Legal rules for Offer,

Acceptance and Consideration

LEB. Session 3 & 4
 Different types of Offer.
 The legal rules for a valid Offer, Acceptance and consideration.
 Agreements , which are valid, even though there is no consideration.
 Communication and revocation of Offer and Acceptance.
 KINDS OF OFFER
01 EXPRESS OFFER Offer by words spoken or written
02 IMPLIED OFFER Offer implied by behaviour of parties
Offer made to public at large. It may be accepted by
03 GENERAL OFFER
anyone.
04 SPECIFIC OFFER Offer made to a specific person OR a group of persons
The Offeree, instead of accepting or rejecting the offer,
05 COUNTER OFFER
makes a new offer.
Simultaneous, identical offers made by two persons to
06 CROSS OFFER each other, in ignorance of the offer made by the other
person.
An offer remaining open for acceptance for a definite
07 STANDING OFFER period of time is called standing, open or continuing
offer.
No Basis of INVITATION TO OFFER OFFER
Comparison
01 DEFINITION It is soliciting offer from When a person signifies his willingness
others to do or to abstain from doing
something, with a view to obtain
assent of another person for such act
or abstinence is called offer
02 DEFINED IN Not defined in the Indian It is defined in Sec 2(a) of The Indian
Contract Act 1872 Contract Act, 1872.
03 OBJECTIVE To get an offer To get acceptance
04 LEGAL NIL ARISE / PRESENT
CONSEQUENCES
05 TARGETTED TO A group of People / Public An individual / Group of individuals
06 EXAMPLE Tender, Advertisements, Expression of Willingness to act
Price tags on goods
 No Differentiating
Features CROSS OFFER COUNTER OFFER
01 Knowledge of Both the parties are not Both the parties are aware
Offer aware of the offers made by of offers made by each other
each other
02 Similarity of Normally both the offers are Both the offers are different
Offer similar
03 Existence of Both the offers remain in Original offer dies once the
Offers existence for acceptance by counter offer is made
the other party
04 Offer Status No new offer is created Counter offer amounts to
new offer
05 Acceptance Both the offers await the The counter alone requires
acceptance by the other party the acceptance
 LEGAL RULES FOR OFFER

THE OFFER …………..

1) Must be capable of being accepted and giving rise to legal relationship.
2) Must be certain, definite and not vague.
3) May be express or implied
4) Is different from invitation to offer.
5) May be General or Specific
6) Must be communicated
7) Must be made to obtain the consent of the offeree.
8) Should not contain terms stating that "the non-rejection / silence would
amount to acceptance.
 
 CARLILL VS CARBOLIC SMOKE BALL COMPANY

FACTS OF THE CASE

The defendant, the Carbolic Smoke Ball Company, placed an advertisement in a newspaper for their products, stating that any
person who purchased and used their product three times a day for two weeks but still contracted influenza despite properly
following the instructions would be entitled to a £100 reward.
The advert further stated that the company had demonstrated its sincerity by placing £1000 in a bank account to act as the
reward.
The claimant, Mrs Carlill, thus purchased some smoke balls and, despite proper use, contracted influenza and attempted to
claim the £100 reward from the defendants.
The defendants contended that they could not be bound by the advertisement as it was an invitation to offer rather than an
offer.
The company argued that the advertisement was mere ‘puff’ and lacking true intent as an offer could not be made ‘to the
world’.
The company also argued that ; a) the claimant had not technically provided acceptance, b) the wording of the advert was
insufficiently precise c) there was no consideration, as necessary for the creation of a binding contract in law.
ISSUE
Whether the advert in question constituted an offer or an invitation to treat.
HELD
The Court of Appeal found for the claimant, determining that the advert amounted to the offer for a unilateral contract by the
defendants. In completing the conditions stipulated by the advert, Mrs Carlill provided acceptance. The Court further found
that: the advert’s own claim to sincerity negated the company’s assertion of lacking intent; an offer could indeed be made to
the world; wording need only be reasonably clear to imply terms rather than entirely clear; and consideration was identifiable
in the use of the balls.
 LEGAL RULES AS TO ACCEPTANCE

THE ACCEPTANCE
1) Must be absolute and unqualified.
Offeree cannot accept some part of offer and reject some part. Similarly, offeree cannot suggest or
demand amendments; if he did, it would be counter offer.
2) Must be in the prescribed mode: If no particular mode is prescribed it must be in a reasonable mode.
3) Must be communicated to the offeror.
4) Must be given within reasonable time or within specified time limit.
5) Cannot precede an offer.
6) Must be made before the offer lapses or offer is withdrawn.
7) Can be made by the party to whom the offer is made.
8) Cannot be implied by silence
9) Shall be express or implied
10) Must show intention to fulfil the promise
11) May be given by performing some condition or by accepting some consideration
 LALMAN SHUKLA Vs GAURI DUTT
Acceptance cannot precede the Offer.

FACTS OF THE CASE

• The nephew of Mr. Gauri Dutt ( Defendant)was absconded from his house.
• Gauri Dutt sent his servants to find his nephew.
• All the servants were sent and were given travelling and other expenses.
• Lalman Shukla (The Plaintiff) who was also a servant was sent to Haridwar.
• There after, since the nephew was not found even after a considerable time, the defendant advertised a
reward of Rs. 501 to anyone who will find his nephew.
• Subsequently, the plaintiff found the boy in Rishikesh and brought him back to Cawnpore.
• The defendant awarded the servant with two sovereigns in Haridwar and Rs. 20 when he came back home.
• The servant continued his service and did not demand for any further payment.
• Later, after six months the servant was dismissed from his service.
• The plaintiff, then claimed the award less the amount paid to him, amounting to Rs 499 as per the public
advertisement for finding the nephew of the defendant.

ISSUES IN THE CASE

a) Whether the current situation amounts to contract?
b) Whether the claim of Rs. 499 be provided or not?
c) Whether the decision by the lower court was appropriate or not
 LALMAN SHUKLA Vs GAURI DUTT ( Continued)

DISCUSSION
• This is a leading case of general offer. Thus, it has played an important role in laying down the
principles related to general offer.
• In general offer, the contract is made with the person who having the knowledge of the offer comes
forward and acts according to the conditions of the offer.
• An offer of reward made by way of advertisement for finding lost articles is the most appropriate
example of general offer as seen in this case also.
• If a reward is offered for completing a certain task, only the person who completes the task can
accept the offer. Whereas, in the present case the offeror lacked acceptance and communication
and hence, not entitled to the reward in return.
• Lalman Shukla went in search of the boy in the capacity of a servant. He accepted the task and went
in search of the boy. Subsequently the general offer was made to the public. Acceptance can not
precede an offer. Hence the general offer is not applicable to Lalman Shukla.
JUDGEMENT:
The Allahabad High Court agreed to the given decision of the lower court. Therefore, it concluded
that acceptance is the essence to contract. This means that the contract did not occur and the
plaintiff cannot ask the reward as published in the advertisement.
 LEGAL RULES FOR CONSIDERATION

1) Consideration must move at the desire of the promisor:

The act constituting consideration must have been done at the desire or request of the promisor. If it is
done on the instance of a third party or without the desire of the promisor, it will not amount to
consideration.
2) Consideration may move from the promisee or any other party:
Consideration generally moves from the promisee, but it may also move from a third party, even a
stranger, i.e., it may move from a person, who is not a party to the contract. It means that there must be
consideration and it is immaterial who furnishes it. Thus, consideration must be offered by the
promisee or the third party on the desire of the promisor.
3) Consideration may be Past, Present, or Future:
4) Consideration need not be adequate:
• Consideration is something in return. This ‘something in return’ need not necessarily be equal in
value with “something given”.
• As per Explanation 2 of Sec. 25, an agreement to which the consent of the promise is freely
given, is not void merely because consideration is inadequate.
 LEGAL RULES FOR CONSIDERATION ( Continued….. )
5. Consideration must be real and not illusory:
The consideration, although need not be adequate, it must be real, competent and is of some value. Sentiments for making
a promise cannot bind the promise. It must also not be illegal or impossible or illusory or sham. The consideration may not
be real because of :-
a) Physical impossibility, or , b) Legal Impossibility, or, c) Uncertainty, or, d) Illusory consideration.
6. Consideration must be something which the promisor is not already bound to do
Performance of a pre-existing obligation is no consideration. However, the following are good considerations
to a contract:
•Forbearance to sue
•Compromise of disputed claims, and
7. Consideration must be lawful:
The consideration to a promise must be lawful. If the consideration is unlawful, the courts do not allow an action on the
contract. The consideration to an agreement is unlawful, if:-
It is forbidden by law; or
It is of such a nature that, if permitted, it would defeat the provisions of any law; or
It is fraudulent; or
It involves or implies injury to a person or property of another.
 Durga Prasad v Baldeo (1880)
Consideration must be given at the desire of the promisor.

FACTS OF THE CASE

• On the order of the collector of a town Durga Prasad built some shops on his own expense in a market.
• The shopkeepers who occupied these shops agreed to pay to Durga Prasad commission on their sales, as he
spent amount for construction of the market.
• Durga Prasad sued the shopkeepers when he did not receive the commission.
ISSUES INVOLVED
Is the consideration at the desire of the promiser?
Whether the contract is valid or not?
JUDGEMENT
• The ground for making of the promise is the expense incurred by the plaintiff in establishing the
Ganj(market).
• The promise was not supported by any consideration as the shops were built on the collector’s order and not
at the request of the shopkeepers.
• Anything done in that way was not ‘at the desire’ of the defendants so as to constitute consideration.
• The act was the result of not the promise but of the collector’s order.
• The contract is not valid and hence there could not be a recovery.
 Chinnaya v Ramayya (1882)
Consideration may move from the promisee or any other party
FACTS OF THE CASE
• An old lady, made an agreement with her daughter that she would gift her some landed property with the
condition that the daughter would pay her aunt some amount regularly as maintenance allowance.
• The daughter promised her aunt (mother’s sister), the maintenance money.
• She stopped paying the money to her aunt, after the death of her mother.
• The aunt filed a case against her niece for not paying the money.
ISSUES IN THE CASE
Whether the plaintiff can bring an action against the defendant for the amount promised in a contract where
the consideration for such promise has been furnished by the mother of the defendant (plaintiff’s sister)?
JUDGEMENT
The Madras High Court held that, in this agreement between the defendant and plaintiff the consideration
has been furnished on behalf of the plaintiff (sister) by her own sister (respondents mother).
Although the plaintiff was stranger to the consideration but she was a party to the contract. Hence she could
enforce the promise to the promisor, as per section 2(d) of Indian contact Act. As per these provisions,
consideration may move from the promise or anyone on her behalf.
 Chappell & Co Ltd vs Nestlé Co Ltd (1960)
Consideration need not be adequate

FACTS OF THE CASE

• Nestlé (The defendants) , contracted with a company manufacturing gramophone records to buy several
recordings of music., Chappell & Co (The plaintiff) , held the copyright in these recordings.
• The Copyright Act 1956, Section.8 allowed for the manufacture of records for retail sale provided that a royalty
of 6 ¼ percent was paid to the copyright holder
• Nestlé offered to sell these records at a discount price to anyone presenting three wrappers from their
chocolate bars. The Chappell & Co sought an injunction restraining the manufacture and sale of the records
because they breached copyright.
ISSUES INVOLVED:
Whether the wrappers were consideration for the sale of records or whether they were merely a qualification for
buying the records.
JUDGEMENT
• The House of Lords held that the wrappers did form part of the consideration for the sale of records despite the
fact that they had no intrinsic economic value in themselves.
• Nestlé’s contention that acquiring and delivering the wrappers was merely a condition which gave the
qualification to purchase and wasn’t part of the consideration doesn’t hold well.
• A valuable consideration may consist in some right, interest, profit or benefit accruing to the promisor or some
forbearance, detriment, loss or responsibility given, suffered, or undertaken by the promisee or any third party.
• Here the wrappers formed part of the consideration for they evidenced purchase of three chocolates
manufactured by Nestle and hence were of value to them.
 PRIVITY OF CONTRACT

Privity of contact is defined as follows.

“A party, who is a party to a contract, can only enforce his rights and obligations
under it”.
The common law doctrine of Privity of contract, states that,
“ a person can not be bound by or take advantage of Contract, to which he is
not a party.”
Third parties have no right of action, except under certain special
circumstances.
 Dunlop Pneumatic Tyre Co Ltd vs Selfridge Ltd (1915)
FACTS OF THE CASE
• Dunlop Pneumatic Tyre Co Ltd ( Dunlop) was a Tyre manufacturer who supplied Tyres to Dew & Company
(Dew) Distributer, upon a condition that , they should not sell the Tyres to the retailers below a
recommended retail price (RRP), and that when they intern sell Tyres to retailers, they should stipulate similar
conditions in their sale agreements.
• The Dew, sold Tyres to Selfridge limited (Selfridge) – a retailer, with a condition that they should not sell the
Tyres below the Recommended Retail Price, and in the event of failure to comply with this condition should
pay £5 per tyre as damages. Selfridge sold the tyres below the agreed price.
• Dunlop sued for damages and an injunction to prevent the Selfridge from continuing this activity.
• At the initial trial, the decision was given infavour of Dunlop. Selfridge appealed. The decision was reversed.
Dunlop appealed.
ISSUES IN THE CASE
• Selfridge argued that Dunlop could not enforce the contract as Dunlop was not part of the agreement between
Dew - the dealer and Selfridge. On this basis, the question for the court was whether Dunlop had the right to
access damages without a contractual relationship.
JUDGEMENT
• The court held in a unanimous decision that Dunlop could not claim for damages in the circumstances. The
court observed that: a) Party to a contract can only claim damages. b) Dunlop had not given any consideration
to Selfridge and therefore there could be no binding contract between the parties. c) Dunlop was not listed as
an agent within the contract and could therefore not be included as a valid third-party who had rights to claim
on the contract.
 STRANGER TO A CONTRACT
• It is a general rule of contract that, only the parties to a contract, can sue
and be sued on that contract.
• This rule is known as DOCTRINE OF PRIVITY OF A CONTRACT.
• Privity of contract is a concept stating that contracts should not give rights
or obligations to entities other than those who are parties to the contract
• The following are the exceptions to the above rule.
 Trust
 Family Settlement
 Assignment of a Contract
 Acknowledgement or Estoppel
 A covenant running with the land
 Contract through an agent
 EXCEPTIONS TO THE RULE:
NO CONSIDERATION NO CONTRACT
1. Love and affection
2. Completed Gifts
3. Charitable Subscription
4. Compensation for past Voluntary services
5. Bailment.
6. Agency
7. Guarantee
8. Promise to pay a Time barred Debt
9. Remission in the amount due
10. Contracts with seal
1) LOVE AND AFFECTION.
Agreement has to be in writing and registered under law. It should be out of natural love
and affection between parties standing in near relation to each other.
a) Venkata Swamy Vs. Ranga Swamy. Out of natural love and affection for his brother R, V
promises to discharge R’s debt to B through a registered agreement. V fails to discharge
the debt. R discharges it and sue V to recover the amount.
Held The agreement between Venkata Swamy and Ranga Swamy is valid as per Sec.25.
b) However, in Rajlukhy Dabee vs. Bhootnath, nearness of relation does not necessarily
mean natural love and affection. Husband promised to pay a fixed sum of money to wife
every month for her separate residence and maintenance through a registered
document –. The document referred to certain quarrels and disagreements between the
two.Held, no trace of love and affection between the parties whose quarrels had
compelled them to separate. Held. The agreement is void for want of consideration.
2) COMPLETED GIFTS.
Sec. 25 shall not affect the validity of any gift actually made. In order to attract this
exception, there is no need for natural love and affection or nearness of relationship
between the donor and done. The gift must, however, be complete.
3) CHARITABLE SUBSCRIPTION.
If a person undertakes a liability on the promise of another to contribute to charity, then the
contract is valid. In this case, the no consideration no contract rule does not apply.
A promise to contribute to charity, though gratuitous, would be enforceable, if on the faith of
the promised subscription, the promisee takes definite steps in furtherance of the object and
undertakes a liability, to the extent of liability incurred, not exceeding the promised amount of
subscription. In Kedar Nath vs Ghorie Mohammad, the defendant had agreed to subscribe Rs
100 towards the construction of a Town Hall at Howrah. The plaintiff (secretary of the Town Hall)
on the faith of the promise entrusted the work to a contractor and undertook liability to pay
him. The defendant was held liable .
4) COMPENSATION FOR PAST VOLUNTARY SERVICE:
A promise to wholly or partly compensate a person, who has already voluntarily done
something for promisor is enforceable
(a) A finds B’s purse and gives it to him. B promises to give A Rs 50. This is a contract.
(b) A supports B’s infant son. B promises to pay A’s expenses in so doing. This is a contract.
(Note that B was legally bound to support his infant son).
5) BAILMENT: No consideration is required to effect the contract of bailment as per Section
148 of ICA.
6) AGENCY.
No consideration is necessary to create an agency. Section 185 of the Contract Act lays down
that no consideration is necessary to create an agency
7) GUARANTEE:
As per section 127, Guarantee does not require any separate consideration.
127. Anything done, or any promise made, for the benefit of the principal debtor,
may be a sufficient consideration to the surety for giving the guarantee.
8) PROMISE TO PAY A TIME-BARRED DEBT.
The promise must be in writing. It shall be signed by the debtor or his agent. The promise may
be for payment of whole or part of the debt. The debt must have been recoverable but for the
law of limitation. It is not necessary that new promise should expressly mention the time-
barred debt.
In Debi Prasad Vs. Bhagwati Prasad, an acknowledgement of debt with a promise to pay with
interest. Held, agreement with promise to pay the time barred debt is valid within the meaning
of Sec.25.
9) REMISSION IN THE AMOUNT DUE:
According to Sec 63, a creditor can agree to give up a part of his claim and. there need be
no consideration for such an agreement.
10) CONTRACTS WITH SEAL: It is an irrebuttable presumption of consideration
 Communication of Offer and Acceptance ( Sec.4)

A) The communication of a PROPOSAL is complete when it comes to the knowledge of the

person to whom it is made

(B) The communication of an ACCEPTANCE is complete
(a) 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, and
(b) As against the acceptor;
• When it comes to the knowledge of the proposer”
EXAMPLE:
Mr, A writes to Mr. B offering to fix his roof forRs.5000/-. He posts the letter on 2nd July. The
letter reaches Mr. B on 4th July. Mr. B accepts the offer of Mr. A and posts the letter of
acceptance on 10th July. Such letter reaches Mr. A on 14th July.
• So, the communication of Proposal is said to complete on 4th July.
• The communication of acceptance is complete;
• As against the proposer ( From the angle of Mr. B ) on 10th July.
• As against the Acceptor ( From the angle of Mr. A) on 14th July.
 Revocation of Offer and Acceptance ( Sec.5)

(A) A proposal may be revoked, by the proposer, at any time before the
communication of its acceptance is complete as against the proposer, but
not afterwards.
(B) An acceptance may be revoked by the acceptor, at any time before the
communication of the acceptance is complete as against the acceptor, but
not afterwards.

EXAMPLE: 
The offer of Mr. A is received by Mr. B on 4th July. Mr. B accepts the offer and posts the
acceptance letter on 10th July. Such letter is received by Mr. A on 14th July.
• The communication of the acceptance is complete against Mr. B (Acceptor) 10th July. So, the
revocation of offer can only happen before the 10th of July, i.e. before Mr. B accepted the offer.
• The communication of the acceptance is complete against Mr. A (Proposer) on 14th July. So, till
that date, B can revoke his/her acceptance, but not after such date.
• So technically between 10th and 14th July, B can decide to revoke the acceptance.