This Offer & Acceptance – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.
Offer & Acceptance – CA Foundation Business Law Study Material
What is an offer? List the essentials of a valid offer.
Section 2(a) of the Indian Contract Act defines a proposal as:
“When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence he is said to make a proposal”.
The person who makes the offer is called the ‘offeror’ or ‘promisor’ and the person to whom the offer is made is called the ‘offeree or ‘promisee
- An offer may be express or implied.
- An offer may be specific or general.
- An offer must be made with a view to creating a legal relationship.
- Offer must be distinguished from an invitation to offer.
- An offer must be communicated to the offeree.
- The terms of the offer must be certain & may include an act or an abstinence
- An offer may be conditional and all special terms & conditions must be communicated along with the offer.
- An offer must not be “negative ” in terms. An offer should not contain a term the non-compliance of which would amount to acceptance.
- An intention to make an offer in the future does not result in an offer.
Define acceptance. What are the essentials of a valid acceptance?
Section 2(b) states that “A proposal when accepted becomes a promise” and defines ‘acceptance’ as “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.”
- Acceptance must be absolute and unqualified.
- Acceptance must be given only by the person to whom the offer is made.
- Acceptance may be expressed in words, spoken or written, or maybe given by conduct.
- Acceptance must be expressed in the prescribed manner or when nothing is prescribed then in some usual and reasonable manner.
- Acceptance must be communicated by the acceptor.
- Acceptance must be given within a reasonable time and before the offer lapses and or is revoked.
- Acceptance must succeed the offer.
- Rejected offers can be accepted only if renewed.
- Generally, acceptance cannot be presumed from silence.
Explain the modes of revocation of an offer as per the Indian Contract Act, 1872,
As per the provisions of the Indian Contract Act, 1872, the following are the modes of revocation of an offer
1. By notice An offer may be revoked by communication of notice to the offeree by the offeror before the communication of acceptance is completed as against him.
2. By Lapse of time proposal stands revoked by the lapse of time pre¬scribed for its acceptance if the communication of acceptance is not made.
3. By failure to fulfill condition precedent sometimes the offer may impose certain conditions, such as executing a certain document or depositing a certain sum of money (earnest money), which are required to be complied with prior to acceptance. If the acceptor fails to fulfill the conditions precedent to acceptance, the offer is treated as revoked.
4. By death or insanity of offeror offer stands revoked if the offeror dies or becomes of unsound mind before acceptance and the fact of his death or insanity comes to the knowledge of the offeree.
5. By counter offer when acceptance is given by the offeree on terms & conditions different from the original offer then the offer stands revoked.
6. By death or insanity of the offeree If the offer is specific the offer stands revoked when the offeree dies or becomes of unsound mind, before the acceptance of the offer.
7. By the destruction of subject matterWhen, the subject matter of the offer is destroyed prior to acceptance, then the offer stands revoked.
8. By change in the law when the offer becomes impossible due to a change in law prior to acceptance, thereby making it unlawful then the offer stands revoked.
9. By non-acceptance of the offer as per the prescribed mode when the offeree sends acceptance in a mode other than the mode prescribed by the offeror, the offer may be treated as revoked.
Write a short note on:
- Cross offer
- Counter Offer
- Invitation to Make an Offer
(1) Cross OfferWhen two persons make identical offers to each other, without having knowledge of each other’s offer, then such offers are known as cross offers. These offers are independent & identical and do not constitute a contract until acceptance is given to any one of them.
(2) Counter Offer:- When an offer is accepted on terms or conditions different than those set out in the original offer then it amounts to a counter offer. A counteroffer results in rejection of the original offer and the creation of a new offer. Once a counteroffer is made by the original offeree, he cannot subsequently accept the original offer, since the original offer stands revoked. It is only if acceptance is given to the new offer that a contract shall be created.
(3) Invitation to offer or invitation to treat means supply of information so that the negotiations can start and the other person can be moved to make an offer. It is an indication that the inviter is willing to enter into negotiations but is not yet prepared to be bound. Response to an invitation to treat does not lead to an agreement. In fact, it generates an offer. An invitation to offer is a statement made by a person with a view to elicit a response and negotiate a deal, without expressing final willingness to contract. An invitation to offer, when responded generates an offer.
The following are few examples of invitations to make an offer:
- Catalog of goods does not offer, but only an invitation for an offer.
- Display of goods with price tags in a self-service shop is merely an invi¬tation to offer.
- A tender notice does not amount to an offer; it is merely an invitation to contractors for making offers.
- A prospectus issued by a company to purchase its shares or debentures is an invitation to offer.
- A menu card in a hotel is an invitation to offer, etc.
Thus an offer is an expression of final willingness to do or not to do something, with a view to obtaining the assent of the other person. Whereas invitation to an offer only indicates broad terms for negotiating business and while an offer results in the generation of acceptance in its response, an invitation to an offer results in the generation of offers in its response.
What are the exceptional cases when silence may be regarded as an acceptance of an offer?
Silence generally does not amount to acceptance. The acceptance of an offer cannot be implied from the silence of the offeree or his failure to respond to the offer. However, in the following exceptional cases, silence may be regarded as acceptance to an offer and it results in the creation of a binding contract –
(i) Where the offeree having a reasonable opportunity to reject the offered goods/services, enjoys or avails the benefits of them, then his silence will be regarded as acceptance.
(ii) Similarly, where the previous dealings show that the offeree has given the offeror a reason to believe that the silence of the offeree was a manifestation of his acceptance and the offeror understands so, then silence will be regarded as acceptance of the offer.
What are the rules for completion of communication of offer & acceptance by post?
The communication of offer completes when the offer comes to the knowledge of the offeree.
The communication of acceptance completes at different times for the offeror & the offeree, as under:
(i) As against the offeror. The communication of acceptance completes as against the offeror when the letter of acceptance is put into a course of transmission by the offeree to the offeror, so as to be beyond the reach & power of the offeree. After such communication, the offeror is bound by the acceptance.
(ii) As against the offeree:- The communication of acceptance is complete as against the offeree. When it comes to the knowledge of the offeror. After such communication, the offeror has a right to bind the offeree by his acceptance.
A shopkeeper exhibits an article in his shop window’ with a price tag attached to it. A customer offers to buy the article for the same price. Is the shopkeeper bound to part with the article receiving the price offered by the customer?
No, there is no sale because the display of the article at the shop window is only an invitation to offer and not an offer [invitation to an offer does not result in the generation of acceptance, instead gives rise to an offer
A railway passenger receives a ticket on the face of which is printed ‘This ticket is issued subject to rules/regulations/conditions contained in the current timetable of the railways’. Comment on whether he is bound by these terms.
He shall be bound by them whether he has read them or not [if special terms and conditions are communicated along with the offer, then the same shall be binding on offeree]
State when the communication will be complete in the following cases:
- D proposes, by a letter, to sell his printing machine to E for ₹ 50,000.
- E accepts D’s proposal.
- D revokes his proposal by a telegram.
- E revokes his acceptance by telegram
- When E receives the letter
- Against D, where E posts letter; Against E, when the letter is received by D
- Against D, when he sends the telegram; Against D, when he received the telegram
- Against E, when he sends the telegram; Against D, when he receives the telegram.
“Good Girl” Soap Co. advertised that it would give a reward of ₹ 1,000 who developed skin disease after using, “Good Girl” soap of the company for a certain period according to the printed directions. Miss Rakhi purchased the advertised “Good Girl” and developed skin disease in spite of using this soap according to the printed instructions. She claimed a reward of ₹ 1,000. The company refused the reward on the ground that the offer was not made to her and that in any case, she had not communicated her acceptance of the offer. Decide whether Miss Rakhi can claim the reward or not. Refer to the relevant case law, if any.
Hint: Miss Rakhi can claim the reward since the advertisement here is in the form of a general offer
Ramaswami proposed to sell his house to Rainanathan. Ramanathan sent his acceptance by post. The next day, Ramanathan sends a telegram withdrawing his acceptance. Examine the validity of the acceptance in the light of the following:
- The telegram of revocation of acceptance was received by Ramaswami before the letter of acceptance.
- The telegram of revocation and letter of acceptance both reached together.
- Revocation is valid and there is no contract as it has reached before the letter of acceptance.
- Revocation is valid and there is no contract if Ramaswami opens the telegram about revocation first and reads it.
Revocation is not valid and the contract is formed – if Ramaswami opens the letter of acceptance first and reads it.
A shopkeeper displayed a pair of dresses in the showroom and a price tag of ₹ 2,000 was attached to the dress. Ms. Lovely looked at the tag and rushed to the cash counter. Then she asked the shopkeeper to receive the payment and pack up the dress. The shopkeeper refused to hand over the dress to Ms. Lovely in consideration of the price stated in the price tag attached to the dress. Ms. Lovely seeks your advice on whether she can sue the shopkeeper for the above cause under the Indian Contract Act, 1872.
An offer must be distinguished from an invitation to make an offer. An offer is the final expression of willingness by the offeror to be bound by the offer if the offeree chooses to accept it. On the other hand, an invitation to make an offer is made with the intention to negotiate business on the terms specified broadly in the invitation, with any person who comes forward with an offer. Thus the offer is made with the intention of procuring acceptance whereas an invitation to make an offer is made to procure offers. The acceptance of an invitation to an offer does not result in the formation of a contract and only an offer emerges in the process of negotiation. A price tag attached to an article displayed for sale does not constitute an offer. It is merely an invitation to offer.
In the given case the dress displayed in the showroom with the price tag constitutes an invitation to make an offer. The act of Ms. Lovely of picking up the dress and producing it at the cash counter for payment at the price mentioned in the price tag amounts to an offer. The shopkeeper is not bound to accept the offer.
Thus the shopkeeper is not bound to sell the dress as no contract exists between Ms. Lovely and the shopkeeper and hence she cannot sue the shopkeeper. 0-13 Shambhu Dayal started the “Self service” system in his shop. Smt. Prakash entered the shop, took a basket, and after taking articles of her choice into the basket reached the cashier for payments. The cashier refuses to accept the price. Can Shambhu Dayal be compelled to sell the said articles to Smt. Prakash? Decide as per the provisions of the Indian Contract Act, 1872.
Hint: The display of goods in a self-service shop is in the form of an invitation to offer; selection of goods & producing them for payment to cashier amounts to an offer by the customer to purchase the goods. It is only when the cashier accepts the price being offered and agrees to sell that contract is created.
In the given case Shambhu Dayal cannot be compelled to sell the articles to Smt. Prakash, since he has rejected her offer to buy the said articles & therefore no contract, is created between them.
H sent a telegram to K asking – “Will you sell us Bumper Hall Penn? Telegraph the lowest cash price.” K replied through a telegram. “The lowest cash price for Bumper Hall Penn is ₹ 50,000.” H replies through a telegram. “We agree to buy Bumper Hall Penn at the price of ₹ 50,000 asked by you. Send the title deeds. “Comment on the validity of contract created between H & K.
Hint: A quotation price is merely an invitation to an offer; thus Khas merely replied to H’s query by sending a price quotation. Agreeing to or accepting the price quotation does not amount to acceptance. Thus no contract is created between H & K and K is not bound to sell Bumper Hall Penn.
X purchased a steamer ticket for traveling from Dublin to Whitehaven. Terms & Conditions were printed on the back of the ticket. One of the conditions prescribed in that the shipping company shall not be liable in the event of loss, injury, or delay to the passengers or their luggage. X did not see the back of the ticket and there was no instruction on the face of the ticket to see the back for the terms & conditions. During the journey X’s luggage is lost due to negligence of the staff on board. X claims loss from the shipping company which denies its liability on the grounds that the company has expressly excluded its liability at the time of formation of contract comment whether the shipping company’s stand is tenable in the context of provisions of the Indian Contract Act, 1872.
Hint: Essentials of a valid offer; the special terms & conditions must also be communicated along with the offer so as to bind the offeree. If the special terms & conditions are not communicated the same shall not be binding on the offeree. Further, the party prescribing such special terms must make reasonable efforts to bring such special terms to the knowledge of the other party at the time of formation of the contract.
Thus in this case X shall be entitled to compensation for his loss from the shipping company, despite the special term exempting the company from its liability since there was no indication on the face of the ticket to draw X’s attention to the special terms printed on the back of the ticket. The company has failed to make reasonable efforts to communicate the special terms at the time of formation of contract as a consequence of which X is not bound by such term and company’s contention is not tenable.
A sends an offer to B to sell his second car for Rs. 1,40,000 with a condition that if B does not reply within a week, he (A) shall treat the offer as accepted. Is A correct in his proposition? What shall be the position if B communicates his acceptance after one week?
Hint: Silence, generally, does not amount to acceptance. The acceptance to an offer cannot be implied from the silence of the offeree or his failure to answer or respond to the offer unless the offeree has by his previous conduct indicated that his silence implies acceptance. Further, under the provisions of the Indian Contract Act, 1872, an offer shall be regarded as invalid if it binds the other party to reply or if it contains any terms, the non-compliance of which may be assumed to amount to acceptance. Thus the offer is invalid & A’s proposition is incorrect & B’s silence would not amount to acceptance. If B communicates acceptance after 1 week then also no contract shall be created since the offer is invalid.
B sent a draft agreement relating to the supply of coal and coke to the Manager of a Railway Company for his acceptance. The Manager wrote “approved” on the same and put the draft in his table drawer, intending to send it to the company’s solicitors for a formal contract to be drawn up. By oversight, the draft agreement remained in the drawer. Comment on the validity of the contract in the light of the Indian Contract Act, 1872.
Hint: A contract is created the moment an offer, made with the intention of creating legal relations, is accepted. However, acceptance to be valid and binding must be communicated. Thus efforts must be made to bring the acceptance into the knowledge of the offeror, ie. acceptance must be put into a course of transmission to the offeror by the offeree.
In the case of written communication merely writing the word ‘accepted’ or ‘approved’ on a draft agreement would not amount to acceptance for the purpose of creation of contract unless efforts are taken to bring such acceptance into the knowledge of the offeror. Thus in the given case, no contract comes into existence even when the manager writes ‘approved’ on the draft agreement since no steps were taken to communicate the same.