Offer and Acceptance

 

(Sections 3-9 of the Indian Contract Act, 1872)

 

Offer

A Proposal is defined 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.” [Section 2(a)]. An offer is synonymous with proposal. The offeror or proposer expresses his willingness “to do” or “not to do” (i.e., abstain from doing) something with a view to obtain acceptance of the other party to such act or abstinence. Thus, there may be “positive” or “negative” acts which the proposer is willing to do.

 

Examples ______________________________________________________________

(1) A offers to sell his book to B. A is making an offer to do something, i.e., to sell his book. It is a positive act on the part of the proposer.

(2) A offers not to file a suit against B, if the latter pays A the amount of Rs. 200 outstanding.

Here the act of A is a negative one, i.e., he is offering to abstain from filing a suit.

 

HOW AN OFFER IS MADE?

An offer can be made by (a) any act or (b) omission of the party proposing by which he intends to communicate such proposal or which has the effect of communicating it to the other (Section 3). An offer can be made by an act in the following ways:

 

(a) by words (whether written or oral). The written offer can be made by letters, telegrams, telex messages, advertisements, etc. The oral offer can be made either in person or over telephone.

(b) by conduct. The offer may be made by positive acts or signs so that the person acting or making signs means to say or convey. However silence of a party can in no case amount to offer by conduct.

An offer can also be made by a party by omission (to do something). This includes such conduct or forbearance on one’s part that the other person takes it as his willingness or assent. An offer implied from the conduct of the parties or from the circumstances of the case is known as implied offer.

 

Examples ______________________________________________________________

(1) A proposes, by letter, to sell a house to B at a certain price. This is an offer by an act by written words (i.e., letter). This is also an express offer.

(2) A proposes, over telephone, to sell a house to B at a certain price. This is an offer by act (by oral words). This is an express offer.

 

Specific and General Offer. An offer can be made either:

1. to a definite person or a group of persons, or

2. to the public at large.

The first mode of making offer is known as specific offer and the second is known as a general offer.

In case of the specific offer, it may be accepted by that person or group of persons to whom the same has been made. The general offer may be accepted by any one by complying with the terms of the offer.

 

The celebrated case of Carlill v. Carbolic Smoke Ball Co., (1813) 1 Q.B. 256 is an excellent example of a general offer and is explained below.

 

Examples ______________________________________________________________

(1) A offers to sell his house to B at a certain price. The offer has been made to a definite person,

i.e., B. It is only B who can accept it

 

 

ESSENTIAL REQUIREMENTS OF A VALID OFFER

An offer must have certain essentials in order to constitute it a valid offer. These are:

 

1. The offer must be made with a view to obtain acceptance [Section 2(a)].

2. The offer must be made with the intention of creating legal relations.

3. The terms of offer must be definite, unambiguous and certain or capable of being made certain (Section 29). The terms of the offer must not be loose, vague or ambiguous.

4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat.

 

OFFER VIS-A-VIS DECLARATION OF INTENTION TO OFFER

A person may make a statement without any intention of creating a binding obligation. It may amount to a mere declaration of intention and not to a proposal.

 

OFFER VIS-A-VIS INVITATION TO OFFER

An offer must be distinguished from invitation to offer. A prospectus issued by a college for admission to various courses is not an offer. It is only an invitation to offer.

A prospective student by filling up an application form attached to the prospectus is making the offer.

An auctioneer, at the time of auction, invites offers from the would-be-bidders. He is not making a proposal.

A display of goods with a price on them in a shop window is construed an invitation to offer and not an offer to sell.

 

CROSS OFFERS

Where two parties make identical offers to each other, in ignorance of each other’s offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract.

 

TERMINATION OR LAPSE OF AN OFFER

An offer is made with a view to obtain assent thereto. As soon as the offer is accepted it becomes a contract. But before it is accepted, it may lapse, or may be revoked. Also, the offeree may reject the offer. In these cases, the offer will come to an end.

 

(1) The offer lapses after stipulated or reasonable time. [Section 6(2)] The offer must be accepted by the offeree within the time mentioned in the offer and if no time is mentioned, then within a reasonable time. The offer lapses after the time stipulated in the offer expires if by that time offer has not been accepted. If no time is specified, then the offer lapses within a reasonable time. What is a reasonable time is a question of fact and would depend upon the circumstances of each case. Essentials of valid contract

(2) An offer lapses by the death or insanity of the offeror or the offeree before acceptance. Section 6(4) provides that a proposal is revoked 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. Therefore, if the acceptance is made in ignorance of the death, or insanity of offeror, there would be a valid contract. Similarly, in the case of the death of offeree before acceptance, the offer is terminated.

(3) An offer terminates when rejected by the offeree.

(4) An offer terminates when revoked by the offeror before acceptance.

(5) An offer terminates by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual and reasonable manner.

(6) A conditional offer terminates when the condition is not accepted by the offeree.

(7) Counter Offer. An offer terminates by counter-offer by the offeree. When in place of accepting the terms of an offer as they are, the offeree accepts the same subject to certain condition or qualification, he is said to make a counter-offer. The following have been held to be counter-offers:

 

(i)            Where an offer to purchase a house with a condition that possession shall be given on a particular day was accepted varying the date for possession

(ii)           An offer to buy a property was accepted upon a condition that the buyer signed an agreement which contained special terms as to payment of deposit, making out title completion date, the agreement having been returned unsigned by the buyer

(iii)          An offer to sell rice was accepted with an endorsement on the sold and bought note that yellow and wet grain will not be accepted

(iv)          Where an acceptance of a proposal for insurance was accepted in all its terms subject to the condition that there shall be no assurance till the first premium was paid

 

TERMINATION OF AN OFFER

1. An offer lapses after stipulated or reasonable time.

2. An offer lapses by the death or insanity of the offeror or the offeree before acceptance.

3. An offer lapses on rejection.

4. An offer terminates when revoked.

5. It terminates by counter-offer.

6. It terminates by not being accepted in the mode prescribed or in usual and reasonable manner.

7. A conditional offer terminates when condition is not accepted.

 

ACCEPTANCE

The Indian Contract Act, 1872 defines an acceptance as follows:

“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted” [Section 2 (b)].

Thus, acceptance is the act of giving consent to the proposal. A proposal when accepted becomes a contract.

 

Acceptance how made? As mentioned above, the offeree is deemed to have given his acceptance when he gives his assent to the proposal. The assent may be express or implied. It is express when the acceptance has been signified either in writing, or by word of mouth, or by performance of some required act. The first two kinds of acceptance are self-explanatory. Acceptance by performing the required act is exemplified in the case of Carlill v. Carbolic Smoke Ball Co.

Acceptance is implied when it is to be gathered from the surrounding circumstances or the conduct of the parties.

Who can accept? In the case of a specific offer, it can be accepted only by that person to whom it is made. The rule of law is that if A wants to enter into a contract with B, then C cannot substitute himself for B without A’s consent.

In the case of a general offer, it can be accepted by anyone by complying with the terms of the offer.

 

ESSENTIALS OF A VALID ACCEPTANCE

There are some legal rules which make the acceptance effective so as to give rise to a valid contract. These are:

(1) Acceptance must be absolute and unqualified. (Section 7). An acceptance to be valid must be absolute and unqualified and according to the exact terms of the offer. An acceptance with a variation, however slight, is no acceptance, and may amount to a mere counter offer which the original offeror may or may not accept.

However, a mere variation in the language which does not involve any difference in substance would not make the acceptance ineffective. [Heyworth v. Knight (1864) 144 E.R. 120, 142 R.R. 855.].

Also, if some conditions are implied as a part of the contract, and the offeree accepts the offer subject to those conditions, the acceptance will be treated as valid.

Further, an offeree may accept an offer “subject to contract” or “subject to formal contract” or “subject to contract to be approved by solicitors.” The significance of these words is that the parties do not intend to be bound, and are not bound, until a formal contract is prepared and signed by them. The acceptor may agree to all the terms of a proposal and yet decline to be bound until a  formal agreement is drawn up.

(2) Acceptance must be communicated to the offeror. The communication of acceptance may be express or implied. A mere mental acceptance is no acceptance. A mere mental acceptance means that the offeree is assenting to an offer in his mind only and has not communicated it to the offeror.

The acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer.

However if the offeree has by his previous conduct indicated that his silence means that he accepts, then the acceptance of the offer can be implied from the silence of the offeree. Further, in the case of a general offer, it is not necessary to communicate the acceptance if it is made by acting upon the terms or the offer.

(3) Acceptance must be according to the mode prescribed. (Section 7). Where the offeror prescribes a particular mode of acceptance, then the acceptor should follow that mode. In case no mode of acceptance is prescribed by the proposer, then the acceptance must be according to some usual and reasonable mode. If the proposer prescribed a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

ESSENTIALS OF A VALID ACCEPTANCE

1. Acceptance must be absolute and unqualified.

2. It must be communicated.

3. It must be according to the mode prescribed.

4. It must be given within the time specified or within reasonable time.

5. It must be in response to offer.

6. It must be made before the offer lapses.

7. It must be given by the person to whom the offer is made.

 

COMMUNICATION OF OFFER, ACCEPTANCE AND REVOCATION

As mentioned earlier that in order to be a valid offer and acceptance.

(i) the offer must be communicated to the offeree, and

(ii) the acceptance must be communicated to the offeror.

Similarly, revocation of offer by the offeror to the offeree and revocation of the acceptance by the offeree to the offeror must be communicated.

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.

The completion of communication of acceptance has two aspects, viz:

(i) as against the proposer, and

(ii) as against the acceptor.

 

The communication of acceptance is complete:

(i) as against the proposer, when it is put into a course of transmission to him, so as to be out of the power of the acceptor;

(ii) as against the acceptor, when it comes to the knowledge of the proposer.

 

The communication of a revocation (of an offer or an acceptance) is complete:

(1) 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.

(2) as against the person to whom it is made when it comes to his knowledge.

 

Revocation of proposal and acceptance: Section 5 provides that a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. Also an acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

 

 

 

 

 

 

 

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