PROPOSAL OR OFFER

Synopsis:
• General comments
• Invitation to treat
• Intention to create a legal relationship
• Communication of offer
• Cross offers
• General offers
• Standing, open or continuing offers

General
‘Proposal’ lies at the very root of the formation of a contract. A contract has been defined in
Section 2(h) of the Indian Contract Act as “every agreement enforceable by law is a contract.”
An agreement is ‘every promise and every set of promises, forming the consideration for each
other’. [ Section 2(e)]. A ‘promise’ has been defined in Section 2(b) 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. Proposal has been defined in Section 2(a) of the
ICA, 1872: “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.”

Important words in the above definition (their implications):

(1) ‘Person’ – It has to be a legal person (natural or juristic, including a corporation).
(2) ‘Willingness’ – It implies an intention (a voluntary one) to do or to abstain from doing
something.
(3) ‘With a view to obtaining the assent of that other’ – Intention to obtain the assent of
another person has to be there. If a person makes a statement without any intention to
obtain the assent of the other party thereto  not a valid proposal e.g. A makes a general
 statement in front of B that he intends to sell his radio. It won’t amount to a proposal
unless it is accompanied by an intention to obtain B’s assent thereto.
(4) The act to do which or to abstain from doing which the proposer signifies his willingness
has to coincide with the act to do which or to abstain from doing which the proposer
intends to obtain the assent of the proposee e.g. A signifies his willingness to sell a radio
to B but he intends to obtain B’s assent with respect to starting a business in dealing with
sale of radios  Not a valid proposal.
 ‘Proposal’ in the Indian Contract Act is synonymous with ‘offer’ in the English Law.

Intention to create a legal relationship

In order to form a valid agreement after acceptance, a proposal has to be made with an intention
to create a legal relationship. The test to judge the intention is an objective test and not a
subjective one; the intention at the time of making the proposal is what is material e.g. in an
agreement to go for a walk, to go to a movie etc. there is no intention to create a legal
relationship.

As in Appleson v. Littlewood Ltd. (1939), the parties may expressly mention that there is no
intention to create a legal relationship. In other cases, the intention has to be derived from the
nature of the agreement. Generally, in social engagements, such an intention is presumed to be
lacking.

Intention not to create a legal relationship was expressly mentioned in the contract in Rose and
Frank Co. v. Crompton and Brothers Ltd. (1925).

In the case of Balfour v. Balfour (1919), intention not to create legal relationship was found to
be implied. Therein, the defendant, a husband employed in Ceylon, had promised to send 30
pounds to his wife, the plaintiff till she was in England (on account of illness). The husband
failed to send the money and the wife sued for the same. Atkin, LJ delivered the judgment. He
held that the agreement in the case was not intended to create a legal relationship. There are
certain agreements which are not contracts in the legal sense viz. an agreement to go for a walk
etc. An agreement between a husband and a wife generally lacks such an intention (to create
legal relationships) as the parties (husband and wife) can be presumed not to have intended to be
attended by legal consequences.

Later on, the above rule (between husband and wife) was extended to other close relationships
e.g. parents and children, in the case of Jones v. Padavatton (1969). Therein, Mrs. Jones
persuaded her widowed daughter to leave her job at Washington and offered to pay her a
monthly allowance for the study in England. The daughter got admitted at the bar in 1962. In
1964, Mrs. Jones bought a house in England and rented a part of it, the other part being occupied
by the daughter. The rent was to go to the daughter as her allowance. Later on, on account of
some difference, Mrs. Jones sued her daughter for eviction. The daughter contended that on
account of her promise Mrs. Jones was legally bound to pay the allowance till she completed her
studies.

It was held that as the contract had not been reduced to writing nor the duration for which she
was to be maintained had been mentioned  No intention to create a legal relationship could be
implied.

However, there is nothing that prevents persons in close relationship from entering into a legal
relationship. In Merrit v. Merrit (1970) the husband and wife were joint owners of a house which
was subject to mortgage to a building society. Husband went to live with another woman and by
signing a note agreed to transfer the house property to wife if she cleared all outstanding amount
with respect to the house. Here, it was held that there was a clear intention to create a legal
relationship.

Similar was the case of Mc Gregor v. Mc Gregor (1888).

Conclusion – Thus, it is the intention (to be tested on the criterion of objectivity) that is material.
The intention can be inferred from a variety of facts. But generally in case of social relationships
(particularly close relationships), such intention is presumed to be lacking unless the contrary is
proved.

Tests
(1) Intention important To create legal relationship.
(2) Objective test  Facts to be seen.
 (3) Intention at the time of the agreement is important.

Offer must be communicated

As per Section 2(b) “a proposal, when accepted, becomes a promise.” Thus, acceptance of a
proposal is a must in order to constitute a promise. And in order to be accepted, a proposal must
be communicated. Section 2(b) uses the word ‘signifies’ with respect to the proposer. ‘Signifies’
means a communication by some mode of communication, for an offer can be accepted only
when it comes to the knowledge of the proposee. As per Section 4, “the communication of a
proposal is complete when it comes to the knowledge of the person to whom it is made.” E.g. A
proposes, by letter, to sell a house to B at certain price. The communication of the proposal is
complete when B receives the letter. In order to constitute a valid proposal, the communication
of the proposal must be complete against the proposee. Acting in ignorance of the offer does not
amount to the acceptance of the same. In Lalman Shukla v. Gauri Dutt (1913), the defendant’s
nephew absconded from home. The plaintiff was the servant of the defendant and was sent to
search the missing boy. Later on, the defendant issued handbills announcing a reward of Rs. 501
to anyone who might find out the boy. The plaintiff who was ignorant of the proposal (even
though it was a general proposal) found out the boy. He brought an action to claim the reward. It
was held that as he was ignorant of the proposal, the communication of the proposal had not been
completed and hence there was no question of a binding contract even if other conditions were
satisfied  His claim failed. Section 3, ICA, 1872 says that “the communication of
proposals.....are deemed to be made by any act or omission of the party proposing.....by which he
intends to communicate such proposal...... or which has the effect of communicating it.”

Thus, a mere intention to communicate is not sufficient. There has to be an external

manifestation of the same by way of some act or omission. And the intention of such act or
omission has to be communicate the proposal or the effect of such act or omission should be the
communication of the proposal e.g. A intends to sell his house but remains quiet. There is no
communication of proposal. He tells this to B. The communication is complete against B but not
C who is told about this by B unless A intended B to communicate it to C. If a person has the
knowledge of the offer (however, in the cases of specific offers the communication also should
have been there/this is not true with respect to general offers where a specific communication is
not required; rather a mere knowledge of the offers is sufficient), his acting in accordance with
the terms thereof amounts to the acceptance of the same. In such a case, it is immaterial that at
the time of accepting the offer the acceptor does not intend to claim the award mentioned in the
offer. In Williams v. Carwardine (1833), the plaintiff who knew that reward had been announced
to be given to anyone who gave information leading to the conviction of an assailant for murder,
gave the necessary information in order ‘to ease her conscience’ and not intending to claim the
reward. But later on she brought an action to claim the reward. It was held that since the
acceptance had been made with a knowledge of the offer, there was a valid contract and,
therefore, she was entitled to claim the reward.

Cross Offers
A contract can arise only if a party having the knowledge of an offer from the other party, has
accepted the same e.g. A, through a letter, offers to B to sell his radio to B for Rs. 500/-; B
receives the letter and validly accepts the offer. A valid contract results here (provided the other
conditions of Section 10 are satisfied). However, if A makes the offer through a letter on 1 st
January and B also makes the same offer on the same date, there will ensue no binding contract
as neither had the knowledge of the offer from the other party and as a result there was no valid
acceptance. Such offers are called cross offers.

In Tinn v. Hoffmann (1873), A wrote a letter to B indicating his willingness to sell 800 tons of
iron at 69 sq. per ton. On the same day, B wrote a letter to A offering to buy 800 tons of iron at
69 sq. per ton. The two letters crossed each other in post. Later on, B sued for specific
performance of contract. It was held that the two offers were only cross offers and there was no
binding contract.

A cross offer should be distinguished from a counter offer and a general offer. (discussed later).

It is also notable that to be a cross offer, it is not necessary that the two offers should have been
posted on the same date, one should have been posted before the communication of the first offer
was completed. (There can be changed terms also). Cross offers do not cancel each other.

Invitation to treat or Invitation to offer

Sometimes, owing to the nature of the business of some other factors, a person may not make an
offer but make some statement or give some information with a view to inviting offers on that
basis e.g. Government tenders, a catalogue of goods sent to a customer by a shopkeeper etc. Such
cases are an invitation to make an offer (to treat), e.g. A invites persons to an auction. This is an
invitation to treat. The bids made by the persons in the auction are an offer. This offer is accepted
only by the fall of the hammer (or in some other conventional mode). The auctioneer is not
bound to accept a bid. Similarly, a bidder can withdraw his bid (offer) before the fall of the
hammer. An auctioneer can even cancel the auction sale announced by him. In Harris v.
Nickerson (1873), the defendant advertised an auction sale and the plaintiff travelled a long
distance to the venue of auction. There he found that the auction had been cancelled. He brought
an action against the auctioneer to recover the travel expenses. It was held that advertisement of
the auction was a mere invitation to treat and its acceptance did not amount to a binding contract.
Thus, the defendant was not liable.

The law has been explained by Lord Goddard, CJ in Pharmaceutical Society of Great Britain v.
Boots Cash Chemists Ltd. (1952). Therein the defendants were having a business in retail sale of
drugs. Medicines were displayed on the shelves and their retail prices were also indicated under a
self-service system. The selected goods were to be taken to the cash counter when there was
placed a registered pharmacist who had been authorized to stop any customer removing any
drugs from the premises. The question was whether the display of the goods with their prices
amounted to an offer?

Lord Goddard, CJ observed that “it is a well-established principle that the mere exposure of
goods for sale by a shopkeeper indicates to the public that he is willing to treat but does not
amount to an offer to sell.... that principle (cannot) be completely reversed merely because there
is self-service scheme, such as this, in operation.” He further held that the display of goods was
an invitation to treat and the selection and taking to the counter, of the goods amounted to an
offer on the part of the customer. It is only when the shopkeeper accepted the offer (i.e. agreed to
sell) that the contract was complete. However, the shopkeeper was free to reject the offer, and
this view is reinforced by the presence of a registered pharmacist at the cash counter.

The reason given by the learned CJ was one of the ordinary principles of common sense and of
commerce. Strange consequences would flow if the above stated principle is negated – a
customer picks up a good and the property passes on to him, and the shopkeeper cannot refuse to
sell the good. On the other hand, a customer cannot keep the good back (even if it is defective)
and the shopkeeper would be successfully able to insist upon him to purchase the article. Both
the above consequences are undesirable.

In Harvey v. Facey (1893), the plaintiffs interested in purchasing a plot of land called Bumper
Hall Pen, owned by the defendants, sent a telegram to the defendant: “Will you sell us B.H.P.?
Telegraph the lowest cash price.” Reply of the defendant was: “Lowest price for B.H.P. is 900
pounds.” The plaintiff again sent a telegram: “We agree to buy B.H.P. for 900 pounds, asked by
you. Please send us your title deeds.”

The question was whether the telegram of the defendants amounted to an offer. The judicial
committee of the Privy Council held that the defendants had replied to only the second question
of the plaintiff’s first telegram. It amounted only to an invitation to treat, and the plaintiff’s
second telegram amounted only to an offer by the plaintiffs and not an acceptance to an offer.
For a binding contract there was needed a further acceptance of this offer by the defendants.

In Mac Pherson v. Appanna (AIR 1951 SC 184), the plaintiff offered to pay Rs. 6000 to the
defendant for his property. He again wrote to the defendant’s agent asking whether the earlier
offer had been accepted and also offering to pay a higher price if found reasonable. The agent
replied that the defendant would not accept anything less than Rs. 10000. The plaintiff wrote that
he was willing to pay Rs. 10000.

It was held that the agent’s letter only amounted to an invitation to treat and the defendant
needed to accept the ‘offer’ made by the plaintiff in the second letter in order to constitute a
binding contract.

In Badri Prasad v. State of Madhya Pradesh (AIR 1970 SC 76), the divisional forest officer
wrote to the plaintiff to communicate whether he agreed to pay a further sum of Rs.17000 for the
contract of big trees. The plaintiff replied that he agreed to pay provided that his earlier claim for
a refund of Rs.17000 was accepted. The Supreme Court held that, first, the divisional forest
officer’s letter was a mere invitation to treat and secondly, even if it were considered to be an
offer, the plaintiff’s acceptance was a conditional acceptance. Hence, there was no contract in
any case.
General Offers
A general offer is an offer to the public at large and anyone who performs the conditions of the
offer is deemed to have accepted the offer e.g. A makes an offer that he would reward any person
who finds his lost child. This is general offer. Anyone who finds the child is deemed to have
accepted the offer and there ensues a valid contract. There is no need to communicate the
acceptance of such an offer. The offeror can be informed after the conditions have been fulfilled.

As per Section 8, ICA, “Performance of the conditions of a proposal.....is an acceptance of the

proposal.” This section by implication talks of a general offer, for in specific offers,
communication of acceptance is a must. Though the offer is made to the public at large, the
contract is concluded only with the person or persons who act(s) upon the terms of the offer. In
Carlill v. Carbolic Smoke Ball Co. [(1893) 1 QB 256], the defendants had advertised in the
newspaper to reward any person a sum of 100 pounds, who contacted influenza or any other
disease due to cold after, having used ‘Smoke Balls’ of the Co. for the prescribed period. The
plaintiff has contacted influenza despite having used the smoke balls for the prescribed period.
She sued the Co. for the reward. The Co. claimed that there was no communication of the
acceptance of the offer. Lord Bowen LJ, observed that it was an offer to all the world, an offer to
become liable to anyone who, before it is retracted, perform the conditions. The contract is made
with that limited portion of the public who come forward and perform the condition on the faith
of the advertisement. Thus, it was held that the defendants were liable. However, a knowledge
of the general offer is a must. In Lalman Shukla v. Gauri Dutt [(1913) 11 All LJ 489], the
defendant sent his servant to search his lost nephew. Then, he advertised, through handbills, to
reward with Rs. 501, anyone who found the lost boy. The plaintiff, the servant, was successful in
finding the boy though he was ignorant of the offer. Later on, on knowing the offer, he sued the
defendants for the reward. It was held that as he was ignorant of the offer, his performance of the
condition did not amount to an acceptance, and hence there was no contract. The defendant was
not liable.

In Har Bhajan Lal v. Har Charan Lal (AIR 1925 All 539), it has been held that if the plaintiff
had the knowledge of the advertisement/announcement, and he finds out the lost son of the
defendant, he can successfully claim the reward.
In Williams v. Carwardine [(1833) 1 B & Ad. 621], the plaintiff knew that an award has been
announced to be given to any person who gives information leading to the conviction of an
assailant for murder. She gave an information which led to the conviction but then she said that
she did not intend to claim a reward. Later on, she changed her mind and sued for the reward. It
was held that she could successfully sue.

Standing/Open/Continuing Offer
An offer may be allowed to remain open for acceptance over a certain period of time. Such an
offer is a standing/open/continuing offer e.g. an offer to supply 1000 bales of cotton from 1.1.97
to 31.12.97 is an open offer. The contract is concluded only when an order is placed. If on 1.2.97
an order for 50 bales is placed, the contract is concluded only to that extent, the offer for the
remaining 950 bales can be revoked at any time before an order is placed.

Tenders for supply of goods are also open offers. Advertisements inviting tenders are only an
invitation to treat. Acceptance/approval of the tender constitutes a standing offer. As and when
an order is placed, it constitutes an acceptance of the offer  binding contracts.

In Union of India v. Maddala Thathiah (AIR 1966 SC 1724), the Dominion of India, as an
owner of railways, invited tenders for the supply of 14000 maunds of cane jaggery to the railway
grain shops. Tender of the plaintiffs was accepted in the form of a standing offer. In the tender
there was a stipulation that the plaintiffs/appellants could cancel the agreement as regards the
supplies of jaggery about which no formal order has been placed. This stipulation was held to be
a valid one. It was held that the appellants are bound only for such quantities for which specific
orders have been placed.

However, if there is a stipulation in the contract that the offeror cannot revoke even that part of
the offer for which an order has not been placed, then the contract becomes void. The reason for
this is that an offeror has the right to revoke his offer any time before acceptance.

ACCEPTANCE
Section 2(b) of Indian Contract Act
EFFECT/IMPORTANCE OF ACCEPTANCE

A contract is created only after an offer is accepted. Before the acceptance, neither party
is bound thereby. After the offer has been accepted it becomes a promise, which if other
conditions of a valid contract are satisfied, binds both the parties to the promise.

ESSENTIALS OF A VALID ACCEPTANCE

1) Acceptance should be communicated by the offeree to the offeror (Sections 3 and 4 of

Indian Contract Act).
2) Acceptance should be absolute and unqualified (Section 7 of Indian Contract Act).
3) Acceptance should be made in some usual and reasonable manner. (Section 7 of Indian
Contract Act).
4) Acceptance should be made while the offer is still subsisting.

1) COMMUNICATION OF PROPOSAL AND ACCEPTANCE

Section 2(b) of Indian Contract Act says that the proposal is accepted only when the
person to whom the proposal is made signifies his assent thereto (i.e. to the proposal),
which makes the proposal, deemed to be accepted.

Section 3 of Indian Contract Act says that the communication of proposal/acceptance of

proposals is deemed to be made by an act or omission of the party proposing, accepting or
revoking by which he intends to communicate or which has the effect of communicating it.
a) About Communication of Acceptance: - The principle is that there should be some
external manifestation (overt act) of acceptance. A mere mental determination to accept
unaccompanied by an external indication will not be sufficient. Such manifestation may
be in the form of express words (written or spoken) or may be signified through
conduct by which he intends to communicate such proposal/acceptance of
proposals/revocation of proposals or which has the effect of communicating it.
Section 4 of Indian Contract Act – Communication when Complete – the
communication of a proposal is complete when it comes to the knowledge of the
person to whom it is made.
 The communication of an acceptance is complete, -

As against the proposer, when it is put in a course of transmission to him so as to be

out of the power of the acceptor;

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

authorized agent.
b) Communication by the offeree to the offeror only: -
Acceptance must be communicated to the offeror himself. A communication to any
other person is as ineffectual as if no communication has been made.

Another point of importance is that the offeror cannot impose upon the offeree a duty
to reply and therefore an offeror cannot say that failure to reply will be deemed to be
the acceptance of the offer.
CASE LAW: Felthouse v. Bindley – The nephew, without having replied to the
uncle’s letter had asked his uncle to take away the horse and pay the price, the position
of the uncle would have been curious, for, while the uncle could hardly have denied the
promise, the nephew could always say at his convenience whether by not
communicating his acceptance he had accepted the offer or not. It if for this reason that
the law has in such cases always insisted upon an overt act (external manifestation) of
acceptance than a mere mental determination. In a case of this kind before Denning LJ
a clause in the contract provided that the contract would be binding only when the
other party put his signature upon it. Even so his Lordship held:

Signing without notification is not enough. It would be deplorable if it were. The

plaintiffs would be able to keep the form in their office unsigned, and then play fast
and loose as they pleased. The defendant would not know, whether or not there was a
contract..... Just as mental acceptance is not enough, nor is internal acceptance within
the plaintiff’s office.

c) Communication must be made by the offeree or his authorized agent: - (only offeree
can accept the offer) – This is a natural corollary to the above-mentioned principle. If
an unauthorized person makes the communication it does not result in a contract.
 CASE LAW: Powell v. Lee – There must be notice of acceptance from the
contracting party in some way. Information by an unauthorized agent is insufficient.
d) Communication of acceptance to a wrong person is no acceptance: - The offeror
becomes bound as soon as the letter of acceptance is posted to him. If the letter of
acceptance is posted at a wrong address or to a wrong person, that will not bind the
offeror.
CASE LAW: Karan Singh v. The Collector Chattarpur

The offeror however becomes bound immediately on the posting of the letter to him
and it makes no difference that the letter is delayed in transits or it is even lost in the
post and the offeror never receives it. A complete contract arises on the date when the
letter of acceptance is posted or in due course. The only condition is that the letter
should be correctly addressed.
CASE LAW:
1. Household Fire and Carriage Accident Insurance Co. v. Grant – Letter lost in
post/never received. Held that the offeror is bound by the contract.
The defendant in this case had applied for allotment of 100 shares in the plaintiff
company. A letter of allotment addressed to the defendant at his residence was
posted in due time, but it never reached the defendant. Nevertheless he was held
bound by the acceptance.
Thesiger LJ stated the rule thus: “An acceptance which only remains in the breast
of the acceptor without being actually and by legal implication communicated to
the offeror, is no binding acceptance.... But if the post be treated as the agent of
both parties, then as soon as letter of acceptance is delivered to the post office, the
contract is made as complete and final and absolutely binding as if the acceptor had
put his letter into the hands of a messenger sent by the offeror himself as his agent
to deliver the offer and to receive the acceptance..... The acceptor, in posting the
letter has “put it out of his control and done an extraneous act which clinches the
matter, and shows beyond all doubt that each side is bound. How, then, can a
casualty in the post office, whether resulting in delay, which in commercial
 transactions is often as bad as no delivery, or in non-delivery, unbind the parties or
unmake the contract?”
2. Dunlop v. Higgins – Due to the frosty weather the letter of acceptance was delayed.
Held that the offeror is bound by the contract.
3. Adams v. Lindsell – The acceptance was delayed. Held that the offeror is bound by
the contract.

In this case, on September 2, 1817, the defendants sent a letter offering to sell
quantity of wool to the plaintiffs. The letter added “receiving your answer in course
of post”. The letter reached the plaintiffs on September 9th. The defendants waited
for the acceptance up to September 8th and not having received it, sold the wool to
other parties on that date. They were sued for breach of the contract.

It was contended on their behalf that till the plaintiff’s answer was actually
received there could be no binding contract and, therefore, they were free to sell the
wool on 8th. But the court said:

“If that were so, no contract could ever be completed by the post. For if the
defendants were not bound by their offer when accepted by the plaintiffs till the
answer was received, then the plaintiffs ought not be bound till after they had
received the notification that the defendants had received their answer and assented
to it. And so it might go on ad infinitum (without end).”

The rule of postal communication stands differently from the Instantaneous communication
like Telex/Telephone where, the parties are deemed to be in each other’s presence or though
separated in space they are in direct communication e.g. by telephone.

No contract will arise until the offeror receives the notification of acceptance at his place.
CASE LAW:
i) Entores Limited v. Miles Far East Corporation – Telex – Denning J – The facts
of the case were that an offer was made from London by Telex to a party in
Holland and it was duly accepted through the Telex, the only question being as
to whether the contract was made in Holland or in England. The Court of
Appeal held that Telex is a method of instantaneous communication and “the
 rule about 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.”
ii) Bhagwandas Kedia v. Girdhair Lal – Telephone – In this case, the plaintiffs
made an offer from Ahmedabad to the defendants at Khamgaon to purchase
certain goods and the defendants accepted the offer. The question was whether
the conversation resulted in a contract at Khamgaon or at Ahmedabad. A
majority of the judges (Hidayatullah J, afterwards CJ, dissenting) preferred to
follow the English rule as laid down in the Entores case and saw no reason for
extending the post office rule to telephonic communications. Shah J (afterwards
CJ) felt that “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 offeror.”
But, he continued to say, that the draftsman of the Indian Contract Act could
not have envisaged use of telephone because it had not yet been invented and,
therefore, the words of the section should be confined to communications by
post.
Hidayatullah J (afterwards CJ) dissenting opinion was, on the other hand,
convinced that though “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.

2) ACCEPTANCE SHOULD BE ABSOLUTE AND UNQUALIFIED

 Acceptance lapses by rejection or Counter-offer. An acceptance with a variation is no
acceptance; A counter-proposal must be accepted by the original promisor before a
contract is made.
CASE LAW: Hyde v. Wrench
By conditional acceptance or Counter-offer the original offer is deemed to be rejected.
Once the original offer is destroyed by counter offer it is a dead offer and cannot be
accepted unless renewed.

In this case an offer to sell a farm for £ 1,000 was rejected by the plaintiff, who offered £
950 for it. This was turned down by the offeror and then the plaintiff agreed to pay £ 1,000.
The court held that the defendant was not bound by any such acceptances.

CASE LAW: Badri Pd. v. State of MP

Acceptance should be of the whole of the offer. The offeree cannot accept a part of its
terms, which are favorable 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.
However a counter proposal can be accepted on its terms and where a Counter proposal
is accepted, a contract arises in terms of the Counter-proposal and not in terms of the
original proposal.
A mere enquiry as to the terms of the offer does not mean a Counter offer.

II. PROVISIONAL ACCEPTANCE

An acceptance is sometimes made subject to final approval; a provisional acceptance of

this kind does not ordinarily bind either party until the final approval is given. Meanwhile,
the offeror is at liberty to cancel the offer. Any prohibition regarding cancellation is merely
a “nudum pactum”. When a provisional acceptance is subsequently confirmed, the fact
would be notified to the offeror for it is only then that he becomes finally bound.
CASE LAW:
1. Hardwar Singh v. Bagun Sumbrui – Confirmation of acceptance still in progress.
2. Bengal Coal Company v. Homi Wadia
 A tenderer can withdraw his tender before its final acceptance by a work or supply
order even if there is a clause in the tender restricting his right to withdraw. A tender
can however be irrevocable where the tender has some consideration attached to it or
promised not to withdraw it or where there is a statutory prohibition against the
withdrawal.

3. U.O.I. v. Maddala Thathiah – A clause is a tender authorizing the party inviting tenders
to terminate the contract at any time for the future supplies does not destroy the very
basis of the contract and the clause is valid.

3) MODE OF ACCEPTANCE
Usual/reasonable manner. 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.

CASE LAW: Elliasion v. Henshaw – A offered to B to send the acceptance by wagon, B

sent it by post thinking it would reach expeditiously, the post arrived after the time of the
wagon. A was held not bound by the acceptance.

4) WHILE OFFER SUBSISTING

Acceptance should be made while offer is subsisting and not when it has been
withdrawn/lapsed/rejected.

REVOCATION OF OFFER AND ACCEPTANCE Section 4 and 5 of Indian Contract Act

Section 4 – Communication when complete

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

The communication of an acceptance is complete, -

As against the proposor, when it is put in a course of transmission to him so as to be out
of the power of the acceptor;
 As against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete, -

As against the person who makes it, when it is put into a course of transmission to the
person to whom it is made, so as to be out of the power of the person who makes it; As
against the person to whom it is made, when it comes to his knowledge.

Illustrations
(a) A proposes, by letter, to sell a house to B at a certain price.
The communication of the proposal is complete when B receives the letter.

(b) B accepts A’s proposal by a letter sent by post. The communication of the acceptance is
complete,
As against A, when the letter is posted; As
against B, when the letter is received by A.

(c) A revokes his proposal by telegram.

The revocation is complete as against A when the telegram is posted.

It is complete as against B when B receives it.

B revokes his acceptance by telegram. B’s revocation is complete as against B when the
telegram is posted, and as against A when it reaches him.

Revocation
The Contract Act gives both proposer and acceptor the option of revoking their communication,
before a completed contract comes into existence. Thus, revocation is an option given to the
parties to stop the contract from coming into existence.

I. Revocation of Proposal
Section 6 lays down the circumstances when an offer lapses i.e. modes of revocation. A proposal
is revoked under the following circumstances:

(a) Notice of revocation

Section 5 provides that “a proposal may be revoked at any time before the communication of its
acceptance is complete as against proposer, but not afterwards”. As against the proposer, the
communication of acceptance is complete “when it is put in a course of transmission to him, so
as to be out of the power of acceptor” (Section 4). Thus, for the communication of revocation to
be effective, it must reach the acceptor before he mails his acceptance and makes it out of his
power. No question of revocation can possibly arise in case of a contract over telephone.

Illustration: A proposes by letter sent by post, to sell his house to B. B accepts the proposal by a
letter sent by post. A may revoke his proposal at any time before or at the moment when B posts
his letter of acceptance, but not afterwards.

In Henthorn v. Fraser (1892) 2 Ch 27, the court observed that a person who has made an offer
must be considered as continuously making it until he has brought to the knowledge of the
person to whom it was made that it is withdrawn. Where an offeror gives the offeree (acceptor)
an option to accept within a fixed period, he may withdraw it even before the expiry of that
period. In Alfred Schonlank v. M. Chetti (1892) 2 Mad LJ 57, the defendant left an offer to sell
certain goods at the plaintiff’s office allowing him 8 days’ time to give his answer. On the 4 th
day, however, the defendant revoked his proposal. The plaintiff accepted it on the 5 th day.
However, where the agreement to keep the offer open for a certain period of time is for some
consideration (even one pound), the offeror cannot cancel it before the expiry of that period.

Notice of revocation shall be deemed to have been served when it reaches the acceptor’s
address. In the Brimmes (1974) 3 All ER 88, a notice of revocation was sent by telex and was
received by the plaintiff’s telex machine during normal business hours, but the plaintiff read the
message the next day. He was, however, held bound by the notice when his machine received it.

Under the Indian law, it is necessary that the communication of revocation should be from the
offeror or from his duly authorised agent. However, under the English law, it is enough if the
acceptor knows reliably that the offer has been withdrawn. Thus, in Dickinson v. Dodds (1876) 2
Ch D 463, the plaintiff was informed by a third person that the property (about which an offer
was made) had already been sold to another. Held that a sale to a third person, which came to the
knowledge of the person to whom the offer made was an effectual withdrawal of the offer.
(b) Lapse of time
An offer lapses on the expiry of the time, if any, fixed for acceptance. However, it is enough if
the acceptor has ‘posted the acceptance before the stipulated time’, even if it reaches the offeror
after the stipulated date. Where no time for acceptance is prescribed, the offer has to be accepted
within a reasonable time. Where the subject matter of the contract is an article, like gold, the
price of which rapidly fluctuates in the market, very short period will be regarded as reasonable,
but not so in reference to land.

I By failure to fulfill a condition precedent

Where the offer is subject to a condition precedent, it lapses if it is accepted without fulfilling
the condition (e.g. deposit of earnest money).

(d) By death or insanity of offeror

An offer lapses on the death or insanity of the offeror, provided that the fact comes to the
knowledge of the offeree before he makes his acceptance. It means that if such fact has not come
to his knowledge while he accepts the offer, it is valid acceptance giving rise to contractual
obligations. The Act is silent about the effect of death of the offeree. As an offer can be accepted
only by an offeree, where he died before posting the letter of acceptance, the offer lapses.

II. Revocation of Acceptance

In India, unlike the English law, acceptance is generally revocable. Section 5 provides that ‘an
acceptance may be revoked at any time before the communication of the acceptance is complete
as against the acceptor, but not afterwards’. As against the acceptor, the communication is
complete when the acceptance comes to the knowledge of offeror i.e. when the letter of
acceptance reaches the offeror (Section 4). Thus, an acceptor may cancel his acceptance by a
speedier mode of communication, which will reach earlier than the acceptance itself.

Illustration: A proposes, by letter sent by post, to sell his house to B. B accepts the proposal by a
letter sent by post. B may revoke his acceptance at any time before or at the moment when the
letter communicating it reaches A, but not afterwards.
 Thus, if the letter of acceptance and the letter of revocation reach together, then also the
acceptance will be deemed to have been revoked. However, some authors are of the view that in
such a case, the formation of contract will depend on the fact that which of the two letters is
opened first; if letter of acceptance is opened first, the revocation is not possible, and, if letter of
revocation is opened first, revocation is valid. Thus such contracts

CONSIDERATION

Importance of Consideration
(a) Section 25 ICA: ‘an agreement without consideration is void.’
(b) Section 10 ICA: Enumerates essentials for a valid contract – includes consideration.
 Without consideration, an agreement cannot be there. For any contract to form, apart from
the other essential elements, one very important element is that the promise should be to
do something or to deliver something. This something is what is called the consideration.
Without the flow of the consideration, there cannot be an intention to create a legal
relationship which ripens into a contract.

Definition of Consideration
(a) Blackstone: Consideration is the recompense given by the party contracting to the other.
(b) Pollock: Consideration is the price for which the promise of the other is bought.
(c) Patterson: Consideration is something which is of some value in the eyes of law. It may be
some benefit to the plaintiff or some detriment to the defendant.
(d) Lush J. (in Currie v. Misa): A valuable consideration in the sense of law may consist either in
some right, interest, profit or benefit accruing to one party or some forbearance, detriment,
loss or responsibility given, suffered or undertaken by the other.
(e) Section 2(d) ICA: When at the desire of the promisor, the promisee or any other person has
done or abstained from doing, does or abstains from doing, promises to do or abstain from
doing something, such act, abstinence or promise is called a consideration for the promise.
Essentials of a valid consideration [as construed from Section 2(d)]
1. Consideration should be given at the desire of the promisor.
2. It should be given by the promisee or any other person.
3. Consideration may be past, present or future.
4. There should be some act or abstinence.