Offer and Acceptance

Section 2 (h) of the Contract Act, 1872 defines a

contract as “ an agreement enforceable by law”

Things to remember for the purpose of making a

contract-
1. There must be an agreement
2. The agreement shall be enforceable by law.
3. All agreements are not enforceable by law
4. Not all agreements are contracts.
Agreement
In accordance to Section 2(e), an agreement is “ every
promise and every set of promises forming the
consideration for each other”.
A promise is defined as an accepted proposal.
Section 2(b) of the Act mentions-
“a proposal when accepted becomes a promise “
Therefore, an agreement is an accepted proposal.
In an agreement there is a promise from both the
sides. For instance, Alauddin promises to deliver his
television to Farhad and in return Farhad promises to
pay a sum of Taka 1500 to Alauddin.
Here it can be said that there is an agreement between
Alauddin and Farhad.
An agreement is regarded as a contract when it is
enforceable by law.

Section 10 of the Act provides with the conditions of

enforceability- “ 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.”
Essentials of a valid contract
1. The agreement should be between two parties. An
agreement is the result of a proposal or offer by one
party followed by its  acceptance by the other.
2. The agreement should be between the parties who
are competent to contract.
3. There should be a lawful consideration and lawful
object in respect of that agreement.
4. There should be free consent of the parties, when
they enter into the agreement.
5. The agreement must not be one, which has been
declared to be void.
Proposal of offer
Proposal as defined in section 2(a) of the Contract Act:
“ 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 willingness to do or abstain from doing
something, i.e. the proposal or offer must be made
with a view to obtain the assent of the other party
thereto. For example, Alauddin’s willingness to sell
his television set to Farhad for Taka 1500 if Farhad
accepts to purchase the same, amounts to proposal by
Alauddin for the sale of the radio set. But if a
statement is made without any intention to obtain the
assent of the other party thereto that cannot be
termed as proposal.
Examples
Mr. Jack says to Dr. Noah, “I will sell you this book
for Taka 2000/-”.
Dr. Noah says, “I agree”.
There is an offer and an acceptance
Jack is the offeror
Noah is the offeree
Robert says to Mahir, “I will give you Taka 2000/-
for your bracelet”.
Mahir says, “OK”.
Again, we have an offer and an acceptance
Robert is the offeror
Mahir is the offeree
Identifying an Offer
The following are not offers:
Statement of intention
Supply of information
Invitation to treat
Statement of Intention
If a person is simply stating their intention, then
this is not an offer because they may change their
mind in the future
They are not offering to be bound by a contract
Statement of Intention
For instance, a man married a woman because her
father told him that she would get all her father’s
money when he died.
The court decided this was not an offer.
It was just a statement of the father’s intention at
that time
It was possible that he could change his mind later
Supply of Information
 If one simply supplies information, it does not
mean that he/she has made an offer
 For example, you own a luxury vehicle.
 Your Professor asks you how much you would be
prepared to sell it for.
 You say, “I’d want at least £25,000 for it”
 This is not an offer on your part.
 You have simply informed the person of how much
you would expect to get if you sold the vehicle.
Invitation to Treat
An invitation to others to make offers
In other words, one is asking another to make an
offer to him/ her.
The previous example of the luxury car is an
invitation to treat as well.
To your Professor, the moment you said, “I’d want
at least £25,000 for it”, you have invited him to
make an offer to buy the car for £25,000 or more
Invitation to Treat
Few instances of invitations to treat-
Products displayed in a shop window
Goods displayed on the shelf of a self-service shop
A public advertisement
A share prospectus
Goods displayed in a shop window
If you see goods displayed in the window of a shop,
this is not an offer to sell them to you
It is an invitation for you to enter the shop and
make an offer to buy them
Self-service shops
Many shops (like supermarkets) display their goods
on shelves and you choose what you want to buy
and take those goods to the cash desk
Again, displaying goods like this is an invitation to
treat, it is not an offer
You make the offer when you take the goods to the
cash desk
Self-service shops
The reason for this is that if displaying the goods
on the shelves was an offer, then when you picked
something up you would be accepting that offer
You could not change your mind and put the goods
back because a contract would have been made and
the shop could make you buy them
Obviously, this would be a ridiculous situation
Public advertisement
This is an invitation to treat and not an offer
If you advertise your BMW for sale in your local
newspaper at offers over £25,000, you are inviting
people to make offers to you.
Public advertisement
Discussion of the Carlill v. Carbolic Smoke Ball
Company case
Share Prospectus
Not an offer
It is an invitation to buy shares in a company
Auction
Advertisements for bids/ tenders are only 'invitation
to offer the bid/tender constitutes the offer which can
be accepted or rejected. A auctioneer is not bound to
accept even the highest bid (offer). Where an
auctioned sale was cancelled, the plaintiff cannot
recover travel expenses as there was no contract. An
offer can be withdrawn before it is accepted [Harris V.
Nickerson]
Shopping Online
No court cases but interesting situations prevailed.
Argos as an example-
Argos is a UK company which sells goods at a discount
They also have a web site where you can purchase
products (www.argos.co.uk)
In September 1999, Argos advertised a Sony TV on
their web site at a price of £2.99
However, the price should have been £299
Many people spotted this and ordered a TV online
According to the law of contract, the details online
were not an offer but an invitation to treat
So Argos could have refused to sell for £2.99
Difference between Offer and invitation to treat
A proposal or an offer has to be distinguished from an
invitation to treat. Sometimes a person may not offer to
sell his goods, but may make some statements or give
some information with a view to invite others to make
offers on that basis. For example, a bookseller sends a
catalogue of books indicating prices of various books to
many persons. This catalogue is not an offer to sell those
books at prices indicated against those books. This is an
‘Invitation to treat.’ If any person is interested in
purchasing those books mentioned in the catalogue he
may make an offer.
Inviting persons to an auction where goods, which are to
be auctioned, are displayed is not an offer for the sale of
goods. The intending buyers, who make the bid make an
offer. Such an offer, when accepted, by the fall of hammer
or in some other customary way, will result in a contract.
Intention to create legal relationship
 In order that an offer, after acceptance, can result in a valid contract
it is necessary that the offer should be made with an intention to
create legal relationship. Promise in the case of a social
engagements is generally without an intention to create legal
relationship, such an agreement cannot be considered to be a
contract. Thus an agreement to go for a walk, to go to movie, to
play some game, or entertain another person with a dinner, cannot
be enforced in a court of law. Sometimes the party may expressly
mention that it is not a formal or legal agreement, whereas in some
other cases such an intention could be presumed from their
agreement.

 The test to know the intention of the parties is objective and not
subjective. Merely because the promisor contends that there was
no intention to create obligation would not exempt him from
liability
In Rose and Frank Co. Vs. Crompton & Brothers
Ltd. the agreement between the parties provided ;
“ This arrangement is not entered into ………. as a
formal or legal jurisdiction in the Law Courts……. that
it (the agreement) will be carried through by parties
with mutual loyalty and friendly co-operation.”
One of the parties made a breach of this agreement.
In an action by the other party to enforce the
agreement, it was held that since the agreement had
provided that it was not a formal or legal agreement
the same was not enforceable..
In the case of Meritt Vs. Meritt, (1970) the husband
and wife were the joint owners of a building which was
subject to a mortgage to a building society. The
husband left the matrimonial home to live with
another woman. At that time, at the insistence of the
wife, the husband signed a note saying that the wife
will pay all outstanding amounts in respect of the
house and in return “I will agree to transfer the
property into your sole ownership”. It was held that
in this case it was clear that the parties intended to
create legal relationship and, therefore, the husband
was bound by the contract
Communication of offer
An offer when accepted results in a contract. An
offer can be accepted only after the same has come
to the knowledge of the offeree. It means that the
offer has to be communicated to the offeree in order
that the offeree can accept it. According to section 4,
“ the communication of a proposal is complete
when it comes to the knowledge of the person to
whom it is made.”
If an offer has not yet been communicated, even if somebody acts
according to the terms of the offer, he cannot be deemed to be the
acceptor of the offer. Acting in ignorance of an offer does not
amount to the acceptance of the same. This point may be explained
by referring to the case of Lalman Shukla Vs. Gauri Dutt. (1913)
In this case the defendant’s nephew absconded from home. The
plaintiff, who was defendant’s servant, was sent to search the
missing boy. After the plaintiff had left in search of the boy, the
defendant issued handbills announcing a reward of Rs. 501 /- to
anyone who might find the boy. The plaintiff who was ignorant of
this reward, was successful in searching the boy. When he came to
know of the reward, which had been announced in his absence, he
brought an action against the defendant to claim this reward. It was
held that since the plaintiff was ignorant of the offer of reward, his
act of bringing the lost boy did not amount to the acceptance of the
offer, and therefore, he was not entitled to claim the reward.
If the plaintiff has the knowledge of the offer, 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 reward mentioned in
the offer.
In Williams Vs. Carwardine (1833) the plaintiff who knew
that the 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.
While giving the information the plaintiff mentioned that
she had given the information ‘to ease her
conscience’. At that time she did not intend to claim the
reward. It was held that since the offer had been accepted
with its knowledge, there was a valid contract and,
therefore, she was entitled to claim the reward.
Cross Offers
When the offers made by two persons to each other
containing similar terms of bargain cross each other in
post they are known as cross offers. For example, on 31st
December, Alam offers to sell his radio set to Brown for
£5 through a letter sent by post. On the same date
Brown also writes to Alam making an offer to purchase
Alam’s radio set for £5. When Alam or Brown send
their letters they do not know about the offer which is
being made by the other side. In these cross offers, even
though both the parties intend the same bargain, there
arises no contract. A contract could arise only if either
Alam or Brown, after having the knowledge of the
offer, had accepted the same.
Counter Offer
The example of you purchasing shoes at Elephant
Road shops.
Specific and General Offers
When the offer is made to a specific or an ascertained
person it is known as a specific offer, but when the same
is not made to any particular person but to the public at
large it is known as general offer. For instance, an offer
to give reward to anybody who finds a lost dog is a general
offer This general agreement will be deemed to be
accepted by anyone who actually finds the lost dog. The
person, who accepts this offer, generally by performing the
condition of the proposal, can bind the person making the
offer. According to Section 8, “Performance of the
conditions of a proposal ….. is an acceptance of the
proposal.” Thus although a general offer is made to the
public at large, the contract is conclud4d only with that
person who acts upon the terms of the offer.
The case of Carlil Vs. Carbonic Smoke Ball Co. ( 1893) is an
illustration of a contract arising out of a general offer. The facts of
the case are : The defendants advertised their product “Carbonic
Smoke Ball”, a preventive remedy against influenza. In the
advertisement they offered to pay a sum of 100 pounds as reward to
any one who contracted influenza, colds or any disease caused by
taking cold, after having used the Smoke Ball three times a day
for two weeks, in accordance with the printed directions. They
also announced that a sum of 1000 pounds had been deposited with
the Alliance Bank to show sincerity in the matter. The plaintiff
( Mrs. Carlil ) relying on the advertisement purchased a Smoke Ball
from a chemist, used the same in accordance with the directions of
the defendants, but still caught influenza. She sued the defendants
to claim the reward of 100 pounds advertised by them. It was held
that this being a general offer addressed to all the world had ripened
into a contract with the plaintiff by her act of performance of the
required conditions and thus accepting the offer. She was therefore,
entitled to claim the reward.
When is the communication of acceptance
complete against the offeror (proposer) ?
 According to section 4 : “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.”
 For instance in response to my offer sent by post to you, you post
the letter of acceptance to me. As soon you have posted the letter
my power to revoke comes to an end. This may be made further
clear by referring to the following illustration ;
 A proposes, by a 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.
Revocation Of Offer
It is only after the acceptance of an offer that there arises a contract
and then both the parties become bound by their respective
promises. Before the offer has been accepted it can be revoked.
After the offer has been accepted it ripens into a contract and then
it cannot be revoked. According to Section 5 :
“ A proposal may be revoked at any time before the communication
of its acceptance is complete as against the proposer, but not
afterwards.”
How is revocation made?
Section 6, mentions the various modes of revocation, which are as
under :
A proposal is revoked –
(1) by the communication of notice of revocation by the proposer to
the other party ;
(2) by the lapse of 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 fulfil a condition precedent to
acceptance :
(4) by the death or insanity of the proposer, if the fact of his death or
insanity comes to the knowledge of the acceptor before acceptance:
 By notice of revocation
1. An offer ripens into a contract after it is accepted. Before it
has been accepted it creates no legal obligation and,
therefore, it may be revoked at any time before it is
accepted.
To be effective the notice of revocation has to be communicated
by the proposer and not by any body else.
2. By lapse of time
A proposal is revoked by the lapse of 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 to fulfil a condition precedent

When the offer is subject to some condition precedent, such a

condition has got to be fulfilled before the acceptance is made. If
there is failure of the acceptor to fulfil a condition precedent to
acceptance, the offer stands revoked. For example, if the offer
requires the deposit of some earnest money, or the execution of
some document etc. these conditions must be fulfilled. Failure to
fulfil these conditions may make an offer to lapse.
4. By the death or insanity of the offeror

An offer is revoked by the death or insanity of the proposer, if the

fact of death or insanity comes to the knowledge of the acceptor
before acceptance.
Standing, Open or continuing offer

 An offer which is allowed to remain open for acceptance over a

period of time is known as a standing, open or a continuing offer.
For example, an offer to supply 1,000 bags of wheat from 1st January
to 31st December, in accordance with the orders which may be
placed from time to time to time, is a standing offer. As and when
the orders are placed that amounts to acceptance of the offer to that
extent. In the above stated illustration if an order for the supply of
100 bags of wheat is placed on 15th January, there is acceptance of
the offer to that extent and the offeror becomes bound to supply
those 100 bags of wheat. So far as the remaining quantity is
concerned this offer can be revoked just like any other offer.
 Tender for supply of goods is a kind of standing offer. An
advertisement inviting tenders is merely invitation for quotations.
When the tender is approved it becomes a standing offer.
ACCEPTANCE
A proposal when accepted, results in an
agreement. It is only after the acceptance of the
proposal that a contract between the two parties can
arise.
According to Section 2 (b) : “ 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 “
The person making the proposal does not become
bound thereby until acceptance. As soon as his
proposal is accepted that is known as promise whereby
both the parties become bound.
Effect of Acceptance
A contract is created only after an offer is accepted. Before the
acceptance is made neither party is bound thereby. At that stage
the offeror is free to revoke or withdraw his offer, and the offeree is
free not to accept the offer or reject the same. After the offer has
been accepted it becomes a promise which, if other conditions of a
valid contract is satisfied, binds both the parties to the promise.
After acceptance each party becomes legally bound by the promise
made by him through the medium of offer or acceptance of it.
Essentials of a valid acceptance
In order that acceptance of an offer can result in a
contract the acceptance must satisfy the following
requirements.
1. Acceptance should be communicated by the offeree to
the offeror.
2. Acceptance must be made in the prescribed manner,
and if no manner is prescribed, in some usual and
reasonable manner.
3. Acceptance should be absolute and unqualified.
4. Acceptance should be made while the offer is still
subsisting.
1. Acceptance should be communicated
We have seen above that when the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be
accepted. It means that the offeree must signify his assent, or
communicate the acceptance.

When the parties are face to face, communication could be oral.

When they are at a distant place communication could be made by
post, by telegram, by a message on phone, through a messenger, or
in any other reasonable manner. Sometimes the conduct of a person
might indicate his assent. For example, when a passenger boards a
bus and travels thereby, he impliedly assents to pay the necessary
fare.
When is communication of acceptance
complete ?
As soon as the communication of acceptance is
complete that results in a contract whereby both the
parties become bound. In case the parties to the
contract are present at the same place, one making the
offer and the other communicating the acceptance,
both parties become bound immediately. The
problem arises when the parties are at a distant place
and the contract is concluded through post
Revocation of acceptance
since the acceptor does not become bound immediately on posting
his letter of acceptance, he is free to revoke the acceptance by
adopting speedier mode of communication, whereby his
communication of revocation of acceptance may reach earlier than
his letter of acceptance. Section 5 expressly permits the revocation
of acceptance through the following provision :
“An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the
acceptor, but not afterwards.”

Illustration
A proposes, by a 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.
2. Acceptance should be in the prescribed manner

 If the proposal prescribes any manner of acceptance, the acceptance

must be made in that manner. When the manner of acceptance has
not been prescribed, it must be made in some usual and reasonable
manner.
 Acceptance by post, telegram, telephone or through personal
messenger may be considered to be a usual manner of acceptance.
If no manner of acceptance is prescribed, acceptance in some usual
and reasonable manner will suffice. If, however, the proposal
prescribes any particular manner of acceptance, the acceptance
must be made in that manner. If the proposal prescribes a manner
in which it is to be accepted, and the acceptance is not made in such
manner, then, according to Section 7 (2), of the Indian Contract
Act, “the proposer may, within a reasonable time after acceptance is
communicated to him, insist that his proposal shall be accepted in
prescribed manner, and not otherwise ; but if he fails to do so, he
accepts the acceptance.”
 3. Acceptance should be absolute and
unqualified:
It lapses by rejection or counter-offer
Another essential of valid acceptance, which can
convert a proposal into a contract, is that the
acceptance must be absolute and unqualified.
Conditional or qualified acceptance is no acceptance
which could result in a contract. By such an acceptance
the offer is deemed to be rejected. By such an
acceptance the offer is deemed to be rejected. The
effect of such a counter-offer in the eyes of law is to
destroy the original offer. And an offer once refused is
dead and cannot be accepted unless renewed.
4. Acceptance should be made while
the offer is still subsisting
We have seen earlier that the offeror is free to
withdraw the offer, or the offer is revoked under
various circumstances mentioned in section 6. After
the offer has been withdrawn or has lapsed there is
nothing which can be accepted. It is, therefore,
necessary that the acceptance should be made while
the offer is still alive and subsisting. Acceptance after
the lapse of the offer cannot give rise to a contract.
Similarly, the offer is deemed to have ended by
rejection of the original offer or a counter offer.