MBA – II Semester – III

Legal Aspects of Business (LAB)

Prepared By : Vishal Goel

(099240 46460)

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Aspects of Business ( LAB )
 ACCEPTANCE

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Aspects of Business ( LAB )
 ACCEPTANCE
It is the act of assenting by the offeree to an offer.
It is the manifestation by the offeree of his willingness to be
bound by the terms of the offer.
An offer when accepted becomes a promise.

“ When the person to whom a proposal is made signifies

his assent thereto, the proposal is said to be accepted. A
proposal when accepted becomes a promise.” The person
making the proposal is called the Promisor and the person
accepting the proposal is called the Promisee. [Sec.2(c) ]

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Aspects of Business ( LAB )
 Mode of acceptance
• Express or Implied: When communicated by
words, spoken or written.
• Implied means when it is gathered from
surrounding circumstances or conduct of the
parties.
• EX-1 X says to Y, “ Will you purchase my car for Rs. 1,00,000?” Then Y says, “ I am
ready to purchase your car for Rs. 1,00,000.”
• Ex-2 At an auction sale, S is the highest bidder. The auctioneer accepts the offfer
by striking the hammer on the table. This is an implied acceptance.
• Ex-3 A widow promised to settle some immovable property on her niece if
stayed with her residence. The niece stayed with her in her residence till her
death. Held, the niece was entitled to the property.
• Ex-4 A transport company runs buses on different routes to carry passengers. X,
a passenger board the bus. X’s act is an implied acceptance by X and he is bound
to pay the fare.
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 Who can Accept
• In case of Specific Offer: Only by definite person or a
particular group of person to whom it is made.
• Ex-1: X sold his business to Y but this fact was not known to an old
customer Z. Z placed an order for certain goods to X by name. Y supplied
those goods to Z.Is there any contract between Y and Z?
• Ans: There was no contract between y and Z because Z never made any
offer to Y. [ Boulton v. Jones]
• In case of General offer: By any person having knowledge of
the offer by fulfilling the terms of the offer.
• Ex-1: A Company advertised that it would pay $ 100 to anyone who
contracts influenza after using the smoke balls of the company according
to the printed directions. Mrs. Carlil used the smoke balls according to the
printed directions bur subsequently she contracted influenza. She filed a
suit for the reward. Was she entitle to recover the reward?
• Ans: It was held that she was entitled to recover the reward because she
had accepted the offer by complying with the terms of the offer. [ Carlil v.
Carbolic Smoke Ball Company]
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Aspects of Business ( LAB )
 LEGAL RULES AS TO ACCEPTANCE
• It must be absolute and unqualified.
• It must be communicated to the offeror.
• It must be according to the mode prescribed or
usual and reasonable mode.
• It must be given within a reasonable time.
• It cannot precede an offer.
• Intention on the parts of acceptor to fulfill the
promise.
• It can not be implied from silence.
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 It must be absolute and unqualified .

Sec-7(1) “ In order to convert a proposal into promise, the

acceptance must be absolute and unqualified.”
An offer must be accepted without any reservation, variation or
condition
Ex-1: M offered to sell a piece of land to n at $ 280. N accepted
and enclosed $ 80 with a promise to pay by monthly installment
of $ 50 each. Is there any contract between them?
Ex-2: X offered to sell two plots of land to Y at a certain price. Y
accepted the offer for one plot. Was his acceptance valid?
Ex-3: A says to B, “ I offer to sell my car Rs. 50,000. B replies, “I will
purchase it for Rs. 45,000.” Is there any acceptance on the part of
B?
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Aspects of Business ( LAB )
 It must be communicated to the offeror.
The acceptance must be signified. ( Mere resolve or Mental
determination by offeree is not sufficient )
It is complete when communicated to the offeror.
Ex- X offered to supply coal to a railway Company. The manager of
the company accepted the offer and put in the drawer of his table
and forgot all about it. Is there any contract?
Ex-2: A tells b that he intends to marry C, but tells C nothing of his
intention. There is no contract, even if C is willing to marry A.
Ex-3: F offered to buy his nephew horse for $150 saying: “If I hear no
more about it I shall consider the horse is mine at $ 150.” The
nephew did not write to F at all, but he told his auctioneer who was
selling his horses not to that particular horse because it had been
sold to his uncle. The auctioneer inadvertently sold horse.
Has F right of action against the auctioneer ?
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Aspects of Business ( LAB )
 It must be according to the mode prescribed or
usual and reasonable mode.
• Ex-1 X of Agra send a letter by post to Y of Delhi
offering to sell his car for Rs. 1,00,00 and also writes
“ send your acceptance by telegram.” y sends his
acceptance by an ordinary letter. Is it a valid
acceptance?
• Ans: X can reject such acceptance on the ground
that it was not accepted in the prescribed manner.
• But if he does not inform y within reasonable time,
he shall be deemed to have accepted such
acceptance and a valid contract will be formed
between X and Y.
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Aspects of Business ( LAB )
 It must be given within a reasonable time.

• If any time limit is prescribed, acceptance must be

given within than time.
• If no time limit is there, acceptance must be within a
reasonable time- depends upon facts and
circumstances of the case.
• Ex-1: An offer to buy shares of a company was made
in June but the acceptance was communicated in
November, it was held that the offeror was not
bound by the acceptance because the acceptance
was not given within a reasonable time.
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 It cannot precede an offer.

• If the acceptance precedes an offer, it is not a valid

acceptance and does not result in a contract

• In a company shares were allotted to a person who

had not applied for them. Subsequently when he
applied for shares, he was unaware of the previous
allotment. The allotment of shares previous to the
applicant is invalid
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Aspects of Business ( LAB )
• Intention on the parts of acceptor
to fulfill the promise.

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 It can not be implied from silence.
• The acceptance can not be implied from the silence
of the Offeree or his failure to answer.
• Unless the Offeree has his previous conduct
indicated that his silence means that he accepts.

• Ex-1 A wrote to B, “ I offer you my car for Rs. 10,000.

If I don’t hear from you in seven days, I shall assume
that you accept.” b did not reply at all. There is no
contract.

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 By Whom
• Acceptance must be communicated by the Offeree himself
• or by the person who has authority to accept.

• Ex: P applied for the post of a headmaster in a school. The

managing committee passed a resolution approving P to the
post but this decision was not communicated to P. But one
member of the committee in his individual capacity and
without any authority informed P about the decision.
Subsequently, the managing committee cancelled its
resolution and appointed someone else. P filed a suite for
breach of contract. Was P liable to maintain his suite?

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 To Whom
Acceptance must be communicated to the
offerer himself.

Ex: F offered by a letter to buy his nephew horse for

$150 saying: “If I hear no more about it I shall consider
the horse is mine at $ 150.” The nephew did not write to
F at all, but he told his auctioneer who was selling his
horses not to that particular horse because it had been
sold to his uncle. The auctioneer inadvertently sold
horse.[ Felthouse v. Bindley]
Has F any right of action against thehis nephew?
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Aspects of Business ( LAB )
 Before Lapse of Offer
• Acceptance must be given before the offers
lapses or withdrawn.

• Ex: X offered by a letter to sell his car for Rs.

1,00,000.Subsequently X,withdrew his offer by a
telegram which was duly received by Y. After the
receipt of telegram, Y sent his acceptance to X.
• In this case, the acceptance is valid or not.
• Ans: Acceptance is not valid because it was made
after the effective offer has been withdrew.

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Aspects of Business ( LAB )
 Communication of Offer,
Acceptance And Revocation
1. Mode of Communication ( Sec. 3 )
2. When is communication complete ( Sec. 4 )
3. Time for revocation of offer and acceptance
( sec. 5)
4. Loss of letter of acceptance on postal transit
5. Contracts over telephone or telex or oral
communication

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Aspects of Business ( LAB )
 Communication of offer
X of Agra send offered to buy his nephew horse for $150 saying:
“If I hear no more about it I shall consider the horse is mine at $
150.” The nephew did not write to F at all, but he told his
auctioneer who was selling his horses not to that particular
horse because it had been sold to his uncle. The auctioneer
inadvertently sold horse.
Has F right of action against the auctioneer ?

A proposes by a letter to sell a house to B at a certain

price.the letter is posted on 10th July. It reaches B on 12th
July.
The communication of offer is complete when B
receives the letter i.e. 12th July.
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Aspects of Business ( LAB )
 Communication of Acceptances
As against the proposer- when it is put into 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.

In previous example by a letter sent by post on 13 th july

instant. The letter reaches A on 15th July. The
communication of the acceptance is complete as against
A when letter is posted ( 13th, as against B when the letter
is received by A on 15th
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• A letter by post to Y of Delhi offering to sell his car
for Rs. 2,00,000. The letter is posted on 1st January
and the letter reaches Y on 7th January. Y sends his
acceptance by post on 10th January but X receives
this letter of acceptance on 15th January.

• In this case the legal position relating to the

communication of offer and acceptance is………….?

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 When does an offer come to an end ?

• Revocation or lapse of offer.

1. By communication of notice of revocation
2. By lapse of time. [Sec. 6 (2) ]
3. By non-fulfillment by the Offeree of a condition
precedent to acceptance [ Sec. 6(3) ]
4. If a counter-offer is made.
5. If offer is not accepted according to the mode
prescribed.
6. If the law is changed.
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 By death or insanity of the offerer.

• An offer lapses by the death or insanity of the

offerer
• If the fact of his death or insanity comes to the
knowledge of the acceptor before he makes
his acceptance

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 By Failure to accept Condition Precedent
( Standard)

• Ex-: X offered to sell his car to Y for Rs.

1,00,000 subject to the condition that Y
should pay an advance of Rs. 20,000 before a
certain date. Y accepted the offer but did not
send an advance of Rs. 20,000. Is this a valid
Acceptance by Y?

• Ans: An offer has lapsed because the advance

was not paid.
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 Time limit within which offer can be revoked
• Sec-5: A proposal may be revoked at any time before the
communication of its acceptance is complete as against the
proposer, but not afterwards.

• Ex: X of Agra offers by a letter dated 1st January sent by post

to sell his car to y of Delhi for Rs. 1 lakhs. Y accepts the offer
on 7th January at 1 P.M by letter sent by post.\
• X may revoke his offer at any time before 1 p.m. on 7th
January. But not afterwards.

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 Time limit within which Acceptance can be
revoked
Sec-5: A acceptance may be revoked at any time before the
communication of its acceptance is complete as against the
acceptor, but not afterwards.
Ex: X of Agra offers by a letter dated 1st January sent by post to sell
his car to y of Delhi for Rs. 1 lakh. Y accepts the offer on 7th January at
1 P.M by letter sent by post.
X may revoke his offer at any time before 1 p.m. on 7th January. But
not afterwards
X receives the letter of acceptance on 15th January
at 3 p.m.
Y may revoke his acceptance at any time before 3
p.m on 15th January.
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Aspects of Business ( LAB )
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• By Subsequently illegally or Destruction of Subject Matter
of the Offer:

• Ex-1: X of Delhi offered supply of 100 tons of sugar to Y at

Mumbai on a certain date. Before this offer is accepted by
Y, the central Government issued an order prohibiting the
inter-state movement of sugar. Here, X’s offer has come to
an end.

• Ex-2: X of Delhi offered to sell his car to Y of Agra for Rs.

1,00,000. Before the offer is accepted by Y, the car is
destroyed by fire. Here X’s offer has come to an end.
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 Limitations of offer revoked
• At any time before its acceptance is complete.
• Revocation takes effect only when communicated
to the offeree.
• If offer is open for a certain period, offeror can
revoke it before the expiration of that period-
- if the offer has in the meantime not been
accepted.
-if there is no consideration for keeping the offer
open.
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 Practical Question and Answers

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• Q-1: X made an offer to buy shares of Y Ltd. On 10th
Jan. 1997 but the allotment was made on 10th July
1997. Is X bound by the acceptance?

• Q-2: X offered to sell two plots of land to Y at a

certain price. Y accepted the offer for one plot. Is
there a valid contract?

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• Q-3: X of Aligarh sends a letter by post to Y of Haryana to sell his car for Rs.1,00,000. This
letter is posted on 1st Jan. and reaches Y on 7th Jan.. Y sends his acceptance by post on
10th Jan. but X receives this letter of acceptance on 15th Jan. Answer each of the following
questions.
a. When the communication of acceptance of the offer complete?
b. When is the communication of acceptance complete as against the
offerer?
c. When is the communication of acceptance complete as against the
acceptor?
d. If Y sends a telegram on 8th Jan. revoking his offer, and this telegram
reaches Y before the letter of acceptance is posted. Is revocation of offer
is valid?
e. If Y sends a telegram on 14th Jan. revoking his acceptance and this
telegram reaches X before the letter of acceptance is received by X. Is
revocation of acceptance is valid?
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