Offer and Acceptance in contracts.

📚 Previous Segment:

WHAT IS A CONTRACT? The Law of Contract Act, Cap. 345 [R.E. 2019] laws of Tanzania under Section 2(h) defines a contract as "an agreement enforceable by law." Section 2(e) describes an agreement as "every promise and every set of promises forming consideration for each other," while Section 2(b) defines a promise as occurring when "the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise."

OFFER/PROPOSAL

An offer, also referred to as a proposal, is defined as a declaration where one person expresses to another their willingness to perform or refrain from performing a specific act, with the aim of obtaining the other party's acceptance of the act or abstention (Section 2(a) of The Law of Contract Act, Cap. 345 [R.E. 2019]). Offers can be categorized as either positive or negative. A positive offer entails the willingness to perform a certain action, while a negative offer involves refraining from an action.

Examples:

1. If A offers to sell his book to B, this constitutes a positive act—a willingness to perform an action.

2. If A offers not to sue B provided B pays an outstanding amount, this constitutes a negative act, indicating willingness to refrain from an action.

HOW AN OFFER IS MADE

An offer may be communicated through actions or omissions intended to convey the offer (Section 3). It can be expressed in the following ways:

1. By words (written or spoken): A written offer can be communicated via letters, advertisements, or messages, while oral offers may occur in person or over the phone.

2. By conduct: A party’s actions or signs can communicate an offer. For instance, operating a service without verbal announcements can signify willingness to offer a service. Silence, however, cannot constitute an offer.

Examples:

1. A writes to B, offering to sell a house at a specific price. This constitutes an express offer made by written words.

2. A's motorboat positioned for passenger transport signifies an implied offer by conduct, as the positioning conveys readiness to perform the service.

An offer can also arise by omission when conduct suggests assent or willingness to act.

TYPES OF OFFERS

Offers can be categorized as either specific or general:

1. Specific Offer: Directed to a particular person or group, and only they can accept it.

2. General Offer: Open to the public at large and can be accepted by anyone fulfilling its conditions.

Case Reference: In Carlill v. Carbolic Smoke Ball Co. (1893), a company advertised a reward for using its product as directed. The plaintiff fulfilled the terms but contracted influenza, successfully claiming the reward despite no prior personal communication with the company. This case highlights that general offers bind the offeror to anyone complying with their terms.

ESSENTIALS OF A VALID OFFER

For an offer to be valid, it must:

a/. Aim to obtain acceptance (Section 2(a)).

b/. Intend to create legal relations (Balfour v. Balfour).

c/. Be definite, unambiguous, and certain, avoiding vague or unclear terms (Section 29).

d/. Be distinguishable from declarations of intention or invitations to offer.

Examples:

• A vague offer to sell "100 quintals of oil" is invalid without specifying the type. However, if A deals only in coconut oil, the offer gains clarity.

Invitation to Offer: Advertisements, prospectuses, and price lists often invite offers but do not constitute offers themselves. For instance, a store displaying goods with prices invites customers to make purchase offers. A contract is formed only when the cashier accepts payment (Pharmaceutical Society of Great Britain v. Boots Cash Chemists).

COMMUNICATION AND ACCEPTANCE

An offer must be communicated to the offeree, who cannot accept it without prior knowledge. For instance, in Lalman Shukla v. Gauri Dutt, a servant who fulfilled the terms of an offer without knowing it could not claim the reward later.

REVOCATION OF OFFERS

Offers may be revoked before acceptance unless consideration or a specific term restricts withdrawal. However, in cases of standing offers, contracts arise only upon each act of acceptance, as seen in Chatturbhuj Vithaldas v. Moreshover Parashram.

CROSS OFFERS AND TERMINATION OF AN OFFER

When two parties unknowingly make identical offers to each other, these are termed cross-offers, and neither constitutes an acceptance of the other. Without mutual acceptance, no contract arises. For instance, in Tinn v. Hoffman & Co. (1873), letters of identical offers crossed in the post, and the court held that no contract existed.

Termination or Lapse of an Offer occurs in several ways before acceptance:

1. Lapse of Time: Offers lapse if not accepted within the stipulated or reasonable time as per Section 6(2) of the Contracts Act. For example, in Ramsgate Victoria Hotel Co. v. Montefiore (1860), an offer made in June but accepted in November was deemed lapsed due to unreasonable delay.

2. Death or Insanity: As per Section 6(4), an offer terminates if the offeror or offeree dies or becomes insane before acceptance, provided the other party has knowledge of this fact.

3. Rejection: An outright rejection by the offeree terminates the offer.

4. Revocation by the Offeror: Offers can be revoked before acceptance.

5. Non-compliance with Prescribed Mode of Acceptance: If the offeree fails to accept in the specified or a usual and reasonable manner, the offer terminates.

6. Counter-offer: Introducing conditions or qualifications to the original offer constitutes a counter-offer, effectively terminating the initial offer. For example, in Routledge v. Grant (1828), changing the date of possession was treated as a counter-offer, negating the original terms.

7. Conditional Offers: If the condition of the offer is not accepted, the offer lapses. For instance, if A offers to sell a house to B for Rs. 12,000 on the condition that leases land to A, the offer is terminated if B refuses to lease the land.

An offer aims to seek acceptance and create legal obligations. If it fails due to lapse, revocation, or counter-offer, no contract can arise.

Acceptance under the Law of Contract Act, Cap. 345 [R.E. 2019]

The Law of Contract Act, Cap. 345 [R.E. 2019], defines acceptance under Section 2(1)(b) as the act of signifying assent to a proposal, which transforms the proposal into a contract. Acceptance can be made either expressly or impliedly. Express acceptance occurs through verbal or written communication or by performing an act required by the offer, as demonstrated in Carlill v. Carbolic Smoke Ball Co. For instance, a trader executing a customer's order by sending goods constitutes acceptance by conduct, while claiming a reward for finding a lost dog, as per the offer, constitutes implied acceptance.

Acceptance must adhere to several principles to be valid:

1. Absolute and Unqualified: As per Section 7, acceptance must align entirely with the offer's terms without variations, as seen in Union of India v. Babulal. Even slight modifications can convert an acceptance into a counteroffer, requiring fresh acceptance by the original offeror.

2. Communication to the Offeror: Acceptance must be conveyed to the offeror. A mental agreement, as held in Felthouse v. Bindley, does not suffice. However, in cases of general offers, actions fulfilling the offer's terms may constitute acceptance without direct communication (Carlill v. Carbolic Smoke Ball Co).

3. Prescribed Mode of Acceptance: If the proposer specifies a mode of acceptance, it must be followed. Deviations can be accepted unless the proposer objects within a reasonable time.

4. Timeliness: Acceptance must occur within the offer's specified timeframe or, if unspecified, within a reasonable time, as highlighted in Ramsgate Victoria Hotel Co. v. Montefiore.

5. Response to Offer: There must be a pre-existing offer for acceptance to follow; one cannot accept retroactively.

6. Before the Offer Lapses: Acceptance is valid only if made prior to the offer’s lapse, termination, or withdrawal.

7. By the Offeree: A specific offer can only be accepted by the intended offeree, as illustrated in Boulton v. Jones, while a general offer can be accepted by anyone meeting its terms.

In addition, the law does not permit agreements to agree in the future, as they lack definitiveness unless methods for determining uncertain terms are provided (Foley v. Classique Coaches Ltd). Thus, these rules collectively establish the framework for a valid and binding acceptance under Indian contract law.

Communication of Offer, Acceptance, And Revocation.

The validity of an offer and acceptance in contract law hinges on the principle of communication, which includes:

A. Communication of the Offer:

An offer must be effectively communicated to the offeree, as stipulated in Section 4 of The Law of Contract Act, Cap. 345 [R.E. 2019]). The communication is deemed complete when the offeree becomes aware of the proposal.

Example:

If A offers to sell his house to B through a letter, the communication of the proposal is complete once B receives the letter.

B. Communication of Acceptance:

The completion of the communication of acceptance has two dimensions:

a/. Against the proposer: Acceptance is complete when it is sent by the acceptor, making it irrevocable by the proposer.

b/. Against the acceptor: Acceptance is complete only when it is received by the proposer.

Example:

If A offers to sell his house to B via a letter, and B accepts by posting a letter back:

a./ For A, the communication of acceptance is complete when B posts the letter.

b/. For B, it is complete when A receives the letter.

C. Communication of Revocation:

The revocation of an offer or acceptance is considered complete:

a/. Against the revoking party: When it is sent and leaves the control of the revoking party.

b/. Against the receiving party: When it comes to their knowledge.

Example:

If A offers to sell his house to B and revokes the proposal via telegram:

a/. The revocation is complete for A when the telegram is dispatched.

b/. It is complete for B upon receipt of the telegram.

D. Revocation Rules under Section 5:

A proposal can be revoked at any time before the acceptance is communicated to the proposer but not afterward.

An acceptance can be revoked before it is communicated to the proposer but not afterward.

Example:

If A proposes to sell his house via a letter, and B accepts through a posted letter:

A can revoke the proposal before or at the moment B posts the acceptance letter.

B can revoke the acceptance before or at the moment A receives the acceptance letter.

E. Contracts via Telephone or Telex:

Contracts formed during telephone conversations are established immediately upon acceptance, provided the offeror hears and understands the acceptance. If the acceptance is not received by the offeror, no contract is formed.

Unlike postal contracts, instantaneous communication methods require actual receipt of the acceptance to conclude the contract.

F. Comparison with English Law:

Indian and English laws differ in their treatment of postal communication. In India, the post office acts as the agent for both the offeror and the offeree. Consequently, revocation is permissible under certain conditions. However, in English law, the post office serves exclusively as the offeror’s agent, making acceptance irrevocable once posted. Sir William Anson famously likened acceptance to a "lighted match to a train of gunpowder," emphasizing its irrevocable nature in English law.