2

OFFER AND ACCEPTANCE

An agreement arises when an offer is made by one person and accepted by the
person to whom it is made. An offer itself does not create a legal relationship. A legal
relationship arises only when an offer is accepted.

OFFER
Meaning and Definition
Section 2(a) defines a proposal 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."
It means an offer shows the willingness of an offer or to do or not to do some
act to obtain the consent of the other person regarding that act.
The person who makes the offer is called the offeror or promisor. The person to
whom the offer is made is called the offeree or promisee. The person who accepts the
offer is called the promisee or acceptor. The term proposal is used in the Contract Act,
1872 but usually, the term offer is used in practical life.
EXAMPLES
a. C offers to sell his watch to B for Rs. 100. C makes an offer to B.
b. C promises to sell his car to B for Rs. 3 Lac. C makes an offer to B.
Essentials of Valid Offer
The following are rules or essentials of a valid offer:
1. Express or Implied
An offer may be express or implied. An offer that is made by words spoken or
written is called an express offer.
An offer that appears from the action or conduct of parties or circumstances of
the case is called an implied offer.
EXAMPLES
a. M tells N that he will sell a motorcycle to him for Rs. 40,000. It is an express offer.
b. A railway coolie carries the luggage of B without asking. B allows him to do so. It is an
implied offer.
c. Daewoo Co.runs buses on different routes to carry passengers at scheduled fares. It is
an implied offer by the company.

2. Legal Relations
An offer must be made to create legal relations with the other party. If an offer does not
create legal relations between the parties, it is not a valid offer. In business transactions,
it is presumed that the parties intend to create legal relations.

EXAMPLES
a. C invites B to a party and B accepts the invitation. It does not create legal
relations. It is a social agreement.

b. C offers to sell his watch to B for Rs. 200 and B agrees. It is an agreement because
the parties intend to create legal relations.

c. At the time of divorce, the husband agreed to transfer the ownership of a house
to his wife. It was held that they intended to create legal relations so there was a
contract. (Merrit vs. Merrit)

3. Definite & Clear

 An offer must be definite and clear. If the terms of an offer are not clear, it is
not a valid offer. If such an offer is accepted, it does not create a contract. An
agreement to agree in the future is not a contract because the terms of the agreement
are not clear.

EXAMPLES
a. C has two motorcycles. C offers to sell one motorcycle to B for Rs. 25,000. lt is not
a valid offer because it is not clear which motorcycle C wants to sell.
b. X purchased a horse from Y and promised to buy another horse if the first one
proved lucky. X refused to buy the second horse. Y could not enforce the
agreement as its terms were not clear. (Taylor vs. Portington)

4. Invitation to Offer
An invitation to offer is not an offer. In an invitation to offer, the person does
not make an offer but only invites the other party to make an offer. The purpose of
an invitation to offer is to inform that the person is ready to deal with anybody
willing to deal with him. .
EXAMPLES
a. X displays goods for an auction sale. It is an invitation to offer. The offer will come
from the buyer in the form of a bid.
b. M invited applications for allotment of plots through advertisement. IJ got a plot.
IJ challenged the terms of the allotment letter on the basis that they were not
included in the advertisement. It was held that the advertisement was an
invitation to offer. (Ishrat Jabeen vs. Multan Development Authority)

5. Specific or General
 When an offer is made to a specific person or a particular group of persons, it
is called a specific offer. A specific offer can be accepted only by that specific person
or a particular group of persons.
When an offer is made to the general public, it is called a general offer. A
general offer may be accepted by any person who fulfills the conditions mentioned in
it.
EXAMPLES
a. M offers to sell his bicycle to N for Rs. 8,000. It is a specific offer. Only N can accept it.
b. B announces, through a newspaper, a reward of Rs.1,000 for anyone who returns his
lost watch. It is a general offer.
c. CSB Co. advertised to pay $100 to any person who got flu after using its medicine. C
used the medicine but got the flu. C sued for the reward. The company was held
liable. (Carlill vs. Carbolic Smoke Balls Co.)

6. Communication of Offer
An offer is valid when it is communicated to the offeree. If an offer is not
communicated to the offeree, it cannot be accepted. Acceptance of an offer without
having knowledge or such an offer is not a valid acceptance and does not create any
legal obligations.
EXAMPLE
S offered a reward for anyone who found his lost dog. F found the dog without
knowledge of the reward. It was held that F was not entitled to the reward. (Fitch
vs.Snedakar)
7. Negative Condition
An offer must not contain a negative condition. The offeror cannot include a
condition that if the offer is not accepted up to a certain date; the offer will be
 presumed to have been accepted. If the offeree does not reply, there is no contract
because an obligation to reply cannot be imposed on him.
EXAMPLE
C writes to B to sell his book. C adds a condition that if B does not reply within
5 days, the offer will be considered as accepted. It is not a valid offer.

8. Conditions of Offer
An offeror may include any condition in his offer. There is no contract unless all
conditions of the offer are accepted. If the offeror prescribes a specific manner of
acceptance, the offeree must adopt the same manner. If the offeree does not follow the
prescribed manner, the offeror may accept or reject the acceptance.

EXAMPLES
a. A asks B to send the reply to his offer by email but B sends the reply by letter.A may
reject the acceptance.
b. The government invited bids for Mazrani gas field project under certain conditions.
Petrosin gave the lowest bid. Petrosin's bid was rejected because it did not meet the
conditions. The rejection was held as legal. (Petrosin PTE Ltd.vs. Federation of
Pakistan)

9. Cross Offer
When two parties make similar offers to each other without having
knowledge of the other's offer, it is called a cross-offer. Cross offers do not make a
binding agreement.
EXAMPLE A writes to B to sell him 1 ton of iron for Rs. 1 Lac. On the same day, B writes
to A to buy 1 ton of iron for Rs. 1 Lac. It is a cross offer.
Revocation of Offer
An offer can be revoked or terminated in the following ways: [Sec.6]
1. Revocation by Offeror.
An offer can be revoked by sending a notice of revocation to the other party.
The offeror may revoke his offer at any time before the acceptance, even though the
period of acceptance of an offer has not yet expired.
EXAMPLE
C offers to sell his house to B and keeps the offer open for 5 days. C revokes
the offer before B's acceptance. The offer terminates.
2 Lapse of Time.
When an offer prescribes a time period within which it must be accepted, the
offer terminates if it is not accepted within that time period. If the offer does not
specify any time period, it terminates after the lapse of a reasonable time. The
reasonable time depends upon the circumstances of each case.
a. A offers to sell his car to B and asks him to reply within 5 days. If B does not reply
within 5 days, the offer terminates.
b. M offered to buy shares of a company R on 8th June. R allotted shares to M on 23rd
November. M refused to take delivery of shares. Held that offer had lapsed by
delay in acceptance. (R.V. Hotel Co. vs. Montefiore)
3. Failure to Fulfill Condition.
An offer may include a condition that must be fulfilled before the acceptance
of the offer. In such a case, the offer terminates if it is accepted without fulfilling the
condition.
EXAMPLE
a. C offers to sell his scooter to B for Rs. 50,000 if B gets admission to a medical
college. B fails to get admission. The offer is revoked.
b. C was the successful bidder for the purchase of DG Khan Cement shares.

Later, C objected to the terms of the agreement. The government rejected the bid, The
rejection was held as valid. (Calicon Pvt. Ltd. vs. Federal Govt.)

4. Death or Insanity of Offeror.

An offer terminates on death or insanity of the offeror, if the offeree comes to know
about his death or insanity before acceptance. If the offeree does not know about the
death or insanity of the offeror and gives acceptance, it is a valid acceptance. In such a
case, the legal representatives of the deceased offeror will be bound by the contract.

EXAMPLE
X asks D to give a loan to Y. X gives a guarantee for payment. X dies and D,
unaware of this fact, gives a loan to Y. Legal representatives of X are liable.

5. Revocation by Offeree
If an offeree rejects the offer and communicates the rejection to the offeror,
the offer terminates even though the period for acceptance of the offer has not yet
expired.
EXAMPLE
C offers to sell his cycle to B and keeps the offer open for 10 days. B rejects the
offer after 3 days. The offer terminates.
6. Counter Offer
When an offeree, instead of accepting the original offer, makes a fresh offer
to the offeror, it is called a counter offer. The original offer terminates when a
counter offer is made. The party making a counter offer cannot accept the original
offer.
 EXAMPLE
a. C offers to sell his house to B for Rs. 80 Lac. B makes a counter offer of Rs.75
Lac.The original offer terminates.
b. W offered to sell a farm to H for £1,000. H offered £950.W refused the offer.Later, H
offered £1,000. Held, there was no contract as H by offering £950had rejected the
original offer. (Hyde vs. Wrence)
7. Death or Insanity of Offeree
An offer can be accepted only by the offeree. It cannot be accepted by his legal
representatives upon his death. If the offeree dies or becomes insane before the
acceptance, the offer terminates.
EXAMPLE
X offers to sell his camera to Y. Y dies before acceptance. The offer terminates.
8. Subsequent illegality.
An offer terminates if it becomes illegal before the acceptance. An offer
terminates if it becomes illegal due to a change in the law before the acceptance by the
offeree.

EXAMPLE
C offers to sell 10 bags of rice to B for Rs. 20,000. Before its acceptance, the
government bans the sale of rice. The offer terminates.
9. Destruction of Subject Matter
An offer terminates if the subject matter of the offer is destroyed before its
acceptance by the offeree.
EXAMPLE
C offers to sell his horse to B. The horse dies before the acceptance of the offer
by B. The offer terminates.
10. Prescribed Manner
If the offeror prescribes a specific manner of acceptance, the offer terminates if
the offeree does not accept according to the same manner. If the offeror wants to reject
the acceptance, he must inform the offeree within a reasonable time otherwise he is
considered to have accepted the acceptance.
EXAMPLE
A offers to sell his car to B. A asks B to give acceptance by telephone. B sends
acceptance by letter. The offer terminates.
 ACCEPTANCE
Meaning and Definition
Section 2(b) defines acceptance as, "When the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise."
It means that when the person to whom the offer is made gives his consent, it
becomes a promise.

EXAMPLE
C offers to sell his house to B for Rs. 50 Lac. B accepts the offer. It is an
acceptance.
Essentials of Valid Acceptance
The following are rules or essentials of a valid acceptance:
1. Acceptance by Offeree
An offer can be accepted only by the person to whom it is made. The offer can
also be accepted by a person who is authorized to accept on behalf of the offeree.
When an offer is made to a particular group, it can be accepted by any member of the
group. If an offer is made to the general public, it can be accepted by any person who
has knowledge of the offer.
EXAMPLES
a. X offered to sell his house to Y. Y or his agent can accept the offer

b. A sold his business to B without informing his customers. J sent an order to A to buy
some goods. B received the order and supplied the goods. Held, there was no
contract because J did not make an offer to B. (Boulton vs. Jones)

2. Absolute and Unconditional

 In order to form a valid agreement, the acceptance must be/absolute and
unconditional. If the offeree imposes any condition in his acceptance, it is not a valid
acceptance but it becomes a counter offer.

EXAMPLES
a. C offers to sell his watch to B for Rs. 500. B replies that he can buy it for Rs.450. It is
not a valid acceptance.
b. M offered to sell land to N for £280. N accepted and sent £80 with a promise to pay
the balance in monthly installments of £50 each. Held, there was no contract as the
acceptance was conditional. (Neale vs. Merret)

3. Prescribed Manner
If the offeror prescribes a specific manner of acceptance, the offeree must
accept according to the same manner. If acceptance is not made according to the
prescribed manner, the offeror may reject it. If the offeror does not inform the offeree
about his rejection, he is considered to have accepted the acceptance. If no specific
manner is prescribed in the offer, then acceptance must be made in a reasonable
manner.

EXAMPLES
a. A makes an offer to B and asks him to accept the offer by telephone. B sends his
acceptance by post. It is not a valid acceptance.
b. A offered to buy flour from B and asked him to send acceptance by the person who
brought the order. B sent his acceptance by post. Held, A was not bound by the
acceptance.(Eliason vs. Henshaw)
4. Communication of Acceptance
The offeree must communicate the acceptance to the offeror. If the offeree
accepts the offer but does not inform the offeror about his acceptance, no contract is
formed. Mere intention to accept an offer is not a valid acceptance.
 EXAMPLES
a. A offers by letter to buy B's house. B expresses his intention to sell the house but does
not reply. B sells his house to C. The sale is valid.
b. B offered to supply coal to MR Co. The manager of MR Co. accepted the offer but
forgot to communicate to B. Held, there was no contract as B was not informed..
(Brodgen vs. Metropolitan Railway Co.)

5. Express or Implied
When an acceptance is made by words spoken or written, it is called an
express acceptance. When an acceptance is made by conduct or action, it is called an
implied acceptance. If an offer is made to the public, the contract arises when any
person accèpts it by words or conduct.

EXAMPLES
a. C offered, by letter, to sell his cycle to B for Rs. 8,000. B accepted his offer and sent a
letter of acceptance. It is an express acceptance.
b. In an auction sale when the bidder strikes a hammer on the table, there is an
implied acceptance.
c. SA sued SM on the grounds that he had agreed to sell land. SA produced a receipt of
Rs. 20,000 as proof. The court held that receipt was not an enforceable agreement.
(Syed Ahmad vs. Syed Muzaffar Hussain)

6. Acceptance Follows Offer

The offeree must be aware of the offer. The acceptance must be given after
receiving an offer. If acceptance is made without having knowledge of the offer, there
is no contract because acceptance cannot be made without an offer.

EXAMPLES
 a. C offers a reward to anyone who finds his lost bag. B, unaware of the offer, finds and
returns the bag. B cannot claim the reward.
b. A company allotted shares to a person who had not applied for them. Later, he
applied for the shares. The previous allotment was invalid.

7. Reasonable Time
If the offeror specifies a time period for the acceptance in his offer, the offeree
must give the acceptance within that time period. If no time period is specified, the
acceptance must be given within a reasonable time. The reasonable time depends upon
the circumstances of each case.

EXAMPLE
M applied for shares of a company in June but allotment was made in
November. M refused to take delivery of shares. It was held that M could refuse
because the offer had lapsed after the expiry of a reasonable time. (Ramsgate Victoria
Hotel Co. vs. Montefiore)

Communication of Offer, Acceptance and Revocation

When contracting parties are face to face with each other, there is immediate
communication of offer and acceptance. The moment the offeree gives his acceptance,
there is a valid agreement.

When parties are at a distance from each other, the services of a post office
are used to enter into a contract.

In this case, the following rules apply:

1. Communication of Offer
 Section 4 explains, "The communication of a proposal is complete when it comes
to the knowledge of the person to whom it is made."
When an offer is sent by post, its communication is complete when the letter
containing the offer comes to the knowledge of the offeree.
EXAMPLES
a. C offers, by letter, to sell a van to B for Rs. 5 Lac. The letter reaches B on 8th March.
The communication of the offer is complete on 8th March.
b. X offers, by letter, to sell a motorcycle to Y for Rs. 40,000. The letter never reaches Y.
The offer is not complete.
2. Communication of Acceptance
The 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 the power of the acceptor.
b. As against the acceptor, when it comes to the knowledge of the proposer.[Sec.4]

It means the communication of an acceptance is complete against the offeror

when the letter of acceptance is posted to the offeror, i.e. when the letter of acceptance
is out of control of the offeree. The communication of an acceptance is complete against
the offeree when the letter of acceptance comes to the knowledge of the offeror.

EXAMPLES
a. A offers, by letter, to sell a van to B for Rs. 5 Lac. The letter reaches B on 8th March. B
accepts the offer and posts a letter on 9th March. The letter reaches A on 11th
March. The communication of acceptance is complete:
i. Against A, when the letter is posted on 9th March.
ii. Against B, when the letter is received by A on 11th March.
b. AS submitted the highest bid for the lease of a property. M. accepted his bid but
acceptance was not communicated by mistake. AS sued for breach of contract. Held
that acceptance without communication is not binding. (Azeem Shad vs: Municipal
Committee Multan)
3. Communication of Revocation
A revocation means cancellation. There may be revocation of offer or
acceptance. The communication of revocation is complete:
a. Against the person who makes it, when it is put in 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.
b. Against the person to whom it is made, when it comes to his knowledge.[Sec.4]

It means the communication of revocation is complete against the person who

makes it when the letter of revocation is posted. The communication of revocation is
complete against the person to whom it is made when the letter of revocation comes
to his knowledge.

EXAMPLES
a. A revoked his offer by letter on 8th May. The letter reached B on 10th May.
b. The revocation is complete against A on 8th May when the letter is posted. The
revocation is complete against B on 10th May when the letter reaches him.

b. On 1st October, T offered by letter to sell goods to B. B received the offer on 11th
October and gave his acceptance. On 18th October, T wrote a letter to revoke his
offer. B received the letter on 20th October. Held, the contract was made on 11th
October and the revocation had no effect. (Byrne vs. Van Timehoven)

4. Time of Revocation
An offer may be revoked any time before the communication of its acceptance
is complete against the offeror, but not afterwards. An acceptance may be revoked
any time before the communication of the acceptance is complete against the offeree,
but not afterwards. [Sec.5]
EXAMPLES
a. C offers, by letter, to sell his book to B. C can revoke his offer before the letter of
acceptance is posted by B.
b. P made the highest bid to purchase steel pipes from ISP Ltd. but withdrew the bid
before acceptance. P sued for the recovery of advance money. Held,P was entitled
to withdraw its offer and recover the advance money.(Pakistan Steel Products vs.
Indus Steel Pipes Ltd.)

LOSS of Letter of Acceptance .

If the letter of acceptance is delayed or lost, the following is the effect:

1. Position of Offeror
When the letter of acceptance is posted, the offeror is bound by the
acceptance even if the letter of acceptance is delayed or lost. In order to bind the
offeror, the letter must be stamped, correctly addressed and properly posted.

2. Position of Acceptor
The acceptor is not bound by the letter of acceptance until it reaches the
offeror. Until the letter of acceptance reaches the offeror, the contract remains
voidable at the option of the acceptor.

3. Formation of Contract
When both the letter of acceptance and the letter of revocation of acceptance are
received at the same time by the offeror, the formation of a contract depends upon
chance. If the offeror first reads the letter of acceptance,a contract will arise. But if the
offeror first reads the letter of revocation,there will be no contract.

4. Contract over Telephone

In the case of a contract over telephone, there is immediate communication of
offer, acceptance and revocation. The rules which apply to a contract made when parties
are face to face with each other, also apply to a contract made over telephone. If the
acceptance is not communicated to the offeror due to a fault in the telephone, there will
be no contract.

The offeree must make sure that his acceptance is received, heard and
understood by the offeror otherwise there is no contract. In a contract over telephone,
the question of revocation does»not arise because an offer is made and accepted at the
same time.

QUESTIONS
1. Define offer. Explain the essentials of a valid offer.

2. Define acceptance. Explain the essentials of a valid acceptance.

3. Explain the rules relating to communication of offer, acceptance and revocation.

4. What are the different ways in which an offer terminates?

5. What is the effect of delay or loss of letter of acceptance?