Analyze the law relating to offer and acceptance in the making of a contract in India.

Question: Analyze the law relating to offer and acceptance in the making of a contract in India. [BJS 1978]

Find the answer to the mains question of the Law of Contract only on Legal Bites. [Analyze the law relating to offer and acceptance in the making of a contract in India.]

Answer

I. Offer

Section 2(a) defines a proposal as “when one person signifies to another his willingness to do or abstain from doing anything, with a view of obtaining the assent of that other to such act or abstinence, he is said to make a proposal.”

The person who makes the proposal is called the promisor and the person accepting it is called the promisee (Section 2(c)). As per the definition, a valid proposal has two main parts. Firstly, an expression of the offeror’s willingness to do or abstain from doing something and secondly it is made with a view to obtaining the assent of the offeree to the proposed act or abstinence

Essentials of a Valid Offer

While making a contract, it is essential that the offer should be communicated to the other party. A proposal is complete when it is communicated. (Section 3)

A valid offer may be made either expressly or impliedly. An offer that is made by conduct is called an “implied offer” whereas the one which is made by words written or spoken, is called an “express offer” (Section 9). The conduct of the part includes not only their acts but also their omissions.

1. Communication of proposal

Section 4 provides that the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. When such an offer is accepted with knowledge of the reward, the fact that an informer was influenced by some other motives other than the reward will be immaterial. However, an act in ignorance of an offer does not amount to acceptance of that offer.

2. Intention to contract

In order to create a valid contract, every offer must be made with the intention to create a legal obligation. Under English law, the position was well settled in the case of Balfour v. Balfour [(1919) 2 KB 571 (CA)], where it was held that “to create a contract there must be a common intention of the parties to enter into legal obligations”.

It is for the court in each court to decide whether the parties must have intended to enter into legal obligations. The test of contractual intention is objective, not subjective. What matters is not what the parties had in mind, but what a reasonable person would think, in the circumstances, their intention to be.

It is not specified anywhere under the Indian Contract Act, 1872 that parties should have the intention of creating a legal obligation but it is as essential as it is under English law. It can be interpreted from the term “willingness” which shows the intention to be bound by the proposal when accepted.

3. Definite Offer

The term of the offer must be certain and not vague. Agreements, the meaning of which are not certain, or capable of being made certain, are void (section 29).

A agrees to sell B “100 tons of oil”. There is nothing whatsoever to show what kind of oil was intended. The agreement is void for uncertainty. But if A agrees to sell B all the grain in his granary at Ramnagar, then the agreement is valid.

II. Acceptance

A proposal becomes a promise when it is accepted. Section 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.” Following are the legal rules for a valid acceptance:-

1. Acceptance may be express or implied

According to sections 3 and 9, if acceptance is made with words spoken or written, it is an express acceptance, and if acceptance is made otherwise than in words, it is implied. What is necessary is that there should be some external manifestation of acceptance. A mere mental determination to accept unaccompanied by any external indication will not be sufficient.

2. Communication must be communicated to the offeror himself

Communication of acceptance of a proposal should be communicated to the offerer himself. If it is made to any other person, it will be ineffectual as if there was no communication. Moreover, as held in the case of Felthouse v. Bindley [(1863) 7 LT 835], an offeror cannot say that if no answer is received within a certain time, the offer shall be deemed to have been accepted.

It is also pertinent that the communication of acceptance should be from a person who has the authority to accept. In Powel v. Lee [(1908) 24 TLR 606], it was held that information from an unauthorized person is of no value.

3. Necessity of communication

In case of a specific offer, communication of acceptance must be made by the acceptor, and to the offerer himself. But in all cases of general offers, it can be accepted by anyone, who fulfils the condition of the offer. Section 8 provides that the performance of the conditions of a proposal is an acceptance of the proposal.

4. Conclusion of contract

Under English law, when the parties are at a distance, the legal position is that a contract arises on the date when the letter of acceptance is posted in due course as held in the landmark case of Adams v. Lindsell [(1818) 106 ER 250] The Indian position adopts a slightly different approach to this rule.

By virtue of Section 4, when a letter of acceptance is posted and is out of the power of the acceptor, the proposer becomes bound whereas the acceptor will only be bound when the letter is received by the proposer.

Thus under English law, both the offeror and acceptor becomes bound at the same time whereas, in India, the acceptor becomes bound at a later stage when his acceptance comes to the knowledge of the proposer.

5. Acceptance must be absolute and unqualified

Section 7 of the Act provides that ‘In order to convert a proposal into a promise, the acceptance must be absolute and unqualified. An acceptance with variation is no acceptance, but simply a counter-proposal that has to be accepted by the original promisor before a contract is made.

Partial acceptance of an offer is only a counter-proposal. An offeree cannot simply accept the terms which are favourable to him and reject the rest unless the offeror agrees to qualified acceptance.

Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X