FORMATION OF AN AGREEMENT

ESSENTIALS CONDITIONS OF A VALID OFFER

1. As per s.2(a), contract Act, an offer or proposal has the following
ingredients
a. One person signifies to another,
b. His willingness to do or abstain from doing anything,
c. With a view to obtaining the assent of that other.
2. As per s.3, to ‘signify’ means that the proposal must be
communicated to the other party. S.9, a valid proposal may be
made by words (written or spoken) or by conduct.
Eg: stepping into a taxi and consuming eatables at a restaurant,
both created implied promise to pay for the benefits enjoyed.
3. Certainty of offer – the terms of the offer must be certain and
not vague (s.29).
Eg: A agrees to sell to B “my white horse for 500 or 1000”.
Here, price is not certain, therefore, not a valid offer.
4. Communication of offer – As per s.4, no communication of a
proposal is complete until it comes to the knowledge of the
person to whom it is made. Acting in ignorance of an offer does
not amount to the acceptance of that offer. Thus, knowledge of
an offer is must before the offer can be accepted. Lalman Shukla
v Gauri Dutta 1913
5. General offers – In general offers, contract is made with only
that person who comes forward and performs the conditions of
the proposal as such performance amount to acceptance of
performance (s.8). – Carlil v Carbolic Smoke 1893
6. Offer and invitation to treat(offer) – Pharmaceutical society v
Boots
7. Intention to contract – Courts generally presume intention of
Creating legal relations unless matter is trivial.
GENERAL OFFERS1
Two kinds of offers – General & Specific.
The specific offer is made to specific or an ascertained person, while
the general offer is made to the public or world at large.
As per s.8 performance of the conditions of a proposal is an
acceptance of the proposal. Therefore, in general offers, the contract
is made only with that person who comes forward and performs the
conditions of the proposal. Hence, communication of acceptance is
not necessary in such cases.
Carlill v. Carbolic Smoke Ball Co. [1892]
- def promises in an ad to pay 100 pounds to any person who contracts
flu after using smoke ball. Plaintiff relying on the advt. uses the ball
but contracts flu. Held, the advertisement was not an invitation to
offer, but a general offer which was accepted by the plaintiff and
hence, it became a binding contract. Therefore entitled to reward.
Lalman Shukala v Gauri Datt 1913
Defendant issued handbills to pay Rs. 501 to anyone finding his lost
nephew. Plaintiff came to know the offer after tracing the boy. He
claimed reward. Held, there can be no acceptance unless there is
knowledge of the offer. Therefore, plaintiff not entitled to the reward.
Harbhajan Lal v. Harcharan Lal 1925 – similar situation, but Plaintiff
over heard this offer and finds the boy. Held, handbill was a general
offer and plaintiff subsequently performed it. Therefore, entitled to
the reward.

1
Write a short note on General and Specfic offer.
OFFER AND INVITATION TO TREAT (offer)2
An offer is the final expression of willingness by the offeror to be
bound by his offer. Sometimes a person may not offer to sell his goods,
but make some statement or give some information with a view to
inviting others to make offers on that basis.
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 merely invites the other party to make an offer on those
terms.
For eg: a book seller sends catalogue of prices of various books to
many persons. This is only an ‘invitation to treat’. The interested party
may make an offer and the book seller may accept or reject the offer.
Similarly, advertisements for bids/tenders are only ‘invitation to
offer’; the bid constitutes an invitation to offer which can be accepted
or rejected. An auctioneer is not bound to accept even the highest bid.
Likewise, an inducement of special discount by a shopkeeper is a
“commercial puff” or an invitation to treat and not an offer.
A quotation of price is not an offer. In Grainger v Gough 1896, held,
transmission of a price list does not amount to an offer to supply an
unlimited quantity of the wine described at the price named.
Harvey v Facey 1893 – Plaintiff telegraphed to the defendants, “will
you sell us Bumper Hall Pen? Telegraph lowest cash price.” The
defendants replied, “Lowest price for Pen, 900”. Plaintiff replied, “we
agree to buy pen for 900 asked by you”. The defendants, however,
refused to sell the plot at that price. Held, defendant gave only the
lowest price and did not expressed their willingness to sell. Thus they
had made no offer.

2
Explain an offer and a ‘quotation’ and difference b/w two
‘An invitation to treat is not an offer’. Explain
Distinguish an offer from a quotation or an invitation to an offer with the help of illustrations
McPherson v Appana 1951 – held, mere statement of the lowest price
at which the offeror would sell contains no implied contract to sell at
that price.
Pharmaceutical Society of Great Britain v. Boots [1953] defendant
carried on self-service shop. Plaintiff picked up a medicine, but the
defendant refused to sell. Held, Display of Goods only amounted to an
invitation to the intending customers to take the goods to the till and
makes an offer to purchase. It may be accepted or rejected.
Bank of India v Swarankar 2003, held, Announcement of Voluntary
Retirement Scheme by a nationalised bank is not an offer. The
employee offering to retire makes an offer and the same becomes
effective when the written request of retirement is accepted.
ACCEPTANCE
According to s.2 (b) of contract act, when the person to whom the
proposal is made, signifies his assent there to the proposal, then it is
said to be accepted. A proposal when accepted becomes promise.
Essential Requirements of a valid Acceptance
1. Communication of Acceptance
a. Acceptance may express or implied – express (written or
spoken). Overt act of acceptance (e.g. fall of hammer in
auction sale). A mere mental determination (or intent) to
accept is not enough (e.g. keeping agreement in drawer)
b. When communication not necessary – in general offers
(unilateral contracts), acceptance is by conduct. (s.8). Carlil v
carbolic smoke case
c. Communication to offeror himself – a communication to any
other person is no communication in the eyes of law(
Felthouse v Bindley 1863)
d. Communication by acceptor himself- information received
form an unauthorised person is ineffective as it is like over
hearing from behind the door [powell v Lee 1908]
e. Mode of Communication – s.7 acceptance has to be made in
the manner prescribed by the proposer (if not prescribed,
then in some usual and reasonable manner). Further, offeror
has to reject such acceptance within reasonable time and if
he fails to do so, the contract is concluded.
i. Acceptance by Post
ii. Acceptance by Telephone
iii. Acceptance by Internet

2. Absolute and Unqualified Acceptance

a. Counter Proposals – An acceptance with a variation (e.g.
introduction of new terms) is no acceptance: it is simply a
counter proposal, which must be accepted by the original
promisor before a contract is made.
 b. Provisional acceptance – an acceptance made subject to final
approval is called provisional acceptance. It does not
ordinarily bind either party until the final approval is given.

Absolute and Unqualified Acceptance3

As per s7, in order to convert a proposal into a promise, the
acceptance must be absolute and unqualified i.e. without any
qualification or condition. For a valid acceptance, there must be
consensus ad idem “Concurrence of mind” i.e. agreeing on the
same thing in the same course/sense and at the same time.
There should be an offer by one party, express or implied, and
acceptance of the same by the other party in the same sense, in
which it was made by the other. But the rule relating to ‘acceptance
through post’ is an exception to this because in such cases
acceptance becomes complete when posted, whether it is known
to the offeror or not.
There can be a series of contracts b/w parties. At each stage, there
is a distinct offer and a distinct acceptance [chathirbuj v
Moreshawar 1954].
Acceptance must be total. no contract arises, if only a part of the
offer is accepted (General Assurance v LIC 1964).
Acceptance should be unequivocal and not provisional [Lakhanlal v
State of Orissa 1976].
In Kilburn Engg. v ONGC 2000 – held, offer and acceptance must be
based on 3 components – Certainty, Commitment and
Communication.
In MTNL V Rana 2009 – a party had agreed to the contract under
the mistaken impression that this contained the same clause as an
older agreement. Held, no consensus ad idem b/w the parties.

3
What are the difficulties that arise in application of the rule that “acceptance must be absolute, and must
correspond with terms of the offer”?
“For giving rise to a valid contact, there must be consensus ad idem among the contracting parties.” Explain.
 Where matter is inserted into an instrument after the signature of
the parties, but before the registration, it does not bind the parties
[ Murthy v Ramappa 2011].

REVOCATION4
REVOCATION OF AN OFFER
s.6 lays down the circumstance when an offer lapses i.e. modes of
revocation. A proposal is revoked:
1. by the communication of notice of revocation by the proposer
to the other party,
2. by the lapse of time prescribed in such proposal for its
acceptance, or, if no time is prescribed, by the lapse of a
reasonable time, without communication of the acceptance,
3. By the failure of the acceptor to fulfil a condition precedent to
acceptance, or
4. By the death or insanity of the proposer, if the fact of his death
or insanity comes to the knowledge of the acceptor before
acceptance.
Notice of Revocation
As per s.5 “a proposal may be revoked at any time before the
communication of its acceptance is complete as against proposer, but
not afterwards”.
As per (s.4) communication of acceptance is complete, as against the
proposer, “when it is put in a course of transmission to him, so as to
be out of the power of acceptor”.
Thus, for the communication of revocation to be effective, it must
reach the acceptor before he mails his acceptance and makes it out of

4
‘An offer cannot be accepted after it has been terminated or negatived’. Explain when an offer ceases to be
capable of acceptance.
“An offer is to acceptance what a lighted matchstick is to a train of gun powder. It produces somethings which
cannot be recalled or undone” – Explain.
“revocation of proposal is death of the proposal.” Explain the statement and mention the manners of
revocation.
his power. A revocation is effective only when it is brought to the mind
of the person to whom the offer is made.
Illustration: A proposes by 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.
Silmilarily, B can revoke his acceptance before his letter of acceptance
reach A but not afterwards.
It may be noted that when the parties negotiate a contract over
telephone, no question of revocation can possibly arise, for in such
instantaneous communication, a definite offer is made and accepted
at one and the same time.
Henthorn v. Fraser [1892]
offer to sell property for 750 pounds – option to accept within 14 days.
Next day – pl at 3.50 p.m. – sent his acceptance by post – reached the
df at 8.30 p.m.  but – at 1.30 p.m. – df had posted letter revoking
offer – pl received it at 5.30 p.m. held, revocation ineffective. Offer
must be considered as continuously making it until he has brought to
the knowledge of the person to whom it was made that it is
withdrawn.
a. Revocation of General Offers:
Where an offer of a general nature is published through newspaper, it
can be withdrawn by the same media.
b. Revocation of Tenders
A tenderer can withdraw his tender before its final acceptance. But
once an order is placed that will have to be complied with.
Lapse of time
An offer lapses on the expiry of the time, if any, fixed for acceptance.
However, it is enough if the acceptor has ‘posted the acceptance
before the stipulated time’, even if it reaches the offeror after the
stipulated date. Where no time for acceptance is prescribed the offer
has to accepted within a reasonable time. Reasonable time will
depend upon the facts and circumstances of the case.
By failure to fulfil a condition precedent
Where the offer is subject to a condition precedent, it lapses, if it is
accepted without fulfilling the condition. For eg: if the offer requires
the deposit of some earnest money, these conditions must be fulfilled.
By death or insanity of offeror
An offer lapses on the death or insanity of the offeror, provided that
the fact comes to the knowledge of the offeree before he makes his
acceptance.
REVOCATION OF AN ACCEPTANCE
Under English Law, an acceptance once made is irrevocable. However,
this is confined to postal acceptance.
In India, acceptance is generally
s.5 -An acceptance may be revoked at any time before the
communication of the acceptance is complete as against the acceptor,
but not afterwards.
s.4 - As against the acceptor, the communication is complete when
the acceptance comes to the knowledge of offeror.
Thus, an acceptor may cancel his acceptance by a speedier mode of
communication, which will reach earlier than the acceptance itself.
Illustration: A proposes, by letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post. B may revoke his
acceptance at any time before or at the moment when the letter
communicating it reaches A, but not afterwards.