Q.1. How can a proposal be accepted? State the essential and effect of a valid acceptance.
Q.2. How can an offer be accepted? State briefly the rules relating to the communication of acceptance.
Q.3. Briefly set out the rules regarding communication, acceptance and revocation of a proposal.
Q.4. What is offer? What are the essentials of a valid offer? Distinguish between offer and invitation to offer?
Q.5. Discuss the process of formation of contract with reference to proposal and acceptance.
Q.6. Briefly set out the rules regarding communication, acceptance and revocation of a proposal.
Q.7. What is (define and explain) ‘Proposal’ and ‘Acceptance’? State the rules as to valid Acceptance.
Q.89. What is an offer? When is it complete? State the rules as to valid offer.
SYNOPSIS
1. Communication of Willingness:
2. Intention to Create Legal Relationships:
3. Terms Must Be Certain and Definite:
4. Express or Implied Offer:
5. Distinguished from an Invitation to Offer:
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Definition (Section 2(b)):
1. Acceptance Must Be Communicated:
2. Express or Implied:
3. Must Be Absolute and Unqualified:
4. Prescribed Mode:
5. Prescribed or Reasonable Time:
Part III: Communication, Acceptance, and Revocation Rules
1. Postal Rule Mechanics
a. Binding the Proposer:
b. Binding the Acceptor:
i. Revocation of Offer:
(1). By Notice of Revocation:
(2). By Lapse of Time:
(3). By Failure to Fulfill a Condition Precedent:
(4). By Death or Insanity:
English Law:
Indian Law:
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The word ‘proposal’ under the Indian Contract Act, 1872 is synonymous with the term ‘offer’ under English law. A proposal is the very first step in the formation of a contract. To form a contract, there must be at least two parties: one person to make the proposal and another to accept it. Once accepted, it becomes an agreement.
Section 2(a) of the 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”.
1. Promisor: The person making the proposal.
2. Promisee: The person to whom the proposal is made.
Beyond the primary requirement of signifying willingness with the intent to get assent, a valid proposal must satisfy the following elements:
1. Communication of Willingness:
The willingness (offer) must be communicated to the other party. Communication is only complete when it comes to the knowledge of the person to whom it is made (Section 4).
Case Law: Lalman Shukla v. Gauri Dutta
Facts: A master sent his servant to find his missing nephew. After the servant left, the master offered a reward of ₹501 to anyone who brought the boy back. The servant found the boy and later claimed the reward.
Held: The servant was not entitled to the reward because he performed the search as part of his duty and only learned of the reward afterward. Thus, the proposal had never been communicated to him.
2. Intention to Create Legal Relationships:
The parties must intend to form a legally binding agreement. Social or family arrangements do not constitute contracts because they lack this intention.
Case Law: Balfour v. Balfour
Facts: A husband working in Ceylon promised to send his wife £30 every month while she stayed in England for medical reasons. He later failed to send the money.
Held: The husband was not liable. It was a domestic/family arrangement with no intention to create a legally binding relationship.
3. Terms Must Be Certain and Definite:
If the terms of an offer are vague or indefinite, its acceptance cannot create a contract. For instance, if A offers to sell "100 gallons of oil" to B without specifying the type of oil, the offer is void for uncertainty.
4. Express or Implied Offer:
Section 3 and Section 9 state that an offer can be communicated via words spoken/written (express) or via conduct/omission (implied).
5. Distinguished from an Invitation to Offer:
An invitation to offer is merely an invitation to negotiate or receive offers. Examples include advertisements for tenders, job applications, company prospectuses, or items displayed in a shop window. The person responding to an invitation becomes the actual offeror.
Case Law: Harvey v. Facey
Facts: H telegraphed F: "Will you sell us Bumper Hall Pen? Telegraph lowest cash price." F replied: "Lowest cash price for Bumper Hall Pen £900." H then telegraphed: "We agree to buy Bumper Hall Pen for the £900 asked by you." F did not reply.
Held: No contract was formed. F only stated the lowest price; he never explicitly agreed to sell the property.
A specific offer is made to a definite person or group. A general offer is made to the public at large and can be accepted by anyone who performs the conditions of the offer.
Case Law: Carlill v. Carbolic Smoke Ball Co.
Facts: A company advertised that anyone who used their medicine precisely as directed would not catch influenza, offering a £100 reward to anyone who did. Mrs. Carlill used it as directed but still contracted influenza. The company argued it was just an advertisement, not a direct offer to her.
Held: It was a valid general offer. Mrs. Carlill accepted it by performing the conditions, making her entitled to the reward.
This is an offer made in response to an existing offer that alters its original terms. A
counter-offer acts as a rejection and revocation of the original offer.
Case Law: Hyde v. Wrench
Facts: A seller offered to sell a farm for £1,000. The buyer countered with an offer of £950, which the seller rejected. The buyer then tried to accept the original £1,000 offer, but the seller refused to sell.
Held: No contract existed. The counter-offer of £950 completely terminated the original offer of £1,000.
When two parties make identical offers to each other in ignorance of the other’s offer (e.g., crossing paths in the post), they are cross-offers. No contract is formed automatically; one party must explicitly accept the other's offer after gaining knowledge of it.
Example: On Jan 1st, A writes to sell his house to B for ₹20,00,000. On the same day, B writes to buy A's house for ₹20,00,000. Neither knew of the other's letter. This does not create a binding contract.
An offer that remains open for acceptance over a period of time (such as a tender for the supply of goods). A contract is formed every time a specific order is placed under the tender. It can be revoked at any time before an order is actually placed.
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Acceptance is the second step in forming a contract. It is the consent given by the party to whom the offer was made.
As Sir William Anson famously stated: "Acceptance is to an offer what a lighted match is to a train of gunpowder."
Definition (Section 2(b)): "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted."
1. Acceptance Must Be Communicated:
Mental acceptance or uncommunicated intent does not create a contract. It must be conveyed to the offeror or an authorized representative.
Case Law: Felthouse v. Bindley
Facts: An uncle wrote to his nephew offering to buy his horse for £33.15, adding, "If I hear no more about him, I consider the horse mine". The nephew intended to accept and told his auctioneer not to sell the horse, but he never replied to the uncle. The auctioneer accidentally sold the horse at auction, and the uncle sued the auctioneer.
Held: The auctioneer was not liable because there was no contract between the uncle and nephew. Silence cannot be mandated as acceptance; acceptance must be actively communicated.
2. Express or Implied:
Acceptance can be express (written/spoken) or implied through action and conduct.
Case Law: Carlill v. Carbolic Smoke Ball Co. — Mrs. Carlill impliedly accepted the general offer by performing its terms (using the smoke ball).
Case Law: Amit Mondal v. Pannalal Das (2017) — When a purchaser signed an agreement and the seller accepted the earnest money, the court held that accepting the earnest money amounted to an implied acceptance of the contract.
3. Must Be Absolute and Unqualified:
Acceptance must mirror the offer perfectly (the "mirror-image rule"). Any deviation or introduction of new conditions turns the acceptance into a counter-offer, which kills the original offer (Hyde v. Wrench).
4. Prescribed Mode:
If the proposer specifies a mode of communication (e.g., via email or telegram), it must be accepted in that exact manner. If no mode is prescribed, it must be sent via a reasonable and customary manner.
5. Prescribed or Reasonable Time:
Acceptance must be made within the time limit set by the offeror. If no time limit is specified, it must be made within a reasonable timeframe, depending on the facts of the case.
Part III: Communication, Acceptance, and Revocation Rules-
When parties contract from a distance (via post or telegram), Sections 4, 5, and 6 determine exactly when liabilities arise.
Action | Complete Against the Sender | Complete Against the Receiver |
Communication of Offer | — | When it comes to the knowledge of the person to whom it is made (e.g., when the letter reaches them). |
Communication of Acceptance | Against the Proposer: When it is put in transmission/posted, getting out of the acceptor's power to withdraw. | Against the Acceptor: When it reaches the proposer and comes to their knowledge. |
Communication of Revocation | Against the Revoking Party: When it is put into transmission/dispatched. | Against the Receiving Party: When it comes to their knowledge. |
a. Binding the Proposer: The moment the acceptor drops a properly addressed and stamped letter of acceptance into the mailbox, the proposer is bound to the contract. Even if the letter is delayed or lost in transit, the contract remains valid against the proposer.
b. Binding the Acceptor: The acceptor is only bound when the letter actually reaches the proposer.
i. Revocation of Offer: A proposal can be revoked at any time before the communication of its acceptance is complete against the proposer (i.e., before the acceptor posts the acceptance letter).
Case Law: Henthorn v. Fraser
Facts: The buyer received a 14-day option to purchase a property. He posted his acceptance the next day. The seller attempted to withdraw the offer after the acceptance was posted but before receiving it.
Held: The contract was validly concluded. The revocation was ineffective because it was made after the acceptance had already been posted.
(1). By Notice of Revocation: Explicit communication of withdrawal by the proposer before acceptance.
(2). By Lapse of Time: If a timeline was set, it expires; if no time was specified, it expires after a "reasonable time".
(3). By Failure to Fulfill a Condition Precedent: If the offer requires a condition to be met first (e.g., depositing earnest money or signing a document) and the acceptor fails to do so, the offer lapses.
(4). By Death or Insanity: The death or insanity of the proposer automatically terminates the offer if it comes to the knowledge of the acceptor before acceptance.
English Law: Acceptance is permanent once given and cannot be revoked ("the lighted match has met the gunpowder").
Indian Law: Acceptance can be revoked at any time before the letter of acceptance reaches the proposer. To successfully revoke it, the acceptor must use a speedier mode of communication (e.g., a phone call or telegram) that overtakes and reaches the proposer before the acceptance letter arrives.
In the modern digital age (instant messaging, e-contracts, emails), communication is simultaneous and instantaneous. Because postal delays and lost letters are largely a thing of the past, the strict rules of postal transmission laid down in 1872 have lost much of their practical day-to-day relevance.
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