied. When acceptance is made by words, spoken or written, it
is an express acceptance. If it is accepted by conduct, it is an implied
acceptance.
When an offer is made to a particular person, it can only be accepted by the
person to whom it is made. Acceptance by any other person is not a valid
acceptance. But if it is a general offer, then anybody can accept it.
Essentials of a Valid Acceptance
Acceptance of an offer is the very essence of a contract. As per the sections of
the Act and the precedents set by court decisions, the legal rules as to
acceptance are mentioned as under:
1. Acceptance must be absolute and unconditional: It must confirm with the
offer. If it does, the offer or proposal becomes a promise. The acceptance, in
order to be binding, must be absolute and unqualified [Sec. 7 (1)] in respect
of all terms of the offer, whether material or immaterial, major or minor. A
qualified acceptance is not a contractual acceptance. If the terms of
acceptance are different from the terms of offer, it is termed as a counter
offer and is not recognized by law as an acceptance until the original
offeror accepts the qualified terms. If A offers to sell his land for Rs.
5,00,00 and B accepts the offer and encloses a cheque for Rs. 50,000 with a
promise to pay the balance by monthly instalments of Rs. 15,000 each, it
would not mean a contract between the two as the acceptance is
unconditional.
2. Acceptance must be Communicated to the Offeror: To conclude a
 contract between the parties, the acceptance must be communicated to the
offeror. If the acceptance is not communicated, the acceptance is not valid in
terms of law. A mere resolve or mental determination on the part of the
offeree to accept an offer, when there is no external manifestation of the
intention to do so, is not sufficient [BhagwanDassKedia v. GirdhariLal,
A.I.R (1966) S.C.543].
3. Acceptance must be made within a reasonable time: Acceptance to be
valid must be made within the time allowed by the offeror and if no time is
specified, it must be made4 within a reasonable time. What is a reasonable
time is a question of fact depending on the particular circumstances.
Acceptance may be made at any time till the offer is alive. Acceptance made
after the offer has been withdrawn is invalid.

4. Acceptance must be made according to the mode prescribed or usual or

reasonable mode: Acceptance has to be made in the manner prescribed or
indicated by the offeror. Section 7 (2) states that if the acceptance is not
made in the manner prescribed, the proposer may within a reasonable time
after the acceptance is communicated to him, insist that the acceptance must
be made in the manner prescribed. Failure on the part of the offeror to do so
will imply that he has accepted although it is not in the desired manner.
Where no mode of acceptance is prescribed, acceptance must be expressed
in some usual and reasonable manner. Acceptance by mail is a very
reasonable manner in such cases.
5. The Acceptor must be aware of the proposal at the time of the offer:
Acceptance follows offer. If the acceptor is not aware of the existence of the
offer and conveys his acceptance, no contract comes into being. There must
be a knowledge of the offer before anyone could consent to it. An act done
in ignorance of the offer of a reward cannot be called an acceptance.
6. Acceptance must be given before the offer lapses or before the offer is
revoked: It means that acceptance must be made while the offer is in force
i.e., before the offer has been revoked or offer has lapsed. A prospective
resignation to quit a post is an offer and it can be withdrawn before the
resignation is accepted by a competent authority. [Union of India vs. Gopal
Chandra, AIR 1978 See694].
7. Acceptance cannot be implied from silence: No contract is formed if the
offeree remains silent and does nothing to show that he has accepted the
offer. The acceptance of an offer cannot be implied from the silence of the
offeree or his failure to answer, unless the offeree has by his previous
conduct indicated that his silence means that he accepts. Rakesh told
Shyam , “I offer you my carfor Rs. 2,00,00. If you don’t reply me in 15 days
time, I shall assume that you accept the offer.” Shyam kept silent. Held,
there was no contract.
Communication of Offer, Acceptance and Revocation
A valid contract does not result from mere mental proposal and its mental
acceptance. An offer and its acceptance are pre-requisites for a valid contract.
When the contracting parties are physically present and negotiate in person, an
agreement comes into existence the moment the offeree gives his absolute and
unqualified acceptance to the proposal made by the offeror. Problems arise
when the parties are at a distance and the proposal and its acceptance need to
be communicated between the two.
According to Section 3 of the Indian Contract Act, the communication of an
offer, its acceptance and revocation are deemed to be made by an act or its
omission by the party offering, accepting or revoking. Such act or omission
must have the effect of communicating such offer, acceptance or revocation.
A. Communication of an Offer (Section 4)
According to Section 4, the communication of a proposal is complete when it
comes to the knowledge of the person to whom it is made. For example, P
proposes by letter to sell a house to S at a certain price. The communication of
the proposal is complete when b receives the letter.
B. Communication of Acceptance (Section 4)
Communication of an acceptance is complete —
a) as against the proposer when it is put in course of transmission to him, so as

to be out of power of the acceptors to withdraw the same.

b) As against the acceptor when it comes to the knowledge of the proposer.
For example, A proposes by a letter to sell a house to B at a certain price. B
accepts A’s proposal by 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.
The main difference the two is that the proposer is bound as soon as the
acceptance letter is posted but the acceptor is not bound till the letter is
received by the proposer. In other words, the acceptor has the option to revoke
his acceptance of the proposal before it is received by the proposer.
C. Communication of Revocation of Proposal (Section 5)
Revocation implies ‘taking back’, ‘recalling’ or ‘withdrawal’. It may be a
revocation of the offer
or acceptance. The communication of revocation is complete in the following
situations:
i) As against the person who is revoking: A proposal may be revoked at any

time before the communication of its acceptance is complete, as against the

proposer, but not afterwards.
ii) As against the person to whom it is made: As against the person to whom the

revocation is made, it is complete, when it comes to his knowledge.

An offer can be revoked before acceptance and an acceptance can be
 revoked before its communication. Therefore, the communication of
revocation of acceptance must reach the offeror before acceptance.

Modes of Revocation of an Offer (Section 6)

An acceptance of proposal needs to be made effective before it lapses. After
the proposal has lapsed, no law can enforce its acceptance. According to
Section 6 of the Act, a proposal may be revoked in any of the following ways:
1. By Notice: Section 4 and 5 of the Contract Act clearly stipulate that a
proposer can revoke his proposal before the completion of the acceptance
by sending a notice of revocation. Such notice needs to be clear and
unambiguous and can be by word of mouth, by letter, telegram or telephone
or it can be through behavior and action. The notice for the revocation of an
offer should be communicated by the person who has made the offer or by
his authorized representative.
2. By Lapse of Time: A proposal will come to an end by the lapse of time
prescribed in such proposal for its acceptance or, if no time is so prescribed
by the lapse of reasonable time. A reasonable time could be a few hours or
it could be a week or more depending upon the circumstances of each case.
Where the subject matter of the contract is an article, like gold, the prices of
which fluctuate daily in the market, very short period will be regarded as
reasonable. Where a person applied for shares of a company in June, he
cannot be bound by an allotment made late in November.
3. By Non-fulfilment of an Essential Precedent: If the offeror has set a
 condition precedent to the acceptance of the offer, such condition needs to
be met for a valid acceptance of the proposal. Non-fulfilment of an essential
pre-condition nullifies \the proposal and its acceptance. Thus, X may offer
to sell certain goods to Y on a condition that Y pays a certain amount before
a certain date. The proposal is revoked if Y fails to pay the requested
amount within given time.
4. By Death or Insanity of the Proposer: A proposal is revoked 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. If the offer is accepted in
ignorance of the death or insanity of the offeror, the acceptance is valid.
According to English law, even if an offer is accepted in ignorance of the
death of the offeror, it still cannot constitute a contract.
5. By Counter Offer: An offer comes to an end when the offeree makes a
counter offer or rejects the offer. Where an offer is accepted with some
modification in the terms of the offer or with some other condition not
forming part of the offer, such qualified acceptance amounts to a counter
offer. An offer once rejected cannot be revived. For example, X offers
to sell his house to Y for Rs.10, 000. Y replies offering to pay Rs. 8, 000. X
refuses. Subsequently Y writes accepting the original offer has lapsed.
6. By the non-acceptance of the offer according to the prescribed or usual
mode: The offer will also stand revoked if it has not been accepted
according to the mode prescribed. According to Section 7, it is the duty of
the offeror to inform the offeree that the acceptance does not meet the
conditions prescribed in the offer. If the offeror does not do that and keeps
quiet, he is deemed to have accepted the acceptance of the offer.
7. By subsequent Illegality: An offer lapses if it becomes illegal after it is
made and before it is accepted. If there is a change in law that makes the
contract contemplated by the offer illegal or incapable of performance, the
offer comes to an end.