Module 1
Section 2(h) of the Indian Contract Act, 1872, defines the term contract. According
to the Section, a contract is an agreement enforceable by law. Therefore, according
to the Section, there are two essentials for the formation of a contract.
• Firstly, there should be an agreement to do or abstain from doing an act; and
• Secondly, the agreement should be enforceable by law.
Therefore, the law of contracts is that branch of law which decides the
circumstances in which the promise made by a person shall be legally binding on
the person who makes the promise. While all the contracts are agreements but not
all agreements are contracts. An agreement, in order to turn into a contract, should
have its legal enforceability. The agreements which are not legally enforceable are
not contracts but are mere void agreements which are not enforceable by law or are
voidable at the option of one party.
Section 2(b) of the Indian Contract Act talks about the acceptance of an offer.
According to the Section, the person to whom an offer is made to do or abstain
from doing an act with a view to obtain the assent of such a person, if gives his
assent thereto, is said to have accepted the offer. This article talks about
acceptance, which is one of the essentials of a valid contract according to the
Indian Contract Act, 1872
Proposal or Offer
The whole process of entering into a contract starts with a proposal or an offer
made by one party to another. To enter into an agreement such a proposal must be
accepted.
According to the Indian Contract Act 1872, proposal is defined in Section 2 (a) as
“when one person will signify to another person his willingness to do or not do
something (abstain) with a view to obtain the assent of such person to such an act
or abstinence, he is said to make a proposal or an offer.”
Essentials of such an offer
The person making the offer/proposal is known as the “promisor” or the “offeror”.
And the person who may accept such an offer will be the “promisee” or the
“acceptor”.
The offeror will have to express his willingness to do or abstain from doing an act.
Only willingness is not enough. Or simply a desire to do/not do something will not
constitute an offer.
An offer can be positive or negative. It can be a promise to do some act, and can
also be a promise to abstain (not do) some act/service. Both are valid offers.
Types of offers
General Offer
A general offer is one that is made to the public at large. It is not made any
specified parties. So any member of the public can accept the offer and be entitled
to the rewards/consideration. Say for example you put out a reward for solving a
puzzle. So if any member of the public can accept the offer and be entitled to the
reward if he finishes the act (solves the puzzle.)
Specific Offer
A specific offer, on the other hand, is only made to specific parties, and so only
they can accept the said offer or proposal. They are also sometimes known as
special offers. Like for example, A offers to sell his horse to B for Rs 5000/-. Then
only B can accept such an offer because it is specific to him.
Cross Offer
In certain circumstances, two parties can make a cross offer. This means both make
an identical offer to each other at the exact same time. However, such a cross offer
will not amount to acceptance of the offer in either case.
For example, both A and B send letters to each other offering to sell and buy A’s
horse for Rs 5000/-. This is a cross offer, but it will be considered as acceptable for
either of them.
Counter Offer
There may be times when a promise will only accept parts of an offer, and change
certain terms of the offer. This will be a qualified acceptance. He will want
changes or modifications in the terms of the original offer. This is known as a
counteroffer. A counteroffer amounts to a rejection of the original offer.
Essentials of a Valid Offer
1] Offer must create Legal Relations
The offer must lead to a contract that creates legal relations and legal consequences
in case of non-performance. So a social contract which does not create legal
relations will not be a valid offer. Say for example a dinner invitation extended by
A to B is not a valid offer.
2] Offer must be Clear, not Vague
The terms of the offer or proposal should be very clear and definite. If the terms
are vague or unclear, it will not amount to a valid offer. Take for example the
following offer – A offers to sell B fruits worth Rs 5000/-. This is not a valid offer
since what kinds of fruits or their specific quantities are not mentioned.
3] Offer must be Communicated to the Offeree
For a proposal to be completed it must be clearly communicated to the offeree. No
offeree can accept the proposal without knowledge of the offer. The famous case
study regarding this is Lalman Shukla v. Gauri Dutt. It makes clear that acceptance
in ignorance of the proposal does not amount to acceptance.
4] Offer may be Conditional
While acceptance cannot be conditional, an offer might be conditional. The offeror
can make the offer subject to any terms or conditions he deems necessary. So A
can offer to sell goods to B if he makes half the payment in advance. Now B can
accept these conditions or make a counteroffer.
5] Offer cannot contain a Negative Condition
The non-compliance of any terms of the offer cannot lead to automatic acceptance
of the offer. Hence it cannot say that if acceptance is not communicated by a
certain time it will be considered as accepted. Example: A offers to sell his cow to
B for 5000/-. If the offer is not rejected by Monday it will be considered as
accepted. This is not a valid offer.
6] Offer can be Specific or General
As we saw earlier the offer can be to one or more specific parties. Or the offer
could be to the public in general.
7] Offer may be Expressed or Implied
The offeror can make an offer through words or even by his conduct. An offer
which is made via words, whether such words are written or spoken (oral contract)
we call it an express contract. And when an offer is made through the conduct and
the actions of the offeror it is an implied contract.
Counter proposals
Section 2(a) of the Indian Contract Act defines the meaning of a proposal.
According to the Section, a proposal is signifying of the willingness by a person to
another person to do or abstain from doing an act with the view of obtaining the
assent of another person to such an act or omission. The person who signifies his
willingness to obtain the assent of the other person is said to be an “offeror” and
the person to whom the offer is made is called “offeree”.
Counteroffer or proposal arises when the person to whom an offer is made instead
of accepting it straightway imposes any condition which results in modification or
alteration of the original terms of the contract. The person who makes such
alterations or modifications is said to have made a counteroffer. Counteroffer
results in a rejection of the original offer and as a result, the person who makes the
original offer shall no longer remain bound by the terms of the contract.
Acceptance
The term “Acceptance” has been defined under Section 2(b) of the Indian Contract
Act,1872. According to the Section, an offer or proposal is said to have accepted
when the person to whom the proposal or offer to do or not to do an act is made if
gives his assent to such an act or omission. Therefore, acceptance of the contract is
said to have taken place when the person to whom the offer is made gives his
assent or consent to the terms of the contract. Under the Indian Contract Act,
acceptance can be by following two ways:
Implied acceptance: Acceptance which is not explicitly made by means of speech
or writing but, by the conduct of the person to whom an offer is made. The striking
of hammer thrice by the auctioneer in order to show his acceptance to the offer
made by a bidder is an example of implied acceptance to the offer made by the
bidder at an auction to the auctioneer;
Express acceptance: Acceptance which is made by means of words, oral or written
is known as an express acceptance. For example, A offers B his watch for sale
through a mail and A replies in positive to the offer by email.
Essentials of a valid acceptance
Section 7 of The Indian Contract Act,1872 lays down two essentials of a valid
acceptance.
(1) Must be unconditional and absolute
Conditional Acceptance will not be a valid acceptance as it would amount to a
counter offer which would nullify the original offer. Example. Anita offers to sell
her bag to Priya for 3000/-. Priya says she accepts if Anita will sell it for 1500/-.
This does not amount to the offer being accepted and it will count as a
counteroffer.
(2) Must be expressed in some usual and reasonable manner
If the offeror does not describe any prescribed manner then it must be expressed in
the normal and reasonable manner, i.e. as it would be in the normal course of
business.
Difference between an acceptance and a counter offer
A counter offer is an offeree’s new offer that varies the terms of the original offer
and therefore, constitutes a rejection of the original offer.
In John Hancock Mutual Life Insurance Co. v. Dietlin(1964), an acceptance which
is upon the condition or with a limitation is a counteroffer and requires acceptance
by the original offeror before a contractual relationship can exist.
In Ardente v. Horan(1976), the defendants offered to sell their house to the
Plaintiff who agreed to buy the house but he requested that certain furniture and
fixtures should also come with the property. The Defendants refused to sell their
furniture and fixtures along with the house and returned the unsigned agreement as
well as the Plaintiff’s deposit. The Plaintiff sued for specific performance. It was
held that a valid contract was not formed as the defendants never accepted the
counteroffer. A contract is considered valid when the acceptance is definite and
unequivocal, conditional acceptances shall be construed as counter-offers.
Case Laws
(1) In L’Estrange v Graucob (1934)
A buyer signed an agreement for the purchase of a cigarette vending machine
without reading its terms. One of the terms excluded liability for all kinds of
defects in the machine. The machine supplied was defective but the court held that
the supplier was not liable.
(2)In Lalman Shukla vs Gauri Dutt(1913)
The plaintiff was in defendants service as a Munim. The defendant’s nephew
absconded and the plaintiff went to find the missing boy. In the plaintiff’s absence,
the defendant issued handbills, offering a reward of Rs 501 to anyone who might
find the boy. The plaintiff traced him and claimed the reward. The plaintiff did not
know of the handbills when he found the boy. The court held that the plaintiff was
not entitled to a reward.
Note:
Offer and acceptance analysis is a traditional approach in contract law used to
determine whether an agreement exists between two parties. An offer is an
indication by one person to another of their willingness to contract on certain terms
without further negotiations. A contract is then formed if there is an express or
implied agreement. A contract is said to come into existence when acceptance of
an offer has been communicated to the offeror by the offeree.
The communication of an offer is complete when it comes to the knowledge of the
person to whom the offer is made and the communication of an acceptance is
complete when the acceptance is put in a course of transmission to the offerer.
Therefore, Offer and acceptance is the essential elements of a contract and in either
case, it should be done out of one’s free will and with an intention to enter into a
legally binding agreement.