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The Indian Contract Act, 1872

Unit-01
Learn Module Keywords

By – CA Gurpreet sir
PURPOSE
CHANKYA NITI SERIES – UNDERSTANDING CONCEPT
LET’S LEARN LAW SERIES – LEARNING KEYWORDS

NOTE :- WATCH THIS SERIES AFTER UNDERSTANDING ALL THE CONCEPTS. AS

THE PURPOSE OF THIS SERIES IS TO HELP STUDENTS LEARN KEYWORDS
Topic : WHAT IS A CONTRACT? Pg. No. 2.4

The term contract is defined under section 2(h) of the Indian Contract Act, 1872
as-
“an agreement enforceable by law”.
The contract consists of two essential elements:
(i) an agreement, and
(ii) its enforceability by law.
Topic : WHAT IS AN AGREEMENT? Pg. No. 2.4

(i) Agreement - The term ‘agreement’ given in Section 2(e) of the Act is
defined as- “every promise and every set of promises, forming the
consideration for each other”.
To have an insight into the definition of agreement, we need to
understand promise.
Topic : WHAT IS PROMISE? Pg. No. 2.4

Section 2 (b) defines promise as- “when the person to whom the
proposal is made signifies his assent there to, the proposal is said to be
accepted. Proposal when accepted, becomes a promise”.
The following points emerge from the above definition:
1. when the person to whom the proposal is made
2. signifies his assent on that proposal which is made to him
3. the proposal becomes accepted
4. accepted proposal becomes promise

Thus, we say that an agreement is the result of the proposal made by

one party to the other party and that other party gives his acceptance
thereto of course for mutual consideration.
Agreement = Offer/Proposal + Acceptance + Consideration
Topic : WHAT IS LEGALLY ENFORECABLE?
Pg. No. 2.4

(ii) Enforceability by law – An agreement to become a contract must give

rise to a legal obligation which means a duly enforceable by law.
Thus, from above definitions it can be concluded that –
Contract = Agreement + Enforceability by law
Topic : WHAT IS A CONTRACT? Pg. No. 2.4

On elaborating the above two concepts, it is obvious that contract

comprises of an agreement which is a promise or a set of reciprocal
promises, that a promise is the acceptance of a proposal giving rise to a
binding contract. Further, section 2(h) requires an agreement capable
of being enforceable by law before it is called ‘contract’. Where parties
have made a binding contract, they created rights and obligations
between themselves.
Topic : WHAT IS A CONTRACT? Pg. No. 2.5

Example 1: A agrees with B to sell car for Rs. 2 lacs to B. Here A is under an
obligation to give car to B and B has the right to receive the car on
payment of Rs. 2 lacs and also B is under an obligation to pay Rs. 2
lacs to A and A has a right to receive Rs. 2 lacs.

Example 2: Father promises his son to pay him pocket allowance of Rs. 500
every month. But he refuses to pay later. The son cannot recover the
same in court of law as this is a social agreement. This is not created
with an intention to create legal relationship and hence it is not a
contract.
Topic : WHAT IS A CONTRACT? Pg. No. 2.5

So, Law of Contract deals with only such legal obligations which has resulted from
agreements. Such obligation must be contractual in nature. However, some
obligations are outside the purview of the law of contract.

Example 3: An obligation to maintain wife and children, an order of the court of

law etc. These are status obligations and so out of the scope of the
Contract Act.
Topic : AGREEMENT V/S CONTRACT Pg. No. 2.5

Difference between Agreement and Contract

Basis of differences Agreement Contract
Meaning Every promise and every set of Agreement enforceable by law. (Agreement
promises, forming the consideration + Legal enforceability)
for each other. (Promise +
Consideration)
Scope It’s a wider term including both It is used in a narrow sense with the
legal and social agreement. specification that contract is only legally
enforceable agreement.
Legal obligation It may not create legal obligation. An Necessarily creates a legal obligation. A
agreement does not always grant contract always grants certain rights to
rights to the parties every party.
Nature All agreement are not All contracts are agreements.
contracts.
Topic : Essentials of a Valid Contract Pg. No. 2.5

Essentials of a valid contract

As given by Section 10 of Indian Contract Act, Not given by Section 10 but are also
1872 considered essential
1 Agreement 1 Two parties
2 Free consent 2 Intention to create legal relationship
3 Competency of the parties 3 Fulfilments of legal formalities
4 Lawful consideration 4 Certainty of meaning
5 Legal object 5 Possibility of performance
6 Not expressly declared to be void [as per Section 6 -
24 to 30 and 56]
Topic : Essentials of a Valid Contract Pg. No. 2.6

In terms of Section 10 of the Act, “all agreements are contracts if they are
made by the free consent of the parties competent to contract, for a lawful
consideration and with a lawful object and are not expressly declared to be
void”.

Since section 10 is not complete and exhaustive, so there are certain other
sections which also contains requirements for an agreement to be enforceable.
Thus, in order to create a valid contract, the following elements should be present:
Topic : TWO PARTIES Pg. No. 2.6

1. Two Parties: One cannot contract with himself. A contract involves at least
two parties- one party making the offer and the other party accepting it. A
contract may be made by natural persons and by other persons having
legal existence e.g. companies, universities etc. It is necessary to remember
that identity of the parties be ascertainable.

Example 4: To constitute a contract of sale, there must be two parties- seller

and buyer. The seller and buyer must be two different persons,
because a person cannot buy his own goods.
Topic : State of Gujarat vs. Ramanlal S & Co
Pg. No. 2.6

In State of Gujarat vs. Ramanlal S & Co. when on dissolution of a

partnership, the assets of the firm were divided among the partners, the
sales tax officer wanted to tax this transaction. It was held that it was not a
sale. The partners being joint owner of those assets cannot be both buyer
and seller.
Topic : Essentials of a Valid Contract Pg. No. 2.6

2. Parties must intend to create legal obligations: There must be an intention

on the part of the parties to create legal relationship between them. Social
or domestic type of agreements are not enforceable in court of law and
hence they do not result into contracts.

Example 5: A husband agreed to pay to his wife certain amount as maintenance

every month while he was abroad. Husband failed to pay the
promised amount. Wife sued him for the recovery of the amount.
Here, in this case, wife could not recover as it was a social
agreement and the parties did not intend to create any legal
relations. (Balfour v. Balfour)
Topic : Essentials of a Valid Contract
Pg. No. 2.6

Example 6: Mr. Lekhpal promises to pay Rs. 5 lakhs to his son if the son passes
the CA exams. On passing the exams, the son claims the money.
Here, the son could not recover as it was a social agreement.

Example 7: A sold goods to B on a condition that he must pay for the amount of
goods within 30 days. Here A intended to create legal relationship
with B. Hence the same is contract. On failure by B for making a
payment on due date, A can sue him in the court of law.
Topic : Essentials of a Valid Contract
Pg. No. 2.7

3. Other Formalities to be complied with in certain cases: A contract may be

written or spoken. As to legal effects, there is no difference between a
written contract and contract made by word of mouth. But in the interest
of the parties the contract must be written. In case of certain contracts
some other formalities have to be complied with to make an agreement
legally enforceable.
Topic : Essentials of a Valid Contract
Pg. No. 2.7

For e.g. Contract of Insurance is not valid except as a written contract.

Further, in case of certain contracts, registration of contract under the laws
which is in force at the time, is essential for it to be valid, e.g. in the case of
immovable property.
Thus, where there is any statutory requirement that any contract is to be
made in writing or in the presence of witness, or any law relating to the
registration of documents must be complied with.
Topic : Essentials of a Valid Contract
Pg. No. 2.7

4. Certainty of meaning: The agreement must be certain and not vague or

indefinite.

Example 8: A agrees to sell to B a hundred tons of oil. There is nothing certain in

order to show what kind of oil was intended for.

Example 9: XYZ Ltd. agreed to lease the land to Mr. A for indefinite years. The
contract is not valid as the period of lease is not mentioned.
Topic : Essentials of a Valid Contract Pg. No. 2.7

5. Possibility of performance of an agreement: The terms of agreement

should be capable of performance. An agreement to do an act impossible in
itself cannot be enforced.

Example 10: A agrees with B to discover treasure by magic. The agreement

cannot be enforced as it is not possible to be performed
Topic : Essentials of a Valid Contract Pg. No. 2.7

Now, according to Section 10 of the Indian Contract Act, 1872, the following are
the essential elements of a Valid Contract:

I. Offer and Acceptance or an agreement: An agreement is the first essential

element of a valid contract. According to Section 2(e) of the Indian Contract
Act, 1872, “Every promise and every set of promises, forming consideration
for each other, is an agreement” and according to Section 2(b) “A proposal
when accepted, becomes a promise”. An agreement is an outcome of offer
and acceptance for consideration.
Topic : Essentials of a Valid Contract
Pg. No. 2.7

II. Free Consent: Two or more persons are said to consent when they agree
upon the same thing in the same sense. This can also be understood as
identity of minds in understanding the terms viz consensus ad idem. Further
such consent must be free.

Consent would be considered as free consent if it is not caused by coercion,

undue influence, fraud, misrepresentation or mistake.

Example 11: A, who owns two cars is selling red car to B. B thinks he is
purchasing the black car. There is no consensus ad idem and
hence no contract.
Topic : WHAT IS A CONTRACT? Pg. No. 2.8

To determine consensus ad idem the language of the contract should be clearly

drafted. Thus, if A says B “Will you buy my red car for Rs. 3,00,000?“. B says “yes”
to it. There is said to be consensus ad idem i.e. the meaning is taken in same sense
by both the parties.

Example 12: A threatened to shoot B if he (B) does not lend him Rs. 2,00,000
and B agreed to it. Here the agreement is entered into under
coercion and hence not a valid contract.

(Students may note that the terms coercion, undue influence, fraud, mis-
representation, mistake are explained in the Unit-3)
Topic : Essentials of a Valid Contract Pg. No. 2.8

III. Capacity of the parties: Capacity to contract means the legal ability of a
person to enter into a valid contract. Section 11 of the Indian Contract Act
specifies that every person is competent to contract who
(a) is of the age of majority according to the law to which he is subject and
(b) is of sound mind and
(c) is not otherwise disqualified from contracting by any law to which he is
subject.
A person for being competent to contract must fulfil all the above three
qualifications.
Topic : Essentials of a Valid Contract
Pg. No. 2.8

Qualification (a) refers to the age of the contracting person i.e. the person
entering into contract must be of 18 years of age. Persons below 18 years of age
are considered minor, therefore, incompetent to contract.
Qualification (b) requires a person to be of sound mind i.e. he should be in his
senses so that he understands the implications of the contract at the time of
entering into a contract. A lunatic, an idiot, a drunken person or under the
influence of some intoxicant is not supposed to be a person of sound mind.
Qualification (c) requires that a person entering into a contract should not be
disqualified by his status, in entering into such contracts. Such persons are an
alien enemy, foreign sovereigns, convicts etc. They are disqualified unless they
fulfil certain formalities required by law.
Contracts entered by persons not competent to contract are not valid.
Topic : Essentials of a Valid Contract Pg. No. 2.8

IV. Consideration: It is referred to as ‘quid pro quo’ i.e. ‘something in return’. A

valuable consideration in the sense of law may consist either in some right,
interest, profit or benefit accruing to one party, or some forbearance,
detriment, loss or responsibility given, suffered or undertaken by the other.

Example 13: A agrees to sell his books to B for Rs. 100.

B’s promise to pay Rs. 100 is the consideration for A’s promise to
sell his books. A’s promise to sell the books is the consideration for
B’s promise to pay Rs. 100.
Topic : WHAT IS A CONTRACT? Pg. No. 2.9

V. Lawful Consideration and Object: The consideration and object of the

agreement must be lawful.

Section 23 states that consideration or object is not lawful if

it is prohibited by law, or
it is such as would defeat the provisions of law,
if it is fraudulent or
involves injury to the person or property of another or
court regards it as immoral or opposed to public policy.
Topic : WHAT IS A CONTRACT? Pg. No. 2.9

Example 14: ‘A’ promises to drop prosecution instituted against ‘B’ for robbery
and ‘B’ promises to restore the value of the things taken. The
agreement is void, as its object is unlawful.

Example 15: A agrees to sell his house to B against 100 kgs of cocaine (drugs).
Such agreement is illegal as the consideration is unlawful.
Topic : WHAT IS A CONTRACT? Pg. No. 2.9

VI. Not expressly declared to be void: The agreement entered into must not be
which the law declares to be either illegal or void. An illegal agreement is an
agreement expressly or impliedly prohibited by law. A void agreement is one
without any legal effects.

Example 16: Threat to commit murder or making/publishing defamatory

statements or entering into agreements which are opposed to
public policy are illegal in nature. Similarly, any agreement in
restraint of trade, marriage, legal proceedings, etc. are classic
examples of void agreements.
Topic : TYPES OF CONTRACTS Pg. No. 2.9

Now let us discuss various types of contracts.

Type of Contract on the basis of

Validity or enforceability Formation Performance

Valid contracts Express contract Executed contract

Void contracts Implied contract Executory contract

Voidable contracts Quasi-contract

Unilateral Bilateral
Illegal agreements E-contracts contract contract

Unenforceable contracts
 Topic : TYPES OF CONTRACTS Pg. No. 2.10

I. On the basis of the validity

1. Valid Contract: An agreement which is binding and enforceable is a
valid contract.
It contains all the essential elements of a valid contract.

Example 17: A ask B if he wants to buy his bike for Rs. 50,000. B agrees to
buy bike. It is agreement which is enforceable by law. Hence,
it is a valid contract.
Topic : TYPES OF CONTRACTS Pg. No. 2.10

2. Void Contract: Section 2 (j) states as follows:

“A contract which ceases to be enforceable by law becomes void when it
ceases to be enforceable”.
Thus, a void contract is one which cannot be enforced by a court of law.

Example 18: Mr. X agrees to write a book with a publisher. Such contract is
valid. But after few days, X dies in an accident. Here the
contract becomes void due to the impossibility of
performance of the contract. Thus, a valid contract when
cannot be performed because of some uncalled happening
becomes void.
Topic : TYPES OF CONTRACTS Pg. No. 2.10

Example 19: A contracts with B (owner of the factory) for the supply of 10
tons of sugar, but before the supply is effected, the fire caught
in the factory and everything was destroyed. Here the
contract becomes void.

It may be added by way of clarification here that when a contract is void, it is

not a contract at all but for the purpose of identifying it, it has to be called a
[void] contract.
Topic : TYPES OF CONTRACTS Pg. No. 2.10

3. Voidable Contract: Section 2(i) defines that

“an agreement which is enforceable by law at the option of one or more
parties thereto, but not at the option of the other or others is a voidable
contract”.

This in fact means where one of the parties to the agreement is in a

position or is legally entitled or authorized to avoid performing his
part, then the agreement is treated and becomes voidable.
Topic : TYPES OF CONTRACTS Pg. No. 2.10

Following are the situations where a contract is voidable:

(i) When the consent of party is not free is caused by coercion,
undue influence, misrepresentation or fraud.

Example 20: X promise to sell his scooter to Y for Rs. 1 Lac. However,
the consent of X has been procured by Y at a gun point. X is an
aggrieved party, and the contract is voidable at his option but not on
the option of Y. It means if X accepts the contract, the contract becomes
a valid contract then Y has no option of rescinding the contract.
Topic : TYPES OF CONTRACTS Pg. No. 2.11

Following are the situations where a contract is voidable:

(ii) When a person promises to do something for another person, but
the other person prevents him from performing his promise, the
contract becomes voidable at the option of first person.

Example 21: There is a contact between A and B to sell car of A to B for

Rs. 2,00,000. On due date of performance, A asks B that he does not
want to sell his car. Here contract is voidable at the option of B.
Topic : TYPES OF CONTRACTS Pg. No. 2.11

Following are the situations where a contract is voidable:

(iii) When a party to a contract promise to perform a work within a
specified time, could not perform with in that time, the contract
is voidable at the option of promisee.

Example 22: A agrees to construct a house for B upto 31-3-2022 but A

could not complete the house on that date. Here contract is voidable at
the option of B.
Topic : TYPES OF CONTRACTS Pg. No. 2.11

At this juncture it would be desirable to know the distinction between a

Void Contract and a Voidable Contract. These are elaborated hereunder:
S. No. Basis Void Contract Voidable Contract

1 Meaning A Contract ceases to be An agreement which is enforceable by law

enforceable by law at the option of one or more of the parties
becomes void when it thereto, but not at the option of the other or
ceases to be enforceable. others, is a voidable contract.
2 Enforceability A void contract cannot be It is enforceable only at the option of
enforced at all. aggrieved party and not at the option of
other party.
3 Cause A contract becomes void A contract becomes a voidable contract if the
due to change inlaw or consent of a party was not free.
change in circumstances
beyond the contemplation
of parties.
Topic : TYPES OF CONTRACTS Pg. No. 2.12

At this juncture it would be desirable to know the distinction between a

Void Contract and a Voidable Contract. These are elaborated hereunder:
S. No. Basis Void Contract Voidable Contract

4 Performanceof A void contract cannot be If the aggrieved party does not, within
contract performed. reasonable time, exercise his right to avoid
the contract, any party can sue the other for
claiming the performance of the contract.
5 Rights A void contract does not The party whose consent was not free has
grant any legal remedy to the right to rescind the contract within a
any party. reasonable time. If so rescinded, it becomes
a void contract. If it is not rescinded it
becomes a valid contract.
Topic : TYPES OF CONTRACTS Pg. No. 2.12

4. Illegal Contract: It is a contract which the law forbids to be made.

The court will not enforce such a contract but also the connected contracts.
All illegal agreements are void but all void agreements are not necessarily
illegal.
Despite this, there is similarity between them is that in both cases they are
void ab initio and cannot be enforced by law.

Example 23: Contract that is immoral or opposed to public policy are illegal
in nature. Similarly, if R agrees with S, to purchase brown sugar, it is an illegal
agreement.
Topic : TYPES OF CONTRACTS Pg. No. 2.12

According to Section 2(g) of the Indian Contract Act, “an agreement not
enforceable by law is void”.
The Act has specified various factors due to which an agreement may be
considered as void agreement.
One of these factors is unlawfulness of object and consideration of the
contract i.e. illegality of the contract which makes it void.
The illegal and void agreement differ from each other in the following
respects:
Topic : TYPES OF CONTRACTS Pg. No. 2.13

Basis of Void agreement Illegal agreement

difference
Scope
A void agreement is not An illegal agreement is always
necessarily illegal. void.
Nature Not forbidden under law. Are forbidden under law.
Punishment Parties are not liable for any Parties to illegal agreements
are liable for punishment.
punishment under the law.
Collateral It’s not necessary that Agreements collateral illegal
agreements are always void.
Agreement agreements collateral to void
agreements may also be void. It
may be valid also.
Topic : TYPES OF CONTRACTS Pg. No. 2.13

5. Unenforceable Contract:
Where a contract is good in substance but because of some technical defect
i.e. absence in writing, barred by limitation etc. one or both the parties
cannot sue upon it, it is described as an unenforceable contract.

Example 24: A bought goods from B in 2018. But no payment was made
till 2022. B cannot sue A for the payment in 2022 as it has crossed three
years and barred by Limitation Act. A good debt becomes unenforceable
after the period of three years as barred by Limitation Act.

Similarly, an agreement for transfer of immovable property should be

written for being enforceable.
 Topic : TYPES OF CONTRACTS Pg. No. 2.13

II. On the basis of the formation of contract

1. Express Contracts: A contract would be an express contract if the terms
are expressed by words or in writing. Section 9 of the Act provides that
if a proposal or acceptance of any promise is made in words, the
promise is said to be express.

Example 25: A tells B on telephone that he offers to sell his house for Rs.
20 lacs and B in reply informs A that he accepts the offer,
this is an express contract.
 Topic : TYPES OF CONTRACTS Pg. No. 2.13

II. On the basis of the formation of contract

2. Implied Contracts: Implied contracts in contrast come into existence by
implication. Most often the implication is by action or conduct of
parties or course of dealings between them. Section 9 of the Act
contemplates such implied contracts when it lays down that in so far as
such proposal or acceptance is made otherwise than in words, the
promise is said to be implied.

Example 26: Where a coolie in uniform picks up the luggage of A to be

carried out of the railway station without being asked by A and A
allows him to do so, it is an implied contract and A must pay for the
services of the coolie detailed by him.
Topic : TYPES OF CONTRACTS Pg. No. 2.13

Example 27: A drinks a coffee in restaurant. There is an implied

contract that he should pay for the price of coffee.
Topic : TYPES OF CONTRACTS Pg. No. 2.13

Tacit Contracts: The word Tacit means silent.

Tacit contracts are those that are inferred through the conduct of parties
without any words spoken or written.

A classic example of tacit contract would be when cash is withdrawn by a

customer of a bank from the automatic teller machine [ATM].

Another example of tacit contract is where a contract is assumed to have

been entered when a sale is given effect to at the fall of hammer in an
auction sale.
It is not a separate form of contract but falls within the scope of implied
contracts.
Topic : TYPES OF CONTRACTS Pg. No. 2.14

3. Quasi-Contract: A quasi-contract is not an actual contract, but it

resembles a contract.
It is created by law under certain circumstances.

The law creates and enforces legal rights and obligations when no real
contract exists. Such obligations are known as quasi-contracts.

In other words, it is a contract in which there is no intention on part of either

party to make a contract but law imposes a contract upon the parties.
Topic : TYPES OF CONTRACTS Pg. No. 2.14

Example 28: Obligation of finder of lost goods to return them to the

true owner or liability of person to whom money is paid under mistake
to repay it back cannot be said to arise out of a contract even in its
remotest sense, as there is neither offer and acceptance nor consent.
These are said to be quasi-contracts.

Example 29: T, a tradesman, leaves goods at C’s house by mistake. C

treats the goods as his own. C is bound to pay for the goods.
Topic : TYPES OF CONTRACTS Pg. No. 2.14

4. E-Contracts: When a contract is entered into by two or more parties

using electronics means, such as e-mails is known as e-commerce
contracts.

In electronic commerce, different parties/persons create networks which

are linked to other networks through ED1 - Electronic Data Inter change.
This helps in doing business transactions using electronic mode.

These are known as EDI contracts or Cyber contracts or mouse click

contracts.
 Topic : TYPES OF CONTRACTS Pg. No. 2.14

III. On the basis of the performance of the contract

1. Executed Contract: The consideration in a given contract could be an
act or forbearance.
2. When the act is done or executed or the forbearance is brought on
record, then the contract is an executed contract.

Example 30: When a grocer sells a sugar on cash payment it is an

executed contract because both the parties have done what they were
to do under the contract.
Topic : TYPES OF CONTRACTS Pg. No. 2.14

2. Executory Contract: In an executory contract the consideration is

reciprocal promise or obligation. Such consideration is to be performed
in future only and therefore these contracts are described as executory
contracts.

Example 31: Where G agrees to take the tuition of H, a pre-engineering

student, from the next month and H in consideration promises to pay G
Rs. 1,000 per month, the contract is executory because it is yet to be
carried out.

Unilateral or Bilateral are kinds of Executory Contracts and are not

separate kinds.
Topic : TYPES OF CONTRACTS Pg. No. 2.15

(a) Unilateral Contract: Unilateral contract is a one sided contract in

which one party has performed his duty or obligation and the
other party’s obligation is outstanding.

Example 32: M advertises payment of award of Rs. 50,000 to any

one who finds his missing boy and brings him. As soon as B traces
the boy, there comes into existence an executed contract because B
has performed his share of obligation and it remains for M to pay
the amount of reward to B. This type of Executory contract is also
called unilateral contract.
Topic : TYPES OF CONTRACTS Pg. No. 2.15

(b) Bilateral Contract: Bilateral contract is a contract where obligation

or promise is outstanding on the part of both the parties

Example 33: A promises to sell his plot to B for Rs.10 lacs cash
down, but B pays only Rs. 2,50,000 as earnest money and promises
to pay the balance on next Sunday. On the other hand, A gives the
possession of plot to B and promises to execute a sale deed on the
receipt of the whole amount. The contract between the A and B is
executory because there remains something to be done on both
sides. Such Executory contracts are also known as Bilateral
contracts.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.15

Definition of Offer/Proposal:

According to Section 2(a) of the Indian Contract Act, 1872, “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”.
Topic : Essentials of a proposal/offer
Pg. No. 2.16

Essentials of a proposal/offer are-

1. The person making the proposal or offer is called the ‘promisor’ or ‘offeror’:
The person to whom the offer is made is called the ‘offeree’ and the person
accepting the offer is called the ‘promisee’ or ‘acceptor’.

2. For a valid offer, the party making it must express his willingness ‘to do’ or
‘not to do’ something: There must be an expression of willingness to do or
not to do some act by the offeror.

Example 34: A willing to sell his good at certain price to B.

Example 35: A is willing to not to dance in a competition if B pays him certain
sum of money.
Topic : Essentials of a proposal/offer
Pg. No. 2.16

3. The willingness must be expressed with a view to obtain the assent of the
other party to whom the offer is made.

Example 36: Where ‘A’ tells ‘B’ that he desires to marry by the end of 2022, it
does not constitute an offer of marriage by ‘A’ to ‘B’. Therefore, to
constitute a valid offer expression of willingness must be made to
obtain the assent (acceptance) of the other. Thus, if in the above
example, ‘A’ further adds, ‘Will you marry me’, it will constitute an
offer.
Topic : Essentials of a proposal/offer
Pg. No. 2.16

4. An offer can be positive as well as negative: Thus “doing” is a positive act and
“not doing”, or “abstinence” is a negative act; nonetheless both these acts
have the same effect in the eyes of law.

Example 37: A offers to sell his car to B for Rs. 3 lacs is an act of doing. So in this
case, A is making an offer to B.

Example 38: When A ask B after his car meets with an accident with B’s scooter
not to go to Court and he will pay the repair charges to B for the
damage to B’s scooter; it is an act of not doing or abstinence.
Topic : Kinds of Offer
Pg. No. 2.16

0
Kinds of Offer

How made To whom made

Express offer Implied offer General offer Specific offer

Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.16

Classification of offer

An offer can be classified as general offer, special/specific offer, cross offer,

counter offer, standing/ open/ continuing offer.

General Special Counter Standing

Offer Offer Cross Offer Offer
Offer
Topic : Kinds of Offer Pg. No. 2.17

Now let us examine each one of them.

(a) General offer: It is an offer made to public at large and hence anyone can
accept and do the desired act (Carlill Vs. Carbolic Smoke Ball Co.).

In terms of Section 8 of the Act, anyone performing the conditions of the offer can
be considered to have accepted the offer. Until the general offer is retracted or
withdrawn, it can be accepted by anyone at any time as it is a continuing offer.
Case Law: Carlill Vs. Carbolic Smoke Ball
Co. (1893) Pg. No. 2.17

Facts: In this famous case, Carbolic smoke Ball Co. advertised in several
newspapers that a reward of £100 would be given to any person who contracted
influenza after using the smoke balls produced by the Carbolic Smoke Ball Co.
according to printed directions. One lady, Mrs. Carlill, used the smoke balls as per
the directions of company and even then, suffered from influenza. Held, she could
recover the amount as by using the smoke balls she had accepted the offer.
Topic : Kinds of Offer Pg. No. 2.17

(b) Special/specific offer:

When the offer is made to a specific or an ascertained person, it is known as a

specific offer.

Specific offer can be accepted only by that specified person to whom the offer has
been made. [Boulton Vs. Jones]

Example 39: ‘A’ offers to sell his car to ‘B’ at a certain cost. This is a specific
offer.
Topic : Kinds of Offer Pg. No. 2.17

(c) Cross offer:

When two parties exchange identical offers in ignorance at the time of each
other’s offer, the offers are called cross offers.

There is no binding contract in such a case because offer made by a person cannot
be construed as acceptance of the another’s offer.
Topic : Kinds of Offer Pg. No. 2.17

Example 40: If A makes a proposal to B to sell his car for Rs. 2 lacs and B,
without knowing the proposal of A, makes an offer to purchase the
same car at Rs. 2 lacs from A, it is not an acceptance, as B was not
aware of proposal made by A. It is only cross proposal (cross
offer). And when two persons make offer to each other, it cannot
be treated as mutual acceptance. There is no binding contract in
such a case.
Topic : Kinds of Offer Pg. No. 2.17

(d) Counter offer: When the offeree offers to qualified acceptance of the offer
subject to modifications and variations in the terms of original offer, he is
said to have made a counter offer. Counter-offer amounts to rejection of the
original offer. It is also called as Conditional Acceptance.

Example 41: ‘A’ offers to sell his plot to ‘B’ for Rs.10 lakhs. ’B’ agrees to buy it for
Rs. 8 lakhs. It amounts to counter offer. It will result in the
termination of the offer of ’A’. If later on ‘B’ agrees to buy the plot
for Rs. 10 lakhs, ’A’ may refuse.
Topic : Kinds of Offer Pg. No. 2.18

(e) Standing or continuing or open offer: An offer which is allowed to remain

open for acceptance over a period of time is known as standing or continuing
or open offer. Tenders that are invited for supply of goods is a kind of
standing offer.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.18

Essential of a valid offer

1. It must be capable of creating legal relations:

Offer must be such as in law is capable of being accepted and giving rise to legal
relationship.
If the offer does not intend to give rise to legal consequences and creating legal
relations, it is not considered as a valid offer in the eye of law.
A social invitation, even if it is accepted, does not create legal relations because it
is not so intended.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.18

Example 42: A invited B on his birthday party. B accepted the proposal but
when B reached the venue, he (B) found that A was not there. He
filed the suit against A for recovery of travelling expenses incurred
by him to join the birthday party. Held, such an invitation did not
create a legal relationship. It is a social activity. Hence, B could not
succeed.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.18

2. It must be certain, definite and not vague: If the terms of an offer are vague
or indefinite, its acceptance cannot create any contractual relationship.

Example 43: A offers to sell B 100 quintals of oil, there is nothing whatever to
show what kind of oil was intended. The offer is not capable of
being accepted for want of certainty.

If in the above example, A is a dealer in mustard oil only, it shall constitute a valid
offer.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.18

3. It must be communicated to the offeree: An offer, to be complete, must be

communicated to the person to whom it is made, otherwise there can be no
acceptance of it. Unless an offer is communicated, there can be no
acceptance by it. An acceptance of an offer, in ignorance of the offer, is not
acceptance and does not confer any right on the acceptor.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.18

This can be illustrated by the landmark case of Lalman Shukla v. GauriDutt

Facts: G (Gauridutt) sent his servant L (Lalman) to trace his missing nephew. He
then announced that anybody who traced his nephew would be entitled to a
certain reward. L traced the boy in ignorance of this announcement. Subsequently
when he came to know of the reward, he claimed it. Held, he was not entitled to
the reward, as he did not know the offer.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.19

4. It must be made with a view to obtaining the assent of the other party: Offer
must be made with a view to obtaining the assent of the other party
addressed and not merely with a view to disclosing the intention of making
an offer.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.19

5. It may be conditional: An offer can be made subject to any terms and

conditions by the offeror.

Example 44: Offeror may ask for payment by RTGS, NEFT etc. The offeree will
have to accept all the terms of the offer otherwise the contract will
be treated as invalid.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.19

6. Offer should not contain a term the non-compliance of which would amount
to acceptance: Thus, one cannot say that if acceptance is not communicated
by a certain time the offer would be considered as accepted.

Example 45: A proposes B to purchase his android mobile for Rs.5000 and if no
reply by him in a week, it would be assumed that B had accepted
the proposal. This would not result into contract.
Topic : ESSENTIALS OF A VALID OFFER Pg. No. 2.19

7. The offer may be either specific or general: Any offer can be made to either
public at large or to the any specific person. (Already explained in the
heading-types of the offer)

8. The offer may be express or implied: An offer may be made either by words
or by conduct.

Example 46: A boy starts cleaning the car as it stops on the traffic signal
without being asked to do so, in such circumstances any
reasonable man could guess that he expects to be paid for this,
here boy makes an implied offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.19

9. Offer is Different from a mere statement of intention, an invitation to

offer, a mere communication of information, A prospectus and
Advertisement.

(i) A statement of intention and announcement.

Example 47: A father wrote his son about his wish of making him the
owner of all his property is mere a statement of
intention.

Example 48: An announcement to give scholarships to children

scoring more than 95% in 12th board is not an offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.19

(ii) Offer must be distinguished from an answer to a question.

Case Law: Harvey vs. Facie [1893] AC 552

In this case, Privy Council succinctly explained the distinction between

an offer and an invitation to offer. In the given case, the plaintiffs
through a telegram asked the defendants two questions namely,
(i) Will you sell us Bumper Hall Pen? and
(ii) Telegraph lowest cash price.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.20

The defendants replied through telegram that the “lowest price for
Bumper Hall Pen is £ 900”. The plaintiffs sent another telegram stating
“we agree to buy Bumper Hall Pen at £ 900”. However, the defendants
refused to sell the property at the price.

The plaintiffs sued the defendants contending that they had made an
offer to sell the property at £ 900 and therefore they are bound by the
offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.20

However, the Privy Council did not agree with the plaintiffs on the
ground that while plaintiffs had asked two questions, the defendant
replied only to the second question by quoting the price but reserved
their answer with regard to their willingness to sell. Thus, they made
no offer at all. Their Lordships held that the mere statement of the
lowest price at which the vendor would sell contained no implied
contract to sell to the person who had enquired about the price.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.20

The above decision was followed in Mac Pherson vs Appanna [1951]

A.S.C. 184 where the owner of the property had said that he would not
accept less than £ 6000/- for it. This statement did not indicate any
offer but indicated only an invitation to offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.20

(iii) A statement of price is not an offer: Quoting the price of a product does
not constitute it as offer. (refer case of Harvey Vs. Facie as discussed
above)

Example 49: The price list of goods does not constitute an offer for
sale of certain goods on the listed prices. It is an
invitation to offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.20

(iv) An invitation to make an offer or do business. In case of “an invitation

to make an offer”, the person making the invitation does not make an
offer rather invites the other party to make an offer. His objective is to
send out the invitation that he is willing to deal with any person who,
on the basis of such invitation, is ready to enter into contract with him
subject to final terms and conditions.

Example 50: An advertisement for sale of goods by auction is an

invitation to the offer. It merely invites offers/bids
made at the auction.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.20

When goods are sold through auction, the auctioneer does not contract with
anyone who attends the sale. The auction is only an advertisement to sell but
the items are not put for sale though persons who have come to the auction
may have the intention to purchase. Similar decision was given in the case of
Harris vs. Nickerson (1873).

Similarly, Prospectus issued by a company, is only an invitation to the public

to make an offer to subscribe to the securities of the company.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.21

10. A statement of price is not an offer

What is invitation to offer?

An offer should be distinguished from an invitation to offer. An offer is
definite and capable of converting an intention into a contract. Whereas an
invitation to an offer is only a circulation of an offer, it is an attempt to induce
offers and precedes a definite offer. An invitation to offer is an act precedent
to making an offer. Acceptance of an invitation to an offer does not result in
the contract and only an offer emerges in the process of negotiation.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.21

When a person advertises that he has stock of books to sell or houses to let,
there is no offer to be bound by any contract. Such advertisements are offers
to negotiate- offers to receive offers. In order to ascertain whether a
particular statement amounts to an ‘offer’ or an ‘invitation to offer’, the test
would be intention with which such statement is made. Does the person who
made the statement intend to be bound by it as soon as it is accepted by the
other or he intends to do some further act, before he becomes bound by it. In
the former case, it amounts to an offer and in the latter case, it is an
invitation to offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.21

Difference between offer and invitation to make an offer:

In terms of Section 2(a) of the Act, an offer is the final expression of

willingness by the offeror to be bound by the offer should the other party
chooses to accept it. On the other hand, offers made with the intention to
negotiate or offers to receive offers are known as invitation to offer. Thus,
where a party without expressing his final willingness proposes certain
terms on which he is willing to negotiate he does not make an offer, but only
invites the other party to make an offer on those terms. Hence the only thing
that is required is the willingness of the offeree to abide by the terms of offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.21

In order to ascertain whether a particular statement amounts to an offer or

an invitation to offer, the test would be intention with which such statement
is made. The mere statement of the lowest price which the vendor would sell
contains no implied contract to sell at that price to the person making the
inquiry.

If a person who makes the statement has the intention to be bound by it as

soon as the other accepts, he is making an offer. Thus, the intention to be
bound is important factor to be considered in deciding whether a statement
is an ‘offer’ or ‘invitation to offer.’
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.21

Following are instances of invitation to offer to buy or sell:

(i) A Prospectus by a company to the public to subscribe for its shares.

(ii) Display of goods for sale in shop windows.
(iii) Advertising auction sales and
(iv) Quotation of prices sent in reply to a query regarding price.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.22

Basis Offer Invitation to offer

Meaning Section 2(a) of the Act, an offer is the final
Where a party without expressing his final
expression of willingness by the offeror towillingness proposes certain terms on which he is
be bound by the offer should the other willing to negotiate he does not make an offer, but
party chooses to accept it. only invites the other party to make an offer on those
terms.
Intention of the parties If a person who makes the statement has If a person has the intention of negotiating on terms it
the intention to be bound by it as soon as is called invitation to offer.
the other accepts, he is making an offer.

Sequence An offer cannot be an act precedent to An invitation to offer is always an act precedent to
invitation to offer. offer.
Topic : Proposal / Offer [Section 2(a) Of
The Indian Contract Act, 1872] Pg. No. 2.22

Act Words Written

Offer can be
Conduct Oral
made by

Abstinence
Topic : ACCEPTANCE Pg. No. 2.22

Definition of Acceptance: In terms of Section 2(b) of the Act, ‘the term acceptance’
is defined as follows:

“When the person to whom the proposal is made signifies his assent thereto,
proposal is said to be accepted. The proposal, when accepted, becomes a
promise”.
Topic : ACCEPTANCE Pg. No. 2.23

Analysis of the above definition

1.When the person to whom proposal is made - for example if A offers to sell his
car to B for Rs. 2,00,000. Here, proposal is made to B.
2. The person to whom proposal is made i.e. B in the above example and if B
signifies his consent on that proposal, then we can say that B has signified his
consent on the proposal made by A.
3. When B has signified his consent on that proposal, we can say that the
proposal has been accepted.
4. Accepted proposal becomes promise.
Topic : Relation between Offer and Acceptance
Pg. No. 2.23

Relationship between offer and acceptance:

According to Sir William Anson “Acceptance is to offer what a lighted match is to a

train of gun powder”.
The effect of this observation is that what acceptance triggers cannot be recalled
or undone. But there is a choice to the person who had the train to remove it
before the match is applied.

It in effect means that the offer can be withdrawn just before it is accepted.
Acceptance converts the offer into a promise and then it is too late to revoke it.
This means as soon as the train of gun powder is lighted it would explode. Train of
Gun powder [offer] in itself is inert, but it is the lighted match [the acceptance]
which causes the gun powder to explode.
Topic : ACCEPTANCE Pg. No. 2.23

The significance of this is an offer in itself cannot create any legal relationship but
it is the acceptance by the offeree which creates a legal relationship. Once an offer
is accepted it becomes a promise and cannot be withdrawn or revoked. An offer
remains an offer so long as it is not accepted but becomes a contract as soon as it
is accepted.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.23

Legal Rules regarding a valid acceptance

(1) Acceptance can be given only by the person to whom offer is made: In case of
a specific offer, it can be accepted only by the person to whom it is made.
[Boulton vs. Jones (1857)]
Case Law: Boulton vs. Jones (1857)
Facts: Boulton bought a business from Brocklehurst. Jones, who was
Broklehurst’s creditor, placed an order with Brocklehurst for the supply of
certain goods. Boulton supplied the goods even though the order was not in
his name. Jones refused to pay Boultan for the goods because by entering
into the contract with Blocklehurst, he intended to set off his debt against
Brocklehurst. Held, as the offer was not made to Boulton, therefore, there
was no contract between Boulton and Jones.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.23

In case of a general offer, it can be accepted by any person who has the knowledge
of the offer. [Carlill vs. Carbolic Smoke Ball Co. (1893)]

(2) Acceptance must be absolute and unqualified: As per section 7 of the Act,
acceptance is valid only when it is absolute and unqualified and is also
expressed in some usual and reasonable manner unless the proposal
prescribes the manner in which it must be accepted. If the proposal
prescribes the manner in which it must be accepted, then it must be
accepted accordingly.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.24

M offered to sell his land to N for £280. N replied purporting to accept the offer
but enclosed a cheque for £ 80 only. He promised to pay the balance of £ 200 by
monthly instalments of £ 50 each. It was held that N could not enforce his
acceptance because it was not an unqualified one. [Neale vs. Merret [1930] W. N.
189].

A offers to sell his house to B for Rs. 30,00,000/-. B replied that, “I can pay Rs.
24,00,000 for it. The offer of ‘A’ is rejected by ‘B’ as the acceptance is not
unqualified. B however changes his mind and is prepared to pay Rs. 30,00,000/-.
This is also treated as counter offer and it is upto A whether to accept it or not.
[Union of India v. Bahulal AIR 1968 Bombay 294].
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.24

Example 51: ‘A’ enquires from ‘B’, “Will you purchase my car for Rs. 2 lakhs?” If
‘B’ replies “I shall purchase your car for 2 lakhs, if you buy my
motorcycle for Rs. 50,000/-, here ‘B’ cannot be considered to have
accepted the proposal. If on the other hand ‘B’ agrees to purchase
the car from ‘A’ as per his proposal subject to availability of valid
Registration Certificate / book for the car, then the acceptance is
in place though the offer contained no mention of R.C. book. This
is because expecting a valid title for the car is not a condition.
Therefore, the acceptance in this case is unconditional.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.24

(3) The acceptance must be communicated: To conclude a contract between the

parties, the acceptance must be communicated in some perceptible form. Any
conditional acceptance or acceptance with varying or too deviant conditions is
no acceptance. Such conditional acceptance is a counter proposal and has to be
accepted by the proposer, if the original proposal has to materialize into a
contract. Further when a proposal is accepted, the offeree must have the
knowledge of the offer made to him. If he does not have the knowledge, there
can be no acceptance. The acceptance must relate specifically to the offer
made. Then only it can materialize into a contract. The above points will be
clearer from the following examples:
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.24

Brogden vs. Metropolitan Railway Co. (1877)

Facts: B a supplier, sent a draft agreement relating to the supply of coal to the
manager of railway Co. viz, Metropolitian railway for his acceptance. The manager
wrote the word “Approved” on the same and put the draft agreement in the
drawer of the table intending to send it to the company’s solicitors for a formal
contract to be drawn up. By an over sight the draft agreement remained in drawer.
Held, that there was no contract as the manager had not communicated his
acceptance to the supplier, B.
Where an offer made by the intended offeree without the knowledge that an offer
has been made to him cannot be deemed as an acceptance thereto. (Bhagwandas
v. Girdharilal)
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.25

A mere variation in the language not involving any difference in substance would
not make the acceptance ineffective. [Heyworth vs. Knight [1864] 144 ER 120].

Example 52: A proposed B to marry him. B informed A’s sister that she is ready
to marry him. But his sister didn’t inform A about the acceptance
of proposal. There is no contract as acceptance was not
communicated to A.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.25

(4) Acceptance must be in the prescribed mode: Where the mode of acceptance is
prescribed in the proposal, it must be accepted in that manner. But if the
proposer does not insist on the proposal being accepted in the manner
prescribed after it has been accepted otherwise, i.e., not in the prescribed
manner, the proposer is presumed to have consented to the acceptance.

Example 53: If the offeror prescribes acceptance through messenger and

offeree sends acceptance by email, there is no acceptance of the
offer if the offeror informs the offeree that the acceptance is not
according to the mode prescribed. But if the offeror fails to do so, it
will be presumed that he has accepted the acceptance and a valid
contract will arise.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.25

(5) Time: Acceptance must be given within the specified time limit, if any, and if no
time is stipulated, acceptance must be given within the reasonable time and
before the offer lapses. What is reasonable time is nowhere defined in the law
and thus would depend on facts and circumstances of the particular case.

Example 54: A offered to sell B 50 kgs of bananas at Rs. 500. B communicated

the acceptance after four days. Such is not a valid contract as
bananas being perishable items could not stay for a period of
week. Four days is not a reasonable time in this case.
Example 55: A offers B to sell his house at Rs. 20,00,000. B accepted the offer
and communicated to A after 4 days. Held the contract is valid as
four days can be considered as reasonable time in case of sell of
house.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.25

(6) Mere silence is not acceptance: The acceptance of an offer cannot be implied
from the silence of the offeree or his failure to answer, unless the offeree has
in any previous conduct indicated that his silence is the evidence of
acceptance.

Case Law: Felthouse vs. Bindley (1862)

Facts: F (Uncle) offered to buy his nephew’s horse for £30 saying “If I hear no
more about it I shall consider the horse mine at £30.” The nephew did not reply to
F at all. He told his auctioneer, B to keep the particular horse out of sale of his farm
stock as he intended to reserve it for his uncle. By mistake the auctioneer sold the
horse. F sued him for conversion of his property. Held, F could not succeed as his
nephew had not communicated the acceptance to him.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.26

Example 56: ’A’ subscribed for the weekly magazine for one year. Even after
expiry of his subscription, the magazine company continued to
send him magazine for five years. And also ‘A’ continued to use the
magazine but denied to pay the bills sent to him. ’A’ would be liable
to pay as his continued use of the magazine was his acceptance of
the offer.
Topic : Legal Rules regarding
a valid acceptance Pg. No. 2.26

(7) Acceptance by conduct/Implied Acceptance: Section 8 of the Act lays down

that “the performance of the conditions of a proposal, or the acceptance of
any consideration for a reciprocal promise which may be offered with a
proposal, constitutes an acceptance of the proposal. This section provides
the acceptance of the proposal by conduct as against other modes of
acceptance i.e. verbal or written communication.
Therefore, when a person performs the act intended by the proposer as the
consideration for the promise offered by him, the performance of the act
constitutes acceptance.
Topic : ACCEPTANCE Pg. No. 2.26

Example 57: when a tradesman receives an order from a customer and executes
the order by sending the goods, the customer’s order for goods
constitutes the offer, which has been accepted by the trades man
subsequently by sending the goods. It is a case of acceptance by
conduct.
Topic : Communication of Offer & Acceptance
Pg. No. 2.26

The importance of ‘offer’ and ‘acceptance’ in giving effect to a valid contract was
explained in the previous paragraphs. One important common requirement for
both ‘offer’ and ‘acceptance’ is their effective communication. Effective and proper
communication prevents avoidable revocation and misunderstanding between
parties.

When the contracting parties are face-to-face, there is no problem of

communication because there is instantaneous communication of offer and
acceptance. In such a case the question of revocation does not arise since the offer
and its acceptance are made instantly.
Topic : Communication of Offer & Acceptance
Pg. No. 2.26

The difficulty arises when the contracting parties are at a distance from one
another and they utilise the services of the post office or telephone or email
(internet). In such cases, it is very much relevant for us to know the exact time
when the offer or acceptance is made or complete.

The Indian Contract Act, 1872 gives a lot of importance to “time” element in
deciding when the offer and acceptance is complete.
Topic : Communication of Offer & Acceptance
Pg. No. 2.27

Communication of offer: In terms of Section 4 of the Act, “the communication of

offer is complete when it comes to the knowledge of the person to whom it is
made”.

Example 58: Where ‘A’ makes a proposal to ‘B’ by post to sell his house for Rs. 5
lakhs and if the letter containing the offer is posted on 10th March
and if that letter reaches ‘B’ on 12th March the offer is said to have
been communicated on 12th March when B received the letter.
Topic : Communication of Offer & Acceptance
Pg. No. 2.27

Thus, it can be summed up that when a proposal is made by post, its

communication will be complete when the letter containing the proposal reaches
the person to whom it is made.

Mere receiving of the letter is not sufficient, he must receive or read the message
contained in the letter.

He receives the letter on 12th March, but he reads it on 15th of March. In this case
offer is communicated on 15th of March, and not 12th of March.
Topic : Communication of Offer & Acceptance
Pg. No. 2.27

Communication of acceptance: There are two issues for discussion and

understanding. They are: The modes of acceptance and when is acceptance
complete?

Let us, first consider the modes of acceptance. Section 3 of the Act prescribes in
general terms two modes of communication namely, (a) by any act and (b) by
omission, intending thereby, to communicate to the other or which has the effect
of communicating it to the other.
Topic : Communication of Offer & Acceptance
Pg. No. 2.27

Communication by act would include any expression of words whether written or

oral. Written words will include letters, telegrams, faxes, emails and even
advertisements. Oral words will include telephone messages. Again
communication would include any conduct intended to communicate like positive
acts or signs so that the other person understands what the person ‘acting ‘ or
‘making signs’ means to say or convey.

Communication of acceptance by ‘omission’ to do something. Such omission is

conveyed by a conduct or by forbearance on the part of one person to convey his
willingness or assent. However, silence would not be treated as communication by
‘omission’.
Topic : Communication of Offer & Acceptance
Pg. No. 2.27

Example 59: A offers Rs. 50,000 to B if he does not arrive before the court of
law as an evidence to the case. B does not arrive on the date of
hearing to the court. Here omission of doing an act amounts to
acceptance.

Communication of acceptance by conduct. For instance, delivery of goods at a

price by a seller to a willing buyer will be understood as a communication by
conduct to convey acceptance. Similarly, one need not explain why one boards a
public bus or drop a coin in a weighing machine. The first act is a conduct of
acceptance against its communication to the offer by the public transport
authority to carry any passenger. The second act is again a conduct conveying
acceptance to use the weighing machine kept by the vending company as an offer
to render that service for a consideration.
Topic : Communication of Offer & Acceptance
Pg. No. 2.28

The other issue in communication of acceptance is about the effect of act or

omission or conduct. These indirect efforts must result in effectively
communicating its acceptance or non acceptance. If it has no such effect, there is
no communication regardless of which the acceptor thinks about the offer within
himself. Thus, a mere mental unilateral assent in one’s own mind would not
amount to communication. Where a resolution passed by a bank to sell land to ‘A’
remained uncommunicated to ‘A’, it was held that there was no communication
and hence no contract. [Central Bank Yeotmal vs Vyankatesh (1949) A. Nag. 286].
Let us now come to the issue of when communication of acceptance is complete.
In terms of Section 4 of the Act, it is complete,
Topic : Communication of Offer & Acceptance
Pg. No. 2.28

Communication of Acceptance
(i) As against the proposer, when it 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 it comes to the knowledge of the proposer.

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

acceptance will be complete as against the proposer when the letter of acceptance
is posted and as against the acceptor when the letter reaches the proposer.
Topic : Communication of Offer & Acceptance
Pg. No. 2.28

For instance in the above example, if ‘B’ accepts, A’s proposal and sends his
acceptance by post on 14th, the communication of acceptance as against ‘A’ is
complete on 14th, i.e. when the letter is posted. As against ‘B’ acceptance will be
complete, when the letter reaches ‘A’.

Here ‘A’ the proposer will be bound by B’s acceptance, even if the letter of
acceptance is delayed in post or lost in transit. The golden rule is proposer
becomes bound by the contract, the moment acceptor has posted the letter of
acceptance. But it is necessary that the letter is correctly addressed, adequately
stamped and duly posted. In such an event the loss of letter in transit, wrong
delivery, non delivery etc., will not affect the validity of the contract.
Topic : Communication of Offer & Acceptance
Pg. No. 2.28

However, from the view point of acceptor, he will be bound by his acceptance only
when the letter of acceptance has reached the proposer. So, it is crucial in this case
that the letter reaches the proposer. If there is no delivery of the letter, the
acceptance could be treated as having been completed from the viewpoint of
proposer but not from the viewpoint of acceptor. Of course this will give rise to an
awkward situation of only one party to the contract, being treated as bound by the
contract though no one would be sure as to where the letter of acceptance had
gone.
Topic : Communication of Offer & Acceptance
Pg. No. 2.28

Acceptance over telephone or telex or fax: When an offer is made of instantaneous

communication like telex, telephone, fax or through e-mail, the contract is only
complete when the acceptance is received by the offeree, and the contract is made
at the place where the acceptance is received (Entores Ltd. v. Miles Far East
Corporation). However, in case of a call drops and disturbances in the line, there
may not be a valid contract.
Topic : Communication of Offer & Acceptance
Pg. No. 2.29

Communication of special conditions: Sometimes there are situations where there

are contracts with special conditions. These special conditions are conveyed
tacitly and the acceptance of these conditions are also conveyed by the offeree
again tacitly or without him even realizing it.

Example 60: Where a passenger undertakes a travel, the conditions of travel are
printed at the back of the tickets, sometimes these special
conditions are brought to the notice of the passenger, sometimes
not. In any event, the passenger is treated as having accepted the
special condition the moment he bought his ticket.
Topic : Communication of Offer & Acceptance
Pg. No. 2.29

When someone travels from one place to another by air, it could be seen that
special conditions are printed at the back of the air ticket in small letters [in a
non-computerized train ticket even these are not printed] Sometimes these
conditions are found to have been displayed at the notice board of the Airlines
office, which passengers may not have cared to read. The question here is whether
these conditions can be considered to have been communicated to the passengers
of the Airlines and can the passengers be treated as having accepted the
conditions. The answer to the question is in the affirmative and was so held in
Mukul Datta vs. Indian Airlines [1962] AIR cal. 314 where the plaintiff had
travelled from Delhi to Kolkata by air and the ticket bore conditions in fine print.
But such terms and condition should be reasonable.
Topic : Communication of Offer & Acceptance
Pg. No. 2.29

Example 61: Where a launderer gives his customer a receipt for clothes
received for washing. The receipt carries special conditions and
are to be treated as having been duly communicated to the
customer and therein a tacit acceptance of these conditions is
implied by the customer’s acceptance of the receipt [Lily White vs.
R. Mannuswamy [1966] A. Mad. 13].
Topic : Communication of Offer & Acceptance
Pg. No. 2.29

CASE LAW: Lilly White vs. Mannuswamy (1970)

Facts: P delivered some clothes to drycleaner for which she received a laundry
receipt containing a condition that in case of loss, customer would be entitled to
claim 15% of the market price of value of the article, P lost her new saree. Held,
the terms were unreasonable and P was entitled to recover full value of the saree
from the drycleaner.

In the cases referred above, the respective documents have been accepted without
a protest and hence amounted to tacit acceptance.
Topic : Communication of Offer & Acceptance
Pg. No. 2.29

Standard forms of contracts: It is well established that a standard form of

contract may be enforced on another who is subjectively unaware of the contents
of the document, provided the party wanting to enforce the contract has given
notice which, in the circumstances of a case, is sufficiently reasonable. But the
acceptor will not incur any contractual obligation, if the document is so printed
and delivered to him in such a state that it does not give reasonable notice on its
face that it contains certain special conditions. In this connection, let us consider a
converse situation. A transport carrier accepted the goods for transport without
any conditions. Subsequently, he issued a circular to the owners of goods limiting
his liability for the goods. In such a case, since the special conditions were not
communicated prior to the date of contract for transport, these were not binding
on the owners of goods [Raipur transport Co. vs. Ghanshyam [1956] A. Nag.145].
Topic : Communication of Performance Pg. No. 2.30

We have already discussed that in terms of Section 4 of the Act, communication of

a proposal is complete when it comes to the knowledge of the person to whom it
is meant. As regards acceptance of the proposal, the same would be viewed from
two angles. These are:

(i) from the viewpoint of proposer and

(ii) the other from the viewpoint of acceptor himself

From the viewpoint of proposer, when the acceptance is put into a course of
transmission, when it would be out of the power of acceptor. From the viewpoint
of acceptor, it would be complete when it comes to the knowledge of the proposer.
Topic : Communication of Performance Pg. No. 2.30

At times the offeree may be required to communicate the performance (or act) by
way of acceptance. In this case, it is not enough if the offeree merely performs the
act but he should also communicate his performance unless the offer includes a
term that a mere performance will constitute acceptance. The position was clearly
explained in the famous case of Carlill Vs Carbolic & Smokeball Co. In this case the
defendant a sole proprietary concern manufacturing a medicine which was a
carbolic ball whose smoke could be inhaled through the nose to cure influenza,
cold and other connected ailments issued an advertisement for sale of this
medicine.
Topic : Communication of Performance Pg. No. 2.30

The advertisement also included a reward of $100 to any person who contracted
influenza, after using the medicine (which was described as ‘carbolic smoke ball’).
Mrs. Carlill bought these smoke balls and used them as directed but contracted
influenza. It was held that Mrs. Carlill was entitled to a reward of $100 as she had
performed the condition for acceptance. Further as the advertisement did not
require any communication of compliance of the condition, it was not necessary to
communicate the same. The court thus in the process laid down the following
three important principles:
Topic : Communication of Performance Pg. No. 2.30

(i) an offer, to be capable of acceptance, must contain a definite promise by the

offeror that he would be bound provided the terms specified by him are
accepted;
(ii) an offer may be made either to a particular person or to the public at large,
and
(iii) if an offer is made in the form of a promise in return for an act, the
performance of that act, even without any communication thereof, is to be
treated as an acceptance of the offer.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.31

If there are specific requirements governing the making of an offer and the
acceptance of that offer, we also have specific law governing their revocation.
In term of Section 4, communication of revocation (of the proposal or its
acceptance) is complete.

(i) 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, and
(ii) as against the person to whom it is made, when it comes to his knowledge.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.31

The above law can be illustrated as follows: If you revoke your proposal made to
me by a telegram, the revocation will be complete, as far as you are concerned
when you have dispatched the telegram. But as far as I am concerned, it will be
complete only when I receive the telegram.

As regards revocation of acceptance, if you go by the above example, I can revoke

my acceptance (of your offer) by a telegram. This revocation of acceptance by me
will be complete when I dispatch the telegram and against you, it will be complete
when it reaches you.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.31

But the important question for consideration is when a proposal can be revoked?
And when can an acceptance be revoked? These questions are more important
than the question when the revocation (of proposal and acceptance) is complete.

Ordinarily, the offeror can revoke his offer before it is accepted. If he does so, the
offeree cannot create a contract by accepting the revoked offer.

Example 62: the bidder at an auction sale may withdraw (revoke) his bid
(offer) before it is accepted by the auctioneer by fall of hammer.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.32

Example 63: X offered to sell 50 bales of cotton at a certain price and promised
to keep it open for acceptance by Y till 6 pm of that day. Before that
time X sold them to Z. Y accepted before 6 p.m., but after the
revocation by X. In this case it was held that the offer was already
revoked.

In terms of Section 5 of the Act a proposal can be revoked at any time before the
communication of its acceptance is complete as against the proposer. An
acceptance may be revoked at any time before the communication of acceptance is
complete as against the acceptor.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.32

Example 64: A proposes, by a letter sent by post, to sell his house to B. B accepts
the proposal by a letter sent by post. A may revoke his proposal at
any time before or at the moment when B posts his letter of
acceptance, but not afterwards. Whereas B may revoke his
acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.

An acceptance to an offer must be made before that offer lapses or is revoked.

The law relating to the revocation of offer is the same in India as in England, but
the law relating to the revocation of acceptance is different.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.32

In English law, the moment a person expresses his acceptance of an offer, that
moment the contract is concluded, and such an acceptance becomes irrevocable,
whether it is made orally or through the post. In Indian law, the position is
different as regards contract through post.

Contract through post- As acceptance, in English law, cannot be revoked, so that

once the letter of acceptance is properly posted the contract is concluded. In
Indian law, the acceptor or can revoke his acceptance any time before the letter of
acceptance reaches the offeror, if the revocation telegram arrives before or at the
same time with the letter of acceptance, the revocation is absolute.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.32

Contract over Telephone- A contract can be made over telephone. The rules
regarding offer and acceptance as well as their communication by telephone or
telex are the same as for the contract made by the mutual meeting of the parties.
The contract is formed as soon as the offer is accepted but the offeree must make
it sure that his acceptance is received by the offeror, otherwise there will be no
contract, as communication of acceptance is not complete. If telephone
unexpectedly goes dead during conversation, the acceptor must confirm again
that the words of acceptance were duly heard by the offeror.

Revocation of proposal otherwise than by communication: When a proposal is

made, the proposer may not wait indefinitely for its acceptance. The offer can be
revoked otherwise than by communication or sometimes by lapse.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.32

Modes of revocation of offer

(i) By notice of revocation:

Example 65: A offered B to sell goods at Rs. 5,000 through a post but before B
could accept the offer A received highest bid for the goods from C.
So, A revoked the offer to B by informing B over the telephone and
sold goods to C.

(ii) By lapse of time: The time for acceptance can lapse if the acceptance is not
given within the specified time and where no time is specified, then within a
reasonable time. This is for the reason that proposer should not be made to
wait indefinitely. It was held in Ramsgate Victoria Hotel Co. Vs Montefiore
(1866 L.R.Z. Ex 109), that a person
Topic : Revocation Of Offer & Acceptance Pg. No. 2.33

who applied for shares in June was not bound by an allotment made in November.
This decision was also followed in India Cooperative Navigation and Trading Co.
Ltd. Vs Padamsey Prem Ji. However, these decisions now will have no relevance in
the context of allotment of shares since the Companies Act, 2013 has several
provisions specifically covering these issues.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.33

(iii) By non-fulfilment of condition precedent: Where the acceptor fails to fulfill a

condition precedent to acceptance the proposal gets revoked. This principle
is laid down in Section 6 of the Act. The offeror for instance may impose
certain conditions such as executing a certain document or depositing
certain amount as earnest money. Failure to satisfy any condition will result
in lapse of the proposal. As stated earlier ‘condition precedent’ to acceptance
prevents an obligation from coming into existence until the condition is
satisfied. Suppose where ‘A’ proposes to sell his house to be ‘B’ for Rs. 5 lakhs
provided ‘B’ leases his land to ‘A’. If ‘B’ refuses to lease the land, the offer of ‘A’
is revoked automatically.
Topic : Revocation Of Offer & Acceptance Pg. No. 2.33

(iv) By death or insanity: Death or insanity of the proposer would result in

automatic revocation of the proposal but only if the fact of death or insanity
comes to the knowledge of the acceptor.
(v) By counter offer
(vi) By the non-acceptance of the offer according to the prescribed or usual mode
(vii) By subsequent illegality.