Offer and Acceptance – CA Foundation Law Notes

Browsing through Offer and Acceptance – CA Foundation Law Notes help students to revise the complete subject quickly.

Offer and Acceptance – CA Foundation Business Law Notes

Introduction:
→ The offer or proposal is the starting point in the formation of a contract. The parties through negotiation & bargaining may strike a deal resulting into acceptance of offer, thereby creating a contract.

→ However in the modern times, due to enormous increase in the commercial transactions, ‘standard form’ of contracts is used. For example, the insurance company prints the terms of insurance contract in advance on a standard form and the insured person has to simply sign on the dotted lines indicating his acceptance. These terms are not open for discussions or bargaining and the other party has to either ‘take it or leave it’.

→ Such standard forms of contract containing the various conditions and terms are also called as ‘adhesive contracts’. These contracts have become the order of the day.

Offer and Acceptance – CA Foundation Law Notes

What is an offer?
The Indian Contract Act uses the term proposal, instead of offer. However the words proposal and offer are synonymous and are used interchangeably. 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 definition of proposal has two elements:
→ It must be an expression/declaration of the willingness to do or to abstain from doing something. For example, A says to B, will you buy my car for ₹ 2 lakh? This is a declaration to sell the car.

→ This declaration is made with a view to obtain the assent of the other person to such act or abstinence. Thus a casual statement that “I may sell my Maruti car if I can get ₹ two lakh for it” is not a proposal, because this expression is not made with a view to obtain assent of the other person.

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’. [Sec. 2(c).]

Illustration – The case of Harveyv. Facey( 1893, AC 552) illustrates nicely the concept of offer. Harvey sent a telegram to Facey “Will you sell us your Bumper Hall Pen₹ Telegraph lowest cash price”. Facey replied also by telegram, “Lowest price for Bumper Hall Pen pound 900”. Harvey immediately sent second telegram “We agree to buy Bumper Hall Pen for the sum of pound 900 asked by you”. There was no reply from Facey.

Hence, there was no concluded contract between Harvey and Facey. In the first telegram, Harvey asked two questions, first as to willingness to sell and second as to the lowest price. Facey answered only the second question and gave the lowest price.

He reserved his answer to the willingness to sell. Thus he made no offer. The second telegram sent by Harvey was an offer to buy, but that was never accepted by Facey. Mere statement of lowest price at which the vendor would sell contains no implied promise to sell at that price to the person making the enquiry.

(A) Legal Rules Regarding Offer:
1. An offer may be express or implied –
When the offer is made in words, it is said to be express. An implied offer is one which is inferred from the act or conduct of the party or from the circumstances of the case. Sec. 9 states, “In so far as the proposal or acceptance of any promise is made in words the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied”.

Examples:

  • When MSRTC bus runs on specific routes there is an implied offer to carry passengers for a certain fare.
  • A weighing machine at the railway station is an implied offer to use the machine by inserting the requisite coin. A person who inserts the coin accepts the offer.

2. An offer may be specific or general:
When an offer is made to a specific person or a group of specific persons (for example an offer to doctors), is called a specific offer. When the offer is addressed to public at large, it is called a general offer. A specific offer can be accepted by the specific person only, while a general offer can be accepted by any member of the general public.

Examples:
→ A advertises that whosoever finds and brings his lost briefcase to him shall be paid ₹ 500; it is a general offer and when B finds out the briefcase and brings it to A, it amounts to acceptance of the offer by B.

→ The Carbolic Smoke Ball Co., issued an advertisement in which the Company offered to pay pound 100 to any person who contracts influenza, after having used their smoke balls three times daily for two weeks, according to the printed direction. Mrs. Carlill, on the faith of the advertisement, bought and used the balls according to the directions, but nevertheless suffered from influenza. She sued the company for the promised reward. The company was held liable. [Carlill v. Carbolic Smoke Ball Co., (1893) 10 B 256]

3. An offer must be made with a view to create legal relationship:
If the offer is made to create only a social or moral obligation, the obligation shall not be legally binding. Mere invitation to dinner is no offer. An offer to go to a picnic or an offer by a father to give a mobile to his son on passing C.A. foundation exams are the examples where there is no intention to create legal relationship.

4. Offer must be distinguished from an invitation to offer:
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. A response to invitation to treat does not lead to an agreement. In fact it generates an offer.

Preliminary negotiations, or expressions of interest will be regarded as invitations to treat, rather than as offers. Thus, a sales person issuing a catalogue or price list informs the customers about the available products and theif prices, makes an invitation to offer. Any person desiring to buy any of those products will be making an offer, which may or may not be accepted.

The distinction between an offer and an invitation to offer depends upon the intention of the parties and this must be judged objectively.

Offer Invitation To Offer
1. An offer is an indication by one person that he is prepared to enter into contract on certain terms. An invitation to offer is a statement made by a person with a view to elicit response and to negotiate a deal, without expressing final willingness to contract.
2. When an offer is accepted it becomes a promise. An invitation to offer, when responded generates an offer.

Offer and Acceptance – CA Foundation Law Notes

Examples:
→ Catalogue of goods is not offer, but only an invitation for offer; so also statement of lowest price in answer to enquiry.

→ Display of goods with price tags in a self-service shop is merely an invitation to offer, and when a customer picks up those goods and intends to buy them that amounts to an offer. The shop-keeper is free not to accept that offer.

→ A letter from a prospective buyer asking for quotations from a merchant is an invitation for an offer.

→ A tender notice does not amount to an offer; it is merely an invitation to contractors for making offers. An advertisement calling for tenders, therefore, is not a proposal within the meaning of the Contract Act. It only invites a proposal It is the submission of a tender which is in the nature of a proposal or an offer.

→ A prospectus issued by a company to purchase its shares or debentures is an invitation to offer. Application for the shares amounts to offer to the company. Allotment of shares by the company amounts to acceptance of the offer.

→ A menu card in a hotel is an invitation to offer. When the order for eatables is placed it amounts to offer.

→ Newspaper advertisements are generally not offers. Thus a newspaper advertisement inviting applications for jobs is not an offer but an invitation to offer. However the newspaper advertisement may be drafted in such a way that they may constitute offer. For example an offer for reward published in a newspaper may constitute an offer and any person who performs the required act accepts the offer and creates an agreement.

→ An advertisement inviting intending buyers of goods to come and make bids at the auction is merely invitation to offer. Each bid is an offer, and when a bid is accepted that amounts to acceptance of the offer and results in an agreement.

→ A Railway time table is not an offer. The Railway time table usually contains a notice “Railways gives notice that they do not undertake that the trains will arrive at the time specified in the time tables nor will they be accountable for any loss, inconvenience or injury that may arise from the delays or detentions”.

5. An offer must be communicated to the offeree:
There can be no acceptance of an offer until the communication of the offer has been made to the offeree.
Example:
G’s nephew was missing from home. He sent his servant L in search of his nephew. After his servant had left, he announced a reward for anybody who would trace his nephew, traced the nephew without knowing the announcement of the reward.

When he came to know of the reward he claimed it. It was held that he could not recover the reward as the offer containing the reward was not communicated to him.

6. The terms of offer must be certain:
The terms of the offer must be certain or capable of being made certain. They should not be vague or ambiguous. For example, A says to B “I will give you a reasonable price if you sell the car”. This is not an offer since it is vague. According to sec. 29, agreements the meaning of which is uncertain are void.

7. An offer may be conditional:
An offer may be subject to terms and conditions. In such cases –

  • the conditions must be clearly communicated to the offeree
  • the conditions must be reasonable.

Examples:
→ A landlord’s offer to rent his house only to a vegetarian family is a conditional offer.

→ X delivered one new sari to a laundry for washing. On the back of the printed receipt it was stated that the customer would be entitle to recover only 15% of the market-price of the article in case of loss. The sari was lost owing to the negligence of the laundry. In a suit by X it was held that the term was unreasonable. Such a term would give a premium on dishonesty and is against the public interest. Lily White v. R. Munnuswami. AIR (1966) Mad 13.

8. An offer must not be “negative” in terms:
An offer should not contain a term, the non-compliance of which would amount to acceptance. For example. X writes to Y “I shall buy your house for ₹ 20 lakh. If you do not reply I shall assume that you have accepted my offer” This is not a valid offer.

9. Two identical cross offers do not make a contract:
When two persons make an offer to each other on similar terms, without having the knowledge of the offer being made by the other side, it is known as cross offer. Such cross offer does not amount to acceptance of one’s offer by the other and therefore does not constitute a contract.

Example – X, by a letter, offers to sell his car to Y for ₹ one lakh. Y, by a letter, which crosses, X’s letter in the post, offers to buy it for ₹ one lakh. The offers are cross offers and no binding contract will arise. A contract can arise only when acceptance is given after the knowledge of the offer.

(B) Kinds of Offer:
1. Express or implied Offer:
When the offer is made in words, it is said to be express. An implied offer is one which is inferred from the act or conduct of the party or from the circumstances of the case. Sec. 9 states. “Insofar as the proposal or acceptance of any promise is made in words the promise is said to be express. Insofar as such proposal or acceptance is made otherwise than in words, the promise is said to be implied”.

2. Specific or general Offer:
When an offer is’ made to a specific person or a group of specific persons (for example an offer to doctors), is called a specific offer: When the offer is addressed to public at large, it is called a general offer. A specific offer can be accepted by the specific person only, while a general offer can be accepted by any member of the general public.

3. Standing offer:
A standing offer is a continuous offer. It consists of an offer to supply goods as and when required during a certain period for a certain price. It usually takes the form of a tender. It creates a contract only when an order of specified quantity is given to the tenderer.

Thus each order placed creates a separate contract. A Ltd. gives a standing offer to supply cement to Public Works Department (PWD) at ₹ 130 per cement bag for the period of one year with a minimum quantity of 1 lakh bags. This is a standing offer. PWD can place order anytime during the year and purchase cement for ₹ 130 per bag but they will have to buy minimum 1 lakh bags of cement.

4. Cross Offer:
When two persons make an offer to each other on similar terms, without having the knowledge of the offer being made by the other side, it is known as cross offer. Such cross offer does not amount to acceptance of one’s offer by the other and therefore does not constitute a contract.

5. Counter Offer:
It is necessary that the acceptance must match the offer. It must be a mirror image of the offer. If any alteration is made, or anything added, then this will be a counter offer, and will terminate the offer. A counter offer is an implied rejection of original offer. [Union of India v. Bahulal AlR 1968 Bombay 294]

Standard form of contracts: In the modern times due to ever-increasing growth in trade & commerce, contracts are concluded in standardized forms. Organisation like LIC, GIC, Railways enter into thousands of contracts every day.

It is not possible for them to draft separate contracts with every individual. They issue printed forms of contract, which contains a large number of terms and conditions in “fine print” which restrict and often exclude liability under the contract. The individual is bound to sign them whether he likes the terms or not.

They are for him to take or leave, he cannot alter those terms or even discuss them. Previously the offerees of such printed forms were helpless against such giant organisations which availed the opportunity to exploit the weak individuals by imposing onerous terms upon them.

However in the recent times, in order to protect the oppressed individuals the courts have evolved various modes of protection. In fact in England. The (English) Unfair Contract Terms Act, 1977 was enacted to protect the individuals from unreasonable terms in the printed contracts.

Offer and Acceptance – CA Foundation Law Notes

What is An Acceptance?
A contract emerges from the acceptance of an offer. 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 converts the offer into a promise and then it is too late to remove it. Acceptance is to offer what a lighted match is to a train of gunpowder. It produces something which cannot be recalled or undone.

(A) Legal rules regarding a valid acceptance:
1. Acceptance must be absolute and unqualified [Sec. 7(1)] – A conditional or a qualified acceptance is no acceptance at all. There should be 100% acceptance of the terms of the offer. The acceptance must match with the offer. It should be a mirror image of the offer. An acceptance with a variation is no acceptance but is a mere counter proposal, which the original offer or may accept or not.

Merret offered to sell his land to Neale for 280 pounds. Neale accepted the offer and enclosed a cheque for 80 pounds only and promised to pay the balance 200 pounds by monthly instal : ments of 50 pounds each. Held there was no acceptance. [Neale v. Merret (1930) W.N. 189]

2. Acceptance must be given only by the person to whom the offer is made In the case of specific offer, it can be accepted only by that person to whom it is made. (Boulton v. Jones (1857) ER 232). In the case of a general offer, it can be accepted by any one by complying with the terms of the offer {Carlill v. Carbolic Smoke Ball Co. (1893)}

3. Acceptance may be expressed or given by conduct – Acceptance may be expressed in words, spoken or written or it may be implied by conduct.

4. Acceptance must be expressed in some usual and reasonable manner. [Sec. 7(2)] –
(a) Acceptance in a prescribed manner. If the offeror prescribes a particular method or type of acceptance, it should be given in that manner. Ex: If the offeror insists that acceptance should be given by telegram, then that method should be followed.

(b) Acceptance in usual and reasonable rpannenli the offeror does not prescribe any par-ticular method of acceptance in that case according to sec. 7(2), the acceptance must be expressed in some usual and reasonable manner.

(c) Consequences of not following the prescribed manner. If the offeree fails to follow the prescribed mode of acceptance, the offeror may accept or reject such acceptance. If the offeror wants to reject it, he must inform the acceptor within a reasonable time that he is not bound by acceptance because it is not in the prescribed manner. If he does not inform the offeree, he is deemed to have accepted the acceptance although it is not in the desired manner.

For example : X offers to buy house from Y at a certain price asks Y to send a telegram, if he accepts Y writes a letter accepting the offer. X may insist on a telegram from Y; but if X does not insist, the acceptance is valid.

5. Acceptance must be communicated by the acceptor – Acceptance is not complete unless and until it is communicated to the offeror (Pawell v. Lee, 1908). Mental acceptance is no acceptance. But the party entitled to get the communication of acceptance can waive that right expressly or impliedly. In the case of unilateral contracts such waiver can generally be assumed.

For example – a reward for finding a lost bag. If the agree¬ment is signed and kept in the drawer instead of sending it to the other party then there is no acceptance (Brogden v. Metropolitan Railway Co.)

When communication of acceptance not necessary₹ (Exceptions to the rule that acceptance must be communicated):
Acceptance can be by conduct. Where an offer takes the form of a promise to pay money in return for an act, the performance of that act will constitute acceptance. For example when a trader sends goods on receiving an order from a customer it is a case of acceptance by conduct.

Sec. 8 provides that “performance of the conditions of a proposal is an acceptance of the proposal Similarly the acceptance of any consideration for a reciprocal promise is also an acceptance of the proposal ”

Thus communication of acceptance is not necessary in the following cases: (i.e., acceptance is implied)
a. By performance of conditions:!! the offeree merely performs the conditions of an offer, he will be taken to have accepted it. (Carlill v. Carbolic Smoke Ball Co. (1893) 1 Q.B. 269).

b. By acceptance of consideration: Sometimes offeror may send consideration with offer. If the offeree accepts the consideration, he accepts the offer. A sends a cheque of X one lac to B and offers to purchase his car for X one lac. If B encashes the cheque, he accepts the offer of A.

c. By accepting a benefit or service: Where offeree enjoys or avails the benefits of goods or services.

d. By acceptance of an offer by conduct: Example of trader sending goods on receiving an order

e. By waiver of the communication of acceptance : Where the party entitled to get the communication of acceptance waives-the right.

In the modern world contract may well be made by much more sophisticated means of communication than by the post. Telexes, faxes, and e-mail are all widely used, in addition to letters and telephones, as means of transmitting offers, counter-offer, acceptance and rejections. If one of these methods is used for an acceptance, when is it effective? (It takes effect at the point of receipt as held in Enstores Ltd. v. Miles Far East Corporation)

6. Acceptance must be given within a reasonable time and before the offer lapses and or is revoked – The acceptance must be made when the offer is in force. If any time limit is prescribed in the offer, it should be accepted within that prescribed time limit. However if no time limit is prescribed, it must be accepted within a reasonable time. What is reasonable time depends upon the facts of each case.

7. Acceptance must succeed the offer –
There is an offer first followed by its acceptance to create a contract. There can be no acceptance without offer. Acceptance in ignorance of the offer is no acceptance.

8. Rejected offers can be accepted only, if renewed –
Once an offer is rejected it is dead. Only when the offer is renewed, that it can be accepted.

9. Acceptance cannot be presumed from silence –
The acceptance of an offer cannot be taken as implied from the silence of the offeree. A mere silence or inaction of the offeree not evidenced by words or conduct, is in the eye of law no acceptance at all. For example, in Fellkouse v. Bindley (1862) F offered to buy B’s horse and added that if B did not reply within 2 weeks, F would be taken to have become the owner of the horse. The court held that no man can accept an offer by remaining silent.

Offer and Acceptance – CA Foundation Law Notes

Communication of offer and Acceptance:
When the contracting parties are face to face and negotiate in person there is instantaneous communication of offer and acceptance. But where services of the post offices are utilised for communication the following rules as laid down in sections 4 and 5 will apply.

Communication of offer (Sec. 4) : The communication of offer is complete when it comes to the knowledge of the person to whom it is made.

Communication of acceptance (Sec. 4): The communication of acceptance has two aspects viz., as against the proposer and as against the acceptor. The communication of an acceptance is complete –

  • as Against The Proposer, when it is put in a course of transmission to him so as to be out of the power of the acceptor.
  • as Against The Acceptor, when it comes to the knowledge of the proposer i.e., when the letter of acceptance is received by the proposer.

Illustration:
B accepts A’s proposal by a letter sent by post on 16th instant. The letter reaches A on 20th instant. The communication of acceptance is complete, as against A (proposer) when the letter is posted, i.e., 16th as against B on 20th i.e., when the letter is received by A.

The acceptor becomes bound only when his acceptance comes to the knowledge of the proposer. After the posting of the acceptance and before its delivery to the proposer, the acceptor has the right to rescind the contract by revoking his acceptance by speedier means.

Communication of revocation when complete Sec. 4:

  • as against the person who makes it: When it is put into a 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.

Illustration:
A revokes his proposal by telegram. The revocation is complete as against A when the telegram is despatched. It is complete as against B when B receives it. B revokes his acceptance by telegram. B’s revocation is complete as against B when the telegram is despatched and against. A when it reaches him.

Offer and Acceptance – CA Foundation Law Notes

Revocation of Offer and Acceptance: Sec. 5:
Revocation of a proposal:
It may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards (Sec. 5). This means that offer can be revoked at any time before the letter of acceptance is posted by the acceptor.

Revocation of an acceptance:
It may be revoked a(any time before the communication of its acceptance is complete as against the acceptor, but not afterwards (Sec. 5). This means that an acceptance can be revoked at any time before the letter of acceptance is actually received by the proposer.

Revocation – How Made/Lapse of Offer: Sec. 6:
An offer lapses or comes to an end –

  • By notice of revocation: If the offeror gives notice of revocation to the other party, i.e, expressly withdraws the offer.
  • By passage of time: By passage of a stipulated time and if no time is stipulated, it lapses by the expiry of a reasonable time.
  • By death or insanity: By death or insanity of the offeror if the fact of the death or insanity is known to acceptor.
  • By failure of the acceptor to fulfil a condition precedent to acceptance.
  • By counter offer: An offer is revoked if a counter offer is made to it. A response to an offer which introduces new terms or conditions is a counter offer.
  • By rejection. When an offer is rejected it is dead and cannot be revived by its subsequent acceptance.

Leave a Comment

Your email address will not be published. Required fields are marked *