Introduction | Offer | Acceptance

What is a contract? What constitutes a contract?

A contract is a legally enforceable agreement between two or more parties that obligates them
to do or not do specific things.
It begins with the clear intention to enter into a legal agreement, followed by a proposal or
offer from one party to another.
This offer, when accepted, forms a promise; if it is rejected, negotiations may end or continue
with a counteroffer.
Acceptance must be absolute and unconditional and mirror the terms of the offer to result in a
valid promise.
The essence of a contract is sealed by consideration, which refers to something of value
exchanged between the parties. Together, a mutual promise and consideration create an
agreement that, once legally framed, constitutes a contract.

- Proposal/Offer + Acceptance = Promise.

- Promise + Consideration = Agreement.

What makes a contract enforceable?

A contract becomes enforceable when it is backed by law, specifically under statutes like the
Indian Contract Act. A contract, unlike a mere agreement, must be performed as required by
law, thus making it legally binding and enforceable. If a contract is breached, the law
provides mechanisms for enforcement, which is not the case with simple agreements that lack
such legal backing.

What are the essentials of a Contract?

1) Consideration: Every contract must involve some form of consideration (something of
value exchanged between the parties), as per Sections 2(d) and 25.
2) Competent Parties: According to Sections 11 and 12, all parties involved must be
legally competent to contract. This means they must be of legal age, sound mind, and not
disqualified from contracting by any law to which they are subject.
3) Free Consent: As per Sections 13 through 22, the consent of all parties to the contract
must be free from coercion, fraud, misrepresentation, mistake, or undue influence.
4) Lawful Object: The object of the contract must be lawful, as per Sections 23-30. This
means the purpose and the terms of the contract should not be illegal, immoral, or
opposed to public policy.

What is an Offer?
The proposal is the starting point. Section 2(a) defines "proposal" 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. The person who makes the proposal is called the promisor or "offeror", the person
to whom it is made is called the proposee or "offeree" and when he accepts it, he is called a
"promisee".

 Offer can be communicated by an act or omission

 Offer can be express or implied

An express offer is articulated clearly through spoken or written words, directly stating the
intention and terms. Conversely, an implied offer is not directly stated but is inferred from
the behavior or circumstances of the parties involved. Similarly, acceptance of an offer can
also be express, involving clear verbal or written agreement, or implied, where acceptance is
presumed from actions.

Upton-on-Severn RDC v Powell

A fire broke out on the defendant's farm, who then called the Upton Fire Brigade, believing
he was entitled to their services for free. After extinguishing the fire, the Brigade charged for
their services upon discovering that the farm was outside their free service zone. The court
determined that by summoning and accepting the services of the Brigade, the defendant had
engaged in an implied contract, resulting in an obligation to pay, given that the services were
neither requested nor rendered under any express agreement of non-payment. "The truth of
the matter is that the defendant wanted the services of Upton; he asked for the services of
Upton and Upton, in response to that request, provided the services. Hence the services were
rendered on an implied promise to pay for them."

Steven v Bromley & Sons (1919)

A charterer initially contracted a ship to load steel billets but instead loaded general
merchandise, which typically incurs a higher freight rate. The court held that the charterer's
actions implied a promise to pay the higher freight rate, as his decision to load merchandise
beyond the agreed-upon cargo suggested an acceptance of the associated costs.

Ramji Dayawala & Sons (P) Ltd v Invest Import (1981)

After signing a contract that included a clause for arbitration in Paris, the Indian party
objected to this clause through a cable and a written communication, which the Yugoslavian
party did not respond to but continued to work under the contract. When a dispute arose, the
court ruled that the lack of response to the objection, coupled with the continuation of work,
amounted to an implied agreement that the arbitration clause was no longer part of the
contract.

 Offer is valid only when it is communicated to the offeree – offeree must have
knowledge at the time of act

Section 4 of the Indian Contract Act specifies that the communication of a proposal (or offer)
is considered complete when it becomes known to the person to whom it is made. This
principle establishes that an offer cannot be accepted if it has not been communicated to the
offeree, as acceptance must be based on the knowledge of the offer.

Lalman Shukla v Gauri Datt

Justice Banerji emphasized that for a contract to be formed, there must be an acceptance of an
offer, and such acceptance can only occur if there is knowledge of the offer.

R. v Clarke (1927)
This case took the principle a step further by ruling that even if an acceptor had previously
been aware of the offer but had completely forgotten about it at the time of acting on it, they
would be treated as if they had never known about the offer. There is a necessity of the offer
being present in the acceptor's mind at the time of acceptance.

Williams v Carwardine
In this case, a woman provided information leading to the capture of her husband's
murderers. She claimed a reward for the information, although her primary motivation was
not the reward but to alleviate her distress. The court allowed her to recover the reward,
illustrating that if an offer has been accepted with knowledge of a reward, the motives behind
the acceptance (other than obtaining the reward) are irrelevant.

 Intention to create legal obligations

There is no provision in the Indian Contract Act requiring that an offer or its acceptance
should be made with the intention of creating a 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". Intention to create legal obligations includes intention to create
legal rights and duties and the intention to enforce them in case of a fault. This is because
consideration is not essential under British law. In social relations, it is followed as a matter
of course that the parties do not intend legal obligations. In the case of business relations, it is
assumed that the parties intend legal consequences as a matter of course.
Commonly in social scenarios, such as family gatherings or casual agreements, there is an
underlying assumption that the parties do not intend to create legal obligations. These
agreements are generally seen as not legally binding. In contrast, in business dealings, it is
typically presumed that parties do intend legal consequences. This assumption facilitates the
enforceability of agreements in commercial contexts, where parties expect that they can hold
one another to their commitments.
Certain situations, such as the use of vague terms, offers that are mere advertising puff, or
preliminary agreements to agree in the future, are not recognized as binding contracts.
- Deciding factors in deciding whether statement amounts to a contractual term: parole
evidence rule (prevents the introduction of evidence of prior or contemporaneous
negotiations and agreements that contradict, modify, or vary the contractual terms of a
written contract when the written contract is intended to be a complete and final
expression of the parties' agreement); relative expertise of the parties; importance of the
statement; time

Balfour v Balfour
In this case, Mr. Balfour and his wife were in England on leave from Ceylon (now Sri
Lanka), where Mr. Balfour was employed. Due to health reasons, Mrs. Balfour was advised
to remain in England when her husband returned to Ceylon. Mr. Balfour agreed to send her
£30 per month to cover her living expenses while they were apart. Initially, he fulfilled this
agreement, but over time, as marital differences arose leading to their separation, he stopped
the payments. Mrs. Balfour subsequently took legal action to recover the arrears. The court,
led by Lord Atkin, dismissed Mrs. Balfour's action to recover the arrears. The key reasoning
was that the agreement between Mr. and Mrs. Balfour was not intended to be legally binding.
Lord Atkin noted that while there may have been consideration (the promise of maintenance
money), the nature of the agreement—made within the context of a marital relationship—did
not carry the intention to create legal obligations. Typically, agreements made in a domestic
setting, such as between spouses or family members, are presumed not to have legal
enforceability unless explicitly stated. In contrast, agreements made in a business or
commercial context are generally presumed to carry the intention to create legal relations,
making them enforceable by law.

McGregor v McGregor
In McGregor v McGregor, a binding contract was recognized between a husband and wife
who had agreed to withdraw their respective complaints against each other. As part of this
agreement, the husband promised to pay the wife a maintenance allowance, and the wife
agreed not to incur any debts in her husband's name. When the husband failed to meet his
maintenance obligations, the wife successfully sued for damages. The court upheld the
agreement as a legally binding contract, emphasizing that mutual promises made in the
context of settling disputes can create enforceable obligations, even among spouses.

Jones v Padavatton
In this case, a daughter left her job in Washington to pursue legal education in England based
on promises made by her mother to support her financially. The mother later sought to evict
her daughter, leading to legal disputes. Initially, the courts found the arrangement to be more
of a casual family agreement, not intended to impose strict legal obligations. However, upon
appeal, it was recognized that the daughter had made significant life changes based on her
mother's promises, which warranted some form of legal recognition. The court concluded that
while the agreement was binding, it was only intended to last for a reasonable period
necessary for the daughter to complete her education, not indefinitely.
Danckwerts LJ. allowed the mother's appeal. His Lordship said: "There is no doubt that this
case is a most difficult one, but... is one of those family arrangements which depend on the
good faith of the promises which are made and are not intended to be rigid, binding
agreements."
Simpkins v Pays
A woman, her daughter, and a paying guest residing in her home collectively participated in a
crossword competition. The entry into the competition was made under the name of the
woman, and they won a prize. Despite the collective effort and financial contributions from
all parties involved, the woman, under whose name the entry was submitted, refused to share
the prize money with the others.
The court said that there existed an intention to create a legal obligation, because when three
people enter into a competition and are putting in their combined labour, there is an implied
promise between the three to share whatever reward comes out of it. The court ruled that an
intention to create legal obligations did exist among the participants. It highlighted that when
individuals collaboratively engage in an activity like a competition, contributing time and
money, there is an implied promise to share any resulting rewards.
The court said that “the test of contractual intention is objective, not subjective. What matters
is not what the parties had in mind, but what a reasonable person would think, in the
circumstances, their intention to be”.

Commissioner of Wealth Tax v Abdul Hussain Mulla Mohammad Ali (AIR 1988 SC 1417)
Abdul Hussain Mulla Mohammad Ali, a Muslim, had provided a loan of 4 lakh rupees to a
friend, also Muslim, under the terms of what is known as a Qarz-e-Hasna. This arrangement
implies a benevolent loan where the borrower is under no obligation to return the principal
amount or pay interest unless they are able to do so. Hussain requested that this amount be
deducted from his total wealth for the purposes of calculating wealth tax, arguing that he did
not expect the money to be returned.
The Supreme Court held that the 4 lakh rupees could not be deducted from Hussain's wealth
for tax purposes. The issue was the legal nature of the Qarz-e-Hasna under secular wealth tax
laws. The court found that since there was no legal obligation for the borrower to repay the
loan, it could not be considered a debt in the conventional sense under wealth tax regulations.
Essentially, for a financial obligation to impact wealth tax calculations, it must carry a legal
requirement for repayment.
The court discussed the broader requirement of the "intention to contract”. In contexts where
consideration (something of value exchanged between parties) is not necessary for a contract
to be enforceable, the intention to enter into a legally binding agreement becomes crucial.
However, in Indian contract law, where consideration is required, the necessity of
explicitly establishing an intention to create legal relations is less pronounced and remains a
somewhat open question. Thus, the Supreme Court expressed reservations about the need for
this separate "intention to contract" requirement, suggesting that it might be more relevant in
jurisdictions where consideration is not required for contract enforceability.

The Supreme Court noted the general proposition that in addition to the existence of an
agreement and the presence of consideration there is also the third contractual element in
the form of intention of the parties to create legal relations, and also noted that this
proposition, though accepted in English Law, has not passed unchallenged. The court then
cited the following passage from Cheshire and Fifoot's Law Of Contract: "...the criticism of
it made by Prof. Williston demands attention, not only as emanating from a distinguished
American jurist, but as illuminating the whole subject. In his opinion, the separate element of
intention is foreign to the common law, imported from the Continent by academic influences
in the I9th century and useful only in systems which lack the test of consideration to enable
them to determine the boundaries of contract."

 General offers are valid

The modern position is that an offer may be made to the world at large. But the contract is not
made with all the world. Contract is made only with that person who comes forward and
performs the conditions of the proposal. The principle is thus stated in Anson: "An offer need
not be made to an ascertained person, but no contract can arise until it has been accepted by
an ascertained person."

Carlill v Carbolic Smoke Ball Co.

The Carbolic Smoke Ball Company issued an advertisement promising to pay £100 to anyone
who contracted influenza after using their smoke ball product according to the printed
directions. To underscore their sincerity, the company claimed to have deposited £1000 with
the Alliance Bank. Despite using the smoke ball as directed, Mrs. Carlill contracted influenza
and claimed the £100 reward. The company refused to pay, leading to the legal dispute. The
company contended that their advertisement was not intended to create legal relations; it was
merely promotional, "a puff". They also argued that the offer was too vague, being made to
the entire world, and that Mrs. Carlill had not communicated her acceptance of the offer.
Lord Justice Bowen addressed the company’s claim of the advertisement being a puff by
pointing to the £1000 deposit at the bank, which clearly demonstrated the company's intent to
be bound by their promise. This deposit indicated a serious intention to fulfil the promise,
thus moving the advertisement beyond mere promotional puffery. The court held that the
advertisement constituted a unilateral offer to the world at large but was capable of being
turned into a binding contract by anyone who performed the conditions. In unilateral
contracts like this, where the offer is made to the entire world, the acceptance does not need
to be communicated in the traditional way. Instead, acceptance is performed by fulfilling the
conditions of the offer. In this case, Mrs. Carlill's use of the smoke ball as directed was
deemed an acceptance of the offer.

As notification of acceptance is required for the benefit of the person who makes the offer, he
may dispense with notice to himself if he thinks it desirable to do so... and if he expressly or
impliedly intimates in his offer that it will be sufficient to act on the proposal without
communicating acceptance of it to himself, performance of the condition is a sufficient
acceptance without notification.

Har Bhajan Lal v Har Charan Lal

A father, desperate to find his runaway son, issued a public pamphlet offering a reward of Rs
500 to anyone who could find and bring his son home. The pamphlet effectively created a
unilateral offer open to anyone who could fulfil the condition set out in the offer. The
plaintiff, while at a railway station Dharamshala, encountered a boy who he realized was the
missing child based on an overheard conversation. The Court held that the pamphlet issued
by the father was a valid offer to the world at large, which could be accepted by anyone who
performed the condition. The court found that the plaintiff had substantially performed the
condition stipulated in the offer. By securing the boy and informing the father, the plaintiff
had effectively completed the actions necessary to fulfil the purpose of the offer

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.

 Invitation to offer
An offer should be distinguished from an invitation 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 distinction between an "offer" and an "invitation" to receive offers.

Harvey v Facey
The plaintiffs were interested in purchasing a property known as Bumper Hall Pen. The
initial telegram from the plaintiffs to Facey read: "Will you sell us Bumper Hall Pen?
Telegraph lowest cash price." Facey responded with a telegram stating merely: "Lowest price
for Bumper Hall Pen, £900." The plaintiffs believed that Facey's response was an offer to sell
the property at the stated price, considering that their following telegram expressed
agreement to buy the property for £900. However, the Judicial Committee of the Privy
Council rejected this interpretation. Their lordships clarified that the response from Facey
merely provided information about the lowest price at which he was willing to sell the
property; it did not express an intention to sell at that price to the plaintiffs. Facey had not
answered the first part of the plaintiffs' initial inquiry regarding his willingness to sell the
property, thus indicating no commitment or offer was actually made. For an agreement to be
considered a binding contract, there must be a clear intention by the offering party to be
bound by it. Facey's telegram lacked this essential element of intention, as it did not
affirmatively indicate his readiness to sell the property at the mentioned price. Since there
was no explicit offer from Facey, the subsequent "acceptance" by the plaintiffs could not
create a contract.

A shopkeeper's catalogue of prices is not an offer; it is only an invitation to the intending

customers to offer to buy at the indicated prices. The transmission of a price list, does not
amount to an offer to supply at the price named, so that as soon as an order is given there is a
binding contract to supply that quantity. For the same reason the display of goods in a shop
with price chits attached is not an offer even if there is a "self-service" system in the shop.

Pharmaceutical Society of Great Britain v Boots Cash Chemists Southern Ltd.

Boots Cash Chemists had arranged their shop in a manner where customers could pick up
medicines, including those classified under specific legislation as poisons and drugs which
required the supervision of a certified chemist before sale. The setup was such that customers
would select items and take them to the cashier, where a certified chemist was available to
approve the transactions. The court held that the display of the medicines on the shelves at
Boots Cash Chemists constituted an invitation to treat rather than an offer. This distinction is
critical in contract law: an invitation to treat is merely an invitation for customers to make an
offer to purchase, which the store may then accept or reject. In this context, the customer's
action of picking up a medicine and bringing it to the cashier is considered an offer to buy the
medicine, which the cashier (and the overseeing certified chemist) can accept or reject.

"It would be wrong to say that the shopkeeper is making an offer to sell every article in the
shop to any person who might come in and that person can insist on buying any article by
saying I accept your offer…. Therefore, I am of opinion, the mere fact that a customer picks
up a bottle of medicine from the shelves in this case does not amount to an acceptance of an
offer to sell. It is an offer by the customer to buy, and there is no sale effected until the
buyer's offer to buy is accepted by the acceptance of the price."

Spencer v Harding
The court held that in an auction setting, the bid made by an attendee is not an acceptance of
an offer from the auctioneer to sell the goods at the highest bid. Instead, each bid is treated as
an offer from the bidder to buy the goods. Crucially, for a contract to be formed, this offer
(the bid) must then be accepted by the auctioneer.
Typically, in auctions, this acceptance is signified by the fall of the hammer, which indicates
that the auctioneer accepts the highest bid, thereby forming a contract. The decision clarified
that the auctioneer retains the right not to accept the highest or any bid and may withdraw the
goods from the auction without awarding them to the highest bidder.

Government Tenders in India

State of U.P. v Vijay Bahadur Singh (1982)

The Supreme Court ruled that the government has the same latitude as a private auctioneer in
deciding which bids to accept. The court acknowledged that there could be valid reasons for a
government to accept a lower bid instead of the highest one. The highest bidder may be found
to be an undesirable person for many reasons, for example, from the mere enormity of the bid

Indore Vikas Pradhikaran (IDA) & Anr. v. Shri Humud Jain Samaj Trust & Anr. (2024)
In this case, the Supreme Court reviewed an appeal by Indore Vikas Pradhikaran concerning
the cancellation of a tender awarded to Shri Humud Jain Samaj Trust, the highest bidder in a
Notice Inviting Tender. The issue arose when the Tender Committee discovered that there
was an outstanding property tax amounting to ₹1.25 crore on the land involved in the tender,
which influenced their decision to cancel the awarded tender. The Supreme Court observed
that making the highest bid in a tender process does not create a vested right for the bidder to
have the auction concluded in their favor. It upheld the decision of the Tender Committee to
cancel the bid based on significant outstanding property taxes and the potential for higher
revenue from future tenders. The decision was influenced by considerations regarding the
financial implications for public revenue and the due diligence responsibilities of the
tendering authority.
The court referenced the Haryana Urban Development Authority Vs. Orchid Infrastructure
Developers Pvt. Ltd (2017) case, which reiterated that the highest bidder does not possess a
vested right to the conclusion of the auction in their favor. This supports the principle that
government authorities retain the right to accept or reject bids based on a broader assessment
of public interest and financial prudence.

What is Acceptance?
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. Thus "acceptance" is the assent given to a proposal, and it has the effect
of converting the proposal into promise.
The principle is that there should be some external manifestation [overt act) of acceptance. A
mere mental determination to accept unaccompanied by any external indication will not be
sufficient

 Acceptance can be implied or express

Brogden v Metropolitan Railway Company

Brogden had been supplying coal to the Metropolitan Railway Company under the terms of
an informal oral agreement. Recognizing the need for clarity and formality in their business
arrangement, both parties agreed to draft a formal contract. After negotiating the terms, the
draft contract was sent to Brogden, who filled in the remaining blanks and returned the
completed contract to the railway company’s agent. The agent, however, placed the
document in his drawer and forgot about it, failing to formally signify acceptance of the
completed terms. A dispute later arose between Brogden and the railway company, leading
Brogden to claim that no formal contract had been established since the company never
explicitly accepted the written terms. The key legal issue was whether a contract had been
effectively formed between the parties, despite the lack of express acceptance by the railway
company. The House of Lords held that a binding contract had indeed been formed between
Brogden and the Metropolitan Railway Company. The court found that although there was no
express acceptance of the contract terms by the railway company, the continued trade
between the two parties under the terms stipulated in the written contract constituted implied
acceptance.

Hindustan Coop Insurance Society v Shyam Sunder

The case revolved around an insurance proposal where the proposer had an oral
understanding with the insurance company. The company instructed the proposer to submit a
formal proposal form and deposit the half-yearly premium for the proposal to be accepted.
The proposer complied by submitting the proposal form along with a cheque for the
premium. The insurance company cashed the cheque but did not formally communicate
acceptance of the proposal. Tragically, the proposer died shortly thereafter, before any formal
acceptance was communicated. Chief Justice Harris referenced English legal precedents to
conclude that mere mental assent to an offer does not conclude a contract under either Indian
Contract Act or English Law. However, the mode of acceptance can be specified by the
offeror, either expressly or implicitly. In this case, the court found that the proposer had
clearly indicated that the encashment of the cheque by the insurance company would
constitute acceptance of his insurance proposal.

 Communication to offeror himself

Acceptance must be communicated to the offeror himself. A communication to any other
person is as ineffectual as if no communication has been made.

Felthouse v Bindley
In this case, Felthouse, the plaintiff, expressed his interest in buying his nephew's horse and
proposed in a letter: "If I hear no more about the horse, I consider the horse mine at £33.15s."
Felthouse's nephew did not reply to the letter to formally accept the offer. However, he did
inform Bindley, the auctioneer, not to sell the horse because it had been sold to his uncle.
Despite this instruction, the auctioneer accidentally sold the horse at auction. The court held
that no contract had been formed between Felthouse and his nephew because the nephew had
never communicated acceptance of the offer directly to Felthouse. The principle that
acceptance must be communicated to the offeror was upheld. The nephew’s internal decision
and the information given to the auctioneer were deemed insufficient to establish acceptance.

An offer cannot impose a burden of response on the offeree.

The offeror cannot say that if no answer is received within a certain time, the same shall be
deemed to have been 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

Communication of acceptance should be from a person who has the authority to accept.
Information received from an unauthorised person is ineffective.

Powell v Lee
Powell, the plaintiff, applied for the position of headmaster at a school. The board of
managers of the school held a meeting where they passed a resolution to appoint him.
However, this decision was not officially communicated to Powell. Instead, one of the board
members, acting in his individual capacity and without authorization, informed Powell of the
decision. Subsequently, the board decided to reverse their decision and not to appoint Powell,
who then sued for breach of contract, claiming that a contract had been formed based on the
information provided by the board member. The court held that there was no contract formed
between Powell and the school. The court emphasized that for a contract to be binding,
acceptance of an offer must be communicated by an authorized party. In this case, the
information provided by the individual board member did not constitute official
communication of acceptance. The board member was not authorized to communicate the
decision on behalf of the entire board, and therefore, his actions could not be considered as
forming a contract.

Communication not necessary

In certain cases, however, communication of acceptance is not necessary. The offeror may
prescribe a particular mode of acceptance, then all that the acceptor has to do is to follow that
mode. Then, 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.

 Mode of Communication of Acceptance

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.

Eliason v Henshaw (1819)

A instructed B to send acceptance via the wagon that brought the offer, a clear and specific
mode of communication for acceptance. B, however, decided to send the acceptance by post,
believing it would be a faster method. Unfortunately, the acceptance arrived after the wagon
had already returned, leading to a conclusion that A was not bound by the acceptance due to
its late arrival in comparison to the prescribed method. Suppose the postal acceptance had
arrived before the wagon. A, would likely be bound by the acceptance, assuming there was
no explicit statement that the acceptance must only be returned by wagon. This is based on
the principle that a minor deviation from the prescribed method of communication should not
invalidate the acceptance if the alternate method is equally or more expeditious.

"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"

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.

Yates Building Co. Ltd v RJ Pedleyn & Sons

Yates Building Co. Ltd offered to sell a building to RJ Pedleyn & Sons, specifying that any
acceptance of the offer should be sent via registered post. However, RJ Pedleyn & Sons sent
their acceptance through ordinary post instead of the prescribed registered post. The court
held that the acceptance was valid despite the deviation from the specified mode of
communication. The key factor in the court's decision was that the acceptance was received
within the expected timeframe, fulfilling the purpose behind the stipulation for registered
post, which presumably was to ensure timely and verifiable delivery. The court opined that
such a technical deviation from the terms of how acceptance should be communicated should
not override the substance of a formed offer and acceptance relationship.

Indian law, however, differs on this point. It says that if a person, the offeror, mentions a
mode of acceptance but the offeree follows another mode in communicating the acceptance,
the offeror within a reasonable period can ask the offeree to send the acceptance once again
in the stipulated mode. If the offeror does not ask the offeree to do so, the acceptance will be
said to be binding on the parties.

 Postal Mode of Communication

A contract comes into being when and where the offeree posts the letter of acceptance to the
offeror. When the offeree transmits into the mode of communication his acceptance, the
contract is said to be binding.

Adams v Lindsell
In this case, Lindsell (the offeror) wrote a letter to Adams (the offeree) on September 2nd,
offering to sell a quantity of wool and requiring a reply 'in course of post.' Due to a
misdirection, the letter only reached Adams on September 5th. Adams immediately posted
their acceptance of the offer on the same day. However, the acceptance did not reach Lindsell
until September 9th. Believing that Adams was not interested, Lindsell sold the wool to
another buyer on September 8th. The court ruled in favor of Adams, the offeree, establishing
that the acceptance of an offer becomes effective when it is properly posted, not when it is
received by the offeror. This decision was based on the rationale that if acceptance were only
effective upon receipt, it would lead to a never-ending need for confirmations back and forth
between the parties, potentially delaying the formation of contracts indefinitely

Household Fire & Accident Insurance Co v Grant

Grant, the defendant, applied for an allotment of 100 shares in the Household Fire &
Accident Insurance Co. In response, the company posted a letter of allotment to Grant’s
residence. Despite being sent in a timely manner, this letter never reached Grant. The issue at
hand was whether the contract for shares was binding given that the letter of acceptance
(allotment) was lost in transit and thus never received by Grant. The Court of Appeal held
that Grant was bound by the acceptance, even though he never received the letter of
allotment. The court emphasized that the act of posting the letter of acceptance in a proper
manner effectively concluded the contract. Justice Thesiger articulated the principle that if
the postal system is treated as the agent for both the offeror and the offeree, then the contract
is deemed complete once the acceptance is handed over to the postal service. The justice
argued that once acceptance is dispatched and out of the control of the sender, it finalizes the
contract. Any subsequent loss or delay in the postal system does not invalidate 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.

Ram Das Chakarbarti v Cotton Ginning Co Ltd

The dispute involved an applicant for shares and a company that claimed to have sent a letter
of allotment. The applicant, however, denied ever receiving this letter. The question was
whether a contract for the allotment of shares was effectively formed, despite the non-receipt
of the allotment letter by the applicant. The Allahabad High Court held that the contract was
indeed complete and binding upon the dispatch of the letter of allotment. The court
emphasized that under Sections 4 and 5 of the Indian Contract Act, the communication of
acceptance is considered complete when the acceptance is sent to the person making the
offer. Thus, the legal position is that the offeror (in this case, the applicant for shares)
becomes bound by the contract the moment the company dispatched the letter of acceptance
(allotment of shares), regardless of the actual receipt of that letter.

Difference between India and England

The only difference that the section makes is in the position of the acceptor. 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.

 Instantaneous Communication
Where the parties are in each other's presence or they are in direct communication, as, for
example, by telephone, no contract will arise until the offeror receives the notification of
acceptance.

Entores Ltd v Miles Far East Corporation

Entores Ltd, based in England, and Miles Far East Corporation, based in the Netherlands,
were involved in business negotiations. Entores sent an offer via telefax from England, which
was accepted by Miles Far East from the Netherlands, also via telefax. The court, led by Lord
Denning, held that a contract formed through instantaneous communication methods (like
telefax or telephone) becomes binding when and where the acceptance is received by the
offeror. Therefore, in this case, the contract was formed in England, where the acceptance
was received by the party who made the offer. The rationale was that only upon receipt does
the offeror become aware of the acceptance, completing the contract formation process.

“The rule about 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.”

Bhagwandas Goverdhandas Kedia v Girdharilal Parshottamdas & Co

The case involved a commercial transaction where an offer was made by a party in
Ahmedabad to a party in Khamgaon through telephonic communication. The offer was
accepted over the phone, and the primary legal question was determining the geographical
location where the contract was formed—whether it was in Ahmedabad, where the offer was
made, or Khamgaon, where the offer was accepted. The majority of the court followed the
reasoning in the Entores case, asserting that for contracts formed through instantaneous
communication like telephone, the contract is created at the place where the acceptance is
received by the offeror. Justice Hidayatullah, in a dissenting opinion, highlighted that the
language of Section 4 of the Indian Contract Act is flexible enough to accommodate modern
forms of communication such as telephones. He argued that the act of speaking words of
acceptance into the telephone and transmitting them to the offeror finalizes the contract, as
the words cannot be retrieved once spoken.
"Section 4 does not imply that the contract is made qua the proposer at one place and qua
the acceptor at another place. The contract becomes complete... when the acceptance of offer
is intimated to the offerer.”
"The law was framed at a time when telephones, wireless, Telstar and Early Bird were not
contemplated", the language of Section 4 is flexible enough to cover telephonic
communications. The courts should not completely ignore the language of the Act. When the
words of acceptance are spoken into the telephone, they are put into the course of
transmission to the offeror so as to be beyond the power of the acceptor. The acceptor cannot
recall them. The communication being instantaneous the contract immediately arises.

 Acceptance must be absolute and unqualified

For acceptance to be legally effective, it must be absolute and unconditional. This means that
the acceptance must agree exactly with the terms of the offer without any deviation. If the
acceptor introduces any new terms or conditions, modifies the terms of the offer, or makes
the acceptance dependent on a new condition, it cannot be treated as a valid acceptance.

Haji Mohammed Haji v E Spinner

In this situation, the plaintiff received an initial offer from the defendant but responded by
introducing new terms ("Free Bombay Harbour and interest") not included in the original
offer. The defendant refused to accept these new terms. Later, the plaintiff attempted to
accept the original terms of the offer, but the defendant no longer wished to proceed with the
contract. The court, led by Sir Jenkins CJ, held that no contract had been formed and
dismissed the plaintiff’s action for breach of contract. The court ruled that the plaintiff’s
introduction of new terms in response to the original offer constituted a counter-offer rather
than an acceptance. This counter-offer effectively rejected and terminated the original offer.
Sir Jenkins CJ emphasized that only an "absolute and unqualified acceptance" of an offer can
result in the formation of a contract. By introducing new terms, the plaintiff had not accepted
the offer but had instead proposed a new one, which the defendant did not accept. Once a
counter-offer is made, the original offer is extinguished and cannot be accepted at a later date,
unless it is reissued by the offeror.
“Any departure from the terms of the offer or any qualification vitiates the acceptance unless
it is agreed to by the person from whom the offer comes. In other words, an acceptance with
a variation is no acceptance; it is simply a counter-proposal, which must be accepted by the
original promisor before a contract is made.”

Hyde v Wrench
In this case, Wrench offered to sell a farm to Hyde for £1,000. Instead of accepting this offer,
Hyde responded with a counter-offer to purchase the farm for £950. Wrench declined Hyde's
counter-offer. Subsequently, Hyde attempted to accept the original offer of £1,000. The court
held that Wrench was not bound by Hyde’s later acceptance of the original £1,000 offer. The
rationale was that Hyde’s counter-offer of £950 constituted a rejection of Wrench’s initial
offer. Hyde’s attempt to accept the original offer after making a counter-offer was therefore
invalid.

 Acceptance should be of the 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.

Inquiry into terms of proposal

A mere inquiry into the terms of a proposal is not the same thing as a counter-proposal.

Uttar Pradesh State Electricity Board v Goyal Electric Source

The proposal was to sell iron for "40s. net cash, open till Monday." The offeree responded
asking if the offeror would accept 40s. for delivery over two months. The court determined
that the offeree's query about payment terms did not constitute a counter-offer but was merely
an inquiry to clarify the terms of the original offer. Such clarification did not alter the terms
of the offer but sought to understand them better. After receiving clarification, he accepted
the offer. It was held that the offeror was liable for breach of contract for not recognizing this
distinction and prematurely concluding that the original offer had been rejected.

Gibson v Manchester City Council, (1979)

Mr. Gibson, the plaintiff, was a tenant in a council house owned by Manchester City Council.
In response to a policy change that allowed tenants to purchase their council homes, Gibson
expressed interest in buying the house he lived in. The Council sent him a letter stating, "The
Corporation may be prepared to sell the house to you at the purchase price of £2180." Gibson
completed an application form indicating his wish to purchase the house at the stated price.
The House of Lords held that the Council's letter did not amount to an offer but was rather an
invitation to treat. The language used in the letter, particularly the phrase "may be prepared to
sell," indicated that the Council was not making a definitive offer but was instead inviting
Gibson to make an offer of his own. This meant that Gibson's application was, in fact, the
offer rather than an acceptance of an offer from the Council.

Raj Chowdhury v Union of India

A written contract was executed between the parties for telecasting 65 episodes of a TV
serial. Prior to this there was an oral approval by Doordarshan Authorities of the proposal to
telecast 500 episodes. That approval was held to be only a part of the continuing negotiations.
It could not have any effect because the parties subsequently bound themselves by a definite
written contract.

 Acceptance with condition subsequent

If an acceptance carries a condition subsequent, it may not have the effect of a counter-
proposal.

S.D. Katherine Stiffles v M.P. Carr Mackertich

In this dispute, the acceptor (S.D. Katherine Stiffles) communicated acceptance of an offer
but included a specific condition that a sum of Rs 25,000 be remitted by a certain date
(February 5). The acceptance clearly stated that if the payment was not made by the specified
date, the acceptance would be subject to withdrawal. The court held that the statement from
Stiffles was not a counter-proposal but rather a valid acceptance of the offer with an
additional term regarding the performance of the contract. The term stipulated that if the
condition (remittance of Rs 25,000 by February 5) was not fulfilled, the contract would be
considered breached by the offeree, thus giving the offeror the right to withdraw from the
contract.

D. Wren International Ltd v Engineers India Ltd

D. Wren International Ltd submitted a tender to Engineers India Ltd. After some
negotiations, acceptance of the tender was communicated via fax by Engineers India Ltd,
which included a statement that "a regular purchase order follows." However, the acceptance
also mentioned subsequent requirements such as signatures from parties and collaborators,
and the furnishing of bank guarantees for due performance. The court held that the fax stating
"a regular purchase order follows" constituted a conclusive acceptance of the tender, thereby
forming a binding contract between D. Wren International Ltd and Engineers India Ltd. The
court determined that the mention of subsequent conditions such as obtaining signatures and
bank guarantees were to be regarded as conditions subsequent to the formation of the
contract, rather than conditions affecting the validity of the acceptance itself.

 Acceptance of counter proposal

Where the acceptance of a proposal is not absolute and unqualified the proposer may become
bound, if, by his subsequent conduct, he indicates that he has accepted the qualifications set
up.

Hargopal v People's Bank of Northern India Ltd

Hargopal applied for shares in the People's Bank of Northern India Ltd, making his
acceptance of the shares conditional upon the bank's undertaking to appoint him as a
permanent director of the local branch. Despite this condition, the bank allotted the shares to
him without appointing him as a director. The court held that although Hargopal's acceptance
of the shares was initially conditional, his subsequent actions constituted a waiver of the
condition he had set. By accepting dividends, filing a lawsuit to recover dividends, and
pledging his shares as security, Hargopal had actively participated as a shareholder. These
actions indicated his acceptance of the shares and his role within the company, regardless of
the bank's failure to meet his initial condition of directorship.

Butler Machine Tool Co Ltd v Ex-Cell-O Corpn (England) Ltd

A seller made an offer to sell a machine, including a price variation clause stating that the
goods would be charged at prices ruling at the date of delivery. The offeree (buyer)
responded by placing an order using their own form, which did not include the price variation
clause and included a tear-off acknowledgment slip. The seller signed and returned this slip.
When the machine was ready for delivery in September but the buyer could not accept it until
November, the seller attempted to invoke the original price variation clause. The court
determined that the buyer's order form constituted a counter-proposal rather than an
acceptance of the original offer since it omitted the price variation clause included in the
seller's offer. By signing and returning the buyer's acknowledgment slip, the seller effectively
accepted this counter-proposal. Consequently, the contract formed between the parties was
based on the terms of the counter-proposal (buyer's order form), which did not contain a price
variation clause.

 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. The offeror is at
liberty to cancel his offer during this period. The difference between a provisional acceptance
and an acceptance with preconditions is that a specific approval of the technical terms is not
required from the offeror, rather the same acceptance has to be confirmed by the acceptor.

Union of India v S. Narain Singh

The matter in question involved the auction sale of a liquor shop, where the terms of the
auction explicitly stipulated that any acceptance of a bid would be subject to the confirmation
of the Chief Commissioner. The Punjab High Court observed that no complete contract is
formed at the time of the provisional acceptance of the bid during the auction. The contract
formation is contingent upon the subsequent confirmation of the bid by the Chief
Commissioner. As a result, the bidder, whose offer has been provisionally accepted, retains
the right to withdraw their bid until such confirmation is received.

Acceptance of Tenders (read with Government auction bids)

There is 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, the court did
not interfere in the decision of the authority. (Deepak Kumar Sarkar v State of W.B., AIR
2004 Cal 182; Cama Hotels Ltd v Airports Authority of India, AIR 2004 Guj 349; N.
Kunhiraman v Municipal Council, (1992) 1 KLJ 191).
Cambatta Aviation Ltd v Cochin International Airport Ltd
In this case, the appellant was initially considered the most competent tenderer for a contract.
However, the Board of Directors selected a different tenderer (the respondent) without fully
evaluating the merits of all tenderers. It was noted that the decision to invite the respondent
was made without clear reasons documented in the Board's minutes, and subsequently, the
respondent was persuaded to match the appellant’s offer. The court found that the procedure
adopted by the Board of Directors was violative of the principles of natural justice.
Specifically, the lack of a clear and reasoned decision-making process, along with the failure
to consider all tenders impartially, led to the court declaring the contract award to be arbitrary
and illegal.