OFFER AND ACCEPTANCE CONTRACT LAW NOTES
QUESTION: Discuss rules regarding offer, acceptance and revocation with examples?
ANSWER:
RULES REGARDING OFFER
Offer or proposal must be capable of creating legal relationship
If the offer does not intend to give rise to the legal consequences, it is not a valid offer in the eyes of the law. The social offers or social engagements does not become a valid contract.
CASE: BALFOUR VS. BALFOUR
A husband was serving in the Ceylon. He promised orally to his wife, who was living in England, to pay an allowance of $30 per month to her. The husband did not pay the money and the wife filed suit against the husband. It was held that the agreement between them was just a family arrangement and they never intend to create legal relationship.
Offer or proposal must be definite and certain
An offer must be definite and certain. An indefinite or vague offer cannot be accepted as the courts in such cases cannot tell what the parties are to do. The intention of the party must be very clear as to what they intend to do.
CASE: TAYLOR VS. PORTINGTON
A agreed to take 2 houses on rent for 3 years at the rent of $85 per annum provided the house was put into thorough repair and the drawing rooms were decorated according to the “Present Style”.
“Present Style” is a vague term as this term would have different meanings to different parties.
Thus, the agreement was declared void as the terms of offer were vague and uncertain.
An offer or a proposal must be communicated to the offeree
An offer must be communicated to the person to whom the same is addressed. Communication of offer is important to conclude an agreement because acceptance can be given only if one knows about the offer. This rule applies to both ‘specific’ and ‘general’ offer.
An offer made to a definite person or body of persons is called specific offer. It must be accepted by that specific person or party only.
The offer made to the public as a whole is called general offer. It can be accepted by anyone from the public.
Section 4 of the Indian Contract Act, 1872 states that communication of an object is complete when it comes to the knowledge of the person to whom it is made.
CASE: LALMAN SHUKLA VS. GAURI DUTT
The nephew of the defendant Gauri was missing. He sent his servant Lalman to find him out. After the servant had left, he announced a reward of ₹51 for anybody who would trace his nephew. The plaintiff traced the nephew before having knowledge of the reward announced by the defendant. Subsequently, the plaintiff claimed the reward when he came to know about it.
Held that plantiff could not recover the reward as the offer containing the reward was not communicated to him.
Offer or proposal must be made with a view to obtaining the assent of the other party
The offer must be made with an intention to obtain the assent of the other party. The offer made as a prank or a joke is not a valid offer and therefore if accepted, it cannot amount to a valid contract.
EXAMPLE
If B jokingly offers M to sell his scooter at ₹10 and M knowing that B is not serious, accepts the offer, such acceptance does not hold any value as the offer made jokingly is not valid.
An offer or a proposal may be conditional
An offer can be made subject to the condition. In that, it can be accepted only subject to that condition. If the conditions are clearly expressed or written and these have been made known to the offeree, then he is bound to fulfill these conditions. Conditional offer lapses when the conditions are not fulfilled.
CASE: THOMPSON V. L M. AND S. RAILWAY 1930
T, who could not read, took an excursion ticket on the railway. On the front of the ticket was printed “for conditions see back’. One of the conditions was that the railway company would not be liable for personal injuries to the passengers. T was injured by a railway accident. Held T was bound by the conditions and could not recover any damages.
An offer or a proposal should not contain such term the non compliance of which would amount to acceptance.
The offeror cannot say that if the offeree does not communicate acceptance by a certain time, the offer would have been deemed to be accepted. The burden of the communication of rejection of offer cannot be imposed on the offeree. if offeree sent no reply, there is no contract.
EXAMPLE
A writes to B “I offer to sell my house for ₹ 40,000. If I do not receive a reply by Monday next, I shall assume that you have accepted the offer”. There will be no contract if B does not reply.
An offer or a proposal must be distinguished from declaration of intention
A mere statement of intention is only an intention to give an offer. It only states that offer will be made in future. The acceptance of statement of intention does not constitute a contract. Whether a particular statement is offer or mere a statement of intention depends upon the circumstances of the case.
CASE: FARINA VS. FICKUS
A father brought to his would-be son-in-law that his daughter would have a share of what he would leave, after the death of his wife. It was held that letter contains a statement of intention only.
An invitation to offer is not an offer
An offer must be distinguished from “Invitation to an Offer.” The offer should express his willingness to do or abstain from doing something. But where a party proposes certain terms on which he is willing to negotiate, he is not making an offer but only inviting others to make an offer on those terms.
Offer or proposal may be expressed or implied
The offeror can make an offer through words or even by his conduct.
An offer made by words spoken or written is called Express offer.
EXAMPLE
X offers to sell his house to buy through a letter it is an Express offer
When a person makes an offer through his conduct, it is known as Implied offer.
EXAMPLE
Where a person goes to doctor for treatment, his conduct implies an offer that if the treatment is given, the offeree will pay the usual charges.
Lapse of an offer or proposal
An offer can be lapsed if
- Offeree dies before acceptance.
- It is not accepted within time specified.
- Offeree does not make the valid acceptance.
- There is lapse by revocation.
Two identical cross offers do not make a contract
Where two parties make identical offers to each other, in ignorance of each other’s offer, the offers are known as cross offers. Cross offers do not constitute acceptance of one’s offer by the others and as such there is no completed agreement.
EXAMPLE
H wrote to T offering to sell him 800 tons of iron at ₹ 69 per ton. On the same day T wrote to H offering to buy 800 tons at ₹ 69. Their letters crossed in the post. T contended that there was a good contract. Held there was no contract. As it was a cross offer.
RULES REGARDING ACCEPTANCE
1. ACCEPTANCE MUST BE ABSOLUTE AND UNCONDITIONAL
Acceptance must be unconditional and absolute. There cannot be conditional acceptance that would amount to counter offer which nullifies the original offer. Even a minor or a material change in the terms of the offer vitiates the acceptance. An offer can be converted into promise if it is accepted unconditionally.
CASE: JORDAN V. NORTON
The Norton offered to buy Jordan’s mare if he guaranteed that the mare was ‘quite in harness.’ The Jordan wrote to the Norton that the mare was ‘quite in double harness.’ Held it was not acceptance.
2. ACCEPTANCE MUST BE COMMUNICATED TO THE OFFEROR
A proposal becomes a contract when the acceptance of such proposal is communicated to the promisor. The communication of acceptance must occur in the prescribed form or any such form in the normal course of the business if no specific form has been prescribed. Additionally, the offeree must also be known about the offer before conveying his acceptance. It implies that the offeree cannot communicate acceptance without the knowledge of the offer.
An acceptance can be communicated in any of the following modes by:
- Words Spoken
- Words Written
- Conduct
- Performance Of Conditions
- Acceptance Of Contribution
CASE: BRODGEN VS. METROPOLITAN RAILWAY COMPANY
The manager of the company received a draught agreement concerning the supply of the coal. The manager wrote the word ‘approved’ and put the agreement in his drawer and forget all about it. It was held that there was no contract as another party was not communicated about acceptance.
3. ACCEPTANCE MUST BE ACCORDING TO THE PRESCRIBED MODE
It is the legal rule of the acceptance that it must be accepted in the prescribed manner. If the offer is not accepted in the prescribed manner then the offeror has every right to reject the acceptance within reasonable time.
As per section 7 (2) of Indian Contract Act, 1872
“If the acceptance is not made in the manner describe 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”.
EXAMPLE
X offers to sell 500 quintals of wheat for ₹ 400 per quintal to Y. He required Y to send his acceptance by post. Y telephones to X accepting the offer. X may insist that acceptance should be sent by post. In such a case telephone conversation would not create a contract.
4. ACCEPTANCE MUST FOLLOW THE CONTRACT OFFER
Acceptance follows offer. If the acceptor is not aware of the existence of the offer and conveys his acceptance, no contract come into being. There must be knowledge of the offer before anyone could consent to it. An act done in ignorance of the offer cannot be called an acceptance.
CASE: LALMAN VERSUS SHUKLA VS GAURI DUTT
The nephew of the defendant Gauri was missing. He sent his servant Lalman to find him out. After the servant had left, he announced a reward of ₹51 for anybody who would trace his nephew. The plaintiff traced the nephew before having knowledge of the reward announced by the defendant. Subsequently, the plaintiff claimed the reward when he came to know about it.
Held that plantiff could not recover the reward as the offer containing the reward was not communicated to him.
5. ACCEPTANCE MUST BE MADE WITHIN A REASONABLE TIME
Sometimes the time limit is fixed within which the acceptance is to be given. In such a case the acceptance must be given within the fixed time limit. In case no time limit is prescribed the acceptance should be given within a reasonable time.
CASE: RAMSGATE VICTORIA HOTEL COMPANY LIMITED VS. MONTEFLORE
M applied for shares in RV hotel company limited on 8 June. The company did not write to him allotting the shares until 3rd November. When he was informed that shares were allotted to him, he refused to accept the shares which led to dispute. It was held that day he was not bound to accept the shares as the acceptance to the offer has not been made within a reasonable time.
6. ACCEPTANCE MAY BE EXPRESSED OR IMPLIED
An acceptance which is expressed by written or spoken words is called expressed acceptance.
EXAMPLE
If Ravi residing at Jaipur offers to sell his car to Suri residing at Delhi by writing a letter and Suri accepts the offer by writing a letter, the acceptance is said to be expressed.
The acceptance which is expressed by the conduct of the offeree is known as implied acceptance.
EXAMPLE
At an auction sale of car, Mahesh is the highest bidder. The auctioneer accepts the bid by striking the hammer on the table. It is an implied acceptance. Here the auctioneer conduct of striking the hammer on the table shows that the auctioneer has accepted the highest bid.
7. SILENCE CANNOT AMOUNT TO ACCEPTANCE
No contract is formed if the offeree remain silent and does nothing to show that he has accepted the offer.
Generally speaking the person to whom the proposal is made need not reply. His silence cannot be regarded as an acceptance of the proposal. Proposal made to another cannot ripen into an agreement merely because the offeree makes no reply even though the proposal states that silence will be taken to amount to acceptance. So, mental acceptance is no acceptance.
CASE: BROGDON VS. METROPOLITAN RAILWAY COMPANY
A draft agreement relating to the supply of coal was sent to the manager of a railway company for his acceptance. The manager wrote the word ‘approved’ on the agreement but by an oversight the document remained in his drawer. Held there was no contract as it was only mentally accepted and there was no expression of his mental determination.
8.ACCEPTANCE MUST BE GIVEN BEFORE LAPSE OF AN OFFER
A valid contract can arise only when the acceptance is made before the offer has lapsed or being withdrawn. An acceptance which is made after the withdrawal of the offer is invalid and does not create any legal relationship.
EXAMPLE
Amar offered by a letter to sell his horse to Akbar for rupees 2500. Subsequently, Amar withdraw his offer by a telegram which was also received by the Akbar. After reciept of this telegram, Akbar accepted the offer by a letter and posted the same. In this case, the acceptance is invalid as it was made after the effective withdrawal of the offer.
9. IT MAY BE GIVEN BY PERFORMING CONDITIONS OR RECEIVING CONSIDERATION
An offer may be accepted by performing an act which is a condition in the proposal or it may be that the consideration is received for a reciprocal promise which may be offered with the proposal.
CASE: V RAO VS. A RAO
The lady invited her niece to stay with her in the same house and promised her to settle on her an immovable property. The niece stayed with her till the time of her death. It was held that niece had performed the condition of staying with the lady so she was entitled to the property.
10. ACCEPTANCE MUST BE MADE BY THE PERSON TO WHOM THE PROPOSAL IS MADE
Acceptance can only be given by the person to whom the offer is made. In case of specific offer, the acceptance must be made by the person to whom the offer is made. While in case of general offer, it may be accepted by anyone.
REVOCATION OF OFFER AND ACCEPTANCE
The Indian Contract Act lays out the rules of revocation of an offer and acceptance in Section 5.
It says the offer may be revoked anytime before the communication of the acceptance is complete against the proposer/offeror. Once the acceptance is communicated to the proposer, revocation of the offer is now not possible.
ACCORDING TO SECTION 5 OF THE CONTRACT ACT
“A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.”
Hence, an offer can be revoked at any time before the letter of acceptance has been posted.
For example, A offers by letter to sell his car to B at a certain price. A may revoke his offer at any time before B posts his letter of acceptance, but not afterwards. Once the letter of acceptance has been posted, the offer cannot be revoked. Therefore, when the offeror wishes to revoke his offer, he must do so by a speedier mode of communication so that the revocation notice reaches the offeree before he posts his letter of acceptance.
Revocation must always be expressed and move from the offeror himself or a duly authorized agent. Notice of revocation of a ‘general offer’ must be given through the same channel by which the original offer was made.
CONSTITUENTS OF REVOCATION OF OFFER
The main criteria for a binding revocation are that it’s communicated to the offeree before they accept the offer.
Communication of revocation can be direct or indirect and can be made by a third party. If the communication is indirect, it must meet several requirements. It needs to be:
- Correct
- Communicated by a reliable source
- Able to be understood by a “reasonable person”
Selling an item to someone else is considered a legal revocation so long as the original offeree is notified of the sale before they accept the offer.
Offers made through a publication are something of a special case. These offers can be revoked by a notice in that publication without specifically contacting the offeree.
COMMUNICATION OF REVOCATION
The communication of revocation is complete at different times for the person who 4 makes it and the person to whom it is made.
ACCORDING TO SECTION 4 OF INDIAN CONTRACT ACT
“The communication of revocation is complete.
- As against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power/ of the person who make it.
- ii) As against the person to whom it is made, when it comes to his knowledge.”
Example: A proposes by letter to sell his house to B at a certain price. B accepts the proposal by a letter sent by post. If A revokes his offer by telegram, then revocation of offer is complete as against A, when the telegram is sent and for B it is complete when B receives the telegram. If B revokes his acceptance by telegram the revocation of acceptance is complete for B when the telegram is sent and as against A, when it reaches him.
MODES OF REVOCATION OF OFFER
The following are the various modes of revocation of offer:
Revocation by Communication
Revocation can be both, expressed or implied. It can be either orally expressed
or expressed in writing. EXAMPLE: Mr.
A. wishes to sell his gold chain to Mr. K. The former offers to sell the same
to the latter. Mr. K is still contemplating what to do and has not accepted the
offer yet. Meanwhile, Mr. A revokes the offer, as he does not wish to sell his
chain anymore. This is considered as a proper, legal and accepted revocation.
Revocation by Expiry/Lapse of
Time
At times, the offer extended has a time limit. In case it remains unaccepted,
the offer expires or lapses. Any formal acceptance made after this mentioned
date does not create a contract as the offer is not open anymore.
EXAMPLE: Angel Holidays had made an offer to the public that any holiday packages booked with them before the 31st of May will be entitled to a 25% discount. So this implies that the offer is time-bound and shall expire after the aforementioned date. In case a person accepts the same on or after 1st of June would do so as it has lapsed.
Revocation by Failure to
Fulfill a Condition Precedent
There could be an offer made by a proposer but it may be subject to certain
conditions.
EXAMPLE: M/s AYB Associates had a job opening for an accountant. They wanted a person who was certified by the Chartered Accounts’ Association. They interviewed several candidates and like Arin. Arin too was keen on working with them and accepted the job offer. But at the time of joining, he was asked to submit the original certificate of his diploma from the Chartered Accounts’ Association. He could not submit the same. So M/s AYB Associates revoked the job offer and the condition precedent could not be fulfilled.
Revocation by Death/Insanity of
Proposer
Offers are automatically revoked if the proposer has passed away or has
officially been declared insane. If the person has passed away, it is
understood that a contract cannot be created. If he/she is declared insane then
he/she is not competent to contract. Hence, if there is any offer made by a
party who either dies or is declared insane after the offer is made, by default
it is revoked
EXAMPLE: Tyson made an offer to sell his house to Lytus. Unfortunately, Tyson passed away and hence his offer stands revoked.
Revocation by Unqualified
Acceptance
In case there is some offer made and the acceptor accepts it subject to his/her
own conditions, the offer stands revoked, as the acceptance is not clear,
absolute and qualified.
EXAMPLE: Abraham offered to sell his bike to Araz. Abraham wanted a cheque for the full amount. Araz accepted to buy and was OK with the price as well but was adamant that he will pay partly by cheque and partly by cash. Abraham has every right to revoke the offer.
WHEN OFFERS ARE CONSIDERED IRREVOCABLE/ EXCEPTION OF REVOCATION
Offers are considered irrevocable under the following conditions:
- If it is stated that the offer shall be kept open as part of consideration.
- If the offeree relied on the offer being open to their detriment/ option.
- If the contract is unilateral, has been partially completed or is underway and the offeree is still in compliance with the terms.
- Signed offers with firm terms that guarantee a party will buy or sell goods that include an assurance that the offer must be held open, even if no consideration is present.
- If a stated period is provided, the offer is irrevocable for the lesser of that period or three months time.
REVOCATION OF ACCEPTANCE
Section 5 of the Indian Contract Act, 1872
“An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.”
Hence, the acceptor can revoke his acceptance at any time before his letter accepting the offer reaches the offeror. Once the letter acceptance reaches the offeror, the acceptance cannot be revoked. Thus, for effective revocation of acceptance it is necessary that the acceptor should adopt some speedier mode of communication so that his revocation reaches the offeror before the letter of acceptance.
For example, A offers by a letter dated February 2, sent by post, to sell his house to B at a certain price. B accepts the offer on February 6 by a letter sent by post. The letter reaches A on February 8 at 2 p.m. Here B may revoke his acceptance at any time before 2 p.m. on February 8, but not afterwards.
Sometimes, an interesting situation may arise. The letter of acceptance and the telegram containing revocation of acceptance may be delivered to the offeror at the same time. In such a situation the formation of a contract is a matter of chance. Which one is opened first by the offeror will decide the issue. Generally it is presumed that a man of ordinary prudence will first read the telegram. Hence, the revocation will be quite effective. When the parties at distant places communicate over telephone or telex, the question of revocation does not arise because there is instantaneous communication of the offer and its acceptance. The offer is made and accepted at the same time. In brief you should remember that an offer can be revoked at any time before the letter of acceptance’ is posted and an acceptance can be revoked before it reaches the offeror.
Section 5 also states that acceptance can be revoked until the communication of the acceptance is completed against the acceptor. No revocation of acceptance can happen after such date.
