“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

6

(..2..)

PROPOSAL & ACCEPTANCE

Question Bank.

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.

(A) PROPOSAL

SYNOPSIS

I.

II.

Introduction -

Definition of ‘Offer”. (S.2 (a)).

III.

Elements of the valid proposal-

1) Signifying of willingness to another.

2) Intention to create legal relationship.

3) The offer must be Certain, Definite and not vague:-

4) Offer may be express or implied:-

5) An offer must be distinguished from an invitation to offer:-

IV Classification. of an offer-

1) General or specific offer

2) Counter offer

3) Cross offer

4) Standing, Open or Continuing offer

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

7

I.

Introduction:-

The word ‘proposal’ under the Indian Contract Act of 1872 is synonymous with

the term ‘offer’ under the English Contract Act. The first step in the formation of a

contract is a proposal. There should at least be two parties to form the contract, one

person to make a proposal and the other to accept it, and then only it becomes an

agreement.

II.

Definition of an ‘Offer’ (S. 2(a)):-

S. 2 (a) of the Act defines proposal as-

“When one person signifies his willingness to another-

(i) to do or to abstain from doing anything.

(ii) with a view to obtaining the assent of that other,

(iii) to such act or abstinence,

(iv) he is said to make a proposal”.

The person making the proposal is called as ‘promisor’, and the person to whom the

proposal is made is called the ‘promisee’.

According to the above definition, there are two essentials of a valid proposal. Viz.

(i) Signifying willingness to another, and

(ii) Intention to create a legal relationship.

III.

Elements of a valid ‘Proposal’:-

With the above two elements, there are some other elements also to make the proposal

valid. Viz.

1)

Signifying of willingness to another:-

‘Signifying of willingness’ means the willingness (offer) should be communicated

to the other party. No particular act of communication is prescribed by the Act. It merely

provides that the communication of a proposal is complete when it comes to the knowledge

of the person to whom it is made (S. 4).

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

8

Lalman Shukla V/s Gauri Dutta⁹

Facts:- The nephew of Gauri Datta had absconded; therefore, Gauri Dutt sent his

servant to find him. After the servant went to trace the missing boy, Gauri offered a reward

of Rs. 501/- to a person who would bring back the boy (nephew) home. When the servant

brought back the boy, he claimed Rs 501/-.

The Court held:- It was held that the servant was not entitled to it, as he had

searched the boy in the discharge of his duties. Moreover, he came to know of the reward

only after he had searched the boy. Therefore the proposal was not communicated to him.

2)

Intention to Create Legal Relationships:-

While making a proposal, the parties must intend to form legally binding relations.

Thus if my friend invited me for dinner and I agreed to the same, but on reaching there, I

found that the dinner was not arranged, I cannot make him liable. The reason is that we

never intended to form a legally enforceable contract.

In Balfour V/s Balfour³

Facts:- A man was employed in Ceylon, and he was living there with his wife. They went

to England to spend the holidays, but the wife, due to her ill health, was advised to stay in

England. The husband promised his wife to send her £ 30 every month to meet out her

expenses. But he failed to send money.

The Court held that he was not liable to pay the arrears and monthly allowance, as

it was a family arrangement without any intention to create a legal relationship⁴.

3)

The offer must be Certain, Definite and not vague:-

If the terms of an offer are vague or indefinite, its acceptance cannot create any

contractual relationship. Thus, where ‘A’ offers to sell 100 gallons of oil to B, nothing

shows what kinds of oil were intended. The offer is not capable of being accepted for want

of certainty.

9 (1913) 11 All L J 489.

3 (1919) 2 KB 571.

4

In McGregor v. McGregor (1818)

Facts- A husband promised to pay allowance to his wife and she in consideration promised to refrain

from pledging his credit (in court). Both withdrew the complaints.

Held- The promise was held to be enforceable.

“Law Master’s Publication”

4) Offer may be express or implied:-

S. 3 of the Act provides that the proposal, its acceptance, or its revocation can be

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

9

communicated by an act or omission by the party intending to communicate it. Thus, the

proposal or its acceptance may be express (i.e. spoken/ written) or implied (if it is made

otherwise than expressed way) (S. 9).

5)

An offer must be distinguished from an invitation to offer⁵:-

There is a difference between an offer and an invitation to an offer. An

advertisement for tenders, inviting applications for a job or prospectus of a company, or an

exhibition of articles shown in the window by the shopkeeper are mere invitations to deal

or invitations to negotiate, or they are only invitations to offer and not actual offers. The

person who responds to such an invitation is the offeror. The person who makes an

invitation to offer has every right to accept the offer or to refuse it⁶.

In Harvey V/s Facey⁷

Facts:- ‘H’ telegraphed to ‘F’, “will you sell your Bampur hall pen? (A property)

Telegraph lowest cash price.” ‘F’ replied telegraphically, “lowest cash price is £900.” ‘H

again telegraphed, “we agree to pay £900 asked by you. Please send us your title deed.”

No reply was given to this.

The Court held that “F" communicated only the lowest price; he did not state

whether he wanted to sell his property or not. Therefore, merely replying to questions

doesn’t constitute a contract.

IV.

Classification of offer:-

Offers may be classified into the following types.

General or Specific Offer⁸:-

1)

When an offer is made to a particular person, it is called ‘specific offer’. But when

the offer is made to the whole world or the public at large, the offer is called a ‘general

offer’. ‘General offer’ is open for anybody to accept and act according to that.

5

ऑफरचया आमंतणातून ऑफर वेगळ

े

करण

े

आवशयक आह

े

[एक पसताव को ‘पसताव के ननमंतण’ स

े

अलग करणा

चाहहए]

6

In Pharmaceutical Society of Great Britain Vs. Boot Cash Chemists [(1971) 2 Q.B. 795]

Facts- a shopkeeper displayed goods for sale with price tags attached with the goods. There was self-

service system in the shop.

Held- It was held that displaying the goods in shop is only invitation to offer and not offer. The shopkeeper

can refuse to sell any article unless he accepts the price.

7

1(1893). A.C. 552.

8

'सामाꢀय या ववनिष पसताव' [सवाना हकवां वविीष ꢁयꢂꢃला पाठववलेला पसताव ]

ा

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

10

In Carlill V/s Carbolic Smoke Ball Co⁹.

Facts:- It is the leading case on this issue. The ‘Carbolic Smoke Ball Company’

advertised that whosoever would take the ball (a medicine) according to the printed

directions, (he) would not be affected by influenza. The company declared an award of £

100 to a person who would affect influenza even after using the ball according to directions.

One Mrs Carlill used the ball but still got affected by influenza. She claimed £ 100. The

company argued that it was not an offer to Mrs Carlill but merely an advertisement.

The Court Held:- that it was an offer, ‘a general offer’. Mrs Carlill had accepted it by

acting according to the terms of the offer; therefore, she was entitled to reward¹⁰.

2)

Counter Offer¹¹:-

A counter offer is an offer made against an existing offer. It cannot constitute an

acceptance of an offer. In fact, the counter offer is the revocation of the previous offer by

setting a new offer.

In Hyde V/s Wrench¹²

Fact:-In this case, an offer to sell a farm for £1,000 was rejected by the plaintiff, who

offered £950 for it. This was denied by the offeror, and then the plaintiff again agreed to

pay £ 1,000. The defendant denied selling a farm even for the previously stated price of £

1,000.

The Court held:- Holding that the defendant was not bound by any such acceptance,

the court held that “The defendant offered to sell it for £ 1,000, and if that had been at once

unconditionally accepted, there would undoubtedly have been a perfect binding contract,

instead of that, the plaintiff made a counter offer of his own, to purchase the property for £

950 and thereby rejected the offer previously made by the defendant. Therefore, there exists

no obligation of any sort between the parties.”

9

[1 Q.B. 256, 1893]

10

In Weeks v. Tybald (1605) 74 ER 282].

Facts- the defendant promised to pay £ 100 to anybody who would marry his daughter with his consent.

The plaintiff claimed this money for marrying his daughter with his consent and sued the defendant but

his action failed as the offer was not given to a definite person.

Held- The Court said “It is not averred nor declared to whom the words were spoken”. The Court

further pointed out if such words could be treated as offer the person making such statements would

face difficulty of being contractually bound with innumerable persons.

11 उलट पसताव [जवाबी – पसताव]

12 1840.

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“Proposal & Acceptance”

Prof. Santosh D. Bhosale

11

3)

Cross Offer¹³:-

When the offers made by two persons to each other containing similar terms of

bargain cross each other in a post, they are known as cross offers. For example, on 1st

January, A offered to sell his house to B for Rs.- 2,00,000/- through a letter sent by post.

“I am ready to purchase your house”

On the same date, B also wrote a letter to A, making an offer to purchase A’s house for

Rs.- 20,00,000/-. When A and B sent their letters, they did not know about the offer which

was being made by the other side. Even though both parties intend the same bargain in

these cross-offers, there is no contract. A contract could arise only if either A or B, after

having the knowledge of the offer, had accepted the same.

4)

Standing, Open or Continuing Offer¹⁴:-

An offer, which is allowed to remain open for acceptance over a period of time, is

known as a standing, open or 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, 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 100 bags of wheat is placed on 15th January, the offer is accepted 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.

A tender for the supply of goods is a kind of standing offer. When the tender is

approved, it becomes a standing offer. As and when an order is placed on the basis of the

tender, that amounts to acceptance of the offer and results in a binding contract. Such an

offer may be revoked or withdrawn before the order is actually placed.

******

(B) ACCEPTANCE

SYNOPSIS

I.

Introduction:-

II.

Essentials of a Valid Acceptance:-

1)

2)

Acceptance must be communicated.

Acceptance may be express or implied.

13 पोषꢄ एकमेकाना आलांड

ू

न जाणार

े

पसताव [पोष म

े

पार करनेवाला पसताव ]-

14 कायमचा खुला हकवा चाल

ू

पसताव [सथायी, खुला या ननर

ं

तर पसताव]-

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

12

3)

4)

5)

Acceptance must be Absolute, Unqualified.

Acceptance must be in prescribed mode.

Acceptance must be given in prescribed or reasonable time.

III.

Communication, Acceptance & Revocation of Proposal:-

A) Communication of Offer.

B) Communication of Acceptance.

C) Revocation of Offer.

1) By communication of notice of revocation by the proposer to other party.

2) By Lapse of Specified or Reasonable Time.

3) By failure to accept condition precedent.

4) By the death or insanity of the proposer.

D) Revocation of Acceptance.

I.

Introduction:-

A proposal, when accepted, results in an agreement. Therefore, acceptance is the

second step in the formation of a valid contract. Acceptance is the consent of the party to

whom the offer is made. As soon as the proposal is accepted, a binding contract will be

created between the parties. According to Anson, “Acceptance is to an offer what a lighted

match is to a train of gunpowder¹⁵.”

Definition:-

S. 2 (b) of the Act defines Acceptance as “when the person to whom the proposal is

made signifies his assent thereto, the proposal is said to be accepted.”¹⁶.

II.

Essentials of a valid acceptance:-

For a valid acceptance, the following conditions are necessary: -

Acceptance must be Communicated¹⁷:-

1)

Acceptance must be communicated to the offeror.

15

(Refer Adikanda Biswal v. Bhubaneswar Development Authority AIR 2006 Ori 36.) [स

ं

मती ही

पसꢄावासाठी अिा पकार

े

असत

े

जिी पेटववल

े

ली काडी स

ु

रं

गाचया दारसाठी असते]

16

ꢅया ꢁयꢂꢃला हा पसताव द

े

ꢆयात आला आह

े

तो जेꢁहा ꢇयाची संमती दिव

ा

वतो तेꢁहा तो पसताव सवीकारला गेला

अस

े

ꢈहटल

े

जात

े

[जब जजस ꢁयवꢂ को पसताव हदया जाता ह

ै

, वह उस पर अपनी सहमनत ꢁयꢂ करता ह

ै

, तो पसताव

को सवीक

ृ

त कहा जाता ह

ै

| According to Anson, “Acceptance of an offer is the expression by words or

conduct of assent to the terms of the offer in the manner prescribed or indicated by the offer”.

17

सवीक

ृ

ती कळववन

े

अवशयक आहे [सवीक

ृ

नत का सचार हकया जाना चाहहए]

ं

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

13

In Felthouse V/s Bindley¹⁸

Facts:- By a letter, the plaintiff offered to purchase his nephew's horse for £ 33.15.

He also informed him that he would presume that the horse had been sold to him for that

amount in case of no reply. The nephew told his auctioneer not to put the horse on the

auction sale, as he had sold it to his uncle. The nephew did not communicate his intention

to the uncle, who had decided to accept his offer. The auctioneer, by mistake, sold the

horse. Uncle (Felthouse) sued the auctioneer for the sale of his house.

The court held that the nephew had not communicated his acceptance to his uncle;

therefore, a binding contract was not created between them. Therefore, the acceptance must

not only be communicated to the offeror but also to a person having authority for it.

Therefore, the horse had not become Uncle's property since the nephew had not

communicated acceptance to him.

2)

Acceptance may be express or implied:-

When acceptance is given either by words spoken or written, it is called express

acceptance. But when an act or conduct gives acceptance, it is called implied acceptance.

In Carlill V/s Carbolic Smoke Ball Co²⁰.

Facts:- It is the leading case on this issue. The Carbolic Smoke Ball Company

advertised that anyone who takes the ball (medicine) according to the printed directions

would not be affected by influenza. The company declared an award of £ 100 to a person

who would be affected by influenza even after using the ball according to the directions. It

was also added that £ 100 was deposited with the Alliance Bank, showing their sincerity

in the matter. One Mrs Carlill used the ball but was affected by influenza. She claimed £

100. The company argued that it was merely an advertisement and not made an offer to

any particular person (i.e. Carlill); there was no acceptance conveyed on her behalf to the

company.

The Court Held:- that it was an offer, a general offer. Mrs Carlill had accepted it by acting

according to the terms of the offer (implied acceptance). Therefore, she was entitled to the

reward.

Moreover, in Amit Mondal v. Pannalal Das (AIR 2017 (NOC) 854 (Cal))

Facts- The purchaser signed the agreement. However, the seller accepted earnest money²¹

from the purchaser. The seller subsequently denied the agreement.

The court held that a valid contract was created, and the seller, by accepting earnest money,

impliedly accepted the contract.

18

(1863) 7 LT 835.

20

[1 Q.B. 256, 1893]

21

अनिम रककम, ईसाराची रककम

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

14

3)

Acceptance should be Absolute, Unqualified²²:-

An acceptance must also be absolute and unqualified and correspond to the terms

of the offer. If it is not, the offer lapses by rejection or counteroffer.

In Hyde V/s Wrench²³

Fact:- In this case, an offer to sell a farm for £1,000 was rejected by the plaintiff, who

offered £ 950 for it. This was denied by the offeror, and then again, the plaintiff agreed to

pay £ 1,000.

The Court held- Holding that the defendant was not bound by any such acceptance, the

court observed that: “The defendant offered to sell it for £ 1,000, and if that had been at

once unconditionally accepted, there would undoubtedly have been a perfect binding

contract, instead of that, the plaintiff made an offer of his own, to purchase the property for

£ 950 and thereby rejected the offer previously made by the defendant. Therefore, there

exists no obligation of any sort between the parties.”

4)

Acceptance should be in the prescribed mode:-

The proposal should be accepted in the manner provided by the proposer.

Acceptance, which is not in prescribed mode, is liable to be rejected by the promisor. But

if the proposer has not prescribed any mode of acceptance, it should be accepted in a usual

and reasonable manner. Thus, if the proposal is made through the post and no other mode

of communication is prescribed, acceptance usually must be through the post. If acceptance

is required through telegraph, it must be through telegraph.

5)

Acceptance should be given in a prescribed or reasonable time:-

Acceptance must be conveyed within the prescribed period mentioned by the

offeror. S. 6 provides that proposal is revoked by the lapse of the time prescribed in such

proposal for its acceptance or after a lapse of reasonable time.

III. Communication, Acceptance and Revocation of the Proposal-

When the contracting parties meet face to face to make the contract, no question of

communication of offer or acceptance, or revocation arises. But when contracting parties

are residing at distant places and contracts through post or telegraph, the question of

communication of offer, acceptance or its revocation becomes important to decide their

liabilities. It is, therefore, necessary to determine the exact time when the offer or

acceptance is made or completed. Ss. 4, 5 and 6 are applicable in such circumstances to

determine the exact time of making an offer or acceptance.

22

जसवक

ृ

ती ही पुण

ा

व कोनꢇयाही अटीनिवाय असली पाहीजे, [वबना हकसी ित

ा

के

]

23

1840.

“Law Master’s Publication”

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

15

S. 3 provides, in general terms, two modes of communication, viz, (i) by any act, or

(ii) by omission, - intending thereby to communicate to the other (or which has the effect

of communicating it (offer or acceptance) to the other). Thus, an offer's acceptance and

revocation may be communicated expressly or impliedly.

A)

Communication of Offer:-

The communication of an offer is complete when it comes to the knowledge of the

person to whom it is made (S. 4). An offer may be communicated either by words spoken

or written, or it may be inferred from the conduct of the parties (i.e. implied).

When a proposal is made by post, its communication is completed when the letter

containing the proposal reaches the person to whom it is made. For example, A proposes

B sell his house for rupees twenty lakh. The letter was posted on 10 March. The letter

reached B on 12 March. The offer is said to have been communicated on 12 March, when

B received the letter.

B)

Communication of Acceptance:-

S. 4 provides that communication of an acceptance is complete-

(i)

as against the proposer- when the acceptance is put in the course of

transmission to him so as to be out of the power of the acceptor to withdraw

the same;

(ii)

as against the acceptor- when the acceptance comes to the knowledge of the

proposer.

When a proposal is accepted through a letter sent by post, the communication of

acceptance is complete against the proposer when the letter of acceptance is posted and

against the acceptor when the letter reaches the proposer.

In the example given above, if B accepts A’s proposal and sends his acceptance by

post on the 14th. The communication of acceptance as against A is complete on the 14th

(i.e. when the letter is posted), and as against B, it completes when the letter reaches A.

Suppose this letter of acceptance was duly posted but was delayed in the post or lost in

transit, even then B’s acceptance will bind a. The rule is that the proposer becomes bound

by the contract from the moment the acceptor posts the letter of acceptance. But the

acceptor will be bound by his acceptance only when the letter of acceptance reaches the

proposer. Thus, the loss of letters by post, late delivery, etc., will not affect the contract's

validity. But the letter of acceptance must be correctly addressed, sufficiently stamped and

posted.

C)

Revocation of Offer:-

Revocation of the proposal may be made in any of the following ways.

By communication of notice of revocation by the proposer to the other party.-

Under S. 4, the communication of revocation is complete-

1)

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“Proposal & Acceptance”

Prof. Santosh D. Bhosale

16

(i)

as against the person who makes it, when the proposal 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;

(ii)

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

In the above example, if you (proposer) revoke your proposal by telegraph, the

revocation will be complete so far as you (proposer) yourself is concerned when you have

dispatched the telegraph. But so far as I (the acceptor) am concerned, it will be complete

when I actually receive the telegraph. As regards the revocation of acceptance, I revoke

my acceptance by telegraph. My revocation of acceptance is complete against myself as

soon as I (acceptor) have dispatched the telegraph and as against you (proposer) when it

reaches you.

Under S. 5, a proposal may be revoked by the proposer at any time before the

communication of its acceptance is complete. The acceptor may revoke an acceptance at

any time before the communication of acceptance is complete as against the acceptor.

2)

By Lapse of Specified or Reasonable Time:-

A proposal is revoked by the lapse of a specific time or, if no time is specified, by

the lapse of reasonable time. What is a reasonable time? It is the question of fact that is to

be decided by the court from time to time.

In Henthorn V/s Fraser²⁵

Facts:- The plaintiff received an offer from the defendant to purchase a certain

property within 14 days. The plaintiff responded to the offer with an acceptance, which

was posted the next day. The defendant withdrew the offer before receiving the acceptance

but after the plaintiff posted the acceptance.

Held- that the contract was concluded, as revocation was not effective.

3)

By failure to accept condition precedent.-

A proposal is also revoked if the acceptor fails to fulfil the condition precedent for

the acceptance. For example, A proposes to B, ‘I can sell my house to you for Rs.

20,00,000/—lakh provided you lease out your land to me.’ If B refuses to lease the land,

the offer will be revoked.

A ‘Condition precedent’ is a condition that prevents an obligation from coming into

existence until the condition is satisfied. An offeror may impose conditions such as

executing certain documents or depositing a certain amount as earnest money. Failure to

satisfy any such condition makes the proposal lapse.

4)

By the death or insanity of the proposer:-

25

[(1892) 2. Oh. 27]

“Law Master’s Publication”

Death or insanity of the proposer, under Indian law, operates as the revocation of

the proposal.

“Proposal & Acceptance”

Prof. Santosh D. Bhosale

17

D)

Revocation of Acceptance-

In English law, acceptance is once given and cannot be revoked. Therefore, Anson

has stated that “acceptance is to offer what a lighted match is to a train of gunpowder”.

However, in India, acceptance is revocable. Acceptance can be revoked only by adopting

a speedier mode of communication, which would reach earlier than the acceptance²⁷.

Present scenario-

In modern times and in the digital age, communication has become faster than the

modes of communication existing at the time of the enactment of this Act. Communication

through post and telegraph has almost become outdated. Therefore, the object of this topic

of communication of an offer, acceptance, and revocation has lost its relevance to a great

extent in today’s modern time.

*****

27

S. 5 provides that an acceptance may be revoked at any time before the communication of

acceptance is complete as against the acceptor but not afterwards.