[FAQs] Offer and Acceptance under Indian Contract Act, 1872

Section 2(a) of the Indian Contract Act defines a proposal as:

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

The person who makes the offer is called the ‘offeror’ or ‘promisor’ and the person to whom the offer is made is called the ‘offeree’ or ‘promisee’:

1. An offer may be express or implied.
2. An offer may be specific or general.
3. An offer must be made with a view to create legal relationship.
4. Offer must be distinguished from an invitation to offer.
5. An offer must be communicated to the offeree.
6. The terms of offer must be certain & may include an act or an abstinence
7. An offer may be conditional and all special terms & conditions must be communicated along with the offer.
8. An offer must not be “negative” in terms. An offer should not contain a term the non-compliance of which would amount to acceptance.
9. An intention to make an offer in the future does not result in an offer.

Section 2(b) states that

“A proposal when accepted becomes a promise”

and defines ‘acceptance’ as

“When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.”

1. Acceptance must be absolute and unqualified.
2. Acceptance must be given only by the person to whom the offer is made.
3. Acceptance may be expressed in words, spoken or written or may be given by conduct.
4. Acceptance must be expressed in the prescribed manner or when nothing is prescribed then in some usual and reasonable manner.
5. Acceptance must be communicated by the acceptor.
6. Acceptance must be given within a reasonable time and before the offer lapses and or is revoked.
7. Acceptance must succeed the offer.
8. Rejected offers can be accepted only, if renewed.
9. Generally acceptance cannot be presumed from silence.

As per the provisions of the Indian Contract Act, 1872, the following are the modes of revocation of an offer:-

(i) By notice:- An offer may be revoked by communication of notice to the offeree by the offeror before the communication of acceptance is completed as against him.

(ii) By Lapse of time:- A proposal stands revoked by the lapse of time prescribed for its acceptance if communication of acceptance is not made.

(iii) By failure to fulfil condition precedent:- Sometimes the offer may impose certain conditions, such as executing a certain document or depositing certain sum of money (earnest money), which are required to be complied with prior to acceptance. If the acceptor fails to fulfil the conditions precedent to acceptance, the offer is treated as revoked.

(iv) By death or insanity of offeror:- An offer stands revoked if the offeror dies or becomes of unsound mind before acceptance and the fact of his death or insanity comes to the knowledge of the offeree.

(v) By counter offer:- When acceptance is given by the offeree on terms & conditions different from the original offer then the offer stands revoked.

(vi) By death or insanity of the offeree:- If the offer is specific the offer stands revoked when the offeree dies or becomes of unsound mind, before the acceptance of the offer.

(vii) By destruction of subject matter:- When the subject matter of offer is destroyed prior to acceptance, then the offer stands revoked.

(viii) By change in law:- When the offer becomes impossible due to change in law prior to acceptance, thereby making it unlawful then the offer stands revoked.

(ix) By non-acceptance of the offer as per the prescribed mode:- When the offeree sends acceptance in a mode other than the mode prescribed by offeror, the offer may be treated as revoked.

When two persons make identical offers to each other, without having knowledge of each other’s offer, then such offers are known as cross offers. These offers are independent & identical and do not constitute a contract until acceptance is given to any one of them.

When offer is accepted on terms or conditions different than those set out in the original offer then it amounts to counter offer. A counter offer results in rejection of the original offer and creation of a new offer. Once a counter offer is made by the original offeree, he cannot subsequently accept the original offer, since the original offer stands revoked. It is only if acceptance is given to the new offer that a contract shall be created.

It means supply of information so that the negotiations can start and the other person can be moved to make an offer. It is an indication that the inviter is willing to enter into negotiations but is not yet prepared to be bound. A response to invitation to treat does not lead to an agreement. In fact it generates an offer.

An invitation to offer is a statement made by a person with a view to elicit response and negotiate a deal, without expressing final willingness to contract. An invitation to offer, when responded generates an offer.

The following are few examples of invitation to make an offer:

• • Catalogue of goods is not offer, but only an invitation for offer.
  • Display of goods with price tags in a self-service shop is merely an invitation to offer.
  • A tender notice does not amount to an offer; it is merely an invitation to contractors for making offers.
  • A prospectus issued by a company to purchase its shares or debentures is an invitation to offer.
  • A menu card in a hotel is an invitation to offer, etc.

Thus an offer is an expression of final willingness to do or not to do something, with a view to obtain assent of the other person. Whereas invitation to an offer only indicates broad terms for negotiating business and while an offer results in generation of acceptance in its response, an invitation to an offer results in generation of offers in its response.

Silence generally does not amount to acceptance. The acceptance of an offer cannot be implied from the silence of the offeree or his failure to respond to the offer. However in the following exceptional cases, silence may be regarded as acceptance to an offer and it results in the creation of a binding contract –

(i) Where the offeree having reasonable opportunity to reject the offered goods/services, enjoys or avails the benefits of them, then his silence will be regarded as acceptance.
(ii) Similarly, where the previous dealings show that offeree has given the offeror a reason to believe that the silence of the offeree was a manifestation of his acceptance and the offeror understands so, then silence will be regarded as acceptance of the offer.

The communication of offer completes when the offer comes to the knowledge of the offeree.

The communication of acceptance completes at different times for the offeror & the offeree, as under:

(i) As against the offeror: The communication of acceptance completes as against the offeror, when the letter of acceptance is put into a course of transmission by the offeree to the offeror, so as to be beyond the reach & power of the offeree. After such communication, the offeror is bound by the acceptance.
(ii) As against the offeree:- The communication of acceptance is complete as against the offeree. When it comes to the knowledge of the offeror. After such communication, the offeror has a right to bind the offeree by his acceptance.

No, there is no sale because the display of the article at the shop window is only an invitation to offer and not an offer [invitation to an offer does not result in generation of acceptance, instead gives rise to an offer]

He shall be bound by them whether he has read them or not [if special terms and conditions are communicated along with the offer, then the same shall be binding on the offeree]

An offer must be distinguished from an invitation to make an offer. An offer is the final expression of willingness by the offeror to be bound by the offer if the offeree chooses to accept it. On the other hand an invitation to make an offer is made with the intention to negotiate business on the terms specified broadly in the invitation, with any person who comes forward with an offer. Thus the offer is made with the intention of procuring acceptance whereas invitation to make an offer is made to procure offers. The acceptance of an invitation to an offer does not result in the formation of contract and only an offer emerges in the process of negotiation. A price tag attached to an article displayed for sale does not constitute an offer. It is merely an invitation to offer.

The display of goods in a self service shop is in the form of an invitation to offer; selection of goods & producing them for payment to cashier amounts to an offer by the customer to purchase the goods. It is only when the cashier accepts the price being offered and agrees to sell that contract is created.

Essentials of a valid offer; the special terms & conditions must also be communicated alongwith the offer so as to bind the offeree. If the special terms & conditions are not communicated the same shall not be binding on the offeree. Further the party prescribing such special terms must make reasonable efforts to bring such special terms to the knowledge of the other party at the time of formation of contract.

Silence, generally, does not amount to acceptance. The acceptance to an offer cannot be implied from the silence of the offeree or his failure to answer or respond to the offer unless the offeree has by his previous conduct indicated that his silence implies acceptance.

Further under the provisions of the Indian Contract Act, 1872, an offer shall be regarded as invalid if it binds the other party to reply or if it contains any terms, the non-compliance of which may be assumed to amount to acceptance.

A contract is created the moment an offer, made with the intention of creating legal relations, is accepted. However acceptance to be valid and binding must be communicated. Thus efforts must be made to bring the acceptance into the knowledge of the offeror, i.e. acceptance must be put into a course of transmission to the offeror by offeree.

According to the rules for completion of communication of offer an acceptance under the Indian Contract Act, 1872, acceptance completes at different times for the offeror and the offeree. Acceptance completes as against the offeror, the moment the letter of acceptance is put into a course of transmission to the offeror by the offeree so as to be beyond the reach of the offeree. Thus in case of acceptance by post, the liability of the offeror under the contract is created the moment the letter of acceptance is posted by the offeree and is out of his reach.

Further acceptance completes as against the offeree when it comes to the knowledge of the offeror. Thus in case of acceptance by post, the liability of the offeree under the contract shall be created when the letter of acceptance is received and read by the offeror. If the offeree desires to revoke his acceptance validly, he must do so before his liability under the contract is created i.e. before the acceptance comes to the knowledge of the offeror.

According to the provisions of the Indian Contract Act, 1872, in the event of both the letter of acceptance and telegram of revocation reaching the offeror together, whichever is read first is treated as effective. However it is because of this reason that revocation is made by a faster means of communication and a telegram is more likely to be read before the letter of acceptance.