Law of Contract- I

Class 3
What is a contract?
• Courts under common law will look for an offer or a proposal, a
consideration and an acceptance of the offer while determining the
existence of a contract.
• The Indian Contract Act on the other hand sets out clear guidelines
over what can be termed as a contract.
• Section 2 (h) of the Indian Contract Act defines a contract as an
agreement that is enforceable by law.
• Section 2 (e) defines an agreement as a promise or a set of promises
forming a consideration.
Elements of a Contract
• Agreements are contracts according to Section 10 if the they fulfil the following criteria:
• There is a consideration or a reason for the contracted act
• The parties are competent to contract
• Both parties freely consent to the contract
• The object of the contract is lawful.

• Section 10 states
“All agreements are contracts if they are made by the free consent of parties competent to
contract, for a lawful consideration and with a lawful object, and are not hereby expressly
declared to be void.
Nothing herein contained shall affect any law in force in British India, and not hereby
expressly repealed, by which any contract is required to be made in writing or in the
presence of witnesses, or any law relating to the registration of documents.”
Path to Contract Formation under Indian Law
• The path to formation of a contract is –
There is an offer or proposal that is made by the promisor - > the
proposal is accepted by the promisee - > Offer + Acceptance becomes a
promise - > There is a consideration for the promise - > Offer +
Acceptance +Consideration becomes an agreement - > An agreement
that is made by the free will of consenting parties for a lawful
consideration with a lawful object then becomes a Contract.
Proposal
• Proposal – Section (a) defines a proposal as “when one person signifies to another his
willingness to do or 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”
• The word proposal here is synonymous with the word Offer in English law.
• There must be two parties involved at the very least.
• One person must communicate or signify to another there they are making an offer.
• There must be a proposal or an offer from the offeror or promisor to do or abstain from
doing something – there is a contracted act that is contemplated here. An offer must have
an object.
• The offer must be made with an intention to get the other party to accept the
performance of abstinence from an act or the proposed terms. This means that the offer
or proposal must be made with an intention to be bound by a promise.
• An offeror cannot presume acceptance, but the offer must be made such that there is
someone else who can accept the offer.
• Offer must be certain.
Proposal
• Proposal must signify to another person- Tom Cruise can signify to
himself that he will be the next James Bond, but this has no legal
consequence. This is not an offer because a second party is not
involved.
• Proposal must have an object:
• A tells B that he will sell B 100 oranges for a price of Rs 3000. Here, A is
offering to sell oranges to B at a price. The object of the proposal is the sale
and purchases of oranges.
• Akshay, an employee of a corporate law firm promises the law firm C &
Partners that Akshay will not work at a rival law firm for one year after he
leaves his employment with C & Partners.
Acceptance
• Acceptance- Acceptance under Section 2 (b) states that “When the person to whom a
proposal is made signifies his assent to thereto the proposal is said to be accepted. A
proposal, when accepted, becomes a promise.”
• when a person assents to a proposal that was made to them, then the person is said to
have accepted an offer.
• Again, there must be an objective manifestation of an intention to accept the offer and
enter into legal relations with the offeror.
• The acceptance should be to the proposal that was made. An acceptance that does
not correspond to the proposal made, is not really an acceptance.
• Mere silence is not acceptance. Though silence coupled with positive action can be
acceptance.
• In some cases, acceptance is can be provided in an implied manner as well.
Acceptance
• Say you get into the Delhi Metro to travel from Haiderpur to Pragati
Maidan. By entering the metro, you have already accepted the offer
of the Delhi Metro Rail Corporation Limited to transport you from
Haiderpur to Pragati Maidan for a price of Rs 50 with a condition that
you follow all applicable rules of DMRL. The act of entering the metro
signifies to Delhi Metro Rail Corporation Limited that you are willing
to abide by their rules and pay the charge so that they may transport
you from Haiderpur to Pragati Maidan.

• Is there an acceptance here?

Consideration
• Section 2 (d) states “When at the desire of the promisor, the promise or any other person has done
or abstained from doing, or does or abstains from doing, or promises to do or abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise.”
• Consideration is the reason for which a promise is made. Consideration must be something that the
law sees as having value.
• It is not the price of a contract!
• Any act or abstinence or a promise to act or abstain from doing something that the promisor or
offeror desires is consideration.
• The definition requires
• An act to do something or to abstain from doing something;
• This is done in accordance with the offeror’s desire;
• It should be done by the promisee or the offeree.
• Section 2 (f) states that consideration can also be in the form of a promise or as a part of the promise
– this is known as a reciprocal promise.
What is an Agreement?
• Section 2 (e) defines an agreement as a promise or a set of promises
forming a consideration.
• A promise is formed when a promise accepts a proposal or an offer.
• There must be an offer or a proposal that is made by a promisor to
the promisee who accepts the proposal to do or not do something.
Path to Contract Formation under Indian Law
• The path to formation of a contract is –
There is an offer or proposal that is made by the promisor - > the
proposal is accepted by the promisee - > Offer + Acceptance becomes a
promise - > There is a consideration for the promise - > Offer +
Acceptance +Consideration becomes an agreement - > An agreement
that is made by the free will of consenting parties for a lawful
consideration with a lawful object then becomes a Contract.
Offer
• Typically, agreements are formed between two or more persons when
they mutually agree to do or abstain from doing something.
• Pollock explains that an offer is when one party proposes their terms
and the other accepts, rejects or makes a counter-offer.
• Parties must indicate or signify their intention to create legal relations
with each other.
• Offer or Proposal is the first requirement in the formation of a
contract. The offeror contemplates an eventual agreement.
Offer - 1
• An offer is a proposal by an offeror to undertake a particular action or
abstain from it.
• Two ideas underpin the idea of an offer:
• There is an expression of willingness to be bound (intention to create legal
relations); and
• An offer is a statement of terms outlining contractual obligations of parties.
Or, the offer must be certain.
• It is not necessary that an offer is made in writing alone.
Intention to Create Legal Relations
• An offer must express the promisor’s intention to be bound by a contract.
• Under common law it is important for the offeror to show that they intended to
create legal relations. The intention to enter a contract is an additional burden of
proof that must be satisfied to prove the existence of a contract under common law.
• Three main categories of cases come up here (Atiyah)
• Where statements made are not serious, or cannot reasonably be construed as a serious offer
• There is to proposal to undertake a particular activity or abstain from it
• Where negotiation break off before an agreement is reached.
• This is not an explicit requirement under the Indian Contract Act in the same way.
Briggs & Burrows remind us, it operates in the background background. Burt, the
definition of ’proposal’ under Section 2 (a) has two key requirements-
• One person signifying his willingness to do or abstain from doing something;
• In a manner which contemplates receiving the acceptance of the other party.
• Case Presentation- Leonard v PepsiCo
 Leonard v PepsiCo

Facts:
• PepsiCo launched a promotion campaign for Pepsi and Diet Pepsi. This promotion entitled consumers to collect Pepsi
Points from buying specifically marked products (Pepsi & Diet Pepsi).
• PepsiCo released a TV commercial in which featured a series of merchandise that can be exchanged for collecting a
certain number of Pepsi Points. For example: a T-shirt was worth 75 Pepsi Points. One scene in the commercial
depicted a Harrier Fighter Jet arriving at a school parking lot with the words “Harrier Fighter 7,000,000 Pepsi Points”
followed by the words “Drink Pepsi Get Stuff.”
• This was done through a catalogue that provided details of exchanging Pepsi points for various items. The catalogue
also specified that each Pepsi point would be worth 10 cents in case a consumer does not obtain enough Pepsi Points
for the merchandise.
• Inspired by the commercial, the plaintiff sought to obtain the Harrier Jet. The jet was not a part of the catalogue.
Though the plaintiff realized he would not be able to collect enough Pepsi Points to exchange for a Jet, he raised
money in lieu of points. On March 27, 1996 he submitted an order form with 15 original Pepsi points and a cheque for
$700,008.50 and wrote “1 Harrier Jet” in the items column of the order form.
• PepsiCo replied to the plaintiff saying that the item request is not part of the PepsiCo catalogue or the order form and
the plaintiff can only exchange the Pepsi points or money for items listed in the catalogue. The defendant explained
further that the jet in the commercial was only fanciful and was included to create humour.
• PepsiCo filed a suit seeking declaratory relief stating that the they would not be liable to provide the plaintiff with a jet.
In response to this suit, the plaintiff filed a suit in Florida and the suit was transferred to the southern district of New
York. The court found in favour of PepsiCo and ordered the plaintiff to pay $8812 in attorney fees. Leonard failed to do
Leonard v PepsiCo

Issue:
• Whether a binding contract was concluded between Leonard and PepsiCo.
• Whether PepsiCo breached the contract by committing fraud.

Held:
• The general rule is that an advertisement does automatically result in an offer to sell goods or
services. It is an invitation to enter into negotiations, not an offer which may be turned into a binding
contract by the mere acceptance of an offeree.
• The commercial was not a definite offer because the details of the actual offer were contained in the
catalogue. The commercial itself made no mention of how a potential offeree was to accept the offer.
• Even if the catalogue included a harrier jet, both the commercial and the catalogue do not constitute
an offer. A reasonable person would not construe the commercial as offering a Harrier Jet for
7,000,000 Pepsi Points. There is no contract between the parties in this case as the commercial was an
advertisement and not a unilateral offer.
• Leonard did not allege that he was induced to enter a contract by misrepresentation, but that PepsiCo
never had an intention to offer a harrier jet. There is no agreement in writing between the parties to
find that PepsiCo committed breach or fraud.
Advertisements
• The general rule on advertisements is that they are invitations to treat and not offers
– See Partridge v Crittenden. The reason behind this is to protect the party that is
placing the advertisement from contractual liability.
• MacKendrick argues that instead of classifying advertisements as invitations to treat,
the law could classify them as an offer while the stocks last - thereby protecting the
vendor.
• One consequence of advertisements as invitations to treat is that the party who
approaches the vendor to sell the goods at a stated price cannot compel the vendor
to do the same.
• But, the view that advertisements are invitations to treat is not a uniform view. We
see this in Carlill v Carbolic Smoke Ball Company.
• Case Presentation: Carlill v Carbolic Smoke Ball Company.
Carlill v Carbolic Smoke Company
Facts:
• On November 13, 1891 the Carbolic Smoke Ball Company published an advertisement in
the Pall Mall Gazette stating “100l. reward will be paid by the Carbolic Smoke Ball Company
to any person who contracts the increasing epidemic influenza, colds, or any disease caused
by taking cold, after having used the ball three times daily for two weeks according to the
printed directions supplied with each ball. 1000l. is deposited with the Alliance Bank,
Regent Street, shewing our sincerity in the matter.” The advertisement went further to
claim that in the last epidemic of influenza, users of the smoke ball had not contracted
influenza and were prevented against it. It claimed to be the cheapest remedy available in
the market for influenza and provided instructions on where the smoke ball could be re-
filled.
• The plaintiff relying on this advertisement, purchased one smoke ball at a chemist’s and
used it as directed. On November 20, 1891 she contracted influenza and sued the
defendant. Hawkins J at the Court of Appeals held she was entitled to recover the 100l.
from the defendant.
Carlill v Carbolic Smoke Ball Company - 1
Defence:
• The facts do not prove the conclusion of a binding contract between the parties.
• The reward would not become immediately payable upon the plaintiff performing the act stated in the
advertisement.
• The plaintiff did not have control over contracting influenza and therefore she cannot establish a claim
over the reward.
• The words in the advertisement expressed an intention and not a promise. The advertisement was too
vague to be a contract as there is no time limit mentioned and no means of checking how the plaintiff
used the product.
• Anyone could make the claim that they used the product and contracted influenza – this would be
impossible to disprove.
• There is no consideration.
• In order to conclude a contract by performance of a condition, there must be a communication of the
intention to accept the offer .
• Even if there is a contract, it is a wagering contract – the liability is dependant upon a factor that neither
party has control over.
Carlill v Carbolic Smoke Ball Company - 2
Plaint:
• The plaintiff argued that the advertisement was clearly an offer by the defendant – it was published to be read and
acted on. <Meaning there was an intention to be bound here>
• The offer was duly accepted by the plaintiff – merely doing acts indicated is an acceptance of the proposal.
• The advertisement never contemplated the user to go to the office of the defendant and obtain a repetition of the
statements that were already published. The defendants are attempting to introduce words in the advertisement in
the suit where these were not present in the original advertisement.
• The offer was made to the world at large, therefore, nothing can be implied as a condition other than performance in
such a case. Issuing notice of performance cannot have been contemplated by the offer because it was made to
anyone who fulfils the condition. Notice to the offeror in such a case is not necessary.
• There is no ambiguity in the terms of the offer made in the advertisement. On the point that anyone who stole a
smoke ball could also claim a reward, the plaintiff argued that this would impossible because only a person who legally
obtained the smoke ball would be eligible for a reward. The defendants urged that the terms should be applicable only
to those who bought the product directly from the company. Nothing in the advertisement mentioned such a
condition. The advertisement was to increase the sale of the product.
• The offer was not invalid the want of a stipulated a time period because there are several ways in which the
advertisement can be constructed. One possible construction is that the time period is a fortnight, or the term during
which the epidemic is prevalent. Or, that a fortnight’s use would keep a person safe for a reasonable period of time.
Carlill v Carbolic Smoke - 4

Held:
Lindley LJ: First dismisses two contentions - (i) No action lies upon this contract because it is a policy. A cursory look at the
advertisement would lead to dismissing the suggestion. (ii) it was claimed that this is a bet. Hawkins J at the lower court came to a
conclusion that it was never a bet, the transaction had nothing to do with a bet. He agrees with Hawkins J and dismisses this
suggestion too.
• Not dealing with an inference of fact, but an express promise to pay 100 quid to whoever contracts influenza or a common cold
after using the smoke ball. The advertisement is making a clear proposal.
• Was it intended to be a promise or a mere puff? It was a promise because if it were a mere puff, the company would not have
deposited 1000 pounds in the bank to show their sincerity. Therefore, a promise not a mere puff.
• Was the advertisement meant to bind the defendant in a legal contract? Advertisements are typically not meant for a particular
person and are published for the world at large. They are offers to anyone who performs the conditions named in the
advertisement, thereby accepting the offer. This is an offer and performance of the conditions set forth in the advertisement is an
acceptance.
• Is it necessary to notify the offeror of the acceptance? As a general proposition, notification of an acceptance is required to make a
binding contract. But, this case is an exception to the rule where communication of the acceptance need not precede performance.
The offer was a continuing offer that was never revoked. If notice was required, then in such a case the offeror receives notice of
the acceptance contemporaneously with his notice of the performance.
• All elements of a binding contract exist. Though the defendants claim that the language of the advertisement was too vague,
holding language against the party would be pushing the rule too far. A reasonable person would conclude that a contract was
intended by the advertisement. The issue of time can be settled by using ‘reasonable time’ by taking a business view – what are the
ingredients of the smoke ball? How long would the effect of the ingredients last on the body to prevent the user from catching a
cold or influenza?
• On the lack of consideration, the usual legal test is to check where there is an advantage for the defendants. There is an advantage,
the advertisement is meant to drive up sales and instill a sense of faith in the smoke balls among members of the public. This is
directly beneficial to the defendant.
 Carlill v Carbolic Smoke- 5
Held:
• Bowen LJ:Agrees with Lindley LJ.
• The document in itself is not a contract, it is only an offer made to the public. The advertisement must be read in its plain language as it would be read by the
public. It was meant for the public to read, therefore, how would an ordinary person construe the advertisement? It was intended to have some effect on the
mind of the reader – to make people use the smoke ball. The language in the advertisement did not clarify that the smoke ball was to be purchased only from the
company. The way the public would read it would be – if anybody after the advertisement, used the smoke ball according to instructions and caught influenza,
they would be entitled to the reward.
• 2 possible constructions on time- (i) the duration of the epidemic; (ii) protection while in use – he sides with this meaning. The immunity is meant to last during
the time when the smoke ball is in use and not after that. Doesn’t agree Lindley LJ on the point that time should be construed as reasonable time because the
disease was contracted while Mrs Carlill was using the ball.
• Was it intended that 100 quid should be given if the conditions are fulfilled? The defendant deposited 1000 quid in the bank. Therefore it cannot be said that this
was a mere puff. It was understood by the public as an offer that someone was to act upon. <<Notice that this is an articulation of intention to be bound –
something that gets established in a later case Balfour v Balfour>>
• The offer did not introduce a mechanism to check whether the person making use of the smoke ball was supervised to ensure proper performance of the
conditions. If a person choses to make such extravagant promises, there is no reason for the law to stop such a person from being bound by the extravagant
promise.
• There is no specific offeree, it was an offer made to the public at large – one cannot contract with everybody. This argument is fallacious. The offer was made to
everybody, but would apply to only those persons who perform the conditions before the offer has been retracted – relied on Spencer v Harding. If this is an offer
that is binding, then the moment someone else performs the condition, a contract is formed.
• Notification of acceptance of contract: as a rule, acceptance must be notified to the offeree. But, performance of the condition is sufficient acceptance without
notification.
• How does one determine that an offer does not stipulate providing notice of acceptance? You look at the offer itself in such cases. In advertisement cases one
can infer from the type of transaction itself that it does not stipulate notice of acceptance. The essence of the advertisement is the performance of the conditions
set forth therein. For example: if there is an advertisement for a lost dog, the intention is for the finder of the dog to return the dog and receive payment. No
other kind of construction is possible here. There is an implied indication that notice of acceptance is not required in such cases.
• On no consideration: Using the smoke ball was the only condition. There is a ‘request to use’ in the offer, therefore there is no need for a separate consideration.
Here, the inconvenience sustained by using the smoke ball thrice a day for two weeks is sufficient to create consideration. It is consideration enough that the
plaintiff used the product. The defendants indirectly benefitted from the sale.
Carlill v Carbolic Smoke - 6
Held:
• A. L. Smith LJ:
• Is the advertisement an offer? Does acceptance lead to the conclusion of a contract to pay?
Is it a puff? It is an offer, the defendants also deposited £1000 o show sincerity. This is not a
mere expression of confidence in the product. It is clearly an offer intended to be acted
upon, and when acted upon, it concludes a promise to pay.
• On the lack of a prescribed time limit- It is not necessary to identify the correct construction
in this cases, therefore the contract cannot be null for the lack of a time limit.
• Was the acceptance performed according to the plaintiff’s desire in the offer? There was no
such stipulation in the original offer (the advertisement), such a clause cannot be read into
the agreement either.
• The offer was made to the world at large – this happens in all cases of advertisements.
• Lack of consideration- two types of consideration here – (i) consideration of the
inconvenience caused by using the product; (ii) the money gained by the defendants on the
enhanced sale of the product.
Offer must be certain
• The offer must describe what the parties are meant to do/not do.
• There must be an object that is contemplated by the offer.
• This question becomes important when courts are tasked with determining whether
there was a breach, or when awarding remedies. First, it must be clear what the offer
contemplated.
• In theory, certainty and willingness are treated distinctly, but in practice they tend to
overlap. Failure to agree to the object also means that parties don’t intend to create
binding legal relations.
• Not all instances of vagueness render a contract void. If there is an agreement on
essential terms, then courts can fill gaps in secondary terms.

Case presentation – Gibson v Manchester City Council & Harvey v Facey

 Gibson v Manchester City Council

• The Manchester City Council sent out a brochure to all existing tenants stating that they would be able
to buy the property they have occupied from the council
• The brochure explained the details of the scheme and the manner of making an application for the
same along with an attached form.
• Mr Gibson filled out the form for further details of the scheme and sent it to the council. The council
wrote back to Gibson stating a price at which they may be prepared to sell the property to him, they
attached another form and instructed him to complete the second form in order to make a formal
application. But this letter clearly stated that it was not a firm offer.
• Gibson filled out the application form and sent it back to the council leaving the price blank because
the tarmac required repair and he asked to council to undertake the repairs or deduct the amount
from the price quoted.
• The council wrote back saying that the condition of the property was considered while fixing the price
and the repair for the tarmac would not be included. Gibson wrote back saying “carry on with the
purchase as per my application already in your possession.” The council never wrote back to Gibson
after this.
• Meanwhile, there was an administrative change in the council and the council withdrew the scheme to
sell houses to tenants. Mr Gibson, relying on the two documents (application form and the last letter
he wrote) exchanged between the parties s unconditional acceptance, sued for specific performance.
 Gibson v Manchester City Council
Issue
• Did the council make an offer of sale?
Held:
Lord Diplock
• Mr Gibson cannot claim that he unconditionally accepted the offer without the
existence of an offer in the first place. The communication between the parties did not
contemplate an offer for sale by the council – regardless of the change of hands.
Lord Edmund-Davies
• There is no offer. At best, there was nothing more than an invitation by the council to
tenants to make an application to be allowed to purchase the house. The letter from
Mr Gibson on the tarmac repairs is not a counter-offer that would destroy the original
offer, it is merely attempting to explore possibility of negotiation.
 MacPherson v Appanna

Facts:
• The plaintiff filed a suit for specific performance of a contract for sale of a property known as Morvern Lodge.
The defendant was an estate owner who owned multiple properties. He had appointed Mr White as a director
of one of the estates, and Mr Youngman as the manager of another estate. Mr Youngman was looking after
Morvern Lodge during the defendant’s absence.
• In mid 1944, the plaintiff asked Mr White if he would cable to the defendant his offer to buy Morvern Lodge for
Rs 4000. And on June 1, 1944 Mr White cabled the defendant asking “Have enquiries Mercera bungalow if for
sale, wire lowest figure.”
• On July 24, 1944, the plaintiff wrote to the defendant that he was prepared to purchase the bungalow for Rs
5000 if the offer was acceptable and should respond to the plaintiff with his bank details. Mr Youngman sent a
cable to the defendant saying “Have had an offer Morvern Lodge Rs 6000 for immediate possession.”
• On August 8, 1944, Mr Youngman received a cable from the defendant saying “Wont accept less than Rs
10,000.” On August 7, 1944, the plaintiff wrote to Mr Youngman asking about the status of his offer and saying
he was willing to accept a higher price. Meanwhile, the defendant on 8th August, sent a cable to Mr Youngman
stating “I got a cable from you a few days ago saying you had an offer of Rs 6000 for Morvern Lodge.”
• At the same time the defendant had received a cable from Mr White saying that the property value would be
Rs 10,000 and therefore had sent a cable to Mr Youngman saying he wont accept an offer less than Rs 10,000.
On 9th August, Mr Youngman wrote to Mr Appanna saying “In reply to you letter, dates 7th August, I received
yesterday a cable from Col. MacPherson regarding your offer of Rs 6000 which reads as “Wont accept less than
Rs 10,000””.
MacPherson v Appanna - 1
Facts:
• MacPherson received Mr Youngman’s letter on 14 th August and immediately accepted the “counter
offer” made by the defendant in a letter to ,r Youngman. He also stated that he met Mr Youngman on
11th August and told him personally that he would pay Rs 10000 for the property and would like
immediate possession. He signified his acceptance of the defendant’s offer to sell the property for Rs
10,000 in his letter dates 14th august.
• On 17th August, Mr Subbayya wrote to Youngman saying he confirmed his offer of Rs 10,5000 made to
Youngman the previous day for the purchase. Youngman wired Appanna saying “Offered ten thousand
Morvern Lodge immediate possession May I sell.” White also wired Appanna on the same day saying
“Hold offer for Morvern Bungalow Rs 11,000 cash subject immediately acceptance and occupation.
Strongly recommend acceptance.”
• On 29th Youngman sent an airgraph to Appanna saying that he had an offer from Col MacPherson for Rs
10000, but he had also received news from Mr White that there was an offer for Rs 11000 and
requested directions.
• Meanwhile Appanna wrote to Mr White saying ”Accept rupees eleven thoursand Morvern Lodge
occupation permtted when full amount deposited..inform Youngman.”
• The buyer paid the Rs 11000 and took possession.
MacPherson v Appanna
Issue:
• Was a legally binding contract concluded between MacPherson and Appanna?
• Did Appanna make a counter-offer? Or, was it an invitation to treat?

Held:
• Plaintiff claims that the moment Appanna made a counter offer for Rs 10,000 and the plaintiff
accepted it, a binding contract was concluded. Court held that a binding contract was not concluded.
Applied the rule in Harvey v Facey that contract could be concluded only if Appanna had accepted
MacPherson’s offer. A mere statement of the price contains no implied contract to sell at that price.
• Neither party had treated Appanna’s cable stating the minimum price as an offer. The Plaintiff had
confirmed a verbal offer of Rs 10,000 and even Youngman had written to Appanna saying he has
received an offer of Rs 10,000 from MacPherson.
• The court doesn’t explicitly say this was an invitation to treat.
Offer and Invitation to Treat
• An invitation to treat, or invitation to offer is a situation when one party invites other people
to make an offer to them by letting them know what sort of proposal would interest the party
inviting.
• Which of these is an Offer and which is an invitation to treat?
• I am offering my laptop for sale for Rs 35,000 and above.
• I am offering my laptop for sale for Rs 35,000 to the 3rd person who contacts me about this.
• In both cases I think I am making an offer; I even say I am making an offer. But there is a
marked difference in the meaning of the two sentences. Ascertain whether a statement is an
offer or an invitation to treat.
• In an invitation to treat, one party invites others to negotiate. In an offer, the offeror
stipulates the terms of the offer clearly.
• An offeree cannot accept an invitation to treat because there is no offer.
• Case Presentation- Pharmaceutical Society v Boots & MacPherson v Appana
Pharmaceutical Society v Boots
Facts:
• Boots is a self service shop that sells pharmaceutical drugs as well as ordinary products. In case of
pharmaceutical drugs, a sale must be approved by a registered pharmacist who is employed by
the shop.
• At no point in time were the plaintiffs informed that a pharmacist would be signing off on the sale.
The plaintiffs picked up medicines that did not require approval by a registered pharmacist under
any law.
• The plaintiffs argued that Boots had engaged in an unlawful sale as customers could easily pick up
medicines and put them in their shopping baskets. Display of goods is an offer and the act of a
customer putting an item in the shopping basket is an acceptance. Further argued that the
pharmacist needs to supervise the transaction at the point where the sale is effected.
• The defendants argued that display of goods is not an offer, neither does the act of placing an item
in a shopping basket constitute an acceptance. Instead, in the case of shops, it is the customer
who makes an offer to buy and not the other way around.
 Pharmaceutical Society v Boots
Issue:
• Whether the sale is completed before the customer has passed the scrutiny of the
pharmacist and paid the money? In such cases, is the offer made by the shopkeeper or
the customer?
Held:
• It is a well established principle that display of goods does not contemplate an offer.
Rather, the customer offers to buy goods in such cases by paying for it, and the
shopkeeper may accept or reject the offer. If the display of goods is an offer, and the
customer selecting items of purchase is an acceptance, then neither party would be
able to withdraw from the contract as the selection of items would conclude a binding
agreement. Therefore, display of goods is not an offer, neither is the customer selecting
items for purchase an acceptance in this case. A binding contract in such cases is
concluded only when the shopkeeper agrees to sell products and accepts payment
from the customer. Display of goods is only and invitation to treat by the shopkeeper.
Revocation of Offer- Common Law
• The general rule under common law is that an offer can be withdrawn at any time before it has been accepted. The
revocation of the offer must be communicated to the offeree before their acceptance to the offer.
• In Byrne & Co v Tienhoven & Co, Lindley J held that a revocation of offer that has not been communicated to the
offeree is no revocation at all. Merely posting a letter is insufficient to withdraw an offer. The offeree must be
notified of the revocation, otherwise there is no revocation. In this case the offeree had accepted the offer before
the revocation reached them, even though the offeror had sent a letter revoking the offer before the offeree had
communicated their acceptance – the revocation reached the offeree late. The judge held that a binding contract
was concluded.
• What we have here is something known as ‘postal rules’ – or rules related to communication of offer, acceptance
and revocation through post. These are essentially rules that determine how correspondence between parties must
be taken into consideration while determining whether a contract was concluded.
• Acceptance: the postal rule on acceptance is that communication of acceptance is complete when the offeree posts the letter. It is
not required that the offeror receives this letter. The promise is concluded on the day the offeree posts the letter.
• Revocation of offer: The rule here is that the revocation must be received by the offeree and the date on which the revocation is
received is the date the offer is legally considered as having been revoked.
• Revocation of an offer made to the public: An offer made to the public must be revoked in the same manner as the offer was made.
For example- if an advertisement contained an offer, the revocation must also take the same form. [Article 2:202 (2) Principles of
European Contract Law] The position in the US is similar.
Revocation – Common Law
• A revocation must be communicated to an offeree, but it can be
communicated by a third party. There is no requirement that only an
offeror must communicate the revocation.
• Does notice by a third party have the effect of revocation as a usual
practice? Or, can it be a revocation only when the source of
information is reliable?
• Case Presentation: Dickinson v Dodds
Dickinson v Dodds
Facts:
• On June 10, 1874 the defendant John Dodds signed an delivered to the Plaintiff a letter which communicated his
agreement to sell a property for £800 and in the postscript it stated that the offer is open until 9:00 am on June 12,
1874.
• The Plaintiff, Dickinson was supposed to respond to the letter before the stated time if he had accepted the offer of
the defendant.
• However, on June 11, 1874, the defendant Dodds entered into an agreement to sell the same property with the
second defendant Allan. Allan paid Dodds a sum of £40 as a deposit in lieu of the sale.
• A third party, Mr Berry informed the Plaintiff of the sale to Allan. At about half past seven on 11 June 1874,
Dickinson went to Dodd’s house and handed over his letter of acceptance to Mrs Burgess (Dodds’ mother-in-law).
But this letter never reached Dodds as Mrs Burgess forgot to hand over the letter to Dodds.
• At 7:00 am on 12 June 1874, Dickinson found Dodds at the railway station and handed over a duplicate of his letter
of acceptance. But, Dodds informed Dickinson that it was too late and he had sold the property, thereby declining
the acceptance.
• Dickinson sued Dodds and Allan praying that the court must restrain Allan from receiving the property and Dodds
must be made to perform his end of the bargain to Dickinson.
Dickinson v Dodds- 1
Plaint:
• The memorandum was in writing and therefore satisfied the Statute of Frauds although it
was only signed by Dodds. Though only one party has signed the agreement, it was
argued that this is sufficient if the proposal has been accepted by the other party.
• An offer, if accepted before withdrawal becomes a binding agreement between the
parties.
• Used Kennedy v Lee to argue that if a person communicates an acceptance within a
reasonable time period of the offer, and no variation has occurred in the status of either
party in relation to the offer, then the agreement is binding. Not only is the acceptance
allowed, but the acceptance dates back to the date on which the offer was made.
• Using Adam v Lindsell – acceptance is complete when the offeree has posted the letter.
Leaving the letter at Dodds’ residence is sufficient to have completed acceptance in this
case.
Dickinson v Dodds - 2
Defence:
• The memorandum of June 10th was only an offer and nothing more. Until an acceptance of the offer is complete, the
offeror may withdraw the proposal. Once Dodds retracted the offer to Dickinson by selling to Allan, the offer was no
longer open to Dickinson.
• The memorandum was signed only by Dodds and this is not enough to conclude a contract.
• The post-script is nudum pactum, therefore the letter must be read as not containing a post-script.
• Allan is an unnecessary party to the suit. If Dodds had not entered a valid contract with Dickinson, he is a trustee for
Allan. If Dodds made a valid contract with Allan, then rights under this contract arise between Allan and Dodds.
• For the Plaintiff to have locus standi, the conclusion of a contract is necessary.
• Notice served on Mrs Burgess was not sufficient and if there had been an acceptance then it would have to relate
back to the date of the offer.
• Even if the notice to Mrs Burgess had been sufficient, Dodds would have had no property to sell Dickinson because
the property was sold to Allan. He had retracted his offer to the plaintiff and the property had been transferred to
Allan.
• The plaintiff would not have delivered the acceptance if he had not heard that the property had been sold to Allan.
• Sale of property to another party is revocation of the first offer.
Dickinson v Dodds - 3
Plaintiff’s Reply:
• The plaintiff had the right to accept the offer at any point in time until 12 June
1874, 9:00 am. Once the plaintiff accepted the offer, Dodds could not retract
the offer.
• It was a resolve in Dodds’ mind to sell the property to Allan. Nothing of the
sort was communicated to the plaintiff stating that the offer had been
retracted. Dodds could not part with the property without informing the
plaintiff.
Dickinson v Dodds - 4

Held:
Bacon VC:
• held that the contract had been completed between Dodds and Dickinson because the plaintiff had until 9:00
am, 12 June 1874 to respond – which he followed.
• No reason why Dodds should not be ordered to perform the contract.
• There is a clear and explicit acceptance of the offer on 11 June. Whether the acceptance came to Dodds’
knowledge is secondary. The moment the plaintiff handed over the letter, Dodds was bound.
• Dodds entering a contract with Allan cannot be a ground to nullify the first contract with the plaintiff. The law is
clear, if a contract is unilateral and the offeree performs acceptance, then there is a binding contract.
• The offer may be revoked, but the revocation is complete only when it is conveyed to the offeree.
• In Cooke v Oaxley there was no contract that had concluded between the parties based on the pleadings.
• Routledge v Grant is not the same as this case because the contractual terms changed. The contractual terms
here have not changed.
• Warner v Willington – the offer was retracted before acceptance was complete, therefore it doesn’t apply here.
• The agreement between Dickinson and Dodds however was concluded because the plaintiff gave his acceptance
before the deadline expired. Why must the defendant be let off?
• If the contract with Allan is sustained, then it would open the door to fraud. A person who has entered a contract
to sell to one person should not be allowed to sell to another and claim that the second sale has deprived them
of the property and therefore the first contract cannot be upheld. A sale to Allan does not constitute a retraction
to Dickinson.
Dickinson v Dodds – 5
Held:
James LJ:
• The defendant’s letter was only an offer and nothing more. A contract could not have
concluded unless both parties agreed to it. It was only an offer to sell.
• It is settled law that this promise is a nudum pactum because there was no consideration
given for the undertaking or promise for it to be considered binding. Because this was
nudum pactum, the offeror (Dodds) could withdraw the offer at any time.
• There is no principle that there must be an explicit withdrawal of an offer. There must be a
meeting of minds for a contract to be binding. For this, the offer needs to continue until
the point in time when acceptance is completed. If the offer is withdrawn before the
acceptance, then a contract doesn’t exist.
• The plaintiff knew that Dodds no longer wanted to sell the property to him. Before the
plaintiff attempted to accept the offer, Dodds had already withdrawn the offer and sold the
property to Allan. In such a case, consensus ad idem between Dickinson and Dodds was
impossible. The plaintiff had knowledge of the revocation or change of facts and is
therefore no longer in a position to accept the offer.
• What kind of approach to contract has James LJ adopted here?
 Dickinson v Dodds - 6
Held:
Mellish LJ:
• Was Dodds’ letter on 10th June an agreement to sell or an offer to sell? It was only an offer
to sell though it is worded as an agreement. It is not binding merely because it uses the
word ‘agreement’, it is an offer. There is no contract until both parties are bound.
• Though Dodds provided time until 9:00 am on 12th June for Dickinson to accept the offer,
he was in no way bound by this statement he made in the postscript.
• When he made a contract to sell the property with Allan, that contract was good in law.
That Dodds had left the offer open for Dickinson until 9:00 am on the 12th of June, does not
preclude Allan from making him a better offer and entering into a binding agreement.
• Dickinson was informed of the contract with Allan from Berry. Berry doesnt reveal his
source, but says he knows it and has heard it. Dickinson could not have completed a valid
acceptance after he learnt of the fact that the property had been sold to Allan.
• The law is that two minds must be in agreement at the point of acceptance on the object
of the contract. If one party is not on the same page at the time of acceptance, then it is
difficult to find consensus ad idem.
Dickinson v Dodds - 7
• MacKendrick argues that Mellish LJ’s judgment sits uncomfortably with the decision in Byrne & Co
v Tienhoven & Co (a later case). In Dickinson, Mellish LJ held that both parties’ minds must agree
at some one time, and particularly, at the time of acceptance. In Byrne & Co, it was held that
there is no “one specific point in time” at which parties are in agreement.
• Dickinson v Dodds is an authority for the rule that a promise to keep an offer open is not binding
unless the offeree has provided consideration for the promise. Under this rule, the offeror is no
longer bound by their own deadline.
• On the question of a third party conveying information about a revocation – the authority here
and in Byrne & Co is unclear. MacKendrick argues that courts ought to consider the reliability of
the source of information in cases of offers where the revocation is communicated by a third
party. The more reliable a source, the readier a court must be to accept the revocation.
• Why have courts ruled differently in MacPherson v Appanna, Dickinson v Dodds and Carlill v
Carbolic Smoke Ball? Is there a difference in what was at stake in all these three cases?
Termination of an Offer
• Revocation
• Rejection of an offer by the offeree
• Expiry of the deadline set by an offer
• Death of offeror in some cases. In cases the rule may differ. For
example, where a legal entity is involved, death of one person would
not necessarily render the offer terminated because the burden
would shift to the next person who occupies the position. This is still
left open for debate as MacKendrick explains.
Section 3 – Communication, Acceptance and Revocation of Proposals
• Section 3: “The communication of proposals, the acceptance of proposals, and the revocation of proposals and
acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by
which he intends to communicate such proposal, acceptance of revocation, or which has the effect of communicating it.”
• Offer, acceptance or revocation can be through words, omissions or acts that have the effect of communicating any of
these.
• There must be an intention to communicate offer, acceptance and revocation; or it must have the effect of
communicating. Even if an act has the effect of communicating an offer/acceptance/revocation, such an act is deemed a
communication of the same.
• The court is required to determine whether the conduct of parties results in the inference that there was an
offer/acceptance or revocation that was communicated.
• Communication here means imparting knowledge of the offer/acceptance/ revocation. For example – delivering goods to
a person who has offered to buy them is communication by conduct.
• An unsuccessful attempt of communication cannot be regarded as communication. If you send an offer in the form of a
letter to another person and the letter is returned to you because the postal address was incorrect – this does not amount
to communication under section 3.
• Who can communicate? The party who is accepting, proposing or revoking.
• An offer expressed by conduct is an implied offer. An offer that is made explicitly by words is an express offer. The same
goes for acceptance. – Section 9.
Section 4 – Communication when complete
Section 4 :
“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 the 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 in the 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.”
• The Act doesn’t tell us what happens if there is a delay in transit. The draft contract bill assumed actual
communication was necessary. But courts have held that an acceptance is complete even if the
acceptance gets lost or delayed in the post and never reaches the proposer. The contract is concluded at
the time the letter is posted.
• In Pollock and Mulla it is argued that the postal rule must apply in case of electronic communication as
well. But this is less clear as the courts have held that acceptance by electronic communication is
complete when the offeror receives the acceptance.
• Take Dickinson v Dodds and apply this rule. Would the result be different? Look at Section 3 and 4.
Section 5- Revocation of Proposals and
Acceptances
Section 5: “A proposal may be revoked at any time before the
communication of its acceptance is complete against the proposer, but
not afterwards.
An acceptance may be revoked at any time before the communication
of the acceptance is complete as against the acceptor, but not
afterwards.”
•
Section 6- Revocation how made
Section 6- “A proposal is revoked-
(1) By the communication of notice of revocation by the proposer to the
other party;
(2) By the lapse of the time prescribed in such proposal for its acceptance
or, if no time is so prescribed, by the lapse of a reasonable time,
without communication of the acceptance;
(3) By the failure of the acceptor to fulfill a condition precedent to
acceptance; or
(4) By the death or insanity of the proposer, if the fact of his death of
insanity comes to the knowledge of the acceptor before acceptance.”